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Executives

Lisa Soares - IR Contact

Will Eglin - President, CEO and COO

Patrick Carroll - EVP, CFO and Treasurer

Natasha Roberts - EVP of Real Estate Operations

Analyst

John Guinee - Stifel Nicolaus

Sheila McGrath - KBW

Tony Paolone - JPMorgan

Matt Thorp - Cantor Fitzgerald

Lexington Realty Trust (LXP) Q1 2008 Earnings Call May 8, 2008 11:00 AM ET

Operator

Greetings and welcome to the Lexington Realty Trust first quarter 2008 earnings conference call. (Operator Instructions).

It is now my pleasure to introduce your host, Ms. Lisa Soares, Investor Relations for Lexington Realty Trust. Thank you, Ms. Soares. You may begin.

Lisa Soares

Thank you, Jerry. Hello and welcome to the Lexington Realty Trust first 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 a Form 8-K. In the press release and supplemental disclosure package, Lexington has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Regulation 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, management would like me 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 that expectations reflected in any forward-looking statement 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. Lexington does not undertake a duty to update any forward-looking statement.

With us today from management are Will Eglin, CEO and President; Robert Roskind, Chairman; Patrick Carroll, Chief Financial Officer; Natasha Roberts, Executive Vice President and Director of Real Estate Operations and other members of management.

I'd like to turn the call over to Will for his opening remarks.

Will Eglin

Thanks, Lisa, and welcome to all of you, and thank you for listening in to our first quarter conference call. We are pleased to report that our results for the first quarter of 2008 showed our continued progress on a number of our key initiatives during a time of continuing uncertainly in the capital markets.

For the quarter, our reported funds from operations were $0.42 per share. However, we believe it is more appropriate to focus on the adjusted FFO per share number of $0.38, which excludes $0.04 per diluted share unit of gains, losses and one-time expenses, which are detailed in the earnings release.

From an investment standpoint, it was a very quiet quarter with activity limited to repurchasing 100 million of exchangeable notes at a discount. That being said, we see greater opportunities in our acquisition pipeline compared to last quarter and last year at this time, and we believe that favorable opportunities will arise over the balance of the year.

We hope to capitalize on these opportunities in our existing joint venture with Inland and with other potential joint venture partners. We continue to improve Lexington's financial flexibility, as we reduced overall debt in the quarter by $320 million and ended the quarter with $165 million of cash and our $200 million bank line continues to be fully available.

Our diversified portfolio of business lines includes an investment in Concord Debt Holdings, which invests in real estate loan assets and debt securities, and we expect this investment to yield about 10% this year. We are pleased to report that Concord does not have any non-performing loans in its portfolio.

Even so, we took a charge of $2.5 million for the mark-to-market of bonds and this was offset by a gain from repurchasing CDO bonds at a discount. We don't plan to commit significant additional equity to Concord at this time, but rather will focus our activities on recycling capital in order to enhance our returns and we also can use available bank lines and third-party capital to grow Concord.

Moving on to our joint venture programs, in the first quarter, we had our second closing with Inland on $270 million of specialty single-tenant real estate assets into our Co-Investment Program. We have a final closing scheduled subject to closing conditions for $65 million of additional properties that we expect will bring total assets to this joint venture to roughly $740 million.

We remain very optimistic about our opportunities to grow this program. We and Inland have committed an aggregate of an additional $150 million of capital to make new investments, and assuming 60% leverage, this equates to approximately $400 million of buying power.

We also believe that as part of our comprehensive strategy to maximize value, pursuing and executing well on our divestiture program is very important. And to that end, during the first quarter, we completed three sales for $124.1 million of proceeds at a cap rate of 6.5%. We continue to be highly disciplined from a pricing perspective and as a result, we believe that disposition activity over the balance of the year will total $50 million to $75 million.

On the leasing front, we had another highly successful quarter with 24 leases executed for 1.2 million square feet and we expect greater leasing activity in the second quarter. Early in the second quarter, we announced an important transaction regarding our office property in Baltimore, Maryland, which generated $27.1 million of lease termination revenue and allowed us to obtain fee title to ground that we previously leased.

