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Lexington Realty Trust Reports Second Quarter 2015 Results

NEW YORK, Aug. 04, 2015 (GLOBE NEWSWIRE) -- Lexington Realty Trust (“Lexington”) (NYSE:LXP), a real estate investment trust focused on single-tenant real estate investments, today announced results for the second quarter ended June 30, 2015.

Second Quarter 2015 Highlights

  • Generated Company Funds From Operations (“Company FFO”) of $67.0 million, or $0.27 per diluted common share.
  • Invested $28.2 million in on-going build-to-suit projects and commenced funding an industrial build-to-suit project for $70.0 million.
  • Completed an industrial build-to-suit property for $10.1 million.
  • Disposed of two office buildings for gross disposition proceeds of $77.1 million.
  • Retired $30.1 million of secured debt.
  • Completed 1.3 million square feet of new leases and lease extensions with overall portfolio 96.3% leased.
  • Raised renewal rents by 1.3% on a cash basis and 6.6% on a GAAP basis.
  • Announced a 10.0 million common share repurchase authorization subsequent to quarter end.


T. Wilson Eglin, President and Chief Executive Officer of Lexington, stated, “We continue to make substantive progress on our capital recycling and portfolio repositioning initiatives. During the quarter, we sold $77.1 million of office properties, bringing our total for the year to $112.3 million, with proceeds redeployed primarily into newer, longer-term investments at attractive returns through our build-to-suit projects. Given the strong investment sales market, we expect disposition activity to remain elevated throughout the balance of 2015. Within our portfolio, we completed 1.3 million of new leases and lease extensions during the quarter. We expect to make substantial progress over the balance of this year with respect to leases expiring in 2016 and beyond.”

Mr. Eglin added, “Of particular note is the cumulative impact that the execution of our capital recycling program has had on our office portfolio. The weighted-average lease term in this portfolio is over seven years and more than half of our office revenue is from investment-grade rated tenants. Most importantly, 72% of our office revenue is from long-term leases or leases which have been renewed since the beginning of 2009. Taken together, our exposure to expiring leases with above market rents has been considerably mitigated.”

FINANCIAL RESULTS

Revenues

For the quarter ended June 30, 2015, total gross revenues were $110.3 million, a 4.6% increase compared with total gross revenues of $105.4 million for the quarter ended June 30, 2014. The increase is primarily due to property acquisitions.

Company FFO

For the quarter ended June 30, 2015, Lexington generated Company FFO of $67.0 million, or $0.27 per diluted share, compared to Company FFO for the quarter ended June 30, 2014 of $67.6 million, or $0.28 per diluted share. The calculation of Company FFO and a reconciliation to net income attributable to common shareholders is included later in this press release.

Dividends/Distributions

Lexington declared a regular quarterly common share/unit dividend/distribution for the quarter ended June 30, 2015 of $0.17 per common share/unit, which was paid on July 15, 2015 to common shareholders/unitholders of record as of June 30, 2015, and a dividend of $0.8125 per share on its Series C Cumulative Convertible Preferred Stock (“Series C Preferred Shares”), which will be paid on August 17, 2015 to Series C Preferred Shareholders of record as of July 31, 2015.

Net Income Attributable to Common Shareholders

For the quarter ended June 30, 2015, net income attributable to common shareholders was $47.7 million, or $0.20 per diluted share, compared with net income attributable to common shareholders for the quarter ended June 30, 2014 of $12.7 million, or $0.05 per diluted share.

OPERATING ACTIVITIES

Investment Activity

During the quarter, Lexington completed one build-to-suit project, which is subject to a lease having a term in excess of ten years (an “LTL”).

Acquisition
Tenant Location Property
Type
Initial
Basis
($000)
Initial
Annualized
Cash Rent
($000)
Initial
Cash
Yield
GAAP
Yield
Lease
Term (Yrs)
Hollander Sleep Products, Inc. Thomson, GA LTL - Industrial $10,144 $836 8.2% 9.2% 15


Lexington also funded $28.2 million of the projected costs of the following projects:

On-going Build-to-Suit Projects
Location Sq. Ft. Property Type Lease Term
(Years)
Maximum
Commitment/Estimated
Completion Cost
($000)
GAAP
Investment

Balance as of
6/30/2015
($000)
Estimated
Completion/
Acquisition
Date
Oak Creek, WI 164,000 LTL - Industrial 20 $22,609 $18,444 3Q 15
Richmond, VA 330,000 LTL - Office 15 110,137 89,015 3Q 15
Anderson, SC 1,325,000 LTL - Industrial 20 70,012 7,133 2Q 16
Lake Jackson, TX 664,000 LTL - Office 20 166,164 32,455 4Q 16
Houston, TX(1) 274,000 LTL - Retail/Specialty 20 86,491 21,660 3Q 16
2,757,000 $455,413 $168,707
1. Lexington has a 25% interest as of June 30, 2015. Lexington may provide construction financing up to $56.7 million to the joint venture.


