UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Current Report Pursuant
to Section 13 OR 15(d) of The
Securities Exchange Act of 1934
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| Item 8.01. | Other Events. |
On April 14, 2020, Lexington Realty Trust (the “Trust,” the “Company,” “we,” “our” or “us”) issued a press release providing an update on its business in light of the market volatility related to the global COVID-19 pandemic. A copy of the press release is filed herewith as Exhibit 99.1 and incorporated by reference herein.
The Trust is also providing the below disclosure and supplementing the risk factors described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019:
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. In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 100 countries, including the United States. COVID-19 has also spread to every state in the United States where we own and operate our properties and have our corporate headquarters and regional office. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.
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. Many states and cities, including where we own properties, have also reacted by instituting quarantines, restrictions on travel, "shelter in place" rules, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that may continue. In addition, some cities and states have taken actions purporting to require the forbearance of rent payments and to limit landlord remedies with respect to rent payment defaults. We expect additional states and cities to implement similar restrictions. The duration of such restrictions is currently unknown. Such actions have and may create disruption in global supply chains and adversely impact a number of industries, including industries in which our tenants participate.
The effects of COVID-19 or another pandemic on our or our tenants’ ability to successfully operate could be adversely impacted due to, among other factors:
| · | a general decline in business activity and demand which would adversely affect our ability or desire to grow our industrial portfolio or to continue to sell non-core / office assets which have recently served as an additional source of liquidity for us; |
| · | our ability to operate, which may cause our business and operating results to decline or impact our ability to comply with regulatory obligations leading to reputational harm and regulatory issues or fines; |
| · | the continued service and availability of personnel, including our executive officers and our ability to recruit, attract and retain skilled personnel—to the extent our management or personnel are impacted in significant numbers by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work, our business and operating results may be negatively impacted; |
| · | difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our or our tenants’ ability to access capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities, any of which could affect our ability to meet liquidity and capital expenditure requirements or have a material adverse effect on our business, financial condition, results of operations and cash flows; |
| · | a deterioration in our and our tenants’ ability to operate or operate in affected areas, or delays in the supply of products or services from our and our tenants’ vendors that are needed for us and our tenants to operate effectively; |
| · | our tenants’ ability to pay rent on their leases or our inability to lease space in our properties on favorable terms; and |
| · | our ability to ensure business continuity in the event our continuity of operations plan is not effective or is improperly implemented or deployed during a disruption. |
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, and future pandemics, could have a significant adverse impact on economic and market
conditions of economies around the world, including the United States, and trigger a period of global economic slowdown or global recession which would present material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
We are subject to risks involving our leases and tenants.
We focus our acquisition activities on industrial real estate properties that are net leased to single tenants, and certain of our tenants and/or their guarantors constitute a significant percentage of our base 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 base 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. Upon the expiration or other termination of leases that are currently in place, the property owner subsidiary may not be able to re-lease the vacant property at all or at a comparable lease rate without incurring additional expenditures in connection with the re-leasing, which may be material in amount.
The demand for industrial space in the United States is generally related to the level of economic output. Accordingly, the outbreak of COVID-19 that began in the fourth quarter of 2019 has led to an economic slowdown in the United States and reduced economic output. The extent to which federal, state or local governmental authorities grant rent relief or other relief or enact amnesty programs applicable to our tenants in response to the COVID-19 outbreak may exacerbate the negative impacts of a slowdown or recession. 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 among property types.
Further, adverse economic conditions, including as a result of COVID-19, may have an impact on the results of operations and financial condition of our tenants and result in requests for rent relief or deferral and a resulting decline in rent or an increased incidence of default under existing leases of our properties. In response to COVID-19, we may have tenants decline to extend their leases upon expiration, fail to make rental payments when due, become insolvent or declare bankruptcy. However, as the full impact of COVID-19 cannot yet be determined, it is not yet possible to assess how many of our tenants may seek relief or otherwise fail to pay rent or defer the payment of rent. Bankruptcy filings by or relating to any of our tenants could bar us from collecting pre-bankruptcy debts from that tenant (including tenants whose business and operations are severely impacted by COVID-19 pandemic), unless we receive an order permitting us to do so from the bankruptcy court. 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. Any unsecured claim we hold against a bankrupt entity may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. We may recover substantially less than the full value of any unsecured claims, which would harm our financial condition.
In addition, in the event we modify a lease to provide rent deferral in exchange for an extension of the lease term or other consideration, we may have near term earnings dilution.
