Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
(State or other jurisdiction of incorporation of organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth | |||||||||||||||||||||||
company |
PART I. — FINANCIAL INFORMATION | ||||||||
ITEM 1. Financial Statements (Unaudited) | ||||||||
PART II — OTHER INFORMATION | ||||||||
March 31, 2020 | December 31, 2019 | ||||||||||
(unaudited) | |||||||||||
Assets: | |||||||||||
Real estate, at cost | $ | $ | |||||||||
Real estate - intangible assets | |||||||||||
Investments in real estate under construction | |||||||||||
Real estate, gross | |||||||||||
Less: accumulated depreciation and amortization | |||||||||||
Real estate, net | |||||||||||
Assets held for sale | |||||||||||
Operating right-of-use assets, net | |||||||||||
Cash and cash equivalents | |||||||||||
Restricted cash | |||||||||||
Investments in non-consolidated entities | |||||||||||
Deferred expenses, net | |||||||||||
Rent receivable – current | |||||||||||
Rent receivable – deferred | |||||||||||
Other assets | |||||||||||
Total assets | $ | $ | |||||||||
Liabilities and Equity: | |||||||||||
Liabilities: | |||||||||||
Mortgages and notes payable, net | $ | $ | |||||||||
Revolving credit facility borrowings | |||||||||||
Term loan payable, net | |||||||||||
Senior notes payable, net | |||||||||||
Trust preferred securities, net | |||||||||||
Dividends payable | |||||||||||
Liabilities held for sale | |||||||||||
Operating lease liabilities | |||||||||||
Accounts payable and other liabilities | |||||||||||
Accrued interest payable | |||||||||||
Deferred revenue - including below-market leases, net | |||||||||||
Prepaid rent | |||||||||||
Total liabilities | |||||||||||
Commitments and contingencies | |||||||||||
Equity: | |||||||||||
Preferred shares, par value $ | |||||||||||
Series C Cumulative Convertible Preferred, liquidation preference $ | |||||||||||
Common shares, par value $ | |||||||||||
Additional paid-in-capital | |||||||||||
Accumulated distributions in excess of net income | ( | ( | |||||||||
Accumulated other comprehensive loss | ( | ( | |||||||||
Total shareholders’ equity | |||||||||||
Noncontrolling interests | |||||||||||
Total equity | |||||||||||
Total liabilities and equity | $ | $ |
Three Months Ended March 31, | |||||||||||
2020 | 2019 | ||||||||||
Gross revenues: | |||||||||||
Rental revenue | $ | $ | |||||||||
Other revenue | |||||||||||
Total gross revenues | |||||||||||
Expense applicable to revenues: | |||||||||||
Depreciation and amortization | ( | ( | |||||||||
Property operating | ( | ( | |||||||||
General and administrative | ( | ( | |||||||||
Non-operating income | |||||||||||
Interest and amortization expense | ( | ( | |||||||||
Debt satisfaction gains (charges), net | ( | ||||||||||
Impairment charges | ( | ||||||||||
Gains on sales of properties | |||||||||||
Income before provision for income taxes and equity in earnings of non-consolidated entities | |||||||||||
Provision for income taxes | ( | ( | |||||||||
Equity in earnings of non-consolidated entities | |||||||||||
Net income | |||||||||||
Less net income attributable to noncontrolling interests | ( | ( | |||||||||
Net income attributable to Lexington Realty Trust shareholders | |||||||||||
Dividends attributable to preferred shares – Series C | ( | ( | |||||||||
Allocation to participating securities | ( | ( | |||||||||
Net income attributable to common shareholders | $ | $ | |||||||||
Net income attributable to common shareholders - per common share basic | $ | $ | |||||||||
Weighted-average common shares outstanding – basic | |||||||||||
Net income attributable to common shareholders - per common share diluted | $ | $ | |||||||||
Weighted-average common shares outstanding – diluted | |||||||||||
Three Months Ended March 31, | |||||||||||
2020 | 2019 | ||||||||||
Net income | $ | $ | |||||||||
Other comprehensive income (loss): | |||||||||||
Change in unrealized loss on interest rate swaps, net | ( | ( | |||||||||
Other comprehensive loss | ( | ( | |||||||||
Comprehensive income | |||||||||||
Comprehensive income attributable to noncontrolling interests | ( | ( | |||||||||
Comprehensive income attributable to Lexington Realty Trust shareholders | $ | $ |
Three Months Ended March 31, 2020 | Lexington Realty Trust Shareholders | ||||||||||||||||||||||||||||||||||||||||
Total | Preferred Shares | Common Shares | Additional Paid-in-Capital | Accumulated Distributions in Excess of Net Income | Accumulated Other Comprehensive Loss | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||
Balance December 31, 2019 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
Issuance of partnership interest in real estate | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Redemption of noncontrolling OP units for common shares | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||
Issuance of common shares and deferred compensation amortization, net | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Repurchase of common shares | ( | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||
Repurchase of common shares to settle tax obligations | ( | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||
Forfeiture of employee common shares | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Dividends/distributions | ( | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ( | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||
Balance March 31, 2020 | $ | $ | $ | $ | $ | ( | $ | ( | $ |
Three Months Ended March 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 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
Redemption of noncontrolling OP units for common shares | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||
Issuance of common shares and deferred compensation amortization, net | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Repurchase of common shares | ( | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||
Repurchase of common shares to settle tax obligations | ( | — | ( | ( | — | — | — | ||||||||||||||||||||||||||||||||||
Forfeiture of employee common shares | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Dividends/distributions | ( | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ( | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||
Balance March 31, 2019 | $ | $ | $ | $ | $ | ( | $ | $ |
Three Months Ended March 31, | |||||||||||
2020 | 2019 | ||||||||||
Net cash provided by operating activities: | $ | $ | |||||||||
Cash flows from investing activities: | |||||||||||
