UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2019.

or

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________________ to ________________

Commission File Number 1-12386

 LEXINGTON REALTY TRUST

(Exact name of registrant as specified in its charter)

Maryland	13-3717318
(State or other jurisdiction of incorporation of organization)	(I.R.S. Employer Identification No.)

One Penn Plaza, Suite 4015, New York, NY 10119-4015

(Address of principal executive offices) (zip code)

(212) 692-7200

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Shares of beneficial interest, par value $0.0001 per share, classified as Common Stock	LXP	New York Stock Exchange
6.50% Series C Cumulative Convertible Preferred Stock, par value $0.0001 per share	LXPPRC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth
								company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 247,873,084 common shares of beneficial interest, par value $0.0001 per share, as of November 4, 2019.

TABLE OF CONTENTS

PART I. — FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income (Loss)	5
Condensed Consolidated Statements of Changes in Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Condensed Consolidated Financial Statements	8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	34
ITEM 4. Controls and Procedures	34
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings	35
ITEM 1A. Risk Factors	35
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
ITEM 3. Defaults Upon Senior Securities	36
ITEM 4. Mine Safety Disclosures	36
ITEM 5. Other Information	36
ITEM 6. Exhibits	37
SIGNATURES	39

WHERE YOU CAN FIND MORE INFORMATION:

We file and furnish annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, which we refer to as the SEC. You may read and copy any materials that we file or furnish with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We file and furnish information electronically with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file or furnish electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov. We also maintain a web site at http://www.lxp.com through which you can obtain copies of documents that we file or furnish with the SEC. The contents of that web site are not incorporated by reference in or otherwise a part of this Quarterly Report on Form 10-Q or any other document that we file or furnish with the SEC.

2

PART I. - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	September 30, 2019			December 31, 2018
	(unaudited)
Assets:
Real estate, at cost	$	3,178,870		$	3,090,134
Real estate - intangible assets	401,609			419,612
Real estate, gross	3,580,479			3,509,746
Less: accumulated depreciation and amortization	928,886			954,087
Real estate, net	2,651,593			2,555,659
Assets held for sale	58,031			63,868
Operating right-of-use assets, net	39,056			—
Cash and cash equivalents	126,058			168,750
Restricted cash	7,692			8,497
Investments in non-consolidated entities	53,796			66,183
Deferred expenses, net	16,195			15,937
Rent receivable – current	2,336			3,475
Rent receivable – deferred	64,593			58,692
Other assets	15,238			12,779
Total assets	$	3,034,588		$	2,953,840
Liabilities and Equity:
Liabilities:
Mortgages and notes payable, net	$	374,543		$	570,420
Term loan payable, net	297,313			298,733
Senior notes payable, net	496,661			496,034
Trust preferred securities, net	127,371			127,296
Dividends payable	30,710			48,774
Liabilities held for sale	5,297			386
Operating lease liabilities	40,275			—
Accounts payable and other liabilities	26,504			30,790
Accrued interest payable	12,300			4,523
Deferred revenue - including below-market leases, net	21,050			20,531
Prepaid rent	11,529			9,675
Total liabilities	1,443,553			1,607,162
Commitments and contingencies
Equity:
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares:
Series C Cumulative Convertible Preferred, liquidation preference $96,770; 1,935,400 shares issued and outstanding	94,016			94,016
Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 247,856,209 and 235,008,554 shares issued and outstanding in 2019 and 2018, respectively	25			24
Additional paid-in-capital	2,903,704			2,772,855
Accumulated distributions in excess of net income	(1,420,459		)	(1,537,100		)
Accumulated other comprehensive income (loss)	(5,549		)	76
Total shareholders’ equity	1,571,737			1,329,871
Noncontrolling interests	19,298			16,807
Total equity	1,591,035			1,346,678
Total liabilities and equity	$	3,034,588		$	2,953,840

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

3

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Gross revenues:
Rental revenue	$	80,325		$	99,958		$	239,058		$	308,088
Other revenue	1,225			337			3,875			701
Total gross revenues	81,550			100,295			242,933			308,789
Expense applicable to revenues:
Depreciation and amortization	(37,211		)	(37,716		)	(111,617		)	(129,693		)
Property operating	(10,611		)	(10,678		)	(30,966		)	(33,061		)
General and administrative	(7,791		)	(7,482		)	(23,652		)	(23,899		)
Non-operating income	532			429			1,927			965
Interest and amortization expense	(16,481		)	(21,159		)	(50,715		)	(63,224		)
Debt satisfaction charges, net	(4,424		)	(2,228		)	(4,527		)	(2,228		)
Impairment charges	(673		)	(2,542		)	(2,355		)	(90,860		)
Gains on sales of properties	140,461			202,371			176,662			239,577
Income before provision for income taxes and equity in earnings of non-consolidated entities	145,352			221,290			197,690			206,366
Provision for income taxes	(241		)	(444		)	(1,108		)	(1,326		)
Equity in earnings of non-consolidated entities	2,710			4			3,288			192
Net income	147,821			220,850			199,870			205,232
Less net income attributable to noncontrolling interests	(4,502		)	(2,834		)	(5,191		)	(3,225		)
Net income attributable to Lexington Realty Trust shareholders	143,319			218,016			194,679			202,007
Dividends attributable to preferred shares – Series C	(1,573		)	(1,573		)	(4,718		)	(4,718		)
Allocation to participating securities	(186		)	(253		)	(304		)	(279		)
Net income attributable to common shareholders	$	141,560		$	216,190		$	189,657		$	197,010
Net income attributable to common shareholders - per common share basic	$	0.60		$	0.91		$	0.81		$	0.83
Weighted-average common shares outstanding – basic	236,285,216			237,354,669			233,833,340			237,577,198
Net income attributable to common shareholders - per common share diluted	$	0.59		$	0.90		$	0.81		$	0.83
Weighted-average common shares outstanding – diluted	241,355,289			246,058,298			234,011,643			241,660,588

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

4

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	147,821		$	220,850		$	199,870		$	205,232
Other comprehensive income (loss):
Change in unrealized loss on interest rate swaps, net	(5,549		)	(446		)	(5,625		)	(413		)
Other comprehensive loss	(5,549		)	(446		)	(5,625		)	(413		)
Comprehensive income	142,272			220,404			194,245			204,819
Comprehensive income attributable to noncontrolling interests	(4,502		)	(2,834		)	(5,191		)	(3,225		)
Comprehensive income attributable to Lexington Realty Trust shareholders	$	137,770		$	217,570		$	189,054		$	201,594

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

5

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited and in thousands)

Three Months Ended September 30, 2019				Lexington Realty Trust Shareholders
	Total			Preferred Shares		Common Shares		Additional Paid-in-Capital			Accumulated Distributions in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
Balance June 30, 2019	$	1,344,174		$	94,016	$	23	$	2,771,213		$	(1,536,752	)	$	—		$	15,674
Redemption of noncontrolling OP units for common shares	—			—		—		343			—			—			(343		)
Issuance of common shares and deferred compensation amortization, net	133,489			—		2		133,487			—			—			—
Repurchase of common shares to settle tax obligations	(1,339		)	—		—		(1,339		)	—			—			—
Forfeiture of employee common shares	10			—		—		—			10			—			—
Dividends/distributions	(27,571		)	—		—		—			(27,036		)	—			(535		)
Net income	147,821			—		—		—			143,319			—			4,502
Other comprehensive loss	(5,549		)	—		—		—			—			(5,549		)	—
Balance September 30, 2019	$	1,591,035		$	94,016	$	25	$	2,903,704		$	(1,420,459	)	(5,549		)	$	19,298

Three Months Ended September 30, 2018				Lexington Realty Trust Shareholders
	Total			Preferred Shares		Common Shares		Additional Paid-in-Capital			Accumulated Distributions in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
Balance June 30, 2018	$	1,229,296		$	94,016	$	24	$	2,811,981		$	(1,693,165	)	$	1,098		$	15,342
Issuance of common shares and deferred compensation amortization, net	1,625			—		—		1,625			—			—			—
Repurchase of common shares	(10,025		)	—		—		(10,025		)	—			—			—
Forfeiture of employee common shares	7			—		—		—			7			—			—
Dividends/distributions	(44,306		)	—		—		—			(43,527		)	—			(779		)
Net income	220,850			—		—		—			218,016			—			2,834
Other comprehensive loss	(446		)	—		—		—			—			(446		)	—
Balance September 30, 2018	$	1,397,001		$	94,016	$	24	$	2,803,581		$	(1,518,669	)	$	652		$	17,397

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited and in thousands)

Nine Months Ended September 30, 2019				Lexington Realty Trust Shareholders
	Total			Preferred Shares		Common Shares			Additional Paid-in-Capital			Accumulated Distributions in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
Balance December 31, 2018	$	1,346,678		$	94,016	$	24		$	2,772,855		$	(1,537,100	)	$	76		$	16,807
Redemption of noncontrolling OP units for common shares	—			—		—			504			—			—			(504		)
Issuance of common shares and deferred compensation amortization, net	136,585			—		2			136,583			—			—			—
Repurchase of common shares	(958		)	—		—			(958		)	—			—			—
Repurchase of common shares to settle tax obligations	(5,281		)	—		(1		)	(5,280		)	—			—			—
Forfeiture of employee common shares	15			—		—			—			15			—			—
Dividends/distributions	(80,249		)	—		—			—			(78,053		)	—			(2,196		)
Net income	199,870			—		—			—			194,679			—			5,191
Other comprehensive loss	(5,625		)	—		—			—			—			(5,625		)	—
Balance September 30, 2019	$	1,591,035		$	94,016	$	25		$	2,903,704		$	(1,420,459	)	$	(5,549	)	$	19,298

