UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
(Mark One)
 
x        Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2009.
 
¨        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
  
13-3717318
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)

One Penn Plaza – Suite 4015
New York, NY
  
10119
(Address of principal executive offices)
  
(Zip code)

(Registrant's telephone number, including area code)
 
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 x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer x Accelerated filer o Non-accelerated filer o Smaller Reporting Company o 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes o No x
 
Indicate the number of shares outstanding of each of the registrant's classes of common shares, as of the latest practicable date: 105,879,828 common shares, par value $0.0001 per share on May 6, 2009.

 
 
 

PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2009 and December 31, 2008
(Unaudited and in thousands, except share and per share data)

   
March 31,
    
December 31,
  
   
2009
    
2008
  
Assets:
            
Real estate, at cost
   $ 3,757,496     $ 3,756,188  
Less: accumulated depreciation and amortization
     489,405       461,661  
      3,268,091       3,294,527  
Properties held for sale – discontinued operations
     1,785       8,150  
Intangible assets, net
     323,267       343,192  
Cash and cash equivalents
     47,016       67,798  
Restricted cash
     26,768       31,369  
Investment in and advances to non-consolidated entities
     124,739       179,133  
Deferred expenses, net
     41,300       35,741  
Notes receivable, net
     66,237       68,812  
Rent receivable – current
     10,613       19,829  
Rent receivable – deferred
     18,748       16,499  
Other assets
     32,874       40,675  
Total assets   $ 3,961,438     $ 4,105,725  
                 
Liabilities and Equity:
                
Liabilities:
                
Mortgages and notes payable
   $ 2,009,257     $ 2,033,854  
Exchangeable notes payable
     182,816       204,074  
Trust preferred securities
     129,120       129,120  
Contract rights payable
     15,132       14,776  
Dividends payable
     8,446       24,681  
Liabilities – discontinued operations
     306       6,142  
Accounts payable and other liabilities
     36,678       33,814  
Accrued interest payable
     9,311       16,345  
Deferred revenue - below market leases, net
     118,405       121,722  
Prepaid rent
     24,855       20,126  
      2,534,326       2,604,654  
Commitments and contingencies (notes 6, 7, 9, 10, 11, 12, 13, 14 and 15)
                
                 
Equity:
                
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares,
                
Series B Cumulative Redeemable Preferred, liquidation preference $79,000; 3,160,000 shares issued and outstanding
     76,315       76,315  
Series C Cumulative Convertible Preferred, liquidation preference $129,915; 2,598,300 shares issued and outstanding
     126,217       126,217  
Series D Cumulative Redeemable Preferred, liquidation preference $155,000; 6,200,000 shares issued and outstanding
     149,774       149,774  
Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 100,780,075 and 100,300,238 shares issued and outstanding in 2009 and 2008, respectively
     10       10  
Additional paid-in-capital
     1,640,128       1,638,540  
Accumulated distributions in excess of net income
     (642,525 )     (569,131 )
Accumulated other comprehensive income (loss)
     (16,112 )     (15,650 )
Total shareholders’ equity
     1,333,807       1,406,075  
Noncontrolling interests
     93,305       94,996  
Total equity
     1,427,112       1,501,071  
Total liabilities and equity   $ 3,961,438     $ 4,105,725  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
2
 
 
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three months ended March 31, 2009 and 2008
(Unaudited and in thousands, except share and per share data)
 
   
Three Months ended
March 31,
  
   
2009
    
2008
  
Gross revenues:
            
Rental
   $ 89,520     $ 95,144  
Advisory and incentive fees
     463       311  
Tenant reimbursements
     10,798       10,025  
Total gross revenues
     100,781       105,480  
                 
Expense applicable to revenues:
                
Depreciation and amortization
     (47,429 )     (54,917 )
Property operating
     (22,120 )     (18,695 )
General and administrative
     (6,665 )     (11,046 )
Non-operating income
     4,118       2,104  
Interest and amortization expense
     (34,942 )     (43,826 )
Debt satisfaction gains, net
     6,411       6,419  
Change in value of forward equity commitment
     (8,633 )     —  
Impairment charges and loan loss reserves
     (10,597 )     —  
Gains on sale-affiliates
     —       23,169  
                 
Income (loss) before provision for income taxes, equity in earnings (losses) of non-consolidated entities and discontinued operations
     (19,076 )     8,688  
Provision for income taxes
     (675 )     (1,289 )
Equity in earnings (losses) of non-consolidated entities
     (47,124 )     5,548  
Income (loss) from continuing operations
     (66,875 )     12,947  
                 
Discontinued operations:
                
Income from discontinued operations
     8       1,065  
Provision for income taxes
     (47 )     (68 )
Gains on sales of properties
     3,094       687  
Impairment charges
     —       (2,694 )
Total discontinued operations
     3,055       (1,010 )
Net income (loss)
     (63,820 )     11,937  
Less net income attributable to noncontrolling interests
     (1,128 )     (6,294 )
Net income (loss) attributable to Lexington Realty Trust
     (64,948 )     5,643  
Dividends attributable to preferred shares – Series B
     (1,590 )     (1,590 )
Dividends attributable to preferred shares – Series C
     (2,111 )     (2,519 )
Dividends attributable to preferred shares – Series D
     (2,926 )     (2,926 )
Net loss attributable to common shareholders
   $ (71,575 )   $ (1,392 )
                 
Income (loss) per common share–basic:
                
Income (loss) from continuing operations, after preferred dividends
   $ (0.75 )   $ (0.01 )
Income (loss) from discontinued operations
     0.03       (0.01 )
                 
