A Real Estate Investment Trust Specializing In Single-Tenant Commercial Properties
Annual Report 2014
Letter to Shareholders
Dear Fellow Shareholders,
In 2014, we continued to execute on our strategy to expand our portfolio and improve our growth prospects by
leasing our vacancies, obtaining longer lease commitments from our tenants, refinancing indebtedness, extending
debt maturities and recycling capital from non-core assets into higher-quality assets with long-term net leases.
The following is a summary of our 2014 accomplishments:
Shareholder Returns: We generated a 14.5% absolute total shareholder return.
Dividend Growth: We increased our dividends paid per share by 11.6% over the prior year to $0.67.
Investments: We:
o purchased six properties for an aggregate cost of $122.3 million;
o
invested $109.4 million in four on-going build-to-suit projects, which have an aggregate estimated
cost of $309.2 million;
o completed the construction of three build-to-suit projects for an aggregate capitalized cost of $90.0
million; and
o committed to acquire two properties upon completion of construction for an aggregate estimated cost
of $195.0 million, one of which was completed and acquired in the first quarter of 2015 and the other
of which is expected to be completed in the fourth quarter of 2015.
Capital Recycling: We disposed of our interests in properties for a gross disposition price of $282.3
million and received $43.1 million in loan investment payoff proceeds.
Leasing: We entered into 59 new leases and lease extensions encompassing an aggregate 5.1 million square
feet, ending the year with our consolidated portfolio approximately 96.4% leased and with a weighted-
average lease term of approximately 12.1 years.
Financing: We lowered our financing costs and extended our debt maturities with the following
transactions:
o
issued $250.0 million aggregate original principal amount 4.40% Senior Notes due 2024, which are
unsecured and rated investment grade;
o borrowed $99.0 million under our term loan maturing 2018 and entered into an interest rate swap
agreement fixing the LIBOR component of the borrowing at 1.155% (for an interest rate of 2.505%
at December 31, 2014);
retired $242.3 million in property non-recourse mortgage debt with a weighted-average interest rate
of 5.4%;
o
o obtained $27.8 million in non-recourse mortgage financing with a fixed interest rate of 2.2%; and
o
repaid all borrowings under our line of credit.
As we look ahead, we continue to be excited by our opportunities to build shareholder wealth. Our investment
pipeline is strong, and we expect the addition to our portfolio of newly-constructed single-tenant buildings with
long-term net leases to make our cash flows more predictable and secure. Many of the investment opportunities
we are considering offer attractive returns through build-to-suit and forward funding commitments, where we can
utilize our strong balance sheet as a significant competitive advantage. In an environment where interest rates
remain low, we believe that dividend paying companies, such as Lexington, should continue to perform well.
Further, the interest rate environment should allow us to continue to lower our financing costs in 2015.
I would like to thank our shareholders for their continued support, our employees for another year of hard work
and our tenants for the opportunity to meet their real estate needs.
Sincerely,
T. WILSON EGLIN
Chief Executive Officer, President and a Trustee
April 9, 2015
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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, 2014
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 per share,
classified as Common Stock
6.50% Series C Cumulative Convertible Preferred Stock,
par value $0.0001 per share
Name of each exchange on which registered
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
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
.
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 30, 2014, which was the last business day of the registrant's most recently completed second fiscal quarter, was $2,488,377,620
based on the closing price of the common shares on the New York Stock Exchange as of that date, which was $11.01 per share.
Number of common shares outstanding as of February 23, 2015 was 234,819,421.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Definitive Proxy Statement for registrant's Annual Meeting of Shareholders, to be held on May 19, 2015, 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
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23
24
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36
37
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40
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58
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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. Assets and credit of a property owner subsidiary or
lender subsidiary are not available to satisfy the debt and other obligations of any other person, including any other property owner
subsidiary or lender subsidiary or any other affiliate.
References herein to this Annual Report are to this Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
When we use the term “REIT” we mean real estate investment trust. All references to 2014, 2013 and 2012 refer to our fiscal years
ended, or the dates, as the context requires, December 31, 2014, December 31, 2013 and December 31, 2012, 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
the occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
Item 1. Business
General
We are a Maryland REIT that owns a diversified portfolio of equity and debt investments in single-tenant properties and land.
A majority of these properties and all land interests 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. We also provide investment
advisory and asset management services to investors in the single-tenant area.
As of December 31, 2014, we had equity ownership interests in approximately 215 consolidated real estate properties, located
in 40 states and containing an aggregate of approximately 39.9 million square feet of space, approximately 96.4% of which was
leased. In 2014, 2013 and 2012, no tenant/guarantor represented greater than 10% 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, 2014, we had one outstanding class of beneficial interest classified as preferred stock, or preferred
shares, our 6.50% Series C Cumulative Convertible Preferred Stock, par value $0.0001 per share, or our Series C Preferred Shares.
Our common shares and Series C Preferred Shares are traded on the New York Stock Exchange, or NYSE, under the symbols “LXP”
and “LXPPRC”, respectively.
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, which
we refer to as the Code, commencing with our taxable year ended December 31, 1993. 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.
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History
Our predecessor, Lexington Corporate Properties, Inc., 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 has been conducted through our
operating partnership subsidiaries: (1) LCIF and (2) LCIF II. We refer to these subsidiaries as our operating partnerships and to
limited partner interests in these operating partnerships as OP units. On December 30, 2013, LCIF II was merged with and into LCIF,
with LCIF as the surviving entity. We are party to a funding agreement with LCIF under which we may be required to fund distributions
made on account of OP units. The UPREIT structure enables us to acquire properties through an operating partnership by issuing
OP units to a seller of property, as a form of consideration in exchange for the property. The outstanding OP units not held by us 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 taxable gains for a contributor of property. As of December 31,
2014, there were approximately 3.4 million OP units outstanding, other than OP units held by us, which were convertible into
approximately 3.9 million common shares, assuming we satisfied redemptions entirely with common shares.
Investment and Strategy
General. Our current business strategy is focused on enhancing our cash flow growth and stability, growing our portfolio with
attractive long-term leased investments, reducing lease rollover risk and maintaining a strong and flexible balance sheet to allow us
to act on opportunities as they arise. Our core assets consist of general purpose, single-tenant net-leased office and industrial assets
and land investments subject to long-term leases, 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
attempt to manage residual value risk associated with such other asset types 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 or by making loan investments
secured by such assets at a loan-to-value ratio where we would be comfortable holding an equity interest. We believe our strategy
of investing in core assets will provide shareholders with dividend growth and capital appreciation.
We implement our strategy by (1) recycling capital in compliance with regulatory and contractual requirements, (2) refinancing
or repurchasing outstanding indebtedness when advisable, including refinancing secured debt with unsecured debt, (3) effecting
strategic transactions, portfolio and individual property acquisitions and dispositions, (4) expanding existing properties, (5) executing
new leases with tenants, (6) extending lease maturities in advance of or at expiration and (7) exploring 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 mitigating risk, 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 and reducing risks associated with lease
rollover, (3) mitigating risks relating to interest rates and real estate cycles and (4) implementing strategies where our management
skills and real estate expertise can add value. We attempt to maintain a portfolio of properties that provide for income and capital
appreciation. The proportion of total return generated from rental income versus capital appreciation will vary by asset type, lease
term, contractual rental escalations and market location. We believe that our business strategy will continue to improve our liquidity
and strengthen our overall balance sheet while creating meaningful shareholder value.
We intend to maintain a strong balance sheet primarily by (1) financing property acquisitions with non-recourse mortgage debt
or unsecured corporate level borrowings at what we believe are favorable rates, (2) issuing equity when market conditions are
favorable, (3) selling non-core and underperforming assets and (4) extending debt maturities and refinancing debt at lower rates.
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Investments. When opportunities arise, we intend to continue to make investments in single-tenant assets that 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.
Our management has established a broad network of contacts to source investments, including major corporate tenants, developers
and brokers. We believe that our geographical diversification and acquisition experience will allow us to continue to compete
effectively for such investments.
Prior to effecting any investment, 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.
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.
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.
Competition
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 strength 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.
Capital Recycling. 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 there is a better use of the capital to be received upon sale. We also focus our disposition efforts on non-core assets such as vacant,
multi-tenant, retail and short-term leased 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.
Conversion to Multi-Tenant. If one of our property owner 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 subsidiary may seek
to market the property for multi-tenant use. When appropriate, we seek to sell our interests in these multi-tenant properties.
5
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.
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 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. 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 corporate level borrowings are available on favorable terms.
Balance Sheet Management. In recent years, we have reduced our weighted-average interest rate through the retirement of higher
rate non-recourse mortgage debt with proceeds from recourse corporate level borrowings. Our objective is to continually strengthen
our balance sheet to provide financial flexibility.
Common Share Issuances
From time to time, we raise capital by issuing common shares through (1) our At-The-Market, or ATM, offering program,
initiated in 2013, (2) underwritten public offerings, (3) block trades and (4) our direct share purchase plan. The proceeds from our
common share offerings are generally used for working capital, including to fund investments and to retire indebtedness.
Preferred Share Repurchases
We have made, and may continue to make, repurchases of our preferred shares in individual transactions when we believe the
discount to the liquidation preference is attractive.
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, including institutional investors and high
net-worth individuals. With the termination of certain of our co-investment programs in 2007 and our acquisition of Net Lease
Strategic Assets Fund L.P., or 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 up to $100.0 million of investments 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 and subject to certain conditions, 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.
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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.
Summary of 2014 Transactions and Recent Developments
The following summarizes certain of our transactions during 2014, including transactions disclosed elsewhere and in our other
periodic reports.
Acquisitions/Investments. With respect to acquisitions/investments, we:
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purchased six properties for an aggregate cost of $122.3 million;
completed three build-to-suit transactions for an aggregate capitalized cost of $90.0 million;
formed a joint venture, in which we currently hold a 25% interest, which is constructing a private school in Houston,
Texas for a maximum commitment of $86.5 million, which, upon completion, will be subject to a 20-year net
lease;
continue to fund four ongoing build-to-suit transactions not yet completed at December 31, 2014 with an aggregate
estimated cost of $309.2 million of which $109.4 million was invested as of December 31, 2014; and
entered into forward commitments to acquire a build-to-suit industrial property in Richland, Washington for an
estimated cost of $155.0 million and a build-to-suit office property in Auburn Hills, Michigan for $40.0 million,
which will be subject to 20-year and 14-year net leases, respectively.
Capital Recycling. With respect to capital recycling activity, we:
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disposed of our interests in properties to unaffiliated third parties for an aggregate gross disposition price of $272.4
million;
conveyed in foreclosure a property for full satisfaction of the related $9.9 million non-recourse mortgage; and
received an aggregate $43.1 million for the payoff of the Homestead, Florida and Norwalk, Connecticut loan
investments.
Leasing. Our property owner subsidiaries entered into 59 new leases and lease extensions encompassing an aggregate 5.1 million
square feet, ending the year with our overall portfolio leased at 96.4% as of December 31, 2014.
Financing. With respect to financing activities, we:
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issued $250.0 million aggregate principal amount of 4.40% Senior Notes due 2024, or 4.40% Senior Notes, which
are unsecured;
converted $12.8 million aggregate original principal amount of 6.00% Convertible Guaranteed Notes due 2030,
or 6.00% Convertible Notes, for approximately 1.9 million common shares and aggregate cash payments of $0.2
million plus accrued and unpaid interest;
borrowed $99.0 million under our term loan maturing in 2018 and entered into an interest rate swap agreement
fixing the LIBOR component of the borrowing at 1.155%;
retired $242.3 million in property non-recourse mortgage debt with a weighted-average interest rate of 5.4%;
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obtained $27.8 million in non-recourse mortgage financing with a fixed interest rate of 2.21%; and
repaid all borrowings under our line of credit.
Subsequent to December 31, 2014, we:
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Other
acquired a 360 acre golf course in Venice, Florida for $16.9 million, which is net leased for a 40-year term;
entered into a forward commitment to acquire a build-to-suit industrial property in Detroit, Michigan for
approximately $29.7 million, which will be subject to a 20-year net lease; and
obtained a 10-year, 4.1% interest-only $29.2 million non-recourse mortgage secured by a land parcel owned in
New York, New York.
Employees. As of December 31, 2014, we had 48 full-time employees. Lexington Realty Trust is a master employer and employee
costs are allocated to subsidiaries as applicable.
Industry Segments. We primarily operate in 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 Investors section of our
web site or by contacting our Investor Relations Department, our 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 Securities and Exchange Commission, or SEC. Also posted on our web site, and available in print upon request of any
shareholder to our Investor Relations Department, are our 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 or
furnishings 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 2014.
8
Item 1A. Risk Factors
Set forth below are material factors that may adversely affect our business and operations.
Risks Related to Our Business
We are subject to risks 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 a 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. 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.
You should not rely on the credit ratings of our tenants.
Some of our tenants, guarantors and/or their parent entities are rated by certain rating agencies. Any such credit ratings are
subject to ongoing evaluation by these credit rating agencies and we cannot assure you that any such ratings will not be changed or
withdrawn by these rating agencies in the future if, in their judgment, circumstances warrant. If these rating agencies assign a lower-
than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw the credit rating of a tenant, guarantor or
its parent entity, the value of our investment in any properties leased by such tenant could significantly decline.
Our assets may be subject to impairment charges.
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the
existence of impairment indicators is based on GAAP, which 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 2014, 2013 and 2012, we incurred $48.6 million, $34.6 million and $10.0 million, respectively, of non-cash impairment
charges, excluding loan losses recorded on loans receivable. 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.
If a sale-leaseback transaction is re-characterized in a tenant’s bankruptcy proceeding, our financial condition could be adversely
affected.
We have entered and may continue to enter into sale-leaseback transactions, whereby we would purchase a property and then
lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction
structured as a sale-leaseback may be re-characterized as either a financing or a joint venture, either of which outcomes could adversely
affect our financial condition, cash flow and the amount available for distributions to our shareholders.
9
If the sale-leaseback were re-characterized as a financing, we might not be considered the owner of the property, and as a result
would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our
ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the
claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest
rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms
and prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint venture, our tenant
and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances,
for debts incurred by the tenant relating to the property.
Certain of our leases may not result in fair market lease rates over time, which could negatively impact our income and reduce
the amount of funds available to make distributions to shareholders.
A significant portion of our rental income comes from long-term net leases, which generally provide the tenant greater discretion
in using the leased property than ordinary property leases, such as the right to freely sublease the property, to make alterations in the
leased premises and to terminate the lease prior to its expiration under specified circumstances. Furthermore, net leases typically
have longer lease terms and, thus, there is an increased risk that contractual rental increases in future years will fail to result in fair
market rental rates during those years. If we do not accurately judge the potential for increases in market rental rates when negotiating
these long-term leases, significant increases in future property operating costs, to the extent not covered under the net leases could
result in us receiving less than fair value from these leases. As a result, our income and distributions to our shareholders could be
lower than they would otherwise be if we did not engage in long-term net leases.
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.
In 2014, we initiated foreclosure proceedings against the borrowers of a loan secured by an office property in Westmont, Illinois.
We sold this property in 2007 but issued a purchase mortgage to the buyer. Effective November 2013, the tenant of the property
terminated its lease. In 2013, we reduced our carrying value to an estimated fair value of $12.6 million and recorded a loan loss of
$13.9 million. In 2014, we recorded a $2.5 million loan loss on a loan secured by an office property in Southfield, Michigan, reducing
our carrying value to $3.3 million, as the borrower has indicated that it will not satisfy the loan at maturity.
In 2013, we foreclosed on one of our loans receivable, which was secured by an office property in Schaumburg, Illinois. The
loan had an outstanding balance of $21.6 million (not including default interest and other penalties), which we believe was less than
the then estimated fair value of the property.
We face uncertainties relating to lease renewals and re-letting of space.
Upon the expiration of current leases for space located in properties in which we have an interest, our property owner subsidiaries
may not be able to re-let all or a portion of such space, or the terms of re-letting (including the cost of concessions to tenants and
leasing commissions) may be less favorable than current lease terms or market rates. If our property owner subsidiaries are unable
to promptly re-let all or a substantial portion of the space located in their respective properties, or if the rental rates a property owner
subsidiary receives upon re-letting are significantly lower than current rates, our earnings and ability to satisfy our debt service
obligations and to make expected distributions to our shareholders may be adversely affected due to the resulting reduction in rent
receipts and increase in property operating costs. There can be no assurance that our property owner subsidiaries will be able to retain
tenants in any of our properties upon the expiration of leases.
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We may not be able to generate sufficient cash flow to meet our debt service obligations and to pay distributions on our common
shares.
Our ability to make payments on and to refinance our indebtedness, to make distributions on our common shares and to fund
our operations, working capital and capital expenditures, depends on our ability to generate cash in the future. To a certain extent,
our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors,
many of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations
or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness or
to make distributions on our common shares and fund our other liquidity needs. Additionally, if we incur additional indebtedness in
connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase.
We may need to refinance all or a portion of our indebtedness on or before maturity. Our ability to refinance our indebtedness
or obtain additional financing will depend on, among other things:
•
•
our financial condition and market conditions at the time; and
restrictions in the agreements governing our indebtedness.
As a result, we may not be able to refinance any of our indebtedness on commercially reasonable terms, or at all. If we do not
generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of asset sales or other sources
of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations. Accordingly, if we cannot
service our indebtedness, we may have to take actions such as seeking additional equity, or delaying strategic acquisitions and
alliances or capital expenditures, any of which could have a material adverse effect on our operations. We cannot assure you that we
will be able to effect any of these actions on commercially reasonable terms, or at all.
Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.
Our growth strategy is based on the acquisition and development of additional 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 to satisfy our debt service obligations and distributions to shareholders may be adversely affected.
11
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, including occupancy, rental
rates and expenses, may differ from estimates, (2) the properties may become subject to environmental liabilities that we were
unaware of at the time we acquired the property despite any environmental testing, (3) we may have difficulty obtaining financing
on acceptable terms or paying the operating expenses and debt service associated with acquired properties prior to sufficient occupancy
and (4) projected exit strategies may not come to fruition due to a variety of factors such as market conditions 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. A developer's performance may be affected or delayed by their own actions or conditions beyond
the developer's control. If a developer, contractor or subcontractor fails to perform, we may resort to legal action to compel
performance, remove the developer or rescind the purchase or construction contract. Legal action may cause further delays and our
costs may not be reimbursed.
We may incur additional risks when we make periodic progress payments or other advances to developers before completion
of construction. These and other factors can result in increased costs of a project or loss of our investment. We also rely on third-
party construction managers and/or engineers to monitor the construction activities.
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. 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 face possible liability relating to environmental matters.
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property,
our property owner subsidiaries may be liable for the costs of removal or remediation of certain hazardous or toxic substances at,
on, in or under the properties in which we have an interest as well as certain other potential costs relating to hazardous or toxic
substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property.
These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those
substances. This liability may be imposed on our property owner subsidiaries in connection with the activities of an operator of, or
tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages, and our liability
therefore, could be significant and could exceed the value of the property and/or our aggregate assets. In addition, the presence of
those substances, or the failure to properly dispose of or remove those substances, may adversely affect a property owner subsidiary's
ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability
to satisfy our debt service obligations and to make distributions.
12
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. 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. 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, ongoing 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. Instability in the price of oil will also cause fluctuations in our operating costs, which may
not be reimbursed by our tenants. Also, terrorist acts could result in significant damages to, or loss of, our properties or the value
thereof.
13
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.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise
or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact
our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information
resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to
our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing
operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability
for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant and
investor relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal
and those we have outsourced. Any processes, procedures and internal controls that we implement, as well as our increased awareness
of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations, business relationships
or confidential information will not be negatively impacted by such an incident.
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.
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
debt and equity securities could drop significantly.
We may have limited control over our joint venture investments.
Our joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility
that our partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our
expectations, its previous instructions or our instructions, requests, policies or objectives, including our policy with respect to
maintaining our qualification as a REIT. Other risks of joint venture investments include impasses on decisions, such as a sale,
because neither we nor our partner has full control over the joint venture. Also, there is no limitation under our organizational
documents as to the amount of funds that may be invested in joint ventures.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed
conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently
does not limit the number or type of properties in which we may seek to invest or on the concentration of investments in any one
geographic region.
14
Our reported financial results may be adversely affected by changes in accounting principles applicable to us and the tenants of
properties in which we have an interest.
GAAP is subject to interpretation by various bodies formed to promulgate and interpret appropriate accounting principles such
as the Financial Accounting Standards Board. A change in these principles or interpretations could have a significant effect on our
reported financial results, could affect the reporting of transactions completed before the announcement of a change and could affect
the business practices and decisions of the tenants of properties in which we have an interest.
We have engaged and may engage in hedging transactions that may limit gains or result in losses.
We have used derivatives to hedge certain of our liabilities and we currently have interest rate swap agreements in place. As of
December 31, 2014, we have aggregate interest rate swap agreements on $505.0 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. This has certain risks, including losses on a hedge position, which may 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.
Our Board of Trustees may change our investment policy without shareholders' approval.
Subject to our fundamental investment policy to maintain our qualification as a REIT and invest in core assets, our Board of
Trustees will determine our investment and financing policies, growth strategy and our debt, capitalization, distribution, acquisition,
disposition and operating policies.
Our Board of Trustees may revise or amend these strategies and policies at any time without a vote by shareholders. Changes
made by our Board of Trustees may not serve the interests of debt or equity security holders and could adversely affect our financial
condition or results of operations, including our ability to satisfy our debt service obligations, distribute cash to shareholders and
qualify as a REIT. Accordingly, shareholders' control over changes in our strategies and policies is limited to the election of trustees.
We are dependent upon our key personnel.
We are dependent upon key personnel 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 2018, 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.
There may be conflicts of interest between E. Robert Roskind and us.
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 us and our debt and equity security
holders regarding the appropriate pricing and timing of any sale of such properties or reduction of mortgage debt. In the event of an
appearance of a conflict of interest and in accordance with our policy regarding related party transactions, Mr. Roskind is required
to recuse himself from any decision making or seek a waiver of our Code of Business Conduct and Ethics, which will be reviewed
by the non-conflicted members of our Board of Trustees or the Audit Committee of the Board of Trustees.
In addition, Mr. Roskind's employment agreement with us permits Mr. Roskind to spend approximately one third of his business
time on the affairs of The LCP Group L.P. and its affiliates. While Mr. Roskind is required to prioritize his business time to address
our needs ahead of The LCP Group L.P., Mr. Roskind and The LCP Group L.P. may engage in a wide variety of activities in the real
estate business which may result in conflicts of interest with respect to matters affecting us.
15
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.
We disclose Funds From Operations (“FFO”) and Company Funds from Operations (“Company FFO”), which are non-GAAP
financial measures, in documents filed with the SEC; however, neither FFO nor Company FFO is equivalent to our net income
or loss as determined under GAAP, and you should consider GAAP measures to be more relevant to our operating performance.
We use and disclose to investors FFO and Company FFO, which are non-GAAP financial measures. See “Management's
Discussion and Analysis of Financial Condition and Results of Operations - Funds from Operations” in Part II, Item 7 of this Annual
Report. FFO and Company FFO are not equivalent to our net income or loss as determined in accordance with GAAP, and investors
should consider GAAP measures to be more relevant to evaluating our operating performance. FFO and Company FFO and GAAP
net income differ because FFO and Company FFO exclude many items that are factored into GAAP net income.
Because of the differences between FFO and Company FFO and GAAP net income or loss, FFO and Company FFO may not
be accurate indicators of our operating performance, especially during periods in which we are acquiring properties. In addition,
Company FFO is not necessarily indicative of cash flow available to fund cash needs and investors should not consider FFO and
Company FFO as alternatives to cash flows from operations, as an indication of our liquidity or as indicative of funds available to
fund our cash needs, including our ability to make distributions to our shareholders.
Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to
calculate FFO and Company FFO. Also, because not all companies calculate FFO and Company FFO the same way, comparisons
with other companies may not be meaningful.
Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our financial condition and our ability to fulfill our obligations under the
documents governing our unsecured indebtedness and otherwise adversely impact our business and growth prospects.
We have a substantial amount of debt. We 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 declaration of trust nor any policy
statement formerly adopted by our Board of Trustees limits either the total amount of indebtedness that we may incur, and accordingly,
we could become even more highly leveraged. As of December 31, 2014, our total consolidated indebtedness was approximately
$2.1 billion and we had approximately $385.4 million available for us to borrow under our principal credit agreement, subject to
covenant compliance.