This Current Report contains 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, and as such involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expected future results, performance or achievements expressed or implied by these forward-looking statements. 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 the negative of these words or other similar words or terms. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, those discussed under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2019 and the Trust’s other filings with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating any forward-looking statements contained in this Current Report. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update any of the forward-looking statements to reflect events or developments after the date of this Current Report.
| Item 9.01. | Financial Statements and Exhibits |
| (d) | Exhibits |
| 99.1 | Press Release issued April 14, 2020 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Lexington Realty Trust | |||
| Date: April 14, 2020 | By: | /s/ Beth Boulerice | |
| Beth Boulerice | |||
| Chief Financial Officer | |||
Exhibit 99.1
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LEXINGTON REALTY TRUST TRADED: NYSE: LXP One Penn Plaza, Suite 4015 New York NY 10119-4015 |
Contact:
Investor or Media Inquiries for Lexington Realty Trust:
Heather Gentry, Senior Vice President of Investor Relations
Lexington Realty Trust
Phone: (212) 692-7200 E-mail: hgentry@lxp.com
LEXINGTON REALTY TRUST PROVIDES BUSINESS UPDATE
New York, NY – April 14, 2020 – Lexington Realty Trust (NYSE:LXP) (“Lexington”), a real estate investment trust (REIT) focused on single-tenant industrial real estate investments, provided an update on its business in light of the market volatility related to the global COVID-19 pandemic. Lexington efficiently executed its business continuity plan and quickly transitioned to a work-from-home arrangement for all employees. Lexington’s executive management team remains healthy and continues to manage operations.
Lexington’s management continues to monitor events and is taking steps to mitigate the potential impact and risks to Lexington. While Lexington is currently unable to estimate the impact COVID-19 will have on its financial condition, as of the date of this press release, Lexington believes that the impact will be mitigated because of its focus on warehouse and distribution industrial properties and the diversity of its tenant base, both geographically and by industry exposure.
The following is a summary of Lexington’s March 2020 and April 2020 consolidated cash base rent collections as of April 13, 2020:
| · | All cash base rent required to be paid in March has been collected. |
| · | Approximately 85% of April cash base rent has been paid and collected and approximately 6% of April cash base rent is due later in April after April 13, 2020 or is paid semi-annually and is not due in the month of April. |
Of the 9% of the April 2020 cash base rent that is due and not collected as of April 13, 2020, Lexington believes, based on its outreach efforts to tenants, that approximately 5% of the April cash base rent has not been collected primarily due to logistical issues resulting from the closure of its New York and Dallas offices and the corresponding delay in forwarding mail. The remaining approximately 4% of April 2020 cash base rent is accounted for by tenants who have not yet paid their April cash base rent and have request relief from Lexington. The information provided regarding March and April 2020 cash base rent collections should not be considered an indication of expected future rent collections.
As of April 13, 2020, Lexington has already received rent relief requests from certain tenants and Lexington expects to receive more in the near term. The relief requests have substantially all been in the form of a request to defer rents for varying periods of time. Lexington’s executive management has proactively formed a new committee to evaluate anticipated tenant relief requests.
Lexington believes the rent relief requests generally fall into two categories:
| Lexington Realty Trust | Page 2 of 3 |
| 1. | Tenants whose operations have been impacted and Lexington believes will require some form of relief to continue their operations (requested relief as of April 13, 2020 represents approximately 1%, or approximately $3 million, of 2019 actual cash base rent); and |
| 2. | Large and/or creditworthy tenants who have made what appear to be opportunistic relief requests. |
For those tenants that require rent relief, Lexington expects to grant deferrals (and possibly forgiveness for a small group) and intends to seek extended lease term, increased rent and/or favorable lease modifications as consideration in granting relief. However, Lexington can give no assurances on the outcomes of the negotiation of relief packages, the success of any tenant’s financial prospects or the amount of relief requests that it will ultimately receive or grant.
Lexington also announced that since January 1, 2020, it:
| · | acquired four warehouse/distribution properties for an aggregate purchase price of $195 million. The aggregate purchase price was funded in cash from a combination of borrowings under Lexington’s revolving credit facility and cash on hand. As of April 13, 2020, Lexington has one warehouse/distribution property under contract for a purchase price of approximately $35 million. As the acquisition of this property is subject to customary closing conditions, Lexington can give no assurance that it will acquire this property; |
| · | disposed of two office properties for an aggregate amount of $30 million; |
| · | issued 1,559,714 common shares at an average gross price of $11.24 per share under its At-the-Market offering program; and |
| · | repurchased 1,329,940 common shares at an average price of $8.28 per share under its repurchase program most recently authorized in 2018. |
ABOUT LEXINGTON REALTY TRUST
Lexington Realty Trust (NYSE: LXP) is a publicly traded real estate investment trust (REIT) focused on single-tenant industrial real estate investments across the United States. Lexington seeks to expand its industrial portfolio through build-to-suit transactions, sale-leaseback transactions, development projects and other transactions, including acquisitions. For more information or to follow Lexington on social media, visit www.lxp.com.
This release contains certain forward-looking statements which involve known and unknown risks, uncertainties and other factors not under Lexington’s control which may cause actual results, performance or achievements of Lexington to be materially different from the results, performance, or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those factors and risks detailed in Lexington’s periodic filings with the Securities and Exchange Commission. Except as required by law, Lexington undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the occurrence of unanticipated events.
| Lexington Realty Trust | Page 3 of 3 |
Cash base rent is calculated by making adjustments to rental revenue determined in accordance with generally accepted accounting principles (“GAAP”) to remove the impact of GAAP required adjustments to rental income such as adjustments for straight-line rents related to free rent periods and contractual rent increases. Cash base rent excludes billed tenant reimbursements and lease termination income and includes ancillary income.
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