Lexington also invested $8.4 million in an 11.5% loan that matures in October 2015 to a tenant-in-common. The loan is secured by the tenant-in-common's interest in an office property in which Lexington has a 40% interest.

In addition, Lexington has committed to acquire the following properties upon completion of construction.

Forward Commitments
Location Property
Type
Estimated
Acquisition
Cost

($000)
Lease
Term
(Years)
Estimated
Initial

Cash Yield
Estimated
GAAP

Yield
Estimated
Acquisition
Date
Richland, WA LTL - Industrial $155,000 20 7.1% 8.6% 4Q 15
Detroit, MI LTL - Industrial 29,680 20 7.4% 7.4% 1Q 16
$184,680 7.2% 8.4%


Capital Recycling

Property Dispositions
Tenant Location Property Type Gross Disposition
Price
($000)
Annualized
NOI
($000)
Month of
Disposition
Alta Resources Corp. Fort Myers, FL Office $12,400 $901 April
Multi-tenant Orlando, FL LTL - Office 64,675 5,174 June
$77,075 $6,075

Lexington collected $3.5 million in full satisfaction of the Austin, Texas loan investment, including yield maintenance.

Balance Sheet

During the second quarter of 2015, Lexington satisfied $30.1 million of consolidated secured debt with a weighted-average interest rate of 5.1%, unencumbering six properties with estimated 2015 annual net operating income of approximately $8.6 million.

In April 2015, holders converted approximately $2.8 million original principal amount 6.00% Convertible Guaranteed Notes due 2030 (“6.00% Notes”) for 428,707 common shares, reducing the outstanding balance of this note issuance to $12.8 million. All common shares that are issuable upon conversion of the 6.00% Notes are treated as outstanding for diluted Company FFO calculations.

On July 2, 2015, Lexington announced a new 10.0 million common share repurchase authorization (inclusive of all outstanding prior authorizations). Under this authorization, 150,000 common shares have been purchased at an average price of $8.58 per share. In connection with the authorization, Lexington declared a cash dividend of $0.8125 per share on its Series C Preferred Shares, which will be paid on November 16, 2015 to Series C Preferred Shareholders of record as of October 30, 2015.

Leasing

During the second quarter of 2015, Lexington executed the following new and extended leases:

LEASE EXTENSIONS
Location Prior Term Lease Expiration Date Sq. Ft.
Office/Multi-Tenant Office
1 Temple, TX 01/2016 01/2021 54,117
2 Oklahoma City, OK(1) 11/2015 11/2020 103,500
3 Phoenix, AZ 12/2029 12/2032 252,400
4-5 Various 2015 2017 4,044
5 Total office lease extensions 414,061
Industrial/Multi-Tenant Industrial
1 Henderson, NC 06/2016 06/2018 196,946
2 Byhalia, MS 03/2026 03/2030 513,734
3-4 Antioch, TN 2015 2017-2018 15,696
4 Total industrial lease extensions 726,376
9 Total lease extensions 1,140,437
NEW LEASES
Location Lease Expiration Date Sq. Ft.
Office/Multi-Tenant Office
1 Lakewood, CO 07/2030 68,165
2-4 Various 2018-2023 7,394
4 Total new office leases 75,559
Industrial/Multi-Tenant Industrial
1 Antioch, TN 09/2025 117,600
1 Total new industrial leases 117,600
5 Total new leases 193,159
14 TOTAL NEW AND EXTENDED LEASES 1,333,596
(1) Lexington has a 40% interest.


2015 EARNINGS GUIDANCE

Lexington is raising its Company FFO guidance by $0.01 per share to an expected range of $1.02 to $1.06 per diluted share for the year ended December 31, 2015. This guidance is forward looking, excludes the impact of certain items and is based on current expectations.

SECOND QUARTER 2015 CONFERENCE CALL

Lexington will host a conference call today, Tuesday, August 4, 2015, at 11:00 a.m. Eastern Time, to discuss its results for the quarter ended June 30, 2015. Interested parties may participate in this conference call by dialing 877-407-0789 or 201-689-8562. A replay of the call will be available through August 18, 2015, at 877-870-5176 or 858-384-5517, pin: 13614059. A live webcast of the conference call will be available at www.lxp.com within the Investors section.

ABOUT LEXINGTON REALTY TRUST

Lexington Realty Trust is a real estate investment trust that owns a diversified portfolio of equity and debt interests in single-tenant commercial properties and land. Lexington seeks to expand its portfolio through acquisitions, sale-leaseback transactions, build-to-suit arrangements and other transactions. A majority of these properties and all land interests are subject to net or similar leases, where the tenant bears all or substantially all of the operating costs, including cost increases, for real estate taxes, utilities, insurance and ordinary repairs. Lexington also provides investment advisory and asset management services to investors in the single-tenant area. Lexington common shares are traded on the New York Stock Exchange under the symbol “LXP”. Additional information about Lexington is available on-line at www.lxp.com or by contacting Lexington Realty Trust, One Penn Plaza, Suite 4015, New York, New York 10119-4015, Attention: Investor Relations.

This release contains certain forward-looking statements which involve known and unknown risks, uncertainties or other factors not under Lexington's control which may cause actual results, performance or achievements of Lexington to be materially different from the results, performance, or other expectations implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the headings “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in Lexington's periodic reports filed with the Securities and Exchange Commission, including risks related to: (1) the authorization by Lexington's Board of Trustees of future dividend declarations, including those necessary to achieve an annualized dividend level of $0.68 per common share/unit, (2) Lexington's ability to achieve its estimate of Company FFO for the year ending December 31, 2015, (3) the successful consummation of any lease, acquisition, build-to-suit, financing or other transaction, (4) the failure to continue to qualify as a real estate investment trust, (5) changes in general business and economic conditions, including the impact of any legislation, (6) competition, (7) increases in real estate construction costs, (8) changes in interest rates, (9) changes in accessibility of debt and equity capital markets, and (10) future impairment charges. Copies of the periodic reports Lexington files with the Securities and Exchange Commission are available on Lexington's web site at www.lxp.com. Forward-looking statements, which are based on certain assumptions and describe Lexington's future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects”, “may,” “plans,” “predicts,” “will,” “will likely result,” “is optimistic,” “goal,” “objective” or similar expressions. Except as required by law, Lexington undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the occurrence of unanticipated events. Accordingly, there is no assurance that Lexington's expectations will be realized.

References to Lexington refer to Lexington Realty Trust and its consolidated subsidiaries. All interests in properties and loans are held through special purpose entities, which are separate and distinct legal entities, some of which are consolidated for financial statement purposes and/or disregarded for income tax purposes.


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except share and per share data)
Three months ended
June 30,
Six months ended
June 30,
2015 2014 2015 2014
Gross revenues:
Rental$102,440 $97,564 $202,456 $193,929
Tenant reimbursements7,893 7,883 16,319 15,534
Total gross revenues110,333 105,447 218,775 209,463
Expense applicable to revenues:
Depreciation and amortization(41,808) (37,763) (82,083) (75,710)
Property operating(15,534) (15,449) (32,116) (31,130)
General and administrative(7,971) (6,631) (15,792) (14,609)
Non-operating income3,084 3,079 5,698 6,152
Interest and amortization expense(23,339) (25,319) (46,342) (49,135)
Debt satisfaction gains (charges), net3,776 (4,187) 14,151 (7,491)
Impairment charges(113) (1,252) (16,400)
Gains on sales of properties21,426 21,574
Income before benefit (provision) for income taxes, equity in earnings (losses) of non-consolidated entities and discontinued operations49,854 19,177 82,613 21,140
Benefit (provision) for income taxes52 (284) (389) (875)
Equity in earnings (losses) of non-consolidated entities306 (209) 672 73
Income from continuing operations50,212 18,684 82,896 20,338
Discontinued operations:
Income (loss) from discontinued operations(1) 1,793 109 4,279
Provision for income taxes(4) (19) (4) (36)
Debt satisfaction charges, net (299) (299)
Gains on sales of properties 3,510 1,577 3,510
Impairment charges (8,382) (10,691)
Total discontinued operations(5) (3,397) 1,682 (3,237)
Net income50,207 15,287 84,578 17,101
Less net income attributable to noncontrolling interests(875) (837) (1,741) (1,765)
Net income attributable to Lexington Realty Trust shareholders49,332 14,450 82,837 15,336
Dividends attributable to preferred shares – Series C(1,573) (1,573) (3,145) (3,145)
Allocation to participating securities(105) (135) (192) (287)
Net income attributable to common shareholders$47,654 $12,742 $79,500 $11,904
Income (loss) per common share – basic:
Income from continuing operations$0.20 $0.07 $0.33 $0.07
Income (loss) from discontinued operations (0.02) 0.01 (0.02)
Net income attributable to common shareholders$0.20 $0.05 $0.34 $0.05
Weighted-average common shares outstanding – basic233,812,062 228,368,053 233,172,422 227,765,718
Income (loss) per common share – diluted:
Income from continuing operations$0.20 $0.07 $0.33 $0.07
Income (loss) from discontinued operations (0.02) 0.01 (0.02)
Net income attributable to common shareholders$0.20 $0.05 $0.34 $0.05
Weighted-average common shares outstanding – diluted239,903,370 228,851,184 239,559,842 228,275,608
Amounts attributable to common shareholders:
Income from continuing operations$47,659 $16,158 $77,818 $15,179
Income (loss) from discontinued operations(5) (3,416) 1,682 (3,275)
Net income attributable to common shareholders$47,654 $12,742 $79,500 $11,904