Our substantial indebtedness could adversely affect our financial condition and results of operations and have important
consequences to us and our debt and equity security holders. For example, it could:
• make it more difficult for us to satisfy our indebtedness and debt service obligations and adversely affect our
ability to pay distributions;
•
•
•
•
•
•
increase our vulnerability to adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to the payment of interest on and
principal of our indebtedness, thereby reducing the availability of cash to fund working capital, capital expenditures
and other general corporate purposes;
limit our ability to borrow money or sell stock to fund our development projects, working capital, capital
expenditures, general corporate purposes or acquisitions;
restrict us from making strategic acquisitions or exploiting business opportunities;
place us at a disadvantage compared to competitors that have less debt; and
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
16
In addition, the agreements that govern our current indebtedness contain, and the agreements that may govern any future
indebtedness that we may incur may contain, financial and other restrictive covenants that will limit our ability to engage in activities
that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not
cured or waived, could result in the acceleration of our debt.
Market interest rates could have an adverse effect on our borrowing costs, profitability and the value of our fixed rate debt
securities.
We have exposure to market risks relating to increases in interest rates due to our variable-rate debt. An increase in interest rates
may increase our costs of borrowing on existing variable-rate indebtedness, leading to a reduction in our earnings. As of December 31,
2014, we had no outstanding consolidated variable-rate indebtedness that was not subject to an interest rate swap agreement. The
level of our variable-rate indebtedness, along with the interest rate associated with such variable-rate indebtedness, may change in
the future and materially affect our interest costs and earnings. In addition, our interest costs on our fixed-rate indebtedness may
increase if we are required to refinance our fixed-rate indebtedness upon maturity at higher interest rates. Also, fixed rate debt
securities generally decline in value as market rates rise because the premium, if any, over market interest rates will decline.
Potential disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms and have other
adverse effects on us.
Historically, 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 may materially impacted liquidity in
the debt markets, making financing terms for borrowers less attractive, and in certain cases may result in the unavailability of certain
types of debt financing. 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
capital. These events in the credit markets may have an adverse effect on other financial markets in the United States, which may
make it more difficult or costly for us to raise capital through the issuance of our common shares or preferred shares. These disruptions
in the financial markets may have other adverse effects on us or the economy in general.
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 indentures governing our 4.40% and 4.25% Senior Notes and
6.00% Convertible Notes contain certain cross-default and cross-acceleration provisions as well as customary restrictions,
requirements and other limitations on our ability to incur indebtedness and consummate mergers, consolidations or sales of all or
substantially all of our assets. Our ability to borrow under our unsecured revolving credit facility is also subject to compliance with
certain other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument
and we may then be required to repay such debt with capital from other sources. Under those circumstances other sources of capital
may not be available to us or 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, debt
securities, and debt secured by individual properties, for working capital, including to finance our investment activities. If we are
unable to obtain financing from these or other sources, or to refinance existing indebtedness upon maturity, our financial condition
and results of operations could be adversely affected.
17
A downgrade in our credit ratings could materially adversely affect our business and financial condition.
The credit ratings assigned to our debt could change based upon, among other things, our results of operations and financial
condition or the real estate industry generally. These ratings are subject to ongoing evaluation by credit rating agencies, and we
cannot assure you that any rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances
warrant. Moreover, these credit ratings do not apply to our common shares and are not recommendations to buy, sell or hold any
other securities. Any downgrade of our debt could materially adversely affect the market price of our debt securities and our common
shares. If any of the credit rating agencies that have rated our debt downgrades or lowers its credit rating, or if any credit rating
agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise
indicates that its outlook for that rating is negative, it could also have a material adverse effect on our costs and availability of capital,
which could in turn have a material adverse effect on our financial condition, results of operations, cash flows and our ability to
satisfy our debt service obligations and to make dividends and distributions on our common shares and preferred shares.
We face risks associated with refinancings.
A significant number of the properties in which we have an interest 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, 2014, the consolidated scheduled balloon payments, for the next five calendar years, are as follows ($ in
millions):
Year
2015
2016
2017
2018
2019
Property-Specific
Balloon Payments(1)
Corporate Recourse
Balloon Payments
$
$
$
$
$
142.6
129.9
68.7
18.2
83.8
$
$
$
$
$
0
0
16.2 (2)
250.0
255.0
(1) All payment obligations are non-recourse except a $15.0 million payment obligation in 2016.
(2) Assumes 6.00% Convertible Notes due in January 2030 are put to us in 2017.
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.
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 2014, a property in which we
had an interest, was sold in foreclosure. As a result, we lost all of our interest in this property and any future opportunities to re-
tenant this property. 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, a lender may attempt to trigger a carve out to the non-recourse nature of a mortgage loan. To the extent a lender is
successful, the ability of our property owner subsidiary to return the property to the lender may be inhibited and we may be liable
for all or a portion of such loan.
Certain of our properties are cross-collateralized, and certain of our indebtedness is subject to cross-default and cross-acceleration
provisions.
As of December 31, 2014, the mortgages on certain of our properties were cross-collateralized. 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.
18
In addition, substantially all of our corporate level borrowings contain cross-default and/or cross-acceleration provisions, which
may be triggered if we default on certain indebtedness in excess of certain thresholds.
Risks Related to Our Outstanding Debt Securities
The effective subordination of our unsecured indebtedness and any related guaranty may reduce amounts available for payment
on our unsecured indebtedness and any related guaranty.
The holders of our secured debt may foreclose on the assets securing such debt, reducing the cash flow from the foreclosed
property available for payment of unsecured debt and any related guaranty. The holders of any of our secured debt also would have
priority over unsecured creditors in the event of a bankruptcy, liquidation or similar proceeding.
Not all of our subsidiaries are guarantors of our unsecured debt, assets of non-guarantor subsidiaries may not be available to
make payments on our unsecured indebtedness and any related guarantees may be released in the future if certain events occur.
As of December 31, 2014, only we and/or LCIF are borrowers or a guarantor of our unsecured indebtedness. In the event of a
bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries, holders of non-guarantor subsidiary debt, including
trade creditors, will generally be entitled to payment of their claims from the assets of non-guarantor subsidiaries before any assets
are made available for distribution to us or any of the subsidiary guarantors.
In addition, any subsidiary guarantor, including LCIF, will be deemed released if such subsidiary guarantor’s obligations as a
borrower or guarantor under our principal credit agreement terminates pursuant to the terms of our principal credit agreement or if
our principal credit agreement is amended to remove certain or all of the subsidiary guarantors as borrowers or guarantors. To the
extent any of our unsecured indebtedness is no longer guaranteed by any of our subsidiaries in the future, such debt will be our
obligations exclusively. All of our assets are held through our operating partnership and our other subsidiaries. Consequently, our
cash flow and our ability to meet our debt service obligations depends in large part upon the cash flow of our subsidiaries and the
payment of funds by our subsidiaries to us in the form of distributions or otherwise.
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require holders of certain of our
unsecured indebtedness to return payments received from us or any related guarantor.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or
claims in respect of a guarantee could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at
the time it incurred the debt evidenced by its guarantee:
•
•
issued the guarantee to delay, hinder or defraud present or future creditors; or
received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee, and:
•
•
•
was insolvent or rendered insolvent by reason of such incurrence;
was engaged or about to engage in a business or transaction for which the guarantor’s remaining
unencumbered assets constituted unreasonably small capital to carry on its business; or
intended to incur, or believed that it would incur, debts beyond its ability to pay the debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor,
or to a fund for the benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent
if, at the time it incurred the debt:
•
•
•
the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;
the present fair saleable value of its assets was less than the amount that would be required to pay its probable
liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
it could not pay its debts as they become due.
19
We cannot be sure as to the standards that a court would use to determine whether or not any guarantor was solvent at the relevant
time, or, regardless of the standard that the court uses, that the issuance of such guaranty would not be voided or any such guaranty
would not be subordinated to that of such guarantor’s other debt. If a case were to occur, any such guaranty could also be subject to
the claim that, since the guaranty was incurred for our benefit, and only indirectly for the benefit of such guarantor, the obligations
of such guarantor were incurred for less than fair consideration. A court could thus void the obligations under the guarantees or
subordinate the guarantees to such guarantor’s other debt or take other action detrimental to holders of our unsecured indebtedness.
Risks Related to Our REIT Status
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 to satisfy our debt service obligations and
distributions 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.
We may be subject to the REIT prohibited transactions tax, which could result in significant U.S. federal income tax liability to
us.
A REIT will incur a 100% tax on the net income from a prohibited transaction. Generally, a prohibited transaction includes a
sale or disposition of property held primarily for sale to customers in the ordinary course of a trade or business. While we believe
that the dispositions of our assets pursuant to our investment strategy should not be treated as prohibited transactions, whether a
particular sale will be treated as a prohibited transaction depends on the underlying facts and circumstances. We have not sought and
do not intend to seek a ruling from the Internal Revenue Service regarding any dispositions. Accordingly, there can be no assurance
that our dispositions of such assets will not be subject to the prohibited transactions tax. If all or a significant portion of those
dispositions were treated as prohibited transactions, we would incur a significant U.S. federal income tax liability, which could have
a material adverse 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.
20
Legislative or regulatory tax changes could have an adverse effect on us.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended.
Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a debt and/or equity
security holder. REIT dividends generally are not eligible for the reduced rates currently applicable to certain corporate dividends
(unless attributable to dividends from taxable REIT subsidiaries and otherwise eligible for such rates). As a result, investment in
non-REIT corporations may be relatively more attractive than investment in REITs. This could adversely affect the market price of
our shares.
Risks Related to Our Shares
We may change the dividend policy for our common shares in the future.
The decision to declare and pay dividends on our common shares in the future, as well as the timing, amount and composition
of any such future dividends, will be at the sole discretion of our Board of Trustees in light of conditions then existing, including
our earnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT
and legal restrictions and the general overall economic conditions and other factors. The actual dividend payable will be determined
by our Board of Trustees based upon the circumstances at the time of declaration and the actual dividend payable may vary from
such expected amount. Any change in our dividend policy could have a material adverse effect on the market price of our common
shares.
We may in the future choose to pay dividends in shares, in which case you may be required to pay income taxes in excess of the
cash dividends you receive.
We may in the future distribute taxable dividends that are payable in shares. Taxable shareholders receiving such dividends will
be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and
profits for United States federal income tax purposes. As a result, a U.S. shareholder may be required to pay income taxes with
respect to such dividends even though no cash dividends were received. If a U.S. shareholder sells the shares it receives as a dividend
in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending
on the market price of the shares at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to
withhold U.S. tax with respect to such dividends. In addition, if a significant number of our shareholders determine to sell such shares
received in a dividend in order to pay taxes owed on such dividend, it may put downward pressure on the trading price of our common
shares.
Securities eligible for future sale may have adverse effects on our share price.
We have an unallocated universal shelf registration statement, pursuant to which we maintain an ATM program, and we also
maintain a direct share purchase plan, pursuant to which we may issue additional common shares. In addition, as of December 31,
2014, an aggregate of approximately 5.2 million of our common shares were issuable upon the exercise of employee share options
and upon the exchange of OP units. There were also approximately 2.4 million common shares underlying our 6.00% Convertible
Notes as of December 31, 2014, 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.
There are certain limitations on a third party's ability to acquire us or effectuate a change in our control.
Limitations imposed to protect our REIT status. In order to protect against the loss of our REIT status, among other purposes,
our declaration of trust limits any shareholder from owning more than 9.8% in value of our outstanding equity shares, defined as
common shares or preferred shares, subject to certain exceptions. These ownership limits may have the effect of precluding acquisition
of control of us. Our Board of Trustees has granted a limited waiver of the ownership limits to BlackRock, Inc.
21
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 and the acceleration of certain non-vested equity awards.
Accordingly, these payments may discourage a third party from acquiring us.
Our ability to issue additional shares. Our declaration of trust authorizes 400,000,000 common shares, 100,000,000 preferred
shares and 500,000,000 of beneficial interest, par value $0.0001 per share, classified as excess stock, or excess shares. Our Board
of Trustees is authorized to cause us to issue these shares without shareholder approval. Our Board of Trustees may establish the
preferences and rights of any such class or series of additional shares, which could have the effect of delaying or preventing someone
from taking control of us, even if a change in control were in shareholders' best interests. At December 31, 2014, in addition to
common shares, we had outstanding 1,935,400 Series C Preferred Shares. Our Series C Preferred Shares include provisions, such
as increases in dividend rates or adjustments to conversion rates, that may deter a change of control. The establishment and issuance
of shares of our existing series of preferred shares or a future class or series of shares could make a change of control of us more
difficult.
Maryland Business Combination Act. The Maryland General Corporation Law, as applicable to Maryland REITs, establishes
special restrictions against “business combinations” between a Maryland REIT and “interested shareholders” or their affiliates unless
an exemption is applicable. An interested shareholder includes a person who beneficially owns, and an affiliate or associate of the
trust who, at any time within the two-year period prior to the date in question was the beneficial owner of, 10% or more of the voting
power of our then-outstanding voting shares, but a person is not an interested shareholder if the Board of Trustees approved in advance
the transaction by which 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” are voting
shares that, if aggregated with all other shares previously acquired by the acquirer or in respect of which the acquirer is able to
exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise
voting power in electing trustees within one of the following ranges of voting power: one-tenth or more but less than one-third, one-
third or more but less than a majority or a majority or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained shareholder approval. A “control share acquisition” means
the acquisition of issued and outstanding control shares, subject to certain exceptions. If voting rights of control shares acquired in
a control share acquisition are not approved at a shareholders meeting or if the acquiring person does not deliver an acquiring person
statement as required under the statute, then, subject to certain conditions and limitations, the issuer may redeem any or all of the
control shares for fair value, except those for which voting rights have been previously approved. If voting rights of such control
shares are approved at a shareholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all
other shareholders may exercise appraisal rights. Any control shares acquired in a control share acquisition which are not exempt
under our by-laws will be subject to the Maryland Control Share Acquisition Act. The Maryland Control Share Acquisition Act does
not apply to shares acquired in a merger, consolidation or statutory share exchange if the Maryland REIT is a party to the transaction,
or to acquisitions approved or exempted by the declaration of trust or by-laws of the Maryland REIT. Our 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.
22
Limits on ownership of our capital shares may have the effect of delaying, deferring or preventing someone from taking control
of us.
For us to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our
outstanding capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined for federal income tax
purposes to include certain entities) during the last half of each taxable year, and these capital shares must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year
(in each case, other than the first such year for which a REIT election is made). Our declaration of trust includes certain restrictions
regarding transfers of our capital shares and ownership limits.
Actual or constructive ownership of our capital shares in violation of the restrictions or in excess of the share ownership limits
contained in our declaration of trust would cause the violative transfer or ownership to be void or cause the shares to be transferred
to a charitable trust and then sold to a person or entity who can own the shares without violating these limits. As a result, if a violative
transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares.
Additionally, the constructive ownership rules for these limits are complex, and groups of related individuals or entities may be
deemed a single owner and consequently in violation of the share ownership limits.
However, these restrictions and limits may not be adequate in all cases to prevent the transfer of our capital shares in violation
of the ownership limitations. The ownership limits discussed above may have the effect of delaying, deferring or preventing someone
from taking control of us, even though a change of control could involve a premium price for the common shares or otherwise be in
shareholders' best interests.
The trading price of our common shares has been, and may continue to be, subject to significant fluctuations.
Since January 1, 2011, the closing sale price of our common shares on the NYSE (composite) has ranged from $13.64 to $5.96
per share. The market price of our common shares may fluctuate in response to company-specific and general market events and
developments, including those described in this Annual Report. In addition, our leverage may impact investor demand for our common
shares, which could have a material effect on the market price of our common shares.
Furthermore, the public valuation of our common shares is related primarily to the earnings that we derive from rental income
with respect to the properties in which we have an interest and not from the underlying appraised value of the properties themselves.
As a result, interest rate fluctuations and capital market conditions can affect the market value of our common shares. For instance,
if interest rates rise, the market price of our common shares may decrease because potential investors seeking a higher yield than
they would receive from our common shares may sell our common shares in favor of higher yielding securities.
Item 1B. Unresolved Staff Comments
There are no unresolved written comments that were received from the SEC staff relating to our periodic or current reports
under the Securities Exchange Act of 1934.
23
Item 2. Properties
Real Estate Portfolio
General. As of December 31, 2014, we had equity ownership interests in approximately 215 consolidated real estate properties
containing approximately 39.9 million square feet of rentable space, which were approximately 96.4% 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, 2014, we had outstanding mortgages and notes payable of approximately $0.9 billion with a
weighted-average interest rate of approximately 5.2% and a weighted-average maturity of 5.9 years.
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, 2014.
24
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
LONG-TERM LEASES
As of December 31, 2014
Property Location
City
318 Pappy Dunn Blvd.
Anniston
State
AL
Primary Tenant (Guarantor)
International Automotive Components
Group North America, Inc.
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
267,055
11/24/2029
100%
Property
Type
Industrial
3030 North 3rd St.
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%
2706 Media Center Dr.
Los Angeles
CA
Bank of America, National Association/
Sony Electronics Inc.
Office
82,526
Various
100%
9655 Maroon Circle
Englewood
CO
TriZetto Corporation
Office
166,912
4/30/2028
100%
1315 West Century Dr.
Louisville
CO
Global Healthcare Exchange, Inc. (Global
Healthcare Exchange, LLC)
Office
106,877
4/30/2027
81%
143 Diamond Ave.
Parachute
CO
Encana Oil and Gas (USA) Inc. (Alena Inc.)
Office
49,024
10/31/2032
100%
6277 Sea Harbor Dr.
Orlando
FL Wyndham Vacation Ownership, Inc.
(Wyndham Worldwide Corporation)
Office
358,381
10/31/2025
99%
2910 Bush Lake Blvd.
Tampa
FL
BluePearl Holdings, LLC
2950 Bush Lake Blvd.
Tampa
FL
BluePearl Holdings, LLC
Office
Office
2,500
12/31/2033
100%
8,000
12/31/2033
100%
3000 Bush Lake Blvd.
Tampa
FL
BluePearl Holdings, LLC
Office
17,000
12/31/2033
100%
832 N. Westover Blvd.
Albany
GA
Gander Mountain Company
Retail
45,554
11/30/2028
100%
2500 Patrick Henry Pkwy.
McDonough
GA
Georgia Power Company
Office
111,911
6/30/2025
100%
1001 Innovation Rd.
Rantoul
IL
Easton Bell Sports, Inc.
Industrial
813,126
10/31/2033
100%
11201 Renner Blvd.
Lenexa
KS
United States of America
Office
169,585
10/31/2027
100%
10000 Business Blvd.
Dry Ridge
KY
Dana Light Axle Products, LLC (Dana
Holding Corporation and Dana Limited)
Industrial
336,350
6/30/2025
100%
730 North Black Branch Rd.
Elizabethtown
750 North Black Branch Rd.
Elizabethtown
301 Bill Bryan Rd.
Hopkinsville
4010 Airpark Dr.
Owensboro
KY Metalsa Structural Products, Inc. / Dana
Structural Products, LLC (Dana Holding
Corporation and Dana Limited)
KY Metalsa Structural Products, Inc. / Dana
Structural Products, LLC (Dana Holding
Corporation and Dana Limited)
KY Metalsa Structural Products, Inc. / Dana
Structural Products, LLC (Dana Holding
Corporation and Dana Limited)
KY Metalsa Structural Products, Inc. / Dana
Structural Products, LLC (Dana Holding
Corporation and Dana Limited)
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%
5001 Greenwood Rd.
Shreveport
LA
Libbey Glass Inc. (Libbey Inc.)
Industrial
646,000
10/31/2026
100%
1700 47th Ave North
Minneapolis
MN Owens Corning / Owens Corning Roofing
Industrial
18,620
12/31/2025
100%
and Asphalt, LLC
3902 Gene Field Rd.
St. Joseph
MO Boehringer Ingelheim Vetmedica, Inc.
Office
98,849
6/30/2027
100%
(Boehringer Ingelheim USA Corporation)
25
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
LONG-TERM LEASES
As of December 31, 2014
Property Location
City
459 Wingo Rd.
Byhalia
State
MS
Primary Tenant (Guarantor)
Asics America Corporation (Asics
Corporation)
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
513,734
3/31/2026
100%
Property
Type
Industrial
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%
1331 Capitol Ave.
Omaha
NE
The Gavilon Group, LLC
Office
127,810
11/30/2033
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%
333 Mount Hope Ave.
Rockaway
NJ
Atlantic Health System, Inc.
Office
92,326
6/30/2026
65%
1237 W. Sherman Ave.
Vineland
NJ
HealthSouth Rehabilitation Hospital of
New Jersey, LLC (HealthSouth
Corporation)
Specialty
39,287
2/28/2043
100%
6226 West Sahara Ave.
Las Vegas
NV
Nevada Power Company
Office
282,000
1/31/2029
100%
5625 North Sloan Ln.
North Las Vegas NV
Nicholas and Co., Inc.
Industrial
180,235
9/30/2034
100%
29-01 Borden Ave. & 29-10
Hunters Point Ave.
Long Island City NY
FedEx Ground Package Systems, Inc.
(Federal Express Corporation)
Industrial
140,330
3/31/2028
100%
15 West 45th St.
New York
NY
ZE-45 Ground Tenant LLC
8-12 Stone St.
New York
NY
Al-Stone Ground Tenant LLC
350 and 370-272 Canal St.
New York
NY
FC-Canal Ground Tenant LLC
309-313 West 39th St.
New York
NY
LG-39 Ground Tenant LLC
Land
Land
Land
Land
N/A
10/31/2113
100%
N/A
10/31/2112
100%
N/A
10/31/2112
100%
N/A
10/31/2112
100%
351 Chamber Dr.
Chillicothe
OH
The Kitchen Collection, Inc.
Industrial
475,218
6/30/2026
100%
10590 Hamilton Ave.
Cincinnati
OH
The Hillman Group, Inc.
Industrial
264,598
12/31/2027
100%
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 Dr.
Eugene
250 Rittenhouse Circle
Bristol
OR
PA
Oregon Research Institute / Educational
Policy Improvement Center
Office
80,011
11/30/2027
100%
Northtec LLC (The Estée Lauder
Companies Inc.)
Industrial
241,977
11/30/2026
100%
25 Lakeview Dr.
Jessup
PA
TMG Health, Inc.
Office
150,000
8/7/2027
100%
590 Ecology Ln.
Chester
SC
Boral Stone Products LLC (Boral Limited)
Industrial
420,597
7/14/2025
100%
854 Paragon Way
Rock Hill
SC
Physicians Choice Laboratory Services,
LLC
Office
104,497
3/31/2034
100%
900 Industrial Blvd.
Crossville
TN
Dana Commercial Vehicle Products, LLC
Industrial
222,200
9/30/2026
100%
26
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
LONG-TERM LEASES
As of December 31, 2014
Property Location
City
State
Primary Tenant (Guarantor)
633 Garrett Pkwy.
Lewisburg
TN
Calsonic Kansei North America, Inc.
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
310,000
3/31/2026
100%
Property
Type
Industrial
601 & 701 Experian Pkwy.
Allen
1401 Nolan Ryan Expy.
Arlington
TX
TX
Experian Information Solutions, Inc. /
TRW, Inc. (Experian Holdings, Inc.)
Triumph Aerostructures, LLC (Triumph
Group, Inc.)
Office
292,700
3/14/2025
100%
Office
161,808
1/31/2025
77%
4001 International Pkwy.
Carrollton
TX Motel 6 Operating, LP
Office
138,443
12/31/2025
100%
810 Gears Rd.
Houston
TX
United States of America
Office
78,895
4/7/2030
87%
10001 Richmond Ave.
Houston
13901/14035 Industrial Rd.
Houston
TX
TX
Baker Hughes Incorporated (2015) /
Schlumberger Holdings Corp. (2025)
Office
554,385
9/30/2025
100%
Industrial Terminals Management, L.L.C.
(Maritime Holdings (Delaware) LLC)
Land/
Infrastructure
132,449
3/31/2038
100%
19311 SH 249
Houston
TX
BluePearl Holdings, LLC
Office
12,622
12/31/2033
100%
13930 Pike Rd.
Missouri City
TX
Vulcan Construction Materials, LP (Vulcan
Materials Company)
Land/
Infrastructure
N/A
4/30/2032
100%
25500 State Hwy. 249
Tomball
TX
Parkway Chevrolet, Inc. (Raymond Durdin
& Jean W. Durdin)
Specialty
77,076
8/31/2026
100%
175 Holt Garrison Pkwy.
Danville
VA
Home Depot USA, Inc.
