LEXINGTON
REALTY
TRUST
2016 ANNUAL REPORT
Company Overview
Lexington Realty Trust (NYSE: LXP) is a publicly traded real estate investment
trust (REIT) that owns a diversified portfolio of real estate assets consisting
primarily of equity investments in single-tenant net-leased commercial
properties across the United States. Lexington seeks to expand its portfolio
through build-to-suit transactions, sale-leaseback transactions and other
transactions, including acquisitions.
DIVERSIFIED PORTFOLIO1
193
Properties
43.3 Million Square Feet
40
U.S. States
$4.7 Billion in Gross Assets
1. As of December 31, 2016.
2. Cash basis for consolidated properties.
Years Weighted-Average Lease Term2
Leased
8.6
96%
76%
$0.70 Current Annualized Dividend,
Per Common Share
Built-In Lease Escalations
| Dear Fellow Shareholders
2016 marked a turning point for Lexington
Realty Trust in our pursuit of creating a best-in-
class net-lease REIT. In recent years, we have
worked hard at reshaping and improving the quality
of our portfolio and the results are beginning to
show. As perpetual investors in Lexington, we have
a long-term view, and, therefore, are very focused
on building a better portfolio not just for today, but
for the future.
We look to certain key metrics to measure our
progress. The process has been mindful and delib-
erate, however, a busy 2016 has brought us closer
to a pure play, long-term leased single-tenant
industrial and office REIT.
800 EAST CANAL STREET | RICHMOND, VIRGINIA
OFFICE PROPERTY
PORTFOLIO TRANSFORMATION CONTINUES
Portfolio and Balance Sheet Metrics
20131
20162
Status
Office Exposure3 ........................................................................ 61%
Industrial Exposure3 ................................................................... 25%
Multi-Tenant Exposure3 ..............................................................
8%
% of Revenue from Long-Term Leases4 ................................ 32%
Average Lease Duration(years)5 .............................................
8.2
Unencumbered Net Operating Income (NOI) ..................... 55%
Weighted-Avg. Debt Maturity (years) ....................................
7.0
Weighted-Avg. Interest Rate ................................................... 4.7%
53%
40%
4%
37%
8.6
74%
8.3
4.1%
G
A
G
A
A
A
A
G
1. As of December 31, 2013.
2. As of December 31, 2016.
3. As a percentage of GAAP rent, excluding termination income, for consolidated properties owned as of each respective year end.
4. Leases with remaining term of 10 years or longer. As a percentage of GAAP rent, excluding termination income and parking operations, for leases in place as of
each respective year end.
5. Cash basis for consolidated properties owned as of each respective year end. Average lease duration for 2013 adjusted to reflect NY land leases through the first
purchase option date.
1
LEXINGTON REALTY TRUST 2016 ANNUAL REPORT
A Year of Notable Execution
and Solid Results
2
LEXINGTON REALTY TRUST 2016 ANNUAL REPORT
Market volatility was a consistent theme in
York City land investments, a mix of non-core assets
2016. Whether it was a result of Brexit, fear of rising
and assets where we were able to extract good value.
interest rates or the Presidential election, it was
We believe this effort further enhanced our portfolio
a year that often surprised investors. Despite this,
and reduced the complexity of the Lexington story.
REITs, along with other major indices, finished the
year on a positive note. Lexington was no exception,
and we ended the year outperforming the broader
indices as well as our net-lease peers. We took
advantage of our share buyback plan earlier in 2016
and our ATM later in the year at what we believe
were opportune times in the market. We believe our
compelling valuation in 2016, attractive dividend yield
and carefully laid-out business plan spurred new and
current investor interest. Furthermore, demonstrable
execution in all areas of our business paid off and
led to a successful 2016 for our shareholders.
FAVORABLE PRICING ON TRANSACTION ACTIVITY
2016 Disposition and Acquisition Volume*
)
s
n
o
i
l
l
i
M
(
$800
700
600
500
400
300
200
100
0
$663M
5.1%
6.8%
$390M
8%
7%
6%
5%
4%
3%
2%
1%
0%
s
e
t
a
R
n
o
i
t
a
z
i
l
a
t
i
p
a
C
STRONG PERFORMANCE
2016 Total Return Performance*
45%
Dispositions
Acquisitions
Cash Cap Rates
* For the year ended December 31, 2016. There can be no assurance
that past capitalization rates will be attained in the future. Includes assets
disposed of that were either vacant or not stabilized. Does not include
non-consolidated property sales. Acquisition volume includes closed/
completed transactions.
50%
40%
30%
20%
10%
0%
20%
18%
10%
9%
LXP
Russell
2000
Net-Lease
Peers
(Average)
S&P
500
MSCI
REIT
Index
Source: SNL Financial
*As of December 31, 2016.
ATTRACTIVE INVESTMENT ACTIVITY WITH AN
INDUSTRIAL FOCUS
We experienced healthy activity on the invest-
ment front in 2016, and favorable pricing on sales
allowed us to capture attractive reinvestment
spreads. Investment activity totaled $390 million
at GAAP and cash cap rates of 7.6% and 6.8%,
respectively, with an approximate weighted-average
lease term of 18 years. The majority of 2016 invest-
ment activity was in the industrial sector, where we
SUCCESSFUL COMPLETION OF DISPOSITION
PROGRAM
believe fundamentals are quite strong. Our opti-
mism on economic prospects going forward has
With a primary goal of improving and simplifying our
led us to underwrite new investments with greater
portfolio, Lexington was a net-seller in 2016. We
confidence in the prospects for capital appreciation.
suc cess fully completed our announced disposition
Accordingly, we expect new investment activity to
program, with total consolidated asset sales of $663
include a mix of higher-yielding long-term leased
million at GAAP and cash cap rates of 10.2% and
office and industrial build-to-suit opportunities,
5.1%, respectfully. This included the sale of our New
coupled with 7-10 year leased industrial purchases.
3
LEXINGTON REALTY TRUST 2016 ANNUAL REPORT
STRONG OPERATIONAL PERFORMANCE
Historical Occupancy and Leasing Volume
8,000
6,000
4,000
2,000
0
97.3%
97.6%
96.8%
96.4%
96.0%
95.9%
93.4%
2010
2011
2012
2013
2014
2015
2016
100%
95%
90%
85%
’
)
s
0
0
0
n
i
F
S
l
(
e
m
u
o
V
g
n
s
a
e
L
i
1501 NOLAN RYAN EXPESSWAY | ARLINGTON, TEXAS
INDUSTRIAL PROPERTY
SOLID OPERATIONAL PERFORMANCE
Robust 2016 leasing activity of 4.7 million square feet
led to increasing rents on lease renewals on both a
GAAP and cash basis of 3% and 2%, respectively.
The portfolio was 96% leased at year-end and
within the range we anticipated it would be at this
same time last year. We are very focused on man-
aging lease expirations, with a great deal of work
Scheduled Rental Increases*
on 2017 expirations behind us. Our asset manage-
ment team continues working through existing port-
2.9%
folio vacancies and managing our shorter duration
13.6%
lease portfolio with particular emphasis on 2018
and 2019 expirations. We expect our weighted-
average lease term of 8.6 years to grow as we sell
shorter-term leased properties and replace them
with longer-term leased assets. At the end of 2016,
76% of our lease revenue had some type of built-in
escalations and expirations were fairly well balanced.
1020 W. AIRPORT ROAD | ROMEOVILLE, ILLINOIS
INDUSTRIAL PROPERTY
n Annual Increases
n Flat
21.1%
62.4%
n Other Scheduled
Increases
n Stepdowns
* Based on consolidated cash rent for the 12 months ended December 31,
2016 for single-tenant leases. Excludes parking operations.
4
LEXINGTON REALTY TRUST 2016 ANNUAL REPORT
MAXIMUM BALANCE SHEET FLEXIBILITY WITH STRONG CREDIT METRICS
Capital Structure1,2
Credit Metrics2
2.8%
11.0%
11.1%
2.1%
16.4%
56.6%
n Common Equity
n Mortgage Debt
n Preferred Equity
n Unsecured Term Debt
n Trust Preferred
n Unsecured Bond Debt
Adjusted Company FFO Payout Ratio ....................... 60.5%
Unencumbered Assets ........................................ $3.31 billion
Unencumbered Net Operating Income ..................... 73.5%
Debt/Gross Assets ......................................................... 39.8%
Secured Debt/Gross Assets ........................................ 15.8%
Leverage (Net Debt/Adjusted EBITDA) ......................... 5.2x
Credit Facilities Availability ............................. $395.4 million
Development/Gross Assets ............................................ 2.4%
1. Data includes OP Units and reflects a common share price of $10.67 at March 3, 2017.
2. As of December 31, 2016.
IMPROVED BALANCE SHEET
STRONG EARNINGS
We worked hard this past year on improving our
Lexington ended the year with net income attribut-
balance sheet, ending the year at 5.2x net debt
able to common shareholders of $0.37 per diluted
to Adjusted EBITDA, our lowest leverage level
common share and Adjusted Company Funds
in recent years. During 2016, we added $255
million of longer-term, secured fixed-rate debt
at a weighted-average interest rate of 4.3% and
From Operations (FFO) of $1.14 per diluted com-
mon share.3 While 2017 Adjusted Company FFO
per share is expected to decrease compared to
weighted-average term to maturity of 19 years.
2016 primarily as a result of assets sales, we are
We also retired $374 million of higher interest rate
very focused on producing strong net income and
secured debt and repaid $177 million outstanding
Adjusted Company FFO per share in relation to our
on our $400 million revolving credit facility. Moving
dividend and share price.
into 2017, we believe we have exceptional balance
sheet flexibility and continue to be mindful of the
value of operating with low leverage.
DIVIDEND INCREASE
We raised our common share dividend in 2016
for the first time since 2014. The new annualized
dividend of $0.70 per common share represents
a $0.02 per common share annual increase.
ATTRACTIVE DIVIDEND YIELD
Current Dividend Yield
6.6%
5.5%
4.3%
2.9%
2.3%
2.0%
1.4%
7%
6%
5%
4%
3%
2%
1%
0%
LXP
All Net-
Lease
REITs
All
REITs
Off/Ind
REITs
Dow
Jones
S&P
500
Russell
2000
Source: KeyBanc and Bloomberg as of March 3, 2017. LXP’s current
dividend yield reflects common share price of $10.67 at March 3, 2017.
3. A reconciliation of net income attributable to common shareholders and Adjusted
Company FFO available to all equityholders and unitholders-diluted is available in
the accom panying Annual Report on Form 10-K.
5
LEXINGTON REALTY TRUST 2016 ANNUAL REPORT Building Upon the Progress
and Success of 2016
6
LEXINGTON REALTY TRUST 2016 ANNUAL REPORT
Through strong execution of our business plan,
many important objectives were accomplished in
2016. This took focus and dedication and we are
proud of our team for a job well-done. We entered
2017 with an improved and simpler portfolio, a
strong balance sheet with low leverage and ample
liquidity, and a good portion of scheduled 2017
lease expirations behind us.
Our strategic focus in 2017 will build upon our
recent progress and draw us closer to becoming a
pure play, single-tenant industrial and office REIT.
During 2017, we intend to:
4001 INTERNATIONAL PARKWAY | CARROLLTON, TEXAS
OFFICE PROPERTY
n Be a net acquirer, focusing on high-quality indus-
n Utilize our balance sheet as needed while
trial product in strong markets and high-yielding
remaining mindful of leverage.
office build-to-suit opportunities;
n Continue to prune our short-term office lease
portfolio and rework our office footprint so
that leasing opportunities are concentrated in
fewer markets;
n Dispose of non-core assets and/or assets
where we can unlock significant value for
our shareholders;
We are excited for what lies ahead in 2017 and
hope you are as well. Your support and confidence
in the Lexington team is very much appreciated and
we welcome your feedback. We will be thorough,
deliberate and focused as we continue on the path
of creating a best-in-class net-lease REIT.
n Concentrate on managing our shorter lease-term
portfolio and leasing up vacant properties; and
T. WILSON EGLIN
CHIEF EXECUTIVE OFFICER, PRESIDENT AND TRUSTEE
1285 WEST STATE ROAD 32 | LEBANON, INDIANA
INDUSTRIAL PROPERTY
7
LEXINGTON REALTY TRUST 2016 ANNUAL REPORT Annual Report on
Form 10-K
8
LEXINGTON REALTY TRUST 2016 ANNUAL REPORT
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, 2016
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)
33-04215 (Lepercq Corporate Income Fund L.P.)
LEXINGTON REALTY TRUST
LEPERCQ CORPORATE INCOME FUND L.P.
(Exact name of registrant as specified in its charter)
Maryland (Lexington Realty Trust)
13-3717318 (Lexington Realty Trust)
Delaware (Lepercq Corporate Income Fund L.P.)
13-3779859 (Lepercq Corporate Income Fund L.P.)
(State or other jurisdiction of
incorporation of organization)
(I.R.S. Employer
Identification No.)
One Penn Plaza, Suite 4015, New York, NY 10119-4015
(Address of principal executive offices) (zip code)
(212) 692-7200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
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
New York Stock Exchange
New York Stock Exchange
Lexington Realty Trust
Lepercq Corporate Income Fund L.P.
None
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
Lexington Realty Trust
Lepercq Corporate Income Fund L.P.
Yes
Yes
No
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Lexington Realty Trust
Lepercq Corporate Income Fund L.P.
Yes
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.
Lexington Realty Trust
Lepercq Corporate Income Fund L.P.
Yes
Yes
No
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).
Lexington Realty Trust
Lepercq Corporate Income Fund L.P.
Yes
Yes
No
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.
Lexington Realty Trust
Lepercq Corporate Income Fund L.P.
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.
Lexington Realty Trust:
Large accelerated filer
Accelerated filer
Lepercq Corporate Income Fund L.P.:
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Non-accelerated filer
(Do not check if a smaller
reporting company)
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).
Lexington Realty Trust
Lepercq Corporate Income Fund L.P.
Yes
Yes
No
No
The aggregate market value of the shares of beneficial interest, par value $0.0001 per share, classified as common stock (“common shares”) of
Lexington Realty Trust held by non-affiliates as of June 30, 2016, which was the last business day of the registrant's most recently completed second
fiscal quarter, was $2,322,738,768 based on the closing price of the common shares on the New York Stock Exchange as of that date, which was
$10.11 per share.
Number of common shares outstanding as of February 27, 2017 was 240,365,475.
There is no public trading market for the partnership units of Lepercq Corporate Income Fund L.P. As a result, an aggregate market value of
the partnership units of Lepercq Corporate Income Fund L.P. cannot be determined.
Certain information contained in the Definitive Proxy Statement for Lexington Realty Trust's Annual Meeting of Shareholders, to be held on May 16, 2017, 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.
DOCUMENTS INCORPORATED BY REFERENCE
EXPLANATORY NOTE
This report, which we refer to as this Annual Report, combines the Annual Reports on Form 10-K for the fiscal year ended
December 31, 2016 of (1) Lexington Realty Trust and its subsidiaries and (2) Lepercq Corporate Income Fund L.P. and its
subsidiaries. Unless stated otherwise or the context otherwise requires, (1) the “Company,” the “Trust,” “Lexington,” “we,” “our,”
and “us” refer collectively to Lexington Realty Trust and its consolidated subsidiaries, including Lepercq Corporate Income Fund
L.P. and its consolidated subsidiaries, and (2) “LCIF” and the “Partnership” refers to Lepercq Corporate Income Fund L.P. and
its consolidated subsidiaries. All of the Company's and LCIF's interests in properties are held, and all property operating activities
are conducted, through special purpose entities, which we refer to as property owner subsidiaries or lender subsidiaries, which are
separate and distinct legal entities, but in some instances are consolidated for financial statement purposes and/or disregarded for
income tax purposes.
Lexington is the sole equity owner of (1) Lex GP-1 Trust, or Lex GP, a Delaware statutory trust, and (2) Lex LP-1 Trust, or
Lex LP, a Delaware statutory trust. The Company, through Lex GP and Lex LP, holds, as of December 31, 2016, approximately
96.0% of LCIF's outstanding units of limited partner interest, which we refer to as OP units. The remaining OP units are beneficially
owned by E. Robert Roskind, Chairman of the Trust, and certain non-affiliated investors. OP units not owned by Lexington are
accounted for as partners’ capital in LCIF’s consolidated financial statements and as noncontrolling interests in the Trust’s
consolidated financial statements. As the sole equity owner of LCIF’s general partner, the Company has the ability to control all
of LCIF’s day-to-day operations subject to the terms of LCIF’s partnership agreement.
We believe it is important to understand the differences between the Trust and LCIF in the context of how the Trust and LCIF
operate as an interrelated, consolidated company. The Trust’s and LCIF’s businesses are substantially the same; except that LCIF
is dependent on the Trust for management of LCIF’s operations and future investments, as LCIF does not have any employees or
executive officers or a board of directors.
The Trust also invests in assets and conducts business directly and through its other subsidiaries. The Trust allocates
investments to itself and its subsidiaries, including LCIF, as it deems appropriate and in accordance with certain obligations under
LCIF’s partnership agreement with respect to allocations of non-recourse liabilities. The Trust and LCIF are co-borrowers under
the Trust’s unsecured revolving credit facility and unsecured term loans. LCIF is a guarantor of the Trust’s publicly-traded debt
securities.
We believe combining the Annual Reports on Form 10-K of the Trust and LCIF into this single Annual Report results in the
following benefits:
•
•
•
•
improved disclosure that better reflects how management and the analyst community view the business as a single
operating unit;
enhanced investor understanding of the Trust and LCIF by enabling them to view the business as a whole and in the same
manner as management;
increased efficiency for the Trust and LCIF resulting in savings in time, effort and expense; and
increased efficiency for investors by reducing duplicative disclosure and providing a single document for their review.
To help investors understand the differences between the Trust and LCIF, this Annual Report separately presents the following
for each of the Trust and LCIF: (1) Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase and
Equity Securities, (2) Selected Financial Data, (3) the consolidated financial statements and the notes thereto, (4) Management’s
Discussion and Analysis of Financial Condition and Results of Operations, (5) Controls and Procedures, and (6) Exhibit 31 and
Exhibit 32 certifications and certain other exhibits. In addition, certain disclosures in other sections including “Risk Factors” are
separated by entity to the extent the discussions relate to just the Trust or LCIF.
When we use the term “REIT,” we mean real estate investment trust. All references to 2016, 2015 and 2014 refer to our fiscal
years ended, or the dates, as the context requires, December 31, 2016, December 31, 2015 and December 31, 2014, respectively.
When we use the term “GAAP,” we mean United States generally accepted accounting principles in effect from time to time.
2
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 under “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.
3
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
5
10
27
28
39
39
40
42
44
68
69
132
132
135
136
137
137
137
137
138
4
Item 1. Business
General
PART I.
We are a Maryland REIT that owns a diversified portfolio of equity and debt investments in single-tenant commercial properties.
A majority of these properties are subject to net or similar leases, where the tenant bears all or substantially all of the costs, including
cost increases, for real estate taxes, utilities, insurance and ordinary repairs. However, certain leases provide that the landlord is
responsible for certain operating expenses.
As of December 31, 2016, we had equity ownership interests in approximately 195 consolidated real estate properties, located
in 40 states and containing an aggregate of approximately 43.3 million square feet of space, approximately 96.0% of which was
leased, excluding properties subject to mortgages in default. In 2016, 2015 and 2014, 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, 2016, 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. We conduct certain taxable activities through our taxable REIT subsidiary,
Lexington Realty Advisors, Inc.
History
The Partnership was formed as a limited partnership on March 14, 1986 under the laws of the state of Delaware to invest in
existing real estate properties net leased to corporations or other entities. The Partnership commenced a public offering of OP units
in July 1986, which was completed in March 1987.
Our predecessor, Lexington Corporate Properties, Inc., was organized in the state of Delaware in October 1993 upon the
combination of two investment programs, 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 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. On December 30, 2013, LCIF II was merged with and into LCIF, with LCIF as the surviving entity.
Lexington is structured as an umbrella partnership REIT, or UPREIT, as a portion of its business is conducted through its operating
partnership subsidiary, LCIF. Lexington is party to a funding agreement with LCIF under which Lexington 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 Lexington 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, 2016, there were approximately 3.3 million OP units outstanding, other than OP units held by Lexington, which were
convertible into approximately 3.8 million common shares, assuming redemptions are satisfied entirely with common shares.
5
Investment and Strategy
General. Our current business strategy is focused on enhancing our cash flow stability, growing our portfolio, reducing lease
rollover risk and maintaining a strong and flexible balance sheet to allow us to act on opportunities as they arise. Generally we seek
to acquire general purpose, single-tenant net-leased office and industrial assets in well-located and growing markets or which are
critical to the tenant's business. We also own other asset types including retail facilities, schools and medical facilities, but 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 these types of assets will ultimately 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, (3) using fixed-rate non-recourse secured indebtedness to partially finance
certain asset acquisitions, (4) effecting strategic transactions, portfolio and individual property acquisitions and dispositions,
(5) expanding existing properties, (6) executing new leases with tenants, (7) extending lease maturities in advance of or at expiration
and (8) 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.
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 brokers, developers and major
corporate tenants. We believe that our geographical diversification, acquisition experience and balance sheet strength 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
and competitive position within its respective industry and each 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 may 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.
6
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, operations 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 primarily on non-core assets such
as vacant, multi-tenant, retail and short-term leased assets and assets that are the only asset we own in a geographic location.
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 multi-tenant properties.
Property Management. From time to time, our property owner subsidiaries use property managers to manage certain properties.
Our property management joint venture with an unaffiliated third party manages substantially all of these properties. We believe this
joint venture provides us with (1) better management of our assets, (2) better tenant relationships, (3) revenue-enhancing opportunities
and (4) cost efficiencies.
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 continue 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.
7
Common Share Issuances
From time to time, we raise capital by issuing common shares through (1) at-the-market offering programs, (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.
Share Repurchases
We have made, and may continue to make, repurchases of our common and preferred shares in individual transactions when we
believe it is advantageous to do so, including when the discount to our net asset value or the liquidation preference, as the case may
be, is attractive. During 2015, our Board of Trustees authorized a 10.0 million common share repurchase program of which
approximately 6.6 million common shares remained available for repurchase as of December 31, 2016.
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.
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.
Summary of 2016 Transactions and Recent Developments
The following summarizes certain of our transactions during 2016, including transactions disclosed elsewhere and in our other
periodic reports.
Acquisitions/Investments. With respect to acquisitions/investments, we:
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purchased properties for an aggregate cost of $170.3 million;
completed consolidated build-to-suit properties for an aggregate capitalized cost of $139.8 million and a non-
consolidated build-to-suit property for a capitalized cost of $80.0 million;
continued to fund ongoing build-to-suit transactions with an aggregate estimated total cost of $177.9 million of
which $106.7 million was invested as of December 31, 2016; and
entered into two forward commitments to acquire industrial properties in Grand Prairie, Texas and Warren, Michigan
for approximately $24.7 million and $47.0 million, respectively.
Capital Recycling. With respect to capital recycling activity, we:
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disposed of our interests in consolidated properties to unaffiliated third parties for an aggregate gross disposition
price of $641.4 million, including the New York, New York land investments;
conveyed in foreclosure two properties for full satisfaction of the related aggregate $21.6 million in non-recourse
mortgages; and
received an aggregate $1.6 million for the full satisfaction of three loan investments secured by portfolios of single-
tenant retail properties.
Leasing. We entered into 47 new leases and lease extensions encompassing an aggregate 4.7 million square feet, ending the year
with our overall portfolio leased at 96.0% as of December 31, 2016, excluding properties subject to mortgages in default.
Financing. With respect to financing activities, we:
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converted/satisfied the remaining $12.4 million aggregate principal amount of 6.00% Convertible Guaranteed
Notes due 2030, or 6.00% Convertible Notes, for an aggregate 1,892,269 common shares and aggregate cash
payments of $0.7 million;
retired $374.1 million in property non-recourse mortgage debt, including through foreclosure sales disclosed above,
with a weighted-average fixed interest rate of 5.0% and a weighted-average term to maturity of 6.6 years;
8
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obtained an aggregate of $254.7 million in non-recourse mortgage financing with a weighted-average fixed interest
rate of 4.3% and a weighted-average term to maturity of 19.1 years; and
repaid $177.0 million, net under our revolving line of credit.
Capital. With respect to capital activities, we:
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repurchased an aggregate 1,184,113 common shares at an average gross price of $7.56 per share under the share
repurchase program; and
issued 976,109 common shares at an average gross price of $10.75 per share under our At-The-Market, or ATM,
offering program, which was announced in 2013 and increased by $25.0 million in the aggregate in 2016.
See “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 7 of this Annual
Report for more detail regarding the Company's and LCIF's 2016 transaction activity.
Subsequent to December 31, 2016, we:
disposed of six properties to unrelated third parties for aggregate gross proceeds of $88.9 million;
acquired two industrial properties for an aggregate purchase price of $50.6 million;
issued 1,593,603 common shares at an average gross price of $10.89 per share under the ATM offering program;
completed the Lake Jackson, Texas build-to-suit project;
sold our tenant-in-common interest in the Oklahoma City, Oklahoma property for $6.3 million and collected $8.5
million in full satisfaction of the loan receivable owed from the other tenant-in-common; and
sold the Kennewick, Washington loan receivable for a gross sale price of $80.4 million.
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Other
Employees. As of December 31, 2016, we had 59 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 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 2016.
9
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 involving our leases and tenants.
We focus our acquisition activities on real estate properties that are net leased to single tenants, and certain of our tenants and/
or their guarantors constitute a significant percentage of our base rental revenues. Therefore, the financial failure of, or other default
by, a single tenant under its lease is likely to cause a significant or complete reduction in the operating cash flow generated by the
property leased to that tenant and might decrease the value of that property and result in a non-cash impairment charge. If the tenant
represents a significant portion of our base rental revenues, the impact on our financial position may be material. Further, in any
such event, our property owner subsidiary will be responsible for 100% of the operating costs following a vacancy at a single-tenant
building. Upon the expiration or other termination of leases that are currently in place, the property owner subsidiary may not be
able to re-lease the vacant property at all or at a comparable lease rate without incurring additional expenditures in connection with
the re-leasing, which may be material in amount.
Under current bankruptcy law, a tenant can generally assume a rejected 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.
Certain of our leases may permit tenants to terminate the leases to which they are a party.
Certain of our leases contain tenant termination options that permit the tenants to terminate their leases. While these termination
options require a termination payment by the tenants, in most cases, the termination payments are less than the total remaining
expected rental revenue. In addition, we will be responsible for 100% of the operating costs following the termination by any such
tenant and subsequent vacating of the property, and we will incur re-leasing costs.
Our ability to fully control the maintenance of our net-leased properties may be limited.
The tenants of our net-leased properties are responsible for maintenance and other day-to-day management of the properties. If
a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred
maintenance or other liabilities once the property is no longer leased. We generally visit our properties on an annual basis, but these
visits are not comprehensive inspections and deferred maintenance items may go unnoticed. While our leases generally provide for
recourse against the tenant in these instances, a bankrupt or financially-troubled tenant may be more likely to defer maintenance,
and it may be more difficult to enforce remedies against such a tenant.
Our tenants' ability to successfully operate their business may affect their ability to pay rent and maintain their leased property.
To the extent that tenants are unable to operate the property on a financially successful basis, their ability to pay rent to us may
be adversely affected. Although we endeavor to monitor, on an ongoing basis, compliance by tenants with their lease obligations
and other factors that could affect the financial performance of our properties, such monitoring may not always ascertain or forestall
deterioration, either in the condition of a property or in the financial circumstances of a tenant.
You should not rely on the credit ratings of our tenants.
Some of our tenants, guarantors and/or their parent 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.
10
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.
Based on this evaluation, we may from time to time take non-cash impairment charges, which could affect the implementation of
our current business strategy. 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 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.
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.
In addition, increases in interest rates may also negatively impact the value of our properties that are subject to long-term leases.
While a significant number of our net leases provide for annual escalations in the rental rate, the increase in interest rates may outpace
the annual escalations.
Our interests 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.
11
We face uncertainties relating to lease renewals and re-letting of space.
Upon the expiration of current leases for space located in properties in which we have an interest, our property owner subsidiaries
may not be able to re-let all or a portion of such space, or the terms of re-letting (including the cost of concessions to tenants and
leasing commissions) may be less favorable than current lease terms or market rates. If our property owner subsidiaries are unable
to promptly re-let all or a substantial portion of the space located in their respective properties, or if the rental rates a property owner
subsidiary receives upon re-letting are significantly lower than current rates, our earnings and ability to satisfy our debt service
obligations and to make expected distributions to our shareholders may be adversely affected due to the resulting reduction in rent
receipts and increase in property operating costs. There can be no assurance that our property owner subsidiaries will be able to retain
tenants in any of our properties upon the expiration of leases.
We may not be able to generate sufficient cash flow to meet our debt service obligations and to pay distributions on our common
and preferred shares.
Our ability to make payments on and to refinance our indebtedness, to make distributions on our common and preferred shares
and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future. To a certain
extent, our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other
factors, many of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from
operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our
indebtedness or to make distributions on our common and preferred shares and fund our other liquidity needs. Additionally, if we
incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt
service obligations could increase.
We may need to refinance all or a portion of our indebtedness on or before maturity. Our ability to refinance our indebtedness
or obtain additional financing will depend on, among other things:
•
•
our financial condition and market conditions at the time; and
restrictions in the agreements governing our indebtedness.
As a result, we may not be able to refinance any of our indebtedness on commercially reasonable terms, or at all. If we do not
generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of asset sales or other sources
of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations. Accordingly, if we cannot
service our indebtedness, we may have to take actions such as seeking additional equity, or delaying strategic acquisitions and
alliances or capital expenditures, any of which could have a material adverse effect on our operations. We cannot assure you that we
will be able to effect any of these actions on commercially reasonable terms, or at all.
Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.
Our growth strategy is based on the acquisition and development of additional 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.
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.
12
From time to time, we announce potential lease, financing, disposition or investment commitments or transactions, which may
not be consummated on the terms we announce or at all.
We publicly communicate potential lease, financing, disposition and investment commitments or transactions in our public
filings and furnishings with the SEC and press releases and on conference calls with analysts and investors. We can give no assurances
that any of these commitments or transactions will be consummated to our expectations or at all.
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.
Upon completion of construction, we are generally responsible to the tenant for any warranty claims. While we generally have
a warranty from the developer or general contractor that was responsible for construction, we are subject to the risk of enforcement
of such warranty.
We rely on rental income and expense projections and estimates of the fair market value of a property upon completion of
construction when agreeing upon a purchase price at the time we acquire the property, 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.
In addition, the rental rates for a new build-to-suit project are generally derived from the cost to construct the project and may
not equal a fair market lease rate for older existing properties in the same market.
Our multi-tenant properties expose us to additional risks.
Our multi-tenant properties involve risks not typically encountered in real estate properties which are operated by or for 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.
13
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.
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.
14
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 and
other regions may affect commodity prices and interest rates, among other things. An increase in interest rates may increase our costs
of borrowing, leading to a reduction in our earnings. Instability in the price of oil will also cause fluctuations in our operating costs,
which may not be reimbursed by our tenants. Also, terrorist acts could result in significant damages to, or loss of, our properties or
the value thereof.
We and the tenants of the properties in which we have an interest may be unable to obtain adequate insurance coverage on
acceptable economic terms for losses resulting from acts of terrorism. Our lenders may require that we carry terrorism insurance
even if we do not believe this insurance is necessary or cost effective. We may also be prohibited under the applicable lease from
passing all or a portion of the cost of such insurance through to the tenant. Should an act of terrorism result in an uninsured loss or
a loss in excess of insured limits, we could lose capital invested in a property as well as the anticipated future revenues from a
property, while 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, misappropriating of assets and/or damage to our business relationships, all of
which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information
resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to
our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing
operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability
for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant, investor
and/or vendor relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both
internal and those we have outsourced. Any processes, procedures and internal controls that we implement, as well as our increased
awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations, business
relationships or confidential information will not be negatively impacted by such an incident.
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 some 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. Our management has identified a material weakness in the effectiveness of our internal control over
financial reporting as of December 31, 2016. See Item 9A “Controls and Procedures” for additional information about, and our plan
to remediate, this weakness. Our remediation plan may not fully eliminate this weakness, and we cannot assure you that our controls
will prevent this or other weaknesses from arising in the future. If we fail to remediate the existing weakness or 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 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.
15
We may have limited control over our joint venture investments.
Our joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility
that our partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our
expectations, its previous instructions or our instructions, requests, policies or objectives, including our policy with respect to
maintaining our qualification as a REIT. Other risks of joint venture investments include impasses on decisions, such as a sale,
because neither we nor our partner has full control over the joint venture. Also, there is no limitation under our organizational
documents as to the amount of funds that may be invested in joint ventures.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed
conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently
does not limit the number or type of properties in which we may seek to invest or on the concentration of investments in any one
geographic region.
Our reported financial results may be adversely affected by changes in accounting principles applicable to us and the tenants of
properties in which we have an interest.
GAAP is subject to interpretation by various bodies formed to promulgate and interpret appropriate accounting principles such
as the Financial Accounting Standards Board. A change in these principles or interpretations could have a significant effect on our
reported financial results, could affect the reporting of transactions completed before the announcement of a change and could affect
the business practices and decisions of the tenants of properties in which we have an interest.
We have engaged and may engage in hedging transactions that may limit gains or result in losses.
We have used derivatives to hedge certain of our variable-rate liabilities. As of December 31, 2016, we had 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.
16
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 addition, an
affiliate of Mr. Roskind arranges real estate asset financings using funds raised from immigrant investors in accordance with the fifth
preference employment-based immigration program administered by the U.S. Citizenship and Immigration Services. We are exploring
two financings with Mr. Roskind's affiliate on a non-binding basis. 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.
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 available to common shareholders and unitholders (“FFO”), Adjusted Company Funds
from Operations available to all equityholders and unitholders (“Adjusted Company FFO”), Net Operating Income (“NOI”) and
other non-GAAP financial measures in documents filed and/or furnished with the SEC; however, neither FFO, Adjusted Company
FFO, NOI nor the other non-GAAP financial measures we disclose are equivalent to our net income or loss as determined under
GAAP or other applicable comparable GAAP measures, and you should consider GAAP measures to be more relevant to our
operating performance.
We use and disclose to investors FFO, Adjusted Company FFO, NOI and other non-GAAP financial measures. FFO, Adjusted
Company FFO, NOI and the other non-GAAP financial measures are not equivalent to our net income or loss as determined in
accordance with GAAP, and investors should consider these GAAP measures to be more relevant to evaluating our operating
performance. FFO, Adjusted Company FFO and NOI, and GAAP net income differ because FFO, Adjusted Company FFO and NOI
exclude many items that are factored into GAAP net income.
Because of the differences between FFO, Adjusted Company FFO, NOI and GAAP net income or loss, FFO, Adjusted Company
FFO and NOI may not be accurate indicators of our operating performance, especially during periods in which we are acquiring and
selling properties. In addition, FFO, Adjusted Company FFO and NOI are not necessarily indicative of cash flow available to fund
cash needs and investors should not consider FFO, Adjusted Company FFO or NOI as alternatives to cash flows from operations,
as an indication of our liquidity or as indicative of funds available to fund our cash needs, including our ability to make distributions
to our shareholders.
Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to
calculate FFO, Adjusted Company FFO and NOI. Also, because not all companies calculate FFO, Adjusted Company FFO and NOI
the same way, comparisons with other companies measures with similar titles may not be meaningful.
17
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 the total amount of indebtedness that we may incur, and accordingly, we
could become even more highly leveraged. As of December 31, 2016, our total consolidated indebtedness was approximately $1.9
billion and we had approximately $395.4 million available for borrowing under our principal credit agreement, subject to covenant
compliance.
Our substantial indebtedness could adversely affect our financial condition and results of operations and have important
consequences to us and our debt and equity security holders. For example, it could:
• make it more difficult for us to satisfy our indebtedness and debt service obligations and adversely affect our
ability to pay distributions;
increase our vulnerability to adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to the payment of interest on and
principal of our indebtedness, thereby reducing the availability of cash to fund working capital, capital expenditures
and other general corporate purposes;
limit our ability to borrow money or sell stock to fund our development projects, working capital, capital
expenditures, general corporate purposes or acquisitions;
restrict us from making strategic acquisitions or exploiting business opportunities;
place us at a disadvantage compared to competitors that have less debt; and
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
•
•
•
•
•
•
In addition, the agreements that govern our current indebtedness contain, and the agreements that may govern any future
indebtedness that we may incur may contain, financial and other restrictive covenants 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,
2016, we had no outstanding consolidated variable-rate indebtedness that was not subject to an interest rate swap. We have a $250.0
million unsecured term loan which matures August 2020 and a $255.0 million unsecured term loan which matures January 2021 that
are LIBOR indexed. The unsecured term loans are subject to interest rate swap agreements through February 2018 and January 2019,
respectively. In addition, we have $129.1 million of debt that matures in April 2037, which has a fixed 6.804% interest rate through
April 2017 and thereafter will have a variable interest rate equal to 90 day LIBOR plus 1.70%. 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.
18
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 impact liquidity in
the debt markets, making financing terms for borrowers less attractive, and in certain cases may result in the unavailability of certain
types of debt financing. Uncertainty in the credit markets may negatively impact our ability to access additional debt financing on
reasonable terms, which may negatively affect our ability to make acquisitions. A prolonged downturn in the credit markets may
cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business plan accordingly.
In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we receive for properties
that we do sell, as prospective buyers may experience increased costs of capital or difficulties in obtaining capital. These events in
the credit markets may have an adverse effect on other financial markets in the United States, which may make it more difficult or
costly for us to raise capital through the issuance of our common shares or preferred shares. These disruptions in the financial markets
may have other adverse effects on us or the economy in general.
Covenants in certain of the agreements governing our debt could adversely affect our financial condition, investment activities
and/or operating activities.
Our unsecured revolving credit facility, unsecured term loans and indentures governing our 4.40% and 4.25% Senior Notes
contain certain cross-default and cross-acceleration provisions as well as customary restrictions, requirements and other limitations
on our ability to incur indebtedness and consummate mergers, consolidations or sales of all or substantially all of our assets. Our
ability to borrow under our unsecured revolving credit facility is also subject to compliance with certain other covenants. In addition,
failure to comply with our covenants could cause a default under the applicable debt instrument and we may then be required to
repay such debt with capital from other sources. Under those circumstances other sources of capital may not be available to us or 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.
The documents governing our non-recourse indebtedness contain restrictions on the operations of our property owner subsidiaries
and their properties. Certain activities, like leasing, may be subject to the consent of the applicable lender. In addition, certain lenders
engage third-party loan servicers that may not be as responsive as we would be.
A downgrade in our credit ratings could have a material adverse effect on 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 and preferred shares and are not recommendations to buy, sell
or hold any other securities. Any downgrade of our debt could have a material adverse effect on the market price of our debt securities
and our common and preferred 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.
19
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, 2016, the consolidated scheduled balloon payments for the next five calendar years are as follows ($ in
millions):
Year
2017
2018
2019
2020
2021
Property-Specific
Balloon Payments(1)
Corporate Recourse
Balloon Payments(2)
$
$
$
$
$
62.7
6.6
83.8
32.0
17.0
$
$
$
$
$
—
—
—
250.0
255.0
(1)
Inclusive of amounts owed by the Partnership of $31.8 million in 2019, $18.4 million in 2020 and $6.6 million in 2021.
(2) The Partnership is a co-borrower.
Our ability to make the scheduled balloon payments on any corporate recourse note will depend on our access to the capital
markets, including our ability to refinance the maturing note. Our ability to make the scheduled balloon payment on any non-recourse
mortgage note will depend upon (1) in the event we determine to contribute capital, our cash balances and the amount available
under our unsecured credit facility and (2) the property owner subsidiary's ability either to refinance the related mortgage debt or to
sell the related property. If the property owner subsidiary is unable to refinance or sell the related property, the property may be
conveyed to the lender through foreclosure or other means or the property owner subsidiary may declare bankruptcy.
We face risks associated with returning properties to lenders.
A number of the properties in which we have an interest are subject to non-recourse mortgages, which generally provide that a
lender's only recourse upon an event of default is to foreclose on the property. In the event these properties are conveyed via foreclosure
to the lenders thereof, we would lose all of our interest in these properties. The loss of a significant number of properties to foreclosure
or through bankruptcy of a property owner subsidiary could adversely affect our financial condition and results of operations,
relationships with lenders and ability to obtain additional financing in the future.
In addition, a lender may attempt to trigger a carve out to the non-recourse nature of a mortgage loan. To the extent a lender is
successful, the ability of our property owner subsidiary to return the property to the lender may be inhibited and/or we may be liable
for all or a portion of such loan.
Certain of our indebtedness is subject to cross-default and cross-acceleration provisions.
Substantially all of our corporate level borrowings and, in the future, certain of our secured indebtedness may, contain cross-
default and/or cross-acceleration provisions, which may be triggered if we default on certain indebtedness in excess of certain
thresholds. In the event of such a default, the resulting cross defaults and/or cross-accelerations may adversely impact our financial
condition.
20
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, 2016, only we and/or the Partnership were a borrower 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 of our unsecured debt.
In addition, any subsidiary guarantor, including the Partnership, 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.
21
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 Lexington's REIT Status
There can be no assurance that Lexington will remain qualified as a REIT for federal income tax purposes.
We believe that Lexington has met the requirements for qualification as a REIT for federal income tax purposes beginning with
its taxable year ended December 31, 1993, and we intend for Lexington to continue to meet these requirements in the future. However,
qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only
limited judicial or administrative interpretations. The Code provisions and income tax regulations applicable to REITs are more
complex than those applicable to corporations. The determination of various factual matters and circumstances not entirely within
our control may affect Lexington's ability to continue to qualify as a REIT. No assurance can be given that Lexington has qualified
or will remain qualified as a REIT. In addition, no assurance can be given that legislation, regulations, administrative interpretations
or court decisions will not significantly change the requirements for qualification as a REIT or the federal income tax consequences
of such qualification. If Lexington does not qualify as a REIT, Lexington would not be allowed a deduction for distributions to
shareholders in computing its net taxable income. In addition, Lexington's income would be subject to tax at the regular corporate
rates. Lexington also could be disqualified from treatment as a REIT for the four taxable years following the year during which
qualification was lost. Cash available to satisfy Lexington's debt service obligations and distributions to its shareholders would be
significantly reduced or suspended for each year in which Lexington does not qualify as a REIT. In that event, Lexington would not
be required to continue to make distributions. Although we currently intend for Lexington to continue to qualify as a REIT, it is
possible that future economic, market, legal, tax or other considerations may cause Lexington, without the consent of the shareholders,
to revoke the REIT election or to otherwise take action that would result in disqualification.
We may be subject to the REIT prohibited transactions tax, which could result in significant U.S. federal income tax liability to
us.
A REIT will incur a 100% tax on the net income from a prohibited transaction. Generally, a prohibited transaction includes a
sale or disposition of property held primarily for sale to customers in the ordinary course of a trade or business. While we believe
that the dispositions of our assets pursuant to our investment strategy should not be treated as prohibited transactions, whether a
particular sale will be treated as a prohibited transaction depends on the underlying facts and circumstances. We have not sought and
do not intend to seek a ruling from the Internal Revenue Service regarding any dispositions. Accordingly, there can be no assurance
that our dispositions of such assets will not be subject to the prohibited transactions tax. If all or a significant portion of those
dispositions were treated as prohibited transactions, we would incur a significant U.S. federal income tax liability, which could have
a material adverse effect on our financial position, results of operations and cash flows.
Distribution requirements imposed by law limit our flexibility.
To maintain Lexington's status as a REIT for federal income tax purposes, Lexington is generally required to distribute to its
shareholders at least 90% of its taxable income for that calendar year. Lexington's taxable income is determined without regard to
any deduction for dividends paid and by excluding net capital gains. To the extent that Lexington satisfies the distribution requirement
but distributes less than 100% of its taxable income, Lexington will be subject to federal corporate income tax on its undistributed
income. In addition, Lexington will incur a 4% nondeductible excise tax on the amount, if any, by which its distributions in any year
are less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain net income for that year and (iii)
100% of its undistributed taxable income from prior years. We intend for Lexington to continue to make distributions to its shareholders
to comply with the distribution requirements of the Code and to reduce exposure to federal income and nondeductible excise taxes.
Differences in timing between the receipt of income and the payment of expenses in determining its taxable income and the effect
of required debt amortization payments could require Lexington to borrow funds on a short-term basis in order to meet the distribution
requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.
22
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.
Several REIT rules have been amended under the Protecting Americans from Tax Hikes Act of 2015, the PATH Act, which was
enacted on December 18, 2015. These rules were enacted with varying effective dates. Shareholders should consult with their tax
advisors regarding the effect of the PATH Act in their particular circumstances.
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 and we also maintain the ATM offering program and a direct share
purchase plan, pursuant to which we may issue additional common shares. There is no restriction on our issuing additional common
or preferred shares, including any securities that are convertible into or exchangeable for, or that represent the right to receive,
common or preferred shares or any substantially similar securities. As of December 31, 2016, an aggregate of approximately 4.2
million of our common shares were issuable upon the exercise of employee share options and upon the exchange of OP units.
Depending upon the number of such securities issued, exercised or exchanged at one time, an issuance, exercise or exchange of such
securities could be dilutive to or otherwise adversely affect the interests of holders or the market price of our common shares.
There are certain limitations on a third party's ability to acquire us or effectuate a change in our control.
Limitations imposed to protect our REIT status. In order to protect against the loss of our REIT status, among other purposes,
our declaration of trust limits any shareholder from owning more than 9.8% in value of our outstanding equity shares, defined as
common shares or preferred shares, subject to certain exceptions. These ownership limits may have the effect of precluding acquisition
of control of us. Our Board of Trustees has granted a limited waiver of the ownership limits to BlackRock, Inc. with respect to
BlackRock, Inc.'s mutual funds.
23
Severance payments under employment agreements and severance policy. Substantial termination payments may be required
to be paid under the provisions of employment agreements with or severance policies applicable to 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 and we have a severance policy applicable to two of our executive officers and certain other senior 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
and senior officers are terminated without cause, as defined, those executive officers and senior 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 or severance policy and the acceleration of certain non-vested equity awards. Accordingly, these payments may discourage
a third party from acquiring us.
Our ability to issue additional shares. Our declaration of trust authorizes 1,000,000,000 shares of beneficial interest (par value
$0.0001 per share) consisting of 400,000,000 common shares, 100,000,000 preferred shares and 500,000,000 shares of beneficial
interest classified as excess stock, or excess shares. Our Board of Trustees is authorized to cause us to issue these shares without
shareholder approval. Our Board of Trustees may establish the preferences and rights of any such class or series of additional shares,
which could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in
shareholders' best interests. At December 31, 2016, in addition to common shares, we had outstanding 1,935,400 Series C Preferred
Shares. Our Series C Preferred Shares include provisions, such as increases in dividend rates or adjustments to conversion rates, that
may deter a change of control. The establishment and issuance of shares of our existing series of preferred shares or a future class
or series of shares could make a change of control of us more difficult.
Maryland Business Combination Act. The Maryland General Corporation Law, as applicable to Maryland REITs, establishes
special restrictions against “business combinations” between a Maryland REIT and “interested shareholders” or their affiliates unless
an exemption is applicable. An interested shareholder includes a person who beneficially owns, and an affiliate or associate of the
trust who, at any time within the two-year period prior to the date in question was the beneficial owner of, 10% or more of the voting
power of our then-outstanding voting shares, but a person is not an interested shareholder if the Board of Trustees approved in advance
the transaction by which such person otherwise would have become an interested shareholder, which approval may be conditioned
by the Board of Trustees. Among other things, Maryland law prohibits (for a period of five years) a merger and certain other transactions
between a Maryland REIT and an interested shareholder, or an affiliate of an interested shareholder. The five-year period runs from
the most recent date on which the interested shareholder became an interested shareholder. Thereafter, any such business combination
must be recommended by the Board of Trustees and approved by two super-majority shareholder votes unless, among other conditions,
the common shareholders receive a minimum price (as defined in the Maryland General Corporation Law) for their shares and the
consideration is received in cash or in the same form as previously paid by the interested shareholder for its shares. The statute
permits various exemptions from its provisions, including business combinations that are exempted by the Board of Trustees prior
to the time that the interested shareholder becomes an interested shareholder. The business combination statute could have the effect
of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if such acquisition would
be in shareholders' best interests. 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.”
24
Maryland Control Share Acquisition Act. Maryland law provides that a holder of “control shares” of a Maryland REIT acquired
in a “control share acquisition” has no voting rights with respect to such shares except to the extent approved by a vote of two-thirds
of the votes entitled to be cast on the matter under the Maryland Control Share Acquisition Act. Shares owned by the acquirer, by
our officers or by employees who are our trustees are excluded from shares entitled to vote on the matter. “Control Shares” are voting
shares that, if aggregated with all other shares previously acquired by the acquirer or in respect of which the acquirer is able to
exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise
voting power in electing trustees within one of the following ranges of voting power: one-tenth or more but less than one-third, one-
third or more but less than a majority or a majority or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained shareholder approval. A “control share acquisition” means
the acquisition of issued and outstanding control shares, subject to certain exceptions. If voting rights of control shares acquired in
a control share acquisition are not approved at a shareholders meeting or if the acquiring person does not deliver an acquiring person
statement as required under the statute, then, subject to certain conditions and limitations, the issuer may redeem any or all of the
control shares for fair value, except those for which voting rights have been previously approved. If voting rights of such control
shares are approved at a shareholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all
other shareholders may exercise appraisal rights. Any control shares acquired in a control share acquisition which are not exempt
under our by-laws will be subject to the Maryland Control Share Acquisition Act. The Maryland Control Share Acquisition Act does
not apply to shares acquired in a merger, consolidation or statutory share exchange if the Maryland REIT is a party to the transaction,
or to acquisitions approved or exempted by the declaration of trust or by-laws of the Maryland REIT. Our by-laws contain a provision
exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of our shares. We cannot assure
you that this provision will not be amended or eliminated at any time in the future.
Limits on ownership of our capital shares may have the effect of delaying, deferring or preventing someone from taking control
of us.
For us to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our
outstanding capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined for federal income tax
purposes to include certain entities) during the last half of each taxable year, and these capital shares must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year
(in each case, other than the first such year for which a REIT election is made). Our declaration of trust includes certain restrictions
regarding transfers of our capital shares and ownership limits.
Actual or constructive ownership of our capital shares in violation of the restrictions or in excess of the share ownership limits
contained in our declaration of trust would cause the violative transfer or ownership to be void or cause the shares to be transferred
to a charitable trust and then sold to a person or entity who can own the shares without violating these limits. As a result, if a violative
transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares.
Additionally, the constructive ownership rules for these limits are complex, and groups of related individuals or entities may be
deemed a single owner and consequently in violation of the share ownership limits.
However, these restrictions and limits may not be adequate in all cases to prevent the transfer of our capital shares in violation
of the ownership limitations. The ownership limits discussed above may have the effect of delaying, deferring or preventing someone
from taking control of us, even though a change of control could involve a premium price for the common shares or otherwise be in
shareholders' best interests.
The trading price of our common shares has been, and may continue to be, subject to significant fluctuations.
From January 1, 2012 through the date of this Annual Report, the closing sale price of our common shares on the NYSE
(composite) has ranged from $13.64 to $6.61 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.
25
Risk Related Specifically To LCIF
The Partnership is dependent upon Lexington for its business.
The Partnership has no employees and the Partnership is dependent upon Lexington and its employees for the operation of its
business, including the acquisition, disposition and management of its properties, investments and other assets and sourcing of equity
and debt financing. The continued service of Lexington and its employees is not guaranteed. Lexington has no obligation to allocate
any investment opportunities to the Partnership or provide the Partnership debt or equity financing. As a result, if Lexington and its
employees were unable or unwilling to provide or were unsuccessful at providing such services to the Partnership, its business,
financial condition and results of operations could be adversely affected.
The Partnership is the only subsidiary of Lexington that guarantees its debt and the assets of the Partnership's subsidiaries may
not be available to make payments on Lexington’s or its unsecured indebtedness and any related guarantees may be released in
the future if certain events occur.
As of December 31, 2016, the Partnership was the only co-borrower or guarantor of Lexington’s unsecured indebtedness. In
the event of a bankruptcy, liquidation or reorganization of any of the Partnership's subsidiaries, holders of any such subsidiary’s debt,
including trade creditors, will generally be entitled to payment of their claims from the assets of such subsidiaries before any assets
are made available for distribution to Lexington or the Partnership.
In addition, the Partnership will be deemed released if the Partnership's obligations as a co-borrower or guarantor under
Lexington’s principal credit agreement terminates pursuant to its terms or if it is amended to remove certain or all of Lexington’s
guarantors as borrowers or guarantors. Substantially, all of the Partnership's assets are held through subsidiaries. Consequently, the
Partnership's cash flow and its ability to meet its debt service and guarantee obligations depends in large part upon the cash flow of
its subsidiaries and the payment of funds by its subsidiaries to the Partnership in the form of distributions or otherwise.
26
Item 1B. Unresolved Staff Comments
There are no unresolved written comments that were received from the SEC staff relating to our or LCIF's periodic or current
reports under the Securities Exchange Act of 1934.
27
Item 2. Properties
Real Estate Portfolio
General. As of December 31, 2016, we had equity ownership interests in approximately 195 consolidated real estate properties
containing approximately 43.3 million square feet of rentable space, which were approximately 96.0% leased based upon net rentable
square feet, excluding properties subject to mortgages in default. 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 is exercised, the land together with all improvements thereon reverts to the landowner.
Leverage. As of December 31, 2016, we had outstanding mortgages and notes payable of approximately $0.7 billion with a
weighted-average interest rate of approximately 4.6% and a weighted-average maturity of 10.1 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, 2016. The Partnership's
properties are included and are identified with an asterisk.
28
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2016
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 W. Barraque St.
Pine Bluff
AR
Entergy Services, Inc.
27,189
10/31/2017
100%
* 3030 North 3rd St.
Phoenix
AZ
CopperPoint Mutual Insurance Company
252,400
12/31/2032
100%
19019 North 59th Ave.
Glendale
AZ
Honeywell International Inc.
252,300
7/15/2019
100%
2005 E. Technology Cir.
Tempe
AZ Wipro Data Center & Cloud Services, Inc. (Infocrossing,
60,000
12/31/2025
100%
Inc.)
8555 South River Pkwy.
Tempe
AZ
Versum Materials US, LLC
95,133
6/30/2022
100%
1440 East 15th St.
Tucson
AZ
CoxCom, LLC
28,591
7/31/2022
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%
9655 Maroon Cir.
Englewood
CO
TriZetto Corporation
166,912
4/30/2028
100%
* 1315 West Century Dr.
Louisville
CO
Global Healthcare Exchange, Inc. (Global Healthcare
Exchange, LLC)
106,877
4/30/2027
100%
143 Diamond Ave.
Parachute
CO
Encana Oil and Gas (USA) Inc. (Alenco Inc.)
49,024
10/31/2032
100%
* 100 Barnes Rd.
Wallingford
CT
3M Company
44,400
6/30/2018
100%
* 5600 Broken Sound Blvd.
Boca Raton
FL
Canon Solutions America, Inc. (Océ -USA Holding, Inc.)
143,290
2/14/2020
100%
550 International Parkway
Lake Mary
FL
JPMorgan Chase Bank, National Association
125,920
9/30/2020
100%
600 Business Center Dr.
Lake Mary
FL
JPMorgan Chase Bank, National Association
125,155
9/30/2020
100%
9200 South Park Center Loop Orlando
FL
Zenith Education Group, Inc. (ECMC Group, Inc.)
59,927
9/30/2020
100%
10419 North 30th St.
Tampa
FL
Time Customer Service, Inc. / Time Incorporated
132,981
6/30/2026
100%
2500 Patrick Henry Pkwy.
McDonough
GA
Georgia Power Company
111,911
6/30/2025
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
6/30/2019
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
1/31/2017
100%
John Wiley & Sons, Inc.
141,416
10/31/2019
100%
9601 Renner Blvd.
Lenexa
KS
VoiceStream PCS II Corporation (T-Mobile USA, Inc.)
77,484
10/31/2019
100%
29
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2016
Property Location
City
State
Primary Tenant (Guarantor)
11201 Renner Blvd.
Lenexa
KS
United States of America
* 5200 Metcalf Ave.
Overland Park
KS
Swiss Re America Holding Corporation / Westport
Insurance Corporation / Swiss RE Management (US)
Corporation
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
169,585
10/31/2027
100%
320,198
12/22/2018
100%
* 4455 American Way
Baton Rouge
LA
New Cingular Wireless PCS, LLC
70,100
10/31/2017
100%
133 First Park Dr.
Oakland
ME
Omnipoint Holdings, Inc. (T-Mobile USA, Inc.)
78,610
8/31/2020
100%
2800 High Meadow Cir.
Auburn Hills
MI
Faurecia USA Holdings, Inc.
278,000
3/31/2029
100%
12000 & 12025 Tech Center
Dr.
Livonia
MI
Kelsey-Hayes Company (TRW Automotive Inc.)
180,230
12/31/2024
100%
9201 Stateline Rd.
Kansas City
MO
3902 Gene Field Rd.
St. Joseph
MO
Swiss Re America Holding Corporation / Westport
Insurance Corporation / Swiss RE Management (US)
Corporation
Boehringer Ingelheim Vetmedica, Inc. (Boehringer
Ingelheim USA Corporation)
155,925
4/1/2019
100%
98,849
6/30/2027
100%
3943 Denny Ave.
Pascagoula
MS
Huntington Ingalls Incorporated
94,841
10/31/2018
100%
11707 Miracle Hills Dr.
Omaha
NE Wipro Data Center & Cloud Services, Inc. (Infocrossing,
85,200
11/30/2025
100%
Inc.)
1331 Capitol Ave.
Omaha
NE
The Gavilon Group, LLC
127,810
11/30/2033
100%
333 Mount Hope Ave.
Rockaway
1415 Wyckoff Rd.
Wall
29 S. Jefferson Rd.
Whippany
NJ
NJ
NJ
Atlantic Health System, Inc.
92,326
12/31/2027
100%
New Jersey Natural Gas Company
157,511
6/30/2021
100%
CAE SimuFlite, Inc. (CAE INC.)
123,734
11/30/2021
100%
6226 West Sahara Ave.
Las Vegas
NV
Nevada Power Company
282,000
1/31/2029
100%
5500 New Albany Rd.
Columbus
OH
Evans, Mechwart, Hambleton & Tilton, Inc.
104,807
12/29/2026
100%
2221 Schrock Rd.
Columbus
OH MS Consultants, Inc.
42,290
7/6/2027
100%
500 Olde Worthington Rd.
Westerville
OH
InVentiv Communications, Inc.
97,000
3/31/2026
100%
1700 Millrace Dr.
Eugene
2999 Southwest 6th St.
Redmond
OR
OR
Oregon Research Institute / Educational Policy
Improvement Center
80,011
11/30/2027
100%
VoiceStream PCS I, LLC / T-Mobile West Corporation (T-
Mobile USA, Inc.)
77,484
1/31/2019
100%
25 Lakeview Dr.
Jessup
PA
TMG Health, Inc.
150,000
8/7/2027
100%
1701 Market St.
Philadelphia
PA
Morgan, Lewis & Bockius LLP
304,037
1/31/2021
99%
1362 Celebration Blvd.
Florence
SC
MED3000, Inc.
32,000
2/14/2024
100%
* 3476 Stateview Blvd.
Fort Mill
SC
Wells Fargo Bank, N.A.
169,083
5/31/2024
100%
* 3480 Stateview Blvd.
Fort Mill
SC
Wells Fargo Bank, N.A.
169,218
5/31/2024
100%
30
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
As of December 31, 2016
Property Location
City
State
Primary Tenant (Guarantor)
333 Three D Systems Circle
Rock Hill
SC
3D Systems Corporation
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
80,028
8/31/2021
100%
420 Riverport Rd.
Kingsport
TN
Kingsport Power Company
42,770
6/30/2018
100%
1409 Centerpoint Blvd.
Knoxville
TN
Alstom Power, Inc.
84,404
10/31/2024
100%
2401 Cherahala Blvd.
Knoxville
TN
AdvancePCS, Inc. / CaremarkPCS, L.L.C.
59,748
5/31/2020
100%
3965 Airways Blvd.
Memphis
TN
Federal Express Corporation
521,286
6/19/2019
100%
601 & 701 Experian Pkwy.
Allen
TX
Experian Information Solutions, Inc. / TRW, Inc.
(Experian Holdings, Inc.)
292,700
3/14/2025
100%
1401 Nolan Ryan Expy.
Arlington
TX
Triumph Aerostructures, LLC (Triumph Group, Inc.)
161,808
1/31/2025
77%
4201 Marsh Ln.
Carrollton
TX
Carlson Restaurants Inc. (Carlson, Inc.)
130,000
11/30/2022
100%
* 4001 International Pkwy.
Carrollton
TX
Motel 6 Operating, LP
138,443
12/31/2025
100%
810 Gears Rd.
Houston
TX
United States of America
78,895
1/10/2031
87%
820 Gears Rd.
Houston
TX
Ricoh, USA, Inc.
78,895
1/31/2018
100%
10001 Richmond Ave.
Houston
TX
Schlumberger Holdings Corp.
554,385
9/30/2025
100%
1311 Broadfield Blvd.
Houston
6555 Sierra Dr.
8900 Freeport Pkwy.
Irving
Irving
TX
TX
TX
Transocean Offshore Deepwater Drilling, Inc. (Transocean
Sedco Forex, Inc.)
155,040
1/31/2017
100%
TXU Energy Retail Company, LLC (Texas Competitive
Electric Holding Company, LLC)
Nissan Motor Acceptance Corporation (Nissan North
America, Inc.)
247,254
2/28/2025
100%
268,445
3/31/2023
100%
270 Abner Jackson Pkwy.
Lake Jackson
TX
The Dow Chemical Company
389,188
10/31/2036
100%
3711 San Gabriel
Mission
TX
VoiceStream PCS II Corporation / T-Mobile West
Corporation
75,016
6/30/2020
100%
6200 Northwest Pkwy.
San Antonio
TX
United HealthCare Services, Inc.
142,500
11/30/2024
100%
* 2050 Roanoke Rd.
Westlake
TX
Charles Schwab & Co., Inc.
130,199
6/30/2021
100%
400 Butler Farm Rd.
Hampton
VA
Nextel Communications of the Mid-Atlantic, Inc. (Nextel
Finance Company)(2019) / Wisconsin Physicians Service
Insurance Corporation (71,073 sf - 2023)
100,632
8/31/2023
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%
800 East Canal St.
Richmond
VA McGuireWoods LLP
330,309
8/31/2030
100%
500 Kinetic Dr.
Huntington
WV
AMZN WVCS LLC (Amazon.com, Inc.)
68,693
11/30/2026
100%
Office Total
11,569,940
99.6%
The 2016 net effective annual base cash rent for the office portfolio as of December 31, 2016 was $15.36 per square foot and the
weighted-average remaining lease term was 7.2 years.
31
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
INDUSTRIAL
As of December 31, 2016
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
* 2415 U.S. Hwy 78 East
Moody
AL
Michelin North America, Inc.
595,346
12/31/2019
100%
318 Pappy Dunn Blvd.
Anniston
AL
International Automotive Components Group North
America, Inc.
276,782
11/24/2029
100%
2455 Premier Row
Orlando
FL
Walgreen Co. / Walgreen Eastern Co.
205,016
3/31/2021
100%
* 3102 Queen Palm Dr.
Tampa
FL
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
United States Cold Storage, Inc.
296,972
8/31/2028
100%
3301 Stagecoach Rd. NE
Thomson
GA
Hollander Sleep Products, LLC (Hollander Home
Fashions Holdings)
208,000
5/31/2030
100%
3600 Army Post Rd.
Des Moines
IA
HP Enterprise Services, LLC
405,000
4/30/2017
100%
3931 Lakeview Corporate Dr. Edwardsville
1001 Innovation Rd.
Rantoul
3686 S. Central Ave.
Rockford
749 Southrock Dr.
Rockford
IL
IL
IL
IL
AMAZON.COM.DEDC, LLC (Amazon.com, Inc.)
769,500
9/30/2026
100%
Bell Sports, Inc. (Vista Outdoor Inc.)
813,126
10/31/2034
100%
Pierce Packaging Co.
93,000
12/31/2019
100%
Jacobson Warehouse Company, Inc. (Jacobson
Distribution Company and Jacobson Transportation
Company, Inc.)
150,000
12/31/2018
100%
* 1020 W. Airport Rd.
Romeoville
IL
ARYZTA LLC (ARYZTA AG)
188,166
10/31/2031
100%
2935 Van Vactor Dr.
Plymouth
IN
Bay Valley Foods, LLC
300,500
12/31/2018
100%
10000 Business Blvd.
Dry Ridge
KY
Dana Light Axle Products, LLC (Dana Holding
Corporation and Dana Limited)
336,350
6/30/2025
100%
730 North Black Branch Rd.
Elizabethtown
KY Metalsa Structural Products, Inc. / Dana Structural
167,770
6/30/2025
100%
Products, LLC (Dana Holding Corporation and Dana
Limited)
750 North Black Branch Rd.
Elizabethtown
KY Metalsa Structural Products, Inc. / Dana Structural
539,592
6/30/2025
100%
Products, LLC (Dana Holding Corporation and Dana
Limited)
301 Bill Bryan Rd.
Hopkinsville
KY Metalsa Structural Products, Inc. / Dana Structural
424,904
6/30/2025
100%
Products, LLC (Dana Holding Corporation and Dana
Limited)
4010 Airpark Dr.
Owensboro
KY Metalsa Structural Products, Inc. / Dana Structural
211,598
6/30/2025
100%
Products, LLC (Dana Holding Corporation and Dana
Limited)
1901 Ragu Dr.
Owensboro
KY
Unilever Supply Chain, Inc. (Unilever United States, Inc.)
443,380
12/19/2020
100%
5001 Greenwood Rd.
Shreveport
LA
Libbey Glass Inc. (Libbey Inc.)
646,000
10/31/2026
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
993,685
4/30/2024
100%
2860 Clark St.
Detroit
MI
FCA US LLC (f/k/a Chrysler Group LLC)
190,003
10/22/2035
100%
32
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
INDUSTRIAL
As of December 31, 2016
Property Location
City
6938 Elm Valley Dr.
Kalamazoo
State
MI
Primary Tenant (Guarantor)
Dana Commercial Vehicle Products, LLC (Dana Holding
Corporation and Dana Limited)
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
150,945
10/25/2021
100%
904 Industrial Rd.
Marshall
MI
Tenneco Automotive Operating Company, Inc. (Tenneco,
Inc.)
246,508
9/30/2018
100%
* 1601 Pratt Ave.
Marshall
MI
Autocam Corporation
58,707
12/31/2023
100%
43955 Plymouth Oaks Blvd.
Plymouth
MI
Tower Automotive Operations USA I, LLC / Tower
Automotive Products Inc. (Tower Automotive, Inc.)
290,133
10/31/2024
100%
1700 47th Ave North
Minneapolis
MN
Owens Corning Roofing and Asphalt, LLC
18,620
12/31/2025
100%
* 549 Wingo Rd.
Byhalia
MS
Asics America Corporation (Asics Corporation)
855,878
3/31/2030
100%
554 Nissan Pkwy.
Canton
MS
Nissan North America, Inc.
1,466,000
2/28/2027
100%
* 7670 Hacks Cross Rd.
Olive Branch
MS MAHLE Aftermarket Inc. (MAHLE Industries,
268,104
2/28/2023
100%
Incorporated)
1133 Poplar Creek Rd.
Henderson
NC
Staples, Inc.
196,946
6/30/2018
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%
* 671 Washburn Switch Rd.
Shelby
NC
Clearwater Paper Corporation
673,518
5/31/2031
100%
2203 Sherrill Dr.
Statesville
NC
Ozburn-Hessey Logistics, LLC (OHH Acquisition
Corporation)
639,800
12/31/2017
100%
121 Technology Dr.
Durham
NH
5625 North Sloan Ln.
North Las Vegas NV
Heidelberg Americas, Inc. (Heidelberg Druckmaschinen
AG) (2021) / Goss International Americas, Inc. (Goss
International Corporation) (2026)
Nicholas and Co., Inc.
500,500
3/30/2026
100%
180,235
9/30/2034
100%
29-01 Borden Ave. / 29-10
Hunters Point Ave.
Long Island
City
NY
FedEx Ground Package System, Inc. (FedEx Corporation)
140,330
3/31/2028
100%
736 Addison Rd.
Erwin
NY
Corning Property Management Corporation
408,000
11/30/2026
100%
351 Chamber Dr.
Chillicothe
OH
The Kitchen Collection, Inc.
475,218
6/30/2026
100%
10590 Hamilton Ave.
Cincinnati
OH
The Hillman Group, Inc.
264,598
12/31/2027
100%
1650 - 1654 Williams Rd.
Columbus
OH
ODW Logistics, Inc.
772,450
6/30/2018
100%
7005 Cochran Rd.
Glenwillow
OH
Royal Appliance Mfg. Co.
458,000
7/31/2025
100%
* 191 Arrowhead Dr.
Hebron
OH
Owens Corning Insulating Systems, LLC
250,410
12/31/2019
100%
* 200 Arrowhead Dr.
Hebron
OH
Owens Corning Insulating Systems, LLC
400,522
12/31/2019
100%
10345 Philipp Pkwy.
Streetsboro
OH
L'Oreal USA S/D, Inc. (L'Oreal USA, Inc.)
649,250
10/17/2019
100%
33
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
INDUSTRIAL
As of December 31, 2016
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
27255 SW 95th Ave.
Wilsonville
OR
Pacific Foods of Oregon Inc. d/b/a Pacific Natural Foods
508,277
10/31/2032
100%
* 250 Rittenhouse Cir.
Bristol
PA
Northtec LLC (The Estée Lauder Companies Inc.)
241,977
11/30/2026
100%
100 Ryobi Dr.
Anderson
SC
One World Technologies, Inc. (Techtronic Industries Co.
Ltd.)
1,327,022
6/30/2036
100%
590 Ecology Ln.
Chester
SC
Boral Stone Products LLC (Boral Limited)
420,597
7/14/2025
100%
50 Tyger River Dr.
Duncan
SC
Plastic Omnium Auto Exteriors, LLC
221,833
9/30/2018
100%
101 Michelin Dr.
Laurens
SC
Michelin North America, Inc.