Net income (loss) attributable to common shareholders
   $ (0.72 )   $ (0.02 )
                 
Weighted average common shares outstanding–basic
     99,954,569       59,826,579  
                 
Income (loss) per common share–diluted:
                
Income (loss) from continuing operations, after preferred dividends
   $ (0.75 )   $ (0.01 )
Income (loss) from discontinued operations
     0.03       (0.01 )
                 
Net income (loss) attributable to common shareholders
   $ (0.72 )   $ (0.02 )
Weighted average common shares outstanding–diluted
     99,954,569       59,826,579  
                 
Amounts attributable to common shareholders:
                
Income (loss) from continuing operations
   $ (74,630 )   $ (472 )
Income (loss) from discontinued operations
     3,055       (920 )
Net loss attributable to common shareholders
   $ (71,575 )   $ (1,392 )
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
3
 

 LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Three months ended March 31, 2009 and 2008
(Unaudited and in thousands)

   
Three Months ended
March 31,
  
   
2009
    
2008
  
             
Net income (loss)
   $ (63,820 )   $ 11,937  
Other comprehensive income (loss):
                
      Change in unrealized gain (loss) in marketable equity securities, net
     —       38  
      Change in unrealized gain (loss) on foreign currency translation
     (165 )     270  
      Change in unrealized gain (loss) on interest rate swap, net
     (100 )     485  
      Change in unrealized loss from non-consolidated entities, net
     (197 )     (9,947 )
Other comprehensive income (loss)
     (462 )     (9,154 )
Comprehensive income (loss)
     (64,282 )     2,783  
Comprehensive income attributable to noncontrolling interests
     (1,128 )     (1,506 )
Comprehensive income (loss) attributable to Lexington Realty Trust
   $ (65,410 )   $ 1,277  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
4
 
 
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Three months ended March 31, 2009
(Unaudited and in thousands, except share amounts)

           
Company Shareholders
        
   
 
Total
    
 
Comprehensive
Loss
    
Number of
Preferred
Shares
    
 
Preferred
Shares
    
Number of
Common
Shares
    
Common
Shares
    
Additional
Paid-in-
Capital
    
Accumulated
Distributions
in Excess of
Net Income
    
Accumulated
Other
Comprehensive
Income (Loss)
    
Non-
controlling
Interests
  
Balance December 31, 2008
   $ 1,501,071     $ —       11,958,300     $ 352,306       100,300,238     $ 10     $ 1,638,540     $ (569,131 )   $ (15,650 )   $ 94,996  
                                                                                 
Contributions from noncontrolling interests
     126       —       —       —       —       —       —       —       —       126  
                                                                                 
Redemption of noncontrolling OP units for common shares
     —       —       —       —       79,037       —       517       —       —       (517 )
                                                                                 
Issuance of common shares, net
     1,071       —       —       —       400,800       —       1,071       —       —       —  
                                                                                 
Dividends/distributions
     (10,874 )     —       —       —       —       —       —       (8,446 )     —       (2,428 )
                                                                                 
Comprehensive income (loss):
                                                                                
                                                                                 
Net income (loss)
     (63,820 )     (63,820 )     —       —       —       —       —       (64,948 )     —       1,128  
                                                                                 
Other comprehensive loss:
                                                                                
                                                                                 
Change in unrealized loss on foreign currency translation
     (165 )     (165 )       —         —         —         —         —         —       (165 )       —  
                                                                                 
Change in unrealized loss on interest rate swap, net
     (100 )     (100 )     —       —       —       —       —       —       (100 )     —  
                                                                                 
Change in unrealized loss from non-consolidated entities, net
     (197 )     (197 )       —         —         —         —         —         —       (197 )       —  
                                                                                 
Other comprehensive loss
     (462 )     (462 )                                                                
                                                                                 
Comprehensive loss
     (64,282 )   $ (64,282 )                                                                
                                                                                 
Balance March 31, 2009
   $ 1,427,112               11,958,300     $ 352,306       100,780,075     $ 10     $ 1,640,128     $ (642,525 )   $ (16,112 )   $ 93,305  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
5
 

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Three months ended March 31, 2008
(Unaudited and in thousands, except share amounts)

           
Company Shareholders
        
   
 
Total
    
 
Comprehensive
Income (Loss)
    
Number of
Preferred
Shares
    
 
Preferred
Shares
    
Number of
Common
Shares
    
 
Common
Shares
    
Additional
Paid-in-
Capital
    
Accumulated
Distributions
in Excess of
Net Income
    
Accumulated
Other
Comprehensive
Income (Loss)
    
Non-
controlling
Interests
  
Balance December 31, 2007
   $ 1,738,403     $ —       12,460,001     $ 376,678       61,064,334     $ 6     $ 1,056,464     $ (469,769 )   $ (2,778 )   $ 777,802  
                                                                                 
Repurchase of exchangeable note equity component
     (753 )     —       —       —       —       —       (753 )     —       —       —  
                                                                                 
Redemption of noncontrolling OP units for common shares
       —         —         —         —         92,623         —         826         —         —       (826 )
                                                                                 
Repurchase of noncontrolling OP units for cash
     (449 )       —         —         —         —         —         154         —         —       (603 )
                                                                                 
Issuance of common shares, net
     1,442       —       —       —       200,792       —       1,428       14       —       —  
                                                                                 
Repurchase of common shares
     (16,270 )     —       —       —       (1,120,900 )     —       (16,270 )     —       —       —  
                                                                                 
