Lexington Realty Trust's (LXP) CEO Will Eglin on Q2 2016 Results - Earnings Call Transcript

| About: Lexington Realty (LXP)

Lexington Realty Trust. (NYSE:LXP)

Q2 2016 Results Earnings Conference Call

August 09, 2016, 08:30 AM ET

Executives

Heather Gentry - IR

Will Eglin - CEO

Pat Carroll - CFO

Analysts

Craig Mailman - KeyBanc Capital Markets

Anthony Paolone - JPMorgan

Erin Aslakson - Stifel

John Massocca - Ladenburg Thalmann

William Segal - Development Association Inc

Operator

Greetings and welcome to the Lexington Realty Trust Second Quarter Earnings 2016 Webcast and Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note that this event is being recorded.

I would now like to turn the conference over to Heather Gentry. Please go ahead.

Heather Gentry

Thank you. Hello, and welcome to the Lexington Realty Trust Second Quarter 2016 Conference Call. The earnings press release was distributed this morning and the release and supplemental disclosure package will be furnished on a Form 8-K.

In the press release and supplemental package, Lexington has reconciled all 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 Investors 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 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 and include the successful confirmation of any lease, acquisition, build-to-suit, financing, disposition or other transaction, or the final term of any such transaction, except as required by law, Lexington does not undertake a duty to update any forward-looking statements.

References to Adjusted Company FFO refer to Adjusted Company FFO available to our equity holders and unit holders on a fully diluted basis. This was previously referred to as Company FFO in the most recent earnings press release and earnings conference call.

Operating performance measures of an individual investment are not presented or intended to be viewed as liquidity or performance measures that present a numerical measure of Lexington’s historical or future financial performance, financial position or cash flow.

Joining me today to discuss Lexington second quarter 2016, results are Will Eglin, Chief Executive Officer; Pat Carroll, Chief Financial Officer, and other executive members of management.

With that, I will now turn the call over to Will.

Will Eglin

Thanks, Heather. Good morning everyone, and thank you for joining our call today. We delivered solid performance during the second quarter as we continued to remain very active in all areas of our business, particularly with our sales program and leasing activity.

Net income for the quarter was $0.20 per diluted share and Adjusted Company FFO was $0.29 per diluted share for the quarter, representing a more than 7% increase year-over-year. We sold approximately $107 million of assets at an average cap rate of 6.2% and leased 1.4 million square feet of which more than 500,000 square feet was attributable to 2016 and 2017 explorations.

We have signed a contract to sell the remaining New York City land parcels and we are currently working through closing conditions including mortgage assumptions. Our projections assume the sale closes sometime late in the third quarter at a sub four and three quarter cap rate.

Primarily, as a result of the timing of the sale, we are increasing our 2016 Adjusted Company FFO guidance to a range of $1.07 to $1.10 per diluted share from a $1.03 to $1.08 per diluted share.

Please keep in mind that the closing of this transaction is subject to certain conditions and we can’t guarantee that the transaction will close or that it will close on the terms or by the time period I have given.

During the quarter, we were able to enhance our balance sheet flexibility as we retired approximately $80 million of mortgage debt and received an upgrade in our long term issuer rating to BBB- from BB+ by Standard & Poor’s.

Finally, following the end of the quarter, we closed on $197 million long-term non-recourse mortgage loan at a 4.04% fixed interest rate secured by $166.2 million build-to-suit project with Dow Chemical in Lake Jackson, Texas. This financing is a good example of how we can selectively use secured financing to monetize assets, lock-in gains and replace shorter term with longer-term debt.

Moving onto investments, during the quarter we completed a previously announced 1.3 million square foot industrial build-to-suit project in Anderson South Carolina for an initial basis of approximately $61 million. Initial GAAP and cash yields for the asset are 7.2% and 6% respectively and the property is 100% leased to One World Technologies, Inc. for a 20-eyar term.

We also signed an agreement to fund construction on a 165,000 square foot industrial facility in Opelika, Alabama for a maximum commitment of $37 million at an initial cash cap rate of 7.05%. The property will be net leased to Golden State Foods for a 25-year term with 2% annual rent bumps.

