LXP 2011.12.31 10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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or
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition period from _________________ to ________________
Commission File Number 1-12386
LEXINGTON REALTY TRUST
(Exact name of Registrant as specified in its charter)
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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 | 10119-4015 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code (212) 692-7200
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | Name of Each Exchange on which Registered |
Shares of beneficial interests, par value $0.0001, classified as Common Stock | New York Stock Exchange |
8.05% Series B Cumulative Redeemable Preferred Stock, par value $0.0001 | New York Stock Exchange |
6.50% Series C Cumulative Convertible Preferred Stock, par value $0.0001 | New York Stock Exchange |
7.55% Series D Cumulative Redeemable Preferred Stock, par value $0.0001 | New York Stock Exchange |
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o.
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x.
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 website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x.
The aggregate market value of the common shares held by non-affiliates of the Registrant as of June 30, 2011, which was the last business day of the Registrant's most recently completed second fiscal quarter was $1,413,351,463 based on the closing price of the common shares on the New York Stock Exchange as of that date, which was $9.13 per share.
Number of common shares outstanding as of February 23, 2012 was 155,397,555.
Certain information contained in the Definitive Proxy Statement for Registrant's Annual Meeting of Shareholders, to be held on May 15, 2012, is incorporated by reference in this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.
TABLE OF CONTENTS
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| PART I | | |
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| PART II | | |
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| PART III | | |
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| PART IV | | |
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PART I.
Introduction
When we use the terms “Lexington,” the “Company,” “we,” “us” and “our,” we mean Lexington Realty Trust and all entities owned by us, including non-consolidated entities, except where it is clear that the term means only the parent company. All interests in properties are held through special purpose entities, which we refer to as property owner subsidiaries or lender subsidiaries, which are separate and distinct legal entities, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes.
References herein to this Annual Report are to this Annual Report on Form 10-K for the fiscal year ended December 31, 2011. When we use the term “REIT” we mean real estate investment trust. All references to 2011, 2010 and 2009 refer to our fiscal years ended, or the dates, as the context requires, December 31, 2011, December 31, 2010 and December 31, 2009, respectively.
Management of our interests in properties is generally conducted through Lexington Realty Advisors, Inc., a taxable REIT subsidiary, which we refer to as LRA, or through a property management joint venture subsidiary.
Cautionary Statements Concerning Forward-Looking Statements
This Annual Report, together with other statements and information publicly disseminated by us contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects” or similar expressions. Readers should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. In particular, among the factors that could cause actual results, performances or achievements to differ materially from current expectations, strategies or plans include, among others, those risks discussed below under “Risk Factors” in Part I, Item 1A of this Annual Report and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report. Except as required by law, we undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
Item 1. Business
General
We are a self-managed and self-administered REIT formed under the laws of the State of Maryland. Our primary business is the acquisition, ownership and management of portfolios of single-tenanted office, industrial and retail properties. Our core assets consist of general purpose, efficient, single-tenant net-leased office and industrial assets, in well-located and growing markets or critical to the tenant's business. A majority of these properties are subject to triple net or similar leases, where the tenant bears all or substantially all of the costs and/or cost increases for real estate taxes, utilities, insurance and ordinary repairs. In addition, we acquire, originate and hold investments in loan assets and debt securities related to real estate.
As of December 31, 2011, we had ownership interests in approximately 185 consolidated real estate properties, located in 39 states and containing an aggregate of approximately 36.0 million square feet of space, approximately 95.6% of which was leased. In 2011, 2010 and 2009, no tenant/guarantor represented greater than 10% of our annual base rental revenue.
In addition to our beneficial interests, par value $0.0001 per share, classified as common stock, which we refer to as common shares, we have three outstanding classes of beneficial interests classified as preferred stock, which we refer to as preferred shares: (1) 8.05% Series B Cumulative Redeemable Preferred Stock, which we refer to as our Series B Preferred Shares, (2) 6.50% Series C Cumulative Convertible Preferred Stock, which we refer to as our Series C Preferred Shares, and (3) 7.55% Series D Cumulative Redeemable Preferred Stock, which we refer to as our Series D Preferred Shares. Our common shares, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares are traded on the New York Stock Exchange, or NYSE, under the symbols “LXP”, “LXP pb”, “LXP pc” and “LXP pd”, respectively.
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1993. We intend to continue to qualify as a REIT. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net taxable income that is currently distributed to our common shareholders.
History
Our predecessor was organized in Delaware in October 1993 upon the combination of two investment programs, Lepercq Corporate Income Fund L.P. and Lepercq Corporate Income Fund II L.P., which were formed to acquire net-lease real estate assets providing current income. Our predecessor was merged into Lexington Corporate Properties Trust, a Maryland statutory REIT, on December 31, 1997. On December 31, 2006, Lexington Corporate Properties Trust was the successor in a merger with Newkirk Realty Trust, or Newkirk, which we refer to as the Newkirk Merger. All of Newkirk's operations were conducted, and all of its assets were held, through its master limited partnership, subsequently named The Lexington Master Limited Partnership, which we refer to as the MLP. As of December 31, 2008, the MLP was merged with and into us.
We are structured as an umbrella partnership REIT, or UPREIT, and a portion of our business is conducted through our two operating partnership subsidiaries: (1) Lepercq Corporate Income Fund L.P. and (2) Lepercq Corporate Income Fund II L.P. On December 31, 2010, a third operating partnership subsidiary, Net 3 Acquisition L.P., was merged with and into us. We refer to these subsidiaries as our operating partnerships and to limited partner interests in these operating partnerships as OP units. We are party to funding agreements with our operating partnerships under which we may be required to fund distributions made on account of OP units. The UPREIT structure enables us to acquire properties through our operating partnerships by issuing OP units to a seller of property, as a form of consideration in exchange for the property. The outstanding OP units are generally redeemable for our common shares on a one OP unit for approximately 1.13 common shares basis, or, at our election in certain instances, cash. We believe that this structure facilitates our ability to raise capital and to acquire portfolio and individual properties by enabling us to structure transactions which may defer tax gains for a contributor of property. As of December 31, 2011, there were approximately 4.0 million OP units outstanding, other than OP units held directly or indirectly by us, that are currently redeemable for approximately 4.5 million common shares if we satisfy redemptions entirely with common shares.
Current Economic Uncertainty and Capital Market Volatility
Our business continues to be impacted in a number of ways by the continued uncertainty in the overall economy and volatility in the capital markets. We encourage you to read “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of certain risks we are facing and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report for a detailed discussion of the trends we believe are impacting our business.
Objectives and Strategy
General. We focus on maintaining a strong balance sheet and improving our long-term growth prospects. Since 2008, we believe we have strengthened our balance sheet primarily by (1) repurchasing and retiring our debt and senior securities or by extending their maturity date, (2) financing our properties with non-recourse mortgage debt or corporate credit facilities and term loans at what we believe are favorable rates and using the proceeds to retire higher rate or shorter term debt, (3) issuing equity and recycling capital by selling non-core properties, in order to create additional liquidity and (4) when opportunities arise, investing in core properties with long-term leases and other real estate assets, which we believe will generate favorable returns.
We grow our portfolio primarily by: (1) buying properties and leasing them back to the sellers under net leases, (2) acquiring properties already subject to net leases, (3) making mortgage and mezzanine loans secured by single tenant buildings and (4) engaging in, or providing capital to developers who are engaged in, “build-to-suit” projects for corporate users.
As part of our ongoing business efforts, we expect to continue to (1) recycle capital in compliance with regulatory and contractual requirements, (2) refinance or repurchase outstanding indebtedness when advisable, (3) effect strategic transactions, portfolio and individual property acquisitions and dispositions, (4) expand existing properties, (5) execute new leases with tenants, (6) extend lease maturities in advance of or at expiration and (7) explore new business lines and operating platforms. Additionally, we may continue to enter into joint ventures and co-investment programs with third-party investors as a means of creating additional growth and expanding the revenue realized from advisory and asset management activities as situations warrant.
Portfolio diversification is central to our investment strategy as we seek to create and maintain an asset base that provides steady, predictable and growing cash flows while being insulated against rising property operating expenses, regional recessions, industry-specific downturns and fluctuations in property values and market rent levels. Regardless of capital market and economic conditions, we intend to stay focused on (1) enhancing operating results, (2) improving portfolio quality, (3) mitigating risks relating to interest rates and the real estate cycle and (4) implementing strategies where our management skills and real estate expertise can add value. We believe that our business strategy will continue to improve our liquidity and strengthen our overall balance sheet while creating meaningful shareholder value.
Capital Recycling. We began to dispose of our interests in non-core assets in 2007, subject to regulatory and contractual requirements. During 2011, we used the proceeds from dispositions to primarily make investments and retire debt and preferred securities. During 2010 and 2009, we used the proceeds from dispositions to primarily retire debt. We continue to be focused on the disposition of our interests in non-core assets, including vacant and under-performing assets.
Occasionally, we provide seller financing as a means of efficiently disposing of an asset. As a result, if a buyer defaults under the seller financing, we will once again be the owner of the underlying asset.
Acquisition Strategies. When market conditions warrant, we seek to enhance our single-tenant property portfolio through acquisitions of interests in core assets, including build-to-suit activities and the investment in loan assets and debt securities directly or indirectly secured by core assets. Prior to effecting any acquisition, our underwriting includes analyzing the (1) property's design, construction quality, efficiency, functionality and location with respect to the immediate sub-market, city and region, (2) lease integrity with respect to term, rental rate increases, corporate guarantees and property maintenance provisions, (3) present and anticipated conditions in the local real estate market and (4) prospects for selling or re-leasing the property on favorable terms in the event of a vacancy. We also evaluate each potential tenant's financial strength, growth prospects, competitive position within its respective industry and a property's strategic location and function within a tenant's operations or distribution systems. We believe that our comprehensive underwriting process is critical to the assessment of long-term profitability of any investment by us.
Strategic Transactions with Other Real Estate Investment Companies. We seek to capitalize on the unique investment experience of our management team as well as their network of relationships in the industry to achieve appropriate risk-adjusted yields through strategic transactions. Accordingly, we occasionally pursue the (1) acquisition of portfolios of assets and equity interests in companies with a significant number of single-tenant assets, including through mergers and acquisitions activity and (2) participation in strategic partnerships, co-investment programs and joint ventures.
In connection with the Newkirk Merger, we acquired what is now a one-third interest in each of Concord Debt Holding LLC, which we refer to as Concord, and CDH CDO LLC, which we refer to as CDH CDO. The remaining two-thirds interests are held equally by WRT Realty L.P., which we refer to as Winthrop, and a wholly-owned subsidiary of Inland American Real Estate Trust, Inc., which we refer to as Inland Concord. Each of Concord's and CDH CDO's primary business is the ownership of real estate loan and bond assets.
In the second quarter of 2011, we formed an equally-owned joint venture, LW Sofi, LLC, with a subsidiary of Winthrop to acquire the economic interests in a mezzanine loan owned by Concord. In the fourth quarter, the mezzanine loan was satisfied and the joint venture was dissolved.
During 2007, we established Net Lease Strategic Assets Fund L.P., which we refer to as NLS, a co-investment program with a wholly-owned subsidiary of Inland American Real Estate Trust, Inc., which we refer to as Inland NLS, to invest in specialty net-leased real estate.
We believe that entering into co-investment programs and joint ventures with institutional investors and other real estate investment companies may mitigate our risk in certain assets and increase our return on equity to the extent we earn management or other fees. However, investments in co-investment programs and joint ventures limit our ability to make unilateral investment decisions relating to the assets and limit our ability to deploy capital.
Acquisitions of Portfolios and Individual Net-lease Properties. We seek to acquire portfolios and individual properties from (1) creditworthy companies in sale/leaseback transactions for properties that are integral to the sellers'/tenants' ongoing operations, (2) developers of newly constructed properties built to suit the needs of a corporate tenant by financing the project during the construction phase and/or agreeing to purchase the property upon completion of construction and occupancy by the tenant, (3) other real estate investment companies through strategic transactions and (4) sellers of properties subject to an existing lease. We believe that our geographical diversification and acquisition experience will allow us to continue to compete effectively for the acquisition of such properties.
Competition
Through our predecessor entities, certain members of our management have been in the net-lease real estate business since 1973. Over this period, our management established a broad network of contacts, including major corporate tenants, developers, brokers and lenders. In addition, our management is associated with and/or participates in many industry organizations. Notwithstanding these relationships, there are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial or other resources that compete with us in seeking properties for acquisition and tenants who will lease space in these properties. Our competitors include other REITs, pension funds, banks, private companies and individuals.
Co-Investment Programs and Other Equity Method Investment Limited Partnerships
Net Lease Strategic Assets Fund L.P. NLS's portfolio consists of 42 specialty net-leased assets and a 40% tenant-in-common interest in a property. These specialty net-leased assets, which were either sold or contributed by us to NLS, include data centers, light manufacturing facilities, medical office facilities, car dealerships and a golf course.
At December 31, 2011, Inland NLS owned 85%, and we owned 15% of NLS's common equity, and we owned 100% of NLS's preferred equity. LRA is the asset manager for NLS pursuant to a management agreement. The partnership agreement provides each partner with a right of first offer and a buy/sell right after February 20, 2012.
Concord Debt Holdings LLC and CDH CDO LLC. On December 31, 2006, in connection with the Newkirk Merger, we acquired a 50% interest in Concord, which owns bonds and loans secured, directly and indirectly, by real estate assets. The other 50% interest in Concord was held by Winthrop. In 2008, we and Winthrop contributed our respective interest in Concord to Lex-Win Concord LLC, which we refer to as Lex-Win Concord. Immediately following the contribution, Inland Concord was admitted to Concord as a preferred member upon making a capital commitment. During the third quarter of 2010, Concord was restructured upon the effectiveness of a settlement agreement with Inland Concord regarding Inland's capital commitment. As a result of the restructuring (i) Lex-Win Concord was dissolved and (ii) Concord and a new entity, CDH CDO, are now owned equally by subsidiaries of us, Winthrop and Inland Concord. The new entity purchased Concord's interest in Concord Real Estate CDO 2006-1 LTD, which we refer to as CDO-1, from Concord with funds contributed by Inland Concord. The Company has made no additional contributions and it has not recognized any income or loss as a direct result of the restructuring, however, we recognize future income on the cash basis. The Company's investment in these ventures is valued at zero. Each of Concord's and CDH CDO's obligations are non-recourse to us, and we have no obligation to fund the operations of Concord or CDH CDO unless we receive management fees, and then, only to the extent of such management fees.
Other Equity Method Investment Limited Partnerships. We are a partner in five other partnerships with ownership percentages ranging between 27% and 35%, which own primarily net-leased properties. All profits, losses and cash flows are distributed in accordance with the respective partnership agreements. As of December 31, 2011, the partnerships had $21.6 million in non-recourse mortgage debt (our proportionate share was $6.5 million) with interest rates ranging from 9.4% to 11.5%, a weighted-average interest rate of 9.9% and maturity dates ranging from 2012 to 2016.
We have determined that NLS and Lex-Win Concord have met the conditions of significant subsidiaries under Rule 1-02(w) of Regulation S-X for certain years. The separate financial statements of NLS and Lex-Win Concord, as required pursuant to Rule 3-09 of Regulation S-X, are filed as Exhibits 99.1 and 99.2, respectively, to this Annual Report.
