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Lexington Realty Trust Reports Second Quarter 2018 Results

August 8, 2018 6:00 AM

NEW YORK, Aug. 08, 2018 (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, 2018.

Second Quarter 2018 Highlights

Subsequent Events

Adjusted Company FFO is a non-GAAP financial measure. It and certain other non-GAAP financial measures are defined and reconciled later in this press release.

T. Wilson Eglin, Chief Executive Officer and President of Lexington Realty Trust, commented, “To date, we have added $137 million of new industrial assets to our portfolio and disposed of $175 million of office and other non-core assets. We remain committed to our business strategy of repositioning our portfolio so that it consists primarily of single-tenant net-leased industrial assets. Considerable progress has been made on reducing our office exposure and we continue to focus on accelerating our disposition efforts in this area of our business.”

FINANCIAL RESULTS

Revenues

For the quarter ended June 30, 2018, total gross revenues were $105.5 million, compared with total gross revenues of $95.7 million for the quarter ended June 30, 2017. The increase was primarily attributable to revenue generated from 2018 and 2017 property acquisitions and new leases, partially offset by property sales and lease expirations.

Net Income (Loss) Attributable to Common Shareholders

For the quarter ended June 30, 2018, net loss attributable to common shareholders was $3.3 million, or $(0.01) per diluted share, compared with net income attributable to common shareholders for the quarter ended June 30, 2017 of $5.5 million, or $0.02 per diluted share. The change between periods relates primarily to the timing of gains on sales and impairments recognized on real estate.

Adjusted Company FFO

For the quarter ended June 30, 2018, Lexington generated Adjusted Company FFO of $62.4 million, or $0.25 per diluted share, compared to Adjusted Company FFO for the quarter ended June 30, 2017 of $57.0 million, or $0.23 per diluted share. The increase was primarily attributable to the items discussed above under “Revenues”.

Dividends/Distributions

As previously announced, during the second quarter of 2018, Lexington declared a regular quarterly common share/unit dividend/distribution for the quarter ended June 30, 2018 of $0.1775 per common share/unit, which was paid on July 16, 2018 to common shareholders/unitholders of record as of June 29, 2018. Lexington previously declared a cash dividend of $0.8125 per share on its Series C Cumulative Convertible Preferred Stock (“Series C Preferred”) for the quarter ended June 30, 2018, which is expected to be paid on August 15, 2018 to Series C Preferred Shareholders of record as of July 31, 2018.

TRANSACTION ACTIVITY

ACQUISITION TRANSACTIONS
Tenant Location Sq. Ft. Property Type Initial Basis ($000) Approximate Lease Term (Yrs)
Sephora USA, Inc. Olive Branch, MS 716,080 Industrial $44,090 11
Hamilton Beach Brands, Inc. Olive Branch, MS 1,170,218 Industrial 48,575 3
Spectrum Brands Pet Group, Inc. Edwardsville, IL 1,017,780 Industrial 44,178 12
2,904,078 $136,843

The above were acquired at aggregate weighted-average GAAP and cash capitalization rates of 7.3% and 5.8%, respectively.

PROPERTY DISPOSITIONS
Primary Tenant Location Property Type Gross DispositionPrice($000) Annualized Net Income (Loss)(1) ($000) AnnualizedNOI(1)($000) Month of Disposition % Leased
Vacant Lawrence, IN Other $550 $(200) $(185) May 0%
Mighty Dollar, LLC Thomasville, NC Other 600 66 86 June 100%
CopperPoint Mutual Insurance Company Phoenix, AZ Office 64,499 2,991 4,173 June 100%
$65,649 $2,857 $4,074

(1) Quarterly period prior to sale annualized.

These dispositions resulted in aggregate gain on sales of $14.4 million.