Nine Months Ended September 30, 2018				Lexington Realty Trust Shareholders
	Total			Preferred Shares		Common Shares		Additional Paid-in-Capital			Accumulated Distributions in Excess of Net Income			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
Balance December 31, 2017	$	1,340,835		$	94,016	$	24	$	2,818,520		$	(1,589,724	)	$	1,065		$	16,934
Redemption of noncontrolling OP units for common shares	—			—		—		63			—			—			(63		)
Issuance of common shares and deferred compensation amortization, net	5,016			—		—		5,016			—			—			—
Repurchase of common shares	(17,387		)	—		—		(17,387		)	—			—			—
Repurchase of common shares to settle tax obligations	(2,544		)	—		—		(2,544		)	—			—			—
Forfeiture of employee common shares	(71		)	—		—		(87		)	16			—			—
Dividends/distributions	(133,667		)	—		—		—			(130,968		)	—			(2,699		)
Net income	205,232			—		—		—			202,007			—			3,225
Other comprehensive loss	(413		)	—		—		—			—			(413		)	—
Balance September 30, 2018	$	1,397,001		$	94,016	$	24	$	2,803,581		$	(1,518,669	)	$	652		$	17,397

6

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

	Nine Months Ended September 30,
	2019			2018
Net cash provided by operating activities:	$	142,919		$	169,656
Cash flows from investing activities:
Acquisition of real estate, including intangible assets	(439,885		)	(207,791		)
Capital expenditures	(12,130		)	(11,349		)
Net proceeds from sale of properties	334,395			807,739
Investments in non-consolidated entities	(1,776		)	(8,580		)
Distributions from non-consolidated entities in excess of accumulated earnings	14,830			590
Increase in deferred leasing costs	(5,231		)	(3,074		)
Change in real estate deposits, net	(4,936		)	(85		)
Net cash provided by (used in) investing activities	(114,733		)	577,450
Cash flows from financing activities:
Dividends to common and preferred shareholders	(96,117		)	(132,088		)
Principal amortization payments	(20,050		)	(22,622		)
Principal payments on debt, excluding normal amortization	(67,229		)	(6,708		)
Term loan payment	—			(151,000		)
Revolving credit facility borrowings	110,000			150,000
Revolving credit facility payments	(110,000		)	(310,000		)
Deferred financing costs	(5,456		)	(667		)
Payment of early extinguishment of debt charges	(3,500		)	—
Proceeds from mortgages and notes payable	—			26,350
Cash distributions to noncontrolling interests	(2,196		)	(2,699		)
Repurchases to settle tax obligations	(5,368		)	(2,818		)
Issuance of common shares, net	131,831			—
Repurchase of common shares	(3,598		)	(15,023		)
Net cash used in financing activities	(71,683		)	(467,275		)
Change in cash, cash equivalents and restricted cash	(43,497		)	279,831
Cash, cash equivalents and restricted cash, at beginning of period	177,247			112,156
Cash, cash equivalents and restricted cash, at end of period	$	133,750		$	391,987
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents at beginning of period	$	168,750		$	107,762
Restricted cash at beginning of period	8,497			4,394
Cash, cash equivalents and restricted cash at beginning of period	$	177,247		$	112,156
Cash and cash equivalents at end of period	$	126,058		$	128,444
Restricted cash at end of period	7,692			263,543
Cash, cash equivalents and restricted cash at end of period	$	133,750		$	391,987

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

7

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(1) The Company and Financial Statement Presentation

Lexington Realty Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland real estate investment trust (“REIT”) that owns a diversified portfolio of equity investments in single-tenant commercial properties.

As of September 30, 2019, the Company had ownership interests in approximately 135 consolidated real estate properties, located in 32 states. The properties in which the Company has an interest are primarily net leased to tenants in various industries.

The Company believes that it continues to be operated in a manner that enables it to qualify 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, which are single-purpose entities, (2) an operating partnership, Lepercq Corporate Income Fund L.P. (“LCIF”), in which the Company is the sole unitholder of the general partner and the sole unitholder of the limited partner that holds a majority of the limited partner interests, (3) a wholly-owned TRS, and (4) investments in joint ventures. References to “OP units” refer to units of limited partner interests in LCIF. 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. Each property owner subsidiary is a separate and distinct legal entity that maintains separate books and records. The assets and credit of each property owner subsidiary with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other property owner subsidiary or any other affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member or managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interests therein, which interests are subordinate to the claims of such property owner subsidiary's (or its general partner's, member's or managing member's) creditors.

The financial statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) for the three and nine months ended September 30, 2019 have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 13, 2019 (“Annual Report”).

Basis of Presentation and Consolidation. The Company's unaudited condensed consolidated financial statements are prepared on the accrual basis of accounting in accordance with GAAP. The financial statements reflect the accounts of the Company and its consolidated subsidiaries. The Company consolidates the 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 a primary beneficiary are accounted for under appropriate GAAP.

The Company is the primary beneficiary of certain VIEs as it has a controlling financial interest in these entities. LCIF, which is consolidated and in which the Company has an approximate 96% interest, is a VIE.

8

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of September 30, 2019 and December 31, 2018, the VIEs' mortgages and notes payable were non-recourse to the Company. Below is a summary of selected financial data of consolidated VIEs for which the Company is the primary beneficiary included in the unaudited condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018:

	September 30, 2019		December 31, 2018
Real estate, net	$	569,710	$	509,916
Total assets	$	626,604	$	607,963
Mortgages and notes payable, net	$	83,050	$	192,791
Total liabilities	$	97,061	$	203,322

In addition, the Company acquires, from time to time, properties using a reverse like-kind exchange structure pursuant to Section 1031 of the Internal Revenue Code (a "reverse 1031 exchange") and, as such, the properties are in the possession of an Exchange Accommodation Titleholder ("EAT") until the reverse 1031 exchange is completed. The EAT is classified as a VIE as it is a “thinly capitalized” entity. The Company consolidates the EAT because it is the primary beneficiary as it has the ability to control the activities that most significantly impact the EAT's economic performance and can collapse the 1031 exchange structure at any time. The assets of the EAT primarily consist of leased property (net real estate and intangibles).

Use of Estimates. Management has made a number of significant estimates and assumptions to prepare these unaudited condensed consolidated financial statements in conformity with GAAP, including, among others, those relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. 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. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable, the 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, the valuation of derivative financial instruments, the valuation of compensation plans 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, as amended (“Topic 820”), to determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk. The Company has formally elected to apply the portfolio exception within Topic 820 with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements.

Reclassifications. Certain amounts included in the 2018 unaudited condensed consolidated financial statements have been reclassified to conform to the 2019 presentation.

9

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

New Accounting Standards Adopted in 2019. In June 2018, the FASB issued Accounting Standard Update (“ASU”) No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. The Company adopted this guidance effective January 1, 2019 on a prospective basis. The Company's adoption of this guidance did not have a material impact on its financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting recognition and presentation requirements in Topic 815. The ASU is effective for reporting periods beginning after December 15, 2018. The Company adopted this guidance effective January 1, 2019 on a prospective basis. The Company's adoption of this guidance did not have a material impact on its financial statements.

Additionally, the Company adopted ASU No. 2016-02, Leases (Topic 842) effective January 1, 2019. Topic 842 requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. The Company adopted Topic 842 using the modified retrospective transition approach with January 1, 2019 as the Company's date of initial application, thus periods prior to January 1, 2019 conform to ASC Topic 840. The Company has elected other practical expedients permitted under the transition guidance including:

• a package of practical expedients that allows the Company to carryforward its assessment of whether a contract is or contains a lease, whether costs incurred qualify as initial direct costs, and historical lease classification for any leases that existed prior to the adoption;

• to account for lease and non-lease components as a single component if the (i) timing and patterns of transfer are the same for the lease and non-lease component and (ii) related lease component and the combined single lease component would be classified as an operating lease;

• to exclude from the consideration in the contract and variable lease payments not included in the consideration in the contract all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific lease revenue-producing transaction and collected by the lessor from the lessee. Taxes assessed on the Company’s total gross receipts are excluded from this accounting policy election;

• to not assess if existing land easements in place prior to adoption meet the definition of a lease; and

• to not recognize leases with a term of 12 months or less on the balance sheet.

The Company did not elect the hindsight practical expedient to determine lease term. The adoption of Topic 842 required the Company to record right-of-use assets and lease liabilities on the Company's unaudited condensed consolidated balance sheet. The Company did not recognize a cumulative adjustment to equity upon adoption. The adoption of this guidance did not have a material impact on the Company's unaudited condensed consolidated statement of operations and unaudited condensed consolidated statement of cash flows. See note 9, “Lease Accounting” for further disclosures.

Recently Issued Accounting Guidance. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of an allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019. The Company is continuing to assess this guidance and does not expect the adoption of ASU No. 2016-13 to have a material impact on its financial statements.

10

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(2) Earnings Per Share

A portion of the Company's non-vested share-based payment awards are considered participating securities and as such, the Company is required to use the two-class method for the computation of basic and diluted earnings per share. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The non-vested share-based payment awards are not allocated losses as the awards do not have a contractual obligation to share in losses of the Company.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
BASIC
Net income attributable to common shareholders	$	141,560	$	216,190	$	189,657	$	197,010
Weighted-average number of common shares outstanding - basic	236,285,216		237,354,669		233,833,340		237,577,198
Net income attributable to common shareholders - per common share basic	$	0.60	$	0.91	$	0.81	$	0.83
DILUTED
Net income attributable to common shareholders - basic	$	141,560	$	216,190	$	189,657	$	197,010
Impact of assumed conversions	1,573		4,159		—		2,505
Net income attributable to common shareholders	$	143,133	$	220,349	$	189,657	$	199,515
Weighted-average common shares outstanding - basic	236,285,216		237,354,669		233,833,340		237,577,198
Effect of dilutive securities:
Unvested share-based payment awards and options	359,503		382,956		178,303		463,922
Preferred shares - Series C	4,710,570		4,710,570		—		—
OP Units	—		3,610,103		—		3,619,468
Weighted-average common shares outstanding - diluted	241,355,289		246,058,298		234,011,643		241,660,588
Net income attributable to common shareholders - per common share diluted	$	0.59	$	0.90	$	0.81	$	0.83

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.

