LXP

Business Context and Reporting Period

Company: Lexington Corporate Properties Trust (LXP Industrial Trust)

Filing Type: Form 10-Q (Quarterly Report)

Reporting Period: Quarter and nine months ended September 30, 2005

Business Overview: A self-managed REIT owning and managing a geographically diversified portfolio of net-leased office, industrial, and retail properties. As of September 30, 2005, the Company owned interests in 187 properties (approx. 40.2 million sq. ft.) and managed two additional properties. The portfolio is primarily triple-net leased.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total gross revenues increased $37.6 million (35%) year-over-year, driven primarily by a $33.4 million increase in rental revenue from properties acquired in 2004 and 2005.
• Net Income Decline: Net income decreased $3.3 million (9%) despite revenue growth. This was due to increased depreciation ($22.9 million increase), higher interest expense ($13.7 million increase), and higher property operating expenses ($8.3 million increase) associated with portfolio expansion.
• Discontinued Operations: Income from discontinued operations increased $2.6 million, largely due to a $2.6 million increase in gains on property sales and a $2.0 million decrease in impairment charges.
• Balance Sheet Expansion: Real estate assets at cost increased from $1.41 billion to $1.93 billion. Total debt increased by $422 million to fund acquisitions.
• Liquidity: Cash and cash equivalents decreased by $85.8 million, primarily due to significant capital expenditures for real estate acquisitions ($700.9 million) and investments in non-consolidated entities.

Outlook, Management Commentary, and Risks

• Acquisition Strategy: The Company purchased 38 properties (including non-consolidated entities) for a capitalized cost of approximately $1.0 billion during the nine months ended September 30, 2005. Management expects future net income growth to be closely tied to the level of acquisitions.
• Dividends: The Company declared a common dividend of $0.36 per share (annualized $1.44) and preferred dividends on Series B and Series C shares. Management intends to maintain a conservative payout ratio to fund expansion.
• Capital Resources: The Company replaced its $100 million credit facility with a new $200 million unsecured facility. As of September 30, 2005, $198.8 million was available with no borrowings outstanding.
• Vacancy and Tenant Risk: The Company has three unleased properties. A tenant in Dallas, Texas filed for Chapter 11 bankruptcy in November 2004, resulting in lost rental revenue and operating expense responsibility for the Company.
• Market Risks: Primary risks include interest rate fluctuations (1.0% of debt is variable rate), tenant defaults, and the availability of capital markets. Management notes that rising interest rates could materially reduce net income.
• Subsequent Events: In October and November 2005, the Company entered into contracts to acquire additional properties and contributed assets to a taxable REIT subsidiary (LSAC) in exchange for equity.

Investor Verification Checklist

• Debt Maturities: Verify the schedule of balloon payments, specifically the $65.6 million due in 2008 and $47.7 million due in 2009.
• Vacancy Impact: Assess the financial impact of the Dallas tenant bankruptcy and the three currently unleased properties on future cash flows.
• Acquisition Quality: Review the lease terms and tenant creditworthiness of the 38 properties acquired in the first nine months of 2005.
• FFO vs. Net Income: Note the significant divergence between Net Income ($22.1M to common) and FFO ($87.4M) due to high depreciation and amortization charges.
• Non-Consolidated Entities: Review the performance of the seven non-consolidated entities, which generated $14.2 million in net income for the nine-month period.