During the quarter, we invested approximately $40 million in our four ongoing built-to-suit projects, which include the Opelika industrial asset. Consistent with our long-term lease investment strategy these assets will have a weighted average lease term of approximately 20 years. The last of these projects should be completed by the second quarter of 2017.

As of June 30, 2016 we had investment commitments of $179.5 million. More detail on built-to-suit funding projections can be found on page 15 of the supplement. We are focussed on adding to our 2017 pipeline and have currently committed to about $100 million in build-to-suit projects to be completed in 2017.

There is no shortage of build-to-suit opportunities in the market place and while pricing is competitive, in most cases pricing still remains better relative to acquisitions of comparable quality in our view. We continue to be very active in looking for the right opportunities but are mindful of over paying for assets in this low cap rate, low interest rate environment. Our intent is to remain selective and disciplined, but nevertheless our cost of capital has improved in recent months which would allow us to be more flexible on the investment front should we choose to be.

Our disposition plan is moving along well. We sold six properties during the quarter including the New York City 45th Street Land Investment for gross proceeds of roughly $107 million at a weighted average capitalization rate of 6.2%.

In addition to the land investment, which we sold for gross proceeds of $37.5million at a 4.1% cap rate, we sold two office buildings and three industrial assets. Gains generated from the sales totalled $25.3 million. Year-to-date gross disposition proceeds totalled $178 million, which includes $171.3 million of wholly owned assets at an average cap rate of 5.9%.

These sales in addition to the sale of the remaining New York City land parcels would bring us close to achieving our disposition plan target of $600 million to $700 million and an average cap rate range of 5.5% to 6.25%. This range has been lowered from our previous cap rate guidance range of 5.75% to 6.5%.

Turning to leasing, overall in the first half of the year we have completed approximately 3.1 million square feet of new leases and lease extensions raising GAAP rents by 2.3% and cash rents by 1.5% on renewals. Leasing for the quarter totalled 1.4 million square feet, approximately 813,000 square feet of this related to a one year lease extension with Bell Sports, Inc. whose original lease expires in 2033.

We executed one new lease and 12 lease extensions to end the quarter at 96.2% leased. Our occupancy declined 50 basis points versus last quarter as a result of recent asset sales and two 2016 lease explorations.

While this number may shift quarter to quarter depending on leasing activity and the timing of sales, we expect occupancy to be around 96% at year-end. Leasing spreads were down 1.7% on a GAAP basis and 3.4% on a cash basis during the quarter. The decline is primarily attributable to a 10-year lease extension we signed with Time in Tampa Florida. And while there was a reduction overall rent on the lease renewal, the full occupancy and longer lease term provides for a better outcome as we look to sell the property.

We have worked through the majority of our 2016 lease expirations and currently have about 1.2 million square feet of single tenant expirations in 2016 with our Temperance [ph] Michigan industrial property being the bulk of this number. This properties lease expired at the end of July and we are currently in preliminary discussions with a new user to fill approximately half of the 745,000 square foot space.

Overall, our remaining 2016 expirations only represent approximately 1.7% of our GAAP revenue. We also have approximately 1.8 million square feet of vacant space to lease or sell. While we don’t anticipate much more leasing volume for our remaining 2016 expirations, we have active lease negotiations in process on 1.1 million square feet and we continue to successfully complete early renewals for leases expiring in 2017 and beyond.

Our weighted average lease term at the end of the quarter was approximately 12.5 years on a cash basis and 9.3 years on a cash basis after adjusting for our New York City ground investments lease terms to their first portfolio of purchase option date.

We remain very focussed on managing down our shorter term leases and our overall lease maturity schedule continues to be well staggered with about 80% of our revenue from leases with built-in escalations.

In summary, we are very pleased with our progress to date. We believe, we are on target to complete our disposition program at an attractive average cap rate, leasing volume remained strong and we have been able to retire much of our near term mortgage debt with additional mortgage debt leaving the balance sheet in connection with the New York City land sale later this year.

