Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
In this discussion, we have included statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements may relate to our future plans and objectives, among other things. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause our results to differ, possibly materially, from those indicated in the forward-looking statements include, among others, those discussed above in “Risk Factors” in Part I, Item 1A of this Annual Report and “Cautionary Statements Concerning Forward-Looking Statements” in the beginning of this Annual Report.
Introduction
The following is a discussion and analysis of the consolidated financial condition and results of operations of Lexington Realty Trust for the years ended December 31, 2020 and 2019, and significant factors that could affect its prospective financial condition and results of operations. This discussion should be read together with our accompanying consolidated financial statements included herein and notes thereto.
COVID-19 Impact. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. On March 13, 2020, the United States declared a national emergency with respect to COVID-19. Our management continues to monitor events and is taking steps to mitigate the potential impact and risks to us.
We have received a limited number of, and may in the future receive, rent relief requests from our tenants. However, as of December 31, 2020, we do not believe that these rent relief requests will have a material impact on our rental revenues. A limited number of our other tenants, particularly retail tenants and those with businesses tied to the aviation industry, continue to be impacted by COVID-19 and related government restrictions and social distancing requirements. We continue to believe that the impacts of COVID-19 on our portfolio are mitigated due to our focus on warehouse and distribution properties and the diversity of our tenant base, both geographically and by industry exposure.
While our acquisition activity has recovered from the reduced level experienced earlier in 2020, we believe that there continues to be limited financing available for potential purchasers of certain of our properties, which has impacted our disposition activities. In addition, there is increased competition for investment in warehouses and distribution properties due to the resilience of this part of the industrial sector during the COVID-19 pandemic.
We remain unable to estimate the long-term impacts COVID-19 will have on our financial condition.
Investment Trends
General. Over the last several years, we have focused our investment activity primarily on income producing single-tenant warehouse and distribution assets.
In 2020, we acquired $611.8 million of warehouse and distribution assets, which is a decrease of $92.0 million compared to 2019 investment activity of $703.8 million. The decrease was primarily due to the COVID-19 "stay-at-home" orders and increased competition.
As of December 31, 2020, our percentage of gross book value from industrial assets increased to 90.8% compared to 81.5% as of December 31, 2019 as a result of our acquisition and capital recycling efforts. We expect to continue to recycle our non-industrial assets into warehouse and distribution facilities. While our capital recycling strategy has had and may continue to have a near-term dilutive impact on earnings due to the sales of revenue-producing properties, we believe this strategy will benefit shareholder value in the long term.
The industrial real estate market was one of the most resilient real estate markets during the COVID-19 pandemic. The main driver of growth in the industrial real estate market has been e-commerce. We believe that growth will also be driven by companies increasing their inventories in the United States to keep up with demand and to protect against future disruptions in the supply chain.
While we believe the industrial market will continue to grow, there continues to be an increase in competition for the acquisition of industrial properties, specifically warehouse/distribution properties, which drives up the cost of the assets we buy
and drives down the yield we are able to obtain. This trend was highlighted when initial capitalization rates compressed further during 2020.
Lease Term. We primarily acquire assets subject to intermediate and long-term leases with escalating rents, which we believe strengthen our future cash flows and provide a partial hedge against rising interest rates. We intend to maintain a weighted-average lease term longer than many comparable companies and balance our lease expiration schedule.
Our industrial investment underwriting focuses less on tenant credit than our historical office investment underwriting as we focus on real estate characteristics such as location and related demographic and local economic trends. This has allowed us to acquire certain short-term leased warehouse/distribution assets, which may be acquired at a discount compared to long-term leased warehouse/distribution assets and allow for a value-add strategy through the lease renewal or a multi-tenanting process.
Development. As a result of the competition for income producing single-tenant warehouse/distribution assets, in 2017, we began selectively investing in development projects. We believe we can achieve higher yields from development projects than we can by purchasing existing properties.
Our development activities have been focused on speculative development. Our target markets are experiencing low vacancy rates. Despite an increase in construction in recent years, we believe there is sufficient tenant demand for our development projects.
Leasing
General. Re-leasing properties that are currently vacant or as leases expire at favorable effective rates is a primary area of focus for our asset management. Renewals of industrial leases, particularly for warehouse/distribution facilities, are generally dependent on location and occupancy alternatives for our tenants. We believe our older industrial assets face more challenges than our newer industrial assets because the location of our older industrial assets is generally tied to the specific tenant need as opposed to the national or regional distribution supply chain. In addition, our older industrial assets may need to be renovated to meet current market specs.
If a property cannot be re-let to a single user and the property can be adapted to multi-tenant use, we determine whether the costs of adapting the property to multi-tenant use outweigh the benefit of funding operating costs while searching for a single-tenant and whether selling a vacant property, which limits operating costs and allows us to redeploy capital, is in the best interest of our shareholders.
During 2020, we entered into 20 new leases and lease extensions encompassing approximately 5.2 million square feet. The average base rent on these extended leases was approximately $4.73 per square foot compared to the average base rent on these leases before extension of $4.61 per square foot. The weighted-average cost of tenant improvements and lease commissions during 2020 was approximately $2.57 per square foot for new leases and $3.45 per square foot for extended leases.
As of December 31, 2020, we had six single-tenant leases in our industrial portfolio where the lease term is scheduled to expire in 2021, covering approximately 3.7 million square feet.
Inherent Growth. Many leases have scheduled fixed rent increases or rent increases based upon the consumer price index. As of December 31, 2020, 86% of our single-tenant industrial leases had scheduled rent increases. The average escalation rate of these leases was 2.1% as of December 31, 2020. A majority of our leases require tenants to pay operating expenses, including maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses. However, certain of our leases provide for some level of landlord responsibility for capital repairs and replacements, the cost of which is generally factored into the rental rate. Our motivation to release vacant space requires us to meet market demands with respect to rental rates, tenant concessions and landlord responsibilities. Developers are similarly motivated when signing leases with tenants due to the significant competition in the industrial space. As a result, the obligations of our property owner subsidiaries on new leases and newly renewed or extended leases may increase to include, among other items, some form of responsibility for operating expenses and/or capital repairs and replacements.
Tenant Credit. We continue to monitor the credit of tenants of properties in which we have an interest by (1) subscribing to rating agency information, so that we can monitor changes in the ratings of our rated tenants, (2) reviewing financial statements that are publicly available or that are required to be delivered to us under the applicable lease, (3) monitoring news reports regarding our tenants and their respective businesses, (4) monitoring the timeliness of rent collections and (5) meeting with our tenants. During 2020, this credit monitoring was essential to allow us to differentiate between legitimate rent relief requests and opportunistic rent relief requests.
Non-Industrial Properties
We continue to recycle out of our non-industrial investments. As of December 31, 2020, our non-industrial assets represented 9.2% of our gross book value. We have historically marketed non-industrial assets for sale when we believe we have obtained the highest possible valuation through various means, including lease renewals. As the number of non-industrial assets continues to shrink, we continue to explore ways to accelerate the sale of the remaining non-industrial assets.
Non-Recourse Mortgage Loan Resolutions
During 2020, we conveyed three properties in foreclosure or via a deed-in-lieu of foreclosure due to the balance of the non-recourse mortgage loans encumbering the properties being in excess of the value of the property collateral.
Since we have a limited number of industrial properties subject to non-recourse mortgages, we do not expect many foreclosures in the future.
Impairment charges
During 2020 and 2019, we incurred impairment charges on certain of our assets of $14.5 million and $5.3 million, respectively, due to each asset's carrying value being below its estimated fair value. Most of the impairment charges in 2020 and 2019 were incurred on non-core assets due to anticipated shortened holding periods. We cannot estimate if we will incur, or the amount of, future impairment charges on our assets. See Part I, Item 1A “Risk Factors”, of this Annual Report.
Critical Accounting Policies
Our accompanying consolidated financial statements have been prepared in accordance with GAAP, which requires our management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported and related disclosures of contingent assets and liabilities. A summary of our significant accounting policies which are important to the portrayal of our financial condition and results of operations is set forth in note 2 to the Consolidated Financial Statements, which are included in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.
The following is a summary of our critical accounting policies, which require some of management's most difficult, subjective and complex judgments.
Acquisition of Real Estate. The fair value of the real estate acquired, which includes the impact of fair value adjustments for assumed mortgage debt related to property acquisitions, is allocated to the acquired tangible assets, consisting of land, building and improvements and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values.
The fair value of the tangible assets of an acquired property (which includes land, building and improvements and fixtures and equipment) is determined by valuing the property as if it were vacant. The “as-if-vacant” value is then allocated to land and building and improvements based on our management's determination of relative fair values of these assets. Factors considered by our management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, our management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Our management also estimates costs to execute similar leases including leasing commissions. Our management generally retains a third party to assist in the allocations.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the difference between the current in-place lease rent and management's estimate of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases. Above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases.
The aggregate value of other acquired intangible assets, which may consist of in-place leases and/or tenant relationship values, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships is amortized to expense over the applicable lease term plus expected renewal periods.
Revenue Recognition. We recognize lease revenue on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Revenue is recognized on a contractual basis for leases with escalations tied to a consumer price index with no floor. We evaluate the collectability of our rental payments and recognize revenue on a cash basis when we believe it is no longer probable that we will receive substantially all of the remaining lease payments. Renewal options in leases with rental terms that are lower than those in the primary term are excluded from the calculation of straight line rent if the renewals are not reasonably assured. In those instances in which we fund tenant improvements and the improvements are deemed to be owned by us, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When we determine that the tenant allowances are lease incentives, we commence revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and amortized as a reduction of revenue on a straight-line basis over the respective lease term. We recognize lease termination fees as rental revenue in the period received and write off unamortized leases related intangibles and other lease related account balances, provided that there are no further obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period.
Impairment of Real Estate. We evaluate the carrying value of all tangible and intangible real estate assets held for investment for possible impairment when an event or change in circumstance has occurred that indicates its carrying value may not be recoverable. We consider the strategic decisions regarding the future plans to sell properties and other market factors. We regularly update significant estimates and assumptions including rental rates, capitalization rates and discount rates, which are included in the anticipated future undiscounted cash flows derived from the asset. If such cash flows are less than the asset's carrying value, an impairment charge is recognized to the extent by which the asset's carrying value exceeds its estimated fair value, which may be below the balance of any non-recourse financing. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in this report.
Cybersecurity
While we have yet to experience a cyber attack that disrupted our operations in any material respect, all companies, including ours, are increasing the resources allocated to address and protect against cybersecurity threats. Due to the small size of our organization, we rely on third-parties to provide advice and services with respect to cybersecurity, which is not currently, but could become, a material cost.
Environmental, Social and Governance
ESG matters are becoming a central focus for our shareholders, employees, tenants, suppliers, creditors, and communities. We expect our ESG objectives and the resources allocated to ESG matters will continue to evolve over time as we assess strategies that are most appropriate for our organization.
Liquidity
General. Our principal sources of liquidity have been (1) undistributed cash flows generated from our investments, (2) the public and private equity and debt markets, (3) property specific debt, (4) corporate level borrowings, (5) commitments from co-investment partners and (6) proceeds from the sales of our investments. We believe our ratio of dividends to Adjusted Company Funds From Operations is conservative, and allows us to retain cash flow for internal growth.
Our ability to incur additional debt to fund acquisitions is dependent upon our existing leverage, the value of the assets we are attempting to leverage and general economic and credit market conditions, which may be outside of management's control or influence.
Cash Flows. We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with applicable REIT requirements in both the short-term and long-term. However, our cash flow from operations may be negatively affected in the near term if we grant tenant rent relief packages or experience tenant defaults as a result of the effects of COVID-19. In addition, we anticipate that cash on hand, borrowings under our unsecured revolving credit facility, capital recycling proceeds, issuances of equity, mortgage proceeds and other debt, as well as other available alternatives, will provide the necessary capital required by our business.
Cash flows from operations as reported in the Consolidated Statements of Cash Flows totaled $201.8 million for 2020 and $192.2 million for 2019. The increase was primarily related to the impact of cash flow generated from acquiring properties, partially offset by property sales and vacancies. The underlying drivers that impact our working capital, and therefore cash flows from operations, are the timing of collection of rents, including reimbursements from tenants, payment of interest on mortgage debt and payment of operating and general and administrative costs. We believe the net-lease structure of the leases encumbering a majority of the properties in which we have an interest mitigates the risks of the timing of cash flows from operations since the payment and timing of operating costs related to the properties are generally borne directly by the tenant. The collection and timing of tenant rents are closely monitored by management as part of our cash management program.
Net cash used in investing activities totaled $(494.4) million in 2020 and $(187.0) million in 2019. Cash used in investing activities related primarily to acquisitions of real estate, investments in real estate under construction, capital expenditures, lease costs, investments in non-consolidated entities and changes in real estate deposits, net. Cash provided by investing activities related primarily to proceeds from the sale of properties, distributions from non-consolidated entities and changes in real estate deposits, net.
Net cash provided by (used in) financing activities totaled $342.6 million in 2020 and $(53.2) million in 2019. Cash provided by financing activities related primarily to the issuance of our 2030 Senior Notes, revolving credit facility borrowings and issuances of common shares. Cash used in financing activities was primarily attributable to the repurchase of a portion of the 2023 Senior Notes and 2024 Senior Notes through a tender offer, dividend and distribution payments, repayment of debt obligations and repurchases of common shares.
Public and Private Equity and Debt Markets. We access the public and private equity and debt markets on an opportunistic basis when we (1) believe conditions are favorable and (2) have a compelling use of proceeds.
We expect to continue to access debt and equity markets in the future to implement our business strategy and to fund future growth when market conditions are favorable. However, the volatility in the capital markets primarily resulting from the effects of the COVID-19 pandemic may negatively affect our ability to access these capital markets.
Equity:
At-The-Market Offering Program. We maintain an At-The-Market offering program, or ATM program, under which we can issue common shares. The following table summarizes common share issuances under the ATM program for the years ended December 31, 2020 and 2019, respectively:
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Year ended December 31, 2020
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Shares Sold
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Net Proceeds
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2020 ATM Issuances
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5,950,882
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$
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61.0
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million
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Year ended December 31, 2019
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Shares Sold
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Net Proceeds
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2019 ATM Issuances
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9,668,748
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$
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102.3
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million
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Under the ATM program, we may also enter into forward sales agreements. During 2020, we entered into forward sales transactions for the sale of 5.0 million common shares that have not yet been settled. Subject to our right to elect cash or net share settlement, we expect to settle the forward sales transactions by the various maturity dates between August 2021 and November 2021. The shares had a then aggregate settlement price of $55.1 million at December 31, 2020, which is subject to adjustment in accordance with the forward sales contracts.
As of December 31, 2020, common shares with an aggregate value of $177.2 million remain available for issuance under the ATM program.
Underwritten Common Stock Offerings. During 2020, we issued 17,250,000 common shares at a public offering price of $9.60 per common share in an underwritten offering and generated net proceeds of approximately $164.0 million.
Direct Share Purchase Plan. We maintain a direct share purchase plan, which has two components, (i) a dividend reinvestment component and (ii) a direct share purchase component. Under the dividend reinvestment component, common shareholders and holders of OP units may elect to automatically reinvest their dividends and distributions to purchase our common shares. Under the direct share purchase component, our current investors and new investors can make optional cash purchases of our common shares. The administrator of the plan, Computershare Trust Company, N.A., purchases common shares for the accounts of the participants under the plan, at our discretion, either directly from us, on the open market or through a combination of those two options. No shares were purchased from us under the plan in 2020, 2019 and 2018.
Share Repurchase Program. During 2015, our Board of Trustees authorized the repurchase of up to 10.0 million common shares and increased this authorization by 10.0 million common shares in 2018. The share repurchase program does not expire. During 2020 and 2019, we repurchased and retired approximately 1.3 million and 0.4 million common shares, respectively, at an average price of $8.28 and $8.13, respectively, per common share under the repurchase program. Approximately 9.0 million common shares remain available for repurchase at December 31, 2020. We have continued to, and in the future may, repurchase our common shares in the context of our overall capital plan, and to the extent we believe market volatility offers prudent investment opportunities based on our common share price versus net asset value per share.
Operating Partnership Units. In recent years there has not been a great demand for OP units as consideration and, as a result, we expect the percentage of common shares that will be outstanding in the future relative to OP units will increase, and income attributable to noncontrolling interests should be expected to decrease, as such OP units are redeemed for our common shares. Furthermore, our credit agreement requires us to own at least 95.5% of a subsidiary for the assets of such subsidiary to be included in the calculation of our credit agreement covenants, which incents us to maintain our percentage ownership in LCIF and not issue additional OP units.
As of December 31, 2020, there were 2.5 million OP units outstanding not owned by us which were convertible on a one OP unit for approximately 1.13 common shares basis into an aggregate of 2.9 million common shares assuming we satisfied redemptions entirely with common shares. All outstanding OP units are entitled to a distribution equal to the dividend on our common shares or a stated distribution that may adjust based on our commons share dividend amount.
Debt:
Corporate Borrowings. Due to lower borrowing costs, we issued $400.0 million aggregate principal amount of our 2030 Senior Notes. We used a portion of the net proceeds from the offering of the 2030 Senior Notes to repurchase $61.2 million and $51.1 million aggregate principal balance of our outstanding 2023 Senior Notes and 2024 Senior Notes, respectively, through a tender offer. We did not access the public debt markets in 2019.
The following Senior Notes were outstanding as of December 31, 2020:
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Issue Date
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Face Amount (millions)
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Interest Rate
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Maturity Date
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Issue Price
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August 2020
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$
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400.0
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2.70
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%
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September 2030
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99.233
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%
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May 2014
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198.9
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4.40
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%
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June 2024
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99.883
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%
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June 2013
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188.8
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4.25
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%
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June 2023
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99.026
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%
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$
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787.7
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The Senior Notes are unsecured and pay interest semi-annually in arrears. We may redeem the Senior Notes at our option at any time prior to maturity in whole or in part by paying the principal amount of the Senior Notes being redeemed plus a make-whole premium.
A summary of the maturity dates and interest rates of our unsecured credit agreement, as of December 31, 2020, are as follows:
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Maturity Date
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Interest Rate
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$600.0 Million Revolving Credit Facility(1)
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02/2023
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LIBOR + 0.90%
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$300.0 Million Term Loan(2)
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01/2025
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LIBOR + 1.00%
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(1) Maturity date of the revolving credit facility can be extended to February 2024 at our option. The interest rate ranges from LIBOR plus 0.775% to 1.45%. At December 31, 2020, we had no borrowings outstanding and availability of $600.0 million, subject to covenant compliance.
(2) The LIBOR portion of the interest rate was swapped to obtain a current fixed rate of 2.732% per annum.
