Lexington Realty Trust Reports Third Quarter 2018 Results

NEW YORK, Nov. 06, 2018 (GLOBE NEWSWIRE) -- Lexington Realty Trust ("Lexington") LXP, a real estate investment trust focused on single-tenant industrial real estate investments, today announced results for the third quarter ended September 30, 2018.

Third Quarter 2018 Highlights

• Generated Net Income attributable to common shareholders of $216.2 million, or $0.90 per diluted common share.
• Generated Adjusted Company Funds From Operations available to all equityholders and unitholders - diluted ("Adjusted Company FFO") of $58.2 million, or $0.24 per diluted common share.
• Disposed of 21 office assets to a newly-formed joint venture for an aggregate gross disposition price of $725.8 million and acquired a 20% interest in the joint venture for an aggregate cost of $53.7 million.
• Sold seven additional non-industrial properties for an aggregate gross sale price of $113.7 million.
• Acquired three industrial properties for an aggregate cost of $71.1 million.
• Repurchased and retired 945,880 common shares at an average price of $8.08 per share.
• Repaid $195 million, net under its unsecured revolving credit facility and repaid $151 million of its 2020 term loan.
• Completed 867,000 square feet of new leases and lease extensions with portfolio 96.8% leased at quarter end.

Subsequent Events

• Repaid $149 million of remaining balance of its 2020 term loan.
• Repurchased and retired 2,681,215 common shares at an average price of $8.06 per share and increased repurchase authorization by 10.0 million common shares.
• Sold an office property for a gross sale price of $16.0 million.

Adjusted Company FFO is a non-GAAP financial measure. It and certain other non-GAAP financial measures are defined and reconciled later in this press release. GAAP net income is different than taxable income.

T. Wilson Eglin, Chief Executive Officer and President of Lexington Realty Trust, commented, "Our repositioning efforts during the third quarter led to the successful disposition of $839 million of non-industrial assets, which included a $726 million office portfolio sold to a newly-formed joint venture. Disposition and reinvestment initiatives this year have increased industrial revenues to over 60% of our overall portfolio while significantly reducing our office exposure. During the quarter, we acquired $71 million of high-quality industrial assets, retired $346 million of corporate debt and repurchased and retired 0.9 million common shares. We are extremely pleased with our third quarter execution, and, as we look ahead, we remain committed to disposing of non-industrial assets so our portfolio consists of primarily single-tenant, net-leased industrial assets."

FINANCIAL RESULTS

Revenues

For the quarter ended September 30, 2018, total gross revenues were $100.0 million, compared with total gross revenues of $97.7 million for the quarter ended September 30, 2017. The increase was primarily attributable to revenue generated from 2018 and 2017 property acquisitions and new leases, partially offset by property sales and lease expirations.

Net Income Attributable to Common Shareholders

For the quarter ended September 30, 2018, net income attributable to common shareholders was $216.2 million, or $0.90 per diluted share, compared with net income attributable to common shareholders for the quarter ended September 30, 2017 of $3.9 million, or $0.02 per diluted share. The change between periods relates primarily to the timing of gains on sales and impairments recognized on real estate, including the gains on sales of 21 office assets during the quarter ended September 30, 2018.

Adjusted Company FFO

For the quarter ended September 30, 2018, Lexington generated Adjusted Company FFO of $58.2 million, or $0.24 per diluted share, compared to Adjusted Company FFO for the quarter ended September 30, 2017 of $60.7 million, or $0.25 per diluted share. The increase was primarily attributable to the items discussed above under "Revenues".

Dividends/Distributions

As previously announced, during the third quarter of 2018, Lexington declared a regular quarterly common share/unit dividend/distribution for the quarter ended September 30, 2018 of $0.1775 per common share/unit, which was paid on October 15, 2018 to common shareholders/unitholders of record as of September 28, 2018. Lexington previously declared two cash dividends of $0.812 per share on its Series C Cumulative Convertible Preferred Stock ("Series C Preferred") for the quarters ended September 30, 2018 and December 31, 2018 which are expected to be paid on November 15, 2018 and February 15, 2019, respectively, to Series C Preferred Shareholders of record as of October 31, 2018 and January 31, 2019, respectively.

TRANSACTION ACTIVITY

The above were acquired at aggregate weighted-average GAAP and cash capitalization rates of 6.1% and 5.6%, respectively.