Land
N/A
1/31/2029
100%
9803 Edmonds Way
Edmonds
WA Pudget Consumers Co-op d/b/a PCC
Retail
34,459
8/31/2028
100%
Natural Markets
2424 Alpine Rd.
Eau Claire
WI
Silver Spring Foods, Inc. (Huntsinger
Farms, Inc.)
Industrial
159,000
4/30/2027
100%
500 Kinetic Dr.
Huntington
WV AMZN WVCS (Amazon.com, Inc.)
Office
68,693
11/30/2026
100%
Long-Term Leases Total
12,174,199
99.2%
The 2014 net effective annual cash rent for the long-term lease portfolio as of December 31, 2014 was $8.25 per square foot, excluding
land investments, and the weighted-average remaining lease term was 24.5 years.
27
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2014
Property Location
City
State
Primary Tenant (Guarantor)
12209 W. Markham St.
Little Rock
AR
Entergy Arkansas, Inc.
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
36,311 10/31/2020
100%
5201 West Barraque St.
Pine Bluff
AR
Entergy Services, Inc.
27,189 10/31/2017
100%
2211 South 47th St.
Phoenix
19019 North 59th Ave.
Glendale
8555 South River Pkwy.
Tempe
1440 East 15th St.
Tucson
AZ
AZ
AZ
AZ
Avnet, Inc.
176,402
2/28/2023
100%
Honeywell International Inc.
252,300
7/15/2019
100%
DA Nanomaterials L.L.C. / Air Products and Chemicals,
Inc.
95,133
6/30/2022
100%
CoxCom, LLC
28,591
7/31/2022
100%
26210 and 26220 Enterprise
Court
Lake Forest
CA
Apria Healthcare, Inc. (Apria Healthcare Group, Inc.)
100,012
1/31/2022
100%
3333 Coyote Hill Rd.
Palo Alto
CA
Xerox Corporation
202,000 12/14/2023
100%
9201 E. Dry Creek Rd.
Centennial
CO
Arrow Electronics, Inc.
128,500
9/30/2017
100%
3940 South Teller St.
Lakewood
CO
MoneyGram Payment Systems, Inc.
68,165
3/31/2015
100%
100 Barnes Rd.
Wallingford
CT
3M Company
44,400
6/30/2018
100%
5600 Broken Sound Blvd.
Boca Raton
12600 Gateway Blvd.
Fort Myers
550 International Parkway
Lake Mary
600 Business Center Dr.
Lake Mary
9200 South Park Center Loop Orlando
Sandlake Rd./Kirkman Rd.
Orlando
4400 Northcorp Pkwy.
Palm Beach
Gardens
10419 North 30th St.
Tampa
FL
FL
FL
FL
FL
FL
FL
FL
Canon Solutions America, Inc. (Océ -USA Holding, Inc.)
143,290
2/14/2020
100%
Alta Resources Corp.
63,261
6/30/2023
100%
JPMorgan Chase Bank, National Association
125,920
9/30/2020
100%
JPMorgan Chase Bank, National Association
125,155
9/30/2020
100%
Corinthian Colleges, Inc.
59,927
9/30/2020
100%
Lockheed Martin Corporation
184,000
4/30/2018
100%
The Weiss Group, LLC
18,500
3/14/2022
100%
Time Customer Service, Inc. (Time Incorporated)
132,981
6/30/2020
100%
3500 N. Loop Rd.
McDonough
GA
Litton Loan Servicing LP
62,218
8/31/2018
100%
3265 E. Goldstone Dr.
Meridian
850 & 950 Warrenville Rd.
Lisle
231 N. Martingale Rd.
Schaumburg
500 Jackson St.
Columbus
10300 Kincaid Dr.
Fishers
10475 Crosspoint Blvd.
Indianapolis
ID
IL
IL
IN
IN
IN
VoiceStream PCS Holding, LLC / T-Mobile PCS
Holdings, LLC (T-Mobile USA, Inc.)
77,484
6/28/2019
100%
National-Louis University
99,414 12/31/2019
100%
CEC Educational Services, LLC (Career Education
Corporation)
317,198 12/31/2022
100%
Cummins, Inc.
390,100
7/31/2019
100%
Roche Diagnostics Operations, Inc.
193,000
1/31/2020
100%
John Wiley & Sons, Inc.
141,416 10/31/2019
97%
9601 Renner Blvd.
Lenexa
KS
VoiceStream PCS II Corporation (T-Mobile USA, Inc.)
77,484 10/31/2019
100%
28
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2014
Property Location
City
State
Primary Tenant (Guarantor)
5200 Metcalf Ave.
Overland Park
KS
Swiss Re America Holding Corporation / Westport
Insurance Corporation
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
320,198 12/22/2018
100%
4455 American Way
Baton Rouge
LA
New Cingular Wireless PCS, LLC
70,100 10/31/2017
100%
147 Milk St.
Boston
MA
Harvard Vanguard Medical Associates, Inc.
52,337 12/31/2022
100%
33 Commercial St.
Foxboro
MA
Invensys Systems, Inc. (Siebe, Inc.)
164,689
6/30/2015
100%
133 First Park Dr.
Oakland
ME
Omnipoint Holdings, Inc. (T-Mobile USA, Inc.)
78,610
8/31/2020
100%
12000 & 12025 Tech Center
Dr.
Livonia
MI
Kelsey-Hayes Company (TRW Automotive Inc.)
180,230 12/31/2024
100%
26555 Northwestern Hwy.
Southfield
MI
Federal-Mogul Corporation
187,163
1/31/2015
100%
9201 Stateline Rd.
Kansas City
MO
Swiss Re America Holding Corporation / Westport
Insurance Corporation
155,925
4/1/2019
100%
3943 Denny Ave.
Pascagoula
MS
Huntington Ingalls Incorporated
94,841 10/31/2018
100%
1415 Wyckoff Rd.
Wall
29 S. Jefferson Rd.
Whippany
NJ
NJ
New Jersey Natural Gas Company
157,511
6/30/2021
100%
CAE SimuFlite, Inc. (CAE Inc.)
123,734 11/30/2021
100%
2000 Eastman Dr.
Milford
OH
Siemens Corporation
221,215
4/30/2016
100%
500 Olde Worthington Rd.
Westerville
OH
InVentiv Communications, Inc.
97,000
9/30/2015
100%
2999 Southwest 6th St.
Redmond
OR
VoiceStream PCS I, LLC / T-Mobile West Corporation (T-
Mobile USA, Inc.)
77,484
1/31/2019
100%
2550 Interstate Dr.
Harrisburg
1701 Market St.
Philadelphia
1460 Tobias Gadsen Blvd.
Charleston
1362 Celebration Blvd.
Florence
3476 Stateview Blvd.
Fort Mill
3480 Stateview Blvd.
Fort Mill
333 Three D Systems Circle
Rock Hill
420 Riverport Rd.
Kingsport
1409 Centerpoint Blvd.
Knoxville
2401 Cherahala Blvd.
Knoxville
104 & 110 S. Front St.
Memphis
3965 Airways Blvd.
Memphis
PA
PA
SC
SC
SC
SC
SC
TN
TN
TN
TN
TN
AT&T Services, Inc.
89,350 12/31/2018
Morgan, Lewis & Bockius LLP
304,037
1/31/2021
69%
99%
Hagemeyer North America, Inc.
50,076
7/8/2020
100%
MED3000, Inc.
32,000
2/14/2024
100%
Wells Fargo Bank, N.A.
169,083
5/31/2024
100%
Wells Fargo Bank, N.A.
169,218
5/31/2024
100%
3D Systems Corporation
80,028
8/31/2021
100%
Kingsport Power Company
42,770
6/30/2018
100%
Alstom Power, Inc.
84,404 10/31/2024
100%
AdvancePCS, Inc. / CaremarkPCS, L.L.C.
59,748
5/31/2020
100%
Hnedak Bobo Group, Inc.
37,229 10/31/2016
100%
Federal Express Corporation
521,286
6/19/2019
100%
29
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2014
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
4201 Marsh Ln.
Carrollton
TX
Carlson Restaurants Inc. (Carlson, Inc.)
130,000 11/30/2022
100%
11511 Luna Rd.
Farmers Branch
TX
Haggar Clothing Co. (Texas Holding Clothing Corporation
and Haggar Corp.)
180,507
4/30/2016
100%
1200 Jupiter Rd.
Garland
2529 West Thorne Dr.
Houston
820 Gears Rd.
Houston
1311 Broadfield Blvd.
Houston
6555 Sierra Dr.
Irving
8900 Freeport Pkwy.
Irving
3711 San Gabriel
Mission
6200 Northwest Pkwy.
San Antonio
1600 Eberhardt Rd.
Temple
2050 Roanoke Rd.
Westlake
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
Raytheon Company
278,759
5/31/2016
100%
Baker Hughes, Incorporated
65,500
9/27/2015
100%
Ricoh Americas Corporation
78,895
1/31/2018
100%
Transocean Offshore Deepwater Drilling, Inc. (Transocean
Sedco Forex, Inc.)
155,040
3/31/2021
100%
TXU Energy Retail Company, LLC (Texas Competitive
Electric Holdings Company, LLC)
247,254
3/31/2023
100%
Nissan Motor Acceptance Corporation (Nissan North
America, Inc.)
268,445
3/31/2023
100%
VoiceStream PCS II Corporation / T-Mobile USA, Inc. / T-
Mobile West Corporation
75,016
6/30/2015
100%
United HealthCare Services, Inc. / PacifiCare
Healthsystems, LLC
142,500 11/30/2017
100%
Nextel of Texas, Inc. (Nextel Finance Company)
108,800
1/31/2016
100%
TD Auto Finance LLC
130,199 11/30/2024
60%
400 Butler Farm Rd.
Hampton
VA
Nextel Communications of the Mid-Atlantic, Inc. (Nextel
Finance Company)
100,632 12/31/2019
100%
13651 McLearen Rd.
Herndon
VA
United States of America
159,644
5/30/2018
100%
13775 McLearen Rd.
Herndon
VA
Orange Business Services U.S., Inc. (Equant N.V.)
132,617
7/31/2020
100%
2800 Waterford Lake Dr.
Midlothian
VA
Alstom Power, Inc.
99,057 12/31/2021
100%
1400 Northeast McWilliams
Rd.
Bremerton
WA
Nextel West Corporation (Nextel Finance Company)
60,200
7/14/2016
100%
Office Total
9,403,682
99.1%
The 2014 net effective annual cash rent for the office portfolio as of December 31, 2014 was $14.42 per square foot and the weighted-
average remaining lease term was 5.3 years.
30
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
INDUSTRIAL
As of December 31, 2014
Property Location
City
State
Primary Tenant (Guarantor)
2415 U.S. Hwy 78 East
Moody
AL
Michelin North America, Inc.
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
595,346
12/31/2019
100%
109 Stevens St.
Jacksonville
2455 Premier Dr.
Orlando
3102 Queen Palm Dr.
Tampa
FL
FL
FL
Wagner Industries, Inc.
168,800
1/31/2017
83%
Walgreen Co. / Walgreen Eastern Co.
205,016
3/31/2016
100%
Time Customer Service, Inc. (Time Incorporated)
229,605
6/30/2020
100%
359 Gateway Dr.
Lavonia
GA
TI Group Automotive Systems, LLC (TI Automotive Ltd.)
133,221
5/31/2020
100%
1420 Greenwood Rd.
McDonough
GA
Versacold USA, Inc.
296,972
10/31/2017
100%
3600 Army Post Rd.
Des Moines
7500 Chavenelle Rd.
Dubuque
2935 Van Vactor Dr.
Plymouth
3686 S. Central Ave.
Rockford
749 Southrock Dr.
Rockford
IA
IA
IN
IL
IL
HP Enterprise 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%
Pierce Packaging Co.
93,000
12/31/2016
100%
Jacobson Warehouse Company, Inc. (Jacobson Distribution
Company, Inc. and Jacobson Transportation Company,
Inc.)
150,000
12/31/2015
100%
1901 Ragu Dr.
Owensboro
KY
Unilever Supply Chain, Inc. / R&B Foods (Unilever
United States, Inc.)
443,380
12/19/2020
100%
5417 Campus Dr.
Shreveport
LA
The Tire Rack, Inc.
257,849
3/31/2022
100%
113 Wells St.
North Berwick
ME
United Technologies Corporation
972,625
4/30/2024
100%
6938 Elm Valley Dr.
Kalamazoo
904 Industrial Rd.
Marshall
1601 Pratt Ave.
Marshall
43955 Plymouth Oaks Blvd. Plymouth
MI
MI
MI
MI
Dana Commercial Vehicle Products, LLC (Dana Holding
Corporation and Dana Limited)
150,945
10/25/2021
100%
Tenneco Automotive Operating Company, Inc. (Tenneco,
Inc.)
246,508
9/30/2018
100%
Autocam Corporation
58,707
12/31/2023
100%
Tower Automotive Operations USA I, LLC / Tower
Automotive Products Inc. (Tower Automotive, Inc.)
290,133
10/31/2017
100%
7111 Crabb Rd.
Temperance
MI
Michelin North America, Inc.
744,570
7/31/2016
100%
7670 Hacks Cross Rd.
Olive Branch
MS
MAHLE Clevite, Inc. (MAHLE Industries, Incorporated)
268,104
2/28/2016
100%
324 Industrial Park Rd.
Franklin
NC
SKF USA Inc.
72,868
6/30/2015
100%
1133 Poplar Creek Rd.
Henderson
NC
Staples, Inc. / Corporate Express, Inc.
196,946
6/30/2016
100%
250 Swathmore Ave.
High Point
NC
Steelcase Inc.
244,851
9/30/2017
100%
2880 Kenny Biggs Rd.
Lumberton
NC
Quickie Manufacturing Corporation
423,280
11/30/2021
100%
2203 Sherrill Dr.
Statesville
NC
Ozburn-Hessey Logistics, LLC (OHH Acquisition
Corporation)
639,800
12/31/2017
100%
31
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
INDUSTRIAL
As of December 31, 2014
Property Location
City
State
Primary Tenant (Guarantor)
736 Addison Rd.
Erwin
NY
Corning, Incorporated
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
408,000
11/30/2016
100%
1650 - 1654 Williams Rd.
Columbus
OH
ODW Logistics, Inc.
772,450
6/30/2018
100%
191 Arrowhead Dr.
Hebron
OH
Owens Corning Insulating Systems, LLC
250,410
5/31/2017
100%
200 Arrowhead Dr.
Hebron
OH
Owens Corning Insulating Systems, LLC
400,522
5/31/2017
100%
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
120 South East Pkwy Dr.
Franklin
3350 Miac Cove Rd.
Memphis
3456 Meyers Ave.
Memphis
3820 Micro Dr.
Millington
2425 Hwy. 77 North
Waxahachie
SC
SC
TN
TN
TN
TN
TN
TX
Plastic Omnium Auto Exteriors, LLC
221,833
9/30/2018
100%
Michelin North America, Inc.
1,164,000
1/31/2020
100%
Federal Express Corporation / FedEx Techconnect, Inc.
126,213
5/31/2021
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%
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%
901 East Bingen Point Way Bingen
WA
The Boeing Company
124,539
5/31/2024
100%
Industrial Total
14,627,769
99.6%
The 2014 net effective annual cash rent for the industrial portfolio as of December 31, 2014 was $3.68 per square foot and the
weighted-average remaining lease term was 4.2 years.
32
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
MULTI-TENANTED
As of December 31, 2014
Property Location
City
State
Primary Tenant (Guarantor)
13430 North Black Canyon
Fwy.
Phoenix
AZ
Multi-tenanted
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
Property
Type
Office
138,940
Various
92%
4200 Northcorp Pkwy.
Palm Beach
Gardens
King St./1042 Fort St. Mall
Honolulu
FL
HI
Multi-tenanted
Multi-tenanted
Office
95,065
Various
95%
Office
77,459
Various
69%
100 Light St.
Baltimore
MD
Multi-tenanted
Office
476,459
Various
92%
3165 McKelvey Rd.
Bridgeton
MO
BJC Health System
Office
51,067 12/31/2018
50%
700 US Hwy. Route 202-206
Bridgewater
NJ
Vacant
180 S. Clinton St.
Rochester
NY
Vacant
275 Technology Dr.
Canonsburg
2210 Enterprise Dr.
Florence
6050 Dana Way
Antioch
1501 Nolan Ryan Expy.
Arlington
PA
SC
TN
TX
Vacant
Vacant
22011 Southeast 51st St.
Issaquah
WA
Vacant
5150 220th Ave.
Issaquah
WA
Vacant
Caliber Funding, LLC
Office
176,557
6/30/2018
21%
Multi-tenanted
Industrial
672,629
Various
79%
Office
115,558
Office
226,000
Office
107,872
N/A
N/A
N/A
0%
0%
0%
Office
74,739
Office
95,600
Office
106,944
N/A
N/A
N/A
0%
0%
0%
The 2014 net effective annual cash rent for the multi-tenant portfolio as of December 31, 2014 was $9.04 per square foot and the
weighted-average remaining lease term was 6.9 years.
Multi-Tenanted Total
2,414,889
53.9%
33
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
RETAIL/SPECIALTY
As of December 31, 2014
Property Location
City
State
Primary Tenant (Guarantor)
255 Northgate Dr.
Manteca
12080 Carmel Mountain Rd.
San Diego
2223 N. Druid Hills Rd.
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
CA
CA
GA
GA
GA
GA
GA
GA
1698 Mountain Industrial Blvd. Stone Mountain GA
10340 U.S. 19
Port Richey
1150 W. Carl Sandburg Dr.
Galesburg
5104 North Franklin Rd.
Lawrence
733 East Main St.
291 Talbert Blvd.
835 Julian Ave.
130 Midland Ave.
Jefferson
Lexington
Thomasville
Port Chester
21082 Pioneer Plaza Dr.
Watertown
4831 Whipple Avenue N.W.
Canton
1084 East Second St.
5350 Leavitt Rd.
Franklin
Lorain
B.E.C. 45th St/Lee Blvd.
Lawton
FL
IL
IN
NC
NC
NC
NY
NY
OH
OH
OH
OK
11411 N. Kelly Ave.
Oklahoma City
OK
Kmart Corporation
Kmart 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)
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)
Vacant
Kmart Corporation
Marsh Supermarkets, Inc. / Marsh Supermarkets,
LLC
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
107,489 12/31/2018
100%
107,210 12/31/2018
100%
6,260 12/31/2019
100%
3,900 12/31/2019
100%
4,565 12/31/2019
100%
14,208 12/31/2019
100%
14,859 12/31/2019
100%
4,894 12/31/2019
100%
5,704 12/31/2019
100%
53,820
N/A
0%
94,970 12/31/2018
100%
28,721 10/31/2018
100%
Food Lion, LLC / Delhaize America, Inc.
34,555
2/28/2023
100%
Food Lion, LLC / Delhaize America, Inc.
23,000
2/28/2018
100%
Mighty Dollar, LLC
23,767
9/30/2018
100%
A&P Real Property, LLC (Pathmark Stores, Inc.)
59,000 10/31/2018
100%
Kmart Corporation
Best Buy Co., Inc.
Vacant
Kmart Corporation
120,727 12/31/2018
100%
46,350
2/26/2018
100%
29,119
N/A
0%
193,193 12/31/2018
100%
Associated Wholesale Grocers, Inc. / Safeway,
Inc.
American Golf Corporation
30,757
3/31/2019
100%
13,924 12/31/2017
100%
6910 S. Memorial Hwy.
Tulsa
OK
Toys "R" Us, Inc. / Toys “R” Us-Delaware, Inc.
43,123
5/31/2016
100%
1600 E. 23rd St.
Chattanooga
1053 Mineral Springs Rd.
Paris
TN
TN
BI- LO, LLC
The Kroger Co.
42,130
6/30/2017
100%
31,170
7/1/2018
100%
3211 W. Beverly St.
Staunton
VA
Food Lion, LLC / Delhaize America, Inc.
23,000
2/28/2018
100%
97 Seneca Trail
Fairlea
WV
Kmart Corporation
90,933 12/31/2018
100%
Retail/Specialty Total
Consolidated Portfolio Grand Total
1,251,348
39,871,887
93.4%
96.4%
The 2014 net effective annual cash rent for the retail/specialty portfolio as of December 31, 2014 was $4.56 per square foot and the
weighted-average remaining lease term was 3.8 years.
The 2014 net effective annual cash rent for the consolidated portfolio as of December 31, 2014 was $7.96 per square foot, excluding
land investments, and the weighted-average remaining lease term was 12.1 years.
34
LEXINGTON
NON-CONSOLIDATED PORTFOLIO PROPERTY
CHART
As of December 31, 2014
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%
FL
FL
FL
BluePearl Holdings, LLC
BluePearl Holdings, LLC
Office
Office
8,500 10/31/2033
100%
3,000 10/31/2033
100%
Gander Mountain Company
Retail
120,000
3/31/2028
100%
607 & 611 Lumsden
Professional Ct.
4525 Ulmerton Rd.
100 Gander Way
455 Abernathy Rd.
Brandon
Clearwater
Palm Beach
Gardens
Atlanta
GA
BluePearl Holdings, LLC
820 Frontage Rd.
Northfield
IL
BluePearl Holdings, LLC
201-215 N. Charles St.
Baltimore
MD
201 NC Leasehold LLC
29080 Inkster Rd.
Southfield
4126 Parkcard Rd.
Ann Arbor
MI
MI
BluePearl Holdings, LLC
BluePearl Holdings, LLC
Office
Office
Land
Office
Office
32,000 10/31/2033
100%
14,000 10/31/2033
100%
N/A 8/31/2112
100%
38,000 10/31/2033
100%
3,500 10/31/2033
100%
3201 Quail Springs Pkwy.
Oklahoma City OK
18839 McKay Blvd.
Humble
TX
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%
595,096
100%
The 2014 net effective annual rent for the non-consolidated portfolio as of December 31, 2014 was $18.24 per square foot, excluding
land investments, and the weighted-average remaining lease term was 14.9 years.
The following chart sets forth certain information regarding lease expirations for the next ten years in our consolidated portfolio:
Year
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Number of
Lease Expirations
48
30
19
33
30
19
13
9
8
10
Square Feet
1,318,735
3,316,093
4,206,287
3,705,521
3,356,289
3,613,544
2,792,707
1,018,268
1,030,582
1,810,005
Annual Rent ($000)
11,921
$
20,050
19,822
27,483
32,900
27,710
27,215
12,556
17,022
12,881
Percentage of
Annual Rent
3.2%
5.3%
5.2%
7.3%
8.7%
7.3%
7.2%
3.3%
4.5%
3.4%
The following chart sets forth the 2014 annual GAAP base rent ($000) based on the credit rating of our consolidated tenants at
December 31, 2014(1):
Investment Grade
Non-investment Grade
Unrated
GAAP Base Rent
Percentage
$
$
143,997
48,706
200,384
393,087
36.6%
12.4%
51.0%
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.
35
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.
Item 4. Mine Safety Disclosures
Not applicable.
36
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, 2014
September 30, 2014
June 30, 2014
March 31, 2014
December 31, 2013
September 30, 2013
June 30, 2013
March 31, 2013
$
High
Low
$
11.42
11.37
11.69
11.81
11.98
12.98
13.82
12.19
9.74
9.78
10.39
9.94
10.05
11.09
11.08
10.47
The per common share closing price on the NYSE (composite) was $10.98 on February 23, 2015.
Holders. As of February 23, 2015, we had approximately 3,364 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:
Quarters Ended
March 31,
June 30,
September 30,
December 31,
2014
2013
2012
2011
2010
0.165
0.165
0.170
0.170
$
$
$
$
0.15
0.15
0.15
0.15
$
$
$
$
0.125
0.125
0.125
0.150
$
$
$
$
0.115
0.115
0.115
0.115
$
$
$
$
0.10
0.10
0.10
0.10
$
$
$
$
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 reinvested under the dividend reinvestment
component. Under the direct share purchase component, our current investors and new investors can make optional cash purchases
of our common shares. The administrator of the plan, Computershare Trust Company, N.A., purchases common shares for the accounts
of the participants under the plan, at our discretion, either directly from us, on the open market or through a combination of those
two options. In 2014, 2013 and 2012, we issued approximately 2.6 million, 1.5 million and 1.0 million common shares, respectively,
under the plan, raising net proceeds of $25.8 million, $16.5 million and $8.5 million, respectively.
37
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. During 2013, we issued 3,409,927 common shares under this ATM program
at a weighted-average issue price of $10.82 per common share, generating gross proceeds of approximately $36.9 million. We used
the proceeds from the ATM program for general working capital, which included investments and to repay indebtedness. During
2014, we did not issue any common shares under the ATM program. As of December 31, 2014, 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, 2014, 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)
1,350,410
$
—
1,350,410
$
7.05
—
7.05
4,012,252
—
4,012,252
Recent Sales of Unregistered Securities.
