EX-99.3 6 exhibit993-83012.htm EXHIBIT EXHIBIT 99.3 - 8.30.12

Exhibit 99.3


Report of Independent Registered Public Accounting Firm

The Trustees and Shareholders
Lexington Realty Trust:

We have audited the accompanying consolidated balance sheets of Lexington Realty Trust and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in equity, comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2011. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lexington Realty Trust and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



(signed) KPMG LLP

New York, New York
February 28, 2012, except as to
Notes 3, 5, 6 and 18, which
are as of August 30, 2012.


1


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000, except share and per share data)
As of December 31,
 
2011
 
2010
Assets:
 
 
 
Real estate, at cost:
 
 
 
Buildings and building improvements
$
2,638,626

 
$
2,789,985

Land and land estates
521,242

 
545,236

Land improvements
797

 
797

Fixtures and equipment
7,525

 
7,525

Construction in progress
4,056

 
20,043

Investments in real estate under construction
32,829

 
11,258

 
3,205,075

 
3,374,844

Less: accumulated depreciation and amortization
638,368

 
601,239

 
2,566,707

 
2,773,605

Property held for sale – discontinued operations
—

 
7,316

Intangible assets (net of accumulated amortization of $368,349 in 2011 and $374,139 in 2010)
178,569

 
203,495

Cash and cash equivalents
63,711

 
52,644

Restricted cash
30,657

 
26,644

Investment in and advances to non-consolidated entities
90,558

 
72,480

Deferred expenses (net of accumulated amortization of $22,708 in 2011 and $22,380 in 2010)
43,966

 
39,912

Loans receivable, net
66,619

 
88,937

Rent receivable – current
7,271

 
7,498

Rent receivable – deferred
—

 
6,293

Other assets
29,990

 
56,172

Total assets
$
3,078,048

 
$
3,334,996

Liabilities and Equity:
 

 
 

Liabilities:
 

 
 

Mortgages and notes payable
$
1,366,004

 
$
1,481,216

Exchangeable notes payable
62,102

 
61,438

Convertible notes payable
105,149

 
103,211

Trust preferred securities
129,120

 
129,120

Dividends payable
25,273

 
23,071

Liabilities – discontinued operations
—

 
3,876

Accounts payable and other liabilities
53,058

 
51,292

Accrued interest payable
13,019

 
13,989

Deferred revenue - including below market leases (net of accretion of $37,485 in 2011 and $35,969 in 2010)
90,349

 
96,490

Prepaid rent
12,543

 
15,164

Total liabilities
1,856,617

 
1,978,867

 
 
 
 
Commitments and contingencies


 


Equity:
 

 
 

Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares,
 

 
 

Series B Cumulative Redeemable Preferred, liquidation preference $68,522 and $79,000; 2,740,874 and 3,160,000 shares issued and outstanding in 2011 and 2010, respectively
66,193

 
76,315

Series C Cumulative Convertible Preferred, liquidation preference $98,510 and $104,760; and 1,970,200 and 2,095,200 shares issued and outstanding in 2011 and 2010, respectively
95,706

 
101,778

Series D Cumulative Redeemable Preferred, liquidation preference $155,000; 6,200,000 shares issued and outstanding
149,774

 
149,774

Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 154,938,351 and 146,552,589 shares issued and outstanding in 2011 and 2010, respectively
15

 
15

Additional paid-in-capital
2,010,850

 
1,937,942

Accumulated distributions in excess of net income
(1,161,402
)
 
(985,562
)
Accumulated other comprehensive income (loss)
1,938

 
(106
)
Total shareholders’ equity
1,163,074

 
1,280,156

Noncontrolling interests
58,357

 
75,973

Total equity
1,221,431

 
1,356,129

Total liabilities and equity
$
3,078,048

 
$
3,334,996

The accompanying notes are an integral part of these consolidated financial statements.

2

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000, except share and per share data)
Years ended December 31,
 
 
 
 
 
 
 
2011
 
2010
 
2009
Gross revenues:
 
 
 
 
 
Rental
$
284,808

 
$
277,770

 
$
286,758

Advisory and incentive fees
2,012

 
1,108

 
1,822

Tenant reimbursements
31,404

 
30,504

 
33,929

Total gross revenues
318,224

 
309,382

 
322,509

Expense applicable to revenues:
 
 
 
 
 
Depreciation and amortization
(158,344
)
 
(151,082
)
 
(150,141
)
Property operating
(58,317
)
 
(59,322
)
 
(61,896
)
General and administrative
(22,207
)
 
(22,462
)
 
(23,358
)
Non-operating income
13,020

 
11,811

 
5,432

Interest and amortization expense
(107,470
)
 
(117,598
)
 
(121,160
)
Debt satisfaction gains, net
45

 
212

 
17,023

Change in value of forward equity commitment
2,030

 
8,906

 
7,182

Impairment charges and loan losses
(41,301
)
 
(6,879
)
 
(1,576
)
Loss before benefit (provision) for income taxes, equity in earnings (losses) of non-consolidated entities and discontinued operations
(54,320
)
 
(27,032
)
 
(5,985
)
Benefit (provision) for income taxes
826

 
(1,547
)
 
(2,367
)
Equity in earnings (losses) of non-consolidated entities
30,334

 
21,741

 
(123,176
)
Loss from continuing operations
(23,160
)
 
(6,838
)
 
(131,528
)
Discontinued operations:
 
 
 
 
 
Income (loss) from discontinued operations
3,630

 
1,977

 
(670
)
Provision for income taxes
(57
)
 
(25
)
 
(89
)
Debt satisfaction gains (charges), net
(606
)
 
2,924

 
11,471

Gains on sales of properties
6,557

 
14,613

 
9,134

Impairment charges
(76,142
)
 
(50,061
)
 
(99,590
)
Total discontinued operations
(66,618
)
 
(30,572
)
 
(79,744
)
Net loss
(89,778
)
 
(37,410
)
 
(211,272
)
Less net loss attributable to noncontrolling interests
10,194

 
4,450

 
1,120

Net loss attributable to Lexington Realty Trust shareholders
(79,584
)
 
(32,960
)
 
(210,152
)
Dividends attributable to preferred shares – Series B – 8.05% rate
(6,149
)
 
(6,360
)
 
(6,360
)
Dividends attributable to preferred shares – Series C – 6.50% rate
(6,655
)
 
(6,809
)
 
(7,218
)
Dividends attributable to preferred shares – Series D – 7.55% rate
(11,703
)
 
(11,703
)
 
(11,703
)
Dividends attributable to non-vested common shares
(368
)
 
(264
)
 
(449
)
Deemed dividend – Series B
(95
)
 
—

 
—

Redemption discount – Series C
833

 
—

 
—

Conversion dividend – Series C
—

 
—

 
(6,994
)
Net loss attributable to common shareholders
$
(103,721
)
 
$
(58,096
)
 
$
(242,876
)
Loss per common share–basic and diluted:
 
 
 
 
 
Loss from continuing operations
$
(0.32
)
 
$
(0.27
)
 
$
(1.51
)
Loss from discontinued operations
(0.36
)
 
(0.17
)
 
(0.71
)
Net loss attributable to common shareholders
$
(0.68
)
 
$
(0.44
)
 
$
(2.22
)
Weighted-average common shares outstanding–basic and diluted
152,473,336

 
130,985,809

 
109,280,955

Amounts attributable to common shareholders:    
 
 
 
 
 
Loss from continuing operations
$
(48,262
)
 
$
(35,793
)
 
$
(165,469
)
Loss from discontinued operations
(55,459
)
 
(22,303
)
 
(77,407
)
Net loss attributable to common shareholders
$
(103,721
)
 
$
(58,096
)
 
$
(242,876
)
The accompanying notes are an integral part of these consolidated financial statements.

3

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
($000)
Years ended December 31,
 
2011
 
2010
 
2009
Net loss
$
(89,778
)
 
$
(37,410
)
 
$
(211,272
)
Other comprehensive income (loss):
 

 
 
 
 
Change in unrealized gain on foreign currency translation, net
—

 
(740
)
 
(19
)
Change in unrealized loss on investments in non-consolidated entities and reclassifications, net
—

 
—

 
26,174

Change in unrealized gain (loss) on interest rate swap, net
2,044

 
(39
)
 
1,815

Other comprehensive income (loss)
2,044

 
(779
)
 
27,970

Comprehensive loss
(87,734
)
 
(38,189
)
 
(183,302
)
Comprehensive loss attributable to noncontrolling interests
10,194

 
4,450

 
1,120

Comprehensive loss attributable to Lexington Realty Trust shareholders
$
(77,540
)
 
$
(33,739
)
 
$
(182,182
)
The accompanying notes are an integral part of these consolidated financial statements.

4

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2009

 
 
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, 2008
$
1,501,071

 
11,958,300

 
$
352,306

 
100,300,238

 
$
10

 
$
1,638,540

 
$
(569,131
)
 
$
(15,650
)
 
$
94,996

Cumulative effect, change in accounting principle from non-consolidated entity
—

 
—

 
—

 
—

 
—

 
—

 
11,647

 
(11,647
)
 
—

Contributions from noncontrolling interests
1,756

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,756

Redemption of noncontrolling OP units for common shares
—

 
—

 
—

 
572,213

 
—

 
3,580

 
—

 
—

 
(3,580
)
Conversion - Series C
—

 
(503,100
)
 
(24,439
)
 
2,955,368

 
—

 
31,433

 
(6,994
)
 
—

 
—

Issuance of common shares and deferred compensation amortization, net
24,569

 
—

 
—

 
4,811,241

 
1

 
24,568

 
—

 
—

 
—

Dividends/distributions
(46,858
)
 
—

 
—

 
13,304,198

 
1

 
52,858

 
(96,232
)
 
—

 
(3,485
)
Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
(211,272
)
 
—

 
—

 
—

 
—

 
—

 
(210,152
)
 
—

 
(1,120
)
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gain on foreign currency translation, net
(19
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(19
)
 
—

Change in unrealized loss on investments in non-consolidated entities and reclassifications, net
26,174

 
—

 
—

 
—

 
—

 
—

 
—

 
26,174

 
—

Change in unrealized gain on interest rate swap, net
1,815

 
—

 
—

 
—

 
—

 
—

 
—

 
1,815

 
—

Other comprehensive income
27,970

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss
(183,302
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2009
$
1,297,236

 
11,455,200

 
$
327,867

 
121,943,258

 
$
12

 
$
1,750,979

 
$
(870,862
)
 
$
673

 
$
88,567



The accompanying notes are an integral part of the consolidated financial statements.

5

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2010

 
 
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, 2009
$
1,297,236

 
11,455,200

 
$
327,867

 
121,943,258

 
$
12

 
$
1,750,979

 
$
(870,862
)
 
$
673

 
$
88,567

Contributions from noncontrolling interests
4,854

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
4,854

Redemption of noncontrolling OP units for common shares
—

 
—

 
—

 
457,351

 
—

 
2,685

 
—

 
—

 
(2,685
)
Transfer of noncontrolling interests
(1,957
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,957
)
Issuance of Convertible Notes
13,134

 
—

 
—

 
—

 
—

 
13,134

 
—

 
—

 
—

Forfeiture of employee performance common shares
171

 
—

 
—

 
(21,720
)
 
—

 
—

 
171

 
—

 
—

Exercise of employee common share options
(356
)
 
—

 
—

 
95,976

 
—

 
(356
)
 
—

 
—

 
—

Issuance of common shares and deferred compensation amortization, net
171,503

 
—

 
—

 
24,077,724

 
3

 
171,500

 
—

 
—

 
—

Dividends/distributions
(90,267
)
 
—

 
—

 
—

 
—

 
—

 
(81,911
)
 
—

 
(8,356
)
Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
(37,410
)
 
—

 
—

 
—

 
—

 
—

 
(32,960
)
 
—

 
(4,450
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gain on foreign currency translation, net
(740
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(740
)
 
—

Change in unrealized loss on interest rate swap, net
(39
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(39
)
 
—

Other comprehensive loss
(779
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss
(38,189
)
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Balance December 31, 2010
$
1,356,129

 
11,455,200

 
$
327,867

 
146,552,589

 
$
15

 
$
1,937,942

 
$
(985,562
)
 
$
(106
)
 
$
75,973




The accompanying notes are an integral part of the consolidated financial statements.

6


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2011

 
 
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, 2010
$
1,356,129

 
11,455,200

 
$
327,867

 
146,552,589

 
$
15

 
$
1,937,942

 
$
(985,562
)
 
$
(106
)
 
$
75,973

Redemption of noncontrolling OP units for common shares
—

 
—

 
—

 
398,927

 
—

 
2,187

 
—

 
—

 
(2,187
)
Repurchase of common shares
(31,916
)
 
—

 
—

 
(3,974,645
)
 
—

 
(31,916
)
 
—

 
—

 
—

Repurchase of preferred shares
(15,456
)
 
(544,126
)
 
(16,194
)
 
—

 
—

 
—

 
738

 
—

 
—

Contributions from noncontrolling interests
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2

Obtained control of noncontrolling investment
574

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
574

Exercise of employee common share options
221

 
—

 
—

 
250,355

 
—

 
221

 
—

 
—

 
—

Forfeiture of employee performance common shares
69

 
—

 
—

 
(10,140
)
 
—

 
—

 
69

 
—

 
—

Issuance of common shares and deferred compensation amortization, net
102,416

 
—

 
—

 
11,721,265

 
—

 
102,416

 
—

 
—

 
—

Dividends/distributions
(102,874
)
 
—

 
—

 
—

 
—

 
—

 
(97,063
)
 
—

 
(5,811
)
Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
(89,778
)
 
—

 
—

 
—

 
—

 
—

 
(79,584
)
 
—

 
(10,194
)
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gain on interest rate swap, net
2,044

 
—

 
—

 
—

 
—

 
—

 
—

 
2,044

 
—

Other comprehensive income
2,044

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss
(87,734
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2011
$
1,221,431

 
10,911,074

 
$
311,673

 
154,938,351

 
$
15

 
$
2,010,850

 
$
(1,161,402
)
 
$
1,938

 
$
58,357


The accompanying notes are an integral part of the consolidated financial statements.