It will take time for our leasing efforts to bring occupancy at this property to a high level once Legg Mason vacates this building next September, but our asset repositioning initiatives, which include construction of a new parking garage, refurbishment of the building lobby and redesign of the plaza surrounding the building, should create greater interest in the property and create for us an opportunity to lease it at greater speed and at more attractive rents than we otherwise would obtain.

Now I'll turn the call over to Pat Carroll, our CFO, who will take you through our results in more detail.

Patrick Carroll

Thanks, Will. The result of operations in Q1 '08 include the impact of the acquisition of the properties in our co-investment programs in the second quarter of '07 and the formation of our co-investment program with Inland in the fourth quarter of '07. These are the primary drivers of all fluctuations between comparable periods.

During the quarter, Lexington had gross revenues of $107.6 million, which was comprised primarily of lease rents and tenant reimbursements. Under GAAP, we are required to recognize revenue on a straight-line basis over the non-cancelled lease term, with any periods covered by a bargain renewal option. In addition, the amortization of above and below market leases are included directly into rental revenue.

In the quarter, cash rents were in excess of GAAP rents by about $5.1 million, including the effect of the above and below market leases. We have also included in the supplement on page 37 our estimates of both cash and GAAP rents for the remainder of 2008 through 2012.

Quarterly G&A increased approximately $2.3 million compared to the same quarter last year. The primary drivers for this increase are $2 million in separation costs and $1 million in joint venture formation costs. G&A is typically higher in the first quarter compared with quarters two through four because we recognize all expenses relating to trustee compensation and a larger portion of common share vesting in the first quarter. These amounts approximated $1.2 million in the first quarter of '08. On a stabilized basis, when you take these items out, our G&A was approximately $700,000 less than the first quarter of 2007 and our estimates for recurring G&A for 2008 is approximately $30 million.

In addition, the provision for income taxes included a non-cash charge of about $800,000 relating to a merger of a taxable REIT subsidiary that we owned into the company. We did the merger as the TRS sold its last property to the Inland joint venture and therefore, we had no reason to continue to operate it in a taxable vehicle.

The gains on sales to affiliates represents a gain recognized on our sale of properties to our co-investment program with Inland and debt satisfaction gains represents the $12.6 million gain that we recognized on the repurchase of our exchangeable notes, offset by the write-off of applicable capitalized loan costs of retired debt.

Now turning to the balance sheet, we believe it continues to be in good shape. We had $165 million of cash at quarter end, including cash classified as restricted. Restricted cash balances relate to money held, but qualified intermediaries should complete potential tax-free exchanges. At quarter end, we had about $2.7 billion of debt outstanding, including $14 million in debt on properties held for sale, which had a weighted average interest rate of about 5.7%.

Included in intangibles is the allocation of the purchase price of properties related to in-place and above market leases and customer relationships in accordance with FAS 141. Also we have approximately 191 million in below market lease liabilities, including in properties held for sale that meet the definition of held for sale or the definition of properties that meet the definition of held for sale. The liabilities in discontinued operations of $14 million related to long-term debt and 24 million in the below market leases. The significant components of other assets and liabilities are included on page 28 of the supplement.

During the quarter ended March '08, the company capitalized approximately $6.5 million in lease costs and about $3 million in cap ex costs. Also as of March 31, we have only $22.6 million in mortgages maturing during the remainder of '08 at a weighted average interest rate of 7%.

Now I'd like for Natasha Roberts, Executive Vice President and Director of Real Estate Operations, to discuss our leasing and expansion activity. Natasha?

Natasha Roberts

Thanks, Pat. As of March 31, 2008, after selling three properties for $124 million during the first quarter, and including the 45 properties that are held in joint ventures, our portfolio totaled approximately 49 million square feet. We had strong activity with 24 leases executed or extended in the quarter. This led to an occupancy level of approximately 95.2% at quarter end and tenant interest in renewing expiring leases remains solid, and is largely unchanged from last quarter. We expect to remain at or above our current occupancy level through 2008.

