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2: EX-31.1 Certification -- §302 - SOA'02 HTML 25K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 25K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 22K
12: R1 Cover HTML 78K
13: R2 Condensed Consolidated Balance Sheets HTML 141K
14: R3 Condensed Consolidated Balance Sheets HTML 40K
(Parenthetical)
15: R4 Condensed Consolidated Statements of Operations HTML 121K
16: R5 Condensed Consolidated Statements of Comprehensive HTML 49K
Income (Loss)
17: R6 Condensed Consolidated Statement of Changes in HTML 77K
Equity
18: R7 Condensed Consolidated Statements of Cash Flows HTML 90K
19: R8 The Company and Financial Statement Presentation HTML 55K
20: R9 Earnings Per Share HTML 79K
21: R10 Investments in Real Estate HTML 87K
22: R11 Dispositions and Impairment HTML 35K
23: R12 Fair Value Measurements HTML 69K
24: R13 Investments in Non-Consolidated Entities HTML 42K
25: R14 Debt HTML 60K
26: R15 Derivatives and Hedging Activities HTML 49K
27: R16 Lease Accounting HTML 189K
28: R17 Concentration of Risk HTML 23K
29: R18 Equity HTML 48K
30: R19 Related Party Transactions HTML 23K
31: R20 Commitments and Contingencies HTML 25K
32: R21 Supplemental Disclosure of Statement of Cash Flow HTML 24K
Information
33: R22 Subsequent Events HTML 23K
34: R23 The Company and Financial Statement Presentation HTML 61K
(Policies)
35: R24 The Company and Financial Statement Presentation HTML 36K
(Tables)
36: R25 Earnings Per Share (Tables) HTML 78K
37: R26 Investments in Real Estate (Tables) HTML 88K
38: R27 Disposition and Impairment (Tables) HTML 35K
39: R28 Fair Value Measurements (Tables) HTML 67K
40: R29 Investments in Non-Consolidated Entities (Tables) HTML 40K
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42: R31 Derivatives and Hedging Activities (Tables) HTML 51K
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44: R33 Equity (Tables) HTML 47K
45: R34 The Company and Financial Statement Presentation - HTML 31K
Additional Information (Details)
46: R35 The Company and Financial Statement Presentation - HTML 37K
Schedule of Variable Interest Entities (Details)
47: R36 Earnings Per Share (Details) HTML 57K
48: R37 Investments in Real Estate - Schedule of Real HTML 76K
Estate Acquisitions (Details)
49: R38 Investments in Real Estate - Schedule of Real HTML 40K
Estate Properties Development (Details)
50: R39 Dispositions and Impairment - Additional HTML 46K
Information (Details)
51: R40 Dispositions and Impairment - Schedule of HTML 41K
Properties Held for Sale (Details)
52: R41 Fair Value Measurements - Schedule Fair Value HTML 50K
Measurements Inputs (Details)
53: R42 Fair Value Measurements - Fair Value by Balance HTML 28K
Sheet Grouping (Details)
54: R43 Investments in Non-Consolidated Entities - HTML 67K
Schedule of Investment in Non-Consolidated
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55: R44 Debt - Schedule of Mortgages and Notes Payable HTML 30K
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56: R45 Debt - Additional Information (Details) HTML 52K
57: R46 Debt - Schedule of Debt Instrument Redemption HTML 41K
(Details)
58: R47 Debt - Schedule of Credit Agreement Terms HTML 53K
(Details)
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60: R49 Lease Accounting - Additional Information HTML 44K
(Details)
61: R50 Lease Accounting - Lease Income (Details) HTML 28K
62: R51 Lease Accounting - Future Fixed Rental Receipts HTML 37K
(Details)
63: R52 Lease Accounting - Supplemental Balance Sheet HTML 25K
Information (Details)
64: R53 Lease Accounting - Components of Lease Expense HTML 33K
(Details)
65: R54 Lease Accounting - Operating Lease Liabilities HTML 42K
Maturity (Details)
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67: R56 Equity - Changes in Other Comprehensive Income HTML 41K
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(Address of principal executive offices) (zip code)
(i212)
i692-7200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iShares
of beneficial interest, par value $0.0001 per share, classified as Common Stock
iLXP
iNew York Stock Exchange
i6.50%
Series C Cumulative Convertible Preferred Stock, par value $0.0001 per share
iLXPPRC
iNew York Stock Exchange
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). iYes☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth
company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No
☒
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: i276,780,173 common shares of beneficial interest, par value $0.0001 per share, as of August 4, 2020.
We file and furnish annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, which we refer to as the SEC. You may read and copy any materials that we file or furnish with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We file and furnish information electronically with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file or furnish electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov. We also maintain a web site at http://www.lxp.com
through which you can obtain copies of documents that we file or furnish with the SEC. The contents of that web site are not incorporated by reference in or otherwise a part of this Quarterly Report on Form 10-Q or any other document that we file or furnish with the SEC.
Deferred
revenue - including below-market leases, net
i18,749
i20,350
Prepaid
rent
i13,506
i13,518
Total
liabilities
i1,501,347
i1,455,541
Commitments
and contingencies
i
i
Equity:
Preferred
shares, par value $ii0.0001/
per share; authorized ii100,000,000/
shares:
Series C Cumulative Convertible Preferred, liquidation preference $ii96,770/;
iiii1,935,400///
shares issued and outstanding
i94,016
i94,016
Common
shares, par value $ii0.0001/ per share;
authorized ii400,000,000/ shares, ii276,267,259/
and ii254,770,719/ shares issued and outstanding
in 2020 and 2019, respectively
i28
i25
Additional
paid-in-capital
i3,185,458
i2,976,670
Accumulated
distributions in excess of net income
(i1,386,001)
(i1,363,676)
Accumulated
other comprehensive loss
(i20,730)
(i1,928)
Total
shareholders’ equity
i1,872,771
i1,705,107
Noncontrolling
interests
i19,415
i19,612
Total
equity
i1,892,186
i1,724,719
Total
liabilities and equity
$
i3,393,533
$
i3,180,260
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
(Unaudited
and dollars in thousands, except share/unit and per share/unit data)
(1)iThe Company and Financial Statement
Presentation
Lexington Realty Trust (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Company”) is a Maryland real estate investment trust (“REIT”) that owns a diversified portfolio of equity investments in single-tenant commercial properties.
As of June 30, 2020, the Company had ownership interests in approximately i140
consolidated real estate properties, located in i29 states. The properties in which the Company has an interest are primarily net leased to tenants in various industries.
The Company believes it has qualified as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the
Company will not be subject to federal income tax, provided that distributions to its shareholders equal at least the amount of its REIT taxable income as defined under the Code. The Company is permitted to participate in certain activities from which it was previously precluded in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable REIT subsidiaries (“TRS”) under the Code. As such, the TRS are subject to federal income taxes on the income from these activities.