As previously disclosed, we issued an aggregate 1.9 million common shares upon conversion of $12.8 million original principal
amount of our 6.00% Convertible Notes at the then stated conversion rates during 2014.
Share Repurchase Program.
The following table summarizes common shares/OP units that were authorized to be repurchased during the fourth quarter of
2014 pursuant to publicly announced repurchase plans:
Period
October 1-31, 2014
November 1-30, 2014
December 1-31, 2014
Fourth Quarter 2014
Total number of
shares/units
purchased as
part of
publicly
announced
plans or
programs (1)
Maximum
number of
shares/units that
may yet
be purchased
under
the plans or
programs (1)
—
—
—
—
1,056,731
1,056,731
1,056,731
1,056,731
Total number of
shares/units
purchased
Average price
paid per
share/unit ($)
— $
—
—
— $
—
—
—
—
_________________________
(1) Share repurchase plan most recently announced on December 17, 2007, which plan has no expiration date.
38
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, 2014. 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 shareholders
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 used in investing activities
Net cash provided by (used in) financing activities
Ratio of earnings to combined fixed charges and
preferred dividends
Real estate assets, net, including real estate -
intangible assets
Total assets
Mortgages, notes payable, credit facility and term
loans, including discontinued operations
Shareholders' equity
Total equity
Preferred share liquidation preference
_________
$
$
2014
424,372
(218,510)
(97,303)
47,842
49,621
97,463
$
2013
361,910
(212,658)
(85,892)
(21,021)
24,884
3,863
$
2012
297,008
(183,672)
(84,250)
184,173
465
184,638
$
2011
260,034
(172,770)
(90,591)
7,942
(97,720)
(89,778)
2010
252,302
(166,854)
(100,385)
(57)
(37,353)
(37,410)
93,104
1,630
180,316
(79,584)
(32,960)
86,324
(14,089)
156,811
(103,721)
(58,096)
0.17
0.21
0.38
0.17
0.21
0.38
0.675
214,672
(43,068)
(57,788)
(0.18)
0.11
(0.07)
(0.18)
0.11
(0.07)
0.615
206,304
(597,583)
434,516
0.99
—
0.99
0.94
(0.01)
0.93
0.55
163,810
(134,103)
(59,394)
(0.13)
(0.55)
(0.68)
(0.13)
(0.55)
(0.68)
0.47
180,137
(24,813)
(144,257)
(0.22)
(0.22)
(0.44)
(0.22)
(0.22)
(0.44)
0.415
164,751
(24,783)
(141,189)
1.37
N/A
N/A
N/A
N/A
3,287,250
3,777,894
3,425,420
3,772,281
3,165,085
3,418,203
2,746,976
3,026,820
2,977,100
3,283,768
2,095,453
1,485,766
1,508,920
96,770
2,055,807
1,515,738
1,539,483
96,770
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
N/A - Ratio is below 1.0, deficit of $28,929, $20,065, $37,928 and $41,350 exists at December 31, 2013, 2012, 2011 and 2010,
respectively.
All years have been adjusted to reflect the impact of operating properties sold during the years ended December 31, 2014, 2013,
2012, 2011 and 2010, which are reflected in discontinued operations in the Consolidated Statements of Operations.
39
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
40
47
50
51
56
56
General. We are a Maryland REIT that owns a diversified portfolio of equity and debt investments in single-tenant properties
and land. A majority of these properties and all land interests 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.
As of December 31, 2014, we had equity ownership interests in approximately 215 consolidated real estate properties, located
in 40 states and encompassing approximately 39.9 million square feet, approximately 96.4% of which was leased.
Our revenues and cash flows are generated predominantly from property rent receipts. As a result, growth in revenues and cash
flows is directly correlated to our ability to (1) acquire income producing real estate assets and (2) re-lease properties that are vacant,
or may become vacant, at favorable rental rates.
In an effort to diversify our risk, we invest across the United States in properties leased to tenants in various industries, including
service, technology, finance/insurance, transportation/logistics and automotive. However, industry declines, to the extent we have
concentration, and general economic declines could negatively impact our results of operations and cash flows.
Portfolio Management. For leases in place at December 31, 2014, we generated approximately 41.2% of our 2014 rental revenue
from leases ten years or longer, compared to approximately 30.1% of our 2013 rental revenue for leases in place at December 31,
2013. Our objective is to generate at least half of our rental revenue from leases ten years or longer, which we expect to achieve
primarily through capital recycling of assets with shorter-term leases and acquiring new investments with leases longer than ten
years.
At December 31, 2014, our rental revenue from single-tenant leases scheduled to expire through 2019 has been reduced to
approximately 29.1% compared to approximately 38.5% at December 31, 2013. We believe we no longer have concentrated risk of
lease rollover in any one year and we believe our cash flows are stable. In addition, we extended our weighted-average lease term
on a cash basis to approximately 12.1 years at December 31, 2014 compared to approximately 11.2 years at December 31, 2013.
This was primarily due to our acquisition volume in 2014 and 2013, including the addition of long-term land leases to our portfolio.
However, certain of the long-term leases have tenant purchase options.
In recent years, demand for space in the suburban office market has not been as strong as demand for space in the industrial
market. We believe this is due to a continuing trend of downsizing of corporate office employment. In addition, industrial assets
generally require less capital to maintain and re-lease than office assets. As of December 31, 2014, the ratio of rental revenue from
office assets to the rental revenue from industrial assets, each with lease terms shorter than ten years, was approximately 2.7:1. Our
objective is to manage this ratio down to approximately 2:1 over the next several years, which we expect to accomplish partly through
sales of office assets and growing our portfolio. We expect that our office portfolio will be concentrated in fewer, but larger, markets.
Our capital recycling strategy may have a near-term dilutive impact on earnings due to sales of revenue producing properties, but
we believe in the long-term this strategy will benefit shareholder value.
40
Business Strategy. Our current business strategy is focused on enhancing our cash flow growth and stability, growing our portfolio
with attractive long-term leased investments and maintaining a strong and flexible balance sheet to allow us to act on opportunities
as they arise. See “Business” in Part I, Item 1 of this Annual Report for a detailed description of our current business strategy.
We believe a positive impact continues to result from our business strategy. In 2014, we generated gross disposition proceeds
of approximately $325.4 million as a result of our capital recycling efforts. These proceeds were primarily used to fund property
investments subject to long-term leases and to reduce secured debt. In 2014, we completed real estate acquisitions/build-to-suit
transactions for an aggregate capitalized cost of approximately $212.3 million and reduced our weighted-average interest rate on
outstanding consolidated indebtedness by approximately 200 basis points primarily by refinancing higher interest rate debt. Our
secured debt decreased to approximately $0.9 billion at December 31, 2014 compared to $1.2 billion at December 31, 2013, which
was 19.0% and 23.9% of total gross assets, respectively. We met our objective to lower our secured debt to 20% or less of total gross
assets. We also now have fewer near-term debt maturities compared to recent years. We expect to continue to further reduce our
secured debt as it matures and acquire new investments primarily without secured debt; however, we may procure credit tenant lease
financing and other forms of long-term secured financing in certain situations. We believe our financing strategy will also allow us
to further lower our financing costs and improve our cash flow, financial flexibility and certain credit metrics.
We expect our business strategy will enable us to continue to improve our liquidity and strengthen our overall balance sheet.
We believe liquidity and a strong balance sheet will allow us to take advantage of attractive investment opportunities as they arise.
Investment Trends. 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. However, competition for income producing single-tenant net-leased real estate assets is strong. When
we acquire real estate assets, we look for commercial real estate assets or land interests 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, (3) an attractive geographic location, and (4) the potential for capital appreciation.
We believe our 2015 investment pipeline is sizable compared to our 2014 investment pipeline and we expect our investment
pipeline to grow considerably during 2015. Our acquisition volume consists primarily of purchases from third parties, sale-leaseback
transactions, including leased land transactions, and 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.
During 2014, we saw continued cap rate compression in the acquisition market as a whole, although we believe that yields for
investment opportunities are attractive when compared to our financing costs. We believe that build-to-suit transactions continue to
have stabilized yields above those in the purchase market. Build-to-suit transactions, as compared with immediate deliverable
acquisitions, result in a delay in the receipt of cash flow and the recognition of funds from operations during the construction period,
but provide us with modern buildings subject to long-term leases.
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 construction 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.
We believe that the long-term leases with escalating rents we have been adding to our portfolio are strengthening our future cash
flows by extending our weighted-average lease term, balancing our lease expiration schedule, reducing the average age of our portfolio
and supporting our dividend growth objectives.
41
The following is a summary of our property acquisitions and build-to-suit transactions for the year ended December 31, 2014:
Property Acquisitions
Location
Property Type
Square Feet
(000's)
Capitalized Cost
(millions)
Parachute, CO
Rock Hill, SC
Lewisburg, TN
New York, NY
Vineland, NJ
Anniston, AL
Office
Office
Industrial
Land
Rehab Hospital
Industrial
$
49
$
104
310
$
— $
$
39
$
267
$
769
13.9
24.7
13.3
30.4
19.1
20.9
122.3
Approximate
Lease Term
(Years)
19
20
12
99
28
15
Date Acquired
1Q 2014
1Q 2014
2Q 2014
4Q 2014
4Q 2014
4Q 2014
Completed Build-to-Suit Transactions
Location
Rantoul, IL
North Las Vegas, NV
Bingen, WA
Property
Type
Industrial
Industrial
Industrial
Ongoing Build-to-Suit Transactions
Square Feet
(000's)
Capitalized Cost
(millions)
813
180
125
1,118
$
$
$
$
41.3
28.3
20.4
90.0
Lease Term
(Years)
20
20
10
Date Acquired
1Q 2014
2Q 2014
2Q 2014
Capitalized Cost
Per Square Foot
50.76
$
156.74
$
163.73
$
The following is a summary of our ongoing build-to-suit transactions as of December 31, 2014:
Location
Oak Creek, WI
Thomson, GA
Richmond, VA
Lake Jackson, TX
Property
Type
Square Feet
(000's)
Expected Maximum
Commitment/Estimated
Completion Cost
(millions)
Industrial
Industrial
Office
Office/R&D
164
208
330
664
1,366
$
$
$
$
$
22.6
10.2
110.1
166.2
309.1
Estimated
Completion
Date
2Q 2015
2Q 2015
3Q 2015
4Q 2016
$
$
$
$
$
GAAP Investment
Balance
as of 12/31/14
(millions)
11.9
3.4
62.2
28.2
105.7
In addition, we have committed to acquire upon their completion the following properties:
Location
Property Type
Estimated Acquisition
Cost (millions)
Auburn Hills, MI
Richland, WA
Office
Industrial
$
$
$
40.0
155.0
195.0
Estimated
Acquisition Date
1Q 15
4Q 15
Lease Term (Years)
14
20
In addition, as of December 31, 2014, a joint venture in which we currently have a 25% interest has an ongoing build-to-suit
transaction as follows:
Location
Property
Type
Square Feet
(000's)
Expected Maximum
Commitment/Estimated
Completion Cost
(millions)
Houston, TX
Private School
274
$
86.5
Estimated
Completion
Date
3Q 2016
GAAP Investment
Balance
as of 12/31/14
(millions)
$
11.8
We may also provide up to $56.7 million in construction financing to the joint venture.
We can provide no assurance with respect to the completion, acquisition, cost or timing of these ongoing build-to-suit and
forward purchase transactions.
42
The following is a summary of our property acquisitions and completed build-to-suit transactions for the year ended December
31, 2013:
Property Acquisitions
Location
Property Type
Square Feet
(000's)
Capitalized Cost
(millions)
Houston, TX(1)
New York, NY(2)
Danville, VA
Various(3)
Omaha, NE
Industrial
Land
Land
Office
Office
$
132
— $
— $
$
40
$
128
$
300
81.4
302.0
4.7
13.1
39.1
440.3
Lease Term
(Years)
25
99
15
20
20
Date Acquired
1Q 2013
4Q 2013
4Q 2013
4Q 2013
4Q 2013
(1) Asset consists of a deep-water intermodal industrial terminal and existing structures on approximately 90 acres.
(2)
(3)
Includes three properties.
Includes four properties.
Completed Build-to-Suit Transactions
Location
Long Island City, NY
Denver, CO(1)
Tuscaloosa, AL(2)
Albany, GA(3)
Property
Type
Industrial
Office
Retail
Retail
Square Feet
(000's)
Capitalized Cost
(millions)
140
167
42
45
394
$
$
$
$
$
42.1
38.4
8.7
7.4
96.6
Lease Term
(Years)
15
15
15
15
Date Acquired
1Q 2013
2Q 2013
2Q 2013
4Q 2013
Capitalized Cost
Per Square Foot
300.18
$
229.89
$
206.10
$
164.48
$
(1)
(2)
(3)
Includes $3.8 million of tenant related costs.
Includes leasing costs of $0.3 million. Property was sold in September 2013.
Includes leasing costs of $0.3 million.
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. The following is a summary of our outstanding loan investments at December 31,
2014 and 2013:
Loan
Norwalk, CT(2)
Homestead, FL(2)
Westmont, IL
Southfield, MI
Austin, TX
Kennewick, WA
Other
Loan carrying value(1)
(millions)
12/31/2014
12/31/2013
$
$
$
$
$
$
$
$
— $
— $
$
$
$
$
$
$
12.2
3.3
2.8
85.3
2.0
105.6
28.2
10.2
12.6
6.6
2.4
37.0
2.4
99.4
Interest Rate
7.50%
7.50%
6.45%
4.55%
16.00%
9.00%
8.00%
Maturity Date
11/2014
08/2014
10/2015
02/2015
10/2018
05/2022
2021-2022
(1) Loan carrying value includes accrued interest and is net of origination costs and loan losses.
(2) Loan satisfied during 2014.
In 2014, we initiated foreclosure proceedings against the borrowers of a loan secured by a property in Westmont, Illinois. We
sold this property in 2007 and issued a purchase mortgage to the buyer. Effective November 2013, the tenant of the property terminated
its lease and as a result we recognized a loan loss of $13.9 million in 2013 on the outstanding loan receivable. In 2014, we recognized
a $2.5 million loan loss on a loan secured by an office property in Southfield, Michigan as the borrower has indicated that it will not
satisfy the loan at maturity.
In 2013, we foreclosed on our loan receivable that was secured by an office property in Schaumburg, Illinois. The loan had an
outstanding balance of $21.6 million (not including default interest and other penalties), which we believe was less than the then
estimated fair value of the property.
43
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.
Our property owner subsidiaries seek 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 for the entire property.
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. However, certain of our leases provide for some level of landlord responsibility for capital
repairs and replacements, the cost of which is generally factored into the rental rate.
Our motivation to release vacant space requires us to meet market demands with respect to rental rates, tenant concessions and
landlord responsibilities. As a result, the obligations of our property owner subsidiaries on new leases and newly renewed or extended
leases generally increase to include, among other items, some form of responsibility for capital repairs and replacements.
During 2014, we entered into 59 new leases and lease extensions encompassing approximately 5.1 million square feet. The
average GAAP base rent on these extended leases was approximately $4.39 per square foot compared to the average GAAP base
rent on these leases before extension of $4.72 per square foot. The weighted-average cost of tenant improvements and lease
commissions during 2014 was approximately $36.67 per square foot for new leases and $1.57 per square foot for extended leases.
Due to the nature of the expected lease rollovers in coming years, we expect renewal rents to be lower than expiring rents and
aggregate tenant improvement allowances and leasing costs to decrease from their current levels in such years. However, following
2015, we expect the impact of such lower renewal rent to be mitigated by our capital recycling strategy and our long-term leases
with annual or periodic rent increases.
We continue to monitor the credit of tenants of properties in which we have an interest by (1) subscribing to rating agency
information, so that we can monitor changes in the ratings of our rated tenants, (2) reviewing financial statements that are publicly
available or that are required to be delivered to us under the applicable lease, (3) monitoring news reports regarding our tenants and
their respective businesses and (4) monitoring the timeliness of rent collections.
During 2014, 2013 and 2012, we conveyed in foreclosure or via a deed-in-lieu of foreclosure certain properties in which we had
an interest as we deemed the non-recourse mortgages encumbering the properties were in excess of the value of the property collateral.
Our property owner subsidiaries may convey properties to lenders or the property owner subsidiary may declare bankruptcy in the
future if there is no or limited recourse to us and a property owner subsidiary is unable to refinance, re-let or sell its vacated property
or if a tenant renews at a lower rent or a new tenant pays a lower rent that does not justify a value of the property in excess of the
mortgage balance.
Impairment charges. During 2014, 2013 and 2012, we incurred impairment charges on our assets, excluding loan receivables,
of $48.6 million, $34.6 million and $10.0 million, respectively, including amounts classified in discontinued operations, 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. In
addition, in 2014 and 2013, we recognized loan losses of $2.5 million and $13.9 million, respectively, relating to loans receivable
secured by vacant or soon-to-be vacant suburban office properties. We cannot estimate if we will incur, or the amount of, future
impairment charges on our assets. See Part I, Item 1A “Risk Factors”, of this Annual Report.
44
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, which
are included in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.
The following is a summary of our critical accounting policies, which require some of management's most difficult, subjective
and complex judgments.
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.
45
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. Revenue is
recognized on a contractual basis for leases with escalations tied to a consumer price index with no floor. Renewal options in leases
with rental terms that are lower than those in the primary term are excluded from the calculation of straight line rent if the renewals
are not reasonably assured. In those instances in which we fund tenant improvements and the improvements are deemed to be owned
by us, revenue recognition will commence when the improvements are substantially completed and possession or control of the space
is turned over to the tenant. When we determine that the tenant allowances are lease incentives, 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 will 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.
46
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 and debt, 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 $214.7 million for 2014, $206.3
million for 2013 and $163.8 million for 2012. Cash flows from operations increased in 2014 and 2013 primarily due to an increase
in acquisitions, offset by yield maintenance payments made on debt satisfactions. 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 $43.1 million in 2014, $597.6 million in 2013 and $134.1 million in 2012. Cash
provided by investing activities related primarily to proceeds from the sale of properties and marketable equity securities, collection
of loans receivable, distributions from non-consolidated entities in excess of accumulated earnings, proceeds from the sale of interests
in non-consolidated entities and changes in deposits and restricted cash. Cash used in investing activities related primarily to
investments in real estate properties, co-investment programs, marketable equity securities 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 provided by (used in) financing activities totaled $(57.8) million in 2014, $434.5 million in 2013 and $(59.4) million
in 2012. Cash provided by financing activities was primarily attributable to net proceeds from the issuance of common shares,
contributions from noncontrolling interests and non-recourse mortgage and corporate borrowings. Cash used in financing activities
related primarily to dividend and distribution payments, repurchases or redemptions of preferred shares and noncontrolling interests,
purchase of a noncontrolling interest, 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 2014, 2013 and 2012, we raised net proceeds of
approximately $23.6 million, $434.9 million and $162.7 million, respectively, through the issuance of common shares, including
option exercises. During 2014 and 2013, we raised net proceeds of approximately $249.7 million and $247.6 million, respectively,
through the issuance of investment-grade rated 4.40% and 4.25% Senior Notes. We primarily used these proceeds to fund investments
and retire indebtedness.
During 2007, we issued an aggregate $450.0 million of 5.45% Exchangeable Guaranteed Notes due in 2027. From 2008 through
2012, 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).
47
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 151.5965 common shares per $1,000 principal amount of the notes,
representing a conversion price of approximately $6.60 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 2014, 2013 and 2012, holders of the notes converted an aggregate of $12.8 million, $54.9 million and $31.1 million,
respectively, of notes for 1.9 million, 7.9 million and 4.5 million common shares, respectively, and an aggregate cash payment by
us of $0.2 million, $3.3 million and $2.4 million, respectively, plus accrued and unpaid interest. As of December 31, 2014, $16.2
million in aggregate principal amount of these notes were outstanding.
During 2013 and 2012, we repurchased and retired the remaining outstanding 8.05% Series B Cumulative Redeemable Preferred
Stock, par value $0.0001 per share, which we refer to as Series B Preferred Shares, (approximately 2.7 million) and Series D Preferred
Shares (approximately 6.2 million) and approximately 35 thousand Series C Preferred Shares for an aggregate purchase price,
including accrued and unpaid dividends, of $226.5 million, which was at a $256 thousand discount to the liquidation preferences of
the preferred 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 basis or, at our election, with respect to certain OP units, cash. Substantially
all outstanding OP units require us to pay quarterly distributions to the holders of such OP units equal to the dividends paid to our
common shareholders on an as redeemed basis and the remaining OP units have stated distributions in accordance with their applicable
partnership agreement. To the extent that our dividend per share is less than a stated distribution per unit per the applicable partnership
agreement, the stated distributions per unit are reduced by the percentage reduction in our dividend. We are party to a funding
agreement with our operating partnership under which we may be required to fund distributions made on account of OP units. No
OP units have a liquidation preference. 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, 2014, there were 3.4 million OP units outstanding which were convertible into 3.9 million common shares
assuming we satisfied redemptions entirely with common shares. In recent years, few sellers of real estate have been seeking OP
units as a form of consideration.
Property Specific Debt. As of December 31, 2014, our consolidated property owner subsidiaries have related balloon payments
of $142.6 million and $129.9 million maturing in 2015 and 2016, 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 flows from
operations, the credit markets and, if determined appropriate by us, a capital contribution from us from either cash on hand ($191.1
million at December 31, 2014) or borrowing capacity on our primary credit facility ($385.4 million as of December 31, 2014, subject
to covenant compliance).
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 primarily use corporate level borrowings to finance our acquisitions and debt maturities. Our objective is to continue
to lower our secured debt by retiring mortgages as they mature and unencumber assets so that approximately 65% to 70% of our
assets will be unencumbered. We also 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.
48
In 2014 and 2013, we obtained, through consolidated property owner subsidiaries, $27.8 million and $253.5 million, respectively,
in non-recourse mortgage loans with interest rates ranging from 2.2% to 4.7% and maturity dates ranging from 2019 to 2027.
Corporate Borrowings. The following Senior Notes were outstanding as of December 31, 2014:
Issue Date
May 2014
June 2013
Face Amount
(millions)
$
$
250.0
250.0
500.0
Interest Rate
Maturity Date
Issue Price
4.40%
4.25%
June 2024
June 2023
99.883%
99.026%
The Senior Notes are unsecured and pay interest semi-annually in arrears. We may redeem the Senior Notes at our option at any
time prior to maturity in whole or in part by paying the principal amount of the Senior Notes being redeemed plus a premium.
We have a $400.0 million unsecured revolving credit facility with KeyBank National Association, or 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 0.95% to 1.725% (1.15% as of December 31, 2014). At December 31, 2014,
the unsecured revolving credit facility had no amounts outstanding, outstanding letters of credit of $14.6 million and availability of
$385.4 million, subject to covenant compliance.
We also have 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 1.10% to 2.10% (1.35%
as of December 31, 2014). As of December 31, 2014, we have entered into aggregate interest rate swap agreements to fix the LIBOR
component at a weighted-average rate of 1.09% on the $250.0 million outstanding through February 2018.
In addition, we have a $255.0 million unsecured term loan from Wells Fargo Bank, National Association, as agent. The term
loan matures in January 2019 and requires regular payments of interest only at interest rates ranging from LIBOR plus 1.50% to
2.25% (1.75% as of December 31, 2014). We may prepay outstanding borrowings under the term loan at a premium through January
12, 2016 and at par thereafter. We entered into interest rate swap agreements to fix the LIBOR component at a weighted-average
rate of 1.42% on the $255.0 million of term loan LIBOR-based debt through January 2019.
As of December 31, 2014, we were in compliance with the financial covenants contained in our corporate level debt agreements.
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, 2014 and 2013, there were $129.1 million of these
securities outstanding.
While property specific mortgages with favorable terms have become harder to obtain on certain properties, corporate level
borrowings have generally been available and we expect this to continue to be the case in the near future.
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 2014, we entered into a joint venture to construct a private school in Houston, Texas, which will be
net leased for a 20-year term upon completion.
49
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 2014, we disposed of our interests in certain properties for a gross price of $272.4
million. These proceeds were used to retire indebtedness encumbering properties in which we have an interest and make investments.
In addition, in 2014 we disposed of our interest in a property via foreclosure in full satisfaction of $9.9 million of related non-recourse
mortgage.
