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Press Release

Lexington Realty Trust Reports First Quarter 2018 Results

Company Release - 5/8/2018 6:00 AM ET

NEW YORK, May 08, 2018 (GLOBE NEWSWIRE) -- Lexington Realty Trust (“Lexington”) (NYSE:LXP), a real estate investment trust focused on single-tenant real estate investments, today announced results for the first quarter ended March 31, 2018.

First Quarter 2018 Highlights

  • Generated Net Loss attributable to common shareholders of $(16.0) million, or $(0.07) per diluted common share.
  • Generated Adjusted Company Funds From Operations available to all equityholders and unitholders - diluted (“Adjusted Company FFO”) of $62.0 million, or $0.25 per diluted common share.
  • Disposed of six properties for an aggregate of $62.7 million.
  • Repurchased and retired 795,775 common shares at an average price of $7.94 per share.
  • Repaid $60.0 million, net, on the revolving credit facility.
  • Completed 209,000 square feet of new leases and lease extensions with portfolio 97.2% leased at quarter end.

Subsequent Events

  • Acquired two industrial properties for an aggregate cost of $92.5 million.

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

T. Wilson Eglin, Chief Executive Officer and President of Lexington Realty Trust, commented, “In our continued effort to further reduce our suburban office exposure, we disposed of an aggregate of $62.7 million of primarily office assets during the first quarter.  Furthermore, we continue to explore ways to maximize value in our office portfolio and focus our investment strategy on single-tenant industrial assets.”

FINANCIAL RESULTS

Revenues

For the quarter ended March 31, 2018, total gross revenues were $102.6 million, compared with total gross revenues of $96.1 million for the quarter ended March 31, 2017. The increase was primarily attributable to revenue generated from 2017 property acquisitions and new leases, partially offset by property sales and lease expirations.

Net Income (Loss) Attributable to Common Shareholders

For the quarter ended March 31, 2018, net loss attributable to common shareholders was $(16.0) million, or $(0.07) per diluted share, compared with net income attributable to common shareholders for the quarter ended March 31, 2017 of $40.4 million, or $0.17 per diluted share. The change between periods relates primarily to the timing of gains on sales and impairments recognized on real estate.

Adjusted Company FFO

For the quarter ended March 31, 2018, Lexington generated Adjusted Company FFO of $62.0 million, or $0.25 per diluted share, compared to Adjusted Company FFO for the quarter ended March 31, 2017 of $57.8 million, or $0.23 per diluted share. The increase was primarily attributable to the items discussed above under “Revenues”.

Dividends/Distributions

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

TRANSACTION ACTIVITY

PROPERTY DISPOSITIONS  
Primary Tenant Location Property Type Gross
Disposition

Price
($000)
 Annualized
Net Income(1)
($000)
 Annualized
NOI(1)
($000)
 Month of
Disposition
 %
Leased
Kelsey-Hayes Company(2) Livonia, MI Office $21,000  $1,144  $1,637  February 100%
Vacant Canton, OH Other 2,975  463  465  February 0%
Evans, Mechwart, Hambleton & Tillon, Inc. Columbus, OH Office 20,000  1,185  1,678  March 100%
Wipro Data Center and Cloud Services, Inc. Omaha, NE Office 16,400  765  1,167  March 100%
Autocam Corporation Marshall, MI Industrial 2,300  145  310  March 100%
      $62,675  $3,702  $5,257     

(1)  Quarterly period prior to sale annualized. Net income excludes impairment charges, if any.

(2)   Two properties.

These dispositions resulted in aggregate gains on sales of $22.8 million.

LEASING

During the first quarter of 2018, Lexington executed the following new and extended leases:

  LEASE EXTENSIONS    
            
  Location Primary Tenant(1)Prior
Term
 Lease
Expiration Date
 Sq. Ft.
  Industrial        
1 RockfordIL Pierce Packaging Co. 12/2019 12/2021 93,000 
1 Total industrial lease extensions       93,000 
           
  Office/Multi-Tenant        
1-6 Philadelphia/HonoluluPA/HI N/A 2018 2018-2023 10,633 
6 Total office lease extensions      10,633 
            
  Other        
1 LawtonOK Associated Wholesale Grocers, Inc./Safeway, Inc.03/2019 03/2024 30,757 
1 Total other lease extensions       30,757 
            
8 Total lease extensions       134,390 
            


  NEW LEASES         
            
  Location     Lease
Expiration Date
 Sq. Ft.
  Office/Multi-Tenant        
1 McDonoughGA Total System Services, Inc.   08/2021 62,218 
2 HonoluluHI N/A   01/2019 304 
3 CharlestonSC South Carolina Department of Mental Health   07/2023 11,736 
3 Total new office leases       74,258 
            
3 Total new leases       74,258 
           
11 TOTAL NEW AND EXTENDED LEASES       208,648 
             

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

As of March 31, 2018, Lexington's portfolio was 97.2% leased.

