UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _________________ to ________________
Commission File Number 1-12386
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation of organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) (zip code)
(212 ) 692-7200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the shares of beneficial interest, par value $0.0001 per share, classified as common stock (“common shares”) of Lexington Realty Trust held by non-affiliates as of June 30, 2020, which was the last business day of the registrant's most recently completed second fiscal quarter, was 2,857,720,689 based on the closing price of the common shares on the New York Stock Exchange as of that date, which was $10.55 per share.
Number of common shares outstanding as of February 16, 2021 was 277,554,740 .
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Definitive Proxy Statement for Lexington Realty Trust's Annual Meeting of Shareholders, to be held on May 18, 2021, is incorporated by reference in this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
TABLE OF CONTENTS
| Description | Page | ||||||||||
| PART I | |||||||||||
| PART II | |||||||||||
| PART III | |||||||||||
| PART IV | |||||||||||
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Introduction
Unless stated otherwise or the context otherwise requires, the “Company,” the “Trust,” “Lexington,” “we,” “our,” and “us” refer collectively to Lexington Realty Trust and its consolidated subsidiaries. All of the Company's interests in properties are held, and all property operating activities are conducted, through special purpose entities, which we refer to as property owner subsidiaries or lender subsidiaries, which are separate and distinct legal entities, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes.
When we use the term “REIT,” we mean real estate investment trust. All references to 2020, 2019 and 2018 refer to our fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.
When we use the term “GAAP,” we mean United States generally accepted accounting principles in effect from time to time.
When we use the term “common shares,” we mean our shares of beneficial interest par value $0.0001, classified as common stock. When we use the term “Series C Preferred Shares,” we mean our beneficial interest classified as 6.50% Series C Convertible Preferred Stock.
When we use the term “base rent,” we mean GAAP rental revenue and ancillary income, but excluding billed tenant reimbursements and lease termination income.
The terms “FFO,” “Adjusted Company FFO,” and “NOI” are defined in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report.
Cautionary Statements Concerning Forward-Looking Statements
This Annual Report, together with other statements and information publicly disseminated by us, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects,” “may,” “plans,” “predicts,” “will,” “will likely result” or similar expressions. Readers should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. In particular, among the factors that could cause actual results, performances or achievements to differ materially from current expectations, strategies or plans include, among others, those risks discussed below under “Risk Factors” in Part I, Item 1A of this Annual Report and under “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report. Except as required by law, we undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
PART I.
Item 1. Business
General
We are a Maryland real estate investment trust, qualified as a REIT for federal income tax purposes, focused on single-tenant industrial real estate investments. A majority of our properties are subject to net or similar leases, where the tenant bears all or substantially all of the costs, including cost increases, for real estate taxes, utilities, insurance and ordinary repairs. However, certain leases provide that the landlord is responsible for certain operating expenses.
As of December 31, 2020, we had equity ownership interests in approximately 130 consolidated real estate properties, located in 29 states and containing an aggregate of approximately 56.1 million square feet of space, approximately 98.3% of which was leased.
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History and Current Corporate Structure
We became a Maryland REIT in December 1997. Prior to that, our predecessor was organized in the state of Delaware in October 1993 upon the rollup of two partnerships. Primarily all of our business is conducted through wholly-owned subsidiaries, but we conduct a portion of our business through an operating partnership subsidiary, Lepercq Corporate Income Fund L.P., which we refer to as LCIF, and four non-consolidated ventures.
Historically, LCIF enabled us to acquire properties by issuing limited partner interests in LCIF, which we refer to as OP units, to sellers of property, as a form of consideration in exchange for the property. The outstanding OP units not held by Lexington are generally redeemable for our common shares on a one OP unit for approximately 1.13 common shares basis, or, at our election in certain instances, cash. As of December 31, 2020, there were approximately 2.5 million OP units outstanding, other than OP units held by Lexington, which were convertible into approximately 2.9 million common shares, assuming redemptions are satisfied entirely with common shares.
Strategy
General. Our current business strategy is focused on enhancing our cash flow stability, growing our portfolio with attractive warehouse/distribution properties, reducing lease rollover risk and maintaining a strong flexible balance sheet to allow us to act on opportunities as they arise to generate a return to investors. In addition, we continue our efforts to reduce the percentage of non-industrial assets in our portfolio. We believe we have a diversified tenant base and are not dependent upon any one tenant. See “Item 2—Properties—Tenant Diversification.”
Investment Strategy. Our investment strategy is to grow our industrial portfolio by acquiring warehouse/distribution properties that are predominately single-tenant. We provide capital to merchant builders by providing construction financing and a takeout for build-to-suit projects and acquire speculative development properties and recently developed properties with vacancy.
We believe our development strategy provides us with higher returns than we could obtain in the existing purchase market. This strategy mitigates against most development risk, because we generally invest in opportunities that are essentially “shovel-ready”, thereby avoiding entitlement risk. Further, our merchant builder partners are generally responsible for typical cost overruns. We currently avoid the overhead of an internal development team by partnering with merchant builders. However, we are constantly exploring ways to be more efficient and earn higher returns.
We believe our current strategy will provide shareholders with a secure dividend that mitigates against unexpected costs and the cyclicality of many asset classes and investment strategies. While we believe our strategy is more defensive than most industrial REITs, we believe this makes us a “safe alternative” for investors in the industrial sector and the net lease sector.
Target Markets. We focus our investment strategy on growing markets where we believe there are advantages to building a geographic concentration. The main driver of the growth in these markets is primarily to service population growth and the expansion of e-commerce and supply chains. This differs from our historical net lease strategy where we favored credit and term over location. However, we focus less on market size, and more on the growth prospects of a market, including the potential for a market to become a top 25 or top 50 market.
Our current target markets are in the Sunbelt and the Midwest. While our investment strategy of investing in predominately single-tenant warehouse and distribution properties is not limited to specific markets, we believe that having concentration in certain markets allows us to better manage our investments and source additional investments. However, we may purchase and develop properties in other markets if favorable opportunities are identified and we may refine our investment strategy from time to time depending on market developments.
Our target markets in the Sunbelt are Phoenix, Dallas-Fort Worth, Memphis, Atlanta, Savannah, Greenville/Spartanburg and Central Florida. The markets in the Southeast offer favorable business climates, proximity to one of the fastest-growing population regions in the United States and access to significant rail, port and air logistics networks. Dallas is a central location benefiting from Texas having 16 seaports, 26 commercial airports and the nation’s largest network of freight rail and public roads. Phoenix is a lower-cost alternative to markets in California, with lower energy and labor costs. We believe the foregoing attributes attract tenants and drive demand for space in these markets.
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Our target markets in the Mid-West are in Illinois, Indiana and Ohio, with a particular focus on the lower Mid-West markets of Cincinnati, Columbus and Indianapolis. The markets in this geographic region are attractive to e-commerce tenants primarily due to less expensive occupancy costs compared to coastal markets, their central location with access to major U.S. population centers and extensive multi-modal transportation linkages. In Illinois, Chicago's population size is driving demand with limited supply of warehouse and distribution product. In Indiana, Indianapolis is home to a significant FedEx hub, which makes it a desired location within the larger distribution network. In Ohio, Cincinnati will be home to an Amazon Air freight hub and Columbus is within a one-day drive of approximately 50% of US households. We believe the creation of these hubs will drive demand for users of our space and future development.
We expect to grow within each of these target markets while reviewing additional markets for expansion.
Building Type. We target general purpose warehouse/distribution facilities that are versatile and easily leased to alternative users and have other attractive features, including some or all of the following features:
•Clear heights generally ranging from 28 feet for smaller buildings to 40 feet for larger buildings.
•Wide column spacing and speed bays.
•Efficient loading dock ratios.
•Deep truck courts.
•Cross docking for larger facilities.
•Ample trailer and employee parking.
The average age of the properties we acquired in 2020 was two years.
Insurance
We maintain comprehensive property, liability and pollution insurance policies with limits that we believe are appropriate for our portfolio. Our property insurance policy includes business interruption and windstorm coverage.
Regulation
We are subject to various laws, ordinances and regulations, including:
REIT. We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1993. We intend to continue to qualify as a REIT. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income taxes on our net taxable income that is currently distributed to our common shareholders. We conduct certain taxable activities through our taxable REIT subsidiary, Lexington Realty Advisors, Inc.
Americans with Disabilities Act. Our properties must comply with the Americans with Disabilities Act of 1990, as amended, or the Americans with Disabilities Act, to the extent that such properties are “public accommodations” as defined under the Americans with Disabilities Act. Although we believe that our properties in the aggregate substantially comply with current requirements of the Americans with Disabilities Act, and we have not received any notice for correction, we have not conducted a comprehensive audit or investigation of all of our properties to determine whether we are in compliance.
Environmental Matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances.
Competition
There are numerous developers, real estate companies, financial institutions, such as banks and insurance companies, and other investors with greater financial or other resources that compete with us in seeking properties for acquisition and tenants who will lease space in these properties.
Operating Segments
We manage our operations on an aggregated, single segment basis for purposes of assessing performance and making operating decisions, and accordingly, have only one reporting and operating segment.
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Human Capital
While our investment focus is on physical assets, human capital is critical to our success. We rely on our employees and the employees of our contractors and vendors to operate our business and implement our strategy.
Employees. As of December 31, 2020, we had 55 full-time employees and one part-time employee. Each of our employees work in one or more of the following departments: Investments, Asset Management, Accounting, Tax, Corporate, Legal and Information Technology.
We do not believe that any one employee is material to our operations, but we believe that all of our employees are important for our operations. However, the compensation for employees with the title Assistant Vice President and above generally includes long-term equity awards in an effort to retain their services.
On an annual basis, our Chief Executive Officer submits a management succession plan that provides for the ordinary course and emergency succession for our Chief Executive Officer and other key members of management, which is reviewed by the Nominating and Corporate Governance Committee of our Board of Trustees and, ultimately, our Board of Trustees.
In the beginning of March 2020, we began taking steps to prepare our employees for remote working due to the impending COVID-19 pandemic and implemented a technology allowance to offset the costs of working from home. On March 15, 2020, we moved all of our employees to remote working. Since then, we have regularly engaged with our employees through company-wide video-conference meetings and social events.
In addition, in the beginning of April 2020, we accelerated our “holiday pay” (our annual benefit where each employee receives an extra paycheck in December as an advance payment of their bonus) to make sure our employees had extra funds during the extremely uncertain days of the beginning of the COVID-19 pandemic.
Attraction & Retention of Talent. We attract talent by maintaining a good office culture and providing competitive compensation and benefits. Some of our benefit highlights are:
•Medical insurance with a portion of the premiums paid by us. The minimum employee portion of premium to participate in one of the medical insurance plans for a single employee making less than $100,000 in base salary per year is $1 per month.
•Dental and vision benefits at no cost to our employees.
•A minimum of 14 paid time off, or PTO, days for first year employees, which increases to 19 PTO days in the third and fourth year of employment and 24 PTO days in the fifth year of employment.
•Flexible working arrangements where employees are able to work from home one day per workweek (during non-pandemic times).
•Technology allowance to offset the costs of working remotely during the COVID-19 pandemic.
Due to the small size of our employee base, our turnover is generally low. In 2020, seven employees voluntarily or involuntarily separated service from us and we hired five employees for a net change of two employees.
Demographics. We believe there are many benefits to diversity in our employee base. Of our 55 full-time employees at December 31, 2020, 58% were female and 38% were non-white. Of our ten executive employees at December 31, 2020, 30% were female and 10% were non-white.
In 2020, our employees formed a Diversity, Equity and Inclusion Committee, or the DEIC, which consisted of 15 employees as of December 31, 2020. The mission of the DEIC is to make Lexington better by actively promoting diversity, equity and inclusion officewide as well as for and among our current and future stakeholders. To that end, we are establishing programs and initiatives to motivate and empower Lexington to make a positive difference, including programs focused on recruiting.
Training and Development. We maintain training programs for sustainability, accounting, cybersecurity and harassment.
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Employee Engagement. We regularly engage our employees through the following methods:
•During 2020, we conducted a mid-year performance review for our non-executive employees and a year-end performance review for all of our employees. The year-end performance review consisted of a 180-degree review where non-executive employees reviewed their immediate supervisor. We believe this 180-degree review provides an objective measurement of our employees' performance.
•During 2020, we engaged our employees with several surveys, including an employee satisfaction survey.
Vendors and Contractors. We outsource the following material functions:
•Information Technology. We use TetherView, LLC for managed IT services and BDO USA, LLC for virtual chief technology officer services, including cybersecurity.
•Internal Audit. We use CohnReznick LLP for our internal audit function.
•Property Management. We primarily use CBRE, Cushman & Wakefield and Jones Lang LaSalle for the management of our property where we have operating responsibilities. We also use the management affiliates of the developer/sellers of properties we acquire for the management of such properties if we have operating responsibilities and we believe it is important for such management affiliates to continue to manage the property.
•ESG. We use Lord Green Real Estate Strategies, Inc. to assist us with our environmental, social and governance, or ESG, initiatives.
Summary of 2020 Transactions and Recent Developments
The following summarizes certain of our transactions during 2020, including transactions disclosed elsewhere and in our other periodic reports.
Leasing Activity.
During 2020, we entered into new leases and lease extensions encompassing 5.2 million square feet. The average fixed rent on these extended leases was $4.73 per square foot compared to the average fixed rent on these leases before extension of $4.61 per square foot. The weighted-average cost of tenant improvements and lease commissions was $2.57 per square foot for new leases and $3.45 per square foot for extended leases.
Investments/Capital Recycling.
– Acquired 16 warehouse/distribution properties for an aggregate cost of $611.8 million.
–Invested approximately $60.2 million in five development projects.
– Disposed of our interests in 16 properties for an aggregate gross disposition price of $432.8 million.
Debt.
– Satisfied $236.0 million of non-recourse debt with a weighted-average interest rate of 4.5%, including debt encumbering sold assets.
– Issued $400.0 million aggregate principal amount of 2.70% Senior Notes due 2030, or 2030 Senior Notes, at an issuance price of 99.233% of the principal amount.
– Repurchased $61.2 million and $51.1 million aggregate principal balance of our outstanding 4.25% Senior Notes due 2023 (the "2023 Senior Notes") and 4.40% Senior Notes due 2024 (the "2024 Senior Notes"), respectively, pursuant to a tender offer.
Equity.
– Repurchased and retired approximately 1.3 million common shares at an average price of $8.28 per common share.
–Issued 17.3 million common shares in an underwritten offering generating net proceeds of approximately $164.0 million.
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–Issued 6.0 million common shares under our At-the-Market offering program generating net proceeds of approximately $61.0 million.
–Entered into forward sales contracts to sell 5.0 million common shares under our At-the-Market offering program with a then aggregate settlement price of $55.1 million at December 31, 2020.
Subsequent to December 31, 2020, we:
– acquired three warehouse/distribution properties for an aggregate cost of approximately $50.8 million; and
– disposed of two office properties for an aggregate gross disposition price of approximately $20.2 million.
Corporate Responsibility
We seek to create a sustainable ESG platform that enhances both our company and shareholder value. We are committed to supporting our shareholders, employees, tenants, suppliers, creditors, and communities as we execute on our ESG objectives and initiatives. The ESG objectives below are integrated throughout our investment process and contribute to our ongoing long-term success on behalf of our shareholders.
Due to the properties in our portfolio primarily being subject to net leases where tenants are responsible for maintaining the buildings and are in control of their energy usage and environmental sustainability practices, our ability to implement ESG initiatives throughout our portfolio may be limited.
Environmental, Sustainability and Climate Change
Developing strategies that reduce our environmental impact and operational costs is a critical component of our ESG program.
Actions:
•Track and monitor all landlord-paid utilities and track tenant utility data wherever possible.
•Strategically implement green building certifications to highlight sustainability initiatives where feasible.
•Annually review and evaluate sustainability opportunities to increase efficiency and reduce costs.
Performance:
•In process to collect, track and monitor landlord paid energy, water and, waste and recycling across the portfolio.
•Evaluated the portfolio for green building certifications and initially identified two properties for near-term certification.
•Circulated sustainability focused resources for tenants and property managers including Tenant Fit-Out Guide and the Industrial Tenant Sustainability Guide.
•In process to evaluate solar arrays across the portfolio to reduce energy consumption and drive down greenhouse gas emissions.
Social
We believe that actively engaging with stakeholders is critical to our business and ESG efforts, providing valuable insight to inform strategy, attract and retain top talent, and strengthen tenant relationships.
Actions:
•Continuously engage with our tenants to understand leasing and operational needs at our assets and provide tools and resources to promote sustainable tenant operations.
•Coordinate with tenants and property managers on health and well-being focused initiatives.
•Assess our tenant satisfaction and feedback through annual tenant surveys.
•Provide annual training, industry updates and access to tools and resources related to ESG for our employees.
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•Provide health and well-being efforts focused on physical, emotional and financial health for our employees.
•Support the communities in which we live and work through philanthropic events and support local charities through volunteer events.
Performance:
•Engaged third-party to begin the process of collecting and assessing feedback from our tenants.
•Engage with our employees through regular surveys, including an employee satisfaction survey.
•Organized volunteer opportunities at non-profit organizations on company time and participated in clothing and food drives.
•Invited our employees to commit time and/or money to a non-profit organization that was important to them and employees supported 20 different organizations focusing on diversity, equity and/or inclusion.
•Organized step and other health related challenges for our employees.
•Provide an employee assistance program with 24/7 unlimited access to referrals and resources for all work-life needs, including access to face-to-face and telephonic counseling sessions, legal and financial referrals and consultations.
Governance
Transparency to our stakeholders is essential. We pride ourselves on providing our stakeholders with regular reports and detailed disclosures on our operational and financial health, and ESG efforts.
Actions:
•Strive to implement best governance practices, mindful of the concerns of our shareholders.
•Increase our ESG transparency and disclosure through reporting to frameworks, such as GRESB (the global ESG benchmark for real assets), and providing regular ESG updates to shareholders and other stakeholders.
•Evaluate various industry groups that promote our alignment with recognized industry sustainability and ESG frameworks.
Performance:
•Maintain a Code of Business Conduct and Ethics, which includes a whistleblower policy.
•Perform enterprise risk assessments and management succession planning.
•Developed a Stakeholder Engagement Policy to disclose our process when working with our key stakeholders including investors, property management teams, and tenants.
•Became a supporter of the Task Force on Climate-Related Financial Disclosures (TCFD) reporting framework as of December 2020.
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Corporate Information
Principal Executive Offices. Our principal executive offices are located at One Penn Plaza, Suite 4015, New York, New York 10119-4015; our telephone number is (212) 692-7200.
Web Site. Our Internet address is www.lxp.com. We make available, free of charge, on or through the Investors section of our web site or by contacting our Investor Relations Department, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC. Also posted on our web site, and available in print upon request of any shareholder to our Investor Relations Department, are our declaration of trust and by-laws, charters for the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of our Board of Trustees, our Corporate Governance Guidelines, and our Code of Business Conduct and Ethics governing our trustees, officers and employees (which contains our whistleblower procedures). Within the time period required by the SEC and the NYSE, we will post on our web site any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any of our trustees or executive officers. In addition, our web site includes information concerning purchases and sales of our equity securities by our executive officers and trustees as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC's Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding LXP at http://www.sec.gov. Information contained on our web site or the web site of any other person is not incorporated by reference into this Annual Report or any of our other filings with or documents furnished to the SEC.
Our Investor Relations Department can be contacted at Lexington Realty Trust, One Penn Plaza, Suite 4015, New York, New York 10119-4015, Attn: Investor Relations, by telephone: (212) 692-7200, or by e-mail: ir@lxp.com.
NYSE CEO Certification. Our Chief Executive Officer made an unqualified certification to the NYSE with respect to our compliance with the NYSE corporate governance listing standards in 2020.
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Item 1A. Risk Factors
Set forth below are material factors that may adversely affect our business and operations.
Risks Related to Our Business
We are subject to risks related to defaults under, or termination or expiration of, our leases.
We focus our acquisition activities on industrial real estate properties that are generally net leased to single tenants, and certain of our tenants and/or their guarantors constitute a significant percentage of our rental revenues. Therefore, the financial failure of, or other default by, a single tenant under its lease is likely to cause a significant or complete reduction in the operating cash flow generated by the property leased to that tenant and might decrease the value of that property and result in a non-cash impairment charge. If the tenant represents a significant portion of our rental revenues, the impact on our financial position may be material. Further, in any such event, our property owner subsidiary will be responsible for 100% of the operating costs following a vacancy at a single-tenant building.
Under current bankruptcy law, a tenant can generally assume or reject a lease within a certain number of days of filing its bankruptcy petition. If a tenant rejects the lease, a landlord's damages, subject to availability of funds from the bankruptcy estate, are generally limited to the greater of (1) one year's rent and (2) the rent for 15% of the remaining term of the lease, not to exceed three years.
Our property owner subsidiaries may not be able to retain tenants in any of our properties upon the expiration of leases. Upon the expiration or other termination of current leases, our property owner subsidiaries may not be able to re-let all or a portion of the vacancy, or the terms of re-letting (including the cost of concessions to tenants and leasing commissions) may be less favorable than current lease terms or market rates. If one of our property owner subsidiaries is unable to promptly re-let all or a substantial portion of the vacancy, or if the rental rates a property owner subsidiary receives upon re-letting are significantly lower than current rates, our earnings and ability to satisfy our debt service obligations and to make expected distributions to our shareholders may be adversely affected due to the resulting reduction in rent receipts and increase in property operating costs.
Certain of our leases may permit tenants to terminate the leases to which they are a party.
Certain of our leases contain tenant termination options or economic discontinuance options, that permit the tenants to terminate their leases. While these options generally require a payment by the tenants, in most cases, the payments are less than the total remaining expected rental revenue. The termination of a lease by a tenant may impair the value of the property. In addition, we will be responsible for 100% of the operating costs following the termination by any such tenant and subsequent vacating of the property, and we will incur re-leasing costs.
Our ability to fully control the maintenance of our net-leased properties may be limited.
The tenants of our net-leased properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance or other liabilities once the property is no longer leased. We generally visit our properties on an annual basis, but these visits are not comprehensive inspections and deferred maintenance items may go unnoticed. While our leases generally provide for recourse against the tenant in these instances, a bankrupt or financially-troubled tenant may be more likely to defer maintenance, and it may be more difficult to enforce remedies against such a tenant.
You should not rely on the credit ratings of our tenants.
Some of our tenants, guarantors and/or their parent or sponsor entities are rated by certain rating agencies. In certain instances, we may disclose the credit ratings of our tenants or their parent or sponsor entities even though those parent or sponsor entities are not liable for the obligations of the tenant or guarantor under the lease. Any such credit ratings are subject to ongoing evaluation by these credit rating agencies and we cannot assure you that any such ratings will not be changed or withdrawn by these rating agencies in the future if, in their judgment, circumstances warrant. If these rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, the credit rating of a tenant, guarantor or its parent entity, the value of our investment in any properties leased by such tenant could significantly decline.
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Our assets may be subject to impairment charges.
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on GAAP, which includes a variety of factors such as market conditions, the status of significant leases, the financial condition of major tenants and other factors that could affect the cash flow or value of an investment. Based on this evaluation, we may from time to time take non-cash impairment charges. These impairments could have a material adverse effect on our financial condition and results of operations. If we take an impairment charge on a property subject to a non-recourse secured mortgage and reduce the book value of such property below the balance of the mortgage on our balance sheet, upon foreclosure or other disposition, we may be required to recognize a gain on debt satisfaction.
Our real estate development activities are subject to additional risks.
Development activities generally require various government and other approvals, which we may not receive. We rely on third-party construction managers and/or engineers to monitor certain construction activities. If we engage or partner with a developer, we rely on the developer to monitor construction activities and our interests may not be aligned. In addition, development activities, including speculative development and redevelopment and renovation of vacant properties, are subject to risks including, but not limited to:
•unsuccessful development opportunities could cause us to incur direct expenses;
•construction costs of a project may exceed original estimates, possibly making the project less profitable than originally estimated or unprofitable;
•time required to complete the construction of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity;
•legal action to compel performance of contractors, developers or partners may cause delays and our costs may not be reimbursed;
•we may not be able to find tenants to lease the space built on a speculative basis or in a redeveloped or renovated building, which will impact our cash flow and ability to finance or sell such properties;
•there may be gaps in warranty obligations of our developers and contractors and the obligations to a tenant;
•occupancy rates and rents of a completed project may not be sufficient to make the project profitable; and
•favorable financing sources to fund development activities may not be available.
A tenant’s bankruptcy proceeding may result in the re-characterization of related sale-leaseback transactions or in the restructuring of the tenant's payment obligations to us, either of which could adversely affect our financial condition.
We have entered and may continue to enter into sale-leaseback transactions, whereby we purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be re-characterized as either a financing or a joint venture. As a result of the foregoing, the re-characterization of a sale-leaseback transaction could adversely affect our financial condition, cash flow and the amount available for distributions to our shareholders.
If the sale-leaseback were re-characterized as a financing, we might not be considered the owner of the property, and as a result, would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms and prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint venture, our tenant and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the tenant relating to the property.
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A significant portion of our leases are long-term and do not have fair market rental rate adjustments, which could negatively impact our income and reduce the amount of funds available to make distributions to shareholders.
A significant portion of our rental income comes from long-term net leases, which generally provide the tenant greater discretion in using the leased property than ordinary property leases, such as the right to freely sublease the property, to make alterations in the leased premises and to terminate the lease prior to its expiration under specified circumstances. Furthermore, net leases typically have longer lease terms and, thus, there is an increased risk that contractual rental increases in future years will fail to result in fair market rental rates during those years. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases or if we are unable to obtain any increases in rental rates over the terms of our leases, significant increases in future property operating costs, to the extent not covered under the net leases, could result in us receiving less than fair value from these leases. As a result, our income and distributions to our shareholders could be lower than they would otherwise be if we did not engage in long-term net leases.
