Lexington Realty Trust Reports First Quarter 2018 Results

Lexington Realty Trust (“Lexington”) (NYSE:LXP), a real estate investment trust focused on single-tenant real estate investments, today announced results for the first quarter ended March 31, 2018.

First Quarter 2018 Highlights

Generated Net Loss attributable to common shareholders of $(16.0) million, or $(0.07) per diluted common share.
Generated Adjusted Company Funds From Operations available to all equityholders and unitholders - diluted (“Adjusted Company FFO”) of $62.0 million, or $0.25 per diluted common share.
Disposed of six properties for an aggregate of $62.7 million.
Repurchased and retired 795,775 common shares at an average price of $7.94 per share.
Repaid $60.0 million, net, on the revolving credit facility.
Completed 209,000 square feet of new leases and lease extensions with portfolio 97.2% leased at quarter end.

Subsequent Events

Acquired two industrial properties for an aggregate cost of $92.5 million.

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

T. Wilson Eglin, Chief Executive Officer and President of Lexington Realty Trust, commented, “In our continued effort to further reduce our suburban office exposure, we disposed of an aggregate of $62.7 million of primarily office assets during the first quarter. Furthermore, we continue to explore ways to maximize value in our office portfolio and focus our investment strategy on single-tenant industrial assets.”

FINANCIAL RESULTS

Revenues

For the quarter ended March 31, 2018, total gross revenues were $102.6 million, compared with total gross revenues of $96.1 million for the quarter ended March 31, 2017. The increase was primarily attributable to revenue generated from 2017 property acquisitions and new leases, partially offset by property sales and lease expirations.

Net Income (Loss) Attributable to Common Shareholders

For the quarter ended March 31, 2018, net loss attributable to common shareholders was $(16.0) million, or $(0.07) per diluted share, compared with net income attributable to common shareholders for the quarter ended March 31, 2017 of $40.4 million, or $0.17 per diluted share. The change between periods relates primarily to the timing of gains on sales and impairments recognized on real estate.

Adjusted Company FFO

For the quarter ended March 31, 2018, Lexington generated Adjusted Company FFO of $62.0 million, or $0.25 per diluted share, compared to Adjusted Company FFO for the quarter ended March 31, 2017 of $57.8 million, or $0.23 per diluted share. The increase was primarily attributable to the items discussed above under “Revenues”.

Dividends/Distributions

As previously announced, during the first quarter of 2018, Lexington declared a regular quarterly common share/unit dividend/distribution for the quarter ended March 31, 2018 of $0.1775 per common share/unit, which was paid on April 16, 2018 to common shareholders/unitholders of record as of March 29, 2018. Lexington also declared dividends of $0.8125 per share on its Series C Cumulative Convertible Preferred Stock (“Series C Preferred”) for each of the quarters ended March 31, 2018 and June 30, 2018, which are expected to be paid on May 15, 2018 and August 15, 2018, respectively, to Series C Preferred Shareholders of record as of April 30, 2018 and July 31, 2018, respectively.

TRANSACTION ACTIVITY

PROPERTY DISPOSITIONS
Primary Tenant	Location	Property Type	GrossDispositionPrice($000)		AnnualizedNet Income(1)($000)		AnnualizedNOI(1)($000)		Month ofDisposition	%Leased
Kelsey-Hayes Company(2)	Livonia, MI	Office	$	21,000	$	1,144	$	1,637	February	100	%
Vacant	Canton, OH	Other	2,975		463		465		February	0	%
Evans, Mechwart, Hambleton & Tillon, Inc.	Columbus, OH	Office	20,000		1,185		1,678		March	100	%
Wipro Data Center and Cloud Services, Inc.	Omaha, NE	Office	16,400		765		1,167		March	100	%
Autocam Corporation	Marshall, MI	Industrial	2,300		145		310		March	100	%
			$	62,675	$	3,702	$	5,257

(1) Quarterly period prior to sale annualized. Net income excludes impairment charges, if any.

(2) Two properties.

These dispositions resulted in aggregate gains on sales of $22.8 million.

LEASING

During the first quarter of 2018, Lexington executed the following new and extended leases:

LEASE EXTENSIONS

Location

Primary Tenant(1)

PriorTerm

LeaseExpiration Date

Sq. Ft.

Industrial

Rockford

Pierce Packaging Co.

