Good morning and welcome to the Lexington Realty Trust Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. It is now my pleasure to turn the floor over to your host, Gabby Reyes, Investor Relations for Lexington Realty Trust. Please go ahead, ma'am.

Hello and welcome to the Lexington Realty Trust fourth 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 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. Lexington does not undertake a duty to update any forward-looking statements. Joining me today from management are Will Eglin, Chief Executive Officer, Robert Roskind, Chairman, Dick Rouse, Chief Investment Officer, Patrick Carroll, Chief Financial Officer, Joseph S. Bonventre, General Counsel and other members of management.

Thanks, Gabby. And welcome, everyone, and thank you all for joining the call today. I'd like to begin by discussing our operating results and accomplishments for the fourth quarter. For the quarter, our company funds from operations were $0.25 per share, aided by early repayments in our loan portfolio, which brought the total for 2011 to $.96 per share, which was $0.03 ahead of the guidance we gave at the beginning of the year. The quarter was characterized by continued solidly seeing [ph] activity of approximately 500,000 square feet of new and renewal leases signed leading to an overall portfolio occupancy rate of approximately 96% at quarter end. And this momentum accelerated in the first quarter of 2012 with 2.7 million square feet of new and extended leases signed to date. In addition, we made progress on the investment front in the quarter with one purchase of $12.1 million, we have already closed one transaction to start 2012 and we believe our pipeline of similar opportunities continues to be robust. We also had further success on the capital recycling front with $22.7 million of property sales closed bringing our total for the year to $160.1 million at a 7.4% cap rate. In addition, we received $19.5 million of repayments in our loan investment portfolio and we accomplished an additional deleveraging of the balance sheet of $54 million, which included the repurchase of $15 million of preferred shares at a $1 million discount to par value. Overall, in 2011, we deleveraged the balance sheet by $136 million, which we believe has positioned Lexington to take advantage of refinancing opportunities in a low interest rate environment. In the first quarter of 2011, we closed a 7 year term loan and swapped a LIBOR rate on $108 million of LIBOR borrowings into a…

Thanks, Will. During the quarter LXP had gross revenues of $82.9 million, comprised primarily of lease rents and tenant reimbursements. Under GAAP, we were required to recognize revenue on a straight-line basis. In addition, the amortization of above and below-market leases are included directly in rental revenue. In the quarter, GAAP rents were in excess of cash rents by approximately $4.8 million, including the effect of above and below-market leases. For the year ended December 31, 2011, GAAP rents were in excess of cash rents by about $2.7 million. We have also included on Page 41 in the supplement our estimates of both cash and GAAP rents for 2012 through 2016, the leases in place at December 31, 2011. In the fourth quarter of 2011, we recorded $2.6 million in non-cash impairment charges and $1.3 million of gains on sales relating to properties disposed. On Page 38 of the supplement, we have disclosed selected income statement data for our consolidated, but non-wholly owned properties in our joint venture investments. We also have included non-cash interest charges recognized in the year end at December 31, 2011, on Page 39 of the Supplement. Our G&A was about $0.5 million lower in the fourth quarter of 2011 compared to the fourth quarter of 2010 due to reduced personnel costs. Interest expense decreased $2.3 million due to the deleveraging of the balance sheet. This has resulted in interest coverage of approximately 2.7x, fixed charge coverage of approximately 1.9x, and debt to EBITDA of approximately 6x. Equity in earnings from joint ventures increased $4 million, primarily due to about a $0.5 million distribution from Concord and a $2.2 million distribution relating to an investment in a mezzanine loan. The change in the value of the forward equity commitment relates primarily to the change in our…

