Business Context and Reporting Period
Company: Lexington Realty Trust (LXP Industrial Trust)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 30, 2010
Business Overview: A self-managed REIT owning a geographically diversified portfolio of approximately 200 consolidated net-leased office, industrial, and retail properties across 40 states. The company also provides investment advisory services and holds interests in non-consolidated entities.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Gross Revenues | $173,492 | $185,347 |
| Net Loss (Consolidated) | $(59,027) | $(140,213) |
| Net Loss Attributable to Common Shareholders | $(63,427) | $(162,153) |
| Net Loss Per Common Share (Diluted) | $(0.50) | $(1.59) |
| Cash Flow from Operating Activities | $72,414 | $84,775 |
| Cash and Cash Equivalents (End of Period) | $102,030 | $48,639 |
| Total Debt (Mortgages, Notes, Convertibles, etc.) | $2,016,726 | $2,072,738 |
| Total Assets | $3,512,825 | $3,579,845 |
Note: Debt figures include Mortgages and notes payable ($1,724,258), Exchangeable notes ($61,106), Convertible notes ($102,242), and Trust preferred securities ($129,120).
Material Changes vs. Prior Period
- Revenue Decline: Total gross revenues decreased by $11.9 million (6.4%) compared to the prior year, primarily due to increased tenant vacancies and lower rental revenue.
- Improved Net Loss: Net loss attributable to common shareholders improved significantly by $98.8 million compared to the prior year. This improvement is largely driven by a massive reduction in losses from non-consolidated entities (Lex-Win Concord) which recorded a $135.8 million loss in 2009 versus earnings in 2010.
- Impairment Charges: The company recognized $53.975 million in impairment charges and loan losses for the six months ended June 30, 2010, compared to $10.642 million in 2009. This includes $24.6 million in real estate impairments and a $3.8 million loan loss due to a tenant bankruptcy.
- Debt Reduction: The company actively deleveraged, retiring significant debt through proceeds from convertible notes ($115 million) and equity issuances ($75.7 million).
Guidance, Outlook, and Risks
Management Commentary & Strategy: Management continues to focus on strengthening the balance sheet by repurchasing debt, extending maturities, and recycling capital from non-core property sales. The company aims to maintain liquidity through cash on hand, credit facility availability, and equity issuances.
Liquidity: As of June 30, 2010, the company held $102.0 million in cash and had approximately $167.5 million available under its revolving credit facility (after letters of credit). Management believes these sources are sufficient to meet obligations, including $71.5 million in debt maturing in the remainder of 2010.
Risks and Contingencies:
- Legal Proceedings: Ongoing litigation includes a dispute with Deutsche Bank regarding bankruptcy claims (potential damages ~$1.2 million plus interest) and a lawsuit by Experian Information Solutions alleging failure to fund tenant improvements (up to $5.9 million). The company intends to vigorously defend these claims.
- Asset Impairment: Continued risk of impairment charges if market values of real estate assets or loan collateral decline further.
- Tenant Concentration: While diversified, the company faces risks related to tenant defaults and lease expirations, such as the recent termination option exercised by a tenant in Farmington Hills, Michigan.
Investor Verification Checklist
- Impairment Magnitude: Verify the specific properties included in the $24.6 million real estate impairment and the $3.8 million loan loss to assess portfolio quality.
- Debt Maturity Wall: Confirm the repayment plan for the $71.5 million of property-specific debt maturing in late 2010.
- Legal Exposure: Monitor the status of the Deutsche Bank and Experian lawsuits for potential cash outflows or settlement terms.
- Non-Consolidated Entities: Review the financial health of Lex-Win Concord and Net Lease Strategic Assets Fund (NLS), as their performance significantly impacts consolidated earnings.
- Dividend Sustainability: Assess the ability to maintain the $0.10 quarterly common dividend given the net loss position and reliance on cash flow from operations.