Let me now provide some additional detail on the 24 leases we signed in the first quarter, representing approximately 1.2 million square feet. Out of the 24 leases, 10 were new and accounted for about 124,000 square feet and 14 were renewals or extensions, which accounted for about 1.1 million square feet. Three leases totaling approximately 514,000 square feet expired during the quarter and were not renewed.

Subsequent to the close of the quarter on March 31, 2008, we have executed leases totaling approximately 600,000 square feet and are currently negotiating seven new leases and nine lease extensions totaling approximately 1.5 million square feet.

In addition to our leasing activity, growth in our portfolio comes from our existing tenants through building expansions. We are currently expanding approximately 160,000 square feet at four locations, and we have one other potential expansion project in discussion that's estimated at 60,000 square feet. Our lease with Boeing in Herndon, Virginia, is scheduled to expire this quarter, but we are in negotiations with a new tenant for the entire space and we fully expect continuous occupancy for this 159,000 square foot office building.

In the third quarter of 2008, our lease with Citigroup in the Associates First Building in Irvine, California expires. This 136,000 square foot office data center is mostly subleased and we've been able to negotiate extensions with some of the subtenants, providing us with a building that as of today will be 41% leased upon expiration of the Citigroup lease.

In the fourth quarter, our leases with Raytheon on a 480,000 square foot office building, and a 200,000 square foot industrial building, both in Long Beach, California, will expire. The office building is largely subleased and we have been able to negotiate lease extensions with some of the subtenants. As of today, it is expected that at expiration of the Raytheon lease, the office building will be approximately 70% leased. We are working with local leasing brokers and we remain optimistic that we will be able to fully lease these properties.

So far this year, our tenant improvement allowances for office space have ranged from zero to $15 per square foot for a renewing tenant to $20 to $40 per square foot for a new tenant. Our tenant improvement allowances for industrial space have ranged from 0 to $1.50 per square foot for a renewing tenant to $1 to $3 per square foot for a new tenant.

Leasing commissions range from zero to 4.5% for a renewing lease and 4.5 to 6.75% for a new lease. We have budgeted $7 million in tenant improvement and leasing costs for the balance of 2008, $20 million for 2009 and $25 million for 2010.

Last week, we announced an important transaction involved in our office property at 100 Light Street in Baltimore, Maryland, which generated 27.1 million of lease termination revenue and allowed us to obtain fee title to the ground that we previously leased. These steps were important with respect to our leasing efforts and asset repositioning initiatives, which include the construction of a new parking garage, refurbishment of the building lobby, and a redesign of the plaza surrounding the building. It was a transaction that we had been working on for some time, and it was good to bring closure to the uncertainty of the Travelers' lease expiration and begin to implement the steps that will allow us to create additional value in this asset.

Construction of the parking garage is on schedule for completion at yearend. This new 10-story parking garage located adjacent to 100 Light Street will add approximately 530 parking spaces and 10,000 square feet of ground floor retail, bringing the parking ratio of 100 Light Street to 1.6 per 1,000, which is in line with comparable Class A buildings in the market. The retail space has been generating interest from a number of users; however, no leases have been signed to-date.

Collier Pinkard has been awarded the leasing assignment and together, we are formulating a marketing plan. We've engaged Wynford Property Management to manage the property on our behalf and have engaged an architect and a civil engineer to devise plans for the lobby renovation and the redesign of the plaza. We have budgeted $22 million that we are planning to invest in this building over the next 12 months. Upon the Legg Mason lease expiration in 2009, the property is expected to be 23% leased, assuming no additional leasing prior to expiration. We believe that we can get the building to at least 50% leased prior to the end of next year.

Now I'll turn the call back over to Will.

