Good morning and welcome to the Lexington Realty Trust third quarter 2017 conference call and webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Heather Gentry, Investor Relations. Please go ahead.

Thank you, operator. Welcome to the Lexington Realty Trust third quarter 2017 conference call and webcast. The earnings release was distributed this morning and both the release and supplemental disclosure package that details this quarter's results are available on our website at www.lxp.com in the Investors section and will be furnished to the SEC on a Form 8-K. Certain statements made during this conference call regarding future events and expected results may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Lexington believes that these statements are based on reasonable assumptions. However, certain factors and risks, including those included in today's earnings press release, and those described in reports that Lexington files with the SEC from time to time could cause Lexington's actual results to differ materially from those expressed or implied by such statements. Except as required by law, Lexington does not undertake a duty to update any forward-looking statements. In the earnings press release and supplemental disclosure package, Lexington has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure. Any references in these documents to adjusted company FFO refer to adjusted company funds from operations available to all equity holders and unitholders on a fully diluted basis. Operating performance measures of an individual investment are not intended to be viewed as presenting a numerical measure of Lexington's historical or future financial performance, financial position or cash flow. Joining me on today's conference call to discuss Lexington's third quarter 2017 results are Will Eglin, Chief Executive Officer, and Pat Carroll, Chief Financial Officer. Will, Pat, and other executive members of management, including our transactions group, will be available to answer questions following our prepared remarks. I will now turn the call over to Will.

Thank, Heather. Good morning, everyone and thank you for joining our third quarter 2017 earnings call and webcast. We are pleased to report positive third quarter results. Net income totaled $0.02 per diluted common share and we generated $0.25 per common share of adjusted company funds from operations during the quarter. In addition to positive financial results, our business plan execution continues to lead to significant improvements in the overall quality of our portfolio. We added $321 million of industrial assets to the portfolio during and subsequent to the quarter, most notably a $200 million three property industrial portfolio acquired at the end of September. We also disposed of another $70 million of non-core assets during the quarter and subsequently, further reducing our exposure to leasing risk and related CapEx as well as incremental operating expenses. Leasing volume of 1.2 million square feet in the quarter supported a healthy percentage leased of 97.9% at quarter end and we have completed an additional 700,000 square feet of leases since then. Leverage increased in the third quarter when compared to the past few quarters, primarily as a result of bottoming [ph] on our line to fund the I-40 industrial portfolio acquisition, without the benefit of recognizing a full quarter of EBITDA. Overall, our balance sheet remains in good shape with 73% of our assets unencumbered and a weighted average debt maturity of 6.9 years. Given our 2017 acquisition volume, improving risk profile and a longer weighted average lease term, we announce today an increase in our annual dividend rate from $0.70 to $0.71 per common share. Also, as a result of better visibility leading into the remainder of the year, we are tightening our 2017 adjusted company FFO guidance within the range of $0.95 to $0.97 per diluted common share. Let’s take…

Thanks, Will. Good morning, everyone. Gross revenues for the quarter were $98 million, compared with gross revenues of 106 million for the same time period in 2016. The change is primarily attributable to 2016 and 2017 sales, largely the New York City land investments we sold in 2016 and lease expirations, which were partially offset by revenues generated from property acquisitions and new leases. Net income attributable to common shareholders for the quarter was $4 million or $0.02 per diluted common share, compared to a net loss of 27 million or $0.12 per diluted common share for the same time period in 2016. Our 2017 guidance for net income is now expected to be within a range of $0.35 to $0.37 per fully diluted common share. This estimate is sensitive to the timing and composition of acquisitions and sales among other factors. During the quarter, we recognized impairment charges of 22 million and 11 million of gains related to property sales. Adjusted company FFO for the quarter was $61 million or $0.25 per diluted common share compared to 67 million or $0.28 per diluted common share for the same time period in 2016. The New York City land investments, which we sold in September of 2016 generated 8.7 million of adjusted company FFO or about $0.035 per common share in the third quarter of 2016. GAAP rents were in excess of cash rents during the quarter by approximately 3 million, primarily as a result of the straight lining of tenant rents. On page twenty of the supplement, we have included estimates of both GAAP and cash rents for the remainder of 2017 and 2018 for leases in place at September 30, 2017. As a reminder, this does not assume any tenant releasing of vacant space, tenant lease extensions on properties…

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

[Operator Instructions] The first question will come from Sheila McGrath of Evercore.

Will, I was wondering your percentage of industrial has gone up again, which I know that's the goal. I wonder if you could talk about what the ideal mix is there and if you would consider a portfolio sale of non-core assets to get there more quickly.

