FORM 10-K
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
 
(Mark One)
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2007
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
(Exact name of Registrant as specified in its charter)
 
     
Maryland
(State or other jurisdiction of
incorporation or organization)
One Penn Plaza, Suite 4015
  13-3717318
(I.R.S. Employer
Identification No.)
New York, NY
(Address of principal executive offices)
  10119-4015
(Zip Code)
 
Registrant’s telephone number, including area code (212) 692-7200
 
Securities registered pursuant to Section 12(b) of the Act:
 
         
Title of Each Class
 
Name of Each Exchange on which Registered
Common Shares of beneficial interests, par value $0.0001     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  
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ  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 þ.
 
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 þ  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 definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o     Smaller reporting company o
 
(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 Act).  Yes o  No þ.
 
The aggregate market value of the voting shares held by non-affiliates of the Registrant as of June 30, 2007, which was the last business day of the Registrant’s most recently completed second fiscal quarter was $1,276,495,750 based on the closing price of common shares as of that date, which was $20.80 per share.
 
Number of common shares outstanding as of February 22, 2008 was 61,323,810.
 
Certain information contained in the Definitive Proxy Statement for Registrant’s 2008 Annual Meeting of Shareholders, to be held on May 20, 2008 is incorporated by reference in this Annual Report on Form 10-K in response to Part III, Item 10, 11, 12, 13 and 14.
 


 

 
TABLE OF CONTENTS
 
                 
Item of
       
Form 10-K
 
Description
  Page
 
PART I
 
1
    Business     1  
 
1A.
    Risk Factors     8  
 
1B.
    Unresolved Staff Comments     21  
 
2.
    Properties     21  
 
3.
    Legal Proceedings     34  
 
4.
    Submission of Matters to a Vote of Security Holders     34  
 
PART II
 
5.
    Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities     36  
 
6.
    Selected Financial Data     39  
 
7.
    Management’s Discussion and Analysis of Financial Condition and Results of Operations     40  
 
7A.
    Quantitative and Qualitative Disclosures about Market Risk     58  
 
8.
    Financial Statements and Supplementary Data     60  
 
9.
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     112  
 
9A.
    Controls and Procedures     112  
 
9B.
    Other Information     112  
 
PART III
 
10.
    Trustees and Executive Officers of the Registrant     112  
 
11.
    Executive Compensation     112  
 
12.
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     112  
 
13.
    Certain Relationships and Related Transactions     113  
 
14.
    Principal Accountant Fees and Services     113  
 
PART IV
 
15.
    Exhibits and Financial Statement Schedules     113  
Signatures
    120  
 EX-12: STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
 EX-14.1: AMENDED AND RESTATED CODE OF BUSINESS CONDUCT AND ETHICS
 EX-21: LIST OF SUBSIDIARIES
 EX-23: CONSENT OF KPMG LLP
 EX-31.1: CERTFICATION
 EX-31.2: CERTIFICATION
 EX-32.1: CERTIFICATION
 EX-32.2: CERTIFICATION


Table of Contents

 
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. References herein to our Annual Report are to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
 
All references to 2007, 2006 and 2005 refer to our fiscal years ended, or the dates, as the context requires, December 31, 2007, December 31, 2006, and December 31, 2005, respectively.
 
We merged with Newkirk Realty Trust, Inc., or Newkirk, on December 31, 2006, which we refer to as the Merger. Unless otherwise noted, (A) the information in this Annual Report regarding items in our Consolidated Statements of Operations as of December 31, 2006 and prior, does not include the business and operations of Newkirk, and (B) the information in this Annual Report regarding items in our Consolidated Balance Sheet as of December 31, 2005 and prior, does not include the assets, liabilities and minority interests of Newkirk.
 
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, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 to differ materially from current expectations include, among others, those risks discussed below and under “Risk Factors” in Part I, Item 1A of the Annual Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report. 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 real estate investment trust, or REIT, formed under the laws of the State of Maryland. Our primary business is the acquisition, ownership and management of a geographically diverse portfolio of net leased office and industrial properties. In addition, we acquire and hold investments in loan assets and debt securities related to real estate, which are primarily acquired through a 50% owned co-investment program. Substantially all of our properties are subject to triple net leases, which are generally characterized as leases in which the tenant bears all or substantially all of the costs and/or cost increases for real estate taxes, utilities, insurance and ordinary repairs.
 
Our predecessor was organized in October 1993 and merged into Lexington Corporate Properties Trust on December 31, 1997. On December 31, 2006, Lexington Corporate Properties Trust completed the Merger with Newkirk. Newkirk’s primary business was similar to our primary business. All of Newkirk’s operations were conducted and all of its assets were held through its master limited partnership, The Newkirk Master Limited Partnership, which we refer to as the MLP. Newkirk was the general partner and owned, at the time of completion of the Merger, a 31.0% general partner interest in the MLP. In connection with the Merger, Lexington Corporate Properties Trust changed its name to Lexington Realty Trust, the MLP was renamed The Lexington Master Limited


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Partnership and one of our wholly-owned subsidiaries became the sole general partner of the MLP and another one of our wholly-owned subsidiaries became the holder of a 31.0% limited partner interest in the MLP.
 
In the Merger, Newkirk merged with and into us, with us as the surviving entity. Each holder of Newkirk’s common stock received 0.80 of our common shares in exchange for each share of Newkirk’s common stock, and the MLP effected a reverse unit-split pursuant to which each outstanding unit of limited partnership in the MLP, which we refer to as an MLP unit, was converted into 0.80 MLP units. Each MLP unit, other than the MLP units held directly or indirectly by us, is redeemable at the option of the holder for cash based on the value of one of our common shares or, if we elect, for our common shares on a one-for-one basis. As of December 31, 2007, we owned approximately 50.0% of the limited partner interest in the MLP.
 
In addition to our common shares, we have four 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, (3) 7.55% Series D Cumulative Redeemable Preferred Stock, which we refer to as our Series D Preferred Shares, and (4) special voting preferred stock. 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. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net income that is currently distributed to shareholders.
 
As of December 31, 2007, we had ownership interests in approximately 280 consolidated real estate assets, located in 42 states and the Netherlands and containing an aggregate of approximately 45.5 million net rentable square feet of space, approximately 95.6% of which is subject to a lease.
 
We have diversified our portfolio by geographical location, tenant industry segment, lease term expiration and property type with the intention of providing steady internal growth with low volatility. We believe that this diversification should help insulate us from regional recession, industry specific downturns and price fluctuations by property type. For the year ended December 31, 2007, our ten largest tenants/guarantors, which occupied 47 of our properties, represented 25.0% of our trailing 12 month base rental revenue, including our proportionate share of base rental revenue from non-consolidated entities, properties held for sale and properties sold through the respective date of sale. As of December 31, 2006 and 2005, our ten largest tenants/guarantors represented 30.1% and 30.4% of our trailing 12 month base rental revenue, respectively, including our proportionate share of base rental revenue from non-consolidated entities, properties held for sale and properties sold through date of sale. In 2007, 2006 and 2005, no tenant/guarantor represented greater than 10% of our annual base rental revenue.
 
Objectives and Strategy
 
In June 2007, we announced a strategic restructuring plan. The plan, when and if completed, will restructure us into a company consisting primarily of:
 
  •  A wholly-owned portfolio of core office assets;
 
  •  A wholly-owned portfolio of core warehouse/distribution assets;
 
  •  A continuing 50% interest in a co-investment program that invests in senior and subordinated debt interests secured by both net leased and multi-tenanted real estate collateral;
 
  •  A minority interest in a co-investment program that invests in specialty single tenant real estate assets; and
 
  •  Equity securities in other net lease companies owned either individually or through an interest in one or more joint ventures or co-investment programs.


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In connection with the strategic restructuring plan, we:
 
  •  acquired all of the outstanding interests not otherwise owned by us in Triple Net Investment Company LLC, one of our co-investment programs, which resulted in us becoming the sole owner of the co-investment program’s 15 primarily single tenant net leased properties;
 
  •  acquired all of the outstanding interests not otherwise owned by us in Lexington Acquiport Company, LLC and Lexington Acquiport Company II, LLC, two of our co-investment programs, which resulted in us becoming the sole owner of the co-investment program’s 26 primarily single tenant net leased properties;
 
  •  terminated Lexington/Lion Venture L.P., one of our co-investment programs, and were distributed seven primarily single tenant net leased properties owned by the co-investment program;
 
  •  announced a disposition program, whereby we began marketing non-core assets for sale; and
 
  •  formed a co-investment program, Net Lease Strategic Assets Fund LP, which we refer to as NLS, with a subsidiary of Inland American Real Estate Trust, Inc., which has acquired 30 assets previously owned by us and which, in addition, is under contract to acquire an additional 13 assets currently owned by us and may invest in “core plus” net leased assets, such as manufacturing assets, call centers and other specialty assets.
 
We can provide no assurances that we will dispose of any remaining assets under our disposition program or complete the sale/contribution of the remaining 13 assets under contract for sale/contribution or acquire any additional assets through NLS.
 
As part of our ongoing business efforts, we expect to continue to (1) effect strategic transactions and portfolio and individual property acquisitions and dispositions; (2) explore new business lines and operating platforms; (3) expand existing properties; (4) execute new leases with tenants; (5) extend lease maturities in advance of expiration; and (6) refinance outstanding indebtedness when advisable. Additionally, we may continue to enter into joint ventures 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.
 
Acquisition Strategies
 
We seek to enhance our net lease property portfolio through acquisitions of “core” assets, which we believe are general purpose, efficient, well-located assets in growing markets. Prior to effecting any acquisitions, we analyze 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 executive management team as well as its network of relationships in the industry to achieve appropriate risk-adjusted yields through strategic transactions. Our strategic initiatives focus on the full spectrum of single-tenant investing through participation at various levels of the capital structure. Accordingly, we endeavor to pursue the acquisition of portfolios of assets, equity interests in companies with a significant number of single-tenant assets including through mergers and acquisitions activity, and participation in strategic partnerships and joint ventures.
 
Acquisitions of Portfolio and Individual Net Lease Properties.  We seek to acquire portfolio and individual properties from (1) creditworthy corporations and other entities 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 generally after construction has been completed to avoid the risks associated with the construction phase of a project; (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, acquisition


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experience and access to capital will allow us to compete effectively for the acquisition of such net leased properties.
 
Debt Investments.  Primarily through our 50% owned co-investment program Concord Debt Holdings LLC, which we refer to as Concord, we seek to acquire senior and subordinated debt interests secured by both net-leased and multi-tenanted real estate collateral. The MLP holds a 50.0% interest in this co-investment program. The MLP’s co-investment partner and holder of the other 50% interest in Concord is a subsidiary of Winthrop Realty Trust, which we refer to as Winthrop, a REIT listed on the NYSE. Our Executive Chairman and Director of Strategic Acquisitions, Michael L. Ashner, is the Chairman and Chief Executive Officer of Winthrop.
 
Competition
 
Through our predecessor entities we have been in the net lease business for over 30 years. Over this period, we have 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, private companies and individuals.
 
Operating Partnership Structure
 
We are structured as an umbrella partnership REIT, or UPREIT, and a substantial portion of our business is conducted through our four operating partnership subsidiaries (1) the MLP; (2) Lepercq Corporate Income Fund L.P.; (3) Lepercq Corporate Income Fund II L.P.; and (4) Net 3 Acquisition L.P. We refer to these subsidiaries as our operating partnerships and to limited partner interests in these operating partnerships as OP units. The UPREIT structure enables us to acquire properties through our operating partnerships by issuing to a property owner, as a form of consideration in exchange for the property, OP units. The OP units are generally redeemable, after certain dates, for our common shares or cash in certain instances. 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, 2007, there were approximately 39.8 million OP units outstanding, other than OP units held directly or indirectly by us.
 
Co-Investment Programs
 
Lexington Acquiport Company, LLC (“LAC”) and Lexington Acquiport Company II, LLC (“LAC II”).  Effective June 2007, we entered into purchase agreements with the Common Retirement Fund of the State of New York, our 66.67% partner in LAC and 75% partner in LAC II, and acquired the interests in LAC and LAC II we did not already own. Accordingly, we became the sole owner of the 26 primarily single tenant net leased real estate properties owned collectively by LAC and LAC II. We acquired the interest through a cash payment of approximately $277.4 million and the assumption of approximately $515.0 million in non-recourse mortgage debt. The debt assumed by us bears interest at stated rates ranging from 5.0% to 8.2% with a weighted — average stated rate of 6.2% and matures at various dates ranging from 2009 to 2021.
 
Lexington/Lion Venture L.P. (“LION”).  Effective June 2007, we and our 70% partner in LION agreed to terminate LION and distribute the 17 primarily net leased properties owned by LION. Accordingly, we were distributed seven of the properties, which were subject to non-recourse mortgage debt of approximately $112.5 million. The debt assumed by us bears interest at stated rates ranging from 4.8% to 6.2% with a weighted — average stated rate of 5.4% and matures at various dates ranging from 2012 to 2016. In addition, we paid approximately $6.6 million of additional consideration to our former partner in connection with the termination. In connection with this transaction, we recognized $8.5 million as an incentive fee in accordance with the LION partnership agreement and were allocated equity in earnings of $34.2 million related to our share of gains relating to the 10 properties transferred to the partner.
 
Triple Net Investment Company LLC (“TNI”).  Effective May 2007, we entered into a purchase agreement with the Utah State Retirement Investment Fund, our partner in TNI, and acquired the 70% of TNI we did not already own. Accordingly, we became the sole owner of the 15 primarily single tenant net leased real estate


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properties owned by TNI. We acquired the interest through a cash payment of approximately $82.6 million and the assumption of approximately $156.6 million in non-recourse mortgage debt. The debt assumed by us bears stated interest at rates ranging from 4.9% to 9.4% with a weighted-average stated rate of 5.9% and matures at various dates ranging from 2010 to 2021. In connection with this transaction, we recognized $2.1 million as an incentive fee in accordance with the TNI partnership agreement.
 
Concord Debt Holdings LLC (“Concord”).  We acquired a 50% interest in Concord in connection with the Merger. Our Executive Chairman and Director of Strategic Acquisitions is the Chairman and Chief Executive Officer of Winthrop, our 50% co-investment partner. Concord creates and manages portfolios of loan assets and debt securities. As of December 31, 2007 and 2006, we had $155.8 million and $93.1 million, respectively, as our investment in Concord. Our remaining capital commitment to Concord is $5.1 million as of December 31, 2007. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off Balance Sheet Arrangements” for a complete description of Concord’s business, assets and liabilities.
 
Net Lease Strategic Assets Fund L.P. (“NLS”).  In August 2007, through the MLP, we entered into a limited partnership agreement with Inland American (Net Lease) Sub, LLC, which we refer to as Inland, a wholly-owned subsidiary of Inland American Real Estate Trust, Inc. NLS was formed to invest in specialty single tenant net leased assets in the United States. In connection with the formation, we agreed to contribute/sell 53 single tenant net leased assets to NLS, which was later reduced to 43 assets, 30 of which were contributed/sold in December 2007 and 13 of which remain under contract. We can provide no assurance that the contribution/sale of the remaining 13 assets under contract will be consummated.
 
In December 2007, we sold 18 real estate assets (including a 40% interest in one) and contributed 12 real estate assets to NLS. The properties had an agreed upon value of $408.5 million and are subject to $186.3 million of non-recourse mortgage debt that have stated interest rates ranging from 5.2% to 8.5% with a weighted average stated rate of 5.9% and maturity dates ranging from 2009 to 2025. We recognized a gain on the sale of the real estate assets of $17.9 million, plus a $1.6 million gain which is reflected in the income statement in equity in earnings of non-consolidated entities relating to these sales.
 
The acquisitions of these 30 real estate assets by NLS was financed by (1) assuming the mortgage debt; (2) a common equity contribution by Inland and the MLP of $121.9 million and $21.5 million, respectively; and (3) a preferred equity contribution of $87.6 million by the MLP. The MLP’s equity contribution was made primarily through the contribution of the 12 real estate assets.
 
The MLP’s common and preferred equity positions are subordinated to Inland’s common equity position with respect to operating cash flows and in certain other situations.
 
In addition, to the initial capital contributions, the MLP and Inland may invest an additional $22.5 million and $127.5 million, respectively, in NLS to acquire additional specialty single-tenant net leased assets. Lexington Realty Advisors, which we refer to as LRA, has entered into a management agreement with NLS whereby LRA will receive (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 for which the landlord is obligated to provide property management services (contingent upon the recoverability under the applicable lease); and (3) an acquisition fee of 0.5% of the gross purchase price of each acquired asset by the NLS.
 
In addition, NLS is under contract to acquire an additional 13 properties from us, a reduction of 10 from the initial agreement in August 2007. The acquisition of each of the 13 assets by NLS is subject to satisfaction of conditions precedent to closing, including the assumption of existing financing, obtaining certain consents and waivers, the continuing financial solvency of the tenants, and certain other customary conditions. Accordingly, neither we nor NLS can provide any assurance that the acquisition by NLS will be completed. In the event that NLS does not acquire 11 of the assets by March 31, 2008 and the remaining two by June 30, 2008, NLS will no longer have the right to acquire such assets.
 
Lex-Win Acquisition LLC (“Lex-Win”).  In May 2007, an entity in which we hold a 28% ownership interest, commenced a tender offer to acquire up to 45,000,000 shares of common stock in Wells Real Estate Investment Trust, Inc., which we refer to as Wells, at a price per share of $9.30. The tender offer expired on July 20, 2007, at which time Lex-Win received tenders based on the letters of transmittal it received for approximately


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4,800,000 shares representing approximately 1% of the outstanding shares in Wells. After submission of the letters to Wells, the actual number of shares acquired in Wells was approximately 3,900,000. During the third quarter of 2007, we funded $12.5 million relating to this tender offer. In the fourth quarter of 2007, we received a return of $1.9 million in cash relating to the reduction in shares tendered of approximately 900,000. WRT Realty, L.P., a subsidiary of Winthrop, also holds a 28% interest in Lex-Win. Our Executive Chairman and Director of Strategic Acquisitions is Chairman and Chief Executive Officer of Winthrop.
 
Other Investments.  As of December 31, 2007, we had interests ranging from 26% to 40% in 8 partnerships which own real estate assets. The real estate assets are encumbered by approximately $100.9 million (of which our proportionate share is approximately $33.0 million) in non-recourse mortgage debt with stated interest rates ranging from 5.2% to 15.0% with a weighted-average stated rate of 8.6% and maturity dates ranging from 2008 to 2018.
 
Internal Growth; Effectively Managing Assets
 
Tenant Relations and Lease Compliance.  We maintain close contact with our tenants in order to understand their future real estate needs. We monitor the financial, property maintenance and other lease obligations of our tenants through a variety of means, including periodic reviews of financial statements and physical inspections of the properties. We perform annual inspections of those properties where we have an ongoing obligation with respect to the maintenance of the property. Biannual physical inspections are generally undertaken for all other properties.
 
Extending Lease Maturities.  We seek to extend our leases in advance of their expiration in order to maintain a balanced lease rollover schedule and high occupancy levels. During 2007, we entered into 108 lease extensions and new leases.
 
Revenue Enhancing Property Expansions.  We undertake expansions of our properties based on tenant requirements or marketing opportunities. We believe that selective property expansions can provide us with attractive rates of return and actively seek such opportunities.
 
Property Sales.  Subject to regulatory requirements, we sell properties (1) when we believe that the return realized from selling a property will exceed the expected return from continuing to hold such property and (2) in accordance with our strategic restructuring plan. During 2007, as part of our strategic restructuring plan, we sold 63 properties, including 10 held in LION, and 30 properties were sold/contributed to NLS.
 
Access to Capital and Refinancing Existing Indebtedness
 
During 2007, we completed an offering of 6.2 million Series D Preferred Shares, at $25 per share and an annual dividend rate of 7.55%, raising net proceeds of $149.8 million.
 
During 2007, we, through a wholly-owned subsidiary, issued $200.0 million in Trust Preferred Securities. These Trust Preferred Securities, which (1) are classified as debt and referred to in this Annual Report as Trust Preferred Notes; (2) are due in 2037; (3) are redeemable by us commencing April 2012; and (4) 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.
 
We obtained a $225.0 million secured term loan from KeyBank N.A. The interest only secured term loan matures June 2009 and bears interest at LIBOR plus 60 basis points. The loan contains customary covenants which we were in compliance with as of December 31, 2007. The proceeds of the secured term loan were used to purchase the interests in our former co-investment programs. As of December 31, 2007, $213.6 million was outstanding under this secured term loan.
 
During 2007, we obtained $247.0 million in non-recourse mortgage financings which have a fixed weighted average interest rate of 6.1%. The proceeds of the financings were used to partially fund acquisitions.
 
During 2007, the MLP issued $450.0 million in 5.45% guaranteed exchangeable notes due in 2027, which we refer to as the MLP Notes, and can be put by the holder every five years commencing 2012 and upon certain events. The MLP Notes are currently exchangeable at certain times by the holders into our common shares at a price of $21.99 per share; however, the principal balance must be satisfied in cash. The net proceeds of the issuance of the


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MLP Notes were used to repay indebtedness under the MLP’s former secured loan which bore interest at the election of the MLP at a rate equal to either (1) LIBOR plus 175 basis points or (2) the prime rate.
 
On December 31, 2006, we completed the Merger and issued approximately 16.0 million common shares valued at $332.1 million and assumed $2.0 billion in liabilities and minority interests.
 
