LXP Industrial Trust (LXP) 2013 Q2 法說會逐字稿

Good morning and welcome to the Lexington Realty Trust second quarter 2013 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. 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 second quarter conference call. The earnings press release was distributed over the wire this morning, and the release and supplemental disclosure package will be furnished in 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 Z requirements. If you did not receive a copy, these documents are available at 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, I 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 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; and other members of management.

Thank you Gabby, and welcome everyone. Thank you for joining the call today. As always, I'd like to begin by discussing our operating results and accomplishments for the quarter. For the second quarter, our Company funds from operations as adjusted were $0.25 per share as we continued executing very well in all areas that impact our business. The quarter was characterized by strong leasing activity of 2.1 million square feet of new and renewal leases signed, leading to an overall portfolio occupancy rate of approximately 97.9% at quarter end, and we completed an additional 2.5 million square feet of leases subsequent to quarter end.

In addition, we had solid execution on the investment front, with property investments closed totaling $47.1 million. We funded an additional $7.7 million in our current build-to-suit projects, and we placed two new build-to-suit projects under contract for $37 million. We believe our pipeline of similar opportunities remains robust, and we currently expect to fund investments that at least $350 million to $400 million in 2013 at initial average yield in excess of 7.8%. We also made further progress on capital recycling, trimming $72.8 million of non-core assets from the portfolio. Further, we continued to improve our balance sheet and lower our cost of capital, obtaining credit ratings from both Moody's and Standard & Poor's and successfully completing our first unsecured investment grade rated senior notes offering earlier than planned. In the quarter, we retired $219.4 million of secured debt at a weighted average interest rate of 6.1%.

With respect to leasing, we continue to achieve a strong pace of activity. In the second quarter of 2013, we executed a total of 2.1 million square feet of new leases and lease extensions, and of this total, 1.8 million square feet were related to properties, including six 10-year leases totaling 783,000 square feet. During the quarter, we had two leases totaling 87,000 square feet which expired and were not renewed. Overall in the quarter, we extended 17 leases with annual GAAP rents of $22 million which represented a decrease of $400,000 compared to the previous rents. Looking ahead, we currently have 3.9 million square feet of space subject to leases that expire through 2014, four of which are currently vacant. We believe that through the end of next year, we can address roughly half of such expiring or vacant square footage through extensions and dispositions. And overall, we are presently negotiating leases for approximately 2.5 million square feet.

As a result of our leasing activity and new investments, we now generate more than 30% of our revenue from leases of 10 years or longer compared to approximately 17% a year ago. Over time, our goal continues to be to derive at least half of our revenue from leases 10 years or longer, providing additional cash flow visibility. Further, our single tenant lease rollover through 2017 has been reduced to 31.7% of revenue from 42.4% at quarter end a year ago. By any measure, we believe we are making good progress in managing down our exposure to shorter-term leases and extending our weighted average lease time, which was 7.7 years at quarter end compared to 6.5 years last year. Each of these metrics is an important measure of cash flow stability, and we will continue to be focused on further improvements.

Supplementing our leasing and capital markets success, we continue to add value through creative acquisitions of properties subject to long-term net leases. We closed on two investments is the second quarter for $47.1 million at an average going-in cap rate of 8.9%, and we now have four build-to-suit projects underway and one forward purchase contract for a total commitment of $137.7 million, of which $25.2 million has been invested through June 30, 2013. The property investments underlying these five projects have an initial yield of 8% and a GAAP yield of 9.4%, and our supplemental reporting package contains an estimated funding schedule for these projects. The addition to our portfolio of long-term leases with escalating rents continues to be a priority for us in order to further strengthen our cash flows, extend our weighted average lease term, reduce the average age of our portfolio, and support our dividend growth objectives. Based on our investment pipeline, we continue to anticipate stronger volume compared to last year, although the pace of capital deployment has been a little slower than we expected. Furthermore, we are already building our pipeline for 2014 and 2015. We believe that this increased investment activity will contribute meaningfully through our Company funds from operations in 2014 and beyond.

