LXP Industrial Trust
Annual Report 2019

Plain-text annual report

Annual Report 2019 Total Return Performance Lexington Realty Trust S&P 500 Index Russell 2000 Index NAREIT Equity REIT Index 200 150 100 l e u a V x e d n I 50 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 Index Lexington Realty Trust S&P 500 Index Russell 2000 Index NAREIT Equity REIT Index Period Ending 12/31/14 100.00 100.00 100.00 100.00 12/31/15 78.80 101.38 95.59 103.20 12/31/16 114.10 113.51 115.95 111.99 12/31/17 109.33 138.29 132.94 117.84 12/31/18 101.32 132.23 118.30 112.39 12/31/19 136.68 173.86 148.49 141.61 Source: S&P Global Market Intelligence © 2020 Our annual letter to shareholders is available on the investors section of our web site at www.lxp.com. web site is not incorporated by reference into this annual report. Information contained on our report. We filed the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as an exhibit to our Annual Report on Form 10- K for the year ended December 31, 2019, which is included herein. In addition, in 2019, we submitted an unqualified certification required by section 303A.12(a) of the Listed Company Manual of the New York Stock Exchange. 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, 2019 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ________________ Commission File Number 1-12386 LEXINGTON REALTY TRUST (Exact name of registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation of organization) 13-3717318 (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 Shares of beneficial interest, par value $0.0001 per share, classified as Common Stock Trading Symbol LXP Name of each exchange on which registered New York Stock Exchange 6.50% Series C Cumulative Convertible Preferred LXPPRC New York Stock Exchange Stock, par value $0.0001 per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation No S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of the shares of beneficial interest, par value $0.0001 per share, classified as common stock (“common shares”) of Lexington Realty Trust held by non-affiliates as of June 28, 2019, which was the last business day of the registrant's most recently completed second fiscal quarter, was $2,160,905,597 based on the closing price of the common shares on the New York Stock Exchange as of that date, which was $9.41 per share. Number of common shares outstanding as of February 18, 2020 was 254,941,588. Certain information contained in the Definitive Proxy Statement for Lexington Realty Trust's Annual Meeting of Shareholders, to be held on May 19, 2020, 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 TABLE OF CONTENTS Description PART I ITEM 1. Business ITEM 1A. Risk Factors ITEM 1B. Unresolved Staff Comments ITEM 2. ITEM 3. ITEM 4. ITEM 5. ITEM 6. ITEM 7. ITEM 7A. ITEM 8. 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 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ITEM 9A. Controls and Procedures ITEM 9B. Other Information ITEM 10. PART III Directors, Executive Officers and Corporate Governance ITEM 11. Executive Compensation ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ITEM 13. Certain Relationships and Related Transactions, and Director Independence ITEM 14. Principal Accounting Fees and Services ITEM 15. Exhibits, Financial Statement Schedules PART IV Page 3 8 24 25 35 36 37 39 40 53 54 96 96 96 97 97 97 97 97 98 2 Introduction Unless stated otherwise or the context otherwise requires, the “Company,” the “Trust,” “Lexington,” “we,” “our,” and “us” refer collectively to Lexington Realty Trust and its consolidated subsidiaries. All of the Company'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. When we use the term “REIT,” we mean real estate investment trust. All references to 2019, 2018 and 2017 refer to our fiscal years ended, or the dates, as the context requires, December 31, 2019, December 31, 2018 and December 31, 2017, respectively. When we use the term “GAAP,” we mean United States generally accepted accounting principles in effect from time to time. When we use the term “common shares,”, we mean our shares of beneficial interest par value $0.0001, classified as common stock. When we use the term “Series C Preferred Shares,” we mean our beneficial interest classified as 6.50% Series C Convertible Preferred Stock. 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. Item 1. Business General PART I. We are a Maryland real estate investment trust, qualified as a REIT for federal income tax purposes, focused on single-tenant industrial real estate investments. A majority of our 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, 2019, we had equity ownership interests in approximately 130 consolidated real estate properties, located in 31 states and containing an aggregate of approximately 52.6 million square feet of space, approximately 97.0% of which was leased. In 2019, 2018 and 2017, no tenant/guarantor represented greater than 10% of our annual base rental revenue. 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. 3 History Our predecessor was organized in the state of Delaware in October 1993 upon the rollup of two partnerships. We conduct a portion of our business through an operating partnership subsidiary, Lepercq Corporate Income Fund L.P., which we refer to as LCIF. Our structure enables us to acquire properties through an operating partnership by issuing limited partner interests in the operating partnership, which we refer to as 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. As of December 31, 2019, there were approximately 2.8 million OP units outstanding, other than OP units held by Lexington, which were convertible into approximately 3.2 million common shares, assuming redemptions are satisfied entirely with common shares. Investment and Strategy General. Our current business strategy is focused on enhancing our cash flow stability, growing our portfolio with attractive leased industrial investments, reducing lease rollover risk and maintaining a strong and flexible balance sheet to allow us to act on opportunities as they arise. To that end, during 2019, we continued to be an active seller of non-core assets such as office properties, retail properties and vacant properties. In addition, we continued our efforts to increase the percentage of gross book value from industrial assets. Our disposition and acquisition activities during 2019 have resulted in an increase in our percentage of gross book value from industrial assets to 81.5% as of December 31, 2019 from 71.2% as of December 31, 2018. Regardless of capital market and economic conditions, we intend to stay focused on (1) enhancing operating results, (2) improving portfolio quality through acquisitions of industrial assets and reducing risks associated with lease rollover, especially with respect to non-core assets, (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. Investments. Our primary business objectives are to own and operate single-tenant industrial assets that we believe will generate favorable returns. We focus on general-purpose, well located, industrial assets that, we believe, will provide us with greater long- term overall risk-adjusted returns than we would realize from making acquisitions of office or other non-industrial commercial properties. We believe industrial assets, as compared with office assets, provide for greater rental growth potential and less retenanting costs. We generally seek to grow our industrial portfolio by (1) acquiring properties already subject to net or similar leases, (2) engaging in, or providing funds to, or partnering with, developers who are engaged in, industrial development projects, (3) providing capital to corporations by buying properties and leasing them back to the sellers under net or similar leases or (4) engaging in strategic transactions such as portfolio acquisitions and mergers with other real estate companies. 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, tenant credit, 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 the long- term profitability of any investment by us. Competition There are numerous 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. Furthermore, competition for industrial assets has increased in recent years. Our competitors include other REITs, pension funds, banks, private companies and individuals. 4 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 (1) office, vacant, multi-tenant and retail assets and (2) industrial assets that are the only asset we own in a geographic location. 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 engage third-party property managers to manage certain aspects of our properties. However, we participate to a certain extent in the management of our properties. We believe our property management activities provide 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, including property-specific debt, revolving loans, corporate level term loans, corporate bonds, issuance of common and preferred equity, issuance of OP units and undistributed cash flows. Balance Sheet Management. In recent years, we have retired non-recourse mortgage debt with proceeds from recourse corporate level borrowings and sales. Our objective is to maintain a strong balance sheet to provide financial flexibility, by focusing on extending and staggering our debt maturities. We maintain this objective by primarily using corporate level borrowings, such as revolving loans, term loans, and debt offerings. Property-Specific Debt. Our property owner subsidiaries seek non-recourse secured debt on a limited basis to mitigate tenant credit risk and 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. 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 and (3) block trades. 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. Our share repurchase program most recently authorized in 2018 had approximately 10.3 million common shares available for repurchase as of December 31, 2019. 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. 5 Summary of 2019 Transactions and Recent Developments The following summarizes certain of our transactions during 2019, including transactions disclosed elsewhere and in our other periodic reports. Investments/Capital Recycling. With respect to acquisitions/investments, we: – – – purchased 17 industrial assets for an aggregate cost of $703.8 million. disposed of our interests in 22 properties to unaffiliated third parties for an aggregate gross sales price of $621.6 million. invested approximately $18.5 million in industrial development projects. Leasing. We entered into 23 new leases and lease extensions encompassing an aggregate 6.4 million square feet. Our portfolio was 97.0% leased as of December 31, 2019. Financing/Equity. With respect to financing/equity activities, we: – – – – – – – extended the maturity of our $300.0 million term loan to January 2025, lowered the applicable margin rate and swapped the LIBOR portion of the interest rate to a current fixed interest rate of 2.732% per annum. extended the maturity of our revolving credit facility to February 2023, lowered the applicable margin rate and increased the commitment from $505.0 million to $600.0 million. satisfied $199.2 million of non-recourse debt at a weighted-average interest rate of 4.4%, including debt encumbering a sold asset. assumed $41.9 million of non-recourse mortgage financing upon acquisition of an industrial asset with a fixed interest rate of 4.29%, which matures in 2031. repurchased and retired approximately 0.4 million common shares at an average price of $8.13 per common share. issued 10.0 million common shares in an underwritten offering generating net proceeds of $100.7 million. issued 9.7 million common shares under our At-the-Market offering program generating net proceeds of $102.3 million. Subsequent to December 31, 2019, we: – acquired four industrial assets for an aggregate purchase price of approximately $195.0 million. 6 Corporate Responsibility We seek to create a sustainable environmental, social and governance, or ESG, platform that enhances both our company and shareholder value. Environmental Our focus on the environment is demonstrated by how we manage our day-to-day activities at our corporate headquarters and satellite office. We continue to evaluate our current operations, strive to improve our environmental performance, and implement sustainable business practices. The properties in our portfolio are primarily net leased to our tenants who are responsible for maintaining the buildings and are in control of their energy usage and environmental sustainability practices. When possible, we work with our tenants to promote environmental responsibility at the properties we own, with many locations having energy efficient features, such as energy management systems, LED lighting and solar arrays. Social We are committed to giving back to the communities where our employees work. Our employees volunteer at local non- profit organizations and regularly participate in clothing and food drives. Governance We strive to implement best governance practice and we are mindful of the concerns of our shareholders and proxy advisory firms. Other Employees. As of December 31, 2019, we had 57 full-time employees. Lexington Realty Trust is a master employer and employee costs are allocated to subsidiaries as applicable. Industry Segments. We operate in one industry segment, primarily 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 whistleblower 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. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding LXP at http://www.sec.gov. Information contained on our web site or the web site of any other person is not incorporated by reference into this Annual Report or any of our other filings with or documents furnished to 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 2019. 7 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 industrial 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 or reject a lease within a certain number of days of filing its bankruptcy petition. If a tenant rejects the lease, a landlord's damages, subject to availability of funds from the bankruptcy estate, are generally limited to the greater of (1) one year's rent and (2) the rent for 15% of the remaining term of the lease, not to exceed three years. The demand for industrial space in the United States is generally related to the level of economic output. Accordingly, reduced economic output may lead to lower occupancy rates for our properties. The concentration of our investments, among other factors, in industrial assets may expose us to the risk of economic downturns specific to industrial assets to a greater extent than if our investments were diversified. 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, including economic discontinuance options, that permit the tenants to terminate their leases. While these termination options generally require a termination payment by the tenants, in most cases, the termination payments are less than the total remaining expected rental revenue. The termination of a lease by a tenant may impair the value of the property. 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 businesses 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 which could affect the financial performance of our properties, such monitoring may not always ascertain or forestall deterioration, either in the condition or value of a property or in the financial circumstances of a tenant. 8 You should not rely on the credit ratings of our tenants. Some of our tenants, guarantors and/or their parent or sponsor entities are rated by certain rating agencies. In certain instances, we may disclose the credit ratings of our tenants or their parent or sponsor entities even though those parent or sponsor entities are not liable for the obligations of the tenant or guarantor under the lease. Any such credit ratings are subject to ongoing evaluation by these credit rating agencies and we cannot assure you that any such ratings will not be changed or withdrawn by these rating agencies in the future if, in their judgment, circumstances warrant. If these rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, the credit rating of a tenant, guarantor or its parent entity, the value of our investment in any properties leased by such tenant could significantly decline. Our assets may be subject to impairment charges. We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on GAAP, which include a variety of factors such as market conditions, the status of significant leases, the financial condition of major tenants and other factors that could affect the cash flow or value of an investment. 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. Our real estate development activities are subject to additional risks. We selectively develop new properties either alone or through joint ventures when we believe accretive returns are achievable. Due to the competition in the industrial real estate market, we believe that speculative development is an essential part of our strategy to transition to an industrial focused REIT. Development activities generally require various government and other approvals, which we may not receive. In addition, development activities, including speculative development and redevelopment and renovation of vacant properties, are subject to risks including, but not limited to: • Unsuccessful development opportunities could cause us to incur direct expenses; • Construction costs of a project may exceed original estimates, possibly making the project less profitable than originally estimated or unprofitable; • Time required to complete the construction of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity; • We may not be able to find tenants to lease the space built on a speculative basis or in a redeveloped or renovated building, which will impact our cash flow and ability to finance or sell such properties; • Occupancy rates and rents of a completed project may not be sufficient to make the project profitable; and • Favorable financing sources to fund development activities may not be available. A tenant’s bankruptcy proceeding may result in the re-characterization of related sale-leaseback transactions or in the restructuring of the tenant's payment obligations to us, either of which could adversely affect our financial condition. 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. As a result of the foregoing, the re-characterization of a sale-leaseback transaction could adversely affect our financial condition, cash flow and the amount available for distributions to our shareholders. 9 If the sale-leaseback were re-characterized as a financing, we might not be considered the owner of the property, and as a result, would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms and prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint venture, our tenant and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the tenant relating to the property. A significant portion of our leases are long-term and do not have fair market rental rate adjustments, 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 or if we are unable to obtain any increases in rental rates over the terms of our 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, if any, are subject to delinquency, foreclosure and loss. While loan receivables are not a primary focus, we may make loans to purchasers of our properties or developers. Our interests in loans receivable, if any, 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. 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. 10 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 and/or the development of a land parcel. For newly constructed properties, we may (1) provide a developer with either a combination of financing for construction of a property or a commitment to acquire a property upon completion of construction of a property and commencement of rent from the tenant, (2) acquire a property subject to a lease and engage a developer to complete construction of a property as required by the lease, or (3) partner with a developer to acquire and develop or acquire on our own and engage a developer to develop land and pursue industrial development opportunities. 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. Our acquisition and disposition activity may lead to dilution. Our asset strategy is to increase our investment in general purpose, well located industrial assets and reduce our exposure to all other asset types. We believe this strategy will lessen capital expenditures over time and mitigate revenue reductions on renewals and re-tenanting. To implement this strategy, we have been selling office assets, which generally have higher capitalization rates, and buying industrial properties, which, in the current competitive market, generally have lower capitalization rates. This strategy impacts growth in the short-term period. There can be no assurance that the implementation of our strategy will lead to improved results or that we will be able to execute our strategy as contemplated or on terms acceptable to us. 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 documents filed with or furnished to 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 and/or tenant credit conditions at the time of dispositions. 11 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 development 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 backstopping our warranty obligations to the tenant, we are subject to the risk of a gap in warranty coverage and of enforcement of such developer or general contractor 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. 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. 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 pay dividends. 12 A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although the tenants of the properties in which we have an interest are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of the tenants of the properties in which we have an interest to satisfy any obligations with respect to the property leased to that tenant, our property owner subsidiary may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease. From time to time, in connection with the conduct of our business, our property owner subsidiaries authorize the preparation of Phase I environmental reports and, when recommended, Phase II environmental reports, with respect to their properties. There can be no assurance that these environmental reports will reveal all environmental conditions at the properties in which we have an interest or that the following will not expose us to material liability in the future: • • • • the discovery of previously unknown environmental conditions; changes in law; activities of tenants; or activities relating to properties in the vicinity of the properties in which we have an interest. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of the properties in which we have an interest, which could adversely affect our financial condition or results of operations. From time to time we are involved in legal proceedings arising in the ordinary course of our business. Legal proceedings arising in the ordinary course of our business require time and effort. The outcomes of legal proceedings are subject to significant uncertainty. In the event that we are unsuccessful in defending or prosecuting these proceedings, as applicable, we may incur a judgment or fail to realize an award of damages that could have an adverse effect on our financial condition. Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition. We carry comprehensive liability, fire, extended coverage and rent loss insurance on certain of the properties in which we have an interest, with policy specifications and insured limits that we believe are customary for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain rent loss insurance. In addition, certain of our leases require the tenant to maintain all insurance on the property, and the failure of the tenant to maintain the proper insurance could adversely impact our investment in a property in the event of a loss. Furthermore, there are certain types of losses, such as losses resulting from wars, terrorism or certain acts of God, that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our financial condition and results of operations. Future terrorist attacks, military conflicts and unrest in various parts of the world could have a material adverse effect on general economic conditions, consumer confidence and market liquidity. Terrorist attacks, ongoing and future military conflicts and the continued unrest in various parts of the world may affect commodity prices and interest rates, among other things. An increase in interest rates may increase our costs of borrowing, leading to a reduction in our earnings. Instability in the price of oil will also cause fluctuations in our operating costs, which may not be reimbursed by our tenants. Also, terrorist acts could result in significant damages to, or loss of, our properties or the value thereof. 13 We and the tenants of the properties in which we have an interest may be unable to obtain adequate insurance coverage on acceptable economic terms for losses resulting from acts of terrorism. Our lenders may require that we carry terrorism insurance even if we do not believe this insurance is necessary or cost effective. We may also be prohibited under the applicable lease from passing all or a portion of the cost of such insurance through to the tenant. Should an act of terrorism result in an uninsured loss or a loss in excess of insured limits, we could lose capital invested in a property as well as the anticipated future revenues from a property, while our property owner subsidiary remains obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our financial condition. Natural disasters, public health epidemics and the effects of climate change could have a concentrated impact on the areas where we operate and could adversely impact our results. We invest in properties on a nationwide basis. Natural disasters, including earthquakes, storms, tornados, floods and hurricanes, could impact our properties in these and other areas in which we operate. Public health epidemics could impact our employees or the national or global supply chain. Potentially adverse consequences of global warming, including rising sea levels, could similarly have an impact on our properties. Over time, these conditions could result in declining demand for space in our buildings or the inability of us to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy at our properties and requiring us to expend funds as we seek to repair and protect our properties against such risks. The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results. 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, misappropriation 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. Networks and information technology throughout the world and in companies of all sizes are threatened by cybersecurity risks on a regular basis. We must continuously monitor and develop our networks and information technology to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. In addition, social engineering and phishing are a particular concern for companies with employees. We are continuously working to install new, and to upgrade our existing, network and information technology systems and to provide employee awareness training around phishing, malware and other cyber risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches. However, such upgrades, new technology and training may not be sufficient to protect us from all risks. As a smaller company, we use third-party vendors to assist us with our network and information technology requirements. While we carefully select these third-party vendors, we cannot control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber attacks and security breaches at a vendor could adversely affect our operations. Competition may adversely affect our ability to purchase properties. There are numerous developers, real estate companies, such as other REITs, 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. This competition may result in a higher cost for properties and lower returns and impact our ability to grow. 14 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. We cannot assure you that our control environment will prevent material weaknesses from arising in the future. If we fail to maintain the adequacy of our internal control over financial reporting in the future, 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 is necessary for us to produce reliable financial reports and to maintain our qualification as a REIT and is important in helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, our REIT qualification could be jeopardized, investors could lose confidence in our reported financial information, and the trading price of our debt and equity securities could drop significantly. We may have limited control over our joint venture investments. Our joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility that our partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our expectations, its previous instructions or our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of joint venture investments include impasses on decisions, such as a sale, because neither we nor our partner has full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures. Our ability to change our portfolio is limited because real estate investments are illiquid. Investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number or type of properties in which we may seek to invest or on the concentration of investments in any one geographic region. 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, 2019, we had aggregate interest rate swap agreements on $300.0 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 or default by the counterparties. Further, additional risks, including losses on a hedge position, may reduce the return on our investments. Such losses may exceed the amount invested in such instruments. We may also 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. 15 We are dependent upon our key personnel. We are dependent upon key personnel, particularly our executive officers. We do not have employment agreements with our executive officers, but we have entered into severance arrangements with certain of our executive officers that provide certain payments upon specified termination events. Our inability to retain the services of any of our key personnel, an unplanned loss of any of their services or our inability to replace them upon termination as needed, could adversely impact our operations. We do not have key man life insurance coverage on our executive officers. There may be conflicts of interest between E. Robert Roskind and us. E. Robert Roskind, our former 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 former 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, Mr. Roskind holds the majority of a class of OP units that has a consent right with respect to certain fundamental transactions involving LCIF and/or us. 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. Two non-consolidated joint ventures have mezzanine financing from Mr. Roskind's affiliate. 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, repealed or modified 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 or modified 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. Legislation such as the Americans with Disabilities Act may require us to modify our properties at substantial costs and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future legislation may impose additional requirements. We may incur additional costs to comply with any future requirements. We disclose Funds From Operations available to common shareholders and unitholders (or FFO), Adjusted Company Funds from Operations available to all equityholders and unitholders (or Adjusted Company FFO), Net Operating Income (or 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 GAAP measures to be more relevant to evaluating our operating performance. FFO, Adjusted Company FFO and NOI, and GAAP net income (loss) differ because FFO, Adjusted Company FFO and NOI exclude many items that are factored into GAAP net income or loss. 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. 16 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 may be 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, 2019, our total consolidated indebtedness was approximately $1.3 billion and we had approximately $600.0 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, which may 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, 2019, we have $129.1 million of debt that matures in April 2037 that is LIBOR indexed. In addition, we have a $300.0 million unsecured term loan which matures January 2025 that is LIBOR indexed and is subject to interest rate swap agreements through January 2025. Also, our unsecured revolving credit facility is subject to a variable rate. 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. The LIBOR index rate may not be available in the future. In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (or ARRC) has proposed that the Secured Overnight Financing Rate (or SOFR) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts that are indexed to USD- LIBOR and we are monitoring this activity and evaluating the related risks. 17 Potential disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms and have other adverse effects on us. The United States credit markets have periodically 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, our tenants 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 loan 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 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 and alterations, 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 or as the leasing market requires. A downgrade in our credit ratings could have a material adverse effect on our business and financial condition. The credit ratings assigned to us and 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 the applicable rating agency's 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 us or our debt could have a material adverse effect on the market price of our debt securities and our common and preferred shares. If any credit rating agency that has rated us or 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. 18 We face risks associated with refinancings. A significant number of the properties in which we have an interest are subject to a 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, 2019, the consolidated scheduled balloon payments, inclusive of mortgages in default, for the next five calendar years are as follows ($ in millions): Year 2020 2021 2022 2023 2024 Property-Specific Balloon Payments Corporate Recourse Balloon Payments $ $ $ $ $ 50.5 17.0 $ $ — $ — $ — $ — — — 250.0 250.0 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. 19 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 with respect to the secured collateral over unsecured creditors in the event of a bankruptcy, liquidation or similar proceeding. None of our subsidiaries are guarantors of our unsecured debt; therefore assets of our subsidiaries may not be available to make payments on our unsecured indebtedness. We are the sole borrower of our unsecured indebtedness and none of our subsidiaries were guarantors of our unsecured indebtedness. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, holders of subsidiary debt, including trade creditors, will generally be entitled to payment of their claims from the assets of our subsidiaries before any assets are made available for distribution to us. 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 depend 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. 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. 20 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. 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. Federal tax legislation passed in 2017 and primarily effective in 2018 made numerous changes to tax rules. These changes do not affect the REIT qualification rules directly, but may otherwise affect us or our shareholders. For example, the top federal income tax rate for individuals was reduced to 37%, there is a new deduction available for certain Qualified Business Income that reduces the top effective tax rate applicable to ordinary dividends from REITs to 29.6% (through a 20% deduction for ordinary REIT dividends received) and various deductions are eliminated or limited. Most of the changes applicable to individuals are temporary. There are only minor changes to the REIT rules (other than the 20% deduction applicable to individuals for ordinary REIT dividends received). To date, the Internal Revenue Service has issued limited guidance on the changes made by the new legislation. It is unclear at this time whether Congress will address these issues or when the Internal Revenue Service will issue additional administrative guidance on the changes made by the 2017 legislation. 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. In 2019, we changed our dividend policy for our common shares to reduce the quarterly dividend amount as a result of our strategy of investing primarily in industrial assets. 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. 21 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 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. We maintain an At-the-Market offering program pursuant to which we may enter into forward sale agreements. Settlement provisions contained in any forward sale agreement could result in substantial dilution to our earnings per share or result in substantial cash payment obligations. In addition, in the case of our bankruptcy or insolvency, any forward sale agreement will automatically terminate, and we would not receive the expected proceeds from the sale of our common shares under such agreement. As of December 31, 2019, an aggregate of approximately 3.2 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. Severance payments under our executive severance policy. Substantial termination payments may be required to be paid under our executive severance policy applicable to and related agreements with our executives upon the termination of an executive. If those executive officers are terminated without cause, as defined, or resign for good reason, as defined, those executive officers may be entitled to severance benefits based on their current annual base salaries and trailing average of recent annual cash bonuses as defined in our executive severance policy and related agreements and the acceleration of certain non-vested equity awards. Accordingly, these payments may discourage a third party from acquiring us. Our ability to issue additional shares. Our declaration of trust authorizes 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, 2019, 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. 22 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. 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. 23 Item 1B. Unresolved Staff Comments There are no unresolved written comments that were received from the SEC staff relating to our periodic or current reports under the Securities Exchange Act of 1934. 24 Item 2. Properties Real Estate Portfolio General. As of December 31, 2019, we had equity ownership interests in approximately 130 consolidated real estate properties containing approximately 52.6 million square feet of rentable space, which were approximately 97.0% leased based upon net rentable square feet. Generally, all properties in which we have an interest are held through at least one property owner subsidiary. 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. Office Leases. We lease our headquarters office space in New York, New York and our satellite office in Dallas, Texas. Leverage. As of December 31, 2019, we had outstanding mortgages and notes payable of approximately $393.9 million with a weighted-average interest rate of approximately 4.5% and a weighted-average maturity of 11.1 years. Property Charts. The following tables list our properties by type, their locations, the net rentable square feet, the expiration of the current lease term and percent leased, as applicable, as of December 31, 2019. 25 LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL As of December 31, 2019 Property Location City State Net Rentable Square Feet Current Lease Term Expiration Percent Leased Single-tenant properties: 318 Pappy Dunn Blvd. 4801 North Park Dr. 16811 W. Commerce Dr. 255 143rd Ave. 9494 W. Buckeye Rd. 2455 Premier Row 3102 Queen Palm Dr. 7875 White Rd. SW 359 Gateway Dr. 493 Westridge Pkwy. 490 Westridge Pkwy. 1420 Greenwood Rd. 7225 Goodson Rd. 3931 Lakeview Corporate Dr. 4015 Lakeview Corporate Dr. 6255 East Minooka Rd. 1001 Innovation Rd. 3686 S. Central Ave. 749 Southrock Dr. 1020 W. Airport Rd. 1621 Veterans Memorial Pkwy E 1285 W. State Road 32 5352 Performance Way 27200 West 157th St. 10000 Business Blvd. 730 North Black Branch Rd. 750 North Black Branch Rd. 301 Bill Bryan Blvd. AL AL AZ AZ AZ FL FL GA GA GA GA GA GA IL IL IL IL IL IL IL IN IN IN KS KY KY KY KY Anniston Opelika Goodyear Goodyear Tolleson Orlando Tampa Austell Lavonia McDonough McDonough McDonough Union City Edwardsville Edwardsville Minooka Rantoul Rockford Rockford Romeoville Lafayette Lebanon Whitestown New Century Dry Ridge Elizabethtown Elizabethtown Hopkinsville 26 276,782 11/24/2029 165,493 5/31/2042 540,349 4/30/2026 801,424 9/30/2030 186,336 9/30/2026 205,016 3/31/2021 229,605 2/28/2023 604,852 5/31/2025 133,221 5/31/2030 676,000 10/31/2023 1,121,120 1/31/2028 296,972 8/31/2028 370,000 5/31/2024 769,500 9/30/2026 1,017,780 5/31/2030 1,034,200 9/30/2029 813,126 10/31/2034 93,000 12/31/2021 150,000 12/31/2024 188,166 10/31/2031 309,400 9/30/2024 741,880 1/31/2024 380,000 7/31/2025 446,500 1/31/2027 336,350 6/30/2025 167,770 6/30/2025 539,592 6/30/2025 424,904 6/30/2025 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL As of December 31, 2019 Property Location City State Net Rentable Square Feet Current Lease Term Expiration Percent Leased 4010 Airpark Dr. 1901 Ragu Dr. 5001 Greenwood Rd. 5417 Campus Dr. 113 Wells St. 2860 Clark St. 6938 Elm Valley Dr. 904 Industrial Rd. 43955 Plymouth Oaks Blvd. 16950 Pine Dr. 26700 Bunert Rd. Owensboro Owensboro Shreveport Shreveport North Berwick Detroit Kalamazoo Marshall Plymouth Romulus Warren KY KY LA LA ME MI MI MI MI MI MI 211,598 6/30/2025 443,380 12/19/2020 646,000 10/31/2026 257,849 3/31/2022 993,685 4/30/2024 189,960 10/22/2035 150,945 10/25/2021 246,508 9/30/2028 311,612 10/31/2024 500,023 8/24/2032 260,243 10/31/2032 1700 47th Ave North Minneapolis MN 18,620 12/31/2025 549 Wingo Rd. 1550 Hwy 302 554 Nissan Pkwy. 11555 Silo Dr. 11624 S. Distribution Cv. 6495 Polk Ln. 7670 Hacks Cross Rd. 8500 Nail Rd. 2880 Kenny Biggs Rd. 671 Washburn Switch Rd. 2203 Sherrill Dr. 121 Technology Dr. 5625 North Sloan Ln. 736 Addison Rd. Byhalia Byhalia Canton Olive Branch Olive Branch Olive Branch Olive Branch Olive Branch Lumberton Shelby Statesville Durham North Las Vegas Erwin 29-01 Borden Ave. / 29-10 Hunters Point Ave. Long Island City 351 Chamber Dr. Chillicothe 27 MS MS MS MS MS MS MS MS NC NC NC NH NV NY NY OH 855,878 3/31/2030 615,600 9/30/2027 1,466,000 2/28/2027 927,742 4/30/2024 1,170,218 6/30/2021 269,902 05/2023, 01/2024 268,104 2/28/2023 716,080 7/31/2029 423,280 11/30/2021 673,425 5/31/2036 639,800 12/31/2020 500,500 3/30/2026 180,235 9/30/2034 408,000 11/30/2026 140,330 3/31/2028 475,218 6/30/2026 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL As of December 31, 2019 Property Location City State Net Rentable Square Feet Current Lease Term Expiration Percent Leased 10590 Hamilton Ave. 1650 - 1654 Williams Rd. 7005 Cochran Rd. 191 Arrowhead Dr. 200 Arrowhead Dr. 675 Gateway Blvd. 600 Gateway Blvd. 700 Gateway Blvd. 10201 Schuster Way 10345 Philipp Pkwy. 27255 SW 95th Ave. 250 Rittenhouse Cir. 590 Ecology Ln. 50 Tyger River Dr. 70 Tyger River Dr. 231 Apple Valley Rd. 235 Apple Valley Rd. 27 Inland Pkwy. 101 Michelin Dr. Cincinnati Columbus Glenwillow Hebron Hebron Monroe Monroe Monroe Pataskala Streetsboro Wilsonville Bristol Chester Duncan Duncan Duncan Duncan Greer Laurens 5795 North Blackstock Rd. Spartanburg 1520 Lauderdale Memorial Hwy. 900 Industrial Blvd. 120 Southeast Pkwy Dr. 201 James Lawrence Rd. 633 Garrett Pkwy. 3820 Micro Dr. 200 Sam Griffin Rd. 1501 Nolan Ryan Expy. Cleveland Crossville Franklin Jackson Lewisburg Millington Smyrna Arlington 28 OH OH OH OH OH OH OH OH OH OH OR PA SC SC SC SC SC SC SC SC TN TN TN TN TN TN TN TX 264,598 12/31/2027 772,450 6/30/2020 458,000 7/31/2025 250,410 12/31/2021 400,522 12/31/2021 143,664 12/31/2023 994,013 8/31/2027 1,299,492 6/30/2030 N/A 12/31/2067 649,250 10/31/2026 508,277 10/31/2032 241,977 11/30/2026 420,597 7/14/2025 221,833 8/31/2022 408,000 1/31/2024 196,000 01/2024, 07/2024 177,320 4/30/2025 1,318,680 12/31/2034 1,164,000 1/31/2021 341,660 7/31/2024 851,370 3/31/2024 222,200 9/30/2026 289,330 12/31/2023 1,062,055 10/31/2027 310,000 3/31/2026 701,819 9/30/2021 1,505,000 4/30/2027 74,739 6/30/2027 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL As of December 31, 2019 Property Location City State Net Rentable Square Feet Current Lease Term Expiration Percent Leased 7007 F.M. 362 Rd. 2115 East Belt Line Rd. 3737 Duncanville Rd. 4005 E I-30 13863 Industrial Rd. 13901/14035 Industrial Rd. 13930 Pike Rd. 10535 Red Bluff Rd. 16407 Applewhite Rd. 2601 Bermuda Hundred Rd. 80 Tyson Dr. 291 Park Center Dr. 901 East Bingen Point Way 111 West Oakview Pkwy. Multi-tenant/vacant properties: 2415 U.S. Hwy 78 East 3301 Stagecoach Rd. NE 1133 Poplar Creek Rd. 6050 Dana Way Brookshire Carrollton Dallas Grand Prairie Houston Houston Missouri City Pasadena San Antonio Chester Winchester Winchester Bingen Oak Creek Moody Thomson Henderson Antioch TX TX TX TX TX TX TX TX TX VA VA VA WA WI AL GA NC TN 262,095 3/31/2035 356,855 12/31/2033 510,440 8/31/2023 215,000 3/31/2037 187,800 3/31/2035 132,449 3/31/2038 N/A 4/30/2032 257,835 8/31/2023 849,275 4/30/2027 1,034,470 6/30/2030 400,400 12/18/2031 344,700 5/31/2021 124,539 5/31/2024 164,007 6/30/2035 595,346 208,000 196,946 674,528 N/A N/A N/A Various 97% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% 0% The 2019 net effective annual base cash rent for the industrial portfolio as of December 31, 2019 was $4.24 per square foot, excluding Pataskala, OH, and the weighted-average remaining lease term was 8.3 years. Industrial Total 48,742,014 97.9% 29 LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART NON-INDUSTRIAL As of December 31, 2019 Property Location City State Net Rentable Square Feet Current Lease Term Expiration Percent Leased Single-tenant office properties: 8555 South River Pkwy. 1440 East 15th St. 3333 Coyote Hill Rd. 5600 Broken Sound Blvd. 9200 South Park Center Loop 3500 N. Loop Rd. 9601 Renner Blvd. 4455 American Way 133 First Park Dr. 9201 Stateline Rd. 1415 Wyckoff Rd. 4 Apollo Drive 1701 Market St. 1362 Celebration Blvd. 3476 Stateview Blvd. 3480 Stateview Blvd. 2401 Cherahala Blvd. 1401 Nolan Ryan Expy. Tempe Tucson Palo Alto Boca Raton Orlando McDonough Lenexa Baton Rouge Oakland Kansas City Wall Whippany Philadelphia Florence Fort Mill Fort Mill Knoxville Arlington 270 Abner Jackson Pkwy. Lake Jackson 3711 San Gabriel 2050 Roanoke Rd. 13651 McLearen Rd. Mission Westlake Herndon Multi-tenant/vacant office properties: 13430 North Black Canyon Fwy Phoenix 5200 Metcalf Ave. Overland Park 30 AZ AZ CA FL FL GA KS LA ME MO NJ NJ PA SC SC SC TN TX TX TX TX VA AZ KS 95,133 12/31/2033 28,591 7/31/2022 202,000 12/14/2023 143,290 2/14/2020 59,927 9/30/2029 62,218 8/31/2021 77,484 6/30/2030 70,100 10/31/2022 78,610 8/31/2027 155,925 4/30/2031 157,511 6/30/2021 123,734 11/30/2031 304,037 1/31/2024 32,000 2/14/2024 169,083 5/31/2024 169,218 5/31/2024 59,748 5/31/2027 161,808 1/31/2025 664,100 10/31/2036 75,016 6/30/2025 130,199 6/30/2021 159,644 5/30/2022 138,940 Various 320,198 N/A 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99% 100% 100% 100% 100% 80% 100% 100% 100% 100% 73% 0% LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART NON-INDUSTRIAL As of December 31, 2019 Property Location City State Net Rentable Square Feet Current Lease Term Expiration Percent Leased 1460 Tobias Gadson Blvd. 820 Gears Rd. Single-tenant other properties: 499 Derbyshire Dr. 30 Light St. 201-215 N. Charles St. Multi-tenant/vacant other properties: Charleston Houston Venice Baltimore Baltimore SC TX FL MD MD 50,246 10/31/2023 78,895 N/A 31,180 1/31/2055 N/A N/A 12/31/2048 8/31/2112 23% 0% 100% 100% 100% King St./1042 Fort St. Mall Honolulu HI 77,459 Various 43% 3,876,294 52,618,308 85.8% 97.0% The 2019 net effective annual base cash rent for the office/other portfolio as of December 31, 2019 was $15.03 per square foot, excluding single-tenant other property, and the weighted-average remaining lease term was 8.5 years. The 2019 net effective annual base cash rent for the consolidated portfolio as of December 31, 2019 was $5.03 per square foot, excluding Pataskala, OH and single-tenant other property, and the weighted-average remaining lease term was 8.4 years. 