During 2006, we including through non-consolidated entities, in addition to the Merger, obtained $215.3 million in non-recourse mortgage financings which had a fixed weighted average interest rate of 6.0%. The proceeds of the financings were used to partially fund acquisitions.
 
During 2005, we replaced our $100.0 million unsecured revolving credit facility with a new $200.0 million unsecured revolving credit facility, which bears interest at a rate of LIBOR plus 120-170 basis points depending on our leverage (as defined in the credit facility) and matures in June 2008. The credit facility contains customary financial covenants, including restrictions on the level of indebtedness, amount of variable rate debt to be borrowed and net worth maintenance provisions. As of December 31, 2007, (1) we were in compliance with all covenants; (2) no borrowings were outstanding; (3) $198.5 million was available to be borrowed; and (4) $1.5 million in letters of credit were outstanding under the credit facility.
 
Common Share Repurchases.  In March 2007, our Board of Trustees approved the repurchase of up to 10.0 million common shares/OP units under a share repurchase program. During 2007, approximately 9.8 million common shares/OP units were repurchased under this program at an average cost of $19.83 per share/unit, in the open market and through private transactions with our employees and OP unitholders. In December 2007, the authorization was increased by 5.0 million common share/ OP units. As of December 31, 2007, 5.8 million common shares/OP units remain eligible for repurchase under the authorization.
 
Advisory Contracts
 
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. The investment fund could, depending on leverage utilized, acquire up to $140.0 million in single tenant, net leased office, industrial and retail properties in the United States. LRA earns acquisition fees (90 basis points of total acquisition costs), annual asset management fees (30 basis points of gross asset value) and an incentive fee of 16% of the return in excess of an internal rate of return of 10% earned by the investment fund. During 2007, the investment fund sold a property and LRA recognized an incentive fee of $1.1 million (in addition $0.4 million was held back by the investment fund pursuant to the agreement). The investment fund made no purchases in 2007 or 2006.
 
The MLP entered into an agreement with a third party pursuant to which the MLP will pay the third party for properties acquired by the MLP and identified by the third party (1) 1.5% of the gross purchase price and (2) 25% of the net proceeds and net cash flow (as defined) after the MLP receives all its invested capital plus a 12% internal rate of return. As of December 31, 2007, only one property has been acquired subject to these terms.
 
Other
 
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 our tenants 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, we may be required to satisfy such obligations. In addition, as the owner of such properties, 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 and generally upon acquisition of a property, we authorize the preparation of Phase I and, when necessary, Phase II environmental reports with respect to our properties. Based upon such environmental reports and our ongoing review of our properties, as of the date of this


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Annual Report, we are not aware of any environmental condition with respect to any of our properties 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 our properties, 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 our tenants, which would adversely affect our financial condition and/or results of operations.
 
Employees.  As of December 31, 2007, we had 65 full-time employees.
 
Industry Segments.  We operate in primarily one industry segment, investment in 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 http://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 Securities Exchange Act of 1934, 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, our Code of Business Conduct and Ethics governing our trustees, officers and employees, and our Complaint Procedures Regarding Accounting and Auditing Matters. 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.
 
Our Investor Relations Department can be contacted at Lexington Realty Trust, One Penn Plaza, Suite 4015, New York, New York 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, New York 10119-4015; our telephone number is (212) 692-7200. We also maintain regional offices in Chicago, Illinois, and Dallas, Texas.
 
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 2007.
 
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.
 
We rely on revenues derived from major tenants.
 
Revenues from several of our tenants and/or their guarantors constitute a significant percentage of our base rental revenues. As of December 31, 2007, our 10 largest tenants/guarantors, which occupied 47 properties, represented approximately 25.0% of our base rental revenue for the year ended December 31, 2007, including our


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proportionate share of base rental revenue from non-consolidated entities and base rental revenue recognized from properties sold through the respective date of sale. The default, financial distress or bankruptcy of any of the tenants of these properties could cause interruptions in the receipt of lease revenues from these tenants and/or result in vacancies, which would reduce our revenues and increase operating costs until the affected property is re-let, and could decrease the ultimate sales value of that property. Upon the expiration or other termination of the leases that are currently in place with respect to these properties, we may not be able to re-lease the vacant property at a comparable lease rate or without incurring additional expenditures in connection with the re-leasing.
 
We could become more highly leveraged, resulting in increased risk of default on our obligations and in an increase in debt service requirements which could adversely affect our financial condition and results of operations and our ability to pay distributions.
 
We have incurred, and expect to continue to incur, 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. Accordingly, we could become more highly leveraged, resulting in an increased risk of default on our obligations and in an increase in debt service requirements which could adversely affect our financial condition and results of operations and our ability to pay distributions.
 
Market interest rates could have an adverse effect on our borrowing costs and profitability and can adversely affect 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 net income. As of December 31, 2007, we had outstanding $213.6 million in consolidated variable-rate indebtedness. 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 net income. In addition, our interest costs on our fixed-rate indebtedness can increase if we are required to refinance our fixed-rate indebtedness at maturity at higher interest rates. We currently have an agreement with a third party for a notional amount of $290.0 million which caps our interest rate at 6.0%.
 
Furthermore, the public valuation of our common shares is related primarily to the earnings that we derive from rental income with respect to our properties 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.
 
Recent disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms and have other adverse effects on us.
 
The United States credit markets have recently 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 at 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 debt financing or difficulties in obtaining debt financing. 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 generally.


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We face risks associated with refinancings.
 
A significant number of our properties, as well as corporate level borrowings, are subject to mortgage or other secured notes with balloon payments due at maturity. As of December 31, 2007, the consolidated scheduled balloon payments for the next five calendar years, are as follows:
 
     
Year
  Balloon Payments
 
2008
  $31.8 million
2009
  $282.4 million
2010
  $118.2 million
2011
  $140.6 million
2012
  $633.8 million
 
Our ability to make the scheduled balloon payments will depend upon our cash balances, the amount available under our credit facility and our ability either to refinance the related mortgage debt or to sell the related property.
 
As of December 31, 2007, the scheduled balloon payments for our non-consolidated entities for the next five calendar years are as follows:
 
                 
        Balloon Payments - our
        Proportionate
Year
  Balloon Payments   Share
 
2008
    $ 87 .8 million     $ 43 .9 million
2009
    $357 .7 million     $176 .3 million
2010
    $ —       $ —  
2011
    $  2 .1 million     $  1 .0 million
2012
    $ 81 .8 million     $ 40 .3 million
 
Our ability to accomplish these goals will be affected by various factors existing at the relevant time, such as the state of the national and regional economies, local real estate conditions, the state of the capital markets, available mortgage rates, the lease terms or market rates of the mortgaged properties, our equity in the mortgaged properties, our financial condition, the operating history of the mortgaged properties and tax laws. If we are unable to obtain sufficient financing to fund the scheduled balloon payments or to sell the related property at a price that generates sufficient proceeds to pay the scheduled balloon payments, we would lose our entire investment in the related property.
 
We face uncertainties relating to lease renewals and re-letting of space.
 
Upon the expiration of current leases for space located in our properties, we 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) may be less favorable to us than current lease terms or market rates. If we are unable to re-let promptly all or a substantial portion of the space located in our properties or if the rental rates we receive upon re-letting are significantly lower than current rates, our net income and ability to make expected distributions to our shareholders will be adversely affected due to the resulting reduction in rent receipts and increase in our property operating costs. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases.
 
Certain of our properties are cross-collateralized.
 
As of December 31, 2007, the mortgages on three sets of two properties, one set of four properties and one set of three properties are cross-collateralized. In addition, the MLP’s $225.0 million loan (of which $213.6 million is outstanding at December 31, 2007) is secured by a borrowing base of 41 properties. To the extent that any of our properties are cross-collateralized, any default by us 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.


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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, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our properties, 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 us 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 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 our 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 our tenants 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 our tenants to satisfy any obligations with respect to the property leased to that tenant, we 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, we authorize the preparation of Phase I environmental reports and, when necessary, Phase II environmental reports, with respect to our properties. Based upon these environmental reports and our ongoing review of our properties, as of the date of this Annual Report, we are not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have a material adverse effect on us.
 
There can be no assurance, however, that the environmental reports will reveal all environmental conditions at our properties 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 our properties.
 
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 our tenants, which could adversely affect our financial condition or results of operations.
 
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 our properties, 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, 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 would adversely affect our financial condition.
 
Future terrorist attacks such as the attacks which occurred in New York City, Pennsylvania and Washington, D.C. on September 11, 2001, and the military conflicts such as the military actions taken by the


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United States and its allies in Afghanistan and Iraq, could have a material adverse effect on general economic conditions, consumer confidence and market liquidity.
 
Among other things, it is possible that interest rates may be affected by these events. An increase in interest rates may increase our costs of borrowing, leading to a reduction in our net income. These types of terrorist acts could also result in significant damages to, or loss of, our properties.
 
We and our tenants 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 would 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 resources than we have that compete with us in seeking properties for acquisition and tenants who will lease space in our properties. Due to our focus on net lease properties located throughout the United States, and because most competitors are locally and/or regionally focused, we do not 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 that we wish to purchase.
 
Our failure to maintain effective internal controls 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 controls over financial reporting. If we fail to maintain the adequacy of our internal controls, 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 controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and to maintain our qualification as a REIT and are important to 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 may 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 instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of co-investment programs and joint venture investments include impasse on decisions, such as a sale, because neither we nor our partner have full control over the co-investment programs 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.
 
One of co-investment programs, Concord, is owned equally by the MLP and a subsidiary of Winthrop. This co-investment program, is managed by an investment committee which consists of seven members, three members appointed by each of the MLP and Winthrop (with one appointee from each of the MLP and Winthrop qualifying as “independent”) and the seventh member appointed by FUR Holdings LLC, the administrative manager of Concord and primary owner of the former external advisor of the MLP and the current external advisor of Winthrop. Each investment in excess of $20.0 million to be made by this joint venture, as well as additional material matters, requires the consent of the investment committee appointed by the MLP and Winthrop. Accordingly, Concord may


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not take certain actions or invest in certain assets even if the MLP believes it to be in its best interest. Michael L. Ashner, our Executive Chairman and Director of Strategic Acquisitions is also the Chairman and Chief Executive Officer of Winthrop, the managing member of FUR Holdings LLC and the seventh member of Concord’s investment committee.
 
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 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.
 
Investments by our co-investment programs may conflict with our ability to make attractive investments.
 
Under the terms of the limited partnership agreement governing NLS, we are required to first offer to NLS all opportunities to acquire real estate assets which, among other criteria, are specialty in nature and net leased. Only if NLS elects not to approve the acquisition opportunity or the applicable exclusivity conditions have expired, may we pursue the opportunity directly. As a result, we may not be able to make attractive acquisitions directly and may only receive an interest in such acquisitions through our interest in NLS.
 
Certain of our trustees and officers may face conflicts of interest with respect to sales and refinancings.
 
Michael L. Ashner, E. Robert Roskind and Richard J. Rouse, our Executive Chairman and Director of Strategic Acquisitions, Co-Vice Chairman, and Co-Vice Chairman and Chief Investment Officer, respectively, each own limited partnership interests in certain of our operating partnerships, and as a result, may face different and more adverse tax consequences than our other shareholders will if we sell certain properties or reduce mortgage indebtedness on certain properties. Those individuals 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 must 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 will be limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of properties in which we may seek to invest or on the concentration of investments in any one geographic region. We could change our investment, disposition and financing policies without a vote of our shareholders.
 
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 for each


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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.
 
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 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, our declaration of trust limits any shareholder from owning more than 9.8% in value of any class of our outstanding shares, subject to certain exceptions. The ownership limit may have the effect of precluding acquisition of control of us.
 
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 five 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), four of those executive officers would be entitled to severance benefits based on their current annual base salaries, recent annual cash bonuses and the average of the value of the two most recent long-term incentive awards and one of those executive would be entitled to severance benefits based on his current annual base salary and recent annual cash bonus, as defined in the employment agreements. Accordingly, these payments may discourage a third party from acquiring us.
 
Limitation due to our ability to issue preferred shares.  Our amended and restated declaration of trust authorizes our Board of Trustees to issue preferred shares, without shareholder approval. The Board of Trustees is able to establish the preferences and rights of any preferred shares issued 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. As of the date of this Annual Report, we had outstanding 3,160,000 Series B Preferred Shares that we issued in June 2003, 3,100,000 Series C Preferred Shares that we issued in December 2004 and January 2005, 6,200,000 Series D Preferred Shares that we issued in February 2007, and one share of our special voting preferred stock that we issued in December 2006 in connection with the Merger. Our Series B, Series C and Series D Preferred Shares include provisions that may deter a change of control. The establishment and issuance of shares of our existing series of preferred shares or a future series of preferred shares could make a change of control of us more difficult.
 
Limitation imposed by the 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


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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 been an interested shareholder. 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. 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 our merger with Newkirk, Vornado Realty Trust, which we refer to as Vornado, and Apollo Real Estate Investment Fund III, L.P., which we refer to as Apollo, were 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 vote entitled to be cast on the matter under the Maryland Control Share Acquisition Act. Shares owned by the acquiror, 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 acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror 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 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, 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 acquiror 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 excess of the share ownership limits contained in its 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.


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These restrictions and limits may not be adequate in all cases, however, 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 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 its investment and financing policies, growth strategy and its 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 intended benefits of the Merger may not be realized.
 
The Merger presented and continues to present challenges to management, including the integration of our operations and properties with those of Newkirk. The Merger also poses other risks commonly associated with similar transactions, including unanticipated liabilities, unexpected costs and the diversion of management’s attention to the integration of the operations of the two entities. Any difficulties that we encounter in the transition and integration processes, and any level of integration that is not successfully achieved, could have an adverse effect on our revenues, level of expenses and operating results. We may also experience operational interruptions or the loss of key employees, tenants and customers. As a result, notwithstanding our expectations, we may not realize any of the anticipated benefits or cost savings of the Merger.
 
We may not be able to successfully implement and complete the strategic restructuring plan.
 
We can provide no assurance that we will be able to implement and complete the strategic restructuring plan as disclosed in our Current Report on Form 8-K filed with the SEC on June 7, 2007. As a result, we may not realize any of the anticipated benefits of the strategic restructuring plan. We may also incur significant expenses and experience operational interruptions while implementing the strategic restructuring plan.
 
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 such as joint ventures. In the context of our business plan, “development” generally means an expansion or renovation of an existing property or the acquisition of a newly constructed property. We may provide a developer with a commitment to acquire a property upon completion of construction of a property and commencement of rent from the tenant. 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


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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.
 
The concentration of ownership by certain investors may limit other shareholders from influencing significant corporate decisions.
 
As of December 31, 2007, Michael L. Ashner, our Executive Chairman and Director of Strategic Acquisitions, and Winthrop collectively owned 3.8 million of our outstanding common shares and Mr. Ashner, Vornado and Apollo, collectively owned 27.7 million voting MLP units which are redeemable by the holder thereof for, at our election, cash or our common shares. Accordingly, on a fully-diluted basis, Mr. Ashner, Apollo, Vornado and Winthrop collectively held a 31.2% ownership interest in us, as of December 31, 2007. As holders of voting MLP units, Mr. Ashner, Vornado and Apollo, as well as other holders of voting MLP units, have the right to direct the voting of our special voting preferred stock. Holders of interests in our other operating partnerships do not have voting rights. In addition, Mr. Ashner controls NKT Advisors, LLC, which holds the one share of our special voting preferred stock pursuant to a voting trustee agreement. To the extent that an affiliate of Vornado is a member of our Board of Trustees, NKT Advisors, LLC has the right to direct the vote of the voting MLP units held by Vornado with respect to the election of members of our Board of Trustees. Clifford Broser, a member of our Board of Trustees, is a Senior Vice President of Vornado.
 
E. Robert Roskind, our Co-Vice Chairman, owned, as of December 31, 2007, 0.9 million of our common shares and 1.5 million units of limited partner interest in our other operating partnerships, which are redeemable for our common shares on a one for one basis, or with respect to a portion of the units, at our election, cash. On a fully diluted basis, Mr. Roskind held a 2.4% ownership interest in us as of December 31, 2007.
 
Securities eligible for future sale may have adverse effects on our share price.
 
An aggregate of approximately 39.7 million of our common shares are issuable upon the exchange of units of limited partnership interests in our operating partnership subsidiaries. Depending upon the number of such securities exchanged or exercised at one time, an exchange or exercise 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 and the terms of Mr. Ashner’s employment agreement affects our ability to make certain investments.
 
We are dependent upon key personnel whose continued service is not guaranteed. We are dependent on our executive officers for business direction. We have entered into employment agreements with certain employees, including Michael L. Ashner, our Executive Chairman and our Director of Strategic Acquisitions, E. Robert Roskind, our Co-Vice-Chairman, Richard J. Rouse, our Co-Vice Chairman and Chief Investment Officer, T. Wilson Eglin, our Chief Executive Officer, President and Chief Operating Officer, and Patrick Carroll, our Executive Vice President, Chief Financial Officer and Treasurer. Pursuant to Mr. Ashner’s employment agreement, Mr. Ashner may voluntarily terminate his employment with us and become entitled to receive a substantial severance payment if we


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acquire or make an investment in a non-net lease business opportunity during the term of Mr. Ashner’s employment. This provision in Mr. Ashner’s agreement may cause us not to avail ourselves of those other business opportunities due to the potential consequences of acquiring such non-net lease business opportunities.
 
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.
 
Risks Specific to Our Investment in Concord
 
In addition to the risks described above, our investment in Concord is subject to the following additional risks:
 
Concord invests in subordinate mortgage-backed securities which are subject to a greater risk of loss than senior securities. Concord may hold the most junior class of mortgage-backed securities which are subject to the first risk of loss if any losses are realized on the underlying mortgage loans.
 
Concord invests in a variety of subordinate loan securities, and sometimes holds a “first loss” subordinate holder position. The ability of a borrower to make payments on the loan underlying these securities is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower since the underlying loans are generally non-recourse in nature. In the event of default and the exhaustion of any equity support, reserve funds, letters of credit and any classes of securities junior to those in which Concord invests, Concord will not be able to recover all of its investment in the securities purchased.
 
Expenses of enforcing the underlying mortgage loans (including litigation expenses), expenses of protecting the properties securing the mortgage loans and the liens on the mortgaged properties, and, if such expenses are advanced by the servicer of the mortgage loans, interest on such advances will also be allocated to such “first loss” securities prior to allocation to more senior classes of securities issued in the securitization. Prior to the reduction of distributions to more senior securities, distributions to the “ first loss” securities may also be reduced by payment of compensation to any servicer engaged to enforce a defaulted mortgage loan. Such expenses and servicing compensation may be substantial and consequently, in the event of a default or loss on one or more mortgage loans contained in a securitization, Concord may not recover its investment.
 
Concord’s warehouse facilities and its CDO financing agreements may limit its ability to make investments.
 
In order for Concord to borrow money to make investments under its repurchase facilities, its repurchase counterparty has the right to review the potential investment for which Concord is seeking financing. Concord may be unable to obtain the consent of its repurchase counterparty to make certain investments. Concord may be unable to obtain alternate financing for that investment. Concord’s repurchase counterparty consent rights with respect to its warehouse facility may limit Concord’s ability to execute its business strategy.
 
The repurchase agreements that Concord uses to finance its investments may require it to provide additional collateral.
 
If the market value of the loan assets and loan securities pledged or sold by Concord to a repurchase counterparty decline in value, which decline is determined, in most cases, by the repurchase counterparty, Concord may be required by the repurchase counterparty to provide additional collateral or pay down a portion of the funds advanced. Concord may not have the funds available to pay down its debt, which could result in defaults. Posting additional collateral to support its repurchase facilities will reduce Concord’s liquidity and limit its ability to leverage its assets. Because Concord’s obligations under its repurchase facilities are recourse to Concord, if Concord does not have sufficient liquidity to meet such requirements, it would likely result in a rapid deterioration of Concord’s financial condition and solvency.


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Concord’s future investment grade CDOs, if any, will be collateralized with loan assets and debt securities that are similar to those collateralizing its existing investment grade CDO, and any adverse market trends are likely to adversely affect the issuance of future CDOs as well as Concord’s CDOs in general.
 
Concord’s existing investment grade CDO is collateralized by fixed and floating rate loan assets and debt securities, and we expect that future issuances, if any, will be backed by similar loan assets and debt securities. Any adverse market trends that affect the value of these types of loan assets and debt securities will adversely affect the value of Concord’s interests in the CDOs and, accordingly, our interest in Concord. Such trends could include declines in real estate values in certain geographic markets or sectors, underperformance of loan assets and debt securities, or changes in federal income tax laws that could affect the performance of debt issued by REITs.
 
Credit ratings assigned to Concord’s investments are subject to ongoing evaluations and we cannot assure you that the ratings currently assigned to Concord’s investments will not be downgraded.
 
Some of Concord’s investments are rated by Moody’s Investors Service, Fitch Ratings or Standard & Poor’s, Inc. The credit ratings on these investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. If rating agencies assign a lower-than-expected rating or reduce, or indicate that they may reduce, their ratings of Concord’s investments the market value of those investments could significantly decline, which may have an adverse affect on Concord’s financial condition.
 
The use of CDO financings with coverage tests may have a negative impact on Concord’s operating results and cash flows.
 
Concord’s current CDO contains, and it is likely that future CDOs, if any, will contain coverage tests, including over-collateralization tests, which are used primarily to determine whether and to what extent principal and interest proceeds on the underlying collateral debt securities and other assets may be used to pay principal of and interest on the subordinate classes of bonds in the CDO. In the event the coverage tests are not met, distributions otherwise payable to Concord may be re-directed to pay principal on the bond classes senior to Concord’s. Therefore, Concord’s failure to satisfy the coverage tests could adversely affect Concord’s operating results and cash flows.
 