As of December 31, 2020, we were in compliance with the financial covenants contained in our corporate level debt agreements.
During 2007, we issued $200.0 million in Trust Preferred Securities, which bore interest at a fixed rate of 6.804% through April 2017 and, thereafter, bears interest at a variable rate of three month LIBOR plus 170 basis points. These securities are (1) classified as debt, (2) due in 2037 and (3) currently redeemable by us. As of December 31, 2020, there were $129.1 million of these securities outstanding.
Property Specific Debt. As of December 31, 2020, we have a limited number of properties subject to mortgages, one of which was satisfied in January 2021. As of December 31, 2020, one of our property owner subsidiaries has a balloon payment of $10.4 million maturing in 2021. Our property owner subsidiaries do not have additional mortgage maturities with balloon payments due until 2025. With respect to mortgages encumbering properties where the expected lease rental revenues are sufficient to provide an estimated property value in excess of the mortgage balance, we believe our property owner subsidiaries have sufficient sources of liquidity to meet these obligations through future cash flows from operations, the credit markets and, if determined appropriate by us, a capital contribution from us from either cash on hand ($178.8 million at December 31, 2020), property sale proceeds or borrowing capacity on our primary credit facility ($600.0 million as of December 31, 2020, subject to covenant compliance).
In 2019, we assumed through our consolidated property owner subsidiary a $41.9 million non-recourse mortgage loan with an interest rate of 4.3% and maturing in 2031. We did not obtain or assume any mortgage debt in 2020. Our secured debt decreased to approximately $138.4 million at December 31, 2020 compared to $393.9 million at December 31, 2019. We expect to continue to use property specific, non-recourse mortgages in certain situations as we believe that by properly matching a debt obligation, including the balloon maturity risk, with the terms of a lease, our cash-on-cash returns increase and the exposure to residual valuation risk is reduced. In addition, we may procure credit tenant lease financing in certain situations where we are able to monetize all or a significant portion of the rental revenues of a property at an attractive rate.
Co-investment Programs and Joint Ventures. We have entered into co-investment programs and joint ventures with institutional investors and other real estate companies to mitigate our risk in certain assets and increase our return on equity to the extent we earn management or other fees. However, investments in certain co-investment programs and joint ventures limit our ability to make investment decisions unilaterally relating to the assets and limit our ability to deploy capital. Due to our size, we do not expect to enter into co-investment programs and joint ventures seeking future investments, except with developers for industrial development projects.
Capital Recycling. Part of our strategy to effectively manage our balance sheet involves pursuing and executing well on property dispositions and recycling of capital. During 2020, we disposed of our interests in 16 properties for an aggregate gross price of $432.8 million. Additionally, we disposed of two properties in a non-consolidated joint venture for aggregate proceeds to us of $1.7 million. These proceeds were primarily used to (1) retire indebtedness encumbering properties in which we have an interest and corporate debt obligations and (2) make investments in real property.
As we near the completion of the capital recycling of our non-industrial assets, we expect to continue our recycling efforts with respect to our older industrial assets, including our manufacturing assets, where we believe we can take advantage of the strong current market. We believe capital recycling (1) provides cost effective and timely capital support for our investment activities and (2) allows us to maintain line capacity and cash in advance of what we expect to be a growing investment pipeline.
Liquidity Needs. Our principal liquidity needs are the contractual obligations set forth under the heading “Contractual Obligations,” below, and the payment of dividends to our shareholders and distributions to the holders of OP units. As we grow our development pipeline, we expect that development activities will become a greater part of our liquidity needs.
As of December 31, 2020, we had approximately $1.4 billion of indebtedness, consisting of mortgages and notes payable outstanding, a term loan, 2.70%, 4.40% and 4.25% Senior Notes and Trust Preferred Securities, with a weighted-average interest rate of approximately 3.3%. The ability of a property owner subsidiary to make debt service payments depends upon the rental revenues of its property and its ability to refinance the mortgage related thereto, sell the related property, or access capital from us or other sources. A property owner subsidiary's ability to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the risks described under "Risk Factors" in Part I, Item 1A of this Annual Report.
If we are unable to satisfy our contractual obligations and other operating costs with our cash flow from operations, we intend to use borrowings and proceeds from issuances of equity or debt securities. If a property owner subsidiary is unable to satisfy its contractual obligations and other operating costs, it may default on its obligations and lose its assets in foreclosure or through bankruptcy proceedings.
In connection with our intention to continue to qualify as a REIT for federal income tax purposes, we expect to continue paying regular dividends to our shareholders. These dividends are expected to be paid from operating cash flows and/or from other sources. Since cash used to pay dividends reduces amounts available for capital investments, we generally intend to maintain a conservative dividend payout ratio, reserving such amounts as we consider necessary for the maintenance or expansion of properties in our portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as our Board of Trustees considers appropriate.
We paid approximately $118.4 million in cash dividends to our common and preferred shareholders in 2020. Although our property owner subsidiaries receive the majority of our base rental payments on a monthly basis, we intend to continue paying dividends quarterly. Amounts accumulated in advance of each quarterly distribution are invested by us in short-term money market or other suitable instruments.
Capital Resources
General. Due to the net-lease structure of a majority of our investments, our property owner subsidiaries historically have not incurred significant expenditures in the ordinary course of business to maintain the properties in which we have an interest. As leases expire, we expect our property owner subsidiaries to incur costs in extending the existing tenant leases, re-tenanting the properties with a single-tenant, or converting the property to multi-tenant use. The amounts of these expenditures can vary significantly depending on tenant negotiations, market conditions, rental rates and property type.
Single-Tenant Properties. We do not anticipate significant capital expenditures at the single-tenant properties in which we have an interest that are subject to net or similar leases since the tenants at these properties generally bear all or substantially all of the cost of property operations, maintenance and repairs. However, at certain properties subject to net leases, our property owner subsidiaries are responsible for replacement and/or repair of certain capital items, which may or may not be reimbursed. In addition, at certain single-tenant properties that are not subject to a net lease, our property owner subsidiaries have a level of property operating expense responsibility, which may or may not be reimbursed.
Multi-Tenant Properties. Primarily as a result of non-renewals at single-tenant net-lease properties, we have interests in multi-tenant properties in our consolidated portfolio. While tenants of these properties are generally responsible for increases over base year expenses, our property owner subsidiaries are generally responsible for the base-year expenses and capital expenditures, and are responsible for all expenses related to vacant space, at these properties.
Vacant Properties. To the extent there is a vacancy in a property, our property owner subsidiary would be obligated for all operating expenses, including capital expenditures, real estate taxes and insurance. When a property is vacant, our property owner subsidiary may incur substantial capital expenditure and releasing costs to re-tenant the property. However, we believe that, over the long term, our focus on industrial assets will result in significant savings compared to investing in office assets due to the lower operating and retenanting costs of industrial assets compared to office assets.
Property Expansions. Under certain leases, tenants have the right to expand the facility located on a property in which we have an interest. We expect our property owner subsidiaries may fund these property expansions with either additional secured borrowings, the repayment of which will be funded out of rental increases under the leases covering the expanded properties, or capital contributions from us.
Ground Leases. The tenants of properties in which we have an interest generally pay the rental obligations on ground leases either directly to the fee holder or to our property owner subsidiary as increased rent. However, our property owner subsidiaries are responsible for these payments (1) under certain leases without reimbursement and (2) at vacant properties.
Environmental Matters. Based upon management's ongoing review of the properties in which we have an interest, management is not aware of any environmental condition with respect to any of these properties that would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that (1) the discovery of environmental conditions, which were previously unknown, (2) changes in law, (3) the conduct of tenants or (4) activities relating to properties in the vicinity of the properties in which we have an interest, will not expose us to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of properties in which we have an interest.
Results of Operations
Year ended December 31, 2020 compared with December 31, 2019. The decrease in net income attributable to common shareholders of $96.4 million was primarily due to the items discussed below.
The increase in total gross revenues of $4.5 million was primarily a result of an increase in rental revenue attributable to assets acquired subsequent to December 31, 2019, partially offset by a decrease in rental revenue due to property sales.
The increase in depreciation and amortization expense of $14.0 million was primarily due to acquisition activity.
The decrease in non-operating income of $1.5 million was primarily related to funds received in 2019 related to a bankruptcy claim and funds received to settle a tenant's deferred maintenance obligation, with no comparable income in 2020.
The decrease in interest and amortization expense of $9.9 million related primarily to a decrease in the amount of our mortgage debt outstanding and a decrease in our overall borrowing rate.
The increase in debt satisfaction gains, net, of $26.0 million was primarily related to the recognition of aggregate debt satisfaction gains of $34.5 million upon the foreclosure of three office properties, offset by a $10.1 million debt satisfaction charge incurred as a result of the repurchase of a portion of the 2023 Senior Notes and 2024 Senior Notes pursuant to a tender offer and a $2.9 million charge recognized upon the sale of our Lake Jackson, Texas property. During 2019, we incurred an aggregate of $4.5 million of debt satisfaction charges upon the sale of two properties.
The increase in impairment charges of $9.1 million was primarily due to the timing of impairment charges taken on certain properties.
The decrease in gains on sales of properties of $111.9 million was related to the timing of property dispositions.
The decrease in equity in earnings of non-consolidated entities of $3.1 million was primarily related to the timing of gains recognized on the sale of joint venture assets.
The decrease in net income attributable to noncontrolling interests of $2.3 million was primarily a result of a decrease in earnings of LCIF, primarily, as a result of recognizing gains on sold properties in 2019.
The increase in net income or decrease in net loss in future periods will be closely tied to the level of acquisitions made by us. Without acquisitions, the sources of growth in net income are limited to fixed rent adjustments and index adjustments (such as the consumer price index), reduced interest expense on amortizing mortgages and variable rate indebtedness and by controlling other variable overhead costs. However, there are many factors beyond management's control that could offset these items including, without limitation, changes in economic conditions such as the recent economic uncertainty primarily caused by the COVID-19 pandemic, increased interest rates and tenant monetary defaults and the other risks described in this Annual Report.
The analysis of the results of operations for the year ended December 31, 2019 compared with December 31, 2018 is included in our 2019 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, on February 20, 2020.
Same-Store Results
Same-store net operating income, or NOI, which is a non-GAAP measure, represents the NOI for consolidated properties that were owned and included in our portfolio for two comparable reporting periods. We define NOI as operating revenues (rental income (less GAAP rent adjustments and lease termination income), and other property income) less property operating expenses. As same-store NOI excludes the change in NOI from acquired and disposed of properties, it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating same-store NOI, and accordingly same-store NOI may not be comparable to other REITs. Management believes that same-store NOI is a useful supplemental measure of our operating performance. However, same-store NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. We believe that net income is the most directly comparable GAAP measure to same-store NOI.
The following presents our consolidated same-store NOI, for the years ended December 31, 2020 and 2019 ($000):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Total cash base rent
|
$
|
206,898
|
|
|
$
|
203,515
|
|
|
Tenant reimbursements
|
20,609
|
|
|
21,095
|
|
|
Property operating expenses
|
(26,727)
|
|
|
(26,963)
|
|
|
Same-store NOI
|
$
|
200,780
|
|
|
$
|
197,647
|
|
Our reported same-store NOI increased from 2019 to 2020 by 1.6% primarily due to an increase in cash base rents. As of December 31, 2020 and 2019, our historical same-store square footage leased was 97.6% and 99.0%, respectively.
Below is a reconciliation of net income to same-store NOI for periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months ended December 31,
|
|
|
2020
|
|
2019
|
|
Net income
|
$
|
186,391
|
|
|
$
|
285,293
|
|
|
|
|
|
|
|
Interest and amortization expense
|
55,201
|
|
|
65,095
|
|
|
Provision for income taxes
|
1,584
|
|
|
1,379
|
|
|
Depreciation and amortization
|
161,592
|
|
|
147,594
|
|
|
General and administrative
|
30,371
|
|
|
30,785
|
|
|
Transaction costs
|
255
|
|
|
202
|
|
|
Non-operating/advisory income
|
(4,569)
|
|
|
(6,180)
|
|
|
Gains on sales of properties
|
(139,039)
|
|
|
(250,889)
|
|
|
Impairment charges
|
14,460
|
|
|
5,329
|
|
|
Debt satisfaction (gains) charges, net
|
(21,452)
|
|
|
4,517
|
|
|
Equity in (earnings) of non-consolidated entities
|
169
|
|
|
(2,890)
|
|
|
Lease termination income
|
(857)
|
|
|
(2,226)
|
|
|
Straight-line adjustments
|
(13,654)
|
|
|
(14,502)
|
|
|
Lease incentives
|
921
|
|
|
1,191
|
|
|
Amortization of above/below market leases
|
(1,580)
|
|
|
(443)
|
|
|
|
|
|
|
|
NOI
|
269,793
|
|
|
264,255
|
|
|
|
|
|
|
|
Less NOI:
|
|
|
|
|
Acquisitions and dispositions
|
(69,013)
|
|
|
(66,608)
|
|
|
Same-Store NOI
|
$
|
200,780
|
|
|
$
|
197,647
|
|
Funds From Operations
We believe that Funds from Operations, or FFO, which is a non-GAAP measure, is a widely recognized and appropriate measure of the performance of an equity REIT. We believe FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not necessarily be apparent from net income.
The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as “net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sales of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO.” FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.
We present FFO available to common shareholders and unitholders - basic and also present FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common shares, are converted at the beginning of the period. We also present Adjusted Company FFO available to all equityholders and unitholders - diluted, which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe are not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently requested by securities analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.
The following presents a reconciliation of net income attributable to common shareholders to FFO available to common shareholders and unitholders and Adjusted Company FFO available to all equityholders and unitholders for 2020 and 2019 (dollars in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
FUNDS FROM OPERATIONS:
|
|
|
|
|
Basic and Diluted:
|
|
|
|
|
Net income attributable to common shareholders
|
$
|
176,788
|
|
|
$
|
273,225
|
|
|
Adjustments:
|
|
|
|
|
|
Depreciation and amortization
|
158,655
|
|
|
144,792
|
|
|
|
Impairment charges - real estate
|
14,460
|
|
|
5,329
|
|
|
|
Noncontrolling interests - OP units
|
2,347
|
|
|
4,376
|
|
|
|
Amortization of leasing commissions
|
2,937
|
|
|
2,802
|
|
|
|
Joint venture and noncontrolling interest adjustment
|
8,578
|
|
|
9,449
|
|
|
|
Gains on sales of properties, including non-consolidated entities and net of tax
|
(139,596)
|
|
|
(255,048)
|
|
|
FFO available to common shareholders and unitholders - basic
|
224,169
|
|
|
184,925
|
|
|
|
Preferred dividends
|
6,290
|
|
|
6,290
|
|
|
|
Amount allocated to participating securities
|
224
|
|
|
395
|
|
|
FFO available to all equityholders and unitholders - diluted
|
230,683
|
|
|
191,610
|
|
|
|
Debt satisfaction (gains) charges, net, including non-consolidated entities
|
(21,396)
|
|
|
4,773
|
|
|
|
Transaction costs
|
255
|
|
|
202
|
|
|
Adjusted Company FFO available to all equityholders and unitholders - diluted
|
$
|
209,542
|
|
|
$
|
196,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share and Unit Amounts
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
FFO
|
|
|
$
|
0.83
|
|
|
$
|
0.77
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
FFO
|
|
|
$
|
0.84
|
|
|
$
|
0.78
|
|
|
Adjusted Company FFO
|
|
|
$
|
0.76
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Common Shares:
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic EPS
|
|
|
266,914,843
|
|
237,642,048
|
|
Operating partnership units(1)
|
|
|
3,083,320
|
|
3,490,147
|
|
Weighted-average common shares outstanding - basic FFO
|
|
|
269,998,163
|
|
241,132,195
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
Weighted-average common shares outstanding - diluted EPS
|
|
|
268,182,552
|
|
237,934,515
|
|
Unvested share-based payment awards
|
|
|
17,180
|
|
22,813
|
|
Operating partnership units(1)
|
|
|
3,083,320
|
|
3,490,147
|
|
Preferred shares - Series C
|
|
|
4,710,570
|
|
4,710,570
|
|
Weighted-average common shares outstanding - diluted FFO
|
|
|
275,993,622
|
|
246,158,045
|
(1) Includes OP units other than OP units held by us.
Off-Balance Sheet Arrangements
As of December 31, 2020, we had investments in various real estate entities with varying structures. The real estate investments owned by these entities are generally financed with non-recourse debt. Non-recourse debt is generally defined as debt whereby the lenders' sole recourse with respect to borrower defaults is limited to the value of the assets collateralized by the debt. The lender generally does not have recourse against any other assets owned by the borrower or any of the members or partners of the borrower, except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to "bad boy" acts, including fraud, prohibited transfers and breaches of material representations. We have guaranteed such obligations for certain of our non-consolidated entities.
Contractual Obligations
The following summarizes our principal contractual obligations as of December 31, 2020 ($000's):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026 and
Thereafter
|
|
Total
|
|
Mortgages and notes payable(1)
|
|
$
|
24,119
|
|
|
$
|
12,224
|
|
|
$
|
13,267
|
|
|
$
|
6,431
|
|
|
$
|
6,576
|
|
|
$
|
75,795
|
|
|
$
|
138,412
|
|
|
Term loans payable
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
300,000
|
|
|
—
|
|
|
300,000
|
|
|
Senior notes payable
|
|
—
|
|
|
—
|
|
|
188,756
|
|
|
198,932
|
|
|
—
|
|
|
400,000
|
|
|
787,688
|
|
|
Trust preferred securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
129,120
|
|
|
129,120
|
|
|
Interest payable(2)
|
|
44,272
|
|
|
43,123
|
|
|
38,284
|
|
|
29,460
|
|
|
17,586
|
|
|
97,480
|
|
|
270,205
|
|
|
Development contracts(3)
|
|
75,985
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,985
|
|
|
Operating lease obligations(4)
|
|
4,843
|
|
|
4,854
|
|
|
4,999
|
|
|
5,021
|
|
|
5,021
|
|
|
17,472
|
|
|
42,210
|
|
|
|
|
$
|
149,219
|
|
|
$
|
60,201
|
|
|
$
|
245,306
|
|
|
$
|
239,844
|
|
|
$
|
329,183
|
|
|
$
|
719,867
|
|
|
$
|
1,743,620
|
|
1. Consists of principal and balloon payments.
2. Consists of fixed-rate debt and variable-rate debt at the rate in effect at December 31, 2020. Variable-rate debt as of December 31, 2020 is comprised of $129.1 million Trust Preferred Securities (90-day LIBOR plus 1.7% and matures 2037).