31 Property Location City State 143 Diamond Ave. 2500 Patrick Henry Pkwy. 231 N. Martingale Rd. 3902 Gene Field Rd. 1210 AvidXchange Ln. 6226 West Sahara Ave. 2221 Schrock Rd. Parachute McDonough Schaumburg St. Joseph Charlotte Las Vegas Columbus 500 Olde Worthington Rd. Westerville LEXINGTON NON-CONSOLIDATED PORTFOLIO PROPERTY CHART As of December 31, 2019 CO GA IL MO NC NV OH OH PA TX TX TX TX TX TX TX VA Jessup Allen Carrollton Houston Houston Irving Irving Katy Richmond Huntington WV Percent Owned 20% Net Rentable Square Feet Current Lease Term Expiration Percent Leased 49,024 4/30/2035 100% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 25% 20% 20% 111,911 6/30/2025 317,198 12/31/2022 100% 100% 98,849 6/30/2027 100% 201,450 4/30/2032 282,000 1/31/2029 42,290 7/6/2027 97,000 3/31/2026 150,000 8/7/2027 100% 100% 100% 100% 100% 292,700 3/14/2025 100% 138,443 12/31/2025 554,385 9/30/2032 78,895 1/10/2031 247,254 2/28/2025 100% 100% 87% 100% 268,445 3/31/2023 100% 274,000 8/31/2036 330,309 8/31/2030 68,693 11/30/2026 3,602,846 100% 87% 100% 98.5% 25 Lakeview Dr. 601 & 701 Experian Pkwy. 4001 International Pkwy. 10001 Richmond Ave. 810 Gears Rd. 6555 Sierra Dr. 8900 Freeport Pkwy. 2203 North Westgreen Blvd. 800 East Canal St. 500 Kinetic Dr. In addition, we have two non-consolidated joint ventures with a developer, which own developable parcels of land in Etna, Ohio. The 2019 net effective annual base cash rent for our proportionate share of the non-consolidated portfolio as of December 31, 2019 was $16.47 per square foot and the weighted-average remaining lease term was 9.8 years. 32 Development Projects The following is a summary of our industrial development projects as of December 31, 2019: Project (% owned) Market Property Type Estimated Sq. Ft. Estimated Project Cost ($000) GAAP Investment Balance as of 12/31/2019 ($000)(1) Lexington Amount Funded as of 12/31/2019 ($000) Estimated Completion Date Consolidated: Fairburn (90%) Atlanta, GA Industrial Rickenbacker (100%) Columbus, OH Industrial 910,000 320,000 $ $ 53,812 20,300 74,112 Non-consolidated: ETNA Park 70 (90%)(2) ETNA Park 70 East (90%)(2) Columbus, OH Industrial Columbus, OH Industrial TBD TBD TBD TBD $ $ $ $ 10,088 3,225 13,313 8,352 4,310 12,662 $ $ $ $ 7,687 2,805 10,492 8,644 4,351 12,995 4Q 20 1Q 21 TBD TBD (1) (2) GAAP investment balance is in real estate under construction for consolidated projects and in investments in non-consolidated entities for non-consolidated projects. Plans and specifications for completion have not been completed and the square footage, estimated project costs and completion date cannot be determined. Tenant Diversification The following table sets forth information about the 15 largest tenants/guarantors in our portfolio based on total base rental revenue as of December 31, 2019 (in '000's, except square feet). Tenants/Guarantors Property Type Lease Expirations Number of Leases Square Feet Leased Square Feet Leased as a % of the Consolidated Portfolio(1)(2) Dow Nissan Dana Undisclosed (4) Watco Xerox Morgan Lewis (5) Amazon Undisclosed (4) FedEx Hamilton Beach Asics Spitzer Vista Outdoor Wells Fargo Office Industrial Industrial Industrial Industrial Office Office Industrial Industrial Industrial Industrial Industrial Industrial Industrial Office 2036 2027 2021-2026 2031-2035 2038 2023 2024 2026-2030 2023-2027 2023 & 2028 2021 & 2026 2030 2035 2034 2024 1 2 7 3 1 1 1 3 3 2 2 1 2 1 2 664,100 2,971,000 2,053,359 1,090,383 132,449 202,000 289,432 2,515,492 2,132,290 292,021 1,645,436 855,878 449,895 813,126 338,301 Base Rent(3) 14,850 1.3% $ 5.8% 4.0% 2.1% 0.3% 0.4% 0.6% 4.9% 4.2% 0.6% 3.2% 1.7% 0.9% 1.6% 0.7% 12,760 9,941 7,139 6,773 6,642 5,655 5,637 5,527 5,479 4,948 4,388 4,344 4,195 4,101 Percentage of Base Rental Revenue(2)(3) 5.9% 5.0% 3.9% 2.8% 2.7% 2.6% 2.2% 2.2% 2.2% 2.2% 2.0% 1.7% 1.7% 1.7% 1.6% (1) (2) (3) (4) (5) Excludes vacant square feet. Total shown may differ from detail amounts due to rounding. Base Rent excludes tenant reimbursements and rent from prior tenants that are included in rental revenue and includes ancillary income. Lease restricts certain disclosures. Includes parking operations. 32 16,445,162 32.2% $ 102,379 40.5% 33 The following chart sets forth certain information regarding lease expirations for the next ten years in our consolidated portfolio: Year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Number of Lease Expirations 34 22 5 11 21 18 11 12 4 4 Square Feet 2,028,061 5,781,584 738,017 2,748,475 6,593,436 4,149,754 4,949,330 7,418,113 1,804,930 2,086,989 Base Rent ($000's)(1) 8,006 $ 25,587 6,744 14,669 28,348 18,796 18,392 27,791 11,855 5,388 Percentage of Base Rental Revenue(1) 3.1% 10.1% 2.7% 5.8% 11.1% 7.4% 7.2% 10.9% 4.7% 2.1% (1) Base Rent excludes tenant reimbursements that are included in rental revenue and includes ancillary income. The following chart sets forth the 2019 Base Rent ($000's) based on the credit rating of our consolidated tenants at December 31, 2019(1): Investment Grade Non-investment Grade Unrated Base Rent(2) Percentage of Base Rental Revenue(2) $ $ 125,509 60,016 72,234 257,759 48.7% 23.3% 28.0% 100.0% (1) (2) 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. Base Rent excludes tenant reimbursements that are included in rental revenue and includes ancillary income. 34 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. Cummins Inc. v. Lexington Columbus (Jackson Street) L.P. and Wells Fargo Trust Company, N.A. (State of Indiana, County of Bartholomew, in the Bartholomew Superior Court). On October 25, 2018, Cummins Inc., the tenant in the Columbus, Indiana office building, filed a complaint for declaratory relief against Lexington Columbus (Jackson Street) L.P. (“Lex Columbus”), the Company's property owner subsidiary, and Wells Fargo Trust Company, N.A., the trustee for the noteholders with a security interest in the office building. Despite failing to timely provide notice of intent to exercise a $5.0 million purchase option for the office building that was expressly due by July 15, 2018, where time was of the essence, Cummins Inc. asked the court for a declaration that it is entitled to purchase the building at the option price and to terminate the lease effective July 31, 2019. Cummins Inc. did not dispute that it failed to comply with the requirements of the purchase option, but alleged that it is entitled to relief under several equitable theories. Under the subject lease, as a result of the failure of Cummins Inc. to exercise its purchase option and to give notice of non-renewal, Cummins Inc.’s tenancy extended through July 31, 2024, with options to further extend for additional time periods. On December 19, 2019, Lex Columbus sold its interest in the Columbus, Indiana office building to Cummins Inc. for a gross purchase price of $46.9 million and terminated the Cummins lease as part of a settlement of the litigation. At the closing of the sale, Cummins Inc. paid rent for the period August 1, 2019 through December 18, 2019 in the amount of $1.9 million and reimbursed Lex Columbus for $0.7 million in expenses under the indemnity provision in the lease. The litigation was dismissed with prejudice on December 20, 2019. 35 Item 4. Mine Safety Disclosures Not applicable. Executive Officers of Lexington The following sets forth certain information relating to our executive officers: Name T. Wilson Eglin Age 55 Beth Boulerice Age 55 Joseph S. Bonventre Age 44 Brendan P. Mullinix Age 45 Lara Johnson Age 47 James Dudley Age 39 Mark Cherone Age 38 Patrick Carroll Age 56 Business Experience Mr. Eglin has served as our Chairman since April 2019, 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. Ms. Boulerice has served as our Chief Financial Officer and Treasurer since March 2019 and one of our Executive Vice Presidents since January 2013. Ms. Boulerice previously served as our Chief Accounting Officer from January 2011 to March 2019. 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. 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. Mullinix was appointed an executive officer in February 2018 and serves as our Executive Vice President focusing on investments. Mr. Mullinix joined us in 1996 and previously served as a Senior Vice President and a Vice President. Ms. Johnson was appointed an executive officer in February 2018 and serves as our Executive Vice President focusing on dispositions and strategic transactions. Prior to joining us in 2007, Ms. Johnson was an executive vice president of Newkirk Realty Trust and a member of its board of directors. Ms. Johnson previously served as senior vice president of Winthrop Financial Associates, as a vice president of Shelbourne I, Shelbourne II and Shelbourne III, three publicly-traded REITs, and as Director of Investor Relations for National Property Investors, Inc. Mr. Dudley was appointed an executive officer in February 2018 and has served as an Executive Vice President and Director of Asset Management. He has been with the company since 2006 and has held various roles within the Asset Management Department. Prior to joining the firm, Mr. Dudley was employed by ORIX Capital Markets. Mr. Cherone joined us as our Chief Accounting Officer in March 2019. Prior to joining us, Mr. Cherone was the Corporate Controller for Brandywine Realty Trust since 2012. Mr. Cherone is a Certified Public Accountant. Mr. Carroll has served as our Chief Risk Officer since March 2019 and one of our Executive Vice Presidents since January 2003. Mr. Carroll previously served as our Chief Financial Officer from May 1998 to March 2019 and our Treasurer from January 1999 to March 2019. 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. 36 Item 5. Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities PART II. Market Information. Our common shares are listed for trading on the NYSE under the symbol “LXP”. Holders. As of February 18, 2020, we had approximately 2,545 common shareholders of record. Dividends. Since our predecessor's formation in 1993, we have made quarterly distributions without interruption. 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. No shares were purchased from us under the plan in 2019, 2018 and 2017. Equity Compensation Plan Information. The following table sets forth certain information, as of December 31, 2019, with respect to our Amended and Restated 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) 34,000 $ — 34,000 $ 7.95 — 7.95 3,116,063 — 3,116,063 Recent Sales of Unregistered Securities. We did not issue any common shares during 2019 on an unregistered basis. 37 Share Repurchase Program. The following table summarizes common shares/OP units that were repurchased during the fourth quarter of 2019 pursuant to publicly announced repurchase plans(1): Period October 1-31, 2019 November 1-30, 2019 December 1-31, 2019 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 — $ — — — $ — — — — — — — — 10,306,255 10,306,255 10,306,255 10,306,255 (1) Shares repurchase authorization most recently announced on November 2, 2018, which has no expiration date. 38 Item 6. Selected Financial Data The following sets forth selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2019. The selected consolidated financial data should be read in conjunction with Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” below, and the Consolidated Financial Statements and the related notes set forth in Item 8 “Financial Statements and Supplementary Data”, below. ($000's, except per share data): Total gross revenues(1) Expenses applicable to revenues Interest and amortization expense Income from continuing operations Total discontinued operations Net income Net income attributable to Lexington Realty Trust shareholders Net income attributable to common shareholders Income from continuing operations per common share - basic Income from discontinued operations - basic Net income per common share - basic Income from continuing operations per common share - diluted Income from discontinued operations per common share - diluted Net income per common share - diluted Cash dividends declared per common share Net cash provided by operating activities Net cash provided by (used in) investing activities Net cash provided by (used in) financing activities Real estate assets, net, including real estate - intangible assets Total assets Mortgages, notes payable, credit facility and term loans, including discontinued operations Shareholders' equity Total equity Preferred share liquidation preference $ 2017 392,690 (223,162) (77,883) 86,629 2016 429,496 (213,403) (88,032) 96,450 $ $ 2019 325,969 (189,612) (65,095) 285,293 — $ 2018 396,971 (210,866) (79,880) 230,906 — 285,293 230,906 279,910 273,225 227,415 220,838 1.15 — 1.15 1.15 — 1.15 0.4125 192,184 (186,965) (53,156) 0.93 — 0.93 0.93 — 0.93 0.71 217,811 554,891 (707,611) — 86,629 85,583 79,067 0.33 — 0.33 0.33 — 0.33 0.7025 227,870 (283,074) 49,581 2015 $ 430,839 (222,853) (89,739) 113,209 1,682 114,891 111,703 105,100 0.44 0.01 0.45 0.44 0.01 0.45 0.68 — 96,450 95,624 89,109 0.38 — 0.38 0.37 — 0.37 0.69 239,810 11,384 (237,301) 245,020 (391,016) 41,426 2,856,014 3,180,260 2,555,659 2,953,840 3,309,900 3,553,020 3,028,326 3,441,467 3,397,922 3,808,403 1,311,977 1,705,107 1,724,719 96,770 1,492,483 1,329,871 1,346,678 96,770 2,068,867 1,323,901 1,340,835 96,770 1,860,598 1,392,777 1,412,491 96,770 2,190,740 1,440,029 1,462,531 96,770 (1) 2018 and 2017 amounts reclassified upon the adoption of ASC 842. 39 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In this discussion, we have included statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements may relate to our future plans and objectives, among other things. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause our results to differ, possibly materially, from those indicated in the forward-looking statements include, among others, those discussed above in “Risk Factors” in Part I, Item 1A of this Annual Report and “Cautionary Statements Concerning Forward-Looking Statements” in the beginning 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 for the years ended December 31, 2019 and 2018, and significant factors that could affect its prospective financial condition and results of operations. This discussion should be read together with the accompanying consolidated financial statements of the Company included herein and notes thereto. Overview General. We are a Maryland REIT focused on single-tenant industrial real estate investments. As of December 31, 2019, we had equity ownership interests in approximately 130 consolidated real estate properties, located in 31 states and encompassing approximately 52.6 million square feet, approximately 97.0% of which was leased. Business Strategy. Our current business strategy is focused on growing our portfolio of industrial properties, enhancing our cash flow stability, reducing lease rollover risk 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 General. Over the last several years, we have focused our investment activity primarily on income producing single-tenant net- leased industrial real estate assets versus office and other asset types. We have seen that 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 requirements and an increase in demand for regionalized distribution and e-commerce facilities. In addition, warehouse/distribution industrial assets generally require less capital for tenant improvement packages upon re-leasing than are required by office assets allowing us to retain cash flow. Our industrial investments generally have one or more of the following characteristics (1) an attractive geographic location, (2) adaptability to a variety of users, including multi-tenant use and (3) a cost less than replacement cost or reflecting a below market rent. We prefer newer warehouse/distribution facilities to other industrial assets because of their adaptability of use. In 2019 and 2018, we only acquired warehouse/distribution facilities. In 2019, we acquired $703.8 million of industrial investments, which is an increase of $388.2 million compared to 2018 investment activity of $315.6 million. As of December 31, 2019, our percentage of gross book value from industrial assets increased to 81.5% compared to 71.2% as of December 31, 2018 as a result of our acquisition and recycling efforts. We expect to continue to recycle our non-industrial portfolio into warehouse/distribution facilities. While our capital recycling strategy may have a near-term dilutive impact on earnings due to the sales of revenue-producing properties, we believe this strategy will benefit shareholder value in the long term. Industrial Market. The challenge we face is finding industrial investments that will provide an attractive return without compromising our real estate or tenant credit 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 industrial real estate assets has increased, which drives up the cost of our investments and drives down the yield we are able to obtain. Lease Term. Historically, we have acquired long-term leases with escalating rents, which we believe strengthen our future cash flows by providing a hedge against rising interest rates, extending our weighted-average lease term and balancing our lease expiration schedule. 40 Our industrial investment underwriting focuses less on tenant credit than our historical office investment underwriting as we focus on real estate characteristics. This has allowed us to acquire certain short-term leased industrial assets, which may be acquired at a discount compared to long-term leased industrial assets and allow for a value-add strategy through the lease renewal process. Development. Following the economic downturn of the late 2000s, we provided build-to-suit financing for developers. However, the demand for industrial assets in the last several years has allowed developers to obtain construction financing from traditional banks and build on a speculative basis, which has limited our opportunities in the industrial build-to-suit market. In an effort to gain more exposure to the build-to-suit industrial market, in December 2017, we acquired a 90% interest in a joint venture with a developer that acquired a developable parcel of land for industrial build-to-suit projects. In December 2018, a portion of the land was distributed to us and a ground tenant is developing the first build-to-suit project for a 1.2 million square foot warehouse/ distribution facility for its own use on such portion, which is expected to be completed in 2020. During 2019, we increased our development pipeline with three more developable parcels of land, one of which we wholly own and two of which we hold a 90% interest in. These land parcels are zoned to develop industrial real estate assets containing up to 2.9 million square feet. Leasing Trends General. Re-leasing properties that are currently vacant or as leases expire at favorable effective rates is a primary area of focus for our asset management. Office Assets. Renewals of our office investments are time sensitive due to the suburban location and the ability of the renewing tenant to obtain alternative space. In addition, renewal rents may be lower than expiring rents and may carry higher tenant improvement allowances than industrial lease renewals. When we obtain a renewal at an office investment, we generally seek to recycle out of the office investment and into an industrial investment. Industrial Assets. Renewals of industrial investments, particularly warehouse/distribution facilities, are generally not as time sensitive due to the minimal capital expenditures upon renewal as compared with office property renewals. Multi-Tenant. 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. Lease Protections. 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. Tenant Credit. 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. Leasing Activity. During 2019, we entered into 23 new leases and lease extensions encompassing approximately 6.4 million square feet. The average GAAP base rent, excluding tenant reimbursements, on these extended leases was approximately $7.12 per square foot compared to the average GAAP base rent, excluding tenant reimbursements, on these leases before extension of $6.62 per square foot. The weighted-average cost of tenant improvements and lease commissions during 2019 was approximately $7.78 per square foot for new leases and $2.48 per square foot for extended leases. 41 Non-Recourse Mortgage Loan Resolutions We may convey in foreclosure or via a deed-in-lieu of foreclosure certain properties in which we have an interest if we deem the balance of the non-recourse mortgage loans encumbering the properties in excess of the value of the property collateral. As of December 31, 2019, two of our office investments were in receivership and we expect to dispose of such properties in foreclosure sales during 2020. 