Dividends/distributions paid
     (142,083 )     —       —       —       —       —       —       (26,913 )     —       (115,170 )
                                                                                 
Comprehensive income (loss):
                                                                                
                                                                                 
Net income (loss)
     11,937       11,937       —       —       —       —       —       5,643       —       6,294  
                                                                                 
Other comprehensive income (loss):
                                                                                
                                                                                 
Change in unrealized gain (loss) on marketable equity securities, net
         38           38           —           —           —           —           —           —           107       (69 )
                                                                                 
Change in unrealized gain on foreign currency translation
       270         270         —         —         —         —         —         —         270         —  
                                                                                 
Change in unrealized gain on interest rate swap, net
       485         485         —         —         —         —         —         —         243         242  
                                                                                 
Change in unrealized loss from non-consolidated entities, net
     (9,947 )     (9,947 )       —         —         —         —         —         —       (4,986 )     (4,961 )
                                                                                 
Other comprehensive income (loss)
     (9,154 )     (9,154 )                                                                
                                                                                 
Comprehensive income
     2,783     $ 2,783                                                                  
                                                                                 
Balance March 31, 2008
   $ 1,583,073               12,460,001     $ 376,678       60,236,849     $ 6     $ 1,041,849     $ (491,025 )   $ (7,144 )   $ 662,709  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
6
 

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2009 and 2008
(Unaudited and in thousands)

   
2009
    
2008
  
             
Net cash provided by operating activities:
   $ 43,696     $ 67,961  
                 
Cash flows from investing activities:
                
Investment in real estate, including intangibles
     (11,358 )     (3,056 )
Net proceeds from sale of properties - affiliates
     —       73,401  
Net proceeds from sale/transfer of properties
     10,927       122,432  
Proceeds from the sale of marketable equity securities
     —       2,500  
Real estate deposits
     —       205  
Principal payments received on loans receivable
     1,317       732  
Distributions from non-consolidated entities in excess of accumulated earnings
     1,269       524  
Investment in and advances to/from non-consolidated entities
     4,816       (9,441 )
Increase in deferred leasing costs
     (1,253 )     (6,774 )
Changes in escrow deposits and restricted cash
     7,013       (51,730 )
Net cash provided by investing activities
     12,731       128,793  
                 
Cash flows from financing activities:
                
Dividends to common and preferred shareholders
     (24,681 )     (158,168 )
Repurchase of exchangeable notes
     (14,830 )     (87,374 )
Mortgage payoffs
     (12,759 )     (162,894 )
Principal amortization payments
     (15,765 )     (27,684 )
Term loans and lines of credit extinguishments
     (199,280 )     —  
Proceeds from term loans and lines of credit, net
     200,000       70,000  
Increase in deferred financing costs
     (4,423 )     (2,401 )
Issuance costs of common shares
     (562 )     —  
Swap termination costs
     (366 )     —  
Contributions from noncontrolling interests
     126       —  
Cash distributions to noncontrolling interests
     (2,428 )     (115,170 )
Payments on forward equity commitment, net
     (2,241 )     —  
Repurchase of common shares
     —       (16,270 )
Partnership units repurchased
     —       (449 )
Net cash used in financing activities
     (77,209 )     (500,410 )
Change in cash and cash equivalents
     (20,782 )     (303,656 )
Cash and cash equivalents, at beginning of period
     67,798       412,106  
Cash and cash equivalents, at end of period
   $ 47,016     $ 108,450  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
7
 

     LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009 and 2008
(Unaudited and dollars in thousands, except per share/unit data)
 
(1)
The Company
 
Lexington Realty Trust (the “Company”) is a self-managed and self-administered Maryland statutory real estate investment trust (“REIT”) that acquires, owns, and manages a geographically diversified portfolio of predominately net leased office, industrial and retail properties. The Company also provides investment advisory and asset management services to investors in the net lease area. As of March 31, 2009, the Company owned or had interests in approximately 225 consolidated properties in 41 states and the Netherlands. The real properties owned by the Company are generally subject to net leases to tenants, which are generally characterized as leases in which the tenant pays all or substantially all of the cost and cost increases for real estate taxes, capital expenditures, insurance, utilities and ordinary maintenance of the property. However, certain leases provide that the Company is responsible for certain operating expenses.

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 will be subject to federal income taxes on the income from these activities.
 
The Company conducts its operations either directly or indirectly through operating partnerships in which the Company is the sole unit holder of the general partner and the sole unit holder of a limited partner that holds a majority of the limited partner interests (“OP units”) or through Lexington Realty Advisors, Inc. (“LRA”), a wholly-owned TRS.  On December 31, 2008, The Lexington Master Limited Partnership (“MLP”), a former operating partnership, merged with and into the Company and the MLP ceased to exist.  As of March 31, 2009, the Company controlled three operating partnerships: (1) Lepercq Corporate Income Fund L.P. (“LCIF”), (2) Lepercq Corporate Income Fund II L.P. (“LCIF II”), and Net 3 Acquisition L.P. (“Net 3”).   
 
The unaudited condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary to present fairly the financial condition and results of operations for the interim periods.  For a more complete understanding of the Company's operations and financial position, reference is made to the consolidated financial statements (including the notes thereto) previously filed with the Securities and Exchange Commission on March 2, 2009 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 (the “Annual Report”).
 