Certain coverage tests which may be applicable to Concord’s interest in its CDOs (based on delinquency levels or other criteria) may also restrict Concord’s ability to receive net income from assets pledged to secure the CDOs. If Concord’s assets fail to perform as anticipated, Concord’s over-collateralization or other credit enhancement expenses associated with its CDO will increase. There can be no assurance of completing negotiations with the rating agencies or other key transaction parties on any future CDOs, as to what will be the actual terms of the delinquency tests, over-collateralization, cash flow release mechanisms or other significant factors regarding the calculation of net income to Concord. Failure to obtain favorable terms with regard to these matters may materially reduce net income to Concord.
 
If credit spreads widen, the value of Concord’s assets may suffer.
 
The value of Concord’s loan securities is dependent upon the yield demand on these loan securities by the market based on the underlying credit. A large supply of these loan securities combined with reduced demand will generally cause the market to require a higher yield on these loan securities, resulting in a higher, or “wider’, spread over the benchmark rate of such loan securities. Under such conditions, the value of loan securities in Concord’s portfolio would tend to decline. Such changes in the market value of Concord’s portfolio may adversely affect its net equity through their impact on unrealized gains or losses on available-for-sale loan securities, and therefore Concord’s cash flow, since Concord would be unable to realize gains through sale of such loan securities. Also, they could adversely affect Concord’s ability to borrow and access capital.
 
The value of Concord’s investments in mortgage loans, mezzanine loans and participation interests in mortgage and mezzanine loans is also subject to changes in credit spreads. The majority of the loans Concord invests in are floating rate loans whose value is based on a market credit spread to LIBOR. The value of the loans is dependent upon the yield demanded by the market based on their credit. The value of Concord’s portfolio would tend to decline should the market require a higher yield on such loans, resulting in the use of a higher spread over the


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benchmark rate. Any credit or spread losses incurred with respect to Concord’s loan portfolio would affect Concord in the same way as similar losses on Concord’s loan securities portfolio as described above.
 
Concord prices its assets based on its assumptions about future credit spreads for financing of those assets. Concord has obtained, and may obtain in the future, longer term financing for its assets using structured financing techniques such as CDOs. Such issuances entail interest rates set at a spread over a certain benchmark, such as the yield on United States Treasury obligations, swaps or LIBOR. If the spread that investors are paying on structured finance vehicles over the benchmark widens and the rates Concord charges on its securitized assets are not increased accordingly, this may reduce Concord’s income or cause losses.
 
Prepayments can increase, adversely affecting yields on Concord’s investments.
 
The value of Concord’s assets may be affected by an increase in the rate of prepayments on the loans underlying its loan assets and loan securities. The rate of prepayment on loans is influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond Concord’s control and consequently such prepayment rates cannot be predicted with certainty. In periods of declining real estate loan interest rates, prepayments of real estate loans generally increase. If general interest rates decline as well, the proceeds of such prepayments received during such periods are likely to be reinvested by us in assets yielding less than the yields on the loans that were prepaid. Under certain interest rate and prepayment scenarios Concord may fail to recoup fully its cost of acquisition of certain investment.
 
Concord may not be able to issue CDO securities, which may require Concord to seek more costly financing for its real estate loan assets or to liquidate assets.
 
Concord has and may continue to seek to finance its loan assets on a long-term basis through the issuance of CDOs. Prior to any new investment grade CDO issuance, there is a period during which real estate loan assets are identified and acquired for inclusion in a CDO, known as the repurchase facility accumulation period. During this period, Concord authorizes the acquisition of loan assets and debt securities under one or more repurchase facilities from repurchase counterparties. The repurchase counterparties then purchase the loan assets and debt securities and hold them for later repurchase by Concord. Concord contributes cash and other collateral to be held in escrow by the repurchase counterparty to back Concord’s commitment to purchase equity in the CDO, and to cover its share of losses should loan assets or debt securities need to be liquidated. As a result, Concord is subject to the risk that it will not be able to acquire, during the period that its warehouse facilities are available, a sufficient amount of loan assets and debt securities to support the execution of an investment grade CDO issuance. In addition, conditions in the capital markets may make it difficult, if not impossible, for Concord to pursue a CDO when it does have a sufficient pool of collateral. If Concord is unable to issue a CDO to finance these assets or if doing so is not economical, Concord may be required to seek other forms of potentially less attractive financing or to liquidate the assets at a price that could result in a loss of all or a portion of the cash and other collateral backing its purchase commitment.
 
The recent capital market crisis has made financings through CDOs difficult.
 
The recent events in the subprime mortgage market have impacted Concord’s ability to consummate a second CDO. Although Concord holds only one bond of $11.5 million which has minimal exposure to subprime residential mortgages, conditions in the financial capital markets have made issuances of CDOs at this time less attractive to investors. As of December 31, 2007, Concord has recorded an other- than — temporary impairment charge relating to this asset of $4.9 million. If Concord is unable to issue future CDOs to finance its assets, Concord will be required to hold its loan assets under its existing warehouse facilities longer than originally anticipated or seek other forms of potentially less attractive financing. The inability to issue future CDOs at accretive rates will have a negative impact on Concord’s cash flow and anticipated return.
 
The lack of a CDO market may require us to make a larger equity investment in Concord.
 
As of December 31, 2007, we had committed to invest up to $162.5 million in Concord, of which $5.1 million remains to be invested. In view of the difficulties in the CDO market, we may continue to invest additional amounts in Concord only upon approval of our Board of Trustees.


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Concord may not be able to access financing sources on favorable terms, or at all, which could adversely affect its ability to execute its business plan and its ability to make distributions.
 
Concord finances its assets through a variety of means, including repurchase agreements, credit facilities, CDOs and other structured financings. Concord may also seek to finance its investments through the issuance of common or preferred equity interests. Concord’s ability to execute this strategy depends on various conditions in the capital markets, which are beyond its control. If these markets are not an efficient source of long-term financing for Concord’s assets, Concord will have to find alternative forms of long-term financing for its assets. This could subject Concord to more expensive debt and financing arrangements which would require a larger portion of its cash flows, thereby reducing cash available for distribution to its members and funds available for operations as well as for future business opportunities.
 
Concord may make investments in assets with lower credit quality, which will increase our risk of losses.
 
Concord may invest in unrated loan securities or participate in unrated or distressed mortgage loans. The anticipation of an economic downturn, for example, could cause a decline in the price of lower credit quality investments and securities because the ability of obligors of mortgages, including mortgages underlying mortgage-backed securities, to make principal and interest payments may be impaired. If this were to occur, existing credit support in the warehouse structure may be insufficient to protect Concord against loss of its principal on these investments and securities.
 
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, 2007, we owned or had interests in approximately 45.5 million square feet of rentable space in approximately 280 consolidated office, industrial and retail properties. As of December 31, 2007, our properties were 95.6% leased based upon net rentable square feet.
 
Our properties are generally subject to net leases; however, in certain leases we are responsible for roof and structural repairs. In such situations, we perform annual inspections of the properties. In addition, certain of our properties (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. We are responsible for all operating expenses of any vacant properties and we may be responsible for a significant amount of operating expenses of multi-tenant properties.
 
Ground Leases.  Certain of our properties are subject to long-term ground leases where a third party owns and leases the underlying land to us. Certain of these properties are economically owned through the holding of industrial revenue bonds 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, we have 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 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, 2007, we had outstanding mortgages and notes payable, including mortgages classified as discontinued operations, of $3.0 billion with a weighted average interest rate of 5.9%.
 
Table Regarding Real Estate Holdings


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LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
OFFICE
 
                                 
            Primary
  Net
           
            Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Leases Expiration
 
Leased
 
 
12209 W. Markham St. 
  Little Rock   AR   Entergy Arkansas, Inc.     36,311     10/31/2010     100 %
19019 N. 59th Ave   Glendale   AZ   Honeywell, Inc.     252,300     7/15/2011     100 %
2211 S. 47th St.    Phoenix   AZ   Avnet, Inc.     176,402     11/14/2012     100 %
13430 N. Black Canyon Freeway   Phoenix   AZ   Bull HN Information Systems, Inc.     138,940     10/31/2010     80 %
8555 S. River Pwy   Tempe   AZ   ASM Lithography, Inc. (ASM Lithography Holding N.V.)     95,133     6/30/2013     100 %
2005 E. Technology Circle   Tempe   AZ   (i) Structure, LLC (Infocrossing, Inc.)     60,000     12/31/2025     100 %
275 S. Valencia Ave   Brea   CA   Bank of America NT & SA     637,503     6/30/2012     100 %
2230 E. Imperial Hwy. 1   El Segundo   CA   Raytheon Company/Direct TV, Inc.     184,636     12/31/2013     100 %
2200 & 2222 E. Imperial Hwy. 3   El Segundo   CA   Raytheon Company     184,636     12/31/2018     100 %
2200 & 2222 E. Imperial Hwy. 2   El Segundo   CA   Raytheon Company     959,000     12/31/2008     100 %
17770 Cartwright Rd   Irvine   CA   Associates First Capital Corporation     136,180     8/31/2008     100 %
26210 & 26220 Enterprise Court   Lake Forest   CA   Apria Healthcare, Inc. (Apria Healthcare Group, Inc.)     100,012     1/31/2012     100 %
1500 Hughes Way   Long Beach   CA   Raytheon Company     490,054     12/31/2008     100 %
27016 Media Center Dr.    Los Angeles   CA   Playboy Enterprises, Inc.     83,252     11/7/2012     100 %
5724 W. Las Positas Blvd.    Pleasanton   CA   NK Leasehold     40,914     11/30/2009     100 %
255 California St.    San Francisco   CA   Multi-tenanted     169,846     Various     92 %
599 Ygnacio Valley Rd   Walnut Creek   CA   Vacant     54,528     None     0 %
5550 Tech Center Dr.    Colorado Springs   CO   Federal Express Corporation     61,690     4/30/2009     100 %
1110 Bayfield Dr.    Colorado Springs   CO   Honeywell International, Inc.     166,575     11/30/2013     100 %
9201 E. Dry Creek Rd   Centennial   CO   The Shaw Group, Inc.     128,500     9/30/2017     100 %
3940 S. Teller St.    Lakewood   CO   Travelers Express, Inc     68,165     3/31/2012     100 %
10 John St.    Clinton   CT   Unilever Supply Chain, Inc. (Unilever United States, Inc.)     41,188     12/19/2008     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     12/31/2010     100 %
5600 Broken Sound Blvd.    Boca Raton   FL   Océ Printing Systems USA, Inc. (Oce-USA Holding, Inc.)     136,789     2/14/2020     100 %
12600 Gateway Blvd.    Fort Meyers   FL   Gartner, Inc.     62,400     1/31/2013     100 %
600 Business Center Dr.    Lake Mary   FL   JP Morgan Chase Bank     125,155     9/30/2009     100 %
550 Business Center Dr.    Lake Mary   FL   JP Morgan Chase Bank     125,920     9/30/2009     100 %
6277 Sea Harbor Dr.    Orlando   FL   Harcourt Brace & Company (Reed Elsevier, Inc.)     355,840     3/31/2009     100 %
Sandlake Rd./Kirkman Rd   Orlando   FL   Honeywell, Inc.     184,000     4/30/2013     100 %
9200 S. Park Center Loop   Orlando   FL   Corinthian Colleges, Inc.     59,927     9/30/2013     100 %
4200 RCA Blvd.    Palm Beach Gardens   FL   The Wackenhut Corporation     114,518     2/28/2011     100 %
10419 N. 30th St.    Tampa   FL   Time Customer Service, Inc. (Time, Inc.)     132,981     6/30/2020     100 %


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            Primary
  Net
           
            Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Leases Expiration
 
Leased
 
 
6303 Barfield Rd   Atlanta   GA   International Business Machines Corporation (Internet Security Systems, Inc.)     238,600     5/31/2013     100 %
859 Mount Vernon Hwy   Atlanta   GA   International Business Machines Corporation (Internet Security Systems, Inc.)     50,400     5/31/2013     100 %
4000 Johns Creek Pwy   Suwanee   GA   Kraft Foods N.A., Inc.     87,219     1/31/2012     100 %
160 Clairemont Ave   Decatur   GA   Multi-tenanted     121,686     12/31/2007     24 %
King St.    Honolulu   HI   Multi-tenanted     236,545     Various     93 %
1275 N.W. 128th St.    Clive   IA   Principal Life Insurance Company     61,180     1/31/2012     100 %
101 E. Erie St.    Chicago   IL   FCB Worldwide, Inc. (Interpublic Group of Companies, Inc.)     227,569     3/15/2014     100 %
850 & 950 Warrenville Rd   Lisle   IL   National Louis University     99,329     12/31/2019     100 %
500 Jackson St.    Columbus   IN   Cummins Engine Company, Inc.     390,100     7/31/2019     100 %
10300 Kincaid Dr.    Fishers   IN   Bank One Indiana, N.A.     193,000     10/31/2009     100 %
5757 Decatur Blvd.    Indianapolis   IN   Allstate Insurance Company     89,956     8/31/2012     100 %
10475 Crosspoint Blvd.    Fishers   IN   John Wiley & Sons, Inc.     141,047     10/31/2019     100 %
2300 Litton Lane   Hebron   KY   AGC Automotive Americas Company (AFG Industries, Inc.)     80,441     8/31/2012     58 %
5200 Metcalf Ave   Overland Park   KS   Employers Reinsurance Corporation     291,168     12/22/2018     100 %
4455 American Way   Baton Rouge   LA   Bell South Mobility, Inc.     70,100     10/31/2012     100 %
147 Milk St.    Boston   MA   Harvard Vanguard Medical Association     52,337     5/31/2012     100 %
33 Commercial St.    Foxboro   MA   Invensys Systems, Inc. (Siebe, Inc.)     164,689     7/1/2015     100 %
70 Mechanic St.    Foxboro   MA   Invensys Systems, Inc. (Siebe, Inc.)     251,914     6/30/2014     100 %
100 Light St.    Baltimore   MD   St. Paul Fire and Marine Insurance Company     530,000     9/30/2009     100 %
27404 Drake Rd   Farmington Hills   MI   Vacant     108,499     None     0 %
3701 Corporate Dr.    Farmington Hills   MI   Temic Automotive of North America, Inc.     119,829     12/31/2016     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   Employers Reinsurance Corporation     155,925     4/1/2019     100 %
200 Lucent Lane   Cary   NC   Lucent Technologies, Inc.     124,944     9/30/2011     100 %
11707 Miracle Hills Dr.    Omaha   NE   (i) Structure, LLC (Infocrossing, Inc.)     85,200     11/30/2025     100 %
700 US Hwy. Route 202-206   Bridgewater   NJ   Biovail Pharmaceuticals, Inc. (Biovail Corporation)     115,558     10/31/2014     100 %
200 Milik St.    Carteret   NJ   Pathmark Stores, Inc.     149,100     12/31/2011     100 %
288 N. BRd. St.    Elizabeth   NJ   Bank of America     30,000     8/31/2013     100 %
389 & 399 Interpace Hwy   Parsippany   NJ   Sanofi-aventis U.S., Inc. (Aventis, Inc. & Aventis Pharma Holding GmbH)     340,240     1/31/2010     100 %
656 Plainsboro Rd   Plainsboro   NJ   Bank of America     4,060     8/31/2013     100 %
333 Mount Hope Ave   Rockaway   NJ   BASF Corporation     95,500     9/30/2014     100 %


23


Table of Contents

                                 
            Primary
  Net
           
            Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Leases Expiration
 
Leased
 
 
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.     76,383     11/30/2021     100 %
6226 W. Sahara Ave   Las Vegas   NV   Nevada Power Company     282,000     1/31/2014     100 %
180 S. Clinton St.    Rochester   NY   Frontier Corporation     226,000     12/31/2014     100 %
5550 Britton Pwy   Hilliard   OH   BMW Financial Services NA, LLC     220,966     2/28/2021     100 %
2000 Eastman Dr.    Milford   OH   Siemens Product Lifestyle Management Software, Inc.     221,215     4/30/2011     100 %
500 Olde Worthington Rd   Westerville   OH   InVentiv Communications, Inc.     97,000     9/30/2015     100 %
4848 129th E. Ave   Tulsa   OK   Metris Direct, Inc. (Metris Companies, Inc.)     101,100     1/31/2010     100 %
180 Rittenhouse Circle   Bristol   PA   Jones Apparel Group, Inc.     96,000     7/31/2013     100 %
250 Rittenhouse Circle   Bristol   PA   Jones Apparel Group, Inc.     255,019     3/25/2008     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     12/13/2013     100 %
1701 Market St.    Philadelphia   PA   Morgan, Lewis & Bockius, LLC     307,775     1/31/2014     100 %
1460 Tobias Gadsen Blvd.    Charleston   SC   Hagemeyer North America, Inc.     50,076     7/8/2020     100 %
2210 Enterprise Dr.    Florence   SC   Washington Mutual Home Loans, Inc.     177,747     6/30/2013     100 %
3476 Stateview Blvd.    Fort Mill   SC   Wells Fargo Home Mortgage, Inc.     169,083     1/30/2013     100 %
2480 Stateview Blvd.    Fort Mill   SC   Wells Fargo Bank, N.A.     169,218     5/31/2014     100 %
Nijborg 15   3927 DA Renswoude   The Netherlands   AS Watson (Health & Beauty Continental Europe)     17,610     12/20/2011     100 %
Nijborg 17   3927 DA Renswoude   The Netherlands   AS Watson (Health & Beauty Continental Europe)     114,195     6/14/2018     100 %
207 Mockingbird Lane   Johnson City   TN   Sun Trust Bank     63,800     11/30/2011     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 %
800 Ridgelake Blvd.    Memphis   TN   The Kroger Company     75,000     7/1/2013     100 %
601 & 701 Experian Pwy   Allen   TX   Experian Information Solutions, Inc. (TRW, Inc.)     292,700     10/15/2010     100 %
1401 & 1501 Nolan Ryan Pwy   Arlington   TX   Siemens Dematic Postal Automation, LP     236,547     1/31/2014     100 %
3535 Calder Ave   Beaumont   TX   Texas State Bank     49,689     12/31/2012     100 %
350 Pine St.    Beaumont   TX   Multi-tenanted     425,198     Various     58 %
1900 L. Don Dodson Dr.    Bedford   TX   Transamerica Life Insurance Company     202,493     4/30/2019     29 %
4201 Marsh Lane   Carrollton   TX   Carlson Restaurants Worldwide, Inc. (Carlson Companies, Inc.)     130,000     11/30/2018     100 %
4001 International Pwy   Carrollton   TX   Motel 6 Operating, LP (Accor S.A.)     138,443     7/31/2015     100 %
555 Dividend Dr.    Coppell   TX   Brinks, Inc.     101,844     4/30/2017     100 %
1600 Viceroy Dr.    Dallas   TX   TFC Services, Inc. (Freeman Decorating Company)     249,452     1/31/2019     63 %
6301 Gaston Ave   Dallas   TX   Multi-tenanted     173,855     Various     62 %
11511 Luna Rd   Farmers Branch   TX   Haggar Clothing Company (Texas Holding Clothing Corp. & Haggar Corp.)     180,507     4/30/2016     100 %


24


Table of Contents

                                 
            Primary
  Net
           
            Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Leases Expiration
 
Leased
 
 
1200 Jupiter Rd   Garland   TX   Raytheon Company     278,759     5/31/2011     100 %
10001 Richmond Ave   Houston   TX   Baker Hughes, Inc.     554,385     9/27/2015     100 %
15375 Memorial Dr.    Houston   TX   BP America Production Company     327,325     9/15/2009     100 %
810 & 820 Gears Rd   Houston   TX   IKON Office Solutions, Inc.     157,790     1/31/2013     100 %
2529 W. Thorn Dr.    Houston   TX   Baker Hughes, Inc.     65,500     9/27/2015     100 %
16676 Northchase Dr.    Houston   TX   Anadarko Petroleum Corporation     101,111     7/31/2014     100 %
1311 BRd.field Blvd.    Houston   TX   Transocean Offshore Deepwater Drilling, Inc. (Transocean Sedco Forex, Inc.)     155,991     3/31/2011     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 Pwy   Irving   TX   Nissan Motor Acceptance Corporation (Nissan North America, Inc.)     268,445     3/31/2013     100 %
6200 Northwest Pwy   San Antonio   TX   PacifiCare Health Systems, Inc.     142,500     11/30/2010     100 %
12645 W. Airport Rd   Sugar Land   TX   Baker Hughes, Inc.     165,836     9/27/2015     100 %
11555 University Blvd.    Sugar Land   TX   KS Management Services, LLP (St. Luke’s Episcopal Health System Corporation)     72,683     11/30/2020     100 %
2050 Roanoke Rd   Westlake   TX   DaimlerChrysler Financial Services Americas, LLC     130,290     12/31/2011     100 %
100 E. Shore Dr.    Glen Allen   VA   Multi-tenanted     67,508     Various     94 %
120 E. Shore Dr.    Glen Allen   VA   Capital One Services, Inc.     77,045     3/31/2010     100 %
130 E. Shore Dr.    Glen Allen   VA   Capital One Services, Inc.     79,675     2/10/2010     100 %
400 Butler Farm Rd   Hampton   VA   Nextel Communications of the Mid-Atlantic, Inc. (Nextel Finance Company)     100,632     12/31/2009     100 %
421 Butler Farm Rd   Hampton   VA   Nextel Communications of the Mid-Atlantic, Inc. (Nextel Finance Company)     56,515     1/14/2010     100 %
13651 McLearen Rd   Herndon   VA   Boeing Service Company (The Boeing Company)     159,664     5/30/2008     100 %
13775 McLearen Rd   Herndon   VA   Equant, Inc. (Equant N.V.)     125,293     4/30/2015     100 %
2800 Waterford Lake Dr.    Richmond   VA   Alstom Power, Inc.     99,057     10/31/2014     100 %
9950 Mayland Dr.    Richmond   VA   Circuit City Stores, Inc.     288,000     2/28/2010     100 %
5150 220th Ave   Issaquah   WA   OSI Systems, Inc. (Instrumentarium Corporation)     106,944     12/14/2014     100 %
22011 S.E. 51st St.    Issaquah   WA   OSI Systems, Inc. (Instrumentarium Corporation)     95,600     12/14/2014     100 %
848 Main St. & 849 Front St.    Evanston   WY   Multi-tenanted     29,500     Various     74 %
295 Chipeta Way   Salt Lake City   UT   Northwest Pipeline Corporation     295,000     9/30/2009     100 %
                                 