7

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000)
Years ended December 31,
 
2011
 
2010
 
2009
Cash flows from operating activities:
 
 
 
 
 
Net loss
$
(89,778
)
 
$
(37,410
)
 
$
(211,272
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
168,288

 
172,301

 
185,208

Gains on sales of properties
(6,557
)
 
(14,613
)
 
(9,134
)
Debt satisfaction (gains) charges, net
311

 
(3,590
)
 
(29,872
)
Impairment charges and loan losses
117,443

 
56,940

 
101,166

Straight-line rents
(1,763
)
 
862

 
(240
)
Other non-cash (income) charges, net
(6,364
)
 
(7,912
)
 
(7,192
)
Equity in (earnings) losses of non-consolidated entities
(30,334
)
 
(21,741
)
 
123,176

Distributions of accumulated earnings from non-consolidated entities, net
11,549

 
3,233

 
4,707

Deferred taxes, net
(1,799
)
 
489

 
196

Increase (decrease) in accounts payable and other liabilities
1,589

 
5,186

 
1,175

Change in rent receivable and prepaid rent, net
19,929

 
12,272

 
2,519

Increase (decrease) in accrued interest payable
(970
)
 
2,921

 
(4,605
)
Other adjustments, net
(1,407
)
 
(4,187
)
 
3,475

Net cash provided by operating activities:
180,137

 
164,751

 
159,307

Cash flows from investing activities:
 
 
 

 
 
Investment in real estate, including intangible assets and capital leases
(127,992
)
 
(52,324
)
 
(45,122
)
Net proceeds from sale of properties
124,039

 
80,224

 
113,139

Principal payments received on loans receivable
46,867

 
12,480

 
12,886

Investment in loans receivable
(32,591
)
 
(40,632
)
 
—

Investments in and advances to non-consolidated entities, net
(19,940
)
 
(11,258
)
 
4,765

Proceeds from sale of interest in non-consolidated entity
—

 
112

 
—

Distributions from non-consolidated entities in excess of accumulated earnings
5,900

 
1,356

 
16,241

Increase in deferred leasing costs
(15,870
)
 
(5,129
)
 
(8,641
)
Change in escrow deposits and restricted cash
(3,405
)
 
(8,282
)
 
9,248

Proceeds from the sale of marketable debt securities
—

 
—

 
9,451

Real estate deposits
(1,821
)
 
(1,330
)
 
—

Net cash provided by (used in) investing activities
(24,813
)
 
(24,783
)
 
111,967

Cash flows from financing activities:
 
 
 

 
 
Dividends to common and preferred shareholders
(94,861
)
 
(77,252
)
 
(49,642
)
Repurchase of exchangeable notes
—

 
(25,493
)
 
(101,006
)
Proceeds from convertible notes
—

 
115,000

 
—

Principal amortization payments
(31,068
)
 
(33,781
)
 
(39,052
)
Principal payments on debt, excluding normal amortization
(105,266
)
 
(331,295
)
 
(264,399
)
Change in revolving credit facility borrowing, net
—

 
(7,000
)
 
(18,000
)
Increase in deferred financing costs
(4,214
)
 
(5,760
)
 
(5,317
)
Proceeds of mortgages and notes payable
15,000

 
59,769

 
11,540

Proceeds from term loans
—

 
—

 
165,000

Contributions from noncontrolling interests
2

 
4,854

 
1,756

Cash distributions to noncontrolling interests
(5,811
)
 
(8,356
)
 
(3,485
)
Repurchase of preferred shares
(15,456
)
 
—

 
—

Receipts (payments) on forward equity commitment, net
(2,313
)
 
1,473

 
(2,262
)
Swap termination costs
—

 
—

 
(366
)
Exercise of employee common share options
777

 
50

 
—

Issuance of common shares, net
98,953

 
166,602

 
20,026

Net cash used in financing activities
(144,257
)
 
(141,189
)
 
(285,207
)
Change in cash and cash equivalents
11,067

 
(1,221
)
 
(13,933
)
Cash and cash equivalents, at beginning of year
52,644

 
53,865

 
67,798

Cash and cash equivalents, at end of year
$
63,711

 
$
52,644

 
$
53,865

The accompanying notes are an integral part of these consolidated financial statements.

8

LEXINGTON REALTY TRUST AND CONSOLIDATED 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 self-managed and self-administered Maryland statutory real estate investment trust (“REIT”) that acquires, owns and manages a geographically diversified portfolio of predominately net-leased office, industrial and retail properties. The Company also provides investment advisory and asset management services to investors in the net-lease area. As of December 31, 2011, the Company had interests in approximately 185 consolidated properties located in 39 states. As of December 31, 2010, the Company had ownership interests in approximately 195 consolidated properties in 39 states. A majority of the real properties in which the Company had an interest are generally subject to net leases or similar leases where the tenant pays all or substantially all of the cost and/or cost increases for real estate taxes, insurance, utilities and ordinary maintenance of the property. However, certain leases provide that the landlord is responsible for certain operating expenses.

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 either directly or indirectly through (1) property owner subsidiaries and lender subsidiaries, (2) operating partnerships in which the Company is the sole unit holder of the general partner and the sole unit holder of the limited partner that holds a majority of the limited partner interests (“OP units”) or (3) Lexington Realty Advisors, Inc. (“LRA”), a wholly-owned TRS. On December 31, 2010, Net 3 Acquisition L.P. (“Net 3”), a former operating partnership, merged into the Company and Net 3 ceased to exist for financial reporting purposes. As of December 31, 2011, the Company controlled two operating partnerships: (1) Lepercq Corporate Income Fund L.P. (“LCIF”) and (2) Lepercq Corporate Income Fund II L.P. (“LCIF II”). 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.

(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 appropriate GAAP.

If an investment is determined to be a VIE, the Company performs an analysis to determine if the Company is the primary beneficiary of the VIE. GAAP requires a VIE to be consolidated by its primary beneficiary. The primary beneficiary is the party that has a controlling financial interest in an entity. In order for a party to have a controlling financial interest in an entity, it must have (1) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (2) the obligation to absorb losses of an entity that could potentially be significant to the VIE or the right to receive benefits from such entity that could potentially be significant to the VIE.

Consolidated Variable Interest Entities. The Company's consolidated VIEs were determined to be VIEs primarily because each entity's equity holders' obligation to absorb losses is protected or its equity investment at risk is not sufficient to permit the entities to finance activities without additional financial support. The Company determined that it was the primary beneficiary of these VIEs because it has a controlling financial interest in the entities.

9

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


The Company determined that a wholly-owned entity which owns an office building in Greenville, South Carolina is a VIE and is consolidated by the Company as the entity's obligation to absorb losses is protected. The tenant has an option to purchase the property on December 31, 2014 at fair market value, but not for less than $10,710 and not for greater than $11,550. If the tenant does not exercise the purchase option, the Company has the right to require the tenant to purchase the property for $10,710.

Non-Consolidated Variable Interest Entities. At December 31, 2011 and 2010, the Company held variable interests in certain non-consolidated VIEs; however, the Company was not the primary beneficiary of these VIEs as the Company does not have a controlling financial interest in the entities. The Company determined that Concord Debt Holdings LLC and related entities are VIEs. The Company's carrying value of these investments is zero and the Company has no obligation to fund future operations (see note 9). The Company has certain acquisition commitments and/ or acquisition, development and construction arrangements with VIEs. The Company is obligated to fund certain amounts as discussed in note 4.
Earnings Per Share. Basic net income (loss) per share is computed by dividing net income (loss) reduced by preferred dividends and amounts allocated to 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, 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 current economic environment. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. 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, loans receivable and equity method investments, valuation of derivative financial instruments and the useful lives of long-lived assets. Actual results could differ materially from those estimates.
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.
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. 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 or deferred revenue on the Consolidated Balance Sheets.

10

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


Gains on sales of real estate are recognized based upon the specific timing of the sale as measured against various criteria related to the terms of the transactions and any continuing involvement associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. To the extent the Company sells a property and retains a partial ownership interest in the property, the Company recognizes gain to the extent of the third-party ownership interest.

Accounts Receivable. The Company continuously monitors collections from tenants and makes a provision for estimated losses based upon historical experience and any specific tenant collection issues that the Company has identified. As of December 31, 2011 and 2010, the Company's allowance for doubtful accounts was not significant.

Purchase Accounting and 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. Acquisition costs are expensed as incurred and are included in property operating expense in the accompanying Consolidated Statement of Operations. Also, noncontrolling interests acquired are recorded at estimated fair market value.

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, and 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.

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 are amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships are 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 buildings and building improvements over periods ranging from 8 to 40 years, land improvements from 15 to 20 years, and fixtures and equipment from 2 to 16 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 evaluation includes estimating and reviewing anticipated future undiscounted cash flows to be 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 the 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.

11

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


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.

Loans Receivable. Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, loan purchase discounts, and net of an allowance for loan losses when such loan is deemed to be impaired. Loan origination costs and fees and loan purchase discounts are amortized over the term of the loan. The Company considers a loan impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement. Significant judgments are required in determining whether impairment has occurred. The Company performs an impairment analysis by comparing either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable current market price or the fair value of the underlying collateral to the net carrying value of the loan, which may result in an allowance and corresponding loan loss charge.

Acquisition, Development and Construction Arrangements. The Company evaluates loans receivable where the Company participates in residual profits through loan provisions or other contracts to ascertain whether the Company has the same risks and rewards as an owner or a joint venture partner. Where the Company concludes that such arrangements are more appropriately treated as an investment in real estate, the Company reflects such loan receivable as an equity investment in real estate under construction in the Consolidated Balance Sheets. In these cases, no interest income is recorded on the loan receivable and the Company records capitalized interest during the construction period. In arrangements where the Company engages a developer to construct a property, the Company will capitalize interest and real estate taxes during the construction period.

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, with assets and liabilities being separately stated. The operating results of these properties are reflected as discontinued operations in the Consolidated Statements of Operations. Properties classified as held for sale are carried at the lower of net carrying value or estimated fair value less costs to sell. Properties that do not meet the held for sale criteria are accounted for as operating properties.

Deferred Expenses. Deferred expenses consist primarily of 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. The interest rate swap is designated as a cash flow hedge whereby the effective portion of the interest rate swap's change in fair value is reported as a component of other comprehensive income (loss); the ineffective portion, if any, is recognized in earnings as an increase or decrease to interest expense.

12

LEXINGTON REALTY TRUST AND CONSOLIDATED 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 on-going 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 may utilize interest rate swap and cap agreements to manage interest rate risk and 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. Options granted under the plan in 2010 vest over a five-year period and expire ten years from the date of grant. Options granted under the plan in 2008 vest upon attainment of certain market performance measures and expire ten years from the date of grant. All share-based payments to employees, including grants of employee stock options, are recognized in the Consolidated Statements of Operations based on their fair values.
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 original 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 with lenders.
Foreign Currency. The Company determined that the functional currency of its former foreign operation, which was sold in 2010, was the respective local currency. As such, assets and liabilities of the Company's former foreign operation was translated using the period-end exchange rates, and revenues and expenses were translated using the exchange rate as determined throughout the period. Unrealized gains or losses resulting from translation are included in accumulated other comprehensive income (loss) and as a separate component of the Company's shareholders' equity.

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, 2011, 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.

13

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


Segment Reporting. The Company operates generally in one industry segment, net-leased real estate assets.

Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform to the current year presentation, including certain statement of operations captions including activities for properties sold during 2011, which are presented as discontinued operations.


(3)
Earnings Per Share

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, 2011:
 
 
2011
 
2010
 
2009
BASIC AND DILUTED
 
 
 
 
 
 
Loss from continuing operations attributable to common shareholders
 
$
(48,262
)
 
$
(35,793
)
 
$
(165,469
)
Loss from discontinued operations attributable to common shareholders
 
(55,459
)
 
(22,303
)
 
(77,407
)
Net loss attributable to common shareholders
 
$
(103,721
)
 
$
(58,096
)
 
$
(242,876
)
Weighted-average number of common shares outstanding
 
152,473,336

 
130,985,809

 
109,280,955

Loss per common share:
 
 

 
 
 
 

Loss from continuing operations
 
$
(0.32
)
 
$
(0.27
)
 
$
(1.51
)
Loss from discontinued operations
 
(0.36
)
 
(0.17
)
 
(0.71
)
Net loss attributable to common shareholders
 
$
(0.68
)
 
$
(0.44
)
 
$
(2.22
)

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.

During 2011, the Company repurchased and retired an aggregate of 125,000 shares of Series C Cumulative Convertible Preferred Stock ("Series C Preferred") at a $833 discount to the historical cost basis. This discount constitutes a deemed negative dividend, offsetting other dividends, and is accretive to common shareholders. In addition, the Company repurchased and retired an aggregate of 419,126 shares of Series B Cumulative Redeemable Preferred Stock ("Series B Preferred") at a $95 premium to historical cost. This premium is treated as a deemed dividend. Accordingly, net loss was adjusted for these dividends to arrive at net loss attributable to common shareholders for 2011.

During 2009, 503,100 shares of Series C Preferred were converted into 2,955,368 common shares. The difference between the fair value of the securities transferred in excess of the fair value of the securities issuable pursuant to the original conversion terms of $6,994 constitutes a deemed dividend, even though the conversion was for equivalent fair values, and is dilutive to common shareholders. Accordingly, net loss was adjusted to arrive at net loss attributable to common shareholders for 2009.


14

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

(4)
Investments in Real Estate and Real Estate Under Construction

The Company, through property owner subsidiaries, acquired the following operating properties in separate transactions during 2011:
 
 
 
 
 
 
 
 
 
Lease Intangibles
Property Type
Location
Acquisition/Consolidation Date
Initial Cost Basis
Lease Expiration
Land
 
Building and Improvements
 
Above Market Lease Value
 
Lease in-place Value
 
Tenant Relationships Value
Industrial
Byhalia, MS
May 2011
$
27,492

03/2026
$
1,005

 
$
21,483

 
$
—

 
$
4,097

 
$
907

Office
Rock Hill, SC
May 2011
$
7,395

08/2021
$
551

 
$
4,313

 
$
—

 
$
1,853

 
$
678

Office (1)
Allen, TX
May 2011
$
36,304

03/2018
$
5,591

 
$
21,607

 
$
—

 
$
5,127

 
$
3,979

Industrial (2)
Shelby, NC
June 2011
$
23,470

05/2031
$
1,421

 
$
18,917

 
$
—

 
$
2,712

 
$
420

Office
Columbus, OH
July 2011
$
6,137

07/2027
$
433

 
$
2,773

 
$
—

 
$
2,205

 
$
726

Industrial
Chillicothe, OH
October 2011
$
12,110

06/2026
$
736

 
$
9,021

 
$
—

 
$
1,859

 
$
494

Office (3)
Aurora, IL
October 2011
$
15,300

09/2017
$
3,063

 
$
5,943

 
$
1,272

 
$
3,616

 
$
1,406

 
 
 
$
128,208

 
$
12,800

 
$
84,057

 
$
1,272

 
$
21,469

 
$
8,610

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average life of intangible assets (years)
 
 
 
 
 
6.0

 
11.8

 
9.7

(1)    The Company acquired the property from Net Lease Strategic Assets Fund L.P. pursuant to a purchase option.
(2)    The Company funded the construction of the property commencing in 2010.
(3)    Obtained control of joint venture investment (see note 9).