The Company conducts its operations either directly or indirectly through (1) property owner subsidiaries,
which are single purpose entities, (2) an operating partnership, Lepercq Corporate Income Fund L.P. (“LCIF”), in which the Company is the sole unit holder of the general partner and the sole unit holder of the limited partner that holds a majority of the limited partner interests, (3) a wholly-owned TRS, Lexington Realty Advisors, Inc. (“LRA”), and (4) investments in joint ventures. References to “OP units” refer to units of limited partner interests in LCIF. Property owner subsidiaries are landlords under leases for properties in which the Company has an interest and/or borrowers under loan agreements secured by properties in which the
Company has an interest. Each property owner subsidiary is a separate legal entity that maintains separate books and records. The assets and credit of each property owner subsidiary with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other property owner subsidiary or any other affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member or managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interests therein, which interests are subordinate to the claims of such property owner subsidiary's (or its general partner's, member's or managing member's) creditors.
The financial
statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) for the three and six months ended June 30, 2020 have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated
financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 20, 2020 (“Annual Report”).
iBasis
of Presentation and Consolidation.The Company's unaudited condensed consolidated financial statements are prepared on the accrual basis of accounting in accordance with GAAP. The financial statements reflect the accounts of the Company and its consolidated subsidiaries. iThe
Company consolidates the wholly-owned subsidiaries, partnerships and joint ventures which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). Entities which the Company does not control and entities which are VIEs in which the Company is not a primary beneficiary are accounted for under appropriate GAAP.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
The Company is the primary beneficiary of certain VIEs as it has a controlling financial interest in these entities. LCIF, which is consolidated and in which the
Company has an approximate i97% interest, is a VIE. The Company has a i90%
ownership interest in a joint venture with a developer, which acquired a parcel of land in the Atlanta, Georgia market and plans to develop an industrial property. The joint venture is consolidated and is a VIE.
The assets of each VIE are only available to satisfy such VIE's respective liabilities. As of June 30, 2020 and December 31, 2019, the VIEs' mortgages and notes payable were non-recourse to the Company. iBelow
is a summary of selected financial data of consolidated VIEs for which the Company is the primary beneficiary included in the unaudited condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019:
In
addition, the Company acquires, from time to time, properties using a reverse like-kind exchange structure pursuant to Section 1031 of the Internal Revenue Code (a "reverse 1031 exchange") and, as such, the properties are in the possession of an Exchange Accommodation Titleholder ("EAT") until the reverse 1031 exchange is completed. The EAT is classified as a VIE as it is a “thinly capitalized” entity. The Company consolidates the EAT because it is the primary beneficiary as it has the ability to control the activities that most significantly impact the EAT's economic performance and can collapse the 1031 exchange structure at any time. The assets of the EAT primarily consist of leased property (net real estate and intangibles).
iUse
of Estimates. Management has made a number of significant estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the economic downturn primarily caused by the recent outbreak of COVID-19. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable and deferred rent receivable, the allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the determination of VIEs and which
entities should be consolidated, the determination of impairment of long-lived assets and equity method investments, valuation of derivative financial instruments, valuation of awards granted under compensation plans, the determination of the incremental borrowing rate for leases where the Company is the lessee and the useful lives of long-lived assets. Actual results could differ materially from those estimates.
iFair 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.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
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.
i
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 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.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
While the lease modification guidance in ASC Topic 842 ("Topic 842") addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some
lessees arising from the COVID-19 pandemic. In April 2020, the FASB staff issued a question and answer document (the "Lease Modification Q&A") focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease
analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. During the six-month period ended June 30, 2020, the Company did not grant any rent concessions to its tenants that qualify for relief from lease modification accounting under the Lease Modification Q&A.
The Company is evaluating the election to apply such relief to avoid performing a lease by lease analysis for the lease concessions that may be (1) granted as relief due to the COVID-19 pandemic and (2) result in the cash flows remaining substantially the same or less. The Lease
Modification Q&A had no impact on the Company's consolidated financial statements as of and for the six months ended June 30, 2020. However, its future impact to the Company is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering into such concessions.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(2)iEarnings
Per Share
A portion of the Company's non-vested share-based payment awards are considered participating securities and as such, the Company is required to use the two-class method for the computation of basic and diluted earnings per share. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. The non-vested share-based payment awards are not allocated losses as the awards do not have a contractual obligation to share in losses of the Company.
i
The
following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three and six months ended June 30, 2020 and 2019:
Weighted-average
number of common shares outstanding - basic
i264,785,583
i232,635,137
i258,911,872
i232,587,083
Net
income attributable to common shareholders - per common share basic
$
i0.07
$
i0.09
$
i0.13
$
i0.21
DILUTED
Net
income attributable to common shareholders - basic
$
i17,254
$
i21,721
$
i33,790
$
i48,130
Impact
of assumed conversions
i77
i165
i184
i166
Net
income attributable to common shareholders
$
i17,331
$
i21,886
$
i33,974
$
i48,296
Weighted-average
common shares outstanding - basic
i264,785,583
i232,635,137
i258,911,872
i232,587,083
Effect
of dilutive securities:
Unvested share-based payment awards and options
i1,210,241
i129,810
i1,185,016
i91,637
OP
Units
i3,092,807
i3,534,931
i3,120,464
i3,542,610
Weighted-average
common shares outstanding - diluted
i269,088,631
i236,299,878
i263,217,352
i236,221,330
Net
income attributable to common shareholders - per common share diluted
$
i0.06
$
i0.09
$
i0.13
$
i0.20
/
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.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(3)iInvestments in Real Estate
i
The
Company completed the following acquisition transactions during the six months ended June 30, 2020:
Property Type
Market
Acquisition Date
Initial
Cost Basis
Primary Lease Expiration
Land
Building and Improvements
Lease in-place Value Intangible
Industrial
Chicago, IL
January 2020
$
i53,642
11/2029
$
i3,681
$
i45,817
$
i4,144
Industrial
Phoenix,
AZ
January 2020
i19,164
12/2025
i1,614
i16,222
i1,328
Industrial
Chicago,
IL
January 2020
i39,153
12/2029
i1,788
i34,301
i3,064
Industrial
Dallas,
TX
February 2020
i83,495
8/2029
i4,500
i71,635
i7,360
Industrial
Savannah, GA
April 2020
i34,753
7/2027
i1,689
i30,346
i2,718
Industrial
Dallas, TX
May 2020
i10,731
6/2030
i1,308
i8,466
i957
Industrial
Savannah, GA
June 2020
i30,448
6/2025
i2,560
i25,697
i2,191
Industrial
Savannah, GA
June 2020
i9,130
8/2025
i1,070
i7,448
i612
Industrial
Houston, TX
June 2020
i20,949
4/2025
i2,202
i17,101
i1,646
Industrial
Ocala, FL
June 2020
i58,283
8/2030
i4,113
i49,904
i4,266
$
i359,748
$
i24,525
$
i306,937
$
i28,286
/
The
Company is engaged in two consolidated development projects. As of June 30, 2020, the Company's aggregate investment in the development arrangements was $i26,426, which included capitalized interest of $i325
for the six-month period ended June 30, 2020 and is presented as investments in real estate under construction in the accompanying unaudited condensed consolidated balance sheets.