Internal Growth and Effectively Managing Assets
Tenant Relations and Lease Compliance. We endeavor to maintain close contact with the tenants in the properties in which we have an interest in order to understand their financial status and future real estate needs. We monitor the financial, property maintenance and other lease obligations of the tenants in properties in which we have an interest, through a variety of means, including periodic reviews of financial statements that we have access to and physical inspections of the properties.
Extending Lease Maturities. Our property owner subsidiaries seek to extend tenant leases in advance of the lease expiration in order for us to maintain a balanced lease rollover schedule and high occupancy levels.
Revenue Enhancing Property Expansions. Our property owner subsidiaries undertake expansions of properties based on lease requirements, tenant requirements or marketing opportunities. We believe that selective property expansions can provide attractive rates of return and our property owner subsidiaries actively seek such opportunities.
Property Sales. Subject to regulatory requirements, we sell our interests in properties when we believe that the return realized from selling a property will exceed the expected return from continuing to hold such property and/or if there is a better use of capital such as repurchasing our debt and senior securities.
Conversion to Multi-Tenant. If one of our property subsidiaries is unable to renew a single-tenant net lease or if it is unable to find a replacement single tenant, we either attempt to sell our interest in the property or have the property owner subsidiary convert the property to multi-tenant use and begin the process of leasing space. When appropriate, we seek to sell our interests in multi-tenant properties.
Property Management. From time to time, our property owner subsidiaries use property managers to manage certain properties. In 2010, we formed a property management joint venture with an unaffiliated third party to manage substantially all of these properties. We believe this joint venture provides us with (1) better management of our assets, (2) better tenant relationships, (3) revenue-enhancing opportunities and (4) cost efficiencies.
Financing Strategy
General. Since becoming a public company, our principal sources of financing have been the public and private equity and debt markets, property specific debt, revolving loans, corporate term loans, issuance of OP units and undistributed cash flows.
Property Specific Debt. Our property owners seek to finance certain of their assets with non-recourse secured debt.
Corporate Level Borrowings. We also use corporate-level borrowings, such as revolving loans and term loans, as needed, and when other forms of financing are not available or appropriate. In January 2012, we procured a $215.0 million secured term loan from Wells Fargo Bank, National Association, as agent. The term loan is secured by ownership interest pledges by certain subsidiaries that collectively own a borrowing base of properties. The secured term loan matures in January 2019. The secured term loan requires regular payments of interest only at an interest rate dependent on our leverage ratio, as defined, as follows: 2.00% plus LIBOR if our leverage ratio is less than 45%, 2.25% plus LIBOR if our leverage ratio is between 45% and 50%, 2.45% plus LIBOR if our leverage ratio is between 50% and 55%, and 2.85% plus LIBOR if our leverage ratio exceeds 55%. Upon the date when we obtain an investment grade debt rating from at least two of Standard & Poor's, Moody's and Fitch, the interest rate under the secured term loan will be dependent on our debt rating. We may not prepay any outstanding borrowings under the secured term loan through January 12, 2013, but may prepay outstanding borrowings anytime thereafter, however at a premium for the next three years.
Also in January 2012, we refinanced our $300.0 million secured revolving credit facility procured in January 2011, which was scheduled to expire in January 2014, but could have been extended to January 2015 at our option, with a new $300.0 million secured revolving credit facility with KeyBank National Association, which we refer to as KeyBank, as agent. The new secured revolving credit facility has the same security as the new secured term loan. The new secured revolving credit facility bears interest at 1.625% plus LIBOR if our leverage ratio, as defined, is less than 45%, 1.875% plus LIBOR if our leverage ratio is between 45% and 50%, 2.125% plus LIBOR if our leverage ratio is between 50% and 55% and 2.375% plus LIBOR if our leverage ratio exceeds 55%. Upon the date when we obtain an investment grade credit rating from at least two of Standard & Poor's, Moody's and Fitch, the interest rate under the secured revolving credit facility will be dependent on our debt rating. The new secured revolving credit facility matures in January 2015 but can be extended until January 2016 at our option. With the consent of the lenders, we can increase the size of the secured revolving credit facility by $225.0 million for a total secured revolving credit facility size of $525.0 million by adding properties to the borrowing base and admitting additional lenders. The borrowing availability of the secured revolving credit facility is based upon the net operating income, as defined, of the properties comprising the borrowing base.
We expect to use the new secured term loan to refinance certain indebtedness, the majority of which is maturing in 2012. We borrowed $108.0 million under the secured term loan and $28.0 million under the secured revolving credit facility to repay the term loans in the original principal amounts of $25.0 million and $45.0 million, which were procured from KeyBank in March 2008 and to satisfy $62.2 million outstanding principal amount of 5.45% Exchangeable Guaranteed Notes tendered pursuant to a holder repurchase option in January 2012. In addition, effective February 1, 2012, we entered into an interest-rate swap agreement to fix LIBOR at 1.512% for seven years on $108.0 million of secured term loan LIBOR-based debt. Accordingly, the amount outstanding under the secured new term loan bears interest at a rate of 3.76% as of the date of filing this Annual Report.
During 2010, we issued $115.0 million aggregate principal amount of 6.00% Convertible Guaranteed Notes. The notes pay interest semi-annually in arrears and mature in January 2030. The holders of the notes may require us to repurchase their notes in January 2017, January 2020 and January 2025 for cash equal to 100% of the notes to be repurchased, plus any accrued and unpaid interest. We may not redeem any notes prior to January 2017, except to preserve our REIT status. As of the date of filing this Annual Report, the notes have a conversion rate of 142.6917 common shares per $1,000 principal amount of the notes, representing a conversion price of $7.01 per share. The conversion rate is subject to adjustment under certain circumstances. The notes are convertible by the holders under certain circumstances for cash, common shares or a combination of cash and common shares at our election.
Deleveraging. Our primary focus for 2011, 2010 and 2009 was to effectively use our capital to deleverage our balance sheet by refinancing, satisfying and repurchasing indebtedness. During 2011, 2010 and 2009, we reduced our overall consolidated indebtedness by $119.3 million, $300.3 million and $305.6 million, respectively, including $25.5 million and $123.4 million in 2010 and 2009, respectively, original principal amount of our 5.45% Exchangeable Guaranteed Notes.
Common Share Issuances
During 2011, we raised approximately $90.5 million by issuing 10.0 million common shares through a public offering. The proceeds from the common share offering were primarily used to fund investments and retire indebtedness. During 2010, we raised approximately $157.8 million by issuing approximately 22.4 million common shares through two public offerings. The proceeds from these common share offerings were primarily used to retire indebtedness.
We also maintain a direct share purchase plan with a dividend reinvestment component. During 2011 and 2010, we issued approximately 1.1 million and 1.3 million common shares, respectively, under our direct share purchase plan raising net proceeds of $8.4 million and $8.6 million, respectively. The net proceeds were primarily used to fund investments and retire indebtedness.
Common Share Repurchases
During 2008, we entered into a forward equity commitment to purchase 3.5 million common shares at a price of $5.60 per share, or a total of $19.6 million. We made mandatory prepayments totaling $15.6 million in 2008 and 2009. Share dividends in 2009 were held as additional collateral. The commitment was settled in October 2011 for a cash payment of approximately $4.0 million and approximately 4.0 million common shares, constituting all of the underlying common shares, were retired. As of December 31, 2011, 1.1 million common shares/OP units remained eligible for repurchase under our previously announced share repurchase authorization.
Preferred Share Repurchases
During 2011, we repurchased and retired approximately 0.4 million Series B Preferred Shares and 0.1 million Series C Preferred Shares. The aggregate purchase price of $15.5 million was at a $1.3 million discount to the liquidation preferences of the preferred shares.
Advisory Contracts
General. Certain members of our management have been in the business of investing in single-tenant net-lease properties since 1973. This experience has enabled us to provide advisory services to various net-lease investors.
Third Party Investors. In 2001, LRA entered into an advisory and asset management agreement to invest and manage an equity commitment of up to $50.0 million on behalf of a private third-party investment fund. Under the agreement, LRA earns (1) an acquisition fee (90 basis points of total acquisition costs), (2) an annual asset management fee (30 basis points of gross asset value) and (3) an incentive fee (16% of the return in excess of an internal rate of return of 10% earned by the investment fund). The investment fund made no purchases in 2011, 2010 or 2009 and owned one property as of December 31, 2011.
Affiliated Investors. Through LRA, we provide advisory services to NLS. In exchange for providing advisory services to NLS, LRA receives (1) a management fee of 0.375% of the equity capital, as defined, (2) a property management fee of up to 3.0% of actual gross revenues from certain assets where 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 asset acquired by NLS.
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 and 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 generally the tenants of the properties in which we have an interest are primarily responsible for any environmental damage and claims related to the leased premises, in the event of the bankruptcy or inability of a tenant of such premises to satisfy any obligations with respect to such environmental liability, a property owner subsidiary may be required to satisfy such obligations. In addition, as the owner of such properties, a property owner subsidiary may be held directly liable for any such damages or claims irrespective of the provisions of any lease.
From time to time, in connection with the conduct of our business and generally upon acquisition of a property and prior to surrender by a tenant, the property owner subsidiary authorizes the preparation of a Phase I and, when necessary, a Phase II environmental report with respect to its properties. Based upon such environmental reports and our ongoing review of the properties in which we have an interest, as of the date of this Annual Report, we are not aware of any environmental condition with respect to any of the properties in which we have an interest which we believe would be reasonably likely to have a material adverse effect on our financial condition and/or results of operations. There can be no assurance, however, that (1) the discovery of environmental conditions, the existence or severity of which were previously unknown, (2) changes in law, (3) the conduct of tenants or (4) activities relating to properties in the vicinity of the properties in which we have an interest, will not expose us to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of properties in which we have an interest, which would adversely affect our financial condition and/or results of operations.
Impairment Charges
During 2011, 2010 and 2009, we incurred $117.4 million, $56.9 million and $175.9 million, respectively, of non-cash impairment charges primarily related to (1) sales and other dispositions, or the possible sale or disposition, of assets at below book value, (2) vacancies of certain assets and (3) during 2009, $74.7 million of non-cash impairment charges related to our investment in Lex-Win Concord and another non-consolidated investment, which are included in equity in earnings (losses) of non-consolidated entities in our Consolidated Statement of Operations. In addition, we may continue to take similar non-cash impairment charges, which could be material in amount, due to (1) the current economic environment and (2) the implementation of our current business strategy, which may include sales of properties acquired in the Newkirk Merger that have a high cost basis because of our common share price at the time of the Newkirk Merger.
Summary of 2011 Transactions and Recent Developments
The following summarizes certain of our transactions during 2011, including transactions disclosed above and in our other periodic reports.
Sales. With respect to sales activity, we monetized our interests in 17 properties to unaffiliated third parties for an aggregate gross price of $160.1 million.
Acquisitions/Investments.
Property Acquisitions. Through property owner subsidiaries, we acquired the following properties in separate transactions:
|
| | | | | | | | |
Location | Property Type | Square Feet (000's) | Acquisition Date | Initial Cost Basis (million) | Lease Expiration |
Byhalia, MS(1) | Industrial | 514 |
| May 2011 | $ | 27.5 |
| 03/2026 |
Rock Hill, SC | Office | 80 |
| May 2011 | $ | 7.4 |
| 08/2021 |
Allen, TX | Office | 293 |
| May 2011 | $ | 36.3 |
| 03/2018 |
Shelby, NC(1) | Industrial | 674 |
| June 2011 | $ | 23.5 |
| 05/2031 |
Columbus, OH | Office | 42 |
| July 2011 | $ | 6.1 |
| 07/2027 |
Chillicothe, OH | Industrial | 475 |
| October 2011 | $ | 12.1 |
| 06/2026 |
Aurora, IL | Office | 210 |
| October 2011 | $ | 15.3 |
| 09/2017 |
| | 2,288 |
| | $ | 128.2 |
| |
(1) Completed build-to-suit transaction
In addition, property owner subsidiaries:
- purchased 3.38 acres of land adjacent to a property in which we have an interest located in Lakewood, Colorado for $0.2 million;
- deposited $1.7 million in cash and a $1.6 million letter of credit toward the purchase of a $17.6 million to-be-built, 80,000 square foot office property in Eugene, Oregon. Substantial completion of the property is estimated to be in the first quarter of 2013. We can provide no assurances that this purchase will be consumated; and
- received a deed-in-lieu of foreclosure on a vacant office property in Wilsonville, Oregon.
Built-to-Suit Transactions. Through property owner subsidiaries, we were engaged in the following build-to-suit transactions:
|
| | | | | | | | | | | | | | | |
Location | Property Type | Square Feet (000's) | | Expected Maximum Commitment/Contribution (million) | | Estimated Purchase Price/Completion Cost (million) | | Lease Term (Years) | | Estimated Completion Date |
Saint Joseph, MO | Office | 99 |
| | $ | 18.0 |
| | $ | 18.0 |
| | 15 | | 2Q 12 |
Huntington, WV(1) | Office | 70 |
| | $ | 11.8 |
| | $ | 12.6 |
| | 15 | | 1Q 12 |
Shreveport, LA | Industrial | 257 |
| | $ | 2.5 |
| | $ | 13.1 |
| | 10 | | 2Q 12 |
Florence, SC | Office | 32 |
| | $ | 5.1 |
| | $ | 5.1 |
| | 12 | | 1Q 12 |
Long Island City, NY(2) | Industrial | 143 |
| | $ | 46.7 |
| | $ | 55.5 |
| | 15 | | 1Q 13 |
Jessup, PA | Office | 150 |
| | $ | 20.8 |
| | $ | 20.8 |
| | 15 | | 2Q 12 |
| | 751 |
| | $ | 104.9 |
| | $ | 125.1 |
| | | | |
(1) Property acquired January 2012.
(2) Joint venture investment. Estimated completion cost includes joint venture partner's equity.
Loan Investments. Through lender subsidiaries, we:
- made a $10.0 million mezzanine loan secured by a 100% pledge of all equity interests in the entities which owned two, to-be-constructed distribution facilities. The loan was scheduled to mature in June 2013 and had an interest rate of 15.0% for the first year and 18.5% for the second year. The loan was fully satisfied in December 2011 for an $11.5 million payment which included accrued interest and yield maintenance;
- loaned $3.0 million to the buyer in connection with the sale for $3.7 million of a vacant industrial property. The loan is secured by the property, bears interest at 7.8% and matures in January 2013;
- received $9.5 million, plus accrued interest, in full satisfaction of a mezzanine loan made in 2010, which was secured by interests in multiple properties; and
- contributed $5.8 million to a newly formed joint venture to invest in a mezzanine loan and received $7.9 million upon the joint venture liquidation.
Leasing. Through our property owner subsidiaries, we entered into 62 new leases and lease extensions encompassing an aggregate 4.9 million square feet. Our property owner subsidiaries received $22.4 million from five lease terminations of which $21.3 million is included in deferred revenue in the Consolidated Balance Sheet at December 31, 2011.
Financing. With respect to financing activities, in January 2011 we refinanced our $220.0 million secured revolving credit facility, which was scheduled to expire in February 2011 but could have been extended to February 2012, with a $300.0 million secured revolving credit facility with a maturity date of January 2014 but could have been extended at our option to January 2015, which was refinanced subsequent to year end as described elsewhere in this Annual Report.
Through our property owner subsidiaries, we:
- retired $134.3 million in property non-recourse mortgage debt; and
- obtained $15.0 million non-recourse mortgage financing on an industrial property.