(2)           Summary of Significant Accounting Policies
 
Basis of Presentation and Consolidation.  The Company’s condensed consolidated financial statements are prepared on the accrual basis of accounting. The financial statements reflect the accounts of the Company and its consolidated subsidiaries, including LCIF, LCIF II, Net 3, LRA and Six Penn Center L.P.  The MLP and Lexington Contributions, Inc. (“LCI”), formerly a majority-owned TRS that was merged with and into the Company as of March 25, 2008, are included in the condensed consolidated financial statements through the merger dates. The Company determines whether an entity for which it holds an interest should be consolidated pursuant to Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities (“FIN 46R”) and/or Emerging Issues Task Force (“EITF”) 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (“EITF 04-05”). FIN 46R requires the Company to evaluate whether it has a controlling financial interest in an entity through means other than voting rights. If the entity is not a variable interest entity (“VIE”), the Company applies the guidance in EITF 04-05, and if the Company controls the entity’s voting shares or similar rights as determined in EITF 04-05, the entity is consolidated.

Use of Estimates.  Management has made a number of significant estimates and judgments 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 condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles.  These estimates and judgments may require the use of significant assumptions about future events.  Management evaluates its estimates and judgments on an ongoing basis considering historical experience and other factors, including the current economic environment and future expectations. The current economic environment has increased the degree of uncertainty inherent in these estimates and judgments.  Management adjusts such estimates when facts and circumstances dictate.  The most significant estimates and judgments made include the recoverability of accounts receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the determination of whether certain entities should be consolidated, classification of noncontrolling interests, the determination of impairment of long-lived assets, notes receivable and equity method investments, valuation of derivative financial instruments, and the useful lives of long-lived assets. Given the significant use of assumptions, actual results could differ materially from these estimates and judgments.

 
8
 

Revenue Recognition. The Company recognizes revenue in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13, Accounting for Leases, as amended (“SFAS 13”). SFAS 13 requires that revenue be recognized 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. Renewal options in leases with rental terms that are lower than those in the primary term are excluded from the calculation of straight-line rent if the renewals are not reasonably assured.  In those instances in which the 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. When 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 payments as a component of rental revenue in the period received, provided that there are no further obligations under the lease.  All above market lease assets, below market lease liabilities and deferred rent assets or liabilities for terminated leases are charged against or credited to rental revenue in the period the lease is terminated.  All other capitalized lease costs and lease intangibles are accelerated via amortization expense to the date of termination.

Impairment of Real Estate. The Company evaluates the carrying value of all tangible and intangible assets held when a triggering event under Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, as amended (“SFAS 144”) has occurred to determine whether an impairment loss must be recognized. The evaluation includes estimating and reviewing anticipated future cash flows to be derived from the asset. However, estimating future cash flows is highly subjective and such estimates could differ materially from actual results.

Impairment of Equity Method Investments.  In accordance with Accounting Principles Board (“APB”) 18, The Equity Method of Accounting for Investments in Common Stock (“APB 18”), 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 impairment is deemed to be other than temporary, the loss shall be measured as the excess of the carrying amount of the investment over the estimated fair value of the investment.
 
Impairment of Loans Receivable.  Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, loan purchase discounts, and net of an allowance for loan losses when such loan or investment is deemed to be impaired.  In accordance with SFAS 114, Accounting by Creditors for Impairment of a Loan (an amendment of FASB Statements No. 5 and 15), the Company considers a loan impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement.  Significant judgments are required in determining whether impairment has occurred.  The Company performs an impairment analysis by comparing either the present value of expected future cash flows discounted at the loan’s effective interest rate or the loan’s observable current market price to the net carrying value of the loan, which may result in an allowance and corresponding charge to loan loss reserves.

Common Shareholder Dividends.  For its quarterly common share dividends declared during 2009, the Company relies upon Internal Revenue Service Revenue Procedure 2008-68 (“IRS Rev. Proc. 2008-68”).  IRS Rev. Proc. 2008-68 allows REITs to offer shareholders elective stock dividends, which are dividends paid in a mixture of stock and cash, of which at least 10% must be paid in cash.   The Company does not retrospectively adjust earnings (loss) per share for the stock dividend portion of the dividend, if any, as the stock dividend is not pro rata as common shareholders may elect if they would like to receive the dividend all in cash, not to exceed, at minimum, 10% in the aggregate, or all in common shares.

 
9
 

Derivative Financial Instruments.  The Company accounts for its interest rate swap agreements in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”).  In accordance with SFAS 133, 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.  The interest rate swap is designated as a cash flow hedge whereby the effective portion of the swap's change in fair value is reported as a component of other comprehensive income (loss); the ineffective portion, if any, is recognized in earnings as an increase or decrease to interest expense.

Cash and Cash Equivalents. The Company considers all highly liquid instruments with maturities of three months or less from the date of purchase to be cash equivalents.

Restricted Cash. Restricted cash is comprised primarily of cash balances held in escrow with lenders.

Environmental Matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines, penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances. Although the Company’s tenants 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, the Company may be required to satisfy any such obligations. In addition, the Company as the owner of such properties may be held directly liable for any such damages or claims irrespective of the provisions of any lease. As of March 31, 2009, the Company was not aware of any environmental matter relating to any of its assets that could have a material impact on the financial statements.

Reclassifications.  Certain amounts included in the 2008 financial statements have been reclassified to conform to the 2009 presentation.