In addition, during 2011, the Company deposited $1,700 and posted a $1,600 letter of credit toward the purchase of a $17,558 to-be-built 80,000 square foot office property in Eugene, Oregon. Substantial completion of the property is expected to occur in the first quarter of 2013 although there can be no assurance that the acquisition will be consummated.

During 2010, the Company, through a property owner subsidiary, acquired an office property for $16,650. The property is located in Columbus, Ohio and is net-leased for 16 years. In addition in 2010, the Company, through a property owner subsidiary, purchased a parcel and parking lot adjacent to a property in which the Company has an interest in a sale/leaseback transaction with an existing tenant, Nevada Power Company, for $3,275. One of the Company's property owner subsidiaries financed the purchase of the parking lot with a $2,450 non-recourse mortgage note that matures in September 2014 and bears interest at 7.5%. In connection with the transaction, the Nevada Power Company's lease on the existing property was extended from January 2014 to January 2029.
The Company recognized aggregate acquisition expenses of $432 and $164 in 2011 and 2010, respectively, which are included in property operating expenses within the Company's Consolidated Statements of Operations. As of December 31, 2011 and 2010, the components of intangible assets, are as follows:
 
 
2011
 
2010
In-place lease values
 
$
327,589

 
$
335,152

Tenant relationship values
 
152,390

 
156,495

Above-market leases
 
66,939

 
85,987

 
 
$
546,918

 
$
577,634


The estimated amortization of the above intangibles for the next five years is $37,925 in 2012, $27,862 in 2013, $22,406 in 2014, $16,819 in 2015 and $14,468 in 2016.

Below-market leases, net of accretion, which are included in deferred revenue, are $78,806 and $94,677, respectively as of December 31, 2011 and 2010. The estimated accretion for the next five years is $7,134 in 2012, $6,696 in 2013, $5,734 in 2014, $4,671 in 2015 and $3,693 in 2016.

15

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


During 2011, the Company, through lender subsidiaries and property owner subsidiaries, entered into three acquisition, development and construction arrangements whereby the lender subsidiaries agreed to lend funds to construct build-to-suit properties and the property owner subsidiaries agreed to purchase the properties upon completion of construction and commencement of a tenant lease. When the Company anticipates that it will indirectly participate in residual profits through the loan provisions and other contracts, the Company records the loan as an investment in real estate under construction. In addition, the Company hired developers to construct two office buildings and formed a joint venture with a developer to construct an industrial facility, which will be leased to single-tenants upon completion. As of December 31, 2011, the Company had the following development arrangements outstanding:
Location
Property Type
Square Feet
 
Expected Maximum Commitment/Contribution
 
Estimated Purchase Price/Completion Cost
 
Lease Term (Years)
 
Estimated Completion Date
Saint Joseph, MO(1)
Office
99,000

 
$
17,991

 
$
17,991

 
15
 
2Q 12
Huntington, WV(1)(3)
Office
70,000

 
$
11,826

 
$
12,600

 
15
 
1Q 12
Shreveport, LA(1)
Industrial
257,000

 
$
2,520

 
$
13,064

 
10
 
2Q 12
Florence, SC
Office
32,000

 
$
5,128

 
$
5,128

 
12
 
1Q 12
Long Island City, NY(2)
Industrial
143,000

 
$
46,728

 
$
55,524

 
15
 
1Q 13
Jessup, PA
Office
150,000

 
$
20,780

 
$
20,780

 
15
 
2Q 12
 
 
751,000

 
$
104,973

 
$
125,087

 
 
 
 
(1) Acquisition, development and construction arrangement.
(2) Joint venture investment. The Company has guaranteed completion to the ground owner. The guarantee obligation was valued at $1,500 and is included in accounts payable and other liabilities in the Consolidated Balance Sheet. In addition, the Company may loan a maximum of $4,398 to the joint venture under certain circumstances. The difference between the Company's expected contribution and the estimated completion cost represents the joint venture partner's equity.
(3) Property acquired in January 2012.

The Company has variable interests in certain developer entities constructing the facilities but is not the primary beneficiary of the entities as the Company does not have a controlling financial interest. As of December 31, 2011, the Company's aggregate investment in development arrangements is $32,829, which includes $619 of interest capitalized during 2011, and is presented as investments in real estate under construction in the accompanying Consolidated Balance Sheets.

(5)
Sales of Real Estate and Discontinued Operations

The Company sold its interests in 17 properties in 2011, 13 properties in 2010 and 18 properties in 2009, three of which were transferred to lenders or disposed of through bankruptcy. For the years ended December 31, 2011, 2010 and 2009, these sales generated aggregate net proceeds of $124,039, $80,224 and $108,475, respectively, which resulted in gains on sales of $6,557, $14,613 and $9,134, respectively. For the years ended December 31, 2011, 2010 and 2009, the Company recognized net debt satisfaction gains (charges) relating to these properties of $(606), $2,924 and $11,471, respectively. These gains (charges) are included in discontinued operations.

At December 31, 2011, the Company had no properties classified as held for sale and two properties classified as held for sale at December 31, 2010. The Company has retrospectively adjusted the 2011, 2010 and 2009 Consolidated Statements of Operations to reflect as discontinued operations all properties sold through June 30, 2012.

The following presents the operating results for the properties sold and held for sale during the years ended December 31, 2011, 2010 and 2009 along with properties sold through June 30, 2012:
 
 
Year Ending December 31,
 
 
2011
 
2010
 
2009
Total gross revenues
 
$
18,320

 
$
42,541

 
$
66,797

Pre-tax net loss, including gains on sales
 
$
(66,561
)
 
$
(30,547
)
 
$
(79,655
)

16

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


In 2009, the Company, through a property owner subsidiary, received gross proceeds of $4,750 in a sale-leaseback transaction of land in Palm Beach Gardens, Florida. The Company is leasing back the land for 30 years and has an option to purchase the land in June 2014 and June 2015. The Company has not recognized a gain on the transaction as the Company is considered to have continued involvement in the property due to the purchase option.

During 2009, the Company conveyed its interest in three properties to lenders in full satisfaction of the related aggregate $38,022 non-recourse mortgage notes payable.

(6)
Impairment of Real Estate Investments

The Company assesses on a regular basis whether there are any indicators that the carrying value of real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant reduction in utilization of a property, tenant financial instability and the potential sale of the property in the near future. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value.

During 2011 and 2010, the Company recognized aggregate impairment charges of $41,301 and $2,955, respectively, on real estate assets classified in continuing operations. The Company has explored the possible disposition of some non-core properties, including retail, underperforming and multi-tenant properties and determined that the expected undiscounted cash flows based upon revised estimated holding periods of certain of these properties were below the current carrying values. Accordingly, the Company reduced the carrying value of these properties to their estimated fair values. Two of these properties have outstanding non-recourse mortgage debt, net of lender escrows, of $20,653. The properties were written down to the estimated aggregate fair value of $14,655, which is $5,998 less than the corresponding non-recourse mortgages encumbering the properties.

During 2011, 2010 and 2009, the Company recognized $76,142, $50,061 and $99,590, respectively, of impairment charges in discontinued operations, relating to real estate assets that were ultimately disposed of below their carrying value.

During 2010, the Company recognized an other-than-temporary impairment of $168 on a bond investment secured by real estate assets. The Company sold investments in debt securities in 2009 for $9,451 and realized a loss $491.

(7)
Loans Receivable

As of December 31, 2011 and 2010, the Company's loans receivable, including accrued interest and net of origination fees and loan losses, are comprised primarily of first and second mortgage loans and mezzanine loans on real estate aggregating $66,619 and $88,937, respectively. The loans bear interest, including imputed interest, at rates ranging from 4.6% to 16.0% and mature at various dates between 2012 and 2022.
In the second quarter of 2011, the Company, through a lender subsidiary, made a $10,000 mezzanine loan secured by a 100% pledge of all equity interests in the entities which own two, to-be-constructed distribution facilities. The loan was scheduled to mature in June 2013 and had an interest rate of 15.0% for the first year and 18.5% for the second year. The loan, along with all accrued interest and yield maintenance premium, was fully satisfied in November 2011.
During the first quarter of 2011, the Company, through a lender subsidiary, loaned $3,003 to the buyer in connection with the sale for $3,650 of a vacant industrial property. The loan is secured by the property, bears interest at 7.8% and matures in January 2013.
During 2011 and 2010, the Company, through a lender subsidiary, made a mortgage loan to an entity which owns an office building in Schaumburg, Illinois, which had an outstanding balance of $21,515 at December 31, 2011 and bore interest at 15%. This mortgage loan had a maturity date of January 15, 2012 but could have been extended one additional year by the borrower for a 50 basis point fee. The property is net-leased from January 1, 2011 through December 31, 2022 for an average annual rent of $3,968. The lender subsidiary may be obligated to lend an additional $12,199 for tenant improvement costs. Subsequent to December 31, 2011, the borrower defaulted on the loan. The Company believes the office building has an estimated fair value in excess of the Company's investment and the Company has initiated foreclosure proceedings.
During 2010, the Company, through a lender subsidiary, made a $17,000 loan to entities which, collectively, owned five medical facilities. The loan (i) was guaranteed by a parent entity and principal, (ii) was principally secured by either ownership

17

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

pledges for, second mortgage liens or mortgage liens against the medical facilities, (iii) matured in December 2011 and (iv) requires payments of interest only at a rate of 14.0% through February 2011 and 16.0% thereafter. The lender subsidiary received aggregate prepayments of $7,500 in December 2010 and February 2011, and the remaining $9,500 in December 2011.

The Company has two types of financing receivables: loans receivable and a capitalized financing lease. The Company determined that its financing receivables operate within one portfolio segment as they are both within the same industry and use the same impairment methodology. The Company's loans receivable are secured by commercial real estate assets and the capitalized financing lease is for a commercial office property located in Greenville, South Carolina. In addition, the Company assesses all financing receivables for impairment, when warranted, based on an individual analysis of each receivable.

The Company's financing receivables operate within one class of financing receivables as these assets are collateralized by commercial real estate and similar metrics are used to monitor the risk and performance of these assets. The Company's management uses credit quality indicators to monitor financing receivables such as quality of collateral, the underlying tenant's credit rating and collection experience. As of December 31, 2011, the financing receivables were performing as anticipated and there were no significant delinquent amounts outstanding.

During 2010, the Company recorded a loan loss of $3,756 on a loan receivable secured by the property in Wilsonville, Oregon. In October 2010, the Company entered into a loan modification agreement with the borrower. In accordance with the terms of the modification agreement, in addition to other provisions, monthly payments were adjusted to interest only through maturity, the maturity was accelerated from July 2015 to December 2012 and the Company agreed to a discounted payoff prior to maturity. During 2011, the borrower defaulted on the loan and the Company completed a deed-in-lieu of foreclosure; accordingly the property is now included in real estate in the accompanying Consolidated Balance Sheet as of December 31, 2011.

During 2009, the Company agreed to the discounted payoff of two loans receivable with an aggregate carrying value of $4,950. The Company wrote the loans receivable down to the aggregate agreed-upon discounted payoff amount of $3,865, which approximated fair value and recognized a loan loss reserve of $1,085 during 2009.

(8)
Fair Value Measurements

The following tables present the Company's assets and liabilities from continuing operations measured at fair value on a recurring basis as of December 31, 2011 and 2010 and non-recurring basis during the year ended December 31, 2011 and 2010, aggregated by the level in the fair value hierarchy within which those measurements fall:
 
 
 
Fair Value Measurements Using
Description
2011
 
(Level 1)
 
(Level 2)
 
(Level 3)
Interest rate swap liability
$
(3,236
)
 
$
—

 
$
(3,236
)
 
$
—

Impaired real estate assets*
$
133,220

 
$
—

 
$
—

 
$
133,220

*Represents a non-recurring fair value measurement.

 
 
 
Fair Value Measurements Using
Description
2010
 
(Level 1)
 
(Level 2)
 
(Level 3)
Forward purchase equity asset
$
27,574

 
$
—

 
$
27,574

 
$
—

Interest rate swap liability
$
(5,280
)
 
$
—

 
$
(5,280
)
 
$
—

Impaired real estate assets*
$
235

 
$
—

 
$
—

 
$
235

Impaired loan receivable*
$
6,860

 
$
—

 
$
—

 
$
6,860

*Represents a non-recurring fair value measurement.

18

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


The table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2011 and 2010:
 
As of December 31, 2011
 
As of December 31, 2010
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Assets
 
 
 
 
 
 
 
Loans Receivable
$
66,619

 
$
54,179

 
$
88,937

 
$
75,868

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

Debt
$
1,662,375

 
$
1,533,205

 
$
1,774,985

 
$
1,614,626


The Company has determined that the forward purchase equity asset should fall within Level 2 of the fair value hierarchy as its value is based not only on the value of the Company's common share price but also on other observable inputs.

The majority of the inputs used to value the Company's interest rate swap liability 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 swap liability 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, 2011 and December 31, 2010, the Company determined that the credit valuation adjustment relative to the overall interest rate swap liability is not significant. As a result, the entire interest rate swap liability has been classified in Level 2 of the fair value hierarchy.

The Company estimates the fair value of its real estate assets by using income and market valuation techniques. The Company may estimate fair values using market information such as broker opinions of value, recent sales data for similar assets 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.

The Company estimates the fair values of its loans receivable by using an estimated discounted cash flow analysis consisting of scheduled cash flows and discount rate estimates to approximate those that a willing buyer and seller might use and/or the estimated value of the underlying collateral. The fair value of the Company's debt is estimated by using a discounted cash flow analysis, based upon estimates of market interest rates.

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.