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 loan balance. Impairment charges During 2019 and 2018, we incurred impairment charges on certain of our assets of $5.3 million and $95.8 million, respectively, due to each asset's carrying value being below its estimated fair value. Most of the impairment charges in 2019 and 2018 were incurred on non-core assets due to anticipated shortened holding periods. The real estate assets we sold that resulted in impairment charges were primarily non-core assets including land investments, retail properties and under performing and multi-tenant properties. We cannot estimate if we will incur, or the amount of, future impairment charges on our assets. See Part I, Item 1A “Risk Factors”, of this Annual Report. 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. 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. Our management generally retains a third party to assist in the allocations. 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, which may consist of in-place leases and/or tenant relationship values, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships is amortized to expense over the applicable lease term plus expected renewal periods. 42 Revenue Recognition. We recognize lease revenue on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. 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. We recognize lease termination fees as rental revenue in the period received and write off unamortized leases related intangibles and other lease related account balances, provided that there are no further obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period. Impairment of Real Estate. We evaluate 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. We consider the strategic decisions regarding the future plans to sell properties and other market factors. We regularly update significant estimates and assumptions including rental rates, capitalization rates and discount rates, which are included in the anticipated future undiscounted cash flows 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. New Accounting Pronouncements For a discussion of new accounting pronouncements, see note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in this report. Cybersecurity While we have yet to experience a cyber attack that disrupted our operations in any material respect, all companies, including ours, are increasing the resources allocated to address and protect against cybersecurity threats. Due to the small size of our organization, we rely on third-parties to provide advice and services with respect to cybersecurity, which is not currently, but could become, a material cost. Environmental, Social and Governance ESG matters are becoming a central focus for our shareholders, employees, tenants, suppliers, creditors, and communities. We expect our ESG objectives and the resources allocated to ESG matters will continue to evolve over time as we assess strategies that are most appropriate for our organization. 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, (3) property specific debt, (4) corporate level borrowings, (5) commitments from co-investment partners and (6) proceeds from the sales of our investments. We believe our ratio of dividends to Funds From Operations is conservative, and allows us to retain cash flow for internal growth. 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. 43 Cash flows from operations as reported in the Consolidated Statements of Cash Flows totaled $192.2 million for 2019 and $217.8 million for 2018. Cash flows from operations have been decreasing primarily due to dispositions as we reshape our portfolio to have a higher concentration of industrial assets versus other asset types. Industrial assets, as compared with office assets, generally provide for less rental revenue due to lower capitalization rates than can be obtained from office assets. 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 provided by (used in) investing activities totaled $(187.0) million in 2019 and $554.9 million in 2018. Cash used in investing activities related primarily to investments in real estate properties, real estate under construction, payments for capital improvements and deferred leasing costs, as well as, investments in non-consolidated entities and changes in real estate deposits. Cash provided by investing activities primarily consisted of proceeds from the sale of properties and distributions from non- consolidated entities in excess of accumulated earnings. Therefore, the fluctuation in investing activities relates primarily to the timing of investments and dispositions. Net cash used in financing activities totaled $53.2 million in 2019 and $707.6 million in 2018. Cash used in financing activities related primarily to dividend and distribution payments, repurchases of common shares, payments of deferred financing costs, debt payments and early extinguishment of debt charges. Cash provided by financing activities was primarily attributable to net proceeds from the issuance of common shares and non-recourse mortgage and corporate borrowings. 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. Due to our borrowing capacity under our unsecured revolving credit facility and proceeds from dispositions and mortgage financings, we did not access the public debt markets in 2019 and 2018. During 2015, our Board of Trustees authorized the repurchase of up to 10.0 million common shares and increased this authorization by 10.0 million common shares in 2018. The share repurchase program does not expire. During 2019 and 2018, we repurchased and retired approximately 0.4 million and 5.9 million common shares, respectively, at an average price of $8.13 and $8.05, respectively, per common share under the repurchase program. Approximately 10.3 million common shares remain available for repurchase at December 31, 2019. 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. We expect to continue to access debt and equity 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 more difficult at times. Operating Partnership Structure. Our operating partnership 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 as consideration and, as a result, we expect the percentage of common shares that will be outstanding in the future relative to OP units will increase, and income attributable to noncontrolling interests should be expected to decrease, as such OP units are redeemed for our common shares. Furthermore, our credit agreement requires us to own at least 95.5% of a subsidiary for the assets of such subsidiary to be included in the calculation of our credit agreement covenants, which incents us to maintain our percentage ownership in LCIF and not issue additional OP units. As of December 31, 2019, there were 2.8 million OP units outstanding which were convertible into 3.2 million common shares assuming we satisfied redemptions entirely with common shares. 44 Property Specific Debt. As of December 31, 2019, our consolidated property owner subsidiaries, including subsidiaries that are in default, had aggregate balloon payments of $50.5 million and $17.0 million maturing in 2020 and 2021, 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 ($122.7 million at December 31, 2019), property sale proceeds or borrowing capacity on our primary credit facility ($600.0 million as of December 31, 2019, 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 2019 and 2018, we obtained or assumed, through our consolidated property owner subsidiaries, $41.9 million and $26.4 million, respectively, in non-recourse mortgage loans with interest rates ranging from 4.3% to 5.4% and maturity dates ranging from 2022 to 2032. Our secured debt decreased to approximately $393.9 million at December 31, 2019 compared to $575.5 million at December 31, 2018. We expect to continue to use property specific, non-recourse mortgages in certain situations as we believe that by properly matching a debt obligation, including the balloon maturity risk, with the terms of a lease, our cash-on-cash returns increase and the exposure to residual valuation risk is reduced. 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. Corporate Borrowings. The following Senior Notes were outstanding as of December 31, 2019: 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. A summary of the significant terms of our unsecured credit agreement, as of December 31, 2019, are as follows: $600.0 Million Revolving Credit Facility(1) $300.0 Million Term Loan(1) Maturity Date 02/2023 01/2025 Interest Rate LIBOR + 0.90% LIBOR + 1.00% (1) In February 2019, we: (i) increased the total commitment of the revolving credit facility from $505.0 million to $600.0 million; (ii) extended the maturity date of the revolving credit facility from August 2019 to February 2023 and allowed for the extension to February 2024 at our option; and (iii) reduced the applicable margin rates on both the revolving credit facility and term loan due in 2021. In July 2019, we extended the maturity of the $300 million term loan to January 2025 and swapped the LIBOR portion of the interest rate to obtain a current fixed rate of 2.732% per annum. At December 31,2019, the revolving credit facility had no borrowings outstanding and availability of $600.0 million, subject to covenant compliance. As of December 31, 2019, 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 bore interest at a fixed rate of 6.804% through April 2017 and, thereafter, bears interest at a variable rate of three month LIBOR plus 170 basis points. These securities are (1) classified as debt, (2) due in 2037 and (3) currently redeemable by us. As of December 31, 2019 and 2018, there were $129.1 million of these securities outstanding. 45 Co-investment Programs and Joint Ventures. We have entered into co-investment programs and joint ventures with institutional investors and other real estate companies to 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 investment decisions unilaterally relating to the assets and limit our ability to deploy capital. Due to our size, we do not expect to enter into co- investment programs and joint ventures seeking future investments, except with developers for industrial development projects. In 2018, we sold 21 office assets to a newly-formed joint venture, which we refer to as NNN JV, in which we acquired a 20% interest. We believe this joint venture complemented our current business strategy by partially reducing our exposure to office assets. 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 2019, we disposed of our interests in 22 properties for an aggregate gross price of $621.6 million. Additionally, we disposed of five properties in our non-consolidated joint ventures for an aggregate gross price of $176.9 million. These proceeds were used to retire indebtedness encumbering properties in which we have an interest and corporate debt obligations and make investments. As capitalization rates have compressed in recent years, 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. 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, 2019, we had approximately $1.3 billion of indebtedness, consisting of mortgages and notes payable outstanding, a term loan, 4.40% and 4.25% Senior Notes and Trust Preferred Securities, with a weighted-average interest rate of approximately 4.0%. 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 $122.8 million in cash dividends to our common and preferred shareholders in 2019. 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. 46 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, rental rates and property type. 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. However, we believe that, over the long term, our focus on industrial assets will result in significant savings compared to investing in office assets due to the lower operating and retenanting costs of industrial assets compared to office assets. Property Expansions. Under certain leases, tenants have the right to expand the facility located on a property in which we have an interest. We expect our property owner subsidiaries may fund these property expansions with either additional secured borrowings, the repayment of which will be funded out of rental increases under the leases covering the expanded properties, or capital contributions from us. Ground Leases. The tenants of properties in which we have an interest generally pay the rental obligations on ground leases either directly to the fee holder or to our property owner subsidiary as increased rent. However, our property owner subsidiaries are responsible for these payments (1) under certain leases without reimbursement and (2) 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. 47 Results of Operations Year ended December 31, 2019 compared with December 31, 2018. The decrease in total gross revenues in 2019 of $71.0 million was primarily attributable to a decrease in rental revenue of $74.7 million, offset by an increase in other income of $3.7 million. The decrease in rental revenue was primarily due to (i) a reduction of $79.1 million of rental revenue due to property sales, (ii) a decrease of $9.9 million due to changes with occupancy, and (iii) the acceleration of below-market lease intangible accretion on three retail assets of $10.4 million in 2018, partially offset by revenue from properties acquired in 2019 and 2018 of $27.4 million. The increase in other income was primarily due to an increase in fee income related to fees earned from NNN JV, which was formed in 2018. Depreciation and amortization decreased by $20.6 million primarily due to the sale of real estate properties in 2019 and 2018, partially offset by depreciation and amortization of acquired properties. The decrease in property operating expense of $0.7 million was primarily due to reduced operating costs associated with sold properties, including vacant properties, partially offset by 2019 and 2018 property acquisitions with operating expense responsibilities. The decrease in general and administrative expense of $0.9 million was primarily due to a decrease in payroll costs due to retirements and terminations of certain employees. The decrease in interest and amortization expense of $14.8 million was primarily due to a decrease in our overall borrowing rate and amount of debt outstanding during the period. The change in debt satisfaction charges, net, of $1.9 million was primarily due to the timing of debt retirements. The decrease in impairment charges of $90.5 million related to the timing of impairment charges recognized on certain properties, primarily due to potential sales, vacancies and lack of leasing prospects. The impairment charges of $95.8 million in 2018 were primarily due to our intention to dispose of non-industrial assets, thus shortening the holding period of certain assets. The decrease in gains on sales of properties of $2.0 million related to the timing of property dispositions. The change in equity in earnings (losses) of non-consolidated entities of $1.2 million was primarily due to the timing of gains on sales of properties and the formation of the NNN JV in 2018. The increase in net income attributable to noncontrolling interests of $1.9 million was primarily due to an increase in net income of LCIF in 2019 compared to 2018, primarily due to gains recognized on sales of properties. The increase in net income attributable to common shareholders of $52.4 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. The analysis of the results of operations for the year ended December 31, 2018 compared with December 31, 2017 is included in the Company's 2018 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, on March 13, 2019. 48 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 two comparable reporting periods, excluding properties encumbered by mortgage loans in default, as applicable. We define NOI as operating revenues (rental income (less GAAP rent adjustments and lease termination income), and other property income) less property operating expenses. As same-store NOI excludes the change in NOI from acquired and disposed of 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 our operating performance. However, same-store NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our 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 our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. We believe that net income is the most directly comparable GAAP measure to same-store NOI. The following presents our consolidated same-store NOI, for the years ended December 31, 2019 and 2018 ($000): Total cash base rent Tenant reimbursements Property operating expenses Same-store NOI 2019 2018 214,081 22,044 (28,226) 207,899 $ $ 216,563 17,791 (22,924) 211,430 $ $ Our reported same-store NOI decreased from 2018 to 2019 by 1.7%. As of December 31, 2019 and 2018, our historical same-store square footage leased was 96.7% and 98.5%, respectively. The decrease in same-store NOI between periods primarily related to a decrease in cash base rent and an increase in non-reimbursed operating expenses, which was primarily attributable to property vacancies and renewals or retenanting of office properties at lower rental rates in order to obtain long-term leases. 49 Below is a reconciliation of net income to same-store NOI for periods presented: Net income Interest and amortization expense Provision for income taxes Depreciation and amortization General and administrative Transaction costs Non-operating/advisory income Gains on sales of properties Impairment charges Debt satisfaction 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: Acquisitions and dispositions Properties in default Same-Store NOI Funds From Operations Twelve Months ended December 31, 2019 2018 $ 285,293 $ 230,906 65,095 1,379 147,594 30,785 202 (6,180) (250,889) 5,329 4,517 (2,890) (2,226) (14,502) 1,191 (443) 264,255 (57,320) 964 207,899 $ $ 79,880 1,728 168,191 31,662 260 (3,491) (252,913) 95,813 2,596 (1,708) (2,755) (20,968) 1,686 (10,132) 320,755 (103,640) (5,685) 211,430 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 (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sales of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO.” FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs. We present FFO available to common shareholders and unitholders - basic and also present FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common shares, are converted at the beginning of the period. We also present Adjusted Company FFO available to all equityholders and unitholders - diluted, which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe are not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently requested by securities 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. 50 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 2019 and 2018 (dollars in thousands, except share and per share amounts): 2019 2018 FUNDS FROM OPERATIONS: Basic and Diluted: Net income attributable to common shareholders $ 273,225 $ 220,838 Adjustments: Depreciation and amortization Impairment charges - real estate Noncontrolling interests - OP units Amortization of leasing commissions Joint venture and noncontrolling interest adjustment Gains on sales of properties, including non-consolidated entities and net of tax FFO available to common shareholders and unitholders - basic Preferred dividends Amount allocated to participating securities FFO available to all equityholders and unitholders - diluted Debt satisfaction charges, net, including non-consolidated entities Other(1) 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: Weighted-average common shares outstanding - basic EPS Operating partnership units(2) Weighted-average common shares outstanding - basic FFO Diluted: Weighted-average common shares outstanding - diluted EPS Unvested share-based payment awards Operating partnership units(2) Preferred shares - Series C Weighted-average common shares outstanding - diluted FFO 144,792 5,329 4,376 2,802 9,449 (255,048) 184,925 6,290 395 191,610 4,773 202 164,261 95,813 2,528 3,930 4,063 (254,269) 237,164 6,290 287 243,741 2,596 (10,038) $ $ $ $ 196,585 $ 236,299 0.77 $ 0.99 0.78 0.80 $ $ 0.99 0.96 237,642,048 3,490,147 241,132,195 237,934,515 22,813 3,490,147 4,710,570 246,158,045 236,666,375 3,616,120 240,282,495 240,810,990 — — 4,710,570 245,521,560 (1) "Other" primarily consisted of transaction related costs in 2019 and the acceleration of below-market lease intangible accretion in 2018. (2) Includes OP units other than OP units held by us. 51 Off-Balance Sheet Arrangements As of December 31, 2019, 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, 2019 ($000's): Mortgages and notes payable(1) Term loans payable Senior notes payable Trust preferred securities Interest payable(2) Operating lease obligations(3) 2020 2021 2022 2023 2024 $ 71,099 $ 36,597 $ 18,564 $ 20,136 $ 13,856 2025 and Thereafter $ 233,620 Total $ 393,872 — — — — — — — — — 53,356 5,236 47,715 5,060 46,254 5,135 — — 300,000 250,000 250,000 — 39,740 5,279 — 28,218 5,301 — 129,120 124,349 25,621 300,000 500,000 129,120 339,632 51,632 $ 129,691 $ 89,372 $ 69,953 $ 315,155 $ 297,375 $ 812,710 $ 1,714,256 1. Consists of principal and balloon payments. 2. Consists of fixed-rate debt and variable-rate debt at the rate in effect at December 31, 2019. Variable-rate debt as of December 31, 2019 is comprised of $129.1 million Trust Preferred Securities (90-day LIBOR plus 1.7% and matures 2037). 3. Includes ground lease, office rents and equipment lease payments. 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. We had four development projects as of December 31, 2019, which are described in "Properties" in Part I, Item 2 of this Annual Report. Due to the early stage of development of each project and the uncertainty of construction schedules at such stage, we are unable to estimate the timing of the required fundings for development projects. 52 Item 7A. Quantitative and Qualitative Disclosure about Market-Risk Our exposure to market risk relates primarily to our variable-rate indebtedness not subject to interest rate swaps and our fixed- rate debt. Our consolidated aggregate principal variable-rate indebtedness was $129.1 million and $174.1 million at December 31, 2019 and 2018, respectively, which represented 9.8% and 11.6%, respectively, of our aggregate principal consolidated indebtedness. During 2019 and 2018, our variable-rate indebtedness had a weighted-average interest rate of 3.8% and 3.2%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for 2019 and 2018 would have increased by $3.2 million and $4.9 million, respectively. As of December 31, 2019 and 2018, our aggregate principal consolidated fixed-rate debt was $1.2 billion and $1.3 billion, respectively, which represented 90.2% and 88.4%, respectively, of our aggregate principal indebtedness. For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, we derive or estimate fair values using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated cash flows may be subjective and imprecise. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate debt would warrant as of December 31, 2019 and is indicative of the interest rate environment as of December 31, 2019, 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 $1.2 billion as of December 31, 2019. 