As asset values have continued to rise, we have continued to look at opportunities to recycle capital with a focus on capturing
the value of our multi-tenant and retail properties and reducing our exposure to the suburban office sector. We will continue to look
at capital recycling opportunities as part of the ongoing effort to further transform our portfolio, with a greater emphasis on suburban
office dispositions and non-core asset dispositions, in individual or portfolio transactions. We believe capital recycling (1) provides
cost effective and timely capital support for our investment activities and (2) allows us to maintain line capacity and cash in advance
of what we expect to be a growing investment pipeline.
Liquidity Needs. Our principal liquidity needs are the contractual obligations set forth under the heading “Contractual
Obligations,” below, and the payment of dividends to our shareholders and distributions to the holders of OP units.
As of December 31, 2014, we had approximately $2.1 billion of indebtedness, consisting of mortgages and notes payable
outstanding, term loans, 4.40% and 4.25% Senior Notes, 6.00% Convertible Notes and Trust Preferred Securities, with a weighted-
average interest rate of approximately 4.5%. The ability of a property owner subsidiary to make debt service payments depends upon
the rental revenues of its property and its ability to refinance the mortgage related thereto, sell the related property, or access capital
from us or other sources. A property owner subsidiary's ability to accomplish such goals will be affected by numerous economic
factors affecting the real estate industry, including the risks described under "Risk Factors" in Part I, Item 1A of this Annual Report.
If we are unable to satisfy our contractual obligations and other operating costs with our cash flow from operations, we intend
to use borrowings and proceeds from issuances of equity or debt securities. If a property owner subsidiary is unable to satisfy its
contractual obligations and other operating costs, it may default on its obligations and lose its assets in foreclosure or through
bankruptcy proceedings.
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year ended
December 31, 1993. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our
net taxable income that is currently distributed to shareholders.
In connection with our intention to continue to qualify as a REIT for federal income tax purposes, we expect to continue paying
regular dividends to our shareholders. These dividends are expected to be paid from operating cash flows and/or from other sources.
Since cash used to pay dividends reduces amounts available for capital investments, we generally intend to maintain a conservative
dividend payout ratio, reserving such amounts as we consider necessary for the maintenance or expansion of properties in our
portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as our
Board of Trustees considers appropriate.
We paid approximately $159.5 million in cash dividends to our common and preferred shareholders in 2014. 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. As leases
expire, we expect our property owner subsidiaries to incur costs in extending the existing tenant leases, re-tenanting the properties
with a single-tenant, or converting the property to multi-tenant use. The amounts of these expenditures can vary significantly depending
on tenant negotiations, market conditions 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. In addition,
at certain single-tenant properties that are not subject to a net lease, our property owner subsidiaries have a level of property operating
expense responsibility, which may or may not be reimbursed.
50
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, and are responsible for
all expenses related to vacant space at these properties.
Vacant Properties. To the extent there is a vacancy in a property, our property owner subsidiary would be obligated for all
operating expenses, including 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 may
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 without reimbursement and at vacant properties.
Environmental Matters. Based upon management's ongoing review of the properties in which we have an interest, management
is not aware of any environmental condition with respect to any of these properties, 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, 2014 compared with December 31, 2013. The increase in total gross revenues in 2014 of $62.5 million
was primarily attributable to an increase in rental revenue of $56.8 million and an increase in tenant reimbursements of $6.0 million,
due to property acquisitions, offset in part by a decrease in advisory and incentive fees of $0.3 million due to our entering into fewer
joint ventures.
New property acquisition revenue of $59.5 million was offset in part by the net impact of lease extensions entered into at rents
below previous rental amounts, new leases entered into at rates lower than under previous leases and the increase in vacancy at
certain properties.
Depreciation and amortization decreased $3.1 million primarily due to certain assets becoming fully amortized, offset by the
acquisition of real estate properties in 2014 and 2013.
The increase in property operating expense of $8.9 million was primarily due to an increase in occupancy and use at certain
multi-tenant properties, the acquisition of properties with operating expense obligations, the net impact of management of certain
properties being transferred between the tenant and our property owner subsidiary and an increase in acquisition and pursuit costs.
Non-operating income increased $5.6 million primarily due to interest earned on new loans receivable investments.
The increase in interest and amortization expense of $11.4 million was primarily due to greater debt outstanding, offset by a
reduction in the weighted-average interest rate on outstanding indebtedness.
The gains on sales of financial assets, net of $0.9 million in 2014 was primarily due to the gain recognized on the sale of an
office property classified as a capital lease.
The decrease in debt satisfaction charges, net, of $15.9 million was primarily due to the timing of conversions of our 6.00%
Convertible Notes and the timing of mortgage payoffs and related yield maintenance charges.
51
Impairment charges and loan losses increased by $1.8 million due to an increase of $13.2 million in impairment charges on
properties due to the timing of triggering events on properties held and used in operations, principally offset by a decrease in loan
losses of $11.4 million. We recognized a loan loss of $2.5 million in 2014 on our loan receivable collateralized by an office property
in Southfield, Michigan and a $13.9 million loan loss in 2013 on our loan receivable collateralized by an office building in Westmont,
Illinois.
The decrease in the provision for income taxes of $2.1 million primarily relates to the tax incurred on the internal transfer of an
industrial property from our taxable REIT subsidiary to the REIT in 2013.
The increase in equity in earnings (losses) of non-consolidated entities of $0.8 million was primarily due to an increase in
earnings from various joint ventures.
Discontinued operations represent properties sold or held for sale. The increase in net income from discontinued operations of
$24.7 million was primarily due to an increase in gains on sales of properties of $33.0 million and a $1.8 million decrease in provision
for income taxes, offset in part by an increase in impairment charges of $0.8 million and an increase in debt satisfaction charges, net
of $9.2 million.
The increase in net income attributable to noncontrolling interests of $2.1 million was primarily due to an increase in earnings
of consolidated, non-wholly owned entities.
The increase in net income attributable to common shareholders of $100.4 million was primarily due to the items discussed
above and a reduction in preferred dividends of $8.8 million due to the repurchase of preferred shares in 2013.
The increase in net income or decrease in net loss in future periods will be closely tied to the level of acquisitions made by us.
Without acquisitions, the sources of growth in net income are limited to fixed rent adjustments and index 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, 2013 compared with December 31, 2012. The increase in total gross revenues in 2013 of $64.9 million
was primarily attributable to an increase in rental revenue of $63.4 million and an increase in tenant reimbursements of $2.5 million,
offset in part by a decrease in advisory and incentive fees of $1.0 million.
The increase in rental revenue was primarily due to (1) 2013 and 2012 property acquisition revenue of $59.8 million, including
$25.0 million from NLS properties acquired on September 1, 2012, (2) increased occupancy revenue from the Transmerica Tower
in Baltimore, Maryland of $0.7 million and (3) $1.9 million of revenue recognized on our office property in Orlando, Florida due to
the commencement of a new lease.
Depreciation and amortization increased $23.0 million primarily due to the acquisition of real estate properties in 2013 and
2012.
The increase in property operating expense of $6.0 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 $4.7 million was primarily due to a $4.5 million increase in personnel
costs.
Non-operating income increased $1.6 million primarily due to the investment in new loans receivable in 2013, offset by reduced
interest income earned on a loan receivable secured by an office property in Schaumburg, Illinois, which we foreclosed on in 2013.
The increase in interest and amortization expense of $1.6 million was primarily due to greater debt outstanding, offset by(1) a
reduction in the weighted-average interest rate on outstanding indebtedness and (2) retirement of debt which had corresponding
debt discount amortization.
The increase in debt satisfaction charges, net, of $15.9 million was primarily due to the conversion of $54.9 million of 6.00%
Convertible Notes in 2013 and the timing of mortgage payoffs and related yield maintenance charges.
The gain on acquisition of $167.9 million primarily represents the gain recognized in 2012 due to the increase in fair value of
our investment in NLS at the date of acquisition of the remaining interest in NLS.
52
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.
Impairment charges and loan losses increased by $31.3 million due to the timing of triggering events on properties held and
used in operations and a $13.9 million loan loss recognized in 2013 on our loan receivable collateralized by an office property in
Westmont, Illinois.
The increase in the provision for income taxes of $2.3 million primarily relates to the tax incurred on the internal transfer of an
industrial property from our taxable REIT subsidiary to the REIT.
The decrease in equity in earnings (losses) of non-consolidated entities of $21.7 million was primarily due to (1) a $13.3 million
decrease in earnings from NLS primarily due to the consolidation of NLS on September 1, 2012, (2) a $7.9 million reduction due
to the sale of our interests in Concord Debt Holding LLC and CDH CDO LLC in 2012 and (3) a $0.9 million impairment charge
recognized in 2013 on an investment in a non-consolidated entity, offset in part by an increase in earnings from various joint ventures
of $0.4 million.
Discontinued operations represent properties sold or held for sale. The increase in net income from discontinued operations of
$24.4 million was primarily due to an increase in gains on sales of properties of $11.2 million, an increase in debt satisfaction gains,
net of $9.1 million and a $12.9 million decrease in loss from discontinued operations, offset in part by an increase in impairment
charges of $7.2 million and a $1.6 million increase in provision for income taxes.
The decrease in net income attributable to noncontrolling interests of $2.1 million was primarily due to a decrease in earnings
of consolidated, non-wholly owned entities.
The decrease in net income attributable to common shareholders of $170.9 million was primarily due to the items discussed
above and a reduction in preferred dividends of $7.3 million due to the repurchase of preferred shares.
Same-Store Results
Same-store results include all consolidated properties except properties acquired and sold in 2014 and 2013. Our historical same-
store occupancy was 96.2% at December 31, 2014 compared to 98.1% at December 31, 2013. The following presents our consolidated
same-store net operating income, or NOI, for the years ended December 31, 2014 and 2013 ($000):
Total base rent
Tenant reimbursements and other
Property operating expenses
Same-store NOI - Cash basis
$
$
304,155
25,908
(54,822)
275,241
$
$
301,273
24,566
(52,105)
273,734
2014
2013
The change in our same-store NOI from 2013 to 2014 was an increase of 0.6%. This was primarily due to an increase in base
rent and tenant reimbursements, offset by an increase in property operating expenses due to the timing of new tenant leases and the
establishment of base years for certain tenants.
53
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 FFO available to common shareholders and unitholders - basic. We also present FFO available to common shareholders
and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common
shares, are converted. We also present Company FFO, which adjusts FFO available to common shareholders and unitholders - diluted
for certain items which we believe are not indicative of the operating results of our real estate portfolio. We believe this is an
appropriate presentation as it is frequently requested by security analysts, investors and other interested parties. Since others do not
calculate funds from operations in a similar fashion, FFO available to common shareholders and unitholders - diluted and Company
FFO may not be comparable to similarly titled measures as reported by others. FFO available to common shareholders and unitholders
- diluted and Company FFO 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.
54
The following presents a reconciliation of net income (loss) attributable to common shareholders to FFO available to common
shareholders and unitholders and Company FFO for each of the years in the three year period ended December 31, 2014 (unaudited
and dollars in thousands, except per share amounts):
2014
2013
2012
FUNDS FROM OPERATIONS:
Basic and Diluted:
Net income (loss) attributable to common shareholders
$
86,324
$
(14,089) $
156,811
Adjustments:
Depreciation and amortization
Impairment charges - real estate, including nonconsolidated joint venture real
estate
Noncontrolling interests - OP units
Amortization of leasing commissions
Joint venture and noncontrolling interest adjustment
Gains on sales of properties, net of tax, including nonconsolidated joint
venture real estate
Gain on sale - joint venture investment
Gain on acquisition
FFO available to common shareholders and unitholders - basic
Preferred dividends
Interest and amortization on 6.00% Convertible Notes
Amount allocated to participating securities
FFO available to common shareholders and unitholders - diluted
Debt satisfaction charges, net
Impairment loss - loan receivable
Litigation reserve
Other/Transaction costs
157,537
175,023
163,890
49,529
2,990
5,932
2,068
35,485
1,157
5,562
2,264
(58,426)
(21,755)
—
—
245,954
6,290
2,090
490
254,824
9,764
2,500
—
1,882
—
—
183,647
11,520
3,113
656
198,936
16,442
13,939
—
795
9,969
1,192
4,838
560
(13,291)
(7,000)
(167,864)
149,105
8,407
8,953
1,097
167,562
9,658
—
2,775
603
Company FFO available to common shareholders and unitholders - diluted $
268,970
$
230,112
$
180,598
Per Common Share and Unit Amounts
Basic:
FFO
Diluted:
FFO
Company FFO
Weighted-Average Common Shares
Basic(1)
Diluted
(1) Includes OP Units.
$
$
$
1.06
$
0.86
$
0.91
1.05
1.11
$
$
0.88
1.02
$
$
0.91
0.98
232,838,280
241,967,017
213,944,169
225,444,512
163,548,132
184,616,613
55
Off-Balance Sheet Arrangements
As of December 31, 2014, 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 joint ventures.
Contractual Obligations
The following summarizes our principal contractual obligations as of December 31, 2014 ($000's):(1)
Mortgages and notes payable(2)
Term loans payable
Senior notes payable(3)
Convertible notes payable(4)
Trust preferred securities
Interest payable - fixed rate(5)
Operating lease obligations(6)
2015
2016
2017
2018
2019
$ 173,218
$ 154,337
$
93,469
$
42,297
$ 103,835
2020 and
Thereafter
$ 380,838
Total
$
947,994
—
—
—
—
88,866
6,398
—
—
—
—
80,529
5,433
—
—
16,228
—
67,129
6,136
250,000
255,000
—
—
—
55,363
5,889
—
—
—
42,878
5,359
—
500,000
—
129,120
174,230
45,981
505,000
500,000
16,228
129,120
508,995
75,196
$ 268,482
$ 240,299
$ 182,962
$ 353,549
$ 407,072
$1,230,169
$ 2,682,533
1. Excludes $14.6 million in outstanding letters of credit.
2. Includes balloon payments and mortgages secured by held for sale properties. $15.0 million due in 2016 is recourse to us.
3. Amounts exclude aggregate debt discounts of $2.3 million.
4. Matures in 2030, however holders have the right to redeem the notes on 01/15/17, 01/15/20 and 01/15/25. Amounts exclude debt discount of $0.6 million.
5. Includes variable-rate debt subject to interest rate swap agreements.
6. 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.
56
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, 2014, we had no
consolidated variable rate indebtedness not subject to an outstanding interest rate swap agreement. As of December 31, 2013, we
had $48.0 million consolidated variable rate indebtedness not subject to an interest rate swap agreement outstanding. During 2014
and 2013, our variable rate indebtedness had a weighted-average interest rate of 1.4% and 2.0%, respectively. Had the weighted-
average interest rate been 100 basis points higher, our interest expense for 2014 and 2013 would have been increased by approximately
$154 thousand and $1.1 million, respectively. As of December 31, 2014 and 2013, our consolidated fixed rate debt was approximately
$2.1 billion and $2.0 billion, respectively, which represented 100.0% and 97.7%, respectively, 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, 2014 and are indicative of the interest rate
environment as of December 31, 2014, 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 $2.1 billion as of December 31, 2014.
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 December 31, 2014, we have ten interest
rate swap agreements in our consolidated portfolio.
57
Item 8. Financial Statements and Supplementary Data
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
INDEX
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation and Amortization
Page
59
61
62
63
64
67
68
93
58
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, 2014 and 2013, 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,
2014. In connection with our audits of the consolidated financial statements, we also have audited the accompanying
financial statement schedule III. 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, 2014 and 2013, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, 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, 2014, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated February 26, 2015 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
New York, New York
February 26, 2015
59
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, 2014, based on criteria established in Internal Control - Integrated Framework (2013) 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, 2014, based on criteria established in Internal Control - Integrated Framework (2013) 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, 2014 and 2013,
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, 2014, and the related financial statement schedule
III, and our report dated February 26, 2015 expressed an unqualified opinion on those consolidated financial statements
and financial statement schedule.
New York, New York
February 26, 2015
/s/ KPMG LLP
60
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
Assets held for sale
Cash and cash equivalents
Restricted cash
Investment in and advances to non-consolidated entities
Deferred expenses (net of accumulated amortization of $34,087 in 2014 and $28,587 in 2013)
Loans receivable, net
Rent receivable - current
Rent receivable – deferred
Other assets
Total assets
Liabilities and Equity:
Liabilities:
Mortgages and notes payable
Credit facility borrowings
Term loans payable
Senior notes payable
Convertible notes payable
Trust preferred securities
Dividends payable
Liabilities held for sale
Accounts payable and other liabilities
Accrued interest payable
Deferred revenue - including below market leases (net of accumulated accretion of $35,239 in 2014
and $40,740 in 2013)
Prepaid rent
Total liabilities
Commitments and contingencies
Equity:
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares,
Series C Cumulative Convertible Preferred, liquidation preference $96,770 and 1,935,400 shares
issued and outstanding
Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 233,278,037 and
228,663,022 shares issued and outstanding in 2014 and 2013, respectively
Additional paid-in-capital
Accumulated distributions in excess of net income
Accumulated other comprehensive income
Total shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
2014
2013
$
$
$
3,671,560
705,566
106,238
4,483,364
1,196,114
3,287,250
3,379
191,077
17,379
19,402
65,860
105,635
6,311
61,372
20,229
3,777,894
945,216
—
505,000
497,675
15,664
129,120
42,864
2,843
37,740
8,301
68,215
16,336
2,268,974
3,812,294
762,157
74,350
4,648,801
1,223,381
3,425,420
—
77,261
19,953
18,442
66,827
99,443
10,087
19,473
35,375
3,772,281
1,197,489
48,000
406,000
247,707
27,491
129,120
40,018
—
39,642
9,627
69,667
18,037
2,232,798
94,016
94,016
23
2,763,374
(1,372,051)
404
1,485,766
23,154
1,508,920
3,777,894
$
23
2,717,787
(1,300,527)
4,439
1,515,738
23,745
1,539,483
3,772,281
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
61
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000, except share and per share data)
Years ended December 31,
2014
2013
2012
Gross revenues:
Rental
Advisory and incentive fees
Tenant reimbursements
Total gross revenues
Expense applicable to revenues:
$
$
392,480
554
31,338
424,372
$
335,721
855
25,334
361,910
Depreciation and amortization
Property operating
General and administrative
Non-operating income
Interest and amortization expense
Gains on sales of financial assets, net
Debt satisfaction charges, net
Gain on acquisition
Litigation reserve
Impairment charges and loan losses
Income (loss) before provision for income taxes, equity in earnings
(losses) of non-consolidated entities and discontinued operations
Provision for income taxes
Equity in earnings (losses) 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
Less net income attributable to noncontrolling interests
Net income 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
Deemed dividend – Series D
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
$
$
$
$
$
$
$
(154,837)
(63,673)
(28,255)
13,951
(97,303)
855
(9,452)
—
—
(37,333)
48,325
(1,109)
626
47,842
6,252
(59)
(312)
57,507
(13,767)
49,621
97,463
(4,359)
93,104
—
(6,290)
—
(490)
—
—
—
86,324
0.17
0.21
0.38
228,966,253
0.17
0.21
0.38
229,436,708
37,652
48,672
86,324
$
$
$
$
$
$
$
(157,901)
(54,757)
(28,426)
8,305
(85,892)
—
(25,347)
—
—
(35,579)
(17,687)
(3,177)
(157)
(21,021)
6,244
(1,817)
8,905
24,472
(12,920)
24,884
3,863
(2,233)
1,630
—
(6,290)
(3,543)
(656)
—
—
(5,230)
(14,089) $
(0.18) $
0.11
(0.07) $
209,797,238
(0.18) $
0.11
(0.07) $
209,797,238
The accompanying notes are an integral part of these consolidated financial statements.
62
272,343
1,806
22,859
297,008
(134,915)
(48,757)
(23,689)
6,736
(84,250)
—
(9,452)
167,864
(2,775)
(4,262)
163,508
(866)
21,531
184,173
(6,676)
(237)
(206)
13,291
(5,707)
465
184,638
(4,322)
180,316
(2,298)
(6,290)
(11,703)
(1,097)
(2,346)
229
—
156,811
0.99
—
0.99
159,109,424
0.94
(0.01)
0.93
179,659,826
(38,506) $
24,417
(14,089) $
157,974
(1,163)
156,811
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($000)
Years ended December 31,
Net income
Other comprehensive income (loss):
Change in unrealized gain (loss) on interest rate swaps, net
Other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Lexington Realty Trust shareholders
$
2014
2013
2012
$
97,463
$
3,863
$
184,638
(4,035)
(4,035)
93,428
(4,359)
89,069
$
10,663
10,663
14,526
(2,233)
12,293
$
(8,162)
(8,162)
176,476
(4,322)
172,154
The accompanying notes are an integral part of these consolidated financial statements.
63
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6
6
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000)
Years ended December 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Gain on acquisition
Gains on sales of properties
Gains on sales of financial assets, net
Debt satisfaction charges, net
Impairment charges and loan losses
Straight-line rents
Other non-cash (income) expense, net
Equity in (earnings) losses 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
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 of cash acquired of $8,107
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
Proceeds from the sale of marketable equity securities
Investment in marketable equity securities
Change in escrow deposits and restricted cash
Change in 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 senior notes
Conversion of convertible notes
Principal amortization payments
Principal payments on debt, excluding normal amortization
Change in revolving credit facility borrowing, net
Increase in deferred financing costs
Proceeds of mortgages and notes payable
Proceeds from term loans
Contributions from noncontrolling interests
Cash distributions to noncontrolling interests
Purchase of a noncontrolling interest
Repurchase of preferred shares
Redemption of noncontrolling interests
Issuance of common shares, net
Net cash provided by (used in) financing activities
Change in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
2014
2013
2012
$
97,463
$
3,863
$ 184,638
167,289
—
(57,507)
(855)
2,859
51,100
(46,254)
(390)
(626)
1,381
124
(3,716)
(617)
(963)
5,384
214,672
(122,395)
(131,153)
(17,681)
—
237,866
44,661
(43,555)
(2,948)
—
1,314
(10,484)
725
(689)
916
355
(43,068)
(159,520)
—
249,708
(233)
(35,206)
(202,262)
(48,000)
(4,558)
27,790
99,000
—
(4,008)
(2,100)
—
(1,962)
23,563
(57,788)
113,816
77,261
$ 191,077
$
183,833
—
(24,472)
—
3,989
48,499
(23,538)
5,248
157
918
752
6,223
4,420
(1,058)
(2,530)
206,304
(447,571)
(106,009)
(48,822)
—
75,519
2,056
(60,727)
(8,193)
—
15,603
(12,060)
—
—
(7,141)
(238)
(597,583)
(135,539)
—
247,565
(3,270)
(34,446)
(347,122)
48,000
(12,307)
253,500
151,000
—
(3,870)
(8,918)
(155,004)
—
434,927
434,516
43,237
34,024
77,261
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)
(1,331)
155,240
6,841
(11,470)
(20,172)
7,000
351
(14,826)
—
—
5,710
(149)
(134,103)
(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)
(29,687)
63,711
34,024
$
The accompanying notes are an integral part of these consolidated financial statements.
67
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 owns
a diversified portfolio of equity and debt investments in single-tenant properties and land. A majority of the real properties
in which the Company has an interest and all land interests 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 also provides investment advisory and asset management services to investors in the single-tenant area.
As of December 31, 2014, the Company had equity ownership interests in approximately 215 consolidated properties located
in 40 states. The properties in which the Company has an interest are leased to tenants in various industries including service,
technology, finance/insurance, transportation/logistics and automotive.
The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).
Accordingly, the Company will not be subject to federal income tax, provided that distributions to its shareholders equal at
least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain
activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities
are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS
are subject to federal income taxes on the income from these activities.
The Company conducts its operations either directly or indirectly through (1) property owner subsidiaries and lender
subsidiaries, which are single purpose entities, (2) an operating partnership, Lepercq Corporate Income Fund L.P. (“LCIF”),
in which the Company is the sole unit holder of the general partner and the sole unit holder of the limited partner that holds
a majority of the limited partner interests, (3) Lexington Realty Advisors, Inc. (“LRA”), a wholly-owned TRS, and (4)
investments in joint ventures. On December 30, 2013, another operating partnership, Lepercq Corporate Income Fund II
L.P. (“LCIF II”) , was merged with and into LCIF, with LCIF as the surviving entity. References to “OP Units” refer to units
of limited partner interests in LCIF or LCIF II, as applicable. 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.
The assets and credit of a property owner subsidiary or a lender subsidiary are not available to satisfy the debt and other
obligations of any other person, including any other property owner subsidiary or lender subsidiary or any other affiliate.
(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.
At December 31, 2014 and 2013, 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.