Newly Adopted Accounting Pronouncements That Did Not Require Retrospective Application.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, as amended (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The provisions of SFAS 157 were effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years, except for those relating to non-financial assets and liabilities, which were deferred for one additional year, and a scope exception for purposes of fair value measurements affecting lease classification or measurement under SFAS 13 and related standards.  SFAS 157 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 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 consider counterparty credit risk in the Company’s assessment of fair value. The adoption of this statement for financial assets and liabilities on January 1, 2008 and for non-financial assets and liabilities on January 1, 2009 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS 141R”). SFAS 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value” and acquisition related costs will generally be expensed rather than included as part of the basis of the acquisition.  SFAS 141R expands required disclosures to improve the ability to evaluate the nature and financial effects of business combinations.  SFAS 141R was effective for acquisitions in periods beginning on or after December 15, 2008 and the standard was adopted by the Company on January 1, 2009.  This standard could materially impact the Company’s future financial results to the extent that the Company acquires significant amounts of real estate, as related acquisition costs will be expensed as incurred compared to the previous generally accepted accounting practice of capitalizing such costs and amortizing them over the estimated useful life of the assets acquired.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities- an amendment of SFAS No.133 (“SFAS 161”). SFAS 161, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty, credit risk, and the company’s strategies and objectives for using derivative instruments. SFAS 161 was effective prospectively for periods beginning on or after November 15, 2008. The adoption of this statement on January 1, 2009 did not have a material impact on the Company’s financial position, results of operations or cash flows.

 
10
 

In October 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-3 (“FSP FAS 157-3”), Determining the Fair Value of a Financial Asset When the Market For That Asset is Not Active, which clarifies the application of FASB 157, Fair Value Measurements, in a market that is not active.  Among other things, FSP FAS 157-3 clarifies that determination of fair value in a dislocated market depends on facts and circumstances and may require the use of significant judgment about whether individual transactions are forced liquidations or distressed sales.  In cases where the volume and level of trading activity for an asset have declined significantly, the available prices vary significantly over time or among market participants, or the prices are not current, observable inputs might not be relevant and could require significant adjustment.  In addition, FSP FAS 157-3 also clarifies that broker or pricing service quotes may be appropriate inputs when measuring fair value, but are not necessarily determinative if an active market does not exist for the financial asset.  Regardless of the valuation techniques used, FSP FAS 157-3 requires that an entity include appropriate risk adjustments that market participants would make for nonperformance and liquidity risks.  FSP FAS 157-3 was effective upon issuance and includes prior periods for which financial statements have not been issued.  The Company has adopted FSP FAS 157-3, which did not have a material impact on the Company’s financial position, results of operations or cash flows.

On November 13, 2008, the FASB ratified EITF consensus on EITF Issue No. 08-6, Equity Method Investment Accounting Considerations (“EITF 08-6”).  EITF 08-6 addresses questions about the potential effect of FASB Statement No. 141R, Business Combinations, and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51, on equity method accounting under APB 18.  EITF 08-6 generally continues existing practices under APB 18 including the use of a cost-accumulation approach to initial measurement of the investment.  EITF 08-6 does not require the investor to perform a separate impairment test on the underlying assets of an equity method investment.  However, an equity-method investor is required to recognize its proportionate share of impairment charges recognized by the investee, adjusted for basis differences, if any, between the investee’s carrying amount for the impaired assets and the cost allocated to such assets by the investor.  The investor is also required to perform an overall other-than-temporary impairment test of its investment in accordance with APB 18.  EITF 08-6 was effective for fiscal years beginning on or after December 15, 2008 and interim periods within those fiscal years and is applied prospectively.  The implementation of EITF 08-6 on January 1, 2009 did not have a material impact on the Company’s financial position, results of operations or cash flows.

On December 11, 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities (“FSP FAS 140-4 and FIN 46R-8”).  This FSP includes disclosure objectives and requires public entities to provide additional year-end and interim disclosures about transfers of financial assets and involvement with variable interest entities.  The requirements apply to transferors, sponsors, servicers, primary beneficiaries, and holders of significant variable interests in a variable-interest entity or qualifying special purpose entity.  FSP FAS 140-4 and FIN 46R-8 was effective for the first interim period or fiscal year ending after December 15, 2008.  The adoption of FSP FAS 140-4 and FIN 46R-8 on December 31, 2008 did not have a material impact on the Company’s financial statements as the Company does not have significant variable interests.

Newly Adopted Accounting Pronouncements That Required Retrospective Application.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements – an amendment of ARB 51 (“SFAS No. 160”). SFAS No. 160 requires noncontrolling interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. SFAS No. 160 was effective for periods beginning on or after December 15, 2008 and was applied prospectively effective January 1, 2009, except for the presentation and disclosure requirements which were applied retrospectively for all periods presented. As a result of this pronouncement, the Company performed a complete evaluation of its noncontrolling interests previously classified in the “mezzanine” section of the balance sheet to determine if the noncontrolling interests should be treated as permanent equity.   SFAS 160 does not specifically address the accounting for redeemable noncontrolling interests that are required to be presented outside of permanent equity pursuant to EITF Topic D-98, Classification and Measurement of Redeemable Securities, and SEC Accounting Series Release No. 268, Presentation in Financial Statements of Redeemable Preferred Stocks.   The Company determined that the noncontrolling interests should be classified as a separate component of permanent equity.