Thanks, Pat. In summary, we had success last year by maintaining high levels of occupancy, strengthening our balance sheet and reducing debt levels, selling non-core properties at good prices and originating new investments that improved the quality of our portfolio and cash flow. This year our objective is to build on the progress we have made and, first, execute on leasing opportunities in order to maintain high levels of occupancy. Second, realize values on non-core properties when we can obtain full prices. Third, capitalize on the substantial refinancing opportunities that we have. Fourth, continue to work down our leverage as opportunities arise, and five, invest in build-to-suit properties. We believe that much of the value we have added the last few years and the opportunities in front of us have yet to be reflected in the valuation of the company. We believe Lexington offers compelling value and total return potential for investors based on our current dividend yield, conservative payout ratio, the opportunity to further lower debt service payments by refinancing, acquisition opportunities that improve cash flow and upgrade the quality of our portfolio, and declining levels of debt. Given all this, we would expect our multiple to expand and our value to grow over time. We believe the company's current debt maturity profile provides us with an opportunity to both reduce our leverage and refinance on advantageous terms. Over the next 2 years our target is to reduce our current level of secured debt by roughly $200 million through dispositions, regular principal amortizations, and resolutions of nonrecourse debt maturities. From the standpoint of refinancing through 2015, Lexington has $881 million of balloon-debt maturing, all of which is non-recourse, at a weighted average interest rate of 5.6% with current annual payments of $77.4 million including principal amortization. Having just locked…

[Operator instructions] We will first go to Sheila McGrath from KBW.

Will, you mentioned in your release on the new financing that the coupon would go lower if you obtain an investment grade rating. I'm just wondering if that is something you're currently pursuing and what are the necessary steps or metrics that you need to achieve to get there?

Well, you're right Sheila. We did set up the new facility so that our borrowing cost would decline, if and when we achieve an investment grade rating. And I do think that if you look at the trends over the last 3 to 4 years in our credit metrics, sort of the inevitable conclusion is that at a point in time, we would become an investment grade-rated company. I would say that from our standpoint, it's not something that we are pushing very hard right now, but as we look at our maturity profile, particularly in 2014 and 2015, we do believe it would be advantageous for us to have access to the bond market and be an investment grade issuer. And I think we are on the path to becoming that company.

Okay. So in financing new acquisitions, are you going to keep them unencumbered? Is that the . . .

We are. We are very focused on building up our free and clear pool of properties.

Okay. And then, you also have mentioned previously that for the 2011 and 2012 expirations that we should expect roll downs of about 12 million when you look at where existing rents were and market. I'm just wondering if you could update that figure for us.

Truly, we burned through a lot of that last year, I would say on what's left of 2012 mark-to-market is sort of in the range of $3.5 million to $4 million. So we have worked that down a lot.

And we'll now go to Anthony Paolone from JPMorgan.

Will, you mentioned I think I caught 2.9 million square feet of leases that you plan to do in 2012 and I just didn't quite understand is that against vacancy or does that include renewals as well?

That is all inclusive and includes renewals, Tony.

So then you mentioned you'd done the 1.9 million square feet of industrial already and a couple hundred thousand in Orlando, does that go against the 2.9? Just trying to tie that all together.

Yes, it does, Tony.

Okay, so it doesn't leave you a lot left to do over the course of the year. Is that a fair assumption?

That, I think that's right. So we're in terms of, like, our total game plan is for the year, we're well on our way there.

Okay. And I assume the 1.9 million square feet you mentioned that's Michelin, that's what shows up as CEVA Logistics, is that?

That's correct, Tony.

Okay. What -- how did the new rents compare with the old ones there?

They were flat.

They were flat.

Okay, and what do you have budgeted for CapEx, for, I guess, this 2.9 million square foot pool, just in terms of leasing capital?

For the whole portfolio for the year, our budget for the year is sort of in the $0.20 to $0.24 range. It's a little heavier than our expectation going forward. Because we have some money going out of the door in Transamerica Tower still, and the Wyndham lease had a fair amount of TI related to it.

$0.20 to $0.24 cents a share? Is that . . .

Yes.

Okay. And that's for capital? That doesn't include any straight line or BASEL 141 stuff like that.

No, no, no.

Like for instance on the Orlando property, TI in that facility, because it has sat vacant for a few years, the TI in that facility was about $11.8 million by itself.

Okay, got it. And then, Will, can you walk us through the Net Lease Strategic process again? I was trying to digest everything you had mentioned in terms of how it plays out and just want to try and understand that a little better.