11

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(3) Investments in Real Estate

The Company completed the following acquisition transactions during the nine months ended September 30, 2019:

Property Type	Market	Acquisition Date	Initial Cost Basis		Primary Lease Expiration	Land		Building and Improvements		Lease in-place Value Intangible		Below Market Lease Intangible
Industrial	Indianapolis, IN	January 2019	$	20,809	07/2025	$	1,954	$	16,820	$	2,035	$	—
Industrial	Atlanta, GA	February 2019	37,182		10/2023	3,253		30,951		2,978		—
Industrial	Dallas, TX	April 2019	28,201		08/2023	2,420		23,330		2,451		—
Industrial	Spartanburg, SC	April 2019	33,253		01/2024	1,615		27,829		3,809		—
Industrial	Memphis, TN	May 2019	49,395		04/2024	2,646		40,452		6,297		—
Industrial	Memphis, TN	May 2019	18,316		05/2023	851		15,465		2,000		—
Industrial	Atlanta, GA	June 2019	45,441		05/2020	3,251		40,023		2,167		—
Industrial	Atlanta, GA	June 2019	27,353		05/2024	2,536		22,825		1,992		—
Industrial	Cincinnati, OH	September 2019	13,762		12/2023	544		12,376		842		—
Industrial	Cincinnati, OH	September 2019	100,288		06/2030	3,950		88,427		7,911		—
Industrial	Cincinnati, OH	September 2019	65,763		08/2027	3,123		60,703		5,392		(3,455		)
			$	439,763		$	26,143	$	379,201	$	37,874	$	(3,455	)

(4) Dispositions and Impairment

During the nine months ended September 30, 2019 and 2018, the Company disposed of its interests in various properties for an aggregate gross disposition price of $448,900 and $967,799, respectively, and recognized aggregate gains on sales of properties of $176,662 and $239,577, respectively, including, in 2018, the disposition of 21 office assets to a newly-formed joint venture with an unaffiliated third-party, NNN Office JV L.P. (“NNN JV”). See note 6. During the nine months ended September 30, 2019 and 2018, the Company recognized debt satisfaction charges, net of $4,415 and $1,698, respectively, relating to sold properties.

As of September 30, 2019, the Company had seven properties classified as held for sale. As of December 31, 2018, the Company had two properties classified as held for sale. The properties were classified as held for sale because the properties were either under contract for sale and/or a sale of the property to a third party within the next 12 months was deemed probable.

12

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

Assets and liabilities of held for sale properties as of September 30, 2019 and December 31, 2018 consisted of the following:

	September 30, 2019			December 31, 2018
Assets:
Real estate, at cost	$	108,763		$	63,639
Real estate, intangible assets	16,641			14,498
Accumulated depreciation and amortization	(76,423		)	(16,873		)
Rent receivable - deferred	2,486			2,439
Other	6,564			165
	$	58,031		$	63,868
Liabilities:
Accounts payable and other liabilities	$	4,741		$	42
Prepaid rent	556			344
	$	5,297		$	386

The Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability, change in the estimated holding period of the asset and the potential sale or transfer 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 and the Company estimates that its cost will not be recovered. During the nine months ended September 30, 2019 and 2018, the Company recognized aggregate impairment charges on real estate properties of $2,355 and $90,860, respectively. Included in the impairment charges recognized during the nine months ended September 30, 2019 are impairment charges of $2,106 recognized on a vacant retail property in Watertown, New York and $249 recognized on a vacant retail property in Albany, Georgia, which was sold in August 2019. Included in the impairment charges recognized during the nine months ended September 30, 2018, are impairment charges of $17,906 recognized on a vacant encumbered office property in Overland Park, Kansas, whose mortgage is currently in default and property is in receivership, $5,591 recognized on an office property in Kansas City, Missouri, and $25,585 recognized on an unencumbered office property in Memphis, Tennessee, which was sold in December 2018.

(5) Fair Value Measurements

The following tables present the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2019 and December 31, 2018, aggregated by the level in the fair value hierarchy within which those measurements fall:

		Balance			Fair Value Measurements Using
Description		September 30, 2019			(Level 1)		(Level 2)			(Level 3)
Impaired property held for sale	(1)	$	500		$	—	$	500		$	—
Interest rate swap liabilities		$	(5,549	)	$	—	$	(5,549	)	$	—

		Balance		Fair Value Measurements Using
Description		December 31, 2018		(Level 1)		(Level 2)		(Level 3)
Interest rate swap assets		$	76	$	—	$	76	$	—
Impaired real estate assets	(1)	$	35,036	$	—	$	—	$	35,036

(1) Represents a non-recurring fair value measurement. Fair value as of the date of the impairment.

13

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The majority of the inputs used to value the Company's interest rate swaps fell within Level 2 of the fair value hierarchy, such as observable market interest rate curves; however, the credit valuation associated with the interest rate swaps utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of September 30, 2019 and December 31, 2018, the Company determined that the credit valuation adjustment relative to the overall fair value of the interest rate swaps was not significant. As a result, the interest rate swaps were classified in Level 2 of the fair value hierarchy.

The Company estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income and market valuation techniques. The Company may estimate fair values using market information such as recent sale contracts (Level 2 inputs) or recent sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. To the extent the Company under estimates forecasted cash outflows (tenant improvements, lease commissions and operating costs) or over estimates forecasted cash inflows (rental revenue rates), the estimated fair value of its real estate assets could be overstated.

The table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments as of September 30, 2019 and December 31, 2018:

	As of September 30, 2019				As of December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities
Debt	$	1,295,888	$	1,257,907	$	1,492,483	$	1,409,773

The fair value of the Company's debt is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis, based upon estimates of market interest rates, except for the Company's senior notes payable. The Company determines the fair value of its senior notes payable using market prices. The inputs used in determining the fair value of these notes are categorized as Level 1 due to the fact that the Company uses quoted market rates to value these instruments. However, the inputs used in determining the fair value could be categorized as Level 2 if trading volumes are low.

Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.

Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable. The Company estimates that the fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.

14

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(6) Investments in Non-Consolidated Entities

Below is a schedule of the Company's investments in non-consolidated entities:

		Percentage Ownership at	Investment Balance as of
Investment		September 30, 2019	September 30, 2019		December 31, 2018
NNN JV	(1)	20%	$	41,780	$	53,144
Etna Park 70 LLC	(2)	90%	6,661		4,774
Other	(3)	25%	5,355		8,265
			$	53,796	$	66,183

(1) During 2018, the Company disposed of 21 office assets to NNN JV for an aggregate gross disposition price of $725,800 and acquired a 20% interest in NNN JV. Two of the 21 properties, with a combined estimated fair value of $45,653, were contributed to NNN JV along with cash of $8,053. The Company recognized a gain of $14,645 in connection with the contribution of the two office assets to NNN JV, and in addition, NNN JV assumed an aggregate of $103,400 of non-recourse mortgage debt in the transaction. NNN JV obtained an aggregate of $362,800 of non-recourse mortgage financing which bears interest at LIBOR plus 200 basis points and has an initial term of three years but can be extended for two additional terms of one year each. There is a rate increase of 15 basis points upon each extension. NNN JV entered into interest rate agreements which cap the LIBOR component of the $362,800 mortgage financing at 4.0% for two years.

(2) The joint venture was formed in 2017 with a developer entity to acquire a 151-acre parcel of developable land and pursue industrial build-to-suit opportunities. The developer entity has substantive participation rights. In December 2018, the parcel was subdivided and the Company received a distribution of an ownership interest in a 57-acre parcel with a historic cost of $3,008. The Company acquired control of the 57-acre parcel via the purchase of the Company's joint venture partners' interest.

(3) As of September 30, 2019, represents one joint venture investment, which owns a single-tenant, net-leased asset.

In February 2019, a non-consolidated real estate entity, in which the Company owned a 15% ownership interest, sold its only asset and the Company received $2,317 of proceeds. The Company recognized a gain on the transaction of $824, which is included in equity in earnings of non-consolidated entities in its unaudited condensed consolidated statement of operations.

During the nine months ended September 30, 2019, NNN JV sold four assets for aggregate gross proceeds of $148,450, resulting in aggregate gains on sale of $17,644. The Company recognized aggregate gains on the transactions of $3,529 within equity in earnings of non-consolidated entities in its unaudited condensed consolidated statement of operations. In conjunction with these property sales, NNN JV received aggregate net proceeds of $45,208 after satisfaction of an aggregate of $101,520 of its non-recourse mortgage indebtedness. As of September 30, 2019, NNN JV had total assets of $603,100 and total liabilities of $394,142. The properties are encumbered by an aggregate of $374,680 of non-recourse mortgage debt as of September 30, 2019.

(7) Debt

The Company had the following mortgages and notes payable outstanding as of September 30, 2019 and December 31, 2018:

	September 30, 2019			December 31, 2018
Mortgages and notes payable	$	378,249		$	575,514
Unamortized debt issuance costs	(3,706		)	(5,094		)
	$	374,543		$	570,420

Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.5% to 6.5% and 2.2% and 6.5% at September 30, 2019 and December 31, 2018, respectively, and all mortgages and notes payables mature between 2019 and 2036 as of September 30, 2019. The weighted-average interest rate was 4.6% and 4.5% at September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019, the Company had two non-recourse mortgage loans that were in default with an outstanding aggregate principal balance of $38,942. Each mortgage loan is secured by an office property (Overland Park, Kansas and Charleston, South Carolina), which was vacant or mostly vacant at September 30, 2019.

15

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The Company had the following senior notes outstanding as of September 30, 2019 and December 31, 2018:

Issue Date	September 30, 2019			December 31, 2018			Interest Rate		Maturity Date	Issue Price
May 2014	$	250,000		$	250,000		4.40	%	June 2024	99.883	%
June 2013	250,000			250,000			4.25	%	June 2023	99.026	%
	500,000			500,000
Unamortized debt discount	(1,031		)	(1,235		)
Unamortized debt issuance cost	(2,308		)	(2,731		)
	$	496,661		$	496,034

Each series of the senior notes is unsecured and requires payment of interest semi-annually in arrears. The Company may redeem the notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus a premium.