i
As of June 30, 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 6/30/2020
Amount Funded as of 6/30/2020
Estimated Completion Date
Fairburn (i90%)
Atlanta,
GA
Industrial
i910,000
$
i53,812
$
i20,535
$
i15,806
1Q
2021
Rickenbacker (i100%)
Columbus, OH
Industrial
i320,000
i20,300
i5,891
i4,390
1Q
2021
$
i74,112
$
i26,426
$
i20,196
/
(4)iDispositions
and Impairment
During the six months ended June 30, 2020 and 2019, the Company disposed of its interests in various properties for an aggregate gross disposition price of $i74,064 and $i120,328,
respectively, and recognized aggregate gains on sales of properties of $i20,998 and $i36,201, respectively. Included in the 2020 dispositions is an
office property in Charleston, South Carolina which was conveyed to the lender in forgiveness of the mortgage loan encumbering the property. The balance of the non-recourse mortgage loan was in excess of the value of the property collateral, resulting in a debt satisfaction gain of $i1,393.
As of June 30, 2020, the Company had ione
property classified as held for sale because the property met the criteria included under the held for sale accounting guidance and a sale to a third party within the next 12 months was deemed probable. As of December 31, 2019, the Company had ino properties that met the held for sale criteria.
The
Company assesses on a regular basis whether there are any indicators that the carrying value of its real estate assets may be impaired. Potential indicators may include an increase in vacancy at a property, tenant financial instability, change in the estimated holding period of the asset, the potential sale or transfer of the property in the near future and changes in economic conditions such as the recent economic downturn primarily caused by the COVID-19 outbreak. An asset is determined to be impaired if the asset's carrying value is in excess of its estimated fair value and the Company estimates that its cost will not be recovered. During the six months ended June 30, 2020, the Company recognized ione
impairment charge of $i1,617 on a vacant office property located in Houston, Texas.
During the six months ended June 30, 2019, the Company recognized aggregate impairment charges on real estate properties of $i1,682.
Included in the impairment charges recognized during the six months ended June 30, 2019, are impairment charges of $i1,433 and $i249 on unencumbered and vacant retail
properties in Watertown, New York and Albany, Georgia, respectively. Both of these properties were sold during 2019.
(5)iFair Value Measurements
i
The
following tables present the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2020 and December 31, 2019, aggregated by the level in the fair value hierarchy within which those measurements fall:
(1) Represents
a non-recurring fair value measurement. The fair value is calculated as of the date of the impairment. The Company measured this impairment based on a discounted cash flow analysis, using a hold period of iten years and residual capitalization rates and discount rates of i8.0%
and i12.0%, respectively. As significant inputs to the model are unobservable, the Company determined that the value determined for this property falls within Level 3 of the fair value reporting hierarchy.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
The
majority of the inputs used to value the Company's interest rate swaps fell within Level 2 of the fair value hierarchy, such as observable market interest rate curves; however, the credit valuation associated with the interest rate swaps utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of June 30, 2020 and December 31, 2019, the Company determined that the credit valuation adjustment relative to the overall fair value of the interest rate swaps was not significant. As a result, the interest rate swaps were classified in
Level 2 of the fair value hierarchy.
The
fair value of the Company's debt is primarily estimated utilizing Level 3 inputs by using a discounted cash flow analysis, based upon estimates of market interest rates, except for the Company's senior notes payable. The Company determines the fair value of its senior notes payable using market prices. The inputs used in determining the fair value of these notes are categorized as Level 1 due to the fact that the Company uses quoted market rates to value these instruments. However, the inputs used in determining the fair value could be categorized as Level 2 if trading volumes are low.
Fair
values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable. The Company estimates that the fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.
(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 i151-acre parcel of developable land and to pursue industrial build-to-suit opportunities. The Company determined that it is not the primary beneficiary. In December 2018, the parcel was subdivided and the
Company received a distribution of an ownership interest in a i57-acre parcel with a historical cost of $i3,008. The
Company acquired control of the i57-acre parcel via the purchase of the Company's joint venture partners' interests.
(3) Joint venture formed in 2019 with a developer entity to acquire a i129.6-acre
parcel of land and to pursue industrial build-to-suit opportunities. The Company determined it is not the primary beneficiary.
/
(4) As of June 30, 2020, represents ione joint venture investment, which owns a single-tenant, net-leased
asset.
During the six months ended June 30, 2020, NNN JV sold ione asset and the Company recognized a gain on the transaction of $i550
within equity in earnings (losses) of non-consolidated entities within its unaudited condensed consolidated statement of operations. In conjunction with this property sale, NNN JV received net proceeds of $i3,419 after the satisfaction of $i12,960
of its non-recourse mortgage indebtedness.
In May 2019, NNN JV sold one asset. The Company recognized a gain on the transaction of $i270, which is included in equity in earnings (losses) of non-consolidated entities in its unaudited condensed consolidated statement of operations.
In February 2019, a non-consolidated real estate entity, in which the
Company owned a i15% ownership interest, sold its only asset and the Company received $i2,317
of proceeds. The Company recognized a gain on the transaction of $i803, which is included in equity in earnings (losses) on non-consolidated entities within its unaudited condensed consolidated statement of operations.
Interest
rates, including imputed rates on mortgages and notes payable, ranged from ii3.5/%
to ii6.5/%, respectively,
at June 30, 2020 and December 31, 2019, and all mortgages and notes payables mature between 2020 and 2036 as of June 30, 2020. The weighted-average interest rate was ii4.5/%
at each of June 30, 2020 and December 31, 2019.
As of June 30, 2020, the Company had itwo non-recourse mortgage loans that were in default with an outstanding aggregate principal balance of $i50,525.
Each mortgage loan is secured by a vacant office property (Overland Park, Kansas and Boca Raton, Florida).
Each
series of the senior notes is unsecured and requires payment of interest semi-annually in arrears. The Company may redeem the notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus a premium.