Acquisition of real estate, including intangible assets | ( | ( | |||||||||
Investment in real estate under construction | ( | ||||||||||
Capital expenditures | ( | ( | |||||||||
Net proceeds from sale of properties | |||||||||||
Investments in non-consolidated entities | ( | ( | |||||||||
Distributions from non-consolidated entities in excess of accumulated earnings | |||||||||||
Increase in deferred leasing costs | ( | ( | |||||||||
Change in real estate deposits, net | ( | ||||||||||
Net cash provided by (used in) investing activities | ( | ||||||||||
Cash flows from financing activities: | |||||||||||
Dividends to common and preferred shareholders | ( | ( | |||||||||
Principal amortization payments | ( | ( | |||||||||
Principal payments on debt, excluding normal amortization | ( | ||||||||||
Revolving credit facility borrowings | |||||||||||
Deferred financing costs | ( | ||||||||||
Payment of early extinguishment of debt charges | ( | ||||||||||
Cash contributions from noncontrolling interests | |||||||||||
Cash distributions to noncontrolling interests | ( | ( | |||||||||
Repurchases to settle tax obligations | ( | ( | |||||||||
Issuance of common shares, net | |||||||||||
Repurchase of common shares | ( | ( | |||||||||
Net cash provided by (used in) financing activities | ( | ||||||||||
Change in cash, cash equivalents and restricted cash | ( | ||||||||||
Cash, cash equivalents and restricted cash, at beginning of period | |||||||||||
Cash, cash equivalents and restricted cash, at end of period | $ | $ | |||||||||
Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||
Cash and cash equivalents at beginning of period | $ | $ | |||||||||
Restricted cash at beginning of period | |||||||||||
Cash, cash equivalents and restricted cash at beginning of period | $ | $ | |||||||||
Cash and cash equivalents at end of period | $ | $ | |||||||||
Restricted cash at end of period | |||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ |
March 31, 2020 | December 31, 2019 | ||||||||||
Real estate, net | $ | $ | |||||||||
Total assets | $ | $ | |||||||||
Mortgages and notes payable, net | $ | $ | |||||||||
Total liabilities | $ | $ |
Three Months Ended March 31, | |||||||||||
2020 | 2019 | ||||||||||
BASIC | |||||||||||
Net income attributable to common shareholders | $ | $ | |||||||||
Weighted-average number of common shares outstanding - basic | |||||||||||
Net income attributable to common shareholders - per common share basic | $ | $ | |||||||||
DILUTED | |||||||||||
Net income attributable to common shareholders - basic | $ | $ | |||||||||
Impact of assumed conversions | |||||||||||
Net income attributable to common shareholders | $ | $ | |||||||||
Weighted-average common shares outstanding - basic | |||||||||||
Effect of dilutive securities: | |||||||||||
Unvested share-based payment awards and options | |||||||||||
OP Units | |||||||||||
Weighted-average common shares outstanding - diluted | |||||||||||
Net income attributable to common shareholders - per common share diluted | $ | $ | |||||||||
Property Type | Market | Acquisition Date | Initial Cost Basis | Primary Lease Expiration | Land | Building and Improvements | Lease in-place Value Intangible | ||||||||||||||||||||||
Industrial | Chicago, IL | January 2020 | $ | 11/2029 | $ | $ | $ | ||||||||||||||||||||||
Industrial | Phoenix, AZ | January 2020 | 12/2025 | ||||||||||||||||||||||||||
Industrial | Chicago, IL | January 2020 | 12/2029 | ||||||||||||||||||||||||||
Industrial | Dallas, TX | February 2020 | 8/2029 | ||||||||||||||||||||||||||
$ | $ | $ | $ |
Project (% owned) | Market | Property Type | Estimated Sq. Ft. | Estimated Project Cost | GAAP Investment Balance as of 3/31/2020 | Amount Funded as of 3/31/2020 | Estimated Completion Date | ||||||||||||||||
Fairburn ( | Atlanta, GA | Industrial | $ | $ | $ | 4Q 2020 | |||||||||||||||||
Richenbacker ( | Columbus, OH | Industrial | 1Q 2021 | ||||||||||||||||||||
$ | $ | $ |
March 31, 2020 | |||||
Assets: | |||||
Real estate, at cost | $ | ||||
Real estate, intangible assets | |||||
Accumulated depreciation and amortization | ( | ||||
Rent receivable - deferred | ( | ||||
Other | |||||
$ | |||||
Liabilities: | |||||
Accounts payable and other liabilities | $ | ||||
Prepaid rent | |||||
$ |
Balance | Fair Value Measurements Using | |||||||||||||||||||||||||
Description | March 31, 2020 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
Interest rate swap liabilities | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
Balance | Fair Value Measurements Using | |||||||||||||||||||||||||
Description | December 31, 2019 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
Interest rate swap liabilities | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
Impaired real estate assets | (1) | $ | $ | $ | $ | |||||||||||||||||||||
As of March 31, 2020 | As of December 31, 2019 | ||||||||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
Liabilities | |||||||||||||||||||||||
Debt | $ | $ | $ | $ |
Percentage Ownership at | Investment Balance as of | |||||||||||||||||||
Investment | March 31, 2020 | March 31, 2020 | December 31, 2019 | |||||||||||||||||
NNN Office JV LP ("NNN JV") | (1) | $ | $ | |||||||||||||||||
Etna Park 70 LLC | (2) | |||||||||||||||||||
Etna Park East LLC | (3) | |||||||||||||||||||
Other | (4) | |||||||||||||||||||
$ | $ |
March 31, 2020 | December 31, 2019 | ||||||||||
Mortgages and notes payable | $ | $ | |||||||||
Unamortized debt issuance costs | ( | ( | |||||||||
$ | $ |
Issue Date | March 31, 2020 | December 31, 2019 | Interest Rate | Maturity Date | Issue Price | |||||||||||||||||||||||||||
May 2014 | $ | $ | % | June 2024 | % | |||||||||||||||||||||||||||
June 2013 | % | June 2023 | % | |||||||||||||||||||||||||||||
Unamortized debt discount | ( | ( | ||||||||||||||||||||||||||||||
Unamortized debt issuance cost | ( | ( | ||||||||||||||||||||||||||||||
$ | $ |
Maturity Date | Current Interest Rate | ||||||||||
$ | February 2023 | LIBOR + | |||||||||
$ | January 2025 | LIBOR + |
Interest Rate Derivative | Number of Instruments | Notional | ||||||
Interest Rate Swaps | $ |
As of March 31, 2020 | As of December 31, 2019 | |||||||||||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||||||
Interest Rate Swaps | Accounts Payable and Other Liabilities | $ | ( | Accounts Payable and Other Liabilities | $ | ( | ||||||||||||||
Derivatives in Cash Flow | Amount of Gain (Loss) Recognized in OCI on Derivatives March 31, | Amount of (Income) Loss Reclassified from Accumulated OCI into Income March 31, | ||||||||||||||||||||||||
Hedging Relationships | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Interest Rate Swaps | $ | ( | $ | $ | $ | ( |
Three Months Ended | ||||||||||||||
Classification | March 31, 2020 | March 31, 2019 | ||||||||||||
Fixed | $ | $ | ||||||||||||
Variable(1) | ||||||||||||||
Total | $ | $ |
2020 - remainder | $ | ||||
2021 | |||||
2022 | |||||
2023 | |||||
2024 | |||||
2025 | |||||
Thereafter | |||||
Total | $ |
Three Months Ended | ||||||||||||||
March 31, 2020 | March 31, 2019 | |||||||||||||
Weighted-average remaining lease term | ||||||||||||||
Operating leases (years) | ||||||||||||||
Weighted-average discount rate | ||||||||||||||
Operating leases | % | % |
Income Statement Classification | Fixed | Variable | Total | ||||||||||||||
2020: | |||||||||||||||||
Property operating | $ | $ | $ | ||||||||||||||
General and administrative | |||||||||||||||||
Total | $ | $ | $ | ||||||||||||||
2019: | |||||||||||||||||
Property operating | $ | $ | $ | ||||||||||||||
General and administrative | |||||||||||||||||
Total | $ | $ | $ |
Operating Leases | ||||||||
2020 - remainder | $ | |||||||
2021 | ||||||||
2022 | ||||||||
2023 | ||||||||
2024 | ||||||||
2025 | ||||||||
Thereafter | ||||||||
Total lease payments | $ | |||||||
Less: Imputed interest | ( | |||||||
Present value of lease liabilities | $ |
Three Months Ended March 31, | |||||||||||
2020 | 2019 | ||||||||||
Performance Shares(1) | |||||||||||
Shares granted: | |||||||||||
Index - 1Q | |||||||||||
Peer - 1Q | |||||||||||
Grant date fair value per share:(2) | |||||||||||
Index - 1Q | $ | $ | |||||||||
Peer - 1Q | $ | $ | |||||||||
Non-Vested Common Shares:(3) | |||||||||||
Shares issued | |||||||||||
Grant date fair value | $ | $ |
Three Months Ended March 31, | ||||||||||||||
2020 | 2019 | |||||||||||||
Balance at beginning of period | $ | ( | $ | |||||||||||
Other comprehensive income (loss) before reclassifications | ( | |||||||||||||
Amounts of (income) loss reclassified from accumulated other comprehensive income to interest expense | ( | |||||||||||||
Balance at end of period | $ | ( | $ |
Net Income Attributable to Shareholders and Transfers from Noncontrolling Interests | |||||||||||
Three Months Ended March 31, | |||||||||||
2020 | 2019 | ||||||||||
Net income attributable to Lexington Realty Trust shareholders | $ | $ | |||||||||
Transfers from noncontrolling interests: | |||||||||||
Increase in additional paid-in-capital for redemption of noncontrolling OP units | |||||||||||
Change from net income attributable to shareholders and transfers from noncontrolling interests | $ | $ |
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 |
Maturity Date | Current Interest Rate | ||||||||||
$600.0 Million Revolving Credit Facility(1) | February 2023 | LIBOR + 0.90% | |||||||||
$300.0 Million Term Loan(2) | January 2025 | LIBOR + 1.00% |
Three Months Ended March 31, | |||||||||||
2020 | 2019 | ||||||||||
Total cash base rent | $ | 58,108 | $ | 58,179 | |||||||
Tenant reimbursements | 6,121 | 6,113 | |||||||||
Property operating expenses | (7,692) | (7,616) | |||||||||
Same-store NOI | $ | 56,537 | $ | 56,676 |
Three Months Ended March 31, | |||||||||||
2020 | 2019 | ||||||||||
Net income | 18,420 | $ | 28,280 | ||||||||
Interest and amortization expense | 14,795 | 17,208 | |||||||||
Provision for income taxes | 653 | 437 | |||||||||
Depreciation and amortization | 40,509 | 37,595 | |||||||||
General and administrative | 7,825 | 8,527 | |||||||||
Transaction costs | 21 | — | |||||||||
Non-operating and fee income | (1,889) | (1,327) | |||||||||
Gains on sales of properties | (9,805) | (20,957) | |||||||||
Impairment charges | — | 588 | |||||||||
Debt satisfaction (gains) charges, net | (1,393) | 103 | |||||||||
Equity in (earnings) of non-consolidated entities | (263) | (619) | |||||||||
Lease termination income | (141) | (1,070) | |||||||||
Straight-line adjustments | (1,419) | (2,330) | |||||||||
Lease incentives | 269 | 273 | |||||||||
Amortization of above/below market leases | (295) | (6) | |||||||||
NOI | 67,287 | 66,702 | |||||||||
Less NOI: | |||||||||||
Acquisitions and dispositions | (10,830) | (9,735) | |||||||||
Properties in default / other | 80 | (291) | |||||||||
Same-Store NOI | $ | 56,537 | $ | 56,676 |
Three Months Ended March 31, | ||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
FUNDS FROM OPERATIONS: | ||||||||||||||||||||
Basic and Diluted: | ||||||||||||||||||||
Net income attributable to common shareholders | $ | 16,536 | $ | 26,405 | ||||||||||||||||
Adjustments: | ||||||||||||||||||||
Depreciation and amortization | 39,717 | 36,867 | ||||||||||||||||||
Impairment charges - real estate | — | 588 | ||||||||||||||||||
Noncontrolling interests - OP units | 107 | 1 | ||||||||||||||||||
Amortization of leasing commissions | 792 | 728 | ||||||||||||||||||
Joint venture and noncontrolling interest adjustment | 2,214 | 2,533 | ||||||||||||||||||
Gains on sales of properties, including non-consolidated entities | (10,354) | (21,605) | ||||||||||||||||||
FFO available to common shareholders and unitholders - basic | 49,012 | 45,517 | ||||||||||||||||||
Preferred dividends | 1,572 | 1,572 | ||||||||||||||||||
Amount allocated to participating securities | 46 | 50 | ||||||||||||||||||
FFO available to all equityholders and unitholders - diluted | 50,630 | 47,139 | ||||||||||||||||||
Transaction costs | 21 | — | ||||||||||||||||||
Debt satisfaction (gains) charges, net, including non-consolidated entities | (1,372) | 103 | ||||||||||||||||||
Adjusted Company FFO available to all equityholders and unitholders - diluted | $ | 49,279 | $ | 47,242 |
Per Common Share and Unit Amounts | ||||||||||||||
Basic: | ||||||||||||||
FFO | $ | 0.19 | $ | 0.19 | ||||||||||
Diluted: | ||||||||||||||
FFO | $ | 0.19 | $ | 0.20 | ||||||||||
Adjusted Company FFO | $ | 0.19 | $ | 0.20 |
Weighted-Average Common Shares: | ||||||||||||||||||||
Basic: | ||||||||||||||||||||
Weighted-average common shares outstanding - basic EPS | 253,038,161 | 232,538,495 | ||||||||||||||||||
Operating partnership units(1) | 3,148,122 | 3,550,374 | ||||||||||||||||||
Weighted-average common shares outstanding - basic FFO | 256,186,283 | 236,088,869 | ||||||||||||||||||
Diluted: | ||||||||||||||||||||
Weighted-average common shares outstanding - diluted EPS | 257,347,277 | 236,142,143 | ||||||||||||||||||
Unvested share-based payment awards and options | 24,799 | 16,499 | ||||||||||||||||||
Preferred shares - Series C | 4,710,570 | 4,710,570 | ||||||||||||||||||
Weighted-average common shares outstanding - diluted FFO | 262,082,646 | 240,869,212 |
