Business context and reporting period
The filing is Lexington Realty Trust’s unaudited Form 10-Q for the quarter ended March 31, 2012. The registrant named in the filing is Lexington Realty Trust. It operated a diversified portfolio of mostly single-tenant office, industrial and retail properties, with approximately 185 consolidated properties in 39 states, totaling 35.9 million square feet and 97.2% leased.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are rounded to millions.
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Gross revenue | $82.7 million | $80.5 million; up $2.3 million |
| Rental revenue | $74.6 million | $71.9 million |
| Net income (loss) | $5.5 million | $(16.0) million |
| Net loss attributable to common shareholders | $(2.2) million; $(0.01) per basic share | $(23.6) million; $(0.16) per basic share |
| Cash from operating activities | $43.8 million | $39.4 million |
| Cash and cash equivalents at quarter-end | $49.9 million | $63.7 million at December 31, 2011 |
| Total liabilities | $1,843.6 million | $1,856.6 million at December 31, 2011 |
| Debt carrying amount | $1,652.1 million | $1,662.4 million at December 31, 2011 |
Depreciation and amortization was $39.1 million, property operating expense $15.0 million, and interest and amortization expense $24.7 million. The filing does not provide a clear operating-margin figure. Q1 investing cash use was $23.2 million and financing cash use was $34.4 million. Common and preferred dividends paid totaled $25.2 million; the quarterly common dividend increased to $0.125 per share from $0.115 in 2011.
At March 31, the company reported $54.0 million available under its term loan and $276.3 million available under its revolving facility, in addition to cash. It reported compliance with the facilities’ financial covenants. Of consolidated long-term indebtedness, 98.8% was fixed-rate and 1.2% variable-rate; a 100-basis-point increase in variable rates was estimated to raise quarterly interest expense by about $0.1 million.
Material changes versus the prior comparable period
- Revenue increased 2.8%, principally from acquisitions and leasing activity; tenant reimbursements declined slightly.
- Operating cash flow rose $4.4 million, which management attributed mainly to acquisitions and lower interest payments, partly offset by prior-year property sales.
- Interest and amortization expense fell $2.2 million, attributed to deleveraging and lower interest rates. Property operating expense declined $1.0 million; depreciation and amortization increased $0.7 million.
- Net loss attributable to common shareholders improved by $21.5 million. Discontinued-operations losses were substantially lower, chiefly because impairment charges fell to $2.6 million from $29.6 million. Q1 2012 still included a $1.6 million net debt-satisfaction charge in continuing operations.
- Investing cash flow changed from $53.7 million provided in Q1 2011 to $23.2 million used in Q1 2012, largely reflecting the timing of property sales and investments.
Outlook, management commentary, risks and unusual items
- Management stated that operating cash flows, cash on hand, borrowing capacity, capital recycling, equity issuance and mortgage proceeds were expected to fund operations, debt service and REIT distributions. It gave no numerical earnings or revenue guidance.
- Management said future net-income growth would depend substantially on acquisitions; without acquisitions, growth sources were limited to rent adjustments, amortizing debt and cost control. It cited risks including economic conditions, competition, construction costs, interest rates, impairment, capital-market access and tenant defaults.
- The company had $93.4 million of property-specific mortgage debt maturing in 2012 and $234.9 million in 2013. It reported liquidity sources it believed sufficient to meet these obligations.
- In January, the company obtained a $215 million secured term loan maturing in 2019 and refinanced its $300 million revolving facility, which matures in 2015 with an option to extend to 2016. It borrowed $161 million under the term loan and $20 million under the revolver during the quarter, using proceeds primarily to repay maturing debt. Swaps fixed the rate on $161 million of term-loan borrowings; the stated rate at filing was 3.83%.
- Subsequent to quarter-end, the company gave notice to redeem all Series B preferred shares on May 31, 2012 for an aggregate $69.4 million. It also borrowed another $30 million on the revolver and acquired a Texas industrial property for $23 million.
- The company disclosed a defaulted $3.0 million industrial-property loan and a defaulted $22.3 million Schaumburg mortgage loan; foreclosure proceedings had been initiated on the latter. A tenant claim related to potential additional tenant-improvement funding was also pending.
- A pending litigation matter concerning guarantees on bankruptcy claims could, in the company’s view, expose it to a maximum of $1.2 million plus interest and expenses; a damages determination was pending. The company did not anticipate financial impact from a separate GSA lease dispute.
- Impairment charges, estimates of real-estate fair value, loan recoverability and other accounting estimates involve uncertainty. Management said its estimates could differ materially from actual outcomes. It reported no material change in risk factors from its 2011 Form 10-K.
Important facts for investors to verify
- Confirm the status and final cost of the Series B preferred-share redemption and the resulting effect on liquidity and dividends.
- Track refinancing or repayment plans for 2012–2013 mortgage maturities and actual availability under the secured credit facilities.
- Review performance, collateral values and resolution of the defaulted loans, including the Schaumburg foreclosure and tenant-improvement claim.
- Monitor the agreed October 2012 buy/sell process for the company’s NLS interest and the resulting proceeds, ownership and income effects.
- Assess whether leasing, acquisitions and development commitments sustain occupancy and cash generation, and whether impairment or legal contingencies change.