The Company has an unsecured credit agreement with KeyBank National Association, as agent. A summary of the significant terms, as of September 30, 2019, is as follows:

	Maturity Date	Current Interest Rate
$600,000 Revolving Credit Facility(1)	February 2023	LIBOR + 0.90%
$300,000 Term Loan(1)(2)	January 2025	LIBOR + 1.00%

(1) In February 2019, the Company replaced its revolving credit facility and the $300,000 term loan with a new revolving credit facility and the continuation of the $300,000 term loan (the “2019 Credit Agreement”). The 2019 Credit Agreement, among other things: (i) increased the total commitment of the revolving credit facility from $505,000 under the previous credit facility to $600,000 under the 2019 Credit Agreement; (ii) extended the maturity date of the revolving credit facility from August 2019 to February 2023 and allowed for the extension to February 2024 at the Company's option; and (iii) reduced the applicable margin rates. In July 2019, the Company extended the maturity of the $300,000 term loan from January 2021 to January 2025 and swapped the LIBOR portion of the interest rate to obtain a current fixed rate of 2.732% per annum. The Company recognized $93 of debt satisfaction charges in connection with these transactions.

At September 30, 2019, the revolving credit facility had no borrowings outstanding and availability of $600,000, subject to covenant compliance.

(2) The aggregate unamortized debt issuance costs for the term loan was $2,687 and $1,267 as of September 30, 2019 and December 31, 2018, respectively.

The Company was compliant with all applicable financial covenants contained in its corporate-level debt agreements at September 30, 2019.

During 2007, the Company issued $200,000 original principal amount of Trust Preferred Securities. The Trust Preferred Securities, which are classified as debt, are due in 2037, are open for redemption at the Company's option, bore interest at a fixed rate of 6.804% through April 2017 and bear interest at a variable rate of three month LIBOR plus 170 basis points through maturity. The interest rate at September 30, 2019 was 3.966%. As of September 30, 2019 and December 31, 2018, there was $129,120 original principal amount of Trust Preferred Securities outstanding and $1,749 and $1,824, respectively, of unamortized debt issuance costs.

Capitalized interest recorded during the nine months ended September 30, 2019 and 2018 was $251 and $15, respectively.

16

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(8) 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 the 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 is determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.

Cash Flow Hedges of Interest Rate Risk. The Company's objectives in using interest rate derivatives are to add stability to interest expense, to manage its exposure to interest rate movements and therefore manage its cash outflows as it relates to the underlying debt instruments. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy relating to certain of its variable-rate debt instruments. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

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 did not incur any ineffectiveness during the nine months ended September 30, 2019 and 2018.

During July 2019, the Company entered into four interest rate swap agreements with its counterparties. The swaps were designated as cash flow hedges of the risk of variability attributable to changes in the LIBOR swap rates on its $300,000 LIBOR-indexed variable-rate unsecured term loan. Accordingly, changes in fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable. The swaps expire coterminous with the extended maturity of the term loan in January 2025. During the next 12 months ending September 30, 2020, the Company estimates that an additional $259 will be reclassified as an increase to interest expense if the swaps remain outstanding.

Interest Rate Derivative	Number of Instruments	Notional
Interest Rate Swaps	4	$300,000

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the condensed consolidated balance sheets:

	As of September 30, 2019				As of December 31, 2018
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Swaps	Accounts Payable and Other Liabilities	$	(5,549	)	Other Assets	$	76

17

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The table below presents the effect of the Company's derivative financial instruments on the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2019 and 2018.

Derivatives in Cash Flow	Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) September 30,					Amount of Income Reclassified from Accumulated OCI into Income (Effective Portion)(1) September 30,
Hedging Relationships	2019			2018		2019			2018
Interest Rate Swaps	$	(5,326	)	$	600	$	(299	)	$	(1,013	)

(1) Amounts reclassified from accumulated other comprehensive income to interest expense within the unaudited condensed consolidated statement of operations.

The Company's agreements with swap derivatives counterparties contain provisions whereby if the Company defaults on the underlying indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of the swap derivative obligation. As of September 30, 2019, the Company had not posted any collateral related to the agreements.

(9) Lease Accounting

The following is a summary of the Company's accounting for leases as of and during the nine-month period ended September 30, 2019:

Lessor

Lexington’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased industrial and office real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred.

Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before.

Accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.

From a lessor perspective, the Company concluded that revenue from lease components are primarily recognized on a straight-line basis over the lease term unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Revenue is recognized on a contractual basis for leases with escalations tied to a Consumer Price Index (CPI) with no floor. If the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition commences when the improvements are substantially complete and control of the space is turned over to the tenant. If the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and amortized as a reduction of revenue on a straight-line basis over the respective lease term. The Company recognizes lease termination fees as rental revenue in the period received and writes off unamortized lease-related intangible and other lease-related account balances, provided there are no further Company obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period with the termination payments being recorded as a component of rent receivable-deferred on the unaudited condensed consolidated balance sheets.

18

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectable, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease payments were considered not probable. During the nine months ended September 30, 2019, rental revenue was reduced by $352 for accounts receivable deemed uncollectable primarily related to the tenant in Thompson, Georgia filing for bankruptcy. In August 2019, the tenant of the Columbus, Indiana property began paying rent into a court administered account. See note 13. The litigation is in an early stage and discovery is ongoing. Due to the inherent uncertainty of, and the early stage of this, litigation, the Company is not recognizing an outstanding rent receivable of $1,100, until there is more certainty in the litigation.

The Company determined that the lease and non-lease components in its leases are a single lease component and is, therefore, being recognized as rental revenue in its unaudited condensed consolidated statements of operations. The primary non-lease service that is included within rental revenue is CAM services provided as part of the Company’s real estate leases. Topic 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. As of September 30, 2019, the Company incurred $163 of costs that were not incremental to the execution of leases, which are included in property operating expenses on its unaudited condensed consolidated statements of operations.

The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.

The following table presents the Company’s classification of rental revenue for its operating leases for the nine months ended September 30, 2019:

Classification	Fixed		Variable(1)		Total
Rental revenue	$	218,808	$	20,250	$	239,058

(1) Primarily comprised of tenant reimbursements.

Future fixed rental receipts for leases, assuming no new or re-negotiated leases as of September 30, 2019 were as follows:

2019 - remainder	$	66,925
2020	260,932
2021	249,047
2022	233,729
2023	229,641
2024	198,098
Thereafter	1,318,432
Total	$	2,556,804

19

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

Minimum future lease payments under the non-cancellable portion of tenant leases, assuming no new or re-negotiated leases, for the next five years and thereafter in accordance with ASC Topic 840 as of December 31, 2018 were as follows:

Year ending December 31,	Total
2019	$	270,557
2020	253,660
2021	233,192
2022	212,893
2023	211,387
Thereafter	1,619,848
	$	2,801,537

Lessee

The Company has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of September 30, 2019. The leases have remaining lease terms of up to 44 years, some of which include options to extend the leases in 5 to 10-year increments for up to 54 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. Minimum lease payments for leases that commenced before the date of adoption of ASC 842 were determined based on previous leases guidance under ASC 840. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.

The accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.

The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.

As the Company does not know the rate implicit in the respective leases, the Company used its incremental borrowing rate based on the information available at the transition date for such existing leases. The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.

Supplemental information related to operating leases is as follows:

Weighted-average remaining lease term
Operating leases (years)	12.4
Weighted-average discount rate
Operating leases	4.1	%

20

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The components of lease expense for the nine months ended September 30, 2019 were as follows:

Income Statement Classification	Fixed		Variable		Total
Property operating	$	2,988	$	—	$	2,988
General and administrative	1,007		85		1,092
Total	$	3,995	$	85	$	4,080

The Company recognized sublease income of $2,823 for the nine months ended September 30, 2019.

The following table shows the Company's maturity analysis of its operating lease liabilities as of September 30, 2019:

	Operating Leases
2019 - remainder	$	1,240
2020	5,236
2021	5,060
2022	5,134
2023	5,279
2024	5,301
Thereafter	25,622
Total lease payments	$	52,872
Less: Imputed interest	(12,597		)
Present value of lease liabilities	$	40,275

The following table shows the Company's future minimum lease rental payments under non-cancellable leasehold interests in accordance with ASC Topic 840 as of December 31, 2018:

Year ending December 31,	Total
2019	$	3,826
2020	3,827
2021	3,769
2022	3,834
2023	4,008
Thereafter	28,326
	$	47,590

(10) 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 nine months ended September 30, 2019 and 2018, no single tenant represented greater than 10% of rental revenues.

Cash and cash equivalent balances at certain institutions may exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions.

21

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(11) Equity

Shareholders' Equity. During the nine months ended September 30, 2019, the Company updated its At-The-Market offering program (“ATM program”) under which the Company could issue up to $100,000 in common shares over the term of the program. During the nine months ended September 30, 2019, the Company issued 3,020,190 common shares under its ATM program and generated net proceeds of $31,083. As of September 30, 2019, $68,366 in common shares remain available for issuance under the ATM program. The Company did not issue common shares under its ATM offering program during the nine months ended September 30, 2018.

During the nine months ended September 30, 2019, the Company issued 10,000,000 common shares at $10.09 per common share in an underwritten offering and generated net proceeds of $100,749. The proceeds were used for working capital and for general corporate purposes, including acquisitions.

In addition, during the nine months ended September 30, 2019 and 2018, the Company issued 54,726 and 57,055, respectively, fully vested common shares to non-management members of the Company's Board of Trustees with a fair value of $470 and $518, respectively.

In July 2015, the Company's Board of Trustees authorized the repurchase of up to 10,000,000 common shares and, in 2018, increased this authorization by 10,000,000 common shares. This share repurchase program has no expiration date. During the nine months ended September 30, 2019 and 2018, the Company repurchased and retired 441,581 and 1,871,655 common shares, respectively, at an average price of $8.13 and $8.01, respectively, per common share under the share repurchase program. As of September 30, 2019, 10,306,255 common shares remain available for repurchase under this authorization. The Company records a liability for repurchases that have not yet been settled as of period end. There were no unsettled repurchases as of September 30, 2019.

A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows:

	Nine Months Ended September 30,
	2019			2018
Balance at beginning of period	$	76		$	1,065
Other comprehensive income (loss) before reclassifications	(5,326		)	600
Amounts of loss reclassified from accumulated other comprehensive income to interest expense	(299		)	(1,013		)
Balance at end of period	$	(5,549	)	$	652

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 for common shares at certain times, at the option of the holders, and are generally not otherwise mandatorily redeemable by the Company. The OP units are classified as a component of permanent equity as the Company has determined that the OP units are not redeemable securities as defined by GAAP. Each OP unit is currently redeemable at the holder's option for approximately 1.13 common shares, subject to future adjustments.