We remain active on the investment front but remain disciplined and focussed on achieving attractive returns. Our 2016 business plan contemplated adding $175 million to $200 million of long-term debt, which was accomplished with the attractive financing of the Dow Chemical build-to-suit. By obtaining financing that was $31 million over our maximum construction cost, we created substantial immediate value for our shareholders while successfully executing our build-to-suit strategy.

As a result of our sales program, we expect to have ample cash on our balance sheet and net debt to EBTIDA of under six times and a higher quality portfolio at year-end. We believe this will position us to further grow our portfolio both organically and through investments and generate meaningful Adjusted Company FFO per share in relation to our dividend and share price.

Now I’ll turn the call over to Pat who will review our financial results in more detail.

Pat Carroll

Thanks Will. Good morning, everyone.

Gross revenues for the quarter ended June 30, 2016 totaled $109.6 million, this represents a slight decrease of 0.7% compared to gross revenues of $110.3 million in the second quarter of 2015. The decrease is primarily a result of 2015 and 2016 property sales and changes in occupancy at certain properties. Offset by revenue generated from property, acquisitions and lease termination income.

Net Income Attributable to Common Shareholders for the quarter was $46.8 million or $0.20 per diluted share compared with $47.7 million or $0.20 per diluted share for the second quarter of 2015. Our 2016 guidance the net income attributable to common shareholders is in an expected range of $0.52 to $0.61 per diluted common share.

During the quarter, we generated Adjusted Company FFO of $71.8 million or $0.29 per diluted common share compared to $67 million or $0.27 per diluted common share for the quarter ended June 30, 2015.

As Will mentioned earlier, Adjusted Company FFO was adjusted upward to $1.07 to $1.10 per diluted share from $1.03 to $1.08 per diluted share primarily as a result of the expected timing of the sale of the remaining New York City land parcels. Keep in mind this guidance is forward-looking excluding the impact of certain items and is based on current expectations.

For the quarter ended June 30, 2016 GAAP rents were in excess of cash rents by approximately $12.3 million and for the six months ended June 30, 2016 GAAP rents were in excess of cash rents by approximately $22.6 million. This relates primarily to our New York City land investments.

As a reminder, on page 19 of the supplement we have included our estimates of both GAAP and cash rents for the remainder of 2016 and 2017 for leases in place at June 30, 2016.

This disclosure does not assume any tenant re-leasing of vacant space, tenant lease extensions on properties with scheduled lease expirations, property sales, or property acquisitions. Same-store net operating income was $144.3 million for the six months ended June 30, 2016 which represents a decrease of approximately 1% compared to the same time period in 2015.

In 2015, we have two tenants that paid rents semi annually and in 2016 one of these tenants now pays rent monthly and one property is vacant. These changes primarily resulted in a decrease.

Property operating cost decreased $4.2 million for the quarter compared to the second quarter of 2015, and increased $8.7 million for the first half of the year compared to the same time period in 2015 primarily due to the sale of various multi-tenanted properties.

G&A expenses were approximately $7.7 million for the second quarter of 2016 and $15.5 million for the first half of the year, marginally lower compared to the same time period last year. We are projecting the G&A for the balance of 2016 will be comparable to the first half of the year.

Now moving on to discuss our balance sheet, we had a $72.5 million of cash at quarter end including cash classified as restricted. Restricted cash balances primarily related to money held with lenders at escrow deposits on mortgages.

For the quarter ended June 30, 2016 we had $2.1 billion consolidated debt outstanding, which had a weighted average interest rate of 4.1% of which approximately 94% is at fixed rate, including debt covered currently by interest rate swap agreement.

Our fixed charge coverage was approximately 2.7 times and net debt to adjusted EBITDA was approximately 6.2 times as of June 30, 2016. We are targeting a net debt to adjusted EBITDA of under six times at the end of 2016.

Our debt maturities remain balance. As of June 30, 2016 we have approximately $75.7 million of balloon mortgage payments with an average interest rate of 6.1% coming due this year. We expect to retire all of this in connection with dispositions, cash and dispositions and financing proceeds.