 
11
 

In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) ("FSP 14-1").  FSP 14-1 is applicable to issuers of convertible debt that may be settled wholly or partly in cash.  The adoption of FSP 14-1 affected the accounting for the Company’s 5.45% Exchangeable Guaranteed Notes issued in 2007.  FSP 14-1 requires the initial proceeds from the sale of the 5.45% Exchangeable Guaranteed Notes to be allocated between a liability component representing debt and an additional paid-in-capital component representing the conversion feature.  The resulting discount is amortized using the effective interest method over the period the debt is expected to remain outstanding as additional interest expense.  FSP 14-1 was effective for fiscal years beginning after December 31, 2008, was adopted by the Company on January 1, 2009 and required retroactive application.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP 03-6-1").  FSP 03-6-1 requires unvested share based payment awards that contain nonforfeitable rights to dividends or dividend equivalents to be treated as participating securities as defined in EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 (“SFAS 128”), and, therefore, included in the earnings allocation in computing earnings per share under the two-class method described in FASB Statement No. 128, Earnings per Share.  FSP 03-6-1 was adopted by the Company on January 1, 2009.  The Company has determined that its unvested share based payment awards are participating securities and has applied the two-class method under SFAS 128 to the calculation of earnings per share for all periods presented.  Under the two-class method unvested share based payment awards are not allocated losses as they are not obligated to absorb losses.

The following table discloses the effect of the retrospective application of these accounting pronouncements on the Company’s condensed consolidated financial statements in accordance with paragraphs 17 and 18 of SFAS 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3:

   
 
 
As Originally
 Reported (1)(2)
    
As Adjusted for 
Retrospective 
Application of 
Accounting 
Pronouncement (3)
    
 
Effect of 
Change
  
                   
Condensed Consolidated Balance Sheet Data at December 31, 2008:
                  
                   
Deferred expenses, net
   $ 35,904     $ 35,741     $ (163 )
Total assets
   $ 4,105,888     $ 4,105,725     $ (163 )
Exchangeable notes payable
   $ 211,000     $ 204,074     $ (6,926 )
Minority interests
   $ 94,996     $ —     $ (94,996 )
Additional paid-in-capital
   $ 1,624,463     $ 1,638,540     $ 14,077  
Accumulated distributions in excess of net income
   $ (561,817 )   $ (569,131 )   $ (7,314 )
Noncontrolling interests
   $ —     $ 94,996     $ 94,996  
Total liabilities and equity
   $ 4,105,888     $ 4,105,725     $ (163 )
                         
Condensed Consolidated Statement of Operations Data for the three months ended March 31, 2008:
                        
                         
Interest and amortization expense
   $ (43,357 )   $ (44,398 )   $ (1,041 )
Debt satisfaction gains, net
   $ 9,706     $ 6,419     $ (3,287 )
Income from continuing operations
   $ 16,588     $ 12,260     $ (4,328 )
Net income attributable to noncontrolling interests
   $ 8,453     $ 6,294     $ 2,159  
Net income to shareholders
   $ 7,812     $ 5,643     $ (2,169 )
Income (loss) per common share - basic
   $ 0.01     $ (0.02 )   $ (0.03 )
Income (loss) per common share - dilutive
   $ 0.01     $ (0.02 )   $ (0.03 )
Weighted average common shares outstanding - dilutive
     59,837,094       59,826,579       (10,515 )
        _____________

(1)
Balance sheet items as reported in the Company’s Annual Report.
 
(2)
Statement of operations as reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 adjusted for the presentation requirements of SFAS 160.
 
(3)
Amounts have not been adjusted for the reclassification of discontinued operations.

 
12
 

Recently Issued Accounting Pronouncements That May Impact Future Periods.

In April 2009, the FASB issued the following three FSPs which are effective for interim and annual periods ending after June 15, 2009.  The Company is currently evaluating the impact of these FSPs on the Company’s financial position, results of operations and cash flows.

FSP FAS 157-4 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms what SFAS 157 states is the objective of fair value measurement—to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive.

FSP FAS 107-1 and APB 28-1 Interim Disclosures about Fair Value of Financial Instruments, relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets and liabilities were only disclosed once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value.

FSP FAS 115-2 and FAS 124-2 on other-than-temporary impairments is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The measure of impairment in comprehensive income remains fair value. The FSP also requires increased and more timely disclosures sought by investors regarding expected cash flows, credit losses, and an aging of securities with unrealized losses.

 
13
 

(3)           Earnings per Share

The Company’s unvested shared-based payment awards are considered participating securities in accordance with FSP EITF 03-6-1, as such the Company is required to use the two-class method for the computation of basic and diluted earnings per share in accordance with SFAS 128. 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 unvested 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 Company had a loss attributable to common shareholders for the three months ending March 31, 2009 and 2008, which was not allocated to unvested share based payment awards.
 
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three months ended March 31, 2009 and 2008:
 
   
Three Months ended
  
   
March 31,
  
   
2009
    
2008
  
BASIC
            
             
Income (loss) from continuing operations attributable to Lexington Realty Trust
   $ (68,003 )   $ 6,563  
Less preferred dividends
     (6,627 )     (7,035 )
Income (loss) attributable to common shareholders  from continuing operations
     (74,630 )     (472 )
Total income (loss) from discontinued operations attributable to shareholders
     3,055       (920 )
Net income (loss) attributable to common shareholders
   $ (71,575 )   $ (1,392 )
 
               
Weighted average number of common shares outstanding -basic
     99,954,569       59,826,579  
 
               
Income (loss) per common share – basic:
                
Income (loss) from continuing operations
   $ (0.75 )   $ (0.01 )
Income (loss) from discontinued operations
     0.03       (0.01 )
Net income (loss)
   $ (0.72 )   $ (0.02 )
 
               
DILUTED
                
Income (loss) attributable to common shareholders from continuing operations – basic
   $ (74,630 )   $ (472 )
Incremental loss attributed to assumed  conversion of dilutive securities
     —       —  
Income (loss) attributable to common shareholders from continuing operations
     (74,630 )     (472 )
Total income (loss) from discontinued operations attributable to shareholders
     3,055       (920 )
Net income (loss) attributable to common shareholders
   $ (71,575 )   $ (1,392 )
 
               
Weighted average number of common shares used in calculation of basic earnings per share 
      99,954,569        59,826,579  
Add incremental shares representing:
 
              
Shares issuable upon conversion of dilutive securities
 
   —       —  
Weighted average number of common shares outstanding - diluted
  
 
 99,954,569       59,826,579  
 
               
Income (loss) per common share - diluted:
                
Income (loss) from continuing operations
   $ (0.75 )   $ (0.01 )
Income from discontinued operations
     0.03       (0.01 )
Net income (loss)
   $ (0.72 )   $ (0.02 )

All incremental shares are considered anti-dilutive for periods that have a loss from continuing operations applicable to common shareholders. In addition, other common share equivalents may be anti-dilutive in certain periods.

 
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(4)
Investments in Real Estate and Intangibles
 
During the three months ended March 31, 2009, the Company acquired the remainder interests in 27.6 acres of land in Long Beach, California in connection with a tenant’s lease surrender obligations for an estimated fair value of approximately $2,500 and recorded it as non-operating income, of which $1,125 was attributable to a noncontrolling interest in the property. During the three months ended March 31, 2008, the Company did not acquire any properties.
 
(5)
Discontinued Operations
 
During the three months ended March 31, 2009, the Company sold one property to an unrelated third party for net sales proceeds of $10,927 which resulted in an aggregate gain of $3,094.  During the three months ended March 31, 2008, the Company sold three properties to unrelated third parties for aggregate sales proceeds of $122,432 which resulted in an aggregate gain of $687.  As of March 31, 2009, the Company had one property held for sale.
 
The following presents the operating results for the properties sold and properties held for sale for the applicable periods:

   
Three Months ended
March 31,
  
   
2009
    
2008
  
Rental revenues
   $ 64     $ 5,225  
Pre-tax income (loss), including gains on sale
   $ 3,102     $ (942 )

 (6)         Investment in Non-Consolidated Entities
 
Concord Debt Holdings LLC (“Concord”) and Lex-Win Concord LLC (“Lex-Win Concord”)

On December 31, 2006, the Company acquired a 50% interest in a co-investment program, Concord, which owns bonds and loans secured, directly and indirectly, by real estate assets.  The other 50% interest in Concord was held by WRT Realty L.P. (“Winthrop”). The Company’s former Executive Chairman and Director of Strategic Acquisitions is also the Chairman and Chief Executive Officer of the parent of Winthrop. The co-investment program was equally controlled by the Company and Winthrop.

During the third quarter of 2008, the Company and Winthrop formed Lex-Win Concord, and the Company and Winthrop each contributed to Lex-Win Concord all of their right, title, interest and obligations in Concord and WRP Management LLC, the entity that provides collateral management and asset management services to Concord and its existing CDO.  Immediately following the contribution, Inland American (Concord) Sub LLC (“Inland Concord”), a subsidiary of Inland American Real Estate Trust Inc. ("Inland "), entered into an agreement to contribute up to $100,000 in redeemable preferred membership interest over an 18 month period to Concord, of which $76,000 has been contributed as of March 31, 2009.  Lex-Win Concord, as managing member of Concord, and Inland Concord, as a preferred member, entered into the Second Amended and Restated Limited Liability Company Agreement of Concord.  Under the terms of the agreement, additional contributions by Inland Concord are to be used primarily for the origination and acquisition of additional debt instruments including whole loans, B notes and mezzanine loans.  In addition, provided that certain terms and conditions are satisfied, including payment to Inland Concord of a 10% priority return, both the Company and Winthrop may elect to reduce their aggregate capital investment in Concord to $200,000 (or after a specified period, 200% of Inland Concord’s unreturned contributions) through distributions of principal payments from the retirement of existing loans and bonds in Concord's current portfolio.  In addition, Lex-Win Concord is obligated to make additional capital contributions to Concord of up to $75,000 only if such capital contributions are necessary under certain circumstances.

As of March 31, 2009, the Company and Winthrop have each invested $162,500 in Lex-Win Concord. As of March 31, 2009 and December 31, 2008, $62,633 and $114,604, respectively, were the Company’s investment in and advances to Lex-Win Concord.  The reduction in the Company’s investment in Lex-Win Concord is primarily a result of impairment charges and distributions. All profits, losses and cash flows are distributed in accordance with the respective membership interests.