As of September 30, 2019, there were approximately 3,051,000 OP units outstanding other than OP units owned by the Company. All OP units receive distributions in accordance with the LCIF partnership agreement. To the extent that the Company's dividend per common share is less than the stated distribution per OP unit per the LCIF partnership agreement, the distributions per OP unit are reduced by the percentage reduction in the Company's dividend per common share. No OP units have a liquidation preference.

22

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

The following discloses the effects of changes in the Company's ownership interests in its noncontrolling interests:

	Net Income Attributable to Shareholders and Transfers from Noncontrolling Interests
	Nine Months Ended September 30,
	2019		2018
Net income attributable to Lexington Realty Trust shareholders	$	194,679	$	202,007
Transfers from noncontrolling interests:
Increase in additional paid-in-capital for redemption of noncontrolling OP units	504		63
Change from net income attributable to shareholders and transfers from noncontrolling interests	$	195,183	$	202,070

(12)Related Party Transactions

In 2018, a joint venture that owns a property in Houston, Texas obtained $8,500 of mezzanine financing from an affiliate of the Company's former Chairman, E. Robert Roskind. The non-recourse mezzanine financing was funded pursuant to the terms of the EB-5 visa program administered by the United States Citizenship and Immigration Services (“USCIS”). At closing, the joint venture reimbursed the former Chairman's affiliate $150 for its expenses. Under an indemnity agreement, the joint venture pays an affiliate of the Company's former Chairman 0.625% of the outstanding principal amount of the EB-5 mezzanine financing per annum.

In addition, during 2017, the Company obtained non-recourse mezzanine financing in the initial amount of $8,000 from an affiliate of the Company's former Chairman, pursuant to the terms of the EB-5 visa program administered by the USCIS, for an investment in Charlotte, North Carolina. In January 2018, the Company obtained an additional $500 of financing proceeds. At closing, the Company reimbursed the former Chairman's affiliate approximately $105 for its expenses and paid a $128 structuring fee to the former Chairman's affiliate. The property was subsequently contributed to, and the financing was assumed by, NNN JV. See note 6.

There were no other related party transactions other than those disclosed elsewhere in this Quarterly Report and the audited consolidated financial statements in the Annual Report.

(13) Commitments and Contingencies

In addition to the commitments and contingencies disclosed elsewhere and previously disclosed, the Company has the following commitments and contingencies.

The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.

The Company and LCIF are parties to a funding agreement under which the Company may be required to fund distributions made on account of LCIF's OP units. Pursuant to the funding agreement, the parties agreed that, if LCIF does not have sufficient cash available to make a quarterly distribution to its limited partners in an amount in accordance with the partnership agreement, Lexington will fund the shortfall. Payments under the agreement will be made in the form of loans to LCIF and will bear interest at prevailing rates as determined by the Company in its discretion, but no less than the applicable federal rate. LCIF's right to receive these loans will expire if no OP units remain outstanding and all such loans are repaid. No amounts have been advanced under this agreement.

23

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

From time to time, the Company is, directly and indirectly, involved in legal proceedings arising in the ordinary course of business. Management believes, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on the Company's business, financial condition and results of operations, except for the following:

Cummins Inc. v. Lexington Columbus (Jackson Street) L.P. and Wells Fargo Trust Company, N.A. (State of Indiana, County of Bartholomew, in the Bartholomew Superior Court). On October 25, 2018, Cummins Inc., the tenant in the Columbus, Indiana office building, filed a complaint for declaratory relief against Lexington Columbus (Jackson Street) L.P. (“Lex Columbus”), the Company's property owner subsidiary, and Wells Fargo Trust Company, N.A., the trustee for the noteholders with a security interest in the office building.

Despite failing to timely provide notice of intent to exercise a purchase option for the office building that was expressly due by July 15, 2018, where time was of the essence, Cummins Inc. has asked the court for a declaration that it is entitled to purchase the building at the option price and to terminate the lease effective July 31, 2019. Cummins Inc. does not dispute that it failed to comply with the requirements of the purchase option, but alleges that it is entitled to relief under several equitable theories.

Under the subject lease, the failure of Cummins Inc. to exercise its purchase option and to give notice of non-renewal, Cummins Inc.’s tenancy extends through July 31, 2024, with options to further extend for additional time periods.

Lex Columbus filed a motion to dismiss the complaint on January 8, 2019, which was denied on May 24, 2019.

On July 22, 2019, Cummins Inc. filed a motion to authorize depositing of disputed funds into a special court administered account with respect to the rent due under the lease on and after August 1, 2019, which Lex Columbus opposed.  On July 31, 2019, the Court granted the motion by Cummins Inc. to deposit future rent due under the lease into a Court administered account.

On July 31, 2019, Cummins Inc. filed a motion to authorize depositing of the option purchase price into a special court administered account, which the Court has not taken action on.

Lex Columbus filed an answer, affirmative and other defenses and a counterclaim for damages and declaratory relief on August 7, 2019. Lex Columbus filed a jury demand on August 19, 2019.

On August 15, 2019, Lex Columbus filed, with the Indiana Court of Appeals, a notice of appeal of the order permitting Cummins Inc. to deposit future rent into a Court administered account.

On August 19, 2019, Lex Columbus filed a motion for automatic change of judge.  On August 28, 2019, the Court granted the motion. On September 12, 2019, the Court ordered the appointment of a special judge.    

On August 27, 2019, Cummins Inc. filed its answer Lex Columbus’s counterclaim, and filed an amended answer on August 28, 2019.

On September 5, 2019, the parties entered into a stipulation dismissing Wells Fargo Trust Company, N.A. from the action. 

On October 31, 2019, Lex Columbus filed with the Indiana Court of Appeals its appellant’s brief with respect to the Court’s order authorizing Cummins to deposit future rents under the lease into a Court administered account.

As of September 30, 2019, the rent payments held in escrow were $1,231. Discovery is ongoing.

The Company believes that Indiana law supports Lex Columbus's right to enforce strict compliance with the terms of the option to purchase under the lease and retain ownership of the building and the Company intends to vigorously defend this claim.

24

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019 and 2018

(Unaudited and dollars in thousands, except share/unit and per share/unit data)

(14) Supplemental Disclosure of Statement of Cash Flow Information

In addition to disclosures discussed elsewhere, during the nine months ended September 30, 2019 and 2018, the Company paid $40,798 and $55,033, respectively, for interest and $1,321 and $1,444, respectively, for income taxes.

During the nine months ended September 30, 2019, the Company sold its Richland, Washington property, which included the assumption by the buyer of the related non-recourse mortgage debt in the amount of $110,000.

Upon adoption of Topic 842, the Company recognized initial operating lease right-of-use assets of $41,755 and initial operating lease liabilities of $43,004.

(15) Subsequent Events

Subsequent to September 30, 2019, the Company:

• satisfied an aggregate of $15,716 non-recourse mortgage loans;

• acquired three industrial assets for an aggregate cost of approximately $53,393; and

• sold three assets for an aggregate gross sales price of $13,775.

25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Introduction

When we use the terms “the Company,” “we,” “us” and “our,” we mean Lexington Realty Trust and all entities owned by us, including non-consolidated entities, except where it is clear that the term means only Lexington Realty Trust. References herein to ‘‘this Quarterly Report” are to this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2019. The results of operations contained herein for the three and nine months ended September 30, 2019 and 2018 are not necessarily indicative of the results that may be expected for a full year.

The following is a discussion and analysis of the unaudited condensed consolidated financial condition and results of operations of Lexington Realty Trust for the three and nine months ended September 30, 2019 and 2018, and significant factors that could affect its prospective financial condition and results of operations. This discussion should be read together with the accompanying unaudited condensed consolidated financial statements of the Company included herein and notes thereto and with the consolidated financial statements and notes thereto included in the Company's most recent Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on March 13, 2019, which we refer to as the Annual Report. Historical results may not be indicative of future performance.

Forward-Looking Statements. This Quarterly Report, together with other statements and information publicly disseminated by us, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects,” “may,” “plans,” “predicts,” “will,” “will likely result” or similar expressions. Readers should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. In particular, the factors that could cause actual results, performances or achievements to differ materially from current expectations, strategies or plans include, among others, any risks discussed below in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and under the headings “Risk Factors” in this Quarterly Report and “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report and other periodic reports filed by the Company with the SEC. Except as required by law, we undertake no obligation to publicly release any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.

Overview

General. We are a Maryland real estate investment trust, or REIT, that owns a diversified portfolio of equity investments in single-tenant commercial properties.

As of September 30, 2019, we had ownership interests in approximately 135 consolidated real estate properties, located in 32 states and containing an aggregate of approximately 50.5 million square feet of space, approximately 97.4% of which was leased. The properties in which we have an interest are primarily net leased to tenants in various industries.

Our revenues and cash flows are generated predominantly from property rent receipts. As a result, growth in revenues and cash flows is directly correlated to our ability to (1) acquire income producing real estate investments and (2) re-lease properties that are vacant, or may become vacant, at favorable rental rates.

Our current business strategy is focused on enhancing our cash flow stability, growing our portfolio with attractive leased industrial investments, reducing lease rollover risk and maintaining a strong and flexible balance sheet to allow us to act on opportunities as they arise. To that end, during 2019, we continue to strive to be an active seller of non-core assets such as office properties, retail properties and vacant properties. In addition, we continue our efforts to increase the percentage of industrial assets in our portfolio, including through limited speculative development. Our non-core asset sales efforts and acquisitions of 11 industrial assets during the nine months ended September 30, 2019, have resulted in our percentage of gross book value from industrial assets, excluding held for sale assets, to increase to 77.7% as of September 30, 2019.

26

The investment market for industrial assets, specifically warehouse and distribution assets, remains competitive. Many prospective tenants are interested in facilities that are partially built and can be completed to the tenant's specifications because of the need to be operational in a short amount of time. As a result, the traditional build-to-suit arrangement is not as attractive to tenants with more immediate space needs. We believe that limited speculative development, primarily through joint ventures, will allow us to be competitive in the investment market.