Yes, we had -- there's a buy sell in the joint venture which we exercised, and it's fairly standard in a joint venture where there's a buy-sell that the other partner would have a right of first offer, which would give them a defined period of time to see whether the properties can be sold for a higher price. So both partners have essentially exercised options that would bring that joint venture to an orderly conclusion. And to the extent that the properties end up being sold to a third party, the joint venture would stay alive for a couple of extra months compared to what we thought. Which, honestly, that wouldn't be so bad for us because every month we keep our capital invested there, it's about $0.01 accretive compared to having cash in the bank. So, to the extent the sale occurs in August versus June, we view that as an opportunity to revisit our guidance for the year with an upward bias.

Okay. And I think you'd mention 45 days, what was the significance of that again, in terms of what needs to happen?

Both partners have given notice, and there's a 45-day period where our partner could after 45 days choose to buy us out at the price. And we are inside that 45-day period.

A responding partner has 45 days to answer what the other partner has done.

Okay. And so, if they don't buy you out at the price, the portfolio will be taken to market and sold over the next couple quarters. Is that the way to think about it?

Yes, and it's specified that it would have to be prior to August 21.

Okay. And then, last question, just can you give us a little color on how you thought about the Transamerica Tower potential sale? It sounds like you evaluated a potential sale and pricing wasn't quite there, just wondering what that environment looked like?

Well, we actually thought we would get a good price for the building, but from our standpoint the ability to -- the financing markets are still [ph] strong. The ability to put long-term fixed rate debt on the building, we think can potentially add a lot of value, and ultimately, allow us to realize a lot more money from the asset. As we look at financing it for $60 million, we got all our capital out. We probably got close to something that reflected empty building value from several years ago as well. And we still have a 95% leased asset that's going to throw off a lot of cash flow. And if we could in 2 or 3 years sell that cash flow to a buyer at maybe an 8% yield, we are looking at a total recovery from the asset of magnitude $130 million. Our judgment is that playing for that is material. And that would be a much, much better outcome than simply turning the asset into cash today.

And we'll now go to John Guinee from Stifel.

Just so I follow this a little bit through, I think Tony's question. Assuming you can sell everything within the Net Lease Strategic fund by the end of August, what's the proceeds to LXP in terms of preferred plus common?

As of today it's about $207.7 million.

That’s about it, yes.

Roughly. And our capital position increases modestly as the year progresses.

Right. And what's the likelihood of this being a clean unwind, as you described, versus of the 43 assets, some being held by you, some being held by Inland, some being sold to third parties?

Right now there's no active discussion with our partner about any other alternative relative to exercising either option.

The buy-sell is all/none. And the right of first offer was for 41 of the 43 properties, so at the end of the day, if the right of first offer went through, it would be 2 properties left.

Got you. Okay. And then, I thought Sheila asked a very good question about shifting to investment grade, but the other side of the equation, as we all know on this call, is that if you were not able to transfer a lot of vacant assets to lenders 2 and 3 and 4 years ago, we might not be having this call today. And that strategy of individual asset levering turned out to be incredibly beneficial to you, in terms of transferring vacant assets to perhaps unwilling transferees. How does that all work?

Well, in today's market, John, it's very difficult to get, for example, a 10-year mortgage with a large balloon payment on a 10-year lease on a single tenant building. So in a different market, you're absolutely right, we protected our residual risk via the non-recourse financing strategy. So we are not at all turning our backs on the secured financing model as a risk mitigation strategy, but to the extent that we became an unrated company, ultimately, I think, you would probably have a balance between secured and unsecured debt on the balance sheet. I think if we looked at our target leverage of 40%, maybe half of that could be bonds and the other half secured debt. So we're not turning our back on the mortgage market, we just think for the next couple of year we'd probably be better served improving our flexibility with respect to refinancing. And one of the challenges that we have when a mortgage comes due, we often don't have a 10 or 15 year lease to finance it against. We may have a 3 or 5 year renewal. And we generally think if a property has become cycle tested and made it past the non-recourse put in the last few years during what's been a terrible economy that ultimately over half of our portfolio will become unencumbered and serve as free and clear collateral to support alternatives, relative to secured financing.

We'll now go to Todd Stender from Wells Fargo Securities.

Will, you indicated that you will meet your maturing mortgage debt with a new term loan and I think you quantified that with $0.23 a share. How much of that is in your 2012 guidance?

We looked at the $0.23 a share, Todd, over, honestly, through 2015 to illustrate the refinancing opportunity that we have ahead. We have, roughly, what's maturing over...

We have, like, $130 million maturing over the rest of this year.

So we've, in our guidance, we've assumed that that's taken out with term financing.

Okay, thanks. And just back to the CapEx expectations for this year, how much you think you'll allocate to the Transamerica Tower?

Not, not very much. I mean, the big money going out of the door is for the Wyndham lease in Orlando.

Okay. And then, can you just remind us of how you are looking at some of the uses for the expected cash proceeds that you'll get this year from the net lease JV plus Transamerica refinance? Just, is there a posture towards paying down debt or you think it's more towards growth and acquisitions?

Well if we -- we have a $107 million left on the term facilities to retire debt. That leaves us with roughly $30 million or so of other maturing debt to pay down. We could use some of the Transamerica proceeds for that. And beyond that, we have a pretty good pipeline of acquisition opportunities that's developing.

Okay, thanks. And I don't know if you've said this earlier, just the 11 new and extended leases that you've completed so far, what was the mix between the new and existing leases?

Well $1.9 million was extensions on 2 existing leases that were to CEVA, which is now Michelin. So the lion's share of it was extensions of leases. Morgan, Lewis, Bockius in Philadelphia was an extension and the big, new lease was the Orlando property.

That was -- right, the Wyndham lease for roughly 230,000 feet, and we had 66,000 square feet with Owens Corning.

And now we'll go to William Segal [ph].

The Wyndham lease in Orlando, any idea, roughly, price and terms on that?

Yes. It's about, from a GAAP standpoint, rent is about $450,000 a month. We did give them approximately 10-months free to start off, so cash will be slightly behind that, and it's about 2% annual bumps.

And lease term?

12 years.

You've covered the Transamerica building. I'm curious about your strategy for acquisitions. Any geographic bias to that or is it just an opportunistic sort of thing?

It's opportunistic and it's really derivative of where corporations want to be building new facilities for whatever reason. We expect to have -- to continue to have very strong diversification from a location standpoint.

And we'll now go to Ryan Novak [ph] from Pilot Advisors.

I just was curious if there has been any change in your dividend strategy given the strong releasing after year-end all the opportunities in build-to-suit and the cash coming into the business this year?

The company is generally on a schedule of reviewing its dividend once a year, typically toward the end. And the last 2 years we've announced any change with respect to dividend policy with our third quarter earnings. So you're right to point out that we think we're executing very well and ahead of plan in many respects. But right now it's not contemplated that we would revisit the dividend decision earlier in the year than usual.

Okay, great. So the dividend this year will end up being approximately taxable income. Is that the strategy right now?

That's correct.

And we'll now go to Sheila McGrath from KVW.

Pat or Will, I was wondering, can you remind us what is in your guidance on the assumptions on the JV and Light Street?

We are assuming that we finance Light Street at a rate of sub-4.5. And we've been conservative with respect to funds from operations because our assumption is that the joint venture unwinds in June and not August. If it goes to August that's roughly, like I said, $0.02 of accretion compared to having that money sitting in cash in the bank right now.

Okay. And the other question I had, you referred to Light Street in a couple of years being $130 million. Can you just run by your assumptions on that again?

Well, we think that a couple of years out we'll have more than $6 million of free cash flow after debt service. So, if the buyer in that environment capitalized that stream at 8%, if you simply added that to the debt balance that's roughly the answer. So that compares obviously favorably to valuations that we've discussed in the past on the asset.

And it appears there are no further questions, so I'll turn the conference back over to our presenters for any additional or closing remarks.

Thank you all again for joining us this morning. We're very excited about our prospects for the balance of this year and beyond. And as always we appreciate your participation and support. If you would like to receive our quarterly supplemental package please contact Gabriela Reyes, or you can find additional information on the company on our website at www.lxp.com. And in addition, as always you may contact me or the other members of our senior management team with any questions. Thank you.

This concludes today's presentation. Thank you for your participation.