The opportunities we are currently working on are supported by long-term net leases going-in cap rates of between 6% and 9%, typically with annual escalations of 2% to 3%. Currently we expect to build-to-suits will represent the largest allocation of capital for the balance of 2013, but we believe there are also attractive opportunities in sale leaseback transactions, first mortgage lending on single tenant properties, and ground lease investments. Our successful asset recycling program has continued to help us drive down our cost of capital and generate proceeds for accretive acquisitions and debt repayments. We continue to look at opportunities to recycle capital, with a focus on capturing the value of our multi-tenant and retail properties. The second quarter of 2013, we disposed of $72.8 million of non-core assets, bringing our total for the year to $98 million, and we will continue to look at capital recycling opportunities as part of the ongoing effort to further transform our portfolio.

The composition of our balance sheet improved dramatically in the quarter, and we have included details in our supplemental disclosure package on pages 38 and 39 showing our credit metrics. In summary, we issued our first tranche of investment grade rated notes using the proceeds to retire debt due to mature in 2013 and 2014, extending our maturities, locking in 10 year fixed rate financing on attractive terms, and executing on our stated goal to increase our sources of available capital. These efforts continued to drive down our cost of capital. In the first six months of 2013, we obtained $354 million of fixed rate financing at a current weighted average interest rate of 3.8% and a weighted average maturity of 9.5 years while reducing our leverage considerably. As a result, we believe the Company has substantial financial flexibility with $578 million of availability under its lending facilities.

Our weighted average cost of debt has been reduced to under 5% this year, and our weighted average maturity has increased to 6.7 years from 5.4 years. During the quarter, we retired $219.4 million of secured debt which had a weighted average interest rate of 6.1%, and we continue to unencumber assets and reduce our secured debt. Our debt was 38.3% of our gross asset value at quarter end; in addition at quarter end, $410.6 million of our mortgages mature through 2015 at a weighted average interest rate of 5.4%. We expect these maturities to be addressed through a combination of additional asset dispositions and refinancing, which provide a significant opportunity to further lower our financing costs and unencumber assets, which we expect will improve our cash flow and financial flexibility. While we continue to unencumber assets, from time to time we may access the secured financing market when we believe it is advantageous to do so, particularly if 15 to 20 year fixed rate financing is available. In our supplement on pages 38 and 39, we have provided financial disclosure which should be of continuing interest to fixed income investors. I'll turn the call over to Pat, who will take you through our results in more detail.

Thanks Will. During the quarter, Lexington had gross revenues of $99.4 million, comprised primarily of lease rents and tenant reimbursements. The increase compared to the second quarter 2012 was $18.6 million relates primarily to acquisitions and build-to-suit projects coming online, the acquisition of the NLS portfolio in the third quarter of 2012, and an increase in occupancy. In the quarter, GAAP rents were in excess of cash rents by approximately $9 million, including the effect of above and below market leases. For the six months ended June 30, 2013, GAAP rents were in excess of cash rents by approximately $2.5 million. We have a few leases that have uneven schedule rent payments whereby rent is paid annually and semi annually with larger payments being made in the first quarter compared to the remainder of the year. On page 40 of the supplement, we have included our estimates of both cash and GAAP rents for the remainder of 2013 through 2017 for leases in place at June 30, 2013. We have also included same store NOI data and the weighted average lease term of our portfolio as of June 30, 2013 and 2012.

Property operating expenses increased primarily due to the NLS acquisition plus increased use and occupancy in multi-tenanted properties with [Bates year] core structures. In the second quarter of 2013, we recorded $1.4 million in impairment of properties, $12.8 million in gains on sales of properties, and $13 million in net debt satisfaction charges relating to mortgages repaid prior to maturity, offset by gains recognized in mortgages satisfied through properties being transferred by a foreclosure in deed-in-lieu. On page 36 of the supplement, we have disclosed selected income statement data for our consolidated but non-wholly owned properties and our joint venture investments. We've also included net non-cash income and expense recognized in the six months ended June 30, 2013 on page 37 of the supplement. For the six months ended June 30, 2013, our interest coverage was approximately 3.4 times, and net debt to EBITDA was approximately 5.8 times.