Will Eglin

Thanks, Natasha. Overall, we believe Lexington is well positioned strategically and from a capital perspective. Our leasing activity continues to be our greatest area of focus and we're making very good progress each quarter, especially in significant assets such as the Associates First Building, the Raytheon Building and 100 Light Street. We believe that our balance sheet continues to be in good shape with acceptable leverage, limited near-term refinancing exposure and sufficient liquidity, and in fact, we now only have about $22 million of debt maturing in 2008.

We also have a strong financial capacity to act on investment opportunities and this consists of the cash on our balance sheet, our untapped credit lines, our joint venture equity commitment from Inland and also longstanding relationships with other private investors, our property sales, especially in our retail portfolio, where we have about 16 buildings under letter of intent or contract to sell, and in addition, we're continuing to pay down our debt pretty quickly and we would amortize about $187 million of mortgage debt through 2013 just from regular payments.

Over the balance of the year, we do expect to become an active acquirer of properties, mainly through joint ventures, and we believe our joint venture capital and our own financial resources puts us in a strong position relative to our competition. We have an established joint venture with Inland and are optimistic that we can begin another program later this year with another institutional investor.

Our current expectation on guidance is for funds from operations per share to be in the range of $1.56 to $1.64 in 2008. This range does not include items that should be considered non-recurring included as non-recurring in our mind is revenue from the 100 Light Street lease termination transaction, which adds about $0.20 to FFO per share this year and other one-time items.

Operator, that ends our formal remarks. So I'll turn it over to you to conduct the question-and-answer session.

Question-and-Answer Session

Operator

(Operator Instructions). Thank you. Our first question comes from the line of John Guinee with Stifel Nicholas. Please proceed with your question.

John Guinee - Stifel Nicolaus

Yes, nice job. Will, does your guidance take into effect the Legg Mason, the reduction in the lease in the second, third and fourth quarter for your 100 Light Street deal?

Will Eglin

Yes.

John Guinee - Stifel Nicolaus

Okay. Pat, on Page 37, 38, does your cash GAAP numbers also take into effect the 100 Light?

Patrick Carroll

Yes.

John Guinee - Stifel Nicolaus

Brilliant. All right, thanks a lot.

Patrick Carroll

Thank you.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Sheila McGrath with KBW. Please proceed with your question.

Sheila McGrath - KBW

Yes, Will, I was wondering if you could review with us on 100 Light Street. You said it's going to be 23% occupied in September '09. Are there any prospects right now for the balance of the space or is there any leasing activity on…

Will Eglin

No, not presently. The 23% consists of tenants that are already in the building.

Sheila McGrath - KBW

Okay.

Will Eglin

So our expectation and hope is that between now and the end of next year, we can move the building to around 50% leased, not that every tenant would have been moved in by then, but that's the target that we're working toward.

Sheila McGrath - KBW

Okay. And can you remind us how much the parking garage, the cost of the parking garage?

Will Eglin

About 20 million.

Sheila McGrath - KBW

Okay. And is that going to be exclusively for 100 Light Street tenants or is it going to be a public garage?

Will Eglin

Exclusively for the building.

Sheila McGrath - KBW

Okay. And then, if Natasha could just repeat what the guidance on the CapEx on an annual basis, I think she went through 2008, '09, but I didn't get it.

Will Eglin

We talked about leasing costs, commissions and TI, and our budget is $20 million for 2009 and $25 million for…

Natasha Roberts

$25 million for 2010 and following year.

Will Eglin

Yes.

Sheila McGrath - KBW

Okay. Great. All right. Thanks.

Operator

Thank you. Our next question comes from the line of John Guinee with Stifel Nicholas. Please proceed with your question.

John Guinee - Stifel Nicolas

Hi, sorry, I forgot to ask this. Will, as you well know, sometimes it's better to go at it alone and try to lease up these vacant buildings when the lease rolls out, and sometimes its better just to sell the dream to someone else. How's the market right now in terms of selling the dream on some of these vacant buildings versus trying to do it as a sort of a remote owner-operator?

Will Eglin

My view is that now isn't necessarily a great time to sell anything. I think we were successful selling assets at good prices in first quarter. So I think the steps that we're taking on Light Street will allow us the optionality between now and when the Legg lease expires to consider other ways to recapitalize the asset, which could include a joint venture with someone.