Leasing Activity. Re-leasing properties that are currently vacant or as leases expire at favorable effective rates is one of our primary areas of focus for asset management. We strive to manage down our shorter-term leases and extend their lease terms.

During the third quarter of 2019, we entered into new leases and lease extensions encompassing 1.6 million square feet. The average fixed rent on these extended leases was $5.79 per square foot compared to the average fixed rent on these leases before extension of $5.67 per square foot. The weighted-average cost of tenant improvements and lease commissions was $1.00 per square foot for new leases and $0.50 per square foot for extended leases.

Third Quarter 2019 Transaction Summary.

The following summarizes our significant transactions during the three months ended September 30, 2019.

Investments/Capital Recycling:

• Acquired three industrial properties for an aggregate cost of $179.8 million.

• Disposed of our interests in six consolidated properties for an aggregate gross disposition price of $328.6 million.

Debt:

• Extended the maturity of our $300.0 million term loan to January 2025 and swapped the LIBOR portion of the interest rate to a current fixed rate of 2.732% per annum.

• Satisfied $161.8 million of non-recourse debt, including debt encumbering assets sold.

Equity:

• Issued 10.0 million common shares in an underwritten offering and generated net proceeds of $100.7 million.

• Issued 3.0 million common shares under our At-the-Market offering program and generated net proceeds of $31.1 million.

Acquisition/Disposition Activity

During the nine months ended September 30, 2019, we completed the following industrial acquisition transactions, inclusive of the acquisitions above:

Market	Square Feet	Capitalized Cost (millions)		Date Acquired	Approximate Lease Term (years)
Indianapolis, IN	380,000	$	20.8	January 2019	7
Atlanta, GA	676,000	37.2		February 2019	5
Dallas, TX	510,000	28.2		April 2019	4
Spartanburg, SC	408,000	33.3		April 2019	5
Memphis, TN	928,000	49.4		May 2019	5
Memphis, TN	270,000	18.3		May 2019	4
Atlanta, GA	605,000	45.4		June 2019	1
Atlanta, GA	370,000	27.4		June 2019	5
Cincinnati, OH	144,000	13.7		September 2019	4
Cincinnati, OH	1,299,000	100.3		September 2019	11
Cincinnati, OH	994,000	65.8		September 2019	8
	6,584,000	$	439.8

During the nine months ended September 30, 2019, we disposed of twelve properties, inclusive of the dispositions above, for an aggregate gross disposition price of $448.9 million, generating net proceeds of $334.4 million.

27

Critical Accounting Policies

Management's discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing our unaudited condensed consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. Certain of our accounting policies are discussed under (1) Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report, (2) note 2 to our consolidated financial statements contained in our Annual Report and (3) note 1 to our unaudited condensed consolidated financial statements contained in this Quarterly Report. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842); see notes 1 and 9 in the accompanying Notes to the Condensed Consolidated Financial Statements in this Quarterly Report.

Liquidity and Capital Resources

Cash Flows. We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with applicable REIT requirements in both the short-term and long-term. In addition, we anticipate that cash on hand, borrowings under our unsecured revolving credit facility, capital recycling proceeds, issuances of equity, mortgage proceeds and other debt, as well as other available alternatives, will provide the necessary capital required by our business.

At September 30, 2019, we had $39.9 million and $32.0 million of property-specific mortgage balloon debt due in 2019 and 2020, respectively. We believe we have sufficient sources of liquidity to meet obligations we are required to meet through cash on hand ($126.1 million at September 30, 2019), property sale proceeds, borrowing capacity under our unsecured revolving credit facility ($600.0 million at September 30, 2019), which expires in 2023, but can be extended by us to 2024, and future cash flows from operations.

The mortgages encumbering the properties in which we have an interest are generally non-recourse to us, such that in situations where we believe it is beneficial to satisfy a mortgage obligation by transferring title of the property to the lender, including through a foreclosure, we may do so.

Cash flows from operations were $142.9 million for the nine months ended September 30, 2019 as compared to $169.7 million for the nine months ended September 30, 2018. The decrease was primarily related to the impact of property sales and vacancies partially offset by cash flows generated from acquired properties. The underlying drivers that impact our working capital, and therefore cash flows from operations, are the timing of collection of rents, including reimbursements from tenants, payment of interest on mortgage debt and payment of operating and general and administrative costs. We believe the net-lease structure of the leases encumbering a majority of the properties in which we have an interest mitigates the risks of the timing of cash flows from operations since the payment and timing of operating costs related to the properties are generally borne directly by the tenant. Collection and timing of tenant rents are closely monitored by management as part of our cash management program.

Net cash provided by (used in) investing activities totaled $(114.7) million and $577.5 million during the nine months ended September 30, 2019 and 2018, respectively. Cash provided by investing activities related primarily to proceeds from the sale of properties and distributions from non-consolidated entities. Cash used in investing activities related primarily to acquisitions of real estate, capital expenditures, lease costs, investments in non-consolidated entities and changes in real estate deposits, net.

Net cash used in financing activities totaled $71.7 million and $467.3 million during the nine months ended September 30, 2019 and 2018, respectively. Cash used in financing activities was primarily attributable to dividend and distribution payments, repayment of debt obligations and repurchases of common shares. Cash provided by financing activities related primarily to revolving credit facility borrowings, proceeds from mortgages and notes payable and issuances of common shares.

Dividends. Dividends paid to our common and preferred shareholders were $96.1 million and $132.1 million in the nine months ended September 30, 2019 and 2018, respectively.

UPREIT Structure. As of September 30, 2019, 3.1 million units of limited partner interests, or OP units, in our operating partnership, LCIF, were outstanding not including OP units held by us. Assuming all outstanding OP units not held by us were redeemed on such date, the estimated fair value of such OP units was $35.2 million based on our closing price of $10.25 per common share as of September 30, 2019 and a redemption factor of approximately 1.13 common shares per OP unit.

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Financings. The following senior notes were outstanding as of September 30, 2019:

Issue Date	Face Amount ($000)		Interest Rate		Maturity Date	Issue Price
May 2014	$	250,000	4.40	%	June 2024	99.883	%
June 2013	250,000		4.25	%	June 2023	99.026	%
	$	500,000

The senior notes are unsecured and pay interest semi-annually in arrears. We may redeem the senior notes at our option at any time prior to maturity in whole or in part by paying the principal amount of the senior notes being redeemed plus a premium.

We have an unsecured credit agreement with KeyBank National Association, as agent. A summary of the significant terms, as of September 30, 2019, is as follows:

	Maturity Date	Current Interest Rate
$600.0 Million Revolving Credit Facility(1)	February 2023	LIBOR + 0.90%
$300.0 Million Term Loan(1)	January 2025	LIBOR + 1.00%

(1) In February 2019, we replaced our revolving credit facility and the $300 million term loan with a new revolving credit facility and the continuation of the $300 million term loan (the “2019 Credit Agreement”). The 2019 Credit Agreement, among other things,: (i) increased the total commitment of the revolving credit facility from $505.0 million under the previous credit facility to $600.0 million under the 2019 Credit Agreement; (ii) extended the maturity date of the revolving credit facility from August 2019 to February 2023 and allowed for the extension to February 2024 at our option; and (iii) reduced the applicable margin rates on both the revolving credit facility and term loan due in 2021. In July 2019, we extended the maturity of the $300 million term loan to January 2025 and swapped the LIBOR portion of the interest rate to obtain a current fixed rate of 2.732% per annum. At September 30, 2019, the revolving credit facility had no borrowings outstanding and availability of $600.0 million, subject to covenant compliance.

As of September 30, 2019, we were compliant with all applicable financial covenants contained in our corporate-level debt agreements.

Results of Operations

Three months ended September 30, 2019 compared with three months ended September 30, 2018.

The decrease in net income attributable to common shareholders of $74.6 million was primarily due to the items discussed below.

The decrease in total gross revenues of $18.7 million was primarily attributable to a decrease in rental revenue of $19.6 million, offset, in part, by an increase in other revenue of $0.9 million. The decrease in rental revenue primarily related to property sales of $21.5 million, $2.7 million related to changes in occupancy and a decrease of $3.5 million related to the acceleration of below-market lease intangible accretion on three retail assets in 2018. These decreases were partially offset by an increase of $8.0 million related to the acquisition of properties. The increase in other revenue was primarily due to an increase in fee income related to fees earned from NNN JV, which was formed in August 2018.

The decrease in depreciation and amortization expense of $0.5 million was primarily due to sales of properties and assets being classified as held for sale, partially offset by acquisitions of certain properties.

The decrease in interest and amortization expense of $4.7 million related primarily to a decrease in the amount of our debt outstanding.

The increase in debt satisfaction charges of $2.2 million is primarily related to the early payment of the mortgage encumbering our Lenexa, Kansas property that was sold in the third quarter of 2019.

The decrease in impairment charges of $1.9 million related to the timing of impairment charges recognized on certain properties. The impairments were primarily due to potential sales, vacancies and lack of leasing prospects.

The decrease in gains on sales of properties of $61.9 million related to the timing of property dispositions.

The increase in equity in earnings of non-consolidated entities of $2.7 million primarily related to the recognition of aggregate gains on the sale of non-consolidated properties in the third quarter of 2019.

The increase in net income attributable to noncontrolling interests of $1.7 million is primarily a result of an increase in earnings of LCIF, primarily as a result of recognizing gains on sold properties.

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Nine months ended September 30, 2019 compared with nine months ended September 30, 2018.

The decrease in net income attributable to common shareholders of $7.4 million was primarily due to the items discussed below.

The decrease in total gross revenues of $65.9 million was primarily attributable to a decrease in rental revenue of $69.0 million, offset, in part, by an increase in other revenue of $3.2 million. The decrease in rental revenue primarily related to property sales of $78.1 million, $8.2 million related to changes in occupancy and a decrease of $6.9 million related to the acceleration of below-market lease intangible accretion on three retail assets in 2018. These decreases were partially offset by an increase of $21.6 million related to the acquisition of properties. The increase in other revenue was primarily due to an increase in fee income related to fees earned from NNN JV, which was formed in August 2018.