3. Represents contractual obligations for consolidated development projects and does not contemplate all costs expected to be incurred for such developments. This table does not include contractual obligations for our non-consolidated joint venture developments, which are described below.
4. Includes ground lease, office rents and equipment lease payments. Amounts disclosed do not include rents that adjust to fair market value. In addition, certain ground lease payments due under bond leases allow for a right of offset between the lease obligation and the debt service and accordingly are not included.
In addition, from time to time we may guarantee certain tenant improvement allowances and lease commissions on behalf of certain property owner subsidiaries when required by the related tenant or lender. However, we do not believe these guarantees are material to us as the obligations under and risks associated with such guarantees are priced into the rent under the lease or the value of the property.
We had two non-consolidated development projects as of December 31, 2020, which are described in "Properties" in Part I, Item 2 of this Annual Report. Due to the early stage of development of each project and the uncertainty of construction schedules at such stage, we are unable to estimate the timing of the required fundings for development projects.
Item 7A. Quantitative and Qualitative Disclosure about Market-Risk
Our exposure to market risk relates primarily to our variable-rate indebtedness not subject to interest rate swaps and our fixed-rate debt. Our consolidated aggregate principal variable-rate indebtedness was $129.1 million at December 31, 2020 and 2019, which represented 9.5% and 9.8%, respectively, of our aggregate principal consolidated indebtedness. During 2020 and 2019, our variable-rate indebtedness had a weighted-average interest rate of 2.4% and 3.8%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for 2020 and 2019 would have increased by $1.8 million and $3.2 million, respectively. As of December 31, 2020 and 2019, our aggregate principal consolidated fixed-rate debt was $1.2 billion, which represented 90.5% and 90.2%, respectively, of our aggregate principal indebtedness.
For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, we derive or estimate fair values using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated cash flows may be subjective and imprecise. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate debt would warrant as of December 31, 2020 and is indicative of the interest rate environment as of December 31, 2020, and does not take into consideration the effects of subsequent interest rate fluctuations. Accordingly, we estimate that the fair value of our fixed-rate debt was $1.3 billion as of December 31, 2020.
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates through the use of fixed-rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. We have historically entered into derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-rate debt. As of December 31, 2020, we had four interest rate swap agreements in our consolidated portfolio, all of which expire in January 2025.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of Lexington Realty Trust
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lexington Realty Trust and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 18, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate, net — Determination of Impairment Indicators and Impairment — Refer to Notes 2 and 5 of the financial statements
Critical Audit Matter Description
The Company’s evaluation of real estate assets for impairment involves an initial assessment of each real estate asset to determine whether events or changes in circumstances exist that indicate that the carrying value of real estate assets may no longer be recoverable. Possible indications of impairment may include increases in vacancy at a property, tenant financial instability, or whether there is a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of before the end of its previously estimated useful life. When such events or changes in circumstances exist, the Company evaluates its real estate assets for impairment by comparing anticipated future undiscounted cash flows expected to be derived from the asset to the respective carrying value. If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the fair value of the asset. An asset is determined to be impaired if the asset's carrying value exceeds its estimated fair value.
The Company makes significant assumptions to estimate its holding period of an asset. Additionally, for those real estate assets where indications of impairment have been identified, the Company makes significant estimates and assumptions related to rental rates and capitalization rates included in the estimated future undiscounted cash flows and, as necessary, the discount rate applied to determine fair value of the assets. Changes in these assumptions could have a significant impact on the identification of real estate assets for impairment, the estimated fair value of the asset, or the amount of any impairment charge recognized. Total real estate assets as of December 31, 2020 were $3.1 billion. The Company recorded $14.5 million of impairment charges on real estate assets during the year ended December 31, 2020.
Auditing management’s assumptions requires evaluation of whether management appropriately identified impairment indicators relating to the asset’s estimated holding periods and whether management’s anticipated future undiscounted cash flows and estimated fair values are reasonable. Because of the subjectivity of these assumptions our audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to evaluate management’s estimated holding period of an asset and to evaluate the assumptions used in undiscounted cash flows and fair value models included the following, among others:
• We tested the effectiveness of controls over management's evaluation of real estate assets for impairment, specifically over identification of possible events or changes in estimated holding period of an asset, controls over rental rates and capitalization rates used in management’s anticipated future undiscounted cash flows, as well as controls over management selection and estimate of discount rates in estimating fair value of real estate assets.
• We evaluated the Company’s assessment of estimated holding periods by:
a. Comparing management’s previous holding period assumptions to the Company’s subsequent sale of an asset.
b. Discussing with accounting and operations management the Company’s intent regarding sale or holding onto the asset.
c. Evaluating the consistency of the assumptions used with obtained audit evidence in other audit areas.
d. Reading minutes of the executive committee and board of directors’ meetings to identify any indicators that a long-lived asset will likely be sold or otherwise disposed of before the end of its previously estimated useful life.
• We evaluated the Company’s determination of anticipated future undiscounted cash flows for those assets with impairment indicators and the fair value for those that the carrying value was determined not to be recoverable by performing the following:
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology; (2) significant assumptions made, including testing the source information underlying the determination of the discount rate, rental rates, capitalization rates; and (3) mathematical accuracy of the calculation by developing a range of independent estimates based on external market sources and comparing our estimates to the assumptions utilized by management.
/s/ Deloitte & Touche LLP
New York, New York
February 18, 2021
We have served as the Company's auditor since 2017.
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Trustees of Lexington Realty Trust
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Lexington Realty Trust and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 18, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
February 18, 2021
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000, except share and per share data)
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Assets:
|
|
|
|
|
Real estate, at cost
|
$
|
3,514,564
|
|
|
$
|
3,320,574
|
|
|
Real estate - intangible assets
|
409,293
|
|
|
409,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in real estate under construction
|
75,906
|
|
|
13,313
|
|
|
Real estate, gross
|
3,999,763
|
|
|
3,743,643
|
|
|
Less: accumulated depreciation and amortization
|
884,465
|
|
|
887,629
|
|
|
Real estate, net
|
3,115,298
|
|
|
2,856,014
|
|
|
|
|
|
|
|
Assets held for sale
|
16,530
|
|
|
—
|
|
|
Right-of-use assets, net
|
31,423
|
|
|
38,133
|
|
|
Cash and cash equivalents
|
178,795
|
|
|
122,666
|
|
|
Restricted cash
|
626
|
|
|
6,644
|
|
|
Investments in non-consolidated entities
|
56,464
|
|
|
57,168
|
|
|
Deferred expenses (net of accumulated amortization of $23,171 in 2020 and $23,382 in 2019)
|
15,901
|
|
|
18,404
|
|
|
|
|
|
|
|
Rent receivable - current
|
2,899
|
|
|
3,229
|
|
|
Rent receivable - deferred
|
66,959
|
|
|
66,294
|
|
|
Other assets
|
8,331
|
|
|
11,708
|
|
|
Total assets
|
$
|
3,493,226
|
|
|
$
|
3,180,260
|
|
|
|
|
|
|
|
Liabilities and Equity:
|
|
|
|
|
Liabilities:
|
|
|
|
|
Mortgages and notes payable, net
|
$
|
136,529
|
|
|
$
|
390,272
|
|
|
|
|
|
|
|
Term loan payable, net
|
297,943
|
|
|
297,439
|
|
|
Senior notes payable, net
|
779,275
|
|
|
496,870
|
|
|
|
|
|
|
|
Trust preferred securities, net
|
127,495
|
|
|
127,396
|
|
|
Dividends payable
|
35,401
|
|
|
32,432
|
|
|
Liabilities held for sale
|
790
|
|
|
—
|
|
|
Operating lease liabilities
|
32,515
|
|
|
39,442
|
|
|
Accounts payable and other liabilities
|
55,208
|
|
|
29,925
|
|
|
Accrued interest payable
|
6,334
|
|
|
7,897
|
|
|
Deferred revenue - including below market leases (net of accumulated accretion of $12,758 in 2020 and $11,876 in 2019)
|
17,264
|
|
|
20,350
|
|
|
Prepaid rent
|
13,335
|
|
|
13,518
|
|
|
Total liabilities
|
1,502,089
|
|
|
1,455,541
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
Equity:
|
|
|
|
|
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares,
|
|
|
|
|
Series C Cumulative Convertible Preferred, liquidation preference $96,770 and 1,935,400 shares issued and outstanding
|
94,016
|
|
|
94,016
|
|
|
|
|
|
|
|
Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 277,152,450 and 254,770,719 shares issued and outstanding in 2020 and 2019, respectively
|
28
|
|
|
25
|
|
|
Additional paid-in-capital
|
3,196,315
|
|
|
2,976,670
|
|
|
Accumulated distributions in excess of net income
|
(1,301,726)
|
|
|
(1,363,676)
|
|
|
Accumulated other comprehensive loss
|
(17,963)
|
|
|
(1,928)
|
|
|
Total shareholders’ equity
|
1,970,670
|
|
|
1,705,107
|
|
|
Noncontrolling interests
|
20,467
|
|
|
19,612
|
|
|
Total equity
|
1,991,137
|
|
|
1,724,719
|
|
|
Total liabilities and equity
|
$
|
3,493,226
|
|
|
$
|
3,180,260
|
|
The accompanying notes are an integral part of these consolidated financial statements.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000, except share and per share data)
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Gross revenues:
|
|
|
|
|
|
|
Rental revenue
|
$
|
325,811
|
|
|
$
|
320,622
|
|
|
$
|
395,339
|
|
|
|
|
|
|
|
|
|
Other income
|
4,637
|
|
|
5,347
|
|
|
1,632
|
|
|
Total gross revenues
|
330,448
|
|
|
325,969
|
|
|
396,971
|
|
|
Expense applicable to revenues:
|
|
|
|
|
|
|
Depreciation and amortization
|
(161,592)
|
|
|
(147,594)
|
|
|
(168,191)
|
|
|
Property operating
|
(41,914)
|
|
|
(42,018)
|
|
|
(42,675)
|
|
|
General and administrative
|
(30,371)
|
|
|
(30,785)
|
|
|
(31,662)
|
|
|
Non-operating income
|
743
|
|
|
2,262
|
|
|
1,859
|
|
|
Interest and amortization expense
|
(55,201)
|
|
|
(65,095)
|
|
|
(79,880)
|
|
|
|
|
|
|
|
|
|
Debt satisfaction gains (charges), net
|
21,452
|
|
|
(4,517)
|
|
|
(2,596)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
(14,460)
|
|
|
(5,329)
|
|
|
(95,813)
|
|
|
Gains on sales of properties
|
139,039
|
|
|
250,889
|
|
|
252,913
|
|
|
Income before provision for income taxes, equity in earnings (losses) of non-consolidated entities
|
188,144
|
|
|
283,782
|
|
|
230,926
|
|
|
Provision for income taxes
|
(1,584)
|
|
|
(1,379)
|
|
|
(1,728)
|
|
|
Equity in earnings (losses) of non-consolidated entities
|
(169)
|
|
|
2,890
|
|
|
1,708
|
|
|
Net income
|
186,391
|
|
|
285,293
|
|
|
230,906
|
|
|
Less net income attributable to noncontrolling interests
|
(3,089)
|
|
|
(5,383)
|
|
|
(3,491)
|
|
|
Net income attributable to Lexington Realty Trust shareholders
|
183,302
|
|
|
279,910
|
|
|
227,415
|
|
|
|
|
|
|
|
|
|
Dividends attributable to preferred shares - Series C
|
(6,290)
|
|
|
(6,290)
|
|
|
(6,290)
|
|
|
|
|
|
|
|
|
|
Allocation to participating securities
|
(224)
|
|
|
(395)
|
|
|
(287)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
$
|
176,788
|
|
|
$
|
273,225
|
|
|
$
|
220,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders - per common share basic
|
$
|
0.66
|
|
|
$
|
1.15
|
|
|
$
|
0.93
|
|
|
Weighted-average common shares outstanding - basic
|
266,914,843
|
|
|
237,642,048
|
|
|
236,666,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders - per common share diluted
|
$
|
0.66
|
|
|
$
|
1.15
|
|
|
$
|
0.93
|
|
|
Weighted-average common shares outstanding - diluted
|
268,182,552
|
|
|
237,934,515
|
|
|
240,810,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($000)
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net income
|
$
|
186,391
|
|
|
$
|
285,293
|
|
|
$
|
230,906
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized loss on interest rate swaps, net
|
(16,035)
|
|
|
(2,004)
|
|
|
(989)
|
|
|
Other comprehensive loss
|
(16,035)
|
|
|
(2,004)
|
|
|
(989)
|
|
|
Comprehensive income
|
170,356
|
|
|
283,289
|
|
|
229,917
|
|
|
Comprehensive income attributable to noncontrolling interests
|
(3,089)
|
|
|
(5,383)
|
|
|
(3,491)
|
|
|
Comprehensive income attributable to Lexington Realty Trust shareholders
|
$
|
167,267
|
|
|
$
|
277,906
|
|
|
$
|
226,426
|
|
The accompanying notes are an integral part of these consolidated financial statements.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lexington Realty Trust Shareholders
|
|
|
|
|
Total
|
|
Number of Preferred Shares
|
|
Preferred Shares
|
|
Number of Common Shares
|
|
Common Shares
|
|
Additional Paid-in-Capital
|
|
Accumulated Distributions in Excess of Net Income
|
|
Accumulated Other Comprehensive Loss
|
|
Noncontrolling Interests
|
|
Balance December 31, 2019
|
$
|
1,724,719
|
|
|
1,935,400
|
|
|
$
|
94,016
|
|
|
254,770,719
|
|
|
$
|
25
|
|
|
$
|
2,976,670
|
|
|
$
|
(1,363,676)
|
|
|
$
|
(1,928)
|
|
|
$
|
19,612
|
|
|
Issuance of partnership interest in real estate
|
1,285
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,285
|
|
|
Redemption of noncontrolling OP units for common shares
|
—
|
|
|
—
|
|
|
—
|
|
|
327,453
|
|
|
—
|
|
|
1,614
|
|
|
—
|
|
|
—
|
|
|
(1,614)
|
|
|
Issuance of common shares and deferred compensation amortization, net
|
231,699
|
|
|
—
|
|
|
—
|
|
|
23,962,696
|
|
|
3
|
|
|
231,696
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Repurchase of common shares
|
(11,042)
|
|
|
—
|
|
|
—
|
|
|
(1,329,940)
|
|
|
|
|
(11,042)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Repurchase of common shares to settle tax obligations
|
(2,623)
|
|
|
—
|
|
|
—
|
|
|
(576,011)
|
|
|
—
|
|
|
(2,623)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeiture of employee common shares
|
1
|
|
|
—
|
|
|
—
|
|
|
(2,467)
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Dividends/distributions
|
(123,258)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(121,353)
|
|
|
—
|
|
|
(1,905)
|
|
|
Net income
|
186,391
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
183,302
|
|
|
—
|
|
|
3,089
|
|
|
Other comprehensive loss
|
(16,035)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,035)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2020
|
$
|
1,991,137
|
|
|
1,935,400
|
|
|
$
|
94,016
|
|
|
277,152,450
|
|
|
$
|
28
|
|
|
$
|
3,196,315
|
|
|
$
|
(1,301,726)
|
|
|
$
|
(17,963)
|
|
|
$
|
20,467
|
|
The accompanying notes are an integral part of the consolidated financial statements.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lexington Realty Trust Shareholders
|
|
|
|
|
Total
|
|
Number of Preferred Shares
|
|
Preferred Shares
|
|
Number of Common Shares
|
|
Common Shares
|
|
Additional Paid-in-Capital
|
|
Accumulated Distributions in Excess of Net Income
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Noncontrolling Interests
|
|
Balance December 31, 2018
|
$
|
1,346,678
|
|
|
1,935,400
|
|
|
$
|
94,016
|
|
|
235,008,554
|
|
|
$
|
24
|
|
|
$
|
2,772,855
|
|
|
$
|
(1,537,100)
|
|
|
$
|
76
|
|
|
$
|
16,807
|
|
|
Issuance of partnership interest in real estate
|
867
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
867
|
|
|
Redemption of noncontrolling OP units for common shares
|
—
|
|
|
—
|
|
|
—
|
|
|
391,993
|
|
|
—
|
|
|
1,655
|
|
|
—
|
|
|
—
|
|
|
(1,655)
|
|
|
Issuance of common shares and deferred compensation amortization, net
|
209,373
|
|
|
—
|
|
|
—
|
|
|
20,579,745
|
|
|
2
|
|
|
209,371
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Repurchase of common shares
|
(958)
|
|
|
—
|
|
|
—
|
|
|
(441,581)
|
|
|
—
|
|
|
(958)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Repurchase of common shares to settle tax obligations
|
(5,281)
|
|
|
—
|
|
|
—
|
|
|
(712,430)
|
|
|
(1)
|
|
|
(5,280)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeiture of employee common shares
|
15
|
|
|
—
|
|
|
—
|
|
|
(55,562)
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
Dividends/distributions
|
(109,264)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(106,501)
|
|
|
—
|
|
|
(2,763)
|
|
|
Net income
|
285,293
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
279,910
|
|
|
—
|
|
|
5,383
|
|
|
Other comprehensive loss
|
(2,004)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,004)
|
|
|
—
|
|
|
Reallocation of noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(973)
|
|
|
—
|
|
|
—
|
|
|
973
|
|
|
Balance December 31, 2019
|
$
|
1,724,719
|
|
|
1,935,400
|
|
|
$
|
94,016
|
|
|
254,770,719
|
|
|
$
|
25
|
|
|
$
|
2,976,670
|
|
|
$
|
(1,363,676)
|
|
|
$
|
(1,928)
|
|
|
$
|
19,612
|
|
The accompanying notes are an integral part of the consolidated financial statements.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lexington Realty Trust Shareholders
|
|
|
|
|
Total
|
|
Number of Preferred Shares
|
|
Preferred Shares
|
|
Number of Common Shares
|
|
Common Shares
|
|
Additional Paid-in-Capital
|
|
Accumulated Distributions in Excess of Net Income
|
|
Accumulated Other Comprehensive Income
|
|
Noncontrolling Interests
|
|
Balance December 31, 2017
|
$
|
1,340,835
|
|
|
1,935,400
|
|
|
$
|
94,016
|
|
|
240,689,081
|
|
|
$
|
24
|
|
|
$
|
2,818,520
|
|
|
$
|
(1,589,724)
|
|
|
$
|
1,065
|
|
|
$
|
16,934
|
|
|
Redemption of noncontrolling OP units for common shares
|
—
|
|
|
—
|
|
|
—
|
|
|
53,388
|
|
|
—
|
|
|
189
|
|
|
—
|
|
|
—
|
|
|
(189)
|
|
|
Repurchase of common shares
|
(49,858)
|
|
|
—
|
|
|
—
|
|
|
(5,851,252)
|
|
|
—
|
|
|
(49,858)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercise of employee common share options
|
115
|
|
|
—
|
|
|
—
|
|
|
16,390
|
|
|
—
|
|
|
115
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of common shares and deferred compensation amortization, net
|
6,520
|
|
|
—
|
|
|
—
|
|
|
966,791
|
|
|
—
|
|
|
6,520
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Repurchase of common shares to settle tax obligations
|
(2,544)
|
|
|
—
|
|
|
—
|
|
|
(271,792)
|
|
|
—
|
|
|
(2,544)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeiture of employee common shares
|
(71)
|
|
|
—
|
|
|
—
|
|
|
(594,052)
|
|
|
—
|
|
|
(87)
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
Dividends/distributions
|
(178,236)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(174,807)
|
|
|
—
|
|
|
(3,429)
|
|
|
Net income
|
230,906
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
227,415
|
|
|
—
|
|
|
3,491
|
|
|
Other comprehensive loss
|
(989)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(989)
|
|
|
—
|
|
|
Balance December 31, 2018
|
$
|
1,346,678
|
|
|
1,935,400
|
|
|
$
|
94,016
|
|
|
235,008,554
|
|
|
$
|
24
|
|
|
$
|
2,772,855
|
|
|
$
|
(1,537,100)
|
|
|
$
|
76
|
|
|
$
|
16,807
|
|
The accompanying notes are an integral part of the consolidated financial statements.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000)
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
$
|
186,391
|
|
|
$
|
285,293
|
|
|
$
|
230,906
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
164,260
|
|
|
150,440
|
|
|
172,088
|
|
|
|
|
|
|
|
|
|
Gains on sales of properties
|
(139,039)
|
|
|
(250,889)
|
|
|
(252,913)
|
|
|
|
|
|
|
|
|
|
Debt satisfaction (gains) charges, net
|
(21,452)
|
|
|
4,517
|
|
|
2,596
|
|
|
Impairment charges
|
14,460
|
|
|
5,329
|
|
|
95,813
|
|
|
Straight-line rents
|
(13,602)
|
|
|
(14,264)
|
|
|
(20,207)
|
|
|
Amortization of right of use assets
|
3,763
|
|
|
3,645
|
|
|
—
|
|
|
Other non-cash (income) expense, net
|
6,210
|
|
|
6,060
|
|
|
(3,060)
|
|
|
Equity in (earnings) losses of non-consolidated entities
|
169
|
|
|
(2,890)
|
|
|
(1,708)
|
|
|
Distributions of accumulated earnings from non-consolidated entities
|
—
|
|
|
2,571
|
|
|
2,083
|
|
|
|
|
|
|
|
|
|
Change in accounts payable and other liabilities
|
2,859
|
|
|
(270)
|
|
|
(129)
|
|
|
Change in rent receivable and prepaid rent, net
|
80
|
|
|
3,770
|
|
|
(3,942)
|
|
|
Change in accrued interest payable
|
1,866
|
|
|
3,368
|
|
|
(891)
|
|
|
Other adjustments, net
|
(4,130)
|
|
|
(4,496)
|
|
|
(2,825)
|
|
|
Net cash provided by operating activities
|
201,835
|
|
|
192,184
|
|
|
217,811
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Investment in real estate, including intangible assets
|
(611,754)
|
|
|
(662,010)
|
|
|
(315,959)
|
|
|
Investment in real estate under construction
|
(53,971)
|
|
|
(11,332)
|
|
|
—
|
|
|
Capital expenditures
|
(17,250)
|
|
|
(17,829)
|
|
|