LEASING
LEASE EXTENSIONS
Location Primary Tenant(1)PriorTerm LeaseExpiration Date Sq. Ft.
Office
1 PascagoulaMS Huntington Ingalls Incorporated 10/2018 10/2023 94,841
2 TempeAZ Versum Materials US, LLC 06/2022 12/2033 95,133
2 Total office lease extensions 189,974

NEW LEASES
Location Lease Expiration Date Sq. Ft.
Office/Multi-Tenant
1 IrvingTX Nissan Motor Acceptance Corporation 03/2023 43,396
2 RedmondOR Consumer Cellular, Incorporated 07/2029 77,260
3 PhoenixAZ HealthPlanOne, LLC 02/2024 20,164
3 Total new office leases 140,820
5 TOTAL NEW AND EXTENDED LEASES 330,794

(1) Leases greater than 10,000 square feet.

As of June 30, 2018, Lexington's portfolio was 97.3% leased.

BALANCE SHEET/CAPITAL MARKETS

In the second quarter of 2018, Lexington repurchased and retired 130,000 common shares at an average price of $7.87 per share under its repurchase authorization announced on July 2, 2015 in the amount of 10.0 million common shares. As of June 30, 2018, there were approximately 5.7 million common shares remaining to be repurchased under the authorization.

Also, in the second quarter, Lexington obtained $25.9 million in non-recourse financing on an industrial property in Warren, Michigan. The loan matures in November 2032, bears interest at a fixed rate of 5.4% and is interest only through November 2027.

2018 EARNINGS GUIDANCE

Lexington now estimates that its net income attributable to common shareholders per diluted common share for the year ended December 31, 2018 will be within an expected range of $0.24 to $0.27. Lexington is reaffirming that its Adjusted Company FFO for the year ended December 31, 2018 is expected to be within a range of $0.95 to $0.98 per diluted common share. This guidance is forward looking, excludes the impact of certain items and is based on current expectations.

SECOND QUARTER 2018 CONFERENCE CALL

Lexington will host a conference call today, August 8, 2018, at 8:30 a.m. Eastern Time, to discuss its results for the quarter ended June 30, 2018. Interested parties may participate in this conference call by dialing 1-844-825-9783 (U.S.), 1-412-317-5163 (International) or 1-855-669-9657 (Canada). A replay of the call will be available through November 8, 2018, at 1-877-344-7529 (U.S.), 1-412-317-0088 (International) or 1-855-669-9658 (Canada), pin code for all replay numbers is 10122347. A link to a live webcast of the conference call is available at www.lxp.com within the Investors section.

ABOUT LEXINGTON REALTY TRUST

Lexington Realty Trust (NYSE: LXP) is a publicly traded real estate investment trust (REIT) that owns a diversified portfolio of real estate assets consisting primarily of equity investments in single-tenant net-leased commercial properties across the United States. Lexington seeks to expand its portfolio through build-to-suit transactions, sale-leaseback transactions and other transactions, including acquisitions. For more information, including Lexington's Quarterly Supplemental Information package, or to follow Lexington on social media, visit www.lxp.com.

Contact:Investor or Media Inquiries for Lexington Realty Trust:Heather Gentry, Senior Vice President of Investor RelationsLexington Realty TrustPhone: (212) 692-7200 E-mail: [email protected]

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, (2) Lexington's ability to achieve its estimates of net income attributable to common shareholders and Adjusted Company FFO for the year ending December 31, 2018, (3) the successful consummation of any lease, acquisition, build-to-suit, disposition, 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, and all property operating activities are conducted, through special purpose entities, which are separate and distinct legal entities that maintain separate books and records, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes. The assets and credit of each special purpose entity 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 special purpose entity or 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 of managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interests therein which interests are subordinate to the claims of the property owner subsidiary's (or its general partner's, member's or managing member's) creditors.

Non-GAAP Financial Measures - Definitions

Lexington has used non-GAAP financial measures as defined by the Securities and Exchange Commission Regulation G in this Quarterly Earnings Release and in other public disclosures.