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) | ||||||||||||||||||||||
January 1 - 31, 2020 | — | $ | — | — | 10,306,255 | |||||||||||||||||||||
February 1 - 29, 2020 | — | — | — | 10,306,255 | ||||||||||||||||||||||
March 1 - 31, 2020 | 1,329,940 | 8.28 | 1,329,940 | 8,976,315 | ||||||||||||||||||||||
First quarter 2020 | 1,329,940 | $ | 8.28 | 1,329,940 | 8,976,315 |
Exhibit No. | Description | |||||||||||||
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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) |
Lexington Realty Trust | |||||||||||
Date: | May 7, 2020 | By: | /s/ T. Wilson Eglin | ||||||||
T. Wilson Eglin | |||||||||||
Chief Executive Officer and President (principal executive officer) | |||||||||||
Date: | May 7, 2020 | By: | /s/ Beth Boulerice | ||||||||
Beth Boulerice | |||||||||||
Chief Financial Officer, Executive Vice President and Treasurer (principal financial officer) |
May 7, 2020 | ||
/s/ T. Wilson Eglin | ||
T. Wilson Eglin Chief Executive Officer |
May 7, 2020 | ||
/s/ Beth Boulerice | ||
Beth Boulerice | ||
Chief Financial Officer |
/s/ T. Wilson Eglin | ||
T. Wilson Eglin Chief Executive Officer | ||
May 7, 2020 |
/s/ Beth Boulerice | ||
Beth Boulerice | ||
Chief Financial Officer | ||
May 7, 2020 |
The Company and Financial Statement Presentation |
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Company and Financial Statement Presentation | 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 March 31, 2020, the Company had ownership interests in approximately 135 consolidated real estate properties, located in 30 states. The properties in which the Company has an interest are primarily net leased to tenants in various industries. The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the Company will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS are subject to federal income taxes on the income from these activities. The Company conducts its operations 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 unit holder of the general partner and the sole unit holder of the limited partner that holds a majority of the limited partner interests, (3) a wholly-owned TRS, Lexington Realty Advisors, Inc. (“LRA”), 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 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 months ended March 31, 2020 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, 2019 filed with the SEC on February 20, 2020 (“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 97% interest, is a VIE. The Company has a 90% ownership interest in a joint venture with a developer, which acquired a parcel of land in the Atlanta, Georgia market and plans to develop an industrial property. The joint venture is consolidated and is a VIE. The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of March 31, 2020 and December 31, 2019, the VIEs' mortgages and notes payable were non-recourse to the Company. Below is a summary of selected financial data of consolidated VIEs for which the Company is the primary beneficiary included in the unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019:
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 relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the economic downturn primarily caused by the recent outbreak of COVID-19. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable and deferred rent 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 and equity method investments, valuation of derivative financial instruments, valuation of awards granted under compensation plans, the determination of the incremental borrowing rate for leases where the Company is the lessee and the useful lives of long-lived assets. Actual results could differ materially from those estimates. Fair Value Measurements. The Company follows the guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("Topic 820"), to determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk. The Company has formally elected to apply the portfolio exception within Topic 820 with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements. The Company estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income and market valuation techniques. The Company may estimate fair values using market information such as recent sale contracts (Level 2 inputs) or recent sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. New Accounting Standards Adopted in 2020. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of an allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The Company analyzed its accounts receivable using an aging methodology and determined that there have been no historical credit losses related to its outstanding accounts receivable. As a result, the Company's adoption of this guidance did not have a material impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The standard is effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The Company's adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This ASU includes additional disclosures requirements for recurring Level 3 fair value measurements including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income, disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and a narrative description of measurement uncertainty related to Level 3 measurements. This standard is effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements. Recently Issued Accounting Guidance. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The guidance in ASU 2020-04 is optional, applies for a limited period of time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR and may be elected over time as reference rate reform activities occur. As of March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. While the lease modification guidance in ASC Topic 842 ("Topic 842") addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic. In April 2020, the FASB staff issued a question and answer document (the "Lease Modification Q&A") focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company is evaluating the election to apply such relief to avoid performing a lease by lease analysis for the lease concessions that may be (1) granted as relief due to the COVID-19 pandemic and (2) result in the cash flows remaining substantially the same or less. The Lease Modification Q&A has no material impact on the Company's consolidated financial statements as of and for the three months ended March 31, 2020. However, its future impact to the Company is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering such concessions.
