Document

 
 
 
 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2016.
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________________ to ________________
Commission File Number
1-12386 (Lexington Realty Trust)
33-04215 (Lepercq Corporate Income Fund L.P.)
 LEXINGTON REALTY TRUST
LEPERCQ CORPORATE INCOME FUND L.P.
(Exact name of registrant as specified in its charter)
Maryland (Lexington Realty Trust)
13-3717318 (Lexington Realty Trust)
Delaware (Lepercq Corporate Income Fund L.P.)
13-3779859 (Lepercq Corporate Income Fund L.P.)
(State or other jurisdiction of
incorporation of organization)
(I.R.S. Employer
Identification No.)
One Penn Plaza, Suite 4015, New York, NY 10119-4015
(Address of principal executive offices) (zip code)
(212) 692-7200
(Registrant's telephone number, including area code)
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.
Lexington Realty Trust
 Yes x   No ¨
Lepercq Corporate Income Fund L.P.
 Yes x   No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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). 
Lexington Realty Trust
 Yes x   No ¨
Lepercq Corporate Income Fund L.P.
 Yes x   No ¨
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.
Lexington Realty Trust:
 
 
 
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
 
 
(Do not check if a smaller reporting company)
 
Lepercq Corporate Income Fund L.P.:
 
 
 
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
Smaller reporting company ¨
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Lexington Realty Trust
 Yes ¨   No x
Lepercq Corporate Income Fund L.P.
 Yes ¨   No x
Indicate the number of shares outstanding of each of Lexington Realty Trust's classes of common stock, as of the latest practicable date: 237,091,561 common shares of beneficial interest, par value $0.0001 per share, as of November 2, 2016.
 
 
 
 
 
 
 
 
 
 


EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the period ended September 30, 2016, which we refer to as this Quarterly Report, of (1) Lexington Realty Trust, which we refer to as the Company or the Trust, and subsidiaries and (2) Lepercq Corporate Income Fund L.P., which we refer to as the Partnership or LCIF, and subsidiaries. Unless stated otherwise or the context otherwise requires, (1) “we,” “our,” and “us” refer collectively to the Company and its consolidated subsidiaries, including LCIF and its consolidated subsidiaries, and (2) LCIF or the Partnership refers to LCIF and its consolidated subsidiaries. All of the Company's and LCIF's interests in properties are held, and all property operating activities are conducted, through special purpose entities, which we refer to as property owner subsidiaries or lender subsidiaries, which are separate and distinct legal entities, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes.

The Company is the sole equity owner of (1) Lex GP-1 Trust, or Lex GP, a Delaware statutory trust, and (2) Lex LP-1 Trust, or Lex LP, a Delaware statutory trust.  The Company, through Lex GP and Lex LP, holds, as of September 30, 2016, approximately 96.0% of LCIF's outstanding units of limited partner interest, which we refer to as OP units. The remaining OP units are beneficially owned by E. Robert Roskind, Chairman of the Trust, and certain non-affiliated investors. As the sole equity owner of LCIF’s general partner, the Company has the ability to control all of LCIF’s day-to-day operations subject to the terms of LCIF’s partnership agreement.

OP units not owned by LXP are accounted for as partners’ capital in LCIF’s consolidated financial statements and as noncontrolling interests in the Trust’s consolidated financial statements.

We believe it is important to understand the differences between the Trust and LCIF in the context of how the Trust and LCIF operate as an interrelated, consolidated company. The Trust’s and LCIF’s businesses are substantially the same; except that LCIF is dependent on the Trust for management of LCIF’s operations and future investments as LCIF does not have any employees, executive officers or a board of directors.  

The Trust also invests in assets and conducts business directly and through other subsidiaries.  The Trust allocates investments to itself and its other subsidiaries or LCIF as it deems appropriate and in accordance with certain obligations under LCIF’s partnership agreement with respect to allocations of non-recourse liabilities. The Trust and LCIF are co-borrowers under the Trust’s unsecured revolving credit facility and unsecured term loans.  LCIF is a guarantor of the Trust’s publicly-traded debt securities.  

We believe combining the quarterly reports on Form 10-Q of the Trust and LCIF into this single report results in the following benefits:

•
combined reports better reflect how management and the analyst community view the business as a single operating unit;
•
combined reports enhance investors’ understanding of the Trust and LCIF by enabling them to view the business as a whole and in the same manner as management;
•
combined reports are more efficient for the Trust and LCIF and result in savings in time, effort and expense; and
•
combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Trust and LCIF, this Quarterly Report separately presents the following for each of the Trust and LCIF: (1) the consolidated financial statements and the notes thereto, (2) Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, (3) Part I, Item 4. Controls and Procedures, and (4) Exhibit 31 and Exhibit 32 certifications.


2

TABLE OF CONTENTS

PART I. — FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II — OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 

WHERE YOU CAN FIND MORE INFORMATION:
We file and furnish annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, which we refer to as the SEC. You may read and copy any materials that we file or furnish with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We file and furnish information electronically with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file or furnish electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov. We also maintain a web site at http://www.lxp.com through which you can obtain copies of documents that we file or furnish with the SEC. The contents of that web site are not incorporated by reference in or otherwise a part of this Quarterly Report on Form 10-Q or any other document that we file or furnish with the SEC.


3
Table of Contents


PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
 
September 30, 2016
 
December 31, 2015
Assets:
 
 
 
Real estate, at cost
$
3,459,784

 
$
3,789,711

Real estate - intangible assets
598,359

 
692,778

Investments in real estate under construction
137,576

 
95,402

 
4,195,719

 
4,577,891

Less: accumulated depreciation and amortization
1,201,043

 
1,179,969

Real estate, net
2,994,676

 
3,397,922

Assets held for sale
29,819

 
24,425

Cash and cash equivalents
117,791

 
93,249

Restricted cash
42,387

 
10,637

Investment in and advances to non-consolidated entities
63,963

 
31,054

Deferred expenses, net
34,697

 
42,000

Loans receivable, net
95,808

 
95,871

Rent receivable – current
8,875

 
7,193

Rent receivable – deferred
22,843

 
87,547

Other assets
39,092

 
18,505

Total assets
$
3,449,951

 
$
3,808,403

 
 
 
 
Liabilities and Equity:
 

 
 

Liabilities:
 

 
 

Mortgages and notes payable, net
$
757,718

 
$
872,643

Revolving credit facility borrowings
—

 
177,000

Term loans payable, net
500,839

 
500,076

Senior notes payable, net
494,153

 
493,526

Convertible guaranteed notes payable, net
—

 
12,126

Trust preferred securities, net
127,071

 
126,996

Dividends payable
47,944

 
45,440

Liabilities held for sale
2,220

 
8,405

Accounts payable and other liabilities
30,796

 
41,479

Accrued interest payable
11,632

 
8,851

Deferred revenue - including below market leases, net
43,904

 
42,524

Prepaid rent
17,432

 
16,806

Total liabilities
2,033,709

 
2,345,872

 
 
 
 
Commitments and contingencies


 


Equity:
 

 
 

Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares:
 

 
 

Series C Cumulative Convertible Preferred, liquidation preference $96,770; 1,935,400 shares issued and outstanding
94,016

 
94,016

Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 237,083,452 and 234,575,225 shares issued and outstanding in 2016 and 2015, respectively
24

 
23

Additional paid-in-capital
2,788,966

 
2,776,837

Accumulated distributions in excess of net income
(1,481,484
)
 
(1,428,908
)
Accumulated other comprehensive loss
(4,883
)
 