19

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

(9)
Investment in and Advances to Non-Consolidated Entities
Pemlex LLC. In April 2011, the Company made a $14,180 noncontrolling, preferred equity investment in a joint venture, Pemlex LLC, formed to acquire a 210,000 square foot office property in Aurora, Illinois. The property was purchased by a consolidated subsidiary of the joint venture for a gross purchase price of $15,900. The property is net-leased to a single tenant through September 2017. The Company is entitled to a 15.0% internal rate of return, including a 9.6% current annual preferred return, on its investment, subject to available cash proceeds.

At acquisition, the Company determined that Pemlex LLC was not a VIE. The Company recorded its investment under the equity method of accounting as it was not the controlling managing member of the entity. During 2011, the Company recognized $1,344 equity in income from non-consolidated entities relating to its share of income from Pemlex LLC based upon the hypothetical liquidation of book value method. The Company commenced consolidation of Pemlex LLC in October 2011, as the Company became the managing member of Pemlex LLC.

Net Lease Strategic Assets Fund L.P. (“NLS”). NLS is a co-investment program with a subsidiary of Inland American Real Estate Trust, Inc. (“Inland”). NLS was established to acquire single-tenant net-lease specialty real estate in the United States. Inland and the Company own 85% and 15%, respectively, of NLS's common equity, and the Company owns 100% of NLS's preferred equity.
 
Inland and the Company are currently entitled to a return on/of their respective capital contributions from operations in the following priority: (1) Inland, 9% on its common equity ($220,590 in common equity), (2) the Company, 10.5% on its unpaid preferred equity allocated to properties that were previously sold or refinanced ($115,579 in unpaid preferred equity) and 6.5% on its remaining preferred equity ($46,786 in remaining preferred equity), (3) the Company, 9% on its common equity ($38,928 in common equity), (4) return of the Company preferred equity ($162,365 in preferred equity), (5) return of Inland common equity ($220,590 in common equity), (6) return of the Company common equity ($38,928 in common equity) and (7) any remaining cash flow is allocated 65% to Inland and 35% to the Company as long as the Company is the general partner; and if not, allocations are 85% to Inland and 15% to the Company.

In addition, the partners in NLS are currently entitled to a return on/of each of their respective capital contributions from capital events as follows: (1) return of the Company's unpaid preferred equity allocated to properties that were previously sold or refinanced, (2) Inland to the extent of any unpaid 9% return on its common equity, (3) the Company, to the extent of any unpaid 10.5% and 6.5% return on its remaining preferred equity, as applicable, (4) return of the Company's preferred equity allocation with respect to the asset(s) involved in the capital event, (5) the Company, to the extent of any unpaid 9% return on its common equity, (6) return of Inland common equity, (7) return of the Company's remaining preferred equity, (8) return of the Company's common equity and (9) any remaining amount is allocated 65% to Inland and 35% to the Company as long as the Company is the general partner; and if not, allocations are 85% to Inland and 15% to the Company.

LRA has entered into a management agreement with NLS, whereby LRA will receive (1) a management fee of 0.375% of the equity capital, (2) a property management fee of up to 3.0% of actual gross revenues from certain assets for which the landlord is obligated to provide property management services (contingent upon the recoverability of such fees from the tenant under the applicable lease) and (3) an acquisition fee of 0.5% of the gross purchase price of each acquired asset by NLS.

During 2011, 2010 and 2009, the Company recognized $21,572, $19,468 and $12,364, respectively, of equity in income relating to NLS based upon the hypothetical liquidation of book value method. The initial difference between the assets contributed to NLS and the fair value of the Company's initial equity investment in NLS is $94,723 and is accreted into income over the estimated useful lives of NLS's assets. During 2011, 2010 and 2009, the Company recorded earnings of $3,599, $3,636 and $3,636, respectively, related to this difference, which is included in equity in earnings of non-consolidated entities on the accompanying Consolidated Statements of Operations.
The NLS partnership agreement provides that (1) either limited partner can exercise the buy/sell right or the right of first offer after February 20, 2012 and (2) upon one limited partner's exercise of either right, the responding partner may not again trigger the buy/sell right or the right of first offer until the termination of all procedures and timeframes pursuant to the exercising partner's chosen right.

20

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

On February 20, 2012 and February 21, 2012, the Company delivered notices to Inland exercising the buy/sell right and specifying a price of $213,014, at which the Company would purchase the assets of NLS, pursuant to a purchase and sale agreement included with the notice providing for a sale of Inland's interest in NLS to the Company. The specified price would be distributed in accordance with the capital events distribution priority set forth in the paragraph describing distributions upon capital events above. Inland must elect to either sell its interest in NLS to the Company or buy the Company's interest in NLS.
On February 21, 2012, Inland delivered a notice to the Company exercising the right of first offer, which offered to sell 41 of the 43 properties in which NLS has an interest for a price of $548,706, including the assumption of any related debt, with closing to occur prior to August 21, 2012 and on other specified terms. If the Company does not elect to purchase the offered properties, Inland has six months from the exercise notice to sell the properties to a bona fide third party. Upon the sale, the specified price would be distributed in accordance with the capital events distribution priority set forth in the paragraph describing distributions upon capital events above.
Under both the buy/sell right and the right of first offer, the responding partner has 45 days to respond.
On May 5, 2011, the Company made a $6,875 non-recourse mezzanine loan to NLS that bore interest at 15% per annum, matured in March 2018 and was secured by NLS's interest in Lexington Allen Manager LLC and Lexington Allen L.P. (the entities that own the Allen, Texas property). On May 31, 2011, the Company exercised a related purchase option and acquired the Allen, Texas property through the assumption of the $30,582 first mortgage and $6,875 mezzanine loan secured by the property. The $30,582 first mortgage was subsequently satisfied.
In May 2011, the Company loaned, at a 7.4% interest rate, a NLS entity $13,202 to satisfy a non-recourse mortgage balloon payment. The Company loaned a NLS entity $7,614 during 2010 to satisfy a non-recourse mortgage balloon payment. The loan bore interest at 6.9%. Both of these loans were repaid in full in July 2011.

Concord Debt Holdings LLC (“Concord”), Lex-Win Concord LLC (“Lex-Win Concord”), CDH CDO LLC and LW Sofi LLC. On December 31, 2006 in connection with the Company's merger with Newkirk Realty Trust, Inc. (“Newkirk”), the Company acquired a 50% interest in a co-investment program, Concord, which owns bonds and loans secured, directly and indirectly, by real estate assets. The other 50% interest in Concord was held by WRT Realty L.P. (“Winthrop”). The Company and Winthrop each contributed its interest in Concord to Lex-Win Concord. During 2008, a wholly-owned subsidiary of Inland America Real Estate Trust (“Inland Concord”) was admitted to Concord as a preferred member. During 2009, the Company reduced its investment in Lex-Win Concord to zero through impairment charges.

During 2010, Concord was restructured upon the effectiveness of a settlement agreement with Inland Concord. As a result of the restructuring (i) Lex-Win Concord was dissolved, (ii) Concord is now owned equally by subsidiaries of the Company, Winthrop and Inland Concord and (iii) a new entity, CDH CDO LLC (“CDH CDO”), was created. The new entity purchased Concord Real Estate CDO 2006-1 LTD from Concord with funds contributed by Inland Concord. CDH CDO is also owned equally by subsidiaries of the Company, Winthrop and Inland Concord. The Company made no additional contributions and did not recognize any income or loss as a result of the restructuring. The Company's investment in these ventures was initially valued at zero and the Company recognizes future income on the cash basis. During 2011, the Company received distributions of $258 from Lex-Win Concord, $3,596 from Concord and $100 from CDH CDO, which were recorded as equity in earnings of non-consolidated entities.

In June 2011, the Company formed an equally owned joint venture with Winthrop, LW Sofi LLC, to acquire the economic interest in a mezzanine loan owned by Concord. The Company recorded the $5,760 contribution to the joint venture in investments in and advances to non-consolidated entities. In November 2011, the Company received $7,937 upon full satisfaction of the mezzanine loan and dissolution of the joint venture.

The Company determined that Concord, CDH CDO and LW Sofi LLC are VIEs as the equity at risk is not sufficient to finance the entity's activities; however, the Company is not the primary beneficiary as it does not have a controlling financial interest in these entities.


21

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

Other. During the first quarter of 2011, the Company recognized an other-than-temporary impairment charge on a non-consolidated joint venture acquired in the merger with Newkirk due to a change in the Company's estimate of net proceeds to be received upon liquidation of the joint venture. Accordingly, the Company recognized a $1,559 impairment charge in equity in earnings of non-consolidated entities and reduced the carrying value of the investment to $719.

During 2009, the Company recognized a gain of $2,000 on the sale of an office building in Columbia, South Carolina, in which the Company held a 40% limited partnership interest. The Company's share of net proceeds from the sale was $12,513. In addition, the Company sold its interest in a hotel joint venture for $60 and incurred an impairment charge of $6,480 during 2009. The Company's remaining equity method investments consist of interests in five partnerships with ownership percentages ranging between 27% and 35%, which own primarily net-leased properties. All profits, losses and cash flows are distributed in accordance with the respective partnership agreements. The partnerships are encumbered by $21,563 in mortgage debt (the Company's proportionate share is $6,468 with interest rates ranging from 9.4% to 11.5% with a weighted-average rate of 9.9% and maturity dates ranging from 2012 to 2016.

LRA earns advisory fees from certain of these non-consolidated entities, including NLS, for services related to acquisitions, asset management and debt placement. Advisory fees earned from these non-consolidated investments were $804, $967 and $1,140 for the years ended December 31, 2011, 2010 and 2009, respectively.

(10)
Mortgages and Notes Payable
The Company had outstanding mortgages and notes payable of $1,366,004 and $1,481,216 as of December 31, 2011 and 2010, respectively, excluding discontinued operations. Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.6% to 7.8% at December 31, 2011 and the mortgages and notes payable mature between 2012 and 2021. Interest rates, including imputed rates, ranged from 3.6% to 7.8% at December 31, 2010. The weighted-average interest rate at December 31, 2011 and 2010 was approximately 5.7% and 5.8%, respectively.

On January 28, 2011, the Company refinanced its secured revolving credit facility with a $300,000 secured revolving credit facility with KeyBank N.A. (“KeyBank”), as agent. The $300,000 secured revolving credit facility bore interest at 2.50% plus LIBOR if the Company's leverage ratio, as defined, was less than 50%, 2.85% plus LIBOR if the Company's leverage ratio was between 50% and 60%, and 3.10% plus LIBOR if the Company's leverage ratio exceeded 60%. The new secured revolving credit facility matured in January 2014 but could be extended to January 2015, at the Company's option subject to the satisfaction of certain conditions. The secured revolving credit facility was secured by ownership interest pledges and guarantees by certain of the Company's subsidiaries that in the aggregate own interests in a borrowing base of properties. With the consent of the lenders, the Company could increase the size of the secured revolving credit facility by $225,000 (for a total facility size of $525,000). The borrowing availability of the secured revolving credit facility was based upon the net operating income of the properties comprising the borrowing base as defined in the secured revolving credit facility. As of December 31, 2011, no amounts were outstanding under the secured revolving credit facility and the available borrowing under the secured revolving credit facility was $300,000 less outstanding letters of credit of $5,682. In connection with the refinancing, the Company incurred aggregate financing costs of $3,941 as of December 31, 2011. The secured revolving credit facility was subject to financial covenants which the Company was in compliance with at December 31, 2011. The secured revolving credit facility was refinanced in January 2012 (see note 22).

The Company had $25,000 and $35,551 secured term loans with KeyBank. The loans were interest only at LIBOR plus 60 basis points and matured in 2013. These secured term loans contained financial covenants which the Company was in compliance with as of December 31, 2011. Pursuant to the secured term loan agreements, the Company simultaneously entered into an interest-rate swap agreement with KeyBank to swap the LIBOR rate on the loans for a fixed rate of 4.92% through March 18, 2013, and the Company assumed a liability for the fair value of the swap at inception of approximately $5,696 ($3,236 and $5,280 at 2011 and 2010, respectively). The fair value of the swap at inception was accounted for as a discount on the debt and was being amortized as additional interest expense over the term of the loans. The remaining unamortized discount was $1,196 and $2,183 at December 31, 2011 and 2010, respectively. The Company satisfied the secured term loans and interest-rate swap in January 2012 (see note 22).

Included in the Consolidated Statements of Operations, the Company recognized debt satisfaction gains (charges), net, excluding discontinued operations, of $45, $972 and $(332) for the years ended December 31, 2011, 2010 and 2009, respectively, due to the satisfaction of mortgages and notes payable other than those disclosed elsewhere in these financial statements.

22

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


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. In addition, certain mortgages are cross-collateralized and cross-defaulted.

Scheduled principal and balloon payments for mortgages and notes payable for the next five years and thereafter are as follows:
Year ending December 31,
 
Total
2012
 
$
176,350

2013
 
320,873

2014
 
252,699

2015
 
283,767

2016
 
131,406

Thereafter
 
202,105

 
 
1,367,200

Debt discount
 
(1,196
)
 
 
$
1,366,004

 
(11)
Convertible Notes, Exchangeable Notes and Trust Preferred Securities
During 2010, the Company issued $115,000 aggregate principal amount of 6.00% Convertible Guaranteed Notes. The notes pay interest semi-annually in arrears and mature in January 2030. The holders of the notes may require the Company to repurchase their notes in January 2017, January 2020 and January 2025 for cash equal to 100% of the notes to be repurchased, plus any accrued and unpaid interest. The Company may not redeem any notes prior to January 2017, except to preserve its REIT status. As of the date of filing this Annual Report, the notes have a conversion rate of 142.6917 common shares per one thousand principal amount of the notes, representing a conversion price of approximately $7.01 per common share. The conversion rate is subject to adjustment under certain circumstances, including increases in the Company's dividend rate above a certain threshold and the issuance of stock dividends. The notes are convertible by the holders under certain circumstances for cash, common shares or a combination of cash and common shares at the Company's election. The notes are convertible prior to the close of business on the second business day immediately preceding the stated maturity date, at any time beginning in January 2029 and also upon the occurrence of specified events.
During 2007, the Company issued an aggregate $450,000 of 5.45% Exchangeable Guaranteed Notes due in 2027. These notes could be put to the Company commencing in 2012 and every five years thereafter through maturity. The notes were exchangeable by the holders into common shares at $19.49 per share, subject to adjustment upon certain events, including increases in the Company's rate of dividends above a certain threshold and the issuance of stock dividends. Upon exchange, the holders of the notes would receive (1) cash equal to the principal amount of the note and (2) to the extent the conversion value exceeded the principal amount of the note, either cash or common shares at the Company's option. During 2010 and 2009, the Company repurchased and retired $25,500 and $123,350, respectively, original principal amount of the notes for cash payments of $25,493 and $101,006, respectively. This resulted in debt satisfaction gains (charges), net of ($760) and $17,355, respectively, including write-offs of $768 and $4,989, respectively, of the debt discount and deferred financing costs (see note 22).