68
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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. Revenue is recognized on a contractual basis for leases with escalations tied to a consumer price index with
no floor. Renewal options in leases with rental terms that are lower than those in the primary term are excluded from the
calculation of straight-line rent if the renewals are not reasonably assured. If the Company funds tenant improvements and
the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements
are substantially completed and possession or control of the space is turned over to the tenant. If the Company determines
that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control
of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and
amortized as a reduction of revenue on a straight-line basis over the respective lease term. The Company recognizes lease
termination fees as rental revenue in the period received and writes off unamortized lease-related intangible and other lease-
related account balances, provided there are no further Company obligations under the lease. Otherwise, such fees and
balances are recognized on a straight-line basis over the remaining obligation period with the termination payments being
recorded as a component of rent receivable-deferred or deferred revenue on the Consolidated Balance Sheets.
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, 2014 and 2013, the Company's allowance for doubtful accounts was not significant.
69
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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.
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 is amortized to expense over the applicable lease term plus expected renewal periods.
Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties.
The Company generally depreciates its real estate assets over periods ranging up to 40 years.
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 its estimated fair value, which may be below the balance of any
non-recourse financing. Estimating future cash flows and fair values is highly subjective and such estimates could differ
materially from actual results.
Investments in Non-Consolidated Entities. The Company accounts for its investments in 50% or less owned entities 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
70
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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. 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.
Upon entering into hedging transactions, the Company documents the relationship between the interest rate swap agreement
and the hedged item. The Company also documents its risk-management policies, including objectives and strategies, as
they relate to its hedging activities. The Company assesses, both at inception of a hedge and on an ongoing basis, whether
or not the hedge is highly effective. The Company will discontinue hedge accounting on a prospective basis with changes
in the estimated fair value reflected in earnings when (1) it is determined that the derivative is no longer effective in offsetting
cash flows of a hedged item (including forecasted transactions), (2) it is no longer probable that the forecasted transaction
will occur or (3) it is determined that designating the derivative as an interest rate swap is no longer appropriate. The
Company does and may continue to utilize interest rate swap and cap agreements to manage interest rate risk, but does not
anticipate entering into derivative transactions for speculative trading purposes.
Stock Compensation. The Company maintains an equity participation plan. Non-vested share grants generally vest either
based upon (1) time, (2) performance and/or (3) market conditions. Options granted under the plan in 2010 vest over a five-
year period and expire ten years from the date of grant. Options granted under the plan in 2008 vested upon attainment of
certain market performance measures and 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.
71
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain
its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT
subsidiaries under the Code. As such, the Company is subject to federal and state income taxes on the income from these
activities.
Income taxes, primarily related to the Company's taxable REIT subsidiaries, are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or settled.
Cash and Cash Equivalents. The Company considers all highly liquid instruments with maturities of three months or less
from the date of purchase to be cash equivalents.
Restricted Cash. Restricted cash is comprised primarily of cash balances held in escrow with lenders.
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, 2014, 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.
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
2014, which are presented as discontinued operations.
Recently Issued Accounting Guidance. In April 2014, the FASB issued Accounting Standards Update No. 2014-08,
Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for reporting discontinued
operations and improves financial statement disclosures. Under this guidance, only disposals representing a strategic shift
in operations that have a major effect on an organization's operations and financial results should be presented as discontinued
operations. The new guidance is effective in the first quarter of 2015. It is anticipated that the implementation of this guidance
will reduce the number of future property dispositions the Company makes, if any, that will be classified as discontinued
operations in the Company's consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic
606), which amends the guidance for revenue recognition to eliminate the industry-specific revenue recognition guidance
and replace it with a principle based approach for determining revenue recognition. The new guidance is effective for
reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of the adoption of
the new guidance on its consolidated financial statements.
In February 2015, the FASB issued Accounting Standards Update 2015-02, “Consolidation (Topic 810) - Amendments to
the Consolidation Analysis,” which provides guidance on the consolidation evaluation for reporting organizations that are
required to evaluate whether they should consolidate certain legal entities. In accordance with the guidance, all legal entities
are subject to reevaluation under the revised consolidation model. The guidance is effective in the first quarter of 2016 and
early adoption is allowed. The Company is currently evaluating the impact of the adoption of this new guidance on its
consolidated financial statements.
72
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(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, 2014:
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
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
2014
2013
2012
$
37,652
$
(38,506) $
157,974
48,672
86,324
$
228,966,253
24,417
(14,089) $
$
209,797,238
(1,163)
156,811
159,109,424
$
$
0.17
0.21
0.38
$
$
(0.18) $
0.11
(0.07) $
0.99
—
0.99
2014
2013
2012
$
37,652
$
(38,506) $
157,974
—
—
—
37,652
48,672
—
—
—
—
1,490
8,953
(38,506)
168,417
24,417
(1,163)
—
—
(297)
Income (loss) from discontinued operations attributable to common
shareholders
Net income (loss) attributable to common shareholders
48,672
86,324
$
24,417
(14,089) $
(1,460)
166,957
$
Weighted-average common shares outstanding - basic
Effect of dilutive securities:
Share Options
Operating Partnership Units
6.00% Convertible Guaranteed Notes
Weighted-average 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
73
228,966,253
209,797,238
159,109,424
470,455
—
—
229,436,708
306,449
—
4,438,708
—
— 15,805,245
179,659,826
209,797,238
$
$
0.17
0.21
0.38
$
$
(0.18) $
0.11
(0.07) $
0.94
(0.01)
0.93
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
For per common share amounts, all incremental shares are considered anti-dilutive for periods that have a loss from continuing
operations attributable to common shareholders. In addition, other common share equivalents may be anti-dilutive in certain
periods.
(4)
Investments in Real Estate and Real Estate Under Construction
The Company's real estate, net, consists of the following at December 31, 2014 and 2013:
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
2014
2013
$
$
2,895,585
755,168
5,861
14,946
473,377
133,796
98,393
106,238
4,483,364
(1,196,114)
3,287,250
$
$
3,008,709
793,418
5,861
4,306
486,743
172,640
102,774
74,350
4,648,801
(1,223,381)
3,425,420
(1)
Includes accumulated amortization of real estate intangible assets of $400,628 and $447,764 in 2014 and 2013, respectively. The estimated
amortization of the above real estate intangible assets for the next five years is $35,894 in 2015, $30,221 in 2016, $26,905 in 2017, $23,179 in 2018
and $18,014 in 2019.
The Company had below-market leases, net of accumulated accretion, which are included in deferred revenue, of $54,414
and $59,781, respectively as of December 31, 2014 and 2013. The estimated accretion for the next five years is $4,383 in
2015, $3,312 in 2016, $2,918 in 2017, $2,911 in 2018 and $2,603 in 2019.
The Company completed the following acquisitions and build-to-suit transactions during 2014 and 2013:
2014:
Property Type
Location
Industrial
Rantoul, IL
Parachute, CO
Office
Office
Industrial
Industrial
Industrial
Land
January 2014
January 2014
Rock Hill, SC
March 2014
Lewisburg, TN
May 2014
North Las Vegas, NV May 2014
Bingen, WA
May 2014
New York, NY
October 2014
Rehab Hospital Vineland, NJ
October 2014
Industrial
Anniston, AL
December 2014
Weighted-average life of intangible assets (years)
Acquisition/
Completion Date
Initial Cost
Basis
Lease
Expiration
Land and
Land Estate
Building and
Improvements
Lease in-place Value
Real Estate Intangible
$
$
$
$
$
$
$
$
$
$
41,277
10/2033
13,928
10/2032
24,715
03/2034
13,320
03/2026
28,249
09/2034
20,391
05/2024
30,426
10/2113
19,100
02/2043
20,907
11/2029
212,313
$
$
$
$
$
$
$
$
$
$
1,304
1,400
1,601
173
3,244
$
$
$
$
$
— $
22,000
2,698
1,201
33,621
$
$
$
$
32,562
10,751
18,989
10,865
21,444
18,075
$
$
$
$
$
$
— $
12,790
16,771
142,247
$
$
$
7,411
1,777
4,125
2,282
3,561
2,316
8,426
3,612
2,935
36,445
37.5
74
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
2013:
Property
Type
Location
Acquisition/
Completion
Date
Initial
Cost Basis
Lease
Expiration
Land and
Land
Estate
Building and
Improvements
Above Market
Lease Value
Lease in-place
Value
Real Estate Intangibles
Industrial
Long Island City, NY February 2013
Houston, TX
March 2013
Denver, CO
April 2013
Tuscaloosa, AL
May 2013
— $
$
$
$
$
42,124
03/2028
81,400
03/2038
34,547
04/2028
8,397
05/2028
$
$
$
$
15,055
2,207
2,793
New York, NY
October 2013
$ 302,000
10/2112
$ 224,935
Danville, VA
October 2013
$
4,727
01/2029
Albany, GA
November 2013 $
7,074
11/2028
Various
December 2013
Omaha, NE
December 2013
$
$
13,144
12/2033
39,125
11/2033
$
$
$
$
3,454
1,468
1,522
2,058
$ 532,538
$ 253,492
Industrial
Office (1)
Retail(2)
Land(3)
Land
Retail(4)
Office(5)
Office
42,124
57,949
26,724
5,604
$
$
$
$
— $
— $
5,606
10,374
32,343
180,724
$
$
$
$
— $
— $
— $
— $
— $
673
$
— $
— $
— $
673
$
—
8,396
5,616
—
77,065
600
—
1,248
4,724
97,649
$
$
$
$
$
$
$
$
$
Weighted-average life of intangible assets (years)
15.3
82.5
(1) The Company incurred additional tenant related costs of $3,825.
(2) The Company incurred leasing costs of $323. The property was sold in September 2013.
(3)
(4) The Company incurred leasing costs of $338.
(5)
Includes three properties.
Includes four properties. One property was under construction at December 31, 2013, $1,969 of construction in progress costs are included in building
and improvements above.
The Company recognized aggregate acquisition and pursuit expenses of $1,901 and $1,349 in 2014 and 2013, 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 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, 2014, the Company had the following development arrangements outstanding:
Location
Property Type
Square Feet
Expected Maximum
Commitment/
Contribution
Lease Term
(Years)
Estimated
Completion Date
Oak Creek, WI
Thomson, GA
Richmond, VA
Industrial
Industrial
Office
Lake Jackson, TX
Office/R&D
164,000
208,000
330,000
664,000
1,366,000
$
$
$
$
$
22,609
10,245
110,137
166,164
309,155
20
15
15
20
2Q 15
2Q 15
3Q 15
4Q 16
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, 2014 and 2013, the
Company's aggregate investment in development arrangements was $106,238 and $74,350, respectively, which includes
$2,828 and $1,472 of interest capitalized, respectively, and is presented as investments in real estate under construction in
the accompanying Consolidated Balance Sheets.
75
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 that the
Company did not already own for a cash payment of $9,438 and the assumption of all outstanding liabilities. 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.
(5)
Sales of Real Estate and Discontinued Operations
For the years ended December 31, 2014, 2013 and 2012, the Company disposed of its interests in certain properties (excluding
Greenville, South Carolina in 2014, see note 7, and Pemlex LLC in 2012, see note 9) generating aggregate net proceeds of
$226,375, $75,519 and $142,022, respectively, which resulted in gains on sales of $57,507, $24,472 and $13,291,
respectively. For the years ended December 31, 2014, 2013 and 2012, the Company recognized net debt satisfaction gains
(charges) relating to these properties of $(312), $8,905 and $(206), respectively. These gains (charges) are included in
discontinued operations.
At December 31, 2014, the Company had one property classified as held for sale and no properties were classified as held
for sale at December 31, 2013.
The following presents the operating results for the properties sold and held for sale during the years ended December 31,
2014, 2013 and 2012:
Total gross revenues
Pre-tax net income, including gains on sales
(6)
Impairment of Real Estate Investments
Year Ending December 31,
2014
2013
2012
$
$
20,250
49,680
$
$
44,108
26,701
$
$
55,763
702
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 2014, 2013 and 2012, the Company recognized aggregate impairment charges of $34,833, $21,640 and $4,262,
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.
Properties impaired during 2014 and 2013 have an aggregate carrying value of $37,750 and are encumbered by an aggregate
$61,763 of non-recourse mortgage debt as of December 31, 2014.
During 2014, 2013 and 2012, the Company recognized $13,767, $12,920 and $5,707, respectively, of impairment charges
in discontinued operations, relating to real estate assets that were ultimately disposed of below their carrying value.
76
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(7)
Loans Receivable
As of December 31, 2014 and 2013, 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.
The following is a summary of our loans receivable as of December 31, 2014 and 2013:
Loan
Norwalk, CT(2)
Homestead, FL(2)
Westmont, IL(3)
Southfield, MI(4)
Austin, TX
Kennewick, WA
Other
Loan carrying value(1)
12/31/2014
12/31/2013
Interest Rate
Maturity Date
$
— $
—
12,152
3,296
2,800
85,254
2,133
$
105,635
$
28,186
10,239
12,610
6,610
2,389
37,030
2,379
99,443
7.50%
7.50%
6.45%
4.55%
16.00%
9.00%
8.00%
11/2014
08/2014
10/2015
02/2015
10/2018
05/2022
2021-2022
(1) Loan carrying value includes accrued interest and is net of origination costs and loan losses.
(2) Loan satisfied during 2014.
(3) Borrowers are in default and the Company commenced foreclosure proceedings. Tenant at office property collateral terminated its lease. The Company
recognized a loan loss of $13,939 during 2013. During 2014 and 2013, the Company recognized $1,284 and $1,737, respectively, of interest income
relating to the impaired loan and the loan had an average recorded investment value of $12,812 and $25,562 during 2014 and 2013, respectively. At
December 31, 2014, the impaired loan receivable had a contractual unpaid balance of $26,786.
(4) The Company recorded a $2,500 loan loss in 2014 as the Company determined it was probable that it would not collect the amount owed at maturity.
During 2014, the Company recognized $468 of interest income relating to the impaired loan and the loan had an average recorded investment of
$6,001 during 2014. At December 31, 2014, the impaired loan receivable had a contractual unpaid balance of $5,810.
The Company had a loan secured by a property in Schaumburg, Illinois. The borrower defaulted on the loan. The Company
did not record interest of $2,939 and $2,647 in 2013 and 2012, respectively, representing the interest earned since default.
In 2013, the Company foreclosed on the borrower and acquired the office property collateral, which is net leased through
December 2022.
The Company had two types of financing receivables: loans receivable and a capitalized financing lease. The Company
determined that its financing receivables operated within one portfolio segment as they were 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, for a commercial office property located in Greenville, South Carolina, was sold in
December 2014 for net proceeds of $11,491. 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, 2014, the financing receivables were performing as
anticipated other than as discussed above and there were no other significant delinquent amounts outstanding.
77
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, 2014 and 2013 and non-recurring basis during the year ended December 31, 2014 and
2013, aggregated by the level in the fair value hierarchy within which those measurements fall:
Description
2014
(Level 1)
(Level 2)
(Level 3)
Fair Value Measurements Using
Interest rate swap assets
Impaired real estate assets*
Impaired loan receivable*
Interest rate swap liabilities
$
$
$
$
$
1,153
$
25,679
3,296
$
(749) $
— $
— $
— $
— $
1,153
$
— $
— $
(749) $
—
25,679
3,296
—
*Represents a non-recurring fair value measurement.
Description
2013
(Level 1)
(Level 2)
(Level 3)
Interest rate swap assets
Impaired real estate assets*
Impaired loan receivable*
Impaired investments in and advances to non-
consolidated entities*
$
$
$
$
4,439
12,549
12,610
683
$
$
$
$
— $
— $
— $
— $
4,439
$
— $
— $
—
12,549
12,610
— $
683
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, 2014 and 2013:
Assets
Loans Receivable (Level 3)
Liabilities
Debt (Level 3)
As of December 31, 2014
As of December 31, 2013
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
105,635
$
105,061
$
99,443
$
95,734
$ 2,092,675
$ 2,091,364
$ 2,055,807
$ 2,028,558
The majority of the inputs used to value the Company's interest rate swap asset (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, 2014 and 2013, the Company determined that the credit valuation
adjustment relative to the overall interest rate swap asset (liability) is not significant. As a result, the entire interest rate swap
asset (liability) has been classified in Level 2 of the fair value hierarchy.
78
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income
and market valuation techniques. The Company may estimate fair values using market information such as 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.
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
In November 2014, the Company formed a joint venture to construct a private school in Houston, Texas. The Company
currently has a 25% interest in the joint venture. The anticipated total construction cost is $86,491. The Company may
provide construction financing up to $56,686. Upon completion, the property will be net leased for a 20-year term.
In October 2013, the Company formed a joint venture, in which the Company has a 15.0% interest, that acquired a portfolio
of veterinary hospitals for $39,456, which are net leased for a 20-year term. The acquisition was partially funded by a
$18,791 non-recourse mortgage loan with a fixed interest rate of 4.01% and maturity of November 2018.
In August 2013, the Company invested $5,000 in a joint venture, which acquired the fee interest and the related office
building improvements of a property in Baltimore, Maryland. Beginning in October 2015, the Company has the right to
require the redemption of its interest in the joint venture in exchange for a distribution to the Company of the fee interest,
which is currently leased for a 99-year term to the joint venture.
During 2012, the Company formed two joint ventures in which it has a minority interest. One joint venture acquired a retail
property in Palm Beach Gardens, Florida for $29,750 which was net leased for an approximate 15-year term. The Company
had a 36% interest in the venture and provided a $12,000 non-recourse mortgage loan to the venture which was repaid in
full in February 2013. The Company received a distribution of $2,557 in March 2013, a portion of which represented a
return of capital reducing the Company's ownership interest to 25%.
The 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 was 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.
In July 2012, the Company sold its interest in Pemlex LLC, a consolidated subsidiary, for $13,218 in connection with its
restructuring. No gain or loss was recognized in the transaction as the investment was sold at its cost basis.
79
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company's investments in Concord Debt Holding LLC and CDH CDO LLC were valued at zero and the Company
recognized income on the cash basis. During 2012, the Company sold all of its interest in Concord Debt Holding LLC and
CDH CDO LLC for $7,000 in cash.
Other. During 2014 and 2013, the Company recognized other-than-temporary impairment charges on a non-consolidated
joint venture due to changes in the Company's estimate of net proceeds to be received upon liquidation of the joint venture.
Accordingly, the Company recognized $930 and $925, respectively, in impairment charges in equity in earnings (losses) of
non-consolidated entities. The underlying property was sold in October 2014 and the Company recognized a gain of $87
in equity in earnings (losses) of non-consolidated entities.
The Company's remaining equity method investments consist of interests in five partnerships 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. One partnership is encumbered by $13,757 in mortgage debt (the
Company's proportionate share is $5,503) with an interest rate of 5.2% and a maturity date of May 2015.
LRA earns advisory fees from certain of these non-consolidated entities for services related to acquisitions, asset management
and debt placement. Advisory fees earned from these non-consolidated investments, including NLS, were $417, $512 and
$875 for the years ended December 31, 2014, 2013 and 2012, respectively.
(10) Mortgages and Notes Payable
The Company had outstanding mortgages and notes payable of $945,216 and $1,197,489 as of December 31, 2014 and
2013, respectively. Interest rates, including imputed rates on mortgages and notes payable, ranged from 2.2% to 8.5% at
December 31, 2014 and the mortgages and notes payable mature between 2014 and 2027. Interest rates, including imputed
rates, ranged from 3.6% to 8.5% at December 31, 2013. The weighted-average interest rate at December 31, 2014 and 2013
was approximately 5.2% and 5.3%, respectively.
The Company has a $400,000 unsecured revolving credit facility with KeyBank National Association (“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 0.95% to 1.725% (1.15% as of
December 31, 2014). At December 31, 2014, the unsecured revolving credit facility had no amounts outstanding, outstanding
letters of credit of $14,644 and availability of $385,356, subject to covenant compliance.
The Company also has a five-year $250,000 unsecured term loan facility from KeyBank, as agent. The unsecured term loan
matures in February 2018, requires regular payments of interest only at interest rates ranging from LIBOR plus 1.10% to
2.10% (1.35% as of December 31, 2014). The Company entered into interest rate swap agreements to fix the LIBOR
component at a weighted-average rate of 1.09% through February 2018 on the $250,000 of outstanding LIBOR-based
borrowings.
In addition, the Company also has a $255,000 unsecured term loan from Wells Fargo Bank, National Association (“Wells
Fargo”), as agent. The term loan matures in January 2019. The term loan requires regular payments of interest only at interest
rates ranging from LIBOR plus 1.50% to 2.25% (1.75% as of December 31, 2014). The Company may prepay any outstanding
borrowings under the term loan facility at a premium through January 12, 2016 and at par thereafter. The Company entered
into interest rate swap agreements to fix the LIBOR component at a weighted-average rate of 1.42% through January 2019
on the $255,000 of outstanding LIBOR-based borrowings.
The unsecured revolving credit facility and the unsecured term loans are subject to financial covenants, which the Company
was in compliance with at December 31, 2014.
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 $(7,016), $(11,811) and $12 for the years ended December 31, 2014, 2013 and 2012,
respectively, due to the satisfaction of mortgages and notes payable other than those disclosed elsewhere in these financial
statements. In addition, the Company capitalized $3,441, $2,397 and $3,062 in interest, including discontinued operations,
for the years ended 2014, 2013 and 2012, respectively.
80
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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, notes payable, credit facility borrowings and term loans for the
next five years and thereafter are as follows:
Year ending
December 31,
2015
2016
2017
2018
2019
Thereafter
Total
170,440
154,337
93,469
292,297
358,835
380,838
1,450,216
$
$
(11)
Senior Notes, Convertible Notes, Exchangeable Notes and Trust Preferred Securities
The Company had the following Senior Notes outstanding as of December 31, 2014:
Issue Date
May 2014
June 2013
Face Amount
Interest Rate
Maturity Date
Issue Price
$
$
250,000
250,000
500,000
4.40%
4.25%
June 2024
June 2023
99.883%
99.026%
Each series of the Senior Notes is unsecured and pays interest semi-annually in arrears. The Company may redeem the
notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being
redeemed plus a premium.
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 151.5965
common shares per one thousand principal amount of the notes, representing a conversion price of approximately $6.60
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 2014, 2013 and 2012, $12,763, $54,905 and $31,104 aggregate principal amount of the notes were converted
for 1,904,542, 7,944,673 and 4,487,060 common shares and an aggregate cash payment of $233, $3,270 and $2,427 plus
accrued and unpaid interest, respectively. The Company recognized aggregate debt satisfaction charges of $2,436, $13,536
and $7,842, during 2014, 2013 and 2012, respectively, relating to the conversions.
In 2013, the Company obtained the release of all guarantees, other than the Company's operating partnership, under the
indentures for the 4.25% Senior Notes and the 6.00% Convertible Guaranteed Notes, the term loan agreements and the
unsecured revolving credit facility.
During 2007, the Company issued an aggregate $450,000 of 5.45% Exchangeable Guaranteed Notes due in 2027. During
2012, the Company repurchased and retired all remaining outstanding original principal amount of the notes for a cash
payment of $62,150. This resulted in debt satisfaction charges, net of $44.
81
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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
$
$
$
$
6.00% Convertible Guaranteed Notes
December 31, 2014
December 31, 2013
16,228
(564)
15,664
(33,160)
8.1%
$
$
$
01/2017
10,432
$
28,991
(1,500)
27,491
(26,032)
8.1%
01/2017
14,296
Statements of Operations:
6.00% Convertible Guaranteed Notes
Coupon interest
Discount amortization
5.45% Exchangeable Guaranteed Notes
Coupon interest
Discount amortization
2014
2013
2012
$
$
$
$
1,545
438
1,983
$
$
— $
—
— $
2,296
658
2,954
$
$
— $
—
— $
6,634
1,868
8,502
188
34
222
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, 2014 and 2013, there was $129,120 original principal
amount of Trust Preferred Securities outstanding.
Scheduled principal payments for these debt instruments for the next five years and thereafter are as follows:
Year ending
December 31,
2015
2016
2017(1)
2018
2019
Thereafter
Debt discounts
Total
—
—
16,228
—
—
629,120
645,348
(2,889)
642,459
$
$
(1) Although the 6.00% Convertible Guaranteed Notes mature in 2030, the notes can be put to the Company in 2017.
82
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(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 $505,000 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 was 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 aggregate $505,000 term loans. During the next 12 months, the Company
estimates that an additional $4,737 will be reclassified as an increase to interest expense if the swaps remain outstanding.
As of December 31, 2014, 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
10
Notional
$505,000
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, 2014 and 2013.