In 2011 and 2010, Lexington advanced money under a first mortgage loans secured by a property in Schaumburg, Illinois leased to Career Education Corporation through December 2022 at [no] forward interest at 15% and was scheduled to mature in January of 2012; however, the borrower defaulted. Lexington ceased recognizing interest income on the loan effective April 1, 2012 and is currently owed $26.2 million under the loan including accrued interest. We have reserved $4.6 million against this balance so far from a GAAP standpoint, so our balance at June 30, 2013 was $21.6 million, and no earnings have been recognized since the first quarter of 2012. We have commenced foreclosure procedures and expect to gain control of the property as underlying our loan later on this year. We may also be obligated upon foreclosure to fund a tenant improvement allowance of approximately $8.5 million. The lease with the tenant is a net lease and provides for current annual base rent of approximately $4.2 million, an annual GAAP rent of approximately $4.5 million. [Epideen] earnings from joint ventures decreased by $10 million, primarily due to our acquisition of our partner's interest in NLS in the third quarter of 2012.

Turning to the balance sheet, we believe our balance sheet is strong, and we continue to increase our financial flexibility capacity. We had $94.8 million of cash at quarter end, including cash classified as restricted. Restricted cash balances relate primarily to money held with lenders as escrow deposits on our mortgages. At quarter end, we had about $1.8 billion of consolidated debt outstanding with a weighted average interest rate of 4.9%, all of which is at fixed rates. We've entered into LIBOR swaps on both the $255 million outstanding on our term loan, which matures in 2019, and the $64 million outstanding in our term loan which matures in 2018. The current spread components on the 2019 term loan can range from 1.5% to 2.25%, and our current spread is 1.75%. On the 2018 term loan, the spreads can range from 1.1% to 2.1%, and we are currently at 1.35%.

During the quarter ended June 30, 2013, we satisfied $219.4 million in secured mortgage debt with a weighted average interest rate of 6.1%. We also issue $250 million 10-year unsecured bonds at a coupon of 4.25%. Our [obtaining] investment grade bond rating also allowed us to reduce the spread in our term loans by 35 to 50 basis points and our credit facility by 60 basis points, therefore reducing our interest cost. The significant components of other assets and liabilities are included on page 37 of the supplement. During the quarter ended June 30, 2013, we paid approximately $2.1 million in lease cost and approximately $13.5 million in tenant improvements.

In our press release, we have a reconciliation of GAAP net income attributable to Lexington shareholders to Company FFO and Company FFO to Company FAD. For the remainder of 2013, we project expected tenant improvement in lease cost to be approximately $20.7 million or $0.09 per share. This would bring our total occupancy related expenditures to $53.7 million for the year. We expect these expenditures to decline considerably next year due to the early extension of post 2013 lease maturities and occupancies gains we had in 2013. Starting on pages 28 through 32 of the supplement, we disclosed the details of all consolidated mortgages maturing through 2017. We've also included on page 15 of the supplement the funding projections for our four current build-to-suit projects and one forward commitment. I would like to turn the call back over to Will.

Thank you, Pat. In summary, we had another great quarter. Occupancy has continued to be strong, and we have made good progress addressing leases expiring in 2014 and 2015. While the increase in interest rates in the second quarter suggests to us the transaction activity should temporarily moderate as buyers and sellers adjust to higher financing costs, our acquisition pipeline continues to be promising, and we believe that companies such as Lexington with access to multiple sources of capital and available capacity, are well-positioned to act on opportunities as they arise. We expect to continue to execute proactively on leasing opportunities in order to maintain high levels of occupancy and address lease rollover risks, realize values on non-core properties and certain fully valued properties with a bias toward reducing our suburban office exposure, given improvement pricing in the segment, capitalize on refinancing opportunities, and finally, invest in build-to-suit properties and other accretive investment opportunities.

Today we affirm guidance for 2013 Company funds from operations as adjusted within a range of $1.01 to $1.04 per share, reflecting good growth compared to 2012 and with a less leveraged balance sheet than we had when the year began. Our guidance is forward-looking and reflects comments that we have made on today's call and a diluted share count of roughly 228 million shares, which includes 4.2 million shares underlying our 6% convertible guaranteed notes. We believe our Company remains well-positioned with an attractive dividend yield and a conservative payout ratio and the opportunities to continue to execute strategies which improve our cash flow, upgrade the quality of our portfolio, and provide ongoing value creation for our shareholders. 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.