Sure, Sheila. I think we’re making good progress toward having more of the portfolio in industrial versus office. Some of that will depend on what we find to invest in next year, but most of what we're selling through the end of next year is office. And secondarily, what we sort of refer to as the stuff portfolio which has some retail properties and some tenant properties and -- but if we can execute that plan and reinvest the proceeds in industrial, I think that the composition of the portfolio is more like 55% industrial; 45% office, which we think is a big improvement. Right now, we're not looking at any office investments. So it seems to me like if we were to look beyond there, it seems like the portfolio is going to continue to tilt more and more in favor of industrial right now. We have looked at portfolio dispositions in the past, but we felt like from a net asset value standpoint, it's been far better to sell assets in the series of one-off transactions.

And then on the acquisition, fourth quarter typically is your most active quarter, but this quarter has 300 million. I was wondering if you could give us some insight, how the pipeline is looking for fourth quarter, do you think it will be much less than transactions in this quarter.

Yeah. Right now, we have the 86 million of forward commitments that are about to close and we don't have anything else scheduled to close in the fourth quarter. So it’s possible that something might show up, but right now it seems to me like once those forward commitments are finished, that's probably -- that will probably constitute our 2017 investment activity and we're looking at a lot of transactions, but compared to last year, last year at this time, we had quite a good forward of build-to-suit that we thought would finish in 2017. And our posture is very different from that standpoint and that we just have the 86 million to finish funding shortly. We will have to see what comes.

And one last quick one, you mentioned the net debt to EBITDA ticking up from the timing of the acquisitions, if you adjusted the EBITDA for that portfolio to contribute the whole quarter what would the net debt to EBITDA look like.

It would be it would be slightly lower, Sheila, but with the sales that would be burning off, it would change it somewhat, but it would be slightly lower close to the six.

The next question will come from Jon Petersen of Jefferies.

On the cap rate, on the acquisitions you closed in the quarter, did you guys provide that, I don’t I heard that.

5.7%.

Is that GAAP or cash?

That’s cash. And I think 6.60 on a GAAP basis.

Our phone line isn’t the greatest unfortunately, so some of the comments have been blurred out, but on the acquisitions at 6.60, on a GAAP basis 5.70.

[indiscernible] industrial portfolio, the cap rate was 5.80 because we had some free rents, but on year two, it's about 6.1, so it does prove pretty quickly.

And so you guys did 700,000 square feet of new and extended leases, did you guys break that out and what of that is new and what is extended in the stuff you did subsequent to the end of the quarter.

The extended lease was with Geodis. That was a three-year lease on a big industrial facility. And then we have one office lease at a multi-tenant property in Farmers Branch, Texas, which was good, so we raised the occupancy considerably in that building.

So if you look at the 700,000 square foot that we did in the fourth quarter, about 640 of it is extensions and about 66,000 is new.

SO a little bump in occupancy, have you had any move outs, so we kind of move against that or should we kind of assume occupancy is trending higher.

No, I mean we sold the one that had a 1030 - it was October 31 moveout that property hasn’t sold.

And then could you give us an update on the FedEx office lease expiration in 2019. I know it's a ways out, but it's a pretty big one. What are your thoughts there?

We're continuing to have negotiations with Federal Express and we're optimistic that those negotiations will lead to continued occupancy in the building by Federal Express.

Getting idea of timing about when something like that would have completed?

I wouldn't want to speculate on that just because it involves two parties, but we think we're making good progress.

And then just one final question on - and Sheila asked about 4Q volumes, just kind of curious about upcoming tax reform in 2018, if you're seeing that impact buyers and sellers and on their willingness to actually make decisions in fourth quarter or whether they want to push things into next year.

I mean since it just came out and it's extremely preliminary, I think the proposals are very favorable to read, but we haven't seen to you have any impact just yet on transaction volume.

If I could sneak in one more, the dividend increase, would you say that's more of a result that’s kind of chasing taxable income or is that kind of your desire to keep doing consistent bumps every few quarters or so.

Well, we've set the dividend based upon our taxable income. So if taxable income is going up, so that's where the dividend is. But we feel it's important also to return the distributions to the shareholders.

The next question will come from Craig Mailman of KeyBanc Capital Markets.

On the Tenneco lease, I know you said it was cash roll down on a GAAP basis, what does that mark to market look like though.

Hold on a second, it's actually in the supplement, it's - I have to its page. The Tenneco lease, the GAAP went from - the prior GAAP was like 700,000 and the new GAAP is about 815,000. It's a very good GAAP bump.

And then, Will, I heard you kind of say I think 7.8 on - 7.4 on year-to-date acquisitions GAAP or is that on the Lafayette and the 86 million of forward commits you guys had for 4Q. I didn't hear what that number was for.

For the whole year.

The whole year, what does it look like for the fourth quarter?

There's three in the supplemental and the forward commitment page we lay out the GAAP cap rates for the three transactions. It’s 7.4 on a GAAP basis, 6.8 on a cash basis. It’s on page 16 of the supp and on page 5 of the earnings release.

I guess just bigger picture, you guys have been successful at sourcing acquisitions this year. on the blended basis, you're GAAP cap rate of 7.4 makes some sense, but you guys are throwing in the stuff from the third quarter. I guess just how do you think about your cost of capital here heading into ’18 as the repositioning program is burning off and so that source of capital is kind of going away then you're kind of stuck with share, almost debt and equity, and looking at your blended kind of cost on that, it just seems like it gets harder to pencil some of these industrial acquisitions, kind of just how are you guys thinking about that.

Well we're thinking that we're re-stimulating the shareholders’ capital from being invested in suburban office and some empty buildings in multi-tenant and retail into a better asset class. And right now we're planning on creating liquidity in excess of our current forward pipeline. So that's how we're thinking about the capital plan. We think that that should improve our cost of capital and lead to a higher share price. But our game plan right now is to redeploy capital from principally out of office into industrial.

And then just one last one, you guys are running off the line here, I now you have more capacity, but, Pat, just how are you thinking about how much of that capacity you want to use and pro forma where you guys may be by the time you get the dispositions done versus what you guys may have earmarked. I know you haven’t given guidance yet for ’18, but what you guys may have earmarked for acquisitions and funding of some of the development and kind of when we should think about maybe you guys clearing that down and where you think you could issue debt.

Well, we just, you know, as part of the three pack, the $200 million that was used that's one of the reasons why we amended the agreement, we increased the availability by 200 million because obviously we didn't want to be that far out on our line with limited - with a select amount of availability. So right now we have about 300 million available on the line, we have 200 million outstanding as of September that will be paid down through dispositions and to the extent we do any property specific financings in the portfolio.

I think if we were selling ten-year debt, Craig, it’s probably somewhere in the 4, 4.5 area.

The next question will come from Anthony Paolone from JPMorgan.

So the deals you guys did in the quarter were 5.7 cash and the fourth quarter forward pipeline 6.8. So it seems like call it 6-ish is a spot cap rate for this stuff you all are doing these days. Can you talk a little bit about kind of where you know what kind of risk would you have to take to get that to 7 or conversely if you want a 15-year duration like where does that go and what are the pressure points on that cap rate as you look at deals.

Well, in the purchase market, we really haven't seen much in the 15-year area. Tony that market has seemed to be in our case a seven and ten year market. And there's for sure a lot of industrial that's trading with much shorter lease terms and very good pricing. So those longer term leases have been, we can originate them in build-to-suit, but build-to-suit is less active right now than it was a year ago. So in the case of the three-pack portfolio where we had new construction, A-quality real estate, very high investment grade, but arguably secondary markets not primary. That led to that sort of fixed cap area pricing. To achieve a 7-cap on anything, it probably puts you in the office market without long term or in the industrial side with highly specialized real estate combined with credit risk and perhaps shorter lease duration. There's not anything that - we have one cold storage facility that's going to close this quarter that’s in that 7 area. But we're not going in terms of the things that we're looking at on a full basis we're not going out of the risk spectrum.

And then sort of if we think about just where you sit looking out to 2018 today, you mentioned that $250 million to $300 million of sales in the forward pipeline gets cleaned out in 4Q. So just timing wise should we anticipate that you’re net seller or at least the earlier part of next year and kind of see how things go or how to think about that.

I think right now that’s a realistic assumption. The disposition plan will take time to execute through the end of next year. I think that we will find a new property to invest in. But right now there's only one property from January acquisition that looks promising. So maybe a mix of acquisitions and de-leveraging as we work our way through next year.

And then is there anything you can tell us in terms of the Swiss Re expiration terms of where rents would need to be for it to make sense for you to kind of keep the building and put CapEx into it versus kicking it back to the lender or just any graphics around that.

Tony, I think I’ll ask James Dudley our Head of Asset Management is here. So I’ll ask him to share his opinion.

The real challenge of that building is the load factor, the primary factor. So that's the real challenge. So in order for us to get a rate that would work for us, it would probably need to be somewhere around $16 triple net, but that would be with the adjustment to the rental square footage to make it a multi-tenant building.

And then a last question, you’re on the Golden State deal that per square foot price was on the high side, was that a cold storage or more specialized building, can’t remember.

It's essentially a manufacturing facility. So that's why we got 25 year lease there.

The next question will come from John Guinee of Stifel.

So the idea here is to shift from an income oriented stock, where you got to pay a brutal 7% dividend to industrial stock portfolio. Longer least durations mostly secondary market and looks to us as if you're in the share repurchase mode at a low $9 a share and in the issuing equity mode at above 11. Is that a good range or have you at least thought that kind of repurchase that below 9, issue equity above 11.

We would not comment on either, where we would repurchase shares or issue them.

Why not?

Well because John that if we're repurchasing shares, we never know how wide a discount to net asset value we would want. And conversely, the decision to issue equity on behalf of existing shareholders has a lot to do with whether issuing those shares would be likely to drive the value higher. And so I wouldn't want to indicate what the right share price is under that scenario.

And then in terms of looks like you sold I think I heard about 222 million this year, you're on schedule to acquire about 700 million. That's caused you to get up into the mid-6.5 net debt plus preferred to EBITDA range. Have you presented to Street with a maximum or have you in the board talked about a maximum net debt plus preferred to EBITDA that you'll go in this plan.

In terms of net debt the EBITDA, given the improved credit quality and weighted average lease term, and lower CapEx profile of the portfolio, certainly running the company in 6%, 6.5% range is comfortable. We have a little bit of a bias towards shrinking our leverage as we work our way through next year, but part of that will be a function of what's available in the acquisition market.

The problem is though if you shrink the leverage, you can never get where you need to be, which is presenting yourself as a primarily industrial REIT. You really have to lever up to get there I think. Is that a fair way to look at it?

Well, one thing I would tell you, John, which I did mention in my comments is, maybe that we will leverage some of our office buildings in the mortgage market to push loan to value in that portfolio and extract equity from our office portfolio with a view toward being able to reinvest more capital into industrial as we go through next year.

Have you thought about when you present your leverage metrics to bifurcate between your industrial portfolio and your asset specific office leverage?

With the supplemental at year-end we’ll likely break out the two.

So you’re essentially doing increased sales to lenders on your office portfolio.

No.

The next question will come from Daniel Donlan of Ladenburg Thalmann. Please go ahead.

This is actually [indiscernible] on for Dan. So my question, I just wanted to clarify did you say that for the remainder of 2017 you're expecting around 13 million in TIs and LCs [indiscernible].

It’s almost all TI.

Why is that number, I mean given you had 15 million of combined improvements in leasing commissions, it’s kind of…

It's a cash basis, it’s a cash basis. And the leases that we've signed say in the first or second quarter, the work is actually being done.

So that number is a pretty solid number like you have at this point good visibility that that might [indiscernible].

Yeah, I mean, let's face it though, if a tenant doesn't do the work and pushes it off to January, it could change. But yeah, but based on what we expect today right now, we feel that’s a very good number.

And then if you look out 2018 that 200 to 300 million of dispositions, you’re guiding to, I mean, how much of that is vacant assets.

Not very much, I mean, we're 98% leased right now, so there will be a little vacancy in the disposition plan. But a lot of what we're going to be doing is trying to sell some of our office build-to-suits that we’ve held for five years or so. So while we have remaining turnaround, we can get a good price, we want to lock in our gains and recycle capital out of those investments.

And kind of understanding it's a bit of a fluid portfolio, I mean, would you expect by the end of the 2018 to basically be completely divested of multi-tenant assets and vacant assets are not going to change as leases come up in such but…

I think we want to shoot for as close to being a pure-play single tenant office and industrial company as possible. It may be that we still have a few assets that we haven't traded out of. And in the multi-tenant portfolio there are some very good buildings and we may not want to rush to let them go and there are some that we certainly want to finish leasing up to a high level before we think about selling them.

The next question is a follow up from Sheila McGrath of Evercore.

Just on the CapEx, it sounds like this year the TI and leasing commissions will be around 28 million. If we look at next year is that mostly office roll that the CapEx number would be similar to this year or do we start to see that trending lower next year.

I think, Sheila, we always feel around 20 million to 25 million is the right number. And that's what right now, but it all could change based upon the leasing volume that we do.

The next question will come from [indiscernible] of Development Associates Inc. Please go ahead.

I know we have some exposure in the Houston area, throughout Mississippi and with the hurricanes, flooding et cetera. Any of our properties affected either directly or access wise anywhere in the southeast in that regard.

All the properties that we had that were in the line of the hurricane came out with minor damage, if any at all. Portfolio has fared very well.

And lastly over the last few quarters, you have mentioned of course how competitive the build-to-suit or even acquisition of industrial or warehousing has gotten. Are you still finding it getting more competitive, are relationships helping us to get those sort of properties moving forward.

Well, I would say our relationship should help us a lot and I feel like often we get a last look at transaction opportunities. But things are quite competitive and we've seen several situations where bidders who have lost an opportunity to show up at the next property in the marketplace and drive cap rates even lower just to be sure that they're able to get the capital invested. So it's quite a competitive marketplace that's for sure.

And this concludes that question-and-answer session. I would now like to turn the conference back over to Will Eglin for any closing remarks.

Thanks again everyone for joining us this morning. We appreciate your continued participation and support. If you would like to receive our quarterly supplemental package, please contact Heather Gentry 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. Thanks again and have a great day everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.