23

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

Below is a summary of additional disclosures related to the 6.00% Convertible Guaranteed Notes and the 5.45% Exchangeable Guaranteed Notes.
 
6.00% Convertible Guaranteed Notes
 
5.45% Exchangeable Guaranteed Notes
Balance Sheets:
December 31,
2011
 
December 31,
2010
 
December 31,
2011
 
December 31,
2010
Principal amount of debt component
$
115,000

 
$
115,000

 
$
62,150

 
$
62,150

Unamortized discount
(9,851
)
 
(11,789
)
 
(48
)
 
(712
)
Carrying amount of debt component
$
105,149

 
$
103,211

 
$
62,102

 
$
61,438

Carrying amount of equity component
$
13,134

 
$
13,134

 
$
20,293

 
$
20,293

Effective interest rate
8.1
%
 
7.5
%
 
7.0
%
 
7.0
%
Period through which discount is being amortized, put date
01/2017

 
01/2017

 
01/2012

 
01/2012

Aggregate if-converted value in excess of aggregate principal amount
$
7,907

 
$
14,036

 
$
—

 
$
—

 
Statements of Operations:
 
2011
 
2010
 
2009
6.00% Convertible Guaranteed Notes
 
 
 
 
 
 
Coupon interest
 
$
6,900

 
$
6,408

 
$
—

Discount amortization
 
1,938

 
1,776

 
—

 
 
$
8,838

 
$
8,184

 
$
—

5.45% Exchangeable Guaranteed Notes
 
 

 
 

 
 

Coupon interest
 
$
3,387

 
$
3,504

 
$
7,554

Discount amortization
 
664

 
689

 
1,479

 
 
$
4,051

 
$
4,193

 
$
9,033


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 redeemable by the Company commencing April 2012 and bear interest at a fixed rate of 6.804% through April 2017 and thereafter, at a variable rate of three month LIBOR plus 170 basis points through maturity. As of December 31, 2011 and 2010, there was $129,120 original principal amount of Trust Preferred Securities outstanding.

Scheduled principal payments for these debt instruments for the next five years and thereafter are as follows:

Year ending December 31,
 
Total
2012(1)
 
$
62,150

2013
 
—

2014
 
—

2015
 
—

2016
 
—

Thereafter
 
244,120

 
 
306,270

Debt discounts
 
(9,899
)
 
 
$
296,371

(1)
Although the 5.45% Exchangeable Guaranteed Notes matured in 2027, the notes were put to the Company in 2012.
 

24

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

(12)
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 this objective, 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.

The effective portion of 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. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

The Company designated the interest-rate swap agreement with KeyBank as a cash flow hedge of the risk of variability attributable to changes in the LIBOR swap rate on $35,551 and $25,000 of LIBOR-indexed variable-rate secured term loans. Accordingly, changes in the fair value of the swap are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable. Because the fair value of the swap at inception of the hedge was not zero, the Company cannot assume that there will be no ineffectiveness in the hedging relationship. However, the Company expects the hedging relationship to be highly effective and will measure and report any ineffectiveness in earnings.

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on these secured term loans. During the next 12 months, the Company estimates that an additional $1,695 will be reclassified as an increase to interest expense if the swap remains outstanding.

As of December 31, 2011, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk:

Interest Rate Derivative
Number of Instruments
Notional
Interest Rate Swap
1
$60,551

Derivatives Not Designated as Hedges. The Company does not use derivatives for trading or speculative purposes. During 2008, the Company entered into a forward purchase equity commitment with a financial institution to finance the purchase of 3,500,000 common shares of the Company at $5.60 per share as specifically approved by the Company's Board of Trustees. The Company prepaid $15,576. The remainder was to be paid through (i) physical settlement or (ii) net cash settlement, net share settlement or a combination of both, at the Company's option. The Company agreed to make floating payments during the term of the forward purchase at LIBOR plus 250 basis points per annum, and the Company retained the cash dividends paid on the common shares; however, the counterparty retained any stock dividends as additional collateral. The Company's third-party consultant determined the fair value of the equity commitment to be $27,574 at December 31, 2010, and the Company recognized earnings during 2011, 2010 and 2009 of $2,030, $8,906 and $7,182, respectively, primarily relating to the increase in the fair value of the common shares held as collateral. The Company settled this commitment in October 2011 through a cash payment of $4,024 and retired 3,974,645 common shares.

25

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


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, 2011 and 2010.

 
As of December 31, 2011
 
As of December 31, 2010
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 

Interest Rate Swap Liability
Accounts Payable and Other Liabilities
 
$
(3,236
)
 
Accounts Payable and Other Liabilities
 
$
(5,280
)
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 

 
 
 
 

Forward Purchase Equity Commitment
 
 
 
 
Other Assets
 
$
27,574


The tables below present the effect of the Company's derivative financial instruments on the Consolidated Statements of Operations for 2011 and 2010:

Derivatives in Cash Flow
 
 
Amount of Loss Recognized
in OCI on Derivative
(Effective Portion)
December 31,
 
Location of Loss
Reclassified from
Accumulated OCI into Income (Effective Portion)
 
Amount of Loss Reclassified
from Accumulated OCI into
Income (Effective Portion)
December 31,
Hedging Relationships
 
 
2011
 
2010
 
 
2011
 
2010
Interest Rate Swap
 
 
$
(835
)
 
$
(2,914
)
 
Interest expense
 
$
2,879

 
$
2,875


Derivatives Not Designated as
 
Location of Gain Recognized in
 
Amount of Gain Recognized in Income on Derivative
December 31,
Hedging Instruments
 
Income on Derivative
 
2011
 
2010
Forward Purchase Equity Commitment
 
Change in value of forward equity commitment
 
$
2,030

 
$
8,906


The Company's agreement with the swap derivative counterparty contains a provision 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, 2011, the Company had not posted any collateral related to the agreement. If the Company had breached any of these provisions at December 31, 2011, it would have been required to settle its obligations under the agreement at the termination value of $3,400, which includes accrued interest.


26

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

(13)     Leases
Lessor:
Minimum future rental receipts under the non-cancelable portion of tenant leases, assuming no new or re-negotiated leases, for the next five years and thereafter are as follows:

Year ending
December 31,
 
Total
2012
 
$
285,462

2013
 
267,912

2014
 
234,097

2015
 
196,446

2016
 
167,297

Thereafter
 
752,745

 
 
$
1,903,959

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.
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 holds, through property owner subsidiaries, leasehold interests in various properties. Generally, the ground rents on these properties are either paid directly by the tenants to the fee holder or reimbursed to the Company as additional rent. Certain properties are economically owned through the holding of industrial revenue bonds and as such neither ground lease payments nor bond debt service payments are made or received, respectively. For certain of these properties, the Company has an option to purchase the fee interest.

Minimum future rental payments under non-cancelable leasehold interests, excluding leases held through industrial revenue bonds and lease payments in the future that are based upon fair market value, for the next five years and thereafter are as follows:
Year ending
December 31,
 
Total
2012
 
$
2,624

2013
 
2,426

2014
 
1,985

2015
 
1,793

2016
 
1,465

Thereafter
 
13,121

 
 
$
23,414

Rent expense for the leasehold interests, including discontinued operations, was $776, $955 and $1,039 in 2011, 2010 and 2009, respectively.

The Company leases its corporate headquarters. The lease expires December 2015, with rent fixed at $1,299 per annum through December 2011, $865 in 2012 and $1,153 per annum, thereafter. The Company is also responsible for its proportionate share of operating expenses and real estate taxes above a base year. As an incentive to enter the lease, the Company received a payment of $845 which it is amortizing as a reduction of rent expense. In addition, the Company leases office space for its regional offices. The minimum lease payments for the Company's regional offices are $84 for 2012, $83 for 2013, $45 for 2014, $36 for 2015 and 2016 and $9 thereafter. Rent expense for 2011, 2010 and 2009 was $1,392, $1,332 and $1,299, respectively, and is included in general and administrative expenses.

27

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

(14)
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, 2011, 2010 and 2009, 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.

(15)
Equity

Shareholders' Equity:

During 2011, 2010 and 2009, the Company issued 11,109,760, 23,712,980 and 4,338,915 common shares, respectively, through public offerings and under its direct share purchase plan, raising proceeds of approximately $98,953, $166,427 and $20,947 respectively. The proceeds were used for general working capital, to fund investments and retire indebtedness.

During the first quarter of 2010, the Company recorded $13,134 in additional paid-in-capital, representing the conversion feature of the 6.00% Convertible Guaranteed Notes.

Accumulated other comprehensive income (loss) as of December 31, 2011 and 2010 represented $1,938 and $(106), respectively, of unrealized gain (loss) on an interest rate swap.

During 2009, the Company declared that three of its quarterly common share dividends would be paid in a combination of cash (10% in the aggregate) and common shares. The following details the declared 2009 quarterly common share dividends:

Dividend
 
Per Common Share Amount
 
Dividend
 
Common Shares Issued
 
Cash Paid
First quarter 2009
 
$
0.18

 
April 24, 2009
 
5,097,229

 
$
1,819

Second quarter 2009
 
$
0.18

 
July 30, 2009
 
4,333,183

 
$
1,970

Third quarter 2009
 
$
0.18

 
October 16, 2009
 
3,873,786

 
$
2,110

Fourth quarter 2009
 
$
0.10

 
January 15, 2010
 
—

 
$
12,194


The Company had 1,970,200 shares of Series C Preferred, outstanding at December 31, 2011. The shares have a dividend of $3.25 per share per annum, have a liquidation preference of $98,510, and the Company, if certain common share prices are achieved, can force conversion into common shares of the Company. As of the date of filing this Annual Report, the shares are currently convertible into 2.4339 common shares. This conversion ratio may increase over time if the Company's common share dividend exceeds certain quarterly thresholds.

If certain fundamental changes occur, holders may require the Company, in certain circumstances, to repurchase all or part of their shares of Series C Preferred. In addition, upon the occurrence of certain fundamental changes, the Company will, under certain circumstances, increase the conversion rate by a number of additional common shares or, in lieu thereof, may in certain circumstances elect to adjust the conversion rate upon the shares of Series C Preferred becoming convertible into shares of the public acquiring or surviving company.

The Company may, at the Company's option, cause shares of Series C Preferred to be automatically converted into that number of common shares that are issuable at the then prevailing conversion rate. The Company may exercise its conversion right only if, at certain times, the closing price of the Company's common shares equals or exceeds 125% of the then prevailing conversion price of the Series C Preferred.

Investors in shares of Series C Preferred generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters and under certain other circumstances. Upon conversion, the Company may choose to deliver the conversion value to investors in cash, common shares, or a combination of cash and common shares.

28

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


During 2011, 2010 and 2009, the Company issued 609,182, 361,320 and 466,935 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 16.

Noncontrolling Interests:

In conjunction with several of the Company's acquisitions in prior years, sellers were issued OP units as a form of consideration. All OP units, other than OP units owned by the Company, are redeemable 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 2011, 2010 and 2009, 398,927, 457,351 and 572,213 common shares, respectively, were issued by the Company, in connection with OP unit redemptions, for an aggregate value of $2,187, $2,685 and $3,580, respectively.

As of December 31, 2011, there were approximately 4,026,000 OP units outstanding other than OP units owned by the Company. All OP units receive distributions in accordance with their respective partnership agreements. To the extent that the Company's dividend per common share is less than the stated distribution per OP unit per the applicable 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 Loss Attributable to Shareholders and Transfers from Noncontrolling Interests
 
2011
 
2010
 
2009
Net loss attributable to Lexington Realty Trust shareholders
$
(79,584
)
 
$
(32,960
)
 
$
(210,152
)
Transfers from noncontrolling interests:
 
 
 
 
 
Increase in additional paid-in-capital for redemption of noncontrolling OP units
2,187

 
2,685

 
3,580

Change from net loss attributable to shareholders and transfers from noncontrolling interests
$
(77,397
)
 
$
(30,275
)
 
$
(206,572
)

(16)
Benefit Plans

The Company maintains an equity award plan pursuant to which qualified and non-qualified options may be issued. 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) vest 20% annually on each December 31, 2011 through 2015 and (2) terminate on the earlier of (x) six months of termination of service with the Company and (y) December 31, 2020. The 2009 options (1) vest 20% annually on each December 31, 2010 through 2014 and (2) terminate 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”) is $8.00 or higher and vest 50% following a 20-day trading period where the average closing price of a common share of the Company on the NYSE is $10.00 or higher, and (2) terminate 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 is exchangeable for approximately 1.13 common shares at an exercise price of $4.97 per common share.

29

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


The Company engaged third parties to value the options as of each option's respective grant date. The third parties determined the value to be $2,422 and $2,771 for the 2010 options and 2009 options, respectively, using the Black-Scholes model and $2,480 for the 2008 options using the Monte Carlo model. The options are considered equity awards as they are settled through the issuance of common shares. As such, the options were valued as of the grant date and do not require subsequent remeasurement. There were several assumptions used to fair value the options including the expected volatility in the Company's common share price based upon the fluctuation in the Company's historical common share price. The more significant assumptions underlying the determination of fair value for options granted were as follows:

 
 
2010 Options
 
2009 Options
 
2008 Options
Weighted-average fair value of options granted
 
$
1.94

 
$
2.19

 
$
1.24

Weighted-average risk-free interest rate
 
2.54
%
 
3.29
%
 
1.33
%
Weighted-average expected option lives (in years)
 
6.50

 
6.70

 
3.60

Weighted-average expected volatility
 
49.00
%
 
59.08
%
 
59.94
%
Weighted-average expected dividend yield
 
7.40
%
 
6.26
%
 
14.40
%
 
The Company recognizes 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. The Company recognized $1,384, $1,824 and $688 in compensation expense in 2011, 2010 and 2009, respectively, relating to options, $629 of the 2010 amount reflects the accelerated vesting of certain 2008 options, due to performance criteria being met. The Company has unrecognized compensation costs of $3,755 relating to the outstanding options as of December 31, 2011.