BALANCE SHEET/CAPITAL MARKETS

In the first quarter of 2018, Lexington repurchased and retired 795,775 common shares at an average price of $7.94 per share under its repurchase authorization announced on July 2, 2015 in the amount of 10.0 million common shares. As of March 31, 2018, there were approximately 5.8 million common shares remaining to be repurchased under the authorization.

2018 EARNINGS GUIDANCE

Lexington now estimates that its net income attributable to common shareholders per diluted common share for the year ended December 31, 2018 will be within an expected range of $0.54 to $0.57. Lexington is reaffirming that its Adjusted Company FFO for the year ended December 31, 2018 is expected to be within a range of $0.95 to $0.98 per diluted common share. This guidance is forward looking, excludes the impact of certain items and is based on current expectations.

FIRST QUARTER 2018 CONFERENCE CALL

Lexington will host a conference call today, May 8, 2018, at 8:30 a.m. Eastern Time, to discuss its results for the quarter ended March 31, 2018. Interested parties may participate in this conference call by dialing 1-844-825-9783 (U.S.), 1-412-317-5163 (International) or 1-855-669-9657 (Canada). A replay of the call will be available through August 8, 2018, at 1-877-344-7529 (U.S.), 1-412-317-0088 (International) or 1-855-669-9658 (Canada), pin code for all replay numbers is 10119663. A link to a live webcast of the conference call is available at www.lxp.com within the Investors section.

ABOUT LEXINGTON REALTY TRUST

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

Contact:
Investor or Media Inquiries for Lexington Realty Trust:
Heather Gentry, Senior Vice President of Investor Relations
Lexington Realty Trust
Phone: (212) 692-7200 E-mail: hgentry@lxp.com

This release contains certain forward-looking statements which involve known and unknown risks, uncertainties or other factors not under Lexington's control which may cause actual results, performance or achievements of Lexington to be materially different from the results, performance, or other expectations implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the headings “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in Lexington's periodic reports filed with the Securities and Exchange Commission, including risks related to: (1) the authorization by Lexington's Board of Trustees of future dividend declarations, (2) Lexington's ability to achieve its estimates of net income attributable to common shareholders and Adjusted Company FFO for the year ending December 31, 2018, (3) the successful consummation of any lease, acquisition, build-to-suit, disposition, financing or other transaction, (4) the failure to continue to qualify as a real estate investment trust, (5) changes in general business and economic conditions, including the impact of any legislation, (6) competition, (7) increases in real estate construction costs, (8) changes in interest rates, (9) changes in accessibility of debt and equity capital markets, and (10) future impairment charges. Copies of the periodic reports Lexington files with the Securities and Exchange Commission are available on Lexington's web site at www.lxp.com. Forward-looking statements, which are based on certain assumptions and describe Lexington's future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects”, “may,” “plans,” “predicts,” “will,” “will likely result,” “is optimistic,” “goal,” “objective” or similar expressions. Except as required by law, Lexington undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the occurrence of unanticipated events. Accordingly, there is no assurance that Lexington's expectations will be realized.

References to Lexington refer to Lexington Realty Trust and its consolidated subsidiaries. All interests in properties and loans are held, and all property operating activities are conducted, through special purpose entities, which are separate and distinct legal entities that maintain separate books and records, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes. The assets and credit of each special purpose entity with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other special purpose entity or affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member of managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interests therein which interests are subordinate to the claims of the property owner subsidiary's (or its general partner's, member's or managing member's) creditors.

Non-GAAP Financial Measures - Definitions

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

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

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

Company Funds Available for Distribution (“FAD”): FAD is calculated by making adjustments to Adjusted Company FFO (see below) for (1) straight-line adjustments, (2) lease incentive amortization, (3) amortization of above/below market leases, (4) lease termination payments, net, (5) non-cash interest, net, (6) non-cash charges, net, (7) cash paid for tenant improvements, and (8) cash paid for lease costs. Although FAD may not be comparable to that of other real estate investment trusts (“REITs”), Lexington believes it provides a meaningful indication of its ability to fund cash needs. FAD is a non-GAAP financial measure and should not be viewed as an alternative measurement of operating performance to net income, as an alternative to net cash flows from operating activities or as a measure of liquidity.