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Fair Value Measurements - Fair Value by Balance Sheet Grouping (Details) - Fair Value Measurements Using Level 3 - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
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Carrying Amount | ||
Liabilities | ||
Carrying value of debt | $ 1,429,768 | $ 1,311,977 |
Fair Value | ||
Liabilities | ||
Fair value of debt | $ 1,312,977 | $ 1,276,589 |
Debt - Schedule of Debt Instrument Redemption (Details) - Senior Notes - USD ($) |
Mar. 31, 2020 |
Dec. 31, 2019 |
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Debt Instrument [Line Items] | ||
Face amount of debt instrument | $ 500,000,000 | $ 500,000,000 |
Unamortized debt discount | (894,000) | (963,000) |
Unamortized debt issuance costs | (2,027,000) | (2,167,000) |
Long-term debt | 497,079,000 | 496,870,000 |
Senior Notes Due 2024 | ||
Debt Instrument [Line Items] | ||
Face amount of debt instrument | $ 250,000,000 | 250,000,000 |
Stated interest rate | 4.40% | |
Percentage of issuance price | 99.883% | |
Senior Notes Due 2023 | ||
Debt Instrument [Line Items] | ||
Face amount of debt instrument | $ 250,000,000 | $ 250,000,000 |
Stated interest rate | 4.25% | |
Percentage of issuance price | 99.026% |
Disposition and Impairment (Tables) |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposal Groups, Including Discontinued Operations | Assets and liabilities of the held for sale property as of March 31, 2020 consisted of the following:
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The Company and Financial Statement Presentation (Policies) |
3 Months Ended |
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Mar. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of presentation and consolidation | 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. |
Variable interest entity | 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. |
Use of estimates | Use of Estimates. Management has made a number of significant estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the economic downturn primarily caused by the recent outbreak of COVID-19. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable and deferred rent 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 and equity method investments, valuation of derivative financial instruments, valuation of awards granted under compensation plans, the determination of the incremental borrowing rate for leases where the Company is the lessee and the useful lives of long-lived assets. Actual results could differ materially from those estimates. |
Fair value measurements | Fair Value Measurements. The Company follows the guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("Topic 820"), to determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk. The Company has formally elected to apply the portfolio exception within Topic 820 with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements.The Company estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income and market valuation techniques. The Company may estimate fair values using market information such as recent sale contracts (Level 2 inputs) or recent sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. |
Recently issued accounting guidance | New Accounting Standards Adopted in 2020. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of an allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The Company analyzed its accounts receivable using an aging methodology and determined that there have been no historical credit losses related to its outstanding accounts receivable. As a result, the Company's adoption of this guidance did not have a material impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The standard is effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The Company's adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This ASU includes additional disclosures requirements for recurring Level 3 fair value measurements including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income, disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and a narrative description of measurement uncertainty related to Level 3 measurements. This standard is effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements. Recently Issued Accounting Guidance. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The guidance in ASU 2020-04 is optional, applies for a limited period of time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR and may be elected over time as reference rate reform activities occur. As of March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
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Lessor | 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. The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectable, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis. As of March 31, 2020 the Company wrote off deferred rent receivable of $615, as a reduction of rental revenue, related to a tenant that dissolved and surrendered its leased premises in an industrial property located in the Columbus, Ohio market. Additionally, as of March 31, 2020, the Company reserved $1,243 of deferred rent receivable, as a reduction of rental revenue, related to a tenant with rent collectability concerns. The Company determined that collection of the deferred rent receivable was not probable at this time. There were no accounts receivable reserved as a reduction to rental revenue as of March 31, 2019. 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 March 31, 2020 and 2019, the Company incurred $50 and $127, respectively, 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.
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Lessee | Lessee The Company has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of March 31, 2020. The leases have remaining lease terms of up to 43 years, some of which include options to extend the leases in 5 to 10-year increments for up to 53 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.
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Related Party Transactions |
3 Months Ended |
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Related Party Transactions [Abstract] | |
Related Party Transactions | Related Party TransactionsThere were no related party transactions other than those disclosed elsewhere in this Quarterly Report and the audited consolidated financial statements in the Annual Report. |
Derivatives and Hedging Activities |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives and Hedging Activities | Derivatives and Hedging Activities Risk Management Objective of Using Derivatives. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the type, amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings. Cash Flow Hedges of Interest Rate Risk. The Company's objectives in using interest rate derivatives are to add stability to interest expense, to manage its exposure to interest rate movements and therefore manage its cash outflows as it relates to the underlying debt instruments. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy relating to certain of its variable rate debt instruments. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 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 three months ended March 31, 2020 and 2019. During July 2019, the Company entered into four interest rate swap agreements with its counterparties. The swaps were designated as cash flow hedges of the risk of variability attributable to changes in the LIBOR swap rates on its $300,000 LIBOR-indexed variable-rate unsecured term loan. Accordingly, changes in fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable. The swaps expire coterminous with the extended maturity of the term loan in January 2025. During the next 12 months ending March 31, 2021, the Company estimates that an additional $4,194 will be reclassified as an increase to interest expense if the swaps remain outstanding.
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:
The table below presents the effect of the Company's derivative financial instruments on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019.
(1) Amounts reclassified from accumulated other comprehensive income (loss) to interest expense within the unaudited condensed consolidated statement of operations. Total interest expense presented in the unaudited condensed consolidated statements of operations in which the effects of cash flow hedges are recorded was $14,795 and $17,208 for the three months ended March 31, 2020 and 2019, respectively. 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 March 31, 2020, the Company had not posted any collateral related to the agreements.
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Dispositions and Impairment |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dispositions and Impairment | Dispositions and Impairment During the three months ended March 31, 2020 and 2019, the Company disposed of its interests in various properties for an aggregate gross disposition price of $29,605 and $79,300, respectively, and recognized aggregate gains on sales of properties of $9,805 and $20,957, respectively. Included in the 2020 dispositions is an office property in Charleston, South Carolina which was conveyed to the lender in forgiveness of the mortgage loan encumbering the property. The balance of the non-recourse mortgage loan was in excess of the value of the property collateral, resulting in a debt satisfaction gain of $1,393. As of March 31, 2020, the Company had one property classified as held for sale because it met the criteria included under the held for sale accounting guidance and a sale to a third party within the next 12 months was deemed probable. As of December 31, 2019, the Company had no properties met the held for sale criteria. Assets and liabilities of the held for sale property as of March 31, 2020 consisted of the following:
The Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability, change in the estimated holding period of the asset, the potential sale or transfer of the property in the near future and changes in economic conditions such as the recent economic downturn primarily caused by the COVID-19 outbreak. 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 three months ended March 31, 2020, the Company recorded no impairment charges. During the three months ended March 31, 2019, the Company recognized aggregate impairment charges on real estate properties of $588. Included in the impairment charges recognized during the three months ended March 31, 2019, are impairment charges of $339 and $249 on unencumbered and vacant retail properties in Watertown, New York and Albany, Georgia, respectively. Both of these properties were sold during 2019.
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Lease Accounting (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Lease, Lease Income | The following table presents the Company’s classification of rental revenue for its operating leases for the three months ended March 31, 2020 and 2019:
(1) Primarily comprised of tenant reimbursements.
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Lessor, Operating Lease, Payments to be Received, Maturity | Future fixed rental receipts for leases, assuming no new or re-negotiated leases as of March 31, 2020 were as follows:
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Assets and Liabilities, Lessee | Supplemental information related to operating leases is as follows:
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Lease, Cost | The components of lease expense for the three months ended March 31, 2020 and 2019 were as follows:
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Lessee, Operating Lease, Liability, Maturity | The following table shows the Company's maturity analysis of its operating lease liabilities as of March 31, 2020:
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Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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BASIC | ||
Net income attributable to common shareholders | $ 16,536 | $ 26,405 |
Weighted-average number of common shares outstanding - basic | 253,038,161 | 232,538,495 |
Net income (loss) attributable to common shares outstanding - basic (in dollars per share) | $ 0.07 | $ 0.11 |
DILUTED | ||
Impact of assumed conversions | $ 107 | $ 1 |
Net income attributable to common shareholders | $ 16,643 | $ 26,406 |
Effect of dilutive securities: | ||
Unvested share-based payment awards (in shares) | 1,160,994 | 53,274 |
OP Units (in shares) | 3,148,122 | 3,550,374 |
Weighted-average common shares outstanding - diluted (in shares) | 257,347,277 | 236,142,143 |
Net income (loss) attributable to common shareholders - per common share diluted (in dollars per share) | $ 0.06 | $ 0.11 |
Equity - Changes in Other Comprehensive Income (Details) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward] | ||
Beginning Balance | $ 1,724,719 | $ 1,346,678 |
Ending Balance | 1,702,670 | 1,345,334 |
AOCI Attributable to Parent | ||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward] | ||
Beginning Balance | (1,928) | 76 |
Ending Balance | (18,924) | 0 |
Accumulated Net Gain (Loss) from Cash Flow Hedges Including Portion Attributable to Noncontrolling Interest | ||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward] | ||
Other comprehensive income (loss) before reclassifications | (17,039) | 1 |
Amounts of (income) loss reclassified from accumulated other comprehensive income to interest expense | $ 43 | $ (77) |
Lease Accounting - Components of Lease Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Lessee, Lease, Description [Line Items] | ||
Fixed | $ 1,336 | $ 1,297 |
Variable | 26 | 18 |
Total | 1,362 | 1,315 |
Property Operating Expense | ||
Lessee, Lease, Description [Line Items] | ||
Fixed | 995 | 997 |
Variable | 0 | 0 |
Total | 995 | 997 |
General and Administrative Expense | ||
Lessee, Lease, Description [Line Items] | ||
Fixed | 341 | 300 |
Variable | 26 | 18 |
Total | $ 367 | $ 318 |
Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Debt The Company had the following mortgages and notes payable outstanding as of March 31, 2020 and December 31, 2019:
Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.5% to 6.5%, respectively, at March 31, 2020 and December 31, 2019, and all mortgages and notes payables mature between 2020 and 2036 as of March 31, 2020. The weighted-average interest rate was 4.5% at each of March 31, 2020 and December 31, 2019. As of March 31, 2020, the Company had two non-recourse mortgage loans that were in default with an outstanding aggregate principal balance of $50,525. Each mortgage loan is secured by a vacant office property (Overland Park, Kansas and Boca Raton, Florida). The Company had the following senior notes outstanding as of March 31, 2020 and December 31, 2019:
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 March 31, 2020, is as follows:
(1) Maturity date of the line of credit can be extended to February 2024 at the Company's option. The interest rate ranges from LIBOR plus 0.775% to 1.45%. At March 31, 2020, the Company had $130,000 borrowings outstanding and availability of $470,000, subject to covenant compliance. (2) The LIBOR portion of the interest rate was swapped to obtain a current fixed rate of 2.732% per annum. The aggregate unamortized debt issuance costs for the term loan was $2,435 and $2,561 as of March 31, 2020 and December 31, 2019, respectively. The Company was compliant with all applicable financial covenants contained in its corporate-level debt agreements at March 31, 2020. 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 March 31, 2020 was 3.470%. As of March 31, 2020 and December 31, 2019, there was $129,120 original principal amount of Trust Preferred Securities outstanding and $1,699 and $1,724, respectively, of unamortized debt issuance costs. Capitalized interest recorded during the three months ended March 31, 2020 and 2019 was $292 and $19, respectively.