Capital. With respect to capital activities, we:
- issued 10.0 million common shares in a public offering, raising net proceeds of approximately $90.5 million;
- issued approximately 1.1 million common shares under our direct share purchase plan raising net proceeds of approximately $8.4 million;
- settled our common share forward purchase equity commitment for approximately $4.0 million and retired approximately 4.0 million common shares; and
- repurchased and retired approximately 0.4 million Series B Preferred Shares and approximately 0.1 million Series C Preferred Shares for an aggregate purchase price of approximately $15.5 million.
Subsequent to December 31, 2011, we:
- procured a $215.0 million seven-year secured term loan and refinanced our existing $300.0 million secured revolving credit facility;
- satisfied term loans obtained in 2008 that had an aggregate outstanding principal amount of $60.6 million;
- satisfied a swap liability of $3.5 million;
- repurchased $62.2 million outstanding principal amount of 5.45% Exchangeable Guaranteed Notes tendered pursuant to a holder repurchase option in January 2012;
- through a property owner subsidiary, acquired the build-to-suit office property located in Huntington, West Virginia; and
- delivered a notice exercising the buy/sell right in the NLS partnership agreement and received notification from our partner exercising the right of first offer in the NLS partnership agreement.
Other
Employees. As of December 31, 2011, we had 54 full-time employees. Lexington Realty Trust is a master employer and employee costs are allocated to subsidiaries as applicable.
Industry Segments. We operate in primarily one industry segment, net-leased real estate assets.
Web Site. Our Internet address is www.lxp.com and the investor relations section of our web site is located at www.snl.com/irweblinkx/corporateprofile.aspx?iid=103128. We make available, free of charge, on or through the investor relations section of our web site or by contacting our Investor Relations Department, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, which we refer to as the SEC. Also posted on our web site, and available in print upon request of any shareholder to our Investor Relations Department, are our amended and restated declaration of trust and amended and restated by-laws, charters for our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, our Corporate Governance Guidelines, and our Code of Business Conduct and Ethics governing our trustees, officers and employees (which contains our whistle blower procedures). Within the time period required by the SEC and the NYSE, we will post on our web site any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any of our trustees or executive officers. In addition, our web site includes information concerning purchases and sales of our equity securities by our executive officers and trustees as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC's Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time. Information contained on our web site or the web site of any other person is not incorporated by reference into this Annual Report or any of our other filings with the SEC.
Our Investor Relations Department can be contacted at Lexington Realty Trust, One Penn Plaza, Suite 4015, New York, NY 10119-4015, Attn: Investor Relations, telephone: (212) 692-7200, e-mail: ir@lxp.com.
Principal Executive Offices. Our principal executive offices are located at One Penn Plaza, Suite 4015, New York, NY 10119-4015; our telephone number is (212) 692-7200.
NYSE CEO Certification. Our Chief Executive Officer made an unqualified certification to the NYSE with respect to our compliance with the NYSE corporate governance listing standards in June 2011.
Item 1A. Risk Factors
Set forth below are material factors that may adversely affect our business and operations.
We are subject to risks involved in single-tenant leases.
We focus our acquisition activities on real properties that are net leased to single tenants. Therefore, the financial failure of, or other default by, a single tenant under its lease is likely to cause a significant reduction in the operating cash flow generated by the property leased to that tenant and might decrease the value of that property. In addition, our property owner subsidiary will be responsible for 100% of the operating costs following a vacancy at a single-tenant building.
We rely on revenues derived from major tenants.
Revenues from several tenants and/or their guarantors constitute a significant percentage of our base rental revenues. The default, financial distress or bankruptcy of any of the tenants and/or guarantors of these properties could cause interruptions in the receipt of lease revenues and/or result in vacancies, which would reduce the property owner subsidiary's revenues and increase operating costs until the affected property is re-let, and could decrease the ultimate sale value of that property. Upon the expiration or other termination of the leases that are currently in place with respect to these properties, the property owner subsidiary may not be able to re-lease the vacant property at a comparable lease rate, at all, or without incurring additional expenditures in connection with the re-leasing. See “Management's Discussion and Analysis of Financial Conditions and Results of Operations - Overview - Leasing Trends” in Part II, Item 7 of this Annual Report for further discussion.
Our assets may be subject to impairment charges.
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on generally accepted accounting principles, which include a variety of factors such as market conditions, the status of significant leases, the financial condition of major tenants and other factors that could affect the cash flow or value of an investment. During 2011, 2010 and 2009, we incurred $117.4 million, $56.9 million and $175.9 million, respectively, of non-cash impairment charges. A substantial portion of these impairments related to assets acquired in the Newkirk Merger that have a high cost basis because of our common share price at the time of the Newkirk Merger. In addition, we may continue to take similar non-cash impairment charges, which could affect the implementation of our current business strategy. These impairments could have a material adverse effect on our financial condition and results of operations.
Our interests in loans receivable are subject to delinquency, foreclosure and loss.
Our interests in loans receivable are generally non-recourse and secured by real estate properties owned by borrowers that were unable to obtain similar financing from a commercial bank. These loans are subject to risks of delinquency as well as risk associated with the capital markets. The ability of a borrower to repay a loan secured by a real estate property is typically and primarily dependent upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If a borrower were to default on a loan, it is possible that the lender subsidiary would not recover the full value of the loan and the collateral may be non-performing. In 2011, one of our lender subsidiaries received a deed-in-lieu of foreclosure on an office property in Wilsonville, Oregon, which the tenant vacated in 2010. The loan had an outstanding principal balance of $10.6 million, which we believe was above the fair value of the property, and accordingly we incurred an impairment charge in 2010 of $3.8 million relating to this loan.
We face uncertainties relating to lease renewals and re-letting of space.
Upon the expiration of current leases for space located in properties in which we have an interest, our property owner subsidiary may not be able to re-let all or a portion of that space, or the terms of re-letting (including the cost of concessions to tenants and leasing commissions) may be less favorable to our property owner subsidiary than current lease terms or market rates. If our property owner subsidiaries are unable to promptly re-let all or a substantial portion of the space located in their respective properties, or if the rental rates a property owner subsidiary receives upon re-letting are significantly lower than current rates, our earnings and ability to make expected distributions to our shareholders may be adversely affected due to the resulting reduction in rent receipts and increase in our property owner subsidiary's property operating costs. There can be no assurance that our property owner subsidiaries will be able to retain tenants in any of our properties upon the expiration of leases.
Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.
Our growth strategy is based on the acquisition and development of additional properties and related assets, including acquisitions of large portfolios and real estate companies and acquisitions through co-investment programs and joint ventures. In the context of our business plan, “development” generally means an expansion or renovation of an existing property or the financing and/or acquisition of a newly constructed build-to-suit property. We may provide a developer with either a combination of (1) financing for construction of a build-to-suit property, or (2) a commitment to acquire a property upon completion of construction of a build-to-suit property and commencement of rent from the tenant. In addition, we may acquire a property subject to a lease and engage a developer to complete construction of a build-to-suit property as required by the lease. Our plan to grow through the acquisition and development of new properties could be adversely affected by trends in the real estate and financing businesses. The consummation of any future acquisitions will be subject to satisfactory completion of an extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. Our ability to implement our strategy may be impeded because we may have difficulty finding new properties and investments at attractive prices that meet our investment criteria, negotiating with new or existing tenants or securing acceptable financing. If we are unable to carry out our strategy, our financial condition and results of operations could be adversely affected. Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations. Redevelopment and new project development are subject to numerous risks, including risks of construction delays, cost overruns or force majeure events that may increase project costs, new project commencement risks such as the receipt of zoning, occupancy and other required governmental approvals and permits, and the incurrence of development costs in connection with projects that are not pursued to completion.
Some of our acquisitions and developments may be financed using the proceeds of periodic equity or debt offerings, lines of credit or other forms of secured or unsecured financing that may result in a risk that permanent financing for newly acquired projects might not be available or would be available only on disadvantageous terms. If permanent debt or equity financing is not available on acceptable terms to refinance acquisitions undertaken without permanent financing, further acquisitions may be curtailed, or cash available for distribution to shareholders may be adversely affected.
Acquisition activities may not produce expected results and may be affected by outside factors.
We intend to continue to acquire core properties. Acquisitions of commercial properties entail certain risks, such as (1) occupancy, rental rates and expenses may differ from estimates, (2) the properties may become subject to environmental liabilities that we were unaware of at the time we acquired the property despite any environmental testing, (3) we may have difficulty obtaining financing on acceptable terms or paying the operating expenses and debt service associated with acquired properties prior to sufficient occupancy and (4) projected exit strategies may not come to fruition due to a variety of factors such as market conditions at time of dispositions.
We may not be successful in identifying suitable real estate properties or other assets that meet our acquisition criteria, or we may fail to complete acquisitions or investments on satisfactory terms. Failure to identify or complete acquisitions could slow our growth, which could, in turn, have a material adverse effect on our financial condition and results of operations.
We face certain risks associated with our build-to-suit activities.
From time to time, we engage in, or provide capital to developers who are engaged in, build-to-suit activities. We face uncertainties, associated with a developer's performance and timely completion of a project. If a developer fails to perform, we may resort to legal action to compel performance, remove the developer or rescind the purchase or construction contract. A developer's performance may also be affected or delayed by conditions beyond the developer's control. We may incur additional risks when we make periodic progress payments or other advances to developers before completion of construction. These and other factors can result in increased costs of a project or loss of our investment. We also rely on third-party construction managers and/or engineers to monitor the construction activities.
We rely on rental income and expense projections and estimates of the fair market value of a property upon completion of construction when agreeing upon a purchase price at the time we acquire the property, which may be up to two years prior to the estimated date of completion. If our projections are inaccurate, we may pay more than the fair value of a property.
Our multi-tenant properties expose us to additional risks.
Our multi-tenant properties involve risks not typically encountered in real estate properties which are operated by a single tenant. The ownership of multi-tenant properties could expose us to the risk that a sufficient number of suitable tenants may not be found to enable the property to operate profitably and provide a return to us. This risk may be compounded by the failure of existing tenants to satisfy their obligations due to various factors, including the current economic crisis. These risks, in turn, could cause a material adverse impact to our results of operations and business.
Multi-tenant properties are also subject to tenant turnover and fluctuation in occupancy rates, which could affect our operating results. Multi-tenant properties also expose us to the risk of potential "CAM slippage," which may occur when the actual cost of taxes, insurance and maintenance at the property exceeds the operating expenses paid by tenants.
We are highly leveraged, which increases risk of default on our obligations and debt service requirements.
We are more leveraged than certain of our competitors. We have incurred, and may continue to incur, direct and indirect indebtedness in furtherance of our activities. Neither our amended and restated declaration of trust nor any policy statement formally adopted by our Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness that we may incur, and accordingly, we could become even more highly leveraged. High levels of leverage may result in an increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition, results of operations and our ability to pay distributions.
Market interest rates could have an adverse effect on our borrowing costs, profitability and our share price.
We have exposure to market risks relating to increases in interest rates due to our variable-rate debt. An increase in interest rates may increase our costs of borrowing on existing variable-rate indebtedness, leading to a reduction in our earnings. As of December 31, 2011, we had no amounts outstanding in consolidated variable-rate indebtedness that were not subject to an interest-rate swap agreement. However, borrowings under our new secured revolving credit facility and new secured term loan are subject to variable rates. Effective February 1, 2012, we entered into an interest-rate swap agreement to fix LIBOR at 1.512% on $108.0 million of borrowings under the new secured term loan. The level of our variable-rate indebtedness, along with the interest rate associated with such variable-rate indebtedness, may change in the future and materially affect our interest costs and earnings. In addition, our interest costs on our fixed-rate indebtedness may increase if we are required to refinance our fixed-rate indebtedness upon maturity at higher interest rates.
Furthermore, the public valuation of our common shares is related primarily to the earnings that we derive from rental income with respect to the properties in which we have an interest and not from the underlying appraised value of the properties themselves. As a result, interest rate fluctuations and capital market conditions can affect the market value of our common shares. For instance, if interest rates rise, the market price of our common shares may decrease because potential investors seeking a higher dividend yield than they would receive from our common shares may sell our common shares in favor of higher rate interest-bearing securities.
Continued disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms and have other adverse effects on us.
Since 2008, the United States credit markets have experienced significant dislocations and liquidity disruptions which have caused the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases have resulted in the unavailability of certain types of debt financing. Continued uncertainty in the credit markets may negatively impact our ability to access additional debt financing on reasonable terms, which may negatively affect our ability to make acquisitions. A prolonged downturn in the credit markets may cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business plan accordingly. In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of capital or difficulties in obtaining capital. These events in the credit markets have also had an adverse effect on other financial markets in the United States, which may make it more difficult or costly for us to raise capital through the issuance of our common shares or preferred shares. These disruptions in the financial markets may have other adverse effects on us or the economy in general.
In addition to the interest rate swap agreement on $108.0 million of borrowing under our new secured term loan, we have interest rate swap agreements through our investment in CDH CDO. The counterparties of these arrangements are major financial institutions; however, we are exposed to credit risk in the event of non-performance by the counterparties.
The trading price of our common shares has been, and may continue to be, subject to significant fluctuations.
Since January 1, 2008, the closing sale price of our common shares on the New York Stock Exchange (composite) has ranged from $17.22 to $2.01 per share. The market price of our common shares may fluctuate in response to company-specific and securities market events and developments including those described in this Annual Report. In addition, the amount of our indebtedness may impact investor demand for our common shares, which could have a material effect on the market price of our common shares.
We have engaged and may engage in hedging transactions that may limit gains or result in losses.
We have used derivatives to hedge certain of our liabilities. This has certain risks, including losses on a hedge position, which have in the past and may in the future reduce the return on our investments. Such losses may exceed the amount invested in such instruments. In addition, counterparties to a hedging arrangement could default on their obligations. We may have to pay certain costs, such as transaction fees or breakage costs, related to hedging transactions.
We face risks associated with refinancings.
A significant number of the properties in which we have an interest, as well as corporate-level borrowings, are subject to mortgage or other secured notes with balloon payments due at maturity.
As of December 31, 2011, the consolidated scheduled balloon payments, for the next five calendar years, are as follows:
|
| | | | | | | | |
Year | | Non-Recourse Property-Specific Balloon Payments | | Corporate Recourse Balloon Payments(3) |
2012 (1) | | $ | 147.9 | million | | $ | 62.2 | million |
2013 (2) | | $ | 234.9 | million | | $ | 60.6 | million |
2014 | | $ | 229.1 | million | | $ | — |
|
2015 | | $ | 268.8 | million | | $ | — |
|
2016 | | $ | 121.9 | million | | $ | — |
|
(1) Includes 5.45% Exchangeable Guaranteed Notes due in January 2027 which were repurchased and retired in January 2012 pursuant to a holder repurchase option.
(2) Includes corporate recourse balloon payments satisfied subsequent to December 31, 2011.
(3) Balances were retired with borrowings from our secured term loan and secured revolving credit facility obtained in 2012.
The ability to make the scheduled balloon payment on a non-recourse mortgage note will depend upon (1) in the event we determine to contribute capital, our cash balances and the amount available under our secured term loan and secured revolving credit facility and (2) the property owner subsidiary's ability either to refinance the related mortgage debt or to sell the related property. If the property owner subsidiary is unable to refinance or sell the related property, the property may be conveyed to the lender through foreclosure or the property owner subsidiary may declare bankruptcy. The failure to pay the balloon payment may strain relationships with lenders.
We face risks associated with returning properties to lenders.