But I don't think right now we should be committed to selling the dream, absent making a little more progress. As we get toward the end of next year and we have the garage finished, and we've established and clarified our plans with respect to how we reposition the building plaza and all of those aspects of creating a more desirable facility, I think we'll have a better dream potentially to sell to somebody.

John Guinee - Stifel Nicolas

How about the Citi building in Irvine or Raytheon or Bedford, Texas, any of those?

Will Eglin

No, our plan is to continue to make progress on the leasing front there. We're always open-minded if someone is willing to pay us more for the leasing opportunity than we see in our own ability to add value. I will say that we did sell an empty building this quarter in Walnut Creek and there, we got a price of about $275 a foot, which we thought was quite good for an empty building.

John Guinee - Stifel Nicolas

Sold the dream.

Will Eglin

Absolutely.

John Guinee - Stifel Nicolas

All right. Thanks.

Will Eglin

Yes.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Tony Paolone. Please proceed with your question.

Tony Paolone - JPMorgan

Hi, thanks. First on the guidance, what one key number is being used in the guidance range? Is the 42 or the 38?

Will Eglin

38.

Tony Paolone - JPMorgan

Okay. And then on 100 Light Street, the CapEx was $22 million, I think you mentioned, Natasha, on that for the next 12 months.

Natasha Roberts

Yes.

Tony Paolone - JPMorgan

It sounds like that's just the garage and maybe some other stuff.

Natasha Roberts

That's not the parking garage.

Tony Paolone - JPMorgan Securities

It's not?

Natasha Roberts

That's actually the plaza and the lobby.

Tony Paolone - JPMorgan

Okay. And so then the garage would be 20 on top of that?

Natasha Roberts

That's correct, yes.

Will Eglin

That's correct.

Tony Paolone - JPMorgan

Okay. Where do you think market rents are for that asset?

Natasha Roberts

$28 to $30 gross.

Tony Paolone - JPMorgan

And what would operating expenses look like, either per square foot or for the whole property?

Natasha Roberts

I believe they've been running in the $12 to $14 per square foot range and we're working on bringing those down.

Will Eglin

And we think we can do a little bit better job managing than what has been done there recently.

Tony Paolone - JPMorgan

Okay. And so, then the $0.5 million a month, I think that was cited in the press release there, that just assumes the 23% roughly? That would be the NOI monthly coming off of a 23% occupied building or…

Will Eglin

No, that's through 2009 including the Legg Mason. It is a direct lease to us now.

Natasha Roberts

The building is currently 98% leased.

Will Eglin

Right.

Tony Paolone - JPMorgan

Okay. Got it. And then in terms of getting fee interest in land, I think you said margin value is $16 million in the press release. Does that have to flow through or hit income statement or anything like that? Or how does that trade work?

Will Eglin

Additionally, it comes to $16 million, yes.

Tony Paolone - JPMorgan

Okay. And so just for OpEx then in Q2, it sounds like you'll get a big lease term for your cost of $16 million?

Will Eglin

Yeah. That's right. And then we have a write-off of the above market lease of like $18.4 million. So, the Q2 FFO pop from this is roughly like $23 million for this transaction.

Tony Paolone - JPMorgan

Okay. Got it. And then on the leasing front, when looking at like the '08, '09 expirations in the deals that have options, have any of those tenants exercised their options already?

Will Eglin

You mean in this quarter?

Tony Paolone - JPMorgan

Or just whenever that you know about that we kind of look out that are on the expiration list that we know are going to renew with an option.

Will Eglin

That would have showed up as an extended maturity in the supplemental.

Tony Paolone - JPMorgan

Okay.

Will Eglin

So subsequent to quarter end. The answer is no.

Tony Paolone - JPMorgan

Okay. And it seems you may have mentioned this and I missed it, the CapEx spent on leasing in the first quarter.

Will Eglin

Yeah. The lease costs were about $6.8 million and the CapEx was roughly $3 million.