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Investments in Real Estate |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments in Real Estate | Investments in Real Estate The Company completed the following acquisition transactions during the three months ended March 31, 2020:
The Company is engaged in two consolidated development projects. As of March 31, 2020, the Company's aggregate investment in the development arrangements was $18,298, which included capitalized interest of $188 and is presented as investments in real estate under construction in the accompanying consolidated balance sheets. As of March 31, 2020, the details of the development arrangements outstanding (in $000's, except square feet):
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Equity |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity | Equity Shareholders' Equity: During the three months ended March 31, 2020 and 2019, the Company granted common shares to certain employees as follows:
(1) The shares vest based on the Company's total shareholder return growth after a -year measurement period relative to an index and a group of Company peers. Dividends are not paid on these grants until earned. Once the performance criteria are met and the actual number of shares earned is determined, such shares vest immediately. During the three months ended March 31, 2020, 122,779 of the 452,737 performance shares issued in 2017 vested. (2) The fair value of grants was determined at the grant date using a Monte Carlo simulation model. (3) The shares vest ratably over a -year service period. In addition, during the three months ended March 31, 2020 and 2019, the Company issued 11,675 and 32,316, respectively, of fully vested common shares to non-management members of the Company's Board of Trustees with a fair value of $125 and $264, respectively. The Company maintains an At-The-Market offering program ("ATM program") under which the Company can issue common shares. Under the ATM program, the Company may enter into forward sales agreements with agents. During the three months ended March 31, 2020, the Company issued 1,559,714 common shares under its ATM program and generated net proceeds of $17,266. As of March 31, 2020, common shares with an aggregate value of $278,551 remain available for issuance under the ATM program. The Company did not issue common shares under its ATM offering program during the three months ended March 31, 2019. In July 2015, the Company's Board of Trustees authorized the repurchase of up to 10,000,000 common shares and increased this authorization by 10,000,000 in 2018. This share repurchase program has no expiration date. During the three months ended March 31, 2020 and 2019, the Company repurchased and retired 1,329,940 and 441,581 common shares, respectively, at an average price of $8.28 and $8.13, respectively, per common share under the share repurchase program. As of March 31, 2020, 8,976,315 common shares remain available for repurchase under this authorization. The Company records a liability for repurchases that have not yet been settled as of period end. There were no unsettled repurchases as of March 31, 2020. A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows:
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 March 31, 2020, there were approximately 2,750,000 OP units outstanding other than OP units owned by the Company. All OP units receive distributions in accordance with the LCIF partnership agreement. To the extent that the Company's dividend per common share is less than the stated distribution per OP unit per the LCIF partnership agreement, the distributions per OP unit are reduced by the percentage reduction in the Company's dividend per common share. No OP units have a liquidation preference. The following discloses the effects of changes in the Company's ownership interests in its noncontrolling interests:
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Equity (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Common Stock Granted | During the three months ended March 31, 2020 and 2019, the Company granted common shares to certain employees as follows:
(1) The shares vest based on the Company's total shareholder return growth after a -year measurement period relative to an index and a group of Company peers. Dividends are not paid on these grants until earned. Once the performance criteria are met and the actual number of shares earned is determined, such shares vest immediately. During the three months ended March 31, 2020, 122,779 of the 452,737 performance shares issued in 2017 vested. (2) The fair value of grants was determined at the grant date using a Monte Carlo simulation model. (3) The shares vest ratably over a -year service period.
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Schedule of Accumulated Other Comprehensive Income (Loss) | A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows:
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Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net | The following discloses the effects of changes in the Company's ownership interests in its noncontrolling interests:
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Lease Accounting - Supplemental Balance Sheet Information (Details) |
Mar. 31, 2020 |
Mar. 31, 2019 |
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Leases [Abstract] | ||
Weighted-average remaining lease term, operating leases (years) | 12 years 1 month 6 days | 12 years 8 months 12 days |
Weighted-average discount rate, operating leases | 4.10% | 4.10% |
Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | 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 months ended March 31, 2020 and 2019:
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.