1,164,000
1/31/2020
100%
900 Industrial Blvd.
Crossville
TN
Dana Commercial Vehicle Products, LLC
222,200
9/30/2026
100%
633 Garrett Pkwy.
Lewisburg
TN
Calsonic Kansei North America, Inc.
310,000
3/31/2026
100%
120 Southeast Pkwy Dr.
Franklin
TN
Essex Group, Inc. (United Technologies Corporation)
289,330
12/31/2018
100%
3350 Miac Cove Rd.
Memphis
TN
Mimeo.com, Inc.
140,079
9/30/2020
77%
3456 Meyers Ave.
Memphis
TN
Sears, Roebuck and Co. / Sears Logistics Services
780,000
2/28/2027
100%
3820 Micro Dr.
Millington
TN
Ingram Micro L.P. (Ingram Micro Inc.)
701,819
9/30/2021
100%
1501 Nolan Ryan Expy.
Arlington
TX
Arrow Electronics, Inc.
74,739
6/30/2027
100%
7007 F.M. 362 Rd.
Brookshire
TX
Orizon Industries, Inc. (Spitzer Industries, Inc.)
262,095
3/31/2035
100%
13863 Industrial Rd.
Houston
TX
Curtis Kelly, Inc. (Spitzer Industries, Inc.)
187,800
3/31/2035
100%
13901/14035 Industrial Rd.
Houston
TX
Industrial Terminals Management, L.L.C. (Maritime
Holdings (Delaware) LLC)
132,449
3/31/2038
100%
13930 Pike Rd.
Missouri City
TX
Vulcan Construction Materials, LP (Vulcan Materials
Company)
N/A
4/30/2032
100%
2425 Hwy. 77 North
Waxahachie
TX
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 Heinz Foods Company
344,700
5/31/2021
100%
901 East Bingen Point Way
Bingen
WA
The Boeing Company
124,539
5/31/2024
100%
* 2800 Polar Way
Richland
WA
2424 Alpine Rd.
Eau Claire
111 West Oakview Pkwy.
Oak Creek
WI
WI
Preferred Freezer Services of Richland, LLC (Preferred
Freezer Services, LLC & Preferred Freezer Services
Operating, LLC)
456,412
8/31/2035
100%
Silver Spring Foods, Inc. (Huntsinger Farms, Inc.)
159,000
4/30/2027
100%
Stella & Chewy's LLC
164,007
6/30/2035
100%
Industrial Total
27,476,653
99.9%
The 2016 net effective annual base cash rent for the industrial portfolio as of December 31, 2016 was $4.91 per square foot and the
weighted-average remaining lease term was 10.4 years.
34
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
MULTI-TENANTED
As of December 31, 2016
Property Location
City
State
Primary Tenant (Guarantor)
13430 North Black Canyon
Fwy.
Phoenix
AZ
Multi-tenanted
Property
Type
Office
Net
Rentable
Square Feet
Current
Lease Term
Expiration
Percent
Leased
138,940
Various
92%
* King St./1042 Fort St. Mall
Honolulu
HI
Multi-tenanted
Office
77,459
Various
50%
* 33 Commercial St. A
Foxborough
MA
(Available for lease)
Office
84,441
* 26555 Northwestern Hwy.
Southfield
MI
(Available for lease)
Office
359,645
N/A
N/A
7111 Crabb Rd.
Temperance
MI
Hollingsworth Logistics Group, L.L.C.
Industrial
756,856
11/30/2021
3165 McKelvey Rd.
Bridgeton
MO
BJC Health System
Office
51,067
12/31/2018
* 1460 Tobias Gadson Blvd.
Charleston
SC
Vallen Distribution, Inc.
Office
50,076
6/30/2019
* 2210 Enterprise Dr.
Florence
SC
Caliber Funding, LLC
Office
176,557
6/30/2018
854 Paragon Way
Rock Hill
SC
(Available for lease)
Office
104,497
N/A
0%
0%
38%
50%
41%
21%
0%
6050 Dana Way
Antioch
TN
Multi-tenanted
Industrial
674,528
Various
98%
104 & 110 S. Front St.
Memphis
TN
(Available for lease)
Office
37,229
N/A
0%
11511 Luna Rd.
Farmers Branch TX
International Business Machines
Corporation
Office
181,072
4/30/2021
45%
1200 Jupiter Rd.
Garland
TX
(Available for lease)
Office
278,759
N/A
0%
Multi-Tenanted Total
2,971,126
43.2%
The 2016 net effective annual base cash rent for the multi-tenant portfolio as of December 31, 2016 was $2.56 per square foot and
the weighted-average remaining lease term was 3.0 years.
35
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OTHER
As of December 31, 2016
Property Location
City
State
Primary Tenant (Guarantor)
255 Northgate Dr.
Manteca
CA
Kmart Corporation
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
107,489
12/31/2018
100%
12080 Carmel Mountain Rd.
San Diego
CA
Sears, Roebuck and Co / Kmart Corporation
107,210
12/31/2018
100%
499 Derbyshire Dr.
Venice
FL
Littlestone Brotherhood LLC
31,180
1/31/2055
100%
* 832 N. Westover Blvd.
Albany
GA
Gander Mountain Company
45,554
11/30/2028
100%
2223 N. Druid Hills Rd.
Atlanta
GA
Bank of America, N.A. (Bank of America Corporation)
6,260
12/31/2019
100%
956 Ponce de Leon Ave.
Atlanta
GA
Bank of America, N.A. (Bank of America Corporation)
3,900
12/31/2019
100%
201 W. Main St.
Cumming
GA
Bank of America, N.A. (Bank of America Corporation)
14,208
12/31/2019
100%
4545 Chamblee-Dunwoody
Rd.
Dunwoody
GA
Bank of America, N.A. (Bank of America Corporation)
4,565
12/31/2019
100%
1066 Main St.
Forest Park
GA
Bank of America, N.A. (Bank of America Corporation)
14,859
12/31/2019
100%
825 Southway Dr.
Jonesboro
GA
Bank of America, N.A. (Bank of America Corporation)
4,894
12/31/2019
100%
1698 Mountain Industrial
Blvd.
Stone Mountain GA
Bank of America, N.A. (Bank of America Corporation)
5,704
12/31/2019
100%
1150 W. Carl Sandburg Dr.
Galesburg
5104 North Franklin Rd.
Lawrence
IL
IN
Kmart Stores of Illinois LLC / Kmart Corporation
94,970
12/31/2018
100%
Marsh Supermarkets, Inc. / Marsh Supermarkets, LLC
28,721
10/31/2018
100%
30 Light St.
Baltimore
MD
30 Charm City, LLC
201-215 N. Charles St.
Baltimore
MD
201 NC Leasehold LLC
N/A 12/31/2048
100%
N/A
8/31/2112
100%
733 East Main St.
Jefferson
NC
Food Lion, LLC / Delhaize America, Inc.
34,555
2/28/2023
100%
291 Talbert Blvd.
Lexington
NC
Food Lion, LLC / Delhaize America, Inc.
23,000
2/28/2018
100%
835 Julian Ave.
Thomasville
NC Mighty Dollar, LLC
* 1237 W. Sherman Ave.
Vineland
NJ
130 Midland Ave.
Port Chester
NY
HealthSouth Rehabilitation Hospital of South Jersey, LLC
(HealthSouth Corporation)
St. Anthony Supermarket Corp. (Anthony Pena, Marina
Pena, Anthony Corona and Robert Corona)
23,767
9/30/2018
100%
39,287
2/28/2043
100%
59,613
10/31/2018
100%
21082 Pioneer Plaza Dr.
Watertown
NY
Kmart Corporation
120,727
12/31/2018
100%
4831 Whipple Avenue N.W.
Canton
OH
Best Buy Co., Inc.
46,350
2/26/2018
100%
5350 Leavitt Rd.
Lorain
OH
Kmart Corporation
193,193
12/31/2018
100%
B.E.C. 45th St/Lee Blvd.
Lawton
OK
Associated Wholesale Grocers, Inc. / Safeway, Inc.
30,757
3/31/2019
100%
* 6910 S. Memorial Hwy.
Tulsa
OK
Toys "R" Us, Inc. / Toys “R” Us-Delaware, Inc.
43,123
5/31/2026
100%
1600 E. 23rd St.
Chattanooga
1053 Mineral Springs Rd.
Paris
TN
TN
BI- LO, LLC / K-VA-T Food Stores, Inc.
42,130
6/30/2019
100%
The Kroger Co.
31,170
7/1/2018
100%
175 Holt Garrison Pkwy.
Danville
VA
Home Depot USA, Inc.
N/A
1/31/2029
100%
36
LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OTHER
As of December 31, 2016
Property Location
City
State
Primary Tenant (Guarantor)
Net
Rentable
Square
Feet
Current
Lease Term
Expiration
Percent
Leased
2411 W. Beverly St.
Staunton
VA
Food Lion, LLC / Delhaize America, Inc.
23,000
2/28/2018
100%
9803 Edmonds Way
Edmonds
WA
Puget Consumers Co-op d/b/a PCC Natural Markets
35,459
8/31/2028
100%
97 Seneca Trail
Fairlea
WV
Kmart Corporation
90,933
12/31/2018
100%
Other Total
Consolidated Portfolio Grand Total
1,306,578
43,324,297
100%
95.9%
The 2016 net effective annual base cash rent for the other portfolio as of December 31, 2016 was $7.51 per square foot and the
weighted-average remaining lease term was 14.6 years.
The 2016 net effective annual base cash rent for the consolidated portfolio as of December 31, 2016 was $7.62 per square foot and
the weighted-average remaining lease term was 8.6 years.
37
LEXINGTON
NON-CONSOLIDATED PORTFOLIO PROPERTY
CHART
As of December 31, 2016
BluePearl Holdings, LLC
Office
3,000 10/31/2033
100%
Gander Mountain Company
Other
120,000
3/31/2028
100%
Property Location
City
State
Primary Tenant (Guarantor)
BluePearl Holdings, LLC
FL
FL
FL
607 & 611 Lumsden
Professional Ct.
4525 Ulmerton Rd.
100 Gander Way
455 Abernathy Rd.
Brandon
Clearwater
Palm Beach
Gardens
Atlanta
820 Frontage Rd.
Northfield
29080 Inkster Rd.
Southfield
4126 Parkcard Rd.
Ann Arbor
GA
BluePearl Holdings, LLC
IL
MI
MI
BluePearl Holdings, LLC
BluePearl Holdings, LLC
BluePearl Holdings, LLC
3201 Quail Springs Pkwy.
Oklahoma City OK
18839 McKay Blvd.
Humble
2203 North Westgreen Blvd. Katy
TX
TX
AT&T Corp. / AT&T Services, Inc. / New
Cingular Wireless Services, Inc.
Triumph Rehabilitation Hospital of Northeast
Houston, LLC (RehabCare Group, Inc.)
Net
Rentable
Square
Feet
Current
Lease
Term
Expiration
Percent
Leased
8,500 10/31/2033
100%
Property
Type
Office
Office
Office
Office
Office
32,000 10/31/2033
100%
14,000 10/31/2033
100%
38,000 10/31/2033
100%
3,500 10/31/2033
100%
Office
128,500 11/30/2020
100%
Other
55,646
1/31/2029
100%
British Schools of America, LLC
Other
274,000
8/31/2036
100%
Total
677,146
100%
The 2016 net effective annual rent for the non-consolidated portfolio as of December 31, 2016 was $22.11 per square foot and the
weighted-average remaining lease term was 14.0 years.
The following chart sets forth certain information regarding lease expirations for the next ten years in our consolidated portfolio:
Year
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Number of
Lease Expirations
38
45
30
17
17
6
7
11
19
14
Square Feet
1,939,956
4,120,006
4,021,688
3,301,430
3,505,636
831,639
909,047
2,212,735
4,312,564
4,022,567
GAAP Base Rent ($000)
$
15,266
26,751
31,791
22,743
23,902
9,983
12,734
15,555
32,142
15,391
Percentage of
Annual Rent
4.7%
8.2%
9.7%
7.0%
7.3%
3.1%
3.9%
4.8%
9.8%
4.7%
The following chart sets forth the 2016 annual GAAP base rent ($000) based on the credit rating of our consolidated tenants at
December 31, 2016(1):
Investment Grade
Non-investment Grade
Unrated
GAAP Base Rent
Percentage
$
$
123,769
56,836
153,563
334,168
37.0%
17.0%
46.0%
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.
38
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.
GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC v. Lexington Realty Trust (Supreme Court of the State of New York,
County of New York-Index No. 653117/2015)
On September 16, 2015, GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC commenced an action as lender against
us based on a limited guaranty of recourse obligations executed by a predecessor entity of the Company in connection with a mortgage
loan secured by a property owner subsidiary's commercial property in Bridgewater, New Jersey. The property owner subsidiary
defaulted due to non-payment after the sole tenant vacated at the end of the lease term. The lender currently seeks approximately
$9.2 million in order to satisfy the outstanding amount of the loan after offset for the lender's asserted value of the property it obtained
in foreclosure, plus interest, reasonable attorney’s fees and other costs and disbursements related thereto. The Company had not
recorded any liability relating to this litigation as of December 31, 2016 as the Company believes that a loss contingency is "reasonably
possible" (as defined by FASB ASC 450-20-20) but not "probable" (as defined by FASB ASC 450-20-20).
The lender claims that the Company's limited guaranty was triggered due to the merger of Newkirk Realty Trust, Inc. and
Lexington Corporate Properties Trust on December 31, 2006, arguing that it constituted an event of default because it was a transfer
that was not permitted by the loan agreement. The limited guaranty provides that the guarantor's liability for the guaranteed obligations
shall not exceed $10.0 million, which the Company believes is its maximum exposure to loss. The Company intends to vigorously
defend the lender’s claim. The Company filed a motion to dismiss, which was generally denied. The Company is currently conducting
discovery, with document production required to be completed by March 31, 2017, fact deposition to be completed by August 28,
2017 and expert depositions to be completed by October 31, 2017.
Item 4. Mine Safety Disclosures
Not applicable.
39
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities
PART II.
Lexington Realty Trust
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, 2016
September 30, 2016
June 30, 2016
March 31, 2016
December 31, 2015
September 30, 2015
June 30, 2015
March 31, 2015
High
Low
$
$
11.01
11.02
10.12
8.81
9.17
9.01
10.19
11.75
9.23
9.89
8.36
6.52
7.97
7.77
8.42
9.52
The per common share closing price on the NYSE (composite) was $11.30 on February 27, 2017.
Holders. As of February 27, 2017, we had approximately 3,032 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 two years are as follows:
Quarters Ended
March 31,
June 30,
September 30,
December 31,
2016
2015
$
$
$
$
0.170
0.170
0.170
0.175
$
$
$
$
0.170
0.170
0.170
0.170
While we intend to continue paying regular quarterly dividends to holders of our common shares, the authorization of future
dividend declarations will be at the discretion of our Board of Trustees and will depend on our actual cash flow, our financial condition,
capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as our Board
of Trustees deems relevant. The actual cash flow available to pay dividends will be affected by a number of factors, including, among
others, the risks discussed under “Risk Factors” in Part I, Item 1A and “Management's Discussion and Analysis of Financial Condition
and Results of Operations” in Part II, Item 7 of this Annual Report.
We do not believe that the financial covenants contained in our debt instruments will have any adverse impact on our ability to
pay dividends in the normal course of business to our common and preferred shareholders or to distribute amounts necessary to
maintain our qualification as a REIT.
Direct Share Purchase Plan. We maintain a direct share purchase plan, which has two components, (i) a dividend reinvestment
component and (ii) a direct share purchase component. Under the dividend reinvestment component, common shareholders and
holders of OP units may elect to automatically reinvest their dividends and distributions to purchase our common shares. Under the
direct share purchase component, our current investors and new investors can make optional cash purchases of our common shares.
The administrator of the plan, Computershare Trust Company, N.A., purchases common shares for the accounts of the participants
under the plan, at our discretion, either directly from us, on the open market or through a combination of those two options. In 2016,
2015 and 2014, we issued approximately 0.6 million, 2.3 million and 2.6 million common shares, respectively, under the plan, raising
net proceeds of $4.1 million, $20.8 million and $25.8 million, respectively.
ATM Program. In January 2013, we implemented, and in November 2016, we updated, our ATM offering program, under which
we may, from time to time, sell up to $125.0 million in common shares over the term of the program. As of the date of filing this
Annual Report, we have issued 5,979,639 common shares under this ATM offering program at a weighted-average issue price of
$10.83 per common share, generating proceeds of approximately $63.7 million after deducting approximately $1.0 million of
commissions. We intend to use the net proceeds from the ATM offering program for general working capital, which may include
unspecified acquisitions and to repay indebtedness. As of the date of filing this Annual Report, we had approximately $60.3 million
available for issuance under the ATM offering program.
40
Equity Compensation Plan Information. The following table sets forth certain information, as of December 31, 2016, 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)
406,241
$
—
406,241
$
6.78
—
6.78
2,344,136
—
2,344,136
Lepercq Corporate Income Fund L.P.
General. There is no established public trading market for the OP units.
Holders. As of February 27, 2017, the Partnership had approximately 322 holders of record of OP units.
Distributions. Since its formation in 1986, the Partnership has made quarterly distributions without interruption.
The weighted-average distributions per OP unit paid in each quarter for the last two years are as follows:
Quarters Ended
March 31,
June 30,
September 30,
December 31,
$
$
$
$
2016
2015
0.20
0.20
0.20
0.20
$
$
$
$
0.20
0.21
0.20
0.22
Holders of OP units are able to participate in the dividend reinvestment component of the Trust's Direct Share Purchase Plan,
where they can reinvest distributions on their OP units in Lexington's common shares.
Recent Sales of Unregistered Securities.
We issued an aggregate of approximately 1.9 million common shares upon conversion of the remaining $12.4 million principal
amount of our 6.00% Convertible Notes at the then stated conversion rates during 2016.
Share Repurchase Program.
The following table summarizes common shares/OP units that were repurchased during the fourth quarter of 2016 pursuant to
publicly announced repurchase plans(1):
Period
October 1-31, 2016
November 1-30, 2016
December 1-31, 2016
Total
Total number of
shares/units
purchased
Average price
paid per
share/unit ($)
—
—
—
—
Total number of
shares/units
purchased as
part of publicly
announced
plans or
programs
Maximum
number of
shares/units that
may yet be
purchased
under the plans
or programs
—
—
—
—
—
—
—
—
6,599,088
6,599,088
6,599,088
6,599,088
(1) Share repurchase authorization announced on July 2, 2015, which has no expiration date.
41
Item 6. Selected Financial Data
The following sets forth our and the Partnership's selected consolidated financial data as of and for each of the years in the five-
year period ended December 31, 2016. 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)
Lexington Realty Trust:
Total gross revenues
Expenses applicable to revenues
Interest and amortization expense
Income (loss) from continuing operations
Total discontinued operations
Net income
Net income attributable to Lexington Realty Trust
shareholders
Net income (loss) attributable to common
shareholders
Income (loss) from continuing operations per
common share - basic
Income 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(1)
Real estate assets, net, including real estate -
intangible assets
Total assets(2)
Mortgages, notes payable, credit facility and term
loans, including discontinued operations(2)
Shareholders' equity
Total equity
Preferred share liquidation preference
2016
2015
2014
2013
2012
$
$
$
$
429,496
(213,403)
(88,032)
96,450
—
96,450
430,839
(222,853)
(89,739)
113,209
1,682
114,891
423,818
(218,510)
(97,303)
47,842
49,621
97,463
361,055
(212,658)
(85,892)
(21,021)
24,884
3,863
$
295,202
(183,672)
(84,250)
184,173
465
184,638
95,624
111,703
93,104
1,630
180,316
89,109
105,100
86,324
(14,089)
156,811
0.38
—
0.38
0.37
—
0.37
0.69
0.44
0.01
0.45
0.44
0.01
0.45
0.68
0.17
0.21
0.38
0.17
0.21
0.38
0.675
(0.18)
0.11
(0.07)
(0.18)
0.11
(0.07)
0.615
0.99
—
0.99
0.94
(0.01)
0.93
0.55
235,273
(10,187)
(231,698)
244,930
(388,271)
45,513
214,672
(43,068)
(57,788)
206,304
(597,583)
434,516
163,810
(134,103)
(59,394)
1.80
2.00
1.37
N/A
N/A
3,028,326
3,441,467
3,397,922
3,808,403
3,287,250
3,758,483
3,425,420
3,753,983
3,165,085
3,407,180
1,860,598
1,392,777
1,412,491
96,770
2,190,740
1,440,029
1,462,531
96,770
2,076,042
1,485,766
1,508,920
96,770
2,037,509
1,515,738
1,539,483
96,770
1,867,185
1,306,730
1,333,165
251,770
_________
(1) N/A - Ratio is below 1.0, deficit of $28,929 and $20,065 existed at December 31, 2013 and 2012, respectively.
(2) 2015-2012 amounts restated to reflect the adoption of ASU 2015-03 on January 1, 2016.
42
$
LCIF:
Total gross revenues
Expenses applicable to revenues
Interest and amortization expense
Income (loss) from continuing operations
Total discontinued operations
Net income (loss)
Income (loss) from continuing operations per unit
Income (loss) from discontinued operations per
unit
Net income (loss) per unit
Cash distributions per weighted-average unit
(rounded)
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Ratio of earnings to fixed charges (1)
Real estate assets, net, including real estate -
intangible assets
Loans receivable, net
Total assets(2)
Mortgages and notes payable, including
discontinued operations(2)
Co-borrower debt
Partners' capital
2016
2015
2014
2013
2012
$
$
124,169
(48,678)
(27,313)
(3,921)
—
(3,921)
(0.05)
—
(0.05)
0.80
38,907
153,630
(159,636)
N/A
128,001
(47,697)
(29,269)
42,315
—
42,315
0.58
—
0.58
0.84
38,410
(179,408)
151,800
2.43
639,476
1,005,505
—
—
728,604
1,130,926
169,212
146,404
387,623
431,599
201,106
461,657
$
118,133
(42,387)
(28,267)
40,738
18,811
59,549
0.59
0.28
0.87
0.82
38,049
(7,806)
(35,079)
2.43
849,969
15,448
942,883
323,155
136,967
432,041
$
74,871
(35,589)
(13,111)
9,177
4,523
13,700
0.17
0.09
0.26
0.87
43,272
(285,645)
248,190
1.70
829,484
19,220
909,413
334,153
91,551
448,067
60,553
(33,076)
(14,054)
12,164
(1,422)
10,742
0.32
(0.04)
0.28
0.90
37,720
(56,530)
6,984
1.87
567,153
56,208
674,956
203,923
50,986
216,544
_________
(1) N/A - Ratio is below 1.0, deficit of $4,803 existed at December 31, 2016.
(2) 2015-2012 amounts restated to reflect the adoption of ASU 2015-03 on January 1, 2016.
43
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.
Introduction
The following is a discussion and analysis of the consolidated financial condition and results of operations of Lexington Realty Trust
and LCIF for the years ended December 31, 2016, 2015 and 2014, and significant factors that could affect their prospective financial
condition and results of operations. This discussion should be read together with the accompanying consolidated financial statements
of the Company and the Partnership included herein and notes thereto.
Lexington Realty Trust
Overview
General. We are a Maryland REIT that owns a diversified portfolio of equity and debt investments in single-tenant commercial
properties.
As of December 31, 2016, we had equity ownership interests in approximately 195 consolidated real estate properties, located
in 40 states and encompassing approximately 43.3 million square feet, approximately 96.0% of which was leased, excluding properties
subject to mortgages in default.
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. However,
industry and regional 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, 2016, we generated approximately 36.8% of our 2016 base rental
revenue from leases ten years or longer compared to approximately 42.5% of our 2015 base rental revenue for leases in place at
December 31, 2015. The decrease relates primarily to the sale of the New York land investments. 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, 2016, our base rental revenue from single-tenant leases scheduled to expire over the next five years was
approximately 35.6% compared to approximately 31.4% at December 31, 2015. We believe we no longer have concentrated risk of
lease rollover in any one year and we believe our cash flows are stable. Our weighted-average lease term was 8.6 years at December 31,
2016 compared to approximately 12.6 years or 9.1 years, adjusted to reflect the four New York, New York land investments, which
were subject to 99-year leases, through their first purchase option date, at December 31, 2015 and sold in 2016. Certain of our 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 and an increase in the demand
for regionalized distribution facilities. In addition, industrial assets generally require less capital to maintain and re-lease than office
assets. In recent years, we have focused on balancing our rental revenue between office and industrial properties. As of December 31,
2016, the ratio of base rental revenue from office assets to the base rental revenue from industrial assets was approximately 1.3:1,
which is lower than the previous year. We expect that our office portfolio will be concentrated in fewer, but larger, markets over the
next several years, which we expect to accomplish primarily through sales of office assets and growing our portfolio through
disciplined investments. 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.
44
Business Strategy. Our current business strategy is focused on enhancing our cash flow stability, growing our portfolio of 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 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 continues to be
strong. When we acquire real estate assets, we look for commercial real estate assets subject to long-term net-leases 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.
Our acquisition volume consists primarily of purchases from third parties, sale-leaseback 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. However, none of these transactions are done on a
speculative basis without a committed tenant subject to a long-term lease. We believe these arrangements offer developers and/or
tenants access to capital while simultaneously providing us with attractive risk-adjusted projected yields.
During 2016, we saw continued capitalization rate compression in the acquisition market for existing product. We believe that
build-to-suit transactions continue to have stabilized yields above those in the existing product 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 expect that as interest
rates rise, capitalization rates will rise. However, with the amount of competition in the acquisition market, capitalization rates may
not rise as quickly as interest rates.
We expect investment activity to be more focused on the industrial sector. While industrial assets tend to generate less current
yield than build-to-suit office assets, we believe that industrial assets are less vulnerable to volatility. We expect that some of our
industrial investments will be subject to leases shorter than we require for other asset types and, in our opinion, critical to the tenant
and/or in markets that will allow for retenanting at attractive rates.
We generally mitigate our cost exposure for build-to-suit properties and forward commitments 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 providing a hedge against rising interest rates, extending our weighted-average lease term, balancing our lease expiration
schedule, reducing the average age of our portfolio and supporting our dividend growth objectives.
45
Detroit, MI
Wilsonville, OR
Romeoville, IL
Edwardsville, IL
Industrial
Industrial
Industrial
Industrial
Completed Build-to-Suit Transactions
Location
Property Type
Consolidated:
Anderson, SC
Lake Jackson, TX(1)
Industrial
Office
The following is a summary of our investment activity for the year ended December 31, 2016:
Property Acquisitions
Location
Property Type
Square Feet
(000's)
Capitalized Cost
(millions)
190
508
188
770
1,656
$
$
29.7
43.1
52.7
44.8
170.3
Approximate
Lease Term
(Years)
20
16
15
10
Date Acquired
1Q 2016
3Q 2016
4Q 2016
4Q 2016
Square Feet
(000's)
Initial
Capitalized Cost
(millions)
Lease Term
(Years)
1,327
389
1,716
$
$
61.3
78.5
139.8
20
20
Date
Acquired/
Completed
Q2 2016
Q4 2016
Capitalized Cost
Per Square Foot
$
$
$
46.23
201.66
291.84
Consolidated:
Houston, TX(2)
Other
274
$
80.0
20
3Q 2016
(1) Three of four buildings were completed in Q4 2016.
(2) We have a 25% interest in this joint venture. We are contractually committed to provide up to $56.7 million in construction financing to the joint venture,
of which $46.4 million had been funded as of December 31, 2016.
Ongoing Build-to-Suit Transactions
Property
Type
Square Feet
(000's)
Expected
Maximum
Commitment/
Estimated
Completion Cost
(millions)
Office
Office
Industrial
275
201
165
641
$
$
78.5
62.4
37.0
177.9
Estimated
Acquisition/
Completion
Date
1Q 2017
2Q 2017
2Q 2017
GAAP
Investment
Balance
as of 12/31/16
(millions)
$
$
56.0
40.4
10.2
106.6
Approximate
Lease Term
(Years)
20
15
25
Location
Lake Jackson, TX(1)
Charlotte, NC
Opelika, AL
(1) Total project is 664,000 square feet. 389,000 square feet were completed in Q4 2016.
In addition, we committed to acquire the following properties:
Location
Property Type
Grand Prairie, TX
Warren, MI(1)
Industrial
Industrial
Square Feet
(000's)
Maximum
Acquisition
Cost (millions)
Estimated Acquisition
Date
Approximate Lease
Term (Years)
215
260
475
$
$
24.7
47.0
71.7
2Q 17
3Q 17
20
15
(1) We provided a $4.6 million letter of credit in 2016 to secure our obligation to purchase this property.
We can provide no assurance with respect to the completion, acquisition, cost or timing of these ongoing build-to-suit and
forward purchase transactions.
46
The following is a summary of our investment activity for the year ended December 31, 2015:
Property Acquisitions
Location
Property Type
Square Feet
(000's)
Capitalized Cost
(millions)
Auburn Hills, MI
Houston, TX
Brookshire, TX
Canton, MS
Venice, FL
Richland, WA
Office
Industrial
Industrial
Industrial
Other
Industrial
Completed Build-to-Suit Transactions
278
188
262
1,466
31
456
2,681
$
$
40.0
28.7
22.4
89.3
16.9
152.0
349.3
Approximate
Lease Term
(Years)
14
20
20
12
40
20
Date Acquired
1Q 2015
1Q 2015
1Q 2015
1Q 2015
1Q 2015
4Q 2015
Location
Thomson, GA
Oak Creek, WI
Richmond, VA(1)
Property
Type
Industrial
Industrial
Office
Square Feet
(000's)
Initial
Capitalized Cost
(millions)
208
164
330
702
$
$
10.1
22.1
101.5
133.7
Lease Term
(Years)
15
20
15
Date
Acquired/
Completed
Q2 2015
Q3 2015
Q4 2015
Capitalized Cost
Per Square Foot
48.77
$
134.99
$
307.26
$
(1)
Initial basis does not include $8.1 million for estimated earnout lease payments for developer leased space.
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,
2016:
Loan
Kennewick, WA(2)
Oklahoma City, OK(3)
Loan carrying value(1)
(millions)
12/31/2016
$
$
85.7
8.5
94.2
Interest Rate
9.00%
11.50%
Maturity Date
05/2022
03/2016
(1) Loan carrying value includes accrued interest and is net of origination costs, if any.
(2) Loan provides for a current pay rate of 8.75%, an accrual rate of 9.0% and a balloon of $87.2 million at maturity. This loan was in
covenant default as of December 31, 2016.
(3) Loan is in monetary default as of December 31, 2016 and we are exercising our remedies.
In 2015, we foreclosed against the borrowers of a loan secured by a property in Westmont, Illinois. In addition to acquiring the
office property collateral, we acquired $2.5 million of cash collateral and received $1.4 million in full settlement of our claim against
the guarantor. This property was sold in 2016. Also in 2015, we foreclosed on a loan secured by an office property in Southfield,
Michigan. In 2014, we recognized a $2.5 million loan loss, as the borrower had indicated that it would not satisfy the loan at maturity.
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 under previous leases, (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 or at all.
47
If a property cannot be re-let to a single user and the property can be adapted to multi-tenant use, we determine whether the
costs of adapting the property to multi-tenant use outweigh the benefit of funding operating costs while searching for a single-tenant
and whether selling a vacant property, which limits operating costs and allows us to redeploy capital, is in the best interest of our
shareholders.
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 2016, we entered into 47 consolidated new leases and lease extensions encompassing approximately 4.7 million square
feet. The average GAAP base rent on these extended leases was approximately $4.99 per square foot compared to the average GAAP
base rent on these leases before extension of $4.86 per square foot. The weighted-average cost of tenant improvements and lease
commissions during 2016 was approximately $8.77 per square foot for new leases and $3.28 per square foot for extended leases.
Due to the nature of the expected lease rollovers in coming years, renewal rents may be lower than expiring rents and aggregate
tenant improvement allowances and leasing costs may decrease from their current levels in such years. The impact of any such lower
renewal rent may 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 2016, 2015 and 2014, 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 2016, 2015 and 2014, we incurred impairment charges on our assets, excluding loan receivables,
of $100.2 million, $36.8 million and $48.6 million, respectively, including amounts classified in discontinued operations, due primarily
to the assets being sold below their carrying value and, in 2016, primarily due to the write-off of the deferred rent receivable for the
sold New York, New York land investments and the rejection of the lease for the Rock Hill, South Carolina property. The real estate
assets we sold that resulted in impairment changes were primarily non-core assets including land investments, retail properties and
under performing and multi-tenant properties. In addition, in 2014, we recognized a loan loss of $2.5 million relating to a loan
receivable secured by a soon-to-be vacant suburban office property. We cannot estimate if we will incur, or the amount of, future
impairment charges on our assets. See Part I, Item 1A “Risk Factors”, of this Annual Report.
Critical Accounting Policies. Our accompanying consolidated financial statements have been prepared in accordance with GAAP,
which require our management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported and
related disclosures of contingent assets and liabilities. A summary of our significant accounting policies which are important to the
portrayal of our financial condition and results of operations is set forth in note 2 to the Consolidated Financial Statements, 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.
48
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 equityholders' 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 economic environment. The 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, valuation of compensation plans 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.
49
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.
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.
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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 $235.3 million for 2016, $244.9
million for 2015 and $214.7 million for 2014. Cash flows from operations increased in 2016 and 2015 compared with 2014 primarily
due to the impact of acquisitions, offset by dispositions and 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 and loan interest payments from borrowers, 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 $10.2 million in 2016, $388.3 million in 2015 and $43.1 million in 2014. Cash
provided by investing activities related primarily to proceeds from the sale of properties, collection of loans receivable and distributions
from non-consolidated entities in excess of accumulated earnings. Cash used in investing activities related primarily to investments
in real estate properties, co-investment programs and loans receivable and an increase in deferred leasing costs, deposits and restricted
cash. Therefore, the fluctuation in investing activities relates primarily to the timing of investments and dispositions.
Net cash provided by (used in) financing activities totaled $(231.7) million in 2016, $45.5 million in 2015 and $(57.8) million
in 2014. Cash provided by financing activities was primarily attributable to net proceeds from the issuance of common shares, and
non-recourse mortgage and corporate borrowings. Cash used in financing activities related primarily to dividend and distribution
payments, repurchases of common shares, purchase of a noncontrolling interest, an increase in deferred financing costs, payment of
developer liabilities 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 2016, 2015 and 2014, we raised net proceeds of
approximately $12.2 million, $19.4 million and $23.6 million, respectively, through the issuance of common shares, including option
exercises. Due to the market price of our common shares, we limited the issuance of our common shares during most of 2016, 2015
and 2014. During 2014, we raised net proceeds of approximately $249.7 million through the issuance of investment-grade rated
4.40% Senior Notes. We primarily used the proceeds to fund investments and retire indebtedness.
During 2010, we issued $115.0 million aggregate principal amount of 6.00% Convertible Notes. The notes paid interest semi-
annually in arrears and were scheduled to mature in January 2030. During 2016, 2015 and 2014, notes with a principal amount of
an aggregate of $12.4 million, $3.8 million and $12.8 million, respectively, were converted/satisfied for 1.9 million, 0.5 million and
1.9 million common shares, respectively, and an aggregate cash payment by us of $0.7 million, $0.5 million and $0.2 million,
respectively, plus accrued and unpaid interest. As of December 31, 2016, all such notes had been converted or satisfied.