The Company has an unsecured credit agreement with KeyBank National Association, as agent. iA
summary of the significant terms, as of June 30, 2020, is as follows:
Maturity Date
Current Interest Rate
$i600,000
Revolving Credit Facility(1)
February 2023
LIBOR + i0.90%
$i300,000
Term Loan(2)
January 2025
LIBOR + i1.00%
(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 i0.775%
to i1.45%. At June 30, 2020, the Company had $i40,000 borrowings
outstanding and availability of $i560,000, subject to covenant compliance.
(2) The LIBOR portion of the interest rate was swapped to obtain a current fixed rate of i2.732%
per annum. The aggregate unamortized debt issuance costs for the term loan was $i2,309 and $i2,561 as of June 30, 2020 and December 31,
2019, respectively.
The Company was compliant with all applicable financial covenants contained in its corporate-level debt agreements at June 30, 2020.
During 2007, the Company issued $i200,000 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 i6.804% through April 2017 and bear interest at a variable rate of three month LIBOR plus i170 basis
points through maturity. The interest rate at June 30, 2020 was i2.460%. As of June 30, 2020 and December 31, 2019, there was $ii129,120/
original principal amount of Trust Preferred Securities outstanding and $i1,675 and $i1,724, respectively, of unamortized debt issuance costs.
Capitalized
interest recorded during the six months ended June 30, 2020 and 2019 was $i648 and $i52, respectively.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(8) iDerivatives
and Hedging Activities
Risk Management Objective of Using Derivatives. The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the type, amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company
enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.
Cash Flow Hedges of Interest Rate Risk. The Company's objectives in using
interest rate derivatives are to add stability to interest expense, to manage its exposure to interest rate movements and therefore manage its cash outflows as it relates to the underlying debt instruments. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy relating to certain of its variable rate debt instruments. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges
is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company did not incur any ineffectiveness during the six months ended June 30, 2020 and 2019.
During July 2019, the Company entered into ifour
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 $i300,000 LIBOR-indexed variable-rate unsecured term loan. Accordingly, changes in fair value of the swaps are recorded in other comprehensive income (loss) and reclassified to earnings as interest becomes receivable or payable. The swaps expire coterminous with the extended maturity of the term loan in January 2025. During the next 12 months ending June
30, 2021, the Company estimates that an additional $i4,777 will be reclassified as an increase to interest expense if the swaps remain outstanding.
i
Interest
Rate Derivative
Number of Instruments
Notional
Interest Rate Swaps
i4
$i300,000
/
i
The
table below presents the fair value of the Company's derivative financial instruments as well as their classification on the condensed consolidated balance sheets:
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
i
The
table below presents the effect of the Company's derivative financial instruments on the unaudited condensed consolidated statements of operations for the six months ended June 30, 2020 and 2019.
Derivatives
in Cash Flow
Amount of Gain (Loss) Recognized in OCI on Derivatives June 30,
Amount of (Income) Loss Reclassified from Accumulated OCI into Income June 30,
Hedging Relationships
2020
2019
2020
2019
Interest Rate Swaps
$
(i19,773)
$
i1
$
i971
$
(i77)
(1) Amounts
reclassified from accumulated other comprehensive income (loss) to interest expense within the unaudited condensed consolidated statement of operations.
/
Total interest expense presented in the unaudited condensed consolidated statements of operations in which the effects of cash flow hedges are recorded was $i28,961 and $i34,234
for the six months ended June 30, 2020 and 2019, respectively.
The Company's agreements with swap derivatives counterparties contain provisions whereby if the Company defaults on the underlying indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of the swap derivative obligation. As of June 30, 2020, the Company had not posted any collateral
related to the agreements.
(9) iiLease
Accounting/
The following is a summary of the Company's accounting for leases as of and during the six-month period ended June 30, 2020 and 2019:
i
Lessor
Lexington’s
lease portfolio as a lessor primarily includes general purpose, single-tenant net-leased industrial and office real estate assets. Most of the Company’s leases require tenants to pay fixed annual rental payments that escalate on an annual basis and variable payments for other operating expenses, such as real estate taxes, insurance, common area maintenance ("CAM"), and utilities, that are based on the actual expenses incurred.
Certain leases allow for the tenant to renew the lease term upon expiration or earlier. Periods covered by a renewal option are included within the lease term only when renewals are deemed to be reasonably certain. Certain leases allow for the tenant to terminate the lease before the expiration of lease term and certain leases provide the tenant with the right to purchase the leased property at fair market value
or a stipulated price upon expiration of the lease term or before.
Accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying the guidance, including determining whether an arrangement includes a lease and determining the lease term when the contract has renewal, purchase or early termination provisions.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
From a lessor perspective, the Company concluded that revenue from lease components are primarily recognized on a straight-line basis over the lease term unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Revenue is recognized on a contractual basis for leases with escalations tied to a Consumer Price Index (CPI) with no floor. If the
Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition commences when the improvements are substantially complete and control of the space is turned over to the tenant. If the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The lease incentive is recorded as a deferred expense and amortized as a reduction of revenue on a straight-line basis over the respective lease term. The Company recognizes lease termination fees
as rental revenue in the period received and writes off unamortized lease-related intangible and other lease-related account balances, provided there are no further Company obligations under the lease. Otherwise, such fees and balances are recognized on a straight-line basis over the remaining obligation period with the termination payments being recorded as a component of rent receivable-deferred on the unaudited condensed consolidated balance sheets.
The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee's total accounts receivable balance on a lease by lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected pre-petition and post-petition claims. If a lessee's accounts
receivable balance is considered uncollectable, the Company will write-off the receivable balances associated with the lease to rental revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee's remaining lease payments under the lease term; the Company will reinstate the straight-line balance adjusting for the amount related to the period when the lease was accounted for on a cash basis. During the six months ended June 30, 2020, the Company
wrote off a deferred rent receivable balance of $i615, 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.
Certain tenants have been experiencing financial difficulties as a result of the COVID-19 pandemic. During the six months ended June 30, 2020, the Company
wrote off a deferred rent receivable balance of $i117, as a reduction of rental revenue, related to a tenant that vacated its leased premises in an industrial property located in the Nashville, Tennessee market. Also, during the six months ended June 30, 2020, the Company reserved $i1,243
of deferred rent receivable, as a reduction of rental revenue, related to the tenant that occupies a distribution facility located in Shreveport, LA, that filed for reorganization under the U.S. Bankruptcy Code. Furthermore, the Company is recognizing rental income on a cash basis related to this tenant because the Company determined that collection of the deferred rent receivable was not probable at this time. As of June 30, 2020, the tenant continues to occupy the Shreveport distribution facility and the Company has received all post-petition rental payments due as of June 30, 2020.