(1,939
)
Total shareholders’ equity
1,396,639

 
1,440,029

Noncontrolling interests
19,603

 
22,502

Total equity
1,416,242

 
1,462,531

Total liabilities and equity
$
3,449,951

 
$
3,808,403

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

4

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except share and per share data)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Gross revenues:
 
 
 
 
 
 
 
Rental
$
98,952

 
$
98,095

 
$
304,158

 
$
300,551

Tenant reimbursements
7,379

 
7,343

 
23,366

 
23,662

Total gross revenues
106,331

 
105,438

 
327,524

 
324,213

Expense applicable to revenues:
 

 
 

 
 

 
 

Depreciation and amortization
(40,288
)
 
(39,712
)
 
(124,687
)
 
(121,795
)
Property operating
(11,472
)
 
(13,484
)
 
(34,843
)
 
(45,600
)
General and administrative
(7,510
)
 
(6,734
)
 
(23,032
)
 
(22,526
)
Non-operating income
3,080

 
2,515

 
9,500

 
8,213

Interest and amortization expense
(23,001
)
 
(21,931
)
 
(68,573
)
 
(68,273
)
Debt satisfaction gains (charges), net
2,538

 
(398
)
 
(818
)
 
13,753

Impairment charges
(72,890
)
 
(32,818
)
 
(75,904
)
 
(34,070
)
Gains on sales of properties
16,072

 
1,733

 
58,413

 
23,307

Income (loss) before provision for income taxes, equity in earnings of non-consolidated entities and discontinued operations
(27,140
)
 
(5,391
)
 
67,580

 
77,222

Provision for income taxes
(462
)
 
(75
)
 
(1,099
)
 
(464
)
Equity in earnings of non-consolidated entities
340

 
266

 
6,394

 
938

Income (loss) from continuing operations
(27,262
)
 
(5,200
)
 
72,875

 
77,696

Discontinued operations:
 

 
 

 
 

 
 

Income from discontinued operations
—

 
—

 
—

 
109

Provision for income taxes
—

 
—

 
—

 
(4
)
Gain on sale of property
—

 
—

 
—

 
1,577

Total discontinued operations
—

 
—

 
—

 
1,682

Net income (loss)
(27,262
)
 
(5,200
)
 
72,875

 
79,378

Less net (income) loss attributable to noncontrolling interests
2,232

 
(784
)
 
340

 
(2,525
)
Net income (loss) attributable to Lexington Realty Trust shareholders
(25,030
)
 
(5,984
)
 
73,215

 
76,853

Dividends attributable to preferred shares – Series C
(1,573
)
 
(1,573
)
 
(4,718
)
 
(4,718
)
Allocation to participating securities
(50
)
 
(72
)
 
(187
)
 
(264
)
Net income (loss) attributable to common shareholders
$
(26,653
)
 
$
(7,629
)
 
$
68,310

 
$
71,871

Income (loss) per common share – basic:
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
(0.11
)
 
$
(0.03
)
 
$
0.29

 
$
0.30

Income from discontinued operations
—

 
—

 
—

 
0.01

Net income (loss) attributable to common shareholders
$
(0.11
)
 
$
(0.03
)
 
$
0.29

 
$
0.31

Weighted-average common shares outstanding – basic
234,207,396

 
234,018,062

 
233,151,600

 
233,457,400

Income (loss) per common share – diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.11
)
 
$
(0.03
)
 
$
0.28

 
$
0.30

Income from discontinued operations
—

 
—

 
—

 
0.01

Net income (loss) attributable to common shareholders
$
(0.11
)
 
$
(0.03
)
 
$
0.28

 
$
0.31

Weighted-average common shares outstanding – diluted
234,207,396

 
234,018,062

 
237,215,883

 
233,776,838

Amounts attributable to common shareholders:    
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
(26,653
)
 
$
(7,629
)
 
$
68,310

 
$
70,189

Income from discontinued operations
—

 
—

 
—

 
1,682

Net income (loss) attributable to common shareholders
$
(26,653
)
 
$
(7,629
)
 
$
68,310

 
$
71,871

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

5
Table of Contents


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited and in thousands)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
(27,262
)
 
$
(5,200
)
 
$
72,875

 
$
79,378

Other comprehensive income (loss):
 

 
 

 
 

 
 

Change in unrealized gain (loss) on interest rate swaps, net
2,637

 
(3,990
)
 
(2,944
)
 
(6,620
)
Other comprehensive income (loss)
2,637

 
(3,990
)
 
(2,944
)
 
(6,620
)
Comprehensive income (loss)
(24,625
)
 
(9,190
)
 
69,931

 
72,758

Comprehensive (income) loss attributable to noncontrolling interests
2,232

 
(784
)
 
340

 
(2,525
)
Comprehensive income (loss) attributable to Lexington Realty Trust shareholders
$
(22,393
)
 
$
(9,974
)
 
$
70,271

 
$
70,233

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

6
Table of Contents


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited and in thousands)

Nine Months ended September 30, 2016
 
Lexington Realty Trust Shareholders
 
 
 
Total
 
Preferred Shares
 
Common Shares
 
Additional Paid-in-Capital
 
Accumulated Distributions in Excess of Net Income
 
Accumulated Other Comprehensive Loss
 
Noncontrolling Interests
Balance December 31, 2015
$
1,462,531

 
$
94,016

 
$
23

 
$
2,776,837

 
$
(1,428,908
)
 
$
(1,939
)
 
$
22,502

Issuance of common shares upon conversion of convertible notes
12,027

 
—

 
—

 
12,027

 
—

 
—

 
—

Repurchase of common shares
(8,973
)
 
—

 
—

 
(8,973
)
 
—

 
—

 
—

Redemption of noncontrolling OP units for common shares
—

 
—

 
—

 
31

 
—

 
—

 
(31
)
Issuance of common shares and deferred compensation amortization, net
9,045

 
—

 
1

 
9,044

 
—

 
—

 
—

Dividends/distributions
(128,319
)
 
—

 
—

 
—

 
(125,791
)
 
—

 
(2,528
)
Net income (loss)
72,875

 
—

 
—

 
—

 
73,215

 
—

 
(340
)
Other comprehensive loss
(2,944
)
 
—

 
—

 
—

 
—

 
(2,944
)
 
—

Balance September 30, 2016
$
1,416,242

 
$
94,016

 
$
24

 
$
2,788,966

 
$
(1,481,484
)
 
$
(4,883
)
 
$
19,603



Nine Months ended September 30, 2015
 
Lexington Realty Trust Shareholders
 
 
 
Total
 
Preferred Shares
 
Common Shares
 
Additional Paid-in-Capital
 
Accumulated Distributions in Excess of Net Income
 
Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interests
Balance December 31, 2014
$
1,508,920

 
$
94,016

 
$
23

 
$
2,763,374

 
$
(1,372,051
)
 
$
404

 
$
23,154

Issuance of common shares upon conversion of convertible notes
3,630

 
—

 
—

 
3,630

 
—

 
—

 
—

Repurchase of common shares
(11,019
)
 
—

 
—

 
(11,019
)
 
—

 
—

 
—

Issuance of common shares and deferred compensation amortization, net
23,852

 
—

 
1

 
23,851

 
—

 
—

 
—

Acquisition of consolidated joint venture partner's equity interest
(1,234
)
 
—

 
—

 
—

 
(1,247
)
 
—

 
13

Dividends/distributions
(128,837
)
 
—

 
—

 
—

 
(125,972
)
 