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 have historically entered 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, 2019, we had four interest rate swap agreements in our consolidated portfolio, all of which expire in January 2025. 53 Item 8. Financial Statements and Supplementary Data Financial Statements and Supplementary Data Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018 Consolidated Statements of Operations for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 Consolidated Statements of Changes in Equity for the years ended December 31, 2019, December 31, 2018 and December 31, 2017 Consolidated Statements of Cash Flows as of December 31, 2019, December 31, 2018 and December 31, 2017 Notes to Consolidated Financial Statements 55 58 59 60 61 64 65 54 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Trustees of Lexington Realty Trust Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Lexington Realty Trust and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 for the year ended December 31, 2019 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Real Estate, net - Determination of Impairment Indicators and Impairment - Refer to Notes 2 and 5 of the financial statements Critical Audit Matter Description The Company’s evaluation of real estate assets for impairment involves an initial assessment of each real estate asset to determine whether events or changes in circumstances exist that indicate that the carrying value of real estate assets may no longer be recoverable. Possible indications of impairment may include whether there is a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of before the end of its previously estimated useful life. When such events or changes in circumstances exist, the Company evaluates its real estate assets for impairment by comparing anticipated future undiscounted cash flows expected to be derived from the asset to the respective carrying value. If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the fair value of the asset. An asset is determined to be impaired if the asset's carrying value exceeds its estimated fair value. 55 The Company makes significant assumptions to estimate its holding period of an asset. Additionally, for those real estate assets where indications of impairment have been identified, the Company makes significant estimates and assumptions related to rental rates and capitalization rates included in the estimated future undiscounted cash flows and, as necessary, the discount rate applied to determine the fair value of the assets. Changes in these assumptions could have a significant impact on the identification of real estate assets for impairment, the estimated fair value of the asset, or the amount of any impairment charge recognized. Total real estate assets as of December 31, 2019, were $3,744 million, net of impairment losses recorded in 2019 of $5.3 million. Auditing management’s assumptions requires evaluation of whether management appropriately identified impairment indicators relating to the asset’s estimated holding periods and whether management’s anticipated future undiscounted cash flows and estimated fair values are reasonable. Because of the subjectivity of these assumptions, our audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures to evaluate management’s estimated holding period of an asset and to evaluate the assumptions used in undiscounted cash flows and fair value models included the following, among others: • We tested the effectiveness of controls over management's evaluation of real estate assets for impairment, specifically over identification of possible events or changes in estimated holding period of an asset, controls over rental rates and capitalization rates used in management’s anticipated future undiscounted cash flows, as well as controls over management selection and estimate of discount rates in estimating fair value of real estate assets. • We evaluated the Company’s assessment of estimated holding periods by: a. Comparing management’s previous holding period assumptions to the Company’s subsequent sale of an asset. b. Discussing with accounting and operations management the Company’s intent regarding sale or holding onto the asset. c. Evaluating the consistency of the assumptions used with obtained audit evidence in other audit areas. d. Reading minutes of the executive committee and board of directors’ meetings to identify any indicators that a long-lived asset will likely be sold or otherwise disposed of before the end of its previously estimated useful life. • We evaluated the Company’s determination of anticipated future undiscounted cash flows for those assets with impairment indicators and the fair value for those that the carrying value was determined not to be recoverable by performing the following: With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology; (2) significant assumptions made, including testing the source information underlying the determination of the discount rate, rental rates, and capitalization rates; and (3) mathematical accuracy of the calculation by developing a range of independent estimates based on external market sources and comparing our estimates to the assumptions utilized by management. /s/ Deloitte & Touche LLP New York, New York February 20, 2020 We have served as the Company's auditor since 2017. 56 Report of Independent Registered Public Accounting Firm To the shareholders and the Board of Trustees of Lexington Realty Trust Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Lexington Realty Trust and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 20, 2020, expressed an unqualified opinion on those financial statements. Basis for Opinion 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 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting 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. /s/ Deloitte & Touche LLP New York, New York February 20, 2020 57 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($000, except share and per share data) As of December 31, Assets: Real estate, at cost Real estate - intangible assets Investments in real estate under construction Less: accumulated depreciation and amortization Real estate, net Assets held for sale Operating right-of-use assets, net Cash and cash equivalents Restricted cash Investments in non-consolidated entities Deferred expenses (net of accumulated amortization of $23,382 in 2019 and $27,397 in 2018) Rent receivable - current Rent receivable - deferred Other assets Total assets Liabilities and Equity: Liabilities: Mortgages and notes payable, net Term loan payable, net Senior notes payable, net Trust preferred securities, net Dividends payable Liabilities held for sale Operating lease liabilities Accounts payable and other liabilities Accrued interest payable Deferred revenue - including below market leases (net of accumulated accretion of $11,876 in 2019 and $17,606 in 2018) 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, 254,770,719 and 235,008,554 shares issued and outstanding in 2019 and 2018, respectively Additional paid-in-capital Accumulated distributions in excess of net income Accumulated other comprehensive income (loss) Total shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity 2019 2018 $ $ $ 3,320,574 409,756 13,313 3,743,643 887,629 2,856,014 — 38,133 122,666 6,644 57,168 18,404 3,229 66,294 11,708 3,180,260 390,272 297,439 496,870 127,396 32,432 — 39,442 29,925 7,897 20,350 13,518 1,455,541 3,090,134 419,612 — 3,509,746 954,087 2,555,659 63,868 — 168,750 8,497 66,183 15,937 3,475 58,692 12,779 2,953,840 570,420 298,733 496,034 127,296 48,774 386 — 30,790 4,523 20,531 9,675 1,607,162 94,016 94,016 25 2,976,670 (1,363,676) (1,928) 1,705,107 19,612 1,724,719 3,180,260 $ 24 2,772,855 (1,537,100) 76 1,329,871 16,807 1,346,678 2,953,840 $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements. 58 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($000, except share and per share data) Years ended December 31, 2019 2018 2017 $ 320,622 $ 395,339 $ Gross revenues: Rental revenue Other income Total gross revenues Expense applicable to revenues: Depreciation and amortization Property operating General and administrative Litigation settlement Non-operating income Interest and amortization expense Debt satisfaction gains (charges), net Impairment charges and loan losses Gains on sales of properties Income before provision for income taxes, equity in earnings (losses) of non-consolidated entities Provision for income taxes Equity in earnings (losses) of non-consolidated entities Net income Less net income attributable to noncontrolling interests Net income attributable to Lexington Realty Trust shareholders Dividends attributable to preferred shares - Series C Allocation to participating securities Net income attributable to common shareholders Net income attributable to common shareholders - per common share basic Weighted-average common shares outstanding - basic Net income attributable to common shareholders - per common share diluted $ $ $ 5,347 325,969 (147,594) (42,018) (30,785) — 2,262 (65,095) (4,517) (5,329) 250,889 283,782 (1,379) 2,890 285,293 (5,383) 279,910 (6,290) (395) 273,225 1.15 $ $ 1,632 396,971 (168,191) (42,675) (31,662) — 1,859 (79,880) (2,596) (95,813) 252,913 230,926 (1,728) 1,708 230,906 (3,491) 227,415 (6,290) (287) 220,838 0.93 $ $ 391,641 1,049 392,690 (173,968) (49,194) (34,158) (2,050) 9,329 (77,883) 6,196 (44,996) 63,428 89,394 (1,917) (848) 86,629 (1,046) 85,583 (6,290) (226) 79,067 0.33 237,642,048 236,666,375 237,758,408 1.15 $ 0.93 $ 0.33 Weighted-average common shares outstanding - diluted 237,934,515 240,810,990 241,537,837 The accompanying notes are an integral part of these consolidated financial statements. 59 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 $ 2019 2018 2017 $ 285,293 $ 230,906 $ 86,629 (2,004) (2,004) 283,289 (5,383) 277,906 $ (989) (989) 229,917 (3,491) 226,426 $ 2,098 2,098 88,727 (1,046) 87,681 The accompanying notes are an integral part of these consolidated financial statements. 60 S E I R A I D I S B U S D E T A D I L O S N O C D N A T S U R T Y T L A E R N O T G N I X E L Y T I U Q E N I S E G N A H C F O S T N E M E T A T S D E T A D I L O S N O C ) s t n u o m a e r a h s t p e c x e 0 0 0 $ ( 9 1 0 2 , 1 3 r e b m e c e D d e d n e r a e Y g n i l l o r t n o c n o N s t s e r e t n I e v i s n e h e r p m o C ) s s o L ( e m o c n I d e t a l u m u c c A r e h t O d e t a l u m u c c A s n o i t u b i r t s i D f o s s e c x E n i e m o c n I t e N l a n o i t i d d A - n i - d i a P l a t i p a C n o m m o C s e r a h S f o r e b m u N n o m m o C s e r a h S d e r r e f e r P s e r a h S f o r e b m u N d e r r e f e r P s e r a h S l a t o T s r e d l o h e r a h S t s u r T y t l a e R n 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f o e s a h c r u p e R g n i l l o r t n o c n o n f o n o i t a c o l l a e R s s o l e v i s n e h e r p m o c r e h t O s t s e r e t n i s n o i t u b i r t s i d / s d n e d i v i D e m o c n i t e N s e r a h s o t s e r a h s n o m m o c f o e s a h c r u p e R s n o i t a g i l b o x a t e l t t e s n o m m o c e e y o l p m e f o e r u t i e f r o F 61 2 1 6 , 9 1 $ ) 8 2 9 , 1 ( $ ) 6 7 6 , 3 6 3 , 1 ( $ 0 7 6 , 6 7 9 , 2 $ $ 9 1 7 , 0 7 7 , 4 5 2 6 1 0 , 4 9 $ 0 0 4 , 5 3 9 , 1 9 1 7 , 4 2 7 , 1 $ 9 1 0 2 , 1 3 r e b m e c e D e c n a l a B . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T S E I R A I D I S B U S D E T A D I L O S N O C D N A T S U R T Y T L A E R N O T G N I X E L Y T I U Q E N I S E G N A H C F O S T N E M E T A T S D E T A D I L O S N O C ) s t n u o m a e r a h s t p e c x e 0 0 0 $ ( 8 1 0 2 , 1 3 r e b m e c e D d e d n e r a e Y g n i l l o r t n o c n o N e v i s n e h e r p m o C s t s e r e t n I e m o c n I d e t a l u m u c c A r e h t O d e t a l u m u c c A s n o i t u b i r t s i D f o s s e c x E n i e m o c n I t e N l a n o i t i d d A - n i - d i a P l a t i p a C n o m m o C s e r a h S f o r e b m u N n o m m o C s e r a h S d e r r e f e r P s e r a h S f o r e b m u N d e r r e f e r P s e r a h S l a t o T s r e d l o h e r a h S t s u r T y t l a e R n o t g n i x e L 4 3 9 , 6 1 $ 5 6 0 , 1 $ ) 4 2 7 , 9 8 5 , 1 ( $ 0 2 5 , 8 1 8 , 2 $ 4 2 $ 1 8 0 , 9 8 6 , 0 4 2 6 1 0 , 4 9 $ 0 0 4 , 5 3 9 , 1 5 3 8 , 0 4 3 , 1 $ 7 1 0 2 , 1 3 r e b m e c e D e c n a l a B — — — — — ) 9 8 1 ( — ) 9 2 4 , 3 ( 1 9 4 , 3 — — — — — — — — ) 9 8 9 ( — — — — — 6 1 — ) 7 0 8 , 4 7 1 ( 5 1 4 , 7 2 2 9 8 1 ) 8 5 8 , 9 4 ( 5 1 1 0 2 5 , 6 ) 4 4 5 , 2 ( ) 7 8 ( — — — 7 0 8 , 6 1 $ 6 7 $ ) 0 0 1 , 7 3 5 , 1 ( $ 5 5 8 , 2 7 7 , 2 $ — — — — — — — — — 4 2 8 8 3 , 3 5 ) 2 5 2 , 1 5 8 , 5 ( 0 9 3 , 6 1 — — — 1 9 7 , 6 6 9 ) 2 9 7 , 1 7 2 ( ) 2 5 0 , 4 9 5 ( — — — — — — — — — — — — — — — — — — — ) 8 5 8 , 9 4 ( 5 1 1 0 2 5 , 6 ) 4 4 5 , 2 ( ) 1 7 ( ) 9 8 9 ( ) 6 3 2 , 8 7 1 ( 6 0 9 , 0 3 2 P O g n i l l o r t n o c n o n f o n o i t p m e d e R s e r a h s n o m m o c r o f s t i n u s e r a h s n o m m o c f o e s a h c r u p e R e r a h s n o m m o c e e y o l p m e f o e s i c r e x E s n o i t p o d n a s e r a h s n o m m o c f o e c n a u s s I n o i t a s n e p m o c d e r r e f e d t e n , n o i t a z i t r o m a o t s e r a h s n o m m o c f o e s a h c r u p e R s n o i t a g i l b o x a t e l t t e s n o m m o c e e y o l p m e f o e r u t i e f r o F s e r a h s s n o i t u b i r t s i d / s d n e d i v i D e m o c n i t e N s s o l e v i s n e h e r p m o c r e h t O 62 $ 4 5 5 , 8 0 0 , 5 3 2 6 1 0 , 4 9 $ 0 0 4 , 5 3 9 , 1 8 7 6 , 6 4 3 , 1 $ 8 1 0 2 , 1 3 r e b m e c e D e c n a l a B . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T S E I R A I D I S B U S D E T A D I L O S N O C D N A T S U R T Y T L A E R N O T G N I X E L Y T I U Q E N I S E G N A H C F O S T N E M E T A T S D E T A D I L O S N O C ) s t n u o m a e r a h s t p e c x e 0 0 0 $ ( 7 1 0 2 , 1 3 r e b m e c e D d e d n e r a e Y g n i l l o r t n o c n o N s t s e r e t n I e v i s n e h e r p m o C ) s s o L ( e m o c n I d e t a l u m u c c A r e h t O d e t a l u m u c c A s n o i t u b i r t s i D f o s s e c x E n i e m o c n I t e N l a n o i t i d d A - n i - d i a P l a t i p a C n o m m o C s e r a h S f o r e b m u N n o m m o C s e r a h S d e r r e f e r P s e r a h S f o r e b m u N d e r r e f e r P s e r a h S l a t o T s r e d l o h e r a h S t s u r T y t l a e R n o t g n i x e L 4 1 7 , 9 1 $ ) 3 3 0 , 1 ( $ ) 6 6 9 , 0 0 5 , 1 ( $ 6 3 7 , 0 0 8 , 2 $ 4 2 $ 7 7 1 , 7 3 0 , 8 3 2 6 1 0 , 4 9 $ 0 0 4 , 5 3 9 , 1 1 9 4 , 2 1 4 , 1 $ 6 1 0 2 , 1 3 r e b m e c e D e c n a l a B ) 4 8 5 ( — — — — ) 2 4 2 , 3 ( 6 4 0 , 1 — — — — — — 8 9 0 , 2 — — — — — ) 1 4 3 , 4 7 1 ( 3 8 5 , 5 8 4 8 5 8 7 4 — — — 3 7 6 , 4 2 ) 1 5 9 , 7 ( 4 3 9 , 6 1 $ 5 6 0 , 1 $ ) 4 2 7 , 9 8 5 , 1 ( $ 0 2 5 , 8 1 8 , 2 $ — — — — — — — 4 2 — — — — 6 4 7 , 0 4 1 6 0 1 , 1 5 1 2 5 0 , 0 6 3 , 2 — — — — — — — — — — — — — — — 8 7 4 3 7 6 , 4 2 ) 1 5 9 , 7 ( ) 3 8 5 , 7 7 1 ( 8 9 0 , 2 9 2 6 , 6 8 e r a h s n o m m o c e e y o l p m e f o e s i c r e x E P O g n i l l o r t n o c n o n f o n o i t p m e d e R s e r a h s n o m m o c r o f s t i n u s n o i t p o d n a s e r a h s n o m m o c f o e c n a u s s I n o i t a s n e p m o c d e r r e f e d t e n , n o i t a z i t r o m a t s e r e t n i y t i u q e s ' r e n t r a p e r u t n e v t n i o j d e t a d i l o s n o c f o n o i t i s i u q c A e m o c n i e v i s n e h e r p m o c r e h t O s n o i t u b i r t s i d / s d n e d i v i D 63 e m o c n i t e N $ 1 8 0 , 9 8 6 , 0 4 2 6 1 0 , 4 9 $ 0 0 4 , 5 3 9 , 1 5 3 8 , 0 4 3 , 1 $ 7 1 0 2 , 1 3 r e b m e c e D e c n a l a B . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T 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 Debt satisfaction (gains) charges, net Impairment charges and loan losses Straight-line rents Amortization of right of use assets Other non-cash (income) expense, net Equity in (earnings) losses of non-consolidated entities Distributions of accumulated earnings from non-consolidated entities Unearned contingent acquisition consideration Change 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 Net proceeds from sale of non-consolidated investment Principal payments received on loans receivable Investments in non-consolidated entities, net Distributions from non-consolidated entities in excess of accumulated earnings Payments of deferred leasing costs Change in real estate deposits Net cash provided by (used in) investing activities Cash flows from financing activities: Dividends to common and preferred shareholders Principal amortization payments Principal payments on debt, excluding normal amortization Proceeds of mortgages and notes payable Term loan payments Proceeds from term loans Revolving credit facility borrowings Revolving credit facility payments Payment of early extinguishment of debt charges Payments of deferred financing costs Cash distributions to noncontrolling interests Cash contributions from noncontrolling interests Redemption of a noncontrolling interest Repurchase of common shares Issuance of common shares, net of costs and repurchases to settle tax obligations Net cash provided by (used in) financing activities Change in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, at beginning of year Cash, cash equivalents and restricted cash, at end of year 2019 2018 2017 $ 285,293 $ 230,906 $ 86,629 150,440 (250,889) 4,517 5,329 (14,264) 3,645 6,060 (2,890) 2,571 — (270) 3,770 3,368 (4,496) 192,184 (662,010) (11,332) (17,829) 504,118 — — (8,018) 17,119 (8,196) (817) (186,965) (122,843) (24,259) (89,242) — — — 110,000 (110,000) (3,505) (5,456) (2,763) 867 — (3,598) 197,643 (53,156) (47,937) 177,247 129,310 $ 172,088 (252,913) 2,596 95,813 (20,207) — (3,060) (1,708) 2,083 — (129) (3,942) (891) (2,825) 217,811 (315,959) — (15,506) 898,514 — — (10,206) 3,330 (4,522) (760) 554,891 (175,537) (29,666) (14,599) 26,350 (300,000) — 150,000 (310,000) (5) (690) (3,429) — — (47,217) (2,818) (707,611) 65,091 112,156 177,247 $ 177,561 (63,428) (6,196) 44,996 (19,568) — 8,093 848 403 (3,922) (1,141) 2,922 16 657 227,870 (558,571) (83,274) (15,184) 223,853 6,127 139,042 (9,898) 531 (6,526) 20,826 (283,074) (172,101) (30,082) (50,797) 45,400 — 95,000 270,000 (110,000) (1,326) (2,124) (3,242) — (7,951) — 16,804 49,581 (5,623) 117,779 112,156 $ The accompanying notes are an integral part of these consolidated financial statements. 64 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) (1) The Company Lexington Realty Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland statutory real estate investment trust (“REIT”) that owns a diversified portfolio of equity investments in single-tenant commercial properties. As of December 31, 2019, the Company had equity ownership interests in approximately 130 consolidated properties located in 31 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. The Company is the primary beneficiary of certain VIEs as it has a controlling financial interest in these entities. LCIF, which is consolidated and in which the Company has an approximate 96% interest, is a VIE. In December 2019, the Company acquired a 90% interest in a joint venture with a developer, which acquired a land parcel in the Atlanta, Georgia market to develop an industrial property. Based upon the facts and circumstances at the formation of the joint venture, the Company determined that the joint venture is a variable interest entity in accordance with the applicable accounting guidance. As a result, the Company used the VIE model under the accounting standard for consolidation in order to determine whether to consolidate the joint venture. Based upon the fact that the Company controls the activities that most significantly impact the performance of the joint venture under the operating and related agreements of the joint venture, the joint venture is consolidated in the Company's financial statements. 65 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of December 31, 2019 and 2018, 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, 2019 and 2018: Real estate, net Total assets Mortgages and notes payable, net Total liabilities December 31, 2019 December 31, 2018 $ $ $ $ 592,372 645,623 82,978 101,901 $ $ $ $ 509,916 607,963 192,791 203,322 In addition, the Company acquires, from time to time, properties using a reverse like-kind exchange structure pursuant to Section 1031 of the Internal Revenue Code (a "reverse 1031 exchange") and, as such, the properties are in the possession of an Exchange Accommodation Titleholder ("EAT") until the reverse 1031 exchange is completed. The EAT is classified as a VIE as it is a “thinly capitalized” entity. The Company consolidates the EAT because it is the primary beneficiary as it has the ability to control the activities that most significantly impact the EAT's economic performance and can collapse the reverse 1031 exchange structure at any time. The assets of the EAT primarily consist of leased property (net real estate and intangibles). 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. 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 and equity method investments, valuation of derivative financial instruments, valuation of awards granted under compensation plans, the determination of the incremental borrowing rate for leases where the Company is the lessee and the useful lives of long- lived assets. Actual results could differ materially from those estimates. 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. 66 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) 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. Prior to January 1, 2018, acquisition and pursuit costs were expensed as incurred and were included in property operating expense in the accompanying Consolidated Statement of Operations, which were $2,171 for 2017. Effective January 1, 2018, the Company's acquisitions are primarily considered asset acquisitions and acquisition costs are now capitalized. 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. Management generally retains a third party to assist in the allocations. In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below- market lease values are recorded based on the difference between the current in-place lease rent and management's estimate of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases. Above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases. The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationship values, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships is amortized to expense over the applicable lease term plus expected renewal periods. Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties. The Company generally depreciates its real estate assets over periods ranging up to 40 years. Impairment of Real Estate. The Company evaluates the carrying value of all tangible and intangible real estate assets held for investment for possible impairment when an event or change in circumstance has occurred that indicates its carrying value may not be recoverable. The Company considers the strategic decisions regarding the future plans to sell properties and other market factors. The Company regularly updates significant estimates and assumptions including rental rates, capitalization rates and discount rates, which are included in the anticipated future undiscounted cash flows 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. 