Thank you.

(Operator Instructions)

We will take our first question from Sheila McGrath with Evercore.

Yes, good morning. Will, I was wondering if you could comment on cap rate trends, but more specifically on the wide disparity of cap rates on the transactions that you closed this quarter. I think there was one transaction over 10% and another just over 7%.

Yes, with respect to the cap rates in our transactions, it is typically a function of length of lease and credit and property type. So generally what you see for longer leases is lower cap rates and for shorter leases on new construction, higher cap rates. And that simply reflects that with construction costs fairly high, if you have a short leash, you need more rent to amortize your cost down to a sensible residual exposure.

With respect to cap rates in general, this sector has absorbed in second quarter roughly a 100 basis point increase in the 10-year yield on treasuries. That has created in our minds during the last 60 days or so a little bit of a slow down in being able to make transactions work from a buyer and seller standpoint. We think that process is coming to an end. We are more optimistic I would say about our acquisition pipeline this week compared to last week. Maybe it is meant that in some cases, cap rates have moved up 25 basis points or so, but it largely depends on the transaction. I still think for very high quality projects, there hasn't been that much of a move in cap rates at least in the auction market.

Okay.

So most of what we are looking at is sort of in the 7% to 7.5% cap area, but in some cases higher.

Okay. And then if you could give us an update, I know last quarter there was commentary about portfolios in the market, we have seen some trade. I'm just wondering your sense of other portfolio transactions on the horizon.

There has been quite a bit of portfolio activity in the net lease sector this year, probably more than in any other year. So there are I think at least a couple floating around right now. In our minds, it is better value for us to focus in the build-to-suit area. One of the things that is driving the portfolio activity in the market is that there is a fairly significant premium associated with portfolio trades, so we are more oriented toward the value that we can generate for shareholders in the build-to-suit market.

Okay, thank you.

We will now go to David Shamis with Jefferies.

You mentioned a few times about the pace of transactions being slower than you expected. Just wondering if we can drill down a little bit into that. Is that really a result of less assets being placed on the market or pricing being a little too competitive for some assets? And then lastly, are you seeing any differences between office, industrial and retail with respect to transaction volumes and pricing?

I would say it is a process after interest rates spike as they have for buyers and sellers to rediscover the market where transactions clear. I do not think that diminishes the volume of transaction activity, but we certainly had a couple of transactions in second quarter that have taken longer to put under contract. Simply because everybody's financing costs have increased, and like I said, buyers and sellers had I guess differing expectations. So I view that as a temporary slowdown, and as I said earlier, this week we're sort of more optimistic about transaction volume over the balance of the year. I think we feel like we have pretty good visibility on about $250 million of new projects, but I do not think -- it's still -- with respect to whether it's office, industrial and retail, I would say it's not much change compared to a quarter ago.

Great, thanks. And then just on the 2.5 million square feet that you leased subsequent to quarter end, what were the leasing spreads on that and were there any significant TIs?

No, it was mainly industrial, so there was very limited TI, and on one of the leases, we had a pretty healthy increase in the rent, so that is positive. What we have said about our portfolio is that our industrial rents have been pretty much at market or a tad below at least in that one case, but we're still in the process on office where we've been marking rents down to market.

Okay, fair enough. And then Pat, can you give us an update on how many mortgages are pre-payable at this point for 2014 and '15 stuff that's coming due?

Well, anything in 2015 would be subject to yield maintenance penalties currently.

Everything is pre-payable, it's just [with starch].

You're not blocked out from paying. You just have to pay the yield maintenance. So we paid off all the ones in '14, we encourage those prepayment penalties. 2015 ones would be subject to prepayment, i.e. yield maintenance penalties, and we constantly monitor that.

I guess given where those prepayment penalties are, do you think it makes sense at this point to be prepay those?

Not right now, no.

Okay great, thanks a lot guys.

We will now go to Craig Mailman with KeyBanc.