—

 
(2,865
)
Net income
79,378

 
—

 
—

 
—

 
76,853

 
—

 
2,525

Other comprehensive loss
(6,620
)
 
—

 
—

 
—

 
—

 
(6,620
)
 
—

Balance September 30, 2015
$
1,468,070

 
$
94,016

 
$
24

 
$
2,779,836

 
$
(1,422,417
)
 
$
(6,216
)
 
$
22,827


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

7
Table of Contents


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
 
Nine Months ended September 30,
 
2016
 
2015
Net cash provided by operating activities:
$
180,583

 
$
181,475

Cash flows from investing activities:
 

 
 

Acquisition of real estate, including intangible assets
(70,297
)
 
(197,926
)
Investment in real estate under construction
(105,548
)
 
(94,287
)
Capital expenditures
(3,267
)
 
(18,744
)
Net proceeds from sale of properties
293,634

 
156,475

Principal payments received on loans receivable
214

 
4,334

Investment in loans receivable
—

 
(10,267
)
Investments in non-consolidated entities
(33,554
)
 
(10,322
)
Distributions from non-consolidated entities in excess of accumulated earnings
7,299

 
1,171

Increase in deferred leasing costs
(6,165
)
 
(4,242
)
Change in restricted cash
(32,450
)
 
3,596

Real estate deposits, net
(20,566
)
 
(2,634
)
Net cash provided by (used in) investing activities
29,300

 
(172,846
)
Cash flows from financing activities:
 

 
 

Dividends to common and preferred shareholders
(123,287
)
 
(123,529
)
Principal amortization payments
(20,887
)
 
(26,760
)
Principal payments on debt, excluding normal amortization
(103,473
)
 
(106,956
)
Retirement of convertible notes
(672
)
 
(529
)
Change in revolving credit facility borrowings, net
(177,000
)
 
73,000

Payment of developer liabilities
(4,016
)
 
—

Change in restricted cash
—

 
(1,573
)
Change in deferred financing costs
(1,841
)
 
(7,339
)
Proceeds of mortgages and notes payable
254,650

 
80,843

Cash distributions to noncontrolling interests
(2,528
)
 
(2,865
)
Purchase of noncontrolling interest
—

 
(4,022
)
Issuance of common shares, net
2,686

 
17,312

Repurchase of common shares
(8,973
)
 
(11,019
)
Net cash used in financing activities
(185,341
)
 
(113,437
)
Change in cash and cash equivalents
24,542

 
(104,808
)
Cash and cash equivalents, at beginning of period
93,249

 
191,077

Cash and cash equivalents, at end of period
$
117,791

 
$
86,269


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

8
Table of Contents

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)


(1)
The Company and Financial Statement Presentation
Lexington Realty Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland real estate investment trust (“REIT”) that owns a diversified portfolio of equity and debt investments in single-tenant commercial properties. A majority of these properties are subject to net or similar leases, where the tenant bears all or substantially all of the costs, including cost increases, for real estate taxes, utilities, insurance and ordinary repairs. However, certain leases provide that the landlord is responsible for certain operating expenses.
The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the Company will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain activities historically prohibited for REITs in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS are subject to federal income taxes on the income from these activities.
As of September 30, 2016, the Company had ownership interests in approximately 200 consolidated real estate properties, located in 40 states. The properties in which the Company has an interest are leased to tenants in various industries.
The Company conducts its operations either directly or indirectly through (1) property owner subsidiaries and lender subsidiaries, which are single purpose entities, (2) an operating partnership, Lepercq Corporate Income Fund L.P. (“LCIF”), in which the Company is the sole unit holder of the general partner and the sole unit holder of the limited partner that holds a majority of the limited partner interests, (3) a wholly-owned TRS, and (4) investments in joint ventures. References to “OP units” refer to units of limited partner interests in LCIF. Property owner subsidiaries are landlords under leases for properties in which the Company has an interest and/or borrowers under loan agreements secured by properties in which the Company has an investment and lender subsidiaries are lenders under loan agreements where the Company made an investment in a loan asset, but in all cases are separate and distinct legal entities. Each property owner subsidiary is a separate legal entity that maintains separate books and records. The assets and credit of each property owner subsidiary with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other property owner subsidiary or any other affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member or managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interest therein, which interests are subordinate to the claims of such property owner subsidiary's (or its general partner's, member's or managing member's) creditors.
The financial statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) for the three and nine months ended September 30, 2016 have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2015 filed with the SEC on February 25, 2016 (“Annual Report”).
Basis of Presentation and Consolidation. The Company's unaudited condensed consolidated financial statements are prepared on the accrual basis of accounting in accordance with GAAP. The financial statements reflect the accounts of the Company and its consolidated subsidiaries.

9
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

On January 1, 2016, the Company adopted Accounting Standards Update (“ASU”) 2015-02 (Topic 810), Amendments to the Consolidation Analysis, modifying the analysis it must perform to determine whether it should consolidate certain types of legal entities. The guidance does not amend the existing disclosure requirements for variable interest entities (“VIEs”) or voting interest model entities. The adoption of this guidance had no impact on consolidated entities included in the Company's unaudited consolidated financial statements as all entities previously consolidated are still consolidated and all entities previously not consolidated are still not consolidated. However, under the revised guidance, the Company determined that certain affiliated limited partnerships and similar entities are now considered, by definition, VIEs. These entities were determined to be VIEs as the unaffiliated partners/members did not have simple majority substantive kick-out rights or participating rights.
The Company determined that it was the primary beneficiary of certain VIEs as it has a controlling financial interest in these entities. LCIF, which continues to be consolidated and in which the Company has an approximate 96% interest, was determined to be a VIE under this new guidance. See the consolidated financial statements of LCIF included within this Quarterly Report.
The Company has a joint venture limited partnership with a developer which is a consolidated VIE. The joint venture is developing an office campus in Lake Jackson, Texas. The Company currently has a 100% interest in the joint venture; however, the developer has certain protective rights, and, upon project completion, the developer will be credited with a notional capital account for a profit interest and certain cost savings. As of September 30, 2016 and December 31, 2015, the joint venture had $101,203 and $62,353, respectively, in real estate under construction.
The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of September 30, 2016, the VIEs' mortgages and notes payable are non-recourse to the Company. Below is a summary of selected financial data of consolidated VIEs for which the Company is the primary beneficiary included in the consolidated balance sheets as of September 30, 2016 and December 31, 2015:
 
September 30, 2016
 
December 31, 2015
Real estate, net
$
720,670

 
$
1,072,463

Total assets
$
890,025

 
$
1,192,944

Mortgages and notes payable, net
$
364,953

 
$
431,599

Total liabilities
$
384,380

 
$
448,057

Use of Estimates. Management has made a number of significant estimates and assumptions to prepare these unaudited condensed consolidated financial statements in conformity with GAAP, including, among others, those relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable, the allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the determination of VIEs and which entities should be consolidated, the determination of impairment of long-lived assets, loans receivable and equity method investments, the valuation of derivative financial instruments, the valuation of compensation plans and the useful lives of long-lived assets. Actual results could differ materially from those estimates.

