Good morning, everyone, and welcome to Lexington Realty Trust Fourth Quarter 2019 Earnings Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please also note that today’s event is being recorded. At this time, I’d like to turn the conference call over to Heather Gentry, Investor Relations. Ma’am, please go ahead.

Thank you, operator. Welcome to Lexington Realty Trust fourth quarter 2019 conference call and webcast. The earnings release was distributed this morning and both the release and quarterly supplemental are available on our Web site 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 quarterly 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 equityholders 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 flows. On today's call, Will Eglin, Chairman and CEO; Beth Boulerice, CFO; and Executive Vice Presidents, Brendan Mullinix, Lara Johnson and James Dudley, will provide commentary focused on fourth quarter results. I will now turn the call over to Will.

Thanks, Heather. Good morning, everyone. We had an excellent fourth quarter and demonstrated strong execution across all areas of our business, including investments, dispositions, portfolio operations and capital markets. We successfully implemented our business plan each quarter throughout 2019, which brought us closer to our goal of becoming a 100% single tenant industrial REIT and resulted in our new classification as an industrial REIT by both Nareit and MSCI. Our execution has been purposeful and prudent during this transition with the patient accumulation of successes rewarding our shareholders. In just two years, we've grown our industrial assets nearly 65% and in 2019 with our industrial exposure at close to 82% of gross book value. As we have continued to add high quality, well located assets to our industrial portfolio, we have increased our industrial investment-grade tenancy to 46%, lowered the average industrial portfolio age to 12.6 years and boosted our exposure in the top 50 industrial markets to 80%. Starting with investments, we had a very active year investing over $700 million in warehouse and distribution centers at weighted average GAAP and cash cap rates of 5.8% and 5.4%, respectively. Although the investment landscape has remained competitive, we have been pleased with our Class A industrial purchases which are well located in strong primary and secondary submarkets. Our goal is to have another year of significant investment activity. We're off to a great start thus far in 2020 with acquisitions of approximately $195 million close to date. Given our steady execution, we believe we are well positioned to grow our industrial exposure to over 90% of gross book value by year-end. During the quarter, we capitalized on our longstanding relationships with developers to close on three select development projects. While these projects are just getting underway, we are excited about…

Thanks, Will. We acquired six industrial assets in the fourth quarter for $264 million at weighted average GAAP and cash cap rates of 5.9% and 5.3%, respectively, ending our year better than previously forecasted. These properties comprise roughly 3.7 million square feet and include a mix of both distribution centers and smaller warehouse facilities. They are primarily located within two logistics markets that we have targeted for further investment, including Phoenix and Greenville-Spartanburg. As discussed on last quarter's call, we closed on two of the Greenville-Spartanburg assets early in the fourth quarter. These properties are located within an established industrial market and a submarket close to I-85 and the Greer Inland Port. Leased to two logistics companies for five years on average, the properties were built within the last two years to modern specs and together average attractive annual rental escalations of approximately 2.6%. Late in the fourth quarter, we closed on a brand new Class A distribution center in the same market. The facility is leased to an investment-grade rated, home-improvement retailer for 15 years with annual rental escalations of about 2.5%. We like the Greenville-Spartanburg logistics market due to its positive demand drivers from tenants, increased population growth, high levels of absorption and easy access to interstates and the Greer Inland Port. On last quarter's call, we had also discussed the facility we purchased in Phoenix’s most active submarket, which is leased to CHEP Pallets for seven years with annual rental escalations of approximately 2.5%. This property is part of a two-property portfolio in which the second property leased to Ball Corporation for six years with average rental escalations of 2.25% per annum closed subsequent to the quarter in early January of this year. In addition, during the fourth quarter, we closed on a distribution center in the…