As of June 30, 2016, our unencumbered asset base was approximately $3.3 billion with 69.7% of our NOI. Subsequent to quarter end in July we obtained $197.2 million 20-year non-recourse financial secured by our build-to-suit project in Lake Jackson, Texas.

We committed to fund up to approximately $166.2 million for the project in2014 and have an investment balance of $83.9 million as of June 30, 2016. The loan based interest had a fixed rate of 4.04% and provides $11.3 million balloon payment at maturity.

As a result of this financing we retire credit facility borrowings and extended our weighted average debt maturity. This finance remains consistent with our balance sheet strategy of adding approximately $175 million to $200 million of long-term fixed rate debt to the balance sheet this year.

We will continue to retire shorter term maturities over the course of the year including the 2016 maturing mortgage debt and amounts outstanding under our revolving credit facility.

To-date, we have retired $107 million of secured debt which includes the $80 million retired during the quarter and we have $43 million outstanding on our revolver compared to $177 million at the beginning of 2016. Also in July we have retired all $11.9 million that was outstanding our 6% notes.

During the quarter ended June 30, 2016, we paid approximately $2.9 million in lease cost and tenant improvements. We expect our TI and Leasing Costs budget for the remainder of 2016 to range between $12 million and $15 million.

Now, I’d like to turn the call back over to Will.

Will Eglin

Thanks Pat. Operator, I have no further comments at this time. So, we are ready for you to conduct the question-and-answer portion of the call.

Question-and-Answer Session

Operator

We will now begin the question and answer session. [Operator Instructions] Our first question comes of Craig Mailman of KeyBanc Capital Markets. Please go ahead.

Craig Mailman

Hey, good morning guys. Just wanted to double check, the lease term fee in the quarter was pretty sizeable. Was that expected in guidance or is that something that wasn't previously in there?

Pat Carroll

No. It was expected in the guidance. We had this – with the lease -- a lot of it was lease termination that we've received on TD order trade which we talked about last quarter, but also $1 million of it relates to the Dubuque Iowa property that we sold. The tenant in the property terminated the lease concurrent with our sale of the property to a third-party, so about a $1 million of that came in the second quarter.

Craig Mailman

Actually that was McGraw Hill, right?

Pat Carroll

Exactly, right.

Craig Mailman

Okay.

Pat Carroll

So, we sold the property to a third-party vacant, but it was concurrent with the lease termination at the time of sell.

Craig Mailman

Got you. Okay. And then on the land sale is there anything with the assumption of the mortgage that is troubling? Or is it just documentation, all those things the lenders trying to get, that's delaying everything?

Will Eglin

No. Just documentation, it’s a life insurance company, so it's just a little bit of a slow process.

Craig Mailman

Got you. And then, just lastly, Will, you made the point, your cost of capitals improving here and its allowing you to potentially get a little bit more aggressive on the acquisition front. I guess just relative to competitors and you kind of where you guys have been in the bidding process, I mean, do you guys feel like this cost of capital improvement allows to get aggressive enough to get into that kind of last round or you could win more that you know than maybe or six months ago and kind of just talk about your churn hurdles and other things with slightly better cost of capital?

Will Eglin

Yes. Craig, it is different for us compared to six months ago, so I think that puts us in a good position to the extent we want to add acquisitions to supplement our build-to-suit activity. Just based on executing the disposition program we would end up with probably cash at the end of the year of over $200 million on balance sheet, which is in excess of our funding obligations next year in our debt maturities. So, we are heading toward a good position of liquidity with respect to looking at new investments.

And since we're probably bring the disposition program and at a lower cap rate than we thought we can certainly reinvest the money at a cap rate north of where we think we'll be able to bring the disposition plan in. So, that bodes well for us being able to kick off some acquisitions especially in the industrial area.

Craig Mailman

Do you guys have anything under LOI at this point or is it just -- you guys are – the opportunity sits better?