Share option activity during the years indicated is as follows:
 
 Number of
Shares
 
Weighted-Average
Exercise Price
Per Share
Balance at December 31, 2008 (1)
2,252,000

 
$
4.97

Granted
—

 
—

Balance at December 31, 2009
2,252,000

 
4.97

Granted
2,514,001

 
7.16

Exercised
(352,628
)
 
4.97

Forfeited
(23,768
)
 
5.18

Balance at December 31, 2010
4,389,605

 
6.23

Exercised
(501,324
)
 
5.16

Balance at December 31, 2011
3,888,281

 
$
6.36

(1) As adjusted as a result of share dividends paid in 2009.

Non-vested share activity for the years ended December 31, 2011 and 2010, is as follows:
 
Number of
Shares
 
Weighted-Average
Value Per Share
Balance at December 31, 2009
743,342

 
$
13.28

Granted
267,170

 
7.95

Vested
(169,215
)
 
18.87

Forfeited
(21,720
)
 
22.10

Balance at December 31, 2010
819,577

 
10.16

Granted
582,102

 
7.49

Vested
(211,954
)
 
13.56

Forfeited
(10,140
)
 
21.99

Balance at December 31, 2011
1,179,585

 
$
8.13


30

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


As of December 31, 2011, of the remaining 1,179,585 non-vested shares, 806,445 are subject to time-based vesting and 373,140 are subject to performance-based vesting. At December 31, 2011, there are 4,672,085 awards available for grant. The Company has $6,459 in unrecognized compensation costs relating to the non-vested shares that will be charged to compensation expense over an average of approximately 2.7 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, 2011 and 2010, there were 427,531 common shares in the trust.

The Company sponsors a 401(k) retirement savings plan covering all eligible employees. The Company matched 100% of the first 1.0% of employee participant salaries in 2011 and 2010 and approximately 1.125% of employee participant salaries in 2009 of employee contributions. In addition, based on its profitability, the Company may make a discretionary contribution at each fiscal year end to all eligible employees. The matching and 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 $308, $311 and $321 of contributions are applicable to 2011, 2010 and 2009, respectively.

During 2011, 2010 and 2009, the Company recognized $2,062, $3,232 and $3,369, respectively, in compensation expense relating to scheduled vesting and issuance of common share grants.

(17)
Related Party Transactions

In addition to related party transactions discussed elsewhere in this Annual Report, the Company has an indemnity obligation to Vornado Realty Trust, one of its significant shareholders, with respect to actions by the Company that affect Vornado Realty Trust's status as a REIT.

All related party acquisitions, sales and loans were approved by the independent members of the Company's Board of Trustees or the Audit Committee.

During 2011 and 2010, the Company advanced an aggregate $20,077 and $7,614, respectively, to NLS entities in the form of interest bearing, non-recourse mortgage notes to satisfy maturing non-recourse mortgages. These advances were satisfied in full in 2011.

The Company leases certain properties to entities owned by significant shareholders and/or the former Company's Executive Chairman and Director of Strategic Acquisitions. During 2011, 2010 and 2009, the Company recognized $864, $905 and $1,538, respectively, in rental revenue from these properties. The Company leases its corporate office in New York City from an affiliate of Vornado Realty Trust. Rent expense for this property was $1,281, $1,272 and $1,282 in 2011, 2010 and 2009, respectively.

(18)
Income Taxes

The benefit (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.

31

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)


The Company's benefit (provision) for income taxes for the years ended December 31, 2011, 2010 and 2009 is summarized as follows:
 
2011
 
2010
 
2009
Current:
 
 
 
 
 
Federal
$
(440
)
 
$
—

 
$
(401
)
State and local
(1,099
)
 
(1,076
)
 
(2,096
)
NOL utilized
566

 
—

 
343

Deferred:
 
 
 
 

Federal
1,399

 
(418
)
 
(187
)
State and local
400

 
(53
)
 
(26
)
 
$
826

 
$
(1,547
)
 
$
(2,367
)

Net deferred tax assets (liabilities) of $672 and $(1,127) are included in other assets (liabilities) on the accompanying Consolidated Balance Sheets at December 31, 2011 and 2010, respectively. These net deferred tax assets (liabilities) relate primarily to differences in the timing of the recognition of income/(loss) between GAAP and tax and net operating loss carry forwards.

The income tax benefit (provision) differs from the amount computed by applying the statutory federal income tax rate to pre-tax operating income as follows:
 
2011
 
2010
 
2009
Federal provision at statutory tax rate (34%)
$
(580
)
 
$
(388
)
 
$
(376
)
State and local taxes, net of federal benefit
(100
)
 
(31
)
 
(33
)
Other
1,506

 
(1,128
)
 
(1,958
)
 
$
826

 
$
(1,547
)
 
$
(2,367
)

For the years ended December 31, 2011, 2010 and 2009, the “other” amount is comprised primarily of state taxes of $973, $1,075 and $2,040, respectively, and the write-off of deferred tax liabilities of $3,535, $0 and $0, respectively, relating to the transfer of certain assets of the Company's taxable subsidiaries.

As of December 31, 2011 and 2010, the Company has estimated net operating loss carry forwards for federal income tax reporting purposes of $2,735 and $4,156, respectively, which would begin to expire in tax year 2026. A valuation allowance of $712 has been recorded against deferred tax assets in 2011 based upon projected future taxable income.

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, 2011, is as follows:
 
2011
 
2010
 
2009
Total dividends per share
$
0.46

 
$
0.40

 
$
0.72

Ordinary income
47.33
%
 
99.11
%
 
53.80
%
15% rate - qualifying dividend
1.11
%
 
0.89
%
 
0.61
%
15% rate gain
—

 
—

 
—

25% rate gain
—

 
—

 
—

Return of capital
51.56
%
 
—

 
45.59
%
 
100.00
%
 
100.00
%
 
100.00
%

32

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

A summary of the average taxable nature of the Company's dividend on shares of its Series B Preferred for each of the years in the three-year period ended December 31, 2011, is as follows:
 
2011
 
2010
 
2009
Total dividends per share
$
2.0125

 
$
2.0125

 
$
2.0125

Ordinary income
97.70
%
 
99.11
%
 
98.87
%
15% rate - qualifying dividend
2.30
%
 
0.89
%
 
1.13
%
15% rate gain
—

 
—

 
—

25% rate gain
—

 
—

 
—

 
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, 2011, is as follows:
 
2011
 
2010
 
2009
Total dividends per share
$
3.25

 
$
3.25

 
$
3.25

Ordinary income
97.70
%
 
99.11
%
 
98.87
%
15% rate - qualifying dividend
2.30
%
 
0.89
%
 
1.13
%
15% rate gain
—

 
—

 
—

25% rate gain
—

 
—

 
—

Return of capital
—

 
—

 
—

 
100.00
%
 
100.00
%
 
100.00
%
A summary of the average taxable nature of the Company's dividend on shares of its Series D Cumulative Redeemable Preferred Stock for the years in the three-year period ended December 31, 2011, is as follows:
 
2011
 
2010
 
2009
Total dividends per share
$
1.76498

 
$2.01002(1)

 
$
1.8875

Ordinary income
97.70
%
 
99.11
%
 
98.87
%
15% rate - qualifying dividend
2.30
%
 
0.89
%
 
1.13
%
15% rate gain
—

 
—

 
—

25% rate gain
—

 
—

 
—

 
100.00
%
 
100.00
%
 
100.00
%
_________
(1)Of the total dividend paid in January 2011, $0.12252 is allocated to 2010 and $0.349355 is allocated to 2011.

(19)
Commitments and Contingencies

In addition to the commitments and contingencies disclosed elsewhere, the Company has the following commitments and contingencies.
 
Certain of the Company's property owner subsidiaries are obligated under certain tenant leases, including leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.

From time to time, the Company is involved directly or indirectly in legal proceedings arising in the ordinary course of business. Management believes, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on the Company's financial condition, but could be material to the Company's operating results for any particular period, depending, in part, upon the operating results for such period. In addition, the following two legal proceedings are pending:


33

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

Deutsche Bank Securities, Inc. and SPCP Group LLC v. Lexington Drake, L.P., et al. (Supreme Court of the State of New York-Index No. 603051/08). On June 30, 2006, one of the Company's property owner subsidiaries and a property owner subsidiary of a then co-investment program respectively sold to Deutsche Bank Securities, Inc. (“Deutsche Bank”), (1) a $7,680 bankruptcy damage claim against Dana Corporation for $5,376 (“Farmington Hills claim”) and (2) a $7,727 bankruptcy damage claim against Dana Corporation for $5,680 (“Antioch claim”). Under the terms of the agreements covering the sale of the claims, which were guaranteed by the Company, the property owner subsidiaries are obligated to reimburse Deutsche Bank should the claim ever be disallowed, subordinated or otherwise impaired, to the extent of such disallowance, subordination or impairment, plus interest at the rate of 10% per annum from the date of payment of the purchase price by Deutsche Bank. On October 12, 2007, Dana Corporation filed an objection to both claims. The Company assisted Deutsche Bank and the then holders of the claims in the preparation and filing of a response to the objection. Despite a belief by the Company that the objections were without merit, the holders of the claims, without the Company's consent, settled the allowed amount of the claims at $6,500 for the Farmington Hills claim and $7,200 for the Antioch claim in order to participate in a special settlement pool for allowed intangible unsecured claims and a preferred share rights offering having a value thought to be equal to, or greater than, the reduction of the claims. Deutsche Bank made a formal demand with respect to the Farmington Hills claim in the amount of $826 plus interest, but did not make a formal demand with respect to the Antioch claim. Following a rejection of the demand by the Company, on December 11, 2009, Deutsche Bank and the then holders of the claims filed a summons and complaint with the Supreme Court of the State of New York, County of New York for the Farmington Hills and Antioch claims, and claimed damages of $1,200 plus interest from the date of assignment at the rate of 10% per year and expenses, which the Company believes would be its maximum exposure.

Together with the property owner subsidiaries, the Company answered the complaint on November 26, 2008 and served numerous discovery requests. After almost a year of inactivity, on March 18, 2010, the defendants and the plaintiffs filed motions for summary judgment and related opposing and supporting motions. On November 22, 2010, the court ruled in favor of the plaintiffs on their motion for summary judgment. The court referred the issue of damages to a special referee to determine the value of plaintiffs' participation in the preferred share rights offering and a settlement pool for allowed intangible unsecured claims so as to be taken into consideration with respect to computation of damages, if any.

The Company filed a notice of appeal but withdrew such notice without prejudice to renew after final determination of the damages. The Company intends to appeal the court's ruling if the special referee determines there are damages.  The special referee, upon the Company's request, issued a discovery order requiring the plaintiffs to provide requested discovery materials regarding the damages. On March 28, 2011, the plaintiffs filed a motion to vacate the discovery order issued by the special referee.  On May 17, 2011, the motion to vacate was denied and discovery on the damage issue continues.

The Company intends to continue to vigorously defend the claims for a variety of reasons, including that (1) after requiring and supporting the defense of the objections to the claims, the holders of the claims arbitrarily settled the claims for reasons based on factors other than the merits, (2) the holders of the claims voluntarily reduced the claims to participate in the preferred share rights offering and certain settlement pools, (3) the contract language that supports the plaintiff's position was specifically negotiated out of the agreement covering the sale of the claims and (4) the plaintiffs have no damages.


Unified Government of Wyandotte County/Kansas City, Kansas v. United States General Services Administration (United States District Court for the District of Kansas-Case Number 11-2400-JTM-KMH). On April 4, 2011, one of the Company's property owner subsidiaries entered into a lease termination with Applebee's Services, Inc., pursuant to which Applebee's Services, Inc. made a lease termination payment of $19,910 in October 2011 and vacated the Lenexa, Kansas facility in November 2011. Also on April 4, 2011, the Company's property owner subsidiary entered into a ten year lease with the United States General Services Administration ("GSA") for the same facility. On April 15, 2011, an unsuccessful bidder for the GSA lease filed a protest with the United States Government Accountability Office ("GAO") protesting the award of the lease to the Company's property owner subsidiary. On July 22, 2011, after a full briefing of the protest, the GAO denied the protest. However, prior to the GAO ruling on July 19, 2011, the Unified Government of Wyandotte County, Kansas City filed a claim against the GSA requesting, among other things, an injunction against the award of the ten year lease. The Company has intervened and is monitoring this claim; however, the Company does not anticipate any impact to its financial position or results of operations from this claim.

Other. Four of our executive officers have employment contracts and are entitled to severance benefits upon termination by the Company without cause, as defined in the employment contract.


34

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

(20)
Supplemental Disclosure of Statement of Cash Flow Information

In addition to disclosures discussed elsewhere, during 2011, 2010 and 2009, the Company paid $103,427, $114,031 and $132,376, respectively, for interest and $1,289, $1,019 and $2,483, respectively, for income taxes.

In October 2011, the Company acquired control of a joint venture, Pemlex LLC, and recorded land and building assets of $9,006, lease intangible assets of $6,294, other assets, net, of $107 and a $574 noncontrolling interest.

During 2011, the Company sold interests in three properties, which included the assumption of the aggregate related non-recourse debt of $28,648 and $3,003 in seller financing.

During 2010, the Company sold interests in three properties, which included the assumption of the aggregate related non-recourse mortgage debt of $74,504.

During 2009, the Company acquired, through a property owner subsidiary, the remainder interests in land with an estimated fair value of $2,500 in connection with a tenant's lease surrender obligation.

During 2009, the Company conveyed its interests in three properties to lenders in full satisfaction of the aggregate $38,022 non-recourse mortgage notes payable. The Company recognized aggregate net gains on debt satisfaction of $13,180 relating to these transactions.