            Office Total     20,846,729              
                                 


25


Table of Contents

LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
INDUSTRIAL
 
                                 
                Net
           
            Primary Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Lease Expiration
 
Leased
 
 
Moody Commuter & Tech Park
  Moody   AL   CEVA Logistics U.S., Inc. (TNT Holdings B.V.)     595,346     1/2/2014     100 %
1665 Hughes Way   Long Beach   CA   Raytheon Company     200,541     12/31/2008     100 %
3333 Coyote Hill Road   Palo Alto   CA   Xerox Corporation     202,000     12/13/2013     100 %
2455 Premier Drive   Orlando   FL   Walgreen Company     205,016     3/31/2011     100 %
3102 Queen Palm Drive   Tampa   FL   Time Customer Service, Inc. (Time, Inc.)     229,605     6/30/2020     100 %
1420 Greenwood Road   McDonough   GA   Atlas Cold Storage America, LLC     296,972     10/31/2017     100 %
7500 Chavenelle Road   Dubuque   IA   The McGraw-Hill Companies, Inc.     330,988     6/30/2017     100 %
3600 Southgate Drive   Danville   IL   Sygma Network, Inc. (Sysco Corporation)     149,500     10/31/2015     100 %
749 Southrock Drive   Rockford   IL   Jacobson Warehouse Company, Inc. (Jacobson Transportation Company, Inc.)     150,000     12/31/2015     100 %
3686 S. Central Avenue   Rockford   IL   Jacobson Warehouse Company, Inc. (Jacobson Transportation Company, Inc.)     90,000     12/31/2014     100 %
10000 Business Boulevard   Dry Ridge   KY   Dana Corporation     336,350     6/30/2025     100 %
730 N. Black Branch Road   Elizabethtown   KY   Dana Corporation     167,770     6/30/2025     100 %
750 N. Black Branch Road   Elizabethtown   KY   Dana Corporation     539,592     6/30/2025     100 %
301 Bill Bryan Road   Hopkinsville   KY   Dana Corporation     424,904     6/30/2025     100 %
4010 Airpark Drive   Owensboro   KY   Dana Corporation     211,598     6/30/2025     100 %
1901 Ragu Drive   Owensboro   KY   Unilever Supply Chain, Inc. (Unilever United States, Inc.)     443,380     12/19/2020     100 %
7150 Exchequer Drive   Baton Rouge   LA   Corporate Express Office Products, Inc. (Buhrmann NV)     79,086     10/31/2013     100 %
5001 Greenwood Road   Shreveport   LA   Libbey Glass, Inc.     646,000     10/30/2026     100 %
N. Wells Road   North Berwick   ME   United Technologies Corporation     820,868     12/31/2010     100 %
4425 Purks Road   Auburn Hills   MI   Vacant     183,717     None     0 %
6938 Elm Valley Drive   Kalamazoo   MI   Dana Corporation     150,945     10/25/2021     100 %
904 Industrial Road   Marshall   MI   Tenneco Automotive Operating Company, Inc. (Tenneco, Inc.)     195,640     8/17/2010     100 %
1601 Pratt Avenue   Marshall   MI   Joseph Campbell Company     53,600     9/30/2011     100 %
43955 Plymouth Oaks Boulevard   Plymouth   MI   Tower Automotive Operations USA I, LLC (Tower (Tower Automotive Holdings I, LLC)     290,133     10/31/2012     100 %
46600 Port Street   Plymouth   MI   Vacant     134,160     None     0 %
7111 Crabb Road   Temperance   MI   CEVA Logistics U.S., Inc. (TNT Holdings B.V.)     752,000     8/4/2012     100 %
7670 Hacks Cross Road   Olive Branch   MS   MAHLE Clevite, Inc. (MAHLE Industries, Inc,)     268,104     2/28/2016     100 %
1133 Poplar Creek Road   Henderson   NC   Corporate Express Office Products, Inc. (Buhrmann NV)     196,946     1/31/2014     100 %
250 Swathmore Avenue   High Point   NC   Steelcase, Inc.     244,851     9/30/2017     100 %
2880 Kenny Biggs Road   Lumberton   NC   Quickie Manufacturing Corporation     423,280     11/30/2021     100 %
2203 Sherrill Drive   Statesville   NC   LA-Z-Boy Greensboro, Inc. (LA-Z-Boy, Inc.)     639,600     4/30/2010     100 %
121 Technology Drive   Durham   NH   Heidelberg Web Systems, Inc.     500,500     3/30/2021     100 %
1109 Commerce Boulevard   Swedesboro   NJ   Linens’n Things, Inc.     262,644     12/31/2008     100 %


26


Table of Contents

                                 
                Net
           
            Primary Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Lease Expiration
 
Leased
 
 
75 North Street   Saugerties   NY   Rotron, Inc. (EG&G)     52,000     12/31/2009     100 %
10590 Hamilton Avenue   Cincinnati   OH   The Hillman Group, Inc.     247,088     8/31/2016     100 %
1650 & 1654 Williams Road   Columbus   OH   ODW Logistics, Inc.     772,450     6/30/2018     100 %
191 Arrowhead Drive   Hebron   OH   Owens Corning Insulating Systems, LLC     250,450     4/13/2008     41 %
200 Arrowhead Drive   Hebron   OH   Owens Corning Insulating Systems, LLC     401,260     5/31/2009     100 %
7005 Cochran Road   Glenwillow   OH   Royal Appliance Manufacturing Company     458,000     7/31/2015     100 %
10345 Philipp Parkway   Streetsboro   OH   L’Oreal USA, Inc.     649,250     10/17/2019     100 %
245 Salem Church Road   Mechanicsburg   PA   Exel Logistics, Inc. (NFC plc)     252,000     12/31/2012     100 %
6 Doughten Road   New Kingston   PA   Carolina Logistics Services     330,000     Month to month     51 %
34 East Main Street   New Kingston   PA   Quaker Sales and Distribution, Inc.     179,200     2/29/2008     100 %
159 Farley Drive   Dillon   SC   Harbor Freight Tools USA, Inc. (Central Purchasing, Inc.)     1,010,859     12/31/2021     100 %
50 Tyger River Drive   Duncan   SC   Plastic Omnium Exteriors, LLC     218,382     5/31/2017     100 %
101 Michelin Drive   Laurens   SC   CEVA Logistics U.S., Inc. (TNT Holdings B.V.)     1,164,000     8/4/2012     100 %
6050 Dana Way   Antioch   TN   W.M. Wright Company     677,400     3/31/2021     50 %
477 Distribution Parkway   Collierville   TN   Federal Express Corporation     120,000     5/31/2021     100 %
900 Industrial Boulevard   Crossville   TN   Dana Corporation     222,200     9/30/2016     100 %
120 S.E. Parkway Drive   Franklin   TN   Essex Group, Inc. (United Technologies Corporation)     289,330     12/31/2013     100 %
187 Spicer Drive   Gordonsville   TN   Dana Corporation     148,000     8/31/2012     100 %
3350 Miac Cove Road   Memphis   TN   Mimeo.com, Inc.     141,359     9/30/2020     84 %
3456 Meyers Avenue   Memphis   TN   Sears, Roebuck & Company     780,000     2/28/2017     100 %
3820 Micro Drive   Millington   TN   Ingram Micro, LP (Ingram Micro, Inc.)     701,819     9/25/2011     100 %
9110 Grogans Mill Road   Houston   TX   Baker Hughes, Inc.     275,750     9/27/2015     100 %
19500 Bulverde Road   San Antonio   TX   Harcourt Brace & Company (Reed Elsevier, Inc.)     559,258     3/31/2016     100 %
2425 Highway 77 N   Waxahachie   TX   James Hardie Building Products, Inc. (James Hardie N.V.)     425,816     3/31/2020     100 %
291 Park Center Drive   Winchester   VA   Kraft Foods North America, Inc.     344,700     5/31/2011     100 %
                                 
            Industrial Total     21,086,207              
                                 


27


Table of Contents

LEXINGTON CONSOLIDATED PORTFOLIO
PROPERTY CHART
RETAIL/OTHER
 
                                 
                Net
           
            Primary Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Lease Expiration
 
Leased
 
 
302 Coxcreek Parkway
  Florence   AL   The Kroger Company     42,130     7/1/2013     100 %
5544 Atlanta Highway   Montgomery   AL   Vacant     60,698     None     0 %
Bisbee Naco Highway & Highway 92   Bisbee   AZ   Safeway Stores, Inc.     30,181     3/31/2009     100 %
10415 Grande Avenue   Sun City   AZ   Cafeteria Operators, LP (Furrs Restaurant Group, Inc.)     10,000     4/30/2012     100 %
Grant Road & Craycroft Road   Tucson   AZ   Safeway Stores, Inc.     37,268     3/31/2009     100 %
Old Mamoth Road & Meridian Boulevard   Mammoth Lakes   CA   Safeway Stores, Inc.     44,425     5/31/2012     100 %
255 Northgate Drive   Manteca   CA   Kmart Corporation     107,489     12/31/2018     100 %
12080 Carmel Mountain Road   San Diego   CA   Kmart Corporation     107,210     12/31/2018     100 %
12000 East Mississippi Ave   Aurora   CO   Safeway Stores, Inc.     24,000     5/31/2012     100 %
Kipling Street & Bowles Avenue   Littleton   CO   Vacant     29,360     None     0 %
10340 U.S. 19   Port Richey   FL   Kingswere Furniture     53,820     11/30/2017     100 %
2010 Apalachee Parkway   Tallahassee   FL   Kohl’s Department Stores, Inc.     102,381     1/31/2028     100 %
2223 N. Druid Hills Road   Atlanta   GA   Bank South, N.A. (Bank of America Corporation)     6,260     12/31/2009     100 %
956 Ponce de Leon Avenue   Atlanta   GA   Bank South, N.A. (Bank of America Corporation)     3,900     12/31/2009     100 %
4545 Chamblee-Dunwoody Road   Chamblee   GA   Bank South, N.A. (Bank of America Corporation)     4,565     12/31/2009     100 %
201 W. Main Street   Cumming   GA   Bank South, N.A. (Bank of America Corporation)     14,208     12/31/2009     100 %
3468 Georgia Highway 120   Duluth   GA   Bank South, N.A. (Bank of America Corporation)     9,300     12/31/2009     100 %
1066 Main Street   Forest Park   GA   Bank South, N.A. (Bank of America Corporation)     14,859     12/31/2009     100 %
825 Southway Drive Boulevard   Jonesboro   GA   Bank South, N.A. (Bank of America Corporation)     4,894     12/31/2009     100 %
1698 Mountain Industrial   Stone Mountain   GA   Bank South, N.A. (Bank of America Corporation)     5,704     12/31/2009     100 %
Fort Street Mall, King Street   Honolulu   HI   Macy’s Department Stores, Inc.     85,610     9/30/2009     100 %
1150 W. Carl Sandburg Drive   Galesburg   IL   Kmart Corporation     94,970     12/31/2018     100 %
928 First Avenue   Rock Falls   IL   Rock Falls Country Market, LLC (Rock Island Country Market, LLC)     27,650     9/30/2011     100 %
502 E. Carmel Drive   Carmel   IN   Marsh Supermarkets, Inc.     38,567     10/31/2013     100 %
5104 N. Franklin Road   Lawrence   IN   Marsh Supermarkets, Inc.     28,721     10/31/2013     100 %
205 Homer Road   Minden   LA   Safeway Stores, Inc.     35,000     11/30/2012     100 %
7200 Cradle Rock Way   Columbia   MD   GFS Realty, Inc.     57,209     12/31/2008     100 %
9580 Livingston Road   Oxon Hill   MD   GFS Realty, Inc. (Giant Food, Inc.)     107,337     2/28/2014     100 %
2401 Wooton Parkway   Rockville   MD   GFS Realty, Inc. (Giant Food, Inc.)     51,682     4/30/2017     100 %
24th Street W. & St. John’s Avenue   Billings   MT   Safeway Stores, Inc.     40,800     5/31/2010     100 %
35400 Cowan Road   Westland   MI   Sam’s Real Estate Business Trust     101,402     1/31/2009     100 %
Little Rock Road &                                
Tuckaseegee Road   Charlotte   NC   Food Lion, Inc.     33,640     10/31/2013     100 %
Brown Mill Road & US 601   Concord   NC   Food Lion, Inc.     32,259     10/31/2013     100 %


28


Table of Contents

                                 
                Net
           
            Primary Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Lease Expiration
 
Leased
 
 
104 Branchwood Shopping Center   Jacksonville   NC   Food Lion, Inc.     23,000     2/28/2013     100 %
US 221 & Hospital Road   Jefferson   NC   Food Lion, Inc.     23,000     2/28/2013     100 %
291 Talbert Boulevard   Lexington   NC   Food Lion, Inc.     23,000     2/28/2013     100 %
835 Julian Avenue   Thomasville   NC   Food Lion, Inc.     21,000     10/31/2008     100 %
10 South Avenue   Garwood   NJ   Pathmark Stores, Inc.     52,000     5/31/2011     100 %
900 S. Canal Street   Carlsbad   NM   Cafeteria Operators, LP (Furrs Restaurant Group, Inc.)     10,000     4/30/2012     100 %
130 Midland Avenue   Portchester   NY   Pathmark Stores, Inc.     59,000     10/31/2013     100 %
21082 Pioneer Plaza Drive   Watertown   NY   Kmart Corporation     120,727     12/31/2018     100 %
4733 Hills and Dales Road   Canton   OH   Bally’s Total Fitness of the Midwest (Bally’s Health & Tennis Corporation)     37,214     12/31/2009     100 %
4831 Whipple Avenue N.W   Canton   OH   Best Buy Company, Inc.     46,350     2/26/2018     100 %
1084 E. Second Street   Franklin   OH   Marsh Supermarkets, Inc.     29,119     10/31/2013     100 %
5350 Leavitt Road   Lorain   OH   Kmart Corporation     193,193     12/31/2018     100 %
N.E.C. 45th Street & Lee Boulevard   Lawton   OK   Safeway Stores, Inc.     30,757     3/31/2009     100 %
6910 S. Memorial Highway   Tulsa   OK   Toys “R” Us, Inc.     43,123     5/31/2011     100 %
12535 S.E. 82nd Avenue   Clackamas   OR   Toys “R” Us, Inc.     42,842     5/31/2011     100 %
1642 Williams Avenue   Grants Pass   OR   Safeway Stores, Inc.     33,770     3/31/2009     100 %
559 N. Main Street   Doylestown   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
25 E. Main Street   Lansdale   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
1055 W. Baltimore Pike   Lima   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
4947 N. Broad Street   Philadelphia   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
2001-03 Broad Street   Philadelphia   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
6201 N. 5th Street   Philadelphia   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
7323-29 Frankford Avenue   Philadelphia   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
15 S. 52nd Street   Philadelphia   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
10650 Bustleton Avenue   Philadelphia   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
1025 W. Lehigh Avenue   Philadelphia   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
2014 Cottman Avenue   Philadelphia   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
4160 Monument Road   Philadelphia   PA   Pathmark Stores, Inc.     50,000     11/30/2010     100 %
15 Newton — Richboro Road   Richboro   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
363 W. Lancaster Avenue   Wayne   PA   Citizens Bank of Pennsylvania     3,800     8/31/2018     100 %
South Carolina 52/52 Bypass   Moncks Corner   SC   Food Lion, Inc.     23,000     2/28/2013     100 %
1000 U.S. Highway 17   North Myrtle Beach   SC   Food Lion, Inc.     43,021     10/31/2008     100 %
399 Peach Wood Centre Drive   Spartanburg   SC   Best Buy Company, Inc.     45,800     2/26/2018     100 %
1600 E. 23rd Street   Chattanooga   TN   The Kroger Company     42,130     7/1/2008     100 %
1053 Mineral Springs Road   Paris   TN   The Kroger Company     31,170     7/1/2013     100 %
3040 Josey Lane   Carrollton   TX   Ong’s Family, Inc.     61,000     1/31/2021     100 %
4121 S. Port Avenue   Corpus Christi   TX   Cafeteria Operators, LP (Furr’s Restaurant Group, Inc.)     10,000     4/30/2012     100 %
1610 S. Westmoreland Avenue   Dallas   TX   Malone’s Food Stores     68,024     3/31/2017     100 %
119 N. Balboa Road   El Paso   TX   Cafeteria Operators, LP (Furrs Restaurant Group, Inc.)     10,000     4/30/2012     100 %
3451 Alta Mesa Boulevard   Fort Worth   TX   Safeway Stores, Inc.     44,000     5/31/2012     100 %
101 W. Buckingham Road   Garland   TX   Minyard Foods     40,000     11/30/2012     100 %
1415 Highway 377 E.   Granbury   TX   Safeway Stores, Inc.     35,000     11/30/2012     100 %
2500 E. Carrier Parkway   Grand Prairie   TX   Safeway Stores, Inc.     49,349     3/31/2009     100 %
4811 Wesley Street   Greenville   TX   Safeway Stores, Inc.     48,427     5/31/2011     100 %


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Table of Contents

                                 
                Net
           
            Primary Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Lease Expiration
 
Leased
 
 
120 S. Waco Street   Hillsboro   TX   Safeway Stores, Inc.     35,000     11/30/2012     100 %
13133 Steubner Avenue   Houston   TX   The Kroger Company     52,200     12/29/2011     100 %
5402 4th Street   Lubbock   TX   Vacant     53,820     None     0 %
901 W. Expressway 83   McAllen   TX   Cafeteria Operators, LP (Furrs Restaurant Group, Inc.)     10,000     4/30/2012     100 %
402 E. Crestwood Drive   Victoria   TX   Cafeteria Operators, LP (Furrs Restaurant Group, Inc.)     10,000     4/30/2012     100 %
9400 South 755 E   Sandy   UT   Vacant     41,612     None     0 %
3211 W. Beverly Street   Staunton   VA   Food Lion, Inc.     23,000     2/28/2013     100 %
9803 Edmonds Way   Edmonds   WA   PCC Natural Markets     34,459     8/31/2028     100 %
224th Street & Meridian Avenue   Graham   WA   Safeway Stores, Inc.     44,718     3/31/2009     100 %
18601 Alderwood Mall Boulevard   Lynnwood   WA   Toys “R” Us, Inc.     43,105     5/31/2011     100 %
400 E. Meridian Avenue   Milton   WA   Safeway Stores, Inc.     44,718     3/31/2009     100 %
1700 State Route 160   Port Orchard   WA   Save-A-Lot, Ltd.     27,968     1/31/2015     57 %
228th Avenue N.E.   Redmond   WA   Safeway Stores, Inc.     44,718     3/31/2009     100 %
4512 N. Market Street   Spokane   WA   Safeway Stores, Inc     38,905     3/31/2009     100 %
3711 Gateway Drive   Eau Claire   WI   Kohl’s Deptartment Stores, Inc.     76,164     1/25/2015     100 %
97 Seneca Trail   Fairlea   WV   Kmart Corporation     90,933     12/31/2018     100 %
3621 E. Lincoln Way   Cheyenne   WY   Vacant     31,420     None     0 %
                                 