In addition, increases in interest rates may also negatively impact the value of our properties that are subject to long-term leases. While a significant number of our net leases provide for annual escalations in the rental rate, the increase in interest rates may outpace the annual escalations.
Our interests in loans receivable, if any, are subject to delinquency, foreclosure and loss.
While loan receivables are not a primary focus, we may make loans to purchasers of our properties or developers. Our interests in loans receivable, if any, are generally non-recourse and secured by real estate properties owned by borrowers that were unable to obtain similar financing from a commercial bank. These loans are subject to many risks including delinquency. The ability of a borrower to repay a loan secured by a real estate property is typically and primarily dependent upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If a borrower were to default on a loan, it is possible that we would not recover the full value of the loan as the collateral may be non-performing.
Our inability to carry out our growth strategy could adversely affect our financial condition and results of operations.
Our growth strategy is based on the acquisition and development of additional industrial properties and related assets. In the context of our business plan, “development” generally means an expansion or renovation of an existing property or the financing and/or acquisition of a newly constructed build-to-suit or speculative property and/or the development of a land parcel. For newly constructed properties, we may (1) provide a developer with either a combination of financing for the construction of a property or a commitment to acquire a property upon completion of construction of a property and commencement of rent from the tenant, (2) acquire a property subject to a lease and engage a developer to complete construction of a property as required by the lease, or (3) partner with a developer to acquire and develop or acquire on our own and engage a developer to develop land and pursue development opportunities.
Our plan to grow through the acquisition and development of new properties could be adversely affected by trends in the real estate and financing businesses. The consummation of any future acquisitions will be subject to satisfactory completion of an extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. Our ability to implement our strategy may be impeded because we may have difficulty finding new properties and investments at attractive prices that meet our investment criteria, negotiating with new or existing tenants or securing acceptable financing. If we are unable to carry out our strategy, our financial condition and results of operations could be adversely affected. Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations.
Some of our acquisitions and developments may be financed using the proceeds of periodic equity or debt offerings, lines of credit or other forms of secured or unsecured financing that may result in a risk that permanent financing for newly acquired projects might not be available or would be available only on disadvantageous terms. If permanent debt or equity financing is not available on acceptable terms to refinance acquisitions undertaken without permanent financing, further acquisitions may be curtailed, or cash available to satisfy our debt service obligations and distributions to shareholders may be adversely affected.
Our investment and disposition activity may lead to dilution.
Our strategy is to increase our investment in general purpose, well located warehouse/distribution assets and reduce our exposure to all other asset types. We believe this strategy will lessen capital expenditures over time and mitigate revenue reductions on renewals and re-tenanting. To implement this strategy, we have been selling non-industrial assets, which generally have higher capitalization rates, and buying warehouse and distribution properties, which, in the current competitive market, generally have lower capitalization rates. This strategy impacts growth in the short-term period. There can be no assurance that the implementation of our strategy will lead to improved results or that we will be able to execute our strategy as contemplated or on terms acceptable to us.
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Investment activities may not produce expected results and may be affected by outside factors.
The demand for industrial space in the United States is generally related to the level of economic output. Accordingly, reduced economic output may lead to lower occupancy rates for our properties. The concentration of our investments, among other factors, in industrial assets may expose us to the risk of economic downturns specific to industrial assets to a greater extent than if our investments were diversified.
Investment in commercial properties entail certain risks, such as (1) underwriting assumptions, including occupancy, rental rates and expenses, may differ from estimates, (2) the properties may become subject to environmental liabilities that we were unaware of at the time we acquired the property despite any environmental testing, (3) we may have difficulty obtaining financing on acceptable terms or paying the operating expenses and debt service associated with acquired properties prior to sufficient occupancy and (4) projected exit strategies may not come to fruition due to a variety of factors such as market conditions and/or tenant credit conditions at the time of dispositions.
We may not be successful in identifying suitable real estate properties or other assets that meet our investment criteria. We may also fail to complete investments on satisfactory terms. Failure to identify or complete investments could slow our growth, which could, in turn, have a material adverse effect on our financial condition and results of operations.
Properties where we have operating responsibilities and multi-tenant properties expose us to additional risks.
Properties where we have operating responsibilities involve risks not typically encountered in real estate properties which are fully operated by a single tenant. The ownership of properties which are not fully operated by a single tenant expose us to the risk of potential "CAM slippage," which may occur when the actual cost of taxes, insurance and maintenance at the property exceeds the operating expenses paid by tenants and/or the amounts budgeted. Depending on the tenant’s leverage in the lease negotiation, the tenant may be successful in negotiating for caps on certain operating expenses and we are responsible for any amounts in excess of any cap.
Multi-tenant properties are also subject to the risk that a sufficient number of suitable tenants may not be found to enable the property to operate profitably and provide a return to us. Moreover, tenant turnover and fluctuation in occupancy rates, could affect our operating results. This risk may be compounded by the failure of existing tenants to satisfy their obligations due to various factors. These risks, in turn, could cause a material adverse impact to our results of operations and business.
Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.
We carry comprehensive liability, fire, extended coverage and rent loss insurance on certain of the properties in which we have an interest, with policy specifications and insured limits that we believe are customary for similar properties. However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain rent loss insurance. In addition, certain of our leases require the tenant to maintain all insurance on the property, and the failure of the tenant to maintain the proper insurance could adversely impact our investment in a property in the event of a loss. Furthermore, there are certain types of losses, such as losses resulting from wars, terrorism or certain acts of God, that generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our financial condition and results of operations.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, misappropriation of assets and/or damage to our business relationships, all of which could negatively impact our financial results.
Cyber incidents may result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant, investor and/or vendor relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those we have outsourced. Any processes, procedures and internal controls that we implement, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations, business relationships or confidential information will not be negatively impacted by such an incident.
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Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. In addition, social engineering and phishing are a particular concern for companies with employees. As a landlord, we are also susceptible to cyber attacks on our tenants and their payment systems. We are continuously working to install new, and to upgrade our existing, network and information technology systems and to provide employee awareness training around phishing, malware and other cyber risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches. However, such upgrades, new technology and training may not be sufficient to protect us from all risks.
As a smaller company, we use third-party vendors to assist us with our network and information technology requirements. While we carefully select these third-party vendors, we cannot control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber attacks and security breaches at a vendor could adversely affect our operations.
Competition may adversely affect our ability to purchase properties.
There are numerous other companies and individuals with greater financial and other resources than we have that compete with us in seeking investments and tenants. This competition may result in a higher cost for properties and lower returns and impact our ability to grow.
We may have limited control over our joint venture investments.
Our joint venture investments involve risks not otherwise present for investments made solely by us, including the possibility that our partner might, at any time, become bankrupt, have different interests or goals than we do, or take action contrary to our expectations, its previous instructions or our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT. Other risks of joint venture investments include impasses on decisions, such as a sale, because neither we nor our partner may have full control over the joint venture. Also, there is no limitation under our organizational documents as to the amount of funds that may be invested in joint ventures.
Our ability to change our portfolio is limited because real estate investments are illiquid.
Investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed conditions is limited. Our Board of Trustees may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number or type of properties in which we may seek to invest or on the concentration of investments in any one geographic region.
Our Board of Trustees may change our investment policy without shareholders' approval.
Subject to our fundamental investment policy to maintain our qualification as a REIT and invest in core assets, our Board of Trustees will determine our investment and financing policies, growth strategy and our debt, capitalization, distribution, acquisition, disposition and operating policies.
Our Board of Trustees may revise or amend these strategies and policies at any time without a vote by shareholders. Changes made by our Board of Trustees may not serve the interests of debt or equity security holders and could adversely affect our financial condition or results of operations, including our ability to satisfy our debt service obligations, distribute cash to shareholders and qualify as a REIT. Accordingly, shareholders' control over changes in our strategies and policies is limited to the election of trustees.
Industry and Economic Risks
The current outbreak of COVID-19, or the future outbreak of any other highly infectious or contagious diseases, could adversely impact or cause disruption to our business, financial condition, results of operations and cash flows. Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy, may further disrupt financial markets and could potentially create widespread business continuity issues.
In recent years the outbreaks of a number of diseases, including Avian Bird Flu, H1N1, and various other "super bugs," have increased the risk of a pandemic. On March 11, 2020, the World Health Organization declared COVID-19, a novel strain of the coronavirus, a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.
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The potential impact and duration of COVID-19 or another pandemic could have repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines and restrictions on travel and commerce. The duration of such restrictions is currently unknown. Furthermore, unrest in certain areas of the United States has resulted. These restrictions and unrest have, and may continue to, create disruption in global supply chains and adversely impact a number of industries, including industries in which our tenants participate.
The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, the COVID-19 outbreak has had, and future pandemics could have, a significant adverse impact on economic and market conditions of economies around the world, including the United States, the results of which have and would present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
Potential disruptions in the financial markets could affect our ability to obtain debt financing on reasonable terms and have other adverse effects on us.
The United States credit markets have periodically experienced significant dislocations and liquidity disruptions, which have caused the spreads on prospective debt financings to widen considerably. These circumstances may materially impact liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases may result in the unavailability of certain types of debt financing. Uncertainty in the credit markets may negatively impact our ability to access additional debt financing on reasonable terms, which may negatively affect our ability to make acquisitions. A prolonged downturn in the credit markets may cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business plan accordingly. In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of capital or difficulties in obtaining capital. These events in the credit markets may have an adverse effect on other financial markets in the United States, which may make it more difficult or costly for us to raise capital through the issuance of our common shares or preferred shares. These disruptions in the financial markets may have other adverse effects on us, our tenants or the economy in general.
Natural disasters, public health epidemics and the effects of climate change could have a concentrated impact on the areas where we operate and could adversely impact our results.
We invest in properties on a nationwide basis. Natural disasters, including earthquakes, storms, tornados, floods and hurricanes, could impact our properties in these and other areas in which we operate. Public health epidemics could impact our employees or the national or global supply chain. Potentially adverse consequences of global warming, including rising sea levels, could similarly have an impact on our properties. Over time, these conditions could result in declining demand for space in our buildings or the inability of us to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy at our properties and requiring us to expend funds as we seek to repair and protect our properties against such risks. The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results.
Risks Related to our Indebtedness
We have a substantial amount of indebtedness.
Our substantial indebtedness could adversely affect our financial condition and our ability to fulfill our obligations under the documents governing our unsecured indebtedness and otherwise adversely impact our business and growth prospects.
We have a substantial amount of debt. We may be more leveraged than certain of our competitors. We have incurred, and may continue to incur, direct and indirect indebtedness in furtherance of our activities. Neither our declaration of trust nor any policy statement formerly adopted by our Board of Trustees limits the total amount of indebtedness that we may incur, and accordingly, we could become even more highly leveraged. As of December 31, 2020, our total consolidated indebtedness was approximately $1.4 billion and we had approximately $600.0 million available for borrowing under our principal credit agreement, subject to covenant compliance.
Our substantial indebtedness could adversely affect our financial condition and results of operations and have important consequences to us and our debt and equity security holders. For example, it could:
•make it more difficult for us to satisfy our indebtedness and debt service obligations and adversely affect our ability to pay distributions;
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•increase our vulnerability to adverse economic and industry conditions;
•require us to dedicate a substantial portion of our cash flow from operations to the payment of interest on and principal of our indebtedness, thereby reducing the availability of cash to fund working capital, capital expenditures and other general corporate purposes;
•limit our ability to borrow money or sell stock to fund our development projects, working capital, capital expenditures, general corporate purposes or acquisitions;
•restrict us from making strategic acquisitions or exploiting business opportunities;
•place us at a disadvantage compared to competitors that have less debt; and
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
In addition, the agreements that govern our current indebtedness contain, and the agreements that may govern any future indebtedness that we may incur may contain, financial and other restrictive covenants, which may limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of our debt.
Market interest rates could have an adverse effect on our borrowing costs, profitability and the value of our fixed-rate debt securities.
We have exposure to market risks relating to increases in interest rates due to our variable-rate debt. An increase in interest rates may increase our costs of borrowing on existing variable-rate indebtedness, leading to a reduction in our earnings. As of December 31, 2020, we have $129.1 million of trust preferred securities that matures in April 2037 that is LIBOR indexed. In addition, we have a $300.0 million unsecured term loan which matures January 2025 that is LIBOR indexed and is subject to interest rate swap agreements through January 2025. Also, our unsecured revolving credit facility is subject to a variable interest rate. The level of our variable-rate indebtedness, along with the interest rate associated with such variable-rate indebtedness, may change in the future and materially affect our interest costs and earnings. In addition, our interest costs on our fixed-rate indebtedness may increase if we are required to refinance our fixed-rate indebtedness upon maturity at higher interest rates. Also, fixed-rate debt securities generally decline in value as market rates rise because the premium, if any, over market interest rates will decline.
The LIBOR index rate may not be available in the future.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (or ARRC) has proposed that the Secured Overnight Financing Rate (or SOFR) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. Our trust preferred securities do not provide for a clear alternative to USD-LIBOR.
We have engaged and may engage in hedging transactions that may limit gains or result in losses.
We have used derivatives to hedge certain of our variable-rate liabilities. As of December 31, 2020, we had aggregate interest rate swap agreements on $300.0 million of borrowings. The counterparties of these arrangements are major financial institutions; however, we are exposed to credit risk in the event of non-performance or default by the counterparties. Further, additional risks, including losses on a hedge position, may reduce the return on our investments. Such losses may exceed the amount invested in such instruments. We may also have to pay certain costs, such as transaction fees or breakage costs, related to hedging transactions.
Covenants in certain of the agreements governing our debt could adversely affect our financial condition, investment activities and/or operating activities.
Our unsecured revolving credit facility, unsecured term loan and indentures governing our senior notes contain certain cross-default and cross-acceleration provisions as well as customary restrictions, requirements and other limitations on our ability to incur indebtedness and consummate mergers, consolidations or sales of all or substantially all of our assets. Our ability to borrow under our unsecured revolving credit facility is also subject to compliance with certain other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument and we may then be required to repay such
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debt with capital from other sources. Under those circumstances, other sources of capital may not be available to us or be available only on unattractive terms. Additionally, our ability to satisfy current or prospective lenders' insurance requirements may be adversely affected if lenders generally insist upon greater insurance coverage than is available to us in the marketplace or on commercially reasonable terms.
We rely on debt financing, including borrowings under our unsecured revolving credit facility, unsecured term loan, debt securities, and debt secured by individual properties, for working capital, including to finance our investment activities. If we are unable to obtain financing from these or other sources, or to refinance existing indebtedness upon maturity, our financial condition and results of operations could be adversely affected.
The documents governing our non-recourse indebtedness contain restrictions on the operations of our property owner subsidiaries and their properties. Certain activities, like leasing and alterations, may be subject to the consent of the applicable lender. In addition, certain lenders engage third-party loan servicers that may not be as responsive as we would be or as the leasing market requires.
We face risks associated with refinancings.
Some of the properties in which we have an interest are subject to a mortgage or other secured notes with balloon payments due at maturity. In addition, our corporate level borrowings require interest only payments with all principal due at maturity.
Our ability to make the scheduled balloon payments on any corporate recourse note will depend on our access to the capital markets, including our ability to refinance the maturing note. Our ability to make the scheduled balloon payment on any non-recourse mortgage note will depend upon (1) in the event we determine to contribute capital, our cash balances and the amount available under our unsecured credit facility, and (2) the property owner subsidiary's ability either to refinance the related mortgage debt or to sell the related property. If the property owner subsidiary is unable to refinance or sell the related property, the property may be conveyed to the lender through foreclosure or other means or the property owner subsidiary may declare bankruptcy.
We face risks associated with returning properties to lenders.
Some of the properties in which we have an interest are subject to non-recourse mortgages, which generally provide that a lender's only recourse upon an event of default is to foreclose on the property. In the event these properties are conveyed via foreclosure to the lenders thereof, we would lose all of our interest in these properties. The loss of a significant number of properties to foreclosure or through bankruptcy of a property owner subsidiary could adversely affect our financial condition and results of operations, relationships with lenders and ability to obtain additional financing in the future.
In addition, a lender may attempt to trigger a carve out to the non-recourse nature of a mortgage loan. To the extent a lender is successful, the ability of our property owner subsidiary to return the property to the lender may be inhibited and/or we may be liable for all or a portion of such loan.
Certain of our indebtedness is subject to cross-default and cross-acceleration provisions.
Substantially all of our corporate level borrowings and, in the future, certain of our secured indebtedness may, contain cross-default and/or cross-acceleration provisions, which may be triggered if we default on certain indebtedness in excess of certain thresholds. In the event of such a default, the resulting cross defaults and/or cross-accelerations may adversely impact our financial condition.
We may not be able to generate sufficient cash flow to meet our debt service obligations.
Our ability to make payments on and to refinance our indebtedness depends on our ability to generate cash in the future. To a certain extent, our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness. Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase.
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The effective subordination of our unsecured indebtedness and any related guaranty may reduce amounts available for payment on our unsecured indebtedness and any related guaranty.
The holders of our secured debt may foreclose on the assets securing such debt, reducing the cash flow from the foreclosed property available for payment of unsecured debt and any related guaranty. The holders of any of our secured debt also would have priority with respect to the secured collateral over unsecured creditors in the event of a bankruptcy, liquidation or similar proceeding.
None of our subsidiaries are guarantors of our unsecured debt; therefore assets of our subsidiaries may not be available to make payments on our unsecured indebtedness.
We are the sole borrower of our unsecured indebtedness and none of our subsidiaries were guarantors of our unsecured indebtedness. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, holders of subsidiary debt, including trade creditors, will generally be entitled to payment of their claims from the assets of our subsidiaries before any assets are made available for distribution to us.
All of our assets are held through our subsidiaries. Consequently, our cash flow and our ability to meet our debt service obligations depend in large part upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries to us in the form of distributions or otherwise.
Risks Related to Investment in our Equity
We may change the dividend policy for our common shares in the future.
The decision to declare and pay dividends on our common shares in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Trustees in light of conditions then existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of debt and equity capital, applicable REIT and legal restrictions and the general overall economic conditions and other factors. The actual dividend payable will be determined by our Board of Trustees based upon the circumstances at the time of declaration and the actual dividend payable may vary from such expected amount. Any change in our dividend policy could have a material adverse effect on the market price of our common shares.
Securities eligible for future sale may have adverse effects on our share price.
We have an unallocated universal shelf registration statement and we also maintain a direct share purchase plan, pursuant to which we may issue additional common shares. There is no restriction on our issuing additional common or preferred shares, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common or preferred shares or any substantially similar securities. We maintain an At-the-Market offering program pursuant to which we may enter into forward sale agreements. Settlement provisions contained in any forward sale agreement could result in substantial dilution to our earnings per share or result in substantial cash payment obligations. In addition, in the case of our bankruptcy or insolvency, any forward sale agreement will automatically terminate, and we would not receive the expected proceeds from the sale of our common shares under such agreement.
We disclose certain non-GAAP financial measures in documents filed and/or furnished with the SEC; however, the non-GAAP financial measures we disclose are not equivalent to applicable comparable GAAP measures, and you should consider GAAP measures to be more relevant to our operating performance.
We use and disclose to investors FFO, Adjusted Company FFO, NOI and other non-GAAP financial measures. FFO, Adjusted Company FFO, NOI and the other non-GAAP financial measures are not equivalent to our net income or loss as determined in accordance with GAAP, and investors should consider GAAP measures to be more relevant to evaluating our operating performance. FFO, Adjusted Company FFO and NOI, and GAAP net income (loss) differ because FFO, Adjusted Company FFO and NOI exclude many items that are factored into GAAP net income or loss.
Because of the differences between FFO, Adjusted Company FFO, NOI and GAAP net income or loss, FFO, Adjusted Company FFO and NOI may not be accurate indicators of our operating performance, especially during periods in which we are acquiring and selling properties. In addition, FFO, Adjusted Company FFO and NOI are not necessarily indicative of cash flow available to fund cash needs and investors should not consider FFO, Adjusted Company FFO or NOI as alternatives to cash flows from operations, as an indication of our liquidity or as indicative of funds available to fund our cash needs, including our ability to make distributions to our shareholders.
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Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO, Adjusted Company FFO and NOI. Also, because not all companies calculate FFO, Adjusted Company FFO and NOI the same way, comparisons with other companies’ measures with similar titles may not be meaningful.
There are certain limitations on a third party's ability to acquire us or effectuate a change in our control.
Severance payments under our executive severance policy. Substantial termination payments may be required to be paid under our executive severance policy applicable to and related agreements with our executives upon the termination of an executive. If those executive officers are terminated without cause, as defined, or resign for good reason, as defined, those executive officers may be entitled to severance benefits based on their current annual base salaries and trailing average of recent annual cash bonuses as defined in our executive severance policy and related agreements and the acceleration of certain non-vested equity awards. Accordingly, these payments may discourage a third party from acquiring us.
Our ability to issue additional shares. Our declaration of trust authorizes 1,000,000,000 shares of beneficial interest (par value $0.0001 per share) consisting of 400,000,000 common shares, 100,000,000 preferred shares and 500,000,000 shares of beneficial interest classified as excess stock, or excess shares. Our Board of Trustees is authorized to cause us to issue these shares without shareholder approval. Our Board of Trustees may establish the preferences and rights of any such class or series of additional shares, which could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in shareholders' best interests. At December 31, 2020, in addition to common shares, we had outstanding 1,935,400 Series C Preferred Shares. Our Series C Preferred Shares include provisions, such as increases in dividend rates or adjustments to conversion rates, which may deter a change of control. The establishment and issuance of shares of our existing series of preferred shares or a future class or series of shares could make a change of control of us more difficult.
Maryland Takeover Statutes. Certain provisions of the Maryland General Corporation Law, including the Maryland Business Combination Act, the Maryland Control Share Act, and certain elective provisions of Maryland law under Subtitle 8 of the Maryland General Corporation Law, each as further described under the heading “Restrictions on Transfers of Capital Stock and Anti-Takeover Provisions – Maryland Law” in Exhibit 4.10 of this Annual Report, are applicable to Maryland REITs, such as the Company. We are subject to the Maryland Business Combination Act, and while our by-laws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of our shares, we cannot assure you that this provision will not be amended or eliminated at any time in the future. We have also not elected to be governed by any of the specific provisions of Subtitle 8, however, through provisions of our declaration of trust and/or by-laws, as applicable, unrelated to Subtitle 8, we provide for an 80% shareholder vote to remove trustees and then only for cause, and that the number of trustees may be determined by a resolution of our Board of Trustees, subject to a minimum number. In addition, we can elect to be governed by any or all of the provisions of Subtitle 8 of the Maryland General Corporation Law at any time in the future. These statutes could have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if such acquisition would be in shareholders' best interests.
Limits on ownership of our capital shares may have the effect of delaying, deferring or preventing someone from taking control of us.
For us to qualify as a REIT for federal income tax purposes, among other requirements, not more than 50% of the value of our outstanding capital shares may be owned, directly or indirectly, by five or fewer individuals (as defined for federal income tax purposes to include certain entities) during the last half of each taxable year, and these capital shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year for which a REIT election is made). Our declaration of trust includes certain restrictions regarding transfers of our capital shares and ownership limits.
In order to protect against the loss of our REIT status, among other things, actual or constructive ownership of our capital shares in violation of the restrictions contained in our declaration of trust or in excess of 9.8% in value of our outstanding equity shares, defined as our common shares, or preferred shares, subject to certain exceptions, would cause the violative transfer or ownership to be void or cause the shares to be transferred to a charitable trust and then sold to a person or entity who can own the shares without violating these limits. As a result, if a violative transfer were made, the recipient of the shares would not acquire any economic or voting rights attributable to the transferred shares. Additionally, the constructive ownership rules for these limits are complex, and groups of related individuals or entities may be deemed a single owner and consequently in violation of the share ownership limits.
However, these restrictions and limits may not be adequate in all cases to prevent the transfer of our capital shares in violation of the ownership limitations. The ownership limits discussed above may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control could involve a premium price for the common shares or otherwise be in shareholders' best interests.
20
The trading price of our common shares has been, and may continue to be, subject to significant fluctuations.
The market price of our common shares may fluctuate in response to company-specific and general market events and developments, including those described in this Annual Report. In addition, our leverage may impact investor demand for our common shares, which could have a material effect on the market price of our common shares.
Furthermore, the public valuation of our common shares is related primarily to the earnings that we derive from rental income with respect to the properties in which we have an interest and not from the underlying appraised value of the properties themselves. As a result, interest rate fluctuations and capital market conditions can affect the market value of our common shares. For instance, if interest rates rise, the market price of our common shares may decrease because potential investors seeking a higher yield than they would receive from our common shares may sell our common shares in favor of higher yielding securities.
Legal and Regulatory Risks
We face possible liability relating to environmental matters.
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, our property owner subsidiaries may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under the properties in which we have an interest as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property. These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on our property owner subsidiaries in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages, and our liability therefore, could be significant and could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect a property owner subsidiary's ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to satisfy our debt service obligations and to pay dividends.
A property can also be adversely affected either through physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. Although the tenants of the properties in which we have an interest are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of the tenants of the properties in which we have an interest to satisfy any obligations with respect to the property leased to that tenant, our property owner subsidiary may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease.
From time to time, in connection with the conduct of our business, our property owner subsidiaries authorize the preparation of Phase I environmental reports and, when recommended, Phase II environmental reports, with respect to their properties. There can be no assurance that these environmental reports will reveal all environmental conditions at the properties in which we have an interest. We are also subject to exposure to material liability from the discovery of previously unknown environmental conditions; changes in law; activities of tenants; or activities relating to properties in the vicinity of the properties in which we have an interest.
Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of the properties in which we have an interest, which could adversely affect our financial condition or results of operations.
Costs of complying with changes in governmental laws and regulations may adversely affect our results of operations.
We cannot predict what laws or regulations may be enacted, repealed or modified in the future, how future laws or regulations will be administered or interpreted, or how future laws or regulations will affect our properties. Compliance with new or modified laws or regulations, or stricter interpretation of existing laws, may require us or our tenants to incur significant expenditures, impose significant liability, restrict or prohibit business activities and could cause a material adverse effect on our results of operations.
Legislation such as the Americans with Disabilities Act may require us to modify our properties at substantial costs and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future legislation may impose additional requirements. We may incur additional costs to comply with any future requirements.
21
Risks Related to Our REIT Status
There can be no assurance that we will remain qualified as a REIT for federal income tax purposes.
We believe that Lexington has met the requirements for qualification as a REIT for federal income tax purposes beginning with its taxable year ended December 31, 1993, and we intend for Lexington to continue to meet these requirements in the future. However, qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect Lexington's ability to continue to qualify as a REIT. No assurance can be given that Lexington has qualified or will remain qualified as a REIT. In addition, no assurance can be given that legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements for qualification as a REIT or the federal income tax consequences of such qualification. If Lexington does not qualify as a REIT, Lexington would not be allowed a deduction for dividends paid to shareholders in computing its net taxable income and Lexington would not be required to continue making distributions. In addition, Lexington's income would be subject to tax at the regular corporate rates. Lexington also could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Cash required to be used to pay taxes would not be available to satisfy Lexington's debt service obligations and to make distributions to its shareholders. Although we currently intend for Lexington to continue to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause Lexington, without the consent of the shareholders, to revoke the REIT election or to otherwise take action that would result in disqualification.
We may be subject to the REIT prohibited transactions tax, which could result in significant U.S. federal income tax liability to us.
A REIT will incur a 100% tax on the net income from a prohibited transaction. Generally, a prohibited transaction includes a sale or disposition of property held primarily for sale to customers in the ordinary course of business. While we believe that the dispositions of our assets pursuant to our investment strategy should not be treated as prohibited transactions, whether a particular sale will be treated as a prohibited transaction depends on the underlying facts and circumstances. We have not sought and do not intend to seek a ruling from the Internal Revenue Service regarding any dispositions. Accordingly, there can be no assurance that our dispositions of such assets will not be subject to the prohibited transactions tax. If all or a significant portion of those dispositions were treated as prohibited transactions, we would incur a significant U.S. federal income tax liability, which could have a material adverse effect on our financial position.
Distribution requirements imposed by law limit our flexibility.
To maintain Lexington's status as a REIT for federal income tax purposes, Lexington is generally required to distribute to its shareholders at least 90% of its taxable income for that calendar year. Lexington's taxable income is determined without regard to any deduction for dividends paid and by excluding net capital gains. To the extent that Lexington satisfies the distribution requirement but distributes less than 100% of its taxable income, Lexington will be subject to federal corporate income tax on its undistributed income. In addition, Lexington will incur a 4% nondeductible excise tax on the amount by which its distributions in any year are less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain net income for that year and (iii) 100% of its undistributed taxable income from prior years. We intend for Lexington to continue to make distributions to its shareholders to comply with the distribution requirements of the Code and to reduce exposure to federal taxes. Differences in timing between the receipt of income and the payment of expenses in determining its taxable income and the effect of required debt amortization payments could require Lexington to borrow funds on a short-term basis in order to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.
Legislative or regulatory tax changes could have an adverse effect on us.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a debt or equity security holder.
Federal tax legislation passed in 2017 made numerous changes to tax rules. These changes do not affect the REIT qualification rules directly, but may otherwise affect us or our shareholders. For example, the top federal income tax rate for individuals was reduced to 37%, there is a deduction available for certain Qualified Business Income that reduces the top effective tax rate applicable to ordinary dividends from REITs to 29.6% (through a 20% deduction for ordinary REIT dividends received) and various deductions are eliminated or limited. Most of the changes applicable to individuals are temporary.
22
General
A downgrade in our credit ratings could have a material adverse effect on our business and financial condition.
The credit ratings assigned to us and our debt could change based upon, among other things, our results of operations and financial condition or the real estate industry generally. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any rating will not be changed or withdrawn by a rating agency in the future if, in the applicable rating agency's judgment, circumstances warrant. Moreover, these credit ratings do not apply to our common and preferred shares and are not recommendations to buy, sell or hold any other securities. Any downgrade of us or our debt could have a material adverse effect on the market price of our debt securities and our common and preferred shares. If any credit rating agency that has rated us or our debt downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could also have a material adverse effect on our costs and availability of capital, which could, in turn, have a material adverse effect on our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations and to make dividends and distributions on our common shares and preferred shares.
We are dependent upon our key personnel.
We are dependent upon key personnel, particularly our executive officers. We do not have employment agreements with our executive officers, but we have entered into severance arrangements with certain of our executive officers that provide certain payments upon specified termination events.
Our inability to retain the services of any of our key personnel, an unplanned loss of any of their services or our inability to replace them upon termination as needed, could adversely impact our operations. We do not have key man life insurance coverage on our executive officers.
23
Item 1B. Unresolved Staff Comments
There are no unresolved written comments that were received from the SEC staff relating to our periodic or current reports under the Securities Exchange Act of 1934.
24
Item 2. Properties
Real Estate Portfolio
General. As of December 31, 2020, we had equity ownership interests in approximately 130 consolidated real estate properties containing approximately 56.1 million square feet of rentable space, which were approximately 98.3% leased based upon net rentable square feet. Generally, all properties in which we have an interest are held through at least one property owner subsidiary.
Ground Leases. Certain of the properties in which we have an interest are subject to long-term ground leases where either the tenant of the building on the property or a third party owns and leases the underlying land to the property owner subsidiary. Certain of these properties are economically owned through the holding of industrial revenue bonds primarily for real estate tax abatement purposes and as such, neither ground lease payments nor bond interest payments are made or received, respectively. For certain of the properties held under a ground lease, the ground lessee has a purchase option. At the end of these long-term ground leases, unless extended or the purchase option is exercised, the land together with all improvements thereon reverts to the landowner.
Office Leases. We lease our headquarters office space in New York, New York and our satellite office in Dallas, Texas.
Leverage. As of December 31, 2020, we had outstanding mortgages and notes payable of approximately $138.4 million with a weighted-average interest rate of approximately 4.5% and a weighted-average maturity of 7.8 years.
Property Charts. The following tables list our properties by type, their locations, the net rentable square feet, the expiration of the current lease term and percent leased, as applicable, as of December 31, 2020.
25
LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL | ||||||||||||||||||||
As of December 31, 2020 | ||||||||||||||||||||
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased | |||||||||||||||
| Single-tenant properties: | ||||||||||||||||||||
| 318 Pappy Dunn Blvd. | Anniston | AL | 276,782 | 11/24/2029 | 100 | % | ||||||||||||||
| 4801 North Park Dr. | Opelika | AL | 165,493 | 5/31/2042 | 100 | % | ||||||||||||||
| 3405 S. McQueen Rd. | Chandler | AZ | 201,784 | 3/31/2033 | 100 | % | ||||||||||||||
| 4455 N. Cotton Ln. | Goodyear | AZ | 160,140 | 12/31/2025 | 100 | % | ||||||||||||||
| 16811 W. Commerce Dr. | Goodyear | AZ | 540,349 | 4/30/2026 | 100 | % | ||||||||||||||
| 255 143rd Ave. | Goodyear | AZ | 801,424 | 9/30/2030 | 100 | % | ||||||||||||||
| 9494 W. Buckeye Rd. | Tolleson | AZ | 186,336 | 9/30/2026 | 100 | % | ||||||||||||||
| 3400 NW 35 St. | Ocala | FL | 617,055 | 8/31/2030 | 100 | % | ||||||||||||||
| 2455 Premier Row | Orlando | FL | 205,016 | 3/31/2026 | 100 | % | ||||||||||||||
| 3102 Queen Palm Dr. | Tampa | FL | 229,605 | 2/28/2023 | 100 | % | ||||||||||||||
| 7875 White Rd. SW | Austell | GA | 604,852 | 5/31/2025 | 100 | % | ||||||||||||||
| 490 Westridge Pkwy. | McDonough | GA | 1,121,120 | 1/31/2028 | 100 | % | ||||||||||||||
| 493 Westridge Pkwy. | McDonough | GA | 676,000 | 10/31/2023 | 100 | % | ||||||||||||||
| 1420 Greenwood Rd. | McDonough | GA | 296,972 | 8/31/2028 | 100 | % | ||||||||||||||
| 335 Morgan Lakes Industrial | Pooler | GA | 499,500 | 7/31/2027 | 100 | % | ||||||||||||||
| 1004 Trade Center Pkwy. | Savannah | GA | 419,667 | 7/31/2026 | 100 | % | ||||||||||||||
| 1315 Dean Forest Rd. | Savannah | GA | 88,503 | 8/31/2025 | 100 | % | ||||||||||||||
| 1319 Dean Forest Rd. | Savannah | GA | 355,527 | 6/30/2025 | 100 | % | ||||||||||||||
| 7225 Goodson Rd. | Union City | GA | 370,000 | 5/31/2024 | 100 | % | ||||||||||||||
| 3931 Lakeview Corporate Dr. | Edwardsville | IL | 769,500 | 9/30/2026 | 100 | % | ||||||||||||||
| 4015 Lakeview Corporate Dr. | Edwardsville | IL | 1,017,780 | 5/31/2030 | 100 | % | ||||||||||||||
| 6225 East Minooka Rd. | Minooka | IL | 1,034,200 | 9/30/2029 | 100 | % | ||||||||||||||
| 1460 Cargo Ct. | Minooka | IL | 705,661 | 11/30/2029 | 100 | % | ||||||||||||||
| 200 International Pkwy S. | Minooka | IL | 473,280 | 12/31/2029 | 100 | % | ||||||||||||||
| 1001 Innovation Rd. | Rantoul | IL | 813,126 | 10/31/2034 | 100 | % | ||||||||||||||
| 3686 S. Central Ave. | Rockford | IL | 93,000 | 12/31/2021 | 100 | % | ||||||||||||||
| 749 Southrock Dr. | Rockford | IL | 150,000 | 12/31/2024 | 100 | % | ||||||||||||||
| 1020 W. Airport Rd. | Romeoville | IL | 188,166 | 10/31/2031 | 100 | % | ||||||||||||||
26
LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL | ||||||||||||||||||||
As of December 31, 2020 | ||||||||||||||||||||
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased | |||||||||||||||
| 1621 Veterans Memorial Pkwy E | Lafayette | IN | 309,400 | 9/30/2024 | 100 | % | ||||||||||||||
| 1285 W. State Road 32 | Lebanon | IN | 741,880 | 1/31/2024 | 100 | % | ||||||||||||||
| 5352 Performance Way | Whitestown | IN | 380,000 | 7/31/2025 | 100 | % | ||||||||||||||
| 27200 West 157th St. | New Century | KS | 446,500 | 1/31/2027 | 100 | % | ||||||||||||||
| 10000 Business Blvd. | Dry Ridge | KY | 336,350 | 6/30/2031 | 100 | % | ||||||||||||||
| 730 North Black Branch Rd. | Elizabethtown | KY | 167,770 | 6/30/2025 | 100 | % | ||||||||||||||
| 750 North Black Branch Rd. | Elizabethtown | KY | 539,592 | 6/30/2025 | 100 | % | ||||||||||||||
| 301 Bill Bryan Blvd. | Hopkinsville | KY | 424,904 | 6/30/2025 | 100 | % | ||||||||||||||
| 4010 Airpark Dr. | Owensboro | KY | 211,598 | 6/30/2025 | 100 | % | ||||||||||||||
| 1901 Ragu Dr. | Owensboro | KY | 443,380 | 12/19/2025 | 100 | % | ||||||||||||||
| 5001 Greenwood Rd. | Shreveport | LA | 646,000 | 12/31/2023 | 100 | % | ||||||||||||||
| 5417 Campus Dr. | Shreveport | LA | 257,849 | 3/31/2022 | 100 | % | ||||||||||||||
| 113 Wells St. | North Berwick | ME | 993,685 | 4/30/2024 | 100 | % | ||||||||||||||
| 2860 Clark St. | Detroit | MI | 189,960 | 10/22/2035 | 100 | % | ||||||||||||||
| 6938 Elm Valley Dr. | Kalamazoo | MI | 150,945 | 10/25/2021 | 100 | % | ||||||||||||||
| 904 Industrial Rd. | Marshall | MI | 246,508 | 9/30/2028 | 100 | % | ||||||||||||||
| 43955 Plymouth Oaks Blvd. | Plymouth | MI | 311,612 | 10/31/2024 | 100 | % | ||||||||||||||
| 16950 Pine Dr. | Romulus | MI | 500,023 | 8/24/2032 | 100 | % | ||||||||||||||
| 26700 Bunert Rd. | Warren | MI | 260,243 | 10/31/2032 | 100 | % | ||||||||||||||
| 1700 47th Ave North | Minneapolis | MN | 18,620 | 12/31/2025 | 100 | % | ||||||||||||||
| 549 Wingo Rd. | Byhalia | MS | 855,878 | 3/31/2030 | 100 | % | ||||||||||||||
| 1550 Hwy 302 | Byhalia | MS | 615,600 | 9/30/2027 | 100 | % | ||||||||||||||
| 554 Nissan Pkwy. | Canton | MS | 1,466,000 | 2/28/2027 | 100 | % | ||||||||||||||
| 11555 Silo Dr. | Olive Branch | MS | 927,742 | 4/30/2024 | 100 | % | ||||||||||||||
| 11624 S. Distribution Cv. | Olive Branch | MS | 1,170,218 | 6/30/2021 | 100 | % | ||||||||||||||
| 6495 Polk Ln. | Olive Branch | MS | 269,902 | 5/31/2023 | 100 | % | ||||||||||||||
| 8500 Nail Rd. | Olive Branch | MS | 716,080 | 7/31/2029 | 100 | % | ||||||||||||||
| 1133 Poplar Creek Rd. | Henderson | NC | 147,448 | 4/30/2034 | 100 | % | ||||||||||||||
| 2880 Kenny Biggs Rd. | Lumberton | NC | 423,280 | 11/30/2021 | 100 | % | ||||||||||||||
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LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL | ||||||||||||||||||||
As of December 31, 2020 | ||||||||||||||||||||
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased | |||||||||||||||
| 671 Washburn Switch Rd. | Shelby | NC | 673,425 | 5/31/2036 | 100 | % | ||||||||||||||
| 121 Technology Dr. | Durham | NH | 500,500 | 3/30/2026 | 100 | % | ||||||||||||||
| 5625 North Sloan Ln. | North Las Vegas | NV | 180,235 | 9/30/2034 | 100 | % | ||||||||||||||
| 736 Addison Rd. | Erwin | NY | 408,000 | 11/30/2026 | 100 | % | ||||||||||||||
| 29-01 Borden Ave. / 29-10 Hunters Point Ave. | Long Island City | NY | 140,330 | 3/31/2028 | 100 | % | ||||||||||||||
| 10590 Hamilton Ave. | Cincinnati | OH | 264,598 | 12/31/2027 | 100 | % | ||||||||||||||
| 1650 - 1654 Williams Rd. | Columbus | OH | 772,450 | 6/30/2025 | 100 | % | ||||||||||||||
| 7005 Cochran Rd. | Glenwillow | OH | 458,000 | 7/31/2025 | 100 | % | ||||||||||||||
| 191 Arrowhead Dr. | Hebron | OH | 250,410 | 3/31/2022 | 100 | % | ||||||||||||||
| 200 Arrowhead Dr. | Hebron | OH | 400,522 | 3/31/2022 | 100 | % | ||||||||||||||
| 675 Gateway Blvd. | Monroe | OH | 143,664 | 12/31/2023 | 100 | % | ||||||||||||||
| 600 Gateway Blvd. | Monroe | OH | 994,013 | 8/31/2027 | 100 | % | ||||||||||||||
| 700 Gateway Blvd. | Monroe | OH | 1,299,492 | 6/30/2030 | 100 | % | ||||||||||||||
| 10345 Philipp Pkwy. | Streetsboro | OH | 649,250 | 10/31/2026 | 100 | % | ||||||||||||||
| 27255 SW 95th Ave. | Wilsonville | OR | 508,277 | 10/31/2032 | 100 | % | ||||||||||||||
| 250 Rittenhouse Cir. | Bristol | PA | 241,977 | 11/30/2026 | 100 | % | ||||||||||||||
| 590 Ecology Ln. | Chester | SC | 420,597 | 7/14/2025 | 100 | % | ||||||||||||||
| 50 Tyger River Dr. | Duncan | SC | 221,833 | 8/31/2022 | 100 | % | ||||||||||||||
| 70 Tyger River Dr. | Duncan | SC | 408,000 | 1/31/2024 | 100 | % | ||||||||||||||
| 231 Apple Valley Rd. | Duncan | SC | 196,000 | 1/31/2026 | 100 | % | ||||||||||||||
| 235 Apple Valley Rd. | Duncan | SC | 177,320 | 4/30/2025 | 100 | % | ||||||||||||||
| 27 Inland Pkwy. | Greer | SC | 1,318,680 | 12/31/2034 | 100 | % | ||||||||||||||
| 101 Michelin Dr. | Laurens | SC | 1,164,000 | 11/30/2021 | 100 | % | ||||||||||||||
| 5795 North Blackstock Rd. | Spartanburg | SC | 341,660 | 7/31/2024 | 100 | % | ||||||||||||||
| 1021 Tyger Lake Drive | Spartanburg | SC | 213,200 | 2/28/2031 | 100 | % | ||||||||||||||
| 1520 Lauderdale Memorial Hwy. | Cleveland | TN | 851,370 | 3/31/2024 | 100 | % | ||||||||||||||
| 900 Industrial Blvd. | Crossville | TN | 222,200 | 9/30/2026 | 100 | % | ||||||||||||||
| 120 Southeast Pkwy Dr. | Franklin | TN | 289,330 | 12/31/2023 | 100 | % | ||||||||||||||
| 201 James Lawrence Rd. | Jackson | TN | 1,062,055 | 10/31/2027 | 100 | % | ||||||||||||||
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LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART INDUSTRIAL | ||||||||||||||||||||
As of December 31, 2020 | ||||||||||||||||||||
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased | |||||||||||||||
| 633 Garrett Pkwy. | Lewisburg | TN | 310,000 | 3/31/2026 | 100 | % | ||||||||||||||
| 3820 Micro Dr. | Millington | TN | 701,819 | 9/30/2021 | 100 | % | ||||||||||||||
| 200 Sam Griffin Rd. | Smyrna | TN | 1,505,000 | 4/30/2027 | 100 | % | ||||||||||||||
| 1501 Nolan Ryan Expy. | Arlington | TX | 74,739 | 6/30/2027 | 100 | % | ||||||||||||||
| 7007 F.M. 362 Rd. | Brookshire | TX | 262,095 | 3/31/2035 | 100 | % | ||||||||||||||
| 2115 East Belt Line Rd. | Carrollton | TX | 356,855 | 12/31/2033 | 100 | % | ||||||||||||||
| 3737 Duncanville Rd. | Dallas | TX | 510,400 | 8/31/2023 | 100 | % | ||||||||||||||
| 4005 E I-30 | Grand Prairie | TX | 215,000 | 3/31/2037 | 100 | % | ||||||||||||||
| 13863 Industrial Rd. | Houston | TX | 187,800 | 3/31/2035 | 100 | % | ||||||||||||||
| 13901/14035 Industrial Rd. | Houston | TX | 132,449 | 3/31/2038 | 100 | % | ||||||||||||||
| 1704 S. I-45 | Hutchins | TX | 120,960 | 6/30/2030 | 100 | % | ||||||||||||||
| 3201 North Houston School Road | Lancaster | TX | 468,300 | 1/31/2030 | 100 | % | ||||||||||||||
| 13930 Pike Rd. | Missouri City | TX | N/A | 4/30/2032 | 100 | % | ||||||||||||||
| 8601 East Sam Lee Ln. | Northlake | TX | 1,214,526 | 8/31/2029 | 100 | % | ||||||||||||||
| 17505 Interstate Highway 35W | Northlake | TX | 500,556 | 10/31/2024 | 100 | % | ||||||||||||||
| 10535 Red Bluff Rd. | Pasadena | TX | 257,835 | 8/31/2023 | 100 | % | ||||||||||||||
| 10565 Red Bluff Rd. | Pasadena | TX | 248,240 | 4/30/2025 | 100 | % | ||||||||||||||
| 16407 Applewhite Rd. | San Antonio | TX | 849,275 | 4/30/2027 | 100 | % | ||||||||||||||
| 2601 Bermuda Hundred Rd. | Chester | VA | 1,034,470 | 6/30/2030 | 100 | % | ||||||||||||||
| 150 Mercury Way | Winchester | VA | 324,535 | 11/30/2024 | 100 | % | ||||||||||||||
| 291 Park Center Dr. | Winchester | VA | 344,700 | 5/31/2026 | 100 | % | ||||||||||||||
| 80 Tyson Dr. | Winchester | VA | 400,400 | 12/18/2031 | 100 | % | ||||||||||||||
| 901 East Bingen Point Way | Bingen | WA | 124,539 | 5/31/2024 | 100 | % | ||||||||||||||
| Multi-tenant/vacant properties: | ||||||||||||||||||||
| 351 Chamber Dr. | Chillicothe | OH | 478,141 | Various | 100 | % | ||||||||||||||
| 2203 Sherrill Dr. | Statesville | NC | 639,800 | N/A | — | % | ||||||||||||||
| 6050 Dana Way | Antioch | TN | 674,528 | Various | 90 | % | ||||||||||||||
| Industrial Total | 53,938,155 | 98.7 | % | |||||||||||||||||
The 2020 net effective annual base cash rent for the industrial portfolio as of December 31, 2020 was $4.33 per square foot and the weighted-average remaining lease term was 7.4 years.
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LEXINGTON CONSOLIDATED PORTFOLIO PROPERTY CHART NON-INDUSTRIAL | ||||||||||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||
| Property Location | City | State | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased | |||||||||||||||
| Single-tenant office properties: | ||||||||||||||||||||
| 1440 East 15th St. | Tucson | AZ | 28,591 | 7/31/2022 | 100 | % | ||||||||||||||
| 3333 Coyote Hill Rd. | Palo Alto | CA | 202,000 | 12/14/2023 | 100 | % | ||||||||||||||
| 3500 N. Loop Rd. | McDonough | GA | 62,218 | 8/31/2021 | 100 | % | ||||||||||||||
| 1415 Wyckoff Rd. | Wall | NJ | 157,511 | 6/30/2037 | 100 | % | ||||||||||||||
| 4 Apollo Drive | Whippany | NJ | 123,734 | 11/30/2031 | 100 | % | ||||||||||||||
| 1701 Market St. | Philadelphia | PA | 304,037 | 1/31/2024 | 100 | % | ||||||||||||||
| 1362 Celebration Blvd. | Florence | SC | 32,000 | 2/14/2024 | 100 | % | ||||||||||||||
| 3476 Stateview Blvd. | Fort Mill | SC | 169,083 | 5/31/2024 | 100 | % | ||||||||||||||
| 3480 Stateview Blvd. | Fort Mill | SC | 169,218 | 5/31/2024 | 100 | % | ||||||||||||||
| 1401 Nolan Ryan Expy. | Arlington | TX | 161,808 | 1/31/2025 | 95 | % | ||||||||||||||
| 3711 San Gabriel | Mission | TX | 75,016 | 6/30/2025 | 100 | % | ||||||||||||||
| 2050 Roanoke Rd. | Westlake | TX | 130,199 | 6/30/2021 | 100 | % | ||||||||||||||
| 13651 McLearen Rd. | Herndon | VA | 159,644 | 5/31/2027 | 100 | % | ||||||||||||||
| Multi-tenant/vacant office properties: | ||||||||||||||||||||
| 13430 North Black Canyon Fwy | Phoenix | AZ | 138,940 | Various | 65 | % | ||||||||||||||
| 4455 American Way | Baton Rouge | LA | 70,100 | 11/6/2023 | 34 | % | ||||||||||||||
| 820 Gears Rd. | Houston | TX | 78,895 | N/A | 0 | % | ||||||||||||||
| Single-tenant other properties: | ||||||||||||||||||||
| 499 Derbyshire Dr. | Venice | FL | 31,180 | 1/31/2055 | 100 | % | ||||||||||||||
| 30 Light St. | Baltimore | MD | N/A | 12/31/2048 | 100 | % | ||||||||||||||
| 201-215 N. Charles St. | Baltimore | MD | N/A | 8/31/2112 | 100 | % | ||||||||||||||
| Multi-tenant/vacant other properties: | ||||||||||||||||||||
| King St./1042 Fort St. Mall | Honolulu | HI | 77,459 | Various | 37 | % | ||||||||||||||
| 2,171,633 | 89.3 | % | ||||||||||||||||||
| 56,109,788 | 98.3 | % | ||||||||||||||||||
The 2020 net effective annual base cash rent for the office/other portfolio as of December 31, 2020 was $16.46 per square foot, excluding single-tenant other property, and the weighted-average remaining lease term was 7.2 years.
The 2020 net effective annual base cash rent for the consolidated portfolio as of December 31, 2020 was $4.79 per square foot, excluding single-tenant other property, and the weighted-average remaining lease term was 7.4 years.