A significant number of the properties in which we have an interest are subject to non-recourse mortgages, which generally provide that a lender can only look to the property in the event of a default. During January 2012, a lender foreclosed on a vacant property in Tulsa, Oklahoma, in which we had an interest and during 2009, lenders foreclosed on vacant properties located in Richmond, Virginia and Plymouth, Michigan, in which we had an interest, because the property owner subsidiaries were unable to pay the required debt service. In 2009, a vacant property in Houston, Texas was disposed of in the bankruptcy of the property owner subsidiary because the property owner subsidiary was unable to pay the required debt service. As a result, we lost all of our interest in these properties and any future opportunities to re-tenant these properties. The loss of a significant number of properties to foreclosure or bankruptcy could adversely affect our (1) financial condition and results of operations, (2) relationships with lenders and (3) ability to obtain additional financing in the future.
In addition, in instances not involving us, there are at least two cases in Michigan where a lender has been successful (at the trial court level in one case and at the trial court and appeals court level in the other case) in triggering a carve out to the non-recourse nature of a mortgage loan because the value of the property declined below the balance of the mortgage. While we believe this goes against the express intention of a non-recourse mortgage loan, to the extent these cases are not overturned or superseded by legislation, the ability of our property owner subsidiaries to return properties to lenders may be inhibited and we may be liable for all or a portion of such losses.
Certain of our properties are cross-collateralized, and certain of our indebtedness is cross-defaulted.
As of December 31, 2011, the mortgages on three sets of two properties, one set of three properties and one set of four properties are cross-collateralized. In addition, (1) our new secured revolving credit facility and our new secured term loan are secured by ownership interest pledges in a borrowing base of properties, (2) our $45.0 million original principal amount secured term loan (of which $35.6 million was outstanding at December 31, 2011 and all of which was satisfied in January 2012) was secured by pledges of interests in a borrowing base of interests in certain properties and (3) our $25.0 million secured term loan (all of which was satisfied in January 2012) was secured by pledges of interests in three properties. To the extent that any of the properties in which we have an interest are cross-collateralized, any default by the property owner subsidiary under the mortgage note relating to one property will result in a default under the financing arrangements relating to any other property that also provides security for that mortgage note or is cross-collateralized with such mortgage note.
In addition, our new secured revolving credit facility, new secured term loan, and 6.00% Convertible Guaranteed Notes contain cross-default provisions, which may be triggered if we default on indebtedness in excess of certain thresholds.
We face possible liability relating to environmental matters.
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, our property owner subsidiaries may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under the properties in which we have an interest as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property. These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on our property owner subsidiaries in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could be significant and could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect a property owner subsidiary's ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to make distributions.
A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although the tenants of the properties in which we have an interest are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of the tenants of the properties in which we have an interest to satisfy any obligations with respect to the property leased to that tenant, our property owner subsidiary may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease.
From time to time, in connection with the conduct of our business, our property owner subsidiaries authorize the preparation of Phase I environmental reports and, when necessary, Phase II environmental reports, with respect to their properties.
There can be no assurance that these environmental reports will reveal all environmental conditions at the properties in which we have an interest or that the following will not expose us to material liability in the future:
•the discovery of previously unknown environmental conditions;
•changes in law;
•activities of tenants; or
•activities relating to properties in the vicinity of the properties in which we have an interest.
Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of the properties in which we have an interest, which could adversely affect our financial condition or results of operations.
From time to time we are involved in legal proceedings arising in the ordinary course of our business.
Legal proceedings arising in the ordinary course of our business require time and effort. The outcomes of legal proceedings are subject to significant uncertainty. Certain legal proceedings that we are currently involved in are described in note 19 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report. In the event that we are unsuccessful defending or prosecuting these proceedings, as applicable, we may incur a judgment or fail to realize an award of damages that could have an adverse effect on our financial condition.
Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.
We carry comprehensive liability, fire, extended coverage and rent loss insurance on most of the properties in which we have an interest, with policy specifications and insured limits that we believe are customary for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain rent loss insurance. In addition, certain of our leases require the tenant to maintain all insurance on the property, and the failure of the tenant to maintain the proper insurance could adversely impact our investment in a property in the event of a loss. Furthermore, there are certain types of losses, such as losses resulting from wars, terrorism or certain acts of God, that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our financial condition and results of operations.
Future terrorist attacks, military conflicts and unrest in the Middle East could have a material adverse effect on general economic conditions, consumer confidence and market liquidity.
The types of terrorist attacks since 2001, on-going and future military conflicts and the continued unrest in the Middle East may affect commodity prices and interest rates, among other things. An increase in interest rates may increase our costs of borrowing, leading to a reduction in our earnings. The increase in the price of oil will cause an increase in our operating costs, which may not be reimbursed by our tenants. Also, terrorist acts could also result in significant damages to, or loss of, our properties or the value thereof.
We and the tenants of the properties in which we have an interest may be unable to obtain adequate insurance coverage on acceptable economic terms for losses resulting from acts of terrorism. Our lenders may require that we carry terrorism insurance even if we do not believe this insurance is necessary or cost effective. We may also be prohibited under the applicable lease from passing all or a portion of the cost of such insurance through to the tenant. Should an act of terrorism result in an uninsured loss or a loss in excess of insured limits, we could lose capital invested in a property as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our financial condition.
Competition may adversely affect our ability to purchase properties.
There are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial and other resources than we have that compete with us in seeking investments and tenants. Due to our focus on net-lease properties located throughout the United States, and because most competitors are often locally and/or regionally focused, we do not always encounter the same competitors in each market. Our competitors include other REITs, financial institutions, insurance companies, pension funds, private companies and individuals. This competition may result in a higher cost for properties and lower returns and impact our ability to grow.
Our failure to maintain effective internal control could have a material adverse effect on our business, operating results and share price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal control over financial reporting. If we fail to maintain the adequacy of our internal control, as such standards may be modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Moreover, effective internal control, particularly related to revenue recognition, is necessary for us to produce reliable financial reports and to maintain our qualification as a REIT and is important in helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, our REIT qualification could be jeopardized, investors could lose confidence in our reported financial information and the trading price of our shares could drop significantly.
We may have limited control over our co-investment programs and joint venture investments.
Our co-investment programs and joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility that our partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our expectations, its previous instructions or our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of co-investment program and joint venture investments include impasse on decisions, such as a sale, because neither we nor our partner has full control over the co-investment program or joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in co-investment programs and joint ventures.
Two of our co-investment programs, Concord and CDH CDO, are owned equally by our subsidiaries, Winthrop and Inland Concord. Material actions taken by Concord and CDH CDO require the consent of each of co-investment partner. Accordingly, Concord and CDH CDO may not take certain actions or invest in certain assets even if we believe it to be in its best interest.
Another co-investment program, NLS, is managed by an Executive Committee comprised of three persons appointed by us and two persons appointed by our partner. With few exceptions, the affirmative vote of four members of the Executive Committee is required to conduct business. Accordingly, we do not control the business decisions of this co-investment program.
Certain of our trustees and officers may face conflicts of interest with respect to sales and refinancings.
E. Robert Roskind, our Chairman, beneficially owns a significant number of OP units, and as a result, may face different and more adverse tax consequences than our other shareholders will if we sell our interests in certain properties or reduce mortgage indebtedness on certain properties. Our Chairman may, therefore, have different objectives than our other shareholders regarding the appropriate pricing and timing of any sale of such properties or reduction of mortgage debt.
Accordingly, there may be instances in which we may not sell a property or pay down the debt on a property even though doing so would be advantageous to our other shareholders. In the event of an appearance of a conflict of interest, the conflicted trustee or officer is required to recuse himself or herself from any decision making or seek a waiver of our Code of Business Conduct and Ethics.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number or type of properties in which we may seek to invest or on the concentration of investments in any one geographic region.
There can be no assurance that we will remain qualified as a REIT for federal income tax purposes.
We believe that we have met the requirements for qualification as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 1993, and we intend to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. No assurance can be given that we have qualified or will remain qualified as a REIT. The Code provisions and income tax regulations applicable to REITs are more complex than those applicable to corporations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to continue to qualify as a REIT. In addition, no assurance can be given that legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or the federal income tax consequences of such qualification. If we do not qualify as a REIT, we would not be allowed a deduction for distributions to shareholders in computing our net taxable income. In addition, our income would be subject to tax at the regular corporate rates. We also could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash available for distribution to our shareholders would be significantly reduced or suspended for each year in which we do not qualify as a REIT. In that event, we would not be required to continue to make distributions. Although we currently intend to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause us, without the consent of the shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.
We may be subject to the REIT prohibited transactions tax, which could result in significant U.S. federal income tax liability to us.
In 2007 we announced a restructuring of our investment strategy, focusing on core assets. A REIT will incur a 100% tax on the net income from a prohibited transaction. Generally, a prohibited transaction includes a sale or disposition of property held primarily for sale to customers in the ordinary course of a trade or business. While we believe that the dispositions of our assets pursuant to the restructuring of our investment strategy should not be treated as prohibited transactions, whether a particular sale will be treated as a prohibited transaction depends on the underlying facts and circumstances. We have not sought and do not intend to seek a ruling from the Internal Revenue Service regarding any dispositions. Accordingly, there can be no assurance that our dispositions of such assets will not be subject to the prohibited transactions tax. If all or a significant portion of those dispositions were treated as prohibited transactions, we would incur a significant U.S. federal income tax liability, which could have a material adverse effect on our financial position, results of operations and cash flows.
Distribution requirements imposed by law limit our flexibility.
To maintain our status as a REIT for federal income tax purposes, we are generally required to distribute to our shareholders at least 90% of our taxable income for that calendar year. Our taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that we satisfy the distribution requirement but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of (i) 85% of our ordinary income for that year, (ii) 95% of our capital gain net income for that year and (iii) 100% of our undistributed taxable income from prior years. We intend to continue to make distributions to our shareholders to comply with the distribution requirements of the Code and to reduce exposure to federal income and nondeductible excise taxes. Differences in timing between the receipt of income and the payment of expenses in determining our taxable income and the effect of required debt amortization payments could require us to borrow funds on a short-term basis in order to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.
Certain limitations limit a third party's ability to acquire us or effectuate a change in our control.
Limitations imposed to protect our REIT status. In order to protect us against the loss of our REIT status, among other restrictions, our declaration of trust limits any shareholder from owning more than 9.8% in value of our outstanding equity shares, defined as common shares or preferred shares, subject to certain exceptions. These ownership limits may have the effect of precluding acquisition of control of us. Our Board of Trustees has granted limited waivers of the ownership limits to Vornado Realty, L.P., BlackRock, Inc. and Cohen & Steers Capital Management, Inc.
Severance payments under employment agreements. Substantial termination payments may be required to be paid under the provisions of employment agreements with certain of our executives upon a change of control. We have entered into employment agreements with four of our executive officers which provide that, upon the occurrence of a change in control of us (including a change in ownership of more than 50% of the total combined voting power of our outstanding securities, the sale of all or substantially all of our assets, dissolution, the acquisition, except from us, of 20% or more of our voting shares or a change in the majority of our Board of Trustees), if those executive officers are terminated without cause, as defined, those executive officers may be entitled to severance benefits based on their current annual base salaries and trailing average of recent annual cash bonuses as defined in the employment agreements. Accordingly, these payments may discourage a third party from acquiring us.
Our ability to issue additional shares. Our amended and restated declaration of trust (1) authorizes 400,000,000 common shares, 100,000,000 preferred shares and 500,000,000 excess shares and (2) authorizes our Board of Trustees to cause us to issue these shares without shareholder approval. Our Board of Trustees is able to establish the preferences and rights of any such class or series of additional shares, which could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in shareholders' best interests. At December 31, 2011, in addition to common shares, we had outstanding 2,740,874 Series B Preferred Shares, 1,970,200 Series C Preferred Shares, and 6,200,000 Series D Preferred Shares. Our Series B, Series C and Series D Preferred Shares include provisions, such as increases in dividend rates or adjustments to conversion rates, that may deter a change of control. The establishment and issuance of shares of our existing series of preferred shares or a future class or series of shares could make a change of control of us more difficult.
Maryland Business Combination Act. The Maryland General Corporation Law, as applicable to Maryland REITs, establishes special restrictions against “business combinations” between a Maryland REIT and “interested shareholders” or their affiliates unless an exemption is applicable. An interested shareholder includes a person who beneficially owns, and an affiliate or associate of the trust who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then-outstanding voting shares, but a person is not an interested shareholder if the Board of Trustees approved in advance the transaction by which he otherwise would have become an interested shareholder, which approval may be conditioned by the Board of Trustees. Among other things, Maryland law prohibits (for a period of five years) a merger and certain other transactions between a Maryland REIT and an interested shareholder, or an affiliate of an interested shareholder. The five-year period runs from the most recent date on which the interested shareholder became an interested shareholder. Thereafter, any such business combination must be recommended by the Board of Trustees and approved by two super-majority shareholder votes unless, among other conditions, the common shareholders receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its shares. The statute permits various exemptions from its provisions, including business combinations that are exempted by the Board of Trustees prior to the time that the interested shareholder becomes an interested shareholder. The business combination statute could have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if such acquisition would be in shareholders' best interests. In connection with the Newkirk Merger, Vornado Realty Trust, which we refer to as Vornado, was granted a limited exemption from the definition of “interested shareholder.”
Maryland Control Share Acquisition Act. Maryland law provides that “control shares” of a Maryland REIT acquired in a “control share acquisition” shall have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter under the Maryland Control Share Acquisition Act. Shares owned by the acquirer, by our officers or by employees who are our trustees are excluded from shares entitled to vote on the matter. “Control Shares” means shares that, if aggregated with all other shares previously acquired by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing trustees within one of the following ranges of voting power: one-tenth or more but less than one-third, one-third or more but less than a majority or a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval. A “control share acquisition” means the acquisition of issued and outstanding control shares, subject to certain exceptions. If voting rights of control shares acquired in a control share acquisition are not approved at a shareholders' meeting or if the acquiring person does not deliver an acquiring person statement as required under the statute, then, subject to certain conditions and limitations, the issuer may redeem any or all of the control shares for fair value. If voting rights of such control shares are approved at a shareholders' meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. Any control shares acquired in a control share acquisition which are not exempt under our by-laws will be subject to the Maryland Control Share Acquisition Act. Our amended and restated by-laws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of our shares. We cannot assure you that this provision will not be amended or eliminated at any time in the future.
Limits on ownership of our capital shares may have the effect of delaying, deferring or preventing someone from taking control of us.
For us to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our outstanding capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined for federal income tax purposes to include certain entities) during the last half of each taxable year, and these capital shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year for which a REIT election is made). Our amended and restated declaration of trust includes certain restrictions regarding transfers of our capital shares and ownership limits.
Actual or constructive ownership of our capital shares in violation of the restrictions or in excess of the share ownership limits contained in our amended and restated declaration of trust would cause the violative transfer or ownership to be void or cause the shares to be transferred to a charitable trust and then sold to a person or entity who can own the shares without violating these limits. As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares. Additionally, the constructive ownership rules for these limits are complex, and groups of related individuals or entities may be deemed a single owner and consequently in violation of the share ownership limits.
However, these restrictions and limits may not be adequate in all cases to prevent the transfer of our capital shares in violation of the ownership limitations. The ownership limits discussed above may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control could involve a premium price for the common shares or otherwise be in shareholders' best interests.