Funds from Operations (“FFO”) and Adjusted Company FFO: Lexington believes that Funds from Operations, or FFO, which is a non-GAAP measure, is a widely recognized and appropriate measure of the performance of an equity REIT. Lexington believes FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing perspective that may not necessarily be apparent from net income.

The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as “net income (or loss) computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for non-consolidated partnerships and joint ventures.” NAREIT clarified its computation of FFO to exclude impairment charges on depreciable real estate owned directly or indirectly. FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.

Lexington presents FFO available to common shareholders and unitholders - basic and also presents FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into Lexington’s common shares, are converted at the beginning of the period. Lexington also presents Adjusted Company FFO available to all equityholders and unitholders - diluted which adjusts FFO available to all equityholders  and unitholders - diluted for certain items which we believe are not indicative of the operating results of Lexington's real estate portfolio. Lexington believes this is an appropriate presentation as it is frequently requested by security analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of Lexington’s operating performance or as an alternative to cash flow as a measure of liquidity.

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

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

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except share and per share data)
 
 Three months ended March 31,
 2018 2017
Gross revenues:   
Rental$94,522  $88,654 
Tenant reimbursements8,115  7,445 
Total gross revenues102,637  96,099 
Expense applicable to revenues:   
Depreciation and amortization(46,537) (42,891)
Property operating(11,477) (12,116)
General and administrative(8,996) (9,457)
Non-operating income546  2,621 
Interest and amortization expense(20,331) (19,725)
Impairment charges and loan loss(53,049) (7,992)
Gains on sales of properties22,774  34,193 
Income (loss) before provision for income taxes and equity in earnings of non-consolidated entities(14,433) 40,732 
Provision for income taxes(503) (422)
Equity in earnings of non-consolidated entities113  1,910 
Net income (loss)(14,823) 42,220 
Less net (income) loss attributable to noncontrolling interests508  (180)
Net income (loss) attributable to Lexington Realty Trust shareholders(14,315) 42,040 
Dividends attributable to preferred shares – Series C(1,572) (1,572)
Allocation to participating securities(70) (71)
Net income (loss) attributable to common shareholders$(15,957) $40,397 
    
Net income (loss) attributable to common shareholders - per common share basic$(0.07) $0.17 
  Weighted-average common shares outstanding – basic238,072,081  237,179,526 
    
Net income (loss) attributable to common shareholders - per common share diluted$(0.07) $0.17 
  Weighted-average common shares outstanding – diluted238,072,081  241,088,049 
 




 
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
 
 March 31, 2018 December 31, 2017
Assets:   
Real estate, at cost$3,792,977  $3,936,459 
Real estate - intangible assets564,947  599,091 
 4,357,924  4,535,550 
Less: accumulated depreciation and amortization1,179,078  1,225,650 
Real estate, net3,178,846  3,309,900 
Assets held for sale  2,827 
Cash and cash equivalents90,214  107,762 
Restricted cash7,479  4,394 
Investment in and advances to non-consolidated entities17,485  17,476 
Deferred expenses, net30,098  31,693 
Rent receivable – current5,878  5,450 
Rent receivable – deferred56,038  52,769 
Other assets25,958  20,749 
Total assets$3,411,996  $3,553,020 
    
Liabilities and Equity:   
Liabilities:   
Mortgages and notes payable, net$682,994  $689,810 
Revolving credit facility borrowings100,000  160,000 
Term loans payable, net596,957  596,663 
Senior notes payable, net495,407  495,198 
Trust preferred securities, net127,221  127,196 
Dividends payable48,438  49,504 
Accounts payable and other liabilities27,284  38,644 
Accrued interest payable11,051  5,378 
Deferred revenue - including below market leases, net32,130  33,182 
Prepaid rent16,130  16,610 
Total liabilities2,137,612  2,212,185 
    