(15,506)
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of properties
|
192,560
|
|
|
504,118
|
|
|
898,514
|
|
|
|
|
|
|
|
|
|
Investments in non-consolidated entities, net
|
(7,528)
|
|
|
(8,018)
|
|
|
(10,206)
|
|
|
|
|
|
|
|
|
|
Distributions from non-consolidated entities in excess of accumulated earnings
|
8,055
|
|
|
17,119
|
|
|
3,330
|
|
|
Payments of deferred leasing costs
|
(4,841)
|
|
|
(8,196)
|
|
|
(4,522)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in real estate deposits
|
379
|
|
|
(817)
|
|
|
(760)
|
|
|
Net cash provided by (used in) investing activities
|
(494,350)
|
|
|
(186,965)
|
|
|
554,891
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Dividends to common and preferred shareholders
|
(118,384)
|
|
|
(122,843)
|
|
|
(175,537)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amortization payments
|
(19,441)
|
|
|
(24,259)
|
|
|
(29,666)
|
|
|
Principal payments on debt, excluding normal amortization
|
—
|
|
|
(89,242)
|
|
|
(14,599)
|
|
|
Proceeds of mortgages and notes payable
|
—
|
|
|
—
|
|
|
26,350
|
|
|
Term loan payments
|
—
|
|
|
—
|
|
|
(300,000)
|
|
|
Revolving credit facility borrowings
|
170,000
|
|
|
110,000
|
|
|
150,000
|
|
|
Revolving credit facility payments
|
(170,000)
|
|
|
(110,000)
|
|
|
(310,000)
|
|
|
Proceeds from senior notes
|
396,932
|
|
|
—
|
|
|
—
|
|
|
Repurchase of senior notes
|
(112,312)
|
|
|
—
|
|
|
—
|
|
|
Payment for early extinguishment of debt
|
(11,094)
|
|
|
(3,505)
|
|
|
(5)
|
|
|
Payments of deferred financing costs
|
(3,803)
|
|
|
(5,456)
|
|
|
(690)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions to noncontrolling interests
|
(1,905)
|
|
|
(2,763)
|
|
|
(3,429)
|
|
|
Cash contributions from noncontrolling interests
|
1,285
|
|
|
867
|
|
|
—
|
|
|
Repurchase of common shares
|
(11,042)
|
|
|
(3,598)
|
|
|
(47,217)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares, net of costs and repurchases to settle tax obligations
|
222,390
|
|
|
197,643
|
|
|
(2,818)
|
|
|
Net cash provided by (used in) financing activities
|
342,626
|
|
|
(53,156)
|
|
|
(707,611)
|
|
|
Change in cash, cash equivalents and restricted cash
|
50,111
|
|
|
(47,937)
|
|
|
65,091
|
|
|
Cash, cash equivalents and restricted cash, at beginning of year
|
129,310
|
|
|
177,247
|
|
|
112,156
|
|
|
Cash, cash equivalents and restricted cash, at end of year
|
$
|
179,421
|
|
|
$
|
129,310
|
|
|
$
|
177,247
|
|
The accompanying notes are an integral part of these consolidated financial statements.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(1) The Company
Lexington Realty Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland real estate investment trust (“REIT”) that owns a portfolio of equity investments focused on single-tenant industrial properties.
As of December 31, 2020, the Company had equity ownership interests in approximately 130 consolidated properties located in 29 states. The properties in which the Company has an interest are primarily net leased to tenants in various industries.
The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the Company will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS are subject to federal income taxes on the income from these activities.
The Company conducts its operations indirectly through (1) property owner subsidiaries, which are single purpose entities, (2) a wholly-owned TRS, Lexington Realty Advisors, Inc. (“LRA”), and (3) joint ventures. Property owner subsidiaries are landlords under leases for properties in which the Company has an interest and/or borrowers under loan agreements secured by properties in which the Company has an interest and lender subsidiaries are lenders under loan agreements where the Company made an investment in a loan asset, but in all cases are separate and distinct legal entities. Each property owner subsidiary is a separate legal entity that maintains separate books and records. The assets and credit of each property owner subsidiary with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other property owner subsidiary or any other affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member or managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interest therein, which interests are subordinate to the claims of such property owner subsidiary's (or its general partner's, member's or managing member's) creditors.
(2)Summary of Significant Accounting Policies
Basis of Presentation and Consolidation. The Company's consolidated financial statements are prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”). The financial statements reflect the accounts of the Company and its consolidated subsidiaries. The Company consolidates its wholly-owned subsidiaries, partnerships and joint ventures which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). Entities which the Company does not control and entities which are VIEs in which the Company is not the primary beneficiary are accounted for under the equity method of accounting.
The Company is the primary beneficiary of certain VIEs as it has a controlling financial interest in these entities. Lepercq Corporate Income Fund L.P. (“LCIF”) and the ATL Fairburn L.P. (“Fairburn JV”) are consolidated and the Company has an approximate 97% and 90% interest, respectively, are VIEs.
The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of December 31, 2020 and 2019, the VIEs' mortgages and notes payable were non-recourse to the Company. Below is a summary of selected financial data of consolidated VIEs for which the Company is the primary beneficiary included in the consolidated balance sheets as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Real estate, net
|
$
|
569,461
|
|
|
$
|
592,372
|
|
|
Total assets
|
$
|
679,786
|
|
|
$
|
645,623
|
|
|
Mortgages and notes payable, net
|
$
|
25,600
|
|
|
$
|
82,978
|
|
|
Total liabilities
|
$
|
40,974
|
|
|
$
|
101,901
|
|
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In addition, the Company acquires, from time to time, properties using a reverse like-kind exchange structure pursuant to Section 1031 of the Internal Revenue Code (a "reverse 1031 exchange") and, as such, the properties are in the possession of an Exchange Accommodation Titleholder ("EAT") until the reverse 1031 exchange is completed. The EAT is classified as a VIE as it is a “thinly capitalized” entity. The Company consolidates the EAT because it is the primary beneficiary as it has the ability to control the activities that most significantly impact the EAT's economic performance and can collapse the reverse 1031 exchange structure at any time. The assets of the EAT primarily consist of leased property (net real estate and intangibles).
Earnings Per Share. Basic net income (loss) per share is computed by dividing net income (loss) reduced by preferred dividends and amounts allocated to certain non-vested share-based payment awards, if applicable, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share amounts are similarly computed but include the effect, when dilutive, of in-the-money common share options and non-vested common shares, unsettled common shares sold in forward sales transactions, OP units and put options of certain convertible securities.
Use of Estimates. Management has made a number of significant estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these consolidated financial statements in conformity with GAAP. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the economic environment. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the determination of VIEs and which entities should be consolidated, the determination of impairment of long-lived assets and equity method investments, valuation of derivative financial instruments, valuation of awards granted under compensation plans, the determination of the incremental borrowing rate for leases where the Company is the lessee and the useful lives of long-lived assets. Actual results could differ materially from those estimates.
Revenue Recognition. The Company recognizes lease revenue on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Revenue is recognized on a contractual basis for leases with escalations tied to a consumer price index with no floor. The Company evaluates the collectability of its rental payments and recognizes revenue on a cash basis when the Company believes it is no longer probable that it will receive substantially all of the remaining lease payments. Renewal options in leases with rental terms that are lower than those in the primary term are excluded from the calculation of straight-line rent if the renewals are not reasonably assured. If the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. If the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and amortized as a reduction of revenue on a straight-line basis over the respective lease term. The Company recognizes lease termination fees as rental revenue in the period received and writes off unamortized lease-related intangible and other lease-related account balances, provided there are no further Company obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period with the termination payments being recorded as a component of rent receivable-deferred on the consolidated balance sheets.
Acquisition of Real Estate. The fair value of the real estate acquired, which includes the impact of fair value adjustments for assumed mortgage debt related to property acquisitions, is allocated to the acquired tangible assets, consisting of land, building and improvements and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values. Prior to January 1, 2018, acquisition and pursuit costs were expensed as incurred and were included in property operating expense in the accompanying consolidated statement of operations. Effective January 1, 2018, the Company's acquisitions are primarily considered asset acquisitions and acquisition costs are now capitalized.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The fair value of the tangible assets of an acquired property (which includes land, building and improvements and fixtures and equipment) is determined by valuing the property as if it were vacant. The “as-if-vacant” value is then allocated to land and building and improvements based on management's determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions. Management generally retains a third party to assist in the allocations.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the difference between the current in-place lease rent and management's estimate of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases. Above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases.
The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationship values, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships is amortized to expense over the applicable lease term plus expected renewal periods.
Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties. The Company generally depreciates its real estate assets over periods ranging up to 40 years.
Impairment of Real Estate. The Company evaluates the carrying value of all tangible and intangible real estate assets held for investment for possible impairment when an event or change in circumstance has occurred that indicates its carrying value may not be recoverable. The Company considers the strategic decisions regarding the future plans to sell properties and other market factors. The Company regularly updates significant estimates and assumptions including rental rates, capitalization rates and discount rates, which are included in the anticipated future undiscounted cash flows derived from the asset. If such cash flows are less than the asset's carrying value, an impairment charge is recognized to the extent by which the asset's carrying value exceeds its estimated fair value, which may be below the balance of any non-recourse financing. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results.
Investments in Non-Consolidated Entities. The Company accounts for its investments in 50% or less owned entities under the equity method, unless consolidation is required. If the Company's investment in the entity is insignificant and the Company has no influence over the control of the entity then the entity is accounted for under the cost method.
Impairment of Equity Method Investments. The Company assesses whether there are indicators that the value of its equity method investments may be impaired. An impairment charge is recognized only if the Company determines that a decline in the value of the investment below its carrying value is other-than-temporary. The assessment of impairment is highly subjective and involves the application of significant assumptions and judgments about the Company's intent and ability to recover its investment given the nature and operations of the underlying investment, including the level of the Company's involvement therein, among other factors. To the extent an impairment is deemed to be other-than-temporary, the loss is measured as the excess of the carrying amount of the investment over the estimated fair value of the investment.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Fair Value Measurements. The Company follows the guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("Topic 820"), to determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk. The Company has formally elected to apply the portfolio exception within Topic 820 with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements.
The Company estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income and market valuation techniques. The Company may estimate fair values using market information such as recent sale contracts (Level 2 inputs) or recent sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. To the extent the Company under-estimates forecasted cash outflows (tenant improvements, lease commissions and operating costs) or over-estimates forecasted cash inflows (rental revenue rates), the estimated fair value of its real estate assets could be overstated.
Cost Capitalization. We capitalize interest and direct and indirect project costs associated with the initial construction of a property up to the time the property is substantially complete and ready for its intended use. In addition, we capitalize operating costs, including real estate taxes, insurance and utilities, that have been allocated to vacant space based on the square footage of the portion of the building not held available for immediate occupancy during the extended lease-up periods after the construction of the building shell has been completed if costs are being incurred to ready the vacant space for its intended use. If costs and activities incurred to ready the vacant space cease, then cost capitalization is also discontinued until such activities are resumed. Once necessary work has been completed on a vacant space, project costs are no longer capitalized.
Properties Held For Sale. Assets and liabilities of properties that meet various held for sale criteria, including whether it is probable that a sale will occur within 12 months, are presented separately in the consolidated balance sheets. The operating results of these properties are reflected as discontinued operations in the consolidated statements of operations only if the sale of these assets represents a strategic shift in operations; if not, the operating results are included in continuing operations. Properties classified as held for sale are carried at the lower of net carrying value or estimated fair value less costs to sell and depreciation and amortization are no longer recognized. Properties that do not meet the held for sale criteria are accounted for as operating properties.
Deferred Expenses. Deferred expenses consist primarily of revolving line of credit debt and leasing costs. Debt costs are amortized using the straight-line method, which approximates the interest method, over the terms of the debt instruments and leasing costs are amortized over the term of the related lease.
Derivative Financial Instruments. The Company accounts for its interest rate swap agreements in accordance with FASB ASC Topic 815, Derivatives and Hedging ("Topic 815"). In accordance with Topic 815, these agreements are carried on the balance sheet at their respective fair values, as an asset if fair value is positive, or as a liability if fair value is negative. If the interest rate swap is designated as a cash flow hedge, the portion of the interest rate swap's change in fair value is reported as a component of other comprehensive income (loss).
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Upon entering into hedging transactions, the Company documents the relationship between the interest rate swap agreement and the hedged item. The Company also documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities. The Company assesses, both at inception of a hedge and on an ongoing basis, whether or not the hedge is highly effective. The Company will discontinue hedge accounting on a prospective basis with changes in the estimated fair value reflected in earnings when (1) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including forecasted transactions), (2) it is no longer probable that the forecasted transaction will occur or (3) it is determined that designating the derivative as an interest rate swap is no longer appropriate. The Company does and may continue to utilize interest rate swap and cap agreements to manage interest rate risk, but does not anticipate entering into derivative transactions for speculative trading purposes.
Stock Compensation. The Company maintains an equity participation plan. Non-vested share grants generally vest either based upon (1) time, (2) performance and/or (3) market conditions. All share-based payments to employees are recognized in the consolidated statements of operations based on their fair values. The Company has made an accounting policy election to account for share-based award forfeitures in compensation costs when they occur.
Tax Status. The Company has made an election to qualify, and believes it is operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, the Company generally will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under Sections 856 through 860 of the Code.
The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries under the Code. As such, the Company is subject to federal and state income taxes on the income from these activities.
Income taxes, primarily related to the Company's taxable REIT subsidiaries, are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Cash and Cash Equivalents. The Company considers all highly liquid instruments with maturities of three months or less from the date of purchase to be cash equivalents.
Restricted Cash. Restricted cash is comprised primarily of cash balances held in escrow by lender and operating cash reserves held in escrow for one property.
Environmental Matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines, penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances. Although most of the tenants of properties in which the Company has an interest are primarily responsible for any environmental damage and claims related to the leased premises, in the event of the bankruptcy or inability of the tenant of such premises to satisfy any obligations with respect to such environmental liability, or if the tenant is not responsible, the Company's property owner subsidiary may be required to satisfy any such obligations, should they exist. In addition, the property owner subsidiary, as the owner of such a property, may be held directly liable for any such damages or claims irrespective of the provisions of any lease. As of December 31, 2020, the Company was not aware of any environmental matter relating to any of its investments that would have a material impact on the consolidated financial statements.
Segment Reporting. The Company operates generally in one industry segment, single-tenant real estate assets.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform to the current year's presentation. Upon adoption of ASC 842, the Company reclassified certain amounts on the consolidated statements of operations, primarily the reclassification of tenant reimbursements to rental revenue. As a result, rental revenue increased in 2018 by $30,608 for the reclassification of tenant reimbursements to conform with the 2019 presentation of rental revenue.
New Accounting Standards Adopted in 2020. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of an allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 was effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The Company analyzed its accounts receivable using an aging methodology and determined that there have been no historical credit losses related to its outstanding accounts receivable. As a result, the Company's adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The standard was effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The Company's adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This ASU includes additional disclosures requirements for recurring and nonrecurring Level 3 fair value measurements including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income, disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and a narrative description of measurement uncertainty related to Level 3 measurements. This standard was effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Guidance. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The guidance in ASU 2020-04 is optional, applies for a limited period of time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR and may be elected over time as reference rate reform activities occur. As of March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
While the lease modification guidance in ASC Topic 842 ("Topic 842") addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic. In April 2020, the FASB staff issued a question and answer document (the "Lease Modification Q&A") focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances.