Legislative or regulatory tax changes could have an adverse effect on us.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a shareholder. REIT dividends generally are not eligible for the reduced rates currently applicable to certain corporate dividends (unless attributable to dividends from taxable REIT subsidiaries and otherwise eligible for such rates). As a result, investment in non-REIT corporations may be relatively more attractive than investment in REITs. This could adversely affect the market price of our shares.
Our reported financial results may be adversely affected by changes in accounting principles applicable to us and the tenants of properties in which we have an interest.
Generally accepted accounting principles in the United States, which we refer to as GAAP, are subject to interpretation by various bodies formed to promulgate and interpret appropriate accounting principles such as the Financial Accounting Standards Board, which we refer to as the FASB. A change in these principles or interpretations could have a significant effect on our reported financial results, could affect the reporting of transactions completed before the announcement of a change and could affect the business practices and decisions of the tenants of properties in which we have an interest.
We may change the dividend policy for our common shares in the future.
We currently expect to pay an aggregate annual dividend of $0.50 per common share with respect to the 2012 taxable year. However, the decision to declare and pay dividends on our common shares in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Trustees in light of conditions then existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT and legal restrictions and the general overall economic conditions and other factors. The actual dividend payable will be determined by our Board of Trustees based upon the circumstances at the time of declaration and the actual dividend payable may vary from such expected amount. Any change in our dividend policy could have a material adverse effect on the market price of our common shares.
Our Board of Trustees may change our investment policy without shareholders' approval.
Subject to our fundamental investment policy to maintain our qualification as a REIT, our Board of Trustees will determine our investment and financing policies, growth strategy and our debt, capitalization, distribution, acquisition, disposition and operating policies.
Our Board of Trustees may revise or amend these strategies and policies at any time without a vote by shareholders. Accordingly, shareholders' control over changes in our strategies and policies is limited to the election of trustees and changes made by our Board of Trustees may not serve the interests of shareholders and could adversely affect our financial condition or results of operations, including our ability to distribute cash to shareholders or qualify as a REIT.
The concentration of ownership by certain investors may limit other shareholders from influencing significant corporate decisions.
At December 31, 2011, Vornado beneficially owned approximately 18.5 million common shares, and E. Robert Roskind, our Chairman, beneficially owned approximately 1.1 million of our common shares and approximately 1.5 million OP units, which are currently redeemable for approximately 1.7 million common shares, or with respect to a portion of the OP units, at our election, cash. Mr. Roskind and an employee of Vornado sit on our Board of Trustees as of the date of filing this Annual Report. Each of Vornado and Mr. Roskind may have substantial influence over us and on the outcome of any matters submitted to our shareholders for approval. In addition, certain decisions concerning our operations or financial structure may present conflicts of interest between each of Vornado and Mr. Roskind and our other equity or debt holders. In addition, Vornado engages in a wide variety of activities in the real estate business and may engage in activities that result in conflicts of interest with respect to matters affecting us, such as competition for properties and tenants.
Securities eligible for future sale may have adverse effects on our share price.
We have an unallocated universal shelf registration statement and a direct share purchase plan, pursuant to which we may issue additional common shares. In addition, as of December 31, 2011, an aggregate of approximately 8.4 million of our common shares are issuable upon the exercise of employee share options and upon the exchange of OP units. There are also 16.4 million common shares underlying our 6.00% Convertible Guaranteed Notes as of December 31, 2011, which is subject to increase upon certain events, including if we pay a quarterly common share dividend in excess of $0.10 per common share. Depending upon the number of such securities issued, exercised or exchanged at one time, an issuance, exercise or exchange of such securities could be dilutive to or otherwise adversely affect the interests of holders of our common shares.
We are dependent upon our key personnel.
We are dependent upon key personnel whose continued service is not guaranteed. We are dependent on certain of our executive officers for business direction. In January 2012, we entered into three-year employment agreements with each of T. Wilson Eglin, our Chief Executive Officer and President, E. Robert Roskind, our Chairman, Richard J. Rouse, our Vice Chairman and Chief Investment Officer, and Patrick Carroll, our Executive Vice President, Chief Financial Officer and Treasurer. However, an employment agreement does not itself prevent an employee from resigning.
Our inability to retain the services of any of our key personnel or our loss of any of their services could adversely impact our operations. We do not have key man life insurance coverage on our executive officers.
Item 1B. Unresolved Staff Comments
There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Securities Exchange Act of 1934.
Item 2. Properties
Real Estate Portfolio
General. As of December 31, 2011, we had ownership interests in approximately 36.0 million square feet of rentable space in approximately 185 consolidated office, industrial and retail properties and these properties were approximately 95.6% leased based upon net rentable square feet. All properties in which we have an interest are held through at least one property owner subsidiary.
The properties in which we have an interest are generally subject to net leases; however, in certain leases the property owner subsidiaries are responsible for roof, structural and other repairs. In addition, certain of the properties in which we have an interest (including those held through non-consolidated entities) are subject to leases in which the landlord is responsible for a portion of the real estate taxes, utilities and general maintenance. Furthermore, the property owner subsidiaries are responsible for all operating expenses of any vacant properties, and the property owner subsidiaries may be responsible for a significant amount of operating expenses of multi-tenant properties.
Ground Leases. Certain of the properties in which we have an interest are subject to long-term ground leases where either the tenant of the building on the property or a third party owns and leases the underlying land to the property owner subsidiary. Certain of these properties are economically owned through the holding of industrial revenue bonds primarily for real estate tax abatement purposes and as such, neither ground lease payments nor bond interest payments are made or received, respectively. For certain of the properties held under a ground lease, the ground lessee has a purchase option. At the end of these long-term ground leases, unless extended or the purchase option exercised, the land together with all improvements thereon reverts to the landowner. In addition, we have an interest in one property in which a portion of the land, on which a portion of the parking lot is located, is subject to a ground lease. At expiration of the ground lease, only that portion of the parking lot reverts to the landowner.
Leverage. As of December 31, 2011, we had interests in properties subject to outstanding mortgages and notes payable and corporate level debt of approximately $1.7 billion with a weighted-average interest rate of approximately 5.8%.
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LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART OFFICE |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
12209 W. Markham St. | Little Rock | AR | Entergy Arkansas, Inc. | 36,311 |
| 10/31/2015 | 100 | % |
275 S. Valencia Ave | Brea | CA | Bank of America, National Association | 637,503 |
| 6/30/2019 | 100 | % |
2706 Media Center Dr. | Los Angeles | CA | Playboy Enterprises, Inc. | 83,252 |
| 11/7/2012 | 100 | % |
3333 Coyote Hill Rd. | Palo Alto | CA | Xerox Corporation | 202,000 |
| 12/13/2013 | 100 | % |
9201 E. Dry Creek Rd | Centennial | CO | The Shaw Group, Inc. | 128,500 |
| 9/30/2017 | 100 | % |
1110 Bayfield Dr. | Colorado Springs | CO | Honeywell International Inc. | 166,575 |
| 11/30/2013 | 100 | % |
3940 South Teller St. | Lakewood | CO | MoneyGram Payment Systems, Inc. | 68,165 |
| 3/31/2015 | 100 | % |
1315 W. Century Dr. | Louisville | CO | Global Healthcare Exchange, Inc. (Global Healthcare Exchange, LLC) | 106,877 |
| 4/30/2017 | 100 | % |
200 Executive Blvd. S. | Southington | CT | Hartford Fire Insurance Company | 153,364 |
| 12/31/2012 | 100 | % |
100 Barnes Rd | Wallingford | CT | 3M Company | 44,400 |
| 6/30/2018 | 100 | % |
5600 Broken Sound Blvd. | Boca Raton | FL | Océ Printing Systems USA, Inc. (Océ -USA Holding, Inc.) | 143,290 |
| 2/14/2020 | 100 | % |
12600 Gateway Blvd. | Fort Meyers | FL | Gartner, Inc. | 62,400 |
| 1/31/2013 | 100 | % |
550 Business Center Dr. | Lake Mary | FL | JPMorgan Chase Bank, National Association | 125,920 |
| 9/30/2015 | 100 | % |
600 Business Center Dr. | Lake Mary | FL | JPMorgan Chase Bank, National Association | 125,155 |
| 9/30/2015 | 100 | % |
9200 South Park Center Loop | Orlando | FL | Corinthian Colleges, Inc. | 59,927 |
| 9/30/2013 | 100 | % |
Sandlake Rd./Kirkman Rd | Orlando | FL | Lockheed Martin Corporation | 184,000 |
| 4/30/2013 | 100 | % |
4400 Northcorp Parkway | Palm Beach Gardens | FL | Office Suites Plus Properties, Inc. | 18,400 |
| 5/3/2019 | 100 | % |
2223 N. Druid Hills Rd | Atlanta | GA | Bank of America, N.A. (Bank of America Corporation) | 6,260 |
| 12/31/2014 | 100 | % |
6303 Barfield Rd | Atlanta | GA | International Business Machines Corporation / Internet Security Systems, Inc. (ISS Group, Inc.) | 238,600 |
| 5/31/2013 | 100 | % |
859 Mount Vernon Hwy | Atlanta | GA | International Business Machines Corporation / Internet Security Systems, Inc. (ISS Group, Inc.) | 50,400 |
| 5/31/2013 | 100 | % |
956 Ponce de Leon Ave | Atlanta | GA | Bank of America, N.A. (Bank of America Corporation) | 3,900 |
| 12/31/2014 | 100 | % |
4545 Chamblee-Dunwoody Rd | Chamblee | GA | Bank of America, N.A. (Bank of America Corporation) | 4,565 |
| 12/31/2014 | 100 | % |
201 W. Main St. | Cumming | GA | Bank of America, N.A. (Bank of America Corporation) | 14,208 |
| 12/31/2014 | 100 | % |
1066 Main St. | Forest Park | GA | Bank of America, N.A. (Bank of America Corporation) | 14,859 |
| 12/31/2014 | 100 | % |
825 Southway Dr. | Jonesboro | GA | Bank of America, N.A. (Bank of America Corporation) | 4,894 |
| 12/31/2014 | 100 | % |
1698 Mountain Industrial Blvd. | Stone Mountain | GA | Bank of America, N.A. (Bank of America Corporation) | 5,704 |
| 12/31/2014 | 100 | % |
4000 Johns Creek Pkwy | Suwanee | GA | Kraft Foods Global, Inc. | 87,219 |
| 9/30/2012 | 84 | % |
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LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART OFFICE |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
1275 Northwest 128th St. | Clive | IA | Principal Life Insurance Company | 61,180 |
| 1/31/2012 | 100 | % |
750 North Commons Dr. | Aurora | IL | Westell, Inc. (Westell Technologies, Inc.) | 210,230 |
| 9/30/2017 | 100 | % |
101 E. Erie St. | Chicago | IL | Draftfcb, Inc. (Interpublic Group of Companies, Inc.) | 230,704 |
| 3/15/2014 | 92 | % |
850 & 950 Warrenville Rd | Lisle | IL | National Louis University | 99,414 |
| 12/31/2019 | 100 | % |
500 Jackson St. | Columbus | IN | Cummins, Inc. | 390,100 |
| 7/31/2019 | 100 | % |
10300 Kincaid Dr. | Fishers | IN | Roche Diagnostics Operations, Inc. | 193,000 |
| 1/31/2020 | 100 | % |
10475 Crosspoint Blvd. | Indianapolis | IN | John Wiley & Sons, Inc. | 141,047 |
| 10/31/2019 | 90 | % |
5757 Decatur Blvd. | Indianapolis | IN | Allstate Insurance Company
| 89,956 |