67 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) 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. 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 recent sale contracts (Level 2 inputs) or 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. Acquisition, Development and Construction Arrangements. The Company evaluates loans receivable where the Company participates in residual profits through loan provisions or other contracts to ascertain whether the Company has the same risks and rewards as an owner or a joint venture partner. Where the Company concludes that such arrangements are more appropriately treated as an investment in real estate, the Company reflects such loan receivable as an equity investment in real estate under construction in the Consolidated Balance Sheets. In these cases, no interest income is recorded on the loan receivable and the Company records capitalized interest during the construction period. In arrangements where the Company engages a developer to construct a property or provide funds to a tenant to develop a property, the Company will capitalize the funds provided to the developer/tenant and internal costs of interest and real estate taxes, if applicable, during the construction period. Properties Held For Sale. Assets and liabilities of properties that meet various held for sale criteria, including whether it is probable that a sale will occur within 12 months, are presented separately in the Consolidated Balance Sheets. The operating results of these properties are reflected as discontinued operations in the Consolidated Statements of Operations 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. 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 portion of the interest rate swap's change in fair value is reported as a component of other comprehensive income (loss). 68 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) Upon entering into hedging transactions, the Company documents the relationship between the interest rate swap agreement and the hedged item. The Company also documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities. The Company assesses, both at inception of a hedge and on an 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 expired 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. The Company has made an accounting policy election to account for share-based award forfeitures in compensation costs when they occur. 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 by 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, 2019, the Company was not aware of any environmental matter relating to any of its investments that would have a material impact on the consolidated financial statements. Segment Reporting. The Company operates generally in one industry segment, single-tenant real estate assets. 69 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform to the current year's presentation. Upon adoption of ASC 842, the Company reclassified certain amounts on the Consolidated Statements of Operations, primarily the reclassification of tenant reimbursements to rental revenue. As a result, rental revenue increased in 2018 and 2017 by $30,608 and $31,809, respectively, for the reclassification of tenant reimbursements to conform with the current year presentation of rental revenue. New Accounting Standards Adopted in 2019. In June 2018, the FASB issued Accounting Standard Update (“ASU”) No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. The Company adopted this guidance effective January 1, 2019 on a prospective basis. The Company's adoption of this guidance did not have a material impact on its financial statements. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting recognition and presentation requirements in Topic 815. The ASU is effective for reporting periods beginning after December 15, 2018. The Company adopted this guidance effective January 1, 2019 on a prospective basis. The Company's adoption of this guidance did not have a material impact on its financial statements. Additionally, the Company adopted ASU No. 2016-02, Leases (Topic 842) effective January 1, 2019. Topic 842 requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. The Company adopted Topic 842 using the modified retrospective transition approach with January 1, 2019 as the Company's date of initial application, thus periods prior to January 1, 2019 conform to ASC Topic 840. The Company has elected other practical expedients permitted under the transition guidance including: • • • • • a package of practical expedients that allows the Company to carryforward its assessment of whether a contract is or contains a lease, whether costs incurred qualify as initial direct costs, and historical lease classification for any leases that existed prior to the adoption; to account for lease and non-lease components as a single component if the (i) timing and patterns of transfer are the same for the lease and non-lease component and (ii) related lease component and the combined single lease component would be classified as an operating lease; to exclude from the consideration in the contract and variable lease payments all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific lease revenue-producing transaction and collected by the lessor from the lessee. Taxes assessed on the Company’s total gross receipts are excluded from this accounting policy election; to not assess if existing land easements in place prior to adoption meet the definition of a lease; and to not recognize leases with a term of 12 months or less on the balance sheet. The Company did not elect the hindsight practical expedient to determine lease term. The adoption of Topic 842 required the Company to record right-of-use assets and lease liabilities on the Company's Consolidated Balance Sheet. The Company did not recognize a cumulative adjustment to equity upon adoption. The adoption of this guidance did not have a material impact on the Company's Consolidated Statement of Operations and Consolidated Statement of Cash Flows. See note 11, “Leases” for further disclosures. Recently Issued Accounting Guidance. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward- looking “expected loss” model that generally will result in the earlier recognition of an allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019. The Company analyzed its accounts receivable using an aging methodology and determined that there have been no historical credit losses related its outstanding accounts receivable. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements. 70 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The standard is effective for fiscal years beginning after December 15, 2019. The adoption of this guidance on January 1, 2020, did not have a material impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” ASU 2018-13 amends certain disclosure requirements regarding the fair value hierarchy of investments in accordance with GAAP, particularly the significant unobservable inputs used to value investments within Level 3 of the fair value hierarchy. The standard is effective on January 1, 2020, with early adoption permitted. The Company does not expect the adoption of ASU 2018-13 to have a material impact on the Company's consolidated financial statements. (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, 2019: 2019 2018 2017 BASIC Net income attributable to common shareholders $ 273,225 $ 220,838 $ 79,067 Weighted-average number of common shares outstanding 237,642,048 236,666,375 237,758,408 Net income attributable to common shareholders - per common share basic DILUTED: Net income attributable to common shareholders - basic Impact of assumed conversions Net income attributable to common shareholders $ $ $ 1.15 $ 0.93 $ 0.33 273,225 — 273,225 $ $ 220,838 2,528 223,366 $ $ 79,067 147 79,214 Weighted-average common shares outstanding - basic 237,642,048 236,666,375 237,758,408 Effect of dilutive securities: Unvested share-based payment awards and options 292,467 528,495 86,285 Operating Partnership Units — 3,616,120 3,693,144 Weighted-average common shares outstanding - diluted 237,934,515 240,810,990 241,537,837 Net income attributable to common shareholders - per common share diluted $ 1.15 $ 0.93 $ 0.33 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. 71 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) (4) Investments in Real Estate The Company's real estate, net, consists of the following at December 31, 2019 and 2018: Real estate, at cost: Buildings and building improvements Land, land estates and land improvements 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 2019 2018 $ 2,962,982 355,697 1,895 339,154 42,396 28,206 13,313 3,743,643 (887,629) 2,856,014 $ 2,746,446 341,848 1,840 331,607 54,662 33,343 — 3,509,746 (954,087) 2,555,659 $ $ (1) Includes accumulated amortization of real estate intangible assets of $212,033 and $231,443 in 2019 and 2018, respectively. The estimated amortization of the above real estate intangible assets for the next five years is $28,634 in 2020, $26,647 in 2021, $24,640 in 2022, $23,487 in 2023 and $18,270 in 2024. The Company had below-market leases, net of accumulated accretion, which are included in deferred revenue, of $19,090 and $17,923, respectively, as of December 31, 2019 and 2018. The estimated accretion for the next five years is $2,550 in 2020, $2,210 in 2021, $1,931 in 2022, $1,931 in 2023 and $1,931 in 2024. The Company completed the following acquisitions during 2019 and 2018: 2019: Market Acquisition Date Property Type Industrial Industrial Industrial Indianapolis, IN January 2019 February 2019 Atlanta, GA Dallas, TX April 2019 Greenville/ Spartanburg, SC April 2019 Industrial Industrial Memphis, TN May 2019 Industrial Memphis, TN May 2019 June 2019 Atlanta, GA Industrial Atlanta, GA Industrial June 2019 Cincinnati, OH September 2019 Industrial Cincinnati, OH September 2019 Industrial Cincinnati, OH September 2019 Industrial Greenville/ Spartanburg, SC October 2019 Greenville/ Spartanburg, SC October 2019 October 2019 Phoenix, AZ November 2019 Phoenix, AZ December 2019 Chicago, IL Greenville/ Spartanburg, SC December 2019 Industrial Industrial Industrial Industrial Industrial Industrial $ Initial Cost Basis 20,809 37,182 28,201 33,253 49,395 18,316 45,441 27,353 13,762 100,288 65,763 Lease Expiration 07/2025 10/2023 08/2023 $ 01/2024 04/2024 05/2023 05/2020 05/2024 12/2023 06/2030 08/2027 16,817 01/2024 15,583 21,020 67,079 49,348 94,233 703,843 $ 04/2025 09/2026 09/2030 09/2029 12/2034 Real Estate Intangibles Below Market Lease Intangible — $ — — Lease in- place Value Intangible 2,035 $ 2,978 2,451 Building and Improvements 16,820 $ 30,951 23,330 27,829 40,452 15,465 40,023 22,825 12,376 88,427 60,703 14,272 13,252 16,013 48,924 40,947 3,809 6,297 2,000 2,167 1,992 842 7,911 5,392 1,139 1,074 1,696 6,185 4,969 — — — — — — — (3,455) — — — — — Land 1,954 3,253 2,420 1,615 2,646 851 3,251 2,536 544 3,950 3,123 1,406 1,257 3,311 11,970 3,432 6,959 $ 54,478 $ 78,364 590,973 $ 8,910 61,847 $ — (3,455) Weighted-average life of intangible assets (years) 8.4 8.0 72 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) In 2019, the Company invested $3,225 in a 23.6-acre land parcel in the Columbus, Ohio market and commenced construction of a 320,000 square foot warehouse/distribution facility. Also in 2019, the Company acquired an interest in a newly-formed joint venture, ATL Fairburn JV, LLC, that invested $10,088 in an 81-acre land parcel in the Atlanta, Georgia market to construct a 910,000 square foot warehouse/distribution facility. The Company has a 90% interest in the joint venture and consolidates the joint venture. 2018: Property Type Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Location Acquisition Date Olive Branch, MS April 2018 Olive Branch, MS April 2018 June 2018 Edwardsville, IL Spartanburg, SC Pasadena, TX Carrollton, TX Goodyear, AZ Chester, VA August 2018 August 2018 September 2018 November 2018 December 2018 Weighted-average life of intangible assets (years) Initial Cost Basis $ 44,090 48,575 44,178 27,632 23,868 19,564 41,372 66,311 $ 315,590 Lease Expiration 07/2029 06/2021 05/2030 07/2024 08/2023 12/2033 04/2026 06/2030 Land and Land Estate $ 1,958 2,500 3,649 1,447 4,057 3,228 5,247 8,544 $ 30,630 Real Estate Intangibles Below Market Lease Intangible Lease in- place Value Intangible Building and Improvements $ $ 38,687 42,538 41,292 23,744 17,810 15,766 36,115 53,067 269,019 $ $ 3,445 5,151 3,467 2,441 2,001 1,247 2,014 6,832 26,598 $ $ — (1,614) (4,230) — — (677) (2,004) (2,132) (10,657) 8.4 9.4 In addition, the Company acquired a 57-acre parcel of land from a non-consolidated joint venture and leased the parcel to a tenant that is developing a distribution facility. (5) Dispositions and Impairment For the years ended December 31, 2019, 2018 and 2017, the Company disposed of its interests in certain properties generating aggregate net proceeds of $504,118, $898,514 and $223,853, respectively, which resulted in gains on sales of $250,889, $252,913 and $63,428, respectively, including, in 2018, the disposition of 21 office assets to a newly-formed joint venture, NNN Office JV L.P. (“NNN JV”), with an unaffiliated third-party. See note 7. For the years ended December 31, 2019, 2018 and 2017, the Company recognized net debt satisfaction gains (charges) relating to properties sold of $(4,415), $(1,698) and $5,938, respectively. The Company had no properties classified as held for sale at December 31, 2019 and two properties classified as held for sale at December 31, 2018. Assets and liabilities of the held for sale properties as of December 31, 2018 consisted of the following: Assets: Real estate, at cost Real estate, intangible assets Accumulated depreciation and amortization Rent receivable - deferred Other Liabilities: Other 73 December 31, 2018 $ $ $ $ 63,639 14,498 (16,873) 2,439 165 63,868 386 386 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) 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, change in the estimated holding period of an asset 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 and the Company estimates that its cost will not be recovered. During 2019, 2018 and 2017, the Company recognized aggregate impairment charges on real estate properties of $5,329, $95,813 and $39,702, respectively. Included in the impairment charges recognized during 2019 are impairment charges of $2,106 recognized on a vacant retail property in Watertown, New York, which was sold in 2019, $249 recognized on a vacant retail property in Albany, Georgia, which was sold in August 2019 and a held for use impairment of $2,974 recognized on an office property in Baton Rouge, Louisiana due to a reduction of the anticipated holding period and leasing prospects. During 2018, $36,620 of the impairment charges of $95,813 were recognized on properties held at December 31, 2018, including an aggregate of $23,496 of impairment charges recognized on the Company's office assets in Overland Park, Kansas and Kansas City, Missouri due to a reduction in the anticipated holding period and leasing prospects. During 2017, $18,023 of the impairment charges of $39,702 were recognized on properties held at December 31, 2017. The Company's office asset in Florence, South Carolina and industrial asset in Memphis, Tennessee incurred an aggregate $15,008 of the impairment charges due to a reduction in anticipated holding period. In February 2017, the Company recognized a $5,294 loan loss on the assignment of a loan receivable secured by a hospital in Kennewick, Washington. (6) 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, 2019 and 2018, aggregated by the level in the fair value hierarchy within which those measurements fall: Description 2019 (Level 1) (Level 2) (Level 3) Fair Value Measurements Using Interest rate swap liabilities Impaired real estate assets* Description Interest rate swap assets Impaired real estate assets* $ $ $ $ (1,928) $ $ 4,846 — $ — $ (1,928) $ — $ — 4,846 Fair Value Measurements Using 2018 (Level 1) (Level 2) (Level 3) 76 35,036 $ $ — $ — $ 76 $ — $ — 35,036 *Represents a non-recurring fair value measurement. Fair value as of the date of impairment. The majority of the inputs used to value the Company's interest rate swaps fall within Level 2 of the fair value hierarchy, such as observable market interest rate curves; however, the credit valuation associated with the interest rate swaps utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of December 31, 2019 and 2018, the Company determined that the credit valuation adjustment relative to the overall interest rate swaps was not significant. As a result, all interest rate swaps have been classified in Level 2 of the fair value hierarchy. The table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2019 and 2018: Liabilities Debt As of December 31, 2019 As of December 31, 2018 Carrying Amount Fair Value Carrying Amount Fair Value $ 1,311,977 $ 1,276,589 $ 1,492,483 $ 1,409,773 74 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) 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 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. (7) Investments in Non-Consolidated Entities Below is a schedule of the Company's investments in non-consolidated entities: Investment NNN JV Etna Park 70 LLC Etna Park 70 East LLC Other Percentage Ownership at Investment Balance as of December 31, 2019 December 31, 2019 December 31, 2018 (1) (2) (3) (4) 20% 90% 90% 15% to 25% $ $ 39,288 $ 8,352 4,310 5,218 57,168 $ 53,144 4,774 — 8,265 66,183 (1) During 2018, the Company disposed of 21 office assets to NNN JV for an aggregate gross disposition price of $725,800 and acquired a 20% interest in NNN JV. Two of the 21 properties, with a combined estimated fair value of $45,653, were contributed to NNN JV along with cash of $8,053. The Company recognized a gain of $14,645 in connection with the contribution of the two office assets to NNN JV, and in addition, NNN JV assumed an aggregate of $103,400 of non-recourse mortgage debt in the transaction. NNN JV obtained an aggregate of $362,800 of non-recourse mortgage financing which bears interest at LIBOR plus 200 basis points and has an initial term of three years but can be extended for two additional terms of one-year each. There is a rate increase of 15 basis points upon each extension. NNN JV entered into interest rate agreements which cap the LIBOR component of the $362,800 mortgage financing at 4.0% for two years. (2) Joint venture formed in 2017 with a developer entity to acquire a 151-acre parcel of developable land and pursue industrial build-to-suit opportunities. The Company determined it is not the primary beneficiary. In December 2018, the parcel was subdivided and the Company received a distribution of an ownership interest in a 57-acre parcel with a historical cost of $3,008. The Company acquired control of the parcel via the purchase of the Company's joint venture partners' interest. (3) Joint venture formed in 2019 with a developer entity to acquire a 129.6 -acre parcel of developable land and pursue industrial build-to-suit opportunities. The Company determined it is not the primary beneficiary. (4) At December 31, 2019, represents one joint venture investment, which owns a single-tenant, net-leased asset. In February 2019, a non-consolidated real estate entity, in which the Company owned a 15% ownership interest, sold its only asset and the Company received $2,317 of proceeds. The Company recognized a gain on the transaction of $824, which is included in equity in earnings of non-consolidated entities in its Consolidated Statement of Operations. During 2019, NNN JV sold four assets and the Company recognized aggregate gains on the transactions of $3,529 within equity in earnings of non-consolidated entities in its consolidated statement of operations. In conjunction with these property sales, NNN JV received aggregate net proceeds of $45,208 after satisfaction of an aggregate of $101,520 of its non-recourse mortgage indebtedness. The NNN JV distributed $7,549 of the net proceeds to the Company as a result of the property sales. In December 2018, the Company received $4,312 from a non-consolidated investment in connection with its sale of a six- property office portfolio. In February 2017, the Company sold its 40% tenant-in-common interest in its Oklahoma City, Oklahoma office property for $6,198. The Company recognized gains of $1,777 and $1,452, respectively, in connection with these sales, which are included in equity in earnings of non-consolidated entities. 75 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) During 2017, the Company recognized an impairment charge of $3,512 on its investment in a retail property in Palm Beach Gardens, Florida due to the bankruptcy of its tenant. This impairment charge reduced the Company's investment balance to zero. During 2018, the property was sold in a foreclosure sale. The Company earns advisory fees from certain of these non-consolidated entities for services related to acquisitions, asset management and debt placement. Advisory fees earned from these non-consolidated investments were $3,596, $1,443 and $807 for the years ended December 31, 2019, 2018 and 2017. (8) Mortgages and Notes Payable The Company had the following mortgages and notes payable outstanding as of December 31, 2019 and 2018: Mortgages and notes payable Unamortized debt issuance costs December 31, 2019 December 31, 2018 $ $ 393,872 (3,600) 390,272 $ $ 575,514 (5,094) 570,420 Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.5% to 6.5% and 2.2% to 6.5% at December 31, 2019 and 2018, respectively, and all mortgages and notes payable mature between 2020 and 2036, as of December 31, 2019. The weighted-average interest rate at December 31, 2019 and 2018 was approximately 4.5%. As of December 31, 2019, the Company had two non-recourse mortgage loans that were in default with an outstanding aggregate principal balance of $38,942. Each mortgage loan is secured by an office property (Overland Park, Kansas and Charleston, South Carolina), which was vacant or mostly vacant at December 31, 2019. The Company has an unsecured credit agreement with KeyBank National Association, as agent. A summary of the significant terms, as of December 31, 2019, are as follows: $600,000 Revolving Credit Facility(1) $300,000 Term Loan(1)(2) Maturity Date February 2023 January 2025 Interest Rate LIBOR + 0.90% LIBOR + 1.00% (1) In February 2019, the Company: (i) increased the total commitment of the revolving credit facility from $505,000 to $600,000; (ii) extended the maturity date of the revolving credit facility from August 2019 to February 2023 and allowed for the extension to February 2024 at the Company's option; and (iii) reduced the applicable margin rates. In July 2019, the Company extended the maturity of the $300,000 term loan from January 2021 to January 2025 and swapped the LIBOR portion of the interest rate to obtain a current fixed rate of 2.732% per annum. The Company recognized $93 of debt satisfaction charges in connection with these transactions. At December 31, 2019, the revolving credit facility had no borrowings outstanding and availability of $600,000, subject to covenant compliance. (2) The aggregate unamortized debt issuance costs for the term loan was $2,561 and $1,267 as of December 31, 2019 and 2018, respectively. The unsecured revolving credit facility and the unsecured term loan are subject to financial covenants, which the Company was in compliance with at December 31, 2019. 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. 76 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) Scheduled principal and balloon payments for mortgages, notes payable and term loan for the next five years and thereafter are as follows: Year ending December 31, 2020 2021 2022 2023 2024 Thereafter Unamortized debt issuance costs Total 71,099 36,597 18,564 20,136 13,856 533,620 693,872 (6,161) 687,711 $ $ Included in the Consolidated Statements of Operations, the Company recognized debt satisfaction gains (charges), net, of $(9), $(898) and $258 for the years ended December 31, 2019, 2018 and 2017, respectively, due to the satisfaction of mortgages and notes payable other than those disclosed elsewhere in these financial statements. In addition, the Company capitalized $410, $15 and $1,174 in interest for the years ended 2019, 2018 and 2017, respectively. (9) Senior Notes, Convertible Notes and Trust Preferred Securities The Company had the following Senior Notes outstanding as of December 31, 2019 and 2018: Issue Date May 2014 June 2013 Unamortized debt discount Unamortized debt issuance cost December 31, 2019 December 31, 2018 $ $ 250,000 $ 250,000 500,000 (963) (2,167) 496,870 $ 250,000 250,000 500,000 (1,235) (2,731) 496,034 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 2007, the Company issued $200,000 original principal amount of Trust Preferred Securities. The Trust Preferred Securities, which are classified as debt, are due in 2037, are open for redemption at the Company's option, bore interest at a fixed rate of 6.804% through April 2017 and thereafter bear interest at a variable rate of three month LIBOR plus 1.7 basis points through maturity. The interest rate at December 31, 2019 was 3.636%. As of December 31, 2019 and 2018, there was $129,120 original principal amount of Trust Preferred Securities outstanding and $1,724 and $1,824, respectively, of unamortized debt issuance costs. 77 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) Scheduled principal payments for these debt instruments for the next five years and thereafter are as follows: Year ending December 31, Total 2020 2021 2022 2023 2024 Thereafter Unamortized debt discounts Unamortized debt issuance costs (10) Derivatives and Hedging Activities $ $ — — — 250,000 250,000 129,120 629,120 (963) (3,891) 624,266 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 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. For 2018 and 2017, 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 2018 and 2017. During July 2019, the Company entered into four interest rate swap agreements with its counterparties. The swaps were designated as cash flow hedges of the risk of variability attributable to changes in the LIBOR swap rates on its $300,000 LIBOR-indexed variable-rate unsecured term loan. Accordingly, changes in fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable. The swaps expire coterminous with the extended maturity of the term loan in January 2025. During the next 12 months, the Company estimates that an additional $366 will be reclassified as an increase to interest expense if the swaps remain outstanding. As of December 31, 2019, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk: Interest Rate Derivative Number of Instruments Interest Rate Swaps 4 78 Notional $300,000 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) 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, 2019 and 2018. Derivatives designated as hedging instruments: Interest Rate Swap Asset/Liability As of December 31, 2019 As of December 31, 2018 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Other liabilities $ (1,928) Other assets $ 76 The table below present the effect of the Company's derivative financial instruments on the Consolidated Statements of Operations for 2019 and 2018: Derivatives in Cash Flow Amount of Income (Loss) Recognized in OCI on Derivative December 31, Hedging Relationships 2019 2018 Location of Income Reclassified from Accumulated OCI into Income Amount of Income Reclassified from Accumulated OCI into Income December 31, 2019 2018 Interest Rate Swap $ (1,625) $ 597 Interest expense $ (379) $ (1,586) Total interest expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded was $65,095 and $79,880 for 2019 and 2018, respectively. The Company's agreements with the swap derivative counterparties contain provisions whereby if the Company defaults on the underlying indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of the swap derivative obligation. As of December 31, 2019, the Company had not posted any collateral related to the agreements. (11) Leases Lessor Lexington’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred. Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before. Accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions. 79 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post- petition claims. If a lessee's accounts receivable balance is considered uncollectable, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease payments were considered not probable. During 2019, rental revenue was reduced by $352 for accounts receivable deemed uncollectable primarily related to the tenant in Thompson, Georgia filing for bankruptcy. In August 2019, the tenant of the Columbus, Indiana property began paying rent into a court administered account. See note 17. The litigation was in an early stage and discovery was ongoing. Due to the inherent uncertainty of, and the early stage of this, litigation, the Company did not recognize rental revenue of $1,100, representing rental revenue for August and September 2019. On December 19, 2019, the Company sold its interest in the Columbus, Indiana property to the tenant for a gross purchase price of $46,915 and terminated the tenant's lease as part of the settlement of the litigation. At closing of the sale, the tenant paid rent for the period from August 1, 2019 to December 18, 2019 in the amount of $1,885 and reimbursed the Company for $700 in expenses under the indemnity provision in the lease. The Company determined that the lease and non-lease components in its leases are a single lease component and is, therefore, being recognized as rental revenue in its consolidated statements of operations. The primary non-lease services that are included within rental revenue are CAM services provided as part of the Company’s real estate leases. Topic 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. As of December 31, 2019, the Company incurred $191 of costs that were not incremental to the execution of leases, which are included in property operating expenses on its consolidated statements of operations. The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties. The following table presents the Company’s classification of rental revenue for its operating leases for the year ended December 31, 2019: Classification Rental revenue Fixed Variable(1) Total $ 291,892 $ 28,730 $ 320,622 (1) Primarily comprised of tenant reimbursements. 80 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) Future fixed rental receipts for leases, assuming no new or re-negotiated leases as of December 31, 2019 were as follows: 2020 2021 2022 2023 2024 Thereafter Total $ $ 269,701 258,937 245,527 242,009 210,765 1,399,068 2,626,007 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, if not reasonably assured. 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. Minimum future lease payments under the non-cancellable portion of tenant leases, assuming no new or re-negotiated leases, for the next five years and thereafter in accordance with ASC Topic 840 as of December 31, 2018 were as follows: Year ending December 31, 2019 2020 2021 2022 2023 Thereafter Lessee $ Total 270,557 253,660 233,192 212,893 211,387 1,619,848 $ 2,801,537 The Company has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of December 31, 2019. The leases have remaining lease terms of up to 43 years, some of which include options to extend the leases in 5 to 10-year increments for up to 53 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. Minimum lease payments for leases that commenced before the date of adoption of ASC 842 were determined based on previous leases guidance under ASC 840. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred. The accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate. The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease. 81 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) As the Company does not know the rate implicit in the respective leases, the Company used its incremental borrowing rate based on the information available at the transition date for such existing leases. The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases. Supplemental information related to operating leases as of December 31, 2019 is as follows: Weighted-average remaining lease term Operating leases (years) Weighted-average discount rate Operating leases 12.3 4.1% The components of lease expense for the year ended December 31, 2019 were as follows: Income Statement Classification Fixed Variable Total Property operating General and administrative Total $ $ 3,982 1,343 5,325 $ $ — $ 112 112 $ 3,982 1,455 5,437 The Company recognized sublease income of $3,764 in 2019. The following table shows the Company's maturity analysis of its operating lease liabilities as of December 31, 2019: 2020 2021 2022 2023 2024 Thereafter Total lease payments Less: Imputed interest Present value of lease liabilities Operating Leases 5,236 5,060 5,135 5,279 5,301 25,621 51,632 (12,190) 39,442 $ $ $ 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 rent payments for the Company's offices are $1,296 for 2020, $1,325 for 2021, $1,335 for 2022, $1,305 for 2023 and $1,305 for 2024 and $1,631 thereafter, which are included in the table above. Rent expense for 2019, 2018 and 2017 was $1,312, $1,274 and $1,256, respectively. 82 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) The following table shows the Company's future minimum lease rental payments under non-cancellable leasehold interests in accordance with ASC Topic 840 as of December 31, 2018: Year ending December 31, 2019 2020 2021 2022 2023 Thereafter Total 3,826 3,827 3,769 3,834 4,008 28,326 47,590 $ $ Rent expense for the leasehold interests was $597 and $690 in 2018 and 2017, respectively. (12) 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, 2019, 2018 and 2017, 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. (13) Equity Shareholders' Equity: The Company maintains an At-The-Market offering program ("ATM program") under which the Company can issue common shares. Under the ATM program, the Company may enter into forward sales agreements with agents. As of December 31, 2019, the Company has not entered into any forward sale agreements. During 2019, the Company issued 9,668,748 common shares under the ATM program and generated net proceeds of $102,299. As of December 31, 2019, $296,076 in common shares remain available for issuance under the ATM program. During 2018, the Company did not issue common shares under its ATM program. During 2017, the Company issued 1,593,603 common shares under the ATM program and generated aggregate gross proceeds of $17,362. The proceeds from these issuances were primarily used for general working capital, to fund investments and retire indebtedness. During 2019, the Company issued 10,000,000 common shares at $10.09 per common share in an underwritten offering and generated net proceeds of $100,749. The proceeds were used for working capital and for general corporate purposes, including acquisitions. The Company had 1,935,400 shares of Series C Cumulative Convertible Preferred Stock (“Series C Preferred”) outstanding at December 31, 2019. 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, 2019, each share was convertible into 2.4339 common shares. This conversion ratio may increase over time if the Company's common share dividend exceeds certain quarterly thresholds. If certain fundamental changes occur, holders may require the Company, in certain circumstances, to repurchase all or part of their shares of Series C Preferred. In addition, upon the occurrence of certain fundamental changes, the Company will, under certain circumstances, increase the conversion rate by a number of additional common shares or, in lieu thereof, may in certain circumstances elect to adjust the conversion rate upon the shares of Series C Preferred becoming convertible into shares of the public acquiring or surviving company. The Company may, at the Company's option, cause shares of Series C Preferred to be automatically converted into that number of common shares that are issuable at the then prevailing conversion rate. The Company may exercise its conversion right only if, at certain times, the closing price of the Company's common shares equals or exceeds 125% of the then prevailing conversion price of the Series C Preferred. 83 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) 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 2019, 2018 and 2017, the Company issued 896,807, 965,932 and 835,234 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 14). In July 2015, the Company's Board of Trustees authorized the repurchase of up to 10,000,000 common shares and increased this authorization by 10,000,000 common shares in 2018. This share repurchase program has no expiration date. During 2019 and 2018, the Company repurchased and retired 441,581 and 5,851,252 common shares, respectively, at an average price of $8.13 and $8.05, respectively, per common share under this share repurchase program. No shares were repurchased in 2017. As of December 31, 2019, 10,306,255 common shares remain available for repurchase under this authorization. The Company records a liability for repurchases that have not yet been settled as of period end. There were no unsettled repurchases as of December 31, 2019. During 2019, the Company settled $2,641 of shares repurchased as of December 31, 2018. A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows: Balance at beginning of period Other comprehensive income (loss) before reclassifications Amounts of income reclassified from accumulated other comprehensive income (loss) to interest expense Balance at end of period Noncontrolling Interests: Twelve months ended December 31, 2019 2018 $ $ $ 76 (1,625) (379) (1,928) $ 1,065 597 (1,586) 76 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 2019, 2018 and 2017, 391,993, 53,388 and 140,746 common shares, respectively, were issued by the Company, in connection with OP unit redemptions, for an aggregate value of $1,655, $189 and $584, respectively. As of December 31, 2019, there were approximately 2,829,000 OP units outstanding other than OP units owned by the Company. All OP units receive distributions in accordance with the LCIF partnership agreement. To the extent that the Company's dividend per common share is less than the stated distribution per OP unit per the LCIF partnership agreement, the distributions per OP unit are reduced by the percentage reduction in the Company's dividend per common share. No OP units have a liquidation preference. 84 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 2019 2018 2017 Net income attributable to Lexington Realty Trust shareholders $ 279,910 $ 227,415 $ 85,583 Transfers (to) from noncontrolling interests: Decrease in additional paid-in-capital for reallocation of noncontrolling interests Increase in additional paid-in-capital for redemption of noncontrolling OP units (973) 1,655 — 189 — 584 Change from net income attributable to shareholders and transfers from noncontrolling interests $ 280,592 $ 227,604 $ 86,167 (14) 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 2019, 2018 and 2017. 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) terminated 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) terminated 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 were 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. 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. The total intrinsic value of options exercised for the years ended December 31, 2019 and 2018 were $271 and $26, respectively. 85 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, 2017 Exercised Balance at December 31, 2018 Exercised Balance at December 31, 2019 Number of Shares Weighted-Average Exercise Price Per Share 134,790 (16,390) 118,400 (84,400) 34,000 $ $ 7.39 6.99 7.44 7.24 7.95 As of December 31, 2019, the aggregate intrinsic value of options that were outstanding and exercisable was $91. Non-vested share activity for the years ended December 31, 2019 and 2018, is as follows: Balance at December 31, 2017 Granted Vested Forfeited Balance at December 31, 2018 Granted Vested Forfeited Balance at December 31, 2019 Number of Shares Weighted-Average Grant-Date Fair Value Per Share 3,767,298 899,614 (618,383) (593,452) 3,455,077 829,581 (151,447) (1,191,799) 2,941,412 $ $ 7.79 6.55 9.70 6.59 7.34 5.97 5.06 6.76 7.30 During 2019 and 2018, the Company granted common shares to certain employees and trustees as follows: 2019 2018 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 276,063 276,058 $5.05 $4.67 277,460 $2,270 331,025 331,019 $5.81 $5.37 237,570 $2,190 (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. During 2019, 713,044 of the 808,929 performance shares issued in 2016 vested. During 2018, 116,926 of the 642,029 performance shares issued in 2015 vested. (2) The fair value of grants was determined at the grant date using a Monte Carlo simulation model. (3) The shares vest ratably over a three-year service period. In addition, during 2019, 2018 and 2017, the Company issued 67,226, 66,318, and 57,334, respectively, of fully vested common shares to non-management members of the Company's Board of Trustees with a fair value of $595, $599, and $596, respectively. 86 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) As of December 31, 2019, of the remaining 2,941,412 non-vested shares, 1,274,506 are subject to time-based vesting and 1,666,906 are subject to performance-based vesting. At December 31, 2019, there are 3,116,063 awards available for grant. The Company has $6,800 in unrecognized compensation costs relating to the non-vested shares that will be charged to compensation expense over an average of approximately 1.7 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, 2019 and 2018, there were 130,863 and 427,531 common shares, respectively, 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 $403, $397 and $439 of contributions are applicable to 2019, 2018 and 2017, respectively. During 2019, 2018 and 2017, the Company recognized $5,831, $6,901 and $8,333, respectively, in expense relating to scheduled vesting and issuance of common share grants. (15) Related Party Transactions The Company had an indemnity obligation to Vornado Realty Trust ("VNO"), one of its significant shareholders until March 1, 2019, with respect to actions by the Company that affect VNO's status as a REIT. The indemnity obligation lapsed in 2019. All related party transactions are approved by the independent members of the Company's Board of Trustees or the Audit Committee as provided for in the Company's Code of Business Conduct and Ethics. The Company leased a property to an entity in which VNO has an interest. During 2017, the Company recognized $234, in rental revenue from this property. This property was sold in 2017. The Company leases its corporate office from an affiliate of VNO. Rent expense for this property was $1,128, $1,192 and $1,179 in 2019, 2018 and 2017, respectively. In connection with efforts, on a non-binding basis, to procure non-recourse mezzanine financing from an affiliate of the Company's former 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 former Chairman. The guaranty provided 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. During 2017, USCIS approved the project, and the guaranty terminated by its terms. In 2018, the joint venture obtained $8,500 of EB-5 mezzanine financing from an affiliate of the Company's former Chairman. The joint venture reimbursed the former Chairman's affiliate $150 for its expenses. Under an indemnity agreement, the joint venture is required to pay an affiliate of the Company's former Chairman 0.625% of the outstanding principal amount of the EB-5 mezzanine financing per annum. In addition, during 2017, the Company obtained non-recourse mezzanine financing in the initial amount of $8,000 from an affiliate of the Company's former Chairman, pursuant to the terms of the EB-5 visa program administered by the USCIS, for an investment in Charlotte, North Carolina. In January 2018, the Company obtained an additional $500 of financing proceeds. The Company reimbursed the former Chairman's affiliate approximately $105 for its expenses and paid a $128 structuring fee to the former Chairman's affiliate. The property was subsequently contributed to, and the financing assumed by, NNN JV. In 2019, the joint venture obtained an additional $1,000 of EB-5 mezzanine financing from an affiliate of the Company's former Chairman. The joint venture reimbursed the former Chairman's affiliate $15 for its expenses. 87 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) (16) 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. The Company's provision for income taxes for the years ended December 31, 2019, 2018 and 2017 is summarized as follows: Current: Federal State and local 2019 2018 2017 $ $ (70) $ (1,309) (1,379) $ (60) $ (1,668) (1,728) $ (107) (1,810) (1,917) 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 (21% for 2019 and 2018 and 34% for 2017) State and local taxes, net of federal benefit Other 2019 2018 2017 $ $ (73) $ (10) (1,296) (1,379) $ (65) $ (11) (1,652) (1,728) $ (182) (40) (1,695) (1,917) For the years ended December 31, 2019, 2018 and 2017, the “other” amount is comprised primarily of state franchise taxes of $1,289, $1,679 and $1,598, 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, 2019, is as follows: Total dividends per share Ordinary income Qualifying dividend Capital gain Return of capital $ 2019 2018 2017 $ 0.485 61.07% 0.22% — 38.71% 100.00% $ 0.710 87.89% 0.14% — 11.97% 100.00% 0.700 59.93% 0.15% — 39.92% 100.00% 88 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) A summary of the average taxable nature of the Company's dividend on shares of its Series C Preferred for each of the years in the three-year period ended December 31, 2019, is as follows: Total dividends per share Ordinary income Qualifying dividend Capital gain Return of capital (17) Commitments and Contingencies $ 2019 2018 2017 $ 3.25 99.64% 0.36% — — 100.00% $ 3.25 99.84% 0.16% — — 100.00% 3.25 99.75% 0.25 — — 100.00% In addition to the commitments and contingencies disclosed elsewhere, the Company has the following commitments and contingencies. The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. 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 had four development projects as of December 31, 2019, which are described in "Properties" in Part I, Item 2 of this Annual Report. Due to the early stage of development of each project and the uncertainty of construction schedules at such stage, the Company is unable to estimate the timing of the required fundings for development projects. 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 are 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. Cummins Inc. v. Lexington Columbus (Jackson Street) L.P. and Wells Fargo Trust Company, N.A. (State of Indiana, County of Bartholomew, in the Bartholomew Superior Court). On October 25, 2018, Cummins Inc., the tenant in the Columbus, Indiana office building, filed a complaint for declaratory relief against Lexington Columbus (Jackson Street) L.P. (“Lex Columbus”), the Company's property owner subsidiary, and Wells Fargo Trust Company, N.A., the trustee for the noteholders with a security interest in the office building. Despite failing to timely provide notice of intent to exercise a $5,000 purchase option for the office building that was expressly due by July 15, 2018, where time was of the essence, Cummins Inc. asked the court for a declaration that it is entitled to purchase the building at the option price and to terminate the lease effective July 31, 2019. Cummins Inc. did not dispute that it failed to comply with the requirements of the purchase option, but alleged that it is entitled to relief under several equitable theories. Under the subject lease, as a result of the failure of Cummins Inc. to exercise its purchase option and to give notice of non-renewal, Cummins Inc.’s tenancy extended through July 31, 2024, with options to further extend for additional time periods. On December 19, 2019, Lex Columbus sold its interest in the Columbus, Indiana office building to Cummins Inc. for a gross purchase price of $46,915 and terminated the Cummins lease as part of a settlement of the litigation. At the closing of the sale, Cummins Inc. paid rent for the period August 1, 2019 through December 18, 2019 in the amount of $1,885 and reimbursed Lex Columbus for $700 in expenses under the indemnity provision in the lease. The litigation was dismissed with prejudice on December 20, 2019. 89 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) As of December 31, 2019, the Company maintained an executive severance policy and entered into related agreements with certain of its executive officers whereby the Company's executives are entitled to severance benefits upon certain events. In January 2018, the Company entered into retirement agreements with two of its then executive officers. One of the retirement agreements provides for contingent payments, not to exceed $795, in 2020 following the receipt of certain incentive fees by the Company, if any. As of December 31, 2019, $140 of these contingent payments was earned. (18) Supplemental Disclosure of Statement of Cash Flow Information Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents at beginning of period Restricted cash at beginning of period 2019 2018 2017 $ 168,750 $ 107,762 $ 86,637 8,497 4,394 31,142 Cash, cash equivalents and restricted cash at beginning of period $ 177,247 $ 112,156 $ 117,779 Cash and cash equivalents at end of period Restricted cash at end of period Cash, cash equivalents and restricted cash at end of period $ 122,666 $ 168,750 $ 107,762 6,644 $ 129,310 8,497 $ 177,247 4,394 $ 112,156 In addition to disclosures discussed elsewhere, during 2019, 2018 and 2017, the Company paid $59,018, $76,562 and $75,069, respectively, for interest and $1,482, $2,025 and $2,340, respectively, for income taxes. During 2019, the Company assumed a $41,877 non-recourse mortgage debt upon the acquisition of a property. In addition, in 2019, the Company sold its interest in a property, which included the assumption by the buyer of the related non-recourse mortgage debt of $110,000. During 2017, the Company conveyed its interests in certain properties to its lenders in full satisfaction of $12,616 non- recourse mortgage notes payable. (19) Unaudited Quarterly Financial Data Total gross revenues Net income Net income attributable to common shareholders Net income attributable to common shareholders - basic per share Net income attributable to common shareholders - diluted per share 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 3/31/2019 6/30/2019 9/30/2019 12/31/2019 $ $ $ $ $ 81,248 28,280 26,405 0.11 0.11 $ $ $ $ $ 80,135 23,769 21,721 0.09 0.09 $ $ $ $ $ 81,550 147,821 141,560 0.60 0.59 $ $ $ $ $ 83,036 85,423 83,574 0.34 0.33 3/31/2018 6/30/2018 9/30/2018 12/31/2018 $ $ $ $ $ 102,821 $ (14,823) $ (15,957) $ 105,673 $ (795) $ (3,327) $ 100,295 220,850 216,190 (0.07) $ (0.01) $ 0.91 (0.07) $ (0.01) $ 0.90 $ $ $ $ $ 88,182 25,674 23,796 0.10 0.10 90 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000, except share/unit data) 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. (20) Subsequent Events Subsequent to December 31, 2019 and in addition to disclosures elsewhere in the financial statements, the Company: – acquired four industrial properties for an aggregate purchase price of approximately $195,000, partially funded through borrowings on the revolving credit facility. 91 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(1) Date Acquired Date Constructed INDUSTRIAL PROPERTIES Single-tenant 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 Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Industrial Anniston, AL Opelika, AL Goodyear, AZ Goodyear, AZ Tolleson, AZ Orlando, FL Tampa, FL Austell, GA Lavonia, GA McDonough, GA McDonough, GA McDonough, GA Union City, GA Edwardsville, IL Edwardsville, IL Minooka, IL Rantoul, IL Rockford, IL Rockford, IL Romeoville, IL Lafayette, IN Lebanon, IN Whitestown, IN New Century, KS 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 Plymouth, MI Romulus, MI Warren, MI Minneapolis, MN Byhalia, MS Byhalia, MS Canton, MS Olive Branch, MS Olive Branch, MS Olive Branch, MS Olive Branch, MS Olive Branch, MS Lumberton, NC Shelby, NC Statesville, NC Durham, NH North Las Vegas, NV Erwin, NY Long Island City, NY Chillicothe, OH $ — $ 1,201 $ 16,771 $ 17,972 $ — — 41,877 142 5,247 11,970 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 25,850 — — — — — — — — — — — — — — — 36,449 — 3,311 1,030 2,160 3,251 171 5,441 3,253 2,463 2,536 4,593 3,649 3,432 1,304 371 509 7,524 662 2,100 1,954 — 560 890 352 631 393 819 860 1,078 1,383 1,133 1,942 143 2,296 2,438 972 1,886 1,006 1,751 5,077 2,500 198 1,958 2,646 851 405 1,421 891 3,464 3,244 1,648 — 735 92 31,734 36,115 48,924 16,013 10,869 8,526 40,035 7,657 52,790 30,956 24,811 22,830 34,362 41,310 40,947 32,562 2,633 5,921 40,167 15,578 29,443 16,821 13,330 12,553 26,868 4,862 16,154 11,956 2,439 21,840 10,134 35,659 25,009 14,169 4,302 15,772 33,786 42,521 1,922 35,795 31,236 71,289 42,556 10,276 38,702 40,446 15,464 12,049 18,862 16,771 18,094 21,732 12,514 42,759 9,021 31,876 41,362 60,894 19,324 11,899 10,686 43,286 7,828 58,231 34,209 27,274 25,366 38,955 44,959 44,379 33,866 3,004 6,430 47,691 16,240 31,543 18,775 13,330 13,113 27,758 5,214 16,785 12,349 3,258 22,700 11,212 37,042 26,142 16,111 4,445 18,068 36,224 43,493 3,808 36,801 32,987 76,366 45,056 10,474 40,660 43,092 16,315 12,454 20,283 17,662 21,558 24,976 14,162 42,759 9,756 3,948 3,280 1,788 183 177 3,984 7,041 882 1,588 5,293 1,237 8,453 504 4,268 2,796 — 5,368 938 1,900 5,118 1,800 3,526 719 1,680 6,325 13,538 2,450 8,673 6,971 1,169 6,984 2,796 11,603 5,204 4,175 3,271 6,912 3,842 3,851 440 7,350 4,094 16,402 3,432 7,794 3,131 1,016 384 5,039 6,007 6,148 7,563 3,582 3,504 19,432 3,406 Dec-14 Jul-17 Nov-18 Nov-19 Oct-19 Dec-06 Jul-88 Jun-19 Sep-12 Aug-17 Feb-19 Dec-06 Jun-19 Dec-16 Jun-18 Dec-19 Jan-14 Dec-06 Dec-06 Dec-16 Oct-17 Feb-17 Jan-19 Feb-17 Jun-05 Jun-05 Jun-05 Jun-05 Jun-05 Dec-06 Mar-07 Jun-12 Dec-06 Jan-16 Sep-12 Sep-12 Jun-07 Nov-17 Nov-17 Sep-12 May-11 Sep-17 Mar-15 Apr-18 Dec-04 Apr-18 May-19 May-19 Dec-06 Jun-11 Dec-06 Jun-07 Jul-13 Sep-12 Mar-13 Oct-11 2017 2014 2012 2011 2011 2014 2013 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(1) 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 Multi-tenant/vacant Industrial Industrial Industrial Industrial OFFICE PROPERTIES Single-tenant Office Office Office Office Office Office Office Office Office Cincinnati, OH Columbus, OH Glenwillow, OH Hebron, OH Hebron, OH Monroe, OH Monroe, OH Monroe, OH Pataskala, OH Streetsboro, OH Wilsonville, OR Bristol, PA Chester, SC Duncan, SC Duncan, SC Duncan, SC Duncan, SC Greer, SC Laurens, SC Spartanburg,SC Cleveland, TN Crossville, TN Franklin, TN Jackson, TN Lewisburg, TN Millington, TN Smyrna, TN Arlington, TX Brookshire, TX Carrollton, TX Dallas, TX Grand Prairie, TX Houston, TX Houston, TX Missouri City, TX Pasadena, TX San Antonio, TX Chester, VA Winchester, VA Winchester, VA Bingen, WA Oak Creek, WI Moody, AL Thomson, GA Henderson, NC Antioch, TN Tempe. AZ Tucson, AZ Palo Alto, CA Boca Raton, FL Orlando, FL McDonough, GA Lenexa, KS Baton Rouge, LA Oakland, ME — — — — — — — — — — — — 5,763 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 26,301 18,465 — — — — — 1,049 1,990 2,228 1,063 1,681 544 3,123 3,950 3,628 2,441 6,815 2,508 1,629 1,406 1,257 1,615 884 6,959 5,552 1,447 1,871 545 — 1,454 173 723 1,793 589 2,388 3,228 2,420 3,166 4,674 15,055 14,555 4,057 1,311 8,544 1,988 3,823 — 3,015 654 909 1,488 3,847 — 681 12,398 4,290 3,538 693 2,828 760 551 93 8,784 10,893 24,530 4,947 8,179 12,370 60,702 88,422 — 25,282 32,424 15,863 8,470 14,272 13,252 27,830 8,749 78,364 21,908 23,758 29,743 6,999 5,673 49,026 10,865 19,383 93,940 7,739 16,614 15,784 23,330 17,985 19,540 57,949 5,895 17,810 36,644 53,067 32,536 12,276 18,075 15,300 11,325 7,746 5,953 12,659 13,086 4,037 16,977 17,160 9,353 6,405 6,075 3,838 8,774 9,833 12,883 26,758 6,010 9,860 12,914 63,825 92,372 3,628 27,723 39,239 18,371 10,099 15,678 14,509 29,445 9,633 85,323 27,460 25,205 31,614 7,544 5,673 50,480 11,038 20,106 95,733 8,328 19,002 19,012 25,750 21,151 24,214 73,004 20,450 21,867 37,955 61,611 34,524 16,099 18,075 18,315 11,979 8,655 7,441 16,506 13,086 4,718 29,375 21,450 12,891 7,098 8,903 4,598 9,325 3,364 4,573 8,373 2,198 3,863 177 903 1,267 — 10,426 4,606 8,248 2,269 155 144 821 2,818 — 8,465 1,706 3,461 4,924 3,519 4,724 1,923 13,881 9,277 1,899 3,692 1,319 657 1,950 10,153 12,174 5,895 1,085 3,940 2,854 2,784 4,615 5,201 3,040 7,902 2,024 2,698 4,036 3,537 1,277 24,397 7,240 7,007 1,772 2,101 Dec-06 Dec-06 Dec-06 Dec-97 Dec-01 Sep-19 Sep-19 Sep-19 Dec-18 Jun-07 Sep-16 Mar-98 Sep-12 Oct-19 Oct-19 Apr-19 Jun-07 Dec-19 Jun-07 Aug-18 May-17 Jan-06 Sep-12 Sep-17 May-14 Apr-05 Sep-17 Sep-12 Mar-15 Sep-18 Apr-19 Jun-17 Mar-15 Mar-13 Apr-12 Aug-18 Jun-17 Dec-18 Dec-17 Jun-07 May-14 Jul-15 Feb-04 May-15 Nov-01 May-07 Sep-12 Sep-12 Dec-06 Feb-03 Jan-07 Sep-12 Sep-12 — May-07 2,642 Sep-12 2014 2015 2015 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(1) Date Acquired Date Constructed Kansas City, MO Wall, NJ Whippany, NJ Philadelphia, PA Florence, SC Fort Mill, SC Fort Mill, SC Knoxville, TN Arlington, TX — 5,576 11,572 — — — — — — Lake Jackson, TX 183,077 Office Office Office Office Office Office Office Office Office Office Office Office Office Multi-tenant/vacant Office Office Office Office OTHER PROPERTIES Single-tenant/Specialty Other Other Other Mission, TX Westlake, TX Herndon, VA Phoenix, AZ Overland Park, KS Charleston, SC Houston, TX Venice, FL Baltimore, MD Baltimore, MD Multi-tenant/vacant Other Honolulu, HI Construction in progress Deferred loan costs, net — — — — 32,112 6,830 — — — — — — (3,600) 2012 2016/2017 1,525 8,985 4,063 13,209 774 1,798 3,601 621 1,274 7,435 2,556 2,361 5,127 1,096 2,025 1,189 1,875 4,696 4,605 5,000 8,259 — 10,164 26,961 19,711 65,911 3,629 26,964 16,306 6,566 15,359 11,689 35,946 23,774 79,120 4,403 28,762 19,907 7,187 16,633 141,436 148,871 2,911 27,788 25,293 6,228 10,976 9,419 10,959 11,753 — — 7,471 — 5,467 30,149 30,420 7,324 13,001 10,608 12,834 16,449 4,605 5,000 15,730 1,895 582 16,773 10,639 44,298 833 20,373 6,836 1,861 4,013 18,027 1,172 14,952 12,071 Jun-07 Jan-04 Nov-06 Jun-05 Feb-12 Nov-04 Dec-02 Sep-12 Sep-12 Nov-16 Sep-12 May-07 Dec-99 517 Nov-01 4,242 5,104 8,449 Jun-07 Nov-06 Apr-05 10,517 — — Jan-15 Dec-06 Dec-15 7,402 Dec-06 — (1) Depreciation and amortization expense is calculated on a straight-line basis over the following lives: $ 390,272 $ 355,697 $ 2,962,982 $ 3,320,574 $ 675,596 Building and improvements Land estates Tenant improvements Up to 40 years Up to 51 years Shorter of useful life or term of related lease 94 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES Real Estate and Accumulated Depreciation and Amortization Schedule III ($000) - continued 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, 2019 for federal income tax purposes was approximately $3.8 billion. 2019 2018 2017 $ 3,090,134 $ 3,936,459 $ 3,533,172 663,742 (496,730) 63,428 3,320,574 $ 310,207 (1,091,956) (64,576) 3,090,134 $ 676,355 (270,241) (2,827) 3,936,459 722,644 $ 890,969 $ 118,525 136,571 (177,709) 12,136 $ 675,596 $ (290,938) (13,958) 722,644 $ 844,931 139,493 (93,455) — 890,969 $ $ 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 95 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report, was made under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer who are our Principal Executive Officer and our Principal Financial Officer, respectively. Management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of December 31, 2019. 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, 2019. 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, 2019. 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 our internal control over financial reporting was effective as of December 31, 2019. Our independent registered public accounting firm, Deloitte & Touche 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. Deloitte & Touche LLP has issued an unqualified 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. 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 quarter end 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Not applicable. 96 Item 10. Directors, Executive Officers and Corporate Governance PART III. 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 2020 Annual Meeting of Shareholders, which we refer to as our Proxy Statement, and is incorporated herein by reference. Item 11. Executive Compensation The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference. In addition, certain information regarding related party transactions is set forth in note 15 to the Company'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. 97 Item 15. Exhibits, Financial Statement Schedules PART IV. (a)(1) Financial Statements (2) Financial Statement Schedules (3) Exhibits Exhibit No. Description Page 54 92 98 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 10.1 10.2 10.3 10.4 — 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) — Second Amendment to the Amended and Restated By-laws of the Company (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed April 3, 2017)(1) — Sixth Amended and Restated Agreement of Limited Partnership of LCIF, dated as of December 30, 2013 (filed as Exhibit 3.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013)(1) — Specimen of Common Shares Certificate of the Company (filed as Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006)(1) — Form of 6.50% Series C Cumulative Convertible Preferred Stock certificate (filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8A filed December 8, 2004)(1) — 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) — 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 Company's Current Report on Form 8-K filed on June 13, 2013)(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 Company's Current Report on Form 8-K filed on October 3, 2013)(1) — Indenture, dated as of May 9, 2014, among the Company, LCIF and U.S. Bank, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 13, 2014)(1) — First Supplemental Indenture, dated as of May 20, 2014 among the Company, LCIF and U.S. Bank, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 20, 2014)(1) — Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (2) — 1994 Employee Stock Purchase Plan (filed as Exhibit 10.1 to the Company's Annual Report on Form 10- K filed on March 13, 2019)(1) — Lexington Realty Trust Amended and Restated 2011 Equity-Based Award Plan (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed May 18, 2017)(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) 98 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 21 23 24 31.1 31.2 — Amended and Restated Rabbi Trust Agreement, originally dated January 26, 1999 (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed January 2, 2009)(1, 4) — Retirement Agreement, dated January 18, 2018, between the Company and Richard J. Rouse (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 19, 2018 (the “1/19/18 8-K”)) (1, 4) — Retirement Agreement, dated January 18, 2018, between the Company and E. Robert Roskind (filed as Exhibit 10.2 to the 1/19/18 8-K)(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) (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016)(1, 4) — Form of Amended and Restated Indemnification Agreement between the Company and certain officers and trustees (filed as Exhibit 10.20 to the Company’s Quarterly Report Form 10-Q for the quarter ended September 30, 2008)(1) — 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) — 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) — 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) — 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) — First Amendment to Credit Agreement and Agreement Regarding Revolving Line Commitment and Term Loan Increases, dated as of September 29, 2017, among the Company and LCIF, as borrowers, and KeyBank National Association, as agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 2, 2017)(1) — Second Amendment to Credit Agreement, dated as of December 21, 2018, among the Company, as borrower, KeyBank National Association, as agent, and each of the lenders signatory thereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 28, 2018)(1) — Amended and Restated Credit Agreement, dated as of February 6, 2019, among the Company, as borrower, each of the financial institutions initially signatory thereto together with their assignees pursuant to Section 12.5 therein and KeyBank, as agent (filed as Exhibit 10.1 to the Company's Current Report of Form 8-K filed on February 11, 2019)(1) First Amendment to Amended and Restated Credit Agreement, dated as of July 25, 2019, among the Company, as borrower, KeyBank, as agent, and each of the lenders signatory thereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 29, 2019)(1) Equity Sales Agreement, dated as of November 27, 2019, between the Company and Jefferies LLC, KeyBanc Capital Markets Inc., Regions Securities LLC, BofA Securities, Inc., Mizuho Securities USA LLC and Evercore Group L.L.C. (filed as Exhibit 1.1 to the Company's Current Report on Form 8-K filed on November 29, 2019)(1) — List of subsidiaries (2) — Consent of Deloitte & Touche LLP (2) — Power of Attorney (included on signature page) — Certification of Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) — Certification of Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) 99 32.1 32.2 — Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3) — Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3) 101.INS — XBRL Instance Document - the instance document does not appear in the Interactive Data File because its 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE XBRL tags are embedded within the Inline XBRL document (2, 5) — Inline XBRL Taxonomy Extension Schema (2, 5) — Inline XBRL Taxonomy Extension Calculation Linkbase (2, 5) — Inline XBRL Taxonomy Extension Definition Linkbase Document (2, 5) — Inline XBRL Taxonomy Extension Label Linkbase Document (2, 5) — Inline 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 Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2019 and 2018; (ii) the Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017; (iii) the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 2018 and 2017; (iv) the Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018 and 2017; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017; and (vi) Notes to Consolidated Financial Statements, detailed tagged. 100 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 20, 2020 Lexington Realty Trust By: /s/ T. Wilson Eglin T. Wilson Eglin Chief Executive Officer 101 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints T. Wilson Eglin and Beth Boulerice, and each of them severally, his or her true and lawful attorney-in-fact with power of substitution and resubstitution to sign in his or her 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 or her 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/ T. Wilson Eglin T. Wilson Eglin /s/ Beth Boulerice Beth Boulerice /s/ Mark Cherone Mark Cherone /s/ Richard S. Frary Richard S. Frary /s/ Lawrence L. Gray Lawrence L. Gray /s/ Jamie Handwerker Jamie Handwerker /s/ Claire A. Koeneman Claire A. Koeneman /s/ Howard Roth Howard Roth Each dated: February 20, 2020 Chairman, Chief Executive Officer and President of the Trust (principal executive officer) Chief Financial Officer, Executive Vice President and Treasurer of the Trust (principal financial officer) Chief Accounting Officer of the Trust (principal accounting officer) Trustee of the Trust Trustee of the Trust Trustee of the Trust Trustee of the Trust Trustee of the Trust 102 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 20, 2020 /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, Beth Boulerice, 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 20, 2020 /s/ Beth Boulerice Beth Boulerice Chief Financial Officer CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.1 In connection with the Annual Report of Lexington Realty Trust (the “Trust”) on Form 10-K for the period ended December 31, 2019 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 20, 2020 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, 2019 as filed with the Securities and Exchange Commission on the date hereof, I, Beth Boulerice, 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/ Beth Boulerice Beth Boulerice Chief Financial Officer February 20, 2020 [This page intentionally left blank.] [This page intentionally left blank.] Total Return Performance Lexington Realty Trust S&P 500 Index Russell 2000 Index NAREIT Equity REIT Index 200 150 100 e u l a V x e d n I 50 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 Index Lexington Realty Trust S&P 500 Index Russell 2000 Index NAREIT Equity REIT Index Period Ending 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 100.00 100.00 100.00 100.00 78.80 101.38 95.59 103.20 114.10 113.51 115.95 111.99 109.33 138.29 132.94 117.84 101.32 132.23 118.30 112.39 136.68 173.86 148.49 141.61 Source: S&P Global Market Intelligence © 2020 We filed the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as an exhibit to our Annual Report on Form 10- K for the year ended December 31, 2019, which is included herein. In addition, in 2019, we submitted an unqualified certification required by section 303A.12(a) of the Listed Company Manual of the New York Stock Exchange. Annual Report 2019 

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