Lexington's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Lexington Realty Trust (LXP)

Q2 2012 Earnings Call

August 7, 2012 11:00 am ET

Executives

Joseph S. Bonventre – General Counsel and Executive Vice President

T. Wilson Eglin – President and Chief Executive Officer

Patrick Carroll – Executive Vice President, Chief Financial Officer and Treasurer

E. Robert Roskind – Chairman

Analysts

Erin T. Aslakson – Stifel, Nicolaus & Co., Inc.

Todd Stender – Wells Fargo Securities LLC

Anthony Paolone – JPMorgan Securities LLC

Presentation

Operator

Good morning and welcome to the Lexington Realty Trust Second Quarter 2012 earnings conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. Today’s conference is being recorded. It is now my pleasure to turn the floor over to your host Mr. Joe Bonventre. Please go ahead sir.

Joseph S. Bonventre

Hello, and welcome to the Lexington Realty Trust Second Quarter Conference Call. The earnings press release was distributed over the wire this morning, and the release and supplemental disclosure package will be furnished on the Form 8-K. In the press release and supplemental disclosure package, Lexington has reconciled all historical non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. If you did not receive a copy, these documents are available on Lexington’s website at www.lxp.com in the Investor Relations section. Additionally, we are hosting a live webcast of today’s call, which you can access in the same section.

At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Lexington believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, Lexington can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in today’s press release and from time-to-time in Lexington’s filings with the SEC. Except as required by law, Lexington does not undertake a duty to update any forward-looking statement.

Joining me today from management are, Will Eglin, Chief Executive Officer; Robert Roskind, Chairman; Pat Carroll, Chief Financial Officer; and other members of management.

T. Wilson Eglin

Thank you, Joe, and welcome to everyone. Thank you for joining the call today. As usual I’d like to begin by discussing our operating results and accomplishments for the second quarter.

For the second quarter, our company funds from operations were $0.24 per share and we executed well in all areas that impact our business. The quarter was characterized by, first, continued and solidly seen activity were approximately 700,000 square feet of new and renewal leases singed leading to an overall portfolio occupancy rate of approximately 97.6% at quarter end, leaving just approximately 770,000 square feet subject to leases scheduled to expire this year.

Second, we made additional progress on the investment front in the quarter with one build-to-suit project completed and closed totaling $12.9 million brining total investment volume for the year to $89.4 million, and we believe our pipeline of similar opportunities continues to be robust.

Third, we also had further success on the capital recycling front with $82 million of non-core disposition including the sales of our interest in Concord, a former joint venture loan portfolio. And fourth, we continue to drive down our cost of capital as we took advantage of the significant refinancing opportunities in our portfolio.

In the second quarter of 2012, we drew $45 million on our 7-year term loan facility and swapped the LIBOR rate into a fixed LIBOR rate of 1.25% for seven years. So that the interest rate today is fixed at 3.5% on such borrowings. We also closed a $55 million 11-year mortgage on Transamerica Tower in Baltimore at a fixed rate of 4.32%.

In the second quarter and through July, we retired $118.2 million of debt in preferred stock, which had a weighted average coupon of approximately 7.2%. And in August, we drew down the remaining $9 million on the seven year term facility and are in preliminary discussions with our bank group to expand the facility.

Turning to leasing, as of June 30, 2012 we had $1.7 million square feet of space subject to leases that expire in 2012 or which are currently vacant. Significant accomplishments in the second quarter include the 25,000 square foot lease expansion with Wyndham at our property in Orlando, Florida raising Wyndham’s occupancy to 259,000 square feet. A 184,000 square foot extension with Lockheed Martin also in Orlando, Florida. A 77,000 square foot lease extension in a new 59,000 square foot leased with Capital One in Richmond, Virginia.

We are also pleased to report today a significant third quarter lease extension with Xerox at our Palo Alto, California property. This lease extension is for 10 years at an average annual rent of $7.1 million, an increase of $3.6 million, or 102%. This substantial rent increase offset much of the decline from the IBM lease extensions on our buildings in Atlanta, which were at fair market value. The IBM buildings are subject to a non-recourse loan of $140 per square foot that matures next year and all the renewal rents are payable after the debt matures.

Read the rest of this transcript for free on seekingalpha.com