During 2015, our Board of Trustees authorized a 10.0 million common share repurchase program. The share repurchase program
does not expire. As of December 31, 2016, we had repurchased 3,400,912 common shares for an aggregate $27.3 million, which
was at an average price of $8.04 per share. We have continued to, and in the future may, repurchase our common shares in the context
of our overall capital plan, and to the extent we believe market volatility offers prudent investment opportunities based on our common
share price versus net asset value per share. However, over 2016 our common share price began to rise and in December 2016, we
began selling common shares under our ATM offering program. In 2016, we increased the amount available to issue under our ATM
offering program, and we issued 976,109 common shares in 2016 at an average issue price of $10.75 per common share, generating
proceeds of approximately $10.4 million after deducting approximately $0.1 million of commissions.
51
We expect to continue to access debt and equity markets and other markets in the future to implement our business strategy and
to fund future growth. However, general economic uncertainty and the volatility in these markets can make accessing these markets
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. In recent years there has not been a great demand for OP units and, as a result, we expect the
number of common shares that will be outstanding in the future should be expected to increase, and income attributable to
noncontrolling interests should be expected to decrease, as such OP units are redeemed for our common shares.
As of December 31, 2016, there were 3.3 million OP units outstanding which were convertible into 3.8 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, 2016, our consolidated property owner subsidiaries had related balloon payments
of $62.7 million and $6.6 million maturing in 2017 and 2018, 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 ($86.6 million at
December 31, 2016), property sale proceeds or borrowing capacity on our primary credit facility ($395.4 million as of December 31,
2016, subject to covenant compliance).
In the event that the estimated property value is less than the mortgage balance, as the mortgages encumbering the properties
in which we have an interest are generally non-recourse to us and the property owner subsidiaries, a property owner subsidiary may,
if appropriate, satisfy a mortgage obligation by transferring title of the property to the lender or permitting a lender to foreclose.
There are significant risks associated with conveying properties to lenders through foreclosure which are described in "Risk Factors"
in Part I, Item 1A of this Annual Report.
In 2016, 2015 and 2014, we obtained, through our consolidated property owner subsidiaries, $254.7 million, $190.8 million and
$27.8 million, respectively, in non-recourse mortgage loans with interest rates ranging from 2.2% to 5.2% and maturity dates ranging
from 2019 to 2036. Our secured debt, including secured debt classified as held for sale, decreased to approximately $745.2 million
at December 31, 2016 compared to $891.3 million at December 31, 2015. We now have fewer near-term debt maturities compared
to recent years. 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. In addition, we may procure credit tenant lease financing in certain
situations where we are able to monetize all or a significant portion of the rental revenues of a property at an attractive rate. We
believe our financing strategy will also allow us to further lower our financing costs and improve our cash flow, financial flexibility
and certain credit metrics.
52
Corporate Borrowings. The following Senior Notes were outstanding as of December 31, 2016:
Issue Date
May 2014
June 2013
Face Amount
(millions)
Interest Rate
$
$
250.0
250.0
500.0
4.40%
4.25%
Maturity Date
June 2024
June 2023
Issue Price
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 $905.0 million unsecured credit agreement with KeyBank National Association as agent. With lender approval, we
can increase the size of the facility to an aggregate $1.8 billion. A summary of the significant terms are as follows:
$400.0 Million Revolving Credit Facility(1)
$250.0 Million Term Loan(2)
$255.0 Million Term Loan(3)
Maturity Date
08/2019
08/2020
01/2021
Current
Interest Rate
LIBOR + 1.00%
LIBOR + 1.10%
LIBOR + 1.10%
(1) Maturity date can be extended to August 2020 at our option. The interest rate ranges from LIBOR plus 0.85% to 1.55%. At December 31, 2016, the unsecured
revolving credit facility had no amounts outstanding, $4.6 million of letters of credit and availability of $395.4 million subject to covenant compliance.
(2) The interest rate ranges from LIBOR plus 0.90% to 1.75%. We previously entered into aggregate interest-rate swap agreements to fix the LIBOR component
at a weighted-average rate of 1.09% through February 2018 on the $250.0 million of outstanding LIBOR-based borrowings.
(3) The interest rate ranges from LIBOR plus 0.90% to 1.75%. We previously entered into aggregate interest-rate swap agreements to fix the LIBOR component
at a weighted-average rate of 1.42% through January 2019 on the $255.0 million of outstanding LIBOR-based borrowings.
As of December 31, 2016, we were in compliance with the financial covenants contained in our corporate level debt agreements.
During 2007, we issued $200.0 million in Trust Preferred Securities, which 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, 2016 and 2015, there were $129.1 million of these
securities outstanding.
While certain property specific mortgages with favorable terms have become harder to obtain on certain properties, credit tenant
lease financings and 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 was
completed in 2016 and is net leased for a 20-year term upon completion.
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 2016, we disposed of our interests in certain consolidated properties for a gross price
of $641.4 million. These proceeds were used to retire indebtedness encumbering properties in which we have an interest and make
investments. In addition, in 2016 we disposed of our interest in properties via foreclosure in full satisfaction of an aggregate $21.6
million of related non-recourse mortgages.
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. The increase in asset
values may result in our selling more properties than we acquire in any given year. 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.
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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, 2016, we had approximately $1.9 billion of indebtedness, consisting of mortgages and notes payable
outstanding, term loans, 4.40% and 4.25% Senior Notes and Trust Preferred Securities, with a weighted-average interest rate of
approximately 4.1%. 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 $165.9 million in cash dividends to our common and preferred shareholders in 2016. 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.
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 capital expenditures, real estate taxes and insurance. When a property is vacant, our property owner
subsidiary may incur substantial capital expenditure and releasing costs to re-tenant the property.
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.
54
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 that would be reasonably likely to have a material
adverse effect on us. There can be no assurance, however, that (1) the discovery of environmental conditions, which were previously
unknown, (2) changes in law, (3) the conduct of tenants or (4) activities relating to properties in the vicinity of the properties in which
we have an interest, will not expose us to material liability in the future. Changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant
unanticipated expenditures or may otherwise adversely affect the operations of the tenants of properties in which we have an interest.
Results of Operations
Year ended December 31, 2016 compared with December 31, 2015. The decrease in total gross revenues in 2016 of $1.3 million
was primarily attributable to a decrease in rental revenue of $1.4 million. The decrease in rental revenue was primarily due to a
reduction of $37.5 million of rental revenue due to property sales and a reduction of $9.2 million due to changes in occupancy at
certain properties, partially offset by 2016 and 2015 revenue from property acquisitions and expansions of $32.2 million and $13.1
million in revenue recognized from lease terminations.
Depreciation and amortization increased by $2.9 million primarily due to the acquisition of real estate properties in 2016 and
2015.
The decrease in property operating expense of $12.3 million was primarily due to the sale of properties, particularly multi-tenant
properties, where we had operating expense obligations.
The increase in general and administrative expense of $1.8 million was primarily due to an increase in personnel costs.
Non-operating income increased by $1.6 million primarily due to the loan made to fund the construction of the build-to-suit
project in Houston, Texas.
The decrease in interest and amortization expense of $1.7 million was primarily due to a reduction in outstanding indebtedness.
The decrease in debt satisfaction gains, net, of $26.1 million was primarily due to the timing of debt retirements, including
foreclosures.
The increase in impairment charges of $63.4 million related primarily to the impairment recognized on the sale of three land
investments in New York, New York due to the write-off of the deferred rent receivable.
The increase in gains on sales of properties of $58.2 million related primarily to the timing of sales of our properties.
The increase in the provision for income taxes of $0.9 million related primarily to state income taxes.
The increase in equity in earnings of non-consolidated entities of $5.8 million was primarily due to a $5.4 million gain recognized
on the sale of our investment in an office property in Russellville, Arkansas.
Discontinued operations represent properties sold during 2015 which were held for sale as of December 31, 2014. We had no
discontinued operations in 2016.
The decrease in net income attributable to noncontrolling interests of $2.4 million was primarily due to the limited partners'
share of the impairment charges recognized by LCIF in 2016.
The decrease in net income attributable to common shareholders of $16.0 million was primarily due to the items discussed
above.
Year ended December 31, 2015 compared with December 31, 2014. The increase in total gross revenues in 2015 of $7.0 million
was primarily attributable to an increase in rental revenue of $7.0 million. The increase in rental revenue was primarily due to 2015
and 2014 revenue from properties acquired/expanded of $27.7 million, offset in part by a reduction of $18.4 million of rental revenue
associated with properties sold in 2015.
55
Depreciation and amortization increased by $8.4 million primarily due to the acquisition of real estate properties in 2015 and
2014.
The decrease in property operating expense of $4.0 million was primarily due to the sale of multi-tenant properties where we
had operating expense obligations.
The increase in general and administrative expense of $1.0 million was primarily due to an increase in personnel costs, professional
fees and information technology costs.
Non-operating income decreased by $3.1 million primarily due to a decrease in interest recognized on loan investments due to
borrower defaults and loan repayments, coupled with the sale of a property in 2014 subject to a capital lease.
The decrease in interest and amortization expense of $7.6 million was primarily due to a reduction in the weighted-average
interest rate on outstanding indebtedness and an increase in capitalized interest, offset by an increase in 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 increase in debt satisfaction gains, net, of $34.6 million was primarily due to the timing of debt retirements, including
foreclosures.
The gains on sales of properties in 2015 of $23.3 million related primarily to gains recognized on the sale of our office properties
in Fort Myers and Orlando, Florida.
The increase in equity in earnings of non-consolidated entities of $1.1 million was primarily due to a $0.5 million gain recognized
on the sale of properties by a non-consolidated joint venture investment.
Discontinued operations represent properties sold during 2014 or held for sale as of December 31, 2014. The decrease in net
income from discontinued operations of $47.9 million was primarily due to the adoption of ASU 2014-08, which was effective
January 1, 2016. Following adoption of ASU 2014-08, we no longer include property sales in discontinued operations after December
31, 2014, except for properties held for sale as of December 31, 2014 or sold properties that represent a strategic shift in operations.
The decrease in net income attributable to noncontrolling interests of $1.2 million was primarily due to a decrease in earnings
of consolidated, non-wholly owned entities.
The increase in net income attributable to common shareholders of $18.8 million was primarily due to the items discussed above.
The increase in net income or decrease in net loss in future periods will be closely tied to the level of acquisitions made by us.
Without acquisitions, the sources of growth in net income are limited to fixed rent adjustments and index adjustments (such as the
consumer price index), reduced interest expense on amortizing mortgages and variable rate indebtedness and by controlling other
variable overhead costs. However, there are many factors beyond management's control that could offset these items including,
without limitation, increased interest rates and tenant monetary defaults and the other risks described in this Annual Report.
56
Same-Store Results
Same-store net operating income, or NOI, which is a non-GAAP measure, represents the NOI for consolidated properties that were
owned and included in our portfolio for three comparable reporting periods, excluding properties encumbered by mortgage loans in
default and the revenue associated with the expansion of properties, as applicable. We define NOI as operating revenues (rental
income (less GAAP rent adjustments and lease termination income), tenant reimbursements and other property income) less property
operating expenses. As same-store NOI excludes the change in NOI from acquired and disposed of properties and certain other
properties, it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. Other REITs may
use different methodologies for calculating same-store NOI, and accordingly same-store NOI may not be comparable to other REITs.
Management believes that same-store NOI is a useful supplemental measure of the Company's operating performance. However,
same-store NOI should not be viewed as an alternative measure of the Company's financial performance since it does not reflect the
operations of the Company's entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related
expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures
and leasing costs necessary to maintain the operating performance of the Company's properties, or trends in development and
construction activities which are significant economic costs and activities that could materially impact the Company's results of
operations. Lexington believes that net income is the most directly comparable GAAP measure to same-store NOI.
The following presents our consolidated same-store NOI, for the years ended December 31, 2016, 2015 and 2014 ($000):
Total cash base rent
Tenant reimbursements
Property operating expenses
Same-store NOI
2016
2015
2014
$
$
261,721
24,623
(38,232)
248,112
$
$
266,309
25,077
(41,782)
249,604
$
$
265,814
25,306
(42,707)
248,413
Our reported same-store NOI decreased from 2015 to 2016 by 0.6% and increased by 0.5% from 2014 to 2015. The primary reason
for the decrease in same-store NOI between 2016 and 2015 periods primarily related to vacancy. The increase in same-store NOI
between 2015 and 2014 was primarily due to an increase in cash base rent and a reduction in property operating expenses. As of
December 31, 2016, 2015 and 2014, our historical same-store square footage leased was 95.8%, 98.1% and 98.2%, respectively.
57
Below is a reconciliation of net income to same-store NOI for periods presented:
Twelve Months ended December 31,
2015
2014
2016
Net income
$
96,450
$
114,891
$
97,463
Interest and amortization expense
Provision for income taxes
Depreciation and amortization
General and administrative
Transaction costs
Non-operating income
Gains on sales of properties
Gains on sales of financial assets
Impairment charges and loan losses
Debt satisfaction (gains) charges, net
Equity in earnings of non-consolidated entities
Lease termination income
Straight-line adjustments
Lease incentives
Amortization of above/below market leases
NOI
Less NOI:
Disposed of properties
Acquired properties
Expansion revenue
Properties in default
Same-Store NOI
Funds From Operations
88,032
1,439
166,048
31,104
836
(13,043)
(81,510)
—
100,236
975
(7,590)
(17,363)
(37,748)
1,673
2,057
331,596
(21,793)
(57,970)
(1,530)
(2,191)
89,792
572
163,198
29,277
2,404
(11,429)
(24,884)
—
36,832
(25,150)
(1,752)
(4,241)
(47,702)
1,544
261
323,613
(42,208)
(28,326)
(1,317)
(2,158)
100,400
1,168
163,469
28,285
1,901
(16,839)
(57,507)
(855)
51,100
9,764
(626)
(2,072)
(47,227)
1,490
1,136
331,050
(71,755)
(8,856)
—
(2,026)
$
248,112
$
249,604
$
248,413
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 and also present FFO available to all equityholders
and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common
shares, are converted at the beginning of the period. We also present Adjusted Company FFO available to all equityholders and
unitholders - diluted, which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe
are not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently
requested by security analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion,
these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered
as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.
58
The following presents a reconciliation of net income attributable to common shareholders to FFO available to common
shareholders and unitholders and Adjusted Company FFO available to all equityholders and unitholders for each of the years in the
three year period ended December 31, 2016 (unaudited and dollars in thousands, except share and per share amounts):
2016
2015
2014
FUNDS FROM OPERATIONS:
Basic and Diluted:
Net income attributable to common shareholders
$
89,109
$
105,100
$
86,324
Adjustments:
Depreciation and amortization
Impairment charges - real estate, including non-consolidated entities
Noncontrolling interests - OP units
Amortization of leasing commissions
Joint venture and noncontrolling interest adjustment
Gains on sales of properties, including non-consolidated entities
Taxes on sales of properties
FFO available to common shareholders and unitholders - basic
Preferred dividends
Interest and amortization on 6.00% Convertible Guaranteed Notes
Amount allocated to participating securities
FFO available to all equityholders and unitholders - diluted
Debt satisfaction (gains) charges, net, including non-consolidated entities
Impairment loss - loan receivable
Transaction costs / Other
Adjusted Company FFO available to all equityholders and unitholders -
diluted
Per Common Share and Unit Amounts
Basic:
FFO
Diluted:
FFO
Adjusted Company FFO
Weighted-Average Common Shares:
Basic:
159,363
100,236
(159)
6,684
1,111
(87,520)
52
268,876
6,290
532
225
275,923
975
—
837
157,644
36,832
1,999
5,554
1,788
(25,371)
—
283,546
6,290
1,048
313
291,197
(25,086)
—
1,864
157,537
49,529
2,990
5,932
2,068
(58,426)
—
245,954
6,290
2,090
490
254,824
9,764
2,500
1,882
$
$
$
$
277,735
$
267,975
$
268,970
1.13
$
1.19
$
1.06
1.13
1.14
$
$
1.19
1.10
$
$
1.05
1.11
Weighted-average common shares outstanding - basic EPS
Operating partnership units(1)
Weighted-average common shares outstanding - basic FFO
233,633,058
3,815,621
237,448,679
233,455,056
3,848,434
237,303,490
228,966,253
3,872,027
232,838,280
Diluted:
Weighted-average common shares outstanding - diluted EPS
Unvested share-based payment awards
6.00% Convertible Guaranteed Notes
Operating partnership units(1)
Preferred shares - Series C
Weighted-average common shares outstanding - diluted FFO
(1) Includes OP units other than OP units held by us.
237,679,031
549,049
1,077,626
—
4,710,570
244,016,276
233,751,775
3,326
2,041,629
3,848,434
4,710,570
244,355,734
229,436,708
120,973
3,826,739
3,872,027
4,710,570
241,967,017
59
Off-Balance Sheet Arrangements
As of December 31, 2016, we had investments in various real estate entities with varying structures. The real estate investments
owned by these entities are generally financed with non-recourse debt. Non-recourse debt is generally defined as debt whereby the
lenders' sole recourse with respect to borrower defaults is limited to the value of the assets collateralized by the debt. The lender
generally does not have recourse against any other assets owned by the borrower or any of the members or partners of the borrower,
except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to "bad boy" acts,
including fraud, prohibited transfers and breaches of material representations. We have guaranteed such obligations for certain of
our non-consolidated entities.
Contractual Obligations
The following summarizes our principal contractual obligations as of December 31, 2016 ($000's):
2017
2018
2019
2020
2021
Mortgages and notes payable(1)
Term loans payable
$
Senior notes payable
Trust preferred securities
Interest payable - fixed rate(2)
Operating lease obligations(3)
92,731
—
—
—
68,750
6,480
$
36,713
—
$ 110,448
—
$
55,147
250,000
$
40,465
255,000
—
—
57,368
6,356
—
—
47,058
5,852
—
—
42,277
5,845
—
—
39,875
5,526
500,000
129,120
158,219
35,883
2022 and
Thereafter
$ 409,669
—
$
Total
745,173
505,000
500,000
129,120
413,547
65,942
$ 167,961
$ 100,437
$ 163,358
$ 353,269
$ 340,866
$1,232,891
$ 2,358,782
1. Includes balloon payments.
2. Includes variable-rate debt subject to interest rate swap agreements through swap expiration date.
3. 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, from time to time we may guarantee certain tenant improvement allowances and lease commissions on behalf of
certain property owner subsidiaries when required by the related tenant or lender. However, we do not believe these guarantees are
material to us as the obligations under and risks associated with such guarantees are priced into the rent under the lease or the value
of the property.
60
Lepercq Corporate Income Fund L.P.
Overview
General. The Partnership was formed as a limited partnership on March 14, 1986 under the laws of the state of Delaware to
invest in existing real estate properties net-leased to corporations or other entities.
The Partnership's purpose includes the conduct of any business that may be conducted lawfully by a limited partnership
organized under the Delaware Revised Uniform Limited Partnership Act, except that the Partnership's partnership agreement
requires business to be conducted in such a manner that will permit the Company to continue to be classified as a REIT under
Sections 856 through 860 of the Code, unless the Company ceases to qualify as a REIT for reasons other than the conduct of the
Partnership's business.
The Partnership's business is substantially the same as the business of the Company and includes investment in single-tenant
assets; except that the Partnership is dependent on the Company for management of its operations and future investments. The
Partnership does not have any employees, executive officers or board of directors. The Company also invests in assets and conducts
its business directly and through other subsidiaries. The Company allocates investments to itself and its other subsidiaries or to
the Partnership as it deems appropriate and in accordance with certain obligations under the Partnership's partnership agreement
with respect to allocations of non-recourse liabilities.
The Company, through Lex GP and Lex LP, holds, as of December 31, 2016, 96.0% of the Partnership's outstanding OP units.
The Partnership's remaining OP units are beneficially owned by E. Robert Roskind, Chairman of the Company, and certain non-
affiliated investors. As the sole equity owner of the Partnership's general partner, the Company has the ability to control all of the
day-to-day operations, subject to the terms of the Partnership's partnership agreement.
The Partnership's revenues and cash flows are generated predominantly from property rent receipts. As a result, growth in
revenues and cash flows is directly correlated to the Partnerships 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. However, the Partnership's main objectives
are to meet its distribution obligations and its obligations to allocate non-recourse liabilities to its partners and to operate in a
manner as to permit the Company at all times to be classified as a REIT as required by the the Partnership's partnership agreement.
Critical Accounting Policies. The accompanying consolidated financial statements have been prepared in accordance with
GAAP, which require 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 the Partnership's significant accounting policies, as
applicable, which are important to the portrayal of the Partnership's 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 critical accounting policies, which require some of the most difficult, subjective and complex
judgments.
Basis of Presentation and Consolidation. The consolidated financial statements are prepared on the accrual basis of accounting.
The financial statements reflect the Partnership's accounts and the accounts of its consolidated subsidiaries. The Partnership
consolidates its wholly-owned subsidiaries, partnerships and joint ventures, if any, which its controls through (1) voting rights or
similar rights or (2) by means other than voting rights if it is the primary beneficiary of a variable interest entity, which the
Partnership refers to as a VIE. Entities which the Partnership does not control and entities which are VIEs in which the Partnership
is not the primary beneficiary are generally accounted for by the equity method. Significant judgments and assumptions are made
by Lex GP, as the Partnership's general partner, to determine whether an entity is a VIE, such as those regarding an entity's equity
at risk, the entity's equityholders' 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.
61
Judgments and Estimates. The Partnership's 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 the consolidated financial statements in conformity with GAAP. These estimates and assumptions are based
on the Partnership's management's best estimates and judgment. The Partnership's management evaluates its estimates and
assumptions on an ongoing basis using historical experience and other factors, including the economic environment. The economic
environment has increased the degree of uncertainty inherent in these estimates and assumptions. The Partnership's 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 and loans
receivable and the valuation 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 the Partnership's management's determination of relative fair values of these assets. Factors
considered by the Partnership's 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, the
Partnership's 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. The Partnership's 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.
Revenue Recognition. The Partnership 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. In those instances in which the Partnership funds tenant improvements
and the improvements are deemed to be owned by the Partnership revenue recognition will commence when the improvements
are substantially completed and possession or control of the space is turned over to the tenant. When the Partnership's management
determines that the tenant allowances are lease incentives, the Partnership 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. Determining if a tenant allowance
is a lease incentive requires significant judgment. The Partnership recognizes 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.
62
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 the Partnership sells a property and retains a partial ownership interest in the property, the Partnership recognizes
gain to the extent of the third-party ownership interest.
Impairment of Real Estate. The Partnership's management evaluates 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.
Loans Receivable. The Partnership's management evaluates the collectability of both interest and principal of any loans
receivable and, 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 the holder 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. The Partnership's management evaluates loans receivable where
it participates in residual profits through loan provisions or other contracts to ascertain whether it has the same risks and rewards
as an owner or a joint venture partner. Where management concludes that such arrangements are more appropriately treated as an
investment in real estate, such loan receivable is reflected 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 capitalized interest is
recorded during the construction period. In arrangements where the Partnership engages a developer to construct a property or
provide funds to a tenant to develop a property, the funds provided to the developer/tenant and internal costs of interest and real
estate taxes, if applicable, are capitalized 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.
Liquidity
General. The Partnership's principal sources of liquidity have been (1) undistributed cash flows generated from its investments,
(2) the public and private equity and debt markets, including issuances of OP units to the Company, (3) property specific debt, (4)
corporate level borrowings in conjunction with the Company, (5) commitments from co-investment partners and (6) proceeds
from the sales of investments.
Cash Flows. The Partnership's management believes that cash flows from operations will continue to provide adequate capital
to fund its operating and administrative expenses, regular debt service obligations and all distribution payments in accordance
with its partnership agreement requirements in both the short-term and long-term. However, without a capital event, which would
most likely involve the Company, the Partnership does not have the ability to fund balloon payments on maturing mortgages or
acquire new investments.
Cash flows from operations as reported in the Consolidated Statements of Cash Flows totaled $38.9 million, $38.4 million
and $38.0 million for 2016, 2015 and 2014, respectively. 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 and loan interest payments from
borrowers, and (2) the payment of interest on mortgage debt and operating and general and administrative costs. The Partnership
believes the net-lease structure of the leases encumbering a majority of the properties in which it has an interest mitigates the risks
of the timing of cash flows from operations since the payment and timing of operating costs related to the properties are generally
borne directly by the tenant. Collection and timing of tenant rents is closely monitored by management as part of the Partnership's
cash management program. Cash flows from operations are also impacted by the level of acquisition volume and sales of properties.
63
Net cash provided by (used in) investing activities totaled $153.6 million, $(179.4) million and $(7.8) million in 2016, 2015
and 2014, respectively. Cash used in investing activities related primarily to investments in real estate properties and co-investment
programs, and an increase in deferred leasing costs, deposits and restricted cash. Cash provided by investing activities related
primarily to proceeds from the sale of properties, collection of loans receivable, distributions from non-consolidated entities in
excess of accumulated earnings and changes in escrow 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 $(159.6) million, $151.8 million and $(35.1) million in 2016, 2015
and 2014, respectively. Cash provided by financing activities was primarily attributable to net proceeds from non-recourse
mortgages and related party advances, net. Cash used by financing activities was primarily attributable to distribution payments,
redemption of OP units, debt payments and an increase in deferred financing costs.
OP units. Substantially all outstanding OP units (other than OP units held by the Company) are redeemable by the holder of
the OP unit at certain times for approximately 1.13 common shares of Lexington per one OP unit or, at Lex GP’s election, with
respect to certain OP units, cash. Substantially all outstanding OP units require the operating partnership to pay quarterly
distributions to the holders of such OP units equal to the dividends paid to the Company's common shareholders on an as redeemed
basis and the remaining OP units have stated distributions in accordance with their respective partnership agreement. To the extent
that the Company's dividend per share is less than a stated distribution per OP unit per the applicable partnership agreement, the
stated distributions per OP unit are reduced by the percentage reduction in the Company's dividend. The Partnership and the
Company are parties to a funding agreement under which each party may be required to fund distributions made on account of
OP units or dividends made on account of the Company's common shares. No OP units have a liquidation preference.
As of 2016, the Partnership had a total of approximately 3.3 million aggregate OP units outstanding other than OP units held
by the Company.
In recent years, few sellers of real estate have been seeking OP units as a form of consideration. Therefore, the number of OP
units not owned, directly or indirectly, by the Company that will be outstanding in the future may decrease as such OP units are
redeemed for the Company's common shares.
Property Specific Debt. As of December 31, 2016, the Partnership had $170.0 million of consolidated property specific debt
outstanding. As of December 31, 2016, the Partnership had no property specific debt with related balloon payments maturing in
2017 and 2018. If a mortgage is unable to be refinanced upon maturity, the Partnership will be dependent on the Company's
liquidity resources to satisfy such mortgage to avoid transferring the underlying property to the lender or selling the underlying
property to a third party.
In the event that the estimated property value is less than the mortgage balance, as the mortgages encumbering the properties
in which the Partnership has an interest are generally non-recourse to LCIF and the property owner subsidiaries, a property owner
subsidiary may, if appropriate, satisfy a mortgage obligation by transferring the 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" included elsewhere or incorporated by reference in this Annual Report.
Corporate Borrowings. The Partnership, together with the Company, is a borrower under the Company's corporate borrowing
facilities. Outstanding indebtedness is recorded on the books of the applicable borrower requesting and receiving the proceeds of
such indebtedness. However, the Partnership does not have the independent ability without the Company to obtain funds from
such borrowing facilities.
Acquisitions. During 2016 and 2015, the Partnership purchased one industrial property in each year for a cost of $52.7 million
and $152.0 million, respectively. In 2014, the Partnership purchased two properties for an aggregate cost of $49.5 million.
Co-investment Programs and Joint Ventures. Due to the Company's REIT status, the Partnership is prohibited from earning
management fees because the Partnership is not a taxable REIT subsidiary. As a result, the Company's investments in co-investment
programs and joint ventures are generally outside of the Partnership.
Capital Recycling. Part of the Partnership's strategy to effectively manage its balance sheet involves pursuing and executing
well on property dispositions and recycling of capital. During 2016, the Partnership sold certain properties for a gross sales price
of $501.8 million ($375.7 million of which was from the New York, New York land sales). The Partnership did not sell any
properties in 2015. During 2014, the Partnership disposed of its interests in certain properties for a gross disposition price of $52.6
million. The net proceeds received from the dispositions were primarily used to retire indebtedness and make new investments.
64
Liquidity Needs. The Partnership's principal liquidity needs are the contractual obligations set forth below under “–Contractual
Obligations” and the payment of distributions to the holders of OP units, each as applicable.
If the Partnership is unable to satisfy its liquidity needs with cash flow from operations, the Partnership intends to use
borrowings, including from the Company, and, with respect to distributions to the holders of OP units, the funding agreement
described above. If such borrowings are unavailable, the Partnership or one of its subsidiaries may default on its obligations or
lose its assets in foreclosure or through bankruptcy proceedings.
Capital Resources
General. Due to the net-lease structure of a majority of its investments, the Partnership historically has not incurred significant
expenditures in the ordinary course of business to maintain the properties in which it has an interest. As leases expire, the Partnership
expects its 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. The Partnership does not anticipate significant capital expenditures at the single-tenant properties
in which it has an interest since these properties are generally subject to net or similar leases where the tenants at these properties
bear all or substantially all of the cost of property operations, maintenance and repairs. However, at certain properties subject to
net-leases, the Partnership is 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, the Partnership has a level of property operating
expense responsibility, which may or may not be reimbursed.
Multi-Tenant Properties. Primarily as a result of non-renewals at single-tenant net-lease properties, the Partnership may have
interests in multi-tenant properties. While tenants are generally responsible for increases over base year expenses, the landlord
would be 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, the Partnership would be obligated for all operating expenses,
including capital expenditures, real estate taxes and insurance. When a property is vacant, the Partnership may incur substantial
capital expenditure and re-leasing 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 the
Partnership has an interest. In the past, these expansions have generally been funded, and in the future the Partnership expects
these expansions to generally be funded, 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, borrowings under the Company's unsecured
revolving credit facility or capital contributions from the Company.
Ground Leases. The tenants of properties in which the Partnership has an interest generally pay the rental obligations on
ground leases either directly to the fee holder or to the landlord as increased rent. However, the Partnership is 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 the Partnership has 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 the Partnership has an interest, will not expose the Partnership 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 the Partnership has an interest.
65
Results of Operations
Year ended December 31, 2016 compared with the year ended December 31, 2015. The decrease in total gross revenues in
2016 of $3.8 million was primarily attributable to a decrease in rental revenue of $2.4 million and a decrease in tenant
reimbursements of $1.4 million. The decrease in rental revenue was primarily due to a reduction of $23.3 million of rental revenue
due to the sales of properties and a change in occupancy at certain properties, offset in part by new property acquisition and
expansion revenue and lease termination revenue of $20.5 million. The decrease in tenant reimbursements was due to the sales
of properties and a decrease in reimbursable property operating costs.
Depreciation and amortization increased by $3.6 million primarily due to the acquisition of the Richland, Washington property,
offset in part by the impact of property sales.
The decrease in property operating expense of $2.6 million was primarily due to the sale of properties in 2016, including
multi-tenanted properties, with operating expense responsibilities.
The increase in general and administrative expense of $1.0 million was primarily due to a greater allocation of costs from
Lexington, which allocation is based on gross rental revenue.
The decrease in interest and amortization expense of $2.0 million was primarily due to the reduction in mortgage debt assumed
by the buyers in connection with the sale of the New York, New York land investments in 2016 and an increase in capitalized
interest, partially offset by interest and amortization expense on the Richland, Washington loan, which was obtained in 2015.
The increase in debt satisfaction charges, net, of $7.4 million related primarily to the satisfaction of non-recourse mortgage
loans in connection with the sales of the properties.
The impairment charges in 2016 of $72.1 million primarily related to an impairment charge recognized upon the sale of three
New York, New York land investments and impairment charges in 2015 of $0.8 million related to an impairment on a parcel of
land in Clive, Iowa.
The gains on sales of properties in 2016 of $36.4 million related primarily to the timing of sales of properties.
The decrease in net income of $46.2 million was primarily due to the items discussed above.
Year ended December 31, 2015 compared with the year ended December 31, 2014. The increase in total gross revenues in
2015 of $9.9 million is primarily attributable to an increase in rental revenue of $8.4 million and an increase in tenant reimbursements
of $1.5 million. The increase in rental revenue was primarily due to new property acquisition/expansion revenue of $7.4 million.
The increase in tenant reimbursements relates to an increase in reimbursable property operating costs.
Depreciation and amortization increased by $3.0 million primarily due to property acquisitions.
The increase in property operating expense of $2.3 million was primarily due to an increase in vacancy at certain properties
and new leases and lease renewals, where the Partnership was responsible for operating expenses.
The increase in general and administrative expense of $0.9 million was primarily due to an increase in allocable costs from
Lexington, which allocation is based on gross rental revenue, offset by a reduction in professional fees.
Non-operating income decreased by $2.4 million primarily due to borrower defaults on loans receivable, coupled with the
sale of a property in 2014 subject to a capital lease.
The increase in interest and amortization expense of $1.0 million was primarily due to the financing of a New York City land
parcel acquired in 2014 and an increase in the allocation of interest from Lexington, offset in part by a reduction in interest expense
related to mortgages satisfied in 2015 and 2014.
The gain on sale of financial asset of $0.8 million in 2014 was due to the gain recognized on the sale of an office property
classified as a capital lease.
The loan loss in 2014 relates to a $2.5 million loan loss recognized on a loan receivable collateralized by an office property
in Southfield, Michigan. In 2015, the Partnership foreclosed on and acquired the office property.
The impairment loss in 2015 of $0.8 million related to an impairment on a parcel of land in Clive, Iowa.
66
Discontinued operations represent properties sold during 2014 as the Partnership did not sell any properties in 2015. The
decrease in total income from discontinued operations of $18.8 million is primarily due to the adoption of ASU 2014-08, which
was effective January 1, 2015. Due to the adoption of ASU 2014-08, the Partnership no longer includes property sales in discontinued
operations after December 31, 2014, except for properties sold that represent a strategic shift in operations.
The decrease in net income of $17.2 million was primarily due to the items discussed above.
The increase in net income in future periods will be closely tied to the level of acquisitions made by us. Without acquisitions
and favorable leasing activity, 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 debt refinancings 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, decreased occupancy rates, tenant monetary defaults, delayed acquisitions
and the other risks described in this Annual Report.
Off-Balance Sheet Arrangements
The Partnership is co-borrower or guarantor of corporate borrowing facilities and debt securities of the Company. In addition,
the Partnership, from time to time, guarantees certain tenant improvement allowances and lease commissions on behalf of
subsidiaries when required by the related tenant or lender. However, the Partnership does not believe these guarantees are material
to the Partnership, as the obligations under and risks associated with such guarantees are priced into the rent under the lease or
the value of the property.
Contractual Obligations
The following summarizes the Partnership's principal contractual obligations as of December 31, 2016 ($000's):
Mortgages and notes payable(1)
Mortgages and notes interest
payable
Operating lease obligations(2)
Co-borrower debt(3)
2017
2018
2019
2020
2021
2022 and
Thereafter
Total
$
1,054
$
1,124
$ 32,548
$ 18,590
$
8,579
$ 108,063
$ 169,958
8,066
260
—
7,996
260
—
6,835
260
—
5,041
260
4,432
260
16,969
2,510
49,339
3,810
72,477
73,927
— 146,404
$
9,380
$
9,380
$ 39,643
$ 96,368
$ 87,198
$ 127,542
$ 369,511
(1) Includes balloon payments.