^{(1) Quarterly period prior to sale; excluding impairment charges, annualized.}

^{(2) $3.2 million of the sale price placed into escrow to fund future tenant allowances.}

^{(3) Properties sold/contributed to newly-formed joint venture. Lexington acquired a 20% interest in the joint venture for $53.7 million.}

These dispositions resulted in aggregate gains on sales of $202.4 million.

^{(1) Leases greater than 10,000 square feet.}

^{(2) Property sold to newly-formed joint venture.} 

As of September 30, 2018, Lexington's portfolio was 96.8% leased.

BALANCE SHEET/CAPITAL MARKETS

In the third quarter of 2018, Lexington repurchased and retired 945,880 common shares at an average price of $8.08 per share under its repurchase authorization announced on July 2, 2015 in the amount of 10.0 million common shares. As of September 30, 2018, there were approximately 4.7 million common shares remaining to be repurchased under the authorization. Subsequent to quarter end, Lexington repurchased and retired 2,681,215 common shares at an average price of $8.06 per share bringing the total common shares repurchased in 2018 to 4,552,870 at an average price of $8.04 per share. In addition, subsequent to quarter end, Lexington's Board of Trustees increased the amount of common shares available for repurchase by 10.0 million common shares. As a result, there are 12,046,218 common shares available for repurchase as of November 6, 2018.

Also, in the third quarter, Lexington repaid $195 million, net, under its unsecured revolving credit facility and ended the quarter with no amounts outstanding. In addition, Lexington repaid $151 million of the 2020 term loan and satisfied an aggregate of $110.1 million of non-recourse mortgage debt, including debt encumbering assets sold to the newly-formed joint venture.

2018 EARNINGS GUIDANCE

Lexington now estimates that its net income attributable to common shareholders per diluted common share for the year ended December 31, 2018 will be within an expected range of $0.90 to $0.92.

Additionally, Lexington now estimates that its Adjusted Company FFO for the year ended December 31, 2018 is expected to be within a range of $0.93 to $0.95 per diluted common share, which is an increase from its previous guidance of $0.92 to $0.94 per diluted common share. This guidance is forward looking, excludes the impact of certain items and is based on current expectations.

THIRD QUARTER 2018 CONFERENCE CALL

Lexington will host a conference call today, November 6, 2018, at 8:30 a.m. Eastern Time, to discuss its results for the quarter ended September 30, 2018. Interested parties may participate in this conference call by dialing 1-844-825-9783 (U.S.), 1-412-317-5163 (International) or 1-855-669-9657 (Canada). A replay of the call will be available through February 5, 2019, at 1-877-344-7529 (U.S.), 1-412-317-0088 (International) or 1-855-669-9658 (Canada), pin code for all replay numbers is 10125219. A link to a live webcast of the conference call is available at www.lxp.com within the Investors section.

ABOUT LEXINGTON REALTY TRUST

Lexington Realty Trust LXP is a publicly traded real estate investment trust (REIT) that owns a diversified portfolio of real estate assets consisting primarily of equity investments in single-tenant net-leased commercial properties across the United States. Lexington seeks to expand its industrial portfolio through build-to-suit transactions, sale-leaseback transactions and other transactions, including acquisitions. For more information, including Lexington's Quarterly Supplemental Information package, or to follow Lexington on social media, visit www.lxp.com.

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

This release contains certain forward-looking statements which involve known and unknown risks, uncertainties or 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. Factors that could cause or contribute to such differences 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 Lexington's periodic reports filed with the Securities and Exchange Commission, including risks related to: (1) the authorization by Lexington's Board of Trustees of future dividend declarations, (2) Lexington's ability to achieve its estimates of net income attributable to common shareholders and Adjusted Company FFO for the year ending December 31, 2018, (3) the successful consummation of any lease, acquisition, build-to-suit, disposition, financing or other transaction, (4) the failure to continue to qualify as a real estate investment trust, (5) changes in general business and economic conditions, including the impact of any legislation, (6) competition, (7) increases in real estate construction costs, (8) changes in interest rates, (9) changes in accessibility of debt and equity capital markets, and (10) future impairment charges. Copies of the periodic reports Lexington files with the Securities and Exchange Commission are available on Lexington's web site at www.lxp.com. Forward-looking statements, which are based on certain assumptions and describe Lexington's 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," "is optimistic," "goal," "objective" or similar expressions. 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. Accordingly, there is no assurance that Lexington's expectations will be realized.

