News Column

LEPERCQ CORPORATE INCOME FUND L P - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 7, 2014

Introduction

When we use the terms "the Partnership," "we," "us" and "our," we mean Lepercq Corporate Income Fund L.P. and all entities owned by us, including non-consolidated entities, except where it is clear that the term means only the parent company. References to Lex GP are to our general partner, Lex GP-1 Trust, a Delaware statutory trust, and references to Lex LP are to Lex LP-1 Trust, a Delaware statutory trust, which hold together approximately 95.0% of our OP units. When we use the term "Lexington" or "LXP," we mean Lexington Realty Trust and when we use the term "REIT" we mean real estate investment trust. All references to "LCIF II" in this Quarterly Report mean Lepercq Corporate Income Fund II L.P., which was merged with and into us on December 31, 2013. References herein to ''this Quarterly Report" are to this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2014. The results of operations for the three and six months ended June 30, 2014 and 2013 are not necessarily indicative of the results that may be expected for the full year.

The following is a discussion and analysis of our unaudited condensed consolidated financial condition and results of operations for the three and six months ended June 30, 2014 and 2013, and significant factors that could affect our prospective financial condition and results of operations. This discussion should be read together with the accompanying unaudited condensed consolidated financial statements and notes thereto and with our consolidated financial statements and notes thereto included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 17, 2014, which we refer to as our Annual Report. Historical results may not be indicative of future performance.

Forward-Looking Statements. This Quarterly Report, together with other statements and information publicly disseminated by us, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our 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" or similar expressions. Readers should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. In particular, among the factors that could cause actual results, performances or achievements to differ materially from current expectations, strategies or plans include, among others, any risks discussed below in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and under the headings "Risk Factors" in this Quarterly Report and "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report and other periodic reports filed with the SEC. Except as required by law, we undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.

Critical Accounting Policies.

Management's discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing our unaudited condensed consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. Our accounting policies are discussed under (1) Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report, (2) note 2 to our consolidated financial statements contained in our Annual Report and (3) note 1 to our unaudited condensed consolidated financial statements contained in this Quarterly Report. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report.

15



--------------------------------------------------------------------------------

Table of Contents

Liquidity

Cash Flows. We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all distribution payments in accordance with our partnership agreement requirements in both the short-term and long-term. However, without a capital event, which would most likely involve LXP, we do not have the ability to fund balloon payments on maturing mortgages or acquire new investments.

Cash flows from operations as reported in the condensed consolidated statements of cash flows totaled $21.4 million and $18.4 million during the six months ended June 30, 2014 and 2013, respectively. The underlying drivers that impact working capital and therefore cash flows from operations are the timing of (1) the collection of rents and tenant reimbursements and loan interest payments from borrowers and (2) the payment of interest on mortgage debt and operating and general and administrative costs. We believe the net-lease structure of the leases encumbering a majority of the properties in which we have an interest mitigates the risks of the timing of cash flows from operations since the payment and timing of operating costs related to the properties are generally borne directly by the tenant. Collection and timing of tenant rents is closely monitored by management as part of our cash management program. Cash flows from operations are also impacted by the level of acquisition volume and sales of properties.

Net cash provided by (used in) investing activities totaled $(2.1) million and $24.1 million during the six months ended June 30, 2014 and 2013, respectively. Cash provided by investing activities related primarily to collection of loans receivable, distributions from non-consolidated entity in excess of accumulated earnings, net proceeds from the sale of properties and changes in escrow deposits and restricted cash. Cash used in investing activities related primarily to capital expenditures on real estate properties, investments in real estate under construction and an increase in deferred leasing costs. Therefore, the fluctuation in investing activities relates primarily to the timing of investments.

Net cash used in financing activities totaled $26.5 million and $38.7 million during the six months ended June 30, 2014 and 2013, respectively. Cash used in financing activities was primarily attributable to distribution payments, redemption of OP units, an increase in deferred financing costs and debt payments. Cash provided by financing activities was primarily attributable to related party advances, net.

Property Specific Debt. As of June 30, 2014 and December 31, 2013, we had $329.2 million and $339.2 million, respectively, of consolidated property specific debt outstanding. As of June 30, 2014, we had no property specific debt with related balloon payments maturing in 2014 and $28.5 million of property specific debt with related balloon payments maturing in 2015. If a mortgage is unable to be refinanced upon maturity, we will be dependent on LXP's liquidity resources to satisfy such mortgage to avoid transferring the underlying property to the lender or selling the underlying property to a third party.