(2) Includes ground lease payments. Amounts disclosed do not include rents that adjust to fair market value.
(3) The Partnership is a co-borrower with Lexington under a revolving credit facility and term loans. The Partnership is allocated
a portion of this debt in accordance with its partnership agreement.
67
Item 7A. Quantitative and Qualitative Disclosure about Market-Risk
Our exposure to market risk relates primarily to our variable-rate debt not subject to interest rate swaps and our fixed-rate debt.
We had no consolidated variable-rate indebtedness outstanding at December 31, 2016. As of December 31, 2015, we had $177.0
million consolidated variable-rate indebtedness not subject to an outstanding interest rate swap agreement, which represented 8.0%
of total long term indebtedness. During 2016 and 2015, our variable-rate indebtedness had weighted-average interest rates of 1.4%
and 1.5%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for 2016 and 2015
would have been increased by approximately $1.0 million and $0.9 million, respectively. As of December 31, 2016 and 2015, our
consolidated fixed-rate debt was approximately $1.9 billion and $2.0 billion, respectively, which represented 100.0% and 92.0%,
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, 2016 and is indicative of the interest rate
environment as of December 31, 2016, and does not take into consideration the effects of subsequent interest rate fluctuations.
Accordingly, we estimate that the fair value of our fixed-rate debt was $1.8 billion as of December 31, 2016.
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, 2016, we have ten interest
rate swap agreements in our consolidated portfolio.
68
Item 8. Financial Statements and Supplementary Data
Financial Statements and Supplementary Data
Lexington Realty Trust
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2016 and December 31, 2015
Consolidated Statements of Operations as of December 31, 2016, December 31, 2015 and December 31, 2014
Consolidated Statements of Comprehensive Income (Loss) as of December 31, 2016, December 31, 2015 and
December 31, 2014
Consolidated Statements of Changes in Equity as of December 31, 2016, December 31, 2015 and December 31, 2014
Consolidated Statements of Cash Flows as of December 31, 2016, December 31, 2015 and December 31, 2014
Notes to Consolidated Financial Statements
Lepercq Corporate Income Fund L.P.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2016 and December 31, 2015
Consolidated Statements of Operations as of as of December 31, 2016, December 31, 2015 and December 31, 2014
Consolidated Statements of Changes in Partners' Capital as of as of December 31, 2016, December 31, 2015 and
December 31, 2014
Consolidated Statements of Cash Flows as of as of December 31, 2016, December 31, 2015 and December 31, 2014
Notes to Consolidated Financial Statements
70
73
74
75
76
79
80
107
108
109
110
111
112
69
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, 2016 and 2015, and the related consolidated statements of operations, comprehensive
income (loss), changes in equity, and cash flows for each of the years in the
period ended December 31,
2016. 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, 2016 and 2015, and the results of
their operations and their cash flows for each of the years in the
period ended December 31, 2016, 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, present 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, 2016, 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 28, 2017 expressed an adverse opinion on the
effectiveness of the Company’s internal control over financial reporting.
New York, New York
February 28, 2017
(signed) KPMG LLP
70
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
Integrated Framework (2013) issued by the Committee
31, 2016, based on criteria established in Internal Control
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 directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements
will not be prevented or detected on a timely basis. A material weakness related to ineffective controls over written
policies and procedures regarding the Company's critical accounting policies and significant or unusual transactions,
over the identification, authorization, analysis and communication to those charged with governance of critical
accounting policies and significant or unusual transactions and the accounting for lease terminations has been identified
and included in management's assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheet of Lexington Realty Trust and subsidiaries as of December 31, 2016 and
2015 and the related consolidated statements of operations and comprehensive income (loss), changes in equity and
cash flows for each of the years in the
period ended December 31, 2016, and the financial statement schedule
III. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our
audit of the 2016 consolidated financial statements, and this report does not affect our report dated February 28, 2017,
which expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.
71
In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives
of the control criteria, the Company has not maintained effective internal control over financial reporting as of December
31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We do not express an opinion or any other form of assurance on management’s statements referring to corrective
actions taken after December 31, 2016, relative to the aforementioned material weakness in internal control over
financial reporting.
New York, New York
February 28, 2017
(signed) KPMG LLP
72
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 $31,095 in 2016 and $27,180 in 2015)
Loans receivable, net
Rent receivable - current
Rent receivable – deferred
Other assets
Total assets
Liabilities and Equity:
Liabilities:
Mortgages and notes payable, net
Revolving credit facility borrowings
Term loans payable, net
Senior notes payable, net
Convertible notes payable, net
Trust preferred securities, net
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 $31,309 in 2016
and $30,548 in 2015)
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, 238,037,177 and
234,575,225 shares issued and outstanding in 2016 and 2015, respectively
Additional paid-in-capital
Accumulated distributions in excess of net income
Accumulated other comprehensive loss
Total shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
2016
2015
$
$
$
3,533,172
597,294
106,652
4,237,118
1,208,792
3,028,326
23,808
86,637
31,142
67,125
33,360
94,210
7,516
31,455
37,888
3,441,467
738,047
—
501,093
494,362
—
127,096
47,264
191
59,601
6,704
3,789,711
692,778
95,402
4,577,891
1,179,969
3,397,922
24,425
93,249
10,637
31,054
42,000
95,871
7,193
87,547
18,505
3,808,403
872,643
177,000
500,076
493,526
12,126
126,996
45,440
8,405
41,479
8,851
39,895
14,723
2,028,976
42,524
16,806
2,345,872
94,016
94,016
24
2,800,736
(1,500,966)
(1,033)
1,392,777
19,714
1,412,491
3,441,467
$
23
2,776,837
(1,428,908)
(1,939)
1,440,029
22,502
1,462,531
3,808,403
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
73
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000, except share and per share data)
Years ended December 31,
2016
2015
2014
Gross revenues:
Rental
Tenant reimbursements
Total gross revenues
Expense applicable to revenues:
Depreciation and amortization
Property operating
General and administrative
Non-operating income
Interest and amortization expense
Gains on sales of financial assets, net
Debt satisfaction gains (charges), net
Impairment charges and loan losses
Gains on sales of properties
Income before provision for income taxes, equity in earnings of non-
consolidated entities and discontinued operations
Provision for income taxes
Equity in earnings of non-consolidated entities
Income from continuing operations
Discontinued operations:
Income from discontinued operations
Provision for income taxes
Debt satisfaction 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 C – 6.50% rate
Allocation to participating securities
Net income attributable to common shareholders
Income per common share – basic:
Income from continuing operations
Income from discontinued operations
Net income attributable to common shareholders
Weighted-average common shares outstanding – basic
Income per common share – diluted:
Income from continuing operations
Income from discontinued operations
Net income attributable to common shareholders
Weighted-average common shares outstanding – diluted
Amounts attributable to common shareholders:
Income from continuing operations
Income from discontinued operations
Net income attributable to common shareholders
$
$
$
$
$
$
$
$
$
398,065
31,431
429,496
$
399,485
31,354
430,839
(166,048)
(47,355)
(31,104)
13,043
(88,032)
—
(975)
(100,236)
81,510
90,299
(1,439)
7,590
96,450
—
—
—
—
—
—
96,450
(826)
95,624
(6,290)
(225)
89,109
0.38
—
0.38
233,633,058
0.37
—
0.37
237,679,031
89,109
—
89,109
$
$
$
$
$
$
$
(163,198)
(59,655)
(29,276)
11,429
(89,739)
—
25,150
(36,832)
23,307
112,025
(568)
1,752
113,209
109
(4)
—
1,577
—
1,682
114,891
(3,188)
111,703
(6,290)
(313)
105,100
0.44
0.01
0.45
233,455,056
0.44
0.01
0.45
233,751,775
103,418
1,682
105,100
$
$
$
$
$
$
$
392,480
31,338
423,818
(154,837)
(63,673)
(28,255)
14,505
(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
The accompanying notes are an integral part of these consolidated financial statements.
74
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
$
2016
2015
2014
$
96,450
$
114,891
$
97,463
906
906
97,356
(826)
96,530
$
(2,343)
(2,343)
112,548
(3,188)
109,360
$
(4,035)
(4,035)
93,428
(4,359)
89,069
The accompanying notes are an integral part of these consolidated financial statements.
75
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2016
Lexington Realty Trust Shareholders
Balance December 31, 2015
Redemption of noncontrolling OP
units for common shares
Repurchase of common shares
Issuance of common shares upon
conversion of convertible notes
Exercise of employee common share
options
Issuance of common shares and
deferred compensation
amortization, net
Dividends/distributions
Net income
Other comprehensive income
Number of
Preferred
Shares
1,935,400
Preferred
Shares
$
94,016
Number of
Common
Shares
234,575,225
Total
$ 1,462,531
—
(8,973)
12,027
(1,101)
21,737
(171,086)
96,450
906
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
48,549
(1,184,113)
1,892,269
170,412
2,534,835
—
—
—
Balance December 31, 2016
$ 1,412,491
1,935,400
$
94,016
238,037,177
$
Common
Shares
$
Additional
Paid-in-
Capital
$ 2,776,837
Accumulated
Distributions
in Excess of
Net Income
Accumulated
Other
Comprehensive
Loss
Noncontrolling
Interests
$ (1,428,908) $
(1,939) $
22,502
210
(8,973)
12,027
(1,101)
21,736
—
—
—
—
—
—
—
—
(167,682)
95,624
—
—
—
—
—
—
—
—
906
(210)
—
—
—
—
(3,404)
826
—
$ 2,800,736
$ (1,500,966) $
(1,033) $
19,714
23
—
—
—
—
1
—
—
—
24
The accompanying notes are an integral part of the consolidated financial statements.
76
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2015
Lexington Realty Trust Shareholders
Balance December 31, 2014
Redemption of noncontrolling OP
units for common shares
Repurchase of common shares
Issuance of common shares upon
conversion of convertible notes
Issuance of common shares and
deferred compensation
amortization, net
Acquisition of consolidated joint
venture partner's equity interest
Dividends/distributions
Net income
Other comprehensive loss
Number of
Preferred
Shares
1,935,400
Preferred
Shares
$
94,016
Number of
Common
Shares
233,278,037
Total
$ 1,508,920
—
(18,431)
3,630
28,099
(1,234)
(171,001)
114,891
(2,343)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
32,780
(2,216,799)
519,664
2,961,543
—
—
—
—
Balance December 31, 2015
$ 1,462,531
1,935,400
$
94,016
234,575,225
$
Common
Shares
$
Additional
Paid-in-
Capital
$ 2,763,374
Accumulated
Distributions
in Excess of
Net Income
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
$ (1,372,051) $
404
$
23,154
165
(18,431)
3,630
28,099
—
—
—
—
—
—
—
—
(1,247)
(167,313)
111,703
—
—
—
—
—
—
—
—
(2,343)
(165)
—
—
—
13
(3,688)
3,188
—
$ 2,776,837
$ (1,428,908) $
(1,939) $
22,502
23
—
—
—
—
—
—
—
—
23
The accompanying notes are an integral part of the consolidated financial statements.
77
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2014
Lexington Realty Trust Shareholders
Balance December 31, 2013
Redemption of noncontrolling OP
units for common shares
Issuance of common shares upon
conversion of convertible notes
Acquisition of consolidated joint
venture partner's equity interest
Exercise of employee common
share options
Forfeiture of employee common
shares
Issuance of common shares and
deferred compensation
amortization, net
Dividends/distributions
Net income
Other comprehensive loss
Total
$ 1,539,483
Number of
Preferred
Shares
1,935,400
Preferred
Shares
$ 94,016
Number of
Common
Shares
228,663,022
(1,962)
14,347
(2,100)
597
(57)
31,558
(166,374)
97,463
(4,035)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
29,086
1,904,542
—
303,852
(13,658)
2,391,193
—
—
—
Balance December 31, 2014
$ 1,508,920
1,935,400
$ 94,016
233,278,037
$
Common
Shares
$
Additional
Paid-in-
Capital
$ 2,717,787
Accumulated
Distributions
in Excess of
Net Income
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
$
(1,300,527) $
4,439
$
23,745
(858)
14,347
—
597
(57)
31,558
—
—
—
—
—
(2,262)
—
—
—
—
—
—
—
—
—
(1,104)
—
162
—
—
—
(162,366)
93,104
—
—
—
(4,035)
(4,008)
4,359
—
$ 2,763,374
$
(1,372,051) $
404
$
23,154
23
—
—
—
—
—
—
—
—
—
23
The accompanying notes are an integral part of the consolidated financial statements.
78
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
Gains on sales of properties
Gains on sales of financial assets, net
Debt satisfaction (gains) charges, net
Impairment charges and loan losses
Straight-line rents
Other non-cash (income) expense, net
Equity in earnings of non-consolidated entities
Distributions of accumulated earnings from non-consolidated entities, net
Deferred taxes, net
Increase (decrease) in accounts payable and other liabilities
Change in rent receivable and prepaid rent, net
Increase (decrease) in accrued interest payable
Other adjustments, net
Net cash provided by operating activities:
Cash flows from investing activities:
Investment in real estate, including intangible assets
Investment in real estate under construction
Capital expenditures
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
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
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
Payment of developer liabilities
Increase in deferred financing costs
Proceeds of mortgages and notes payable
Proceeds from term loans
Change in restricted cash
Cash distributions to noncontrolling interests
Purchase of a noncontrolling interest
Repurchase of common 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
2016
2015
2014
$
96,450
$ 114,891
$
97,463
170,038
(81,510)
—
(3,562)
100,236
(37,445)
1,656
(7,590)
815
59
(1,657)
(1,825)
808
(1,200)
235,273
(167,797)
(132,192)
(4,408)
370,038
2,214
—
(37,240)
8,175
(6,558)
—
—
(21,571)
(20,848)
(10,187)
(165,858)
—
(672)
(26,796)
(109,973)
(177,000)
(4,016)
(1,842)
254,650
—
—
(3,404)
—
(8,973)
—
12,186
(231,698)
(6,612)
93,249
86,637
167,186
(24,884)
—
(25,240)
36,832
(46,432)
3,695
(1,752)
2,056
(77)
4,314
1,967
2,438
9,936
244,930
(349,926)
(137,158)
(29,110)
156,461
4,746
(10,274)
(18,900)
1,728
(6,681)
—
—
2,745
(1,902)
(388,271)
(164,737)
—
(529)
(32,440)
(106,956)
177,000
—
(9,336)
190,843
—
(1,573)
(3,688)
(4,022)
(18,431)
—
19,382
45,513
(97,828)
191,077
93,249
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
$
$
The accompanying notes are an integral part of these consolidated financial statements.
79
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 Maryland statutory real estate investment trust (“REIT”) that owns a diversified portfolio of equity
and debt investments in single-tenant commercial properties.
As of December 31, 2016, the Company had equity ownership interests in approximately 195 consolidated properties located
in 40 states. The properties in which the Company has an interest are primarily net-leased to tenants in various industries.
The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).
Accordingly, the Company will not be subject to federal income tax, provided that distributions to its shareholders equal at
least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain
activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities
are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS
are subject to federal income taxes on the income from these activities.
The Company conducts its operations either directly or indirectly through (1) property owner subsidiaries and lender
subsidiaries, which are single purpose entities, (2) an operating partnership, Lepercq Corporate Income Fund L.P. (“LCIF”),
in which the Company is the sole unit holder of the general partner and the sole unit holder of the limited partner that holds
a majority of the limited partner interests, (3) a wholly-owned TRS, Lexington Realty Advisors, Inc. (“LRA”), and (4)
investments in joint ventures. References to “OP Units” refer to units of limited partner interests in LCIF. Property owner
subsidiaries are landlords under leases for properties in which the Company has an interest and/or borrowers under loan
agreements secured by properties in which the Company has an interest and lender subsidiaries are lenders under loan
agreements where the Company made an investment in a loan asset, but in all cases are separate and distinct legal entities.
Each property owner subsidiary is a separate legal entity that maintains separate books and records. The assets and credit
of each property owner subsidiary with a property subject to a mortgage loan are not available to creditors to satisfy the
debt and other obligations of any other person, including any other property owner subsidiary or any other affiliate.
Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner
subsidiary (or the general partner, member or managing member of such property owner subsidiary), but merely hold
partnership, membership or beneficial interest therein, which interests are subordinate to the claims of such property owner
subsidiary's (or its general partner's, member's or managing member's) creditors.
(2)
Summary of Significant Accounting Policies
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.
On January 1, 2016, the Company adopted Accounting Standards Update (“ASU”) 2015-02 (Topic 810), Amendments to
the Consolidation Analysis, modifying the analysis it must perform to determine whether it should consolidate certain types
of legal entities. The guidance does not amend the existing disclosure requirements for VIEs or voting interest model entities.
The adoption of this guidance had no impact on consolidated entities included in the Company's consolidated financial
statements as all entities previously consolidated are still consolidated and all entities previously not consolidated are still
not consolidated. However, under the revised guidance, the Company determined that certain of its affiliated limited
partnerships and similar entities are now considered, by definition, VIEs. These entities were determined to be VIEs as the
unaffiliated partners/members did not have simple majority substantive kick-out rights or participating rights.
The Company determined that it was the primary beneficiary of certain VIEs as it has a controlling financial interest in
these entities. LCIF, which continues to be consolidated and in which the Company has an approximate 96% interest, was
determined to be a VIE under this new guidance. See the consolidated financial statements of LCIF included within this
Annual Report.
80
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company has a joint venture limited partnership with a developer which is a consolidated VIE. The joint venture is
developing an office campus in Lake Jackson, Texas. The Company currently has a 100% interest in the joint venture;
however, the developer has certain protective rights, and, upon project completion, the developer will be credited with a
notional capital account for a profit interest and certain cost savings. During 2016, the joint venture completed three of four
buildings. As of December 31, 2016 and December 31, 2015, the joint venture had $55,960 and $62,353, respectively, in
real estate under construction.
The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of December 31, 2016, the VIEs'
mortgages and notes payable were non-recourse to the Company. Below is a summary of selected financial data of
consolidated VIEs for which the Company is the primary beneficiary included in the Consolidated Balance Sheets as of
December 31, 2016 and December 31, 2015:
Real estate, net
Total assets
Mortgages and notes payable, net
Total liabilities
December 31, 2016
December 31, 2015
$
$
$
$
778,265
899,801
364,099
395,332
$
$
$
$
1,072,463
1,192,944
431,599
448,057
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 and non-vested common shares, OP units and
put options of certain convertible securities.
Use of Estimates. Management has made a number of significant estimates and assumptions relating to the reporting of
assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses
to prepare these consolidated financial statements in conformity with GAAP. These estimates and assumptions are based
on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors, including the economic environment. The 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, valuation of compensation plans 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.
81
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Revenue Recognition. The Company recognizes lease revenue on a straight-line basis over the term of the lease unless
another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the
leased property. Revenue is recognized on a contractual basis for leases with escalations tied to a consumer price index with
no floor. Renewal options in leases with rental terms that are lower than those in the primary term are excluded from the
calculation of straight-line rent if the renewals are not reasonably assured. If the Company funds tenant improvements and
the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements
are substantially completed and possession or control of the space is turned over to the tenant. If the Company determines
that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control
of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and
amortized as a reduction of revenue on a straight-line basis over the respective lease term. The Company recognizes lease
termination fees as rental revenue in the period received and writes off unamortized lease-related intangible and other lease-
related account balances, provided there are no further Company obligations under the lease. Otherwise, such fees and
balances are recognized on a straight-line basis over the remaining obligation period with the termination payments being
recorded as a component of rent receivable-deferred on the Consolidated Balance Sheets.
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.
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.
82
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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
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. Commencing
January 1, 2015, the operating results of these properties are reflected as discontinued operations in the Consolidated
Statements of Operations only if the sale of these assets represents a strategic shift in operations, if not, the operating results
are included in continuing operations. Properties classified as held for sale are carried at the lower of net carrying value or
estimated fair value less costs to sell and depreciation and amortization are no longer recognized. Properties that do not
meet the held for sale criteria are accounted for as operating properties.
Deferred Expenses. Deferred expenses consist primarily of revolving line of credit debt and leasing costs. Debt costs are
amortized using the straight-line method, which approximates the interest method, over the terms of the debt instruments
and leasing costs are amortized over the term of the related lease.
83
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Derivative Financial Instruments. The Company accounts for its interest rate swap agreements in accordance with FASB
ASC Topic 815, Derivatives and Hedging ("Topic 815"). In accordance with Topic 815, these agreements are carried on
the balance sheet at their respective fair values, as an asset if fair value is positive, or as a liability if fair value is negative.
If the interest rate swap is designated as a cash flow hedge, the 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 vested over a
five-year period and expire ten years from the date of grant. Options granted under the plan in 2008 vested upon attainment
of certain market performance measures and expire ten years from the date of grant. All share-based payments to employees,
including grants of employee stock options, are recognized in the Consolidated Statements of Operations based on their
fair values.
Tax Status. The Company has made an election to qualify, and believes it is operating so as to qualify, as a REIT for federal
income tax purposes. Accordingly, the Company generally will not be subject to federal income tax, provided that
distributions to its shareholders equal at least the amount of its REIT taxable income as defined under Sections 856 through
860 of the Code.
The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain
its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT
subsidiaries under the Code. As such, the Company is subject to federal and state income taxes on the income from these
activities.
Income taxes, primarily related to the Company's taxable REIT subsidiaries, are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or settled.
Cash and Cash Equivalents. The Company considers all highly liquid instruments with 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, 2016, 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.
84
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Segment Reporting. The Company operates generally in one industry segment, single-tenant real estate assets.
Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform to the
current year's presentation.
The Company adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, on January 1, 2016. ASU 2015-03
amended presentation guidance by requiring that debt issuance costs related to a recognized debt liability be presented in
the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Prior
to the issuance of ASU 2015-03, debt issuance costs were presented as an asset in the balance sheet. As shown in the table
below and pursuant to the guidance in ASU 2015-03, the Company has reclassified unamortized debt issuance costs
associated with certain debt obligations in the Company's previously reported consolidated balance sheet as of December 31,
2015 as follows:
As previously reported
December 31, 2015
$
Deferred expenses, net
Mortgages and notes payable, net
Term loans payable, net
Senior notes payable, net
Convertible guaranteed notes payable, net
Trust preferred securities, net
63,832
882,952
505,000
497,947
12,180
129,120
Reclassifications
$
As adjusted
December 31, 2015
42,000
872,643
500,076
493,526
12,126
126,996
(21,832) $
(10,309)
(4,924)
(4,421)
(54)
(2,124)
Recently Issued Accounting Guidance. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers (Topic 606), which amends the guidance for revenue recognition to eliminate the industry-specific revenue
recognition guidance and replace it with a principle based approach for determining revenue recognition. Leases are
specifically excluded from this ASU and will be governed by the applicable lease codifications; however, this update may
have implications in certain variable payment terms included in lease agreements and in sale and leaseback transactions.
The effective date of the new guidance was updated by ASU 2015-14 and is effective for reporting periods beginning after
December 15, 2017. The Company will adopt ASU 2014-09 effective January 1, 2018 and anticipates using the modified
retrospective with cumulative-effective transition method. The Company is identifying applicable revenue streams and
continues to evaluate the impact of the adoption of the new guidance on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right of use
asset and related lease liability for those leases classified as operating leases at the commencement date that have lease
terms of more than 12 months. The accounting applied to lessors under this new guidance is largely unchanged from prior
guidance. Lessors in most cases will continue to record operating leases as operating leases and recognize lease income
from those leases generally on a straight-line basis over the lease term. The ASU is expected to result in the recognition of
a right-to-use asset and related liability to account for our future obligations under our ground lease arrangements for which
the Company is the lessee. As of December 31, 2016, the remaining contractual payments under the Company's ground
lease agreements aggregated $53,863. Additionally, the new ASU will require that the Company capitalize, as initial direct
costs, only those costs that are incurred due to the execution of a lease. ASU 2016-02 will be effective for fiscal years
beginning after December 15, 2018, and interim periods within those years, and requires a modified retrospective transition
approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements; with early adoption permitted. The Company continues to evaluate the impact of the adoption of the new guidance
on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation-Improvements to Employee Share-
Based Payment Accounting (Topic 718), which involves several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification
on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim
periods within that reporting period; with early adoption permitted. The Company does not believe this guidance will have
a material impact on its consolidated financial statements.
85
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Statements, which requires more timely recognition of credit losses associated with financial assets.
The ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years;
however, early adoption is permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating
the impact of the adoption of the new guidance on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments, which addresses how certain cash receipts and cash payments are presented and classified in
the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2018, including interim
periods within those years; with early adoption permitted. The Company does not believe this guidance will have a material
impact on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies
guidance on the classification and presentation of changes in restricted cash. The ASU is effective for reporting periods
beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented.
Upon adoption, restricted cash balances will be included along with cash and cash equivalents as of the end of the period
and beginning of period, respectively, in the Company's consolidated statement of cash flows for all periods presented.
Upon adoption, separate line items showing changes in restricted cash balances will be eliminated from the Company's
consolidated statement of cash flows.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business,
which clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. The ASU is effective for reporting periods beginning after December 15, 2017, with
early adoption permitted. The Company expects that acquisitions of real estate or in-substance real estate will not meet the
revised definition of a business and thus will be treated as asset acquisitions.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial
Assets (Topic 610-20), which requires that all entities account for the derecognition of a business in accordance with ASC
810, including instances in which the business is considered in-substance real estate. The ASU is effective for annual
periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted. The Company is
currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.
86
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, 2016:
BASIC
Income from continuing operations attributable to common
shareholders
Income from discontinued operations attributable to common
shareholders
Net income attributable to common shareholders
Weighted-average number of common shares outstanding
Income per common share:
Income from continuing operations
Income from discontinued operations
Net income attributable to common shareholders
DILUTED:
Income from continuing operations attributable to common
shareholders
Impact of assumed conversions
Income from continuing operations attributable to common
shareholders
Income from discontinued operations attributable to common
shareholders
Impact of assumed conversions:
Income from discontinued operations attributable to common
shareholders
Net income attributable to common shareholders
Weighted-average common shares outstanding - basic
Effect of dilutive securities:
Share options
Operating Partnership Units
Weighted-average common shares outstanding - diluted
Income per common share:
Income from continuing operations
Income from discontinued operations
Net income attributable to common shareholders
2016
2015
2014
$
89,109
$
103,418
$
37,652
—
$
89,109
233,633,058
1,682
$
105,100
233,455,056
48,672
$
86,324
228,966,253
$
$
$
$
$
$
$
0.38
—
0.38
$
$
0.44
0.01
0.45
2016
2015
$
89,109
(159)
103,418
—
88,950
103,418
—
—
1,682
—
—
88,950
$
1,682
105,100
$
0.17
0.21
0.38
2014
37,652
—
37,652
48,672
—
48,672
86,324
233,633,058
233,455,056
228,966,253
230,352
3,815,621
237,679,031
296,719
—
233,751,775
470,455
—
229,436,708
$
$
0.37
—
0.37
$
$
0.44
0.01
0.45
$
$
0.17
0.21
0.38
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.
87
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(4)
Investments in Real Estate and Real Estate Under Construction
The Company's real estate, net, consists of the following at December 31, 2016 and 2015:
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
2016
2015
3,050,082
472,394
5,577
5,119
436,185
113,839
47,270
106,652
4,237,118
(1,208,792)
3,028,326
$
$
3,032,457
743,125
5,577
8,552
513,564
123,796
55,418
95,402
4,577,891
(1,179,969)
3,397,922
$
$
(1)
Includes accumulated amortization of real estate intangible assets of $363,861 and $367,762 in 2016 and 2015, respectively. The estimated
amortization of the above real estate intangible assets for the next five years is $30,919 in 2017, $26,664 in 2018, $21,742 in 2019, $17,598 in 2020
and $16,135 in 2021.
The Company had below-market leases, net of accumulated accretion, which are included in deferred revenue, of $28,416
and $28,967, respectively as of December 31, 2016 and 2015. The estimated accretion for the next five years is $2,034 in
2017, $2,026 in 2018, $1,719 in 2019, $1,620 in 2020 and $1,528 in 2021.
The Company completed the following acquisitions and build-to-suit transactions during 2016 and 2015:
2016:
Property Type
Location
Acquisition Date
Initial
Cost
Basis
Lease
Expiration
Land and
Land
Estate
Building and
Improvements
Lease in-
place Value
Below Market
Lease
Real Estate Intangibles
Industrial
Industrial
Industrial
Office
Industrial
Industrial
Detroit, MI
January 2016
$ 29,697
10/2035
$
1,133
$
25,009
$
3,555
$
Anderson, SC
June 2016
61,347
06/2036
Wilsonville, OR
September 2016
43,100
10/2032
Lake Jackson, TX November 2016
78,484
10/2036
Romeoville, IL
Demember 2016
52,700
10/2031
Edwardsville, IL
December 2016
44,800
09/2026
4,663
6,815
4,357
7,524
4,593
45,011
32,380
74,127
40,167
34,251
11,673
5,920
—
5,009
5,956
—
—
(2,015)
—
—
—
$ 310,128
$
29,085
$
250,945
$
32,113
$
(2,015)
Weighted-average life of intangible assets (years)
16.6
16.1
88
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
2015:
Property Type
Location
Acquisition/
Completion Date
Initial Cost
Basis
Lease
Expiration
Land and
Land Estate
Building and
Improvements
Lease in-place Value
Real Estate Intangible
Other
Office
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Office
Venice, FL
January 2015
$
16,850
01/2055
$
4,696
$
11,753
$
Auburn Hills, MI
March 2015
Houston, TX
Brookshire, TX
Canton, MS
Thomson, GA
Oak Creek, WI
March 2015
March 2015
March 2015
May 2015
July 2015
40,025
03/2029
28,650
03/2035
22,450
03/2035
89,300
02/2027
10,144
05/2030
22,139
06/2035
Richland, WA
November 2015
152,000
08/2035
Richmond, VA
December 2015
109,544
08/2030
4,416
4,674
2,388
5,077
909
3,015
1,293
7,331
30,012
19,540
16,614
71,289
7,746
15,300
126,947
88,021
$
491,102
$
33,799
$
387,222
$
Weighted-average life of intangible assets (years)
401
5,597
4,436
3,448
12,934
1,489
3,824
23,760
14,192
70,081
16.8
The Company recognized aggregate acquisition and pursuit expenses of $836 and $2,404 in 2016 and 2015, respectively,
which are included in property operating expenses within the Company's Consolidated Statements of Operations.
The Company is engaged in various forms of acquisition and build-to-suit development activities, including: (1) lending
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) hiring developers to construct built-to-suit projects on
owned properties leased to single tenants, (3) funding the construction of build-to-suit projects on owned properties pursuant
to the terms in single-tenant lease agreements and (4) entering into purchase and sale agreements with developers to acquire
single-tenant build-to-suit properties upon completion.
As of December 31, 2016, the Company had the following development arrangements outstanding:
Location
Property Type
Square Feet
Maximum
Commitment/
Estimated
Completion Cost
Lease Term
(Years)
Estimated
Completion/
Acquisition Date
GAAP Investment
Balance as of
12/31/2016
Lake Jackson, TX(1)
Charlotte, NC
Opelika, AL
Office
Office
Industrial
275
201
165
641
$
$
78,447
62,445
37,000
177,892
20
15
25
1Q 17
2Q 17
2Q 17
$
$
55,960
40,443
10,249
106,652
(1)
Joint venture arrangement with developer. The Company currently has a 100% economic interest. Three of four buildings completed in 2016.
Estimated completion cost and GAAP investment balance at December 31, 2016 reflect the fourth building.
The Company has variable interests in certain developer entities constructing its build-to-suit facilities but is not the primary
beneficiary of the entities as the Company does not have a controlling financial interest. As of December 31, 2016 and
2015, the Company's aggregate investment in development arrangements was $106,652 and $95,402, respectively, which
includes $3,442 and $2,726 of interest capitalized, respectively, and is presented as investments in real estate under
construction in the accompanying Consolidated Balance Sheets.
89
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In addition, as of December 31, 2016, the Company had the following forward purchase commitments:
Location
Sq. Ft.
Property Type
Maximum
Acquisition Cost
Estimated
Acquisition Date
Approximate
Lease Term (Yrs)
Grand Prairie, TX
Warren, MI(1)
215 Industrial
260 Industrial
475
$
$
24,725
47,000
71,725
2Q 17
3Q 17
20
15
(1) The Company issued a $4,600 letter of credit to secure its obligation to purchase the property.
(5)
Property Dispositions and Real Estate Impairment
For the years ended December 31, 2016, 2015 and 2014, the Company disposed of its interests in certain properties (excluding
Greenville, South Carolina in 2014, see note 6) generating aggregate net proceeds of $370,038, $156,461 and $226,375,
respectively, which resulted in gains on sales of $81,510, $24,884 and $57,507, respectively. During 2016, 2015 and 2014,
the Company recognized aggregate impairment charges of $73,772, $34,857 and $45,004, respectively, relating to properties
that were ultimately disposed. The 2016 impairment charges include an aggregate impairment charge of $65,500 recognized
on the sale of three land investments in New York, New York. For the years ended December 31, 2016, 2015 and 2014, the
Company recognized net debt satisfaction gains (charges) relating to properties ultimately sold, including the Greenville,
South Carolina property, of $(532), $21,498 and $(671), respectively. The results of operations for properties disposed of
in 2016 and 2015, that were not classified as held for sale as of December 31, 2014, are included within continuing operations
in the consolidated financial statements. At December 31, 2016 and 2015, the Company had two properties classified as
held for sale.
Assets and liabilities of held for sale properties as of December 31, 2016 and 2015 consisted of the following:
Assets:
Real estate, at cost
Real estate, intangible assets
Accumulated depreciation and amortization
Rent receivable - deferred
Other
Liabilities:
Mortgage payable
Other
December 31, 2016
December 31, 2015
$
$
$
$
25,957
7,789
(13,346)
1,715
1,693
23,808
$
$
— $
191
191
$
16,590
10,786
(4,069)
1,118
—
24,425
8,373
32
8,405
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 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. As a result, during 2016, 2015 and 2014, the Company recognized additional impairment charges
of $26,423, $1,975 and $3,596 on assets that are included in real estate, net at December 31, 2016.
90
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(6)
Loans Receivable
As of December 31, 2016 and 2015, the Company's loans receivable were comprised primarily of mortgage loans on real
estate.
The following is a summary of our loans receivable as of December 31, 2016 and 2015:
Loan
Kennewick, WA(2)
Oklahoma City, OK(3)
Other(4)
Loan carrying value(1)
12/31/2016
12/31/2015
Interest Rate
Maturity Date
$
$
85,709
$
8,501
—
94,210
$
85,505
8,501
1,865
95,871
9.00%
11.50%
8.00%
05/2022
03/2016
2021-2022
(1) Loan carrying value includes accrued interest and is net of origination costs.
(2) Loan provides for a current pay rate of 8.75%, an accrual rate of 9% and a balloon of $87,245 at maturity. This loan was in covenant default as of
December 31, 2016.
In 2015, the Company loaned a tenant-in-common $8,420. The loan is secured by the tenant-in-common's interest in an office property in which the
Company has a 40% interest. The loan was in monetary default as of December 31, 2016 and the Company is exercising its remedies.
In 2016, the Company received $1,583 in full satisfaction of these loans and recognized a $41 impairment charge.