            Retail/Other Subtotal     3,588,655              
                                 
            Grand Total     45,521,591              
                                 


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Table of Contents

LEXINGTON
NON-CONSOLIDATED PROPERTY
CHART
 
                                 
                Net
           
            Primary Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Lease Expiration
 
Leased
 
 
OFFICE
                               
5201 W. Barraque Street   Pine Bluff   AR   Entergy Services, Inc.     27,189     10/31/2010     100 %
Route 64 W. & Junction 333   Russellville   AR   Entergy Gulf States     191,950     5/9/2008     100 %
1440 E. 15th Street   Tucson   AZ   Cox Communications, Inc.     28,591     9/30/2016     100 %
3500 N. Coop Court   McDonough   GA   Litton Loan Servicing, LP & Credit - Based Asset and Securitzation, LLC     62,000     8/31/2018     100 %
2500 Patrick Henry Parkway   McDonough   GA   Georgia Power Company     111,911     6/30/2015     100 %
3265 E. Goldstone Drive   Meridian   ID   Voicestream PCS II Corporation (T-Mobile USA, Inc.)     77,484     6/28/2019     100 %
101 E. Washington Boulevard   Fort Wayne   IN   American Electric Power     348,452     10/31/2016     100 %
9601 Renner Boulevard   Lenexa   KS   Voicestream PCS II Corporation (T-Mobile USA, Inc.)     77,484     10/31/2019     100 %
First Park Drive   Oakland   ME   Omnipoint Holdings, Inc. (T-Mobile USA, Inc.)     78,610     8/31/2020     100 %
12000 &12025 Tech Center Drive   Livonia   MI   Kelsey-Hayes Company (TRW Automotive, Inc.)     180,230     4/30/2014     100 %
3943 Denny Avenue   Pascagoula   MS   Northrop Grumman Systems Corporation     94,841     10/14/2008     100 %
3201 Quail Springs Parkway   Oklahoma City   OK   AT& T Wireless Services, Inc.     128,500     11/30/2010     100 %
2999 SW 6th Street   Redmond   OR   Voice Stream PCS I LLC (T-Mobile USA, Inc.)     77,484     1/31/2019     100 %
265 Lehigh Street   Allentown   PA   Wachovia Bank N.A.     71,230     10/31/2010     100 %
17 Technology Circle   Columbia   SC   Blue Cross Blue Shield of South Carolina, Inc.     456,304     9/30/2009     100 %
420 Riverport Road   Kingport   TN   American Electric Power     42,770     6/30/2013     100 %
1600 Eberhardt Road   Temple   TX   Nextel of Texas     108,800     1/31/2016     100 %
26410 McDonald Road   Houston   TX   Montgomery County Management Company, LLC     41,000     10/31/2019     100 %
3711 San Gabriel   Mission   TX   Voice Stream PCS II Corporation (T-Mobile USA, Inc.)     75,016     6/30/2015     100 %
6455 State Hwy 303 N.E   Bremerton   WA   Nextel West Corporation     60,200     5/14/2016     100 %
                                 
            Office Total     2,340,046              
                                 


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Table of Contents

LEXINGTON
NON-CONSOLIDATED PROPERTY
CHART
 
                                 
                Net
           
            Primary Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Lease Expiration
 
Leased
 
 
INDUSTRIAL
                               
109 Stevens Street   Jacksonville   FL   Unisource Worldwide, Inc.     168,800     9/30/2009     100 %
359 Gateway Drive   Livonia   GA   TI Group Automotive Systems, LLC     133,221     5/31/2020     100 %
3600 Army Post Road   Des Moines   IA   EDS Information Services, LLC (Electronic Data Systems Corporation)     405,000     4/30/2012     100 %
2935 Van Vactor Way   Plymouth   IN   Bay Valley Foods, LLC     300,500     6/30/2015     100 %
1901 49th Avenue   Minneapolis   MN   Owens Corning Roofing and Asphalt, LLC     18,620     6/30/2015     100 %
324 Industrial Park Road   Franklin   NC   SKF USA, Inc.     72,868     12/31/2014     100 %
736 Addison Road   Erwin   NY   Corning, Inc.     408,000     11/30/2016     100 %
590 Ecology Lane   Chester   SC   Owens Corning     420,597     7/14/2025     100 %
2401 Cherahala Boulevard   Knoxville   TN   Advance PCS, Inc.     59,748     5/31/2013     100 %
2424 Alpine Road   Eau Claire   WI   Silver Spring Gardens, Inc. (Huntsinger Farms, Inc.)     159,000     2/28/2027     100 %
                                 
            Industrial Total     2,146,354              
                                 


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Table of Contents

LEXINGTON
NON-CONSOLIDATED PROPERTY
CHART
 
                                 
                Net
           
            Primary Tenant
  Rentable
    Current Term
  Percent
 
Property Location
 
City
 
State
  (Guarantor)  
Square Feet
   
Lease Expiration
 
Leased
 
 
RETAIL/OTHER
                               
101 Creger Drive   Ft. Collins   CO   Lithia Motors     10,000     5/31/2012     100 %
11411 N. Kelly Avenue   Oklahoma City   OK   American Golf Corporation     13,924     12/31/2017     100 %
25500 State Highway 249   Tomball   TX   Parkway Chevrolet, Inc.     77,076     8/31/2026     100 %
1321 Commerce Street   Dallas   TX   Adolphus Associates (Met Life)     498,122     6/15/2009     100 %
                                 
            Retail/Other Total     599,122              
                                 
            Grand Total     5,085,522              
                                 


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Table of Contents

Item 3.   Legal Proceedings
 
From time to time we are involved in legal proceedings arising in the ordinary course of our business. In our management’s opinion, after consultation with legal counsel, the outcome of such matters, including the matters set forth below, are not expected to have a material adverse effect on our ownership, financial condition, management or operation of our properties or business.
 
Lexington Streetsboro LLC v. Alfred Geis, et al.  
 
Beginning in January 2005, on behalf of one of our co-investment programs, we received notices from the tenant in our Streetsboro, Ohio facility regarding certain alleged deficiencies in the construction of the facility as compared to the original building specifications. Upon acquisition of the facility from the developer, the then owner of the facility obtained an indemnity from the principals of the developer covering a breach of construction warranties, the construction and/or the condition of the premises. After two years of correspondence among the owner of the facility, the developer and the tenant, we (after our acquisition of the facility from our co-investment program) entered into an amendment to the lease with the tenant providing for the repair of a portion of the alleged deficiencies and commenced such repairs beginning in the summer of 2007.
 
Following a demand for reimbursement under the indemnity agreement, we filed suit against the developer and the principals of the developer in the Federal District Court for the Northern District of Ohio on August 10, 2007 to enforce our rights (Lexington Streestboro LLC v. Alfred Geis, et al., Case No. 5:07CV2450). On November 1, 2007, the developer filed (1) counter-claims against us for unjust enrichment regarding the repair work performed and for a declaration of its obligations under the indemnity agreement and (2) multiple cross-claims against its sub-contractors asking to be reimbursed for any deficiencies in the building specifications for which they are held liable. The developer was also permitted by the Court to file a claim against the tenant. The suit is on-going.
 
As of December 31, 2007, we have incurred $3.7 million of expenses in connection with the work covered by the lease amendment and the enforcement of our rights under the indemnity agreement. We may seek an additional $2.5 million for future costs that may be incurred in connection with other potential deficiencies. We intend to vigorously pursue our claims and reimbursement under the indemnity agreement.
 
Deutsche Bank Securities, Inc.  
 
On June 30, 2006, we, including a co-investment program as it relates to the Antioch claim, sold to Deutsche Bank Securities, Inc., which we refer to as Deutsche Bank, (1) a $7.7 million bankruptcy damage claim against Dana Corporation for $5.4 million, which we refer to as the Farmington Hills claim, and (2) a $7.7 million bankruptcy damage claim against Dana Corporation for $5.7 million, which we refer to as the Antioch claim. Under the terms of the agreements covering the sale of the claims, we are obligated to reimburse Deutsche Bank should the claim ever be disallowed, subordinated or otherwise impaired, to the extent of such disallowance, subordination or impairment, plus interest at the rate of 10% per annum from the date of payment of the purchase price by Deutsche Bank to us. On October 12, 2007, Dana Corporation filed an objection to both claims. We assisted Deutsche Bank and the then holders of the claims in the preparation and filing of a response to the objection. Despite a belief by us that the objections were without merit, the holders of the claims, without our consent, settled the allowed amount of the claims at $6.5 million for the Farmington Hills claim and $7.2 million for the Antioch claim. Deutsche Bank has made a formal demand with respect to the Farmington Hills claim in the amount of $0.8 million plus interest, but has not made a formal demand with respect to the Antioch claim, which we estimate would be $0.4 million plus interest. We informed Deutsche Bank that we do not intend to honor any demand for a variety of reasons, including that (1) the holders of the claims arbitrarily settled the claims for reasons based on factors other than the merits and (2) the holders of the claims voluntarily reduced the claims to participate in certain settlement pools. We intend to vigorously defend any further claims or demands by Deutsche Bank or the holders of the claims.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
None.


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Table of Contents

Executive Officers of the Registrant
 
The following sets forth certain information relating to our executive officers:
 
     
Name
 
Business Experience
 
Michael L. Ashner
Age 55
  Mr. Ashner served as Chairman and the Chief Executive Officer of Newkirk until consummation of the Merger, a position he held since June 2005. On December 31, 2006, Mr. Ashner was appointed as our Executive Chairman and Director of Strategic Acquisitions. Mr. Ashner also serves as a trustee and the Chairman and Chief Executive Officer of Winthrop Realty Trust, positions he has held since January 2004. Mr. Ashner is a member of the Investment Committee of Concord appointed by the administrative manager of Concord. Since 1996 he has also served as the Chief Executive Officer of Winthrop Realty Partners, L.P., which we refer to as Winthrop, a real estate investment and management company. Mr. Ashner devotes the business time to us as is reasonably required to perform his duties. Mr. Ashner served as a director and Chief Executive Officer of Shelbourne Properties I, Inc., Shelbourne Properties II, Inc. and Shelbourne Properties III, Inc., three real estate investment trusts, from August 2002 until their liquidation in April 2004. Mr. Ashner also serves on the board of directors of NBTY, Inc., a manufacturer and distributor of nutritional supplements.
E. Robert Roskind
Age 62
  Mr. Roskind became Co-Vice Chairman on December 31, 2006, and served as our Chairman from October 1993 to December 31, 2006 and our Co-Chief Executive Officer from October 1993 to January 2003. Mr. Roskind is a member of the Investment Committee of Concord appointed by us. He founded The LCP Group, L.P., a real estate advisory firm, in 1973 and has been its Chairman since 1976. Mr. Roskind also serves as Chairman of Crescent Hotels and Resorts, as a member of the Board of Directors of LCP Investment Corporation, a Japanese real estate investment trust listed on the Tokyo Stock Exchange, and as a member of the Board of Directors of LCP Reit Advisors, the external advisor to LCP Investment Corporation, each of which is an affiliate of the LCP Group L.P. Mr. Roskind spends approximately 25% of his business time on the affairs of The LCP Group L.P. and its affiliates; however, Mr. Roskind prioritizes his business time to address our needs ahead of The LCP Group L.P.
Richard J. Rouse
Age 62
  Mr. Rouse became Co-Vice Chairman on December 31, 2006, served, and continues to serve as our Chief Investment Officer since January 2003 and as one of our trustees since October 1993. He served as our President from October 1993 to April 1996, was our Co-Chief Executive Officer from October 1993 until January 2003, and since April 1996 served as our Vice Chairman.
T. Wilson Eglin
Age 43
  Mr. Eglin has served as our Chief Executive Officer since January 2003, our Chief Operating Officer since October 1993, our President since April 1996 and as a trustee since May 1994. He served as one of our Executive Vice Presidents from October 1993 to April 1996. Mr. Eglin is a member of the Investment Committee of Concord appointed by us.
Patrick Carroll
Age 44
  Mr. Carroll has served as our Chief Financial Officer since May 1998, our Treasurer since January 1999 and one of our Executive Vice Presidents since January 2003. Prior to joining us, Mr. Carroll was, from 1986 to 1998, in the real estate practice of Coopers & Lybrand L.L.P., a public accounting firm that was one of the predecessors of Pricewaterhouse Coopers LLP.
Paul R. Wood
Age 47
  Mr. Wood has served as one of our Vice Presidents, and our Chief Accounting Officer and Secretary since October 1993.


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Table of Contents

 
PART II.
 
Item 5.   Market For The 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, 2007
  $ 20.90     $ 14.52  
September 30, 2007
    21.54       18.78  
June 30, 2007
    21.65       20.38  
March 31, 2007
    22.42       20.02  
December 31, 2006
    22.73       20.40  
September 30, 2006
    21.90       19.53  
June 30, 2006
    22.15       19.87  
March 31, 2006
    22.90       19.64  
 
The per share closing price of our common shares was $15.18 on February 22, 2008.
 
Holders.  As of February 22, 2008, we had approximately 2,428 common shareholders of record.
 
Dividends.  We have made quarterly distributions since October 1986 without interruption.
 
The common share dividends paid in each quarter for the last five years are as follows:
 
                                         
Quarters Ended
  2007     2006     2005     2004     2003  
 
March 31,
  $ 0.5975     $ 0.365     $ 0.360     $ 0.350     $ 0.335  
June 30,
  $ 0.375     $ 0.365     $ 0.360     $ 0.350     $ 0.335  
September 30,
  $ 0.375     $ 0.365     $ 0.360     $ 0.350     $ 0.335  
December 31,
  $ 0.375     $ 0.365     $ 0.360     $ 0.350     $ 0.335  
 
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.
 
On February 20, 2008, we declared a common share dividend of $0.33 per common share, which is equal to $1.32 per common share on an annualized basis.
 
The following is a summary of the average taxable nature of our normal common share dividends paid for the three years ended December 31:
 
                         
    2007     2006     2005  
 
Total dividends per share
  $ 2.93342(1 )   $ 1.46     $ 1.44  
                         
Ordinary income
    42.36 %     68.89 %     87.29 %
15% rate — qualifying dividend
    2.50       0.77       1.04  
15% rate gain
    35.62       7.97       8.72  
25% rate gain
    19.52       5.13       2.95  
Return of capital
          17.24        
                         
      100.00 %     100.00 %     100.00 %
                         
 
 
(1) Includes the special dividend of $0.2325 paid in January 2007 and a portion of the special dividend of $2.10 paid in January 2008. Of the total dividend paid in January 2008, $1.21092 is allocated to 2007 and $1.26408 is allocated to 2008.


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Table of Contents

 
The per share dividend on our Series B Preferred Shares is $2.0125 per annum.
 
The following is a summary of the average taxable nature of the dividend on our Series B Cumulative Redeemable Preferred Stock for the three years ended December 31:
 
                         
    2007     2006     2005  
 
Ordinary income
    42.36 %     83.24 %     87.29 %
15% rate — qualifying dividend
    2.50       0.93       1.04  
15% rate gain
    35.62       9.63       8.72  
25% rate gain
    19.52       6.20       2.95  
                         
      100.00 %     100.00 %     100.00 %
                         
 
The per share dividend on our Series C Preferred Share is $3.25 per annum.
 
The following is a summary of the average taxable nature of the dividend on our Series C Cumulative Convertible Preferred Stock for the three years ended December 31:
 
                         
    2007     2006     2005  
 
Ordinary income
    42.36 %     83.24 %     87.29 %
15% rate — qualifying dividend
    2.50       0.93       1.04  
15% rate gain
    35.62       9.63       8.72  
25% rate gain
    19.52       6.20       2.95  
                         
      100.00 %     100.00 %     100.00 %
                         
 
During 2007, we issued $155.0 million in liquidation amount of Series D Preferred Shares, which pays a per share dividend of $1.8875 per annum.
 
The following is a summary of the average taxable nature of the dividend on our Series D Preferred Shares for the year ended December 31, 2007.
 
         
    2007  
 
Ordinary income
    42.36 %
15% rate — qualifying dividend
    2.50  
15% rate gain
    35.62  
25% rate gain
    19.52  
         
      100.00 %
         
 
While we intend to continue paying regular quarterly dividends to holders of our common shares, future dividend declarations will be at the discretion of the 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. Due to the sale of properties during 2007 and the distribution of such proceeds via the special dividend, the recurring quarterly common dividend to be paid in 2008 has been reduced from $0.375 per share to $0.33 per share. 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 indebtedness 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 dividend reinvestment program pursuant to which our 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 may, from time to time, either repurchase common shares in the open market, or


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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 to be purchased on the open market.
 
Equity Compensation Plan Information.  The following table sets forth certain information, as of December 31, 2007, with respect to the compensation plan under which our equity securities are authorized for issuance.
 
                         
                Number of Securities
 
                Remaining Available for
 
    Number of Securities
          Future Issuance Under
 
    to be Issued Upon
    Weighted-Average
    Equity Compensation
 
    Exercise of
    Exercise Price of
    Plans (Excluding
 
    Outstanding Options,
    Outstanding Options,
    Securities Reflected in
 
Plan Category
  Warrants and Rights     Warrants and Rights     Column (a))  
    (a)     (b)     (c)  
 
Equity compensation plans approved by security holders
    0     $ 0       4,999,422  
Equity compensation plans not approved by security holders
    0       0        
                         
Total
    0     $ 0       4,999,422  
                         
 
Recent Sales of Unregistered Securities.
 
Information regarding the recent sales of unregistered securities has been included in our periodic reports with the SEC.
 
Share Repurchase Program.
 
Our Board of Trustees authorized the repurchase of up to 10.0 million common shares/OP units in the first quarter of 2007 and during the fourth quarter of 2007 increased the authorization by 5.0 million. The following table summarizes repurchases of our common shares/units during the fourth quarter of 2007:
 
                                 
                Total Number of
    Maximum Number of
 
                Shares/Units
    Shares That May Yet
 
    Total Number of
    Average Price
    Purchased as Part of
    Be Purchased Under
 
    Shares/Units
    Paid per
    Publicly Announced
    the Plans or
 
Period
  Purchased     Share/Unit ($)     Plans or Programs     Programs  
 
October 1 — 31, 2007
    32,392       20.05       32,392       3,374,440  
November 1 — 30, 2007
    1,277,810       18.02       1,277,810       2,096,630  
December 1 — 31, 2007
    1,326,648       17.39       1,326,648       5,769,982  
                                 
Fourth Quarter 2007
    2,636,850       17.72       2,636,850       5,769,982  
                                 


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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, 2007. 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 on Form 10-K. ($000’s, except per share data)
 
                                         
    2007     2006     2005     2004     2003  
 
Total gross revenues
  $ 431,747     $ 186,693     $ 162,383     $ 109,901     $ 73,999  
Expenses applicable to revenues
    (297,139 )     (106,796 )     (81,645 )     (37,581 )     (24,568 )
Interest and amortization expense
    (163,628 )     (65,097 )     (56,177 )     (36,448 )     (25,609 )
Income (loss) from continuing operations
    (10,783 )     (7,909 )     17,606       27,021       15,873  
Total discontinued operations
    87,634       15,662       15,089       17,786       17,776  
Net income
    76,851       7,753       32,695       44,807       33,649  
Net income (loss) allocable to common shareholders
    50,118       (8,682 )     16,260       37,862       30,257  
Income (loss) from continuing operations per common share — basic
    (0.58 )     (0.47 )     0.03       0.43       0.37  
Income from continuing operations per common share — diluted
    (0.58 )     (0.47 )     0.03       0.41       0.36  
Income from discontinued operations — basic
    1.35       0.30       0.30       0.38       0.52  
Income from discontinued operations — diluted
    1.35       0.30       0.30       0.39       0.52  
Net income (loss) per common share — basic
    0.77       (0.17 )     0.33       0.81       0.89  
Net income (loss) per common share — diluted
    0.77       (0.17 )     0.33       0.80       0.88  
Cash dividends declared per common share
    3.60       2.0575       1.445       1.410       1.355  
Net cash provided by operating activities
    287,651       108,020       105,457       90,736       68,883  
Net cash used in investing activities
    (31,490 )     (154,080 )     (643,777 )     (202,425 )     (295,621 )
Net cash provided by financing activities
    38,973       483       444,878       242,723       228,986  
Ratio of earnings to combined fixed charges and preferred dividends
    N/A       N/A       1.15       1.47       1.52  
Real estate assets, net
    3,715,447       3,471,027       1,641,927       1,227,262       1,001,772  
Investments in non-consolidated entities
    226,476       247,045       191,146       132,738       69,225  
Total assets
    5,265,163       4,624,857       2,160,232       1,697,086       1,207,411  
Mortgages, notes payable and credit facility, including discontinued operations
    3,047,550       2,132,661       1,170,560       765,909       551,385  
Shareholders’ equity
    939,071       1,122,444       891,310       847,290       579,848  
Preferred share liquidation preference
    389,000       234,000       234,000       214,000       79,000  
 
 
N/A — Ratio is below 1.0, deficit of $84,014 and $6,503 exists at December 31, 2007 and 2006, respectively.


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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 below under “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.
 
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 and our primary business is the investment in and the acquisition, ownership and management of a geographically diverse portfolio of net leased office, industrial and retail properties. Substantially all of our properties are subject to triple net leases, which are generally characterized as leases in which the tenant bears all or substantially all of the costs and/or cost increases for real estate taxes, utilities, insurance and ordinary repairs.
 
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year ended December 31, 1993. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net income that is currently distributed to shareholders.
 
As of December 31, 2007, we had ownership interests in approximately 280 consolidated real estate assets, located in 42 states and the Netherlands and encompassing 45.5 million rentable square feet. During 2007, we purchased eight properties from unrelated parties, for an aggregate capitalized cost of $131.5 million. In addition, we acquired our partners’ interests in four co-investment programs for $366.6 million in cash.
 
As of December 31, 2007, we leased properties to numerous tenants in a variety of industries. Our revenues and cash flows are generated predominantly from property rent receipts. Growth in revenue and cash flows is directly correlated to our ability to (1) acquire income producing properties and (2) to re-lease properties that are vacant, or may become vacant at favorable rental rates. 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 relationship with developers, brokers, corporate users and sellers.
 
Re-leasing properties as leases expire and properties currently vacant at favorable effective rates is one of our primary focuses. The primary risks associated with re-tenanting properties are (1) the period of time required to find a new tenant, (2) whether rental rates will be lower than previously received, (3) the significant leasing costs such as commissions and tenant improvement allowances and (4) the payment of operating costs such as real estate taxes and insurance while there is no offsetting revenue. We address these risks by contacting tenants well in advance of lease maturity to get an understanding of their occupancy needs, contacting local brokers to determine the depth of the rental market and retaining local expertise to assist in the re-tenanting of a property. Pursuant to our strategic restructuring plan we focus on buying general purpose office and industrial real estate assets which have one or more of the following characteristics (1) an investment grade tenant; (2) adaptability to a variety of users, including multi-tenant use, and (3) an attractive geographic location. No assurance can be given that once a property becomes vacant it will subsequently be re-let.
 