| 8/31/2012 | 100 | % |
5200 Metcalf Ave. | Overland Park | KS | Swiss Re American Holding Corporation / Westport Insurance Corporation | 320,198 |
| 12/22/2018 | 100 | % |
4455 American Way | Baton Rouge | LA | Bell South Mobility Inc. | 70,100 |
| 10/31/2012 | 100 | % |
33 Commercial St. | Foxboro | MA | Invensys Systems, Inc. (Siebe, Inc.) | 164,689 |
| 7/1/2015 | 100 | % |
26555 Northwestern Hwy | Southfield | MI | Federal-Mogul Corporation | 187,163 |
| 1/31/2015 | 100 | % |
3165 McKelvey Rd. | Bridgeton | MO | BJC Health System | 52,994 |
| 3/31/2013 | 100 | % |
9201 Stateline Rd. | Kansas City | MO | Swiss Re American Holding Corporation / Westport Insurance Corporation | 155,925 |
| 4/1/2019 | 100 | % |
200 Lucent Lane | Cary | NC | Progress Energy Service Company, LLC | 124,944 |
| 11/30/2014 | 100 | % |
700 US Hwy. Route 202-206 | Bridgewater | NJ | Biovail Pharmaceuticals, Inc. (Valeant Pharmaceuticals International, Inc.) | 115,558 |
| 10/31/2014 | 100 | % |
333 Mount Hope Ave. | Rockaway | NJ | BASF Corporation | 95,500 |
| 9/30/2014 | 100 | % |
1415 Wyckoff Rd. | Wall | NJ | New Jersey Natural Gas Company | 157,511 |
| 6/30/2021 | 100 | % |
29 S. Jefferson Rd. | Whippany | NJ | CAE SimuFlite, Inc. (CAE Inc.) | 123,734 |
| 11/30/2021 | 100 | % |
180 S. Clinton St. | Rochester | NY | Frontier Corporation | 226,000 |
| 12/31/2014 | 100 | % |
2000 Eastman Dr. | Milford | OH | Siemens Corporation | 221,215 |
| 4/30/2016 | 100 | % |
500 Olde Worthington Rd. | Westerville | OH | InVentiv Communications, Inc. | 97,000 |
| 9/30/2015 | 100 | % |
275 Technology Dr. | Canonsburg | PA | ANSYS, Inc. | 107,872 |
| 12/31/2014 | 100 | % |
2550 Interstate Dr. | Harrisburg | PA | New Cingular Wireless PCS, LLC | 81,859 |
| 12/31/2013 | 100 | % |
1701 Market St. | Philadelphia | PA | Morgan, Lewis & Bockius LLP | 305,170 |
| 1/31/2014 | 98 | % |
1460 Tobias Gadsen Blvd. | Charleston | SC | Hagemeyer North America, Inc. | 50,076 |
| 7/8/2020 | 100 | % |
2210 Enterprise Dr. | Florence | SC | JPMorgan Chase Bank, National Association | 179,300 |
| 6/30/2013 | 100 | % |
3476 Stateview Blvd. | Fort Mill | SC | Wells Fargo Bank, N.A. | 169,083 |
| 5/31/2014 | 100 | % |
|
| | | | | | | | |
LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART OFFICE |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
3480 Stateview Blvd. | Fort Mill | SC | Wells Fargo Bank, N.A. | 169,218 |
| 5/31/2014 | 100 | % |
333 Three D Systems Circle | Rock Hill | SC | 3D Systems Corporation | 80,028 |
| 8/31/2021 | 100 | % |
1409 Centerpoint Blvd. | Knoxville | TN | Alstom Power, Inc. | 84,404 |
| 10/31/2014 | 100 | % |
104 & 110 S. Front St. | Memphis | TN | Hnedak Bobo Group, Inc. | 37,229 |
| 10/31/2016 | 100 | % |
3965 Airways Blvd. | Memphis | TN | Federal Express Corporation | 521,286 |
| 6/19/2019 | 100 | % |
601 & 701 Experian Pkwy. | Allen | TX | Experian Information Solutions, Inc. / TRW, Inc. (Experian Holdings, Inc.) | 292,700 |
| 3/14/2018 | 100 | % |
4001 International Pkwy. | Carrollton | TX | Motel 6 Operating, LP (Accor S.A.) | 138,443 |
| 7/31/2015 | 100 | % |
11511 Luna Rd. | Farmers Branch | TX | Haggar Clothing Co. (Texas Holding Clothing Corporation & Haggar Corp.) | 180,507 |
| 4/30/2016 | 100 | % |
10001 Richmond Ave. | Houston | TX | Baker Hughes Incorporated | 554,385 |
| 9/27/2015 | 100 | % |
1311 Broadfield Blvd. | Houston | TX | Transocean Offshore Deepwater Drilling, Inc. (Transocean Sedco Forex, Inc.) | 155,040 |
| 3/31/2021 | 100 | % |
16676 Northchase Dr. | Houston | TX | Kerr-McGee Oil & Gas Corporation (Kerr-McGee Corporation) | 101,111 |
| 7/31/2014 | 100 | % |
810 & 820 Gears Rd. | Houston | TX | IKON Office Solutions, Inc. | 157,790 |
| 1/31/2013 | 100 | % |
6200 Northwest Pkwy. | San Antonio | TX | United HealthCare Services, Inc. / PacifiCare Healthsystems, LLC | 142,500 |
| 11/30/2017 | 100 | % |
12645 West Airport Rd. | Sugar Land | TX | Baker Hughes Incorporated | 165,836 |
| 9/27/2015 | 100 | % |
2050 Roanoke Rd. | Westlake | TX | TD Auto Finance LLC | 130,290 |
| 12/31/2016 | 100 | % |
120 E. Shore Dr. | Glen Allen | VA | Capital One Services, LLC | 77,045 |
| 5/31/2017 | 100 | % |
400 Butler Farm Rd. | Hampton | VA | Nextel Communications of the Mid-Atlantic, Inc. (Nextel Finance Company) | 100,632 |
| 12/31/2014 | 100 | % |
421 Butler Farm Rd. | Hampton | VA | Patient Advocate Foundation | 56,564 |
| 12/31/2019 | 65 | % |
13651 McLearen Rd. | Herndon | VA | United States of America | 159,644 |
| 5/30/2018 | 100 | % |
13775 McLearen Rd. | Herndon | VA | Equant, Inc. (Equant N.V.) | 125,293 |
| 4/30/2015 | 100 | % |
2800 Waterford Lake Dr. | Midlothian | VA | Alstom Power, Inc. | 99,057 |
| 10/31/2014 | 100 | % |
22011 Southeast 51st St. | Issaquah | WA | Spacelabs Medical, Inc. / OSI Systems, Inc. (Instrumentarium Corporation) | 95,600 |
| 12/14/2014 | 100 | % |
5150 220th Ave. | Issaquah | WA | Spacelabs Medical, Inc. / OSI Systems, Inc. (Instrumentarium Corporation) | 106,944 |
| 12/14/2014 | 100 | % |
| | | Office Total | 10,929,716 |
| | |
|
| | | | | | | | |
LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
2415 U.S. Hwy 78 East | Moody | AL | CEVA Logistics U.S., Inc. (TNT Logistics Holdings, B.V.) | 595,346 |
| 1/1/2014 | 100 | % |
2455 Premier Dr. | Orlando | FL | Walgreen Co. / Walgreen Eastern Co. | 205,016 |
| 3/31/2016 | 100 | % |
3102 Queen Palm Dr. | Tampa | FL | Time Customer Service, Inc. (Time Incorporated) | 229,605 |
| 6/30/2020 | 100 | % |
1420 Greenwood Rd. | McDonough | GA | Versacold USA, Inc. | 296,972 |
| 10/31/2017 | 100 | % |
7500 Chavenelle Rd. | Dubuque | IA | The McGraw-Hill Companies, Inc. | 330,988 |
| 6/30/2017 | 100 | % |
3686 S. Central Ave. | Rockford | IL | Jacobson Warehouse Company, Inc. (Jacobson Distribution Company, Inc. and Jacobson Transportation Company, Inc.) | 90,000 |
| 12/31/2014 | 100 | % |
749 Southrock Dr. | Rockford | IL | Jacobson Warehouse Company, Inc. (Jacobson Distribution Company, Inc. and Jacobson Transportation Company, Inc.) | 150,000 |
| 12/31/2015 | 100 | % |
1901 Ragu Dr. | Owensboro | KY | Unilever Supply Chain, Inc. (Unilever United States, Inc.) | 443,380 |
| 12/19/2020 | 100 | % |
113 Wells St. | North Berwick | ME | United Technologies Corporation | 972,625 |
| 4/30/2019 | 100 | % |
1601 Pratt Ave. | Marshall | MI | Enbridge Energy, Limited Partnership | 58,300 |
| 2/15/2012 | 100 | % |
43955 Plymouth Oaks Blvd. | Plymouth | MI | Tower Automotive Operations USA I, LLC / Tower Automotive Products Inc. (Tower Automotive, Inc.) | 290,133 |
| 10/31/2017 | 100 | % |
7111 Crabb Rd. | Temperance | MI | CEVA Logistics U.S., Inc. (TNT Logistics Holdings, B.V.) | 744,570 |
| 8/4/2012 | 100 | % |
7670 Hacks Cross Rd. | Olive Branch | MS | MAHLE Clevite, Inc. (MAHLE Industries, Incorporated) | 268,104 |
| 2/28/2016 | 100 | % |
1133 Poplar Creek Rd. | Henderson | NC | Staples, Inc. / Corporate Express, Inc. | 196,946 |
| 12/31/2013 | 100 | % |
250 Swathmore Ave. | High Point | NC | Steelcase Inc. | 244,851 |
| 9/30/2017 | 100 | % |
2880 Kenny Biggs Rd. | Lumberton | NC | Quickie Manufacturing Corporation | 423,280 |
| 11/30/2021 | 100 | % |
2203 Sherrill Dr. | Statesville | NC | Ozburn-Hessey Logistics, LLC (OHH Acquisition Corporation) | 639,800 |
| 5/31/2013 | 100 | % |
10590 Hamilton Ave. | Cincinnati | OH | The Hillman Group, Inc. | 248,200 |
| 8/31/2016 | 100 | % |
1650 - 1654 Williams Rd. | Columbus | OH | ODW Logistics, Inc. | 772,450 |
| 6/30/2018 | 100 | % |
191 Arrowhead Dr. | Hebron | OH | Owens Corning Insulating Systems, LLC | 250,410 |
| MTM | 59 | % |
200 Arrowhead Dr. | Hebron | OH | Owens Corning Sales, LLC / Owens Corning Insulating Systems, LLC | 400,522 |
| 5/30/2011 | 100 | % |
10345 Philipp Pkwy. | Streetsboro | OH | L'Oreal USA S/D, Inc. (L'Oreal USA, Inc.) | 649,250 |
| 10/17/2019 | 100 | % |
50 Tyger River Dr. | Duncan | SC | Plastic Omnium Auto Exteriors, LLC | 221,833 |
| 9/30/2018 | 100 | % |
101 Michelin Dr. | Laurens | SC | CEVA Logistics U.S., Inc. (TNT Logistics Holdings, B.V.) | 1,164,000 |
| 8/4/2012 | 100 | % |
477 Distribution Pkwy. | Collierville | TN | Federal Express Corporation / FedEx Techconnect, Inc. | 120,000 |
| 5/31/2021 | 100 | % |
900 Industrial Blvd. | Crossville | TN | Dana Commercial Vehicle Products, LLC | 222,200 |
| 9/30/2016 | 100 | % |
3350 Miac Cove Rd. | Memphis | TN | Mimeo.com, Inc. | 140,079 |
| 9/30/2020 | 77 | % |
3456 Meyers Ave. | Memphis | TN | Sears, Roebuck and Co. / Sears Logistics Services | 780,000 |
| 2/28/2017 | 100 | % |
3820 Micro Dr. | Millington | TN | Ingram Micro L.P. (Ingram Micro Inc.) | 701,819 |
| 9/30/2021 | 100 | % |
|
| | | | | | | | |
LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
19500 Bulverde Rd. | San Antonio | TX | Harcourt Inc. (Harcourt General, Inc.) | 559,258 |
| 3/31/2016 | 100 | % |
2425 Hwy. 77 North | Waxahachie | TX | James Hardie Building Products, Inc. (James Hardie NV & James Hardie Industries NV) | 335,610 |
| 3/31/2020 | 100 | % |
291 Park Center Dr. | Winchester | VA | Kraft Foods Global, Inc. | 344,700 |
| 5/31/2016 | 100 | % |
| | | Industrial Total | 13,090,247 |
| | |
|
| | | | | | | | |
LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART RETAIL |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
10415 Grande Ave | Sun City | AZ | Cafeteria Operators, LP (Furrs Restaurant Group, Inc.) | 10,000 |
| 4/30/2012 | 100 | % |
255 Northgate Dr. | Manteca | CA | Kmart Corporation | 107,489 |
| 12/31/2018 | 100 | % |
12080 Carmel Mountain Rd | San Diego | CA | Kmart Corporation | 107,210 |
| 12/31/2018 | 100 | % |
10340 U.S. 19 | Port Richey | FL | Kingswere Furniture, LLC | 53, 820 |
| 10/31/2018 | 100 | % |
1150 W. Carl Sandburg Dr. | Galesburg | IL | Kmart Corporation | 94,970 |
| 12/31/2018 | 100 | % |
5104 N. Franklin Rd | Lawrence | IN | Marsh Supermarkets, Inc. / Marsh Supermarkets, LLC | 28,721 |
| 10/31/2013 | 100 | % |
205 Homer Rd | Minden | LA | Brookshire Grocery Company / Safeway Stores, Inc. | 35,000 |
| 11/30/2012 | 100 | % |
24th St. W. & St. John's Ave | Billings | MT | Safeway, Inc. | 40,800 |
| 5/31/2015 | 100 | % |
US 221 & Hospital Rd | Jefferson | NC | Food Lion, LLC / Delhaize America, Inc. | 23,000 |
| 2/28/2013 | 100 | % |
291 Talbert Blvd. | Lexington | NC | Food Lion, LLC / Delhaize America, Inc. | 23,000 |
| 2/28/2013 | 100 | % |
835 Julian Ave | Thomasville | NC | Mighty Dollar, LLC | 23,767 |
| 9/30/2018 | 100 | % |
900 S. Canal St. | Carlsbad | NM | Cafeteria Operators, LP (Furrs Restaurant Group, Inc.) | 10,000 |
| 4/30/2012 | 100 | % |
130 Midland Ave | Port Chester | NY | Pathmark Stores, Inc. | 59,000 |
| 10/31/2023 | 100 | % |
21082 Pioneer Plaza Dr. | Watertown | NY | Kmart Corporation | 120,727 |
| 12/31/2018 | 100 | % |
4831 Whipple Avenue N.W. | Canton | OH | Best Buy Co., Inc. | 46,350 |
| 2/26/2018 | 100 | % |
1084 E. Second St. | Franklin | OH | Marsh Supermarkets, Inc. / Crystal Food Services, LLC | 29,119 |
| 10/31/2013 | 100 | % |
5350 Leavitt Rd | Lorain | OH | Kmart Corporation | 193,193 |
| 12/31/2018 | 100 | % |
N.E.C. 45th Street & Lee Blvd. | Lawton | OK | Associated Wholesale Grocers, Inc. / Safeway, Inc. | 30,757 |
| 3/31/2014 | 100 | % |
6910 S. Memorial Hwy | Tulsa | OK | Toys "R" Us, Inc. / Toys “R” Us-Delaware, Inc. | 43,123 |
| 5/31/2016 | 100 | % |
12535 S.E. 82nd Ave | Clackamas | OR | Toys "R" Us-Delaware, Inc. / Toys "R" Us, Inc. / TRU 2005 RE I, LLC | 42,842 |
| 5/31/2016 | 100 | % |
S. Carolina 52/52 Bypass | Moncks Corner | SC | Food Lion, LLC / Delhaize America, Inc. | 23,000 |
| 2/28/2013 | 100 | % |
399 Peach Wood Centre Dr. | Spartanburg | SC | Best Buy Co., Inc. | 45,800 |
| 2/26/2018 | 100 | % |
1600 E. 23rd St. | Chattanooga | TN | BI- LO, LLC | 42,130 |
| 6/30/2014 | 100 | % |
1053 Mineral Springs Rd | Paris | TN | The Kroger Co. | 31,170 |
| 7/1/2013 | 100 | % |
4121 S. Port Ave | Corpus Christi | TX | Cafeteria Operators, LP (Furr's Restaurant Group, Inc.) | 10,000 |
| 4/30/2012 | 100 | % |
1610 S. Westmoreland Ave | Dallas | TX | Malone's Food Stores, Ltd. | 70,910 |
| 3/31/2017 | 100 | % |
3451 Alta Mesa Blvd. | Fort Worth | TX | AVT Grocery, Inc. / Safeway, Inc. | 44,000 |
| 5/31/2012 | 100 | % |
101 W. Buckingham Rd | Garland | TX | AVT Grocery, Inc. | 40,000 |
| 11/30/2012 | 100 | % |
4811 Wesley St. | Greenville | TX | Brookshire Grocery Company / Safeway, Inc. | 48,492 |
| 5/31/2016 | 100 | % |
|
| | | | | | | | |
LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART RETAIL |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
402 E. Crestwood Dr. | Victoria | TX | Cafeteria Operators, LP (Furrs Restaurant Group, Inc.) | 10,000 |
| 4/30/2012 | 100 | % |
3211 W. Beverly St. | Staunton | VA | Food Lion, LLC / Delhaize America, Inc. | 23,000 |
| 2/28/2018 | 100 | % |