(3)
(4)
As of December 31, 2016, the Company had one type of financing receivable, loans receivable secured by interests in
commercial real estate. 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. In addition, the Company assesses all
financing receivables for impairment, when warranted, based on an individual analysis of each receivable. The Company
had a capitalized financing lease for a property located in Greenville, South Carolina, which was sold in 2014 for net proceeds
of $11,491.
The Company's financing receivables operate within one class of financing receivables as these assets (1) are collateralized
by commercial real estate and (2) 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, 2016, the financing receivables were performing as
anticipated and there were no significant delinquent amounts outstanding, other than the maturity default of the borrower
of the Oklahoma City, Oklahoma loan, for which the Company believes its collateral is sufficient to recover the full amount
of the receivable.
During 2015, the Company acquired the office property collateral from the borrowers in Westmont, Illinois and Southfield,
Michigan on two loans receivable that were impaired. In 2014, the Company recognized a $2,500 loan loss on the loan
receivable collateralized by the Southfield, Michigan property. Also in 2015 and 2014, the Company recognized aggregate
interest income relating to these impaired loans of $14 and $1,752, respectively. The Company sold the Westmont, Illinois
property in 2016.
91
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(7)
Fair Value Measurements
The following tables present the Company's assets and liabilities measured at fair value on a recurring and non-recurring
basis as of December 31, 2016 and 2015, aggregated by the level in the fair value hierarchy within which those measurements
fall:
Description
2016
(Level 1)
(Level 2)
(Level 3)
Interest rate swap assets
Impaired real estate assets*
Interest rate swap liabilities
$
$
$
44
$
15,801
$
(1,077) $
— $
— $
— $
44
$
— $
(1,077) $
—
15,801
—
Fair Value Measurements Using
*Represents a non-recurring fair value measurement.
Description
2015
(Level 1)
(Level 2)
(Level 3)
Interest rate swap assets
Impaired real estate assets*
Interest rate swap liabilities
$
$
$
$
4
3,015
$
(1,943) $
— $
— $
— $
4
$
— $
(1,943) $
—
3,015
—
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, 2016 and 2015:
Assets
Loans Receivable
Liabilities
Debt
As of December 31, 2016
As of December 31, 2015
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
94,210
$
94,911
$
95,871
$
103,014
$ 1,860,598
$ 1,814,824
$ 2,182,367
$ 2,164,571
The majority of the inputs used to value the Company's interest rate swap assets (liabilities) 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 assets (liabilities) 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, 2016 and 2015, the Company determined that the credit
valuation adjustment relative to the overall interest rate swap assets (liabilities) is not significant. As a result, all interest
rate swap assets (liabilities) have been classified in Level 2 of the fair value hierarchy.
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 sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models
include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual
rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions
based upon market conditions determined through discussion with local real estate professionals, experience the Company
has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates
utilized in these models are estimated by management based upon rates that management believes to be within a reasonable
range of current market rates for the respective properties based upon an analysis of factors such as property and tenant
quality, geographical location and local supply and demand observations. To the extent the Company under-estimates
forecasted cash outflows (tenant improvements, lease commissions and operating costs) or over-estimates forecasted cash
inflows (rental revenue rates), the estimated fair value of its real estate assets could be overstated.
92
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company estimates the fair values of its loans receivable utilizing Level 3 inputs 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 primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis,
based upon estimates of market interest rates. The Company determines the fair value of its Senior Notes and 6.00%
Convertible Guaranteed Notes using market prices. The inputs used in determining the fair value of these notes are categorized
as Level 1 due to the fact that the Company uses quoted market rates to value these instruments. However, the inputs used
in determining the fair value could be categorized as Level 2 if trading volumes are low.
Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets
and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value 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.
(8)
Investment in and Advances to Non-Consolidated Entities
As of December 31, 2016, the Company had ownership interests ranging from 15% to 40% in certain non-consolidated
entities, which primarily own single-tenant net-leased assets. The acquisitions of these assets by the non-consolidated entities
were partially funded through non-recourse mortgage debt with an aggregate balance of $47,037 at December 31, 2016 (the
Company's proportionate share was $8,472) with rates ranging from 3.7% to 4.7%. In 2016, the Company received $6,681
in connection with the sale of a non-consolidated office property in Russellville, Arkansas. The Company recognized a gain
of $5,378 relating to the sale, which is included in equity in earnings of non-consolidated entities. In 2015, the Company
invested $5,613 in the Oklahoma City tenant-in-common. The Company's contribution, together with the other tenant-in-
common's contribution, which was in the form of a loan provided by the Company, was used to satisfy the related maturing
mortgage loan.
In November 2014, the Company formed a joint venture to construct a private school in Houston, Texas. As of December 31,
2016, the Company had a 25% interest in the joint venture. The joint venture completed the project in 2016 for a total
construction cost of $79,964. The Company is contractually obligated to provide construction financing to the joint venture
up to $56,686, of which $46,441 has been funded as of December 31, 2016. The property is net leased for a 20-year term.
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 were $693, $223 and $348 for the years
ended December 31, 2016, 2015 and 2014, respectively.
(9)
Mortgages and Notes Payable
The Company had the following mortgages and notes payable outstanding as of December 31, 2016 and December 31,
2015:
Mortgages and notes payable
Unamortized debt issuance costs
December 31, 2016
December 31, 2015
$
$
745,173
(7,126)
738,047
$
$
882,952
(10,309)
872,643
Interest rates, including imputed rates on mortgages and notes payable, ranged from 2.2% to 7.8% at December 31, 2016
and the mortgages and notes payable mature between 2017 and 2036. Interest rates, including imputed rates, ranged from
2.2% to 7.8% at December 31, 2015. The weighted-average interest rate at December 31, 2016 and 2015 was approximately
4.6% and 4.9%, respectively.
93
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company has a $905,000 unsecured credit agreement with KeyBank National Association as agent. With lender
approval, the Company can increase the size of the facility to an aggregate $1,810,000. A summary of the significant terms
are as follows:
$400,000 Revolving Credit Facility(1)
$250,000 Term Loan(2)(4)
$255,000 Term Loan(3)(4)
Maturity Date
08/2019
08/2020
01/2021
Current
Interest Rate
LIBOR + 1.00%
LIBOR + 1.10%
LIBOR + 1.10%
(1) Maturity date can be extended to August 2020 at the Company's option. The interest rate ranges from LIBOR plus 0.85% to 1.55%. At December 31,
2016, the unsecured revolving credit facility had no amounts outstanding, $4,600 of letters of credit and availability of $395,400, subject to covenant
compliance.
(2) The interest rate ranges from LIBOR plus 0.90% to 1.75%. The Company previously entered into aggregate interest-rate swap agreements to fix the
LIBOR component at a weighted-average rate of 1.09% through February 2018 on the $250,000 of outstanding LIBOR-based borrowings.
(3) The interest rate ranges from LIBOR plus 0.90% to 1.75%. The Company previously entered into aggregate interest-rate swap agreements to fix the
LIBOR component at a weighted-average rate of 1.42% through January 2019 on the $255,000 of outstanding LIBOR-based borrowings.
(4) The aggregate unamortized debt issuance costs for the term loans were $3,907 and $4,924 as of December 31, 2016 and 2015 and respectively.
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, 2016.
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.
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,
2017
2018
2019
2020
2021
Thereafter
Unamortized debt discounts
Total
92,731
36,713
110,448
305,147
295,465
409,669
1,250,173
(11,033)
1,239,140
$
$
Included in the Consolidated Statements of Operations, the Company recognized debt satisfaction gains (charges), net,
excluding discontinued operations, of $(7), $4,128 and $(6,657) for the years ended December 31, 2016, 2015 and 2014,
respectively, due to the satisfaction of mortgages and notes payable other than those disclosed elsewhere in these financial
statements. In addition, the Company capitalized $4,933, $6,062 and $3,441 in interest, including discontinued operations,
for the years ended 2016, 2015 and 2014, respectively.
94
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(10)
Senior Notes, Convertible Notes and Trust Preferred Securities
The Company had the following Senior Notes outstanding as of December 31, 2016 and 2015:
Issue Date
May 2014
June 2013
Unamortized debt discount
Unamortized debt issuance cost
December 31, 2016
December 31, 2015
$
$
250,000
$
250,000
500,000
(1,780)
(3,858)
494,362
$
250,000
250,000
500,000
(2,053)
(4,421)
493,526
Interest
Rate
Maturity
Date
Issue
Price
4.40% June 2024
99.883%
4.25% June 2023
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 paid interest semi-annually in arrears and were scheduled to mature in January 2030. The notes were fully satisfied/
converted in 2016 and at December 31, 2016, no such notes were outstanding. During 2016, 2015 and 2014, $12,400,
$3,828 and $12,763 aggregate principal amount of the notes were converted for 1,892,269, 519,664 and 1,904,542 common
shares and an aggregate cash payment of $672, $529 and $233 plus accrued and unpaid interest, respectively. The Company
recognized aggregate debt satisfaction charges of $436, $476 and $2,436, during 2016, 2015 and 2014, respectively,
relating to the conversions.
During 2007, the Company issued $200,000 unsecured 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, 2016 and 2015, there was $129,120
original principal amount of Trust Preferred Securities outstanding and $2,024 and $2,124, respectively, of unamortized
debt issuance cost.
Scheduled principal payments for these debt instruments for the next five years and thereafter are as follows:
Year ending December 31,
Total
2017
2018
2019
2020
2021
Thereafter
Unamortized debt discounts
Unamortized debt issuance costs
$
$
—
—
—
—
—
629,120
629,120
(1,780)
(5,882)
621,458
95
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(11)
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 did not incur any ineffectiveness during 2016, 2015 and 2014.
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 unsecured 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. During 2015, the Company extended the maturity date of the $505,000
of LIBOR indexed variable rate unsecured term loans to August 2020 ($250,000) and January 2021 ($255,000). The
extension of these term loans had no impact on the effectiveness of the corresponding cash flow hedges.
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 $1,462 will be reclassified as an increase to interest expense if the swaps remain outstanding.
As of December 31, 2016, the Company had the following outstanding interest rate derivatives that were designated as cash
flow hedges of interest rate risk:
Interest Rate Derivative
Interest Rate Swaps
Number of Instruments
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, 2016 and 2015.
Derivatives designated as hedging
instruments:
Interest Rate Swap Asset
Interest Rate Swap Liability
As of December 31, 2016
As of December 31, 2015
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Other Assets
$
44
Other Assets
$
4
Accounts Payable and
Other Liabilities
$ (1,077)
Accounts Payable and
Other Liabilities
$ (1,943)
96
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 2016 and 2015:
Derivatives in Cash Flow
Amount of Loss Recognized
in OCI on Derivative
(Effective Portion)
December 31,
Hedging Relationships
2016
2015
Interest Rate Swap
$
(3,084) $
(7,809)
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,
2016
2015
$
3,990
$
5,466
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, 2016,
the Company had not posted any collateral related to the agreements.
(12)
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,
2017
2018
2019
2020
2021
Thereafter
$
Total
328,054
314,764
283,225
248,427
229,201
1,846,042
$ 3,249,713
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.
97
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,
2017
2018
2019
2020
2021
Thereafter
Total
5,186
5,062
4,557
4,549
4,201
30,308
53,863
$
$
Rent expense for the leasehold interests, including discontinued operations, was $987, $868 and $919 in 2016, 2015 and
2014, 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. In addition, the Company leases office
space for its regional offices. The minimum lease payments for the Company's offices are $1,294 for 2017, $1,294 for 2018,
$1,295 for 2019, $1,296 for 2020 and $1,325 for 2021 and $5,575 thereafter. Rent expense for 2016, 2015 and 2014 was
$1,242, $1,435 and $1,356, respectively.
(13)
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, 2016, 2015 and 2014, 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.
(14)
Equity
Shareholders' Equity:
During 2016, 2015 and 2014, the Company issued 577,823, 2,266,191 and 2,600,795 common shares, respectively, under
its direct share purchase plan, which includes a dividend reinvestment component, raising net proceeds of approximately
$4,115, $20,797 and $25,813 respectively. During 2013, the Company implemented, and in 2016, the Company updated,
its At-The-Market offering program under which the Company may issue up to $125,000 in common shares over the term
of this program. During 2016, the Company issued 976,109 common shares under this program and generated aggregate
gross proceeds of $10,498. No shares were sold under this program in 2015 or 2014. 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, 2016. 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 December 31, 2016, 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.
98
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 2016, 2015 and 2014, the Company issued 1,084,835, 860,730 and 37,678 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 15).
In July 2015, the Company's Board of Trustees authorized the repurchase of up to 10,000,000 common shares. This share
repurchase program has no expiration date. During 2016 and 2015, the Company repurchased 1,184,113 and 2,216,799
common shares, respectively, at an average gross price of $7.56 and $8.29, respectively, per common share under this share
repurchase program.
Accumulated other comprehensive loss as of December 31, 2016 and 2015 represented $(1,033) and $(1,939), respectively,
of unrealized gain on interest rate swaps, net.
Changes in Accumulated Other Comprehensive Loss
Gains and Losses
on Cash Flow Hedges
Balance December 31, 2015
Other comprehensive loss before reclassifications
Amounts of loss reclassified from accumulated other
comprehensive income to interest expense
Balance December 31, 2016
$
$
(1,939)
(3,084)
3,990
(1,033)
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 2016, 2015 and 2014, 48,549, 32,780 and 29,086 common shares, respectively, were issued by the Company, in
connection with OP unit redemptions, for an aggregate value of $210, $165 and $148, respectively.
As of December 31, 2016, there were approximately 3,350,000 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.
99
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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
2016
2015
2014
Net income attributable to Lexington Realty Trust shareholders
$
95,624
$
111,703
$
93,104
Transfers from noncontrolling interests:
Increase (decrease) in additional paid-in-capital for redemption of
noncontrolling OP units
210
165
(858)
Change from net income attributable to shareholders and transfers from
noncontrolling interests
$
95,834
$
111,868
$
92,246
In July 2015 and 2014, the Company acquired a consolidated joint venture partner's interest in an office property in
Philadelphia, Pennsylvania for $4,022 and $2,100, respectively, raising the Company's equity ownership in the office
property to 100.0%.
(15)
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 2016, 2015 and 2014. 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) vested
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) vested 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.
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 recognized 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 $480 and $1,038 in compensation expense
in 2015 and 2014, respectively. All deferred compensation costs relating to the outstanding options were fully amortized
by December 31, 2015. 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. No options were exercised in 2015 and the
total intrinsic value of options exercised for the years ended December 31, 2016 and 2014 were $2,856 and $2,780,
respectively.
100
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Share option activity during the years indicated is as follows:
Balance at December 31, 2013
Exercised
Forfeited
Balance at December 31, 2014 and 2015
Exercised
Balance at December 31, 2016
Number of
Shares
Weighted-Average
Exercise Price
Per Share
1,955,701
(594,791)
(10,500)
1,350,410
(944,169)
406,241
$
$
6.95
6.71
7.46
7.05
7.17
6.78
As of December 31, 2016, the aggregate intrinsic value of options that were outstanding and exercisable was $1,632.
Non-vested share activity for the years ended December 31, 2016 and 2015, is as follows:
Balance at December 31, 2014
Granted
Vested
Balance at December 31, 2015
Granted
Vested
Balance at December 31, 2016
Number of
Shares
Weighted-Average
Value Per Share
1,970,385
812,679
(413,714)
2,369,350
1,034,019
(252,059)
3,151,310
$
$
10.82
7.70
11.95
9.55
5.23
10.13
8.09
During 2016 and 2015, the Company granted common shares to certain employees and trustees as follows:
2016
2015
Performance Shares(1)
Shares issued:
Index
Peer
Grant date fair value per share:(2)
Index
Peer
Non-Vested Common Shares:(3)
Shares issued
Grant date fair value
Non-management Board of Trustee grant:(4)
Shares issued
Grant date fair value
404,466
404,463
$4.53
$4.58
225,090
$1,724
17,500
$131
321,018
321,011
$6.86
$6.66
170,650
$1,916
20,400
$209
(1) The shares vest based on the Company's total shareholder return growth after a three-year measurement period relative to an index and a group of
Company peers. Dividends will not be paid on these grants until earned. Once the performance criteria are met and the actual number of shares
earned is determined, such shares vest immediately.
(2) The fair value of grants was determined at the grant date using a Monte Carlo simulation model.
(3) The shares vest ratably over a three-year service period.
(4) Annual grant and shares vested upon grant.
101
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
As of December 31, 2016, of the remaining 3,151,310 non-vested shares, 1,693,855 are subject to time-based vesting and
1,457,455 are subject to performance-based vesting. At December 31, 2016, there are 2,344,136 awards available for grant.
The Company has $11,128 in unrecognized compensation costs relating to the non-vested shares that will be charged to
compensation expense over an average of approximately 2.8 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, 2016 and 2015, 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 $357, $333 and $299 of contributions are applicable to 2016, 2015 and
2014, respectively.
During 2016, 2015 and 2014, the Company recognized $8,415, $8,201 and $7,550, respectively, in expense relating to
scheduled vesting and issuance of common share grants.
(16)
Related Party Transactions
The Company has an indemnity obligation to Vornado Realty Trust ("VNO"), 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 are approved by the independent members of the Company's Board of Trustees
or the Audit Committee.
The Company leases a property to an entity in which VNO, a significant shareholder, has an interest. During 2016, 2015
and 2014, the Company recognized $236, $255 and $255, respectively, in rental revenue from this property. The Company
leases its corporate office from an affiliate of Vornado Realty Trust. Rent expense for this property was $1,176, $1,323 and
$1,252 in 2016, 2015 and 2014, respectively.
In connection with efforts, on a non-binding basis, to procure non-recourse mezzanine financing from an affiliate of the
Company's Chairman, pursuant to the terms of the EB-5 visa program administered by the United States Citizenship and
Immigration Services (“USCIS”), for a joint venture investment in Houston, Texas, in which the Company has an investment,
the Company executed a guaranty in favor of an affiliate of its Chairman. The guaranty provides that the Company will
reimburse investors providing the funds for such financing if the following occurs: (1) the joint venture receives such funds,
(2) the USCIS denies the financing solely because the project is not permitted under the EB-5 visa program, and (3) the
joint venture fails to return such funds. As of December 31, 2016, the joint venture has not received any such funds and
the Company has not recorded any liability as it relates to this guaranty. The maximum amount of funds that would be
subject to the guaranty obligation is $18,000.
In addition, in connection with efforts, on a non-binding basis, to procure non-recourse mezzanine financing from an affiliate
of the Company's Chairman, pursuant to the terms of the EB-5 visa program administered by the USCIS, for an investment
in Charlotte, North Carolina, the Company agreed to reimburse the Chairman's affiliate up to approximately $7 for its
expenses.
(17)
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.
102
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, 2016, 2015 and 2014 is summarized as follows:
Current:
Federal
State and local
NOL utilized
Deferred:
Federal
State and local
2016
2015
2014
$
(140) $
— $
(1,299)
59
(44)
(15)
(1,439) $
$
(645)
—
59
18
(568) $
145
(1,130)
—
(91)
(33)
(1,109)
Net deferred tax assets (liabilities) of $0 and $59 are included in other assets (liabilities) on the accompanying Consolidated
Balance Sheets at December 31, 2016 and 2015, respectively. These net deferred tax assets (liabilities) relate to net operating
loss carry forwards.
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
2016
2015
2014
$
$
(154) $
(30)
(1,255)
(1,439) $
$
65
12
(645)
(568) $
(43)
(9)
(1,057)
(1,109)
For the years ended December 31, 2016, 2015 and 2014, the “other” amount is comprised primarily of state franchise taxes
of $1,252, $679 and $1,183, respectively.
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, 2016, is as follows:
Total dividends per share
Ordinary income
Qualifying dividend
Capital gain
Return of capital
$
2016
2015
2014
$
0.685
96.73%
0.22%
—
3.05%
100.00%
$
0.68
63.07%
—
—
36.93%
100.00%
0.67
49.44%
0.05%
—
50.51%
100.00%
A summary of the average taxable nature of the Company's dividend on shares of its Series C Preferred for each of the years
in the three-year period ended December 31, 2016, is as follows:
Total dividends per share
Ordinary income
Qualifying dividend
Capital gain
Return of capital
$
2016
2015
2014
$
3.25
99.78%
0.22%
—
—
100.00%
$
3.25
100.00%
—
—
—
100.00%
3.25
99.90%
0.10%
—
—
100.00%
103
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(18)
Commitments and Contingencies
In addition to the commitments and contingencies disclosed elsewhere, the Company has the following commitments and
contingencies.
The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated
entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee
to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease
commissions on behalf of its subsidiaries.
The Company and LCIF are parties to a funding agreement under which the Company may be required to fund distributions
made on account of LCIF's OP units. Pursuant to the funding agreement, the parties agreed that, if LCIF does not have
sufficient cash available to make a quarterly distribution to its limited partners in an amount in accordance with the partnership
agreement, Lexington will fund the shortfall. Payments under the agreement will be made in the form of loans to LCIF and
will bear interest at prevailing rates as determined by the Company in its discretion but, no less than the applicable federal
rate. LCIF's right to receive these loans will expire if no OP units remain outstanding and all such loans repaid. No amounts
have been advanced under this agreement.
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.
GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC v. Lexington Realty Trust (Supreme Court of the State of
New York, County of New York-Index No. 653117/2015)
On September 16, 2015, GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC commenced an action as lender
against the Company based on a limited guaranty of recourse obligations executed by a predecessor entity of the Company
in connection with a mortgage loan secured by a property owner subsidiary's commercial property in Bridgewater, New
Jersey. The property owner subsidiary defaulted due to non-payment after the sole tenant vacated at the end of the lease
term. The lender currently seeks approximately $9,200 in order to satisfy the outstanding amount of the loan after offset
for the lender's asserted value of the property it obtained in foreclosure, plus interest, reasonable attorney’s fees and other
costs and disbursements related thereto. The Company had not recorded any liability relating to this litigation as of
December 31, 2016 as the Company believes that a loss contingency is "reasonably possible" (as defined by FASB ASC
450-20-20) but not "probable" (as defined by FASB ASC 450-20-20).
The lender claims that the Company's limited guaranty was triggered due to the merger of Newkirk Realty Trust, Inc. and
Lexington Corporate Properties Trust on December 31, 2006, arguing that it constituted an event of default because it was
a transfer that was not permitted by the loan agreement. The limited guaranty provides that the guarantor's liability for the
guaranteed obligations shall not exceed $10,000, which the Company believes is its maximum exposure to loss. The Company
intends to vigorously defend the lender’s claim. The Company filed a motion to dismiss, which was generally denied. The
Company is currently conducting discovery, with document production required to be completed by March 31, 2017, fact
depositions to be completed by August 28, 2017 and expert dispositions to be completed by October 31, 2017.
Other. Four of the Company's 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. In addition, the Company's other two executive officers and certain other members of the
Company's senior management are entitled to severance benefits upon the same events.
104
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(19)
Supplemental Disclosure of Statement of Cash Flow Information
In addition to disclosures discussed elsewhere, during 2016, 2015 and 2014, the Company paid $87,692, $88,725 and
$100,080, respectively, for interest and $1,240, $741 and $859, respectively, for income taxes.
During 2016, 2015 and 2014, the Company sold its interests in certain properties, which included the assumption by the
buyers of the related non-recourse mortgage debt in the aggregate amount of $242,269, $55,000 and $30,140, respectively.
In addition, during 2016, 2015 and 2014, the Company conveyed its interests in certain properties to its lenders in full
satisfaction of the $21,582, $47,528 and $9,900, respectively, non-recourse mortgage notes payable.
(20)
Unaudited Quarterly Financial Data
This unaudited quarterly financial data for each of the quarters ended March 31, 2016, June 30, 2016 and September 30,
2016 is being amended from the amounts previously reflected in the respective Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission to correct an error in the treatment of a lease termination payment received in the
quarter ended June 30, 2016 in the amount of $7,685. The lease termination payment was originally amortized over the life
of the new tenant lease that necessitated the lease termination, but is now fully recognized in total gross revenues in the
quarter ended June 30, 2016. The following summarizes the impact.
Quarter ended March 31, 2016
As Originally Reported
Correction
As Adjusted
Total gross revenues
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
$
$
$
$
$
Quarter ended June 30, 2016
111,616
50,792
48,107
0.21
0.21
As Originally Reported
Total gross revenues
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
Quarter ended September 30, 2016
$
$
$
$
$
109,577
49,345
46,830
0.20
0.20
$
$
$
$
$
$
$
$
$
$
Total gross revenues
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
As Originally Reported
$
106,331
$
(27,262) $
$
$
$
$
(26,653) $
(0.11) $
(0.11) $
(339) $
(339) $
(326) $
— $
(0.01) $
111,277
50,453
47,781
0.21
0.20
Correction
As Adjusted
7,335
7,335
7,045
0.03
0.03
$
$
$
$
$
116,912
56,680
53,875
0.23
0.23
Correction
As Adjusted
(350) $
(350) $
(322) $
(0.01) $
(0.01) $
105,981
(27,612)
(26,975)
(0.12)
(0.12)
105
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Total gross revenues
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
12/31/2016
$
$
$
$
$
95,326
16,929
14,391
0.06
0.06
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
3/31/2015
108,442
$
34,371
$
31,829
$
6/30/2015
110,333
$
50,207
$
47,654
$
9/30/2015
$
105,438
$
$
12/31/2015
106,626
$
(5,200) $
35,513
(7,629) $
33,229
$
$
0.14
0.14
$
$
0.20
0.20
$
$
(0.03) $
0.14
(0.03) $
0.14
_____________
(1) All periods have been adjusted to reflect the impact of properties classified as held for sale as of December 31, 2014, 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.
(21)
Subsequent Events
Subsequent to December 31, 2016 and in addition to disclosures elsewhere in the financial statements, the Company:
•
•
•
•
•
•
sold six properties to unrelated third parties for an aggregate gross sales price of $88,873;
acquired two industrial properties for an aggregate purchase price of $50,594;
issued 1,593,603 common shares at an average gross price of $10.89 per share under its ATM offering program;
completed the Lake Jackson, Texas build-to-suit project;
sold its tenant-in-common interest in the Oklahoma City, Oklahoma property for $6,270 and collected $8,498 in
full satisfaction of the loan receivable owed from the other tenant-in-common; and
sold the Kennewick, Washington loan receivable for a gross sale price of $80,385.
106
Report of Independent Registered Public Accounting Firm
The Partners
Lepercq Corporate Income Fund L.P.:
We have audited the accompanying consolidated balance sheets of Lepercq Corporate Income Fund L.P.
and subsidiaries (the “Partnership”) as of December 31, 2016 and 2015, and the related consolidated statements of
operations, changes in partners’ capital, and cash flows for each of the years in the three-year period ended December 31,
2016. In connection with our audits of the consolidated financial statements, we have also audited the accompanying
financial statement schedule III. These consolidated financial statements and financial statement schedule are the
responsibility of the Partnership’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 Lepercq Corporate Income Fund L.P. and subsidiaries as of December 31, 2016 and 2015, and
the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2016, 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 take as a whole, presents
fairly, in all material respects, the information set forth therein.
New York, New York
February 28, 2017
(signed) KPMG LLP
107
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000, except unit data)
As of December 31,
Assets:
Real estate, at cost
Real estate - intangible assets
Investment in real estate under construction
Less: accumulated depreciation and amortization
Real estate, net
Cash and cash equivalents
Restricted cash
Investment in and advances to non-consolidated entities
Deferred expenses (net of accumulated amortization of $4,910 in 2016 and $5,634 in 2015)
Rent receivable - current
Rent receivable - deferred
Related party advances, net
Other assets
Total assets
Liabilities and Partners' Capital:
Liabilities:
Mortgages and notes payable, net
Co-borrower debt
Related party advances, net
Accounts payable and other liabilities
Accrued interest payable
Deferred revenue - including below market leases (net of accumulated accretion of $3,180
in 2016 and $3,148 in 2015)
Distributions payable
Prepaid rent
Total liabilities
Commitments and contingencies
Partners' capital
Total liabilities and partners' capital
2016
2015
$
731,202
$
1,061,606
104,761
40,443
876,406
236,930
639,476
52,031
1,545
5,526
5,070
358
17,449
5,967
1,182
189,700
9,223
1,260,529
255,024
1,005,505
19,130
2,457
5,924
8,459
801
87,150
—
1,500
$
728,604
$
1,130,926
$
169,212
$
146,404
—
3,559
673
1,003
16,916
3,214
340,981
431,599
201,106
3,232
5,503
942
5,306
17,214
4,367
669,269
387,623
728,604
$
461,657
1,130,926
$
The accompanying notes are an integral part of these consolidated financial statements.
108
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000, except unit data)
Years ended December 31,
Gross revenues:
Rental
Tenant reimbursements
Total gross revenues
Expense applicable to revenues:
Depreciation and amortization
Property operating
General and administrative
Non-operating income
Interest and amortization expense
Debt satisfaction charges, net
Gain on sale of financial asset
Impairment charges and loan losses
Gains on sales of properties
Income (loss) before provision for income taxes, equity in earnings of non-
consolidated entities and discontinued operations
Provision for income taxes
Equity in earnings of non-consolidated entities
Income (loss) from continuing operations
Discontinued operations:
Income from discontinued operations
Provision for income taxes
Gains on sales of properties
Total discontinued operations
Net income (loss)
Income (loss) per unit:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss)
Weighted-average units outstanding
2016
2015
2014
$
$
115,403
8,766
124,169
$
117,847
10,154
128,001
109,455
8,678
118,133
(34,264)
(14,414)
(9,570)
299
(27,313)
(7,388)
—
(72,072)
36,380
(4,173)
(72)
324
(3,921)
(30,651)
(17,046)
(8,541)
531
(29,269)
(33)
—
(787)
—
42,205
(48)
158
42,315
—
—
—
—
(3,921) $
—
—
—
—
42,315
$
(27,649)
(14,738)
(7,691)
2,927
(28,267)
(357)
831
(2,500)
—
40,689
(80)
129
40,738
882
(15)
17,944
18,811
59,549
$
$
(0.05) $
—
(0.05) $
0.58
—
0.58
72,615,795
$
83,241,396
$
0.59
0.28
$
0.87
68,758,733
The accompanying notes are an integral part of these consolidated financial statements.
109
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
($000, except unit amounts)
Year ended December 31,
Balance December 31, 2013
Changes in co-borrower debt
Issuance of units
Redemption of units
Distributions
Net Income
Balance December 31, 2014
Changes in co-borrower debt
Issuance of units
Distributions
Net Income
Balance December 31, 2015
Changes in co-borrower debt
Distributions
Net Loss
Balance December 31, 2016
Units
Partners' Capital
68,280,702
—
$
2,571,757
(170,193)
—
—
70,682,266
—
12,559,130
—
—
83,241,396
—
—
—
83,241,396
$
448,067
(45,416)
27,981
(1,962)
(56,178)
59,549
432,041
(64,139)
112,286
(60,846)
42,315
461,657
(3,298)
(66,815)
(3,921)
387,623
The accompanying notes are an integral part of these consolidated financial statements.
110
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000)
Year ended December 31,
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by operating activities:
2016
2015
2014
$
(3,921) $
42,315
$
59,549
Depreciation and amortization
Gains on sales of properties
Gain on sale of financial asset
Debt satisfaction charges, net
Impairment charges and loan losses
Straight-line rents
Other non-cash income, net
Equity in earnings of non-consolidated entities
Distributions of accumulated earnings from non-consolidated entities
Increase in accounts payable and other liabilities
Change in rent receivable and prepaid rent, net
Change 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
Net proceeds from sale of properties
Investment in loan receivable
Principal payments received on loans receivable
Investments in and advances to non-consolidated entities
Distributions from non-consolidated entities in excess of accumulated earnings
Increase in deferred leasing costs
Real estate deposits
Change in restricted cash
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Distributions to partners
Principal amortization payments
Principal payments on debt, excluding normal amortization
Proceeds of mortgages and notes payable
Proceeds of related party note
Related party note payment
Co-borrower debt payment
Increase in deferred financing costs
Related party advances, net
Redemption of OP units
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
34,660
(36,380)
—
4,733
72,072
(26,891)
(1,914)
(324)
324
(2,180)
(710)
(269)
(293)
38,907
(52,700)
(31,220)
(1,466)
238,891
—
—
(81)
478
(1,156)
(28)
912
153,630
(67,113)
(1,311)
(23,934)
—
—
—
(58,000)
(79)
(9,199)
—
(159,636)
32,901
19,130
52,031
$
$
31,145
—
—
33
787
(35,962)
(2,190)
(158)
150
1,129
(316)
(215)
1,692
38,410
(152,000)
(20,699)
(6,295)
—
(318)
3,480
(1,683)
503
(1,553)
—
(843)
(179,408)
(19,741)
(1,454)
(28,626)
139,193
—
(8,250)
—
(1,281)
71,959
—
151,800
10,802
8,328
19,130
$
29,187
(17,944)
(831)
27
2,500
(34,146)
(1,510)
(129)
15
(1,892)
284
(149)
3,088
38,049
(49,526)
(3,682)
(6,860)
52,327
—
1,304
(263)
738
(4,558)
—
2,714
(7,806)
(31,923)
(1,828)
(9,000)
—
8,250
—
—
(694)
2,078
(1,962)
(35,079)
(4,836)
13,164
8,328
The accompanying notes are an integral part of these consolidated financial statements.
111
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(1)
The Partnership
Lepercq Corporate Income Fund L.P. (together with its consolidated subsidiaries, except when the context only applies
to the parent entity, the “Partnership”) was organized in 1986 as a limited partnership under the Delaware Revised Uniform
Limited Partnership Act. The Partnership's sole general partner, Lex GP-1 Trust (the “General Partner”), is a wholly-
owned subsidiary of Lexington Realty Trust (“Lexington”). The Partnership is an operating partnership subsidiary of
Lexington. As of December 31, 2016, Lexington, through Lex LP-1 Trust, a wholly-owned subsidiary, and the General
Partner owned approximately 96.0% of the outstanding units of the Partnership. As of December 31, 2016, the Partnership
had equity ownership interests in 33 consolidated real estate properties located in 22 states. The properties in which the
Partnership has an interest are primarily net-leased to tenants in various industries.
On December 30, 2013, another operating partnership subsidiary of Lexington, Lepercq Corporate Income Fund II L.P.
(“LCIF II”) was merged with and into the Partnership, with the Partnership as the surviving entity. In connection with
the merger of LCIF II with and into the Partnership, former LCIF II partners representing 170,193 limited partner interests
(“OP Units”) elected or were deemed to elect to receive an aggregate amount of $1,962 in cash for the repurchase of such
OP units.
A majority of the real properties in which the Partnership had an interest are generally subject to net leases or similar
leases where the tenant pays all or substantially all of the cost, including cost increases, for real estate taxes, insurance,
utilities and ordinary maintenance of the property. However, certain leases provide that the landlord is responsible for
certain operating expenses. Property owner subsidiaries are landlords under leases for properties in which the Partnership
has an interest and/or borrows under loan agreements secured by properties in which the Partnership has an interest and
lender subsidiaries are lenders under loan agreements where the Partnership 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 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 Partnership'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 Partnership and its consolidated subsidiaries. The Partnership consolidates its wholly-owned
subsidiaries, partnerships and joint ventures which it controls (i) through voting rights or similar rights or (ii) by means
other than voting rights if the Partnership is the primary beneficiary of a variable interest entity (“VIE”). Entities which
the Partnership does not control and entities which are VIEs in which the Partnership is not the primary beneficiary are
accounted for under appropriate GAAP.