Tony Paolone - JPMorgan

And that $3 million is all non-revenue producing sort of maintenance and…

Will Eglin

That's exactly right.

Tony Paolone - JPMorgan Securities

Okay. And those two numbers combined would be equivalent to the budgeted numbers you gave out, Natasha, for the balance of '08, '09 and 2010?

Natasha Roberts

I didn't take into account CapEx, other than when I spoke about 100 Light Street.

Tony Paolone - JPMorgan

Okay. How should we think about that part of it?

Will Eglin

I think the right number for CapEx over the balance of the year is probably in like the $7 million area. I think the rule of thumb for the portfolio is to think of it as roughly $0.15 a foot per year. This year is obviously higher and next year is higher because you've got outlier situations like Light Street that pop up periodically.

Tony Paolone - JPMorgan

Okay. I think it was on the leases signed in the quarter, do you have a cash-on-cash spread versus prior leases?

Will Eglin

We don't have it in the supplement, so we'd have to go back to prior supplements to recreate that.

Tony Paolone - JPMorgan

Okay. And then trying to incorporate what you talked about in terms of 514,000 square feet of leases that expired in the quarter without any renewals, but you did a lot of leasing in the quarter and then you talked about some of the progress you're making. Do you have a sense of just where occupancy trends the next few quarters when you net all that stuff out?

Will Eglin

I think occupancy trends up a little bit, but then at the end of August, the Associates First lease comes off, and then we have Raytheon going from 100% occupied to 70 at the last day of the year.

And I'd like to give a clear number at June 30 because we've got roughly 1.5 million square feet of leases in the works right now. And I'd love it if they all came in by then, but they won't. So some of those will be in the occupancy number at June 30; some won't.

Tony Paolone - JPMorgan

Okay.

Will Eglin

But our expectation is when we get to year end occupancy in the portfolio, it's roughly where it is right now.

Tony Paolone - JPMorgan

Okay. And then just last question, Will, you mentioned there being more deal opportunities now than there was last quarter and I think the year prior. It seems like a lot of the talk on conference calls this quarter is that people are expecting things to get a little bit better later in the year, but that the bid-ask spread is still pretty wide. What's changed in your market? It seems like maybe you're seeing those deals a little bit sooner than others are.

Will Eglin

Well, we're looking right now, I would say, at roughly $100 million of acquisition business that looks like it's priced to a point where we would be interested in buying it. That's not a whole lot, but I think it's indicative that we might actually see a more active transactions market in the second half of the year. So we're in no rush to take money out of the bank right now because we do think that it does get better over the balance of the year.

So our expectation is that our investment activity will be mainly in the second half, but we're starting to see the bid-ask spread narrow in the sort of part of the market where there haven't been a lot of transactions closed. So I'm optimistic about that. But again, we're not rushing to take cash out of the bank and put it to work.

Tony Paolone - JPMorgan

Okay. Thank you.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Matt Thorp with Cantor Fitzgerald. Please proceed with your question.

Matt Thorp - Cantor Fitzgerald

How are you guys doing? On the $22 million in CapEx on Light Street, can you break out what would be maintenance level CapEx?

Natasha Roberts

The majority of that number is really in the plaza redesign. The next largest portion of that would go to the lobby redesign and then the balance is, we've got some HVAC work, we have roof replacement, but the bulk of those dollars is going to the plaza and the lobby.

Matt Thorp - Cantor Fitzgerald

Okay. Could you just explain the $60 million fee interest in the land? Does Lexington now own the land or have rights to own the land?

Will Eglin

Lexington now owns the land.

Matt Thorp - Cantor Fitzgerald

Okay. And what's the gross basis in this property? I think in the press release, it mentioned a $92 million net basis.

Will Eglin

Right. So $92 million, if you add the $22 million in CapEx that we're talking about, now, that would bring it about to $215 a square foot and then you have the 20 million for the garage.

Matt Thorp - Cantor Fitzgerald

And that's all-inclusive in the $92 million?