18601 Alderwood Mall Blvd. | Lynnwood | WA | Toys "R" Us-Delaware, Inc. / Toys "R" Us, Inc. /TRU 2005 RE I, LLC | 43,105 |
| 5/31/2016 | 100 | % |
1700 State Route 160 | Port Orchard | WA | Moran Foods, Inc. d/b/a Save-A-Lot, Ltd. | 27,968 |
| 1/31/2015 | 57 | % |
97 Seneca Trail | Fairlea | WV | Kmart Corporation | 90,933 |
| 12/31/2018 | 100 | % |
| | | Retail Total | 1,673,396 |
| | |
|
| | | | | | | | |
LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART LONG-TERM LEASES |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
2211 South 47th St. | Phoenix | AZ | Avnet, Inc. | 176,402 |
| 2/28/2023 | 100 | % |
2005 E. Technology Cir. | Tempe | AZ | Infocrossing, Inc. | 60,000 |
| 12/31/2025 | 100 | % |
26210 & 26220 Enterprise Court | Lake Forest | CA | Apria Healthcare, Inc. (Apria Healthcare Group, Inc.) | 100,012 |
| 1/31/2022 | 100 | % |
11201 Renner Blvd. | Lenexa | KS | United States of America | 178,000 |
| 3/31/2022 | 100 | % |
10000 Business Blvd. | Dry Ridge | KY | Dana Light Axle Products, LLC (Dana Holding Corporation and Dana Limited) | 336,350 |
| 6/30/2025 | 100 | % |
730 North Black Branch Rd. | Elizabethtown | KY | Metalsa Structural Products, Inc. / Dana Structural Products, LLC (Dana Holding Corporation and Dana Limited) | 167,770 |
| 6/30/2025 | 100 | % |
750 North Black Branch Rd. | Elizabethtown | KY | Metalsa Structural Products, Inc. / Dana Structural Products, LLC (Dana Holding Corporation and Dana Limited) | 539,592 |
| 6/30/2025 | 100 | % |
301 Bill Bryan Rd | Hopkinsville | KY | Metalsa Structural Products, Inc. / Dana Structural Products, LLC (Dana Holding Corporation and Dana Limited) | 424,904 |
| 6/30/2025 | 100 | % |
4010 Airpark Dr. | Owensboro | KY | Metalsa Structural Products, Inc. / Dana Structural Products, LLC (Dana Holding Corporation and Dana Limited) | 211,598 |
| 6/30/2025 | 100 | % |
5001 Greenwood Rd. | Shreveport | LA | Libbey Glass Inc. (Libbey Inc.) | 646,000 |
| 10/31/2026 | 100 | % |
147 Milk St. | Boston | MA | Harvard Vanguard Medical Associates, Inc. | 52,337 |
| 12/31/2022 | 100 | % |
459 Wingo Rd. | Byhalia | MS | Asics America Corporation (Asics Corporation) | 513,734 |
| 3/31/2026 | 100 | % |
671 Washburn Switch Rd. | Shelby | NC | Clearwater Paper Corporation | 673,518 |
| 5/31/2031 | 100 | % |
11707 Miracle Hills Dr. | Omaha | NE | Infocrossing, Inc. | 85,200 |
| 11/30/2025 | 100 | % |
121 Technology Dr. | Durham | NH | Heidelberg Americas, Inc. (Heidelberg Drackmaschinen AG) | 500,500 |
| 3/30/2021 | 100 | % |
6226 West Sahara Ave. | Las Vegas | NV | Nevada Power Company | 282,000 |
| 1/31/2029 | 100 | % |
351 Chamber Drive | Chillicothe | OH | The Kitchen Collection, Inc. | 475,218 |
| 6/30/2026 | 100 | % |
5500 New Albany Rd. | Columbus | OH | Evans, Mechwart, Hambleton & Tilton, Inc. | 104,807 |
| 12/29/2026 | 100 | % |
2221 Schrock Rd. | Columbus | OH | MS Consultants, Inc. | 42,290 |
| 7/15/2027 | 100 | % |
7005 Cochran Rd | Glenwillow | OH | Royal Appliance Mfg. Co. | 458,000 |
| 7/31/2025 | 100 | % |
250 Rittenhouse Circle | Bristol | PA | Northtec LLC (The Estée Lauder Companies Inc.) | 241,977 |
| 11/30/2026 | 100 | % |
400 E. Stone Ave | Greenville | SC | Canal Insurance Company | 128,041 |
| 12/31/2029 | 100 | % |
4201 Marsh Ln. | Carrollton | TX | Carlson Restaurants Inc. (Carlson, Inc.) | 130,000 |
| 11/30/2022 | 100 | % |
6555 Sierra Dr. | Irving | TX | TXU Energy Retail Company, LLC (Texas Competitive Electric Holdings Company, LLC) | 247,254 |
| 3/31/2023 | 100 | % |
8900 Freeport Pkwy | Irving | TX | Nissan Motor Acceptance Corporation (Nissan North America, Inc.) | 268,445 |
| 3/31/2023 | 84 | % |
9803 Edmonds Way | Edmonds | WA | Pudget Consumers Co-op d/b/a PCC Natural Markets | 35,459 |
| 8/31/2028 | 100 | % |
| | | Long-Term Leases Total | 7,079,408 |
| | |
|
| | | | | | | | |
LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART MULTI-TENANTED |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
13430 N. Black Canyon Fwy | Phoenix | AZ | Multi-tenanted | 138,940 |
| Various | 100 | % |
1500 Hughes Way | Long Beach | CA | Multi-tenanted | 490,055 |
| Various | 74 | % |
10 John St. | Clinton | CT | Vacant | 41,188 |
| N/A | 0 | % |
6277 Sea Harbor Dr. | Orlando | FL | Vacant | 360,307 |
| N/A | 0 | % |
4200 Northcorp Parkway | Palm Beach Gardens | FL | Multi-tenanted | 95,065 |
| Various | 20 | % |
1032 Fort St. Mall/King St. | Honolulu | HI | Multi-tenanted | 318,451 |
| Various | 94 | % |
2300 Litton Lane | Hebron | KY | Multi-tenanted | 80,441 |
| Various | 100 | % |
100 Light St. | Baltimore | MD | Multi-tenanted | 476,459 |
| Various | 95 | % |
37101 Corporate Dr. | Farmington Hills | MI | Vacant | 119,829 |
| N/A | 0 | % |
4848 129th East Ave. | Tulsa | OK | Vacant | 101,100 |
| N/A | 0 | % |
9275 SW Peyton Lane | Wilsonville | OR | Vacant | 122,857 |
| N/A | 0 | % |
6050 Dana Way | Antioch | TN | W.M. Wright Company | 672,629 |
| 3/31/2021 | 62 | % |
207 Mockingbird Lane | Johnson City | TN | Multi-tenanted | 60,684 |
| Various | 48 | % |
100 E. Shore Dr. | Glen Allen | VA | Multi-tenanted | 68,003 |
| Various | 85 | % |
140 E. Shore Dr. | Glen Allen | VA | Multi-tenanted | 79,675 |
| Various | 72 | % |
| | | Multi-Tenanted Total | 3,225,683 |
| | |
| | | Consolidated Portfolio Grand Total | 35,998,450 |
| | |
|
| | | | | | | | |
LEXINGTON NON-CONSOLIDATED PORTFOLIO PROPERTY CHART |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
OFFICE | | | | | | |
5201 West Barraque St. | Pine Bluff | AR | Entergy Arkansas Inc. | 27,189 |
| 10/31/2015 | 100 | % |
Route 64 W. & Junction 333 | Russellville | AR | Entergy Arkansas Inc. / Entergy Services, Inc. | 191,950 |
| 5/9/2016 | 100 | % |
19019 North 59th Ave. | Glendale | AZ | Honeywell International Inc. | 252,300 |
| 7/15/2019 | 100 | % |
8555 South River Pkwy. | Tempe | AZ | ASM Lithography, Inc. (ASM Lithography Holding N.V.) (2013) / DuPont Airproducts Nanomaterials L.L.C. (2022) | 95,133 |
| 6/30/2022 | 100 | % |
1440 East 15th St. | Tucson | AZ | CoxCom, LLC | 28,591 |
| 7/31/2022 | 100 | % |
10419 North 30th St. | Tampa | FL | Time Customer Service, Inc. (Time Incorporated) | 132,981 |
| 6/30/2020 | 100 | % |
2500 Patrick Henry Pkwy | McDonough | GA | Georgia Power Company | 111,911 |
| 6/30/2015 | 100 | % |
3500 N. Loop Court | McDonough | GA | Litton Loan Servicing LP | 62,218 |
| 8/31/2018 | 100 | % |
3265 E. Goldstone Dr. | Meridian | ID | T-Mobile PCS Holdings, LLC (T-Mobile USA, Inc.) | 77,484 |
| 6/28/2019 | 100 | % |
101 E. Washington Blvd. | Fort Wayne | IN | Indiana Michigan Power Company | 348,452 |
| 10/31/2016 | 100 | % |
9601 Renner Blvd. | Lenexa | KS | VoiceStream PCS II Corporation (T-Mobile USA, Inc.) | 77,484 |
| 10/31/2019 | 100 | % |
70 Mechanic St. | Foxboro | MA | Invensys Systems, Inc. (Siebe, Inc.) | 251,914 |
| 7/1/2014 | 100 | % |
First Park Dr. | Oakland | ME | Omnipoint Holdings, Inc. (T-Mobile USA, Inc.) | 78,610 |
| 8/31/2020 | 100 | % |
12000 & 12025 Tech Center Dr. | Livonia | MI | Kelsey-Hayes Company (TRW Automotive, Inc.) | 180,230 |
| 4/30/2014 | 100 | % |
3943 Denny Ave. | Pascagoula | MS | Northrop Grumman Systems Corporation | 94,841 |
| 10/31/2013 | 100 | % |
3201 Quail Springs Pkwy. | Oklahoma City | OK | AT&T Corp. / AT& T Services, Inc. / New Cingular Wireless Services, Inc. | 128,500 |
| 11/30/2015 | 81 | % |
2999 Southwest 6th St. | Redmond | OR | VoiceStream PCS I LLC (T-Mobile USA, Inc.) | 77,484 |
| 1/31/2019 | 100 | % |
265 Lehigh St. | Allentown | PA | Pennsylvania School of Business, Inc. | 71,230 |
| 9/30/2021 | 31 | % |
420 Riverport Rd. | Kingport | TN | Kingsport Power Company | 42,770 |
| 6/30/2013 | 100 | % |
2401 Cherahala Blvd. | Knoxville | TN | AdvancePCS, Inc. / CaremarkPCS, L.L.C. | 59,748 |
| 5/31/2013 | 100 | % |
1401 & 1501 Nolan Ryan Pkwy. | Arlington | TX | Siemens Dematic Postal Automation L.P. / Siemens Energy & Automation, Inc. / Siemens Shared Services, LLC | 236,547 |
| 1/31/2014 | 100 | % |
1200 Jupiter Rd. | Garland | TX | Raytheon Company | 278,759 |
| 5/31/2016 | 100 | % |
2529 West Thorne Dr. | Houston | TX | Baker Hughes, Incorporated | 65,500 |
| 9/27/2015 | 100 | % |
17191 St. Luke's Way | The Woodlands | TX | Montgomery County Management Company, LLC | 41,000 |
| 10/31/2019 | 100 | % |
3711 San Gabriel | Mission | TX | VoiceStream PCS II Corporation / T-Mobile USA, Inc. / T-Mobile West Corporation | 75,016 |
| 6/30/2015 | 100 | % |
11555 University Blvd. | Sugar Land | TX | KS Management Services, LLP (St. Luke's Episcopal Health System Corporation) | 72,683 |
| 11/30/2020 | 100 | % |
1600 Eberhardt Rd. | Temple | TX | Nextel of Texas, Inc. (Nextel Finance Company) | 108,800 |
| 1/31/2016 | 100 | % |
1400 Northeast McWilliams Rd. | Bremerton | WA | Nextel West Corp. (Nextel Finance Company) | 60,200 |
| 7/14/2016 | 100 | % |
| | | Office Total | 3,329,525 |
| | |
|
| | | | | | | | |
LEXINGTON NON-CONSOLIDATED PORTFOLIO PROPERTY CHART |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
INDUSTRIAL | | | | | | |
109 Stevens St. | Jacksonville | FL | Wagner Industries, Inc. | 168,800 |
| 1/31/2014 | 100 | % |
359 Gateway Dr. | Lavonia | GA | TI Group Automotive Systems, LLC (TI Automotive Ltd.) | 133,221 |
| 5/31/2020 | 100 | % |
3600 Army Post Rd. | Des Moines | IA | HP Enterprises Services, LLC | 405,000 |
| 4/30/2012 | 100 | % |
2935 Van Vactor Way | Plymouth | IN | Bay Valley Foods, LLC | 300,500 |
| 6/30/2015 | 100 | % |
6938 Elm Valley Dr. | Kalamazoo | MI | Dana Commercial Vehicle Products, LLC (Dana Holding Corporation and Dana Limited) | 150,945 |
| 10/25/2021 | 100 | % |
904 Industrial Rd. | Marshall | MI | Tenneco Automotive Operating Company, Inc. (Tenneco, Inc.) | 246,508 |
| 9/30/2018 | 100 | % |
1700 47th Ave N. | Minneapolis | MN | Owens Corning Sales LLC / Owens Corning Roofing and Asphalt, LLC | 18,620 |
| 6/30/2015 | 100 | % |
324 Industrial Park Rd. | Franklin | NC | SKF USA Inc. | 72,868 |
| 12/31/2014 | 100 | % |
736 Addison Rd. | Erwin | NY | Corning, Incorporated | 408,000 |
| 11/30/2016 | 100 | % |
590 Ecology Lane | Chester | SC | Owens Corning Sales, LLC | 420,597 |
| 7/14/2025 | 100 | % |
120 South East Pkwy Dr. | Franklin | TN | Essex Group, Inc. (United Technologies Corporation) | 289,330 |
| 12/31/2013 | 100 | % |
9110 Grogans Mill Rd. | The Woodlands | TX | Baker Hughes, Incorporated | 275,750 |
| 9/27/2015 | 100 | % |
2424 Alpine Rd. | Eau Claire | WI | Silver Spring Foods, Inc. (Huntsinger Farms, Inc.) | 159,000 |
| 4/30/2027 | 100 | % |
| | | Industrial Total | 3,049,139 |
| | |
|
| | | | | | | | |
LEXINGTON NON-CONSOLIDATED PORTFOLIO PROPERTY CHART |
As of December 31, 2011 |
Property Location | City | State | Primary Tenant (Guarantor) | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased |
RETAIL/OTHER | | | | | | |
101 Creger Dr. | Ft. Collins | CO | Lithia Real Estate, Inc. / D&M Automotive, Inc. (Lithia Motors, Inc.) | 10,000 |
| 5/31/2012 | 100 | % |
11411 N. Kelly Ave | Oklahoma City | OK | American Golf Corporation | 13,924 |
| 12/31/2017 | 100 | % |
25500 State Hwy 249 | Tomball | TX | Parkway Chevrolet, Inc. (Raymond Durdin & Jean W. Durdin) | 77,076 |
| 8/31/2026 | 100 | % |
| | | Retail/Other Total | 101,000 |
| | |
| | | Non-Consolidated Portfolio Grand Total | 6,479,664 |
| | |
The average effective annual rent per square foot for the consolidated portfolio for the year ended December 31, 2011 was $8.13.
The following chart sets forth certain information regarding lease expirations for the next ten years in our consolidated portfolio:
|
| | | | | | | | |
Year | Number of Lease Expirations | Square Feet | Annual Rent ($000) | Percentage of Annual Rent |
2012 | 44 | 2,980,657 | $ | 16,132 | | 5.5 | % | |
2013 | 38 | 2,941,861 | | 26,886 | | 9.2 | % | |
2014 | 40 | 3,026,023 | | 42,290 | | 14.5 | % | |
2015 | 22 | 2,089,526 | | 28,309 | | 9.7 | % | |
2016 | 23 | 2,719,892 | | 19,212 | | 6.6 | % | |
2017 | 13 | 2,707,814 | | 15,738 | | 5.4 | % | |
2018 | 22 | 2,964,284 | | 22,228 | | 7.6 | % | |
2019 | 17 | 3,720,001 | | 33,657 | | 11.5 | % | |
2020 | 8 | 1,521,436 | | 13,395 | | 4.6 | % | |
2021 | 11 | 2,203,366 | | 16,199 | | 5.5 | % | |
Item 3. Legal Proceedings
From time to time we are directly and indirectly involved in legal proceedings arising in the ordinary course of our business. We believe, based on currently available information, and after consultation with legal counsel, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition, but might be material to our operating results for any particular period, depending, in part, upon the operating results for such period. See note 19 to the Consolidated Financial Statements in Part II, Item 8 for information on certain legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
PART II.