During
the six months ended June 30, 2020 and 2019, rental revenue was reduced by $i40 and $i307,
respectively, for accounts receivable deemed uncollectable.
The Company determined that the lease and non-lease components in its leases are a single lease component and is, therefore, being recognized as rental revenue in its unaudited condensed consolidated statements of operations. The primary non-lease service that is included within rental revenue is CAM services provided as part of the Company’s real estate leases. Topic 842 requires that the Company capitalize, as initial direct costs, only those costs that are incurred due to the execution of a lease. As of June 30, 2020 and 2019,
the Company incurred $i29 and $i161, respectively, of costs that were not incremental to the execution of leases, which are included in property operating expenses
on its unaudited condensed consolidated statements of operations.
The Company manages the risk associated with the residual value of its leased properties by including contract clauses that make tenants responsible for surrendering the space in good condition upon lease termination, holding a diversified portfolio, and other activities. The Company does not have residual value guarantees on specific properties.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
i
The
following table presents the Company’s classification of rental revenue for its operating leases for the three and six months ended June 30, 2020 and 2019:
Future fixed rental receipts for leases, assuming no new or re-negotiated leases as of June 30, 2020 were as follows:
2020
- remainder
$
i141,738
2021
i277,438
2022
i265,539
2023
i264,398
2024
i233,935
2025
i209,025
Thereafter
i1,278,922
Total
$
i2,670,995
/i
Lessee
The
Company has ground leases, corporate leases for office space, and office equipment leases. All leases were classified as operating leases as of June 30, 2020. The leases have remaining lease terms of up to i43 years, some of which include options to extend the leases in i5
to i10-year increments for up to i53 years. Renewal periods are included in the lease term only when renewal is deemed to be reasonably certain. The lease term also includes periods covered by an option to terminate the lease if the
Company is reasonably certain not to exercise the termination option. The Company measures its lease payments by including fixed rental payments and variable rental payments that tie to an index or a rate, such as CPI. Minimum lease payments for leases that commenced before the date of adoption of ASC 842 were determined based on previous leases guidance under ASC 840. The Company recognizes lease expense for its operating leases on a straight-line basis over the lease term and variable lease expense not included in the lease payment measurement as incurred.
The accounting guidance under Topic 842 requires the Company to make certain assumptions and judgments in applying
the guidance, including determining whether an arrangement includes a lease, determining the term of a lease when the contract has renewal or termination provisions and determining the discount rate.
The Company determines whether an arrangement is or includes a lease at contract inception by evaluating whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If the Company has the right to obtain substantially all
of the economic benefits from and can direct the use of, the identified asset for a period of time, the Company accounts for the contract as a lease.
As the Company does not know the rate implicit in the respective leases, the Company used its incremental borrowing rate based on the information available at the transition date for such existing leases. The Company uses the information available at the lease commencement date to determine the discount rate for any new leases. The
Company used a portfolio approach to determine its incremental borrowing rate. Lease contracts were grouped based on similar lease terms and economic environments in a manner in which the Company reasonably expects that the outcome from applying a portfolio approach does not differ materially from an individual lease approach. The Company estimated a collateralized discount rate for each portfolio of leases.
The following table shows the Company's maturity analysis of its operating lease liabilities as of June 30, 2020:
Operating
Leases
2020 - remainder
$
i2,448
2021
i5,060
2022
i5,135
2023
i5,279
2024
i5,301
2025
i5,301
Thereafter
i21,370
Total
lease payments
$
i49,894
Less: Imputed interest
(i12,079)
Present
value of operating lease liabilities
$
i37,815
/
(10)iConcentration
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 six months ended June 30, 2020 and 2019, 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.
(Unaudited and dollars in thousands, except share/unit and per share/unit data)
(11)iEquity
Shareholders'
Equity:
The Company maintains an At-The-Market offering program ("ATM program") under which the Company can issue common shares. Under the ATM program, the Company may enter into forward sales agreements with agents. During the six months ended June 30, 2020, the Company issued i5,321,588
common shares under its ATM program and generated net proceeds of approximately $i54,000. As of June 30, 2020, common shares with an aggregate value of $i240,932
remain available for issuance under the ATM program. The Company did inot issue common shares under its ATM program during the six months ended June 30, 2019.
During 2020, the Company issued i17,250,000
common shares at a public offering price of $i9.60 per common share in an underwritten offering and generated net proceeds of approximately $i164,000.
The proceeds have and will be used for general corporate purposes, including acquisitions, and pending the application of the proceeds were used to pay down all of the then outstanding balance under the Company's revolving credit facility.
In addition, during the six months ended June 30, 2020 and 2019, the Company issued i23,480
and i41,186, respectively, of fully vested common shares to non-management members of the Company's Board of Trustees with a fair value of $i250
and $i345, respectively.
In July 2015, the Company's Board of Trustees authorized the repurchase of up to i10,000,000
common shares and increased this authorization by i10,000,000 in 2018. This share repurchase program has no expiration date. During the six months ended June 30, 2020 and 2019, the Company repurchased and retired i1,329,940
and i441,581 common shares, respectively, at an average price of $i8.28 and $i8.13,
respectively, per common share under the share repurchase program. As of June 30, 2020, i8,976,315 common shares remain available for repurchase under this authorization. The Company records a liability for repurchases that have not yet been settled as of period end. There were no unsettled repurchases as of June 30,
2020.
i
A summary of the changes in accumulated other comprehensive income (loss) related to the Company's cash flow hedges is as follows:
Other
comprehensive income (loss) before reclassifications
(i19,773)
i1
Amounts
of (income) loss reclassified from accumulated other comprehensive income to interest expense
i971
(i77)
Balance
at end of period
$
(i20,730)
$
i—
/
Noncontrolling
Interests. In conjunction with several of the Company's acquisitions in prior years, sellers were issued OP units as a form of consideration. All OP units, other than OP units owned by the Company, are redeemable for common shares at certain times, at the option of the holders, and are generally not otherwise mandatorily redeemable by the Company. The OP units are classified as a component of permanent equity as the Company has determined that the OP units are not redeemable securities as defined by GAAP. Each OP unit is currently redeemable at the holder's option for approximately i1.13
common shares, subject to future adjustments.
As of June 30, 2020, there were approximately i2,740,000 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.
Net income attributable to Lexington Realty Trust shareholders
$
i37,020
$
i51,360
Transfers
from noncontrolling interests:
Increase in additional paid-in-capital for redemption of noncontrolling OP units
i482
i161
Change
from net income attributable to shareholders and transfers from noncontrolling interests
$
i37,502
$
i51,521
/
(12)iRelated
Party Transactions
There were no related party transactions other than those disclosed elsewhere in this Quarterly Report and the audited consolidated financial statements in the Annual Report.