10
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

Fair Value Measurements. The Company follows the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, as amended (“Topic 820”), to determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk. The Company has formally elected to apply the portfolio exception within Topic 820 with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements.
Acquisition, Development and Construction Arrangements. The Company evaluates loans receivable where the Company participates in residual profits through loan provisions or other contracts to ascertain whether the Company has the same risks and rewards as an owner or a joint venture partner. Where the Company concludes that such arrangements are more appropriately treated as an investment in real estate, the Company reflects such loan receivable as an equity investment in real estate under construction in the unaudited condensed consolidated balance sheets. In these cases, no interest income is recorded on the loan receivable and the Company capitalizes interest during the construction period. In arrangements where the Company engages a developer to construct a property or provides funds to a tenant to develop a property, the Company will capitalize the funds provided to the developer/tenant and internal costs of interest and real estate taxes, if applicable, during the construction period.
Reclassifications. Certain amounts included in the 2015 unaudited condensed consolidated financial statements have been reclassified to conform to the 2016 presentation.
The Company adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, on January 1, 2016. ASU 2015-03 amended presentation guidance by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  Prior to the issuance of ASU 2015-03, debt issuance costs were presented as an asset in the balance sheet. As shown in the table below and pursuant to the guidance in ASU 2015-03, the Company has reclassified unamortized debt issuance costs associated with certain debt obligations in the Company's previously reported consolidated balance sheet as of December 31, 2015 as follows:
 
As previously reported December 31, 2015
 
Reclassifications
 
As adjusted December 31, 2015
Deferred expenses, net
$
63,832

 
$
(21,832
)
 
$
42,000

Mortgages and notes payable, net
882,952

 
(10,309
)
 
872,643

Term loans payable, net
505,000

 
(4,924
)
 
500,076

Senior notes payable, net
497,947

 
(4,421
)
 
493,526

Convertible guaranteed notes payable, net
12,180

 
(54
)
 
12,126

Trust preferred securities, net
129,120

 
(2,124
)
 
126,996


11
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

Recently Issued Accounting Guidance. In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for reporting discontinued operations and improves financial statement disclosures. Under this guidance, only disposals representing a strategic shift in operations that have a major effect on an organization's operations and financial results should be presented as discontinued operations. The Company adopted this guidance effective January 1, 2015. The guidance requires the Company to continue to classify any property disposal or property classified as held for sale as of December 31, 2014 as discontinued operations prospectively. Therefore, the revenues and expenses related to these properties are presented as discontinued operations. The Company did not classify any additional properties as discontinued operations subsequent to December 31, 2014, as the dispositions did not represent a strategic shift in operations. The implementation of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the guidance for revenue recognition to eliminate the industry-specific revenue recognition guidance and replace it with a principle-based approach for determining revenue recognition. The effective date of the new guidance was updated by ASU 2015-14 and is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right of use asset and related lease liability for those leases classified as operating leases at the commencement date that have lease terms of more than 12 months. The accounting applied to lessors under this new guidance is largely unchanged from prior guidance. Lessors in most cases will continue to record operating leases as operating leases and recognize lease income from those leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, and requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation-Improvements to Employee Share-Based Payment Accounting (Topic 718), which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period, however early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements, which requires more timely recognition of credit losses associated with financial assets. The ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those years; however early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.

12
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(2)
Earnings Per Share
A portion of the Company's non-vested share-based payment awards are considered participating securities and as such, the Company is required to use the two-class method for the computation of basic and diluted earnings per share. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The non-vested share-based payment awards are not allocated losses as the awards do not have a contractual obligation to share in losses of the Company.
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three and nine months ended September 30, 2016 and 2015:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
BASIC
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to common shareholders
$
(26,653
)
 
$
(7,629
)
 
$
68,310

 
$
70,189

Income from discontinued operations attributable to common shareholders
—

 
—

 
—

 
1,682

Net income (loss) attributable to common shareholders
$
(26,653
)
 
$
(7,629
)
 
$
68,310

 
$
71,871

Weighted-average number of common shares outstanding - basic
234,207,396

 
234,018,062

 
233,151,600

 
233,457,400

Income (loss) per common share:
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
(0.11
)
 
$
(0.03
)
 
$
0.29

 
$
0.30

Income from discontinued operations
—

 
—

 
—

 
0.01

Net income (loss) attributable to common shareholders
$
(0.11
)
 
$
(0.03
)
 
$
0.29

 
$
0.31

 
 
 
 
 
 
 
 
DILUTED
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to common shareholders - basic
$
(26,653
)
 
$
(7,629
)
 
$
68,310

 
$
70,189

Impact of assumed conversions
—

 
—

 
(1,083
)
 
—

Income (loss) from continuing operations attributable to common shareholders
(26,653
)
 
(7,629
)
 
67,227

 
70,189

Income from discontinued operations attributable to common shareholders - basic
—

 
—

 
—

 
1,682

Impact of assumed conversions
—

 
—

 
—

 
—

Income from discontinued operations attributable to common shareholders
—

 
—

 
—

 
1,682

Net income (loss) attributable to common shareholders
$
(26,653
)
 
$
(7,629
)
 
$
67,227

 
$
71,871

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding - basic
234,207,396

 
234,018,062

 
233,151,600

 
233,457,400

Effect of dilutive securities:
 
 
 
 
 
 
 
Share options
—

 
—

 
246,166

 
319,438

OP Units
—

 
—

 
3,818,117

 
—

Weighted-average common shares outstanding - diluted
234,207,396

 
234,018,062

 
237,215,883

 
233,776,838

 
 
 
 
 
 
 
 
Income (loss) per common share:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.11
)
 
$
(0.03
)
 
$
0.28

 
$
0.30

Income from discontinued operations
—

 
—

 
—

 
0.01

Net income (loss) attributable to common shareholders
$
(0.11
)
 
$
(0.03
)
 
$
0.28

 
$
0.31


13
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

For per common share amounts, all incremental shares are considered anti-dilutive for periods that have a loss from continuing operations attributable to common shareholders. In addition, other common share equivalents may be anti-dilutive in certain periods.
(3)
Investments in Real Estate and Real Estate Under Construction
The Company completed the following consolidated acquisition and build-to-suit arrangements during the nine months ended September 30, 2016:
Property Type
Location
Acquisition Date
Initial
Cost
Basis
Lease Expiration
Land and Land Estate
 
Building and Improvements
 
Lease in-place Value Intangible
 
Below Market Lease Intangible
Industrial
Detroit, MI
January 2016
$
29,697

10/2035
$
1,133

 
$
25,009

 
$
3,555

 
$
—

Industrial
Anderson, SC
June 2016
61,347

06/2036
4,663

 
45,011

 
11,673

 
—

Industrial
Wilsonville, OR
September 2016
43,100

10/2032
6,815

 
32,380

 
5,920

 
(2,015
)
 
 
 
$
134,144

 
$
12,611

 
$
102,400

 
$
21,148

 
$
(2,015
)

The Company recognized aggregate transaction costs of $329 and $1,119 for the nine months ended September 30, 2016 and 2015, respectively, which are included as property operating expenses within the Company's unaudited condensed consolidated statements of operations.
The Company is engaged in various forms of build-to-suit development activities. The Company, through lender subsidiaries and property owner subsidiaries, may enter into the following acquisition, development and construction arrangements: (1) lend funds to construct a build-to-suit project subject to a single-tenant lease with an agreement to purchase the property upon completion of construction and commencement of the single-tenant lease, (2) hire a developer to construct a built-to-suit project on owned property leased to a single tenant, (3) fund the construction of a build-to-suit project on owned property pursuant to the terms of a single-tenant lease or (4) enter into a purchase and sale agreement with a developer to acquire a single-tenant build-to-suit property upon completion of construction and commencement of a single-tenant lease.
As of September 30, 2016, the Company had the following development arrangements outstanding:
Location
Property Type
Square Feet
 
Expected Maximum Commitment/Contribution
 
Lease Term (Years)
 
Estimated Completion/Acquisition Date
 
GAAP Investment Balance as of 9/30/2016
Lake Jackson, TX(1)
Office
664,000

 
$
166,164

 
20
 
4Q 16/1Q 17
 
$
101,203

Charlotte, NC
Office
201,000

 
62,445

 
15
 
1Q 17
 
32,613

Opelika, AL
Industrial
165,000

 
37,000

 
25
 
2Q 17
 
3,760

 
 
1,030,000

 
$
265,609

 
 
 
 
 
$
137,576

(1)Joint venture arrangement with developer. The Company currently has a 100% economic interest in the joint venture.
As of September 30, 2016 and December 31, 2015, the Company's aggregate investment in development arrangements was $137,576 and $95,402, respectively, which included $5,180 and $2,726 of capitalized interest, respectively, and is presented as investments in real estate under construction in the accompanying unaudited condensed consolidated balance sheets.
The Company can give no assurances that any of these development arrangements will be consummated or, if consummated, will perform to the Company's expectations.