12/2019

12/2021

93,000

Total industrial lease extensions

93,000

Office/Multi-Tenant

1-6

Philadelphia/Honolulu

PA/HI

N/A

2018

2018-2023

10,633

Total office lease extensions

10,633

Other

Lawton

Associated Wholesale Grocers, Inc./Safeway, Inc.

03/2019

03/2024

30,757

Total other lease extensions

30,757

Total lease extensions

134,390

NEW LEASES

Location

LeaseExpiration Date

Sq. Ft.

Office/Multi-Tenant

McDonough

Total System Services, Inc.

08/2021

62,218

Honolulu

N/A

01/2019

304

Charleston

South Carolina Department of Mental Health

07/2023

11,736

Total new office leases

74,258

Total new leases

74,258

TOTAL NEW AND EXTENDED LEASES

208,648

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

As of March 31, 2018, Lexington's portfolio was 97.2% leased.

BALANCE SHEET/CAPITAL MARKETS

In the first quarter of 2018, Lexington repurchased and retired 795,775 common shares at an average price of $7.94 per share under its repurchase authorization announced on July 2, 2015 in the amount of 10.0 million common shares. As of March 31, 2018, there were approximately 5.8 million common shares remaining to be repurchased under the authorization.

2018 EARNINGS GUIDANCE

Lexington now estimates that its net income attributable to common shareholders per diluted common share for the year ended December 31, 2018 will be within an expected range of $0.54 to $0.57. Lexington is reaffirming that its Adjusted Company FFO for the year ended December 31, 2018 is expected to be within a range of $0.95 to $0.98 per diluted common share. This guidance is forward looking, excludes the impact of certain items and is based on current expectations.

FIRST QUARTER 2018 CONFERENCE CALL

Lexington will host a conference call today, May 8, 2018, at 8:30 a.m. Eastern Time, to discuss its results for the quarter ended March 31, 2018. Interested parties may participate in this conference call by dialing 1-844-825-9783 (U.S.), 1-412-317-5163 (International) or 1-855-669-9657 (Canada). A replay of the call will be available through August 8, 2018, at 1-877-344-7529 (U.S.), 1-412-317-0088 (International) or 1-855-669-9658 (Canada), pin code for all replay numbers is 10119663. A link to a live webcast of the conference call is available at www.lxp.com within the Investors section.

ABOUT LEXINGTON REALTY TRUST

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

Contact:Investor or Media Inquiries for Lexington Realty Trust:Heather Gentry, Senior Vice President of Investor RelationsLexington Realty TrustPhone: (212) 692-7200 E-mail: hgentry@lxp.com

This release contains certain forward-looking statements which involve known and unknown risks, uncertainties or other factors not under Lexington's control which may cause actual results, performance or achievements of Lexington to be materially different from the results, performance, or other expectations implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the headings “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in Lexington's periodic reports filed with the Securities and Exchange Commission, including risks related to: (1) the authorization by Lexington's Board of Trustees of future dividend declarations, (2) Lexington's ability to achieve its estimates of net income attributable to common shareholders and Adjusted Company FFO for the year ending December 31, 2018, (3) the successful consummation of any lease, acquisition, build-to-suit, disposition, financing or other transaction, (4) the failure to continue to qualify as a real estate investment trust, (5) changes in general business and economic conditions, including the impact of any legislation, (6) competition, (7) increases in real estate construction costs, (8) changes in interest rates, (9) changes in accessibility of debt and equity capital markets, and (10) future impairment charges. Copies of the periodic reports Lexington files with the Securities and Exchange Commission are available on Lexington's web site at www.lxp.com. Forward-looking statements, which are based on certain assumptions and describe Lexington's future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects”, “may,” “plans,” “predicts,” “will,” “will likely result,” “is optimistic,” “goal,” “objective” or similar expressions. Except as required by law, Lexington undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the occurrence of unanticipated events. Accordingly, there is no assurance that Lexington's expectations will be realized.

References to Lexington refer to Lexington Realty Trust and its consolidated subsidiaries. All interests in properties and loans are held, and all property operating activities are conducted, through special purpose entities, which are separate and distinct legal entities that maintain separate books and records, but in some instances are consolidated for financial statement purposes and/or disregarded for income tax purposes. The assets and credit of each special purpose entity with a property subject to a mortgage loan are not available to creditors to satisfy the debt and other obligations of any other person, including any other special purpose entity or affiliate. Consolidated entities that are not property owner subsidiaries do not directly own any of the assets of a property owner subsidiary (or the general partner, member of managing member of such property owner subsidiary), but merely hold partnership, membership or beneficial interests therein which interests are subordinate to the claims of the property owner subsidiary's (or its general partner's, member's or managing member's) creditors.

Non-GAAP Financial Measures - Definitions

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

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

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

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

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

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

Lexington presents FFO available to common shareholders and unitholders - basic and also presents FFO available to all equityholders and unitholders - diluted on a company-wide basis as if all securities that are convertible, at the holder's option, into Lexington’s common shares, are converted at the beginning of the period. Lexington also presents Adjusted Company FFO available to all equityholders and unitholders - diluted which adjusts FFO available to all equityholders and unitholders - diluted for certain items which we believe are not indicative of the operating results of Lexington's real estate portfolio. Lexington believes this is an appropriate presentation as it is frequently requested by security analysts, investors and other interested parties. Since others do not calculate these measures in a similar fashion, these measures may not be comparable to similarly titled measures as reported by others. These measures should not be considered as an alternative to net income as an indicator of Lexington’s operating performance or as an alternative to cash flow as a measure of liquidity.

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

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

LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except share and per share data)

	Three months ended March 31,
	2018			2017
Gross revenues:
Rental	$	94,522		$	88,654
Tenant reimbursements	8,115			7,445
Total gross revenues	102,637			96,099
Expense applicable to revenues:
Depreciation and amortization	(46,537		)	(42,891		)
Property operating	(11,477		)	(12,116		)
General and administrative	(8,996		)	(9,457		)
Non-operating income	546			2,621
Interest and amortization expense	(20,331		)	(19,725		)
Impairment charges and loan loss	(53,049		)	(7,992		)
Gains on sales of properties	22,774			34,193
Income (loss) before provision for income taxes and equity in earnings of non-consolidated entities	(14,433		)	40,732
Provision for income taxes	(503		)	(422		)
Equity in earnings of non-consolidated entities	113			1,910
Net income (loss)	(14,823		)	42,220
Less net (income) loss attributable to noncontrolling interests	508			(180		)
Net income (loss) attributable to Lexington Realty Trust shareholders	(14,315		)	42,040
Dividends attributable to preferred shares – Series C	(1,572		)	(1,572		)
Allocation to participating securities	(70		)	(71		)
Net income (loss) attributable to common shareholders	$	(15,957	)	$	40,397

Net income (loss) attributable to common shareholders - per common share basic	$	(0.07	)	$	0.17
Weighted-average common shares outstanding – basic	238,072,081			237,179,526

Net income (loss) attributable to common shareholders - per common share diluted	$	(0.07	)	$	0.17
Weighted-average common shares outstanding – diluted	238,072,081			241,088,049


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)

	March 31, 2018			December 31, 2017
Assets:
Real estate, at cost	$	3,792,977		$	3,936,459
Real estate - intangible assets	564,947			599,091
	4,357,924			4,535,550
Less: accumulated depreciation and amortization	1,179,078			1,225,650
Real estate, net	3,178,846			3,309,900
Assets held for sale	—			2,827
Cash and cash equivalents	90,214			107,762
Restricted cash	7,479			4,394
Investment in and advances to non-consolidated entities	17,485			17,476
Deferred expenses, net	30,098			31,693
Rent receivable – current	5,878			5,450
Rent receivable – deferred	56,038			52,769
Other assets	25,958			20,749
Total assets	$	3,411,996		$	3,553,020

Liabilities and Equity:
Liabilities:
Mortgages and notes payable, net	$	682,994		$	689,810
Revolving credit facility borrowings	100,000			160,000
Term loans payable, net	596,957			596,663
Senior notes payable, net	495,407			495,198
Trust preferred securities, net	127,221			127,196
Dividends payable	48,438			49,504
Accounts payable and other liabilities	27,284			38,644
Accrued interest payable	11,051			5,378
Deferred revenue - including below market leases, net	32,130			33,182
Prepaid rent	16,130			16,610
Total liabilities	2,137,612			2,212,185

Commitments and contingencies
Equity:
Preferred shares, par value $0.0001 per share; authorized 100,000,000 shares:
Series C Cumulative Convertible Preferred, liquidation preference $96,770; 1,935,400 shares issued and outstanding	94,016			94,016
Common shares, par value $0.0001 per share; authorized 400,000,000 shares, 239,972,103 and 240,689,081 shares issued and outstanding in 2018 and 2017, respectively	24			24
Additional paid-in-capital	2,811,213			2,818,520
Accumulated distributions in excess of net income	(1,647,804		)	(1,589,724		)
Accumulated other comprehensive income	1,311			1,065
Total shareholders’ equity	1,258,760			1,323,901
Noncontrolling interests	15,624			16,934
Total equity	1,274,384			1,340,835
Total liabilities and equity	$	3,411,996		$	3,553,020