References to Lexington refer to Lexington Realty Trust and its consolidated subsidiaries. All interests in properties and loans are held, and all property operating activities are conducted, through special purpose entities, which are separate and distinct legal entities that maintain separate books and records, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes. The assets and credit of each special purpose entity 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 special purpose entity or 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 of managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interests therein which interests are subordinate to the claims of the property owner subsidiary's (or its general partner's, member's or managing member's) creditors.

Non-GAAP Financial Measures - Definitions

Lexington has used non-GAAP financial measures as defined by the Securities and Exchange Commission Regulation G in this Quarterly Earnings Release and in other public disclosures.

Lexington believes that the measures defined below are helpful to investors in measuring our performance or that of an individual investment. Since these measures exclude certain items which are included in their respective most comparable measures under generally accepted accounting principles ("GAAP"), reliance on the measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are weighed in balance with other GAAP measures. These measures are not necessarily indications of our cash flow available to fund cash needs. Additionally, they should not be used as an alternative to the respective most comparable GAAP measures when evaluating Lexington's financial performance or cash flow from operating, investing or financing activities or liquidity.

Cash Rent: Cash Rent is calculated by making adjustments to GAAP rent to remove the impact of GAAP required adjustments to rental income such as adjustments for straight-line rents relating to free rent periods and contractual rent increases. Cash Rent excludes lease termination income. Lexington believes Cash Rent provides a meaningful indication of an investment's ability to fund cash needs.

Company Funds Available for Distribution ("FAD"): FAD is calculated by making adjustments to Adjusted Company FFO (see below) for (1) straight-line adjustments, (2) lease incentive amortization, (3) amortization of above/below market leases, (4) lease termination payments, net, (5) non-cash interest, net, (6) non-cash charges, net, (7) cash paid for tenant improvements, and (8) cash paid for lease costs. Although FAD may not be comparable to that of other real estate investment trusts ("REITs"), Lexington believes it provides a meaningful indication of its ability to fund cash needs. FAD is a non-GAAP financial measure and should not be viewed as an alternative measurement of operating performance to net income, as an alternative to net cash flows from operating activities or as a measure of liquidity.

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

The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as "net income (or loss) computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for non-consolidated partnerships and joint ventures." NAREIT clarified its computation of FFO to exclude impairment charges on depreciable real estate owned directly or indirectly. FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.

Lexington presents FFO available to common shareholders and unitholders - basic and also presents 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 Lexington's common shares, are converted at the beginning of the period. Lexington also presents 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 Lexington's real estate portfolio. Lexington believes this is an appropriate presentation as it is frequently requested by security analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of Lexington's operating performance or as an alternative to cash flow as a measure of liquidity.

GAAP and Cash Yield or Capitalization Rate: GAAP and cash yields or capitalization rates are measures of operating performance used to evaluate the individual performance of an investment. These measures are estimates and are not presented or intended to be viewed as a liquidity or performance measure that present a numerical measure of Lexington's historical or future financial performance, financial position or cash flows. The yield or capitalization rate is calculated by dividing the annualized NOI (as defined below, except GAAP rent adjustments are added back to rental income to calculate GAAP yield or capitalization rate) the investment is expected to generate (or has generated) divided by the acquisition/completion cost (or sale) price.

Net Operating Income ("NOI"): NOI is a measure of operating performance used to evaluate the individual performance of an investment. This measure is not presented or intended to be viewed as a liquidity or performance measure that presents a numerical measure of Lexington's historical or future financial performance, financial position or cash flows. Lexington defines NOI as operating revenues (rental income (less GAAP rent adjustments and lease termination income), tenant reimbursements and other property income) less property operating expenses. Other REITs may use different methodologies for calculating NOI, and accordingly, Lexington's NOI may not be comparable to other companies. Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expenses, other nonproperty income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing a perspective on operations not immediately apparent from net income. Lexington believes that net income is the most directly comparable GAAP measure to NOI.

^{(1) "Other" primarily consisted of the acceleration of below-market lease intangible accretion in 2018 and transaction related costs in 2017.}

^{(2) Includes OP units other than OP units held by Lexington.}

^{(1) Assumes all convertible securities are dilutive.}