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LEXINGTON NON-CONSOLIDATED PORTFOLIO PROPERTY CHART | ||||||||||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||
| Property Location | City | State | Percent Owned | Net Rentable Square Feet | Current Lease Term Expiration | Percent Leased | ||||||||||||||
| 143 Diamond Ave. | Parachute | CO | 20% | 49,024 | 4/30/2035 | 100 | % | |||||||||||||
| 2500 Patrick Henry Pkwy. | McDonough | GA | 20% | 111,911 | 6/30/2025 | 100 | % | |||||||||||||
| 231 N. Martingale Rd. | Schaumburg | IL | 20% | 317,198 | 12/31/2022 | 100 | % | |||||||||||||
| 3902 Gene Field Rd. | St. Joseph | MO | 20% | 98,849 | 6/30/2027 | 100 | % | |||||||||||||
| 1210 AvidXchange Ln. | Charlotte | NC | 20% | 201,450 | 4/30/2032 | 100 | % | |||||||||||||
| 2221 Schrock Rd. | Columbus | OH | 20% | 42,290 | 7/6/2027 | 100 | % | |||||||||||||
| 500 Olde Worthington Rd. | Westerville | OH | 20% | 97,000 | 3/31/2026 | 100 | % | |||||||||||||
| 25 Lakeview Dr. | Jessup | PA | 20% | 150,000 | 8/7/2027 | 100 | % | |||||||||||||
| 601 & 701 Experian Pkwy. | Allen | TX | 20% | 292,700 | 3/14/2025 | 100 | % | |||||||||||||
| 4001 International Pkwy. | Carrollton | TX | 20% | 138,443 | 12/31/2025 | 100 | % | |||||||||||||
| 10001 Richmond Ave. | Houston | TX | 20% | 554,385 | 9/30/2032 | 100 | % | |||||||||||||
| 810 Gears Rd. | Houston | TX | 20% | 78,895 | 1/10/2031 | 87 | % | |||||||||||||
| 6555 Sierra Dr. | Irving | TX | 20% | 247,254 | 2/28/2035 | 100 | % | |||||||||||||
| 8900 Freeport Pkwy. | Irving | TX | 20% | 268,445 | 3/31/2023 | 100 | % | |||||||||||||
| 2203 North Westgreen Blvd. | Katy | TX | 25% | 274,000 | 8/31/2036 | 100 | % | |||||||||||||
| 800 East Canal St. | Richmond | VA | 20% | 330,309 | 8/31/2030 | 90 | % | |||||||||||||
| 3,252,153 | 98.7 | % | ||||||||||||||||||
In addition, we have two non-consolidated joint ventures with a developer, which own developable parcels of land in Etna, Ohio.
The 2020 net effective annual base cash rent for our proportionate share of the non-consolidated portfolio as of December 31, 2020 was $17.17 per square foot and the weighted-average remaining lease term was 9.3 years.
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Development Projects
The following is a summary of our industrial development projects as of December 31, 2020:
Development Projects
| Project (% owned) | Market | Property Type | Estimated Sq. Ft. | Estimated Project Cost | GAAP Investment Balance as of 12/31/2020 ($000)(1) | Lexington Amount Funded as of 12/31/2020 ($000) | Estimated Completion Date | % Leased as of 12/31/2020 | Approximate Lease Term (Yrs) | ||||||||||||||||||||
| Consolidated: | |||||||||||||||||||||||||||||
KeHE Distributors BTS (100%) | Phoenix, AZ | Industrial | 468,182 | $ | 72,000 | $ | 19,609 | $ | 17,766 | 3Q 2021 | 100% | 15 | |||||||||||||||||
Fairburn (90%)(2) | Atlanta, GA | Industrial | 910,000 | 53,812 | 39,824 | 33,195 | 1Q 2021 | 0% | TBD | ||||||||||||||||||||
Rickenbacker (100%)(3) | Columbus, OH | Industrial | 320,190 | 20,300 | 16,473 | 12,225 | 2Q 2021 | 100% | 3 | ||||||||||||||||||||
| $ | 146,112 | $ | 75,906 | $ | 63,186 | ||||||||||||||||||||||||
| Non-consolidated: | |||||||||||||||||||||||||||||
ETNA Park 70 (90%)(4)(5) | Columbus, OH | Industrial | TBD | TBD | $ | 12,514 | $ | 12,909 | TBD | 0% | TBD | ||||||||||||||||||
ETNA Park 70 East (90%)(5) | Columbus, OH | Industrial | TBD | TBD | 7,484 | 7,614 | TBD | 0% | TBD | ||||||||||||||||||||
| $ | 19,998 | $ | 20,523 | ||||||||||||||||||||||||||
(1) GAAP investment balance is in real estate under construction for consolidated projects and in investments in non-consolidated entities for non-consolidated projects.
(2) Estimated project cost excludes potential developer partner promote.
(3) In December 2019, we acquired a 23.6-acre parcel in Rickenbacker, OH. In January 2020, we commenced construction of a 320,190 square-foot warehouse. In December 2020, we executed a lease with the distribution subsidiary of an international consumer products company for an initial term of approximately three years.
(4) In December 2017, we acquired a 155-acre parcel of developable land in a joint venture. In December 2018, we acquired a subdivided parcel consisting of 57 acres from the joint venture for a cost basis of $3.6 million, which we ground leased to a national retailer and the national retailer built a distribution center. In December 2020, we sold our interest in the ground-leased parcel to the tenant for $10.6 million.
(5) Plans and specifications for completion have not been completed and the square footage, estimated project costs and completion date cannot be determined.
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Tenant Diversification
We believe our tenant mix is well diversified, and, over time, we expect to reduce our exposure to the automotive industry by growing our exposure to other industries such as the e-commerce and transportation/logistics industries. Below are the industries in our industrial portfolio based on 2020 base rent for consolidated properties owned as of December 31, 2020:
Lease Term. We strive to maintain a weighted-average lease term that is longer than most industrial REITs, favoring certainty of cash flow over lease-rollover risk. However, we will invest in shorter-term leases if we are optimistic about the location in a releasing context. As of December 31, 2020, the weighted-average lease term in our industrial portfolio was 7.4 years.
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The following table sets forth information about the 15 largest tenants/guarantors in our portfolio as of December 31, 2020 based on total base rental revenue as of December 31, 2020 (in '000's, except square feet).
Tenants(1) | Property Type | Lease Expirations | Number of Leases | Square Feet Leased | Square Feet Leased as a % of the Consolidated Portfolio(2)(3) | Base Rent | Percentage of Base Rental Revenue(3)(4) | |||||||||||||||||||||||||||||||||||||
| Nissan | Industrial | 2027 | 2 | 2,971,000 | 5.4 | % | $ | 12,760 | 4.8 | % | ||||||||||||||||||||||||||||||||||
| Amazon | Industrial | 2026-2033 | 5 | 3,334,331 | 6.0 | % | 11,344 | 4.2 | % | |||||||||||||||||||||||||||||||||||
| Dana | Industrial | 2021-2031 | 7 | 2,053,359 | 3.7 | % | 10,006 | 3.7 | % | |||||||||||||||||||||||||||||||||||
| Kellogg | Industrial | 2027-2029 | 3 | 2,801,916 | 5.1 | % | 9,724 | 3.6 | % | |||||||||||||||||||||||||||||||||||
Undisclosed (5) | Industrial | 2031-2035 | 3 | 1,090,383 | 2.0 | % | 7,139 | 2.7 | % | |||||||||||||||||||||||||||||||||||
| Watco | Industrial | 2038 | 1 | 132,449 | 0.2 | % | 6,773 | 2.5 | % | |||||||||||||||||||||||||||||||||||
| Xerox | Office | 2023 | 1 | 202,000 | 0.4 | % | 6,642 | 2.5 | % | |||||||||||||||||||||||||||||||||||
| FedEx | Industrial | 2023 & 2028 | 2 | 292,021 | 0.5 | % | 5,719 | 2.1 | % | |||||||||||||||||||||||||||||||||||
| Wal-Mart | Industrial | 2024 & 2027 | 2 | 1,335,673 | 2.4 | % | 5,617 | 2.1 | % | |||||||||||||||||||||||||||||||||||
Undisclosed (5) | Industrial | 2034 | 1 | 1,318,680 | 2.4 | % | 5,544 | 2.1 | % | |||||||||||||||||||||||||||||||||||
Morgan Lewis (6) | Office | 2024 | 1 | 289,432 | 0.5 | % | 4,934 | 1.8 | % | |||||||||||||||||||||||||||||||||||
| Mars Wrigley | Industrial | 2025 | 1 | 604,852 | 1.1 | % | 4,406 | 1.6 | % | |||||||||||||||||||||||||||||||||||
| Asics | Industrial | 2030 | 1 | 855,878 | 1.6 | % | 4,388 | 1.6 | % | |||||||||||||||||||||||||||||||||||
| Spitzer | Industrial | 2035 | 2 | 449,895 | 0.8 | % | 4,344 | 1.6 | % | |||||||||||||||||||||||||||||||||||
| Vista Outdoors | Industrial | 2034 | 1 | 813,126 | 1.5 | % | 4,195 | 1.6 | % | |||||||||||||||||||||||||||||||||||
| 33 | 18,544,995 | 33.6 | % | $ | 103,535 | 38.6 | % | |||||||||||||||||||||||||||||||||||||
(1) Tenant, guarantor or parent.
(2) Excludes vacant square feet
(3) Total shown may differ from detail amounts due to rounding
(4) Excludes rents from prior tenants.
(5) Lease restricts certain disclosures.
(6) Includes parking operations.
In 2020, 2019 and 2018, no tenant/guarantor represented greater than 10% of our annual base rental revenue.
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The following chart sets forth certain information regarding lease expirations for the next ten years in our consolidated portfolio at December 31, 2020:
| Year | Number of Lease Expirations | Square Feet | Base Rent ($000's) | Percentage of Base Rental Revenue | ||||||||||||||||||||||
| 2021 | 43 | 4,484,980 | $ | 18,301 | 6.8 | % | ||||||||||||||||||||
| 2022 | 5 | 1,159,205 | 4,371 | 1.6 | % | |||||||||||||||||||||
| 2023 | 11 | 3,138,345 | 17,261 | 6.4 | % | |||||||||||||||||||||
| 2024 | 23 | 7,321,075 | 31,900 | 11.9 | % | |||||||||||||||||||||
| 2025 | 22 | 5,820,459 | 27,848 | 10.4 | % | |||||||||||||||||||||
| 2026 | 17 | 5,359,358 | 21,427 | 8.0 | % | |||||||||||||||||||||
| 2027 | 12 | 7,938,899 | 33,209 | 12.4 | % | |||||||||||||||||||||
| 2028 | 4 | 1,804,930 | 11,855 | 4.4 | % | |||||||||||||||||||||
| 2029 | 6 | 4,420,529 | 16,029 | 6.0 | % | |||||||||||||||||||||
| 2030 | 8 | 6,215,359 | 22,850 | 8.5 | % | |||||||||||||||||||||
The following chart sets forth the 2020 base rent ($000's) based on the credit rating of our consolidated tenants at December 31, 2020(1):
| Base Rent | Percentage of Base Rental Revenue | ||||||||||
| Investment Grade | $ | 134,857 | 49.6 | % | |||||||
| Non-investment Grade | 58,304 | 21.4 | % | ||||||||
| Unrated | 78,915 | 29.0 | % | ||||||||
| $ | 272,076 | 100.0 | % | ||||||||
(1) Credit ratings are based upon either tenant, guarantor or parent/ultimate parent. Generally, all multi-tenant assets are included in unrated. See Item 1A “Risk Factors”.
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Item 3. Legal Proceedings
From time to time we are directly and indirectly involved in legal proceedings arising in the ordinary course of our business. We believe, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on our business, financial condition and results of operations.
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Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of Lexington
The following sets forth certain information relating to our executive officers:
| Name | Business Experience | ||||
T. Wilson Eglin Age 56 | Mr. Eglin has served as our Chairman since April 2019, our Chief Executive Officer since January 2003, our President since April 1996 and as a trustee since May 1994. He served as one of our Executive Vice Presidents from October 1993 to April 1996 and our Chief Operating Officer from October 1993 to December 2010. | ||||
Beth Boulerice Age 56 | Ms. Boulerice has served as our Chief Financial Officer and Treasurer since March 2019 and one of our Executive Vice Presidents since January 2013. Ms. Boulerice previously served as our Chief Accounting Officer from January 2011 to March 2019. Prior to joining us in January 2007, Ms. Boulerice was employed by First Winthrop Corporation and was the Chief Accounting Officer of Newkirk Realty Trust. Ms. Boulerice is a Certified Public Accountant. | ||||
Joseph S. Bonventre Age 45 | Mr. Bonventre has served as our Chief Operating Officer since May 2020, as our General Counsel since 2004, one of our Executive Vice Presidents since 2008 and our Secretary since 2014. Prior to joining us in September 2004, Mr. Bonventre was an associate in the corporate department of the law firm now known as Paul Hastings LLP. Mr. Bonventre is admitted to practice law in the State of New York. | ||||
Brendan P. Mullinix Age 46 | Mr. Mullinix has served as Chief Investment Officer since May 2020 and one of our Executive Vice Presidents focusing on investments since February 2008. Mr. Mullinix joined us in 1996 and previously served as a Senior Vice President and a Vice President. | ||||
Lara Johnson Age 48 | Ms. Johnson was appointed an executive officer in February 2018 and serves as our Executive Vice President focusing on dispositions and strategic transactions. Prior to joining us in 2007, Ms. Johnson was an executive vice president of Newkirk Realty Trust and a member of its board of directors. Ms. Johnson previously served as senior vice president of Winthrop Financial Associates, as a vice president of Shelbourne I, Shelbourne II and Shelbourne III, three publicly-traded REITs, and as Director of Investor Relations for National Property Investors, Inc. | ||||
James Dudley Age 40 | Mr. Dudley was appointed an executive officer in February 2018 and has served as an Executive Vice President and Director of Asset Management. He has been with the company since 2006 and has held various roles within the Asset Management Department. Prior to joining the firm, Mr. Dudley was employed by ORIX Capital Markets. | ||||
Mark Cherone Age 39 | Mr. Cherone joined us as our Chief Accounting Officer in March 2019. Prior to joining us, Mr. Cherone was the Corporate Controller for Brandywine Realty Trust since 2012. Mr. Cherone is a Certified Public Accountant. | ||||
Patrick Carroll Age 57 | Mr. Carroll has served as our Chief Risk Officer since March 2019 and one of our Executive Vice Presidents since January 2003. Mr. Carroll previously served as our Chief Financial Officer from May 1998 to March 2019 and our Treasurer from January 1999 to March 2019. Prior to joining us, Mr. Carroll was, from 1986 to 1998, in the real estate practice of Coopers & Lybrand L.L.P., a public accounting firm that was one of the predecessors of PricewaterhouseCoopers LLP. Mr. Carroll is a Certified Public Accountant. | ||||
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PART II.
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities
Market Information. Our common shares are listed for trading on the NYSE under the symbol “LXP”.
Holders. As of February 16, 2021, we had 2,443 common shareholders of record.
Dividends. Since our predecessor's formation in 1993, we have made quarterly distributions without interruption.
While we intend to continue paying regular quarterly dividends to holders of our common shares, the authorization of future dividend declarations will be at the discretion of our Board of Trustees and will depend on our actual cash flow, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as our Board of Trustees deems relevant. The actual cash flow available to pay dividends will be affected by a number of factors, including, among others, the risks discussed under “Risk Factors” in Part I, Item 1A and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report.
We do not believe that the financial covenants contained in our debt instruments will have any adverse impact on our ability to pay dividends in the normal course of business to our common and preferred shareholders or to distribute amounts necessary to maintain our qualification as a REIT.
Equity Compensation Plan Information. The following table sets forth certain information, as of December 31, 2020, with respect to our Amended and Restated 2011 Equity-Based Award Plan under which our equity securities are authorized for issuance as compensation.
| Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||||||||||
| Plan Category | (a) | (b) | (c) | |||||||||||||||||
| Equity compensation plans approved by security holders | — | $ | — | 2,359,683 | ||||||||||||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||||||||||||
| Total | — | $ | — | 2,359,683 | ||||||||||||||||
Recent Sales of Unregistered Securities.
We did not issue any common shares during 2020 on an unregistered basis.
Share Repurchase Program.
There were no share repurchases during the quarter ended December 31, 2020 under our share repurchase authorization most recently announced on November 2, 2018, which has no expiration date. There were 8,976,315 shares that may yet be purchased under our share repurchase authorization as of December 31, 2020.
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Item 6. Selected Financial Data
The following sets forth selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2020. The selected consolidated financial data should be read in conjunction with Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” below, and the Consolidated Financial Statements and the related notes set forth in Item 8 “Financial Statements and Supplementary Data”, below. ($000's, except per share data):
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||
Total gross revenues(1) | $ | 330,448 | $ | 325,969 | $ | 396,971 | $ | 392,690 | $ | 429,496 | |||||||||||||||||||
| Expenses applicable to revenues | (203,506) | (189,612) | (210,866) | (223,162) | (213,403) | ||||||||||||||||||||||||
| Interest and amortization expense | (55,201) | (65,095) | (79,880) | (77,883) | (88,032) | ||||||||||||||||||||||||
| Net income | 186,391 | 285,293 | 230,906 | 86,629 | 96,450 | ||||||||||||||||||||||||
Net income attributable to Lexington Realty Trust shareholders | 183,302 | 279,910 | 227,415 | 85,583 | 95,624 | ||||||||||||||||||||||||
Net income attributable to common shareholders | 176,788 | 273,225 | 220,838 | 79,067 | 89,109 | ||||||||||||||||||||||||
Net income per common share - basic | 0.66 | 1.15 | 0.93 | 0.33 | 0.38 | ||||||||||||||||||||||||
| Net income per common share - diluted | 0.66 | 1.15 | 0.93 | 0.33 | 0.37 | ||||||||||||||||||||||||
| Cash dividends declared per common share | 0.4225 | 0.4125 | 0.71 | 0.7025 | 0.69 | ||||||||||||||||||||||||
| Net cash provided by operating activities | 201,835 | 192,184 | 217,811 | 227,870 | 239,810 | ||||||||||||||||||||||||
| Net cash provided by (used in) investing activities | (494,350) | (186,965) | 554,891 | (283,074) | 11,384 | ||||||||||||||||||||||||
| Net cash provided by (used in) financing activities | 342,626 | (53,156) | (707,611) | 49,581 | (237,301) | ||||||||||||||||||||||||
Real estate assets, net, including real estate - intangible assets | 3,115,298 | 2,856,014 | 2,555,659 | 3,309,900 | 3,028,326 | ||||||||||||||||||||||||
| Total assets | 3,493,226 | 3,180,260 | 2,953,840 | 3,553,020 | 3,441,467 | ||||||||||||||||||||||||
Mortgages, notes payable, credit facility and term loans, including discontinued operations | 1,341,242 | 1,311,977 | 1,492,483 | 2,068,867 | 1,860,598 | ||||||||||||||||||||||||
| Shareholders' equity | 1,970,670 | 1,705,107 | 1,329,871 | 1,323,901 | 1,392,777 | ||||||||||||||||||||||||
| Total equity | 1,991,137 | 1,724,719 | 1,346,678 | 1,340,835 | 1,412,491 | ||||||||||||||||||||||||
| Preferred share liquidation preference | 96,770 | 96,770 | 96,770 | 96,770 | 96,770 | ||||||||||||||||||||||||
(1) 2018 and 2017 amounts reclassified upon the adoption of ASC 842.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
In this discussion, we have included statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements may relate to our future plans and objectives, among other things. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause our results to differ, possibly materially, from those indicated in the forward-looking statements include, among others, those discussed above in “Risk Factors” in Part I, Item 1A of this Annual Report and “Cautionary Statements Concerning Forward-Looking Statements” in the beginning of this Annual Report.
Introduction
The following is a discussion and analysis of the consolidated financial condition and results of operations of Lexington Realty Trust for the years ended December 31, 2020 and 2019, and significant factors that could affect its prospective financial condition and results of operations. This discussion should be read together with our accompanying consolidated financial statements included herein and notes thereto.
COVID-19 Impact. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. On March 13, 2020, the United States declared a national emergency with respect to COVID-19. Our management continues to monitor events and is taking steps to mitigate the potential impact and risks to us.
We have received a limited number of, and may in the future receive, rent relief requests from our tenants. However, as of December 31, 2020, we do not believe that these rent relief requests will have a material impact on our rental revenues. A limited number of our other tenants, particularly retail tenants and those with businesses tied to the aviation industry, continue to be impacted by COVID-19 and related government restrictions and social distancing requirements. We continue to believe that the impacts of COVID-19 on our portfolio are mitigated due to our focus on warehouse and distribution properties and the diversity of our tenant base, both geographically and by industry exposure.
While our acquisition activity has recovered from the reduced level experienced earlier in 2020, we believe that there continues to be limited financing available for potential purchasers of certain of our properties, which has impacted our disposition activities. In addition, there is increased competition for investment in warehouses and distribution properties due to the resilience of this part of the industrial sector during the COVID-19 pandemic.
We remain unable to estimate the long-term impacts COVID-19 will have on our financial condition.
Investment Trends
General. Over the last several years, we have focused our investment activity primarily on income producing single-tenant warehouse and distribution assets.
In 2020, we acquired $611.8 million of warehouse and distribution assets, which is a decrease of $92.0 million compared to 2019 investment activity of $703.8 million. The decrease was primarily due to the COVID-19 "stay-at-home" orders and increased competition.
As of December 31, 2020, our percentage of gross book value from industrial assets increased to 90.8% compared to 81.5% as of December 31, 2019 as a result of our acquisition and capital recycling efforts. We expect to continue to recycle our non-industrial assets into warehouse and distribution facilities. While our capital recycling strategy has had and may continue to have a near-term dilutive impact on earnings due to the sales of revenue-producing properties, we believe this strategy will benefit shareholder value in the long term.
The industrial real estate market was one of the most resilient real estate markets during the COVID-19 pandemic. The main driver of growth in the industrial real estate market has been e-commerce. We believe that growth will also be driven by companies increasing their inventories in the United States to keep up with demand and to protect against future disruptions in the supply chain.
While we believe the industrial market will continue to grow, there continues to be an increase in competition for the acquisition of industrial properties, specifically warehouse/distribution properties, which drives up the cost of the assets we buy
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and drives down the yield we are able to obtain. This trend was highlighted when initial capitalization rates compressed further during 2020.
Lease Term. We primarily acquire assets subject to intermediate and long-term leases with escalating rents, which we believe strengthen our future cash flows and provide a partial hedge against rising interest rates. We intend to maintain a weighted-average lease term longer than many comparable companies and balance our lease expiration schedule.
Our industrial investment underwriting focuses less on tenant credit than our historical office investment underwriting as we focus on real estate characteristics such as location and related demographic and local economic trends. This has allowed us to acquire certain short-term leased warehouse/distribution assets, which may be acquired at a discount compared to long-term leased warehouse/distribution assets and allow for a value-add strategy through the lease renewal or a multi-tenanting process.
Development. As a result of the competition for income producing single-tenant warehouse/distribution assets, in 2017, we began selectively investing in development projects. We believe we can achieve higher yields from development projects than we can by purchasing existing properties.
Our development activities have been focused on speculative development. Our target markets are experiencing low vacancy rates. Despite an increase in construction in recent years, we believe there is sufficient tenant demand for our development projects.
Leasing
General. Re-leasing properties that are currently vacant or as leases expire at favorable effective rates is a primary area of focus for our asset management. Renewals of industrial leases, particularly for warehouse/distribution facilities, are generally dependent on location and occupancy alternatives for our tenants. We believe our older industrial assets face more challenges than our newer industrial assets because the location of our older industrial assets is generally tied to the specific tenant need as opposed to the national or regional distribution supply chain. In addition, our older industrial assets may need to be renovated to meet current market specs.
If a property cannot be re-let to a single user and the property can be adapted to multi-tenant use, we determine whether the costs of adapting the property to multi-tenant use outweigh the benefit of funding operating costs while searching for a single-tenant and whether selling a vacant property, which limits operating costs and allows us to redeploy capital, is in the best interest of our shareholders.
During 2020, we entered into 20 new leases and lease extensions encompassing approximately 5.2 million square feet. The average base rent on these extended leases was approximately $4.73 per square foot compared to the average base rent on these leases before extension of $4.61 per square foot. The weighted-average cost of tenant improvements and lease commissions during 2020 was approximately $2.57 per square foot for new leases and $3.45 per square foot for extended leases.
As of December 31, 2020, we had six single-tenant leases in our industrial portfolio where the lease term is scheduled to expire in 2021, covering approximately 3.7 million square feet.
Inherent Growth. Many leases have scheduled fixed rent increases or rent increases based upon the consumer price index. As of December 31, 2020, 86% of our single-tenant industrial leases had scheduled rent increases. The average escalation rate of these leases was 2.1% as of December 31, 2020. A majority of our leases require tenants to pay operating expenses, including maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses. However, certain of our leases provide for some level of landlord responsibility for capital repairs and replacements, the cost of which is generally factored into the rental rate. Our motivation to release vacant space requires us to meet market demands with respect to rental rates, tenant concessions and landlord responsibilities. Developers are similarly motivated when signing leases with tenants due to the significant competition in the industrial space. As a result, the obligations of our property owner subsidiaries on new leases and newly renewed or extended leases may increase to include, among other items, some form of responsibility for operating expenses and/or capital repairs and replacements.
Tenant Credit. We continue to monitor the credit of tenants of properties in which we have an interest by (1) subscribing to rating agency information, so that we can monitor changes in the ratings of our rated tenants, (2) reviewing financial statements that are publicly available or that are required to be delivered to us under the applicable lease, (3) monitoring news reports regarding our tenants and their respective businesses, (4) monitoring the timeliness of rent collections and (5) meeting with our tenants. During 2020, this credit monitoring was essential to allow us to differentiate between legitimate rent relief requests and opportunistic rent relief requests.