Earnings Per Unit. Net income (loss) per unit is computed by dividing net income (loss) by the weighted-average number
of units outstanding during the period. There are no potential dilutive securities.
Unit Redemptions. The Partnership's limited partner units that are issued and outstanding, other than those held by
Lexington, are currently redeemable at certain times, only at the option of the holders, for Lexington shares of beneficial
interests, par value $0.0001 per share classified as common stock (“common shares”), on a one to approximately 1.13
basis, subject to future adjustments. These units are not otherwise mandatorily redeemable by the Partnership. As of
December 31, 2016, Lexington's common shares had a closing price of $10.80 per share. The estimated fair value of these
units was $40,734, assuming all outstanding limited partner units not held by Lexington were redeemed on such date.
Allocation of Overhead Expenses. The Partnership does not pay a fee to the General Partner for the day-to-day management
of the Partnership. Certain expenses incurred by the General Partner and its affiliates, including Lexington, such as
corporate-level interest, amortization of deferred loan costs, payroll and general and administrative expenses are allocated
to the Partnership and reimbursed to the General Partner in accordance with the Partnership's partnership agreement. The
allocation is based upon gross rental revenues.
112
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Distributions; Allocations of Income and Loss. As provided in the Partnership's partnership agreement, distributions and
income and loss for financial reporting purposes are allocated to the partners based on their ownership of units. Special
allocation rules included in the partnership agreement affect the allocation of taxable income and loss. The Partnership
paid or accrued gross distributions of $66,815 ($0.80 per weighted average unit), $60,846 ($0.84 per weighted-average
unit) and $56,178 ($0.82 per weighted-average unit) to its partners during the years ended December 31, 2016, 2015 and
2014, respectively. Certain units owned indirectly by Lexington are entitled to distributions of $3.25 per unit.
Use of Estimates. The Partnership 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. The Partnership evaluates its estimates and assumptions on an
ongoing basis using historical experience and other factors, including the economic environment. The economic
environment has increased the degree of uncertainty inherent in these estimates and assumptions. The Partnership adjusts
such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of
accounts receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed,
the determination of VIEs and which entities should be consolidated, the determination of impairment of long-lived assets,
loans receivable and equity method investments and the useful lives of long-lived assets. Actual results could differ
materially from those estimates.
Fair Value Measurements. The Partnership follows the guidance in the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("Topic 820"), to
determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework
for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair
value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1
- quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level
2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level
3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the
highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Partnership
utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to
the extent possible, as well as considering counter-party credit risk.
Revenue Recognition. The Partnership 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 Partnership funds tenant
improvements and the improvements are deemed to be owned by the Partnership, 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 Partnership determines that the tenant allowances are lease incentives, the Partnership 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 Partnership 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 Partnership
obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining
obligation period with the termination payments being recorded as a component of rent receivable-deferred on the
Consolidated Balance Sheets.
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 Partnership sells a property and retains a partial ownership interest in the property,
the Partnership recognizes gain to the extent of the third-party ownership interest.
113
LEPERCQ CORPORATE INCOME FUND L.P. 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. The Partnership 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 the Partnership's
estimate of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized
into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases. Above-market
leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-
cancelable portion of the respective leases.
The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationship values, is
measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as
if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant
relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of
in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of
the respective leases. The value of tenant relationships are amortized to expense over the applicable lease term plus
expected renewal periods.
Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the
properties. The Partnership generally depreciates its real estate assets over periods ranging up to 40 years.
Impairment of Real Estate. The Partnership evaluates the carrying value of all tangible and intangible real estate assets
held for investment for possible impairment when an event or change in circumstance has occurred that indicates its
carrying value may not be recoverable. The evaluation includes estimating and reviewing anticipated future undiscounted
cash flows to be derived from the asset. If such cash flows are less than the asset's carrying value, an impairment charge
is recognized to the extent by which the asset's carrying value exceeds the estimated fair value, which may be below the
balance of any non-recourse financing. Estimating future cash flows and fair values is highly subjective and such estimates
could differ materially from actual results.
Investments in Non-Consolidated Entities. The Partnership accounts for its investments in 50% or less owned entities
under the equity method, unless consolidation is required. If the Partnership's investment in the entity is insignificant and
the Partnership 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 Partnership assesses whether there are indicators that the value of its
equity method investments may be impaired. An impairment charge is recognized only if the Partnership 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 Partnership's intent
and ability to recover its investment given the nature and operations of the underlying investment, 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.
114
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
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.
Commencing January 1, 2015, the operating results of these properties are reflected as discontinued operations in the
Consolidated Statements of Operations only if the sale of these assets represents a strategic shift in operations, if not, the
operating results are included in continuing operations. Properties classified as held for sale are carried at the lower of
net carrying value or estimated fair value less costs to sell and depreciation and amortization are no longer recognized.
Properties that do not meet the held for sale criteria are accounted for as operating properties.
Acquisition, Development and Construction Arrangements. The Partnership evaluates loans receivable where the
Partnership participates in residual profits through loan provisions or other contracts to ascertain whether the Partnership
has the same risks and rewards as an owner or a joint venture partner. Where the Partnership concludes that such
arrangements are more appropriately treated as an investment in real estate, the Partnership reflects such loan receivable
as an equity investment in real estate under construction in the Consolidated Balance Sheets. In these cases, no interest
income is recorded on the loan receivable and the Partnership records capitalized interest during the construction period.
In arrangements where the Partnership engages a developer to construct a property or provide funds to a tenant to develop
a property, the Partnership will capitalize the funds provided to the developer/tenant and internal costs of interest and real
estate taxes, if applicable, during the construction period.
Deferred Expenses. Deferred expenses consist primarily of leasing costs, which are amortized over the term of the related
lease.
Income Taxes. Because the Partnership is a limited partnership, taxable income or loss of the Partnership is reported in
the income tax returns of its partners. Accordingly, no provision for income taxes is made in the Consolidated Financial
Statements of the Partnership. However, the Partnership is required to pay certain state and local entity level taxes which
are expensed as incurred. The Partnership does not have any unrecognized tax benefits or any additional tax liabilities as
of December 31, 2016 and 2015.
Cash and Cash Equivalents. The Partnership 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.
Co-borrower Debt. In February 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-04, Obligations
Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the
Reporting Date (“ASU 2013-04”), requiring recognition of such obligations as the sum of (a) the amount the reporting
entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting
entity expects to pay on behalf of its co-obligors.
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 Partnership 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 Partnership'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, 2016, the Partnership 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 Partnership 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's presentation.
115
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Partnership adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs on January 1, 2016. ASU
2015-03 amended presentation guidance by requiring that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. Prior to the issuance of ASU 2015-03, debt issuance costs were presented as an asset in the balance sheet. As
shown in the table below, pursuant to the guidance in ASU 2015-03, the Partnership has reclassified unamortized debt
issuance costs associated with certain debt obligations in the Partnership's previously reported Consolidated Balance
Sheet as of December 31, 2015 as follows:
Deferred expenses, net
$
Mortgages and notes payable, net
14,352
$
437,492
(5,893) $
(5,893)
8,459
431,599
As previously reported
December 31, 2015
Reclassifications
As adjusted
December 31, 2015
Recently Issued Accounting Guidance. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers (Topic 606), which amends the guidance for revenue recognition to eliminate the industry-specific revenue
recognition guidance and replace it with a principle based approach for determining revenue recognition. The effective
date of the new guidance was updated by ASU 2015-14 and is effective for reporting periods beginning after December
15, 2017. The Partnership will adopt ASU 2014-09 effective January 1, 2018 and anticipates using the modified
retrospective with cumulative-effective transition method. The Partnership is identifying applicable revenue streams and
continues to evaluate the impact of the adoption of the new guidance on its consolidated financial statements.
In February 2015, the FASB issued ASU 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 was effective in the first quarter of fiscal
2016. The adoption of this guidance did not have an impact on the Partnership.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right of use
asset and related lease liability for those leases classified as operating leases at the commencement date and have lease
terms of more than 12 months. The accounting applied to lessors under this new guidance is largely unchanged from prior
guidance. Lessors in most cases will continue to record operating leases as operating leases and recognize lease income
from these leases generally on a straight-line basis over the lease term. The ASU is expected to result in the recognition
of a right-to-use asset and related liability to account for our future obligations under our ground lease arrangements for
which the Partnership is the lessee. As of December 31, 2016, the remaining contractual payments under the Partnership's
ground lease agreements aggregated $3,810. Additionally, the new ASU will require that the Partnership capitalize, as
initial direct costs, only those costs that are incurred due to the execution of a lease. ASU 2016-02 is effective for fiscal
years beginning after December 15, 2018, and interim periods within those years, and requires a modified retrospective
transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements. Early adoption is permitted. The Partnership continues to evaluate the impact of the adoption
of the new guidance on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments, which addresses how certain cash receipts and cash payments are presented and classified
in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2018, including interim
periods within those years; however early adoption is permitted. The Partnership does not believe this guidance will have
a material impact on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies
guidance on the classification and presentation of changes in restricted cash. The ASU is effective for reporting periods
beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods
presented. Upon adoption, restricted cash balances will be included along with cash and cash equivalents as of the end
of the period and beginning of period, respectively, in the Partnership's consolidated statement of cash flows for all periods
presented. Upon adoption, separate line items showing changes in restricted cash balances will be eliminated from the
Partnership's consolidated statement of cash flows.
116
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business, which clarifies the definition of a business when evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The ASU is effective for reporting periods beginning after December
15, 2017, with early adoption permitted. The Partnership expects that acquisitions of real estate or in-substance real estate
will not meet the revised definition of a business and thus will be treated as asset acquisitions.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial
Assets (Topic 610-20), which requires that all entities account for the derecognition of a business in accordance with ASC
810, including instances in which the business is considered in-substance real estate. The ASU is effective for annual
periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted. The Partnership
is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.
(3)
Investments in Real Estate and Real Estate Under Construction
The Partnership's real estate, net, consists of the following at December 31, 2016 and 2015:
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
Investment in real estate under construction
Accumulated depreciation and amortization(1)
Real estate, net
2016
2015
644,173
86,120
84
825
82,190
19,943
2,628
40,443
876,406
(236,930)
639,476
$
$
705,547
355,608
84
367
165,413
20,256
4,031
9,223
1,260,529
(255,024)
1,005,505
$
$
(1) Includes accumulated amortization of real estate intangible assets of $54,425 and $55,334 in 2016 and 2015, respectively. The
estimated amortization of the above real estate intangible assets for the next five years is $4,767 in 2017, $4,215 in 2018, $3,466
in 2019, $3,353 in 2020 and $3,339 in 2021.
In addition, the Partnership had below-market leases, net of accumulated accretion, which are included in deferred revenue,
of $64 and $96, respectively as of December 31, 2016 and 2015. The estimated accretion for the next five years is $32
in 2017, $32 in 2018, $0 in 2019, $0 in 2020 and $0 in 2021.
The Partnership, through property owner subsidiaries, completed the following acquisition during 2016:
Property Type
Location
Acquisition
Initial Cost
Basis
Lease
Expiration
Land
Building and
Improvements
Lease in-place
Value
Industrial
Romeoville, IL
Dec-16
$
52,700
10/2031
$
7,524
$
40,167
$
5,009
Life of intangible asset (years)
14.9
The Partnership, through property owner subsidiaries, completed the following build-to-suit transaction during 2015:
Property Type
Location
Acquisition
Initial Cost
Basis
Lease
Expiration
Land and Land
Estates
Building and
Improvements
Lease in-place
Value
Industrial
Richland, WA
Nov-15
$
152,000
08/2035
1,293
126,947
23,760
Life of intangible asset (years)
19.8
117
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In addition, during 2015, the Partnership acquired the office property collateral from the borrowers in Westmont, Illinois
and Southfield, Michigan on two loans receivable that were impaired. The Partnership sold the Westmont, Illinois property
in 2016.
The Partnership recognized aggregate acquisition and pursuit expenses of $359 and $85 in 2016 and 2015, respectively.
As of December 31, 2016, the Partnership had the following development arrangement outstanding:
Location
Property Type
Square Feet
Expected
Maximum
Commitment
Lease Term
(Years)
Estimated
Completion Date
GAAP Investment
Balance as of
12/31/16
Charlotte, NC
Office
201
$
62,445
15
2Q 17
$
40,443
(4)
Sales of Real Estate, Discontinued Operations and Impairment
For the years ended December 31, 2016 and 2014, the Partnership disposed of its interests in certain properties generating
aggregate net proceeds of $238,891, and $40,836, respectively, which resulted in gains on sales of $36,380 and $17,944,
respectively. During 2016 and 2015, the Partnership recognized aggregate impairment charges of $72,072 and $787,
respectively, relating to properties that were ultimately sold. The aggregate 2016 impairment charges related primarily
to the sale of three land investments in New York, New York for $65,500. For the years ended December 31, 2016, the
Partnership recognized debt satisfaction charges, net, relating to sold properties of $7,388. No properties were disposed
of during the year ended December 31, 2015. At December 31, 2016 and 2015, the Partnership had no properties classified
as held for sale.
In addition, the Partnership had a capitalized financing lease for a property located in Greenville, South Carolina, which
was sold in 2014 for net proceeds of $11,491.
The Partnership 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.
In 2014, the Partnership recognized a $2,500 loan loss on the loan receivable collateralized by the Southfield, Michigan
property. During 2015 and 2014, the Partnership recognized aggregate interest income relating to impaired loans of $14
and $1,752, respectively.
(5)
Investments in and Advances to Non-Consolidated Entities
In July 2014, the Partnership acquired a 1.0% interest in an office property in Philadelphia, Pennsylvania for $263. The
Partnership accounts for this investment under the cost basis of accounting.
On September 1, 2012, the Partnership acquired a 2% equity interest in Net Lease Strategic Assets Fund L.P. (“NLS”)
for cash of $189 and the issuance of 457,211 limited partner units to Lexington.
The Partnership's carrying value in NLS at December 31, 2016 and 2015 was $5,224 and $5,622, respectively. The
Partnership recognized net income from NLS of $302, $141 and $114 in equity in earnings from non-consolidated entities
during 2016, 2015 and 2014, respectively. The Partnership contributed $81 and $1,643 to NLS in 2016 and 2015. In
addition, the Partnership received distributions of $781, $636 and $738 from NLS in 2016, 2015 and 2014, respectively.
118
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(6)
Fair Value Measurements
The following tables present the Partnership's assets and liabilities measured at fair value on a non-recurring basis during
the year ended December 31, 2015, aggregated by the level in the fair value hierarchy within which those measurements
fall:
Impaired real estate asset*
$
371
$
— $
— $
371
Description
2015
(Level 1)
(Level 2)
(Level 3)
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 Partnership's financial instruments as of
December 31, 2016 and 2015:
Liabilities
Debt
As of December 31, 2016
Carrying
Amount
Fair Value
As of December 31, 2015
Carrying
Amount
Fair Value
$
315,616
$
314,509
$
632,705
$
650,785
The fair value of the Partnership's debt is primarily estimated utilizing Level 3 inputs by using an estimated discounted
cash flow analysis, based upon estimates of market interest rates.
The Partnership estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using
income and market valuation techniques. The Partnership may estimate fair values using market information such as
broker opinions of value, recent sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The
cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may
include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements
and lease commissions based upon market conditions determined through discussion with local real estate professionals,
experience the Partnership has with its other owned properties in such markets and expectations for growth. Capitalization
rates and discount rates utilized in these models are estimated by management based upon rates that management believes
to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors
such as property and tenant quality, geographical location and local supply and demand observations. To the extent the
Partnership under-estimates forecasted cash outflows (tenant improvements, lease commissions and operating costs) or
over-estimates forecasted cash inflows (rental revenue rates), the estimated fair value of its real estate assets could be
overstated.
Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active
markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement
technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of
future cash flows, could significantly affect the fair value measurement amounts.
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable. The Partnership estimates that the fair
value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to
the relatively short maturity of the instruments.
(7)
Mortgages and Notes Payable and Co-Borrower Debt
The Partnership had the following mortgages and notes payable outstanding as of December 31, 2016 and 2015:
Mortgages and notes payable
Unamortized debt issuance costs
December 31, 2016
December 31, 2015
$
$
169,958
(746)
169,212
$
$
437,492
(5,893)
431,599
119
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Interest rates, including imputed rates, ranged from 4.0% to 6.5% at December 31, 2016 and the mortgages and notes
payable mature between 2019 and 2026. Interest rates, including imputed rates, ranged from 4.0% to 6.5% at December 31,
2015. The weighted-average interest rate at December 31, 2016 and 2015 was approximately 4.7%.
In 2015, the Partnership obtained $110,000 of non-recourse secured financing on an industrial facility in Richland,
Washington. The debt bears interest at a fixed rate of 4.0% and matures in January 2026.
Lexington, and the Partnership as co-borrower, have a $905,000 unsecured credit agreement with KeyBank National
Association as agent. With lender approval, Lexington can increase the size of the facility to an aggregate $1,810,000. A
summary of the significant terms are as follows:
$400,000 Revolving Credit Facility(1)
$250,000 Term Loan(2)
$255,000 Term Loan(3)
Maturity Date
08/2019
08/2020
01/2021
Current
Interest Rate
LIBOR + 1.00%
LIBOR + 1.10%
LIBOR + 1.10%
(1) Maturity date can be extended to August 2020 at Lexington's option. The interest rate ranges from LIBOR plus 0.85% to 1.55%. At December 31,
2016, the unsecured revolving credit facility had no amounts outstanding, $4,600 of letters of credit and availability of $395,400 subject to covenant
compliance.
(2) The interest rate ranges from LIBOR plus 0.90% to 1.75%. Interest-rate swap agreements were previously entered into to fix the LIBOR component
at a weighted-average rate of 1.09% through February 2018 on the $250,000 of outstanding LIBOR-based borrowings.
(3) The interest rate ranges from LIBOR plus 0.90% to 1.75%. Interest-rate swap agreements were previously entered into to fix the LIBOR component
at a weighted-average rate of 1.42% through January 2019 on the $255,000 of outstanding LIBOR-based borrowings.
The unsecured revolving credit facility and the unsecured term loans are subject to financial covenants, which Lexington
was in compliance with at December 31, 2016.
In accordance with the guidance of ASU 2013-04, the Partnership recognizes a proportion of the outstanding amounts of
the above mentioned term loans and revolving credit facility as it is a co-borrower with Lexington, as co-borrower debt
in the accompanying balances sheets. In accordance with the Partnership’s partnership agreement, the Partnership is
allocated a portion of these debts based on gross rental revenues, which represents its agreed to obligation. The Partnership's
allocated co-borrower debt was $146,404 and $201,106 as of December 31, 2016 and 2015, respectively. Changes in co-
borrower debt are recognized in partners’ capital in the accompanying consolidated statements of changes in partners’
capital.
Mortgages payable and secured loans are generally collateralized by real estate and the related leases. Certain mortgages
payable have yield maintenance or defeasance requirements relating to any prepayments. In addition, certain mortgages
are cross-collateralized and cross-defaulted.
Scheduled principal and balloon payments for mortgages and notes payable and co-borrower debt for the next five years
and thereafter are as follows:
Year ending
December 31,
2017
2018
2019
2020
2021
Thereafter
Unamortized debt issuance costs
120
Total
1,054
1,124
32,548
91,067
82,506
108,063
316,362
(746)
315,616
$
$
$
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Included in the Consolidated Statements of Operations, the Partnership recognized debt satisfaction charges, net of $33
and $357 for the years ended December 31, 2015, and 2014, respectively, due to the satisfaction of mortgages and notes
payable. In addition, the Partnership capitalized $954, $152 and $60 in interest for the years ended 2016, 2015, and 2014,
respectively.
(8)
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,
2017
2018
2019
2020
2021
Thereafter
Total
65,008
59,103
50,008
44,802
41,117
405,828
665,866
$
$
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 Partnership 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 Partnership as
additional rent. For certain of these properties, the Partnership has an option to purchase the fee interest.
Minimum future rental payments under non-cancelable leasehold interests, excluding leases held through industrial
revenue bonds and lease payments in the future that are based upon fair market value, for the next five years and thereafter
are as follows:
Year ending
December 31,
2017
2018
2019
2020
2021
Thereafter
Total
260
260
260
260
260
2,510
3,810
$
$
Rent expense for the leasehold interests, including discontinued operations, was $286, $307 and $289 in 2016, 2015, and
2014, respectively.
121
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(9)
Concentration of Risk
The Partnership seeks to reduce its operating and leasing risks through the geographic diversification of its properties,
tenant industry diversification, avoidance of dependency on a single asset and the creditworthiness of its tenants. For the
years ended December 31, 2016, 2015, and 2014, the following tenants represented greater than 10% of rental revenues:
SM Ascott LLC(1)
Tribeca Ascott LLC(1)
AL-Stone Ground Tenant LLC(1)
Preferred Freezer Services of Richland, LLC
2016
2015
2014
11.2%
—%
—%
11.4%
14.7%
12.6%
11.5%
—%
15.9%
13.6%
12.4%
—%
(1)
The Partnership net leased individual land parcels to the tenants listed above under non-cancellable 99-year (original term) leases. The
improvements on these parcels are owned by the tenants and consist of three high-rise hotels located in New York, NY. The Partnership sold
these assets in September 2016.
Cash and cash equivalent balances at certain institutions may exceed insurable amounts. The Partnership believes it
mitigates this risk by investing in or through major financial institutions.
(10)
Related Party Transactions
The Partnership had the following related party transactions in addition to related party transactions discussed elsewhere
in this report.
The Partnership had outstanding net advances owed from/(to) Lexington of $5,967 and $(3,232) as of December 31, 2016
and 2015, respectively. The advances are receivable/payable on demand. Lexington earned distributions of $64,319,
$58,361 and $53,728 during 2016, 2015 and 2014, respectively. During 2015 and 2014, the Partnership issued 12,559,130
and 2,571,757 units, respectively, to Lexington to satisfy $112,286 and $27,981, respectively, of outstanding distributions
and advances.
The Partnership was allocated interest and amortization expense by Lexington, in accordance with the Partnership
agreement, relating to certain of its lending facilities of $11,392, $12,253 and $10,282 for the years ended December 31,
2016, 2015 and 2014, respectively.
Lexington, on behalf of the General Partner, pays for certain general administrative and other costs on behalf of the
Partnership from time to time. These costs are reimbursable by the Partnership. These costs were approximately $9,767,
$8,618 and $7,335 for 2016, 2015 and 2014, respectively.
A Lexington affiliate provides property management services for certain Partnership properties. The Partnership
recognized property operating expenses, including from discontinued operations, of $764, $905 and $1,004 for the years
ended December 31, 2016, 2015 and 2014, respectively, for aggregate fees and reimbursements charged by the affiliate.
The Partnership leases a property to an entity in which Vornado Realty Trust, a significant Lexington shareholder, has an
interest. During 2016, 2015 and 2014, the Partnership recognized $236, $255 and $255, respectively, in rental revenue
from this property.
In connection with efforts, on a non-binding basis, to procure non-recourse mezzanine financing from an affiliate of
Lexington's Chairman, pursuant to the terms of the EB-5 visa program administered by the United States Citizenship and
Immigration Services, for an investment in Charlotte, North Carolina, the Partnership agreed to reimburse the Chairman's
affiliate up to approximately $7 for its expenses.
122
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(11)
Commitments and Contingencies
In addition to the commitments and contingencies disclosed elsewhere, the Partnership has the following commitments
and contingencies.
The Partnership is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated
entities, to fund the expansion of the underlying leased properties. The Partnership, under certain circumstances, may
guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances
and lease commissions on behalf of its subsidiaries.
The Partnership and Lexington are parties to a funding agreement under which Lexington may be required to fund
distributions made on account of OP units. Pursuant to the funding agreement, the parties agreed that, if the Partnership
does not have sufficient cash available to make a quarterly distribution to its limited partners in an amount in accordance
with the partnership agreement, Lexington will fund the shortfall. Payments under the agreement will be made in the
form of loans to the Partnership and will bear interest at prevailing rates as determined by Lexington in its discretion, but
no less than the applicable federal rate. The Partnership's right to receive these loans will expire if no OP units remain
outstanding and all such loans repaid. No amounts have been advanced under this agreement.
From time to time, the Partnership is directly or indirectly involved in legal proceedings arising in the ordinary course
of the Partnership's business. The Partnership believes, based on currently available information, and after consultation
with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such
proceedings, in the aggregate, will not have a material adverse effect on the Partnership's business, financial condition
and results of operations.
In May 2014, the Partnership guaranteed $250,000 aggregate principal amount of 4.40% Senior Notes due 2024 (“2024
Senior Notes”) issued by Lexington at an issuance price of 99.883% of the principal amount and in June 2013, the
Partnership guaranteed $250,000 aggregate principal amount of 4.25% Senior Notes due 2023 (“2023 Senior Notes”)
issued by Lexington at an issuance price of 99.026% of the principal amount, collectively the Senior Notes. The Senior
Notes are unsecured, pay interest semi-annually in arrears and mature in June 2024 and 2023, respectively. Lexington
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 Partnership guaranteed $115,000 aggregate principal amount of 6.00% Convertible Guaranteed Notes
due 2030 issued by Lexington. The notes paid interest semi-annually in arrears and were scheduled to mature in January
2030. As of December 31, 2016, the Partnership was relieved of its guarantee of the notes as all outstanding amounts
under the notes were satisfied.
(12)
Supplemental Disclosure of Statement of Cash Flow Information
In addition to disclosures discussed elsewhere, during 2016, 2015 and 2014, the Partnership paid $27,262, $28,191 and
$27,199, respectively, for interest and $34, $60 and $161, respectively, for income taxes.
During 2016, the Partnership sold its interests in certain properties, which included the assumption by the buyers of the
related non-recourse mortgage debt in the aggregate amount of $242,269.
123
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(13) Unaudited Quarterly Financial Data
This unaudited quarterly financial data for each of the quarters ended March 31, 2016, June 30, 2016 and September 30,
2016 is being amended from the amounts previously reflected in the respective Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission to correct an error in the treatment of a lease termination payment received in
the quarter ended June 30, 2016 in the amount of $7,685. The lease termination payment was originally amortized over
the life of the new tenant lease that necessitated the lease termination, but is now fully recognized in total gross revenues
in the quarter ended June 30, 2016. The following summarizes the impact.
For the quarter ended March 31, 2016
Total gross revenues
Net income (loss)
Net income (loss) per unit
For the quarter ended June 30, 2016
Total gross revenues
Net income (loss)
Net income (loss) per unit
For the quarter ended September 30, 2016
Total gross revenues
Net income (loss)
Net income (loss) per unit
Total gross revenues
Net income (loss)
Net income (loss) per unit
Total gross revenues
Net income
Net income per unit
As Originally Reported
34,439
$
$
$
18,342
0.22
As Originally Reported
$
$
$
33,437
15,907
0.19
$
$
$
$
$
$
Correction
As Adjusted
(339) $
(315) $
— $
34,100
18,027
0.22
Correction
As Adjusted
7,335
6,847
0.08
$
$
$
40,772
22,754
0.27
As Originally Reported
Correction
As Adjusted
$
$
$
30,908
$
(60,901) $
(0.73) $
(350) $
(678) $
(0.01) $
30,558
(61,579)
(0.74)
3/31/2015
6/30/2015
9/30/2015
$
$
$
31,959
11,356
0.16
$
$
$
32,301
11,163
0.16
$
$
$
30,762
9,827
0.13
12/31/2016
18,739
16,877
0.20
12/31/2015
32,979
9,969
0.13
$
$
$
$
$
$
The sum of the quarterly per units amounts may not equal the full year amounts primarily because the computations of
the weighted-average number of units of the Partnership outstanding for each quarter and the full year are made
independently.