14
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(4)
Property Dispositions, Discontinued Operations and Real Estate Impairment
During the nine months ended September 30, 2016, the Company disposed of its interests in various properties, including land investments, for an aggregate gross sales price of $561,817 and conveyed a vacant office property along with its escrow deposits in satisfaction of a $14,118 non-recourse secured mortgage loan, however, the lender has brought a claim under the related non-recourse carve out guaranty. During the nine months ended September 30, 2015, the Company disposed of its interest in various properties for an aggregate gross sales price of $217,675 and conveyed certain properties along with their escrow deposits in satisfaction of a $30,293 non-recourse secured mortgage loan. In addition, during the nine months ended September 30, 2015, the Company disposed of a vacant retail property, with a zero basis, upon the expiration of the related ground lease. Also, during the nine months ended September 30, 2016 and 2015, in connection with the sale of certain properties, the purchasers assumed an aggregate $242,269 and $55,000, respectively, of non-recourse mortgage debt.
During the nine months ended September 30, 2016 and 2015, the Company recognized aggregate gains on sales of properties of $58,413 and $24,884, respectively. In addition, during the nine months ended September 30, 2016 and 2015, the Company recognized aggregate debt satisfaction gains (charges), net of $(381) and $10,106, respectively, relating to disposed properties. During the nine months ended September 30, 2016 and 2015, the Company recognized aggregate impairment charges of $69,353 and $34,070, respectively, relating to properties that were ultimately disposed. The impairment charges recognized during the nine months ended September 30, 2016 include an impairment charge of $65,500 recognized on the sale of three land investments in New York, New York. The land investments were subject to 99-year leases with annual escalations and the aggregate deferred rent receivable balance at the date of sale of $91,213 was written off.
The results of operations for properties disposed of in 2016 and 2015, that were not classified as held for sale as of December 31, 2014, are included within continuing operations in the unaudited condensed consolidated financial statements. As of September 30, 2016 and December 31, 2015, the Company had three and two properties, respectively, classified as held for sale.
Assets and liabilities of held for sale properties as of September 30, 2016 and December 31, 2015 consisted of the following:
 
September 30, 2016
 
December 31, 2015
Assets:
 
 
 
Real estate, at cost
$
31,312

 
$
16,590

Real estate, intangible assets
7,638

 
10,786

Accumulated depreciation and amortization
(11,876
)
 
(4,069
)
Rent receivable - deferred
2,016

 
1,118

Deferred leasing costs, net
610

 
—

Other assets
119

 
—

 
$
29,819

 
$
24,425

 
 
 
 
Liabilities:
 
 
 
Mortgage payable
$
—

 
$
8,373

Other
2,220

 
32

 
$
2,220

 
$
8,405

The Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability and the potential sale or transfer of the property in the near future. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value. As a result, during the nine months ended September 30, 2016, the Company recognized additional impairment charges of $6,551. The Company determined that the expected undiscounted cash flows based upon the revised estimated holding periods of certain individual assets were below the individual asset's carrying value.

15
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(5)
Loans Receivable
As of September 30, 2016 and December 31, 2015, the Company's loans receivable were comprised primarily of mortgage loans on real estate.
The following is a summary of our loans receivable as of September 30, 2016 and December 31, 2015:
 
Loan carrying-value(1)
 
 
 
Loan
 
9/30/2016
 
12/31/2015
 
Interest Rate
 
Maturity Date
Kennewick, WA(2)
 
$
85,657

 
$
85,505

 
9.00
%
 
05/2022
Oklahoma City, OK(3)
 
8,501

 
8,501

 
11.50
%
 
03/2016
Other
 
1,650

 
1,865

 
8.00
%
 
2021-2022
 
 
$
95,808

 
$
95,871

 
 
 
 
(1)
Loan carrying value includes accrued interest and is net of origination costs, if any.
(2)
Loan provides for a current pay rate of 8.75%, an accrual rate of 9.0% and a balloon of $87,245 at maturity.
(3)
In June 2015, the Company loaned a tenant-in-common $8,420. The loan is secured by the tenant-in-common's interest in an office property, in which the Company has a 40% tenant-in-common interest. The loan was in default as of September 30, 2016 and the Company is exercising its remedies.

The Company has one type of financing receivable, loans receivable secured by interests in commercial real estate. The Company determined that its financing receivables operated within one portfolio segment as they were within the same industry and used the same impairment methodology. In addition, the Company assesses all financing receivables for impairment, when warranted, based on an individual analysis of each receivable.
The Company's financing receivables operate within one class of financing receivables as these assets (1) are collateralized by commercial real estate and (2) similar metrics are used to monitor the risk and performance of these assets. The Company's management uses credit quality indicators to monitor financing receivables such as quality of collateral, the underlying tenant's credit rating and collection experience. As of September 30, 2016, the financing receivables were performing as anticipated and there were no significant delinquent amounts outstanding, other than the maturity default of the borrower of the Oklahoma City, Oklahoma loan, for which the Company believes its collateral is sufficient to recover the full amount of the receivable.
(6)
Fair Value Measurements
The following tables present the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2016 and December 31, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall:
 
Balance
 
Fair Value Measurements Using
Description
September 30, 2016
 
(Level 1)
 
(Level 2)
 
(Level 3)
Interest rate swap liabilities
$
(4,883
)
 
$
—

 
$
(4,883
)
 
$
—

Impaired real estate assets*
$
15,610

 
$
—

 
$
—

 
$
15,610

 
Balance
 
Fair Value Measurements Using
Description
December 31, 2015
 
(Level 1)
 
(Level 2)
 
(Level 3)
Interest rate swap assets
$
4

 
$
—

 
$
4

 
$
—

Impaired real estate assets*
$
3,015

 
$
—

 
$
—

 
$
3,015

Interest rate swap liabilities
$
(1,943
)
 
$
—

 
$
(1,943
)
 
$
—

*Represents a non-recurring fair value measurement.

16
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments as of September 30, 2016 and December 31, 2015.
 