During 2007, we sold 53 consolidated properties for $423.6 million and contributed/sold 30 properties to NLS for $121.7 million in cash and an equity position of $109.1 million. During 2006, we sold eight properties, including one property through foreclosure, to unrelated third parties for a net sales price of $94.0 million. During 2005, we sold eight properties, including one sold through a non-consolidated entity, to unrelated parties for a net sales price of $74.7 million. In addition in 2005, we contributed seven properties to various non-consolidated entity programs for $124.7 million, which approximated carrying costs.


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We believe that the restructuring plan will allow us to (1) improve the quality of our portfolio; (2) enhance shareholder value by increasing cash flows; (3) simplify factors relating to our valuation; and (4) operate more efficiently.
 
Inflation
 
Certain of the long-term leases on our properties contain provisions that may mitigate the adverse impact of inflation on our operating results. Such provisions include clauses entitling us to receive (1) scheduled fixed base rent increases and (2) base rent increases based upon the consumer price index. In addition, a majority of the leases on our properties require tenants to pay operating expenses, including maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses. In addition, the leases on our properties are generally structured in a way that minimizes our responsibility for capital improvements.
 
Critical Accounting Policies
 
Our accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require our management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported. The following are critical accounting policies which are important to the portrayal of our financial condition and results of operations and which require some of management’s most difficult, subjective and complex judgments. The accounting for these matters involves the making of estimates based on current facts, circumstances and assumptions which could change in a manner that would materially affect management’s future estimates with respect to such matters. Accordingly, future reported financial conditions and results could differ materially from financial conditions and results reported based on management’s current estimates.
 
Business Combinations.  We follow the provisions of Statement of Financial Accounting Standards No. 141, Business Combinations, which we refer to as SFAS 141, and record all assets acquired and liabilities assumed at fair value. On December 31, 2006, we acquired Newkirk through the Merger, which was a variable interest entity (VIE). We follow the provisions of Financial Accounting Standards Board Interpretation No. 46 (Revised) Consolidation of Variable Interest Entities, which we refer to as FIN 46R, and, as a result, we have recorded the minority interest in Newkirk at estimated fair value on the date of acquisition. The value of the consideration issued in common shares was based upon a reasonable period before and after the date that the terms of the acquisition were agreed to and announced.
 
Purchase Accounting for Acquisition of Real Estate.  We allocate the purchase price of real estate acquired in accordance with SFAS 141. SFAS 141 requires that the fair value of the real estate acquired, which includes the impact of mark-to-market adjustments for assumed mortgage debt relating to property acquisitions, is allocated to the acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values.
 
The fair value of the tangible assets, which includes land, building and improvements, and fixtures and equipment, of an acquired property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on management’s determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions.
 
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the difference between the current in-place lease rent and a management estimate of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental revenue over the non-cancelable periods and any bargain renewal periods of the respective leases. Above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases.


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The aggregate value of other acquired intangible assets, consisting of in-place leases and customer relationships, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and customer relationships based on management’s evaluation of the specific characteristics of each tenant’s lease. The value of in-place leases are amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of customer relationships are amortized to expense over the applicable lease term plus expected renewal periods.
 
Revenue Recognition.  We recognize revenue in accordance with Statement of Financial Accounting Standards No. 13 Accounting for Leases, as amended, which we refer to as SFAS 13. SFAS 13 requires that revenue be recognized on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Renewal options in leases with rental terms that are lower than those in the primary term are excluded from the calculation of straight line rent, if they do not meet the criteria of a bargain renewal option. In those instances in which we fund tenant improvements and the improvements are deemed to be owned by us, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When we determine that the tenant allowances are lease incentives, we commence revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and amortized as a reduction of revenue on a straight-line basis over the respective lease term.
 
Gains on sales of real estate are recognized in accordance with Statement of Financial Accounting Standards No. 66 Accounting for Sales of Real Estate, as amended, which we refer to as SFAS 66. The specific timing of the sale is measured against various criteria in SFAS 66 related to the terms of the transactions and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. To the extent we sell a property and retain a partial ownership interest in the property, we recognize gain to the extent of the third party ownership interest in accordance with SFAS 66.
 
Accounts Receivable.  We continuously monitor collections from our tenants and would make a provision for estimated losses based upon historical experience and any specific tenant collection issues that we have identified. As of December 31, 2007 and 2006, the allowance for doubtful accounts is insignificant.
 
Impairment of Real Estate and Investment in Non-consolidated Entities.  We evaluate the carrying value of all real estate and investments in non-consolidated entities held when a triggering event under Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, as amended, which we refer to as SFAS 144, has occurred to determine if an impairment has occurred which would require the recognition of a loss. The evaluation includes reviewing anticipated cash flows of the property, based on current leases in place, and an estimate of what lease rents will be if the property is vacant coupled with an estimate of proceeds to be realized upon sale. However, estimating market lease rents and future sale proceeds is highly subjective and such estimates could differ materially from actual results.
 
Tax Status.  We have made an election to qualify, and believe we are operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, we generally will not be subject to federal income tax, provided that distributions to our shareholders equal at least the amount of our REIT taxable income as defined under Sections 856 through 860 of the Code.
 
We are now permitted to participate in certain activities from which we were previously precluded in order to maintain our qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable subsidiaries under the Code. LRA and Lexington Contributions Inc., which we refer to as LCI, are, and LSAC was a, taxable REIT subsidiaries. As such, we are subject to federal and state income taxes on the income we receive from these activities.
 
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit


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carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
 
Properties Held For Sale.  We account for properties held for sale in accordance with SFAS 144. SFAS 144 requires that the assets and liabilities of properties that meet various criteria be presented separately in the statement of financial position, with assets and liabilities being separately stated. The operating results of these properties are reflected as discontinued operations in the statement of operations. Properties that do not meet the held for sale criteria of SFAS 144 are accounted for as operating properties.
 
Basis of Consolidation.  We determine whether an entity for which we hold an interest should be consolidated pursuant to FIN 46R. If the entity is not a variable interest entity, and we control the entity’s voting shares or similar rights, the entity is consolidated. FIN 46R requires us to evaluate whether we have a controlling financial interest in an entity through means other than voting rights.
 
Liquidity and Capital Resources
 
General.  Since becoming a public company, our principal sources of capital for growth have been the public and private equity and debt markets, property specific debt, our credit facility, issuance of OP units and undistributed cash flows. We expect to continue to have access to and use these sources in the future; however, there are factors that may have a material adverse effect on our access to capital sources. Our ability to incur additional debt to fund acquisitions is dependent upon our existing leverage, the value of the assets we are attempting to leverage and general economic and credit market conditions, which may be outside of management’s control or influence.
 
As of December 31, 2007, we held interests in approximately 280 consolidated properties, which were located in 42 states and the Netherlands. The real estate assets are primarily subject to triple net leases, which are generally characterized as leases in which the tenant pays all or substantially all of the cost and cost increases for real estate taxes, capital expenditures, insurance, utilities and ordinary maintenance of the property.
 
During the year ended December 31, 2007, in addition to the acquisition of our four co-investment programs, we purchased eight properties from third parties for a capitalized cost of $131.5 million and sold 53 consolidated properties to third parties for aggregate proceeds of $423.6 million, which resulted in a gain of $92.9 million.
 
Our principal sources of liquidity are revenues generated from the properties, interest on cash balances, amounts available under our unsecured credit facility, the MLP’s secured loan, co-investment programs and amounts that may be raised through the sale of securities in private or public offerings. For the years ended December 31, 2007 and 2006, the leases on our consolidated properties generated $385.9 million and $165.3 million, respectively, in rental revenue. The significant increase is due to the number of assets acquired in the Merger, the acquisition of the co-investment programs and the consolidation of LSAC effective in the fourth quarter of 2006.
 
In February 2007, we completed an offering of 6.2 million Series D Preferred Shares, having a liquidation amount of $25 per share and an annual dividend rate of 7.55% raising net proceeds of $149.8 million.
 
The MLP has a secured loan with Key Bank, N.A., which bears interest at LIBOR plus 60 basis points. As of December 31, 2007, $213.6 million was outstanding under the secured loan. The secured loan is scheduled to mature in June 2009. The secured loan requires monthly payments of interest only. The MLP is also required to make principal payments from the proceeds of certain property sales and certain refinancings if proceeds are not reinvested into net leased properties. The required principal payments are based on a minimum release price set forth in the secured loan agreement. The secured loan has customary covenants, which the MLP was in compliance with at December 31, 2007.
 
During 2007, we obtained $247.0 million in non-recourse mortgage financings, which have a fixed weighted-average interest rate of 6.1%. The proceeds of the financing were used to partially fund acquisitions.
 
During 2007, we issued, through a wholly-owned subsidiary, $200.0 million in Trust Preferred Notes. These Trust Preferred Notes, which are classified as debt, (1) are due in 2037, (2) are redeemable by us commencing April 2012 and (3) 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.


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In 2007, the MLP issued $450.0 million in 5.45% guaranteed exchangeable notes due in 2027, which can be put by the holder every five years commencing 2012 and upon certain events. The net proceeds of the issuance were used to repay indebtedness under the MLP’s former secured loan. The notes are currently exchangeable at certain times by the holders into our common shares at a price of $21.99 per share; however, the principal balance must be satisfied in cash.
 
During 2006, in addition to the Merger, we including non-consolidated entities, obtained $215.3 million in non-recourse mortgage financings which have a fixed weighted average interest rate of 6.0%. The proceeds of the financings were used to partially fund acquisitions.
 
During 2005, we completed a common share offering of 2.5 million shares raising aggregate net proceeds of $60.7 million. During 2005, we issued 400,000 Series C Preferred Shares, at $50 per share and a dividend rate of 6.50%, raising net proceeds of $19.5 million.
 
Dividends.  In connection with our intention to continue to qualify as a REIT for federal income tax purposes, we expect to continue paying regular dividends to our shareholders. These dividends are expected to be paid from operating cash flows and/or from other sources. Since cash used to pay dividends reduces amounts available for capital investments, we generally intend to maintain a conservative dividend payout ratio, reserving such amounts as we consider necessary for the maintenance or expansion of properties in our portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as our Board of Trustees considers appropriate.
 
Dividends paid to our common and preferred shareholders increased to $137.3 million in 2007, compared to $93.7 million in 2006 and $87.1 million in 2005. The increase is attributable to the increase in our outstanding common and preferred shares and the special dividend paid in January 2007 relating to the Merger.
 
Although we receive the majority of our base rental payments on a monthly basis, we intend to continue paying dividends quarterly. Amounts accumulated in advance of each quarterly distribution are invested by us in short-term money market or other suitable instruments.
 
We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with REIT requirements in both the short-term and long-term. In addition, we anticipate that cash on hand, borrowings under our credit facility, issuance of equity and debt and co-investment programs as well as other alternatives, will provide the necessary capital required by us. Cash flows from operations as reported in the Consolidated Statements of Cash Flows increased to $287.7 million for 2007 from $108.0 million for 2006 and $105.5 million for 2005. The underlying drivers that impact working capital and therefore cash flows from operations are the timing of collection of rents, including reimbursements from tenants, the collection of advisory fees, payment of interest on mortgage debt and payment of operating and general and administrative costs. We believe the net lease structure of the majority of our tenants’ leases enhances cash flows from operations since the payment and timing of operating costs related to the properties are generally borne directly by the tenant. Collection and timing of tenant rents is closely monitored by management as part of our cash management program.
 
Net cash used in investing activities totaled $31.5 million in 2007, $154.1 million in 2006 and $643.8 million in 2005. Cash used in investing activities related primarily to investments in real estate properties, joint ventures and notes receivable. Cash provided by investing activities related primarily to collection of notes receivable, distributions from non-consolidated entities in excess of accumulated earnings and proceeds from the sale of properties. Therefore, the fluctuation in investing activities relates primarily to the timing of investments and dispositions.
 
Net cash provided by financing activities totaled $39.0 million in 2007, $0.5 million in 2006 and $444.9 million in 2005. Cash provided by financing activities during each year was primarily attributable to proceeds from equity offerings, non-recourse mortgages and borrowings under our credit facility offset by dividend and distribution payments and debt payments.
 
UPREIT Structure.  Our UPREIT structure permits us to effect acquisitions by issuing to a property owner, as a form of consideration in exchange for the property, OP units in our operating partnerships. Substantially all


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outstanding OP units are redeemable by the holder at certain times for common shares on a one-for-one basis or, at our election, with respect to certain OP units, cash. Substantially all outstanding OP units require us to pay quarterly distributions to the holders of such OP units equal to the dividends paid to our common shareholders and the remaining OP units have stated distributions in accordance with their respective partnership agreement. To the extent that our dividend per share is less than a stated distribution per unit per the applicable partnership agreement, the stated distributions per unit are reduced by the percentage reduction in our dividend. No OP units have a liquidation preference. We account for outstanding OP units in a manner similar to a minority interest holder. The number of common shares that will be outstanding in the future should be expected to increase, and minority interest expense should be expected to decrease, as such OP units are redeemed for our common shares.
 
In connection with the Merger, the MLP effected a reverse unit-split pursuant to which each outstanding MLP unit was converted into 0.80 MLP units totaling 35.5 million MLP units, other than MLP units held directly or indirectly by us.
 
During 2006, one of our operating partnerships issued 34 thousand units (or $0.8 million) in connection with an acquisition.
 
During 2005, one of our operating partnerships issued 0.4 million OP units for approximately $7.7 million in cash.
 
As of December 31, 2007, there were 39.7 million OP units outstanding. Of the total OP units outstanding, approximately 29.2 million are held by related parties. As of December 31, 2006, there were 41.2 million OP units outstanding, other than OP units held directly or indirectly by us.
 
Financing
 
Revolving Credit Facility.  Our $200.0 million revolving credit facility with Wachovia Bank N.A. and a consortium of other banks, (1) expires June 2008 and (2) bears interest at 120-170 basis points over LIBOR depending on our leverage (as defined) in the credit facility. Our credit facility contains customary financial covenants including restrictions on the level of indebtedness, amount of variable debt to be borrowed and net worth maintenance provisions. As of December 31, 2007, we were in compliance with all covenants, no borrowings were outstanding, $198.5 million was available to be borrowed, and $1.5 million letters of credit were outstanding under the credit facility. We have the ability to extend the maturity date of the facility to June 2009 by requesting such extension from the lenders between February 28, 2008 and March 28, 2008 and paying $0.4 million. We anticipate that we will extend the maturity date.
 
The MLP has a secured loan with Key Bank, N.A., which bears interest at LIBOR plus 60 basis points. As of December 31, 2007, $213.6 million was outstanding under the secured loan. The secured loan is scheduled to mature in June 2009. The secured loan requires monthly payments of interest only. The MLP is also required to make principal payments from the proceeds of certain property sales and certain refinancings if such proceeds are not reinvested into net leased properties. The required principal payments are based on a minimum release price set forth in the secured loan agreement. The secured loan has customary covenants, which the MLP was in compliance with at December 31, 2007.
 
In 2007, the MLP issued $450 million in 5.45% guaranteed exchangeable notes due in 2027, which can be put by the holder every five years commencing 2012 and upon certain events. The net proceeds were used to repay indebtedness.
 
During 2007, we issued $200 million in Trust Preferred Notes. These Trust Preferred Notes, which are classified as debt, (1) are due in 2037, (2) are redeemable by us commencing April 2012 and (3) 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.
 
Debt Service Requirements.  Our principal liquidity needs are the payment of interest and principal on outstanding indebtedness. As of December 31, 2007, there were $3.0 billion of mortgages and notes payable outstanding, including discontinued operations. As of December 31, 2007, the weighted average interest rate on our outstanding debt was approximately 5.9%. Our ability to make debt service payments will depend upon our rental


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revenues and our ability to refinance the mortgage related thereto, sell the related property, have available amounts under our credit facility or access other capital. Our ability to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the availability and cost of mortgage debt at the time, our equity in the mortgaged properties, the financial condition and the operating history of the mortgaged properties, the then current tax laws and the general national, regional and local economic conditions.
 
We expect to continue to use property specific, non-recourse mortgages as we believe that by properly matching a debt obligation, including the balloon maturity risk, with a lease expiration, our cash-on-cash returns increase and the exposure to residual valuation risk is reduced. In December 2005, we informed the lender for our Milpitas, California property that we would no longer make debt service payments and our intention to convey the property to the lender to satisfy the mortgage. We recorded a $12.1 million impairment charge in 2005 relating to this property and a gain on debt satisfaction of $6.3 million upon foreclosure on the property by the lender in 2006. During 2006, we satisfied a $20.4 million mortgage note by making a $7.5 million cash payment plus assigning a $5.4 million escrow to the lender, which resulted in a gain of $7.5 million.
 
Other
 
Lease Obligations.  Since our tenants generally bear all or substantially all of the cost of property operations, maintenance and repairs, we do not anticipate significant needs for cash for these costs; however, for certain properties, we have a level of property operating expense responsibility. We generally fund property expansions with additional secured borrowings, the repayment of which is funded out of rental increases under the leases covering the expanded properties. To the extent there is a vacancy in a property, we would be obligated for all operating expenses, including real estate taxes and insurance. In addition certain leases require us to fund tenant expansions.
 
Our tenants generally pay the rental obligations on ground leases either directly to the fee holder or to us as increased rent.
 
Contractual Obligations.  The following summarizes the Company’s principal contractual obligations as of December 31, 2007 ($000’s):
 
                                                         
                                  2013 and
       
    2008     2009     2010     2011     2012     Thereafter     Total  
 
Notes payable(2)(3)
  $ 100,083     $ 339,552     $ 164,550     $ 184,059     $ 677,991     $ 1,581,315     $ 3,047,550  
Contract rights payable
          229       491       540       593       11,591       13,444  
Purchase obligations
                                         
Tenant incentives
    8,445       10,000                               18,445  
Operating lease obligations(1)
    4,431       3,858       3,631       3,235       2,830       16,720       34,705  
                                                         
    $ 112,959     $ 353,639     $ 168,672     $ 187,834     $ 681,414     $ 1,609,626     $ 3,114,144  
                                                         
 
 
(1) Includes ground lease payments and office rent. Amounts disclosed through 2008 include rent for our principal executive office which is fixed through 2008 and adjusted to fair market value as determined at January 2009. Therefore, the amounts for 2009 and thereafter do not include principal executive office rent. In addition certain ground lease payments due under bond leases allow for a right of offset between the lease obligation and the debt service and accordingly are not included.
 
(2) We have $1.5 million in outstanding letters of credit.
 
(3) Includes balloon payments.
 
Capital Expenditures.  Due to the net lease structure, we do not incur significant expenditures in the ordinary course of business to maintain our properties. However, as leases expire, we expect to incur costs in extending the existing tenant leases or re-tenanting the properties. The amounts of these expenditures can vary significantly depending on tenant negotiations, market conditions and rental rates. These expenditures are expected to be funded from operating cash flows or borrowings on our credit facility.


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Share Repurchases.  In September 1998, our Board of Trustees approved a funding limit for the repurchase of 1.0 million common shares/OP units, and authorized any repurchase transactions within that limit. In November 1998, our Board of Trustees approved an additional 1.0 million common shares/OP units for repurchase, thereby increasing the funding limit to 2.0 million common shares/OP units available for repurchase. From September 1998 to March 2005, we repurchased approximately 1.4 million common shares/OP units at an average price of $10.62 per common share/OP unit. In November 2005, our Board of Trustees increased the remaining amount of common shares/OP units eligible for repurchase, so that an aggregate of 2.0 million common shares/OP units were then available for repurchase under the share repurchase program. In March 2007, the Board of Trustees increased the remaining amount of common shares/OP Units eligible for repurchase up to 10.0 million. In December 2007, the Board of Trustees increased the remaining amount of common share/op units eligible for repurchase up to 5.0 million. As of December 31, 2007, 5.8 million common shares/ OP units were eligible for repurchase under the authorization. In 2007, approximately 9.8 million common shares/OP units were repurchased in the open market and through private transactions with our employees and OP unitholders at an average price of $19.83 per share.
 
Results of Operations
 
Year ended December 31, 2007 compared with December 31, 2006.  Changes in our results of operations are primarily due to the Merger, which was effective December 31, 2006, and the acquisition of the outstanding interests in our co-investment programs during the second quarter of 2007. Of the increase in total gross revenues in 2007 of $245.1 million, $220.6 million is attributable to rental revenue. The remaining $24.5 million increase in gross revenues in 2007 was primarily attributable to an increase in tenant reimbursements of $15.5 million and an increase in advisory and incentive fees of $9.0 million. The primary increase in advisory and incentive fees relates to promoted interests ($11.7 million) earned with respect to two co-investment programs and one advisory agreement.
 
The increase in interest and amortization expense of $98.5 million is due to the increase in long-term debt due to the growth of our portfolio resulting from the Merger and the acquisition of the outstanding interests in our co-investment programs.
 
The increase in property operating expense of $30.1 million is primarily due to an increase in properties for which we have operating expense responsibility, including an increase in vacancy.
 
The increase in depreciation and amortization of $160.2 million is due primarily to the growth in real estate and intangibles through the acquisition of properties in the Merger and the acquisition of the outstanding interests in our co-investment programs. Intangible assets are amortized over a shorter period of time (generally the lease term) than real estate assets.
 