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
EARNINGS PER SHARE
(Unaudited and in thousands, except share and per share data)

	Three Months Ended
	March 31,
	2018			2017
EARNINGS PER SHARE:

Basic:
Net income (loss) attributable to common shareholders	$	(15,957	)	$	40,397

Weighted-average number of common shares outstanding - basic	238,072,081			237,179,526

Net income (loss) attributable to common shareholders - per common share basic	$	(0.07	)	$	0.17

Diluted:
Net income (loss) attributable to common shareholders - basic	$	(15,957	)	$	40,397
Impact of assumed conversions	—			(19		)
Net income (loss) attributable to common shareholders	$	(15,957	)	$	40,378

Weighted-average common shares outstanding - basic	238,072,081			237,179,526
Effect of dilutive securities:
Share options	—			136,881
Operating Partnership Units	—			3,771,642
Weighted-average common shares outstanding - diluted	238,072,081			241,088,049

Net income (loss) attributable to common shareholders - per common share diluted	$	(0.07	)	$	0.17


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
ADJUSTED COMPANY FUNDS FROM OPERATIONS & COMPANY FUNDS AVAILABLE FOR DISTRIBUTION
(Unaudited and in thousands, except share and per share data)

		Three Months Ended March 31,
		2018			2017
FUNDS FROM OPERATIONS:
Basic and Diluted:
Net income (loss) attributable to common shareholders		$	(15,957	)	$	40,397
Adjustments:
	Depreciation and amortization	45,154			41,542
	Impairment charges - real estate	53,049			2,698
	Noncontrolling interests - OP units	(729		)	(19		)
	Amortization of leasing commissions	1,383			1,349
	Joint venture and noncontrolling interest adjustment	258			340
	Gains on sales of properties, including non-consolidated entities	(22,774		)	(35,645		)
FFO available to common shareholders and unitholders - basic		60,384			50,662
	Preferred dividends	1,572			1,572
	Amount allocated to participating securities	70			71
FFO available to all equityholders and unitholders - diluted		62,026			52,305
	Loan loss	—			5,294
	Transaction costs	—			186
Adjusted Company FFO available to all equityholders and unitholders - diluted		62,026			57,785

FUNDS AVAILABLE FOR DISTRIBUTION:
Adjustments:
	Straight-line adjustments	(4,866		)	(2,909		)
	Lease incentives	536			431
	Amortization of above/below market leases	(22		)	514
	Lease termination payments, net	(308		)	235
	Non-cash interest, net	1,025			155
	Non-cash charges, net	1,939			2,146
	Tenant improvements	(5,932		)	(1,762		)
	Lease costs	(609		)	(1,671		)
Company Funds Available for Distribution		$	53,789		$	54,924

Per Common Share and Unit Amounts
Basic:
	FFO	$	0.25		$	0.21

Diluted:
	FFO	$	0.25		$	0.21
	Adjusted Company FFO	$	0.25		$	0.23

Basic:
	Weighted-average common shares outstanding - basic EPS	238,072,081			237,179,526
	Operating partnership units(1)	3,629,195			3,771,642
	Weighted-average common shares outstanding - basic FFO	241,701,276			240,951,168

Diluted:
	Weighted-average common shares outstanding - diluted EPS	238,072,081			241,088,049
	Operating partnership units(1)	3,629,195			—
	Unvested share-based payment awards and options	562,084			691,936
	Preferred shares - Series C	4,710,570			4,710,570
	Weighted-average common shares outstanding - diluted FFO	246,973,930			246,490,555

(1) Includes OP units other than OP units held by Lexington.


LEXINGTON REALTY TRUST AND CONSOLIDATED SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES

2018 EARNINGS GUIDANCE
	Twelve Months EndedDecember 31, 2018
	Range
Estimated:
Net income attributable to common shareholders per diluted common share(1)	$	0.54		$	0.57
Depreciation and amortization	0.70			0.70
Impact of capital transactions	(0.29		)	(0.29		)
Estimated Adjusted Company FFO per diluted common share	$	0.95		$	0.98