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
June 30, 2015 December 31, 2014
Assets:
Real estate, at cost$3,734,513 $3,671,560
Real estate - intangible assets721,571 705,566
Investments in real estate under construction147,047 106,238
4,603,131 4,483,364
Less: accumulated depreciation and amortization1,220,203 1,196,114
Real estate, net3,382,928 3,287,250
Assets held for sale33,364 3,379
Cash and cash equivalents64,382 191,077
Restricted cash12,844 17,379
Investment in and advances to non-consolidated entities28,241 19,402
Deferred expenses, net63,780 65,860
Loans receivable, net108,309 105,635
Rent receivable – current8,523 6,311
Rent receivable – deferred79,513 61,372
Other assets26,113 20,229
Total assets$3,807,997 $3,777,894
Liabilities and Equity:
Liabilities:
Mortgages and notes payable$865,860 $945,216
Credit facility borrowings93,000
Term loans payable505,000 505,000
Senior notes payable497,811 497,675
Convertible notes payable12,464 15,664
Trust preferred securities129,120 129,120
Dividends payable43,628 42,864
Liabilities held for sale20,801 2,843
Accounts payable and other liabilities43,070 37,740
Accrued interest payable9,235 8,301
Deferred revenue - including below market leases, net44,328 68,215
Prepaid rent16,589 16,336
Total liabilities2,280,906 2,268,974
Commitments and contingencies
Equity:
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares:
Series C Cumulative Convertible Preferred, liquidation preference $96,770; 1,935,400 shares issued and outstanding94,016 94,016
Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 235,940,610 and 233,278,037 shares issued and outstanding in 2015 and 2014, respectively24 23
Additional paid-in-capital2,784,423 2,763,374
Accumulated distributions in excess of net income(1,372,170) (1,372,051)
Accumulated other comprehensive income (loss)(2,226) 404
Total shareholders’ equity1,504,067 1,485,766
Noncontrolling interests23,024 23,154
Total equity1,527,091 1,508,920
Total liabilities and equity$3,807,997 $3,777,894


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
EARNINGS PER SHARE
Unaudited and in thousands, except share and per share data
Three Months Ended
June 30,
Six Months Ended
June 30,
2015 2014 2015 2014
EARNINGS PER SHARE:
Basic:
Income from continuing operations attributable to common shareholders$47,659 $16,158 $77,818 $15,179
Income (loss) from discontinued operations attributable to common shareholders(5) (3,416) 1,682 (3,275)
Net income attributable to common shareholders$47,654 $12,742 $79,500 $11,904
Weighted-average number of common shares outstanding233,812,062 228,368,053 233,172,422 227,765,718
Income (loss) per common share:
Income from continuing operations$0.20 $0.07 $0.33 $0.07
Income (loss) from discontinued operations (0.02) 0.01 (0.02)
Net income attributable to common shareholders$0.20 $0.05 $0.34 $0.05
Diluted:
Income from continuing operations attributable to common shareholders - basic$47,659 $16,158 $77,818 $15,179
Impact of assumed conversions764 1,633
Income from continuing operations attributable to common shareholders48,423 16,158 79,451 15,179
Income (loss) from discontinued operations attributable to common shareholders - basic(5) (3,416) 1,682 (3,275)
Impact of assumed conversions
Income (loss) from discontinued operations attributable to common shareholders(5) (3,416) 1,682 (3,275)
Net income attributable to common shareholders$48,418 $12,742 $81,133 $11,904
Weighted-average common shares outstanding - basic233,812,062 228,368,053 233,172,422 227,765,718
Effect of dilutive securities:
Share options296,501 483,131 369,079 509,890
6.00% Convertible Guaranteed Notes1,941,833 2,165,367
Operating Partnership Units3,852,974 3,852,974
Weighted-average common shares outstanding239,903,370 228,851,184 239,559,842 228,275,608
Income (loss) per common share:
Income from continuing operations$0.20 $0.07 $0.33 $0.07
Income (loss) from discontinued operations (0.02) 0.01 (0.02)
Net income attributable to common shareholders$0.20 $0.05 $0.34 $0.05