(21)    Unaudited Quarterly Financial Data
 
2011
 
3/31/2011
 
6/30/2011
 
9/30/2011
 
12/31/2011
Total gross revenues(1)
$
78,302

 
$
78,468

 
$
80,466

 
$
80,988

Net income (loss)
$
(15,993
)
 
$
(56,957
)
 
$
(30,844
)
 
$
14,016

Net income (loss) attributable to common shareholders
$
(23,638
)
 
$
(50,539
)
 
$
(37,048
)
 
$
7,504

Net income (loss) attributable to common shareholders - basic per share
$
(0.16
)
 
$
(0.33
)
 
$
(0.24
)
 
$
0.05

Net income (loss) attributable to common shareholders - diluted per share
$
(0.21
)
 
$
(0.33
)
 
$
(0.24
)
 
$
0.05

 
2010
 
3/31/2010
 
6/30/2010
 
9/30/2010
 
12/31/2010
Total gross revenues(1)
$
76,938

 
$
76,432

 
$
78,393

 
$
77,619

Net income (loss)
$
(29,326
)
 
$
(29,701
)
 
$
7,340

 
$
14,277

Net income (loss) attributable to common shareholders
$
(33,048
)
 
$
(30,379
)
 
$
58

 
$
5,273

Net income (loss) attributable to common shareholders - basic and diluted
per share
$
(0.27
)
 
$
(0.23
)
 
$
0.00

 
$
0.04

__________
(1) All periods have been adjusted to reflect the impact of properties sold during the six months ended June 30, 2012 and the years ended December 31, 2011 and 2010, and properties classified as held for sale, which are reflected in discontinued operations in the Consolidated Statements of Operations.

The sum of the quarterly income (loss) per common share amounts may not equal the full year amounts primarily because the computations of the weighted-average number of common shares of the Company outstanding for each quarter and the full year are made independently.

35

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)

(22)
Subsequent Events

Subsequent to December 31, 2011 and in addition to disclosures elsewhere in the financial statements, the Company:

•
procured a $215,000 secured term loan from Wells Fargo Bank, National Association, as agent. The term loan is secured by ownership interest pledges by certain subsidiaries that collectively own a borrowing base of properties. The secured term loan matures in January 2019. The secured term loan requires regular payments of interest only at an interest rate dependent on the Company's leverage ratio, as defined as follows: 2.00% plus LIBOR if its leverage ratio is less than 45%, 2.25% plus LIBOR if its leverage ratio is between 45% and 50%, 2.45% plus LIBOR if its leverage ratio is between 50% and 55%, and 2.85% plus LIBOR if its leverage ratio exceeds 55%. Upon the date when the Company obtains an investment grade debt rating from at least two of Standard & Poor's, Moody's and Fitch, the interest rate under the secured term loan is dependent on its debt rating. The Company may not prepay any outstanding borrowings under the secured term loan facility through January 12, 2013, but may prepay outstanding borrowings anytime thereafter, however at premium for the next three years;

•
refinanced its $300,000 secured revolving credit facility, which was scheduled to expire in January 2014, but could have been extended to January 2015 at the Company's option, with a new $300,000 secured revolving credit facility with KeyBank, as agent. The new revolving credit facility has the same security as the new secured term loan. The new secured revolving credit facility bears interest at 1.625% plus LIBOR if the Company's leverage ratio, as defined, is less than 45%, 1.875% plus LIBOR if the leverage ratio is between 45% and 50%, 2.125% plus LIBOR if the leverage ratio is between 50% and 55% and 2.375% plus LIBOR if the leverage ratio exceeds 55%. The new secured revolving credit facility matures in January 2015 but can be extended until January 2016 at the Company's option. With the consent of the lenders, the Company can increase the size of the secured revolving credit facility by $225,000 for a total secured revolving credit facility size of $525,000 by adding properties to the borrowing base or admitting additional lenders. The borrowing availability of the secured revolving credit facility is based upon the net operating income, as defined, of the properties comprising the borrowing base;

•
borrowed $108,000 under the new secured term loan and $28,000 under the new secured revolving credit facility, and repaid (1) the term loans in the outstanding aggregate principal amount of $60,551, which were procured from KeyBank in March 2008, (2) a swap liability of $3,539 and (3) $62,150 outstanding principal amount of 5.45% Exchangeable Guaranteed Notes that were tendered pursuant to a holder repurchase option. In addition, effective February 1, 2012, the Company entered into an interest-rate swap agreement to fix LIBOR at 1.512% for seven years on $108,000 of new secured term loan LIBOR based debt. Accordingly, the new secured term loan currently bears interest at an interest rate of 3.76%;

•
conveyed to the lender its property in Tulsa, Oklahoma for full satisfaction of the related non-recourse mortgage, which was approximately $1,700 in excess of the net carrying value of the property;

•
acquired the 70,000 square foot office build-to-suit property in Huntington, West Virginia for a capitalized cost of approximately $12,600 and procured a $6,500, 4.2% interest-only five year non-recourse mortgage; and

•
delivered a notice of exercising the buy/sell right in the NLS partnership agreement and received a notice from its partner exercising the right of first offer in the NLS partnership agreement (see note 9).

36

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)


Description
Location
 
Encumbrances

Land and Land Estates
Buildings and Improvements
Total
Accumulated Depreciation and Amortization
Date Acquired
Date Constructed
Useful life computing depreciation in latest income statement (years)
Office
Little Rock, AR
(5)
—

1,353

2,260

3,613

324

Dec-06
1980
40
Office
Brea, CA
 
74,492

37,269

45,695

82,964

10,952

Jun-07
1983
40
Office
Los Angeles, CA
 
10,491

5,110

10,911

16,021

4,549

Dec-04
2000
13 & 40
Office
Palo Alto, CA
(5)
—

12,398

16,977

29,375

11,086

Dec-06
1974
40
Office
Centenial, CO
 
13,975

4,851

15,187

20,038

3,497

May-07
2001
10 & 40
Office
Colorado Springs, CO
 
10,503

2,748

12,554

15,302

2,607

Jun-07
1980
40
Office
Lakewood, CO
 
7,942

1,569

8,653

10,222

3,667

Apr-05
2002
12 & 40
Office
Louisville, CO
(5)
—

3,657

9,605

13,262

1,343

Sep-08
1987
8, 9 & 40
Office
Southington, CT
 
12,551

3,240

25,339

28,579

14,178

Nov-05
1983
12, 28 & 40
Office
Wallingford, CT
(5)
—

1,049

4,773

5,822

933

Dec-03
1978/1985
8 & 40
Office
Boca Raton, FL
 
20,400

4,290

17,160

21,450

3,807

Feb-03
1983/2002
40
Office
Fort Meyers, FL
 
8,713

1,820

10,198

12,018

4,069

Apr-05
1997
13 & 40
Office
Lake Mary, FL
(5)
—

4,535

14,830

19,365

3,290

Jun-07
1997
7 & 40
Office
Lake Mary, FL
(5)
—

4,438

15,080

19,518

3,244

Jun-07
1999
7 & 40
Office
Orlando, FL
(5)
—

586

35,012

35,598

4,542

Dec-06
1982
40
Office
Orlando, FL
 
—

11,498

34,014

45,512

24,239

Dec-06
1984
3
Office
Atlanta, GA
 
41,443

4,600

55,333

59,933

21,602

Apr-05
2003
13 & 40
Office
Atlanta, GA
(5)
—

1,014

269

1,283

170

Dec-06
1972
40
Office
Atlanta, GA
(5)
—

870

187

1,057

137

Dec-06
1975
40
Office
Chamblee, GA
(5)
—

770

186

956

144

Dec-06
1972
40
Office
Cumming, GA
(5)
—

1,558

1,368

2,926

374

Dec-06
1968
40
Office
Forest Park, GA
(5)
—

668

1,242

1,910

257

Dec-06
1969
40
Office
Jonesboro, GA
(5)
—

778

146

924

121

Dec-06
1971
40
Office
Stone Mountain, GA
(5)
—

672

276

948

125

Dec-06
1973
40
Office
Suwannee, GA
 
11,084

1,371

2,776

4,147

75

Apr-05
2001
12 & 40
Office
Clive, IA
 
5,412

2,761

7,453

10,214

3,395

Jun-04
2003
12, 13 & 40
Office
Aurora, IL
 
—

3,063

5,943

9,006

38

Oct-11
1996
40
Office
Chicago, IL
 
29,445

5,155

46,180

51,335

10,004

Jun-07
1986
15 & 40
Office
Lisle, IL
 
10,033

3,236

13,698

16,934

2,257

Dec-06
1985
40
Office
Columbus, IN
(1) (4)
26,427

235

45,729

45,964

5,900

Dec-06
1983
40
Office
Fishers, IN
 
11,089

2,808

19,163

21,971

3,829

Jun-07
1999
9, 10, 38 & 40
Office
Indianapolis, IN
 
12,036

1,700

17,211

18,911

8,592

Apr-05
1999
2-40
Office
Indianapolis, IN
 
8,802

1,360

13,169

14,529

5,358

Apr-05
2002
12 & 40
Office
Overland Park, KS
 
36,325

4,769

41,956

46,725

7,397

Jun-07
1980
12 & 40
Office
Baton Rouge, LA
 
6,045

1,252

10,244

11,496

2,096

May-07
1997
6 & 40
Office
Foxboro, MA
 
8,559

2,231

25,653

27,884

9,152

Dec-04
1982
16 & 40
Office
Southfield, MI
(5)
—

—

12,124

12,124

5,637

Jul-04
1963/1965
7, 16 & 40
Office
Bridgeton, MO
(5)
—

1,853

4,469

6,322

628

Dec-06
1980
40
Office
Kansas City, MO
 
17,307

2,433

20,154

22,587

3,539

Jun-07
1980
12 & 40
Office
Cary, NC
 
12,581

5,342

14,866

20,208

3,857

Jun-07
1999
40
Office
Bridgewater, NJ
 
14,675

4,738

27,331

32,069

3,622

Dec-06
1986
40
Office
Rockaway, NJ
 
14,900

4,646

20,428

25,074

3,240

Dec-06
2002
40
Office
Whippany, NJ
 
15,349

4,063

19,711

23,774

4,155

Nov-06
2006
20 & 40
Office
Wall, NJ
 
25,343

8,985

26,961

35,946

8,365

Jan-04
1983
22 & 40
Office
Rochester, NY
(4)
18,063

645

25,942

26,587

3,512

Dec-06
1988
40
Office
Milford, OH
(5)
—

3,124

16,042

19,166

3,845

Jun-07
1991
6, 7 & 40
Office
Westerville, OH
(5)
—

2,085

9,265

11,350

1,534

May-07
2000
40
Office
Canonsburg, PA
 
9,084

1,055

10,910

11,965

2,513

May-07
1997
8 & 40
Office
Harrisburg, PA
 
8,388

900

10,556

11,456

5,965

Apr-05
1998
9 & 40
Office
Philadelphia, PA
 
45,731

13,209

52,105

65,314

19,457

Jun-05
1957
4, 5 & 40
Office
Charleston, SC
 
7,350

1,189

8,724

9,913

1,947

Nov-06
2006
40
Office
Florence, SC
(5)
—

3,235

12,941

16,176

3,216

May-04
1998
40
Office
Fort Mill, SC
 
10,113

3,601

14,494

18,095

3,294

Dec-02
2002
5 & 40

37

LEXINGTON REALTY TRUST AND CONSOLIDATED 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
Date Acquired
Date Constructed
Useful life computing depreciation in latest income statement (years)
Office
Fort Mill, SC
 