Will Eglin

No.

Patrick Carroll

No, the 92…

Will Eglin

The garage is a standalone facility across the street.

Patrick Carroll

And the 92 million was pre-CapEx.

Matt Thorp - Cantor Fitzgerald

Pre-CapEx, okay. And can you give a depreciation amount, what, I guess, the gross real estate is?

Patrick Carroll

Well, that $92 million is our net basis after depreciation because we had to write-off all the lease costs. We had to write-off $18.4 million in capitalized above-market leases and we had to write-off roughly $11 million in other lease intangibles, and we had to write off approximately $16 million in our ground lease interest, since we no longer have a ground lease. We have a fee position.

Matt Thorp - Cantor Fitzgerald

Okay.

Patrick Carroll

So that 92 was after all those write-offs.

Matt Thorp - Cantor Fitzgerald

Okay. And what's the driving demand in the market for this space right now? What's so attractive about this particular property? I mean what are you going for in your marketing strategy to get this leased up?

Will Eglin

Well, this is an iconic building in Baltimore. It's a fundamental part of the skyline. It's at the end of a very long-term lease and it needs to be an asset that's spruced up and more actively managed. But I see no reason why with the steps that we're taking we can't make it one of the top business addresses in Baltimore.

It just needs some investment, but I think that the plan that we're putting in place will take some time, but I think we can really turn this into a terrific building that people want to be in, relative to the other choices for Class A occupancy in downtown.

Baltimore, it's not a big-user market. There are only about 25 users that lease more than 100,000 feet downtown. So we have some work to do. But we're on the path to great success, I think.

Matt Thorp - Cantor Fitzgerald

And looking at the share repurchase program, have you completed any repurchases year-to-date?

Will Eglin

We have not. We bought back a lot of stock last year and de-equitized the balance sheet as a result. So our preference right now is to preserve our liquidity, have ample cash on the balance sheet. We have been more interested in looking at repurchasing our debt to the extent we can buy down at an attractive enough discount.

Patrick Carroll

Matt, I think Will meant after this first quarter. During the quarter, we did buy back about 1.1 million shares.

Will Eglin

Most of which were…

Patrick Carroll

Early in the quarter…

Will Eglin

Yes.

Patrick Carroll

…we disclosed in the 10K.

Matt Thorp - Cantor Fitzgerald

Okay.

Patrick Carroll

We haven't bought back anything else since we disclosed it in the 10K.

Matt Thorp - Cantor Fitzgerald

Okay. And could you give me some more color on the Concord, how that performed in the quarter, maybe the underlying assets?

Will Eglin

As expected, the significant loan payoff there was when we got paid off in the Macklowe transaction, which we thought was a great outcome. Concord really didn't make any new investments, so the portfolio is continuing to perform as we expected and generating the returns that we expected as well.

Patrick Carroll

And from a standpoint from our equity pickup, we had about $4 million of our equity in earnings came from Concord and that's after they took an impairment charge and a debt satisfaction gain that kind of wiped itself out. So, the 4 million of our equity in earnings does come from Concord.

Matt Thorp - Cantor Fitzgerald

Okay.

Patrick Carroll

You'll see in the 10Q that's going to be filed tomorrow, they took an additional $20 million write-down on their bonds. But they feel it's going to be collectible, but accounting requirements require them to mark it to market, so that was another $20 million in the quarter.

Matt Thorp - Cantor Fitzgerald

Okay. I think that's it. Thanks, guys.

Operator

Thank you. There area no further questions at this time. I would like to turn the call back over to management for closing comments.

Will Eglin

Well, thank you, again, for joining us this morning. We're very excited about our prospects for the remainder of the year and as always, we appreciate your participation and support.

If you would like to receive our quarterly supplemental package, please contact Lisa Sores or you can find additional information on the Company on our website at www.lxp.com, and in addition, you may contact me or any other members of our senior management team with any questions that you have. Thank you and have a good day, everyone.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: Lexington Realty Trust Q1 2008 Earnings Call Transcript
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