The decrease in depreciation and amortization expense of $18.1 million was primarily due to sales of properties and assets being classified as held for sale, partially offset by acquisitions of certain properties.

The decrease in property operating expense of $2.1 million was primarily due to sales of properties with operating costs, partially offset by property acquisitions with operating expense responsibilities and changes in occupancy at certain properties.

The increase in non-operating income of $1.0 million was primarily related to funds received in a bankruptcy claim and funds received to settle a tenant's deferred maintenance obligation.

The decrease in interest and amortization expense of $12.5 million related primarily to a decrease in the amount of our debt outstanding.

The increase in debt satisfaction charge of $2.3 million is primarily related to the early payment of the mortgage encumbering our Lenexa, Kansas property that was sold in the third quarter of 2019.

The decrease in impairment charges of $88.5 million related to the timing of impairment charges recognized on certain properties. The impairments were primarily due to potential sales, vacancies and lack of leasing prospects. During the nine months ended September 30, 2018, we completed an extensive impairment analysis of our non-industrial assets due to our contemplating a potentially shorter holding period for these assets, which resulted in an increase in impairment charges in 2018.

The decrease in gains on sales of properties of $62.9 million related to the timing of property dispositions.

The increase in equity in earnings of non-consolidated entities of $3.1 million primarily related to the recognition of aggregate gains on the sale of non-consolidated properties during 2019.

The increase in net income attributable to noncontrolling interests of $2.0 million is primarily a result of an increase in earnings of LCIF, primarily as a result of recognizing gains on sold properties.

Same-Store Results

Same-store net operating income, or NOI, which is a non-GAAP measure, represents the NOI for consolidated properties that were owned and included in our portfolio for two comparable reporting periods, excluding properties encumbered by mortgage loans in default and a property in litigation, as applicable. We define NOI as operating revenues (rental income (less GAAP rent adjustments and lease termination income), and other property income) less property operating expenses. As same-store NOI excludes the change in NOI from acquired and disposed of properties, it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating same-store NOI, and accordingly same-store NOI may not be comparable to other REITs. Management believes that same-store NOI is a useful supplemental measure of our operating performance. However, same-store NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. We believe that net income is the most directly comparable GAAP measure to same-store NOI.

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The following presents our consolidated same-store NOI, for the nine months ended September 30, 2019 and 2018 ($000's):

	Nine Months Ended September 30,
	2019			2018
Total cash base rent	$	169,892		$	172,032
Tenant reimbursements	17,509			13,661
Property operating expenses	(24,292		)	(19,641		)
Same-store NOI	$	163,109		$	166,052

Our reported same-store NOI decreased from the first nine months of 2018 to the first nine months of 2019 by 1.8%. The decrease in same-store NOI between periods primarily related to a decrease in cash base rent and an increase in non-reimbursed operating expenses, which was primarily attributable to property vacancies and renewals or retenanting of office properties at lower rental rates in order to obtain long-term leases.

Below is a reconciliation of net income to same-store NOI for periods presented ($000's):

	Nine Months Ended September 30,
	2019			2018
Net income	$	199,870		$	205,232
Interest and amortization expense	50,715			63,224
Provision for income taxes	1,108			1,326
Depreciation and amortization	111,617			129,693
General and administrative	23,652			23,899
Pursuit/transaction costs	—			205
Non-operating and fee income	(4,836		)	(1,666		)
Gains on sales of properties	(176,662		)	(239,577		)
Impairment charges	2,355			90,860
Debt satisfaction charges, net	4,527			2,228
Equity in (earnings) of non-consolidated entities	(3,288		)	(192		)
Lease termination income	(1,551		)	(925		)
Straight-line adjustments	(10,846		)	(16,246		)
Lease incentives	898			1,459
Amortization of above/below market leases	(174		)	(6,632		)
NOI	197,385			252,888
Less NOI:
Acquisitions and dispositions	(32,158		)	(78,944		)
Properties in default / other	(2,118		)	(7,892		)
Same-Store NOI	$	163,109		$	166,052

Funds From Operations

We believe that Funds from Operations, or FFO, which is a non-GAAP measure, is a widely recognized and appropriate measure of the performance of an equity REIT. We believe FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing perspective that may not necessarily be apparent from net income.

The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as “net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sales of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO.” FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.

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We present FFO available to common shareholders and unitholders - basic and also present FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common shares, are converted at the beginning of the period. We also present Adjusted Company FFO available to all equityholders and unitholders - diluted which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe are not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently requested by security analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.

The following presents a reconciliation of net income attributable to common shareholders to FFO available to common shareholders and unitholders and Adjusted Company FFO available to all equityholders and unitholders for the three and nine months ended September 30, 2019 and 2018 (unaudited and dollars in thousands, except share and per share amounts):

		Three Months Ended September 30,						Nine Months Ended September 30,
		2019			2018			2019			2018
FUNDS FROM OPERATIONS:
Basic and Diluted:
Net income attributable to common shareholders		$	141,560		$	216,190		$	189,657		$	197,010
Adjustments:
	Depreciation and amortization	36,537			37,063			109,469			126,442
	Impairment charges - real estate	673			2,542			2,355			90,860
	Noncontrolling interests - OP units	4,244			2,586			4,410			2,506
	Amortization of leasing commissions	674			653			2,148			3,251
	Joint venture and noncontrolling interest adjustment	2,267			980			7,200			1,496
	Gains on sales of properties, including non-consolidated entities and net of tax	(143,719		)	(202,242		)	(180,837		)	(239,448		)
FFO available to common shareholders and unitholders - basic		42,236			57,772			134,402			182,117
	Preferred dividends	1,573			1,573			4,718			4,718
	Amount allocated to participating securities	186			253			304			279
FFO available to all equityholders and unitholders - diluted		43,995			59,598			139,424			187,114
	Debt satisfaction charges, net, including non-consolidated entities	4,679			2,228			4,782			2,228
	Other(1)	—			(3,613		)	—			(6,733		)
Adjusted Company FFO available to all equityholders and unitholders - diluted		$	48,674		$	58,213		$	144,206		$	182,609

Per Common Share and Unit Amounts
Basic:
FFO	$	0.18	$	0.24	$	0.57	$	0.76
Diluted:
FFO	$	0.18	$	0.24	$	0.58	$	0.76
Adjusted Company FFO	$	0.20	$	0.24	$	0.60	$	0.74

Weighted-Average Common Shares:
Basic:
Weighted-average common shares outstanding - basic EPS	236,285,216	237,354,669	233,833,340	237,577,198
Operating partnership units(2)	3,520,643	3,610,103	3,535,207	3,619,468
Weighted-average common shares outstanding - basic FFO	239,805,859	240,964,772	237,368,547	241,196,666
Diluted:
Weighted-average common shares outstanding - diluted EPS	241,355,289	246,058,298	234,011,643	241,660,588
Operating partnership units(2)	3,520,643	—	3,535,207	—
Unvested share-based payment awards and options	25,090	—	20,169	—
Preferred shares - Series C	—	—	4,710,570	4,710,570
Weighted-average common shares outstanding - diluted FFO	244,901,022	246,058,298	242,277,589	246,371,158

(1)    "Other" primarily consisted of the acceleration of below-market lease intangible accretion in 2018.

(2)    Includes all OP units other than OP units held by us.

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Off-Balance Sheet Arrangements

As of September 30, 2019, we had investments in various real estate entities with varying structures. The real estate investments owned by these entities are generally financed with non-recourse debt. Non-recourse debt is generally defined as debt whereby the lenders' sole recourse with respect to borrower defaults is limited to the value of the assets collateralized by the debt. The lender generally does not have recourse against any other assets owned by the borrower or any of the members or partners of the borrower, except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to "bad boy" acts, including fraud and breaches of material representations. We have guaranteed such obligations for certain of our non-consolidated entities.

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ITEM 3. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk relates primarily to our variable-rate indebtedness not subject to interest rate swaps and our fixed-rate debt. Our consolidated aggregate principal variable-rate indebtedness not subject to interest rate swaps was $129.1 million and $323.1 million at September 30, 2019 and 2018, respectively, which represented 9.9% and 19.4%, respectively, of our aggregate principal consolidated indebtedness. During the three-month periods ended September 30, 2019 and 2018, our variable-rate indebtedness had a weighted-average interest rate of 3.6% and 3.4%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for the three months ended September 30, 2019 and 2018 would have increased by $745 thousand and $1.5 million, respectively. During the nine-month periods ended September 30, 2019 and 2018, our variable-rate indebtedness had a weighted-average interest rate of 3.8% and 3.2%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for the nine months ended September 30, 2019 and 2018 would have increased by $2.8 million and $4.4 million, respectively. As of September 30, 2019 and 2018, our aggregate principal consolidated fixed-rate debt was $1.2 billion and $1.3 billion, respectively, which represented 90.1% and 80.6%, respectively, of our aggregate principal indebtedness.

For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, we derive or estimate fair values using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated cash flows may be subjective and imprecise. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate indebtedness would warrant as of September 30, 2019. We believe the fair value is indicative of the interest rate environment as of September 30, 2019, but this amount does not take into consideration the effects of subsequent interest rate fluctuations. Accordingly, we estimate that the fair value of our fixed-rate indebtedness was $1.2 billion as of September 30, 2019.

Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates through the use of fixed-rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. We may enter into derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-rate debt. As of September 30, 2019, we had four interest rate swap agreements (see note 8 to our unaudited condensed consolidated financial statements contained in this Quarterly Report).

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report to determine if such controls and procedures were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, including each of our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of September 30, 2019.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Quarterly Report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings.

From time to time, we are directly and indirectly involved in legal proceedings arising in the ordinary course of our business, including claims by lenders under non-recourse carve-out guarantees. We believe, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on our business, financial condition and results of operations, except for the following:

Cummins Inc. v. Lexington Columbus (Jackson Street) L.P. and Wells Fargo Trust Company, N.A. (State of Indiana, County of Bartholomew, in the Bartholomew Superior Court). On October 25, 2018, Cummins Inc., the tenant in the Columbus, Indiana office building, filed a complaint for declaratory relief against Lexington Columbus (Jackson Street) L.P. (“Lex Columbus”), our property owner subsidiary, and Wells Fargo Trust Company, N.A., the trustee for the noteholders with a security interest in the office building.