(13)iCommitments and Contingencies
In
addition to the commitments and contingencies disclosed elsewhere and previously disclosed, the Company has the following commitments and contingencies.
The Company is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. The Company, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.
The
Company and LCIF are parties to a funding agreement under which the Company may be required to fund distributions made on account of LCIF's OP units. Pursuant to the funding agreement, the parties agreed that, if LCIF does not have sufficient cash available to make a quarterly distribution to its limited partners in an amount in accordance with the partnership agreement, Lexington will fund the shortfall. Payments under the agreement will be made in the form of loans to LCIF and will bear interest at prevailing rates as determined by the Company in its discretion, but no less than the applicable federal rate. LCIF's right to receive these loans will expire if no OP units remain outstanding and all such loans are repaid. No amounts have been advanced under this agreement.
From
time to time, the Company is, directly and indirectly, involved in legal proceedings arising in the ordinary course of business. Management believes, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on the Company's business, financial condition and results of operations.
(14)iSupplemental
Disclosure of Statement of Cash Flow Information
In addition to disclosures discussed elsewhere, during the six months ended June 30, 2020 and 2019, the Company paid $i25,195 and $i30,676,
respectively, for interest and $i920 and $i1,330, respectively, for income taxes.
As a result of the foreclosure of an office property in South Carolina, there was a non-cash charge
of $i6,830 and $i5,429 in mortgages and notes payable and real estate, net, respectively.
During
the six months ended June 30, 2020, the Company exercised multiple extension options in a ground lease related to a parcel of land located in Owensboro, Kentucky. The extension of the ground lease term resulted in a non-cash increase of $ii373/
to the related operating lease liability and right of use asset.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
When we use the terms “the Company,”“we,”“us” and “our,” we mean Lexington Realty Trust and all entities owned by us, including non-consolidated entities, except where it is clear that the term means only Lexington Realty Trust. References herein to ‘‘this Quarterly Report” are to this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2020. The results of operations contained herein for the three and
six months ended June 30, 2020 and 2019 are not necessarily indicative of the results that may be expected for a full year.
The following is a discussion and analysis of the unaudited condensed consolidated financial condition and results of operations of Lexington Realty Trust for the three and six months ended June 30, 2020 and 2019, and significant factors that could affect its prospective financial condition and results of operations. This discussion should be read together with the accompanying unaudited condensed consolidated financial statements of the Company included herein and notes thereto and with
the consolidated financial statements and notes thereto included in the Company's most recent Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on February 20, 2020, which we refer to as the Annual Report. Historical results may not be indicative of future performance.
Forward-Looking Statements. This Quarterly Report, together with other statements and information publicly disseminated by us, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. We intend such forward-looking statements to
be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “believes,”“expects,”“intends,”“anticipates,”“estimates,”“projects,”“may,”“plans,”“predicts,”“will,”“will likely result” or similar expressions. Readers should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. In particular, the factors that could cause actual results, performances or achievements to differ
materially from current expectations, strategies or plans include, among others, any risks discussed below in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and under the headings “Risk Factors” in this Quarterly Report and “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report and other periodic reports filed by the Company with the SEC. Except as required by law, we undertake no obligation to publicly release any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
Overview
General.
We are a Maryland real estate investment trust, or REIT, that owns a diversified portfolio of equity investments in single-tenant commercial properties.
As of June 30, 2020, we had ownership interests in approximately 140 consolidated real estate properties, located in 29 states and containing an aggregate of approximately 56.6 million square feet of space, approximately 97.3% of which was leased. The properties in which we have an interest are primarily net leased to tenants in various industries.
Our revenues and cash flows are generated predominantly from property rent receipts. As a result, growth in revenues and cash flows is directly correlated to our ability to (1) acquire income producing real estate investments and (2) re-lease properties that are vacant, or may become vacant, at favorable rental rates.
Our
current business strategy is focused on enhancing our cash flow stability, growing our portfolio with attractive leased industrial investments, reducing lease rollover risk and maintaining a strong and flexible balance sheet to allow us to act on opportunities as they arise. To that end, during 2020, we continue to strive to be an active seller of non-core assets such as office properties, retail properties and vacant properties. In addition, we continue our efforts to increase the percentage of industrial assets in our portfolio, including through limited speculative development. Our non-core asset sales efforts and acquisitions of ten industrial assets during the six months ended June 30, 2020, have resulted in our percentage of gross book value from industrial assets, excluding held for sale assets, to increase to 84.5% as of June 30, 2020.
COVID-19 Impact. 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. As federal, state and local governments begin to ease restrictions, our management continues to monitor events and is taking steps to mitigate the potential impact and risks to us.
We have received, and expect to continue to receive, limited rent relief requests from our tenants. However, we do not believe that these rent relief requests will have a material impact to our rental revenues. During the six months ended June 30, 2020, we granted rent
relief of $0.1 million in exchange for a two-year lease extension to one tenant. In addition, during the six months ended June 30, 2020, we wrote off or reserved an aggregate of $1.4 million of deferred rent receivables as we determined that the future collection of the full contractual lease payments is no longer probable. A limited number of 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 industrial properties and the diversity of our tenant base, both geographically and by industry exposure.
We believe acquisition and disposition activity levels are beginning
to increase from the reduced levels we experienced in April 2020. However, we believe that there continues to be limited financing opportunities for potential purchasers of our properties.
We remain unable to estimate the long-term impacts COVID-19 will have on our financial condition.
Second Quarter 2020 Transaction Summary.
The following summarizes our significant transactions during the three months ended June 30, 2020.
Leasing Activity:
During the second quarter of 2020, we entered into new leases and lease extensions encompassing 3.0 million square feet. The average fixed rent
on these extended leases was $3.33 per square foot compared to the average fixed rent on these leases before extension of $2.81 per square foot. The weighted-average cost of tenant improvements and lease commissions was $3.15 per square foot for new leases and $0.05 per square foot for extended leases.
Investments/Capital Recycling:
•Acquired six industrial properties for an aggregate cost of $164.3 million.
•Disposed of our interests in three consolidated properties for an aggregate gross disposition price of $44.4 million.
Debt:
•Repaid $90.0 million outstanding on our revolving credit facility, net.
Equity:
•Issued
17.3 million common shares in an underwritten offering and generated net proceeds of approximately $164.0 million.
•Issued 3.8 million common shares under our At-the-Market offering program and generated net proceeds of approximately $37.0 million.