Item 5. Market For Registrant's Common Equity, Related Shareholder Matters And Issuer Purchases of Equity Securities
Market Information. Our common shares are listed for trading on the NYSE under the symbol “LXP”. The following table sets forth the high and low sales prices as reported by the NYSE for our common shares for each of the periods indicated below:
|
| | | | | | | | |
For the Quarters Ended: | | High | | Low |
December 31, 2011 | | $ | 8.18 |
| | $ | 5.72 |
|
September 30, 2011 | | 9.70 |
| | 6.17 |
|
June 30, 2011 | | 10.14 |
| | 8.31 |
|
March 31, 2011 | | 9.65 |
| | 7.80 |
|
December 31, 2010 | | 8.96 |
| | 7.15 |
|
September 30, 2010 | | 7.47 |
| | 5.39 |
|
June 30, 2010 | | 7.76 |
| | 5.30 |
|
March 31, 2010 | | 7.22 |
| | 5.17 |
|
The per common share closing price on the NYSE was $8.49 on February 23, 2012.
Holders. As of February 23, 2012, we had approximately 3,833 common shareholders of record.
Dividends. Since our predecessor's formation in 1993, we have made quarterly distributions without interruption.
The common share dividends paid in each quarter for the last five years are as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
Quarters Ended | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 |
March 31, | | $ | 0.115 |
| | $ | 0.10 |
| | $ | 0.18 |
| | | $ | 2.475 |
| | $ | 0.5975 |
|
June 30, | | $ | 0.115 |
| | $ | 0.10 |
| | $ | 0.18 |
| (1) | | $ | 0.330 |
| | $ | 0.3750 |
|
September 30, | | $ | 0.115 |
| | $ | 0.10 |
| | $ | 0.18 |
| (1) | | $ | 0.330 |
| | $ | 0.3750 |
|
December 31, | | $ | 0.115 |
| | $ | 0.10 |
| | $ | 0.18 |
| (1) | | $ | 0.330 |
| | $ | 0.3750 |
|
(1) Aggregate dividend paid 90% in our common shares and 10% in cash.
During the fourth quarter of 2007, we declared a special dividend of $2.10 per common share which was paid in January 2008. During the fourth quarter 2006, we declared a special dividend of $0.2325 per common share which was paid in January 2007.
During 2009, we issued an aggregate 13,304,198 common shares in lieu of cash payments of common share dividends during the quarters ended June 30, September 30 and December 31, 2009 in accordance with Internal Revenue Service Revenue Procedure 2008-68.
On November 1, 2011 the quarterly dividend per common share was increased to $0.125, which was paid in January 2012 to common shareholders of record as of December 30, 2011.
While we intend to continue paying regular quarterly dividends to holders of our common shares, the authorization of future dividend declarations will be at the discretion of our Board of Trustees and will depend on our actual cash flow, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as our Board of Trustees deems relevant. The actual cash flow available to pay dividends will be affected by a number of factors, including, among others, the risks discussed under “Risk Factors” in Part I, Item 1A and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report.
We do not believe that the financial covenants contained in our loan agreements will have any adverse impact on our ability to pay dividends in the normal course of business to our common and preferred shareholders or to distribute amounts necessary to maintain our qualification as a REIT.
We maintain a direct share purchase plan, which has two components, (i) a dividend reinvestment component and (ii) a direct share purchase component. Under the dividend reinvestment component, common shareholders and holders of OP units may elect to automatically reinvest their dividends and distributions to purchase our common shares free of commissions and other charges. We currently offer a 5.0% discount on the common shares purchased under the plan. We may, from time to time, either repurchase common shares in the open market, or issue new common shares, for the purpose of fulfilling our obligations under the dividend reinvestment program. Currently all of the common shares issued under this program are new common shares issued by us. Under the direct share purchase component, our current investors and new investors can make optional cash purchases of our common shares directly from us. In 2011 and 2010, we issued approximately 1.1 million and 1.3 million common shares, respectively, under the plan, raising net proceeds of $8.4 million and $8.6 million, respectively.
Equity Compensation Plan Information. The following table sets forth certain information, as of December 31, 2011, with respect to our 2011 Equity-Based Award Plan under which our equity securities are authorized for issuance as compensation.
|
| | | | | | | | | | |
| | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
Plan Category | | (a) | | (b) | | (c) |
Equity compensation plans approved by security holders | | 3,888,281 |
| | $ | 6.36 |
| | 4,672,085 |
|
Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
|
Total | | 3,888,281 |
| | $ | 6.36 |
| | 4,672,085 |
|
Recent Sales of Unregistered Securities.
None, other than as previously disclosed in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Share Repurchase Program.
The following table summarizes repurchases of our common shares/OP units during the fourth quarter of 2011 pursuant to publicly announced repurchase plans:
|
| | | | | | | | | | | | | |
Period | |
Total Number of Shares/Units Purchased | |
Average Price Paid per Share/Unit ($) | | Total Number of Shares/Units Purchased as Part of Publicly Announced Plans or Programs (1) | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1) |
October 1-31, 2011 | | — |
| | $ | — |
| | — |
| | 1,056,731 |
|
November 1-30, 2011 | | — |
| | — |
| | — |
| | 1,056,731 |
|
December 1-31, 2011 | | — |
| | — |
| | — |
| | 1,056,731 |
|
Fourth Quarter 2011 | | — |
| | $ | — |
| | — |
| | 1,056,731 |
|
(1) Share repurchase plan most recently announced on December 17, 2007.
On October 28, 2011, we settled our common share forward purchase equity commitment and retired 3,974,645 common shares. In addition, during the fourth quarter of 2011, we repurchased and retired 419,126 Series B Preferred Shares and 91,104 Series C Preferred Shares.
Item 6. Selected Financial Data
The following sets forth our selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2011. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and the related notes appearing elsewhere in this Annual Report. ($000's, except per share data)
|
| | | | | | | | | | | | | | | | | | | |
| 2011 | | 2010 | | 2009 | | 2008 | | 2007 |
Total gross revenues | $ | 326,914 |
| | $ | 320,048 |
| | $ | 330,619 |
| | $ | 348,949 |
| | $ | 355,930 |
|
Expenses applicable to revenues | (224,645 | ) | | (217,395 | ) | | (219,552 | ) | | (258,574 | ) | | (227,059 | ) |
Interest and amortization expense | (107,515 | ) | | (118,907 | ) | | (122,715 | ) | | (142,579 | ) | | (150,189 | ) |
Income (loss) from continuing operations | (49,674 | ) | | (4,456 | ) | | (129,998 | ) | | (15,418 | ) | | 10,964 |
|
Total discontinued operations | (40,104 | ) | | (32,954 | ) | | (81,274 | ) | | 11,950 |
| | 80,965 |
|
Net income (loss) | (89,778 | ) | | (37,410 | ) | | (211,272 | ) | | (3,468 | ) | | 91,929 |
|
Net income (loss) attributable to Lexington Realty Trust | (79,584 | ) | | (32,960 | ) | | (210,152 | ) | | 2,754 |
| | 75,249 |
|
Net income (loss) attributable to common shareholders | (103,721 | ) | | (58,096 | ) | | (242,876 | ) | | (18,974 | ) | | 47,155 |
|
Loss from continuing operations per common share - basic and diluted | (0.42 | ) | | (0.26 | ) | | (1.51 | ) | | (0.33 | ) | | (0.34 | ) |
Income (loss) from discontinued operations - basic and diluted | (0.26 | ) | | (0.18 | ) | | (0.71 | ) | | 0.05 |
| | 1.07 |
|
Net income (loss) per common share - basic and diluted | (0.68 | ) | | (0.44 | ) | | (2.22 | ) | | (0.28 | ) | | 0.73 |
|
Cash dividends declared per common share | 0.47 |
| | 0.415 |
| | 0.64 |
| | 1.17 |
| | 3.60 |
|
Net cash provided by operating activities | 180,137 |
| | 164,751 |
| | 159,307 |
| | 230,201 |
| | 287,651 |
|
Net cash provided by (used in) investing activities | (24,813 | ) | | (24,783 | ) | | 111,967 |
| | 230,128 |
| | (31,490 | ) |
Net cash provided by (used in) financing activities | (144,257 | ) | | (141,189 | ) | | (285,207 | ) | | (804,637 | ) | | 38,973 |
|
Ratio of earnings to combined fixed charges and preferred dividends | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Real estate assets, net | 2,566,707 |
| | 2,773,605 |
| | 3,015,400 |
| | 3,294,527 |
| | 3,729,266 |
|
Investments in and advances to non-consolidated entities | 90,558 |
| | 72,480 |
| | 55,985 |
| | 179,133 |
| | 226,476 |
|
Total assets | 3,078,048 |
| | 3,334,996 |
| | 3,579,845 |
| | 4,105,725 |
| | 5,264,705 |
|
Mortgages, notes payable and credit facility, including discontinued operations | 1,662,375 |
| | 1,778,077 |
| | 2,072,738 |
| | 2,372,323 |
| | 3,028,088 |
|
Shareholders' equity | 1,163,074 |
| | 1,280,156 |
| | 1,208,669 |
| | 1,406,075 |
| | 960,601 |
|
Total equity | 1,221,431 |
| | 1,356,129 |
| | 1,297,236 |
| | 1,501,071 |
| | 1,739,565 |
|
Preferred share liquidation preference | 322,032 |
| | 338,760 |
| | 338,760 |
| | 363,915 |
| | 389,000 |
|
|
|
N/A - Ratio is below 1.0, deficit of $95,441, $45,720, $9,564, $151 and $59,705 exists at December 31, 2011, 2010, 2009, 2008 and 2007, respectively. |
All years have also been adjusted to reflect the impact of operating properties sold during the years ended December 31, 2011, 2010, 2009, 2008 and 2007, which are reflected in discontinued operations in the Consolidated Statements of Operations.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
In this discussion, we have included statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements may relate to our future plans and objectives, among other things. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause our results to differ, possibly materially, from those indicated in the forward-looking statements include, among others, those discussed above in “Risk Factors” in Part I, Item 1A of this Annual Report and “Cautionary Statements Concerning Forward Looking Statements” in Part I, of this Annual Report.
|
| |
Table of Contents | Page |
Overview | |
Liquidity | |
Capital Resources | |
Results of Operations | |
Off-Balance Sheet Arrangements | |
Contractual Obligations | |
Overview
General. We are a self-managed and self-administered real estate investment trust formed under the laws of the State of Maryland. We operate primarily in one segment, net-leased real estate assets, and our primary business is the acquisition, ownership and management of portfolios of single-tenanted office, industrial and retail properties, including build-to-suit transactions.
As of December 31, 2011, we had ownership interests in approximately 185 consolidated real estate properties, located in 39 states and encompassing approximately 36.0 million square feet. A majority of these properties are subject to triple net or similar leases, where the tenant bears all or substantially all of the costs and/or cost increases for real estate taxes, utilities, insurance and ordinary repairs.
Our revenues and cash flows are generated predominantly from property rent receipts. As a result, growth in revenues and cash flows is directly correlated to our ability to (1) acquire income producing real estate assets, (2) re-lease properties that are vacant, or may become vacant, at favorable rental rates and (3) earn fee income.
Although there have been signs of recovery in the overall economy, our business continues to be impacted in a number of ways by the uncertainty and volatility in the capital markets, including (1) a need to preserve capital, generate additional liquidity and improve our overall financial flexibility, (2) our ability to find attractive financing, (3) challenges in acquiring suitable property investments and (4) tenant uncertainty with respect to future space needs. Since 2010, we have seen an increase in acquisition opportunities. In 2011 and 2010, we acquired and/or engaged in build-to-suit projects encompassing an aggregate 3.3 million square feet. Since 2010, we have seen a slight strengthening in the availability of capital; however, it is difficult for us to predict when the economy will fully recover.
In an effort to diversify, we invest across the United States in properties leased to tenants in various industries, including finance/insurance, automotive, energy, technology and consumer products. However, industry declines, to the extent we have concentration, and general economic declines could negatively impact our results of operations and cash flows.
In addition to corporate level borrowings, none of which matures in 2012 or 2013 as of the date of filing this Annual Report, we have consolidated property specific non-recourse mortgage debt with an aggregate of $147.9 million and $234.9 million in balloon payments that are to be paid in 2012 and 2013, respectively.
Business Strategy. Our current business strategy is focused on maintaining a strong balance sheet and improving our long-term growth prospectus. See “Business” in Part I, Item 1 of this Annual Report for a detailed description of our current business strategy.
We believe a positive impact is resulting from our business strategy. In 2011, 2010 and 2009, we reduced our overall consolidated indebtedness by $119.3 million, $300.3 million and $305.6 million, respectively, primarily (1) by repurchasing our 5.45% Exchangeable Guaranteed Notes and (2) through the sale, transfer or other disposition of properties to third parties and lenders. We expect our business strategy will enable us to continue to improve our liquidity and strengthen our overall balance sheet. We believe liquidity and a strong balance sheet will allow us to take advantage of attractive investment opportunities as they arise, which will create meaningful shareholder value.
Investment Trends. Making investments in income producing single-tenant real estate assets is one of our primary focuses. The challenge we face is finding investments that will provide an attractive return without compromising our real estate underwriting criteria. We believe we have access to acquisition opportunities due to our relationships with developers, brokers, corporate users and sellers. When we acquire real estate assets, we look for general purpose office and industrial real estate assets subject to a long-term net lease which have one or more of the following characteristics (1) a credit-worthy tenant, (2) adaptability to a variety of users, including multi-tenant use and (3) an attractive geographic location.
During 2009 and 2008, acquisition activity decreased as we focused on retiring senior debt and preferred securities. In response to the compression in capitalization rates, we refocused our efforts into (1) repurchasing our senior debt at what we believe were attractive and secure yields to maturity and (2) disposing of real estate assets in compliance with regulatory and contractual requirements. Beginning in the fourth quarter of 2009, we began to see an increase in our acquisition activity as evidenced by the acquisition of an office property in Greenville, South Carolina.
Our acquisition volume for 2011 and 2010 consisted primarily of build-to-suit transactions whereby we (1) engage in build-to-suit transactions, or (2) provide capital to developers who are engaged in, build-to-suit transactions and/or (3) commit to purchase the property from developers upon completion. We believe these arrangements offer developers and/or tenants access to capital while simultaneously providing us with attractive risk-adjusted projected yields. We generally mitigate our cost exposure by requiring purchase agreements, development agreements and/or loan agreements to specify a maximum price and/or loan commitment amount prior to execution of the agreement. Cost overruns are generally the responsibility of the developer, or in some cases the prospective tenant. We believe we perform stringent underwriting procedures to ensure that our investments are not subject to compromise such as, among other items, (1) requiring payment and performance bonds and/or completion guarantees from developers and/or contractors; (2) engaging third-party construction managers and/or engineers to monitor construction progress and quality; (3) only hiring developers with a proven history of performance; (4) requiring developers to provide financial statements and in some cases personal guarantees from principals; (5) acquiring detailed plans and constructions budgets; (6) requiring a long-term tenant lease to be executed prior to funding; and (7) leveling liens on the property to the extent of construction funding.
The following is a summary of our 2011 and 2010 build-to-suit transactions and property acquisitions:
Build-to-Suit Transactions
|
| | | | | | | | | | | |
Location | | Property Type | | Square Feet (000's) | | Capitalized Cost/Maximum Commitment (millions) | | Date Acquired/Estimated Completion Date |
Byhalia, MS | | Industrial | | 514 |
| | $ | 27.5 |
| | 2Q 2011 |
Shelby, NC | | Industrial | | 674 |
| | 23.5 |
| | 2Q 2011 |
Huntington, WV | | Office | | 70 |
| | 12.6 |