Lexington believes that the measures defined below are helpful to investors in measuring our performance or that of an individual investment. Since these measures exclude certain items which are included in their respective most comparable measures under generally accepted accounting principles (“GAAP”), reliance on the measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are weighed in balance with other GAAP measures. These measures are not necessarily indications of our cash flow available to fund cash needs. Additionally, they should not be used as an alternative to the respective most comparable GAAP measures when evaluating Lexington's financial performance or cash flow from operating, investing or financing activities or liquidity.

Cash Rent: Cash Rent is calculated by making adjustments to GAAP rent to remove the impact of GAAP required adjustments to rental income such as adjustments for straight-line rents relating to free rent periods and contractual rent increases. Cash Rent excludes lease termination income. Lexington believes Cash Rent provides a meaningful indication of an investment's ability to fund cash needs.

Company Funds Available for Distribution (“FAD”): FAD is calculated by making adjustments to Adjusted Company FFO (see below) for (1) straight-line adjustments, (2) lease incentive amortization, (3) amortization of above/below market leases, (4) lease termination payments, net, (5) non-cash interest, net, (6) non-cash charges, net, (7) cash paid for tenant improvements, and (8) cash paid for lease costs. Although FAD may not be comparable to that of other real estate investment trusts (“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.

Funds from Operations (“FFO”) and Adjusted Company FFO: Lexington believes 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. 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, or NAREIT, defines FFO as “net income (or loss) computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for non-consolidated 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 and also presents 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 Lexington’s common shares, are converted at the beginning of the period. Lexington also presents 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 Lexington's real estate portfolio. Lexington believes this is an appropriate presentation as it is frequently requested by security analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of Lexington’s operating performance or as an alternative to cash flow as a measure of liquidity.

GAAP and Cash Yield or Capitalization Rate: GAAP and cash yields or capitalization rates are measures of operating performance used to evaluate the individual performance of an investment. These measures are estimates and are not presented or intended to be viewed as a liquidity or performance measure that present a numerical measure of Lexington's historical or future financial performance, financial position or cash flows. The yield or capitalization rate is calculated by dividing the annualized NOI (as defined below, except GAAP rent adjustments are added back to rental income to calculate GAAP yield or capitalization rate) the investment is expected to generate (or has generated) divided by the acquisition/completion cost (or sale) price.

Net Operating Income (“NOI”): NOI is a measure of operating performance used to evaluate the individual performance of an investment. This measure is not presented or intended to be viewed as a liquidity or performance measure that presents a numerical measure of Lexington's historical or future financial performance, financial position or cash flows. Lexington defines NOI as operating revenues (rental income (less GAAP rent adjustments and lease termination income), tenant reimbursements and other property income) less property operating expenses. Other REITs may use different methodologies for calculating NOI, and accordingly, Lexington's NOI may not be comparable to other companies. Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expenses, other nonproperty income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing a perspective on operations not immediately apparent from net income. Lexington believes that net income is the most directly comparable GAAP measure to NOI.