During the six months ended June 30, 2020, we completed the following industrial transactions, inclusive of the acquisitions above:
Market
Square
Feet
Capitalized Cost (millions)
Date Acquired
Approximate Lease Term (years)
Chicago, IL
705,661
$
53.6
January 2020
9.9
Phoenix, AZ
160,140
19.2
January 2020
6.0
Chicago,
IL
473,280
39.2
January 2020
10.0
Dallas, TX
1,214,526
83.5
February 2020
9.5
Savannah, GA
499,500
34.8
April 2020
7.3
Dallas,
TX
120,960
10.7
May 2020
10.1
Savannah, GA
355,527
30.4
June 2020
5.0
Savannah, GA
88,503
9.1
June 2020
5.2
Houston,
TX
248,240
20.9
June 2020
4.9
Ocala, FL
617,055
58.3
June 2020
10.1
4,483,392
$
359.7
During
the six months ended June 30, 2020, we disposed of five properties and a land parcel, inclusive of the dispositions above, for an aggregate gross disposition price of $74.1 million.
Critical Accounting Policies
Management's discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing our unaudited condensed consolidated financial statements in accordance with GAAP and pursuant to the
rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances, including the recent economic downturn primarily caused by COVID-19. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. Certain of our accounting policies are discussed under (1) Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report, (2) note 2 to our consolidated financial statements contained in our Annual Report and (3) note 1 to our unaudited condensed consolidated financial statements contained in
this Quarterly Report. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.
Liquidity and Capital Resources
Cash Flows. We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with applicable REIT requirements in both the short-term and long-term. However, we anticipate that 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.
At June 30, 2020, we had $50.5 million and $10.4 million of property-specific mortgage balloon debt due in 2020 and 2021, respectively. All of the 2020 balloon debt relates to mortgages that are in default. We believe we have sufficient sources of liquidity to meet obligations we are required to meet through cash on hand ($67.0 million at June 30, 2020), property sale proceeds, borrowing capacity under our unsecured revolving
credit facility ($560 million at June 30, 2020), which expires in 2023, but can be extended by us to 2024, and future cash flows from operations.
The mortgages encumbering the properties in which we have an interest are generally non-recourse to us, such that in situations where we believe it is beneficial to satisfy a mortgage obligation by transferring title of the property to the lender, including through a foreclosure, we may do so.
Cash flows from operations were $93.5 million for the six months ended June 30,
2020 as compared to $88.6 million for the six months ended June 30, 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. 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 $316.2 million and $147.2 million during the six months ended June 30, 2020 and 2019, respectively. 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 $177.1 million and $(57.7) million during the six months ended June 30, 2020 and 2019, respectively.
Cash provided by financing activities related primarily to revolving credit facility borrowings and issuances of common shares. Cash used in financing activities was primarily attributable to dividend and distribution payments, repayment of debt obligations and repurchases of common shares.
Common Share Issuances:
We maintain an At-The-Market offering program ("ATM program") under which we can issue common shares. Under the ATM program, we may enter into forward sales agreements with agents. As of June 30, 2020, we have not entered into any forward sale agreements. During the six months ended June 30, 2020, we issued approximately 5.3 million common shares under the ATM program and generated net proceeds of approximately $54.0 million.As
of June 30, 2020, common shares having an aggregate value of $240.9 million remain available for issuance under the ATM program.
During 2020, we issued 17.3 million 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. The proceeds have and will be used for general corporate purposes, including acquisitions, and, pending the application of the proceeds, were used to pay down all of the then outstanding balance under our revolving credit facility.
The volatility caused by the current economic downturn resulting from the effects of the COVID-19 pandemic may negatively affected our ability to access the capital markets through our ATM program and other offerings.
Dividends. Dividends paid to our common and preferred shareholders were $57.6 million and $70.7 million in the six months ended June 30, 2020 and 2019, respectively.
We declared a quarterly dividend of $0.105 per common share during the three months ended June 30, 2020, which is an increase from the $0.1025 per common share quarterly dividend declared during the three months ended June 30, 2019.
UPREIT Structure. As of June 30, 2020, 2,740,000 units of limited partner interests, or OP units, in our operating
partnership, LCIF, were outstanding not including OP units held by us. Assuming all outstanding OP units not held by us were redeemed on such date, the estimated fair value of such OP units was $32.5 million based on our closing price of $10.55 per common share as of June 30, 2020 and a redemption factor of approximately 1.13 common shares per OP unit.
Financings. The following senior notes were outstanding as of June 30, 2020:
Issue
Date
Face Amount ($000)
Interest Rate
Maturity Date
Issue Price
May 2014
$
250,000
4.40
%
June 2024
99.883
%
June
2013
250,000
4.25
%
June 2023
99.026
%
$
500,000
The senior notes are unsecured
and pay interest semi-annually in arrears. We may redeem the senior notes at our option at any time prior to maturity in whole or in part by paying the principal amount of the senior notes being redeemed plus a premium.
We have an unsecured credit agreement with KeyBank National Association, as agent. A summary of the significant terms, as of June 30, 2020, is as follows:
Maturity Date
Current Interest Rate
$600.0
Million Revolving Credit Facility(1)
February 2023
LIBOR + 0.90%
$300.0 Million Term Loan(2)
January 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 June 30, 2020, we had $40.0 million borrowings outstanding and availability of $560.0 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.
As of June 30, 2020, we were compliant with all applicable financial covenants contained in our corporate-level debt agreements.
The decrease in net income attributable to common shareholders of $4.5 million was primarily
due to the items discussed below.
The increase in total gross revenues of $1.7 million was primarily a result of an increase in rental revenue. Rental revenue increased $2.3 million primarily as a result of an increase in rental revenue from asset acquisitions that occurred subsequent to the second quarter of 2019, partially offset by a decrease in rental revenue due to property sales. The increase in total gross revenues was partially offset by a decrease in other revenue of $0.7 million primarily due to a decrease in fee income and parking revenue.
The increase in depreciation and amortization expense of $3.0 million was primarily due to acquisition activity.
The increase in property operating expense of $0.5 million was primarily due to an increase in our operating expense responsibilities at certain properties.
The
decrease in non-operating income of $0.8 million was primarily due to funds received to settle a tenant's deferred maintenance obligation in 2019 with no comparable income in 2020.
The decrease in interest and amortization expense $2.9 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 impairment charges of $0.5 million related to the timing of impairment charges recognized on certain properties. The impairments were primarily due to potential sales, vacancies and lack of leasing prospects.
The decrease in gains on sales of properties of $4.1 million related to the timing of property dispositions.
The decrease in net income attributable to common shareholders of $14.3 million was primarily due to the items discussed below.
The increase in total gross revenues of $1.2 million was primarily a result of an increase in rental revenue. Rental revenue increased $1.1 million primarily as a result of an increase in rental revenue from asset acquisitions that occurred subsequent to the second quarter of 2019, partially offset by a decrease in rental revenue due to property sales.
The
increase in depreciation and amortization expense of $5.9 million was primarily due to acquisition activity.