Pat Carroll

No. I think the opportunity set is better. We do have a lot of Letters of Intent outstanding right now, but our policy is not been talking about acquisitions on a speculative basis, but waiting until opportunities are actually under contract before discussing them publicly.

Craig Mailman

Great. Thanks guys.

Pat Carroll

Thank you.

Operator

Our next question comes from Anthony Paolone from J.P. Morgan. Please go ahead.

Anthony Paolone

Thank you. Good morning. So, just following up on the competitive landscape for build-to-suit, can you put some numbers around you know just where industrial is versus say office or investment grade, non-investment grade right now?

Pat Carroll

Yes. Most of the build-to-suit industrial that we're looking at tense to be in the low sixes and office probably 50 to 75 basis points wide of that, but lot of that is a function of credit and length of lease commitments and how far forward we would be committing.

Anthony Paolone

All right.

Pat Carroll

So, we're looking at a lot of transactions, Tony, there was I think an opportunity earlier in the year where our cap rates just started to move up pretty nicely forward, the things have settled back down and cap rates have become more compressed again.

Anthony Paolone

All right. And then on disposition side, you guys get through your 600 million to 700 million this year, is there another wave that you would anticipate as we look out to next year? Does this largely get your through the repositioning that that you want?

Pat Carroll

I would say, it puts us in a very good position in a number of aspects. Our leverage will come way down. We will have made meaningful progress with respect to what we're trying to do with the office portfolio which is to reduce its footprint and focus on roughly 20 markets where we have multiple buildings.

I would say that there is still arguably a little bit less than 10% of our gross asset in the retail or in office properties that are single building in one-off markets. And then we have the buildings in our multi-tenant portfolio which are being transition from either vacant or low occupancy to higher occupancy.

So, could that number be roughly $400 million of assets that we would look to trade out of over time? That seems to be about the right number. So, it’s a much – if you're thinking in terms of what's non-core to us once we get to the end of this year. I would say it's about $400 million or so. So, much smaller than it's been in the past, but there is still a piece of the portfolio that we'd like to keep working to maximise the value in.

Anthony Paolone

Okay. And then just last question, just you may have addressed I think in the past, but just an early look on the larger 2017 explorations like Transocean, Roche and HP I think or some of the bigger ones. Any color on those?

Will Eglin

Sure. On Transocean we've got a very good prospect to take 40% of that space and very good prospect to take a 100% of the space on the Roche property. If I look at the balance of the 2017, major office renewals we're in discussions with all the tenants right now. So, I think the year sets up pretty well. On the HP space, HP is leaving but we're in, we've got a good prospect for a significant piece of that building. So far 2017 looks pretty good to us.

Anthony Paolone

Okay, great. Thank you.

Operator

Our next question comes from Jon Petersen from Jefferies. Please go ahead.

Jon Petersen

Great. Thank you. Just quick question maybe for Pat on debt maturity over the next couple of years, so we see – I know your guys, your balance sheet is in pretty good order and you expecting to have more cash at the end of the year. But we're seeing lot of unsecured debt offerings at extremely attractive rates recently in preferred offerings.

So just kind of curious your high-level thoughts as you look at some of your peers doing these deals on whether you might look to raise unsecured debt or something like that to pay-off some debt -- maturing through the end of this year and into 2017?

Pat Carroll

You know right now we're not looking at that as to be probably frank. The debt maturities over the next couple of years on a secured basis just aren't that significant and we don't see a reason to build up leverage and a cash position for bond offering when we're still in the process of doing our dispositions. Between dispositions and cash flow from ops you know, our mortgages recovered I think quite comfortably in the next couple of years.

Will Eglin

Yes. And indeed we’re -- we're $43 million out on the revolver right now. So there is no debt that we could prepay at par beyond that, so we really don't have any interest in paying yield maintenance.

Jon Petersen

Got you. I assume that when you talk about your cost to capital getting better this is kind of impacted when you talk about being more aggressive in terms of acquisitions towards the potential lower debt cost?

Will Eglin

Yes.

Jon Petersen

Fair enough. All right. Thanks.

Operator

Our next question comes from Erin Aslakson from Stifel. Please go ahead.