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
COMPANY FUNDS FROM OPERATIONS & FUNDS AVAILABLE FOR DISTRIBUTION
(Unaudited and in thousands, except share and per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2015 2014 2015 2014
FUNDS FROM OPERATIONS: (1)
Basic and Diluted:
Net income attributable to common shareholders$47,654 $12,742 $79,500 $11,904
Adjustments:
Depreciation and amortization40,467 39,022 79,389 78,961
Impairment charges - real estate, including non-consolidated entities113 9,032 1,252 27,741
Noncontrolling interests - OP units540 533 1,090 1,114
Amortization of leasing commissions1,341 1,472 2,693 2,926
Joint venture and noncontrolling interest adjustment437 605 758 1,238
Gains on sales of properties(21,426) (3,510) (23,151) (3,510)
FFO available to common shareholders and unitholders - basic69,126 59,896 141,531 120,374
Preferred dividends1,573 1,573 3,145 3,145
Interest and amortization on 6.00% Convertible Guaranteed Notes224 531 543 1,110
Amount allocated to participating securities105 135 192 287
FFO available to common shareholders and unitholders - diluted71,028 62,135 145,411 124,916
Debt satisfaction (gains) charges, net, including non-consolidated entities(3,712) 4,486 (14,087) 7,790
Other / Transaction costs(294) 945 174 1,257
Company FFO available to common shareholders and unitholders - diluted67,022 67,566 131,498 133,963
FUNDS AVAILABLE FOR DISTRIBUTION: (2)
Adjustments:
Straight-line rents(17,034) (17,002) (22,343) (17,579)
Lease incentives488 417 945 854
Amortization of below/above market leases177 455 (444) 719
Non-cash interest, net1,753 (1,210) 1,118 (2,362)
Non-cash charges, net2,147 2,148 4,403 4,449
Tenant improvements(1,541) (1,580) (2,622) (3,999)
Lease costs(1,756) (2,534) (3,176) (6,519)
Company Funds Available for Distribution$51,256 $48,260 $109,379 $109,526
Per Common Share and Unit Amounts
Basic:
FFO$0.29 0.26 $0.60 $0.52
Diluted:
FFO$0.29 $0.26 $0.60 $0.52
Company FFO$0.27 $0.28 $0.54 $0.56
Company FAD$0.21 $0.20 $0.45 $0.45
Weighted-Average Common Shares:
Basic(3) 237,665,036 232,246,465 237,025,396 231,645,370
Diluted 244,697,575 241,447,640 244,379,606 241,037,724


1
Lexington believes that Funds from Operations (“FFO”), which is not a measure under generally accepted accounting principles (“GAAP”), is a widely recognized and appropriate measure of the performance of an equity REIT. Lexington believes FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing perspective that may not necessarily be apparent from net income.

The National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) defines FFO as “net income (or loss) computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.” NAREIT clarified its computation of FFO to exclude impairment charges on depreciable real estate owned directly or indirectly. FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.

Lexington presents FFO available to common shareholders and unitholders - basic. Lexington also presents FFO available to common shareholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into Lexington's common shares, are converted at the beginning of the period. Lexington also presents Company FFO which adjusts FFO for certain items which Management believes are not indicative of the operating results of its real estate portfolio. Management believes this is an appropriate presentation as it is frequently requested by security analysts, investors and other interested parties. Since others do not calculate funds from operations in a similar fashion, Company FFO may not be comparable to similarly titled measures as reported by others. Company FFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.

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

3 Includes OP units.


Contact: Investor or Media Inquiries, T. Wilson Eglin, CEO Lexington Realty Trust Phone: (212) 692-7200 E-mail: tweglin@lxp.com

Source:Lexington Realty Trust