As of September 30, 2016
 
As of December 31, 2015
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Assets
 
 
 
 
 
 
 
Loans Receivable
$
95,808

 
$
97,241

 
$
95,871

 
$
103,014

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

Debt
$
1,879,781

 
$
1,861,619

 
$
2,182,367

 
$
2,164,571

The majority of the inputs used to value the Company's interest rate swaps fall within Level 2 of the fair value hierarchy, such as observable market interest rate curves; however, the credit valuation associated with the interest rate swaps utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of September 30, 2016 and December 31, 2015, the Company determined that the credit valuation adjustment relative to the overall fair value of the interest rate swaps was not significant. As a result, the interest rate swaps have been classified in Level 2 of the fair value hierarchy.
The Company estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income and market valuation techniques. The Company may estimate fair values using market information such as broker opinions of value, recent sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. To the extent the Company under estimates forecasted cash outflows (tenant improvements, lease commissions and operating costs) or over estimates forecasted cash inflows (rental revenue rates), the estimated fair value of its real estate assets could be overstated.
The Company estimates the fair values of its loans receivable utilizing Level 3 inputs by using a discounted cash flow analysis consisting of scheduled cash flows and discount rate estimates to approximate those that a willing buyer and seller might use and/or the estimated value of the underlying collateral.
The fair value of the Company's debt is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis, based upon estimates of market interest rates. The Company determines the fair value of its senior notes payable and convertible guaranteed notes payable using market prices. The inputs used in determining the fair value of these notes are categorized as Level 1 due to the fact that the Company uses quoted market rates to value these instruments. However, the inputs used in determining the fair value could be categorized as Level 2 if trading volumes are low.
Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable. The Company estimates that the fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.

17
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(7)
Investment in and Advances to Non-Consolidated Entities
As of September 30, 2016, the Company had ownership interests ranging from 15% to 40% in certain non-consolidated entities, which primarily own single-tenant net-leased assets. The acquisitions of these assets by the non-consolidated entities were partially funded through non-recourse mortgage debt with an aggregate balance of $47,186 at September 30, 2016 (the Company's proportionate share was $8,502) with rates ranging from 3.7% to 4.7%. In January 2016, the Company received $6,681 in connection with the sale of a non-consolidated office property in Russellville, Arkansas. The Company recognized a gain of $5,378 relating to the sale, which is included in equity in earnings of non-consolidated entities.
In November 2014, the Company formed a joint venture to construct a private school in Houston, Texas. As of September 30, 2016, the Company had a 25% equity interest in the joint venture. The joint venture completed the project during the nine months ended September 30, 2016 for a total construction cost of $79,964. The Company is contractually obligated to provide construction financing to the joint venture up to $56,686, of which $43,106 had been funded as of September 30, 2016. The property is net leased for a 20-year term.
(8)
Debt
The Company had the following mortgages and notes payable outstanding as of September 30, 2016 and December 31, 2015:
 
September 30, 2016
 
December 31, 2015
Mortgages and notes payable
$
765,045

 
$
882,952

Unamortized debt issuance costs
(7,327
)
 
(10,309
)
 
$
757,718

 
$
872,643

Interest rates, including imputed rates on mortgages and notes payable, ranged from 2.2% to 7.8% at September 30, 2016 and December 31, 2015 and the mortgages and notes payables mature between 2016 and 2036 as of September 30, 2016. The weighted-average interest rate was 4.7% and 4.9% at September 30, 2016 and December 31, 2015, respectively.
The Company had the following senior notes outstanding as of September 30, 2016 and December 31, 2015:
Issue Date
 
September 30, 2016
 
December 31, 2015
 
Interest Rate
 
Maturity Date
 
Issue Price
May 2014
 
$
250,000

 
$
250,000

 
4.40
%
 
June 2024
 
99.883
%
June 2013
 
250,000

 
250,000

 
4.25
%
 
June 2023
 
99.026
%
 
 
500,000

 
500,000

 
 
 
 
 
 
Unamortized discount
 
(1,848
)
 
(2,053
)
 
 
 
 
 
 
Unamortized debt issuance cost
 
(3,999
)
 
(4,421
)
 
 
 
 
 
 
 
 
$
494,153

 
$
493,526

 
 
 
 
 
 
Each series of the senior notes is unsecured and requires payment of interest semi-annually in arrears. The Company may redeem the notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus a premium.

18
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The Company has a $905,000 unsecured credit agreement with KeyBank National Association, as agent. With lender approval, the Company can increase the size of the facility to an aggregate $1,810,000. A summary of the significant terms are as follows:
 

Maturity Date
 
Current
Interest Rate
$400,000 Revolving Credit Facility(1)
August 2019
 
LIBOR + 1.00%
$250,000 Term Loan(2)(4)
August 2020
 
LIBOR + 1.10%
$255,000 Term Loan(3)(4)
January 2021
 
LIBOR + 1.10%
(1)
Maturity date can be extended to August 2020 at the Company's option. The interest rate ranges from LIBOR plus 0.85% to 1.55%. At September 30, 2016, the revolving credit facility had no amounts outstanding and availability of $400,000, subject to covenant compliance.
(2)
The interest rate ranges from LIBOR plus 0.90% to 1.75%. The Company previously entered into aggregate interest-rate swap agreements to fix the LIBOR component at a weighted-average rate of 1.09% through February 2018 on the $250,000 of outstanding LIBOR-based borrowings.
(3)
The interest rate ranges from LIBOR plus 0.90% to 1.75%. The Company previously entered into aggregate interest-rate swap agreements to fix the LIBOR component at a weighted-average rate of 1.42% through January 2019 on the $255,000 of outstanding LIBOR-based borrowings.
(4)
The aggregate unamortized debt issuance costs for the term loans were $4,161 and $4,924 as of September 30, 2016 and December 31, 2015, respectively.

The Company was in compliance with all applicable financial covenants contained in its corporate level debt agreements at September 30, 2016.
During 2010, the Company issued $115,000 aggregate principal amount of 6.00% Convertible Guaranteed Notes due 2030. The notes paid interest semi-annually in arrears and were scheduled to mature in January 2030. The notes were fully satisfied/converted in 2016 and at September 30, 2016, no notes were outstanding. During the nine months ended September 30, 2016 and 2015, $12,400 and $3,828, respectively, aggregate principal amount of the notes were converted for 1,892,269 and 519,664 common shares, respectively, and aggregate cash payments of $672 and $529, respectively. The satisfactions/conversions resulted in debt satisfaction charges of $436 and $476 for the nine months ended September 30, 2016 and 2015, respectively.
During 2007, the Company issued $200,000 original principal amount of Trust Preferred Securities. The Trust Preferred Securities, which are classified as debt, are due in 2037, were open for redemption at the Company's option commencing April 2012 and bear interest at a fixed rate of 6.804% through April 2017 and thereafter, at a variable rate of three month LIBOR plus 170 basis points through maturity. As of September 30, 2016 and December 31, 2015, there was $129,120 original principal amount of Trust Preferred Securities outstanding and $2,049 and $2,124, respectively, of unamortized debt issuance costs.

During the nine months ended September 30, 2016 and 2015, in connection with the satisfaction of mortgage notes other than those disclosed elsewhere in these financial statements, the Company had debt satisfaction gains (charges), net of $(1) and $4,123, respectively.
(9)
Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the type, amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.

19
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

Cash Flow Hedges of Interest Rate Risk. The Company's objectives in using interest rate derivatives are to add stability to interest expense, to manage its exposure to interest rate movements and therefore manage its cash outflows as it relates to the underlying debt instruments. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy relating to certain of its variable-rate debt instruments. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company did not incur any ineffectiveness during the nine months ended September 30, 2016 and 2015.
The Company has designated the interest-rate swap agreements with its counterparties as cash flow hedges of the risk of variability attributable to changes in the LIBOR swap rate on $505,000 of LIBOR-indexed variable-rate unsecured term loans. Accordingly, changes in the fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the term loans. During the next 12 months, the Company estimates that an additional $2,943 will be reclassified as an increase to interest expense.
As of September 30, 2016, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Interest Rate Derivative
Number of Instruments
Notional
Interest Rate Swaps
10
$505,000
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the unaudited condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015.
 