124
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
Description
Location
Encumbrances
Land and Land
Estates
Buildings and
Improvements
Total
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Little Rock, AR
Pine Bluff, AR
Glendale, AZ
Phoenix, AZ
Tempe, AZ
Tempe, AZ
Tucson, AZ
Palo Alto, CA
Centenial, CO
Englewood, CO
Louisville, CO
Parachute, CO
Wallingford, CT
Boca Raton, FL
Lake Mary, FL
Lake Mary, FL
Orlando, FL
Tampa, FL
McDonough, GA
McDonough, GA
Meridian, ID
Lisle, IL
Schaumburg, IL
Columbus, IN
Fishers, IN
Indianapolis, IN
Lenexa, KS
Lenexa, KS
Overland Park, KS
Baton Rouge, LA
Oakland, ME
Auburn Hills, MI
Livonia, MI
Kansas City, MO
St Joseph, MO
Pascagoula, MS
Omaha, NE
Omaha, NE
Rockaway, NJ
Wall, NJ
Whippany, NJ
Las Vegas, NV
Columbus, OH
Columbus, OH
Westerville, OH
Eugene, OR
Redmond, OR
Jessup, PA
Philadelphia, PA
$
— $
1,353 $
2,260 $
3,613 $
—
—
—
—
—
—
43,285
—
—
—
—
—
19,365
—
—
9,309
—
—
—
8,883
9,275
—
16,649
—
—
34,981
9,056
33,503
—
8,627
—
—
15,968
—
—
—
—
—
14,816
13,219
—
—
—
—
—
—
—
—
394
17,812
42,508
13,086
9,442
4,718
29,375
20,090
30,058
15,161
12,151
5,822
21,450
19,582
19,732
13,401
10,011
13,237
7,098
10,052
6,452
27,347
45,964
22,181
20,241
48,593
8,903
46,725
12,337
9,325
34,428
14,649
22,587
14,611
4,295
34,401
10,890
27,789
35,946
23,774
65,263
12,075
3,205
11,496
14,639
10,380
20,198
70,280
171
9,418
5,585
—
—
681
12,398
4,851
2,207
3,657
1,400
1,049
4,290
4,535
4,438
3,538
2,018
1,443
693
2,255
1,660
5,007
235
2,808
1,700
6,909
2,828
4,769
1,252
551
4,416
935
2,433
607
618
2,058
2,566
4,646
8,985
4,063
12,099
1,594
432
2,085
1,541
2,064
2,520
13,209
223
8,394
36,923
13,086
9,442
4,037
16,977
15,239
27,851
11,504
10,751
4,773
17,160
15,047
15,294
9,863
7,993
11,794
6,405
7,797
4,792
22,340
45,729
19,373
18,541
41,684
6,075
41,956
11,085
8,774
30,012
13,714
20,154
14,004
3,677
32,343
8,324
23,143
26,961
19,711
53,164
10,481
2,773
9,411
13,098
8,316
17,678
57,071
125
600
14
2,877
4,417
2,016
3,171
754
20,664
6,491
3,896
3,692
884
1,831
5,953
Dec-06
Sep-12
Sep-12
Dec-12
Sep-12
Dec-05
Sep-12
Dec-06
May-07
Apr-13
Sep-08
Jan-14
Dec-03
Feb-03
5,681
Jun-07
5,704
Jun-07
6,049
1,903
1,812
1,115
1,741
66
4,736
24,047
6,323
13,373
12,565
1,250
14,376
4,437
1,561
2,665
2,802
6,884
1,914
728
2,892
2,817
6,391
Jan-07
Sep-12
Sep-12
Sep-12
Sep-12
Dec-06
Oct-13
Dec-06
Jun-07
Apr-05
Jul-08
Sep-12
Jun-07
May-07
Sep-12
Mar-15
Sep-12
Jun-07
Sep-12
Sep-12
Dec-13
Nov-05
Dec-06
13,621
Jan-04
8,207
Nov-06
13,589
1,572
381
Dec-06
Dec-10
Jul-11
3,087
May-07
1,832
1,554
3,091
Dec-12
Sep-12
Aug-12
36,291
Jun-05
Useful life
computing
depreciation in
latest income
statement
(years)
40
3 & 9
7, 10, 20 & 24
10, 15, 17 & 40
5, 7, 10, 11, 15
& 36
30 & 40
7, 10 & 30
40
10 & 40
—
—
—
—
—
—
—
—
—
2013
15, 19 & 40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2012
—
—
—
—
—
—
—
—
—
—
2012
—
2012
—
8, 9, 10, 11,
12 & 40
19, 24 & 40
8 & 40
40
3, 4, 7, 10, 12,
15, 18 & 40
3, 4, 7, 10, 15,
20 & 40
5, 6, 12, 15, 25
& 40
8, 25 & 27
3, 9,10, 11 & 38
6, 11 & 40
7 & 37
1, 3, 18 & 30
7, 9, 20 & 30
40
3 - 40
5, 6 - 40
5, 12, 13,14, 15
& 40
7, 12 & 37
12 & 40
3, 4, 6 & 40
8, 12 & 40
6, 14 & 25
2 - 34
12 & 40
15 & 40
1, 9 & 31
20 & 40
30 & 40
12, 20 & 40
22 & 40
20 & 40
40
40
40
5 & 40
7, 12, 15, 25 &
40
6, 13 & 40
13, 15 & 40
4 - 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)
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
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Florence, SC
Fort Mill, SC
Fort Mill, SC
Rock Hill, SC
Kingsport, TN
Knoxville, TN
Knoxville, TN
Memphis, TN
Allen, TX
Arlington, TX
Carrollton, TX
Carrollton, TX
Houston, TX
Houston, TX
Houston, TX
Houston, TX
Irving, TX
Irving, TX
Lake Jackson, TX
Mission, TX
San Antonio, TX
Westlake, TX
Hampton, VA
Herndon, VA
Herndon, VA
Midlothian, VA
Richmond, VA
Huntington, WV
Anniston, AL
Moody, AL
Orlando, FL
Tampa, FL
Lavonia, GA
McDonough, GA
Thomson, GA
Des Moines, IA
Edwardsville, IL
Rantoul, IL
Rockford, IL
Rockford, IL
Romeoville, IL
Plymouth, IN
Dry Ridge, KY
Elizabethtown, KY
Elizabethtown, KY
Hopkinsville, KY
Owensboro, KY
Owensboro, KY
Shreveport, LA
Shreveport, LA
North Berwick, ME
Detroit, MI
Kalamazoo, MI
Marshall, MI
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
196,512
—
—
—
—
—
—
—
57,500
—
—
—
—
—
7,326
21,922
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
19,000
3,426
—
—
—
774
1,798
3,601
551
513
621
1,079
5,291
5,591
1,274
2,599
828
1,875
1,875
800
16,613
7,476
4,889
4,357
2,556
2,800
2,361
2,333
5,127
9,409
1,100
7,329
1,368
1,201
654
1,030
2,160
171
2,463
909
1,528
4,593
1,304
371
509
7,524
254
560
890
352
631
393
819
1,078
860
1,383
1,133
1,942
143
3,629
26,038
15,340
4,313
403
6,487
11,351
97,032
25,421
15,309
22,050
—
17,323
10,959
26,962
63,770
45,985
30,192
74,127
2,911
15,619
23,572
11,354
24,640
14,477
12,707
89,318
9,527
16,771
9,943
10,869
8,488
7,657
24,791
7,746
14,247
34,251
32,562
2,573
5,289
40,166
8,025
12,553
26,868
4,862
16,154
11,956
2,439
10,134
21,840
35,659
25,009
14,169
4,302
126
4,403
27,836
18,941
4,864
916
7,108
12,430
102,323
31,012
16,583
24,649
828
19,198
12,834
27,762
80,383
53,461
35,081
78,484
5,467
18,419
25,933
13,687
29,767
23,886
13,807
96,647
10,895
17,972
10,597
11,899
10,648
7,828
27,254
8,655
15,775
38,844
33,866
2,944
5,798
47,690
8,279
13,113
27,758
5,214
16,785
12,349
3,258
11,212
22,700
37,042
26,142
16,111
4,445
517
16,732
5,393
611
201
1,182
6,876
25,269
8,950
2,471
8,583
—
7,864
7,500
21,017
18,178
19,505
11,566
260
769
11,829
10,521
4,779
9,913
5,565
7,835
4,553
1,594
1,579
6,728
3,065
6,185
938
6,556
622
2,539
—
2,684
727
1,450
138
1,247
5,016
10,738
1,943
6,844
5,481
937
1,678
5,346
8,696
1,301
2,467
2,044
Feb-12
Nov-04
Dec-02
May-11
Sep-12
Sep-12
Mar-05
Dec-06
May-11
Sep-12
Jun-07
Jun-07
Apr-05
Apr-05
Apr-05
Mar-04
May-07
Jun-07
Nov-16
Sep-12
Apr-05
May-07
Mar-00
Dec-99
Jun-07
Apr-05
Dec-15
Jan-12
Dec-14
Feb-04
Dec-06
Jul-88
Sep-12
Dec-06
May-15
Sep-12
Dec-16
Jan-14
Dec-06
Dec-06
Dec-16
Sep-12
Jun-05
Jun-05
Jun-05
Jun-05
Jun-05
Dec-06
Jun-12
Mar-07
Dec-06
Jan-16
Sep-12
Sep-12
2012
12 & 40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2016
—
—
—
—
—
—
—
2015
2012
—
—
—
—
—
—
2015
—
—
11, 15 & 40
5, 11, 20 & 40
40
5, 6 & 14
1, 5, 7, 20 & 40
9, 10, 11, 14 &
40
13 & 40
6, 7, 11 & 25
1, 10, 12 & 40
8 & 40
N/A
5, 10, 13, 15,
20 & 40
4, 13, 20 & 40
1, 10, 11 & 40
10 & 40
6 - 40
10, 12 & 40
20 & 25
3, 8 & 35
6, 10, 11 & 40
4 - 40
2, 5, 10, 15 & 40
9 - 40
10, 25 & 40
6, 7, 15 & 40
10, 13, 14, 15 &
25
14 & 40
8, 15 & 24
15 & 40
40
9 - 40
8, 12 & 40
1, 9, 12 & 40
8, 15 & 25
5, 11 & 34
17 & 25
2014
20, 21 & 40
—
—
—
—
—
—
—
—
—
—
40
40
17 & 25
3, 6, 12, 20 & 34
22 & 40
25 & 40
25 & 40
25 & 40
25 & 40
40
2012
8,10 & 40
—
—
—
—
—
40
10, 25 & 40
10, 20 & 25
8, 9 & 40
4, 6 & 10
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
Description
Location
Encumbrances
Land and Land
Estates
Buildings and
Improvements
Total
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Marshall, MI
Plymouth, MI
Minneapolis, MN
Byhalia, MS
Canton, MS
Olive Branch, MS
Henderson, NC
High Point, NC
Lumberton, NC
Shelby, NC
Statesville, NC
Durham, NH
North Las Vegas,
NV
Erwin, NY
Long Island City,
NY
Chillicothe, OH
Cincinnati, OH
Columbus, OH
Glenwillow, OH
Hebron, OH
Hebron, OH
Streetsboro, OH
Wilsonville, OR
Bristol, PA
Anderson, SC
Chester, SC
Duncan, SC
Laurens, SC
Crossville, TN
Franklin, TN
Lewisburg, TN
Memphis, TN
Memphis, TN
Millington, TN
Arlington, TX
Brookshire, TX
Houston, TX
Houston, TX
Missouri City, TX
Waxahachie, TX
Winchester, VA
Bingen, WA
Richland, WA
Oak Creek, WI
Phoenix, AZ
Honolulu, HI
Foxborough, MA
Southfield, MI
Temperance, MI
Bridgeton, MO
Charleston, SC
Florence, SC
Rock Hill, SC
—
—
—
—
—
—
—
—
—
—
—
—
—
7,448
46,309
—
—
—
—
—
—
17,304
—
—
—
8,055
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
110,000
—
—
—
—
—
—
—
7,090
—
—
40
2,296
1,886
1,006
5,077
198
1,488
1,330
405
1,421
891
3,464
3,244
1,648
—
735
1,049
1,990
2,228
1,063
1,681
2,441
6,815
2,508
4,663
1,629
884
5,552
545
—
173
1,054
1,553
723
589
2,388
4,674
15,055
14,555
652
3,823
—
1,293
3,015
1,831
8,259
1,174
—
3,040
603
1,189
3,235
1,160
2,236
13,608
1,922
35,795
71,289
10,276
5,953
11,183
12,049
18,862
16,771
18,094
21,732
12,355
42,759
9,021
8,784
10,580
24,530
2,276
15,904
3,808
36,801
76,366
10,474
7,441
12,513
12,454
20,283
17,662
21,558
24,976
14,003
42,759
9,756
9,833
12,570
26,758
1,009
5,606
263
4,022
6,043
7,027
2,252
6,184
3,876
3,887
4,958
5,880
1,685
1,929
Aug-87
Jun-07
Sep-12
May-11
Mar-15
Dec-04
Nov-01
Jul-04
Dec-06
Jun-11
Dec-06
Jun-07
Jul-13
Sep-12
10,889
Mar-13
2,329
2,496
3,479
6,578
Oct-11
Dec-06
Dec-06
Dec-06
4,817
5,880
1,659
Dec-97
8,102
25,092
32,380
15,863
44,987
8,470
8,626
21,741
6,999
5,673
10,865
11,538
12,326
19,383
7,655
16,614
19,540
57,949
5,895
13,045
12,276
18,075
9,783
27,533
39,195
18,371
49,650
10,099
9,510
27,293
7,544
5,673
11,038
12,592
13,879
20,106
8,244
19,002
24,214
73,004
20,450
13,697
16,099
18,075
126,947
128,240
18,315
17,466
15,622
14,652
15,434
17,964
1,874
10,316
16,376
6,900
15,300
15,635
7,363
13,478
15,434
14,924
1,271
9,127
13,141
5,740
127
3,097
8,024
354
6,578
1,099
1,341
2,174
6,572
3,865
2,134
905
11,440
3,791
11,093
997
1,360
3,741
6,764
3,930
10,295
3,704
2,406
6,127
975
4,233
2,380
8,224
8,928
4,501
124
3,847
5,490
Dec-01
Jun-07
Sep-16
Mar-98
Jun-16
Sep-12
Jun-07
Jun-07
Jan-06
Sep-12
May-14
Feb-88
Dec-06
Apr-05
Sep-12
Mar-15
Mar-15
Mar-13
Apr-12
Dec-03
Jun-07
May-14
Nov-15
Jul-15
Nov-01
Dec-06
Dec-04
Jul-04
Jun-07
Dec-06
Nov-06
May-04
—
Mar-14
Useful life
computing
depreciation in
latest income
statement
(years)
9, 10, 12, 15,
20 & 40
30 & 40
3, 29 & 40
—
—
—
2011
25 & 40
—
—
—
—
—
8, 12, 25, & 51
8, 15 & 40
40
18 & 40
40
2011
11, 20 & 40
—
—
2014
—
2013
—
—
—
—
—
—
—
—
—
2016
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2014
—
2015
—
—
—
—
—
—
—
—
—
3, 15 & 40
40
19, 20 & 40
4, 8, 10 & 34
15 & 25
6, 15 & 26
10, 14 & 40
40
40
6, 10, 15, 20 &
40
1, 2, 3, 5, 6,
10,15, 20 & 40
12, 20, 25 & 40
10, 16 & 25
10, 16, 30 & 40
8, 20 & 25
9, 13 & 34
40
2, 4, 5, 20 & 40
17 & 40
1, 4 & 12
12, 18 & 34
8 &15
40
9, 10, 16 & 40
1, 12 & 40
5, 20 & 25
5, 10 & 20
11, 12, 16 & 35
7
10, 16 & 40
4 & 40
10, 13 & 40
10, 20 & 25
10, 20, & 25
5 - 40
2, 3, & 5
16 & 40
3, 7, 16, 25
2, 5, & 40
3 & 32
25 & 40
3
15, 19 & 37
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
Location
Encumbrances
Land and Land
Estates
Buildings and
Improvements
Total
Accumulated
Depreciation
and
Amortization
Date Acquired
Date
Constructed
Useful life
computing
depreciation in
latest income
statement
(years)
Antioch, TN
Memphis, TN
Farmers Branch,
TX
Garland, TX
Manteca, CA
San Diego, CA
Venice, FL
Albany, GA
Atlanta, GA
Atlanta, GA
Cumming, GA
Dunwoody, GA
Forest Park, GA
Jonesboro, GA
Stone Mountain,
GA
Galesburg, IL
Lawrence, IN
Baltimore, MD
Baltimore, MD
Jefferson, NC
Lexington, NC
Thomasville, NC
Vineland, NJ
Port Chester, NY
Watertown, NY
Canton, OH
Lorain, OH
Lawton, OK
Tulsa, OK
Chattanooga, TN
Paris, TN
Danville, VA
Staunton, VA
Edmonds, WA
Fairlea, WV
—
3,496
—
—
546
348
—
—
—
—
—
—
—
—
—
307
—
—
—
—
—
—
—
—
514
—
773
—
—
—
—
—
—
—
361
—
(7,126)
3,847
191
3,984
1,161
2,082
—
4,696
1,468
1,014
870
1,558
770
668
778
672
560
404
5,000
4,605
71
832
208
2,698
3,841
386
884
1,893
663
445
487
247
3,454
1,028
—
501
—
—
12,500
1,059
27,308
833
6,464
13,310
11,753
5,137
269
187
1,368
186
1,242
146
276
2,366
1,737
—
—
884
1,429
561
12,790
5,246
5,162
3,534
7,024
1,288
2,433
956
547
—
326
3,947
1,985
—
—
16,347
1,250
31,292
1,994
8,546
13,310
16,449
6,605
1,283
1,057
2,926
956
1,910
924
948
2,926
2,141
5,000
4,605
955
2,261
769
15,488
9,087
5,548
4,418
8,917
1,951
2,878
1,443
794
3,454
1,354
3,947
2,486
5,119
—
2,379
May-07
—
Nov-06
Jun-07
Sep-12
May-07
May-07
Jan-15
Oct-13
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
Dec-06
May-07
Dec-06
Dec-15
Dec-06
Dec-06
Dec-06
Dec-06
Oct-14
Dec-06
May-07
Nov-01
May-07
Dec-06
Dec-96
Dec-06
Dec-06
Oct-13
Dec-06
Dec-06
May-07
11,053
833
1,860
3,299
4,439
503
329
268
739
260
493
236
243
788
442
—
—
255
358
89
909
1,185
1,564
1,336
2,023
489
2,508
148
200
—
104
1,211
545
—
—
—
—
—
—
—
—
—
2013
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5 - 40
10 & 30
40
1
23 & 40
23 & 40
5 & 12
15 & 40
40
40
40
40
40
40
40
12 & 40
40
N/A
N/A
40
40
40
3, 28 & 40
40
23 & 40
40
23 & 40
40
14 & 24
40
40
N/A
40
40
12 & 40
$
738,047 $
472,394 $
3,055,659 $
3,533,172 $
844,931
Description
Multi-tenanted
Multi-tenanted
Multi-tenanted
Multi-tenanted
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Other
Construction in progress
Deferred loan costs, net
128
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, 2016 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 and 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
2016
2015
2014
$
3,789,711
$
3,671,560
$
3,812,294
291,004
(527,597)
(19,946)
3,533,172
812,207
128,384
(86,428)
(9,232)
844,931
$
$
$
478,717
(343,976)
(16,590)
3,789,711
795,486
124,618
(106,268)
(1,629)
812,207
$
$
$
210,143
(347,569)
(3,308)
3,671,560
775,617
119,156
(98,698)
(589)
795,486
$
$
$
129
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
Description
Location
Encumbrances
Land and
Land
Estates
Buildings and
Improvements
Total
Accumulated
Depreciation
and
Amortization
Date
Acquired
Date
Constructed
Phoenix, AZ
$
— $
5,585 $
36,923 $
42,508 $
4,417
Dec-12
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Office
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Industrial
Centenial, CO
Louisville, CO
Wallingford, CT
Boca Raton, FL
Schaumburg, IL
Overland Park, KS
Baton Rouge, LA
Fort Mill, SC
Fort Mill, SC
Carrollton, TX
Carrollton, TX
Westlake, TX
Herndon, VA
Moody, AL
Tampa, FL
Romeoville, IL
Marshall, MI
Byhalia, MS
Olive Branch, MS
High Point, NC
Shelby, NC
Hebron, OH
Industrial
Hebron, OH
Industrial
Bristol, PA
Industrial
Richland, WA
Multi-tenanted
Honolulu, HI
Multi-tenanted
Foxborough, MA
Multi-tenanted
Southfield, MI
Multi-tenanted
Charleston, SC
Multi-tenanted
Florence, SC
Other
Other
Other
Albany, GA
Vineland, NJ
Tulsa, OK
Construction in progress
Deferred loan costs, net
Useful life
computing
depreciation
in latest
income
statement
(years)
10, 15, 17 &
40
10 & 40
8, 9, 10, 11,
12 & 40
8 & 40
40
7, 9, 20 & 30
12 & 40
3, 4, 6 & 40
11, 15 & 40
5, 11, 20 & 40
8 & 40
N/A
4 - 40
9 - 40
15 & 40
9 - 40
17 & 25
9, 10, 12, 15,
20 & 40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8, 15 & 40
18 & 40
2011
11, 20 & 40
—
—
—
—
—
—
—
—
—
6, 10, 15, 20 &
40
1, 2, 3, 5, 6,
10,15, 20 & 40
10, 16, 30 &
40
10, 20 & 25
2, 3, & 5
16 & 40
3, 7, 16, 25
25 & 40
3
2013
15 & 40
—
—
3, 28 & 40
14 & 24
4,022 May-11
2011
25 & 40
—
—
—
19,365
—
33,503
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
110,000
—
—
—
7,090
—
—
—
—
—
(746)
4,851
3,657
1,049
4,290
5,007
4,769
1,252
1,798
3,601
2,599
828
2,361
5,127
654
2,160
7,524
40
1,006
198
1,330
1,421
1,063
1,681
2,508
1,293
8,259
1,174
—
1,189
3,235
1,468
2,698
445
—
—
15,239
11,504
4,773
17,160
22,340
41,956
11,085
26,038
15,340
22,050
—
23,572
24,640
9,943
8,488
40,166
2,236
35,795
10,276
11,183
18,918
4,817
20,090
15,161
5,822
21,450
27,347
46,725
12,337
27,836
18,941
24,649
828
25,933
29,767
10,597
10,648
47,690
2,276
36,801
10,474
12,513
20,339
5,880
6,491 May-07
3,692
Sep-08
1,831
Dec-03
5,953
4,736
Feb-03
Oct-13
14,376
Jun-07
4,437 May-07
16,732
Nov-04
5,393
Dec-02
8,583
Jun-07
— Jun-07
10,521 May-07
9,913
Dec-99
6,728
6,185
Feb-04
Jul-88
138
Dec-16
1,009
Aug-87
7,027
Dec-04
6,184
3,887
Jul-04
Jun-11
1,659
Dec-97
8,102
9,783
3,097
Dec-01
15,863
18,371
6,578 Mar-98
126,947
128,240
7,363
13,478
15,434
9,127
13,141
5,137
12,790
2,433
—
—
15,622
14,652
15,434
10,316
16,376
6,605
15,488
2,878
825
—
6,127
Nov-15
2,380
Dec-06
8,224
Dec-04
8,928
Jul-04
3,847
Nov-06
5,490 May-04
503
909
Oct-13
Oct-14
2,508
Dec-96
—
—
$
169,212 $
86,120 $
644,257 $
731,202 $
182,505
130
LEPERCQ CORPORATE INCOME FUND L.P. 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 Partnership. The total cost basis of the
Partnership's properties at December 31, 2016 for federal income tax purposes was approximately $0.9 billion.
Reconciliation of real estate, at cost:
Balance at the beginning of year
Additions during year
Properties sold and impaired during 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
Balance at end of year
2016
2015
2014
$
$
$
$
$
1,061,606
49,417
(379,821)
—
$
910,113
152,280
(787)
—
731,202
$
1,061,606
$
199,690
$
176,167
$
26,989
23,523
(44,174)
182,505
—
$
199,690
$
892,621
58,511
(41,016)
(3)
910,113
172,965
21,837
(18,635)
176,167
131
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Lexington Realty Trust:
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 Officer, respectively. As described below, management has
identified a material weakness in our internal control over financial reporting. As a result, management, including each of our Chief
Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were not effective as of
December 31, 2016. Management believes the consolidated financial statements contained herein present fairly, in all material
respects, our financial position as of the specified dates and our results of operations and cash flows for the specified periods.
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, 2016. Our system of
internal control over financial reporting is 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, 2016. 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 has concluded that the following represents a material weakness in internal control
over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis.
Management concluded that we did not maintain an effective control environment, specifically we did not design and maintain:
and
•
•
sufficient written policies and procedures regarding our critical accounting policies and significant or unusual transactions;
appropriate and sufficient controls over the identification, authorization, analysis and communication to those charged with
governance of critical accounting policies and significant or unusual transactions.
As a result, we did not have effective controls over the accounting for lease terminations.
These deficiencies in internal control resulted in a misstatement in rent receivable - deferred and gross revenues, rental in our
consolidated financial statements for the quarterly periods ended March 31, 2016, June 30, 2016 and September 30, 2016, which
were disclosed as immaterial error corrections in note 20 to the consolidated financial statements as at and for the year ended December
31, 2016. However, the ineffectiveness of the design, implementation, and operation of the controls create a reasonable possibility
that a material misstatement to the consolidated financial statements would not be detected on a timely basis. Accordingly, our
management concluded that our internal control over financial reporting was not effective as of December 31, 2016
132
Our independent registered public accounting firm, KPMG LLP, which audited the financial statements included in this Annual
Report on Form 10-K that contain the disclosure required by this Item, independently assessed the effectiveness of the Company's
internal control over financial reporting. KPMG LLP has issued an adverse report on the Company's internal control over financial
reporting, which is included in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.
Remediation Plan
Management, and our Board of Trustees, is focused on improving our processes and internal controls. Management, with the
concurrence of the Audit Committee of our Board of Trustees has directed management to proceed with a remediation plan.
Accordingly, management is in the process of developing and implementing a plan to remediate the deficiencies in internal control
referenced above. Specifically:
• Management will evaluate and revise our financial reporting process to ensure that our control environment, business
processes and monitoring and personnel are fully aligned with our financial reporting objectives, with an emphasis on critical
accounting policies and significant or unusual transactions.
• Management will improve the documentation of our system of internal control over financial reporting, specifically the
application of critical accounting policies and identification of significant or unusual transactions, by establishing a policy guidance
for the identification and critical accounting analysis of significant or unusual transactions.
• Management will design and maintain appropriate controls over the communication, review and authorization of significant
or unusual transactions, including, appropriate oversight by our Board of Trustees and Audit Committee of our Board of Trustees,
as applicable.
We intend to execute our remediation plan as soon as feasible. We will test the ongoing effectiveness of the new controls and
will consider the material weakness remediated after the new controls operate effectively for a sufficient period of time. There is no
assurance, however, that these measures will remediate the material weakness or ensure that our internal controls over financial
reporting will be effective in the future.
Changes in Internal Control Over Financial Reporting
There were no 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, 2016 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. Subsequent to the fourth quarter ended December 31, 2016, management identified
the material weakness described above and will begin implementing the remediation efforts described above during the first quarter
of fiscal 2017.
Lepercq Corporate Income Fund L.P.:
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Partnership’s “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 the Partnership’s management, including the Partnership’s general partner's
President and Vice President and Treasurer, who are the Partnership’s Principal Executive Officer and the Partnership’s Principal
Financial Officer, respectively. As described below, the Partnership’s the Partnership’s management has identified a material weakness
in our internal control over financial reporting. As a result, management, including each of our Chief Executive Officer and Chief
Financial Officer, has concluded that our disclosure controls and procedures were not effective as of December 31, 2016. Management
believes the consolidated financial statements contained herein present fairly, in all material respects, our financial position as of the
specified dates and our results of operations and cash flows for the specified periods.
133
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, 2016. Our system of
internal control over financial reporting is 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, 2016. 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 has concluded that the following represents a material weakness in internal control
over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis.
The Partnership’s management concluded that the Partnership did not maintain an effective control environment, specifically
we did not design and maintain:
and
•
•
sufficient written policies and procedures regarding our critical accounting policies and significant or unusual transactions;
appropriate and sufficient controls over the identification, authorization, analysis and communication to those charged with
governance of critical accounting policies and significant or unusual transactions.
As a result, the Partnership did not have effective controls over the accounting for lease terminations.
These deficiencies in internal control resulted in a misstatement in rent receivable - deferred and gross revenues, rental in the
Partnership’s consolidated financial statements for the quarterly periods ended March 31, 2016, June 30, 2016 and September 30,
2016, which were disclosed as immaterial error corrections in note 13 to the consolidated financial statements as at and for the year
ended December 31, 2016. However, the ineffectiveness of the design, implementation, and operation of the controls create a
reasonable possibility that a material misstatement to the consolidated financial statements would not be detected on a timely basis.
Accordingly, the Partnership’s management concluded that the Partnership’s internal control over financial reporting was not effective
as of December 31, 2016
Remediation Plan
The Partnership’s management, and Lexington’s Board of Trustees, is focused on improving the Partnership’s processes and
internal controls. The Partnership’s management, with the concurrence of the Audit Committee of Lexington’s Board of Trustees
has directed the Partnership’s management to proceed with a remediation plan. Accordingly, the Partnership’s management is in the
process of developing and implementing a plan to remediate the deficiencies in internal control referenced above. Specifically:
•
The Partnership’s management will evaluate and revise the Partnership’s financial reporting process to ensure that the
Partnership’s control environment, business processes and monitoring and personnel are fully aligned with the Partnership’s financial
reporting objectives, with an emphasis on critical accounting policies and significant or unusual transactions.
•
The Partnership’s management will improve the documentation of the Partnership’s system of internal control over financial
reporting, specifically the application of critical accounting policies and identification of significant or unusual transactions, by
establishing a policy guidance for the identification and critical accounting analysis of significant or unusual transactions.
•
The Partnership’s management will design and maintain appropriate controls over the communication, review and
authorization of significant or unusual transactions, including, appropriate oversight by Lexington’s Board of Trustees and Audit
Committee of Lexington’s Board of Trustees, as applicable.
134
The Partnership intends to execute its remediation plan as soon as feasible. The Partnership will test the ongoing effectiveness
of the new controls and will consider the material weakness remediated after the new controls operate effectively for a sufficient
period of time. There is no assurance, however, that these measures will remediate the material weakness or ensure that the Partnership’s
internal controls over financial reporting will be effective in the future.
This Annual Report does not include an attestation report of the Partnership’s independent registered public accounting firm
regarding internal control over financial reporting. The Partnership’s management’s report was not subject to attestation by the
Partnership’s independent registered public accounting firm pursuant to the permanent deferral adopted by the Securities and Exchange
Commission that permits the Partnership to provide only management’s report.
Changes in Internal Control Over Financial Reporting
There were no changes to the Partnership’s 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, 2016 that have materially affected, or are reasonably likely
to materially affect, the Partnership’s internal control over financial reporting. Subsequent to the fourth quarter ended December
31, 2016, the Partnership’s management identified the material weakness described above and will begin implementing the
remediation efforts described above during the first quarter of fiscal 2017.
Item 9B. Other Information
Not applicable.
135
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers of Lexington
The following sets forth certain information relating to our executive officers:
Name
E. Robert Roskind
Age 71
Richard J. Rouse
Age 71
T. Wilson Eglin
Age 52
Patrick Carroll
Age 53
Joseph S. Bonventre
Age 41
Beth Boulerice
Age 52
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. Rouse also serves as Vice President and a
Director of Lex GP.
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. Eglin also serves as President and a Director of
Lex GP.
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. Carroll is a Certified Public Accountant. Mr. Carroll
also serves as Vice President, Treasurer and a Director of Lex GP.
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. Mr. Bonventre also serves as Vice President and Secretary of Lex GP.
Ms. Boulerice has served as our Chief Accounting Officer since January 2011 and one
of our Executive Vice Presidents since January 2013. Prior to joining us in January 2007,
Ms. Boulerice was employed by First Winthrop Corporation and was the Chief
Accounting Officer of Newkirk Realty Trust. Ms. Boulerice is a Certified Public
Accountant. Ms. Boulerice also serves as Vice President of Lex GP.
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 2017 Annual Meeting of Shareholders, which we refer to as our Proxy Statement, and is incorporated herein by reference.
Lex GP is the sole general partner of LCIF.
136
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. Lex GP is the sole general partner of LCIF.
The Partnership does not have any employees, executive officers or board of directors. Neither Lexington nor Lex GP receives
any compensation for Lex GP’s services as the general partner of the Partnership. Lex GP and Lex LP, however, as partners of the
Partnership, have the same rights to allocations and distributions as other partners of the Partnership, as set forth in the partnership
agreement of the Partnership. In addition, the Partnership reimburses Lex GP and Lexington for all expenses incurred by them related
to the ownership and operation of, or for the benefit of, the Partnership. In the event that certain expenses are incurred for the benefit
of the Partnership and other entities (including Lexington or its other subsidiaries), such expenses are allocated by Lexington, as
sole equity owner of Lex GP, the general partner of the Partnership, to the Partnership in proportion to gross rental revenue. Lexington
has guaranteed the Partnership’s obligations in connection with the redemption of OP units pursuant to the partnership agreement
of the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Additional 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.
The following table indicates, as of the close of business on December 31, 2016, (a) the number of OP units beneficially owned
by each person known by the Partnership to own in excess of five percent of the outstanding OP units and the number of OP units
beneficially owned by the general partner of the Partnership and (b) the percentage such OP units represent of the total outstanding
OP units. All OP units were owned directly on such date with sole voting and investment power unless otherwise indicated, calculated
as set forth in footnote 1 to the table.
Name of Beneficial Owner
Lexington (2)
Number of OP Units
Beneficially Owned (1)
79,891,802.5
Percentage of Class
96%
_________________________
(1) For purposes of this table, a person is deemed to beneficially own any OP unit as of a given date which such person owns or has the right to acquire within 60
days after such date.
(2) Lexington beneficially owns OP units through Lex GP and Lex LP. Lexington’s address is One Penn Plaza, Suite 4015, New York, NY 10119-4015.
None of the officers of Lex GP beneficially own any OP units. Mr. Roskind is not an officer of Lex GP. However, as of
December 31, 2016, Mr. Roskind beneficially owned 1,474,296 OP units, which is approximately 2% of the class.
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 16 to the Company's Consolidated Financial Statements and note 10 to the Partnership's 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.
137
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
(2) Financial Statement Schedules
(3) Exhibits
Exhibit No.
Description
Page
69
125
138
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 the Partnership 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 the Partnership, 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)(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)
138
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
— 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, the Partnership 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, the Partnership 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 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)
10.10
— 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)
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
— 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 Company's Annual Report on Form 10-K for the year ended
December 31, 2011)(1, 4)
— Form of Long-Term Retention Nonvested Share Agreement (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on January 11, 2013)(1, 4))
— Form of 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)
— Form of 2017 Nonvested Share Agreement (Performance and Service) (2, 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)
139
10.19
10.20
— 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)
10.21
— 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)
10.22
— 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)
10.23
— Credit Agreement, dated as of September 1, 2015, among the Company and LCIF, as borrowers, each of
the financial institutions initially a signatory thereto together with their assignees pursuant to 12.5
therein, and KeyBank National Association, as agent (filed as Exhibit 10.1 to the Company's Current
Report of Form 8-K filed on September 1, 2015)(1)
10.24
— Ownership Limitation Waiver Agreement (BlackRock), dated as of November 18, 2010 (filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on November 24, 2010 (the “11/24/10 8-K”)
(1)
10.25
10.26
10.27
10.28
12.1
12.2
14
21
23
24
31.1
31.2
31.3
31.4
32.1
32.2
32.3
32.4
— 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)
— Lexington Statement of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends (2)
— LCIF Statement of Computation of Ratio of Earnings to Fixed Charges (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)
— Lexington Consent of KPMG LLP (2)
— Power of Attorney (included on signature page)
— Lexington 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)
— Lexington 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)
— LCIF 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)
— LCIF 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)
— Lexington 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)
— Lexington 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)
— LCIF 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)
— LCIF 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)
101.INS
101.SCH
— XBRL Instance Document (2, 5)
— XBRL Taxonomy Extension Schema (2, 5)
140
101.CAL
101.DEF
101.LAB
101.PRE
— 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, 2016 and 2015; (ii)
the Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014; (iii) the
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015 and 2014;
(iv) the Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and 2014; (v) the
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014; and (vi) Notes to
Consolidated Financial Statements, detailed tagged.
141
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 28, 2017
Date: February 28, 2017
Lexington Realty Trust
By:
/s/ T. Wilson Eglin
T. Wilson Eglin
Chief Executive Officer
Lepercq Corporate Income Fund L.P.
By: Lex GP-1 Trust, its General Partner
By:
/s/ T. Wilson Eglin
T. Wilson Eglin
President
142
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
Title
/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/ Beth Boulerice
Beth Boulerice
/s/ Harold First
Harold First
/s/ Richard S. Frary
Richard S. Frary
/s/ Lawrence L. Gray
Lawrence L. Gray
/s/ Claire A. Koeneman
Claire A. Koeneman
Each dated: February 28, 2017
Chairman of the Trust
Vice Chairman,
Chief Investment Officer and Trustee of the Trust and Vice
President and a Director of the General Partner of the Partnership
Chief Executive Officer, President and Trustee of the Trust and
President and a Director of the General Partner of the Partnership
(principal executive officer)
Chief Financial Officer, Executive Vice President and Treasurer of
the Trust and Vice President and Treasurer of the General Partner of
the Partnership
(principal financial officer)
Executive Vice President and Chief Accounting Officer of the Trust
and Vice President of the Partnership
(principal accounting officer)
Trustee of the Trust
Trustee of the Trust
Trustee of the Trust
Trustee of the Trust
143
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 28, 2017
/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 28, 2017
/s/ Patrick Carroll
Patrick Carroll
Chief Financial Officer
CERTIFICATION
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.3
I, T. Wilson Eglin, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Lepercq Corporate Income Fund L.P.;
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 15d-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 28, 2017
/s/ T. Wilson Eglin
T. Wilson Eglin
President (principal executive officer) of Lex GP-1 Trust,
the general partner of Lepercq Corporate Income Fund L.P.
CERTIFICATION
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.4
I, Patrick Carroll, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Lepercq Corporate Income Fund L.P.;
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 15d-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 28, 2017
/s/ Patrick Carroll
Patrick Carroll
Vice President and Treasurer (principal financial officer) of
Lex GP-1 Trust,
the general partner of Lepercq Corporate Income Fund L.P.
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,
2016 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 28, 2017
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,
2016 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 28, 2017
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.3
In connection with the Annual Report of Lepercq Corporate Income Fund L.P. (the “Partnership”) on Form 10-K for the period
ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof, I, T. Wilson Eglin, President
(principal executive officer) of Lex GP-1 Trust, the general partner of the Partnership, 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
President (principal executive officer) of Lex GP-1 Trust,
the general partner of Lepercq Corporate Income Fund L.P.
February 28, 2017
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.4
In connection with the Annual Report of Lepercq Corporate Income Fund L.P. (the “Partnership”) on Form 10-K for the period
ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof, I, Patrick Carroll, Vice
President and Treasurer (principal financial officer) of Lex GP-1 Trust, the general partner of the Partnership, 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
Vice President and Treasurer (principal financial officer) of
Lex GP-1 Trust,
the general partner of Lepercq Corporate Income Fund L.P.
February 28, 2017
(This page intentionally left blank)
Lexington Realty Trust
Total Return Performance
Lexington Realty Trust
S&P 500 Index
Russell 2000 Index
NAREIT Equity REIT Index
200
190
180
170
160
150
140
130
120
110
100
e
u
l
a
V
x
e
d
n
I
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Index
Lexington Realty Trust
S&P 500 Index
Russell 2000 Index
NAREIT Equity REIT Index
_________________________
Source : SNL Financial, an offering of S&P Global Market Intelligence
© 2017
www.snl.com
12/31/11
100.00
100.00
100.00
100.00
12/31/12
148.03
116.00
116.35
118.06
Period Ending
12/31/13
152.73
153.57
161.52
120.97
12/31/14
174.86
174.60
169.43
157.43
12/31/15
137.78
177.01
161.95
162.46
12/31/16
199.52
198.18
196.45
176.30
Corporate Information
Independent Trustees
Harold First1,3
Financial Consultant
Richard S. Frary1,2,3,4,5
Founding Partner
Tallwood Associates, Inc
Lawrence L. Gray1,2
Chief Executive Officer
GrayCo, Inc.
Jamie Handwerker
Partner
KSH Capital
Claire A. Koeneman2,3
Executive Vice President
Hill+Knowlton Strategies
Executive Officers
E. Robert Roskind4
Chairman
T. Wilson Eglin4
Chief Executive Officer
President
Trustee
Richard J. Rouse
Vice Chairman
Chief Investment Officer
Trustee
Patrick Carroll
Chief Financial Officer
Executive Vice President
Treasurer
Joseph S. Bonventre
Executive Vice President
General Counsel
Secretary
Beth Boulerice
Executive Vice President
Chief Accounting Officer
Corporate Headquarters
Investor Relations
Transfer Agent and Registrar
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
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 exhibits to our Annual
Report on Form 10-K for the year ended
December 31, 2016, which are included
herein. In addition, in 2016, we sub mitted
an unqualified certification required by
section 303A.12(a) of the Listed Company
Manual of the New York Stock Exchange.
Lexington Realty Trust
One Penn Plaza, Suite 4015
New York, NY 10119-4015
Attn: Investor Relations
Telephone: (212) 692-7200
E-mail: ir@lxp.com or hgentry@lxp.com
Annual Meeting
Our Annual Meeting of Shareholders is
scheduled for Tuesday, May 16, 2017 at
10:00 a.m., Eastern Time, at the offices
of Paul Hasings LLP, 200 Park Avenue,
New York, NY 10166.
Forward-Looking Statements
Reference is made to “Risk Factors”
in our Annual Report on Form 10-K for
the year ended December 31, 2016,
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.
NYSE Symbols
LXP (Common)
LXPPRC (Preferred)
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
Direct Share Purchase Plan
Information regarding our Direct Share
Purchase Plan, including the dividend
rein vest ment component, may be
obtained from our transfer agent and
registrar, Computershare. Answers to
many of your shareholder questions and
requests for forms are available by visiting
www-us.computershare.com/investor.
Independent Registered Public
Accounting Firm6
KPMG LLP
New York, NY
1 Audit Committee Member
2 Compensation Committee Member
3 Nominating and Corporate Governance Committee Member
4 Executive Committee Member
5 Lead Trustee
6 As of December 31, 2016.
LEXINGTON REALTY TRUST
One Penn Plaza, Suite 4015
New York, NY 10119-4015
(212) 692-7200
www.lxp.com