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Non-Industrial Properties
We continue to recycle out of our non-industrial investments. As of December 31, 2020, our non-industrial assets represented 9.2% of our gross book value. We have historically marketed non-industrial assets for sale when we believe we have obtained the highest possible valuation through various means, including lease renewals. As the number of non-industrial assets continues to shrink, we continue to explore ways to accelerate the sale of the remaining non-industrial assets.
Non-Recourse Mortgage Loan Resolutions
During 2020, we conveyed three properties in foreclosure or via a deed-in-lieu of foreclosure due to the balance of the non-recourse mortgage loans encumbering the properties being in excess of the value of the property collateral.
Since we have a limited number of industrial properties subject to non-recourse mortgages, we do not expect many foreclosures in the future.
Impairment charges
During 2020 and 2019, we incurred impairment charges on certain of our assets of $14.5 million and $5.3 million, respectively, due to each asset's carrying value being below its estimated fair value. Most of the impairment charges in 2020 and 2019 were incurred on non-core assets due to anticipated shortened holding periods. We cannot estimate if we will incur, or the amount of, future impairment charges on our assets. See Part I, Item 1A “Risk Factors”, of this Annual Report.
Critical Accounting Policies
Our accompanying consolidated financial statements have been prepared in accordance with GAAP, which requires our management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported and related disclosures of contingent assets and liabilities. A summary of our significant accounting policies which are important to the portrayal of our financial condition and results of operations is set forth in note 2 to the Consolidated Financial Statements, which are included in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.
The following is a summary of our critical accounting policies, which require some of management's most difficult, subjective and complex judgments.
Acquisition of Real Estate. The fair value of the real estate acquired, which includes the impact of fair value adjustments for assumed mortgage debt related to property acquisitions, is allocated to the acquired tangible assets, consisting of land, building and improvements and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values.
The fair value of the tangible assets of an acquired property (which includes land, building and improvements and fixtures and equipment) is determined by valuing the property as if it were vacant. The “as-if-vacant” value is then allocated to land and building and improvements based on our management's determination of relative fair values of these assets. Factors considered by our management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, our management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Our management also estimates costs to execute similar leases including leasing commissions. Our management generally retains a third party to assist in the allocations.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the difference between the current in-place lease rent and management's estimate of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases. Above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases.
The aggregate value of other acquired intangible assets, which may consist of in-place leases and/or tenant relationship values, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships is amortized to expense over the applicable lease term plus expected renewal periods.
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Revenue Recognition. We recognize lease revenue on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Revenue is recognized on a contractual basis for leases with escalations tied to a consumer price index with no floor. We evaluate the collectability of our rental payments and recognize revenue on a cash basis when we believe it is no longer probable that we will receive substantially all of the remaining lease payments. Renewal options in leases with rental terms that are lower than those in the primary term are excluded from the calculation of straight line rent if the renewals are not reasonably assured. In those instances in which we fund tenant improvements and the improvements are deemed to be owned by us, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When we determine that the tenant allowances are lease incentives, we commence revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and amortized as a reduction of revenue on a straight-line basis over the respective lease term. We recognize lease termination fees as rental revenue in the period received and write off unamortized leases related intangibles and other lease related account balances, provided that there are no further obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period.
Impairment of Real Estate. We evaluate the carrying value of all tangible and intangible real estate assets held for investment for possible impairment when an event or change in circumstance has occurred that indicates its carrying value may not be recoverable. We consider the strategic decisions regarding the future plans to sell properties and other market factors. We regularly update significant estimates and assumptions including rental rates, capitalization rates and discount rates, which are included in the anticipated future undiscounted cash flows derived from the asset. If such cash flows are less than the asset's carrying value, an impairment charge is recognized to the extent by which the asset's carrying value exceeds its estimated fair value, which may be below the balance of any non-recourse financing. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in this report.
Cybersecurity
While we have yet to experience a cyber attack that disrupted our operations in any material respect, all companies, including ours, are increasing the resources allocated to address and protect against cybersecurity threats. Due to the small size of our organization, we rely on third-parties to provide advice and services with respect to cybersecurity, which is not currently, but could become, a material cost.
Environmental, Social and Governance
ESG matters are becoming a central focus for our shareholders, employees, tenants, suppliers, creditors, and communities. We expect our ESG objectives and the resources allocated to ESG matters will continue to evolve over time as we assess strategies that are most appropriate for our organization.
Liquidity
General. Our principal sources of liquidity have been (1) undistributed cash flows generated from our investments, (2) the public and private equity and debt markets, (3) property specific debt, (4) corporate level borrowings, (5) commitments from co-investment partners and (6) proceeds from the sales of our investments. We believe our ratio of dividends to Adjusted Company Funds From Operations is conservative, and allows us to retain cash flow for internal growth.
Our ability to incur additional debt to fund acquisitions is dependent upon our existing leverage, the value of the assets we are attempting to leverage and general economic and credit market conditions, which may be outside of management's control or influence.
Cash Flows. We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with applicable REIT requirements in both the short-term and long-term. However, our cash flow from operations may be negatively affected in the near term if we grant tenant rent relief packages or experience tenant defaults as a result of the effects of COVID-19. In addition, we anticipate that cash on hand, borrowings under our unsecured revolving credit facility, capital recycling proceeds, issuances of equity, mortgage proceeds and other debt, as well as other available alternatives, will provide the necessary capital required by our business.
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Cash flows from operations as reported in the Consolidated Statements of Cash Flows totaled $201.8 million for 2020 and $192.2 million for 2019. The increase was primarily related to the impact of cash flow generated from acquiring properties, partially offset by property sales and vacancies. The underlying drivers that impact our working capital, and therefore cash flows from operations, are the timing of collection of rents, including reimbursements from tenants, payment of interest on mortgage debt and payment of operating and general and administrative costs. We believe the net-lease structure of the leases encumbering a majority of the properties in which we have an interest mitigates the risks of the timing of cash flows from operations since the payment and timing of operating costs related to the properties are generally borne directly by the tenant. The collection and timing of tenant rents are closely monitored by management as part of our cash management program.
Net cash used in investing activities totaled $(494.4) million in 2020 and $(187.0) million in 2019. Cash used in investing activities related primarily to acquisitions of real estate, investments in real estate under construction, capital expenditures, lease costs, investments in non-consolidated entities and changes in real estate deposits, net. Cash provided by investing activities related primarily to proceeds from the sale of properties, distributions from non-consolidated entities and changes in real estate deposits, net.
Net cash provided by (used in) financing activities totaled $342.6 million in 2020 and $(53.2) million in 2019. Cash provided by financing activities related primarily to the issuance of our 2030 Senior Notes, revolving credit facility borrowings and issuances of common shares. Cash used in financing activities was primarily attributable to the repurchase of a portion of the 2023 Senior Notes and 2024 Senior Notes through a tender offer, dividend and distribution payments, repayment of debt obligations and repurchases of common shares.
Public and Private Equity and Debt Markets. We access the public and private equity and debt markets on an opportunistic basis when we (1) believe conditions are favorable and (2) have a compelling use of proceeds.
We expect to continue to access debt and equity markets in the future to implement our business strategy and to fund future growth when market conditions are favorable. However, the volatility in the capital markets primarily resulting from the effects of the COVID-19 pandemic may negatively affect our ability to access these capital markets.
Equity:
At-The-Market Offering Program. We maintain an At-The-Market offering program, or ATM program, under which we can issue common shares. The following table summarizes common share issuances under the ATM program for the years ended December 31, 2020 and 2019, respectively:
| Year ended December 31, 2020 | ||||||||
| Shares Sold | Net Proceeds | |||||||
| 2020 ATM Issuances | 5,950,882 | $ | 61.0 | million | ||||
| Year ended December 31, 2019 | ||||||||
| Shares Sold | Net Proceeds | |||||||
| 2019 ATM Issuances | 9,668,748 | $ | 102.3 | million | ||||
Under the ATM program, we may also enter into forward sales agreements. During 2020, we entered into forward sales transactions for the sale of 5.0 million common shares that have not yet been settled. Subject to our right to elect cash or net share settlement, we expect to settle the forward sales transactions by the various maturity dates between August 2021 and November 2021. The shares had a then aggregate settlement price of $55.1 million at December 31, 2020, which is subject to adjustment in accordance with the forward sales contracts.
As of December 31, 2020, common shares with an aggregate value of $177.2 million remain available for issuance under the ATM program.
Underwritten Common Stock Offerings. During 2020, we issued 17,250,000 common shares at a public offering price of $9.60 per common share in an underwritten offering and generated net proceeds of approximately $164.0 million.
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Direct Share Purchase Plan. We maintain a direct share purchase plan, which has two components, (i) a dividend reinvestment component and (ii) a direct share purchase component. Under the dividend reinvestment component, common shareholders and holders of OP units may elect to automatically reinvest their dividends and distributions to purchase our common shares. Under the direct share purchase component, our current investors and new investors can make optional cash purchases of our common shares. The administrator of the plan, Computershare Trust Company, N.A., purchases common shares for the accounts of the participants under the plan, at our discretion, either directly from us, on the open market or through a combination of those two options. No shares were purchased from us under the plan in 2020, 2019 and 2018.
Share Repurchase Program. During 2015, our Board of Trustees authorized the repurchase of up to 10.0 million common shares and increased this authorization by 10.0 million common shares in 2018. The share repurchase program does not expire. During 2020 and 2019, we repurchased and retired approximately 1.3 million and 0.4 million common shares, respectively, at an average price of $8.28 and $8.13, respectively, per common share under the repurchase program. Approximately 9.0 million common shares remain available for repurchase at December 31, 2020. We have continued to, and in the future may, repurchase our common shares in the context of our overall capital plan, and to the extent we believe market volatility offers prudent investment opportunities based on our common share price versus net asset value per share.
Operating Partnership Units. In recent years there has not been a great demand for OP units as consideration and, as a result, we expect the percentage of common shares that will be outstanding in the future relative to OP units will increase, and income attributable to noncontrolling interests should be expected to decrease, as such OP units are redeemed for our common shares. Furthermore, our credit agreement requires us to own at least 95.5% of a subsidiary for the assets of such subsidiary to be included in the calculation of our credit agreement covenants, which incents us to maintain our percentage ownership in LCIF and not issue additional OP units.
As of December 31, 2020, there were 2.5 million OP units outstanding not owned by us which were convertible on a one OP unit for approximately 1.13 common shares basis into an aggregate of 2.9 million common shares assuming we satisfied redemptions entirely with common shares. All outstanding OP units are entitled to a distribution equal to the dividend on our common shares or a stated distribution that may adjust based on our commons share dividend amount.
Debt:
Corporate Borrowings. Due to lower borrowing costs, we issued $400.0 million aggregate principal amount of our 2030 Senior Notes. We used a portion of the net proceeds from the offering of the 2030 Senior Notes to repurchase $61.2 million and $51.1 million aggregate principal balance of our outstanding 2023 Senior Notes and 2024 Senior Notes, respectively, through a tender offer. We did not access the public debt markets in 2019.
The following Senior Notes were outstanding as of December 31, 2020:
| Issue Date | Face Amount (millions) | Interest Rate | Maturity Date | Issue Price | ||||||||||||||||||||||
| August 2020 | $ | 400.0 | 2.70 | % | September 2030 | 99.233 | % | |||||||||||||||||||
| May 2014 | 198.9 | 4.40 | % | June 2024 | 99.883 | % | ||||||||||||||||||||
| June 2013 | 188.8 | 4.25 | % | June 2023 | 99.026 | % | ||||||||||||||||||||
| $ | 787.7 | |||||||||||||||||||||||||
The Senior Notes are unsecured and pay interest semi-annually in arrears. We may redeem the Senior Notes at our option at any time prior to maturity in whole or in part by paying the principal amount of the Senior Notes being redeemed plus a make-whole premium.
A summary of the maturity dates and interest rates of our unsecured credit agreement, as of December 31, 2020, are as follows:
| Maturity Date | Interest Rate | |||||||||||||
$600.0 Million Revolving Credit Facility(1) | 02/2023 | LIBOR + 0.90% | ||||||||||||
$300.0 Million Term Loan(2) | 01/2025 | LIBOR + 1.00% | ||||||||||||
(1) Maturity date of the revolving credit facility can be extended to February 2024 at our option. The interest rate ranges from LIBOR plus 0.775% to 1.45%. At December 31, 2020, we had no borrowings outstanding and availability of $600.0 million, subject to covenant compliance.
(2) The LIBOR portion of the interest rate was swapped to obtain a current fixed rate of 2.732% per annum.
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As of December 31, 2020, we were in compliance with the financial covenants contained in our corporate level debt agreements.
During 2007, we issued $200.0 million in Trust Preferred Securities, which bore interest at a fixed rate of 6.804% through April 2017 and, thereafter, bears interest at a variable rate of three month LIBOR plus 170 basis points. These securities are (1) classified as debt, (2) due in 2037 and (3) currently redeemable by us. As of December 31, 2020, there were $129.1 million of these securities outstanding.
Property Specific Debt. As of December 31, 2020, we have a limited number of properties subject to mortgages, one of which was satisfied in January 2021. As of December 31, 2020, one of our property owner subsidiaries has a balloon payment of $10.4 million maturing in 2021. Our property owner subsidiaries do not have additional mortgage maturities with balloon payments due until 2025. With respect to mortgages encumbering properties where the expected lease rental revenues are sufficient to provide an estimated property value in excess of the mortgage balance, we believe our property owner subsidiaries have sufficient sources of liquidity to meet these obligations through future cash flows from operations, the credit markets and, if determined appropriate by us, a capital contribution from us from either cash on hand ($178.8 million at December 31, 2020), property sale proceeds or borrowing capacity on our primary credit facility ($600.0 million as of December 31, 2020, subject to covenant compliance).
In 2019, we assumed through our consolidated property owner subsidiary a $41.9 million non-recourse mortgage loan with an interest rate of 4.3% and maturing in 2031. We did not obtain or assume any mortgage debt in 2020. Our secured debt decreased to approximately $138.4 million at December 31, 2020 compared to $393.9 million at December 31, 2019. We expect to continue to use property specific, non-recourse mortgages in certain situations as we believe that by properly matching a debt obligation, including the balloon maturity risk, with the terms of a lease, our cash-on-cash returns increase and the exposure to residual valuation risk is reduced. In addition, we may procure credit tenant lease financing in certain situations where we are able to monetize all or a significant portion of the rental revenues of a property at an attractive rate.
Co-investment Programs and Joint Ventures. We have entered into co-investment programs and joint ventures with institutional investors and other real estate companies to mitigate our risk in certain assets and increase our return on equity to the extent we earn management or other fees. However, investments in certain co-investment programs and joint ventures limit our ability to make investment decisions unilaterally relating to the assets and limit our ability to deploy capital. Due to our size, we do not expect to enter into co-investment programs and joint ventures seeking future investments, except with developers for industrial development projects.
Capital Recycling. Part of our strategy to effectively manage our balance sheet involves pursuing and executing well on property dispositions and recycling of capital. During 2020, we disposed of our interests in 16 properties for an aggregate gross price of $432.8 million. Additionally, we disposed of two properties in a non-consolidated joint venture for aggregate proceeds to us of $1.7 million. These proceeds were primarily used to (1) retire indebtedness encumbering properties in which we have an interest and corporate debt obligations and (2) make investments in real property.
As we near the completion of the capital recycling of our non-industrial assets, we expect to continue our recycling efforts with respect to our older industrial assets, including our manufacturing assets, where we believe we can take advantage of the strong current market. We believe capital recycling (1) provides cost effective and timely capital support for our investment activities and (2) allows us to maintain line capacity and cash in advance of what we expect to be a growing investment pipeline.
Liquidity Needs. Our principal liquidity needs are the contractual obligations set forth under the heading “Contractual Obligations,” below, and the payment of dividends to our shareholders and distributions to the holders of OP units. As we grow our development pipeline, we expect that development activities will become a greater part of our liquidity needs.
As of December 31, 2020, we had approximately $1.4 billion of indebtedness, consisting of mortgages and notes payable outstanding, a term loan, 2.70%, 4.40% and 4.25% Senior Notes and Trust Preferred Securities, with a weighted-average interest rate of approximately 3.3%. The ability of a property owner subsidiary to make debt service payments depends upon the rental revenues of its property and its ability to refinance the mortgage related thereto, sell the related property, or access capital from us or other sources. A property owner subsidiary's ability to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the risks described under "Risk Factors" in Part I, Item 1A of this Annual Report.
If we are unable to satisfy our contractual obligations and other operating costs with our cash flow from operations, we intend to use borrowings and proceeds from issuances of equity or debt securities. If a property owner subsidiary is unable to satisfy its contractual obligations and other operating costs, it may default on its obligations and lose its assets in foreclosure or through bankruptcy proceedings.
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In connection with our intention to continue to qualify as a REIT for federal income tax purposes, we expect to continue paying regular dividends to our shareholders. These dividends are expected to be paid from operating cash flows and/or from other sources. Since cash used to pay dividends reduces amounts available for capital investments, we generally intend to maintain a conservative dividend payout ratio, reserving such amounts as we consider necessary for the maintenance or expansion of properties in our portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as our Board of Trustees considers appropriate.
We paid approximately $118.4 million in cash dividends to our common and preferred shareholders in 2020. Although our property owner subsidiaries receive the majority of our base rental payments on a monthly basis, we intend to continue paying dividends quarterly. Amounts accumulated in advance of each quarterly distribution are invested by us in short-term money market or other suitable instruments.
Capital Resources
General. Due to the net-lease structure of a majority of our investments, our property owner subsidiaries historically have not incurred significant expenditures in the ordinary course of business to maintain the properties in which we have an interest. As leases expire, we expect our property owner subsidiaries to incur costs in extending the existing tenant leases, re-tenanting the properties with a single-tenant, or converting the property to multi-tenant use. The amounts of these expenditures can vary significantly depending on tenant negotiations, market conditions, rental rates and property type.
Single-Tenant Properties. We do not anticipate significant capital expenditures at the single-tenant properties in which we have an interest that are subject to net or similar leases since the tenants at these properties generally bear all or substantially all of the cost of property operations, maintenance and repairs. However, at certain properties subject to net leases, our property owner subsidiaries are responsible for replacement and/or repair of certain capital items, which may or may not be reimbursed. In addition, at certain single-tenant properties that are not subject to a net lease, our property owner subsidiaries have a level of property operating expense responsibility, which may or may not be reimbursed.
Multi-Tenant Properties. Primarily as a result of non-renewals at single-tenant net-lease properties, we have interests in multi-tenant properties in our consolidated portfolio. While tenants of these properties are generally responsible for increases over base year expenses, our property owner subsidiaries are generally responsible for the base-year expenses and capital expenditures, and are responsible for all expenses related to vacant space, at these properties.
Vacant Properties. To the extent there is a vacancy in a property, our property owner subsidiary would be obligated for all operating expenses, including capital expenditures, real estate taxes and insurance. When a property is vacant, our property owner subsidiary may incur substantial capital expenditure and releasing costs to re-tenant the property. However, we believe that, over the long term, our focus on industrial assets will result in significant savings compared to investing in office assets due to the lower operating and retenanting costs of industrial assets compared to office assets.
Property Expansions. Under certain leases, tenants have the right to expand the facility located on a property in which we have an interest. We expect our property owner subsidiaries may fund these property expansions with either additional secured borrowings, the repayment of which will be funded out of rental increases under the leases covering the expanded properties, or capital contributions from us.
Ground Leases. The tenants of properties in which we have an interest generally pay the rental obligations on ground leases either directly to the fee holder or to our property owner subsidiary as increased rent. However, our property owner subsidiaries are responsible for these payments (1) under certain leases without reimbursement and (2) at vacant properties.
Environmental Matters. Based upon management's ongoing review of the properties in which we have an interest, management is not aware of any environmental condition with respect to any of these properties that would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that (1) the discovery of environmental conditions, which were previously unknown, (2) changes in law, (3) the conduct of tenants or (4) activities relating to properties in the vicinity of the properties in which we have an interest, will not expose us to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of properties in which we have an interest.
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Results of Operations
Year ended December 31, 2020 compared with December 31, 2019. The decrease in net income attributable to common shareholders of $96.4 million was primarily due to the items discussed below.
The increase in total gross revenues of $4.5 million was primarily a result of an increase in rental revenue attributable to assets acquired subsequent to December 31, 2019, partially offset by a decrease in rental revenue due to property sales.
The increase in depreciation and amortization expense of $14.0 million was primarily due to acquisition activity.
The decrease in non-operating income of $1.5 million was primarily related to funds received in 2019 related to a bankruptcy claim and funds received to settle a tenant's deferred maintenance obligation, with no comparable income in 2020.
The decrease in interest and amortization expense of $9.9 million related primarily to a decrease in the amount of our mortgage debt outstanding and a decrease in our overall borrowing rate.
The increase in debt satisfaction gains, net, of $26.0 million was primarily related to the recognition of aggregate debt satisfaction gains of $34.5 million upon the foreclosure of three office properties, offset by a $10.1 million debt satisfaction charge incurred as a result of the repurchase of a portion of the 2023 Senior Notes and 2024 Senior Notes pursuant to a tender offer and a $2.9 million charge recognized upon the sale of our Lake Jackson, Texas property. During 2019, we incurred an aggregate of $4.5 million of debt satisfaction charges upon the sale of two properties.
The increase in impairment charges of $9.1 million was primarily due to the timing of impairment charges taken on certain properties.
The decrease in gains on sales of properties of $111.9 million was related to the timing of property dispositions.
The decrease in equity in earnings of non-consolidated entities of $3.1 million was primarily related to the timing of gains recognized on the sale of joint venture assets.
The decrease in net income attributable to noncontrolling interests of $2.3 million was primarily a result of a decrease in earnings of LCIF, primarily, as a result of recognizing gains on sold properties in 2019.
The increase in net income or decrease in net loss in future periods will be closely tied to the level of acquisitions made by us. Without acquisitions, the sources of growth in net income are limited to fixed rent adjustments and index adjustments (such as the consumer price index), reduced interest expense on amortizing mortgages and variable rate indebtedness and by controlling other variable overhead costs. However, there are many factors beyond management's control that could offset these items including, without limitation, changes in economic conditions such as the recent economic uncertainty primarily caused by the COVID-19 pandemic, increased interest rates and tenant monetary defaults and the other risks described in this Annual Report.
The analysis of the results of operations for the year ended December 31, 2019 compared with December 31, 2018 is included in our 2019 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, on February 20, 2020.
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Same-Store Results
Same-store net operating income, or NOI, which is a non-GAAP measure, represents the NOI for consolidated properties that were owned and included in our portfolio for two comparable reporting periods. We define NOI as operating revenues (rental income (less GAAP rent adjustments and lease termination income), and other property income) less property operating expenses. As same-store NOI excludes the change in NOI from acquired and disposed of properties, it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating same-store NOI, and accordingly same-store NOI may not be comparable to other REITs. Management believes that same-store NOI is a useful supplemental measure of our operating performance. However, same-store NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. We believe that net income is the most directly comparable GAAP measure to same-store NOI.
The following presents our consolidated same-store NOI, for the years ended December 31, 2020 and 2019 ($000):
| 2020 | 2019 | ||||||||||
| Total cash base rent | $ | 206,898 | $ | 203,515 | |||||||
| Tenant reimbursements | 20,609 | 21,095 | |||||||||
| Property operating expenses | (26,727) | (26,963) | |||||||||
| Same-store NOI | $ | 200,780 | $ | 197,647 | |||||||
Our reported same-store NOI increased from 2019 to 2020 by 1.6% primarily due to an increase in cash base rents. As of December 31, 2020 and 2019, our historical same-store square footage leased was 97.6% and 99.0%, respectively.
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Below is a reconciliation of net income to same-store NOI for periods presented:
| Twelve Months ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net income | $ | 186,391 | $ | 285,293 | |||||||
| Interest and amortization expense | 55,201 | 65,095 | |||||||||
| Provision for income taxes | 1,584 | 1,379 | |||||||||
| Depreciation and amortization | 161,592 | 147,594 | |||||||||
| General and administrative | 30,371 | 30,785 | |||||||||
| Transaction costs | 255 | 202 | |||||||||
| Non-operating/advisory income | (4,569) | (6,180) | |||||||||
| Gains on sales of properties | (139,039) | (250,889) | |||||||||
| Impairment charges | 14,460 | 5,329 | |||||||||
| Debt satisfaction (gains) charges, net | (21,452) | 4,517 | |||||||||
| Equity in (earnings) of non-consolidated entities | 169 | (2,890) | |||||||||
| Lease termination income | (857) | (2,226) | |||||||||
| Straight-line adjustments | (13,654) | (14,502) | |||||||||
| Lease incentives | 921 | 1,191 | |||||||||
| Amortization of above/below market leases | (1,580) | (443) | |||||||||
| NOI | 269,793 | 264,255 | |||||||||
| Less NOI: | |||||||||||
Acquisitions and dispositions | (69,013) | (66,608) | |||||||||
| Same-Store NOI | $ | 200,780 | $ | 197,647 | |||||||
Funds From Operations
We believe that Funds from Operations, or FFO, which is a non-GAAP measure, is a widely recognized and appropriate measure of the performance of an equity REIT. We believe FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not necessarily be apparent from net income.
The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as “net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sales of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO.” FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.
We present FFO available to common shareholders and unitholders - basic and also present FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common shares, are converted at the beginning of the period. We also present Adjusted Company FFO available to all equityholders and unitholders - diluted, which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe are not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently requested by securities analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.