As of December 31, 2014
As of December 31, 2013
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Derivatives designated as hedging
instruments:
Interest Rate Swap Asset
Interest Rate Swap Liability
Other Assets
Accounts Payable and
Other Liabilities
$
$
1,153
Other Assets
$
4,439
(749)
83
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The tables below present the effect of the Company's derivative financial instruments on the Consolidated Statements of
Operations for 2014 and 2013:
Derivatives in Cash Flow
Amount of Gain (Loss)
Recognized
in OCI on Derivative
(Effective Portion)
December 31,
Hedging Relationships
2014
2013
Interest Rate Swap
$
(9,560) $
7,559
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,
2014
2013
$
5,525
$
3,104
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, 2014,
the Company had not posted any collateral related to the agreements.
(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,
2015
2016
2017
2018
2019
Thereafter
$
Total
341,950
327,046
300,418
275,572
248,604
6,203,163
$ 7,696,753
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.
84
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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,
2015
2016
2017
2018
2019
Thereafter
Total
5,137
4,927
4,880
4,664
4,134
37,963
61,705
$
$
Rent expense for the leasehold interests, including discontinued operations, was $919, $1,284 and $1,198 in 2014, 2013
and 2012, respectively.
The Company leases its corporate headquarters. The lease expires March 2026. The Company is 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 offices are $1,261 for 2015, $506 for
2016, $1,256 for 2017, $1,224 for 2018 and $1,224 for 2019 and $8,019 thereafter. Rent expense for 2014, 2013 and 2012
was $1,356, $1,338 and $1,029, respectively.
(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, 2014, 2013 and 2012, 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 2014, 2013 and 2012, the Company issued 2,600,795, 36,012,313 and 18,289,557 common shares, respectively,
through public offerings and under its direct share purchase plan, raising net proceeds of approximately $25,813, $399,566
and $164,429 respectively. During 2013, the Company implemented an At-The-Market offering program under which the
Company may issue up to $100,000 in common shares over the term of this program. The Company issued 3,409,927
common shares under this program during 2013 and generated aggregate gross proceeds of $36,884. The proceeds from
these issuances were primarily used for general working capital, to fund investments and retire indebtedness.
The Company had 1,935,400 shares of Series C Cumulative Convertible Preferred Stock (“Series C Preferred”), outstanding
at December 31, 2014. 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, each share is 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.
85
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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 2014, 2013 and 2012, the Company issued 37,678, 1,893,409 and 643,450 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 2013 and 2012, the Company repurchased/redeemed and retired the following shares of its preferred stock:
8.05% Series B Cumulative Redeemable Preferred Stock:
Shares redeemed and retired
Redemption cost(1)
Deemed dividend(2)
6.50% Series C Cumulative Convertible Preferred Stock:
Shares repurchased and retired
Repurchase cost
Discount (Deemed negative dividend)(2)
7.55% Series D Cumulative Redeemable Preferred Stock:
Shares redeemed and retired
Redemption cost(1)
Deemed dividend(2)
2013
2012
—
— $
— $
—
— $
— $
6,200,000
155,621
5,230
$
$
2,740,874
69,459
2,346
34,800
1,462
(229)
—
—
—
$
$
$
$
$
$
(1) Includes accrued and unpaid dividends.
(2) Represents the difference between the redemption/repurchase cost and historical GAAP cost. Accordingly, net income (loss) was adjusted for the
deemed dividends/deemed negative dividends to arrive at net income (loss) attributable to common shareholders.
Accumulated other comprehensive income as of December 31, 2014 and 2013 represented $404 and $4,439, respectively,
of unrealized gain on interest rate swaps, net.
Changes in Accumulated Other Comprehensive Income
Gains and Losses
on Cash Flow Hedges
Balance December 31, 2013
Other comprehensive loss before reclassifications
Amounts of loss reclassified from accumulated other
comprehensive loss to interest expense
Balance December 31, 2014
$
$
4,439
(9,560)
5,525
404
86
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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.
During 2014, in connection with the merger of LCIF II with and into LCIF, former LCIF II partners representing 170,193
OP units elected or were deemed to elect to receive $1,962 in aggregate cash for such OP units.
During 2014, 2013 and 2012, 29,086, 202,241 and 257,427 common shares, respectively, were issued by the Company, in
connection with OP unit redemptions, for an aggregate value of $148, $1,053 and $1,343, respectively.
As of December 31, 2014, there were approximately 3,422,000 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 Attributable to Shareholders and
Transfers from Noncontrolling Interests
2014
2013
2012
Net income attributable to Lexington Realty Trust shareholders
$
93,104
$
1,630
$
180,316
Transfers from noncontrolling interests:
Increase (decrease) in additional paid-in-capital for redemption of
noncontrolling OP units
Change from net income attributable to shareholders and transfers from
noncontrolling interests
(858)
1,053
1,343
$
92,246
$
2,683
$
181,659
In July 2014, the Company acquired a consolidated joint venture partner's interest in an office property in Philadelphia,
Pennsylvania for $2,100 raising the Company's equity ownership in the office property from 80.5% to 87.5%. In July 2013,
the Company acquired its consolidated joint venture partners' interest in an industrial facility in Long Island City, New York
for a payment of $8,918, which was recorded as a distribution to the partner in accordance with GAAP.
(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 2014, 2013 and 2012. 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”) was $8.00 or higher and vested 50% following a 20-
day trading period where the average closing price of a common share of the Company on the NYSE was $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.
87
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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
$
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%
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 $1,038, $1,037 and $1,197 in compensation
expense in 2014, 2013 and 2012 respectively. The Company has unrecognized compensation costs of $480 relating to the
outstanding options as of December 31, 2014. 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, 2014, 2013 and 2012 were $2,780, $8,607 and $1,603,
respectively.
Share option activity during the years indicated is as follows:
Balance at December 31, 2011
Exercised
Balance at December 31, 2012
Exercised
Forfeited
Balance at December 31, 2013
Exercised
Forfeited
Balance at December 31, 2014
Number of
Shares
Weighted-Average
Exercise Price
Per Share
3,888,281
(408,201)
3,480,080
(1,519,179)
(5,200)
1,955,701
(594,791)
(10,500)
1,350,410
$
$
6.36
5.73
6.44
5.77
7.47
6.95
6.71
7.46
7.05
As of December 31, 2014, the aggregate intrinsic value of options that were outstanding and exercisable was $4,557.
Non-vested share activity for the years ended December 31, 2014 and 2013, is as follows:
Balance at December 31, 2012
Granted
Vested
Forfeited
Balance at December 31, 2013
Vested
Forfeited
Balance at December 31, 2014
88
Number of
Shares
Weighted-Average
Value Per Share
1,465,446
1,829,400
(770,229)
(3,571)
2,521,046
(537,003)
(13,658)
1,970,385
$
$
8.64
10.52
7.14
9.21
10.46
9.16
9.96
10.82
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
As of December 31, 2014, of the remaining 1,970,385 non-vested shares, 1,895,245 are subject to time-based vesting and
75,140 are subject to performance-based vesting. At December 31, 2014, there are 4,012,252 awards available for grant.
The Company has $15,183 in unrecognized compensation costs relating to the non-vested shares that will be charged to
compensation expense over an average of approximately 4.0 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, 2014 and 2013, 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 $299, $298 and $279 of contributions are applicable to 2014, 2013 and
2012, respectively.
During 2014, 2013 and 2012, the Company recognized $7,550, $7,145 and $3,030, respectively, in 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.
The Company leases certain properties to entities in which Vornado Realty Trust, a significant shareholder, has an interest.
During 2014, 2013 and 2012, the Company recognized $255, $744 and $842, respectively, in rental revenue, including
discontinued operations, from these properties. The Company leases its corporate office from an affiliate of Vornado Realty
Trust. Rent expense for this property was $1,252, $1,225 and $919 in 2014, 2013 and 2012, respectively.
In 2012, 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 intended to raise capital from foreign
investors seeking entry into the United States of America. No joint venture agreement was ever entered into by the Company
with the affiliate of its Chairman. The Company is no longer pursuing any interest in the joint venture.
(18)
Income Taxes
The 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.
89
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company's provision for income taxes for the years ended December 31, 2014, 2013 and 2012 is summarized as follows:
Current:
Federal
State and local
NOL utilized
Deferred:
Federal
State and local
2014
2013
2012
$
$
$
145
(1,130)
—
(91)
(33)
(1,109) $
(1,445) $
(1,593)
586
(595)
(130)
(3,177) $
(371)
(1,082)
401
141
45
(866)
Net deferred tax assets (liabilities) of $(19) and $106 are included in other assets (liabilities) on the accompanying
Consolidated Balance Sheets at December 31, 2014 and 2013, respectively. These net deferred tax assets (liabilities) relate
primarily to differences in the timing of the recognition of income (loss) between GAAP and tax.
The income tax 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
2014
2013
2012
$
$
(43) $
(9)
(1,057)
(1,109) $
$
164
22
(3,363)
(3,177) $
(573)
(110)
(183)
(866)
For the years ended December 31, 2014, 2013 and 2012, the “other” amount is comprised primarily of state franchise taxes
of $1,183, $1,280 and $968, respectively, the write-off of deferred tax liabilities (asset) of $0, $(150) and $0, respectively,
and permanent differences of $0, $1,936, and $37, respectively, relating to the transfer of certain assets of the Company's
taxable subsidiaries.
As of December 31, 2014 and 2013, the Company had no net operating loss carry forwards for income taxes.
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, 2014, is as follows:
Total dividends per share
Ordinary income
Qualifying dividend
Capital gain
Return of capital
$
2014
2013
2012
$
0.67
49.44%
0.05%
—
50.51%
100.00%
$
0.60
35.53%
4.11%
2.09%
58.27%
100.00%
0.525
95.68%
0.99%
—
3.33%
100.00%
A summary of the average taxable nature of the Company's dividend on shares of its Series B Cumulative Redeemable
Preferred Stock for each of the years in the three-year period ended December 31, 2014, is as follows:
Total dividends per share
Ordinary income
Qualifying dividend
Capital gain
Return of capital
$
2014
2013
2012
— $
—
—
—
—
—
— $ 1.341667
—
—
—
—
—
98.98%
1.02%
—
—
100.00%
90
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 C Preferred for each of the years
in the three-year period ended December 31, 2014, is as follows:
Total dividends per share
Ordinary income
Qualifying dividend
Capital gain
Return of capital
$
2014
2013
2012
$
3.25
99.90%
0.10%
—
—
100.00%
$
3.25
85.14%
9.85%
5.01%
—
100.00%
3.25
98.98%
1.02%
—
—
100.00%
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, 2014, is as follows:
Total dividends per share
Ordinary income
Qualifying dividend
Capital gain
Return of capital
(19)
Commitments and Contingencies
2014
$
— $
—
—
—
—
—
2013
1.043368
$
85.14%
9.85%
5.01%
—
100.00%
2012
1.8875
98.98%
1.02%
—
—
100.00%
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. During 2014, the Company commenced the expansion
of the Byhalia, Mississippi property for an estimated cost of $15,300. 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, 2014, 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 $1,384 and (2) the full payment
of the base building improvement, tenant improvement allowance and lease commissions for an office property in Herndon,
Virginia, which the unfunded amounts were estimated to be $417.
From time to time, the Company is directly or indirectly involved in legal proceedings arising in the ordinary course of
business. Management believes, based on currently available information, and after consultation with legal counsel, that
although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate,
will not have a material adverse effect on the Company's business, financial condition and results of operations.
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 2014, 2013 and 2012, the Company paid $100,080, $92,788 and
$101,262, respectively, for interest and $859, $4,666 and $1,018, respectively, for income taxes.
During 2014, the Company sold its interests in certain properties, which included the assumption of the related non-recourse
mortgage debt in the aggregate amount of $30,140. In addition, the Company conveyed its interest in one property to its
lender in full satisfaction of the $9,900 non-recourse mortgage note payable.
91
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
During 2013, the Company sold its interests in two properties, which included the assumption of the related non-recourse
mortgage debt of $40,356. In addition, the Company conveyed its interests in four properties to lenders in full satisfaction
of the aggregate $49,510 non-recourse mortgage notes payable.
During 2012, the Company sold its interest in a property, which included the assumption of the related non-recourse mortgage
debt of $8,921. In addition, the Company conveyed its interests in two properties to lenders in full satisfaction of the
aggregate $12,409 non-recourse mortgage notes payable.
(21)
Unaudited Quarterly Financial Data
Total gross revenues(1)
Net income
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
2014
3/31/2014
6/30/2014
9/30/2014
12/31/2014
$
$
$
$
$
104,139
$
105,571
1,814
$
(839) $
15,287
12,743
— $
0.05
— $
0.05
$
$
$
$
$
106,708
42,177
38,720
0.17
0.17
$
$
$
$
$
107,954
38,185
35,700
0.15
0.15
2013
3/31/2013
6/30/2013
9/30/2013
12/31/2013
$
$
$
$
$
$
85,159
(2,123) $
(7,295) $
88,398
$
87,895
7,832
$
(849) $
5,155
2,978
(0.04) $
— $
0.01
(0.04) $
— $
0.01
$
$
$
$
$
100,458
(7,001)
(8,923)
(0.04)
(0.04)
_____________
(1) All periods have been adjusted to reflect the impact of properties sold during the years ended December 31, 2014 and 2013, 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, 2014 and in addition to disclosures elsewhere in the financial statements, the Company:
•
•
•
acquired a 360 acre golf course in Venice, Florida for $16,850. The property is net leased for a 40-year term;
entered into a forward commitment to acquire a build-to-suit industrial property in Detroit, Michigan for $29,680.
The property will be subject to a 20-year net lease; and
obtained a 10-year, 4.1% interest-only $29,193 non-recourse mortgage secured by a land parcel owned in New
York, New York.
92
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
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)
Anniston, AL
$
— $
1,201 $
16,771 $
17,972 $
5,585
—
5,110
2,207
3,657
1,400
36,099
9,442
12,158
27,851
9,605
10,751
41,684
9,442
17,268
30,058
13,262
12,151
11,498
66,996
78,494
38,974
Description
Long Term Lease -
Industrial
Long Term Lease - Office
Phoenix, AZ
Long Term Lease - Office
Tempe, AZ
Long Term Lease - Office
Los Angeles, CA
Long Term Lease - Office
Englewood, CO
Long Term Lease - Office
Louisville, CO
Long Term Lease - Office
Parachute, CO
Long Term Lease - Office
Orlando, FL
Long Term Lease - Office
Tampa, FL
Long Term Lease - Office
Tampa, FL
Long Term Lease - Office
Tampa, FL
Long Term Lease - Retail
Albany, GA
Long Term Lease - Office McDonough, GA
Long Term Lease -
Industrial
Rantoul, IL
Long Term Lease - Office
Lenexa, KS
Long Term Lease -
Industrial
Long Term Lease -
Industrial
Long Term Lease -
Industrial
Long Term Lease -
Industrial
Long Term Lease -
Industrial
Long Term Lease -
Industrial
Long Term Lease -
Industrial
Dry Ridge, KY
Elizabethtown, KY
Elizabethtown, KY
Hopkinsville, KY
(1)
(2)
(2)
Owensboro, KY
(1)
Shreveport, LA
Minneapolis, MN
Long Term Lease - Office
St Joseph, MO
Long Term Lease -
Industrial
Long Term Lease -
Industrial
Byhalia, MS
Shelby, NC
Long Term Lease - Office
Omaha, NE
Long Term Lease - Office
Omaha, NE
Long Term Lease -
Industrial
Durham, NH
Long Term Lease - Office
Rockaway, NJ
Long Term Lease -
Specialty
Vineland, NJ
Long Term Lease - Office
Las Vegas, NV
Long Term Lease -
Industrial
Long Term Lease -
Industrial
North Las Vegas, NV
Long Island City, NY
Long Term Lease - Land
New York, NY
Long Term Lease - Land
New York, NY
Long Term Lease - Land
New York, NY
Long Term Lease - Land
New York, NY
Long Term Lease -
Industrial
Long Term Lease -
Industrial
Chillicothe, OH
Cincinnati, OH
Long Term Lease - Office
Columbus, OH
Long Term Lease - Office
Columbus, OH
(3)
(3)
(3)
—
7,344
9,843
—
—
—
—
—
—
—
—
11,466
—
38,296
2,351
11,986
2,252
7,003
1,959
19,000
—
—
15,000
—
—
7,776
—
—
—
—
—
—
213,475
—
—
—
—
—
—
—
Long Term Lease -
Industrial
Glenwillow, OH
15,583
Long Term Lease - Office
Eugene, OR
Long Term Lease -
Industrial
Bristol, PA
—
—
6,391
705
1,969
6,605
12,677
33,866
48,602
13,113
27,758
—
2,167
2,597
6,493
1,818
2,574
278
168
19
45
185
1,046
Dec-14
Dec-12
Dec-05
Dec-04
Apr-13
Sep-08
Jan-14
Dec-06
Dec-13
Dec-13
Dec-13
Oct-13
Sep-12
895
Jan-14
9,602
Jul-08
2014
8, 15 & 24
1986/2011
10, 17, & 40
1998
2000
2013
30 & 40
10, 13 & 40
15, 19 & 40
1987/2007
8, 9 & 40
2012
19, 24 & 40
1984/2012
3, 5, 10, 11, 13,
25 & 40
1999
1999
2014
2013
1999
2013
2007
20 & 38
20 & 35
14, 20 & 40
15 & 40
3, 11 & 38
20, 21 & 40
5, 12, 14, 15 &
40
4,144
Jun-05
1988/1992
22 & 40
8,870
Jun-05
1995/2001
25 & 40
5,214
1,605
Jun-05
2001
25 & 40
16,785
12,349
22,700
3,808
14,611
22,489
20,283
34,401
10,890
21,558
25,113
15,488
65,263
24,976
42,624
73,148
86,569
65,218
22,000
5,624
Jun-05
Various
25 & 40
4,488
Jun-05
1998/2000
25 & 40
4,254
Mar-07
144
1,030
Sep-12
Sep-12
1,969
May-11
2,473
964
2,310
4,759
5,143
101
10,870
Jun-11
Dec-13
Nov-05
Jun-07
Dec-06
Oct-14
Dec-06
421
Jul-13
5,200
Mar-13
—
—
—
—
Oct-13
Oct-13
Oct-13
Oct-14
2006
2003
2012
2011
2011
2013
1995
40
3, 29 & 40
15 & 40
40
11, 20 & 40
20 & 40
30 & 40
1986/2003
40
2002/2004
20 & 40
2003
3, 28 & 40
1983/1994
40
2014
2013
N/A
N/A
N/A
N/A
19, 20 & 40
15
N/A
N/A
N/A
N/A
9,756
1,442
Oct-11
1995/1998
6, 15 & 26
9,833
12,075
3,205
26,758
14,639
18,371
1,835
1,048
243
Dec-06
Dec-10
Jul-11
5,340
Dec-06
916
Dec-12
1991
2005
1999/2006
1996
2012
10, 14 & 40
40
40
40
7, 12, 15, 25 &
40
5,461
Mar-98
1982/1997
10, 16, 30 & 40
895
146
398
1,468
1,443
1,304
6,909
560
890
352
631
393
860
1,886
607
1,006
1,421
2,058
2,566
3,464
4,646
2,698
12,099
5,496
559
1,571
5,137
11,234
32,562
41,693
12,553
26,868
4,862
16,154
11,956
21,840
1,922
14,004
21,483
18,862
32,343
8,324
18,094
20,467
12,790
53,164
3,244
21,732
—
73,148
86,569
65,218
22,000
735
1,049
1,594
432
2,228
1,541
2,508
42,624
—
—
—
—
9,021
8,784
10,481
2,773
24,530
13,098
15,863
93
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
Useful life
computing
depreciation in
latest income
statement
(years)
Long Term Lease - Office
Jessup, PA
Long Term Lease - Industrial Chester, SC
Long Term Lease - Office
Rock Hill, SC
Long Term Lease - Industrial Crossville, TN
Long Term Lease - Industrial
Lewisburg, TN
Long Term Lease - Office
Allen, TX
Long Term Lease - Office
Arlington, TX
—
9,387
—
—
—
—
—
Long Term Lease - Office
Carrollton, TX
18,850
Long Term Lease - Office
Carrollton, TX
Long Term Lease - Land/
Infrastructure
Houston, TX
Long Term Lease - Office
Houston, TX
Long Term Lease - Office
Houston, TX
Long Term Lease - Office
Houston, TX
Long Term Lease - Land/
Infrastructure
Missouri City, TX
Long Term Lease - Specialty
Tomball, TX
Long Term Lease - Land
Danville, VA
Long Term Lease - Retail
Edmonds, WA
Long Term Lease - Industrial
Eau Claire, WI
Long Term Lease - Office
Huntington, WV
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
Pine Bluff, AR
Glendale, AZ
Phoenix, AZ
Tempe, AZ
Tucson, AZ
Lake Forest, CA
Palo Alto, CA
Centennial, CO
Lakewood, CO
Wallingford, CT
Boca Raton, FL
Fort Meyers, FL
Lake Mary, FL
Lake Mary, FL
Orlando, FL
Orlando, FL
Palm Beach
Gardens, FL
Tampa, FL
McDonough, GA
Clive, IA
Meridian, ID
Lisle, IL
Schaumburg, IL
Columbus, IN
Fishers, IN
Indianapolis, IN
Lenexa, KS
Overland Park, KS
Baton Rouge, LA
Boston, MA
Foxboro, MA
Oakland, ME
—
—
—
—
23,206
—
8,759
—
—
—
6,500
—
—
—
—
—
—
—
53,536
—
—
—
19,870
—
—
—
9,602
—
—
—
—
—
9,746
9,613
—
25,129
—
—
9,854
34,733
—
12,540
—
9,061
2,520
1,629
1,601
545
173
5,591
1,274
2,599
828
15,055
481
1,875
16,613
14,555
3,174
3,454
—
421
1,368
1,353
271
9,418
4,666
—
681
3,442
12,398
4,851
1,569
1,049
4,290
795
4,535
4,438
3,538
586
787
2,018
693
1,158
2,255
3,236
5,007
235
2,808
1,700
2,828
4,769
1,252
3,814
2,231
551
17,678
8,470
18,989
6,999
10,865
25,421
15,309
22,050
—
57,949
2,352
10,959
58,226
5,895
7,405
—
3,947
5,590
9,527
2,260
603
8,260
24,856
12,461
4,037
13,769
16,977
15,187
8,857
4,773
17,160
2,941
14,830
15,103
9,708
35,012
3,704
7,950
6,405
—
7,797
13,747
22,086
45,729
19,373
18,461
6,075
41,956
11,085
16,040
25,653
8,774
94
20,198
10,099
20,590
7,544
11,038
31,012
16,583
24,649
828
73,004
2,833
12,834
74,839
20,450
10,579
3,454
3,947
6,011
10,895
3,613
874
17,678
29,522
12,461
4,718
17,211
29,375
20,038
10,426
5,822
21,450
3,736
19,365
19,541
13,246
35,598
4,491
9,968
7,098
1,158
10,052
16,983
27,093
45,964
22,181
20,161
8,903
46,725
12,337
19,854
27,884
9,325
1,691
722
464
3,159
226
5,441
1,452
7,099
—
3,157
97
6,148
14,158
2,246
655
—
947
556
946
490
162
1,532
8,495
1,015
406
4,403
18,175
5,289
5,496
1,472
5,095
671
4,809
4,799
4,681
7,267
Aug-12
Sep-12
Mar-14
Jan-06
May-14
May-11
Sep-12
Jun-07
Jun-07
Mar-13
Dec-13
Apr-05
Mar-04
Apr-12
Sep-12
Oct-13
Dec-06
Sep-12
Jan-12
Dec-06
Sep-12
Sep-12
May-00
Sep-12
Sep-12
Mar-02
Dec-06
May-07
Apr-05
Dec-03
Feb-03
Apr-05
Jun-07
Jun-07
Jan-07
Dec-06
1,282
May-98
924
601
—
937
Sep-12
Sep-12
Jun-04
Sep-12
3,636
Dec-06
1,787
10,947
5,337
12,590
673
11,583
3,341
3,157
13,053
841
Oct-13
Dec-06
Jun-07
Apr-05
Sep-12
Jun-07
May-07
Mar-07
Dec-04
Sep-12
2012
13, 15 & 40
2001/2005
9, 13 & 34
2013
18, 20 & 40
1989/2006
17 & 40
2014
12, 18 & 34
1981/1983
6, 7, 11 & 25
2003
2003
N/A
1, 10, 12 & 40
8 & 40
N/A
Various
11, 12, 16 & 35
2002
2000
11, 20 & 31
4, 13, 20 & 40
1976/1984
10 & 40
N/A
2005
N/A
1981
7
13, 14 & 40
N/A
40
1993/2004
10, 15 & 28
2011
1980
1964/1972/
1988
1986/1997/
2000
1997
1998
1988
2001
1973/1982
14 & 40
40
3, 4 & 13
7, 20 & 24
6, 9 & 40
5, 10, 11, 15 &
36
7, 10 & 30
40
40
2001
2002
10 & 40
2, 3, 12 & 40
1977/1993
8 & 40
1983/2002
40
1998
1996
1999
2003
1982
1996
1986
2007