Commitments and contingencies   
Equity:   
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares:   
Series C Cumulative Convertible Preferred, liquidation preference $96,770;
    1,935,400 shares issued and outstanding
94,016  94,016 
Common shares, par value $0.0001 per share; authorized 400,000,000 shares,
    239,972,103 and 240,689,081 shares issued and outstanding in 2018 and
    2017, respectively
24  24 
Additional paid-in-capital2,811,213  2,818,520 
Accumulated distributions in excess of net income(1,647,804) (1,589,724)
Accumulated other comprehensive income1,311  1,065 
Total shareholders’ equity1,258,760  1,323,901 
Noncontrolling interests15,624  16,934 
Total equity1,274,384  1,340,835 
Total liabilities and equity$3,411,996  $3,553,020 
 



 
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
EARNINGS PER SHARE
(Unaudited and in thousands, except share and per share data)
    
   Three Months Ended
   March 31,
   2018 2017
EARNINGS PER SHARE:    
     
Basic:    
Net income (loss) attributable to common shareholders $(15,957) $40,397 
      
Weighted-average number of common shares outstanding - basic 238,072,081  237,179,526 
     
Net income (loss) attributable to common shareholders - per common share basic $(0.07) $0.17 
      
Diluted:     
Net income (loss) attributable to common shareholders - basic $(15,957) $40,397 
Impact of assumed conversions   (19)
Net income (loss) attributable to common shareholders $(15,957) $40,378 
      
Weighted-average common shares outstanding - basic 238,072,081  237,179,526 
Effect of dilutive securities:    
Share options   136,881 
Operating Partnership Units   3,771,642 
Weighted-average common shares outstanding - diluted 238,072,081  241,088,049 
      
Net income (loss) attributable to common shareholders - per common share diluted $(0.07) $0.17 
 


 
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
ADJUSTED COMPANY FUNDS FROM OPERATIONS & COMPANY FUNDS AVAILABLE FOR DISTRIBUTION
(Unaudited and in thousands, except share and per share data)
       
   Three Months Ended
March 31,
   2018 2017
FUNDS FROM OPERATIONS:  
Basic and Diluted:    
Net income (loss) attributable to common shareholders $(15,957) $40,397 
Adjustments:    
 Depreciation and amortization 45,154  41,542 
 Impairment charges - real estate 53,049  2,698 
 Noncontrolling interests - OP units (729) (19)
 Amortization of leasing commissions 1,383  1,349 
 Joint venture and noncontrolling interest adjustment 258  340 
 Gains on sales of properties, including non-consolidated entities (22,774) (35,645)
FFO available to common shareholders and unitholders - basic 60,384  50,662 
 Preferred dividends 1,572  1,572 
 Amount allocated to participating securities 70  71 
FFO available to all equityholders and unitholders - diluted 62,026  52,305 
 Loan loss   5,294 
 Transaction costs   186 
Adjusted Company FFO available to all equityholders and unitholders - diluted 62,026  57,785 
     
FUNDS AVAILABLE FOR DISTRIBUTION:    
Adjustments:    
 Straight-line adjustments (4,866) (2,909)
 Lease incentives 536  431 
 Amortization of above/below market leases (22) 514 
 Lease termination payments, net (308) 235 
 Non-cash interest, net 1,025  155 
 Non-cash charges, net 1,939  2,146 
 Tenant improvements (5,932) (1,762)
 Lease costs (609) (1,671)
Company Funds Available for Distribution $53,789  $54,924 
      
Per Common Share and Unit Amounts    
Basic:    
 FFO $0.25  $0.21 
       
Diluted:    
 FFO $0.25  $0.21 
 Adjusted Company FFO $0.25  $0.23 
       
Basic:    
 Weighted-average common shares outstanding - basic EPS 238,072,081  237,179,526 
 Operating partnership units(1) 3,629,195  3,771,642 
 Weighted-average common shares outstanding - basic FFO 241,701,276  240,951,168 
       
Diluted:    
 Weighted-average common shares outstanding - diluted EPS 238,072,081  241,088,049 
 Operating partnership units(1) 3,629,195   
 Unvested share-based payment awards and options 562,084  691,936 
 Preferred shares - Series C 4,710,570  4,710,570 
 Weighted-average common shares outstanding - diluted FFO 246,973,930  246,490,555 
  

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

 
LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
    
2018 EARNINGS GUIDANCE   
 Twelve Months Ended
December 31, 2018
 Range
Estimated:   
Net income attributable to common shareholders per diluted common share(1)$0.54  $0.57 
Depreciation and amortization0.70  0.70 
Impact of capital transactions(0.29) (0.29)
Estimated Adjusted Company FFO per diluted common share$0.95  $0.98 
 

(1)   Assumes all convertible securities are dilutive.

 

Source: Lexington Realty Trust