50
The following presents a reconciliation of net income attributable to common shareholders to FFO available to common shareholders and unitholders and Adjusted Company FFO available to all equityholders and unitholders for 2020 and 2019 (dollars in thousands, except share and per share amounts):
| 2020 | 2019 | ||||||||||||||||
| FUNDS FROM OPERATIONS: | |||||||||||||||||
| Basic and Diluted: | |||||||||||||||||
| Net income attributable to common shareholders | $ | 176,788 | $ | 273,225 | |||||||||||||
| Adjustments: | |||||||||||||||||
| Depreciation and amortization | 158,655 | 144,792 | |||||||||||||||
Impairment charges - real estate | 14,460 | 5,329 | |||||||||||||||
| Noncontrolling interests - OP units | 2,347 | 4,376 | |||||||||||||||
| Amortization of leasing commissions | 2,937 | 2,802 | |||||||||||||||
| Joint venture and noncontrolling interest adjustment | 8,578 | 9,449 | |||||||||||||||
Gains on sales of properties, including non-consolidated entities and net of tax | (139,596) | (255,048) | |||||||||||||||
| FFO available to common shareholders and unitholders - basic | 224,169 | 184,925 | |||||||||||||||
| Preferred dividends | 6,290 | 6,290 | |||||||||||||||
| Amount allocated to participating securities | 224 | 395 | |||||||||||||||
| FFO available to all equityholders and unitholders - diluted | 230,683 | 191,610 | |||||||||||||||
| Debt satisfaction (gains) charges, net, including non-consolidated entities | (21,396) | 4,773 | |||||||||||||||
| Transaction costs | 255 | 202 | |||||||||||||||
Adjusted Company FFO available to all equityholders and unitholders - diluted | $ | 209,542 | $ | 196,585 | |||||||||||||
| Per Common Share and Unit Amounts | |||||||||||
| Basic: | |||||||||||
FFO | $ | 0.83 | $ | 0.77 | |||||||
| Diluted: | |||||||||||
FFO | $ | 0.84 | $ | 0.78 | |||||||
Adjusted Company FFO | $ | 0.76 | $ | 0.80 | |||||||
| Weighted-Average Common Shares: | |||||||||||
| Basic: | |||||||||||
Weighted-average common shares outstanding - basic EPS | 266,914,843 | 237,642,048 | |||||||||
Operating partnership units(1) | 3,083,320 | 3,490,147 | |||||||||
Weighted-average common shares outstanding - basic FFO | 269,998,163 | 241,132,195 | |||||||||
Diluted: | |||||||||||
Weighted-average common shares outstanding - diluted EPS | 268,182,552 | 237,934,515 | |||||||||
Unvested share-based payment awards | 17,180 | 22,813 | |||||||||
Operating partnership units(1) | 3,083,320 | 3,490,147 | |||||||||
Preferred shares - Series C | 4,710,570 | 4,710,570 | |||||||||
Weighted-average common shares outstanding - diluted FFO | 275,993,622 | 246,158,045 | |||||||||
(1) Includes OP units other than OP units held by us.
51
Off-Balance Sheet Arrangements
As of December 31, 2020, we had investments in various real estate entities with varying structures. The real estate investments owned by these entities are generally financed with non-recourse debt. Non-recourse debt is generally defined as debt whereby the lenders' sole recourse with respect to borrower defaults is limited to the value of the assets collateralized by the debt. The lender generally does not have recourse against any other assets owned by the borrower or any of the members or partners of the borrower, except for certain specified exceptions listed in the particular loan documents. These exceptions generally relate to "bad boy" acts, including fraud, prohibited transfers and breaches of material representations. We have guaranteed such obligations for certain of our non-consolidated entities.
Contractual Obligations
The following summarizes our principal contractual obligations as of December 31, 2020 ($000's):
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 and Thereafter | Total | ||||||||||||||||||||||||||||||||||||||
Mortgages and notes payable(1) | $ | 24,119 | $ | 12,224 | $ | 13,267 | $ | 6,431 | $ | 6,576 | $ | 75,795 | $ | 138,412 | ||||||||||||||||||||||||||||||
| Term loans payable | — | — | — | — | 300,000 | — | 300,000 | |||||||||||||||||||||||||||||||||||||
| Senior notes payable | — | — | 188,756 | 198,932 | — | 400,000 | 787,688 | |||||||||||||||||||||||||||||||||||||
| Trust preferred securities | — | — | — | — | — | 129,120 | 129,120 | |||||||||||||||||||||||||||||||||||||
Interest payable(2) | 44,272 | 43,123 | 38,284 | 29,460 | 17,586 | 97,480 | 270,205 | |||||||||||||||||||||||||||||||||||||
Development contracts(3) | 75,985 | — | — | — | — | — | 75,985 | |||||||||||||||||||||||||||||||||||||
Operating lease obligations(4) | 4,843 | 4,854 | 4,999 | 5,021 | 5,021 | 17,472 | 42,210 | |||||||||||||||||||||||||||||||||||||
| $ | 149,219 | $ | 60,201 | $ | 245,306 | $ | 239,844 | $ | 329,183 | $ | 719,867 | $ | 1,743,620 | |||||||||||||||||||||||||||||||
1. Consists of principal and balloon payments.
2. Consists of fixed-rate debt and variable-rate debt at the rate in effect at December 31, 2020. Variable-rate debt as of December 31, 2020 is comprised of $129.1 million Trust Preferred Securities (90-day LIBOR plus 1.7% and matures 2037).
3. Represents contractual obligations for consolidated development projects and does not contemplate all costs expected to be incurred for such developments. This table does not include contractual obligations for our non-consolidated joint venture developments, which are described below.
4. Includes ground lease, office rents and equipment lease payments. Amounts disclosed do not include rents that adjust to fair market value. In addition, certain ground lease payments due under bond leases allow for a right of offset between the lease obligation and the debt service and accordingly are not included.
In addition, from time to time we may guarantee certain tenant improvement allowances and lease commissions on behalf of certain property owner subsidiaries when required by the related tenant or lender. However, we do not believe these guarantees are material to us as the obligations under and risks associated with such guarantees are priced into the rent under the lease or the value of the property.
We had two non-consolidated development projects as of December 31, 2020, which are described in "Properties" in Part I, Item 2 of this Annual Report. Due to the early stage of development of each project and the uncertainty of construction schedules at such stage, we are unable to estimate the timing of the required fundings for development projects.
52
Item 7A. Quantitative and Qualitative Disclosure about Market-Risk
Our exposure to market risk relates primarily to our variable-rate indebtedness not subject to interest rate swaps and our fixed-rate debt. Our consolidated aggregate principal variable-rate indebtedness was $129.1 million at December 31, 2020 and 2019, which represented 9.5% and 9.8%, respectively, of our aggregate principal consolidated indebtedness. During 2020 and 2019, our variable-rate indebtedness had a weighted-average interest rate of 2.4% and 3.8%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for 2020 and 2019 would have increased by $1.8 million and $3.2 million, respectively. As of December 31, 2020 and 2019, our aggregate principal consolidated fixed-rate debt was $1.2 billion, which represented 90.5% and 90.2%, respectively, of our aggregate principal indebtedness.
For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, we derive or estimate fair values using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated cash flows may be subjective and imprecise. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate debt would warrant as of December 31, 2020 and is indicative of the interest rate environment as of December 31, 2020, and does not take into consideration the effects of subsequent interest rate fluctuations. Accordingly, we estimate that the fair value of our fixed-rate debt was $1.3 billion as of December 31, 2020.
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates through the use of fixed-rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. We have historically entered into derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-rate debt. As of December 31, 2020, we had four interest rate swap agreements in our consolidated portfolio, all of which expire in January 2025.
53
Item 8. Financial Statements and Supplementary Data
54
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of Lexington Realty Trust
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lexington Realty Trust and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 18, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate, net — Determination of Impairment Indicators and Impairment — Refer to Notes 2 and 5 of the financial statements
Critical Audit Matter Description
The Company’s evaluation of real estate assets for impairment involves an initial assessment of each real estate asset to determine whether events or changes in circumstances exist that indicate that the carrying value of real estate assets may no longer be recoverable. Possible indications of impairment may include increases in vacancy at a property, tenant financial instability, or whether there is a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of before the end of its previously estimated useful life. When such events or changes in circumstances exist, the Company evaluates its real estate assets for impairment by comparing anticipated future undiscounted cash flows expected to be derived from the asset to the respective carrying value. If the carrying value of an asset exceeds the undiscounted cash flows, an analysis is performed to determine the fair value of the asset. An asset is determined to be impaired if the asset's carrying value exceeds its estimated fair value.
55
The Company makes significant assumptions to estimate its holding period of an asset. Additionally, for those real estate assets where indications of impairment have been identified, the Company makes significant estimates and assumptions related to rental rates and capitalization rates included in the estimated future undiscounted cash flows and, as necessary, the discount rate applied to determine fair value of the assets. Changes in these assumptions could have a significant impact on the identification of real estate assets for impairment, the estimated fair value of the asset, or the amount of any impairment charge recognized. Total real estate assets as of December 31, 2020 were $3.1 billion. The Company recorded $14.5 million of impairment charges on real estate assets during the year ended December 31, 2020.
Auditing management’s assumptions requires evaluation of whether management appropriately identified impairment indicators relating to the asset’s estimated holding periods and whether management’s anticipated future undiscounted cash flows and estimated fair values are reasonable. Because of the subjectivity of these assumptions our audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to evaluate management’s estimated holding period of an asset and to evaluate the assumptions used in undiscounted cash flows and fair value models included the following, among others:
• We tested the effectiveness of controls over management's evaluation of real estate assets for impairment, specifically over identification of possible events or changes in estimated holding period of an asset, controls over rental rates and capitalization rates used in management’s anticipated future undiscounted cash flows, as well as controls over management selection and estimate of discount rates in estimating fair value of real estate assets.
• We evaluated the Company’s assessment of estimated holding periods by:
a. Comparing management’s previous holding period assumptions to the Company’s subsequent sale of an asset.
b. Discussing with accounting and operations management the Company’s intent regarding sale or holding onto the asset.
c. Evaluating the consistency of the assumptions used with obtained audit evidence in other audit areas.
d. Reading minutes of the executive committee and board of directors’ meetings to identify any indicators that a long-lived asset will likely be sold or otherwise disposed of before the end of its previously estimated useful life.
• We evaluated the Company’s determination of anticipated future undiscounted cash flows for those assets with impairment indicators and the fair value for those that the carrying value was determined not to be recoverable by performing the following:
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology; (2) significant assumptions made, including testing the source information underlying the determination of the discount rate, rental rates, capitalization rates; and (3) mathematical accuracy of the calculation by developing a range of independent estimates based on external market sources and comparing our estimates to the assumptions utilized by management.
/s/ Deloitte & Touche LLP
New York, New York
February 18, 2021
We have served as the Company's auditor since 2017.
56
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Trustees of Lexington Realty Trust
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Lexington Realty Trust and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 18, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
February 18, 2021
57
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000, except share and per share data)
As of December 31,
| 2020 | 2019 | ||||||||||
| Assets: | |||||||||||
| Real estate, at cost | $ | $ | |||||||||
| 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 | |||||||||||
| Right-of-use assets, net | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Investments in non-consolidated entities | |||||||||||
Deferred expenses (net of accumulated amortization of $ | |||||||||||
| Rent receivable - current | |||||||||||
| Rent receivable - deferred | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Equity: | |||||||||||
| Liabilities: | |||||||||||
| Mortgages and notes payable, net | $ | $ | |||||||||
| 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 of accumulated accretion of $ | |||||||||||
| 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 | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
58
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000, except share and per share data)
Years ended December 31,
| 2020 | 2019 | 2018 | |||||||||||||||
| Gross revenues: | |||||||||||||||||
| Rental revenue | $ | $ | $ | ||||||||||||||
| Other income | |||||||||||||||||
| 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, equity in earnings (losses) of non-consolidated entities | |||||||||||||||||
| Provision for income taxes | ( | ( | ( | ||||||||||||||
| Equity in earnings (losses) 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 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
59
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($000)
Years ended December 31,
| 2020 | 2019 | 2018 | |||||||||||||||
| 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 | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
60
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2020
| Lexington Realty Trust Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Number of Preferred Shares | Preferred Shares | Number of Common Shares | Common Shares | Additional Paid-in-Capital | Accumulated Distributions in Excess of Net Income | Accumulated Other Comprehensive Loss | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
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 December 31, 2020 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
61
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2019
| Lexington Realty Trust Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Number of Preferred Shares | Preferred Shares | Number of Common Shares | Common Shares | Additional Paid-in-Capital | Accumulated Distributions in Excess of Net Income | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2018 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
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 | ( | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Reallocation of noncontrolling interests | — | — | — | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
62
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($000 except share amounts)
Year ended December 31, 2018
| Lexington Realty Trust Shareholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Number of Preferred Shares | Preferred Shares | Number of Common Shares | Common Shares | Additional Paid-in-Capital | Accumulated Distributions in Excess of Net Income | Accumulated Other Comprehensive Income | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2017 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
Redemption of noncontrolling OP units for common shares | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common shares | ( | — | — | ( | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of employee common share options | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares and deferred compensation amortization, net | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common shares to settle tax obligations | ( | — | — | ( | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Forfeiture of employee common shares | ( | — | — | ( | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends/distributions | ( | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2018 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
63
LEXINGTON REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000)
Years ended December 31,
| 2020 | 2019 | 2018 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | $ | $ | ||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
Depreciation and amortization | |||||||||||||||||
Gains on sales of properties | ( | ( | ( | ||||||||||||||
Debt satisfaction (gains) charges, net | ( | ||||||||||||||||
| Impairment charges | |||||||||||||||||
Straight-line rents | ( | ( | ( | ||||||||||||||
Amortization of right of use assets | |||||||||||||||||
Other non-cash (income) expense, net | ( | ||||||||||||||||
Equity in (earnings) losses of non-consolidated entities | ( | ( | |||||||||||||||
Distributions of accumulated earnings from non-consolidated entities | |||||||||||||||||
Change in accounts payable and other liabilities | ( | ( | |||||||||||||||
Change in rent receivable and prepaid rent, net | ( | ||||||||||||||||
Change in accrued interest payable | ( | ||||||||||||||||
Other adjustments, net | ( | ( | ( | ||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Investment in real estate, including intangible assets | ( | ( | ( | ||||||||||||||
| Investment in real estate under construction | ( | ( | |||||||||||||||
| Capital expenditures | ( | ( | ( | ||||||||||||||
| Net proceeds from sale of properties | |||||||||||||||||
| Investments in non-consolidated entities, net | ( | ( | ( | ||||||||||||||
| Distributions from non-consolidated entities in excess of accumulated earnings | |||||||||||||||||
| Payments of deferred leasing costs | ( | ( | ( | ||||||||||||||
| Change in real estate deposits | ( | ( | |||||||||||||||
| 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 | ( | ( | |||||||||||||||
| Proceeds of mortgages and notes payable | |||||||||||||||||
| Term loan payments | ( | ||||||||||||||||
| Revolving credit facility borrowings | |||||||||||||||||
| Revolving credit facility payments | ( | ( | ( | ||||||||||||||
| Proceeds from senior notes | |||||||||||||||||
| Repurchase of senior notes | ( | ||||||||||||||||
| Payment for early extinguishment of debt | ( | ( | ( | ||||||||||||||
| Payments of deferred financing costs | ( | ( | ( | ||||||||||||||
| Cash distributions to noncontrolling interests | ( | ( | ( | ||||||||||||||
| Cash contributions from noncontrolling interests | |||||||||||||||||
| Repurchase of common shares | ( | ( | ( | ||||||||||||||
| Issuance of common shares, net of costs and repurchases to settle tax obligations | ( | ||||||||||||||||
| 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 year | |||||||||||||||||
| Cash, cash equivalents and restricted cash, at end of year | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
64
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(1) The Company
Lexington Realty Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland real estate investment trust (“REIT”) that owns a portfolio of equity investments focused on single-tenant industrial properties.
As of December 31, 2020, the Company had equity ownership interests in approximately 130 consolidated properties located in 29 states. The properties in which the Company has an interest are primarily net leased to tenants in various industries.
The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the Company will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS are subject to federal income taxes on the income from these activities.
The Company conducts its operations indirectly through (1) property owner subsidiaries, which are single purpose entities, (2) a wholly-owned TRS, Lexington Realty Advisors, Inc. (“LRA”), and (3) joint ventures. Property owner subsidiaries are landlords under leases for properties in which the Company has an interest and/or borrowers under loan agreements secured by properties in which the Company has an interest and lender subsidiaries are lenders under loan agreements where the Company made an investment in a loan asset, but in all cases are separate and distinct legal entities. Each property owner subsidiary is a separate legal entity that maintains separate books and records. The assets and credit of each property owner subsidiary with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other property owner subsidiary or any other affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member or managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interest therein, which interests are subordinate to the claims of such property owner subsidiary's (or its general partner's, member's or managing member's) creditors.
(2)Summary of Significant Accounting Policies
The Company is the primary beneficiary of certain VIEs as it has a controlling financial interest in these entities. Lepercq Corporate Income Fund L.P. (“LCIF”) and the ATL Fairburn L.P. (“Fairburn JV”) are consolidated and the Company has an approximate 97 % and 90 % interest, respectively, are VIEs.
The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of December 31, 2020 and 2019, the VIEs' mortgages and notes payable were non-recourse to the Company. Below is a summary of selected financial data of consolidated VIEs for which the Company is the primary beneficiary included in the consolidated balance sheets as of December 31, 2020 and 2019:
| December 31, 2020 | December 31, 2019 | ||||||||||
| Real estate, net | $ | $ | |||||||||
| Total assets | $ | $ | |||||||||
| Mortgages and notes payable, net | $ | $ | |||||||||
| Total liabilities | $ | $ | |||||||||
65
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In addition, the Company acquires, from time to time, properties using a reverse like-kind exchange structure pursuant to Section 1031 of the Internal Revenue Code (a "reverse 1031 exchange") and, as such, the properties are in the possession of an Exchange Accommodation Titleholder ("EAT") until the reverse 1031 exchange is completed. The EAT is classified as a VIE as it is a “thinly capitalized” entity. The Company consolidates the EAT because it is the primary beneficiary as it has the ability to control the activities that most significantly impact the EAT's economic performance and can collapse the reverse 1031 exchange structure at any time. The assets of the EAT primarily consist of leased property (net real estate and intangibles).
66
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The fair value of the tangible assets of an acquired property (which includes land, building and improvements and fixtures and equipment) is determined by valuing the property as if it were vacant. The “as-if-vacant” value is then allocated to land and building and improvements based on management's determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions. Management generally retains a third party to assist in the allocations.
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the difference between the current in-place lease rent and management's estimate of current market rents. Below-market lease intangibles are recorded as part of deferred revenue and amortized into rental revenue over the non-cancelable periods and bargain renewal periods of the respective leases. Above-market leases are recorded as part of intangible assets and amortized as a direct charge against rental revenue over the non-cancelable portion of the respective leases.
The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationship values, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationship values based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases is amortized to expense over the remaining non-cancelable periods and any bargain renewal periods of the respective leases. The value of tenant relationships is amortized to expense over the applicable lease term plus expected renewal periods.
Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties. The Company generally depreciates its real estate assets over periods ranging up to 40 years.
67
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Fair Value Measurements. The Company follows the guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("Topic 820"), to determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk. The Company has formally elected to apply the portfolio exception within Topic 820 with respect to measuring counterparty risk for all of its derivative transactions subject to master netting arrangements.
The Company estimates the fair value of its real estate assets, including non-consolidated real estate assets, by using income and market valuation techniques. The Company may estimate fair values using market information such as recent sale contracts (Level 2 inputs) or recent sale offers or discounted cash flow models, which primarily rely on Level 3 inputs. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenant improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. To the extent the Company under-estimates forecasted cash outflows (tenant improvements, lease commissions and operating costs) or over-estimates forecasted cash inflows (rental revenue rates), the estimated fair value of its real estate assets could be overstated.
68
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Tax Status. The Company has made an election to qualify, and believes it is operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, the Company generally will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under Sections 856 through 860 of the Code.
The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries under the Code. As such, the Company is subject to federal and state income taxes on the income from these activities.
Income taxes, primarily related to the Company's taxable REIT subsidiaries, are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
69
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
New Accounting Standards Adopted in 2020. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of an allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 was effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The Company analyzed its accounts receivable using an aging methodology and determined that there have been no historical credit losses related to its outstanding accounts receivable. As a result, the Company's adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The standard was effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The Company's adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This ASU includes additional disclosures requirements for recurring and nonrecurring Level 3 fair value measurements including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income, disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and a narrative description of measurement uncertainty related to Level 3 measurements. This standard was effective for fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 on a prospective basis. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Guidance. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued because of reference rate reform. The guidance in ASU 2020-04 is optional, applies for a limited period of time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting, in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of LIBOR and may be elected over time as reference rate reform activities occur. As of March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
70
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(3)Earnings Per Share
A significant portion of the Company's non-vested share-based payment awards are considered participating securities and as such, the Company is required to use the two-class method for the computation of basic and diluted earnings per share. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The non-vested share-based payment awards are not allocated losses as the awards do not have a contractual obligation to share in losses of the Company.
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for each of the years in the three-year period ended December 31, 2020:
| 2020 | 2019 | 2018 | |||||||||||||||
| BASIC | |||||||||||||||||
Net income attributable to common shareholders | $ | $ | $ | ||||||||||||||
Weighted-average number of common shares outstanding | |||||||||||||||||
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 | |||||||||||||||||
Operating Partnership Units | |||||||||||||||||
Weighted-average common shares outstanding - diluted | |||||||||||||||||
Net income attributable to common shareholders - per common share diluted | $ | $ | $ | ||||||||||||||
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.
71
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(4)Investments in Real Estate
The Company's real estate, net, consists of the following at December 31, 2020 and 2019:
| 2020 | 2019 | |||||||||||||
| Real estate, at cost: | ||||||||||||||
Buildings and building improvements | $ | $ | ||||||||||||
Land, land estates and land improvements | ||||||||||||||
Construction in progress | ||||||||||||||
| Real estate intangibles: | ||||||||||||||
In-place lease values | ||||||||||||||
Tenant relationships | ||||||||||||||
Above-market leases | ||||||||||||||
| Investments in real estate under construction | ||||||||||||||
Accumulated depreciation and amortization(1) | ( | ( | ||||||||||||
| Real estate, net | $ | $ | ||||||||||||
(1) Includes accumulated amortization of real estate intangible assets of $199,997 and $212,033 in 2020 and 2019, respectively. The estimated amortization of the above real estate intangible assets for the next five years is $32,240 in 2021, $30,559 in 2022, $29,560 in 2023, $23,801 in 2024 and $19,802 in 2025.
The Company had below-market leases, net of accumulated accretion, which are included in deferred revenue, of $16,531 and $19,090 , respectively, as of December 31, 2020 and 2019. The estimated accretion for the next five years is $2,201 in 2021, $1,931 in 2022, $1,931 in 2023, $1,931 in 2024 and $1,865 in 2025.
The Company completed the following acquisitions during 2020 and 2019:
2020:
| Property Type | Market | Acquisition Date | Initial Cost Basis | 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 | 08/2029 | ||||||||||||||||||||||||||
| Industrial | Savannah, GA | April 2020 | 07/2027 | ||||||||||||||||||||||||||
| Industrial | Dallas, TX | May 2020 | 06/2030 | ||||||||||||||||||||||||||
| Industrial | Savannah, GA | June 2020 | 06/2025 | ||||||||||||||||||||||||||
| Industrial | Savannah, GA | June 2020 | 08/2025 | ||||||||||||||||||||||||||
| Industrial | Houston, TX | June 2020 | 04/2025 | ||||||||||||||||||||||||||
| Industrial | Ocala, FL | June 2020 | 08/2030 | ||||||||||||||||||||||||||
| Industrial | DC/Baltimore, MD | September 2020 | 11/2024 | ||||||||||||||||||||||||||
| Industrial | Savannah, GA | September 2020 | 07/2026 | ||||||||||||||||||||||||||
| Industrial | Phoenix, AZ | November 2020 | 03/2033 | ||||||||||||||||||||||||||
| Industrial | Dallas, TX | December 2020 | 10/2024 | ||||||||||||||||||||||||||
| Industrial | Greenville/Spartanburg, SC | December 2020 | 02/2031 | ||||||||||||||||||||||||||
| Industrial | Dallas, TX | December 2020 | 01/2030 | ||||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||
| Weighted-average life of intangible assets (years) | |||||||||||||||||||||||||||||
72
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
2019:
| Real Estate Intangibles | |||||||||||||||||||||||||||||||||||
| Property Type | Location | Acquisition Date | Initial Cost Basis | Lease Expiration | Land | Building and Improvements | Lease in-place Value Intangible | Below Market Lease Intangible | |||||||||||||||||||||||||||
| Industrial | Indianapolis, IN | January 2019 | $ | 07/2025 | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Industrial | Atlanta, GA | February 2019 | 10/2023 | ||||||||||||||||||||||||||||||||
| Industrial | Dallas, TX | April 2019 | 08/2023 | ||||||||||||||||||||||||||||||||
| Industrial | Greenville/Spartanburg, SC | April 2019 | 01/2024 | ||||||||||||||||||||||||||||||||
| Industrial | Memphis, TN | May 2019 | 04/2024 | ||||||||||||||||||||||||||||||||
| Industrial | Memphis, TN | May 2019 | 05/2023 | ||||||||||||||||||||||||||||||||
| Industrial | Atlanta, GA | June 2019 | 05/2020 | ||||||||||||||||||||||||||||||||
| Industrial | Atlanta, GA | June 2019 | 05/2024 | ||||||||||||||||||||||||||||||||
| Industrial | Cincinnati, OH | September 2019 | 12/2023 | ||||||||||||||||||||||||||||||||
| Industrial | Cincinnati, OH | September 2019 | 06/2030 | ||||||||||||||||||||||||||||||||
| Industrial | Cincinnati, OH | September 2019 | 08/2027 | ( | |||||||||||||||||||||||||||||||
| Industrial | Greenville/Spartanburg, SC | October 2019 | 01/2024 | ||||||||||||||||||||||||||||||||
| Industrial | Greenville/Spartanburg, SC | October 2019 | 04/2025 | ||||||||||||||||||||||||||||||||
| Industrial | Phoenix, AZ | October 2019 | 09/2026 | ||||||||||||||||||||||||||||||||
| Industrial | Phoenix, AZ | November 2019 | 09/2030 | ||||||||||||||||||||||||||||||||
| Industrial | Chicago, IL | December 2019 | 09/2029 | ||||||||||||||||||||||||||||||||
| Industrial | Greenville/Spartanburg, SC | December 2019 | 12/2034 | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ( | ||||||||||||||||||||||||||||||
| Weighted-average life of intangible assets (years) | |||||||||||||||||||||||||||||||||||
As of December 31, 2020, the Company's Investments in real estate under construction consisted of two consolidated development projects and one build-to-suit development project. As of December 31, 2020, the Company's aggregate investment in the development arrangements was $75,906 , which included capitalized interest of $1,053 for the year ended December 31, 2020 and is presented as investments in real estate under construction in the accompanying consolidated balance sheets. As of December 31, 2019, capitalized interest for the development arrangements was nominal.