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Statement of Comprehensive Income [Abstract] | ||
Net income | $ 18,420 | $ 28,280 |
Other comprehensive income (loss): | ||
Change in unrealized loss on interest rate swaps, net | (16,996) | (76) |
Other comprehensive loss | (16,996) | (76) |
Comprehensive income | 1,424 | 28,204 |
Comprehensive income attributable to noncontrolling interests | (266) | (253) |
Comprehensive income attributable to Lexington Realty Trust shareholders | $ 1,158 | $ 27,951 |
Subsequent Events Additional Information (Details) $ in Thousands |
1 Months Ended | 3 Months Ended | |
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May 07, 2020
USD ($)
numberOfPartnerships
property
shares
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Mar. 31, 2020
USD ($)
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Mar. 31, 2019
USD ($)
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Subsequent Event [Line Items] | |||
Proceeds from sale of stock | $ 17,265 | $ 0 | |
At The Market | |||
Subsequent Event [Line Items] | |||
Proceeds from sale of stock | $ 17,266 | ||
Subsequent Event | |||
Subsequent Event [Line Items] | |||
Properties disposed | property | 1 | ||
Proceeds from sale of assets | $ 10,700 | ||
Industrial assets acquired | numberOfPartnerships | 1 | ||
Industrial asset cost | $ 34,700 | ||
Subsequent Event | At The Market | |||
Subsequent Event [Line Items] | |||
Number of shares sold | shares | 3,761,874 | ||
Proceeds from sale of stock | $ 37,619 |
Investments in Real Estate (Tables) |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Acquired Properties | The Company completed the following acquisition transactions during the three months ended March 31, 2020:
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Schedule of Real Estate Properties Development | As of March 31, 2020, the details of the development arrangements outstanding (in $000's, except square feet):
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Subsequent Events |
3 Months Ended |
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Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events Subsequent to March 31, 2020, the Company: •disposed of one property for a gross sales price of $10,700; •sold 3,761,874 shares under its ATM program for gross proceeds of $37,619. The proceeds were primarily used to acquire an industrial asset; and •acquired one industrial asset for a cost of approximately $34,700. On March 11, 2020, the World Health Organization declared the outbreak of coronavirus ("COVID-19") a pandemic. The continued spread of COVID-19 has caused disruptions in businesses and contributed to the significant volatility in global stock markets over the past few weeks. While the effects of the COVID-19 pandemic to the Company are unknown at this time, it could have a negative impact to the Company’s future results of operations, cash flows and financial condition.
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Derivatives and Hedging Activities (Tables) |
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Schedule of Derivative Instruments |
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Fair Value of the Company's Derivative Financial Instruments and Classification on the Balance Sheets | The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the condensed consolidated balance sheets:
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Effect of the Company's Derivative Financial Instruments on the Statements of Operation | The table below presents the effect of the Company's derivative financial instruments on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019.
(1) Amounts reclassified from accumulated other comprehensive income (loss) to interest expense within the unaudited condensed consolidated statement of operations.
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The Company and Financial Statement Presentation - Schedule of Variable Interest Entities (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
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Variable Interest Entity [Line Items] | ||
Real estate, net | $ 2,997,925 | $ 2,856,014 |
Total assets | 3,293,452 | 3,180,260 |
Total liabilities | 1,590,782 | 1,455,541 |
Variable Interest Entity, Primary Beneficiary | ||
Variable Interest Entity [Line Items] | ||
Real estate, net | 608,089 | 592,372 |
Total assets | 663,811 | 645,623 |
Mortgages and notes payable, net | 76,110 | 82,978 |
Total liabilities | $ 97,601 | $ 101,901 |
Lease Accounting |
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Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lease Accounting | Lease Accounting The following is a summary of the Company's accounting for leases as of and during the three-month period ended March 31, 2020 and 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. The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectable, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis. As of March 31, 2020 the Company wrote off deferred rent receivable of $615, as a reduction of rental revenue, related to a tenant that dissolved and surrendered its leased premises in an industrial property located in the Columbus, Ohio market. Additionally, as of March 31, 2020, the Company reserved $1,243 of deferred rent receivable, as a reduction of rental revenue, related to a tenant with rent collectability concerns. The Company determined that collection of the deferred rent receivable was not probable at this time. There were no accounts receivable reserved as a reduction to rental revenue as of March 31, 2019. 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 March 31, 2020 and 2019, the Company incurred $50 and $127, respectively, 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 three months ended March 31, 2020 and 2019:
(1) Primarily comprised of tenant reimbursements. Future fixed rental receipts for leases, assuming no new or re-negotiated leases as of March 31, 2020 were as follows:
Lessee The Company has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of March 31, 2020. The leases have remaining lease terms of up to 43 years, some of which include options to extend the leases in 5 to 10-year increments for up to 53 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:
The components of lease expense for the three months ended March 31, 2020 and 2019 were as follows:
The Company recognized sublease income of $941 for both the three months ended March 31, 2020 and 2019. The following table shows the Company's maturity analysis of its operating lease liabilities as of March 31, 2020:
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Lease Accounting | Lease Accounting The following is a summary of the Company's accounting for leases as of and during the three-month period ended March 31, 2020 and 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. The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectable, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis. As of March 31, 2020 the Company wrote off deferred rent receivable of $615, as a reduction of rental revenue, related to a tenant that dissolved and surrendered its leased premises in an industrial property located in the Columbus, Ohio market. Additionally, as of March 31, 2020, the Company reserved $1,243 of deferred rent receivable, as a reduction of rental revenue, related to a tenant with rent collectability concerns. The Company determined that collection of the deferred rent receivable was not probable at this time. There were no accounts receivable reserved as a reduction to rental revenue as of March 31, 2019. 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 March 31, 2020 and 2019, the Company incurred $50 and $127, respectively, 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 three months ended March 31, 2020 and 2019:
(1) Primarily comprised of tenant reimbursements. Future fixed rental receipts for leases, assuming no new or re-negotiated leases as of March 31, 2020 were as follows:
Lessee The Company has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of March 31, 2020. The leases have remaining lease terms of up to 43 years, some of which include options to extend the leases in 5 to 10-year increments for up to 53 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:
The components of lease expense for the three months ended March 31, 2020 and 2019 were as follows:
The Company recognized sublease income of $941 for both the three months ended March 31, 2020 and 2019. The following table shows the Company's maturity analysis of its operating lease liabilities as of March 31, 2020:
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Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | 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 March 31, 2020 and December 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall:
(1) Represents a non-recurring fair value measurement. Fair value as of the date of the impairment. 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 March 31, 2020 and December 31, 2019, 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 table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments as of March 31, 2020 and December 31, 2019:
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.
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