The increase in general and administrative expenses of $3.9 million is due primarily to (1) costs associated with the Merger ($3.2 million); (2) the costs associated with LSAC ($0.9 million); (3) costs incurred in the formation of NLS ($2.3 million); and (4) professional fees ($1.2 million) all of which is offset by a reduction in other costs including personnel costs ($5.1 million), which relates primarily to the accelerated amortization of non-vested common shares in 2006 of $10.8 million and an increase in severance costs in 2007 of $4.5 million.
 
Non-operating income increased $1.8 million due primarily to increased interest and dividends from investments, offset by a gain in 2006 relating to the sale of a Dana bankruptcy claim.
 
Impairment charges increased $8.3 million due to the impairment charge on two properties in 2007,which are currently vacant and management changed its strategy from a long-term hold to hold for disposal. We will commence marketing these properties in 2008, however, we are unsure if the properties will be sold within 12 months.
 
Debt satisfaction charges changed $8.4 million due to mortgages being satisfied at a loss of $1.2 million in 2007 due to sales of properties to affiliates, compared to mortgages being repaid in 2006 at a gain of $7.2 million.
 
Provision for income taxes increased $3.6 million due to the write-off deferred tax assets of LSAC, the gain realized due to the sale of properties to NLS and earnings of the taxable REIT subsidiaries.


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Minority interest changed $3.3 million due to a reduction in earnings at the operating partnership level, primarily due to the impairment charges recorded on properties.
 
The equity in earnings of non-consolidated entities increase of $42.2 million is primarily due to the gains on sale realized relating to the dissolution of one co-investment program ($34.2 million) and gain recognized relating to the sale of an investment to NLS ($1.6 million).
 
The increase in gains on sale of properties — affiliates relates to the sale of properties to NLS.
 
Net income increased by $69.1 million primarily due to the net impact of items discussed above coupled with an increase of $72.0 million in income from discontinued operations.
 
In 2007, 56 properties were sold and classified as held for sale. In 2006, 17 properties were sold and classified as held for sale. Discontinued operations represents properties sold or held for sale. The total discontinued operations increased $72.0 million due to an increase in income from discontinued operations of $15.1 million coupled with a change in debt satisfaction charges of $12.4 million, an increase in gains on sale of $70.0 million, a change in minority interests share of income of $24.0 million, a reduction in impairment charges of $26.5 million and an increase in the provision for income taxes of $3.2 million.
 
Net income applicable to common shareholders in 2007 increased to $50.1 million compared to a net loss applicable to common shareholders in 2006 of $8.7 million. The increase is due to the items discussed above offset by an increase in preferred dividends of $10.3 million resulting from the issuance of Series D Preferred Shares. The increase in net income in future periods will be closely tied to the level of acquisitions made by us. Without acquisitions, the sources of growth in net income are limited to index adjusted rents (such as the consumer price index), percentage rents, reduced interest expense on amortizing mortgages and by controlling other variable overhead costs. However, there are many factors beyond management’s control that could offset these items including, without limitation, increased interest rates and tenant monetary defaults and the other risks described in this Annual Report.
 
Year ended December 31, 2006 compared with December 31, 2005.  Changes in our results of operations are primarily due to the growth of our portfolio and costs associated with such growth. Of the increase in total gross revenues in 2006 of $24.3 million, $18.4 million is attributable to rental revenue. The remaining $5.9 million increase in gross revenues in 2006 was primarily attributable to a decrease in advisory and incentive fees of $0.8 million and a $6.7 million increase in tenant reimbursements.
 
The increase in interest and amortization expense of $8.9 million is due to the growth of our portfolio and partially financing such growth with debt.
 
The increase in property operating expense of $10.3 million is primarily due to an increase in properties for which we have operating expense responsibility and an increase in vacancy.
 
The increase in depreciation and amortization of $14.8 million is due primarily to the growth in real estate and intangibles through the acquisition of properties. Intangible assets are amortized over a shorter period of time (generally the lease term) than real estate assets.
 
The increase in general and administrative expenses of $18.0 million is due primarily to increases in personnel costs, including the accelerated amortization of time-based non-vested shares of $10.8 million.
 
Impairment loss increased $7.2 million due to an impairment charge for a property in 2006.
 
Non-operating income increased $7.4 million primarily due to a sale of a tenant bankruptcy claim in 2006.
 
Debt satisfaction gains increased $2.8 million due to the timing of mortgage payoffs.
 
The minority interest share of income decrease of $1.1 million is due to a decrease in earnings at the partnership level.
 
The equity in earnings of non-consolidated entities decrease of $2.0 million is primarily due to a decrease in earnings of non-consolidated entities, primarily related to depreciation and amortization.


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Net income decreased by $24.9 million primarily due to the net impact of items discussed above coupled with an increase of $0.6 million in income from discontinued operations.
 
Discontinued operations represents properties sold or held for sale. Total discontinued operations increased $0.6 million due to a decrease in income from discontinued operations of $3.1 million coupled with a change in debt satisfaction gains of $5.2 million, an increase in gains on sale of $10.6 million, a change in minority interests share of loss of $3.1 million and an increase in impairment charges of $15.2 million. There was a net loss applicable to common shareholders in 2006 of $8.7 million compared to net income applicable to common shareholders in 2005 of $16.3 million. The decrease is due to the items discussed above.
 
Environmental Matters
 
Based upon management’s ongoing review of our properties, management is not aware of any environmental condition with respect to any of our properties, which would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that (1) the discovery of environmental conditions, which were previously unknown; (2) changes in law; (3) the conduct of tenants; or (4) activities relating to properties in the vicinity of our properties, 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 our tenants, which would adversely affect our financial condition and results of operations.
 
Recently Issued Accounting Standards
 
Recently Issued Accounting Standards.  In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123, (revised 2004) Share-Based Payment (“SFAS 123R”), which supersedes Accounting Principals Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also address transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost will be recognized over the period in which an employee is required to provide services in exchange for the award. SFAS 123R was effective for the fiscal year beginning on January 1, 2006. The impact of adopting this statement resulted in the elimination of $11,401 of deferred compensation and additional paid-in-capital from the consolidated statements of changes in shareholders’ equity as of January 1, 2006 and the adoption did not have a material impact on our results of operations or cash flows.
 
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations — an Interpretation of SFAS Statement No. 143 (“FIN 47”). FIN 47 clarifies the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset when the timing and /or method of settlement are conditional on a future event. FIN 47 is effective for fiscal years ending after December 15, 2005. The application of FIN 47 did not have a material impact on our consolidated financial position or results of operations.
 
In June 2005, the FASB ratified the Emerging Issues Task Force’s (“EITF”) consensus on EITF 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (“EITF 04-05”). EITF 04-05 provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership or a similar entity. It was effective after June 29, 2005 for all newly formed limited partnerships and for any pre-existing limited partnerships that modify their partnership agreements after that date. General partners of all other limited partnerships were required to apply the consensus no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The impact of the adoption of EITF 04-05 did not have a material impact on our financial position, results of operations or cash flows.


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In 2005, the EITF released Issue No. 05-06, Determining the Amortization Period for Leasehold Improvements (“EITF 05-06”), which clarifies the period over which leasehold improvements should be amortized. EITF 05-06 requires all leasehold improvements to be amortized over the shorter of the useful life of the assets, or the applicable lease term, as defined. The applicable lease term is determined on the date the leasehold improvements are acquired and includes renewal periods for which exercise is reasonably assured. EITF 05-06 was effective for leasehold improvements acquired in reporting periods beginning after June 29, 2005. The impact of the adoption of EITF 05-06 did not have a material impact on our financial position or results of operations.
 
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 was effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48, as of January 1, 2007, did not have a material impact on our financial position, results of operations or cash flows.
 
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years, except for non-financial assets and liabilities, which is deferred for one additional year. The adoption of this statement is not expected to have a material impact on our financial position, results of operations or cash flows.
 
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and liabilities and certain other items at fair value. An enterprise will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied on an instrument-by-instrument basis, with several exceptions, such as investments accounted for by the equity method, and once elected, the option is irrevocable unless a new election date occurs. The fair value option can be applied only to entire instruments and not to portions thereof. SFAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Management has determined that we will not adopt the fair value provisions of this pronouncement so it will have no impact on our financial position, results of operations or cash flows.
 
In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 provides guidance on how the effects of the carryover or reversal of prior year financial statements misstatements should be considered in quantifying a current period misstatement. In addition, upon adoption, SAB 108 permits us to adjust the cumulative effect of immaterial errors relating to prior years in the carrying amount of assets and liabilities as of the beginning of the current fiscal year, with an offsetting adjustment to the opening balance of retained earnings. SAB 108 also requires the adjustment of any prior quarterly financial statement within the fiscal year of adoption for the effects of such errors on the quarters when the information is next presented. We adopted SAB 108 effective December 31, 2006, and its adoption had no impact on our financial position, results of operations or cash flows.
 
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS 141R”). SFAS 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value”. SFAS 141R is effective for acquisitions in periods beginning on or after December 15, 2008.
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements (“SFAS No. 160”). SFAS No. 160 will require noncontrolling interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. SFAS No. 160 is effective for periods beginning on or after December 15, 2008. The adoption of this statement will result in the minority interest currently classified in the “mezzanine” section of the balance sheet to be reclassified as a component of shareholders’ equity, and minority interest expense will no longer be recorded in the income statement.


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In December 2007, the FASB ratified EITF consensus on EITF 07-06, Accounting for the Sale of Real Estate Subject to the Requirements of FASB Statement No. 66, Accounting for Sales of Real Estate, When the Agreement Includes a Buy-Sell Clause (EITF 07-06). EITF 07-06 clarifies that a buy-sell clause in a sale of real estate that otherwise qualifies for partial sale accounting does not by itself constitute a form of continuing involvement that would preclude partial sale accounting under SFAS No. 66. EITF 07-06 is effective for fiscal years beginning after December 15, 2007. The adoption of EITF 07-06 is not expected to have a material impact on our financial position, results of operations or cash flows.
 
In June 2007, the Securities and Exchange staff announced revisions to EITF Topic D-98 related to the release of SFAS 159. The Securities and Exchange Commission announced that it will no longer accept liability classification for financial instruments that meet the conditions for temporary equity classification under ASR 268, Presentation in Financial Statements of “Redeemable Preferred Stocks” and EITF Topic No. D-98. As a consequence, the fair value option under SFAS 159 may not be applied to any financial instrument (or host contract) that qualifies as temporary equity. This is effective for all instruments that are entered into, modified, or otherwise subject to a remeasurement event in the first fiscal quarter beginning after September 15, 2007. The adoption of this announcement is not expected to have a material impact on our financial position, results of operations or cash flows.
 
Off-Balance Sheet Arrangements
 
Non-Consolidated Real Estate Entities.  As of December 31, 2007, we had investments in various real estate entities with varying structures. The real estate investments owned by the entities are financed with non-recourse debt. Non-recourse debt is generally defined as debt whereby the lenders’ sole recourse with respect to borrower defaults is limited to the value of the property collateralized by the mortgage. The lender generally does not have recourse against any other assets owned by the borrower or any of the members of the borrower, except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to limited circumstances including breaches of material representations.
 
In addition, the Company has $1.5 million in outstanding letters of credit.
 
Net Lease Strategic Assets Fund L.P. (NLS)
 
Net Lease Strategic Assets Fund L.P. is a co-investment program with Inland American (Net Lease) Sub, LLC ( Inland). NLS was established to acquire specialty real estate in the United States.
 
In addition to the properties already owned by NLS, NLS has a right to acquire an additional 13 properties from us. The acquisition of each of the 13 assets by NLS is subject to satisfaction of conditions precedent to closing, including the assumption of existing financing, obtaining certain consents and waivers, the continuing financial solvency of the tenants, and certain other customary conditions. Accordingly, neither the Company nor NLS can provide any assurance that the acquisition by NLS will be completed. In the event that NLS does not acquire 11 of the assets by March 31, 2008 and two of the assets by June 30, 2008, NLS will no longer have the right to acquire the assets.
 
Concord Debt Holdings LLC
 
Through the MLP, we have a 50% interest in a co-investment program, Concord Debt Holdings LLC, which we refer to as Concord, that invests in real estate loan assets and debt securities. Our co-investment partner and the holder of the other 50% interest in Concord is WRT Realty L.P., which we refer to as WRT. WRT is the operating partnership subsidiary of Winthrop Realty Trust, and Michael L. Ashner, our Executive Chairman and Director of Strategic Acquisitions, is the Chairman and Chief Executive Officer of Winthrop Realty Trust.
 
Concord acquires, originates and manages loan assets and debt securities collateralized by real estate assets, including mortgage loans (commonly referred to as whole loans), subordinate interests in whole loans (either through the acquisition of a B-Note or a participation interest), mezzanine loans, and preferred equity and


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commercial real estate securities, including collateralized mortgage-backed securities, which we refer to as CMBS, and real estate collateral debt obligations, which we refer to as a CDO.
 
To date, each of the MLP and WRT has committed to invest $162.5 million in Concord, $5.1 million of which remained committed and unfunded by each of the MLP and WRT at December 31, 2007. In addition to capital contributions, Concord currently seeks to finance its loan assets and debt securities, and expects to finance the acquisition of additional loan assets and debt securities, through the use of various structures including repurchase facilities, credit facilities, credit lines, term loans, securitizations and issuances of common and preferred equity to institutional or other investors.
 
Concord is managed, and all its investments are sourced, by WRP Management LLC, a joint venture 50% owned by each of the MLP and WRT. WRP Management LLC subcontracts its management obligations with WRP Sub-Management LLC, which we refer to as the Concord Advisor, a subsidiary of Winthrop Realty Partners, L.P., which we refer to as WRP. Michael L. Ashner, our Executive Chairman and Director of Strategic Acquisitions, holds an equity interest in and controls WRP. The Concord Advisor has substantially the same executive officers as Winthrop Realty Trust and WRP. Certain investments and other material decisions with respect to Concord’s business require the consent of both us and WRT or our and WRT’s representatives on Concord’s investment committee.
 
Concord’s objective is to produce a stable income stream from investments in loan assets and debt securities by carefully managing credit risk and interest rate risk. Concord derives earnings from interest income rather than trading gains and intends to hold its loan assets and debt securities to maturity. Accordingly, the loan assets and debt securities in which Concord invests are selected based on their long-term earnings potential and credit quality.
 
Concord seeks to achieve its objective by acquiring and originating loan assets and debt securities collateralized by the core real estate groups of existing income producing office, retail, multi-family, warehouse and hospitality assets. Concord does not generally invest in industrial, R&D, special use or healthcare assets and Concord does not invest in any development projects, single family projects, condominium or condo conversion projects, raw land, synthetic loans or loans originated on assets located outside of the United States but may have interest in such assets if the underlying asset experiences a change in use. Further, Concord does not directly invest in single family home mortgages nor does it acquire loan assets or debt securities where the underlying obligor is either Winthrop Realty Trust or us or our respective affiliates. Concord only invests in assets in which the pool of potential buyers is broad and seeks to avoid assets which lack existing cash flow and/or were developed on a “for sale” basis. Moreover, depending on the size of the loan class, Concord generally seeks to acquire between 51% and 100% of the ownership position in the loan assets or debt securities in which it invests so as to control any decision making which might occur with respect to such instrument in the future.
 
Concord’s sole exposure to the single family residential market is with respect to an $11.5 million investment in a $1.0 billion bond, 18.5% of which is subordinate to Concord’s position. Collateral for this bond can consist of up to 10% of residential loans, with the balance of the collateral consisting of commercial loans. At December 31, 2007, the collateral for this bond consisted of only 7% of residential loans, some of which are considered “sub-prime.” As of December 31, 2007, Concord recorded an other than temporary impairment charge on this investment of $4.9 million.
 
Simultaneous with or following the acquisition of a loan asset or debt security, Concord seeks to enhance the return on its investment by obtaining financing. Concord’s original business model was to refinance its loan assets with long-term debt through the issuance of CDOs. To this end, Concord formed its first CDO, Concord Real Estate CDO 2006-1, Ltd., which we refer to as CDO-1, pursuant to which it refinanced approximately $464.6 million of its loan assets and debt securities.
 
The debt capital markets generally have experienced an increase in volatility and reduction in liquidity since the second quarter of 2007, which was initially triggered by credit concerns emanating from the single family residential market, particularly those loans commonly referred to as sub-prime loans. As a result of the increased volatility and reduction in liquidity in the debt capital markets, securitizations have become difficult if not


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impossible to execute. As a result, Concord has continued to finance its loan assets and debt securities through repurchase facilities that are either similar to (1) revolving loans where Concord has the ability to repurchase current assets on such facility (pay back the loan with respect to such asset) and finance other loan assets through such facility or (2) to term loans in that only specific loan assets secure such facility and once satisfied, Concord cannot use the facility for additional loan assets. See “Credit Facilities,” below. Concord expects to issue additional CDOs or other types of securitizations at such time, if at all, as such issuances will generate attractive risk-adjusted equity returns.
 
CDOs are a securitization structure whereby multiple classes of debt are issued to finance a portfolio of income producing assets, such as loan assets and debt securities. Cash flow from the portfolio of income producing assets is used to repay the CDO liabilities sequentially, in order of seniority. The most senior classes of debt typically have credit ratings of “AAA” through “BBB-” and therefore can be issued at yields that are lower than the average yield of the assets backing the CDO. That is, the gross interest payments on the senior classes of CDO securities are less than the average of the interest payment received by the CDO from its assets. On its existing CDO, Concord retained, and Concord expects that it will retain on any future CDOs, the equity and the junior CDO debt securities. As a result, assuming the CDO’s assets are paid in accordance with their terms, Concord’s return will be enhanced as Concord will retain the benefit of the spread between the yield on the CDO’s assets and the yield on the CDO’s debt. The equity and the junior CDO debt securities that Concord retained and intends to retain are the most junior securities in the CDO’s capital structure and are usually unrated or rated below investment grade. Concord also earns ongoing management fees for its management of the CDO collateral. A portion of these management fees is senior to the “AAA” rated debt securities of each CDO. In CDO-1, the level of leverage on the underlying assets was approximately 80%. The leverage level of Concord’s future CDOs may vary depending on the composition of the portfolio and market conditions at the time of the issuance of each CDO. Concord may increase or decrease leverage on its investment grade CDOs, at securitization, upward or downward to improve returns or to manage credit risk. In addition to CDO’s, Concord may also use other capital markets vehicles and structures to finance its real estate debt portfolio.
 
The Concord Advisor provides accounting, collateral management and loan brokerage services to Concord and its subsidiaries, including CDO-1. For providing these services, in 2007 Concord paid to the Concord Advisor a management fee of $1.9 million, which fees were based on the gross amount of loan assets acquired, and $0.7 million as reimbursement for certain direct costs incurred by the Concord Advisor solely for the benefit of Concord.
 
CDO-1
 
Concord holds loan assets and loan securities.  On December 21, 2006, Concord formed its first CDO, Concord Real Estate CDO 2006-1, Ltd., which we refer to as CDO-1, pursuant to which it financed approximately $464.6 million of its loan assets by issuing an aggregate of approximately $376.7 million of investment grade debt. Concord retained an equity and junior debt interest in the portfolio with a notional amount of $88.4 million. That is, if CDO-1 does not ultimately have sufficient funds to satisfy all of its obligations to its noteholders, Concord will bear the first $88.4 million in loss, one half of which would be attributable to our interest in Concord.
 
The financing through CDO-1 enhanced Concord’s return on the loan assets and loan securities held in CDO-1 as the weighted average interest rate on the loan assets and loan securities held in CDO-1 at December 31, 2007 was 6.7% and the weighted average interest rate on the amount payable by Concord on its notes at December 31, 2007 was 5.4%. Accordingly, assuming the loan assets and loan securities are paid in accordance with their terms, Concord retains an average spread of the difference between the interest received on the loan assets and loan securities and the interest paid on the loan assets and loan securities. The following table summarizes the loan assets


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and loan securities and the note obligations for CDO-1 at December 31, 2007 are set forth below (amounts in thousands).
 
                                                         
CDO Loan Assets and Loan Securities — December 31, 2007     CDO Notes — December 31, 2007  
          Weighted
    Weighted
          Weighted
             
    Par Value of
    Average
    Averaged
    Outstanding
    Average
             
Date
  CDO
    Interest
    Life
    CDO
    Interest
    Stated
    Retained
 
Closed
  Collateral(3)     Rate     (Years)     Notes(1)     Rate     Maturity     Interest(2)  
 
12/21/2006
  $ 464,601       6.70 %     4.29     $ 376,650       5.37 %     12/2016     $ 88,350  
 
 
(1) Includes only notes held by third parties.
 
(2) Concord’s potential economic loss is limited to the retained interest of its investment in CDO-1, of which the MLP would bear 50% of such loss.
 
(3) Consists of loan assets with a par value of $338,681 and loan securities with a par value of $125,920.
 