Despite failing to timely provide notice of intent to exercise a purchase option for the office building that was expressly due by July 15, 2018, where time was of the essence, Cummins Inc. has asked the court for a declaration that it is entitled to purchase the building at the option price and to terminate the lease effective July 31, 2019. Cummins Inc. does not dispute that it failed to comply with the requirements of the purchase option, but alleges that it is entitled to relief under several equitable theories.

Under the subject lease, the failure of Cummins Inc. to exercise its purchase option and to give notice of non-renewal, Cummins Inc.’s tenancy extends through July 31, 2024, with options to further extend for additional time periods.

Lex Columbus filed a motion to dismiss the complaint on January 8, 2019, which was denied on May 24, 2019.

On July 22, 2019, Cummins Inc. filed a motion to authorize depositing of disputed funds into a special court administered account with respect to the rent due under the lease on and after August 1, 2019, which Lex Columbus opposed.  On July 31, 2019, the Court granted the motion by Cummins Inc. to deposit future rent due under the lease into a Court administered account.

On July 31, 2019, Cummins Inc. filed a motion to authorize depositing of the option purchase price into a special court administered account, which the Court has not taken action on.

Lex Columbus filed an answer, affirmative and other defenses and a counterclaim for damages and declaratory relief on August 7, 2019. Lex Columbus filed a jury demand on August 19, 2019.

On August 15, 2019, Lex Columbus filed, with the Indiana Court of Appeals, a notice of appeal of the order permitting Cummins Inc. to deposit future rent into a Court administered account.

On August 19, 2019, Lex Columbus filed a motion for automatic change of judge.  On August 28, 2019, the Court granted the motion. On September 12, 2019, the Court ordered the appointment of a special judge.    

On August 27, 2019, Cummins Inc. filed its answer Lex Columbus’s counterclaim, and filed an amended answer on August 28, 2019.

On September 5, 2019, the parties entered into a stipulation dismissing Wells Fargo Trust Company, N.A. from the action. 

On October 31, 2019, Lex Columbus filed with the Indiana Court of Appeals its appellant’s brief with respect to the Court’s order authorizing Cummins to deposit future rents under the lease into a Court administered account.

As of September 30, 2019, the rent payments held in escrow were $1.2 million. Discovery is ongoing.

We believe that Indiana law supports Lex Columbus's right to enforce strict compliance with the terms of the option to purchase under the lease and retain ownership of the building and we intend to vigorously defend this claim.

ITEM 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in the Annual Report.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table summarizes repurchases of our common shares/OP units during the three months ended September 30, 2019 pursuant to publicly announced repurchase plans⁽¹⁾:

Issuer Purchases of Equity Securities
Period	(a) Total Number of Shares/Units Purchased	(b) Average Price Paid Per Share/ Unit		(c) Total Number of Shares/Units Purchased as Part of Publicly Announced Plans or Programs(1)	(d) Maximum Number of Shares/Units That May Yet Be Purchased Under the Plans or Programs(1)
July 1 - 31, 2019	—	$	—	—	10,306,255
August 1 - 31, 2019	—	—		—	10,306,255
September 1 - 30, 2019	—	—		—	10,306,255
Third quarter 2019	—	$	—	—	10,306,255

(1) Share repurchase authorization most recently announced November 2, 2018, which has no expiration date.

ITEM 3. Defaults Upon Senior Securities - not applicable.

ITEM 4. Mine Safety Disclosures - not applicable.

ITEM 5. Other Information - not applicable.

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ITEM 6. Exhibits.

Exhibit No.		Description
3.1	—	Articles of Merger and Amended and Restated Declaration of Trust of the Company, dated December 31, 2006 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed January 8, 2007 (the “01/08/07 8-K”))(1)
3.2	—	Articles Supplementary Relating to the Reclassification of 8.05% Series B Cumulative Redeemable Preferred Stock, par value $0.0001 per share, and 7.55% Series D Cumulative Redeemable Preferred Stock, par value $0.0001 per share (filed as Exhibit 3.4 to the Company's Current Report on Form 8-K filed November 21, 2013)(1)
3.3	—	Amended and Restated By-laws of the Company (filed as Exhibit 3.2 to the 01/08/07 8-K)(1)
3.4	—	First Amendment to Amended and Restated By-laws of the Company (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed November 20, 2009) (1)
3.5	—	Second Amendment to Amended and Restated By-Laws of the Company (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed April 3, 2017) (1)
3.6	—	Sixth Amended and Restated Agreement of Limited Partnership of LCIF, dated as of December 30, 2013 (filed as Exhibit 3.25 to the Company's Annual Report on Form 10-K filed February 26, 2014)(1)
4.1	—	Specimen of Common Shares Certificate of the Company (filed as Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006)(1)
4.2	—	Form of 6.50% Series C Cumulative Convertible Preferred Stock certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form 8A filed December 8, 2004)(1)
4.3	—	Indenture, dated as of January 29, 2007, among the Company (as successor by merger), the other guarantors named therein and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 29, 2007 (the “01/29/07 8-K”))(1)
4.4	—	Amended and Restated Trust Agreement, dated March 21, 2007, among the Company, The Bank of New York Trust Company, National Association, The Bank of New York (Delaware), the Administrative Trustees (as named therein) and the several holders of the Preferred Securities from time to time (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 27, 2007 (the “03/27/2007 8-K”))(1)
4.5	—	Junior Subordinated Indenture, dated as of March 21, 2007, between Lexington Realty Trust and The Bank of New York Trust Company, National Association (filed as Exhibit 4.2 to the 03/27/07 8-K)(1)
4.6	—	Fourth Supplemental Indenture, dated as of December 31, 2008, among the Company, the other guarantors named therein and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 2, 2009)(1)
4.7	—	Fifth Supplemental Indenture, dated as of June 9, 2009, among the Company (as successor to the MLP), the other guarantors named therein and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed June 15, 2009)(1)
4.8	—	Sixth Supplemental Indenture, dated as of January 26, 2010 among the Company, the guarantors named therein and U.S. Bank National Association, as trustee, including the Form of 6.00% Convertible Guaranteed Notes due 2030 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 26, 2010)(1)
4.9	—	Seventh Supplemental Indenture, dated as of September 28, 2012, among the Company, certain subsidiaries of the Company signatories thereto, and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed October 3, 2012)(1)
4.10	—	Eighth Supplemental Indenture, dated as of February 13, 2013, among the Company, certain subsidiaries of the Company signatories thereto, and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed February 13, 2013 (the “02/13/13 8-K”))(1)
4.11	—	Ninth Supplemental Indenture, dated as of May 6, 2013, among the Company, certain subsidiaries of the Company signatories thereto, and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 8, 2013)(1)
4.12	—	Tenth Supplemental Indenture, dated as of June 13, 2013, among the Company, certain subsidiaries of the Company signatories thereto, and U.S. Bank National Association, as trustee (filed as Exhibit 4.3 to the Company's Current Report on Form 8-K filed on June 13, 2013 (the “06/13/13 8-K”))(1)
4.13	—	Tenth Supplemental Indenture, dated as of September 30, 2013, among the Company, certain subsidiaries of the Company signatories thereto, and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 3, 2013 (the “10/03/2013 8-K”))(1)
4.14	—	Indenture, dated as of June 10, 2013, among the Company, the subsidiary guarantors named therein, and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the 06/13/2013 8-K))(1)

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4.15	—	First Supplemental Indenture, dated as of September 30, 2013, among the Company, the subsidiary guarantors named therein, and U.S. Bank National Association, as trustee (filed as Exhibit 4.2 to the 10/03/2013 8-K)(1)
4.16	—	Indenture dated as of May 9, 2014, among the Company, LCIF and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 13, 2014)(1)
4.17	—	First Supplemental Indenture, dated as of May 20, 2014, among the Company, LCIF and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 20, 2014)(1)
10.1	—	First Amendment to Amended and Restated Credit Agreement, dated as of July 25, 2019, among the Company, as borrower, KeyBank National Association, as agent, and each of the lenders signatory thereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 29, 2019) (1)
10.2	—	Underwriting Agreement, dated as of September 4, 2019, between the Company and J.P. Morgan Securities LLC and Wells Fargo Securities, LLC (filed as Exhibit 1.1 to the Company's Current Report on Form 8-K filed September 5, 2019)(1)
31.1	—	Certification pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)
31.2	—	Certification pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)
32.1	—	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(3)
32.2	—	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(3)
101.INS	—	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (2, 5)
101.SCH	—	Inline XBRL Taxonomy Extension Schema (2, 5)
101.CAL	—	Inline XBRL Taxonomy Extension Calculation Linkbase (2, 5)
101.DEF	—	Inline XBRL Taxonomy Extension Definition Linkbase Document (2, 5)
101.LAB	—	Inline XBRL Taxonomy Extension Label Linkbase Document (2, 5)
101.PRE	—	Inline XBRL Taxonomy Extension Presentation Linkbase Document (2, 5)

(1) Incorporated by reference.

(2) Filed herewith.

(3) Furnished herewith. This exhibit shall not be deemed "filed" for purposes of Section 11 or 12 of the Securities Act of 1933, as amended (the "Securities Act"), or Section 18 of the Securities Exchanges Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of those sections, and shall not be part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing or document.

(4) Management contract or compensatory plan or arrangement.

(5) The following materials from this Quarterly Report on Form 10-Q for the period ended September 30, 2019 are formatted in Inline XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets of the Company; (ii) Unaudited Condensed Consolidated Statements of Operations of the Company; (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) of the Company; (iv) Unaudited Condensed Consolidated Statements of Changes in Equity of the Company; (v) Unaudited Condensed Consolidated Statements of Cash Flows of the Company; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements of the Company, detailed tagged.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Lexington Realty Trust
Date:	November 6, 2019	By:	/s/ T. Wilson Eglin
			T. Wilson Eglin
			Chief Executive Officer and President (principal executive officer)
Date:	November 6, 2019	By:	/s/ Beth Boulerice
			Beth Boulerice
			Chief Financial Officer, Executive Vice President and Treasurer (principal financial officer)

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