Investments in Real Estate and Real Estate Under Construction

9 Months Ended

Sep. 30, 2012

Investments in Real Estate and Real Estate Under Construction [Abstract]

Investments in Real Estate and Real Estate Under Construction

Investments in Real Estate and Real Estate Under Construction

The Company, through property owner subsidiaries, completed the following acquisition and build-to-suit transactions during the nine months ended September 30, 2012:

										Lease Intangibles
Property Type	Location	Acquisition/Completion Date	Initial Cost Basis		Lease Expiration	Land and Land Estate		Building and Improvements		Lease in-place Value		Tenant Relationships Value
Office	Huntington, WV	January 2012	$	12,558	11/2026	$	1,368	$	9,527	$	1,405	$	258
Office	Florence, SC	February 2012	$	5,094	02/2024	$	774	$	3,629	$	505	$	186
Industrial	Missouri City, TX	April 2012	$	23,000	04/2032	$	14,555	$	5,895	$	2,135	$	415
Industrial	Shreveport, LA	June 2012	$	12,941	03/2022	$	1,078	$	10,134	$	1,590	$	139
Retail	Valdosta, GA(1)	August 2012	$	8,247	08/2027	$	2,128	$	6,119	$	—	$	—
Office	Jessup, PA	August 2012	$	24,917	08/2027	$	2,520	$	17,656	$	3,336	$	1,405
Office	Saint Joseph, MO	September 2012	$	17,571	06/2027	$	607	$	14,004	$	2,528	$	432
			$	104,328		$	23,030	$	66,964	$	11,499	$	2,835

(1) Incurred leasing costs of $488.

The Company is engaged in various forms of build-to-suit development activities. The Company, through lender subsidiaries and property owner subsidiaries, may enter into the following acquisition, development and construction arrangements: (1) lend funds to construct build-to-suit projects subject to a single-tenant lease and agree to purchase the properties upon completion of construction and commencement of a single-tenant lease, (2) hire developers to construct built-to-suit projects on owned properties leased to single tenants, (3) fund the construction of build-to-suit projects on owned properties pursuant to the terms in single-tenant lease agreements or (4) enter into purchase and sale agreements with developers to acquire single-tenant build-to-suit properties upon completion.

As of September 30, 2012, the Company had the following development arrangements outstanding:

Location	Property Type	Square Feet	Expected Maximum Commitment/Contribution (million)		Estimated Purchase Price/Completion Cost (million)		Lease Term (Years)	Estimated Completion Date
Long Island City, NY(1)	Industrial	143,000	$	46.7	$	55.5	15	1Q 13
Eugene, OR	Office	80,000	$	17.6	$	17.6	15	1Q 13
Denver, CO	Office	163,000	$	37.6	$	37.6	15	2Q 13
Rantoul, IL(2)	Industrial	813,000	$	42.6	$	42.6	20	4Q 13
Opelika, AL	Retail	52,000	$	8.4	$	8.4	15	4Q 12
		1,251,000	$	152.9	$	161.7

(1) 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 condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011. 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.

(2) Acquisition, development and construction arrangement.

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 September 30, 2012, the Company's aggregate investment in development arrangements was $41,676, and is presented as investments in real estate under construction in the accompanying unaudited condensed consolidated balance sheet. The Company capitalized interest of $1,693 and $882 during the nine months ended September 30, 2012 and 2011, respectively, relating to build-to-suit activities.

On September 1, 2012, the Company, together with an operating partnership subsidiary, acquired the remaining common equity interest in Net Lease Strategic Assets Fund L.P. ("NLS") from Inland American (Net Lease) Sub, LLC that the Company did not already own for a cash payment of $9,438 and the assumption of all outstanding liabilities. Immediately prior to the acquisition, the Company owned 15% of NLS's common equity and 100% of NLS's preferred equity and its investment balance in NLS was $40,047. At the date of acquisition, NLS owned 41 properties totaling 5.8 million square feet in 23 states, plus a 40% tenant-in-common interest in an office property.  The Company's investment in NLS had previously been accounted for under the equity method and is now consolidated. The acquisition resulted in a remeasurement of the net assets acquired to fair value. The Company engaged an independent third party to determine the fair value of the assets acquired and liabilities assumed.

The following table summarizes the allocation of the fair value of amounts recognized for each major class of assets and liabilities:

Real estate assets	$	325,310
Lease related intangible assets	124,330
Cash	8,107
Other assets	36,179
Total acquired assets	493,926
Secured debt	252,517
Other liabilities, including below-market leases	23,686
Total assumed liabilities	276,203
Fair value of acquired net assets (represents 100% interest)	$	217,723

The Company recognized a gain on the transaction in the unaudited condensed consolidated statement of operations of $167,864 primarily related to the revaluation of the Company's equity interest in NLS for the difference between its carrying value in NLS and the fair value of its ownership interest at acquisition.The noncontrolling interest share of the fair value of the net assets acquired was $373.

In 2007 and 2008, the Company recognized $19,422 and $31,806, respectively, in gains on sales of properties relating to the transfer of properties to NLS. In 2012, the Company determined that these gains should have been deferred and recognized as a basis adjustment to the Company's equity investment in NLS. Accordingly, the Company has recorded an adjustment to increase accumulated distributions in excess of net income and decrease investment in and advances to non-consolidated entities in the prior period's balance sheet and statements of changes in equity presented in the accompanying condensed consolidated financial statements by $51,228. The Company assessed the materiality of the adjustment and determined the amount was immaterial to previously reported financial statements. The adjustment has no impact on the Company's cash flows or liquidity.

Intangible assets and liabilities recorded in connection with the above acquisition are set forth as follows:

			Weighted Average Amortization Period (in Years)
In-place leases	$	59,819	6.2
Tenant relations	24,828		4.6
Above-market leases	39,683		8.4
Total intangible assets acquired	$	124,330
Below-market leases	$	1,529	2.7

The Company recognized gross revenues from continuing operations of $3,739 and a net loss of $(436) from NLS properties since consolidation of NLS properties on September 1, 2012. Prior to consolidation, the Company recognized $12,902 and $15,192 of equity in earnings relating to NLS during the nine months ended September 30, 2012 and 2011, respectively.

The following unaudited condensed consolidated pro forma information is presented as if the Company acquired the remaining equity in NLS on January 1, 2011. The information excludes activity that is non-recurring and not representative of future activity, primarily the gain on acquisition of $167,864 and acquisition costs of $230 for both the three and nine months ended September 30, 2012, respectively. The information presented below is not necessarily indicative of what the actual results of operations would have been had the transaction been completed on January 1, 2011, nor does it purport to represent the Company's future operations:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Gross revenues	$	94,940		$	91,090		$	279,653		$	268,836
Net income (loss) attributable to Lexington Realty Trust shareholders	$	3,969		$	(39,005	)	$	(1,258	)	$	(117,454	)
Net loss attributable to common shareholders	$	(684	)	$	(45,139	)	$	(19,612	)	$	(136,068	)
Net loss per common share - basic and diluted	$	—		$	(0.29	)	$	(0.13	)	$	(0.90	)

The Company recognized aggregate acquisition expenses of $786 and $314 for the nine months ended September 30, 2012 and 2011, respectively, which are included as operating expenses within the Company's unaudited condensed consolidated statements of operations.