One of Lexington's JV partners, Inland American Real Estate Trust Inc., announced a $100-million investment in Concord Debt Holdings, itself a JV of Lexington and Boston-based Winthrop Realty Trust, to make new investments. "This is a very positive development, as it provides Concord with growth capital while allowing Lexington to reduce its capital investment to $100 million over time as loans in that portfolio mature," Eglin said in discussing his company's Q2 results.
As a result of Chicago-based Inland's investment in Concord, "we're executing on our strategy of enhancing our return on equity in Concord while lowering our exposure," Eglin said. Inland and Lexington entered into a $1.4-billion JV last August and Q2 '08 saw the final closing on the initial assets for Lexington's co-investment program with Inland.
"We remain very optimistic about our opportunities to grow this program," Eglin said, adding that the JV has committed an aggregate of $150 million of capital to make new investments, for a total buying power of approximately $400 million. He said Lexington's investment in Concord will yield about 10% for '08, and he's optimistic that his company will begin a new JV with another institutional investor "later this year."
During Q2, Lexington sold five assets for $46.1 million at a cap rate of 7.4%. "As we expected, disposition activity is slowing down and is likely to be modest for the balance of the year," Eglin said. In terms of leasing, which Eglin said is the company's "greatest area of focus," Lexington executed 37 transactions totaling 1.5 million sf.
So far in Q3, Lexington has managed 365,000 of leases and is working on another 1.1 million sf of leases, representing "a modest decline" from Q1 and last year. Eglin said the numbers reflect "our success in addressing lease rollovers as well as a slower economy."
For the quarter ended June 30, total gross revenues increased 18.9% to $128.7 million, compared with total gross revenues of $108.2 million for Q2 2007, according to a news release from Lexington. At quarter's end, Lexington had approximately $177.3 million of cash and restricted cash and $2.5 billion in debt outstanding, equating to a debt-to-total capitalization of approximately 58.8%. Earlier this month, Concord announced it was taking a charge of $52.6 million, "about half of which impacted our results," Eglin said. He said the company's guidance is for funds from operation per share to range from $1.56 to $1.64 for '08, a guidance unchanged from the previous quarter or the start of the year.
Overall, Eglin said, "we believe Lexington is well positioned strategically and from a capital perspective. We believe our balance sheet is solid, with acceptable leverage, limited near-term refinancing exposure and sufficient liquidity. We also have a strong financial capacity to act on investment opportunities." The REIT owns 311 single-tenant office, industrial and retail properties in 44 states.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