Thanks, Brendan. We finished the year strong disposing of $173 million of non-core assets in the fourth quarter at weighted average GAAP and cash cap rates of 8.1% and 7.8%, respectively. These assets consisted of six office properties, three retail properties and one small non-core industrial property which generated a combined annualized NOI of approximately $13 million. These transactions brought our total 2019 consolidated sales volume to 622 million with an additional 177 million of joint venture dispositions last year. We will continue to move toward our portfolio composition objectives in 2020 with targeted disposition volume of $250 million to $500 million. At the high end of the range, the targeted pool of sale assets generated approximately $35 million of fourth quarter annualized NOI and was 68% occupied at year-end. Our Dow Chemical office property is included in our 2020 disposition plan. As mentioned last quarter, we have received off-market expressions of interest in the Dow property. And while it’s still possible that a transaction will be completed off-market, we are simultaneously preparing for a marketing campaign. Our 2020 disposition plan is well underway. We currently have approximately $72 million of consolidated assets either under contract or with an accepted offer, and we are actively in the market with several other properties. We were very pleased with our sale outcomes in 2019 and we expect to continue our steady execution in 2020 as we work diligently to complete the plan and advance our broader objective to become 100% industrial. With that, I'll turn the call over to James who will provide an update on leasing.

Thanks, Lara. During the quarter, we executed lease extensions and new leases in excess of 2 million square feet with an overall lease portfolio of 97% at quarter end. When compared to the third quarter, occupancy is slightly down as a result of Michelin's planned move out in Moody, Alabama at the end of 2019. Despite this move out, our industrial portfolio remains almost 98% leased. Same-store NOI on the entire portfolio was down 1.7% as of year-end, and when removing single tenant vacancy was flat. Approximately 87% of our industrial portfolio has rental escalations, which we believe should ultimately lead to positive same-store growth as we continue to reduce our office holdings. Execution of our 2020 plan is expected to produce industrial same-store NOI growth of approximately 2%, subject to vacancy and renewal outcomes. On the industrial side, we were pleased to see positive leasing outcomes which resulted in an increase in cash base rents of 28% and 8%, respectively. If you recall, we acquired our Morris property in Atlanta with a short-term lease at the time of purchase last year. During the quarter, negotiations resulted in a five-year renewal and an 18% cash base rent increase with 3% annual rental bumps. We will invest approximately $9 million in the property with approximately 7.5 million being amortized over the term at 7%. This type of capital improvement creates considerable near and long-term value in view of rate of return, strong credit tenant and enhanced probability of renewal. We also executed a three-year lease with RC Moore at our industrial facility in Tampa. Our previous tenant was scheduled to move out in June of 2020. We were able to re-tenant the building at an attractive rent for the market without experiencing any downtime from the expected move out. Lastly, during…

Thanks, James. Overall, 2019 was a positive year with many notable highlights. We raised more than $200 million of equity, extended the maturity dates of our revolving credit facility and our term loan while lowering their applicable margin rates and satisfied a great deal of secured debt. Our balance sheet remains in excellent shape with low leverage and provides a great deal of flexibility as we think about funding alternatives for growth. Moving on to fourth quarter financial results, net income attributable to common shareholders was $84 million or $0.33 per diluted common share in the quarter compared to $24 million or $0.10 per diluted common share for the same time period in 2018. Adjusted company FFO was approximately $52 million or $0.20 per diluted common share in the fourth quarter for a total of $197 million or $0.80 per diluted common share for the year. Our adjusted company FFO payout ratio of 51.6% at quarter end remains extremely attractive, which we believe positions us to both grow our dividend and retain capital to fund investment opportunities. The estimated 2020 adjusted company FFO guidance range of $0.74 to $0.77 per diluted common share that was announced today incorporates our commentary on dispositions, investment and leasing that we have made on this call. Gross revenues of $83 million for the quarter were down when compared to the same time period last year as a result of sales and our continued transition to becoming a 100% single tenant industrial REIT. Property operating expenses were $11 million for the quarter, of which 79% was attributable to tenant reimbursement. D&A expenses were about $7 million in the quarter bringing total G&A for the year to just under $31 million. This figure was slightly better than we had anticipated and represents a slight improvement when…

Thanks, Beth. I will now turn the call over to the operator who will conduct the question-and-answer session.

Ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions]. And our first question today comes from Anthony Paolone from JPMorgan. Please go ahead with your question.