Hey guys, I just want to follow up on the commentary on slower transactions. Have you guys tried to retrade anyone and maybe lost a couple deals in the second quarter or on the offside dispositions, have you guys been retraded and had a slow disposition at all?

No, I do not think we have lost a transaction due to retrading. I think my outlook for acquisition volumes is not diminished, it is just taken a little bit longer to put some transactions under contract. And on the disposition side, no, we have no retrading due to the move.

Okay. And then I want to clarify. Will, in your prepared remarks you talked about the 2.5 million subsequent to quarter end, I think you said something about another 2.5 million under negotiations -- did I hear that correctly?

Yes.

Okay. All right, perfect.

We are continuing to make steady progress on lease rollover. Obviously what we did in the last four months was a gigantic amount of leasing, so the pace should be steady but slower going forward over the next couple of quarters.

Okay, so a lot of that additional 2.5 million would be 2014. Are you guys able to go out to '15 at all at this point, or is it still kind of limited?

We are working actively on some '15 rollover right now.

And then just lastly on the JPMorgan. I saw you did a one-year extension in South Carolina, but then it looks like -- what was the nonrenewal in South Carolina that same building with JPMorgan?

Yes.

So was the --?

The lease was scheduled to expire in October. They wanted to contract some space, we found a second tenant to take up a large portion of the space they wanted to contract, so they get that second tenant in. We allowed JPMorgan to contract the space a couple months early.

Okay, are you guys expecting that they give back the rest of the space next October?

It's vacant right now. They contracted effective -- it is contracted as of June.

Okay, so all is vacant. They were just able to use -- find a tenant for a portion of it?

We found a tenant for a portion of the part they gave back, and part of it is still vacant, that is correct.

Okay great, thank you.

We will now go to Anthony Paolone with JPMorgan.

Thanks. Are you guys seeing some of the other larger net lease companies being competitive in your product types as some of those have moved outside of their more historical type products?

Yes, there are. I think there is more competition in build-to-suit and also I think a more active market with the economy continuing to grow. But yes, there is a lot of net lease companies in the market now, and so it certainly is a deeper market on the competition side.

So if we look at like your build-to-suit starts in the new activity announced, I mean it's just two deals, but if we blend that yield, it's I think 7.6% we came up with. How would that have compared to maybe a couple of years ago, and it just seems like it's a little bit lower than the 8% to 9% range your prior deals that you've entered into have been. I was just wondering if you go down a little bit in yield, get a little bit more lease term, a little bit more credit quality, do you have -- at what point do you start to pick up just volume like get to do double that volume or something if you wanted to?

Well, we are bidding a lot of transactions right now, as I mentioned, between 7% and 7.5%. If we were to go below 7%, we could certainly pick up lots more volume. Two years ago, it was probably an 8.5% to 9% market, and that reflects market conditions coming out of the financial crisis, but it also reflects the fact that cap rates have come down and financing costs have come down a lot, our financing costs have come down very quickly over the last few years. So there is still very healthy margin, Tony, compared to where we can finance, where we can originate build-to-suits, but our approach to investing in the space is not just to measure accretion by the spread we can earn, but to also take into account residual value. And obviously the accretion of any one of these transactions cannot be known until residual value is understood, so we tend to be a little bit more conservative than others. I think that is really the driving force behind our volume. If we wanted to be more aggressive about residual value underwriting, we could do a lot more business, but we still want to maintain our value oriented investment style.

Okay. And then can you just maybe hit on a few of the larger expirations for the remainder of this year and into next or so, like Honeywell, Progress, Siemens, some of those and how they might be shaping up?

With respect to this year, let me get to the lease expiration sheet, I think our prospects for tenant retention at least for part or all of these buildings is fairly high. I would say the Progress Energy building in Cary, North Carolina is one that is going to be vacant. We do have some vacant space remaining on the AT&T Services building in Harrisburg just because AT&T stayed in that building for a substantial portion. We do think that Northrop Grumman will stay for 100% occupancy in Pascagoula. Honeywell, we're in negotiations with right now on a three-year extension, but we are not certain about the outcome, but we think they do want to stay in the building for a few years.