As of December 31, 2020, the details of the development arrangements outstanding are as follows (in $000's, except square feet):
| Project (% owned) | Market | Property Type | Estimated Sq. Ft. | Estimated Project Cost | GAAP Investment Balance as of 12/31/2020 | Amount Funded as of 12/31/2020 | Estimated Completion Date | % Leased as of 12/31/2020 | Approximate Lease Term (Years) | ||||||||||||||||||||
KeHE Distributors, BTS ( | Phoenix, AZ | Industrial | $ | $ | $ | 3Q 2021 | % | ||||||||||||||||||||||
Fairburn JV ( | Atlanta, GA | Industrial | 1Q 2021 | % | TBD | ||||||||||||||||||||||||
Rickenbacker ( | Columbus, OH | Industrial | 2Q 2021 | % | |||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||
73
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(5)Dispositions and Impairment
For the years ended December 31, 2020, 2019 and 2018, the Company disposed of its interests in various properties for an aggregate gross disposition price of $432,843 , $504,118 and $898,514 , respectively, which resulted in gains on sales of $139,039 , $250,889 and $252,913 , respectively, including, in 2018, the disposition of 21 office assets to a newly-formed joint venture, NNN Office JV L.P. (“NNN JV”), with an unaffiliated third-party. See note 7.
Included in the 2020 dispositions are three properties which were conveyed to the lenders in forgiveness of the mortgage loan encumbering each property. The balances of the non-recourse mortgage loans were in excess of the value of the property collateral, resulting in aggregate debt satisfaction gains, net of $34,450 . For the years ended December 31, 2020, 2019 and 2018, the Company recognized net debt satisfaction charges relating to properties sold of $2,879 , $4,415 and $1,698 , respectively.
The Company had two properties classified as held for sale at December 31, 2020 and no properties classified as held for sale at December 31, 2019. Assets and liabilities of the held for sale properties as of December 31, 2020 consisted of the following:
| December 31, 2020 | |||||
| Assets: | |||||
Real estate, at cost | $ | ||||
Real estate, intangible assets | |||||
Accumulated depreciation and amortization | ( | ||||
Rent receivable - deferred | |||||
Other | |||||
| $ | |||||
| Liabilities: | |||||
Other | $ | ||||
| $ | |||||
The Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability, change in the estimated holding period of the asset, the potential sale or transfer of the property in the near future and changes in economic conditions. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value and the Company estimates that its cost will not be recovered.
74
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(6)Fair Value Measurements
The following tables present the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2020 and 2019, aggregated by the level in the fair value hierarchy within which those measurements fall:
| Fair Value Measurements Using | |||||||||||||||||||||||
| Description | 2020 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||
| Interest rate swap liabilities | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Impaired real estate assets (1) | $ | $ | $ | $ | |||||||||||||||||||
(1) Represents non-recurring fair value measurement. The fair value is calculated as of the impairment date. $2,480 was based on an observable contract thus Level 2. The Company measured $18,661 of these fair values based on discounted cash flow analysis, using a hold period of ten years, a discount rate of 9.0 % and residual capitalization rates ranging from 8.0 % to 9.0 %. As significant inputs to the models are unobservable, the Company determined that the value determined for these properties falls within Level 3 of the fair value reporting hierarchy.
| Fair Value Measurements Using | |||||||||||||||||||||||
| Description | 2019 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||
| Interest rate swap liabilities | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Impaired real estate assets (1) | $ | $ | $ | $ | |||||||||||||||||||
(1) Represents a non-recurring fair value measurement. The fair value is calculated as of the date of impairment.
The majority of the inputs used to value the Company's interest rate swaps fall within Level 2 of the fair value hierarchy, such as observable market interest rate curves; however, the credit valuation associated with the interest rate swaps utilizes Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of December 31, 2020 and 2019, the Company determined that the credit valuation adjustment relative to the overall interest rate swaps was not significant. As a result, all interest rate swaps have been classified in Level 2 of the fair value hierarchy.
The table below sets forth the carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2020 and 2019:
| As of December 31, 2020 | As of December 31, 2019 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Debt | $ | $ | $ | $ | |||||||||||||||||||
The fair value of the Company's debt is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis, based upon estimates of market interest rates. The Company determines the fair value of its Senior Notes using market prices. The inputs used in determining the fair value of these notes are categorized as Level 1 due to the fact that the Company uses quoted market rates to value these instruments. However, the inputs used in determining the fair value could be categorized as Level 2 if trading volumes are low.
Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable. The Company estimates that the fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.
75
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(7)Investments in Non-Consolidated Entities
Below is a schedule of the Company's investments in non-consolidated entities:
| Percentage Ownership at | Investment Balance as of | |||||||||||||||||||
| Investment | December 31, 2020 | December 31, 2020 | December 31, 2019 | |||||||||||||||||
| NNN JV | (1) | $ | $ | |||||||||||||||||
| Etna Park 70 LLC | (2) | |||||||||||||||||||
| Etna Park 70 East LLC | (3) | |||||||||||||||||||
| BSH Lessee L.P. | (4) | |||||||||||||||||||
| $ | $ | |||||||||||||||||||
(1) NNN JV is a joint venture formed in 2018 and owns office properties formerly owned by the Company.
(2) Joint venture formed in 2017 with a developer entity to acquire a parcel of land. The Company determined that it is not the primary beneficiary.
(3) Joint venture formed in 2019 with a developer entity to acquire a parcel of land. The Company determined that it is not the primary beneficiary.
During 2020, NNN JV sold two assets and the Company recognized aggregate gains on the transactions of $557 within equity in earnings (losses) of non-consolidated entities within its consolidated statement of operations. In conjunction with these property sales, NNN JV received aggregate net proceeds of $8,504 after the satisfaction of an aggregate of $40,800 of its non-recourse mortgage indebtedness. The NNN JV distributed $1,701 of the net proceeds to the Company as a result of the property sales.
During 2019, NNN JV sold four assets and the Company recognized aggregate gains on the transactions of $3,529 within equity in earnings of non-consolidated entities in its consolidated statement of operations. In conjunction with these property sales, NNN JV received aggregate net proceeds of $45,208 after satisfaction of an aggregate of $101,520 of its non-recourse mortgage indebtedness. The NNN JV distributed $7,549 of the net proceeds to the Company as a result of the property sales.
In February 2019, a non-consolidated real estate entity, in which the Company owned a 15 % ownership interest, sold its only asset and the Company received $2,317 of proceeds. The Company recognized a gain on the transaction of $824 , which is included in equity in earnings of non-consolidated entities in its consolidated statement of operations.
In December 2018, the Company received $4,312 from a non-consolidated investment in connection with its sale of a six -property office portfolio.
The Company earns advisory fees from certain of these non-consolidated entities for services related to acquisitions, asset management and debt placement. Advisory fees earned from these non-consolidated investments were $3,028 , $3,596 and $1,443 for the years ended December 31, 2020, 2019 and 2018.
(8)Mortgages and Notes Payable
The Company had the following mortgages and notes payable outstanding as of December 31, 2020 and 2019:
| December 31, 2020 | December 31, 2019 | ||||||||||
| Mortgages and notes payable | $ | $ | |||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| $ | $ | ||||||||||
Interest rates, including imputed rates on mortgages and notes payable, ranged from 3.5 % to 6.3 % and 3.5 % to 6.5 % at December 31, 2020 and 2019, respectively, and all mortgages and notes payable mature between 2021 and 2032, as of December 31, 2020. The weighted-average interest rate at December 31, 2020 and 2019 was approximately 4.5
76
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The Company has an unsecured credit agreement with KeyBank National Association, as agent. The maturity dates and interest rates as of December 31, 2020, are as follows:
| Maturity Date | Interest Rate | ||||||||||
$ | February 2023 | LIBOR + 0.90% | |||||||||
$ | January 2025 | LIBOR + 1.00% | |||||||||
(1) Maturity date of the revolving credit facility can be extended to February 2024 at the Company's option. The interest rate ranges from LIBOR plus 0.775 % to 1.45 %. At December 31, 2020, the Company had no borrowings outstanding and availability of $600,000 , subject to covenant compliance.
(2) The LIBOR portion of the interest rate was swapped to obtain a current fixed rate of 2.732 % per annum. The aggregate unamortized debt issuance costs for the term loan was $2,057 and $2,561 as of December 31, 2020 and 2019, respectively.
The unsecured revolving credit facility and the unsecured term loan are subject to financial covenants, which the Company was in compliance with at December 31, 2020.
Mortgages payable and secured loans are generally collateralized by real estate and the related leases. Certain mortgages payable have yield maintenance or defeasance requirements relating to any prepayments.
Scheduled principal and balloon payments for mortgages, notes payable and term loan for the next five years and thereafter are as follows:
| Year ending December 31, | Total | |||||||
| 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| Unamortized debt issuance costs | ( | |||||||
| $ | ||||||||
Included in the consolidated statements of operations, the Company recognized debt satisfaction charges, net, of $9 and $898 for the years ended December 31, 2019 and 2018, respectively, due to the satisfaction of mortgages and notes payable other than those disclosed elsewhere in these financial statements. In addition, the Company capitalized $1,745 , $410 and $15 in interest for the years ended 2020, 2019 and 2018, respectively.
(9)Senior Notes, Convertible Notes and Trust Preferred Securities
The Company had the following Senior Notes outstanding as of December 31, 2020 and 2019:
| Issue Date | December 31, 2020 | December 31, 2019 | Interest Rate | Maturity Date | Issue Price | |||||||||||||||||||||||||||
| August 2020 | $ | $ | % | September 2030 | % | |||||||||||||||||||||||||||
| May 2014 | % | June 2024 | % | |||||||||||||||||||||||||||||
| June 2013 | % | June 2023 | % | |||||||||||||||||||||||||||||
| Unamortized debt discount | ( | ( | ||||||||||||||||||||||||||||||
| Unamortized debt issuance cost | ( | ( | ||||||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||||
Each series of the Senior Notes is unsecured and pays interest semi-annually in arrears. The Company may redeem the notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus a make-whole premium.
77
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
In August 2020, the Company issued $400,000 aggregate principal amount of 2.70 % Senior Notes due 2030 ("2030 Senior Notes") at an issuance price of 99.233 % of the principal amount. The Company issued the 2030 Senior Notes at an initial discount of $3,068 which is being recognized as additional interest expense over the term of the 2030 Senior Notes.
During the third quarter of 2020, the Company used a portion of the net proceeds from the offering of the 2030 Senior Notes to repurchase $61,244 and $51,068 aggregate principal balance of its outstanding 4.25 % senior notes due 2023 and 4.40 % senior notes due 2024, respectively, through a tender offer. The tender offer consideration included $9,531 in prepayment costs and fees and $1,024 of accrued interest. The Company recognized a $10,119 debt satisfaction charge related to the aggregate repurchases, which included a write-off of the proportionate amount of unamortized discount and debt issuance costs related to the 2023 and 2024 senior notes.
During 2007, the Company issued $200,000 original principal amount of Trust Preferred Securities. The Trust Preferred Securities, which are classified as debt, are due in 2037, are open for redemption at the Company's option, bore interest at a fixed rate of 6.804 % through April 2017 and thereafter bear interest at a variable rate of three month LIBOR plus 170 basis points through maturity. The interest rate at December 31, 2020 was 1.914 %. As of December 31, 2020 and 2019, there was $129,120 1,625 and $1,724 , respectively, of unamortized debt issuance costs.
Scheduled principal payments for these debt instruments for the next five years and thereafter are as follows:
| Year ending December 31, | Total | |||||||
| 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| 916,808 | ||||||||
| Unamortized debt discounts | ( | |||||||
| Unamortized debt issuance costs | ( | |||||||
| $ | 906,770 | |||||||
(10)Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the type, amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.
Cash Flow Hedges of Interest Rate Risk. The Company's objectives in using interest rate derivatives are to add stability to interest expense, to manage its exposure to interest rate movements and therefore manage its cash outflows as it relates to the underlying debt instruments. To accomplish these objectives the Company primarily uses interest rate swaps as part of its interest rate risk management strategy relating to certain of its variable rate debt instruments. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
78
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. For 2018, the ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company did not incur any ineffectiveness during 2020 and 2019.
During July 2019, the Company entered into four interest rate swap agreements with its counterparties. The swaps were designated as cash flow hedges of the risk of variability attributable to changes in the LIBOR swap rates on its $300,000 LIBOR-indexed variable-rate unsecured term loan. Accordingly, changes in fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable. The swaps expire coterminous with the extended maturity of the term loan in January 2025. During the next 12 months, the Company estimates that an additional $4,848 will be reclassified as an increase to interest expense if the swaps remain outstanding.
As of December 31, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
| Interest Rate Derivative | Number of Instruments | Notional | ||||||
| Interest Rate Swaps | $ | |||||||
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2020 and 2019.
| As of December 31, 2020 | As of December 31, 2019 | ||||||||||||||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||
| Interest Rate Swap Liability | Other liabilities | $ | ( | Other liabilities | $ | ( | |||||||||||||||||
The table below present the effect of the Company's derivative financial instruments on the consolidated statements of operations for 2020 and 2019:
| Derivatives in Cash Flow | Amount of Loss Recognized in OCI on Derivative December 31, | Location of Income (Loss) Reclassified from Accumulated OCI into Income | Amount of (Income) Loss Reclassified from Accumulated OCI into Income December 31, | ||||||||||||||||||||||||||||||||
| Hedging Relationships | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||
| Interest Rate Swap | $ | ( | $ | ( | Interest expense | $ | $ | ( | |||||||||||||||||||||||||||
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded was $55,201 and $65,095 for 2020 and 2019, respectively.
79
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(11) Leases
Lessor
Lexington’s lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred.
Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of the lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price upon expiration of the lease term or before.
Accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.
The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts receivable balance is considered uncollectable, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis. In February 2020, the Company wrote off a deferred rent receivable balance of $615 as a reduction of rental revenue related to a tenant that dissolved and surrendered its leased premises in an industrial property located in the Columbus, Ohio market. During 2019, rental revenue was reduced by an aggregate of $352 for accounts receivable deemed uncollectable.
Certain tenants have been experiencing financial difficulties as a result of the COVID-19 pandemic. During 2020, the Company wrote off or reserved aggregate deferred rent receivable balances of $1,383 , as a reduction of rental revenue, related to certain tenants as the deferred rent receivable balances were deemed uncollectable. In addition, in 2020, the Company also wrote off or reserved an aggregate of $389 accounts receivable relating to certain tenants suffering from the current economic conditions.
The Company determined that the lease and non-lease components in its leases are a single lease component, which is, therefore, being recognized as rental revenue in its consolidated statements of operations. The primary non-lease service that is included within rental revenue is CAM services provided as part of the Company’s real estate leases. Topic 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. As of December 31, 2020 and 2019, the Company incurred $67 and $191 , respectively, of costs that were not incremental to the execution of leases, which are included in property operating expenses in its consolidated statements of operations.
The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.
80
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
The following table presents the Company’s classification of rental revenue for its operating leases for the year ended December 31, 2020 and 2019:
| Classification | December 31, 2020 | December 31, 2019 | |||||||||
| Fixed | $ | $ | |||||||||
Variable(1) | |||||||||||
| Total | $ | $ | |||||||||
(1) Primarily comprised of tenant reimbursements.
Future fixed rental receipts for leases, assuming no new or re-negotiated leases as of December 31, 2020 were as follows:
| Year ending December 31, | Total | ||||
| 2021 | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| Thereafter | |||||
| Total | $ | ||||
The above minimum lease payments do not include reimbursements to be received from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases, if not reasonably assured.
Certain leases allow for the tenant to terminate the lease if the property is deemed obsolete, as defined, and upon payment of a termination fee to the landlord, as stipulated in the lease. In addition, certain leases provide the tenant with the right to purchase the leased property at fair market value or a stipulated price.
Lessee
The Company has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of December 31, 2020. The leases have remaining lease terms of up to 42 years, some of which include options to extend the leases in 5 to 10 -year increments for up to 52 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. Minimum lease payments for leases that commenced before the date of adoption of ASC 842 were determined based on previous leases guidance under ASC 840. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.
The accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.
The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.
81
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
As the Company does not know the rate implicit in the respective leases, the Company used its incremental borrowing rate based on the information available at the transition date for such existing leases. The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.
Supplemental information related to operating leases as of December 31, 2020 and 2019 is as follows:
| The Year Ended | ||||||||||||||
| December 31, 2020 | December 31, 2019 | |||||||||||||
| Weighted-average remaining lease term | ||||||||||||||
| Operating leases (years) | ||||||||||||||
| Weighted-average discount rate | ||||||||||||||
| Operating leases | % | % | ||||||||||||
The components of lease expense for the year ended December 31, 2020 and 2019 were as follows:
| Income Statement Classification | Fixed | Variable | Total | ||||||||||||||
| 2020: | |||||||||||||||||
| Property operating | $ | $ | $ | ||||||||||||||
| General and administrative | $ | ||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| 2019: | |||||||||||||||||
| Property operating | $ | $ | $ | ||||||||||||||
| General and administrative | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
The Company recognized sublease income of $3,756 and $3,764 in 2020 and 2019, respectively.
The following table shows the Company's maturity analysis of its operating lease liabilities as of December 31, 2020:
| Operating Leases | ||||||||
| 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
Total lease payments | $ | |||||||
| Less: Imputed interest | ( | |||||||
Present value of lease liabilities | $ | |||||||
The Company leases its corporate headquarters. The lease expires in March 2026. The Company is responsible for its proportionate share of operating expenses and real estate taxes above a base year. In addition, the Company leases office space for its regional office. The minimum rent payments for the Company's offices are $1,325 for 2021, $1,335 for 2022, $1,304 for 2023, $1,304 for 2024 and $1,304 for 2025 and $326 thereafter, which are included in the table above. Rent expense for 2020, 2019 and 2018 was $1,305 , $1,312 and $1,274 , respectively.
Rent expense for the leasehold interests was $597 in 2018.
82
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(12)Concentration of Risk
The Company seeks to reduce its operating and leasing risks through the geographic diversification of its properties, tenant industry diversification, avoidance of dependency on a single asset and the creditworthiness of its tenants. For the years ended December 31, 2020, 2019 and 2018, no single tenant represented greater than 10% of rental revenues.
Cash and cash equivalent balances at certain institutions may exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions.
(13)Equity
At-The-Market Offering Program. The Company maintains an At-The-Market offering program ("ATM program") under which the Company can issue common shares. The following table summarizes common share issuances under the ATM program for the years ended December 31, 2020 and 2019, respectively:
| Year ended December 31, 2020 | ||||||||
| Shares Sold | Net Proceeds | |||||||
| 2020 ATM Issuances | $ | |||||||
| Year ended December 31, 2019 | ||||||||
| Shares Sold | Net Proceeds | |||||||
| 2019 ATM Issuances | $ | |||||||
During 2018, the Company did no t issue common shares under its ATM Program.
Under the ATM program, the Company may also enter into forward sales agreements. The Company entered into forward sales transactions for the sale of 4,990,717 common shares during the year ended December 31, 2020 that have not yet been settled. Subject to the Company's right to elect cash or net share settlement, the Company expects to settle the forward sales transactions by the maturity dates in 2021. The shares had an aggregate settlement price of $55,120 at December 31, 2020, which is subject to adjustment in accordance with the forward sales contracts. The Company did no
As of December 31, 2020, common shares with an aggregate value of $177,212 remain available for issuance under the ATM program.
Underwritten Common Stock Offerings. During 2020, the Company issued 17,250,000 common shares at a public offering price of $9.60 per common share in an underwritten offering and generated net proceeds of approximately $164,000 .
During 2019, the Company issued 10,000,000 common shares at $10.09 per common share in an underwritten offering and generated net proceeds of $100,749 . The net proceeds were used for working capital and for general corporate purposes, including acquisitions.
Stock Based Compensation. In addition, during the years ended December 31, 2020, 2019 and 2018, the Company issued 756,380 , 896,807 and 965,932 of its common shares, respectively, to certain employees and trustees. Typically, trustee share grants vest immediately. Employee share grants generally vest ratably, on anniversaries of the grant date, however, in certain situations vesting is cliff-based after a specific number of years and/or subject to meeting certain performance criteria (see note 14).
83
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
Share Repurchase Program. In July 2015, the Company's Board of Trustees authorized the repurchase of up to 10,000,000 common shares and increased this authorization by 10,000,000 in 2018. This share repurchase program has no expiration date. During the years ended December 31, 2020, 2019 and 2018, the Company repurchased and retired 1,329,940 , 441,581 and 5,851,252 common shares, respectively, at an average price of $8.28 , $8.13 and $8.05 , respectively, per common share under the share repurchase program. As of December 31, 2020, 8,976,315 common shares remain available for repurchase under this authorization. The Company records a liability for repurchases that have not yet been settled as of the period end. There were no unsettled repurchases as of December 31, 2020.
A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows:
| Twelve months ended December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Balance at beginning of period | $ | ( | $ | |||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ||||||||||||
Amounts of income reclassified from accumulated other comprehensive income (loss) to interest expense | ( | |||||||||||||
| Balance at end of period | $ | ( | $ | ( | ||||||||||
Noncontrolling Interests:
In conjunction with several of the Company's acquisitions in prior years, sellers were issued limited partner interests in LCIF (“OP units”) OP units as a form of consideration. All OP units, other than OP units owned by the Company, are redeemable for common shares at certain times, at the option of the holders, and are generally not otherwise mandatorily redeemable by the Company. The OP units are classified as a component of permanent equity as the Company has determined that the OP units are not redeemable securities as defined by GAAP. Each OP unit is currently redeemable for approximately 1.13 common shares, subject to future adjustments.
During 2020, 2019 and 2018, 327,453 , 391,993 and 53,388 common shares, respectively, were issued by the Company, in connection with OP unit redemptions, for an aggregate value of $1,614 , $1,655 and $189 , respectively.
As of December 31, 2020, there were approximately 2,538,000 OP units outstanding other than OP units owned by the Company. All OP units receive distributions in accordance with the LCIF partnership agreement. To the extent that the Company's dividend per common share is less than the stated distribution per OP unit per the LCIF partnership agreement, the distributions per OP unit are reduced by the percentage reduction in the Company's dividend per common share. No OP units have a liquidation preference.
The following discloses the effects of changes in the Company's ownership interests in its noncontrolling interests:
| Net Income Attributable to Shareholders and Transfers from Noncontrolling Interests | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net income attributable to Lexington Realty Trust shareholders | $ | $ | $ | ||||||||||||||
| Transfers (to) from noncontrolling interests: | |||||||||||||||||
| Decrease in additional paid-in-capital for reallocation of 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 | $ | $ | $ | ||||||||||||||
84
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(14)Benefit Plans
The Company maintains an equity award plan pursuant to which qualified and non-qualified options may be issued. No 1,248,501 , 1,265,500 and 2,000,000 common share options on December 31, 2010 (“2010 options”), January 8, 2010 (“2009 options”) and December 31, 2008 (“2008 options”), respectively, at an exercise price of $7.95 , $6.39 and $5.60 , respectively. The 2010 options (1) vested 20 six months of termination of service with the Company and (y) December 31, 2020. The 2009 options (1) vested 20 six months of termination of service with the Company and (y) December 31, 2019. The 2008 options (1) vested 50 % following a 20 -day trading period where the average closing price of a common share of the Company on the New York Stock Exchange (“NYSE”) was $8.00 or higher and vested 50 % following a 20 -day trading period where the average closing price of a common share of the Company on the NYSE was $10.00 or higher, and (2) terminated on the earlier of (x) termination of service with the Company or (y) December 31, 2018. As a result of the share dividends paid in 2009, each of the 2008 options were exchangeable for approximately 1.13 common shares at an exercise price of $4.97 per common share.
The Company recognized compensation expense relating to these options over an average of 5.0 3.6 years for the 2008 options. All deferred compensation costs relating to the outstanding options were fully amortized by December 31, 2015. The intrinsic value of an option is the amount by which the market value of the underlying common share at the date the option is exercised exceeds the exercise price of the option. The total intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018 were $106 , $271 and $26 , respectively.