Erin Aslakson

Hey, good morning, guys. Thanks for taking questions. You mentioned the weighted average lease term of the portfolio, but I think that was including the New York land asset. What's the weighted average lease post those asset sales?

Pat Carroll

If you assume that the New York City land portfolio was sold, the weighted average lease term of the portfolio was about 8.6 years.

Erin Aslakson

Okay. Thank you. And then, you also mentioned the GAAP rents in excess of cash was about $12.3 million, you said largely because of the land investment. What is that number fall to once the land investments are sold?

Pat Carroll

Well that $12.3 million, the New York City land deals are 7.6 of it.

Erin Aslakson

Okay. Thanks. And -- so it looks like with the increase guidance for second half 2016 FFO was expected to be about $0.50 per share at the midpoint. Should we -- I would assume because you're looking at the land sale later this quarter, the third quarter should be a little bit higher in terms of FFO. Would you review that?

Pat Carroll

Yes. The modelling that we put out at the free land being sold at the end of the third quarter.

Erin Aslakson

Yes. That makes some sense. And then the investment at Lake Jackson is interesting, given $197 million loan commitment on your $166 million basis. What's – any idea with the lender strategy, your thought process was on that deal?

Will Eglin

Well, it principally based on underwriting the credit of the lease. In other words this was a credit tenant lease financing where the lenders were essentially buying that bond like stream of rent. So the way I would explain it Erin, is, if you look at the IRR of the transaction without factoring any residual value, right, our return just from the lease of sales at our construction cost is about 6.1%. but we are able to monetize that stream at a 20-year fixed interest rate of 4.04% because the lenders were essentially investing in the transaction and looking at it specifically as a Dow Chemical bond versus mortgage on a piece of real estate.

Erin Aslakson

Okay.

Will Eglin

And even after debt service on the facility the monthly cash flow to us is about $15,000 to $18,000 per month. So most of it – obviously most of the rent, it will be going to debt service.

Erin Aslakson

Right, right, exactly. Okay. And then…

Will Eglin

The value of our lease increased substantially during the construction period and that was reflected in the financing that we're able to get.

Erin Aslakson

Yes. I mean, it looks like the lender agrees with that statement. So, looks like the hotel land deal, it was about 4% cap rate on the cash NOI. Is that correct?

Will Eglin

That's 4.1, yes.

Erin Aslakson

And what was different with that deal versus the others?

Will Eglin

We acquired it about a year later and as of result we were able to get over 90% loan to value financing on the second transaction and on the first transaction we leverage it at about 70% loan to value. So it was really the value of the leverage that drew the cap rate on that compared to our expectation for the other three parcels.

Erin Aslakson

Okay. So, really a matter of timing -- ability to lever that asset up?

Will Eglin

Yes.

Erin Aslakson

And it's more sellable? Okay. And then you were saying the other three are going to be sold this quarter?

Will Eglin

The model hasn't been sold at the end of third quarter, yes.

Erin Aslakson

All right. And then I think just a last question was regarding the 2017 lease terminations that you know are already vacating. Do under those assets carry mortgages?

Will Eglin

Some of them do. We list out on the property chart Erin that starts on page on 30. We list out which ones are levered. Yes, but on Roche and Transocean we hold this pretty and clear if that was the question.

Erin Aslakson

Yes. That was question, okay.

Pat Carroll

So in 2016 we have Memphis property that has a mortgage deal on it. So none of our 2017 office rollovers have mortgages on them.

Erin Aslakson

Okay, great. Thank you very much. That's all from me.

Operator

Our next question comes from Daniel Donlan from Ladenburg Thalmann. Please go ahead.

John Massocca

Hi. This is actually John Massocca for Dan. Good morning everyone.

Will Eglin

John, good morning.

John Massocca

Just wanted to make sure I heard you guys correctly, but you're currently expecting $12 million to $50 million of TIs and LCs this year?

Pat Carroll

For the remainder.

John Massocca

For the remainder, all right. And so that's still on par pretty much with the $25 million you're guiding to for total 2016 last quarter?