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited and in thousands, except share and per share data)
Three months ended June 30, Six months ended June 30,
2018 2017 2018 2017
Gross revenues:
Rental$97,649 $87,565 $192,171 $176,219
Tenant reimbursements7,844 8,119 15,959 15,564
Total gross revenues105,493 95,684 208,130 191,783
Expense applicable to revenues:
Depreciation and amortization(45,440) (42,320) (91,977) (85,211)
Property operating(10,906) (12,974) (22,383) (25,090)
General and administrative(7,421) (8,141) (16,417) (17,598)
Non-operating income354 1,371 900 3,992
Interest and amortization expense(21,734) (19,216) (42,065) (38,941)
Debt satisfaction charges, net— (46) — (46)
Impairment charges and loan loss(35,269) (13,599) (88,318) (21,591)
Gains on sales of properties14,432 10,240 37,206 44,433
Income (loss) before provision for income taxes and equity in earnings (losses) of non-consolidated entities(491) 10,999 (14,924) 51,731
Provision for income taxes(379) (377) (882) (799)
Equity in earnings (losses) of non-consolidated entities75 (3,257) 188 (1,347)
Net income (loss)(795) 7,365 (15,618) 49,585
Less net income attributable to noncontrolling interests(899) (213) (391) (393)
Net income (loss) attributable to Lexington Realty Trust shareholders(1,694) 7,152 (16,009) 49,192
Dividends attributable to preferred shares – Series C(1,573) (1,573) (3,145) (3,145)
Allocation to participating securities(60) (60) (130) (131)
Net income (loss) attributable to common shareholders$(3,327) $5,519 $(19,284) $45,916
Net income (loss) attributable to common shareholders - per common share basic$(0.01) $0.02 $(0.08) $0.19
Weighted-average common shares outstanding – basic237,312,726 237,720,198 237,690,306 237,451,355
Net income (loss) attributable to common shareholders - per common share diluted$(0.01) $0.02 $(0.08) $0.19
Weighted-average common shares outstanding – diluted237,312,726 241,531,313 237,690,306 241,310,529

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited and in thousands, except share and per share data)
June 30, 2018 December 31, 2017
Assets:
Real estate, at cost$3,650,121 $3,936,459
Real estate - intangible assets523,097 599,091
4,173,218 4,535,550
Less: accumulated depreciation and amortization1,139,865 1,225,650
Real estate, net3,033,353 3,309,900
Assets held for sale171,550 2,827
Cash and cash equivalents75,373 107,762
Restricted cash71,564 4,394
Investment in and advances to non-consolidated entities17,199 17,476
Deferred expenses, net29,472 31,693
Rent receivable – current4,712 5,450
Rent receivable – deferred52,861 52,769
Other assets20,107 20,749
Total assets$3,476,191 $3,553,020
Liabilities and Equity:
Liabilities:
Mortgages and notes payable, net$701,774 $689,810
Revolving credit facility borrowings195,000 160,000
Term loans payable, net597,251 596,663
Senior notes payable, net495,616 495,198
Trust preferred securities, net127,246 127,196
Dividends payable48,474 49,504
Liabilities held for sale2,333 —
Accounts payable and other liabilities26,207 38,644
Accrued interest payable6,069 5,378
Deferred revenue - including below market leases, net33,736 33,182
Prepaid rent13,189 16,610
Total liabilities2,246,895 2,212,185
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, 239,888,688 and 240,689,081 shares issued and outstanding in 2018 and 2017, respectively24 24
Additional paid-in-capital2,811,981 2,818,520
Accumulated distributions in excess of net income(1,693,165) (1,589,724)
Accumulated other comprehensive income1,098 1,065
Total shareholders’ equity1,213,954 1,323,901
Noncontrolling interests15,342 16,934
Total equity1,229,296 1,340,835
Total liabilities and equity$3,476,191 $3,553,020

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
EARNINGS PER SHARE
(Unaudited and in thousands, except share and per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
EARNINGS PER SHARE:
Basic:
Net income (loss) attributable to common shareholders $(3,327) $5,519 $(19,284) $45,916
Weighted-average number of common shares outstanding - basic 237,312,726 237,720,198 237,690,306 237,451,355
Net income (loss) attributable to common shareholders - per common share basic $(0.01) $0.02 $(0.08) $0.19
Diluted:
Net income (loss) attributable to common shareholders - basic $(3,327) $5,519 $(19,284) $45,916
Impact of assumed conversions — — — (19)
Net income (loss) attributable to common shareholders $(3,327) $5,519 $(19,284) $45,897
Weighted-average common shares outstanding - basic 237,312,726 237,720,198 237,690,306 237,451,355
Effect of dilutive securities:
Share options — 86,653 — 111,252
Operating partnership units — 3,724,462 — 3,747,922
Weighted-average common shares outstanding - diluted 237,312,726 241,531,313 237,690,306 241,310,529
Net income (loss) attributable to common shareholders - per common share diluted $(0.01) $0.02 $(0.08) $0.19