During 2020, the Company had no lease modifications that qualified for relief under Lease Modification Q&A. The Lease Modification Q&A's future impact on the Company's consolidated financial statements is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering into such concessions.
(3)Earnings Per Share
A significant portion of the Company's non-vested share-based payment awards are considered participating securities and as such, the Company is required to use the two-class method for the computation of basic and diluted earnings per share. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The non-vested share-based payment awards are not allocated losses as the awards do not have a contractual obligation to share in losses of the Company.
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for each of the years in the three-year period ended December 31, 2020:
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2020
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2019
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2018
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|
BASIC
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|
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|
|
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|
Net income attributable to common shareholders
|
$
|
176,788
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|
|
$
|
273,225
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|
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$
|
220,838
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|
|
Weighted-average number of common shares outstanding
|
266,914,843
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|
|
237,642,048
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236,666,375
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Net income attributable to common shareholders - per common share basic
|
$
|
0.66
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|
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$
|
1.15
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$
|
0.93
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DILUTED:
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Net income attributable to common shareholders - basic
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$
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176,788
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$
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273,225
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$
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220,838
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Impact of assumed conversions
|
—
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—
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2,528
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Net income attributable to common shareholders
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$
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176,788
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|
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$
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273,225
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|
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$
|
223,366
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Weighted-average common shares outstanding - basic
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266,914,843
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237,642,048
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236,666,375
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Effect of dilutive securities:
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Unvested share-based payment awards and options
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1,267,709
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292,467
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528,495
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Operating Partnership Units
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—
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—
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3,616,120
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Weighted-average common shares outstanding - diluted
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268,182,552
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237,934,515
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240,810,990
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Net income attributable to common shareholders - per common share diluted
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$
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0.66
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$
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1.15
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$
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0.93
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For per common share amounts, all incremental shares are considered anti-dilutive for periods that have a loss from continuing operations attributable to common shareholders. In addition, other common share equivalents may be anti-dilutive in certain periods.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(4)Investments in Real Estate
The Company's real estate, net, consists of the following at December 31, 2020 and 2019:
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2020
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2019
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Real estate, at cost:
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Buildings and building improvements
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$
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3,144,176
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$
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2,962,982
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Land, land estates and land improvements
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367,272
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355,697
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Construction in progress
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3,116
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1,895
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Real estate intangibles:
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In-place lease values
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357,640
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339,154
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Tenant relationships
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33,327
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42,396
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Above-market leases
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18,326
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28,206
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Investments in real estate under construction
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75,906
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13,313
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|
|
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3,999,763
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3,743,643
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Accumulated depreciation and amortization(1)
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(884,465)
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(887,629)
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Real estate, net
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$
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3,115,298
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|
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$
|
2,856,014
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(1) Includes accumulated amortization of real estate intangible assets of $199,997 and $212,033 in 2020 and 2019, respectively. The estimated amortization of the above real estate intangible assets for the next five years is $32,240 in 2021, $30,559 in 2022, $29,560 in 2023, $23,801 in 2024 and $19,802 in 2025.
The Company had below-market leases, net of accumulated accretion, which are included in deferred revenue, of $16,531 and $19,090, respectively, as of December 31, 2020 and 2019. The estimated accretion for the next five years is $2,201 in 2021, $1,931 in 2022, $1,931 in 2023, $1,931 in 2024 and $1,865 in 2025.
The Company completed the following acquisitions during 2020 and 2019:
2020:
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Property Type
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Market
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Acquisition Date
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Initial
Cost
Basis
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Lease
Expiration
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Land
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Building and Improvements
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Lease in-place Value Intangible
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Industrial
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Chicago, IL
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January 2020
|
$
|
53,642
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11/2029
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$
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3,681
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|
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$
|
45,817
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|
|
$
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4,144
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Industrial
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Phoenix, AZ
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January 2020
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19,164
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12/2025
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1,614
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|
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16,222
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|
|
1,328
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Industrial
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Chicago, IL
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January 2020
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39,153
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12/2029
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1,788
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|
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34,301
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|
|
3,064
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Industrial
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Dallas, TX
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February 2020
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83,495
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08/2029
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4,500
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71,635
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7,360
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Industrial
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Savannah, GA
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April 2020
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34,753
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07/2027
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1,689
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30,346
|
|
|
2,718
|
|
|
|
|
Industrial
|
Dallas, TX
|
May 2020
|
10,731
|
|
06/2030
|
1,308
|
|
|
8,466
|
|
|
957
|
|
|
|
|
Industrial
|
Savannah, GA
|
June 2020
|
30,448
|
|
06/2025
|
2,560
|
|
|
25,697
|
|
|
2,191
|
|
|
|
|
Industrial
|
Savannah, GA
|
June 2020
|
9,130
|
|
08/2025
|
1,070
|
|
|
7,448
|
|
|
612
|
|
|
|
|
Industrial
|
Houston, TX
|
June 2020
|
20,949
|
|
04/2025
|
2,202
|
|
|
17,101
|
|
|
1,646
|
|
|
|
|
Industrial
|
Ocala, FL
|
June 2020
|
58,283
|
|
08/2030
|
4,113
|
|
|
49,904
|
|
|
4,266
|
|
|
|
|
Industrial
|
DC/Baltimore, MD
|
September 2020
|
29,143
|
|
11/2024
|
2,818
|
|
|
24,423
|
|
|
1,902
|
|
|
|
|
Industrial
|
Savannah, GA
|
September 2020
|
40,908
|
|
07/2026
|
3,775
|
|
|
34,322
|
|
|
2,811
|
|
|
|
|
Industrial
|
Phoenix, AZ
|
November 2020
|
87,820
|
|
03/2033
|
10,733
|
|
|
69,491
|
|
|
7,596
|
|
|
|
|
Industrial
|
Dallas, TX
|
December 2020
|
44,030
|
|
10/2024
|
3,938
|
|
|
37,185
|
|
|
2,907
|
|
|
|
|
Industrial
|
Greenville/Spartanburg, SC
|
December 2020
|
18,595
|
|
02/2031
|
1,186
|
|
|
15,814
|
|
|
1,595
|
|
|
|
|
Industrial
|
Dallas, TX
|
December 2020
|
31,556
|
|
01/2030
|
3,847
|
|
|
25,038
|
|
|
2,671
|
|
|
|
|
|
|
|
$
|
611,800
|
|
|
$
|
50,822
|
|
|
$
|
513,210
|
|
|
$
|
47,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average life of intangible assets (years)
|
|
|
|
|
|
|
8.7
|
|
|
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Intangibles
|
|
Property Type
|
Location
|
Acquisition Date
|
Initial
Cost
Basis
|
Lease Expiration
|
Land
|
|
Building and Improvements
|
|
Lease in-place Value Intangible
|
|
Below Market Lease Intangible
|
|
Industrial
|
Indianapolis, IN
|
January 2019
|
$
|
20,809
|
|
07/2025
|
$
|
1,954
|
|
|
$
|
16,820
|
|
|
$
|
2,035
|
|
|
$
|
—
|
|
|
Industrial
|
Atlanta, GA
|
February 2019
|
37,182
|
|
10/2023
|
3,253
|
|
|
30,951
|
|
|
2,978
|
|
|
—
|
|
|
Industrial
|
Dallas, TX
|
April 2019
|
28,201
|
|
08/2023
|
2,420
|
|
|
23,330
|
|
|
2,451
|
|
|
—
|
|
|
Industrial
|
Greenville/Spartanburg, SC
|
April 2019
|
33,253
|
|
01/2024
|
1,615
|
|
|
27,829
|
|
|
3,809
|
|
|
—
|
|
|
Industrial
|
Memphis, TN
|
May 2019
|
49,395
|
|
04/2024
|
2,646
|
|
|
40,452
|
|
|
6,297
|
|
|
—
|
|
|
Industrial
|
Memphis, TN
|
May 2019
|
18,316
|
|
05/2023
|
851
|
|
|
15,465
|
|
|
2,000
|
|
|
—
|
|
|
Industrial
|
Atlanta, GA
|
June 2019
|
45,441
|
|
05/2020
|
3,251
|
|
|
40,023
|
|
|
2,167
|
|
|
—
|
|
|
Industrial
|
Atlanta, GA
|
June 2019
|
27,353
|
|
05/2024
|
2,536
|
|
|
22,825
|
|
|
1,992
|
|
|
—
|
|
|
Industrial
|
Cincinnati, OH
|
September 2019
|
13,762
|
|
12/2023
|
544
|
|
|
12,376
|
|
|
842
|
|
|
—
|
|
|
Industrial
|
Cincinnati, OH
|
September 2019
|
100,288
|
|
06/2030
|
3,950
|
|
|
88,427
|
|
|
7,911
|
|
|
—
|
|
|
Industrial
|
Cincinnati, OH
|
September 2019
|
65,763
|
|
08/2027
|
3,123
|
|
|
60,703
|
|
|
5,392
|
|
|
(3,455)
|
|
|
Industrial
|
Greenville/Spartanburg, SC
|
October 2019
|
16,817
|
|
01/2024
|
1,406
|
|
|
14,272
|
|
|
1,139
|
|
|
—
|
|
|
Industrial
|
Greenville/Spartanburg, SC
|
October 2019
|
15,583
|
|
04/2025
|
1,257
|
|
|
13,252
|
|
|
1,074
|
|
|
—
|
|
|
Industrial
|
Phoenix, AZ
|
October 2019
|
21,020
|
|
09/2026
|
3,311
|
|
|
16,013
|
|
|
1,696
|
|
|
—
|
|
|
Industrial
|
Phoenix, AZ
|
November 2019
|
67,079
|
|
09/2030
|
11,970
|
|
|
48,924
|
|
|
6,185
|
|
|
—
|
|
|
Industrial
|
Chicago, IL
|
December 2019
|
49,348
|
|
09/2029
|
3,432
|
|
|
40,947
|
|
|
4,969
|
|
|
—
|
|
|
Industrial
|
Greenville/Spartanburg, SC
|
December 2019
|
94,233
|
|
12/2034
|
6,959
|
|
|
78,364
|
|
|
8,910
|
|
|
—
|
|
|
|
|
|
$
|
703,843
|
|
|
$
|
54,478
|
|
|
$
|
590,973
|
|
|
$
|
61,847
|
|
|
$
|
(3,455)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average life of intangible assets (years)
|
|
|
|
|
|
|
8.4
|
|
8.0
|
As of December 31, 2020, the Company's Investments in real estate under construction consisted of two consolidated development projects and one build-to-suit development project. As of December 31, 2020, the Company's aggregate investment in the development arrangements was $75,906, which included capitalized interest of $1,053 for the year ended December 31, 2020 and is presented as investments in real estate under construction in the accompanying consolidated balance sheets. As of December 31, 2019, capitalized interest for the development arrangements was nominal.
As of December 31, 2020, the details of the development arrangements outstanding are as follows (in $000's, except square feet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project (% owned)
|
Market
|
Property Type
|
Estimated Sq. Ft.
|
Estimated Project Cost
|
GAAP Investment Balance as of
12/31/2020
|
Amount Funded as of
12/31/2020
|
Estimated Completion Date
|
% Leased as of
12/31/2020
|
Approximate Lease Term (Years)
|
|
KeHE Distributors, BTS (100%)
|
Phoenix, AZ
|
Industrial
|
468,182
|
|
$
|
72,000
|
|
$
|
19,609
|
|
$
|
17,766
|
|
3Q 2021
|
100
|
%
|
15
|
|
Fairburn JV (90%)(1)
|
Atlanta, GA
|
Industrial
|
910,000
|
|
53,812
|
|
39,824
|
|
33,195
|
|
1Q 2021
|
0
|
%
|
TBD
|
|
Rickenbacker (100%)
|
Columbus, OH
|
Industrial
|
320,190
|
|
20,300
|
|
16,473
|
|
12,225
|
|
2Q 2021
|
100
|
%
|
3
|
|
|
|
|
|
$
|
146,112
|
|
$
|
75,906
|
|
$
|
63,186
|
|
|
|
|
(1) Estimated project cost excludes potential developer partner promote.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(5)Dispositions and Impairment
For the years ended December 31, 2020, 2019 and 2018, the Company disposed of its interests in various properties for an aggregate gross disposition price of $432,843, $504,118 and $898,514, respectively, which resulted in gains on sales of $139,039, $250,889 and $252,913, respectively, including, in 2018, the disposition of 21 office assets to a newly-formed joint venture, NNN Office JV L.P. (“NNN JV”), with an unaffiliated third-party. See note 7.
Included in the 2020 dispositions are three properties which were conveyed to the lenders in forgiveness of the mortgage loan encumbering each property. The balances of the non-recourse mortgage loans were in excess of the value of the property collateral, resulting in aggregate debt satisfaction gains, net of $34,450. For the years ended December 31, 2020, 2019 and 2018, the Company recognized net debt satisfaction charges relating to properties sold of $2,879, $4,415 and $1,698, respectively.
The Company had two properties classified as held for sale at December 31, 2020 and no properties classified as held for sale at December 31, 2019. Assets and liabilities of the held for sale properties as of December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Assets:
|
|
|
|
|
Real estate, at cost
|
$
|
32,629
|
|
|
|
|
Real estate, intangible assets
|
7,941
|
|
|
|
|
Accumulated depreciation and amortization
|
(24,312)
|
|
|
|
|
Rent receivable - deferred
|
79
|
|
|
|
|
Other
|
193
|
|
|
|
|
|
$
|
16,530
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Other
|
$
|
790
|
|
|
|
|
|
$
|
790
|
|
|
|
The Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability, change in the estimated holding period of the asset, the potential sale or transfer of the property in the near future and changes in economic conditions. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value and the Company estimates that its cost will not be recovered.
During 2020, 2019 and 2018, the Company recognized aggregate impairment charges on real estate properties of $14,460, $5,329 and $95,813, respectively. During 2020, the aggregate impairment charges were recognized on four properties that were primarily impaired due to a reduction in the anticipated holding period for those properties. During 2019, aggregate impairment charges of $2,106 were recognized on two vacant retail properties, which were sold in 2019, and a held for use impairment of $2,974 was recognized on an office property due to a reduction of the anticipated holding period and leasing prospects. During 2018, $36,620 of the impairment charges of $95,813 were recognized on properties held at December 31, 2018, including an aggregate of $23,496 impairment charges recognized on two of the Company's office assets due to a reduction in the anticipated holding period and leasing prospects.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(6)Fair Value Measurements
The following tables present the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2020 and 2019, aggregated by the level in the fair value hierarchy within which those measurements fall:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Description
|
2020
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liabilities
|
$
|
(17,963)
|
|
|
$
|
—
|
|
|
$
|
(17,963)
|
|
|
$
|
—
|
|
|
Impaired real estate assets (1)
|
$
|
21,141
|
|
|
$
|
—
|
|
|
$
|
2,480
|
|
|
$
|
18,661
|
|
(1) Represents non-recurring fair value measurement. The fair value is calculated as of the impairment date. $2,480 was based on an observable contract thus Level 2. The Company measured $18,661 of these fair values based on discounted cash flow analysis, using a hold period of ten years, a discount rate of 9.0% and residual capitalization rates ranging from 8.0% to 9.0%. As significant inputs to the models are unobservable, the Company determined that the value determined for these properties falls within Level 3 of the fair value reporting hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Description
|
2019
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Interest rate swap liabilities
|
$
|
(1,928)
|
|
|
$
|
—
|
|
|
$
|
(1,928)
|
|
|
$
|
—
|
|
|
Impaired real estate assets (1)
|
$
|
4,846
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,846
|
|
|
|
|
|
|
|
|
|
|
(1) Represents a non-recurring fair value measurement. The fair value is calculated as of the date of impairment.
The majority of the inputs used to value the Company's interest rate swaps fall within Level 2 of the fair value hierarchy, such as observable market interest rate curves; however, the credit valuation associated with the interest rate swaps utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of December 31, 2020 and 2019, the Company determined that the credit valuation adjustment relative to the overall interest rate swaps was not significant. As a result, all interest rate swaps have been classified in Level 2 of the fair value hierarchy.
The table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
As of December 31, 2019
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Debt
|
$
|
1,341,242
|
|
|
$
|
1,368,151
|
|
|
$
|
1,311,977
|
|
|
$
|
1,276,589
|
|
The fair value of the Company's debt is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis, based upon estimates of market interest rates. The Company determines the fair value of its Senior Notes using market prices. The inputs used in determining the fair value of these notes are categorized as Level 1 due to the fact that the Company uses quoted market rates to value these instruments. However, the inputs used in determining the fair value could be categorized as Level 2 if trading volumes are low.
Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable. The Company estimates that the fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(7)Investments in Non-Consolidated Entities
Below is a schedule of the Company's investments in non-consolidated entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Ownership at
|
|
Investment Balance as of
|
|
Investment
|
|
December 31, 2020
|
|
December 31, 2020
|
|
December 31, 2019
|
|
NNN JV
|
(1)
|
20%
|
|
$
|
31,615
|
|
|
$
|
39,288
|
|
|
Etna Park 70 LLC
|
(2)
|
90%
|
|
12,514
|
|
|
8,352
|
|
|
Etna Park 70 East LLC
|
(3)
|
90%
|
|
7,484
|
|
|
4,310
|
|
|
BSH Lessee L.P.
|
(4)
|
25%
|
|
4,851
|
|
|
5,218
|
|
|
|
|
|
|
$
|
56,464
|
|
|
$
|
57,168
|
|
(1) NNN JV is a joint venture formed in 2018 and owns office properties formerly owned by the Company.
(2) Joint venture formed in 2017 with a developer entity to acquire a parcel of land. The Company determined that it is not the primary beneficiary.
(3) Joint venture formed in 2019 with a developer entity to acquire a parcel of land. The Company determined that it is not the primary beneficiary.
(4) A joint venture investment, which owns a single-tenant, net-leased asset.
During 2020, NNN JV sold two assets and the Company recognized aggregate gains on the transactions of $557 within equity in earnings (losses) of non-consolidated entities within its consolidated statement of operations. In conjunction with these property sales, NNN JV received aggregate net proceeds of $8,504 after the satisfaction of an aggregate of $40,800 of its non-recourse mortgage indebtedness. The NNN JV distributed $1,701 of the net proceeds to the Company as a result of the property sales.