Pat Carroll

Well, for the six months we've spend, yes, it's coming in a little less, but it really depends on how much leasing activity maybe ramping up in the six months. But right now it is a little less than what we've said.

John Massocca

Okay. And what's driving the kind of better TI and LC number in 1H in your mind?

Pat Carroll

Well, in one in the first half of the year actually in the last quarter, we had two tenants reimbursed us for TIs that we had put out prior in the year, so it's about $2.6 million of cash that we received back. So that kind of has lower the amount of TIs and lease commissions we expect to spend for the year, because we got to reimbursed.

John Massocca

You know, it was expected or was that something where might just have a credit issues?

Pat Carroll

No, credit issue, I mean, the United States government, they decided to pay back to TIs instead of paying rent on it. So but -- I did not expect that when I did the modelling.

John Massocca

Okay. Makes real sense, and that’s it for me. Thank you very much guys.

Will Eglin

Thank you.

Operator

Our next question comes from William Segal from Development Association Inc. Please go ahead.

William Segal

Thank you, gentlemen. You are hopefully moving more to build-to-suit than less to acquisition. Are you finding -- of course you have taken on the construction cost risk, cost relatively stable and manageable around the country.

Will Eglin

Could you repeat the question, I didn’t hear you?

William Segal

Yes, it was moving more to a build-to-suit and less from acquisition, are you -- you are obviously taking the construction cost risk, the cost...

Will Eglin

No, no. I mean we enter into maximum guarantee contracts, the leases are all the properties are fully leased prior to our taking you know any type of responsibility. So we feel we are covered pretty well from a construction standpoint and we use reputed builders, reputed developers and in many cases we have bonds we have personal guarantees, so we are not taking -- there is no spec building and we don’t feel we are taking any excess of risk.

William Segal

So you are able to get manageable people around the country and good firms. The New York blend proposition was I guess you know something that came along opportunistically and not your usual business line once you dispose of that, do you expect to ever enter into that sort of it again or no way of telling?

Will Eglin

Well the investments were opportunistic for us and we will have done well with them. And at the same time by selling them we’ll end up -- you know it’s like shredding a lot of leverage from the balance sheet which I think should work well for the share price. So, there is nothing that we are contemplating that has a -- the similar economic profile going forward.

William Segal

A few others, what percentage if your portfolio remains in the multi tenant category?

Will Eglin

Multi tenant from a revenue stand point is down to less than 3%.

Pat Carroll

It’s 2.8% through the six months.

William Segal

Terrific. And lastly, you are seeing numbers of companies change their profile to a REIT structure, some of those are very specialized, but any changing -- is it making it a more competitive landscape or are those companies just very specifically changing the REITs for their own reasons?

Will Eglin

I would say that those companies that have this sort of a unique focus on one specific asset type or niche are not specially competitive to us, but look our net lease factor has become very large over the last three or four years. So it is a more competitive landscape in general.

William Segal

Okay, thanks gentlemen.

Operator

Our next question comes from William [ph] O’Brien from Cutler Capital Management. Please go ahead.

Unidentified Analyst

Good morning. Thank you for taking my question. Given the improvements in the financials, where do you stand on the dividend?

Will Eglin

Our commentary around the dividend has been consistent this year, which is that we’ve been managing the company with a view toward reviewing the dividend sometime in the later half of the year with a bias towards increasing it.

Unidentified Analyst

All right. Thank you.

Operator

[Operator Instructions] There appear to be no further questions. This concludes our question and answer session. I would like to turn the conference back over to Will Eglin for any closing remarks.

Will Eglin

Well thanks to all of you again for joining us this morning. We were very pleased with our results in the second quarter and we continue to be excited about the progress we’ve made year-to-date and our prospects for good execution through year end. We continue to appreciate your participation and support. If you would like to receive our quarterly supplemental package, please contact Heather Gentry or you can find additional information on our Company at our website www.lxp.com. And in addition as always you may contact me or the other members of our senior management team with any questions. Thanks again, and have a good day.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect the lines.

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