The decrease in general and administrative expenses of $0.5 million was primarily due to a decrease in professional fees and travel expenses, as a result of COVID-19.
The decrease in non-operating income of $1.1 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 $5.3 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 (charges), net, of $1.5 million was primarily related to the
foreclosure of our Charleston, South Carolina property in 2020, with no comparable transactions in 2019.
The decrease in gains on sales of properties of $15.2 million related to the timing of property dispositions.
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 downturn primarily caused by the COVID-19 pandemic, increased interest rates and tenant monetary defaults and the other risks described in this Quarterly Report. Furthermore, our ability to complete acquisitions may be limited due to travel restrictions and social distancing measures during the COVID-19 pandemic.
Same-Store Results
Same-store net operating income, or NOI, which is a non-GAAP measure, represents the NOI for consolidated properties that were owned and included in our portfolio for two comparable reporting periods, excluding properties encumbered by mortgage loans in default, as applicable. We define NOI as operating revenues (rental income (less GAAP rent adjustments and lease termination income), and other property income) less property operating expenses. As same-store NOI excludes the change in NOI from acquired and disposed of properties, it highlights
operating trends such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating same-store NOI, and accordingly same-store NOI may not be comparable to other REITs. Management believes that same-store NOI is a useful supplemental measure of our operating performance. However, same-store NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. We
believe that net income is the most directly comparable GAAP measure to same-store NOI.
The following presents our consolidated same-store NOI, for the six months ended June 30, 2020 and 2019 ($000's):
Our reported same-store NOI decreased from the first six months of 2019 to the first six months of 2020 by 0.6%.
The decrease in same-store NOI between periods primarily related to an increase in non-reimbursed operating expenses, which was primarily attributable to property vacancies and an increase in operating expense responsibilities at certain properties. Our same-store results could be further impacted in the future due to COVID-19 related rent deferrals, rent forgiveness or tenant
defaults (in the short-term and/or long-term).
We believe that Funds from Operations, or FFO, which is a non-GAAP measure, is a widely recognized and appropriate measure of the performance of an equity REIT. We believe FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing perspective
that may not necessarily be apparent from net income.
The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as “net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sales of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO.” FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs.
We present FFO available
to common shareholders and unitholders - basic and also present FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into our common shares, are converted at the beginning of the period. We also present Adjusted Company FFO available to all equityholders and unitholders - diluted which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe are not indicative of the operating results of our real estate portfolio. We believe this is an appropriate presentation as it is frequently requested by security analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of our operating performance or as
an alternative to cash flow as a measure of liquidity.
The following presents a reconciliation of net income attributable to common shareholders to FFO available to common shareholders and unitholders and Adjusted Company FFO available to all equityholders and unitholders for the three and six months ended June 30, 2020 and 2019 (unaudited and dollars in thousands, except share and per share amounts):
As of June 30, 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 and breaches of material representations. We have guaranteed such obligations for certain
of our non-consolidated entities.
Our exposure to market risk relates primarily to our variable-rate indebtedness not subject to interest rate swaps and our fixed-rate debt. Our consolidated aggregate principal variable-rate indebtedness not subject to interest rate swaps was $169.1 million and $484.1 million at
June 30, 2020 and 2019, respectively, which represented 12.6% and 31.6%, respectively, of our aggregate principal consolidated indebtedness. During the three-month periods ended June 30, 2020 and 2019, our variable-rate indebtedness had a weighted-average interest rate of 2.4% and 3.7%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for the three months ended June 30, 2020 and 2019 would have increased by $0.5 million and $1.1 million, respectively. During the six-month periods ended June 30, 2020 and 2019, our variable-rate
interest rate was 2.7% and 3.8%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for the six months ended June 30, 2020 and 2019 would have increased by $1.0 million and $2.1 million, respectively. As of June 30, 2020 and 2019, our aggregate principal consolidated fixed-rate debt was $1.2 billion and $1.0 billion, respectively, which represented 87.4% and 68.4%, 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, especially given the volatility of the current economic environment. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate indebtedness would warrant as of June 30, 2020. We believe the fair value is indicative of the interest rate environment as of June 30, 2020, but this amount does not take into consideration the effects of subsequent interest rate fluctuations. Accordingly, we estimate that the fair value of our fixed-rate indebtedness was $1.1 billion as
of June 30, 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 may enter into derivative financial instruments such as interest rate swaps or caps to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable-rate debt. As of June 30, 2020, we had four interest rate swap agreements (see note 8 to our unaudited condensed consolidated financial statements contained in this Quarterly
Report).
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report to determine if such controls and procedures were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and
forms and that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, including each of our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of June 30, 2020.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Quarterly Report relates that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards
to reduce, though not eliminate, this risk.
From time to time, we are directly and indirectly involved in legal proceedings arising in the ordinary course of our business, including claims by lenders under non-recourse carve-out
guarantees. We believe, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on our business, financial condition and results of operations.
ITEM 1A.Risk Factors.
There have been no material changes in our risk factors from those disclosed in the Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
ITEM
2.Unregistered Sales of Equity Securities and Use of Proceeds.
The following table summarizes repurchases of our common shares/OP units during the three months ended June 30, 2020 pursuant to publicly announced repurchase plans(1):
Issuer
Purchases of Equity Securities
Period
(a) Total Number of Shares/Units Purchased
(b) Average Price Paid Per Share/ Unit
(c)
Total Number of Shares/Units Purchased as Part of Publicly Announced Plans or Programs(1)
(d)
Maximum
Number of Shares/Units That May Yet Be Purchased Under the Plans or Programs(1)
April 1 - 30, 2020
—
$
—
—
8,976,315
May 1 - 31, 2020
—
—
—
8,976,315
June
1 - 30, 2020
—
—
—
8,976,315
Second quarter 2020
—
$
—
—
8,976,315
(1)Share
repurchase authorization most recently announced November 2, 2018, which has no expiration date.
ITEM 3.Defaults Upon Senior Securities - not applicable.
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)
(3) Furnished herewith. This exhibit shall not be deemed "filed" for purposes of Section 11 or 12 of the Securities Act of 1933, as amended (the "Securities Act"), or Section 18 of the Securities Exchanges Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of those sections, and shall not be part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing or document.
(4) Management contract
or compensatory plan or arrangement.
(5) The following materials from this Quarterly Report on Form 10-Q for the period ended June 30, 2020 are formatted in Inline XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets of the Company; (ii) Unaudited Condensed Consolidated Statements of Operations of the Company; (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) of the Company; (iv) Unaudited Condensed Consolidated Statements of Changes in Equity of the Company; (v) Unaudited
Condensed Consolidated Statements of Cash Flows of the Company; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements of the Company, detailed tagged.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.