As of September 30, 2016
 
As of December 31, 2015
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Interest Rate Swap Asset
 
 
 
 
Other Assets
 
$
4

Interest Rate Swap Liability
Accounts Payable and Other Liabilities
 
$
(4,883
)
 
Accounts Payable and Other Liabilities
 
$
(1,943
)
The tables below present the effect of the Company's derivative financial instruments on the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2016 and 2015.
Derivatives in Cash Flow
 
 
Amount of Loss Recognized
in OCI on Derivatives
(Effective Portion)
September 30,
 
Location of Loss
Reclassified from
Accumulated OCI into Income (Effective Portion)
 
Amount of Loss Reclassified
from Accumulated OCI into
Income (Effective Portion)
September 30,
Hedging Relationships
 
 
2016
 
2015
 
 
2016
 
2015
Interest Rate Swaps
 
 
$
(6,035
)
 
$
(10,742
)
 
Interest expense
 
$
3,091

 
$
4,122


20
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The Company's agreements with swap derivative counterparties contain provisions whereby if the Company defaults on the underlying indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of the swap derivative obligation. As of September 30, 2016, the Company had not posted any collateral related to the agreements.
(10)
Concentration of Risk
The Company seeks to reduce its operating and leasing risks through the geographic diversification of its properties, tenant industry diversification, avoidance of dependency on a single asset and the creditworthiness of its tenants. For the nine months ended September 30, 2016 and 2015, no single tenant represented greater than 10% of rental revenues.
Cash and cash equivalent balances at certain institutions may exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions.
(11)
Equity
Shareholders' Equity. During the nine months ended September 30, 2016 and 2015, the Company issued 577,823 and 1,845,617 common shares, respectively, under its direct share purchase plan, which includes its dividend reinvestment plan, raising net proceeds of $4,115 and $17,415, respectively.
During the nine months ended September 30, 2016 and 2015, the Company granted common shares to certain employees and trustees as follows:
 
Nine Months ended September 30,
 
2016
 
2015
Performance Shares(1)
 
 
 
Shares issued:
 
 
 
Index
404,466
 
321,018
Peer
404,463
 
321,011
 
 
 
 
Grant date fair value per share:(2)
 
 
 
Index
$4.53
 
$6.86
Peer
$4.58
 
$6.66
 
 
 
 
Non-Vested Common Shares:(3)
 
 
 
Shares issued
225,090
 
170,650
Grant date fair value
$1,724
 
$1,916
 
 
 
 
Non-management Board of Trustee grant:(4)
 
 
 
Shares issued
17,500
 
20,400
Grant date fair value
$131
 
$209
(1)
The shares vest based on the Company's total shareholder return growth after a three-year measurement period relative to an index and a group of Company peers. Dividends will not be paid on these grants until earned. Once the performance criteria are met and the actual number of shares earned is determined, such shares vest immediately.
(2)
The fair value of grants was determined at the grant date using a Monte Carlo simulation model.
(3)
The shares vest ratably over a three-year service period.
(4)
Annual grant and shares vested upon grant.


21
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

In July 2015, the Company's Board of Trustees authorized the repurchase of up to 10,000,000 common shares. During the nine months ended September 30, 2016 and 2015, the Company repurchased 1,184,113 and 1,306,300 common shares, respectively, at an average price of $7.56 and $8.42 per common share, respectively.
Accumulated other comprehensive loss as of September 30, 2016 and December 31, 2015 represented $(4,883) and $(1,939), respectively, of unrealized loss on interest rate swaps, net.
Changes in Accumulated Other Comprehensive Loss
 
 
Gains and Losses
on Cash Flow Hedges
Balance December 31, 2015
 
$
(1,939
)
Other comprehensive loss before reclassifications
 
(6,035
)
Amounts of loss reclassified from accumulated other comprehensive income to interest expense
 
3,091

Balance September 30, 2016
 
$
(4,883
)
Noncontrolling Interests. In conjunction with several of the Company's acquisitions in prior years, sellers were issued OP units as a form of consideration. All OP units, other than OP units owned by the Company, are redeemable for common shares at certain times, at the option of the holders, and are generally not otherwise mandatorily redeemable by the Company. The OP units are classified as a component of permanent equity as the Company has determined that the OP units are not redeemable securities as defined by GAAP. Each OP unit is currently redeemable at the holder's option for approximately 1.13 common shares, subject to future adjustments.
As of September 30, 2016, there were approximately 3,387,000 OP units outstanding other than OP units owned by the Company. All OP units receive distributions in accordance with the LCIF partnership agreement. To the extent that the Company's dividend per common share is less than the stated distribution per OP unit per the LCIF partnership agreement, the distributions per OP unit are reduced by the percentage reduction in the Company's dividend per common share. No OP units have a liquidation preference.
The following discloses the effects of changes in the Company's ownership interests in its noncontrolling interests:
 
Net Income Attributable to Shareholders and Transfers from Noncontrolling Interests
 
Nine Months ended September 30,
 
2016
 
2015
Net income attributable to Lexington Realty Trust shareholders
$
73,215

 
$
76,853

Transfers from noncontrolling interests:
 
 
 
Increase in additional paid-in-capital for redemption of noncontrolling units
31

 
—

Change from net income attributable to shareholders and transfers from noncontrolling interests
$
73,246

 
$
76,853

In July 2015, the Company acquired its consolidated joint venture partners' interests in an office property in Philadelphia, Pennsylvania for $4,022, raising the Company's ownership to 100%.

22
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LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(12)
Related Party Transactions
In connection with efforts to procure non-recourse mezzanine financing from an affiliate of the Company's Chairman, pursuant to the terms of the EB-5 visa program administered by the United States Citizenship and Immigration Services (“USCIS”), for a joint venture in Houston, Texas, in which the Company has an investment, the Company executed a guaranty in favor of an affiliate of its Chairman. The guaranty provides that the Company will reimburse investors providing the funds for such financing if the following occurs: (1) the joint venture receives such funds, (2) the USCIS denies the financing solely because the project is not permitted under the EB-5 visa program, and (3) the joint venture fails to return such funds.  As of September 30, 2016, the joint venture has not received any such funds and the Company has not recorded any liability related to this guaranty. The maximum amount of funds that would be subject to the guaranty obligation is $18,000.
In addition, in connection with efforts, on a non-binding basis, to procure non-recourse mezzanine financing from an affiliate of the Company's Chairman, pursuant to the terms of the EB-5 visa program administered by the USCIS, for an investment in Charlotte, North Carolina, the Company agreed to reimburse the Chairman's affiliate up to approximately $7 for its expenses.
There were no other related party transactions other than those disclosed elsewhere in this Quarterly Report and the audited consolidated financial statements in the Annual Report.
(13)
Commitments and Contingencies
In addition to the commitments and contingencies disclosed elsewhere, including in Note 12 above, and previously disclosed, the Company has the following commitments and contingencies.
The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.
From time to time, the Company is directly and indirectly involved in legal proceedings arising in the ordinary course of business. Management believes, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on the Company's business, financial condition and results of operations.
GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC v. Lexington Realty Trust (Supreme Court of the State of New York, County of New York-Index No. 653117/2015)
On September 16, 2015, GSMSC II 2006-GG6 Bridgewater Hills Corporate Center, LLC commenced an action as lender against the Company based on a limited guaranty of recourse obligations executed by a predecessor entity of the Company in connection with a mortgage loan secured by a property owner subsidiary's commercial property in Bridgewater, New Jersey.  The property owner subsidiary defaulted due to non-payment after the sole tenant vacated at the end of the lease term.  The lender seeks approximately $15,500 in order to satisfy the outstanding amount of the loan, plus interest, reasonable attorney’s fees and other costs and disbursements related thereto. The Company has not recorded any liability relating to this litigation as of September 30, 2016 as the Company believes that a loss contingency is “reasonably possible” (as defined by FASB ASC 450-20-20) but not “probable” (as defined by FASB ASC 450-20-20).
The lender claims that the Company's limited guaranty was triggered due to the merger of Newkirk Realty Trust, Inc. and Lexington Corporate Properties Trust on December 31, 2006, arguing that it constituted an event of default because it was a transfer that was not permitted by the loan agreement. The limited guaranty provides that the guarantor's liability for the guaranteed obligations shall not exceed $10,000, which the Company believes is its maximum exposure to loss. The Company intends to vigorously defend the lender’s claim.  The Company filed a motion to dismiss on October 19, 2015 and a hearing was scheduled for June 15, 2016, which was canceled by the Court. The Company is awaiting the Court's ruling on the Company's motion to dismiss.