During 2019, NNN JV sold four assets and the Company recognized aggregate gains on the transactions of $3,529 within equity in earnings of non-consolidated entities in its consolidated statement of operations. In conjunction with these property sales, NNN JV received aggregate net proceeds of $45,208 after satisfaction of an aggregate of $101,520 of its non-recourse mortgage indebtedness. The NNN JV distributed $7,549 of the net proceeds to the Company as a result of the property sales.
In February 2019, a non-consolidated real estate entity, in which the Company owned a 15% ownership interest, sold its only asset and the Company received $2,317 of proceeds. The Company recognized a gain on the transaction of $824, which is included in equity in earnings of non-consolidated entities in its consolidated statement of operations.
In December 2018, the Company received $4,312 from a non-consolidated investment in connection with its sale of a six-property office portfolio.
The Company earns advisory fees from certain of these non-consolidated entities for services related to acquisitions, asset management and debt placement. Advisory fees earned from these non-consolidated investments were $3,028, $3,596 and $1,443 for the years ended December 31, 2020, 2019 and 2018.
(8)Mortgages and Notes Payable
The Company had the following mortgages and notes payable outstanding as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Mortgages and notes payable
|
$
|
138,412
|
|
|
$
|
393,872
|
|
|
Unamortized debt issuance costs
|
(1,883)
|
|
|
(3,600)
|
|
|
|
$
|
136,529
|
|
|
$
|
390,272
|
|
Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.5% to 6.3% and 3.5% to 6.5% at December 31, 2020 and 2019, respectively, and all mortgages and notes payable mature between 2021 and 2032, as of December 31, 2020. The weighted-average interest rate at December 31, 2020 and 2019 was approximately 4.5%.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company has an unsecured credit agreement with KeyBank National Association, as agent. The maturity dates and interest rates as of December 31, 2020, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Date
|
|
Interest Rate
|
|
$600,000 Revolving Credit Facility(1)
|
February 2023
|
|
LIBOR + 0.90%
|
|
$300,000 Term Loan(2)
|
January 2025
|
|
LIBOR + 1.00%
|
(1) Maturity date of the revolving credit facility can be extended to February 2024 at the Company's option. The interest rate ranges from LIBOR plus 0.775% to 1.45%. At December 31, 2020, the Company had no borrowings outstanding and availability of $600,000, subject to covenant compliance.
(2) The LIBOR portion of the interest rate was swapped to obtain a current fixed rate of 2.732% per annum. The aggregate unamortized debt issuance costs for the term loan was $2,057 and $2,561 as of December 31, 2020 and 2019, respectively.
The unsecured revolving credit facility and the unsecured term loan are subject to financial covenants, which the Company was in compliance with at December 31, 2020.
Mortgages payable and secured loans are generally collateralized by real estate and the related leases. Certain mortgages payable have yield maintenance or defeasance requirements relating to any prepayments.
Scheduled principal and balloon payments for mortgages, notes payable and term loan for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
Year ending
December 31,
|
|
Total
|
|
2021
|
|
$
|
24,119
|
|
|
2022
|
|
12,224
|
|
|
2023
|
|
13,267
|
|
|
2024
|
|
6,431
|
|
|
2025
|
|
306,576
|
|
|
Thereafter
|
|
75,795
|
|
|
|
|
438,412
|
|
|
Unamortized debt issuance costs
|
(3,940)
|
|
|
|
|
$
|
434,472
|
|
Included in the consolidated statements of operations, the Company recognized debt satisfaction charges, net, of $9 and $898 for the years ended December 31, 2019 and 2018, respectively, due to the satisfaction of mortgages and notes payable other than those disclosed elsewhere in these financial statements. In addition, the Company capitalized $1,745, $410 and $15 in interest for the years ended 2020, 2019 and 2018, respectively.
(9)Senior Notes, Convertible Notes and Trust Preferred Securities
The Company had the following Senior Notes outstanding as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Interest Rate
|
|
Maturity Date
|
|
Issue Price
|
|
August 2020
|
|
$
|
400,000
|
|
|
$
|
—
|
|
|
2.70
|
%
|
|
September 2030
|
|
99.233
|
%
|
|
May 2014
|
|
198,932
|
|
|
250,000
|
|
|
4.40
|
%
|
|
June 2024
|
|
99.883
|
%
|
|
June 2013
|
|
188,756
|
|
|
250,000
|
|
|
4.25
|
%
|
|
June 2023
|
|
99.026
|
%
|
|
|
|
787,688
|
|
|
500,000
|
|
|
|
|
|
|
|
|
Unamortized debt discount
|
|
(3,491)
|
|
|
(963)
|
|
|
|
|
|
|
|
|
Unamortized debt issuance cost
|
|
(4,922)
|
|
|
(2,167)
|
|
|
|
|
|
|
|
|
|
|
$
|
779,275
|
|
|
$
|
496,870
|
|
|
|
|
|
|
|
Each series of the Senior Notes is unsecured and pays interest semi-annually in arrears. The Company may redeem the notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus a make-whole premium.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In August 2020, the Company issued $400,000 aggregate principal amount of 2.70% Senior Notes due 2030 ("2030 Senior Notes") at an issuance price of 99.233% of the principal amount. The Company issued the 2030 Senior Notes at an initial discount of $3,068 which is being recognized as additional interest expense over the term of the 2030 Senior Notes.
During the third quarter of 2020, the Company used a portion of the net proceeds from the offering of the 2030 Senior Notes to repurchase $61,244 and $51,068 aggregate principal balance of its outstanding 4.25% senior notes due 2023 and 4.40% senior notes due 2024, respectively, through a tender offer. The tender offer consideration included $9,531 in prepayment costs and fees and $1,024 of accrued interest. The Company recognized a $10,119 debt satisfaction charge related to the aggregate repurchases, which included a write-off of the proportionate amount of unamortized discount and debt issuance costs related to the 2023 and 2024 senior notes.
During 2007, the Company issued $200,000 original principal amount of Trust Preferred Securities. The Trust Preferred Securities, which are classified as debt, are due in 2037, are open for redemption at the Company's option, bore interest at a fixed rate of 6.804% through April 2017 and thereafter bear interest at a variable rate of three month LIBOR plus 170 basis points through maturity. The interest rate at December 31, 2020 was 1.914%. As of December 31, 2020 and 2019, there was $129,120 original principal amount of Trust Preferred Securities outstanding and $1,625 and $1,724, respectively, of unamortized debt issuance costs.
Scheduled principal payments for these debt instruments for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
Total
|
|
2021
|
|
$
|
—
|
|
|
2022
|
|
—
|
|
|
2023
|
|
188,756
|
|
|
2024
|
|
198,932
|
|
|
2025
|
|
—
|
|
|
Thereafter
|
|
529,120
|
|
|
|
|
916,808
|
|
|
Unamortized debt discounts
|
|
(3,491)
|
|
|
Unamortized debt issuance costs
|
|
(6,547)
|
|
|
|
|
$
|
906,770
|
|
(10)Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the type, amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.
Cash Flow Hedges of Interest Rate Risk. The Company's objectives in using interest rate derivatives are to add stability to interest expense, to manage its exposure to interest rate movements and therefore manage its cash outflows as it relates to the underlying debt instruments. To accomplish these objectives the Company primarily uses interest rate swaps as part of its interest rate risk management strategy relating to certain of its variable rate debt instruments. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. For 2018, the ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company did not incur any ineffectiveness during 2020 and 2019.
During July 2019, the Company entered into four interest rate swap agreements with its counterparties. The swaps were designated as cash flow hedges of the risk of variability attributable to changes in the LIBOR swap rates on its $300,000 LIBOR-indexed variable-rate unsecured term loan. Accordingly, changes in fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable. The swaps expire coterminous with the extended maturity of the term loan in January 2025. During the next 12 months, the Company estimates that an additional $4,848 will be reclassified as an increase to interest expense if the swaps remain outstanding.
As of December 31, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Derivative
|
Number of Instruments
|
Notional
|
|
Interest Rate Swaps
|
4
|
$300,000
|
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
As of December 31, 2019
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Interest Rate Swap Liability
|
Other liabilities
|
|
$
|
(17,963)
|
|
|
Other liabilities
|
|
$
|
(1,928)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below present the effect of the Company's derivative financial instruments on the consolidated statements of operations for 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow
|
|
|
Amount of Loss Recognized
in OCI on Derivative
December 31,
|
|
Location of
Income (Loss)
Reclassified from
Accumulated OCI into Income
|
|
Amount of (Income) Loss
Reclassified from
Accumulated OCI into Income
December 31,
|
|
Hedging Relationships
|
|
|
2020
|
|
2019
|
|
|
2020
|
|
2019
|
|
Interest Rate Swap
|
|
|
$
|
(19,422)
|
|
|
$
|
(1,625)
|
|
|
Interest expense
|
|
$
|
3,387
|
|
|
$
|
(379)
|
|
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded was $55,201 and $65,095 for 2020 and 2019, respectively.
The Company's agreements with the swap derivative counterparties contain provisions whereby if the Company defaults on the underlying indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of the swap derivative obligation. As of December 31, 2020, the Company had not posted any collateral related to the agreements.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(11) Leases
Lessor
Lexington’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred.
Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of the lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before.
Accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.
The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectable, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis. In February 2020, the Company wrote off a deferred rent receivable balance of $615 as a reduction of rental revenue related to a tenant that dissolved and surrendered its leased premises in an industrial property located in the Columbus, Ohio market. During 2019, rental revenue was reduced by an aggregate of $352 for accounts receivable deemed uncollectable.
Certain tenants have been experiencing financial difficulties as a result of the COVID-19 pandemic. During 2020, the Company wrote off or reserved aggregate deferred rent receivable balances of $1,383, as a reduction of rental revenue, related to certain tenants as the deferred rent receivable balances were deemed uncollectable. In addition, in 2020, the Company also wrote off or reserved an aggregate of $389 accounts receivable relating to certain tenants suffering from the current economic conditions.
The Company determined that the lease and non-lease components in its leases are a single lease component, which is, therefore, being recognized as rental revenue in its consolidated statements of operations. The primary non-lease service that is included within rental revenue is CAM services provided as part of the Company’s real estate leases. Topic 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. As of December 31, 2020 and 2019, the Company incurred $67 and $191, respectively, of costs that were not incremental to the execution of leases, which are included in property operating expenses in its consolidated statements of operations.
The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The following table presents the Company’s classification of rental revenue for its operating leases for the year ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
December 31, 2020
|
|
December 31, 2019
|
|
Fixed
|
$
|
293,457
|
|
|
$
|
291,892
|
|
|
Variable(1)
|
32,354
|
|
|
28,730
|
|
|
Total
|
$
|
325,811
|
|
|
$
|
320,622
|
|
(1) Primarily comprised of tenant reimbursements.
Future fixed rental receipts for leases, assuming no new or re-negotiated leases as of December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
Year ending December 31,
|
Total
|
|
2021
|
$
|
272,621
|
|
|
2022
|
261,498
|
|
|
2023
|
262,632
|
|
|
2024
|
230,083
|
|
|
2025
|
202,362
|
|
|
Thereafter
|
1,102,089
|
|
|
Total
|
$
|
2,331,285
|
|
The above minimum lease payments do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, if not reasonably assured.
Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease. In addition, certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price.
Lessee
The Company has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of December 31, 2020. The leases have remaining lease terms of up to 42 years, some of which include options to extend the leases in 5 to 10-year increments for up to 52 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. Minimum lease payments for leases that commenced before the date of adoption of ASC 842 were determined based on previous leases guidance under ASC 840. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.
The accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.
The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
As the Company does not know the rate implicit in the respective leases, the Company used its incremental borrowing rate based on the information available at the transition date for such existing leases. The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.
Supplemental information related to operating leases as of December 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Year Ended
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Weighted-average remaining lease term
|
|
|
|
|
Operating leases (years)
|
11.7
|
|
12.3
|
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
4.1
|
%
|
|
4.1
|
%
|
The components of lease expense for the year ended December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Classification
|
Fixed
|
|
Variable
|
|
Total
|
|
2020:
|
|
|
|
|
|
|
Property operating
|
$
|
3,969
|
|
|
$
|
2
|
|
|
$
|
3,971
|
|
|
General and administrative
|
$
|
1,348
|
|
|
105
|
|
|
1,453
|
|
|
Total
|
$
|
5,317
|
|
|
$
|
107
|
|
|
$
|
5,424
|
|
|
|
|
|
|
|
|
|
2019:
|
|
|
|
|
|
|
Property operating
|
$
|
3,982
|
|
|
$
|
—
|
|
|
$
|
3,982
|
|
|
General and administrative
|
1,343
|
|
|
112
|
|
|
1,455
|
|
|
Total
|
$
|
5,325
|
|
|
$
|
112
|
|
|
$
|
5,437
|
|
The Company recognized sublease income of $3,756 and $3,764 in 2020 and 2019, respectively.
The following table shows the Company's maturity analysis of its operating lease liabilities as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2021
|
|
$
|
4,843
|
|
|
2022
|
|
4,854
|
|
|
2023
|
|
4,999
|
|
|
2024
|
|
5,021
|
|
|
2025
|
|
5,021
|
|
|
Thereafter
|
|
17,472
|
|
|
Total lease payments
|
|
$
|
42,210
|
|
|
Less: Imputed interest
|
|
(9,695)
|
|
|
Present value of lease liabilities
|
|
$
|
32,515
|
|
The Company leases its corporate headquarters. The lease expires in March 2026. The Company is responsible for its proportionate share of operating expenses and real estate taxes above a base year. In addition, the Company leases office space for its regional office. The minimum rent payments for the Company's offices are $1,325 for 2021, $1,335 for 2022, $1,304 for 2023, $1,304 for 2024 and $1,304 for 2025 and $326 thereafter, which are included in the table above. Rent expense for 2020, 2019 and 2018 was $1,305, $1,312 and $1,274, respectively.
Rent expense for the leasehold interests was $597 in 2018.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(12)Concentration of Risk
The Company seeks to reduce its operating and leasing risks through the geographic diversification of its properties, tenant industry diversification, avoidance of dependency on a single asset and the creditworthiness of its tenants. For the years ended December 31, 2020, 2019 and 2018, no single tenant represented greater than 10% of rental revenues.
Cash and cash equivalent balances at certain institutions may exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions.
(13)Equity
At-The-Market Offering Program. The Company maintains an At-The-Market offering program ("ATM program") under which the Company can issue common shares. The following table summarizes common share issuances under the ATM program for the years ended December 31, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020
|
|
|
Shares Sold
|
Net Proceeds
|
|
2020 ATM Issuances
|
5,950,882
|
$60,977
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
Shares Sold
|
Net Proceeds
|
|
2019 ATM Issuances
|
9,668,748
|
$102,299
|
During 2018, the Company did not issue common shares under its ATM Program.
Under the ATM program, the Company may also enter into forward sales agreements. The Company entered into forward sales transactions for the sale of 4,990,717 common shares during the year ended December 31, 2020 that have not yet been settled. Subject to the Company's right to elect cash or net share settlement, the Company expects to settle the forward sales transactions by the maturity dates in 2021. The shares had an aggregate settlement price of $55,120 at December 31, 2020, which is subject to adjustment in accordance with the forward sales contracts. The Company did not enter into forward sales contracts in 2019 or 2018.
As of December 31, 2020, common shares with an aggregate value of $177,212 remain available for issuance under the ATM program.
Underwritten Common Stock Offerings. During 2020, the Company issued 17,250,000 common shares at a public offering price of $9.60 per common share in an underwritten offering and generated net proceeds of approximately $164,000.
During 2019, the Company issued 10,000,000 common shares at $10.09 per common share in an underwritten offering and generated net proceeds of $100,749. The net proceeds were used for working capital and for general corporate purposes, including acquisitions.
Stock Based Compensation. In addition, during the years ended December 31, 2020, 2019 and 2018, the Company issued 756,380, 896,807 and 965,932 of its common shares, respectively, to certain employees and trustees. Typically, trustee share grants vest immediately. Employee share grants generally vest ratably, on anniversaries of the grant date, however, in certain situations vesting is cliff-based after a specific number of years and/or subject to meeting certain performance criteria (see note 14).
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Share Repurchase Program. In July 2015, the Company's Board of Trustees authorized the repurchase of up to 10,000,000 common shares and increased this authorization by 10,000,000 in 2018. This share repurchase program has no expiration date. During the years ended December 31, 2020, 2019 and 2018, the Company repurchased and retired 1,329,940, 441,581 and 5,851,252 common shares, respectively, at an average price of $8.28, $8.13 and $8.05, respectively, per common share under the share repurchase program. As of December 31, 2020, 8,976,315 common shares remain available for repurchase under this authorization. The Company records a liability for repurchases that have not yet been settled as of the period end. There were no unsettled repurchases as of December 31, 2020.
A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31,
|
|
|
|
2020
|
|
2019
|
|
Balance at beginning of period
|
|
$
|
(1,928)
|
|
|
$
|
76
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
(19,422)
|
|
|
(1,625)
|
|
|
Amounts of income reclassified from accumulated other comprehensive income (loss) to interest expense
|
|
3,387
|
|
|
(379)
|
|
|
Balance at end of period
|
|
$
|
(17,963)
|
|
|
$
|
(1,928)
|
|
Noncontrolling Interests:
In conjunction with several of the Company's acquisitions in prior years, sellers were issued limited partner interests in LCIF (“OP units”) OP units as a form of consideration. All OP units, other than OP units owned by the Company, are redeemable for common shares at certain times, at the option of the holders, and are generally not otherwise mandatorily redeemable by the Company. The OP units are classified as a component of permanent equity as the Company has determined that the OP units are not redeemable securities as defined by GAAP. Each OP unit is currently redeemable for approximately 1.13 common shares, subject to future adjustments.
During 2020, 2019 and 2018, 327,453, 391,993 and 53,388 common shares, respectively, were issued by the Company, in connection with OP unit redemptions, for an aggregate value of $1,614, $1,655 and $189, respectively.
As of December 31, 2020, there were approximately 2,538,000 OP units outstanding other than OP units owned by the Company. All OP units receive distributions in accordance with the LCIF partnership agreement. To the extent that the Company's dividend per common share is less than the stated distribution per OP unit per the LCIF partnership agreement, the distributions per OP unit are reduced by the percentage reduction in the Company's dividend per common share. No OP units have a liquidation preference.
The following discloses the effects of changes in the Company's ownership interests in its noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Shareholders and Transfers from Noncontrolling Interests
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net income attributable to Lexington Realty Trust shareholders
|
$
|
183,302
|
|
|
$
|
279,910
|
|
|
$
|
227,415
|
|
|
Transfers (to) from noncontrolling interests:
|
|
|
|
|
|
|
Decrease in additional paid-in-capital for reallocation of noncontrolling interests
|
—
|
|
|
(973)
|
|
|
—
|
|
|
Increase in additional paid-in-capital for redemption of noncontrolling OP units
|
1,614
|
|
|
1,655
|
|
|
189
|
|
|
Change from net income attributable to shareholders and transfers from noncontrolling interests
|
$
|
184,916
|
|
|
$
|
280,592
|
|
|
$
|
227,604
|
|
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(14)Benefit Plans
The Company maintains an equity award plan pursuant to which qualified and non-qualified options may be issued. No common share options were issued in 2020, 2019 and 2018. The Company granted 1,248,501, 1,265,500 and 2,000,000 common share options on December 31, 2010 (“2010 options”), January 8, 2010 (“2009 options”) and December 31, 2008 (“2008 options”), respectively, at an exercise price of $7.95, $6.39 and $5.60, respectively. The 2010 options (1) vested 20% annually on each December 31, 2011 through 2015 and (2) terminated on the earlier of (x) six months of termination of service with the Company and (y) December 31, 2020. The 2009 options (1) vested 20% annually on each December 31, 2010 through 2014 and (2) terminated on the earlier of (x) six months of termination of service with the Company and (y) December 31, 2019. The 2008 options (1) vested 50% following a 20-day trading period where the average closing price of a common share of the Company on the New York Stock Exchange (“NYSE”) was $8.00 or higher and vested 50% following a 20-day trading period where the average closing price of a common share of the Company on the NYSE was $10.00 or higher, and (2) terminated on the earlier of (x) termination of service with the Company or (y) December 31, 2018. As a result of the share dividends paid in 2009, each of the 2008 options were exchangeable for approximately 1.13 common shares at an exercise price of $4.97 per common share.
The Company recognized compensation expense relating to these options over an average of 5.0 years for the 2010 options and 2009 options and 3.6 years for the 2008 options. All deferred compensation costs relating to the outstanding options were fully amortized by December 31, 2015. The intrinsic value of an option is the amount by which the market value of the underlying common share at the date the option is exercised exceeds the exercise price of the option. The total intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018 were $106, $271 and $26, respectively.
Share option activity during the years indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-Average
Exercise Price
Per Share
|
|
Balance at December 31, 2018
|
118,400
|
|
|
$
|
7.44
|
|
|
Exercised
|
(84,400)
|
|
|
7.24
|
|
|
Balance at December 31, 2019
|
34,000
|
|
|
7.95
|
|
|
Exercised
|
(34,000)
|
|
|
7.95
|
|
|
Balance at December 31, 2020
|
—
|
|
|
$
|
—
|
|
Non-vested share activity for the years ended December 31, 2020 and 2019, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-Average Grant-Date Fair
Value Per Share
|
|
Balance at December 31, 2018
|
3,455,077
|
|
|
$
|
7.34
|
|
|
Granted
|
829,581
|
|
|
5.97
|
|
|
Vested
|
(151,447)
|
|
|
5.06
|
|
|
Forfeited
|
(1,191,799)
|
|
|
6.76
|
|
|
Balance at December 31, 2019
|
2,941,412
|
|
|
7.30
|
|
|
Granted
|
709,250
|
|
|
7.77
|
|
|
Vested
|
(613,504)
|
|
|
8.80
|
|
|
Forfeited
|
(332,429)
|
|
|
5.30
|
|
|
Balance at December 31, 2020
|
2,704,729
|
|
|
$
|
7.27
|
|
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
During 2020 and 2019, the Company granted common shares to certain employees and trustees as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Performance Shares(1)
|
|
|
|
|
Shares issued:
|
|
|
|
|
Index
|
232,993
|
|
276,063
|
|
Peer
|
232,987
|
|
276,058
|
|
|
|
|
|
|
Grant date fair value per share:(2)
|
|
|
|
|
Index
|
$6.59
|
|
$5.05
|
|
Peer
|
$5.97
|
|
$4.67
|
|
|
|
|
|
|
Non-Vested Common Shares:(3)
|
|
|
|
|
Shares issued
|
243,270
|
|
277,460
|
|
Grant date fair value
|
$2,581
|
|
$2,270
|
(1) The shares vest based on the Company's total shareholder return growth after a three-year measurement period relative to an index and a group of Company peers. Dividends will not be paid on these grants until earned. Once the performance criteria are met and the actual number of shares earned is determined, such shares vest immediately. During 2020, 122,779 of the 452,737 performance shares issued in 2017 vested. During 2019, 713,044 of the 808,929 performance shares issued in 2016 vested.
(2) The fair value of grants was determined at the grant date using a Monte Carlo simulation model.
(3) The shares vest ratably over a three-year service period.
In addition, during 2020, 2019 and 2018, the Company issued 47,130, 67,226, and 66,318, respectively, of fully vested common shares to non-management members of the Company's Board of Trustees with a fair value of $500, $595, and $599, respectively.
As of December 31, 2020, of the remaining 2,704,729 non-vested shares, 1,024,584 are subject to time-based vesting and 1,680,145 are subject to performance-based vesting. At December 31, 2020, there are 2,359,683 awards available for grant. The Company has $6,122 in unrecognized compensation costs relating to the non-vested shares that will be charged to compensation expense over an average of approximately 1.6 years.
The Company has established a trust for certain officers in which vested common shares granted for the benefit of the officers are deposited. The officers exert no control over the common shares in the trust and the common shares are available to the general creditors of the Company. As of December 31, 2020 and 2019, there were 130,863 common shares in the trust.
The Company sponsors a 401(k) retirement savings plan covering all eligible employees. The Company makes a discretionary matching contribution on a portion of employee participant salaries and, based on its profitability, may make an additional discretionary contribution at each fiscal year end to all eligible employees. These discretionary contributions are subject to vesting under a schedule providing for 25% annual vesting starting with the first year of employment and 100% vesting after four years of employment. Approximately $393, $403 and $397 of contributions are applicable to 2020, 2019 and 2018, respectively.
During 2020, 2019 and 2018, the Company recognized $6,185, $5,831 and $6,302, respectively, in expense relating to scheduled vesting of common share grants.
(15) Related Party Transactions
There were no related party transactions other than those disclosed elsewhere in this Annual Report and the consolidated financial statements.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(16) Income Taxes
The provision for income taxes relates primarily to the taxable income of the Company's taxable REIT subsidiaries. The earnings, other than in taxable REIT subsidiaries, of the Company are not generally subject to federal income taxes at the Company level due to the REIT election made by the Company.
Income taxes have been provided for on the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities.
The Company's provision for income taxes for the years ended December 31, 2020, 2019 and 2018 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
(173)
|
|
|
$
|
(70)
|
|
|
$
|
(60)
|
|
|
State and local
|
(1,411)
|
|
|
(1,309)
|
|
|
(1,668)
|
|
|
|
$
|
(1,584)
|
|
|
$
|
(1,379)
|
|
|
$
|
(1,728)
|
|
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to pre-tax operating income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Federal provision at statutory tax rate (21%)
|
$
|
(195)
|
|
|
$
|
(73)
|
|
|
$
|
(65)
|
|
|
State and local taxes, net of federal benefit
|
(77)
|
|
|
(10)
|
|
|
(11)
|
|
|
Other
|
(1,312)
|
|
|
(1,296)
|
|
|
(1,652)
|
|
|
|
$
|
(1,584)
|
|
|
$
|
(1,379)
|
|
|
$
|
(1,728)
|
|
For the years ended December 31, 2020, 2019 and 2018, the “other” amount is comprised primarily of state franchise taxes of $1,314, $1,289 and $1,679, respectively.
A summary of the average taxable nature of the Company's common dividends for each of the years in the three-year period ended December 31, 2020, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Total dividends per share
|
$
|
0.420
|
|
|
$
|
0.485
|
|
|
$
|
0.710
|
|
|
Ordinary income
|
95.10
|
%
|
|
61.07
|
%
|
|
87.89
|
%
|
|
Qualifying dividend
|
0.60
|
%
|
|
0.22
|
%
|
|
0.14
|
%
|
|
Capital gain
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Return of capital
|
4.30
|
%
|
|
38.71
|
%
|
|
11.97
|
%
|
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
A summary of the average taxable nature of the Company's dividend on shares of its Series C Preferred for each of the years in the three-year period ended December 31, 2020, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Total dividends per share
|
$
|
3.25
|
|
|
$
|
3.25
|
|
|
$
|
3.25
|
|
|
Ordinary income
|
99.38
|
%
|
|
99.64
|
%
|
|
99.84
|
%
|
|
Qualifying dividend
|
0.62
|
%
|
|
0.36
|
%
|
|
0.16
|
|
|
Capital gain
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Return of capital
|
—
|
|
|
—
|
|
|
—
|
|
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(17) Commitments and Contingencies
In addition to the commitments and contingencies disclosed elsewhere, the Company has the following commitments and contingencies.
The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.
The Company had five development projects as of December 31, 2020, which are described in "Properties" in Part I, Item 2 of this Annual Report. The Company has committed to develop three consolidated development projects and expects to incur approximately $75,985 in 2021 to substantially complete construction of the projects. The remaining two development projects are owned by non-consolidated joint ventures. Due to the early stage of development of each project and the uncertainty of construction schedules at such stage, the Company is unable to estimate the timing of the required fundings for the non-consolidated development projects.
The Company and LCIF are parties to a funding agreement under which the Company may be required to fund distributions made on account of LCIF's OP units. Pursuant to the funding agreement, the parties agreed that, if LCIF does not have sufficient cash available to make a quarterly distribution to its limited partners in an amount in accordance with the partnership agreement, Lexington will fund the shortfall. Payments under the agreement will be made in the form of loans to LCIF and will bear interest at prevailing rates as determined by the Company in its discretion but, no less than the applicable federal rate. LCIF's right to receive these loans will expire if no OP units remain outstanding and all such loans are repaid. No amounts have been advanced under this agreement.
From time to time, the Company is directly or indirectly involved in legal proceedings arising in the ordinary course of business. Management believes, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on the Company's business, financial condition and results of operations.
As of December 31, 2020, the Company maintained an executive severance policy and entered into related agreements with certain of its executive officers whereby the Company's executives are entitled to severance benefits upon certain events.
(18) Supplemental Disclosure of Statement of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
$
|
122,666
|
|
|
$
|
168,750
|
|
|
$
|
107,762
|
|
|
Restricted cash at beginning of period
|
6,644
|
|
|
8,497
|
|
|
4,394
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
$
|
129,310
|
|
|
$
|
177,247
|
|
|
$
|
112,156
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
$
|
178,795
|
|
|
$
|
122,666
|
|
|
$
|
168,750
|
|
|
Restricted cash at end of period
|
626
|
|
|
6,644
|
|
|
8,497
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
179,421
|
|
|
$
|
129,310
|
|
|
$
|
177,247
|
|
In addition to disclosures discussed elsewhere, during 2020, 2019 and 2018, the Company paid $52,059, $59,018 and $76,562, respectively, for interest and $1,748, $1,482 and $2,025, respectively, for income taxes.
As a result of the foreclosure of three office properties located in South Carolina, Kansas and Florida, during 2020, there was an aggregate non-cash charge of $57,356 and $28,078 in mortgages and notes payable, net, and real estate, net, respectively.
In 2020, the Company sold its interest in a property, which included the assumption by the buyer of the related non-recourse mortgage debt of $178,662.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
During 2020, the Company exercised extension options on two ground leases related to parcels of land located in Owensboro, Kentucky and Orlando, Florida. The extensions of the ground lease terms resulted in an aggregate non-cash increase of $719 to the related operating lease liabilities and right of use assets.
During 2019, the Company assumed a $41,877 non-recourse mortgage debt upon the acquisition of a property. In addition, in 2019, the Company sold its interest in a property, which included the assumption by the buyer of the related non-recourse mortgage debt of $110,000.
(19) Unaudited Quarterly Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2020
|
|
6/30/2020
|
|
9/30/2020
|
|
12/31/2020
|
|
Total gross revenues
|
$
|
80,827
|
|
|
$
|
81,792
|
|
|
$
|
84,514
|
|
|
$
|
83,315
|
|
|
Net income
|
$
|
18,420
|
|
|
$
|
19,131
|
|
|
$
|
43,618
|
|
|
$
|
105,222
|
|
|
Net income attributable to common shareholders
|
$
|
16,536
|
|
|
$
|
17,254
|
|
|
$
|
40,285
|
|
|
$
|
102,712
|
|
|
Net income attributable to common shareholders - basic per share
|
$
|
0.07
|
|
|
$
|
0.07
|
|
|
$
|
0.15
|
|
|
$
|
0.37
|
|
|
Net income attributable to common shareholders - diluted per share
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
0.15
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2019
|
|
6/30/2019
|
|
9/30/2019
|
|
12/31/2019
|
|
Total gross revenues
|
$
|
81,248
|
|
|
$
|
80,135
|
|
|
$
|
81,550
|
|
|
$
|
83,036
|
|
|
Net income
|
$
|
28,280
|
|
|
$
|
23,769
|
|
|
$
|
147,821
|
|
|
$
|
85,423
|
|
|
Net income attributable to common shareholders
|
$
|
26,405
|
|
|
$
|
21,721
|
|
|
$
|
141,560
|
|
|
$
|
83,574
|
|
|
Net income attributable to common shareholders - basic per share
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
$
|
0.60
|
|
|
$
|
0.34
|
|
|
Net income attributable to common shareholders - diluted per share
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
$
|
0.59
|
|
|
$
|
0.33
|
|
The sum of the quarterly net income attributable to common shareholders and per common share amounts may not equal the full year amounts primarily because the computations of amounts allocated to participating securities and the weighted-average number of common shares of the Company outstanding for each quarter and the full year are made independently.
(20) Subsequent Events
Subsequent to December 31, 2020 and in addition to disclosures elsewhere in the financial statements, the Company:
– acquired three industrial properties for an aggregate cost of approximately $50,800; and
– disposed of two office properties for an aggregate gross disposition price of approximately $20,200.
LEXINGTON REALTY TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
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Description
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Location
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Encumbrances
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Land and Land Estates
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Buildings and Improvements
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Total
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Accumulated Depreciation and Amortization(1)
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Date Acquired
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Date Constructed
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INDUSTRIAL PROPERTIES
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Single-tenant
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Industrial
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Anniston, AL
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$
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—
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$
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1,201
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$
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16,771
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$
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17,972
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$
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4,738
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Dec-14
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|
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Industrial
|
Opelika, AL
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—
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142
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31,734
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31,876
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4,608
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Jul-17
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2017
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|
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Industrial
|
Chandler, AZ
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—
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10,733
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69,491
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80,224
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538
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Nov-20
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|
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Industrial
|
Goodyear, AZ
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—
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5,247
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36,115
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41,362
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3,438
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Nov-18
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Industrial
|
Goodyear, AZ
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41,877
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11,970
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48,925
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60,895
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2,384
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Nov-19
|
|
|
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Industrial
|
Goodyear, AZ
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—
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1,614
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16,222
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17,836
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658
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Jan-20
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|
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Industrial
|
Tolleson, AZ
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—
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3,311
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16,013
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19,324
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883
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Oct-19
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|
|
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Industrial
|
Ocala, FL
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—
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4,113
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49,936
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54,049
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1,093
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Jun-20
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Industrial
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Orlando, FL
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—
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|
1,030
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10,869
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11,899
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4,290
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Dec-06
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Industrial
|
Tampa, FL
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—
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2,160
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9,125
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11,285
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7,342
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Jul-88
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Industrial
|
Austell, GA
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—
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3,251
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48,459
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51,710
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3,238
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Jun-19
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Industrial
|
McDonough, GA
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—
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5,441
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52,790
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58,231
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7,485
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Aug-17
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Industrial
|
McDonough, GA
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—
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3,253
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30,956
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34,209
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2,587
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Feb-19
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Industrial
|
Pooler, GA
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—
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1,690
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30,346
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32,036
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999
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Apr-20
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Industrial
|
Savannah, GA
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—
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2,560
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25,717
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28,277
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645
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Jun-20
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Industrial
|
Savannah, GA
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—
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1,070
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7,458
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8,528
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187
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Jun-20
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Industrial
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Union City, GA
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—
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2,536
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22,830
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25,366
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1,512
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Jun-19
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Industrial
|
McDonough, GA
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—
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2,463
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24,811
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27,274
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9,085
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Dec-06
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Industrial
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Savannah, GA
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—
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3,775
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34,325
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38,100
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379
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Sep-20
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Industrial
|
Edwardsville, IL
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—
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4,593
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34,362
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38,955
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5,697
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Dec-16
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Industrial
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Edwardsville, IL
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—
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3,649
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41,310
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44,959
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4,660
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Jun-18
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Industrial
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Minooka, IL
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—
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1,788
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34,301
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36,089
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1,314
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Jan-20
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Industrial
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Minooka, IL
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—
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3,432
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40,949
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44,381
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1,775
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Dec-19
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Industrial
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Minooka, IL
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—
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3,681
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45,817
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49,498
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1,936
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Jan-20
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Industrial
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Rantoul, IL
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—
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1,304
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32,562
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33,866
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6,263
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Jan-14
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2014
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Industrial
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Rockford, IL
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—
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371
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2,647
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3,018
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1,021
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Dec-06
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Industrial
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Rockford, IL
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—
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509
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5,921
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6,430
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2,077
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Dec-06
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Industrial
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Romeoville, IL
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—
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7,524
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40,167
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47,691
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6,778
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Dec-16
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Industrial
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Lafayette, IN
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—
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662
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15,578
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16,240
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2,600
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Oct-17
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Industrial
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Lebanon, IN
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—
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2,100
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29,907
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32,007
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4,747
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Feb-17
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Industrial
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Whitestown, IN
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—
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1,954
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16,821
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18,775
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1,437
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Jan-19
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Industrial
|
New Century, KS
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|
—
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—
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|
13,330
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13,330
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2,286
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Feb-17
|
|
|
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Industrial
|
Dry Ridge, KY
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—
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568
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12,553
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13,121
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6,761
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Jun-05
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Industrial
|
Elizabethtown, KY
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|
—
|
|
890
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26,868
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|
27,758
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14,472
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|
Jun-05
|
|
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Industrial
|
Elizabethtown, KY
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|
—
|
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352
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4,862
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5,214
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2,619
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Jun-05
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Industrial
|
Hopkinsville, KY
|
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—
|
|
631
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16,154
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16,785
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9,283
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Jun-05
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Industrial
|
Owensboro, KY
|
|
—
|
|
393
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|
11,956
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12,349
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7,468
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|
Jun-05
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|
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Industrial
|
Owensboro, KY
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|
—
|
|
819
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|
2,439
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|
3,258
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|
1,247
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|
Dec-06
|
|
|
|
Industrial
|
Shreveport, LA
|
|
—
|
|
1,078
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|
10,134
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|
11,212
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|
3,121
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|
Jun-12
|
2012
|
|
|
Industrial
|
Shreveport, LA
|
|
—
|
|
860
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|
21,840
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|
22,700
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|
7,531
|
|
Mar-07
|
|
|
|
Industrial
|
North Berwick, ME
|
|
—
|
|
1,383
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|
35,659
|
|
37,042
|
|
12,526
|
|
Dec-06
|
|
|
|
Industrial
|
Detroit, MI
|
|
—
|
|
1,133
|
|
25,009
|
|
26,142
|
|
6,504
|
|
Jan-16
|
|
|
|
Industrial
|
Kalamazoo, MI
|
|
—
|
|
958
|
|
4,725
|
|
5,683
|
|
80
|
|
Sep-12
|
|
|
|
Industrial
|
Marshall, MI
|
|
—
|
|
143
|
|
4,302
|
|
4,445
|
|
3,658
|
|
Sep-12
|
|
|
|
Industrial
|
Plymouth, MI
|
|
—
|
|
2,296
|
|
15,772
|
|
18,068
|
|
7,325
|
|
Jun-07
|
|
|
|
Industrial
|
Romulus, MI
|
|
—
|
|
2,438
|
|
33,786
|
|
36,224
|
|
5,615
|
|
Nov-17
|
|
|
|
Industrial
|
Warren, MI
|
|
25,850
|
|
972
|
|
42,521
|
|
43,493
|
|
5,628
|
|
Nov-17
|
|
|
|
Industrial
|
Minneapolis, MN
|
|
—
|
|
1,886
|
|
1,922
|
|
3,808
|
|
499
|
|
Sep-12
|
|
|
|
Industrial
|
Byhalia, MS
|
|
—
|
|
1,006
|
|
35,795
|
|
36,801
|
|
8,460
|
|
May-11
|
2011
|
|
|
Industrial
|
Byhalia, MS
|
|
—
|
|
1,751
|
|
31,236
|
|
32,987
|
|
5,913
|
|
Sep-17
|
|
|
|
Industrial
|
Canton, MS
|
|
—
|
|
5,077
|
|
71,289
|
|
76,366
|
|
19,856
|
|
Mar-15
|
|
|
|
Industrial
|
Olive Branch, MS
|
|
—
|
|
2,500
|
|
42,556
|
|
45,056
|
|
5,393
|
|
Apr-18
|
|
|
|
Industrial
|
Olive Branch, MS
|
|
—
|
|
1,958
|
|
38,702
|
|
40,660
|
|
4,920
|
|
Apr-18
|
|
|
|
Industrial
|
Olive Branch, MS
|
|
—
|
|
2,646
|
|
40,446
|
|
43,092
|
|
2,756
|
|
May-19
|
|
|
|
Industrial
|
Olive Branch, MS
|
|
—
|
|
851
|
|
15,464
|
|
16,315
|
|
1,041
|
|
May-19
|
|
|
LEXINGTON REALTY TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Location
|
|
Encumbrances
|
Land and Land Estates
|
Buildings and Improvements
|
Total
|
Accumulated Depreciation and Amortization(1)
|
Date Acquired
|
Date Constructed
|
|
|
Industrial
|
Henderson, NC
|
|
—
|
|
1,488
|
|
7,185
|
|
8,673
|
|
2,846
|
|
Nov-01
|
|
|
|
Industrial
|
Lumberton, NC
|
|
—
|
|
405
|
|
12,049
|
|
12,454
|
|
5,426
|
|
Dec-06
|
|
|
|
Industrial
|
Shelby, NC
|
|
—
|
|
1,421
|
|
18,862
|
|
20,283
|
|
6,713
|
|
Jun-11
|
2011
|
|
|
Industrial
|
Durham, NH
|
|
—
|
|
2,426
|
|
6,982
|
|
9,408
|
|
—
|
|
Jun-07
|
|
|
|
Industrial
|
North Las Vegas, NV
|
|
—
|
|
3,244
|
|
21,732
|
|
24,976
|
|
4,214
|
|
Jul-13
|
2014
|
|
|
Industrial
|
Erwin, NY
|
|
—
|
|
1,648
|
|
12,514
|
|
14,162
|
|
4,021
|
|
Sep-12
|
|
|
|
Industrial
|
Long Island City, NY
|
|
32,779
|
|
—
|
|
42,759
|
|
42,759
|
|
22,280
|
|
Mar-13
|
2013
|
|
|
Industrial
|
Cincinnati, OH
|
|
—
|
|
1,049
|
|
8,784
|
|
9,833
|
|
3,655
|
|
Dec-06
|
|
|
|
Industrial
|
Columbus, OH
|
|
—
|
|
1,990
|
|
12,451
|
|
14,441
|
|
4,904
|
|
Dec-06
|
|
|
|
Industrial
|
Glenwillow, OH
|
|
—
|
|
2,228
|
|
24,530
|
|
26,758
|
|
8,971
|
|
Dec-06
|
|
|
|
Industrial
|
Hebron, OH
|
|
—
|
|
1,063
|
|
4,947
|
|
6,010
|
|
2,383
|
|
Dec-97
|
|
|
|
Industrial
|
Hebron, OH
|
|
—
|
|
1,681
|
|
8,179
|
|
9,860
|
|
4,119
|
|
Dec-01
|
|
|
|
Industrial
|
Morone, OH
|
|
—
|
|
544
|
|
12,370
|
|
12,914
|
|
706
|
|
Sep-19
|
|
|
|
Industrial
|
Morone, OH
|
|
—
|
|
3,123
|
|
60,702
|
|
63,825
|
|
3,612
|
|
Sep-19
|
|
|
|
Industrial
|
Morone, OH
|
|
—
|
|
3,950
|
|
88,422
|
|
92,372
|
|
5,067
|
|
Sep-19
|
|
|
|
Industrial
|
Streetsboro, OH
|
|
—
|
|
2,441
|
|
25,282
|
|
27,723
|
|
11,198
|
|
Jun-07
|
|
|
|
Industrial
|
Wilsonville, OR
|
|
—
|
|
6,815
|
|
32,424
|
|
39,239
|
|
6,025
|
|
Sep-16
|
|
|
|
Industrial
|
Bristol, PA
|
|
—
|
|
2,508
|
|
15,863
|
|
18,371
|
|
8,802
|
|
Mar-98
|
|
|
|
Industrial
|
Chester, SC
|
|
4,913
|
|
1,629
|
|
8,470
|
|
10,099
|
|
2,578
|
|
Sep-12
|
|
|
|
Industrial
|
Duncan, SC
|
|
—
|
|
1,406
|
|
14,272
|
|
15,678
|
|
775
|
|
Oct-19
|
|
|
|
Industrial
|
Duncan, SC
|
|
—
|
|
1,257
|
|
13,252
|
|
14,509
|
|
722
|
|
Oct-19
|
|
|
|
Industrial
|
Duncan, SC
|
|
—
|
|
1,615
|
|
27,830
|
|
29,445
|
|
2,052
|
|
Apr-19
|
|
|
|
Industrial
|
Duncan, SC
|
|
—
|
|
884
|
|
8,755
|
|
9,639
|
|
3,042
|
|
Jun-07
|
|
|
|
Industrial
|
Greer, SC
|
|
—
|
|
6,959
|
|
78,405
|
|
85,364
|
|
3,331
|
|
Dec-19
|
|
|
|
Industrial
|
Laurens, SC
|
|
—
|
|
5,552
|
|
21,908
|
|
27,460
|
|
9,002
|
|
Jun-07
|
|
|
|
Industrial
|
Spartanburg,SC
|
|
—
|
|
1,447
|
|
23,758
|
|
25,205
|
|
2,987
|
|
Aug-18
|
|
|
|
Industrial
|
Spartanburg, SC
|
|
—
|
|
1,186
|
|
15,814
|
|
17,000
|
|
—
|
|
Dec-20
|
|
|
|
Industrial
|
Cleveland, TN
|
|
—
|
|
1,871
|
|
29,743
|
|
31,614
|
|
4,759
|
|
May-17
|
|
|
|
Industrial
|
Crossville, TN
|
|
—
|
|
545
|
|
6,999
|
|
7,544
|
|
5,277
|
|
Jan-06
|
|
|
|
Industrial
|
Franklin, TN
|
|
—
|
|
—
|
|
5,673
|
|
5,673
|
|
3,980
|
|
Sep-12
|
|
|
|
Industrial
|
Jackson, TN
|
|
—
|
|
1,454
|
|
49,031
|
|
50,485
|
|
6,823
|
|
Sep-17
|
|
|
|
Industrial
|
Lewisburg, TN
|
|
—
|
|
173
|
|
10,865
|
|
11,038
|
|
2,262
|
|
May-14
|
|
|
|
Industrial
|
Millington, TN
|
|
—
|
|
723
|
|
19,383
|
|
20,106
|
|
14,810
|
|
Apr-05
|
|
|
|
Industrial
|
Smyrna, TN
|
|
—
|
|
1,793
|
|
93,940
|
|
95,733
|
|
13,400
|
|
Sep-17
|
|
|
|
Industrial
|
Arlington, TX
|
|
—
|
|
589
|
|
7,739
|
|
8,328
|
|
2,193
|
|
Sep-12
|
|
|
|
Industrial
|
Brookshire, TX
|
|
—
|
|
2,388
|
|
16,614
|
|
19,002
|
|
4,401
|
|
Mar-15
|
|
|
|
Industrial
|
Carrollton, TX
|
|
—
|
|
3,228
|
|
15,784
|
|
19,012
|
|
2,309
|
|
Sep-18
|
|
|
|
Industrial
|
Dallas, TX
|
|
—
|
|
2,420
|
|
23,330
|
|
25,750
|
|
1,642
|
|
Apr-19
|
|
|
|
Industrial
|
Grand Prairie, TX
|
|
—
|
|
3,166
|
|
17,985
|
|
21,151
|
|
2,730
|
|
Jun-17
|
|
|
|
Industrial
|
Houston, TX
|
|
—
|
|
4,674
|
|
19,540
|
|
24,214
|
|
11,599
|
|
Mar-15
|
|
|
|
Industrial
|
Houston, TX
|
|
—
|
|
15,055
|
|
57,949
|
|
73,004
|
|
13,979
|
|
Mar-13
|
|
|
|
Industrial
|
Hutchins, TX
|
|
—
|
|
1,307
|
|
8,466
|
|
9,773
|
|
220
|
|
May-20
|
|
|
|
Industrial
|
Lancaster, TX
|
|
—
|
|
3,847
|
|
25,038
|
|
28,885
|
|
—
|
|
Dec-20
|
|
|
|
Industrial
|
Missouri City, TX
|
|
—
|
|
14,555
|
|
5,895
|
|
20,450
|
|
5,895
|
|
Apr-12
|
|
|
|
Industrial
|
Northlake, TX
|
|
—
|
|
4,500
|
|
71,636
|
|
76,136
|
|
2,552
|
|
Feb-20
|
|
|
|
Industrial
|
Northlake, TX
|
|
—
|
|
3,938
|
|
37,185
|
|
41,123
|
|
139
|
|
Dec-20
|
|
|
|
Industrial
|
Pasadena, TX
|
|
—
|
|
2,202
|
|
17,096
|
|
19,298
|
|
368
|
|
Jun-20
|
|
|
|
Industrial
|
Pasadena, TX
|
|
—
|
|
4,057
|
|
17,810
|
|
21,867
|
|
1,899
|
|
Aug-18
|
|
|
|
Industrial
|
San Antonio, TX
|
|
—
|
|
1,311
|
|
36,644
|
|
37,955
|
|
5,517
|
|
Jun-17
|
|
|
|
Industrial
|
Chester, VA
|
|
—
|
|
8,544
|
|
53,067
|
|
61,611
|
|
5,488
|
|
Dec-18
|
|
|
|
Industrial
|
Winchester, VA
|
|
—
|
|
1,988
|
|
32,536
|
|
34,524
|
|
4,176
|
|
Dec-17
|
|
|
|
Industrial
|
Winchester, VA
|
|
—
|
|
3,823
|
|
12,276
|
|
16,099
|
|
4,918
|
|
Jun-07
|
|
|
|
Industrial
|
Winchester, VA
|
|
—
|
|
2,818
|
|
24,423
|
|
27,241
|
|
357
|
|
Sep-20
|
|
|
|
Industrial
|
Bingen, WA
|
|
—
|
|
—
|
|
18,075
|
|
18,075
|
|
6,132
|
|
May-14
|
2014
|
|
|
Multi-tenant/vacant
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
Statesville, NC
|
|
—
|
|
891
|
|
16,771
|
|
17,662
|
|
6,545
|
|
Dec-06
|
|
|
|
Industrial
|
Chillicothe, OH
|
|
—
|
|
735
|
|
10,939
|
|
11,674
|
|
3,911
|
|
Oct-11
|
|
|
LEXINGTON REALTY TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Location
|
|
Encumbrances
|
Land and Land Estates
|
Buildings and Improvements
|
Total
|
Accumulated Depreciation and Amortization(1)
|
Date Acquired
|
Date Constructed
|
|
|
Industrial
|
Antioch, TN
|
|
—
|
|
3,847
|
|
12,659
|
|
16,506
|
|
4,575
|
|
May-07
|
|
|
|
OFFICE PROPERTIES
|
|
|
|
|
|
|
|
|
|
|
Single-tenant
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
Tucson, AZ
|
|
—
|
|
681
|
|
4,037
|
|
4,718
|
|
1,427
|
|
Sep-12
|
|
|
|
Office
|
Palo Alto, CA
|
|
20,176
|
|
12,398
|
|
16,977
|
|
29,375
|
|
25,642
|
|
Dec-06
|
|
|
|
Office
|
McDonough, GA
|
|
—
|
|
693
|
|
6,405
|
|
7,098
|
|
1,942
|
|
Sep-12
|
|
|
|
Office
|
Wall, NJ
|
|
1,867
|
|
8,985
|
|
26,961
|
|
35,946
|
|
17,824
|
|
Jan-04
|
|
|
|
Office
|
Whippany, NJ
|
|
10,950
|
|
4,063
|
|
19,711
|
|
23,774
|
|
11,449
|
|
Nov-06
|
|
|
|
Office
|
Philadelphia, PA
|
|
—
|
|
13,209
|
|
66,071
|
|
79,280
|
|
45,920
|
|
Jun-05
|
|
|
|
Office
|
Florence, SC
|
|
—
|
|
774
|
|
3,629
|
|
4,403
|
|
938
|
|
Feb-12
|
2012
|
|
|
Office
|
Fort Mill, SC
|
|
—
|
|
1,798
|
|
26,964
|
|
28,762
|
|
20,773
|
|
Nov-04
|
|
|
|
Office
|
Fort Mill, SC
|
|
—
|
|
3,601
|
|
16,306
|
|
19,907
|
|
7,381
|
|
Dec-02
|
|
|
|
Office
|
Arlington, TX
|
|
—
|
|
1,274
|
|
15,777
|
|
17,051
|
|
4,536
|
|
Sep-12
|
|
|
|
Office
|
Mission, TX
|
|
—
|
|
2,556
|
|
2,911
|
|
5,467
|
|
1,270
|
|
Sep-12
|
|
|
|
Office
|
Herndon, VA
|
|
—
|
|
5,127
|
|
25,293
|
|
30,420
|
|
12,789
|
|
Dec-99
|
|
|
|
Multi-tenant/vacant
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
Phoenix, AZ
|
|
—
|
|
1,096
|
|
6,228
|
|
7,324
|
|
806
|
|
Nov-01
|
|
|
|
Office
|
Baton Rouge, LA
|
|
—
|
|
340
|
|
1,535
|
|
1,875
|
|
—
|
|
May-07
|
|
|
|
OTHER PROPERTIES
|
|
|
|
|
|
|
|
|
|
|
|
Single-tenant/Specialty
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
Venice, FL
|
|
—
|
|
4,696
|
|
11,753
|
|
16,449
|
|
10,712
|
|
Jan-15
|
|
|
|
Other
|
Baltimore, MD
|
|
—
|
|
4,605
|
|
—
|
|
4,605
|
|
—
|
|
Dec-06
|
|
|
|
Other
|
Baltimore, MD
|
|
—
|
|
5,000
|
|
—
|
|
5,000
|
|
—
|
|
Dec-15
|
|
|
|
Multi-tenant
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
Honolulu, HI
|
|
—
|
|
8,259
|
|
7,471
|
|
15,730
|
|
7,416
|
|
Dec-06
|
|
|
|
Construction in progress
|
|
|
—
|
|
—
|
|
—
|
|
3,116
|
|
—
|
|
|
|
|
|
Deferred loan costs, net
|
|
|
(1,883)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
136,529
|
|
$
|
367,272
|
|
$
|
3,144,176
|
|
$
|
3,514,564
|
|
$
|
684,468
|
|
|
|
|
(1) Depreciation and amortization expense is calculated on a straight-line basis over the following lives:
|
|
|
|
|
|
|
|
Building and improvements
|
Up to 40 years
|
|
Land estates
|
Up to 51 years
|
|
Tenant improvements
|
Shorter of useful life or term of related lease
|
LEXINGTON REALTY TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
The initial cost includes the purchase price paid directly or indirectly by the Company. The total cost basis of the Company's properties at December 31, 2020 for federal income tax purposes was approximately $4.0 billion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Reconciliation of real estate, at cost:
|
|
|
|
|
|
|
Balance at the beginning of year
|
$
|
3,320,574
|
|
|
$
|
3,090,134
|
|
|
$
|
3,936,459
|
|
|
Additions during year
|
580,861
|
|
|
663,742
|
|
|
310,207
|
|
|
Properties sold and impaired during the year
|
(354,218)
|
|
|
(496,730)
|
|
|
(1,091,956)
|
|
|
Other reclassifications
|
(32,653)
|
|
|
63,428
|
|
|
(64,576)
|
|
|
Balance at end of year
|
$
|
3,514,564
|
|
|
$
|
3,320,574
|
|
|
$
|
3,090,134
|
|
|
|
|
|
|
|
|
|
Reconciliation of accumulated depreciation and amortization:
|
|
|
|
|
|
|
Balance at the beginning of year
|
$
|
675,596
|
|
|
$
|
722,644
|
|
|
$
|
890,969
|
|
|
Depreciation and amortization expense
|
127,504
|
|
|
118,525
|
|
|
136,571
|
|
|
Accumulated depreciation and amortization of properties sold and impaired during year
|
(102,261)
|
|
|
(177,709)
|
|
|
(290,938)
|
|
|
Other reclassifications
|
(16,371)
|
|
|
12,136
|
|
|
(13,958)
|
|
|
Balance at end of year
|
$
|
684,468
|
|
|
$
|
675,596
|
|
|
$
|
722,644
|
|