Thank you. Good morning. I guess first question maybe for Brendan, can you talk about just the difference in cap rates on something like Greenville with five or six years of duration on the lease versus say BMW in Chicago and kind of how those vary?

Yes, sure. Between the two, it’s actually fairly wide. If you look at the two smaller Greenville assets, those cap rates were around 5.70 cap rate whereas if you have a 15-year investment grade in credit, that cap rate was just above 5.

Okay. And as you’re looking at the pipeline right now, where do you kind of see the sweet spot where you’re getting paid for the risk you’re taking and where Lexington can compete best?

It’s hard to solely look at cap rate as the only metric and we really have to consider the long-term performance and there’s rent base, there’s escalation structure, there’s lease duration. If you look at our recent activity, we’ve favored longer lease terms, stronger credits and more primary markets in our recent activity. And in those markets we’ve seen cap rates be anywhere in the range for sort of the very best combination of those factors. In today’s market it could be as low as something around 4.75 to 5 in that kind of range. And then as I’ve said, when we were discussing the Greenville market, in those opportunities it could be in the mid to upper 5 range. So it’s a fairly wide range and a lot of it will just depend on mix of the market filtrations [ph] in credit. So it is a wide range if you looked at the 4.75 to 5.75 that we’re talking about, but it will sort of remain to be seen.

Okay, but that sounds like that should be the general zip code we’re thinking about for your activity in 2020. Is that fair?

Yes.

All right. And then just one final question. You show the pie chart in the supplemental around the escalations built into your leases. What does that look like when you roll it up in terms of just contractually across the portfolio?

The average escalation rate is about 2%. Is that where you’re getting at?

Yes. Is that kind of where those pieces of the pie roll up to?

Right, exactly.

Okay. That’s all I have. Thank you.

Thanks, Tony.

Our next question comes from Sheila McGrath from Evercore ISI. Please go ahead with your question.

Yes. Good morning. Will, you mentioned re-categorizing the company to the industrial category. Just wondering if you still plan on focusing exclusively on single tenant industrial, not multitenant? And how you think about length of lease term and credit, are you more focused on longer lease term and investment grade tenants for acquisitions?

Sure. We have been focused more on longer leases and higher grade credit recently. But if you look at what we’ve done in the last 12 months, it’s been – we’ve invested in some things with shorter lease duration that we think will turn out very well. The identity of the company is clearly in the single tenant industrial area. That doesn’t mean we wouldn’t buy a building with a couple of large tenants in it. It also doesn’t mean that we wouldn’t buy a building with one substantial tenant and some vacancy where we’re confident about the leasing outcomes. But we’re very committed to the single tenant industrial area. That’s the strength of the franchise.

Okay, great. And then could you give us more detail on the developments? Are these speculative or build to suite and what kind of stabilized returns on costs you’re forecasting?

Sure. I’ll take that. The development activity that we announced I guess separating them, the ETNA East land acquisition which is an expansion of our original ETNA project, that project is really going to be around build to suite. And then the two other projects that we announced this quarter, a project in Atlanta which is underway and the planned project in the Rickenbacker submarket of Columbus, those two would be [indiscernible] projects. And in those cases, starting with Atlanta, those were joint ventures at the project level. We’re targeting development yields around 6%. And in the Rickenbacker project, we’re targeting investment yields around 7.

Okay. And one last question. The capital expenditure guidance that you outlined, is it possible to roughly give us how much is from the office part of the portfolio versus the industrial?

Yes, sure, Sheila. Primarily it is in the office area. And when we talk about the additional 10 million to 12 million in that area, it’s mainly I would say about 85% in the office.

Okay, great. Thank you.

Our next question comes from John Guinee from Stifel. Please go ahead with your question.

Great. Thank you. Nice quarter. Nice guidance. First a big picture question. You guys are in One Penn Plaza which I think Vornado is renaming Penn One. I know you’re upset that Kmart’s moving out of 131,000 square feet in your lower level shortly – you found another place?

We’re looking.

Okay. Question, what do you think of that renovation, what do you think about your – what are you willing to pay in that building once they’ve turned it into a Class A property in that market?