Share option activity during the years indicated is as follows:
| Number of Shares | Weighted-Average Exercise Price Per Share | ||||||||||
| Balance at December 31, 2018 | $ | ||||||||||
Exercised | ( | ||||||||||
| Balance at December 31, 2019 | |||||||||||
Exercised | ( | ||||||||||
| Balance at December 31, 2020 | $ | ||||||||||
Non-vested share activity for the years ended December 31, 2020 and 2019, is as follows:
| Number of Shares | Weighted-Average Grant-Date Fair Value Per Share | ||||||||||
| Balance at December 31, 2018 | $ | ||||||||||
Granted | |||||||||||
Vested | ( | ||||||||||
Forfeited | ( | ||||||||||
| Balance at December 31, 2019 | |||||||||||
Granted | |||||||||||
Vested | ( | ||||||||||
Forfeited | ( | ||||||||||
| Balance at December 31, 2020 | $ | ||||||||||
85
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
During 2020 and 2019, the Company granted common shares to certain employees and trustees as follows:
| 2020 | 2019 | ||||||||||
Performance Shares(1) | |||||||||||
| Shares issued: | |||||||||||
Index | |||||||||||
Peer | |||||||||||
Grant date fair value per share:(2) | |||||||||||
Index | $ | $ | |||||||||
Peer | $ | $ | |||||||||
Non-Vested Common Shares:(3) | |||||||||||
Shares issued | |||||||||||
Grant date fair value | $ | $ | |||||||||
(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 will not be paid on these grants until earned. Once the performance criteria are met and the actual number of shares earned is determined, such shares vest immediately. During 2020, 122,779 of the 452,737 performance shares issued in 2017 vested. During 2019, 713,044 of the 808,929 performance shares issued in 2016 vested.
(2) The fair value of grants was determined at the grant date using a Monte Carlo simulation model.
In addition, during 2020, 2019 and 2018, the Company issued 47,130 , 67,226 , and 66,318 , respectively, of fully vested common shares to non-management members of the Company's Board of Trustees with a fair value of $500 , $595 , and $599 , respectively.
As of December 31, 2020, of the remaining 2,704,729 non-vested shares, 1,024,584 are subject to time-based vesting and 1,680,145 are subject to performance-based vesting. At December 31, 2020, there are 2,359,683 awards available for grant. The Company has $6,122 in unrecognized compensation costs relating to the non-vested shares that will be charged to compensation expense over an average of approximately 1.6 years.
The Company has established a trust for certain officers in which vested common shares granted for the benefit of the officers are deposited. The officers exert no control over the common shares in the trust and the common shares are available to the general creditors of the Company. As of December 31, 2020 and 2019, there were 130,863
The Company sponsors a 401(k) retirement savings plan covering all eligible employees. The Company makes a discretionary matching contribution on a portion of employee participant salaries and, based on its profitability, may make an additional discretionary contribution at each fiscal year end to all eligible employees. These discretionary contributions are subject to vesting under a schedule providing for 25 % annual vesting starting with the first year of employment and 100 % vesting after four years of employment. Approximately $393 , $403 and $397 of contributions are applicable to 2020, 2019 and 2018, respectively.
During 2020, 2019 and 2018, the Company recognized $6,185 , $5,831 and $6,302 , respectively, in expense relating to scheduled vesting of common share grants.
(15) Related Party Transactions
86
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(16) Income Taxes
The provision for income taxes relates primarily to the taxable income of the Company's taxable REIT subsidiaries. The earnings, other than in taxable REIT subsidiaries, of the Company are not generally subject to federal income taxes at the Company level due to the REIT election made by the Company.
Income taxes have been provided for on the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities.
The Company's provision for income taxes for the years ended December 31, 2020, 2019 and 2018 is summarized as follows:
| 2020 | 2019 | 2018 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | ( | $ | ( | $ | ( | |||||||||||
| State and local | ( | ( | ( | ||||||||||||||
| $ | ( | $ | ( | $ | ( | ||||||||||||
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to pre-tax operating income as follows:
| 2020 | 2019 | 2018 | |||||||||||||||
Federal provision at statutory tax rate ( | $ | ( | $ | ( | $ | ( | |||||||||||
| State and local taxes, net of federal benefit | ( | ( | ( | ||||||||||||||
| Other | ( | ( | ( | ||||||||||||||
| $ | ( | $ | ( | $ | ( | ||||||||||||
For the years ended December 31, 2020, 2019 and 2018, the “other” amount is comprised primarily of state franchise taxes of $1,314 , $1,289 and $1,679 , respectively.
A summary of the average taxable nature of the Company's common dividends for each of the years in the three-year period ended December 31, 2020, is as follows:
| 2020 | 2019 | 2018 | |||||||||||||||
| Total dividends per share | $ | $ | $ | ||||||||||||||
| Ordinary income | % | % | % | ||||||||||||||
| Qualifying dividend | % | % | % | ||||||||||||||
| Capital gain | |||||||||||||||||
| Return of capital | % | % | % | ||||||||||||||
| % | % | % | |||||||||||||||
A summary of the average taxable nature of the Company's dividend on shares of its Series C Preferred for each of the years in the three-year period ended December 31, 2020, is as follows:
| 2020 | 2019 | 2018 | |||||||||||||||
| Total dividends per share | $ | $ | $ | ||||||||||||||
| Ordinary income | % | % | % | ||||||||||||||
| Qualifying dividend | % | % | |||||||||||||||
| Capital gain | |||||||||||||||||
| Return of capital | |||||||||||||||||
| % | % | % | |||||||||||||||
87
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
(17) Commitments and Contingencies
In addition to the commitments and contingencies disclosed elsewhere, the Company has the following commitments and contingencies.
The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.
The Company had five development projects as of December 31, 2020, which are described in "Properties" in Part I, Item 2 of this Annual Report. The Company has committed to develop three consolidated development projects and expects to incur approximately $75,985 in 2021 to substantially complete construction of the projects. The remaining two development projects are owned by non-consolidated joint ventures. Due to the early stage of development of each project and the uncertainty of construction schedules at such stage, the Company is unable to estimate the timing of the required fundings for the non-consolidated development projects.
The Company and LCIF are parties to a funding agreement under which the Company may be required to fund distributions made on account of LCIF's OP units. Pursuant to the funding agreement, the parties agreed that, if LCIF does not have sufficient cash available to make a quarterly distribution to its limited partners in an amount in accordance with the partnership agreement, Lexington will fund the shortfall. Payments under the agreement will be made in the form of loans to LCIF and will bear interest at prevailing rates as determined by the Company in its discretion but, no less than the applicable federal rate. LCIF's right to receive these loans will expire if no OP units remain outstanding and all such loans are repaid. No amounts have been advanced under this agreement.
From time to time, the Company is directly or indirectly involved in legal proceedings arising in the ordinary course of business. Management believes, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on the Company's business, financial condition and results of operations.
(18) Supplemental Disclosure of Statement of Cash Flow Information
| 2020 | 2019 | 2018 | |||||||||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||||||||
| Cash and cash equivalents at beginning of period | $ | $ | $ | ||||||||||||||
| 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 | $ | $ | $ | ||||||||||||||
In addition to disclosures discussed elsewhere, during 2020, 2019 and 2018, the Company paid $52,059 , $59,018 and $76,562 , respectively, for interest and $1,748 , $1,482 and $2,025 , respectively, for income taxes.
As a result of the foreclosure of three office properties located in South Carolina, Kansas and Florida, during 2020, there was an aggregate non-cash charge of $57,356 and $28,078 in mortgages and notes payable, net, and real estate, net, respectively.
In 2020, the Company sold its interest in a property, which included the assumption by the buyer of the related non-recourse mortgage debt of $178,662 .
88
LEXINGTON REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000, except share/unit data)
During 2020, the Company exercised extension options on two ground leases related to parcels of land located in Owensboro, Kentucky and Orlando, Florida. The extensions of the ground lease terms resulted in an aggregate non-cash increase of $719
During 2019, the Company assumed a $41,877 non-recourse mortgage debt upon the acquisition of a property. In addition, in 2019, the Company sold its interest in a property, which included the assumption by the buyer of the related non-recourse mortgage debt of $110,000 .
(19) Unaudited Quarterly Financial Data
| 3/31/2020 | 6/30/2020 | 9/30/2020 | 12/31/2020 | ||||||||||||||||||||
| Total gross revenues | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net income attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
Net income attributable to common shareholders - basic per share | $ | $ | $ | $ | |||||||||||||||||||
Net income attributable to common shareholders - diluted per share | $ | $ | $ | $ | |||||||||||||||||||
| 3/31/2019 | 6/30/2019 | 9/30/2019 | 12/31/2019 | ||||||||||||||||||||
| Total gross revenues | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net income attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
Net income attributable to common shareholders - basic per share | $ | $ | $ | $ | |||||||||||||||||||
Net income attributable to common shareholders - diluted per share | $ | $ | $ | $ | |||||||||||||||||||
(20) Subsequent Events
Subsequent to December 31, 2020 and in addition to disclosures elsewhere in the financial statements, the Company:
– acquired three industrial properties for an aggregate cost of approximately $50,800 ; and
89
LEXINGTON REALTY TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
| Description | Location | Encumbrances | Land and Land Estates | Buildings and Improvements | Total | Accumulated Depreciation and Amortization(1) | Date Acquired | Date Constructed | |||||||||||||||||||||
| INDUSTRIAL PROPERTIES | |||||||||||||||||||||||||||||
| Single-tenant | |||||||||||||||||||||||||||||
| Industrial | Anniston, AL | $ | $ | $ | $ | $ | Dec-14 | ||||||||||||||||||||||
| Industrial | Opelika, AL | Jul-17 | 2017 | ||||||||||||||||||||||||||
| Industrial | Chandler, AZ | Nov-20 | |||||||||||||||||||||||||||
| Industrial | Goodyear, AZ | Nov-18 | |||||||||||||||||||||||||||
| Industrial | Goodyear, AZ | Nov-19 | |||||||||||||||||||||||||||
| Industrial | Goodyear, AZ | Jan-20 | |||||||||||||||||||||||||||
| Industrial | Tolleson, AZ | Oct-19 | |||||||||||||||||||||||||||
| Industrial | Ocala, FL | Jun-20 | |||||||||||||||||||||||||||
| Industrial | Orlando, FL | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Tampa, FL | Jul-88 | |||||||||||||||||||||||||||
| Industrial | Austell, GA | Jun-19 | |||||||||||||||||||||||||||
| Industrial | McDonough, GA | Aug-17 | |||||||||||||||||||||||||||
| Industrial | McDonough, GA | Feb-19 | |||||||||||||||||||||||||||
| Industrial | Pooler, GA | Apr-20 | |||||||||||||||||||||||||||
| Industrial | Savannah, GA | Jun-20 | |||||||||||||||||||||||||||
| Industrial | Savannah, GA | Jun-20 | |||||||||||||||||||||||||||
| Industrial | Union City, GA | Jun-19 | |||||||||||||||||||||||||||
| Industrial | McDonough, GA | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Savannah, GA | Sep-20 | |||||||||||||||||||||||||||
| Industrial | Edwardsville, IL | Dec-16 | |||||||||||||||||||||||||||
| Industrial | Edwardsville, IL | Jun-18 | |||||||||||||||||||||||||||
| Industrial | Minooka, IL | Jan-20 | |||||||||||||||||||||||||||
| Industrial | Minooka, IL | Dec-19 | |||||||||||||||||||||||||||
| Industrial | Minooka, IL | Jan-20 | |||||||||||||||||||||||||||
| Industrial | Rantoul, IL | Jan-14 | 2014 | ||||||||||||||||||||||||||
| Industrial | Rockford, IL | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Rockford, IL | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Romeoville, IL | Dec-16 | |||||||||||||||||||||||||||
| Industrial | Lafayette, IN | Oct-17 | |||||||||||||||||||||||||||
| Industrial | Lebanon, IN | Feb-17 | |||||||||||||||||||||||||||
| Industrial | Whitestown, IN | Jan-19 | |||||||||||||||||||||||||||
| Industrial | New Century, KS | Feb-17 | |||||||||||||||||||||||||||
| Industrial | Dry Ridge, KY | Jun-05 | |||||||||||||||||||||||||||
| Industrial | Elizabethtown, KY | Jun-05 | |||||||||||||||||||||||||||
| Industrial | Elizabethtown, KY | Jun-05 | |||||||||||||||||||||||||||
| Industrial | Hopkinsville, KY | Jun-05 | |||||||||||||||||||||||||||
| Industrial | Owensboro, KY | Jun-05 | |||||||||||||||||||||||||||
| Industrial | Owensboro, KY | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Shreveport, LA | Jun-12 | 2012 | ||||||||||||||||||||||||||
| Industrial | Shreveport, LA | Mar-07 | |||||||||||||||||||||||||||
| Industrial | North Berwick, ME | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Detroit, MI | Jan-16 | |||||||||||||||||||||||||||
| Industrial | Kalamazoo, MI | Sep-12 | |||||||||||||||||||||||||||
| Industrial | Marshall, MI | Sep-12 | |||||||||||||||||||||||||||
| Industrial | Plymouth, MI | Jun-07 | |||||||||||||||||||||||||||
| Industrial | Romulus, MI | Nov-17 | |||||||||||||||||||||||||||
| Industrial | Warren, MI | Nov-17 | |||||||||||||||||||||||||||
| Industrial | Minneapolis, MN | Sep-12 | |||||||||||||||||||||||||||
| Industrial | Byhalia, MS | May-11 | 2011 | ||||||||||||||||||||||||||
| Industrial | Byhalia, MS | Sep-17 | |||||||||||||||||||||||||||
| Industrial | Canton, MS | Mar-15 | |||||||||||||||||||||||||||
| Industrial | Olive Branch, MS | Apr-18 | |||||||||||||||||||||||||||
| Industrial | Olive Branch, MS | Apr-18 | |||||||||||||||||||||||||||
| Industrial | Olive Branch, MS | May-19 | |||||||||||||||||||||||||||
| Industrial | Olive Branch, MS | May-19 | |||||||||||||||||||||||||||
90
LEXINGTON REALTY TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
| Description | Location | Encumbrances | Land and Land Estates | Buildings and Improvements | Total | Accumulated Depreciation and Amortization(1) | Date Acquired | Date Constructed | |||||||||||||||||||||
| Industrial | Henderson, NC | Nov-01 | |||||||||||||||||||||||||||
| Industrial | Lumberton, NC | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Shelby, NC | Jun-11 | 2011 | ||||||||||||||||||||||||||
| Industrial | Durham, NH | Jun-07 | |||||||||||||||||||||||||||
| Industrial | North Las Vegas, NV | Jul-13 | 2014 | ||||||||||||||||||||||||||
| Industrial | Erwin, NY | Sep-12 | |||||||||||||||||||||||||||
| Industrial | Long Island City, NY | Mar-13 | 2013 | ||||||||||||||||||||||||||
| Industrial | Cincinnati, OH | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Columbus, OH | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Glenwillow, OH | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Hebron, OH | Dec-97 | |||||||||||||||||||||||||||
| Industrial | Hebron, OH | Dec-01 | |||||||||||||||||||||||||||
| Industrial | Morone, OH | Sep-19 | |||||||||||||||||||||||||||
| Industrial | Morone, OH | Sep-19 | |||||||||||||||||||||||||||
| Industrial | Morone, OH | Sep-19 | |||||||||||||||||||||||||||
| Industrial | Streetsboro, OH | Jun-07 | |||||||||||||||||||||||||||
| Industrial | Wilsonville, OR | Sep-16 | |||||||||||||||||||||||||||
| Industrial | Bristol, PA | Mar-98 | |||||||||||||||||||||||||||
| Industrial | Chester, SC | Sep-12 | |||||||||||||||||||||||||||
| Industrial | Duncan, SC | Oct-19 | |||||||||||||||||||||||||||
| Industrial | Duncan, SC | Oct-19 | |||||||||||||||||||||||||||
| Industrial | Duncan, SC | Apr-19 | |||||||||||||||||||||||||||
| Industrial | Duncan, SC | Jun-07 | |||||||||||||||||||||||||||
| Industrial | Greer, SC | Dec-19 | |||||||||||||||||||||||||||
| Industrial | Laurens, SC | Jun-07 | |||||||||||||||||||||||||||
| Industrial | Spartanburg,SC | Aug-18 | |||||||||||||||||||||||||||
| Industrial | Spartanburg, SC | Dec-20 | |||||||||||||||||||||||||||
| Industrial | Cleveland, TN | May-17 | |||||||||||||||||||||||||||
| Industrial | Crossville, TN | Jan-06 | |||||||||||||||||||||||||||
| Industrial | Franklin, TN | Sep-12 | |||||||||||||||||||||||||||
| Industrial | Jackson, TN | Sep-17 | |||||||||||||||||||||||||||
| Industrial | Lewisburg, TN | May-14 | |||||||||||||||||||||||||||
| Industrial | Millington, TN | Apr-05 | |||||||||||||||||||||||||||
| Industrial | Smyrna, TN | Sep-17 | |||||||||||||||||||||||||||
| Industrial | Arlington, TX | Sep-12 | |||||||||||||||||||||||||||
| Industrial | Brookshire, TX | Mar-15 | |||||||||||||||||||||||||||
| Industrial | Carrollton, TX | Sep-18 | |||||||||||||||||||||||||||
| Industrial | Dallas, TX | Apr-19 | |||||||||||||||||||||||||||
| Industrial | Grand Prairie, TX | Jun-17 | |||||||||||||||||||||||||||
| Industrial | Houston, TX | Mar-15 | |||||||||||||||||||||||||||
| Industrial | Houston, TX | Mar-13 | |||||||||||||||||||||||||||
| Industrial | Hutchins, TX | May-20 | |||||||||||||||||||||||||||
| Industrial | Lancaster, TX | Dec-20 | |||||||||||||||||||||||||||
| Industrial | Missouri City, TX | Apr-12 | |||||||||||||||||||||||||||
| Industrial | Northlake, TX | Feb-20 | |||||||||||||||||||||||||||
| Industrial | Northlake, TX | Dec-20 | |||||||||||||||||||||||||||
| Industrial | Pasadena, TX | Jun-20 | |||||||||||||||||||||||||||
| Industrial | Pasadena, TX | Aug-18 | |||||||||||||||||||||||||||
| Industrial | San Antonio, TX | Jun-17 | |||||||||||||||||||||||||||
| Industrial | Chester, VA | Dec-18 | |||||||||||||||||||||||||||
| Industrial | Winchester, VA | Dec-17 | |||||||||||||||||||||||||||
| Industrial | Winchester, VA | Jun-07 | |||||||||||||||||||||||||||
| Industrial | Winchester, VA | Sep-20 | |||||||||||||||||||||||||||
| Industrial | Bingen, WA | May-14 | 2014 | ||||||||||||||||||||||||||
| Multi-tenant/vacant | |||||||||||||||||||||||||||||
| Industrial | Statesville, NC | Dec-06 | |||||||||||||||||||||||||||
| Industrial | Chillicothe, OH | Oct-11 | |||||||||||||||||||||||||||
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LEXINGTON REALTY TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
| Description | Location | Encumbrances | Land and Land Estates | Buildings and Improvements | Total | Accumulated Depreciation and Amortization(1) | Date Acquired | Date Constructed | |||||||||||||||||||||
| Industrial | Antioch, TN | May-07 | |||||||||||||||||||||||||||
| OFFICE PROPERTIES | |||||||||||||||||||||||||||||
| Single-tenant | |||||||||||||||||||||||||||||
| Office | Tucson, AZ | Sep-12 | |||||||||||||||||||||||||||
| Office | Palo Alto, CA | Dec-06 | |||||||||||||||||||||||||||
| Office | McDonough, GA | Sep-12 | |||||||||||||||||||||||||||
| Office | Wall, NJ | Jan-04 | |||||||||||||||||||||||||||
| Office | Whippany, NJ | Nov-06 | |||||||||||||||||||||||||||
| Office | Philadelphia, PA | Jun-05 | |||||||||||||||||||||||||||
| Office | Florence, SC | Feb-12 | 2012 | ||||||||||||||||||||||||||
| Office | Fort Mill, SC | Nov-04 | |||||||||||||||||||||||||||
| Office | Fort Mill, SC | Dec-02 | |||||||||||||||||||||||||||
| Office | Arlington, TX | Sep-12 | |||||||||||||||||||||||||||
| Office | Mission, TX | Sep-12 | |||||||||||||||||||||||||||
| Office | Herndon, VA | Dec-99 | |||||||||||||||||||||||||||
| Multi-tenant/vacant | |||||||||||||||||||||||||||||
| Office | Phoenix, AZ | Nov-01 | |||||||||||||||||||||||||||
| Office | Baton Rouge, LA | May-07 | |||||||||||||||||||||||||||
| OTHER PROPERTIES | |||||||||||||||||||||||||||||
| Single-tenant/Specialty | |||||||||||||||||||||||||||||
| Other | Venice, FL | Jan-15 | |||||||||||||||||||||||||||
| Other | Baltimore, MD | Dec-06 | |||||||||||||||||||||||||||
| Other | Baltimore, MD | Dec-15 | |||||||||||||||||||||||||||
| Multi-tenant | |||||||||||||||||||||||||||||
| Other | Honolulu, HI | Dec-06 | |||||||||||||||||||||||||||
| Construction in progress | |||||||||||||||||||||||||||||
| Deferred loan costs, net | ( | — | — | — | — | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | |||||||||||||||||||||||||
(1) Depreciation and amortization expense is calculated on a straight-line basis over the following lives:
| Building and improvements | Up to | ||||
| Land estates | Up to | ||||
| Tenant improvements | Shorter of useful life or term of related lease | ||||
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LEXINGTON REALTY TRUST AND SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000) - continued
The initial cost includes the purchase price paid directly or indirectly by the Company. The total cost basis of the Company's properties at December 31, 2020 for federal income tax purposes was approximately $4.0 billion.
| 2020 | 2019 | 2018 | |||||||||||||||
| Reconciliation of real estate, at cost: | |||||||||||||||||
| Balance at the beginning of year | $ | $ | $ | ||||||||||||||
| Additions during year | |||||||||||||||||
| Properties sold and impaired during the year | ( | ( | ( | ||||||||||||||
| Other reclassifications | ( | ( | |||||||||||||||
| Balance at end of year | $ | $ | $ | ||||||||||||||
| Reconciliation of accumulated depreciation and amortization: | |||||||||||||||||
| Balance at the beginning of year | $ | $ | $ | ||||||||||||||
| Depreciation and amortization expense | |||||||||||||||||
Accumulated depreciation and amortization of properties sold and impaired during year | ( | ( | ( | ||||||||||||||
| Other reclassifications | ( | ( | |||||||||||||||
| Balance at end of year | $ | $ | $ | ||||||||||||||
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report, was made under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer who are our Principal Executive Officer and our Principal Financial Officer, respectively. Management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of December 31, 2020.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2020. Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles. Our system of internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of our management and the members of our Board of Trustees; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance that financial statements are fairly presented in accordance with U.S. generally accepted accounting principles.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In assessing the effectiveness of our internal control over financial reporting, management used as guidance the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon the assessment performed, management has concluded that our internal control over financial reporting was effective as of December 31, 2020.
Our independent registered public accounting firm, Deloitte & Touche LLP, which audited the financial statements included in this Annual Report on Form 10-K that contain the disclosure required by this Item, independently assessed the effectiveness of the Company's internal control over financial reporting. Deloitte & Touche LLP has issued an unqualified report on the Company's internal control over financial reporting, which is included in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
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PART III.
Item 10. Directors, Executive Officers and Corporate Governance
The information relating to our Code of Business Conduct and Ethics, is included in Part I, Item 1 of this Annual Report. The information relating to our trustees, including the audit committee of our Board of Trustees and our Audit Committee financial expert, and certain information relating to our executive officers, trustees and trustee independence will be in our Definitive Proxy Statement for our 2021 Annual Meeting of Shareholders, which we refer to as our Proxy Statement, and is incorporated herein by reference.
Item 11. Executive Compensation
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference. In addition, certain information regarding related party transactions is set forth in note 15 to the Company's Consolidated Financial Statements in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report.
Item 14. Principal Accounting Fees and Services
The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference.
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PART IV.
Item 15. Exhibits, Financial Statement Schedules
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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) | ||||||||||||
(1) Incorporated by reference.
(2) Filed herewith.
(3) This exhibit shall not be deemed “filed” for purposes of Section 11 or 12 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 18 of the Securities Exchanges Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of those sections, and shall not be part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing or document.
(4) Management contract or compensatory plan or arrangement.
(5) Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2020 and 2019; (ii) the Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018; (iii) the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018; (iv) the Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 2018; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018; and (vi) Notes to Consolidated Financial Statements, detailed tagged.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Lexington Realty Trust | |||||||||||
| Dated: | February 18, 2021 | By: | /s/ T. Wilson Eglin | ||||||||
| T. Wilson Eglin | |||||||||||
| Chief Executive Officer | |||||||||||
98
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints T. Wilson Eglin and Beth Boulerice, and each of them severally, his or her true and lawful attorney-in-fact with power of substitution and resubstitution to sign in his or her name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange Commission in connection with this Annual Report on Form 10-K and any and all amendments hereto, as fully for all intents and purposes as he might or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| Signature | Title | ||||
/s/ T. Wilson Eglin T. Wilson Eglin | Chairman, Chief Executive Officer and President of the Trust (principal executive officer) | ||||
/s/ Beth Boulerice Beth Boulerice | Chief Financial Officer, Executive Vice President and Treasurer of the Trust (principal financial officer) | ||||
/s/ Mark Cherone Mark Cherone | Chief Accounting Officer of the Trust (principal accounting officer) | ||||
/s/ Richard S. Frary Richard S. Frary | Trustee of the Trust | ||||
/s/ Lawrence L. Gray Lawrence L. Gray | Trustee of the Trust | ||||
/s/ Jamie Handwerker Jamie Handwerker | Trustee of the Trust | ||||
/s/ Claire A. Koeneman Claire A. Koeneman | Trustee of the Trust | ||||
/s/ Howard Roth Howard Roth | Trustee of the Trust | ||||
Each dated: February 18, 2021
99