Business Context and Reporting Period
Company: Lexington Realty Trust (LXP Industrial Trust)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: A self-managed REIT owning a geographically diversified portfolio of approximately 215 consolidated net-leased office, industrial, and retail properties across 41 states and the Netherlands. The Company also manages co-investment programs and provides investment advisory services.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Dec 31, 2008 (Balance Sheet) |
|---|---|---|---|
| Total Gross Revenues | $97.3 million | $293.9 million | N/A |
| Net Income (Loss) Attributable to LXP | ($22.1 million) | ($164.2 million) | N/A |
| Net Income (Loss) Attributable to Common Shareholders | ($28.3 million) | ($190.2 million) | N/A |
| EPS (Basic & Diluted) | ($0.25) | ($1.81) | N/A |
| Cash and Cash Equivalents | N/A | N/A | $56.5 million |
| Total Debt (Mortgages, Notes, Trust Preferred) | N/A | N/A | $2.15 billion |
| Operating Cash Flow (9 Months) | N/A | $123.6 million | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Total gross revenues decreased by $3.4 million (3 months) and $33.4 million (9 months) compared to 2008, primarily due to increased tenant vacancies and the absence of $28.7 million in lease termination payments received in 2008.
- Significant Losses: The Company reported a net loss of $164.2 million for the nine months ended September 30, 2009, compared to a net income of $16.5 million in the same period in 2008. This reversal is largely driven by impairment charges.
- Impairment Charges: Total impairment charges and loan losses were $23.7 million for the quarter and $24.8 million for the nine months. Notable charges include a $23.2 million write-down on a Houston, Texas property and significant other-than-temporary impairments on non-consolidated entities (Lex-Win Concord).
- Debt Reduction: The Company reduced overall outstanding debt by $68.9 million in the quarter and $232.9 million for the nine months, utilizing proceeds from property sales and debt repurchases at a discount.
- Discontinued Operations: Income from discontinued operations decreased significantly due to lower gains on property sales and higher impairment charges on assets held for sale.
Guidance, Outlook, and Risks
- Management Strategy: Focus remains on preserving capital, generating liquidity, and improving financial flexibility. Strategies include repurchasing debt at a discount, selling non-core assets, and reducing general and administrative expenses.
- Liquidity Position: As of September 30, 2009, the Company held $56.5 million in cash and had approximately $69.5 million in available borrowing capacity under its revolving credit facility. Management believes these sources are sufficient to meet obligations, including $23.8 million in debt maturing in late 2009.
- Key Risks and Contingencies:
- Lex-Win Concord Impairment: The Company recorded a total of $68.2 million in other-than-temporary impairment charges on its investment in Lex-Win Concord, valuing the investment at zero as of June 30, 2009, due to portfolio deterioration and covenant violations.
- Legal Proceedings: Ongoing litigation with Inland American (Concord) Sub, LLC regarding capital calls and a dispute with Elsevier STM, Inc. regarding holdover rent in Orlando, Florida.
- Property Conveyances: Anticipated conveyance of properties in Richmond, Virginia, and Houston, Texas to lenders in satisfaction of mortgage debt during the fourth quarter of 2009.
- Dividends: The Company declared quarterly common dividends of $0.18 per share, paid 10% in cash and 90% in common shares, to preserve cash liquidity.
Investor Verification Checklist
- Impairment Valuation: Verify the methodology and assumptions used for the $68.2 million impairment charge on Lex-Win Concord and the $23.2 million charge on the Houston property.
- Debt Covenant Compliance: Confirm the Company's compliance with financial covenants on its $250 million secured credit facility and the status of waivers sought for the Concord entity.
- Property Dispositions: Monitor the execution of the anticipated conveyances of the Richmond and Houston properties to lenders and the impact on future debt obligations.
- Liquidity Runway: Assess the sufficiency of the $56.5 million cash balance and $69.5 million credit facility availability against the $23.8 million in debt maturing in Q4 2009 and ongoing dividend obligations.
- Legal Outcomes: Track the resolution of the Delaware Chancery Court case involving Inland Concord and the Florida litigation against Elsevier.