I think that Vornado’s plans here around Penn are fantastic and likely to be highly successful. It may take a little bit of time to play out, but what they’re doing here is tremendous and will surely drive rents well higher than what we’re currently paying. So we’re looking at other occupancy alternatives for us so that we can stay in Manhattan, but be at a lower price point. But we have five years to go on our lease at a very, very inexpensive rate relative to market.

Great. Okay. And then looking at your investments, acquisitions, Chicago looks like about $47 a square foot, Greenville and Spartanburg $72 a square, $85 a square, $88 a square. Obviously $47 shouldn’t concern anybody but getting up in the 70s to 80s in Greenville-Spartanburg seems a little high. Does it really cost that much to build in that part of the world?

This is Brendan. I guess the first thing I should say the Chicago portfolio was [indiscernible] closings, so two of the properties in that portfolio closed in the first quarter. So on average that portfolio was around $65 a foot, I think it was $64 a foot. So the one that closed in fourth quarter was a little bit older building with low clear height, John, which I think explains the price point.

Got you.

But with new construction we are seeing building cost increase. Some of the cost that – some of the other acquisition activity that we referenced were fairly brand new buildings. So some of those is newer, but there is – in our market there is a premium to lease assets relative to construction cost for sure.

Great. Thank you.

Thanks, John.

Our next question comes from John Massocca from Landenburg Thalmann. Please go ahead with your question.

Good morning.

Good morning.

How should we think about timing for a sale [ph] Dow Chemical property if you guys go through a fully marketed process for that disposition?

Yes, there’s quite an appetite – this is Lara. Good morning. There’s quite an appetite for longer term leases with investment grade credit and that certainly falls into that category. So we don’t expect if we go to market to have a particularly protracted process. Generally once marketing materials are developed and an asset is launched, we would be in the market for roughly 30 days, go through call for our first process with multiple rounds we expect on an asset of that quality. And essentially execute in 90 days or so or less.

Okay. And maybe I guess what would kind of prevent that from happening essentially tomorrow? You’re still going through and kind of looking over potential off-market expressions of interests or --?

Yes, we are. We’ve had significant off-market interest in the asset. It is encumbered by a significant amount of debt as you likely know. So we are talking both to buyers who would buy from clear and to folks who would be interested in acquiring it as encumbered [indiscernible].

Okay, understood. And then on 1701 Market Street, has there been any kind of changes in your thought process in terms of potentially selling that asset or kind of what your long-term plan is there?

We do have a fair amount of term left on the lease there now on the office component. As you would expect, there’s been significant interest in the market relative to what our plans are for that asset. But we are evaluating numerous options and opportunities there, but we expect [indiscernible] over the next quarter or two. So TBD what will happen with that asset this year, but significant interest out there in it.

Okay. And then lastly, excuse me if I missed this, with ODW in Columbus, what is kind of the general – your general view on where those rents are going to be on a potential renewal versus kind of current rents?

We think our rent is below market. But since we’re in negotiation with the tenant, we don’t want to sort of negotiate against ourselves in a public context. But I think the rent is inexpensive and hopefully we can renew the lease and raise the rents.

Okay. That’s it from me. Thank you very much.

[Operator Instructions]. Our next question is a follow up from John Guinee from Stifel. Please go ahead with your follow up.

I forgot to ask, Cummins in Columbus, Indiana, wasn’t that – didn’t they have a $5 million purchase option?

They did.

And were they the ones who are paying 47 million or somebody else?

They purchased the building from us.

Nicely done.

Thank you.

[Operator Instructions]. And ladies and gentlemen, at this time I’m showing no additional questions. I’d like to turn the conference call back over to management for any closing remarks.

We appreciate all of you joining us this morning. Please visit our Web site or contact Heather Gentry if you would like to receive our quarterly materials. And in addition as always, you may contact me or the other members of senior management with any questions. Thanks again for joining the call.

Ladies and gentlemen, that does end today’s conference call. We do thank you for joining today’s presentation. You may now disconnect your lines.