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
ADJUSTED COMPANY FUNDS FROM OPERATIONS & COMPANY FUNDS AVAILABLE FOR DISTRIBUTION
(Unaudited and in thousands, except share and per share data)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
FUNDS FROM OPERATIONS:
Basic and Diluted:
Net income (loss) attributable to common shareholders $(3,327) $5,519 $(19,284) $45,916
Adjustments:
Depreciation and amortization 44,225 41,076 89,379 82,618
Impairment charges - real estate 35,269 17,111 88,318 19,809
Noncontrolling interests - OP units 649 — (80) (19)
Amortization of leasing commissions 1,215 1,244 2,598 2,593
Joint venture and noncontrolling interest adjustment 258 265 516 605
Gains on sales of properties, including non-consolidated entities (14,432) (10,240) (37,206) (45,885)
FFO available to common shareholders and unitholders - basic 63,857 54,975 124,241 105,637
Preferred dividends 1,573 1,573 3,145 3,145
Amount allocated to participating securities 60 60 130 131
FFO available to all equityholders and unitholders - diluted 65,490 56,608 127,516 108,913
Debt satisfaction charges, net — 46 — 46
Loan loss — — — 5,294
Other(1) (3,120) 302 (3,120) 488
Adjusted Company FFO available to all equityholders and unitholders - diluted 62,370 56,956 124,396 114,741
FUNDS AVAILABLE FOR DISTRIBUTION:
Adjustments:
Straight-line adjustments (6,013) (5,641) (10,879) (8,550)
Lease incentives 519 510 1,055 941
Amortization of above/below market leases 246 346 224 860
Lease termination payments, net (309) (530) (617) (295)
Non-cash interest, net 1,299 497 2,324 652
Non-cash charges, net 1,625 1,987 3,564 4,133
Tenant improvements (662) (4,233) (6,594) (5,995)
Lease costs (1,192) (1,385) (1,801) (3,056)
Company Funds Available for Distribution $57,883 $48,507 $111,672 $103,431
Per Common Share and Unit Amounts
Basic:
FFO $0.27 $0.23 $0.51 $0.44
Diluted:
FFO $0.27 $0.23 $0.52 $0.44
Adjusted Company FFO $0.25 $0.23 $0.50 $0.47
Basic:
Weighted-average common shares outstanding - basic EPS 237,312,726 237,720,198 237,690,306 237,451,355
Operating partnership units(2) 3,619,315 3,724,462 3,624,228 3,747,922
Weighted-average common shares outstanding - basic FFO 240,932,041 241,444,660 241,314,534 241,199,277
Diluted:
Weighted-average common shares outstanding - diluted EPS 237,312,726 241,531,313 237,690,306 241,310,529
Operating partnership units(2) 3,619,315 — 3,624,228 —
Unvested share-based payment awards and options 445,283 606,934 503,461 648,810
Preferred shares - Series C 4,710,570 4,710,570 4,710,570 4,710,570
Weighted-average common shares outstanding - diluted FFO 246,087,894 246,848,817 246,528,565 246,669,909

(1) "Other" primarily consisted of the acceleration of below-market lease intangible accretion in 2018 and transaction related costs in 2017.

(2) Includes OP units other than OP units held by Lexington.

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
2018 EARNINGS GUIDANCE
Twelve Months EndedDecember 31, 2018
Range
Estimated:
Net income attributable to common shareholders per diluted common share(1)$0.24 $0.27
Depreciation and amortization0.73 0.73
Impact of capital transactions(0.02) (0.02)
Estimated Adjusted Company FFO per diluted common share$0.95 $0.98

(1) Assumes all convertible securities are dilutive.

Source: Lexington Realty Trust

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