CDO-1’s loan assets were diversified by industry as follows at December 31, 2007:
 
         
Industry
  % of Face Amount  
 
Office
    44.22 %
Hospitality
    30.54 %
Multi-family
    8.62 %
Industrial
    7.09 %
Mixed Use
    5.10 %
Retail
    4.43 %
         
      100 %
         
 
The following table sets forth the aggregate carrying values, allocation by loan type and weighted average coupons of the loan assets and loan securities held in CDO-1 as of December 31, 2007:
 
                                         
                      Fixed Rate:
    Floating Rate:
 
    Carrying
          Allocation by
    Average
    Average Spread
 
    Value(1)     Par Value     Investment Type     Yield     over LIBOR(2)  
    (In thousands)  
 
Whole loans, floating rate
  $ 20,000     $ 20,000       4.31 %           195 bps  
Whole loans, fixed rate
    20,900       20,900       4.50 %     6.56 %      
Subordinate interests in whole loans, floating rate
    108,766       108,864       23.43 %           244 bps  
Subordinate interests in whole loans, fixed rate
    24,567       27,619       5.95 %     7.46 %      
Mezzanine loans, floating rate
    81,419       81,410       17.52 %           270 bps  
Mezzanine loans, fixed rate
    77,669       79,888       17.19 %     5.92 %      
Loan securities, floating rate
    100,955       103,428       22.26 %           189 bps  
Loan securities, floating rate
    18,448       22,492       4.84 %     5.97 %      
                                         
Total/Average
  $ 452,724     $ 464,601       100 %     6.30 %     230 bps  
                                         
 
 
(1) Net of scheduled amortization payments and prepayments, unamortized fees and discounts.
 
(2) Spreads over an index other than LIBOR have been adjusted to a LIBOR based equivalent.


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The following table sets forth the maturity dates for the loan assets held in CDO-1 at December 31, 2007:
 
                         
    Number of Loan
             
Year of Maturity
  Assets Maturing     Carrying Value     % of Total  
          (In thousands)        
 
2008
    7     $ 140,183       42.06 %
2009
    2       34,584       10.38 %
2010
    4       46,465       13.94 %
2011
    1       20,900       6.27 %
2012
    1       5,017       1.50 %
Thereafter
    7       86,172       25.85 %
                         
Total
    22     $ 333,321       100 %
                         
Weighted average maturity is 3.45 years(1)
                       
 
 
(1) The calculation of weighted average maturity is based upon the remaining initial term and does not take into account any maturity extension periods or the ability to prepay the investment after a negotiated lock-out period, which may be available to the borrower.
 
The following table sets forth a summary of the loan securities held in CDO-1 at December 31, 2007 (in thousands):
 
                                         
          Gross Unrealized
    Impairment
    Carrying
       
Description
  Par Value     Loss     Loss     Value        
 
Floating rate
  $ 22,492     $ (321 )   $ (1,601 )   $ 18,448          
Fixed rate
    103,428       (2,355 )           100,955          
                                         
Total
  $ 125,920     $ (2,676 )   $ (1,601 )   $ 119,403          
                                         
 
The following table sets forth a summary of the underlying Standard & Poor’s credit rating of the loan securities held in CDO-1 at December 31, 2007:
 
                 
Rating
  Par Value     Percentage  
    (In thousands)        
 
BBB+
  $ 9,000       7.15 %
BBB
    2,151       1.71 %
BBB-
    44,384       35.25 %
BB+
    33,392       26.52 %
BB
    18,500       14.69 %
B+
    7,000       5.56 %
Not rated
    11,493       9.12 %
                 
Total
  $ 125,920       100 %
                 


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Concord’s Loan Assets and Loan Securities
 
The following table sets forth the aggregate carrying values, allocation by loan type and weighted average coupons of Concord’s loan assets and loan securities in addition to its equity and debt interest in CDO-1 as of December 31, 2007:
 
                                         
                      Fixed Rate:
    Floating Rate:
 
                Allocation by
    Average
    Average Spread
 
    Carrying Value(1)     Par Value     Investment Type     Yield     over LIBOR(2)  
    (In thousands)                    
 
Whole loans, floating rate
  $ 136,260     $ 136,260       19 %           218 bps  
Whole loans, fixed rate
    6,300       6,300       1 %     6.40 %      
Subordinate interests in whole loans, floating rate
    163,077       163,908       23 %           223 bps  
Subordinate interests in whole loans, fixed rate
    14,196       15,750       2 %     8.63 %      
Mezzanine loans, floating rate
    230,852       236,436       33 %           222 bps  
Mezzanine loans, fixed rate
    68,028       71,718       10 %     7.45 %      
Loan securities, floating rate
    43,260       56,400       8 %           143 bps  
Loan securities, fixed rate
    25,411       27,084       4 %     6.68 %      
                                         
Total/Average
  $ 687,384     $ 713,856       100 %     7.38 %     214 bps  
                                         
 
 
(1) Net of scheduled amortization payments and prepayments, unamortized fees and discounts.
 
(2) Spreads over an index other than LIBOR have been adjusted to a LIBOR based equivalent.
 
The following table sets forth the maturity dates for Concord’s loan assets:
 
                         
    Number of Loan
             
Year of Maturity
  Assets Maturing     Carrying Value     % of Total  
    (In thousands)  
 
2008
    9     $ 185,500       30.0 %
2009
    9       134,052       21.7 %
2010
    3       81,903       13.2 %
2011
    1       6,300       1.0 %
2012
    3       72,968       11.8 %
Thereafter
    8       137,990       22.3 %
                         
Total
    33     $ 618,713       100 %
                         
Weighted average maturity is 2.72 years(1)
                       
 
 
(1) The calculation of weighted average maturity is based upon the remaining initial term and does not take into account any maturity extension periods or the ability to prepay the investment after a negotiated lock-out period, which may be available to the borrower.


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The following table sets forth a summary of Concord’s loan securities at December 31, 2007:
 
                                 
          Gross Unrealized
    Impairment
    Carrying
 
Description
  Par Value     Loss     Loss     Value  
 
Floating rate
  $ 56,400     $ (3,487 )   $ (9,427 )   $ 43,260  
Fixed rate
    27,084       (1,673 )           25,411  
                                 
Total
  $ 83,484     $ (5,160 )   $ (9,427 )   $ 68,671  
                                 
 
The following table sets forth a summary of the underlying Standard & Poor’s credit rating of Concord’s loan securities at December 31, 2007:
 
                 
Rating
  Par Value     Percentage  
 
AA-
  $ 1,381       1.65 %
A-
    1,966       2.36 %
BBB+
    25,094       30.06 %
BBB
    15,833       18.97 %
BBB-
    30,392       36.40 %
BB+
    5,000       5.99 %
Not rated
    3,818       4.57 %
                 
Total
  $ 83,484       100 %
                 
 
Concord’s loan assets were diversified by industry as follows at December 31, 2007:
 
         
Industry
  % of Par Value  
 
Office
    46.4 %
Hospitality
    41.7 %
Multi-family
    6.4 %
Mixed Use
    5.3 %
Industrial
    0.2 %
         
      100 %
         
 
Credit Facilities
 
As described above, Concord has financed certain of its loan assets and loan securities through credit facilities in the form of repurchase agreements. In the repurchase agreements entered into by Concord to date, the lender, referred to as the repurchase counterparty, purchases the loan asset or loan security from or on behalf of Concord and holds it on its balance sheet. Concord then repurchases the loan asset or loan security in cash on a specific repurchase date or, at the election of Concord, an earlier date. While the loan asset is held by the repurchase counterparty, the repurchase counterparty retains a portion of each interest payment made on such loan asset or loan security equal to the “price differential”, which is effectively the interest rate on the purchase price paid the repurchase counterparty to Concord for the loan asset or loan security, with the balance of such payments being paid to Concord. Pursuant to the terms of the repurchase agreements, if the market value of the loan assets or loan securities pledged or sold by Concord decline, which decline is determined, in most cases, by the repurchase counterparty, Concord may be required by the repurchase counterparty to provide additional collateral or pay down a portion of the funds advanced. During 2007, Concord was required to pay down an aggregate of $24.0 million against $472.3 million of outstanding repurchase obligations.
 
Concord currently has five repurchase facilities, two of which are not loan asset/loan security specific and three of which are loan asset/loan security specific. That is, under the non-loan asset/loan security specific repurchase facilities, Concord has the ability to pay back the loan with respect to such asset/loan security and finance other loan assets or loan securities through such facility. With respect to the loan asset/loan security specific


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repurchase facilities, once the loan assets or loan securities securing such facility satisfied, Concord cannot use the facility for additional loan assets or loan securities.
 
The following table summarizes the terms of Concord’s current repurchase facilities at December 31, 2007 (in thousands):
 
                                         
    Maximum
                      Carrying Value of
 
    Outstanding
    Outstanding
    Interest Rate —
    Maturity
    Assets
 
Counterparty
  Balance     Balance     LIBOR Plus(5)     Date     Securing Facility  
 
Greenwich(1)
  $ 39,079     $ 39,079       100 bps       12/08     $ 55,827  
Greenwich(1)
    59,613       59,613       100 bps       12/12       70,146  
Column(1)
    16,414       16,414       100 bps       3/09 (3)     25,270  
Column(2)
    350,000       308,508       85-135 bps(4 )     3/09       412,561  
Bear Stearns(2)
    150,000       48,710       85-115 bps(4 )     11/08       82,258  
 
 
(1) Repurchase facilities cover specific loan assets and may not be used for any other loan assets.
 
(2) Repurchase facilities may be used for multiple loan assets and loan securities subject to the repurchase counterparty’s consent. Repurchase counterparties have advised that no additional advance will be made except, if at all, in connection with loans assets or debt securities acquired for the repurchase counterparty.
 
(3) May be extended for up to three one-year extensions.
 
(4) Interest rate is based on type of loan asset or loan security for which financing is provided. Weighted average at December 31, 2007 on the Column repurchase facility was 5.8% and on the Bear Stearns repurchase facility was 5.5%
 
(5) Concord has entered into interest rate swaps with a total national amount of $203.3 million as of December 31, 2007 to manage exposure to interest rate movements affecting interest payments on certain variable-rate obligations.
 
Item 7A.   Quantitative and Qualitative Disclosure about Market Risk
 
Our exposure to market risk relates primarily to our debt. As of December 31, 2007, and 2006, our variable rate indebtedness represented 7.0% and 28.8%, respectively, of total mortgages and notes payable. During 2007 and 2006, this variable rate indebtedness had a weighted average interest rate of 7.0% and 6.8%, respectively. Had the weighted average interest rate been 100 basis points higher our interest expense would have been increased by $1.5 million and $0.1 million in 2007 and 2006, respectively. As of December 31, 2007 and 2006, our fixed rate debt, including discontinued operations, was $2,833.9 million and $1,516.6 million, respectively, which represented 93.0% and 71.2%, respectively, of total long-term indebtedness. The weighted average interest rate as of December 31, 2007 of fixed rate debt was 5.9%, which approximates the weighted average fixed rate for debt obtained by us during 2007. The weighted average interest rate as of December 31, 2006 of fixed rate debt was 6.0%. With only $31.8 million in consolidated debt maturing in 2008, we believe we have limited market risk exposure to rising interest rates as it relates to our fixed rate debt obligations. However, had the fixed interest rate been higher by 100 basis points, our interest expense would have been increased by $25.9 million and $11.9 million for years ended December 31, 2007 and 2006, respectively.


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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROLS
OVER FINANCIAL REPORTING
 
Management is responsible for establishing and maintaining adequate internal controls over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles.
 
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
In assessing the effectiveness of our internal controls over financial reporting, management used as guidance the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon the assessment performed, management believes that our internal controls over financial reporting are effective as of December 31, 2007.
 
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and the members of our Board of Trustees; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
 
Our independent registered public accounting firm, KPMG LLP, independently assessed the effectiveness of our internal controls over financial reporting. KPMG LLP has issued a report which is included on page 61 of this Annual Report.


59


 

Item 8.   Financial Statements and Supplementary Data
 
LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
INDEX
 
         
    Page
 
Reports of Independent Registered Public Accounting Firm
    61  
Consolidated Balance Sheets as of December 31, 2007 and 2006
    63  
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005
    64  
Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006 and 2005
    65  
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005
    66  
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
    67  
Notes to Consolidated Financial Statements
    68-101  
Financial Statement Schedule
       
Schedule III — Real Estate and Accumulated Depreciation
    102-111  


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Report of Independent Registered Public Accounting Firm
 
The Trustees and Shareholders
Lexington Realty Trust:
 
We have audited Lexington Realty Trust’s (the “Company”) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management’s annual report on internal controls over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and trustees of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as listed in the accompanying index, and our report dated February 28, 2008 expressed an unqualified opinion on those consolidated financial statements.
 
-s- KPMG
 
New York, New York
February 28, 2008


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Report of Independent Registered Public Accounting Firm
 
The Trustees and Shareholders
Lexington Realty Trust:
 
We have audited the accompanying consolidated financial statements of Lexington Realty Trust and subsidiaries (the “Company”), as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lexington Realty Trust and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
-s- KPMG
 
New York, New York
February 28, 2008


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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
 
Consolidated Balance Sheets
($000 except per share amounts)
Years ended December 31,
 
                 
    2007     2006  
 
ASSETS
Real estate, at cost:
               
Buildings and building improvements
  $ 3,388,421     $ 3,107,234  
Land and land estates
    694,020       625,717  
Land improvements
    893       2,044  
Fixtures and equipment
    11,944       12,161  
                 
      4,095,278       3,747,156  
Less: accumulated depreciation
    379,831       276,129  
                 
      3,715,447       3,471,027  
Properties held for sale — discontinued operations
    150,907       69,612  
Intangible assets (net of accumulated amortization of $181,190 in 2007 and $33,724 in 2006)
    516,698       468,244  
Investment in and advances to non-consolidated entities
    226,476       247,045  
Cash and cash equivalents
    412,106       97,547  
Investment in marketable equity securities (cost of $2,647 in 2007 and $31,247 in 2006)
    2,609       32,036  
Deferred expenses (net of accumulated amortization of $12,154 in 2007 and $6,834 in 2006)
    42,040       16,084  
Rent receivable — current
    25,289       43,283  
Rent receivable — deferred
    15,303       29,410  
Notes receivable
    69,775       50,534  
Other assets, net
    88,513       100,035  
                 
    $ 5,265,163     $ 4,624,857  
                 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
               
Mortgages and notes payable
  $ 2,312,422     $ 2,126,810  
Exchangable notes payable
    450,000        
Trust notes payable
    200,000        
Contract rights payable
    13,444       12,231  
Liabilities — discontinued operations
    119,093       6,064  
Accounts payable and other liabilities
    49,442       25,877  
Accrued interest payable
    23,507       10,818  
Dividends payable
    158,168       44,948  
Prepaid rent
    16,764       10,109  
Deferred revenue (net of accretion of $14,076 in 2007 and $1,029 in 2006)
    217,389       362,815  
                 
      3,560,229       2,599,672  
Minority interests
    765,863       902,741  
                 
      4,326,092       3,502,413  
                 
Commitments and contingencies (Notes 8, 9, 11, 12, 14, & 16)
               
Shareholders’ equity:
               
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares;
               
Series B Cumulative Redeemable Preferred, liquidation preference, $79,000, 3,160,000 shares issued and outstanding
    76,315       76,315  
Series C Cumulative Convertible Preferred, liquidation preference $155,000; 3,100,000 shares issued and outstanding
    150,589       150,589  
Series D Cumulative Convertible Preferred, liquidation preference $155,000; 6,200,000 shares issued and outstanding in 2007
    149,774        
Special Voting Preferred Share, par value $0.0001 per share; authorized and issued 1 share in 2007 and 2006
           
Common shares, par value $0.0001 per share, authorized 400,000,000 shares, 61,064,334 and 69,051,781 shares issued and outstanding in 2007 and 2006, respectively
    6       7  
Additional paid-in-capital
    1,033,332       1,188,900  
Accumulated distributions in excess of net income
    (468,167 )     (294,640 )
Accumulated other comprehensive income (loss)
    (2,778 )     1,273  
                 
Total shareholders’ equity
    939,071       1,122,444  
                 
    $ 5,265,163     $ 4,624,857  
                 
 
The accompanying notes are an integral part of these consolidated financial statements.


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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
 
Consolidated Statements of Operations
($000 except per share amounts)
Years ended December 31,
 
                         
    2007     2006     2005  
 
Gross revenues:
                       
Rental
  $ 385,898     $ 165,275     $ 146,848  
Advisory and incentive fees
    13,567       4,555       5,365  
Tenant reimbursements
    32,282       16,863       10,170  
                         
Total gross revenues
    431,747       186,693       162,383  
Expense applicable to revenues:
                       
Depreciation and amortization
    (236,044 )     (75,849 )     (61,004 )
Property operating
    (61,095 )     (30,947 )     (20,641 )
General and administrative
    (39,389 )     (35,514 )     (17,554 )
Impairment charges
    (15,500 )     (7,221 )      
Non-operating income
    10,726       8,913       1,502  
Interest and amortization expense
    (163,628 )     (65,097 )     (56,177 )
Debt satisfaction gains (charges), net
    (1,209 )     7,228       4,409  
                         
Income (loss) before benefit (provision) for income taxes, minority interests, equity in earnings of non-consolidated entities, gains on sale of properties-affiliates and discontinued operations
    (74,392 )     (11,794 )     12,918  
Benefit (provision) for income taxes
    (3,374 )     238       150  
Minority interests
    2,652       (601 )     (1,694 )
Equity in earnings of non-consolidated entities
    46,467       4,248       6,232  
Gains on sale of properties-affiliates
    17,864              
                         
Income (loss) from continuing operations
    (10,783 )     (7,909 )     17,606  
                         
Discontinued operations
                       
Income from discontinued operations
    29,561       14,459       17,593  
Provision for income taxes
    (3,327 )     (73 )      
Debt satisfaction (charges) gains
    (7,950 )     4,492       (731 )
Gains on sales of properties
    92,878       22,866       12,291  
Impairment charges
    (1,670 )     (28,209 )     (13,006 )
Minority interests share of (income) loss
    (21,858 )     2,127       (1,058 )
                         
Total discontinued operations
    87,634       15,662       15,089  
                         
Net income
    76,851       7,753       32,695  
Dividends attributable to preferred shares — Series B
    (6,360 )     (6,360 )     (6,360 )
Dividends attributable to preferred shares — Series C
    (10,075 )     (10,075 )     (10,075 )
Dividends attributable to preferred shares — Series D
    (10,298 )            
                         
Net income (loss) allocable to common shareholders
  $ 50,118     $ (8,682 )   $ 16,260  
                         
Income (loss) per common share — basic:
                       
Income (loss) from continuing operations
  $ (0.58 )   $ (0.47 )   $ 0.03  
Income from discontinued operations
    1.35       0.30       0.30  
                         
Net income (loss)
  $ 0.77     $ (0.17 )   $ 0.33  
                         
Weighted average common shares outstanding — basic
    64,910,123       52,163,569       49,835,773  
                         
Income (loss) per common share — diluted:
                       
Income (loss) from continuing operations
  $ (0.58 )   $ (0.47 )   $ 0.03  
Income from discontinued operations
    1.35       0.30       0.30  
                         
Net income (loss)
  $ 0.77     $ (0.17 )   $ 0.33  
                         
Weighted average common shares outstanding — diluted
    64,910,123       52,163,569       49,902,649  
                         
 
The accompanying notes are an integral part of these consolidated financial statements.


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LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
 
Consolidated Statements of Comprehensive Income
($000)
Years ended December 31,
 
                         
    2007     2006     2005  
 
Net income
  $ 76,851     $ 7,753     $ 32,695  
                         
Change in other comprehensive income:
                       
Unrealized gain (loss) in marketable equity securities
    (896 )     789        
Unrealized gain in foreign currency translation
    371       484        
Unrealized loss on investments in non-consolidated entities
    (3,526 )            
                         
Other comprehensive income (loss)
    (4,051 )     1,273        
                         
Comprehensive income
  $ 72,800     $ 9,026     $ 32,695  
                         
 
The accompanying notes are an integral part of these consolidated financial statements.


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Table of Contents

LEXINGTON REALTY TRUST
AND CONSOLIDATED SUBSIDIARIES
 
Consolidated Statements of Changes in Shareholders’ Equity
($000 except per share amounts)
Years ended December 31,
 
                                                                         
                                        Accumulated
    Accumulated
       
    Number of
          Number of
          Additional
    Deferred
    Distributions
    Other
    Total
 
    Preferred
          Common
          Paid-in
    Compensation,
    In Excess of
    Comprehensive
    Shareholders’
 
    Shares     Amount     Shares     Amount     Capital     Net     Net Income     Income (Loss)     Equity  
 
Balance at December 31, 2004
    5,860,000     $ 207,441       48,621,273     $ 5     $ 766,882     $ (8,692 )   $ (118,346 )   $     $ 847,290  
Net income
                                        32,695             32,695  
Dividends — common shareholders
                                        (72,617 )           (72,617 )
Dividends — preferred shareholders
                                        (14,494 )           (14,494 )
Issuance of common shares, net
                3,534,582             81,682       (5,575 )                 76,107  
Issuance of preferred shares, net
    400,000       19,463                                           19,463  
Amortization of deferred compensation
                                  2,866                   2,866  
                                                                         
Balance at December 31, 2005
    6,260,000       226,904       52,155,855       5       848,564       (11,401 )     (172,762 )           891,310  
Net income
                                        7,753             7,753  
Adoption of new accounting principle (Note 2)
                            (11,401 )     11,401                    
Dividends — common shareholders
                                        (109,088 )           (109,088 )
Dividends — preferred shareholders
                                        (20,543 )           (20,543 )
Issuance of common shares, net
                16,895,926       2       351,737                         351,739  
Issuance of special voting preferred
    1                                                  
Other comprehensive income
                                              1,273       1,273  
                                                                         
Balance at December 31, 2006
    6,260,001       226,904       69,051,781       7       1,188,900             (294,640 )     1,273       1,122,444  
Net income
                                        76,851             76,851  
Dividends — common shareholders