 
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The following is summary balance sheet data as of March 31, 2009 and December 31, 2008 and income statement data for the three months ended March 31, 2009 and 2008 for Lex-Win Concord:

   
As of
3/31/09
    
As of
12/31/08
  
Loan and bond investments, net of impairments, reserves and losses
   $ 945,864     $ 981,635  
Cash, including restricted cash
     3,639       15,134  
Warehouse debt and credit facilities obligations
     319,904       320,604  
Collateralized debt obligations
     347,525       347,525  
Noncontrolling preferred interest
     76,558       76,441  
Members’ capital
     183,557       219,322  

   
Three Months ended March 31,
  
   
2009
    
2008
  
Interest and other income
   $ 12,529     $ 20,039  
Gain on debt extinguishment
     —       5,150  
Interest expense, including non-qualifying cash flow hedge
     (4,632 )     (10,853 )
Impairment losses and loan loss reserves
     (40,289 )     (5,377 )
Other expenses
     (1,093 )     (809 )
Net income (loss)
   $ (33,485 )   $ 8,150  
Net income attributable to noncontrolling interests
     (1,877 )     —  
Net income (loss) attributable to members
     (35,362 )     8,150  
Other comprehensive loss
     (394 )     (19,269 )
Comprehensive loss
   $ (35,756 )   $ (11,119 )

Unless they are designated as held for sale, Concord’s loan assets are carried at cost, net of unamortized loan origination costs and fees, repayments and unfunded commitments unless such loan is deemed to be other-than-temporarily impaired.  Concord’s loan assets that are designated as held for sale are carried at the lower of cost or fair value. Concord’s bonds are treated as available for sale securities and, accordingly, are marked-to-estimated fair value on a quarterly basis based on valuations performed by Concord’s management.

During the three months ended March 31, 2009, Concord recorded $40,289 in impairment losses and loan loss reserves on its loan and bond portfolio.   In March 2009, Concord received an approximate $35,000 margin call on one of its warehouse facilities, which had $159,475 outstanding at March 31, 2009 and was subsequently reduced to $148,846 on April 13, 2009. On April 14, 2009, Concord entered into an amendment to the facility agreement.  The amendment provides, among other things, that (1) two loan assets must be sold by May 31, 2009, (2) on or after September 30, 2009 through December 30, 2009 the outstanding balance on the facility must be reduced to $80,000, (3) at December 31, 2009 and thereafter, the balance of the facility cannot exceed $60,000, and (4) the maturity date of the facility is now December 31, 2010.  Concord’s management has identified certain loans that will be disposed of to provide liquidity to meet the repurchase and pay down requirements under the amendment.  As these assets are considered held for sale, Concord has reduced these assets to fair value and has recorded impairment losses of $36,908 for the three months ended March 31, 2009.

In addition, the Company’s management performed a comprehensive analysis of its investment in Lex-Win Concord to determine if the investment was other-than-temporarily impaired.  Due to the continued deterioration in the value of Concord’s loan and bond portfolio and particularly due to Concord’s recent margin call, the Company’s management does not believe its investment in Lex-Win Concord will experience any growth.  As such, the Company does not anticipate providing any new capital to the venture and thus Concord’s future cash flow needs, including margin calls, will need to be funded by either (1) committed capital from Inland Concord, (2) Concord’s operating cash flows, (3) through the sale of Concord’s assets or (4) additional third-party financing or equity sources.  Accordingly, because additional Concord assets may be sold prior to maturity to potentially meet these cash flow requirements, the Company estimated the fair value of its interest in Lex-Win Concord by performing a discounted cash flow analysis coupled with a market approach analysis.  The Company compared the estimated fair value of its interest in Lex-Win Concord to the carrying value of its interest and determined that the Company’s investment was other-than-temporarily impaired and recorded an other-than-temporary impairment of $29,093 in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2009.

 
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Net Lease Strategic Assets Fund L.P. (“NLS”)

NLS is a co-investment program with Inland American (Net Lease) Sub LLC (“Inland NLS”), a subsidiary of Inland.  NLS was established to acquire single-tenant net lease specialty real estate in the United States. Since the formation of NLS in 2007, the Company has contributed fee and leasehold interests in 19 properties and $15,207 in cash to NLS and Inland NLS contributed $217,049 in cash to NLS. In addition, the Company sold for cash, leasehold interests in 24 properties, plus a 40% tenant-in-common interest in a property, to NLS.  The properties were subject to approximately $339,500 in mortgage debt, which was assumed by NLS. During the three months ended March 31, 2008, the Company recorded an aggregate gain of $23,169 due to the sale of six properties to NLS, which was limited by the Company’s aggregate ownership interest in NLS’s common and preferred equity.  Inland NLS and the Company own 85% and 15%, respectively, of NLS’s common equity and the Company owns 100% of NLS’s preferred equity.
 
Inland NLS and the Company are currently entitled to a return on/of their respective investments as follows: (1) Inland NLS, 9% on its common equity, (2) the Company, 6.5% on its preferred equity, (3) the Company, 9% on its common equity, (4) return of the Company preferred equity, (5) return of Inland NLS common equity (6) return of the Company common equity and (7) any remaining cash flow is allocated 65% to Inland NLS and 35% to the Company as long as the Company is the general partner, if not, allocations are 85% to Inland NLS and 15% to the Company.

In addition to the capital contributions described above, the Company and Inland NLS committed to invest up to an additional $22,500 and $127,500, respectively, in NLS to acquire additional specialty single-tenant net leased assets.

LRA has entered into a management agreement with NLS whereby LRA will receive (1) a management fee of 0.375% of the equity capital, (2) a property management fee of up to 3.0% of actual gross revenues from certain assets for which the landlord is obligated to provide property management services (contingent upon the recoverability of such fees from the tenant under the applicable lease), and (3) an acquisition fee of 0.5% of the gross purchase price of each acquired asset by NLS.

The following is summary historical cost basis selected balance sheet data as of March 31, 2009 and December 31, 2008 and income statement data for the three months ended March 31, 2009 and 2008 for NLS:

   
As of
3/31/09
    
As of
12/31/08
  
Real estate, including intangibles, net
   $ 709,382     $ 719,409  
Cash, including restricted cash
     10,949