Capital Recycling. Part of our strategy to effectively manage our balance sheet involves pursuing and executing well on property dispositions and recycling of capital. During the six months ended June 30, 2013, we disposed of our interest in a property for a gross sales price of $25.9 million and two properties via foreclosure in full satisfaction of the $29.9 million aggregate related non-recourse mortgage. During the six months ended June 30, 2014, we did not dispose of or acquire any properties.

16



--------------------------------------------------------------------------------

Table of Contents

Results of Operations Three months ended June 30, 2014 compared with the three months ended June 30, 2013. The increase in total gross revenues in the second quarter of 2014 of $13.1 million is primarily attributable to an increase in rental revenue. The increase in rental revenue of $12.1 million was primarily due to new property acquisition revenue of $12.7 million, primarily the New York City land leases, offset in part by a reduction due to lease extensions entered into at rents below previous rental amounts, the net impact of management of certain properties being transferred between the tenant and us and an increase in vacancy at one property. Depreciation and amortization increased $1.0 million primarily due to property acquisitions. The increase in property operating expense of $0.5 million is primarily due to the acquisition of one property with operating expense obligations ($0.9 million), offset in part by the net impact of management of certain properties being transferred between the tenant and us ($0.5 million). The increase in general and administrative expense of $0.6 million is primarily due to an increase in allocable costs from LXP. The increase in interest and amortization expense of $4.6 million was primarily due to the financing of the New York City land parcels acquired in 2013 and an increase in the allocation of interest from LXP, offset in part by a reduction in interest expense related to mortgages satisfied in 2013. Debt satisfaction charges, net decreased by $1.3 million, primarily due to the timing of debt satisfactions. Discontinued operations represent properties sold or held for sale. During the second quarter of 2014, we did not have any discontinued operations. During the second quarter of 2013, discontinued operations generated net income of $7.6 million, primarily due to a gains on sales of properties of $10.4 million, offset in part by debt satisfaction charges, net of $2.7 million. The increase in net income of $0.2 million was primarily due to the items discussed above. Six months ended June 30, 2014 compared with the six months ended June 30, 2013. The increase in total gross revenues in the six months ended June 30, 2014 of $26.3 million is primarily attributable to an increase in rental revenue. The increase in rental revenue of $24.4 million was primarily due to new property acquisition revenue of $25.4 million, primarily the New York City land leases, offset in part by a reduction due to lease extensions entered into at rents below previous rental amounts, the net impact of management of certain properties being transferred between the tenant and us and an increase in vacancy at one property. Depreciation and amortization increased $1.9 million primarily due to property acquisitions. The increase in property operating expense of $0.9 million is primarily due to the acquisition of one property with operating expense obligations ($1.8 million), offset in part by the net impact of management of certain properties being transferred between the tenant and us ($0.9 million). The increase in general and administrative expense of $1.8 million is primarily due to an increase in allocable costs from LXP. The increase in interest and amortization expense of $7.8 million was primarily due to the financing of the New York City land parcels acquired in 2013 and an increase in the allocation of interest from LXP, offset in part by a reduction in interest expense related to mortgages satisfied in 2013. Debt satisfaction charges, net decreased by $1.3 million, primarily due to the timing of debt satisfactions. Discontinued operations represent properties sold or held for sale. During the six months ended June 30, 2014, we did not have any discontinued operations. During the six months ended June 30, 2013, discontinued operations generated net income of $6.5 million, primarily due to gains on sales of properties of $10.4 million, partially offset by impairment charges of $6.0 million.



The increase in net income of $8.8 million was primarily due to the items discussed above.

Off-Balance Sheet Arrangements We are co-borrowers or guarantors of corporate borrowing facilities and debt securities of LXP (see note 10 to our unaudited condensed consolidated financial statements with respect to debt securities). In addition, we, from time to time, guarantee certain tenant improvement allowances and lease commissions on behalf of subsidiaries when required by the related tenant or lender. However, we do not believe these guarantees are material to us as the obligations under and risks associated with such guarantees are priced into the rent under the lease or the value of the property.

17



--------------------------------------------------------------------------------

Table of Contents


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters