Business context and reporting period
The filing is Lexington Realty Trust’s Form 10-K for the fiscal year ended December 31, 2011—not a quarterly report. Although the request identifies LXP Industrial Trust, the filing’s registrant is Lexington Realty Trust. The company is a self-managed REIT focused on single-tenant net-leased office, industrial and retail properties, plus real-estate loans and advisory activities. At year-end, it held interests in approximately 185 consolidated properties across 39 states, totaling 36.0 million square feet and 95.6% leased.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Total revenue | $326.9 million | $320.0 million |
| Loss from continuing operations | $49.7 million | $4.5 million |
| Net loss attributable to common shareholders | $103.7 million; $0.68 per share | $58.1 million; $0.44 per share |
| Cash from operating activities | $180.1 million | $164.8 million |
| Cash and cash equivalents at year-end | $63.7 million | $52.6 million |
| Debt, including discontinued operations | $1.662 billion | $1.778 billion |
Revenue increased 2.1%. Rental revenue was $292.7 million; tenant reimbursements were $32.2 million and advisory and incentive fees were $2.0 million. Net loss widened substantially, driven principally by higher impairment charges. The filing does not present a comparable operating-margin measure. Total non-cash impairment charges were $117.4 million, including $68.6 million on continuing-operations real estate and $48.9 million on discontinued-operations properties.
Investing activities used $24.8 million and financing activities used $144.3 million. The company reduced consolidated indebtedness by $119.3 million during 2011. Year-end total assets were $3.078 billion and total equity was $1.221 billion. The company reported approximately $1.7 billion of debt with a weighted-average interest rate of approximately 5.8%.
Material changes versus the prior comparable period
- Revenue rose $6.9 million, mainly from increased rents associated with acquisitions and leasing activity.
- Interest and amortization expense declined $11.4 million, primarily due to lower indebtedness; depreciation and amortization increased $7.9 million, largely from acquisitions and accelerated lease-intangible amortization.
- Impairment charges and loan losses increased $61.7 million year over year. The common-share loss increased from $0.44 to $0.68 per share.
- Operating cash flow increased $15.4 million. The company sold interests in 17 properties for gross proceeds of $160.1 million and acquired properties for approximately $128.2 million.
- Common shares were issued in public offerings and the direct purchase plan, raising approximately $98.9 million net. The company also repurchased and retired preferred shares for $15.5 million and retired approximately 4.0 million common shares through settlement of a forward equity commitment.
Outlook, risks and unusual items
Management said it intended to continue deleveraging, recycling capital from non-core dispositions and pursuing acquisitions, particularly build-to-suit projects. It noted an increased acquisition pipeline but gave no assurance transactions would close. Management expected an aggregate annual common dividend of $0.50 per share for 2012; future declarations remain subject to board discretion and business conditions.
After year-end, the company obtained a $215.0 million secured term loan maturing in January 2019 and refinanced its $300.0 million secured revolving facility. It borrowed $108.0 million under the term loan and $28.0 million under the revolver to repay prior term loans and repurchase $62.2 million principal of 5.45% exchangeable notes. A seven-year swap fixed LIBOR on $108.0 million of term debt; reported rate at filing was 3.76%. The company said it was in compliance with covenants at filing.
Scheduled non-recourse property mortgage balloon payments were $147.9 million in 2012 and $234.9 million in 2013 at year-end; the 2012 financing activity addressed corporate debt, not all property maturities. Key risks include tenant default and lease rollover, vacancy-related costs, refinancing access, leverage and interest rates, property impairments, build-to-suit execution, environmental exposure, and limited control over joint ventures. A vacant Tulsa property was conveyed to its lender in January 2012. The borrower on a $21.5 million Schaumburg mortgage loan was in default after year-end; foreclosure proceedings had begun, and the company said it believed collateral value exceeded its investment.
Two legal matters were disclosed. In the Deutsche Bank claims case, the court ruled for plaintiffs on summary judgment and referred damages for determination; the company stated its believed maximum exposure was $1.2 million plus interest and expenses and planned to continue its defense. A separate challenge to a federal lease award was not expected by the company to affect financial position or results. Management reported no known environmental condition reasonably likely to have a material adverse effect. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Reconcile 2011 impairment charges and discontinued-operation losses, including the carrying values and debt on affected assets.
- Review the schedule and refinancing status of property-level mortgage balloons, especially 2012–2014 maturities, and confirm current facility availability and covenant headroom.
- Assess the Schaumburg loan default, foreclosure recovery and any additional tenant-improvement funding obligation of up to $12.2 million.
- Track occupancy, tenant renewals and rent-roll exposure: lease expirations represented 14.5% of annual rent in 2014 and 11.5% in 2019.
- Confirm the outcome of the competing NLS buy/sell and right-of-first-offer processes and their effect on capital needs and distributions.
- Evaluate whether operating cash flow supports debt service, preferred obligations and the expected 2012 common dividend of $0.50 per share.