N/A
2004
1984
5, 10 & 32
4, 7 & 40
4, 7 & 40
5, 6, 12, 15 & 40
40
5 - 40
8 & 27
6, 11 & 40
N/A
7 & 37
2, 3, 5, 20 & 40
1979/1989/
2010
1980/2006
1999
1999
2004
7, 9 & 30
40
3 - 40
6 - 40
7, 12 & 37
1980/2005
12 & 40
1997
1910
1982/1987
3, 4, 6 & 40
10 & 40
16 & 40
2005
8, 12 & 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
Accumulated
Depreciation
and
Amortization
Date Acquired
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
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Livonia, MI
Southfield, MI
Kansas City, MO
Pascagoula, MS
Wall, NJ
Whippany, NJ
Milford, OH
Westerville, OH
Redmond, OR
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
Carrollton, TX
Farmers Branch, TX
Garland, TX
Houston, TX
Houston, TX
Irving, TX
Irving, TX
Mission, TX
San Antonio, TX
Temple, TX
Westlake, TX
Hampton, VA
Herndon, VA
Herndon, VA
Midlothian, VA
Bremerton, WA
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
—
—
16,559
—
19,870
14,153
—
—
—
7,857
—
7,277
—
—
—
—
—
—
—
3,617
—
—
18,408
—
—
—
—
—
5,432
—
7,865
—
—
—
—
—
5,854
—
—
—
—
7,959
22,512
—
9,303
—
—
5,928
—
—
6,145
15,295
—
—
935
—
2,433
618
8,985
4,063
3,124
2,085
2,064
900
13,209
1,189
774
1,798
3,601
551
513
621
1,079
464
5,291
1,789
3,984
2,218
1,875
800
7,476
4,889
2,556
2,800
227
2,361
2,333
5,127
9,409
1,100
1,655
654
573
1,030
2,160
171
2,463
1,528
2,052
371
509
254
819
1,078
1,383
1,942
143
40
13,714
12,124
20,154
3,677
26,961
19,711
16,140
9,341
8,316
10,693
56,037
8,724
3,629
26,038
15,340
4,313
403
6,282
11,146
4,467
97,032
18,157
27,308
8,473
10,585
26,962
45,985
29,738
2,911
15,585
8,181
23,382
11,026
24,640
12,853
12,685
5,445
9,943
1,592
10,869
7,347
7,657
24,291
14,247
8,443
2,573
5,289
7,969
2,439
10,134
32,397
14,169
4,302
2,236
95
14,649
12,124
22,587
4,295
35,946
23,774
19,264
11,426
10,380
11,593
69,246
9,913
4,403
27,836
18,941
4,864
916
6,903
12,225
4,931
102,323
19,946
31,292
10,691
12,460
27,762
53,461
34,627
5,467
18,385
8,408
25,743
13,359
29,767
22,262
13,785
7,100
10,597
2,165
11,899
9,507
7,828
26,754
15,775
10,495
2,944
5,798
8,223
3,258
11,212
33,780
16,111
4,445
2,276
Useful life
computing
depreciation in
latest income
statement
(years)
2 - 34
Date
Constructed
1987/1988/
1990
1966/1989
7, 16 & 40
1963/2003
12 & 40
1995
1983
2006/2008
1991
2000
2004
1998
1957/1997
2006
2012
2004
2002
2006
1981
2002
1997
1871/1999
1985/2007
2003
2000
1980
2000
2000
2003
1999
2003
2000
2001
2001
1999
1987
1985/1999
2000
2002
2004
1959/1967
1980
1986
2005
1, 9 & 31
22 & 40
20 & 40
5 - 40
5 & 40
6, 13 & 40
2, 9, 15, 20 & 40
4 - 40
40
12 & 40
11, 15 & 40
5, 11, 20 & 40
40
5, 6 & 14
1, 5, 7 & 40
10, 11, 14 & 40
20 & 40
13 & 40
19 & 40
40
4, 5 & 18
5, 13 & 40
10, 11, 20 & 40
6 - 40
10, 12 & 40
3, 8 & 35
6, 11 & 40
3, 10, 12 & 40
4 - 40
5, 10, 15 & 40
9 - 40
40
6, 7, 15 & 40
4, 13 & 40
15 & 40
1 - 40
40
9 - 40
8, 12 & 40
2000/2007
40
2000
2001
1998
1992
5, 11 & 34
11, 12 & 40
40
40
2000/2003
3, 6 & 34
1975/1995
40
2012
8,10 & 40
1965/1980
10 & 40
1999/2004
8, 9 & 40
1,681
7,223
5,546
447
11,518
6,586
5,277
2,535
837
7,802
29,667
3,087
307
13,912
4,513
395
108
668
5,630
1,497
20,215
7,861
9,006
3,060
6,110
16,694
15,558
9,497
468
10,399
1,022
8,322
4,161
8,517
4,542
6,312
642
5,683
451
2,452
5,664
505
5,175
1,367
2,530
604
1,160
686
782
932
6,775
1,328
Sep-12
Jul-04
Jun-07
Sep-12
Jan-04
Nov-06
Jun-07
May-07
Sep-12
Apr-05
Jun-05
Nov-06
Feb-12
Nov-04
Dec-02
May-11
Sep-12
Sep-12
Mar-05
Nov-06
Dec-06
Jun-04
Jun-07
Sep-12
Apr-05
Apr-05
May-07
Jun-07
Sep-12
Apr-05
Sep-12
May-07
Mar-00
Dec-99
Jun-07
Apr-05
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
1,103
Sep-12
1968/1972/
2008
700
Aug-87
1979
4, 6 & 10
9, 10, 12, 15,
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
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
Useful life
computing
depreciation in
latest income
statement
(years)
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
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
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Plymouth, MI
Temperance, MI
Olive Branch, MS
Franklin, NC
Henderson, NC
High Point, NC
Lumberton, NC
Statesville, NC
Erwin, NY
Columbus, OH
Hebron, OH
Hebron, OH
Streetsboro, OH
Duncan, SC
Laurens, SC
Collierville, TN
Franklin, TN
Memphis, TN
Memphis, TN
Millington, TN
Waxahachie, TX
Winchester, VA
Bingen, WA
Phoenix, AZ
Palm Beach
Gardens, FL
Honolulu, HI
Baltimore, MD
Bridgeton, MO
Bridgewater, NJ
Rochester, NY
Canonsburg, PA
Florence, SC
Antioch, TN
Arlington, TX
Issaquah, WA
Issaquah, WA
Manteca, CA
San Diego, CA
Port Richey, FL
Atlanta, GA
Atlanta, GA
Chamblee, GA
Cumming, GA
Forest Park, GA
Jonesboro, GA
Stone Mountain, GA
Galesburg, IL
Lawrence, IN
Jefferson, NC
Lexington, NC
Thomasville, NC
Portchester, NY
Watertown, NY
Canton, OH
Franklin, OH
(4)
(4)
—
—
—
67
—
—
—
—
8,311
—
—
—
17,910
—
—
—
—
—
—
—
—
—
—
—
—
—
55,000
—
14,118
17,257
—
—
—
—
30,388
—
846
539
—
—
—
—
—
—
—
—
475
—
—
—
—
—
795
—
—
2,296
3,040
198
296
1,488
1,330
405
891
1,648
1,990
1,063
1,681
2,441
884
5,552
714
—
1,054
1,553
723
652
3,823
—
1,831
4,066
8,259
37,564
603
1,415
164
1,055
3,235
3,847
589
3,052
3,732
2,082
—
—
1,014
870
770
1,558
668
778
672
560
404
71
832
208
3,841
386
884
722
13,608
14,924
10,276
1,320
5,953
11,183
12,049
16,771
10,810
10,580
4,271
7,224
25,092
8,626
21,177
4,783
5,673
11,538
12,326
19,383
13,045
12,276
18,075
14,892
19,915
7,363
156,557
1,142
6,802
5,304
10,910
13,081
10,043
6,382
5,210
6,213
6,464
15,904
17,964
10,474
1,616
7,441
12,513
12,454
17,662
12,458
12,570
5,334
8,905
27,533
9,510
26,729
5,497
5,673
12,592
13,879
20,106
13,697
16,099
18,075
16,723
23,981
15,622
194,121
1,745
8,217
5,468
11,965
16,316
13,890
6,971
8,262
9,945
8,546
13,310
13,310
—
1,283
1,057
956
2,926
1,910
924
948
2,926
2,141
955
2,261
769
9,087
5,548
4,418
1,721
—
269
187
186
1,368
1,242
146
276
2,366
1,737
884
1,429
561
5,246
5,162
3,534
999
96
4,641
3,768
6,515
151
1,953
5,192
3,101
4,164
951
2,783
1,393
2,641
6,452
1,716
5,438
1,588
1,172
11,390
3,033
9,234
9,558
3,081
543
2,715
6,331
1,529
46,609
—
225
136
3,831
4,203
1,411
663
—
—
1,499
2,623
—
266
216
213
593
399
190
196
640
356
204
287
56
553
1,265
1,159
100
Jun-07
Jun-07
Dec-04
Sep-12
Nov-01
Jul-04
Dec-06
Dec-06
Sep-12
Dec-06
Dec-97
Dec-01
Jun-07
Jun-07
Jun-07
Dec-05
Sep-12
Feb-88
Dec-06
Apr-05
Dec-03
Jun-07
May-14
Nov-01
May-98
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
May-07
May-04
May-07
Sep-12
Jun-07
Jun-07
May-07
May-07
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
May-07
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
May-07
Nov-01
Dec-06
1996/1998
30 & 40
1978/1993
2, 5 & 40
1989
1996
8, 15 & 40
2, 8 & 29
1998/2006
40
2002
18 & 40
1998/2006
40
1999/2002
3, 15 & 40
2006
1973
1999
2000
2004
4, 8 & 34
40
40
1, 2, 3, 5 & 40
12, 20, 25 & 40
2005/2008
40
1991/1993
2, 5 & 40
2005/2012
9, 14, 21 & 40
1970/1983
1, 4 & 12
1987
1973
1997
8 &15
40
9, 10, 16 & 40
1996/2001
10, 16 & 40
2001
2014
4 & 40
10, 13 & 40
1981/2009
5 - 40
1996
5 - 40
1979/2002
2, 5 & 40
1973/2009
1981
5 - 40
32
1985/2004
8, 15 & 40
1988/2000
1, 8, 12, 15 & 33
1996
1998
1999
2003
1987
1992
1993
1993
1980
1972
1975
1972
1968/1982
1969
1971
1973
1992
1983
1981
1981
1993
1982
1993
1995
1961/1978
8 & 40
10, 20 & 40
5 - 40
1, 12 & 40
4, 7 & 32
7 & 32
23 & 40
23 & 40
—
40
40
40
40
40
40
40
12 & 40
40
40
40
40
40
23 & 40
40
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
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
Useful life
computing
depreciation in
latest income
statement
(years)
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Lorain, OH
Lawton, OK
Oklahoma City, OK
Tulsa, OK
Chattanooga, TN
Paris, TN
Staunton, VA
Fairlea, WV
Construction in progress
(1) Properties are cross-collateralized.
(2) Properties are cross-collateralized.
(3) Properties are cross-collateralized.
(4) Properties are cross-collateralized.
1,197
—
—
—
—
—
—
559
—
1,893
663
1,782
445
487
247
1,028
501
—
7,024
1,288
912
2,433
956
547
326
1,985
—
8,917
1,951
2,694
2,878
1,443
794
1,354
2,486
14,946
1,630
May-07
Dec-06
Sep-12
Dec-96
Dec-06
Dec-06
Dec-06
1993
1984
1991/1996
1981
1983/1995
1982
1971
23 & 40
40
5 & 13
14 & 24
40
40
40
May-07
1993/1999
12 & 40
—
—
—
392
313
2,302
94
160
89
436
—
$
945,216 $
755,168 $
2,901,446 $
3,671,560 $
795,486
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, 2014 for federal income tax purposes was approximately $4.4 billion.
Reconciliation of real estate, at cost:
Balance at the beginning of year
Additions during year
Properties sold during year
Properties impaired during the year
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
and impaired during year
Other reclassifications
Balance at end of year
2014
2013
2012
$
3,812,294
$
3,564,466
$
3,172,246
210,143
(282,143)
(65,426)
(3,308)
3,671,560
$
492,437
(212,771)
(31,741)
(97)
3,812,294
$
540,847
(138,041)
(10,553)
(33)
3,564,466
775,617
$
738,068
$
119,156
122,057
(98,698)
(589)
795,486
(84,508)
—
$
775,617
$
638,368
119,067
(19,367)
—
738,068
$
$
$
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
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, 2014. 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, 2014. In assessing
the effectiveness of our internal control over financial reporting, management used as guidance the criteria established in Internal
Control - Integrated Framework (2013) 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,
2014.
Attestation Report of our Independent Registered Public Accounting Firm
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 in “Financial Statements and Supplementary Data” in
Part II, Item 8 of this Annual Report.
Changes in Internal Control Over Financial Reporting
Management's assessment of the overall effectiveness of our internal controls over financial reporting (as defined in Rules 13a-15
(f) and 15d-15(f) under the Exchange Act) has historically been based on the framework set forth in the Internal Control-Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In May 2013 an updated
framework was issued. We have integrated the changes prescribed by the Internal Control-Integrated Framework (2013) into our
internal controls over financial reporting during fiscal year 2014. There were no other changes to our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter ended December 31, 2014 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 69
Richard J. Rouse
Age 69
T. Wilson Eglin
Age 50
Patrick Carroll
Age 51
Joseph S. Bonventre
Age 39
Business Experience
Mr. Roskind has served as our Chairman since March 2008 and 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 Live In America Financial Services LLC.
Mr. Rouse has served as our Vice Chairman since March 2008 and as our Chief
Investment Officer since January 2003, and he 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. Bonventre has served as our General Counsel since 2004, one of our Executive Vice
Presidents since 2008 and our Secretary since 2014. Prior to joining us in September
2004, Mr. Bonventre was an associate in the corporate department of the law firm now
known as Paul Hastings LLP. Mr. Bonventre is admitted to practice law in the State of
New York.
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, trustees and trustee independence will be in our Definitive Proxy Statement
for our 2015 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 in “Financial Statements and Supplementary Data” in Part II, Item 8 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
58
93
101
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
— 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 Reclassification of 8.05% Series B Cumulative Redeemable
Preferred Stock, par value $0.0001 per share, and 7.55% Series D Cumulative Redeemable Preferred
Stock, par value $0.0001 per share (filed as Exhibit 3.4 to the Company's Current Report on Form 8-K
filed November 21, 2013)(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)
— Agreement and Plan of Merger dated as of December 23, 2013, by and among Lepercq Corporate
Income Fund L.P. (“LCIF”) and Lepercq Corporate Income Fund II L.P. (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on December 24, 2013)(1)
— Sixth Amended and Restated Agreement of Limited Partnership of LCIF, dated as of December 30, 2013
(filed as Exhibit 3.25 to the Company's Annual Report on Form 10-K for the year ended December 31,
2013)(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 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)
— 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 (“U.S. Bank”) (filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K filed January 29, 2007)(1)
— Amended and Restated Trust Agreement, dated March 21, 2007, among the Company, The Bank of New
York Trust Company, National Association (“BONY”), 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
“03/27/07 8-K”))(1)
— Junior Subordinated Indenture, dated as of March 21, 2007, between the Company and BONY (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, as trustee (filed as Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on January 2, 2009 (the “01/02/09 8-K”))(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, 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, 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, as trustee (filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on February 13, 2013 (the “02/13/13 8-K”))(1)
— Ninth Supplemental Indenture, dated as of May 6, 2013, among the Company, certain subsidiaries of the
Company signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on May 8, 2013)(1)
101
4.12
4.13
4.14
4.15
4.16
4.17
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
— Tenth Supplemental Indenture, dated as of June 10, 2013, among the Company, certain subsidiaries of
the Company signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.3 to the Company's
Current Report on Form 8-K filed on June 13, 2013 (the “06/13/13 8-K”))(1)
— Tenth Supplemental Indenture, dated as of September 30, 2013, among the Company, certain
subsidiaries of the Company signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on October 3, 2013)(the “10/3/13 8-K”))(1)
— Indenture, dated as of June 10, 2013, among the Company, certain subsidiaries of the Company
signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.1 to the 06/13/13 8-K)(1)
— First Supplemental Indenture, dated as of September 30, 2013, among the Company, certain subsidiaries
of the Company signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.2 to the 10/3/13 8-K)
(1)
— Indenture, dated as of May 9, 2014, among the Company, LCIF and U.S. Bank, as trustee (filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 13, 2014)(1)
— First Supplemental Indenture, dated as of May 20, 2014 among the Company, LCIF and U.S. Bank, as
trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 20, 2014)(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 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, 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 (the “11/24/10 8-K/A”))(1, 4)
— Form of 2010 Share Option Award Agreement (filed as Exhibit 10.2 to the 11/24/10 8-K/A)(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)
— 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)
— Employment Agreement, dated as of September 11, 2014 and effective as of January 15, 2015, between
the Company and T. Wilson Eglin (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-
Q for the quarter ended September 30, 2014 filed November 7, 2014 (the “09/30/14 10-Q”))(1, 4)
— Employment Agreement, dated as of September 11, 2014 and effective as of January 15, 2015, between
the Company and E. Robert Roskind (filed as Exhibit 10.2 to the 09/30/14 10-Q)(1, 4)
— Employment Agreement, dated as of September 11, 2014 and effective as of January 15, 2015, between
the Company and Richard J. Rouse (filed as Exhibit 10.3 to the 09/30/14 10-Q)(1, 4)
— Employment Agreement, dated as of September 11, 2014 and effective as of January 15, 2015, between
the Company and Patrick Carroll (filed as Exhibit 10.4 to the 09/30/14 10-Q)(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)(1, 4)
102
10.20
10.21
— 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)
10.22
— Second Amended and Restated Credit Agreement, dated as of February 12, 2013 among the Company
and LCIF as borrowers, KeyBank National Association (“Key”), 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)
10.23
10.24
10.25
— Amended and Restated Term Loan Agreement, dated as of February 13, 2013 among the Company and
LCIF, as borrowers, Wells Fargo Bank, National Association (“Wells”), 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)
— Funding Agreement, dated as of July 23, 2006, by and between LCIF 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)
10.26
— 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)
10.27
— 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)
10.28
10.29
— Form of 2015 Nonvested Share Agreement (Performance and Service) (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed January 9, 2015)(1, 4)
— First Amendment to Second Amended and Restated Credit Agreement, dated as of September 30, 2013,
among the Company and LCIF, as borrowers, Key, as agent, and each of the financial institutions
signatory thereto (filed as Exhibit 10.1 to the 10/13/13 8-K)(1)
10.30
— First Amendment to Amended and Restated Term Loan Agreement, dated as of September 30, 2013,
among the Company and LCIF, as borrowers, Wells, as agent, and each of the financial institutions
signatory thereto (filed as Exhibit 10.2 to the 10/13/13 8-K)(1)
10.31
— Second Amendment to Second Amended and Restated Credit Agreement, dated as of December 30,
10.32
10.33
10.34
2013, among the Company and LCIF, as borrowers, Key, as agent, and each of the financial institutions
signatory thereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 6,
2014 (the “01/06/14” 8-K))(1)
— Second Amendment to Amended and Restated Term Loan Agreement, dated as of December 30, 2013,
among the Company and LCIF, as borrowers, Wells, as agent, and each of the financial institutions
signatory thereto (filed as Exhibit 10.2 to the 01/06/14 8-K)(1)
— Third Amendment to Second Amended and Restated Credit Agreement, dated as of March 28, 2014,
among the Company and LCIF, as borrowers, Key, as agent, and each of the financial institutions
signatory thereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 28,
2014 (the “03/28/14 8-K”))(1)
— Third Amendment to Amended and Restated Term Loan Agreement, dated as of March 28, 2014, among
the Company and LCIF, as borrowers, Wells, as agent, and each of the financial institutions signatory
thereto (filed as Exhibit 10.2 to the 03/28/14 8-K)(1)
10.35
— 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)
10.36
10.37
10.38
10.39
— First Amendment to Ownership Limitation Waiver Agreement (BlackRock), dated April 25, 2014 (filed
as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 29, 2014)(1)
— 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 Company's
Current Report of Form 8-K filed on November 6, 2008)(1)
103
10.40
— Equity Distribution Agreement, dated as of January 11, 2013, among the Company and LCIF, 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)
10.41
— Equity Distribution Agreement, dated as of January 11, 2013, among the Company and LCIF, 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)
12
14
21
23
24
31.1
31.2
32.1
32.2
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)
— 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, 2014 and 2013; (ii)
the Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012; (iii) the
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014, 2013 and 2012;
(iv) the Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012; (v) the
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012; and (vi) Notes to
Consolidated Financial Statements, detailed tagged.
104
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.
SIGNATURES
Dated: February 26, 2015
Lexington Realty Trust
By:
/s/ T. Wilson Eglin
T. Wilson Eglin
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints 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/ Joseph S. Bonventre
Joseph S. Bonventre
/s/ Harold First
Harold First
/s/ Richard S. Frary
Richard S. Frary
________________
James Grosfeld
/s/ Kevin W. Lynch
Kevin W. Lynch
Each dated: February 26, 2015
Title
Chairman
Vice Chairman,
Chief Investment Officer and Trustee
Chief Executive Officer, President and Trustee
(principal executive officer)
Chief Financial Officer, Executive Vice President and Treasurer
(principal financial officer and principal accounting officer)
Executive Vice President, General Counsel
and Secretary
Trustee
Trustee
Trustee
Trustee
105
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 26, 2015
/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 26, 2015
/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,
2014 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 26, 2015
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,
2014 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 26, 2015
(This page intentionally left blank)
Total Return Performance
Lexington Realty Trust
S&P 500 Index
Russell 2000 Index
NAREIT Equity REIT Index
NAREIT All Equity REIT Index
275
250
225
200
175
150
125
100
75
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
l
e
u
a
V
x
e
d
n
I
Index
Lexington Realty Trust
S&P 500 Index
Russell 2000 Index
NAREIT Equity REIT Index
NAREIT All Equity REIT Index
Source: S&P Capital IQ
Period Ending
12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14
242.22
205.14
205.95
218.16
218.38
211.57
180.44
196.34
167.63
170.58
100.00
100.00
100.00
100.00
100.00
205.05
136.30
141.43
163.60
165.84
138.57
115.06
126.86
127.96
127.95
138.53
117.49
121.56
138.57
138.55
CORPORATE INFORMATION
NON-EMPLOYEE TRUSTEES
EXECUTIVE OFFICERS
Harold First (1, 3, 4), Financial Consultant
Richard S. Frary (1, 2, 3, 4), Founding Partner, Tallwood Associates, Inc
E. Robert Roskind
Chairman
James Grosfeld (2, 3, 4), Private Investor
Kevin W. Lynch (1, 2, 4, 5), Principal, The Townsend Group
1 Audit Committee Member
2 Compensation Committee Member
3 Nominating and Corporate Governance Committee Member
4 Independent Trustee
5 Lead Trustee
T. Wilson Eglin
Chief Executive Officer, President and a Trustee
Richard J. Rouse
Vice Chairman, Chief Investment Officer and a
Trustee
Patrick Carroll
Chief Financial Officer, Executive Vice President
and Treasurer
Joseph S. Bonventre
Executive Vice President, General Counsel and
Secretary
CORPORATE HEADQUARTERS
Lexington Realty Trust
One Penn Plaza, Suite 4015
New York, NY 10119-4015
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, 2014, which is included herein. In
in 2014, we submitted an
addition,
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 19, 2015 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
ended December 31, 2014, which is 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 30170
College Station, TX 77842-3170
Tel: (800) 850-3948 (toll-free)
www-us.computershare.com/investor
Overnight correspondence:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
SHARES LISTED
New York Stock Exchange Symbol:
LXP Common
LXPPRC Preferred
transfer
DIVIDEND REINVESTMENT PLAN
Information
regarding our Dividend
Reinvestment Plan may be obtained from
registrar,
agent
our
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, 2014
KPMG LLP
New York, NY