23
Table of Contents

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016 and 2015
(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The lender also brought a foreclosure action against the property owner subsidiary. A foreclosure sale was held September 13, 2016 and the lender acquired the property for a nominal amount and, as such, the Company derecognized the property and related debt obligation. The carrying value of the property, which approximated fair value, was less than the non-recourse mortgage and related accrued interest, resulting in a gain on debt extinguishment of $8,761 for the nine months ended September 30, 2016.
(14)
Supplemental Disclosure of Statement of Cash Flow Information
In addition to disclosures discussed elsewhere, during the nine months ended September 30, 2016 and 2015, the Company paid $62,995 and $62,914, respectively, for interest and $1,163 and $788, respectively, for income taxes.
(15)
Subsequent Events
Subsequent to September 30, 2016 and in addition to disclosures elsewhere in the unaudited condensed consolidated financial statements, the Company sold two properties to unrelated third parties for an aggregate gross sales price of $40,250. Also, on October 26, 2016, the tenant in the Company's approximately 104,000 square foot office property in Rock Hill, South Carolina filed an assignment for the benefit of creditors under Florida law and it is expected that the tenant will reject the lease.

24
Table of Contents



LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)

 
September 30, 2016
 
December 31, 2015
Assets:
 
 
 
Real estate, at cost
$
721,165

 
$
1,061,606

Real estate - intangible assets
99,752

 
189,700

Investment in real estate under construction
32,613

 
9,223

 
853,530

 
1,260,529

Less: accumulated depreciation and amortization
238,669

 
255,024

Real estate, net
614,861

 
1,005,505

Assets held for sale
11,637

 
—

Cash and cash equivalents
80,086

 
19,130

Restricted cash
1,645

 
2,457

Investment in and advances to non-consolidated entities
5,580

 
5,924

Deferred expenses, net
6,214

 
8,459

Rent receivable - current
448

 
801

Rent receivable - deferred
10,213

 
87,150

Other assets
1,846

 
1,500

Total assets
$
732,530

 
$
1,130,926

 
 
 
 
Liabilities and Partners' Capital:
 
 
 
Liabilities:
 
 
 
Mortgages and notes payable, net
$
169,444

 
$
431,599

Co-borrower debt
152,753

 
201,106

Related party advances, net
2,993

 
3,232

Accounts payable and other liabilities
3,653

 
5,503

Accrued interest payable
664

 
942

Deferred revenue - including below market leases, net
4,625

 
5,306

Distributions payable
16,914

 
17,214

Liabilities held for sale
2,206

 
—

Prepaid rent
3,820

 
4,367

Total liabilities
357,072

 
669,269

 
 
 
 
Commitments and contingencies

 

Partners' capital
375,458

 
461,657

Total liabilities and partners' capital
$
732,530

 
$
1,130,926



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


25
Table of Contents


LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except unit data)

 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Gross revenues:
 
 
 
 
 
 
 
 
Rental
 
$
28,846

 
$
28,336

 
$
92,002

 
$
87,587

Tenant reimbursements
 
2,062

 
2,426

 
6,782

 
7,435

Total gross revenues
 
30,908

 
30,762

 
98,784

 
95,022

Expense applicable to revenues:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
(7,793
)
 
(7,308
)
 
(25,402
)
 
(21,847
)
Property operating
 
(3,372
)
 
(4,244
)
 
(11,057
)
 
(12,412
)
General and administrative
 
(2,290
)
 
(2,235
)
 
(6,777
)
 
(6,598
)
Non-operating income
 
44

 
1

 
299

 
38

Interest and amortization expense
 
(7,133
)
 
(7,200
)
 
(23,400
)
 
(21,918
)
Debt satisfaction charges, net
 
(5,773
)
 
—

 
(7,388
)
 
(33
)
Impairment charges
 
(65,509
)
 
—

 
(67,935
)
 
—

Gains on sales of properties
 
—

 
—

 
16,029

 
—

Income (loss) before provision for income taxes and equity in earnings of non-consolidated entities
 
(60,918
)
 
9,776

 
(26,847
)
 
32,252

Provision for income taxes
 
(32
)
 
(8
)
 
(57
)
 
(41
)
Equity in earnings of non-consolidated entities
 
49

 
59

 
252

 
135

Net income (loss)
 
$
(60,901
)
 
$
9,827

 
$
(26,652
)
 
$
32,346

Net income (loss) per unit
 
$
(0.73
)
 
$
0.13

 
$
(0.32
)
 
$
0.45

Weighted-average units outstanding
 
83,241,396

 
74,449,266

 
83,241,396

 
71,965,530


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


26
Table of Contents


LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited and in thousands, except unit amounts)

Nine Months ended September 30, 2016
 
Units
 
Partners' Capital
Balance December 31, 2015
 
83,241,396

 
$
461,657

Changes in co-borrower debt allocation
 
—

 
(9,647
)
Distributions
 
—

 
(49,900
)
Net loss
 
—

 
(26,652
)
Balance September 30, 2016
 
83,241,396

 
$
375,458

 
 
 
 
 
Nine Months ended September 30, 2015
 
 
 
 
Balance December 31, 2014
 
70,682,266

 
$
432,041

Changes in co-borrower debt allocation
 
—

 
(31,383
)
Issuance of units
 
3,767,000

 
37,879

Distributions
 
—

 
(44,354
)
Net income
 
—

 
32,346

Balance September 30, 2015
 
74,449,266

 
$
426,529


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


27
Table of Contents


LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
 
Nine Months ended September 30,
 
2016
 
2015
Net cash provided by operating activities
$
31,767

 
$
27,933

Cash flows from investing activities:
 
 
 
Investments in real estate under construction
(23,390
)
 
(9,111
)
Capital expenditures
(1,226
)
 
(5,901
)
Net proceeds from the sale of properties
185,219

 
—

Principal payments received on loans receivable
—

 
3,137

Investment in loan receivable
—

 
(318
)
Investment in non-consolidated entities
(81
)
 
(1,662
)
Distributions from non-consolidated entities in excess of accumulated earnings
425

 
341

Increase in deferred leasing costs
(99