19,075

1,798

25,192

26,990

9,822

Nov-04
2004
15 & 40
Office
Rock Hill, SC
(5)
—

551

4,313

4,864

72

 May-11
2006
40
Office
Knoxville, TN
 
7,151

1,079

10,762

11,841

3,883

Mar-05
2001
14 & 40
Office
Memphis, TN
 
3,798

464

4,467

4,931

944

Nov-06
1888
20 & 40
Office
Memphis, TN
(1) (4)
47,320

5,291

97,032

102,323

12,635

Dec-06
1985
40
Office
Allen, TX
(5)
—

5,591

21,605

27,196

826

 May-11
1981/1983
7 & 25
Office
Carrollton, TX
 
19,639

3,427

22,050

25,477

4,494

Jun-07
2003
8 & 40
Office
Farmers Branch, TX
 
18,481

3,984

27,308

31,292

5,610

Jun-07
2002
40
Office
Houston, TX
 
41,545

16,613

52,682

69,295

10,207

Mar-04
1976/1984
40
Office
Houston, TX
 
16,165

3,750

21,160

24,910

8,439

Apr-05
2000
13 & 40
Office
Houston, TX
 
12,131

1,500

14,581

16,081

5,317

Apr-05
2003
14 & 40
Office
Houston, TX
 
15,525

800

26,879

27,679

10,925

Apr-05
2000
11, 12 & 40
Office
San Antonio, TX
 
11,971

2,800

15,585

18,385

6,857

Apr-05
2000
11 & 40
Office
Sugar Land, TX
 
10,839

1,834

16,536

18,370

3,204

Mar-04
1997
40
Office
Westlake, TX
 
17,928

2,361

22,503

24,864

5,511

May-07
2007
5, 40
Office
Hampton, VA
(5)
—

2,333

10,454

12,787

2,790

Mar-00
1999
2.5, 5 & 40
Office
Hampton, VA
 
—

1,353

6,006

7,359

1,702

Nov-01
2000
10 & 40
Office
Herndon, VA
(5)
—

5,127

24,504

29,631

6,430

Dec-99
1987
9, 31, 36 & 40
Office
Herndon, VA
 
11,138

9,409

12,853

22,262

3,039

Jun-07
1987
40
Office
Midlothian, VA
 
9,725

1,100

11,919

13,019

4,268

Apr-05
2000
15 & 40
Office
Issaquah, WA
(4)
31,369

5,126

13,647

18,773

3,183

Jun-07
1987
8 & 40
Office
Issaquah, WA
(4)
—

6,268

16,058

22,326

3,660

Jun-07
1987
8 & 40
Industrial
Moody, AL
 
6,677

654

9,943

10,597

4,114

Feb-04
2004
15 & 40
Industrial
Orlando, FL
(5)
—

1,030

10,869

11,899

1,532

Dec-06
1981
40
Industrial
Tampa, FL
(5)
—

2,160

7,281

9,441

5,041

Jul-88
1986
9 - 40
Industrial
McDonough, GA
 
23,000

2,463

24,291

26,754

3,208

Dec-06
2000
40
Industrial
Dubuque, IA
 
9,918

2,052

8,443

10,495

1,855

Jul-03
2002
11, 12 & 40
Industrial
Rockford, IL
(4)
—

371

2,573

2,944

378

Dec-06
1998
40
Industrial
Rockford, IL
(4)
6,630

509

5,289

5,798

725

Dec-06
1992
40
Industrial
Owensboro, KY
(5)
—

819

2,439

3,258

550

Dec-06
1975
40
Industrial
North Berwick, ME
 
9,877

1,383

32,397

33,780

4,220

Dec-06
1965
10 & 40
Industrial
Marshall, MI
(5)
—

40

900

940

607

Aug-87
1979
12, 20 & 40
Industrial
Plymouth, MI
 
10,407

2,296

13,398

15,694

3,197

Jun-07
1996
40
Industrial
Temperance, MI
 
9,641

3,040

14,738

17,778

2,472

Jun-07
1980
40
Industrial
Olive Branch, MS
(5)
—

198

10,276

10,474

5,424

Dec-04
1989
8, 15 & 40
Industrial
Henderson, NC
(5)
—

1,488

5,953

7,441

1,507

Nov-01
1998
40
Industrial
High Point, NC
(5)
—

1,330

11,183

12,513

3,704

Jul-04
2002
18 & 40
Industrial
Lumberton, NC
(5)
—

405

12,049

12,454

1,938

Dec-06
1998
40
Industrial
Statesville, NC
(4)
13,547

891

16,696

17,587

2,891

Dec-06
1999
3 & 40
Industrial
Cincinnati, OH
(5)
—

1,009

7,007

8,016

1,062

Dec-06
1991
40
Industrial
Columbus, OH
(5)
—

1,990

10,580

12,570

1,739

Dec-06
1973
40
Industrial
Hebron, OH
 
—

1,063

4,271

5,334

1,072

Dec-97
2000
40
Industrial
Hebron, OH
(5)
—

1,681

7,010

8,691

1,733

Dec-01
1999
5 & 40
Industrial
Streetsboro, OH
 
18,733

2,441

25,092

27,533

4,093

Jun-07
2004
12, 20, 25 & 40
Industrial
Duncan, SC
(5)
—

884

8,626

9,510

1,028

Jun-07
2005
40
Industrial
Laurens, SC
 
14,382

5,552

20,886

26,438

3,573

Jun-07
1991
40
Industrial
Collierville, TN
(5)
—

714

2,483

3,197

626

Dec-05
2005
20 & 40
Industrial
Crossville, TN
(5)
—

545

6,999

7,544

2,100

Jan-06
1989/2006
17 & 40
Industrial
Memphis, TN
(5)
—

1,054

11,539

12,593

11,317

Feb-88
1987
8 &15
Industrial
Memphis, TN
(5)
—

1,553

12,326

13,879

1,896

Dec-06
1973
40
Industrial
Millington, TN
 
16,301

723

19,118

19,841

6,468

Apr-05
1997
16 & 40
Industrial
San Antonio, TX
 
26,499

2,482

38,535

41,017

13,840

Jul-04
2001
17 & 40
Industrial
Waxahachie, TX
(5)
—

652

13,045

13,697

7,378

Dec-03
1996/1997
10, 16 & 40
Industrial
Winchester, VA
(5)
—

3,823

12,226

16,049

2,137

Jun-07
2001
40
Retail
Sun City, AZ
(5)
—

1,207

1,377

2,584

230

Dec-06
1982
40
Retail
Manteca, CA
 
875

2,082

6,464

8,546

956

May-07
1993
23 & 40

38

LEXINGTON REALTY TRUST AND CONSOLIDATED 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
Date Acquired
Date Constructed
Useful life computing depreciation in latest income statement (years)
Retail
San Diego, CA
 
557

—

13,310

13,310

1,609

May-07
1993
23 & 40
Retail
Port Richey, FL
 
—

1,376

1,664

3,040

380

Dec-06
1980
40
Retail
Honolulu, HI
(5)
—

—

11,147

11,147

11,147

Dec-96
1980
5
Retail
Galesburg, IL
 
491

560

2,366

2,926

418

May-07
1992
12 & 40
Retail
Lawrence, IN
(5)
—

404

1,737

2,141

226

Dec-06
1983
40
Retail
Minden, LA
(5)
—

224

2,907

3,131

41

Dec-06
1982
40
Retail
Billings, MT
(5)
—

273

1,775

2,048

37

Dec-06
1981
40
Retail
Jefferson, NC
(5)
—

71

884

955

128

Dec-06
1979
40
Retail
Lexington, NC
(5)
—

832

1,429

2,261

180

Dec-06
1983
40
Retail
Thomasville, NC
(5)
—

208

561

769

8

Dec-06
1998
40
Retail
Carlsbad, NM
(5)
—

918

775

1,693

225

Dec-06
1980
40
Retail
Port Chester, NY
(5)
—

7,086

9,313

16,399

2,341

Dec-06
1982
40
Retail
Watertown, NY
 
822

386

5,162

5,548

816

May-07
1993
23 & 40
Retail
Canton, OH
(5)
—

884

3,534

4,418

894

Nov-01
1995
40
Retail
Franklin, OH
(5)
—

722

999

1,721

14

Dec-06
1961
40
Retail
Lorain, OH
 
1,238

1,893

7,024

8,917

1,041

May-07
1993
23 & 40
Retail
Lawton, OK
(5)
—

663

1,288

1,951

246

Dec-06
1984
40
Retail
Tulsa, OK
(5)
—

447

2,432

2,879

1,991

Dec-96
1981
14 & 24
Retail
Clackamas, OR
(5)
—

523

2,848

3,371

2,331

Dec-96
1981
14 & 24
Retail
Moncks Corner, SC
(5)
—

13

1,510

1,523

203

Dec-06
1982
40
Retail
Spartanburg, SC
(5)
—

833

3,334

4,167

844

Nov-01
1996
40
Retail
Chattanooga, TN
(5)
—

487

956

1,443

13

Dec-06
1982
40
Retail
Paris, TN
(5)
—

247

547

794

101

Dec-06
1982
40
Retail
Corpus Christi, TX
(5)
—

823

715

1,538

120

Dec-06
1983
40
Retail
Dallas, TX
(5)
—

861

2,362

3,223

56

Dec-06
1960
40
Retail
Fort Worth, TX
(5)
—

756

2,412

3,168

55

Dec-06
1985
40
Retail
Garland, TX
(5)
—

451

1,299

1,750

9

Dec-06
1983
40
Retail
Greenville, TX
(5)
—

562

2,743

3,305

419

Dec-06
1985
40
Retail
Victoria, TX
(5)
—

300

1,149

1,449

306

Dec-06
1981
40
Retail
Staunton, VA
(5)
—

1,028

326

1,354

67

Dec-06
1971
40
Retail
Lynnwood, WA
(5)
—

488

2,658

3,146

2,176

Dec-96
1981
14 & 24
Retail
Port Orchard, WA
 
—

147

94

241

13

Dec-06
1983
40
Retail
Fairlea, WV
 
578

501

1,985

2,486

272

May-07
1993
12 & 40
Long Term Lease - Office
Phoenix, AZ
 
17,231

4,666

19,966

24,632

6,500

May-00
1997
6 & 40
Long Term Lease - Office
Tempe, AZ
 
7,807

—

9,442

9,442

1,735

Dec-05
1998
30 & 40
Long Term Lease - Office
Lake Forest, CA
(5)
—

3,442

13,769

17,211

3,371

Mar-02
2001
40
Long Term Lease - Office
Lenexa, KS
(5)
—

6,909

29,032

35,941

5,869

July-08
2007
15 & 40
Long Term Lease - Office
Boston, MA
 
13,173

3,814

14,728

18,542

1,764

Mar-07
1910
40
Long Term Lease - Office
Omaha, NE
 
8,266

2,566

8,324

10,890

1,551

Nov-05
1995
30 & 40
Long Term Lease - Office
Las Vegas, NV
(1) (4)
32,152

12,099

53,164

65,263

6,794

Dec-06
1982
40
Long Term Lease - Office
Columbus, OH
(5)
—

433

2,773

3,206

35

 Jul-11
1999/2006
40
Long Term Lease - Office
Columbus, OH
(5)
—

1,594

10,480

12,074

262

Dec-10
2005
40
Long Term Lease - Office
Carrollton, TX
 
12,927

1,789

18,157

19,946

5,511

Jun-04
2003
19 & 40
Long Term Lease - Office
Irving, TX
 
37,340

7,476

42,780

50,256

10,066

May-07
1999
6 & 40
Long Term Lease - Office
Irving, TX
(5)
—

4,889

29,695

34,584

6,403

June-07
1999
40
Long Term Lease - Industrial
Dry Ridge, KY
(4)
5,226

560

12,553

13,113

2,835

Jun-05
1988
25 & 40
Long Term Lease - Industrial
Elizabethtown, KY
(4)
14,466

890

26,868

27,758

6,069

Jun-05
1995/2001
25 & 40
Long Term Lease - Industrial
Elizabethtown, KY
(4)
2,732

352

4,862

5,214

1,098

Jun-05
2001
25 & 40
Long Term Lease - Industrial
Hopkinsville, KY
 
8,484

631

16,154

16,785

3,794

Jun-05
Various
25 & 40
Long Term Lease - Industrial
Owensboro, KY
(4)
4,605

393

11,956

12,349

2,998

Jun-05
1998/2000
25 & 40
Long Term Lease - Industrial
Shreveport, LA
 
19,000

860

21,840

22,700

2,616

Mar-07
2006
40
Long Term Lease - Industrial
Byhalia, MS
 
15,000

1,006

21,482

22,488

358

May-11
2011
40
Long Term Lease - Industrial
Shelby, NC
(5)
—

1,421

18,860

20,281

353

Jun-11
2011
11, 20 & 40
Long Term Lease - Industrial
Durham, NH
(5)
—

3,464

18,094

21,558

3,076

Jun-07
1986
40

39

LEXINGTON REALTY TRUST AND CONSOLIDATED 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
Date Acquired
Date Constructed
Useful life computing depreciation in latest income statement (years)
Long Term Lease - Industrial
Chillicothe, OH
 
—

736

9,021

9,757

111

Oct-11
1995
6, 15 & 26
Long Term Lease - Industrial
Glenwillow, OH
 
16,340

2,228

24,530

26,758

3,338

Dec-06
1996
40
Long Term Lease - Industrial
Bristol, PA
(5)
—

2,508

15,815

18,323

3,793

Mar-98
1982
10, 30 & 40
Long Term Lease - Retail
Edmonds, WA
(5)
—

—

3,947

3,947

550

Dec-06
1981
40
Multi-tenanted
Phoenix, AZ
(5)
—

1,831

14,892

16,723

388

Nov-01
1995/1994
5 - 40
Multi-tenanted
Long Beach, CA
 
—

15,016

48,001

63,017

881

Dec-06
1981
4, 9, 10 & 40
Multi-tenanted
Clinton, CT
 
—

—

—

—

—

Dec-06
1971
40
Multi-tenanted
Orlando, FL
 
9,975

3,538

9,019

12,557

2,881

Jan-07
2003
12 & 40
Multi-tenanted
Palm Beach Gardens, FL
(5)
—

3,578

18,258

21,836

5,152

May-98
1996
11 - 40
Multi-tenanted
Honolulu, HI
(5)
—

21,094

13,324

34,418

1,647

Dec-06
1917/1955/ 1960/1980
40
Multi-tenanted
Hebron, KY
(5)
—

1,615

8,125

9,740

3,213

Mar-98
1987
6, 12 & 40
Multi-tenanted
Baltimore, MD
 
—

37,565

150,545

188,110

30,348

Dec-06
1973
5, 10, 25 & 40
Multi-tenanted
Farmington Hills, MI
 
17,994

2,765

9,196

11,961

442

Jun-07
1999
2, 13 & 40
Multi-tenanted
Tulsa, OK
 
7,119

1,642

3,261

4,903

—

Apr-05
2000
11 & 40
Multi-tenanted
Wilsonville, OR
 
—

751

4,808

5,559

400

 Aug-11
1980
5
Multi-tenanted
Antioch, TN
 
—

3,847

9,801

13,648

192

May-07
1983
5 - 40
Multi-tenanted
Johnson City, TN
 
—

1,214

7,978

9,192

1,059

Dec-06
1983
40
Multi-tenanted
Glen Allen, VA
 
19,188

2,362

29,555

31,917

8,083

Jun-07
1998
5 - 40
Construction in progress
 
 
—

—

—

4,056

—

—
—
—
Investment in real estate under construction
 
 
—

—

—

32,829

—

—
—
—
 
 
 
 
 
 
 
 
 
 
 
 
Subtotal
 
1,297,649

522,039

2,646,151

3,205,075

638,368

 
 
 
 
(1
)
 
25,000

 
 
 
 
 
 
 
 
(2
)
 
34,355

 
 
 
 
 
 
 
 
(3
)
 
9,000

 
 
 
 
 
 
 
 
 
 
$
1,366,004

$
522,039

$
2,646,151

$
3,205,075

$
638,368

 
 
 

(1) - Properties are cross-collateralized for a $25,000 secured term loan at 12/31/11.
(2) - Certain equity interests are pledged as collateral.
(3) - Property is classified as a capital lease.
(4) - Properties are cross-collaterized properties.
(5) - Properties are collateral for the Company's new secured revolving credit facility and secured term loan.


40

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued

(A) The initial cost includes the purchase price paid directly or indirectly by the Company and pre-2009 acquisition fees and expenses. The total cost basis of the Company's properties at December 31, 2011 for federal income tax purposes was approximately $3.6 billion.
    
 
2011
 
2010
 
2009
Reconciliation of real estate owned:
 
 
 
 
 
Balance at the beginning of year
$
3,374,844

 
$
3,552,806

 
$
3,756,188

Additions in real estate under construction, net
21,571

 
11,258

 
—

Additions during year
143,382

 
46,994

 
42,818

Properties sold during year
(230,397
)
 
(221,875
)
 
(217,923
)
Reclassified held for sale properties
—

 
(9,381
)
 
—

Properties impaired during the year
(103,727
)
 
(3,327
)
 
(27,271
)
Translation adjustment on foreign currency
—

 
(1,432
)
 
467

Other reclassifications
(598
)
 
(199
)
 
(1,473
)
Balance at end of year
$
3,205,075

 
$
3,374,844

 
$
3,552,806

 
 
 
 
 
 
Reconciliation of accumulated depreciation and amortization:
 
 
 
 
 
Balance at the beginning of year
$
601,239

 
$
537,406

 
$
461,661

Depreciation and amortization expense
114,247

 
115,553

 
113,828

Accumulated depreciation and amortization of properties sold, impaired and held for sale during year
(76,939
)
 
(51,478
)
 
(36,749
)
Translation adjustment on foreign currency
—

 
(242
)
 
89

Other reclassifications
(179
)
 
—

 
(1,423
)
Balance at end of year
$
638,368

 
$
601,239

 
$
537,406






41