Next year we do have some known vacancy coming I think in Arlington Texas, the Siemens building. We feel pretty optimistic that we'll have most of that building leased to a new tenant prior to Siemens moving out. The Draftfcb building in Chicago we think we can sell for more than the mortgage balance. And then I guess the other sort of fairly sizable known move out next year is Spacelabs in Washington, and that one we have very high per square foot financing, which is nonrecourse, so that is likely to go back to the lender. In Rochester, New York, another big rollover, we think that the tenant there will want to stay in a portion of the space, and we have I think an opportunity to lease a pretty good chunk of the balance to another tenant.

Okay, thank you. Very helpful.

We will now go to John Guinee with Stifel.

I think Anthony Paolone asked a great question, and so I have no questions. Thank you.

Well done, Tony.

We will now go to Todd Stender with Wells Fargo.

Just to stay in that theme, you renewed the two Michelin leases already in the third quarter that do not expire until 2015. Can you just share what the leases were renewed at? One of them was 1 million-plus square feet?

The rents were roughly flat with where they were before. And the one in Moody, Alabama was one where we had a pretty decent increase in the rental rate.

Okay thanks, and what are you marketing for sale right now? Any details you can provide in what is currently marketed?

Well, we have some of our smaller retail facilities being marketed, we are marketing our multitenant property in Richmond -- we just had Capital One in that space. That is on the market, so that is consistent with our strategy of trying to monetize multitenant assets after they've been leased up. In that building sort of has sort of 67% or so loan-to-value mortgage on it, so that would also reduce our secured debt. There are a few other transactions that we are marketing as well.

In Capital One stuff, what do you think the cap rates will go at, and is that going to be aided by having an assumable mortgage on it?

Well, since we are in sort of the best and final round of negotiating with bidders, we do not want to discuss pricing. But arguably since the mortgage on that building only has a couple of years to run, it's not adding to the value of the building.

Okay thanks. Your average lease term is now getting close to eight years. If you just look at the announced build-to-suits that are expected to be completed over the next couple of quarters and then your planned dispositions, what do you think the net lease -- what do you think the average lease term will look like? 12 months from now?

Well, we would certainly hope to have it over 8 12 months from now, but a fair portion of that will be derivative of how much new volume comes online.

Okay, thank you.

We will now go to Dan Donlan with Ladenburg Thalmann.

Thank you and good morning. Well, it looks like the Gander Mtn stuff that you guys sold in the quarter you also developed that as well less than a year ago. Shouldn't we talk about why you decided to sell them?

Sure, I mean, sometimes when we go into build-to-suit, it's with the intention of seeing whether we can flip the project and make a gain. We like the company, Gander is doing very well, and our plan is to hold on to some Gander Mtn stores that we're building but we felt like just to maintain the right portfolio allocation exposure that seeing if we could develop some and flip them into the market and generate a gain was a sensible course.

Okay. And then the office leases, the GAAP rents, it looks like they were down 2% or so.

2%, yes.

I thought you guys had guided to maybe high single digits or low double digits, why is this better than you guys expected? Do you think that maybe you were too pessimistic in the past?

Well, no, I don't think we were too pessimistic. I think what was different about this quarter than many quarters over the last 3 to 5 years is how much 10 year office leases we did. So we sort of -- our expectation has been that most tenants want to stay for five years, and when you have 10 years of term, you're getting a greater straight line effect from the escalations, so I think that is probably the biggest difference in why the GAAP spreads were as narrow as they were this quarter.

So I guess what I was trying to get at is, do you think this is a trend we should expect, or should we maybe continue to expect high single digits or low double-digits?

No, our overall expectation really is not materially different than it was a quarter ago. I think the result this quarter reflect the assets that we did renewals on, and it's unfortunately, it is hard to say there is a trend. Just because every asset is different in every quarter, the composition of renewals is different as well. We did more leasing in the last 120 days and we thought we would've if you asked me six months ago, so we are arguably done more leases and more lease renewals than we thought we would achieve in the course of the whole year. So from the standpoint of early renewals and addressing rollover and extending term, we are doing quite well, but in suburban office, we still -- it's still in our minds this slog into 2015 with respect to resetting rents.

Okay, understood. And then just going back to some of the other questions on lease expirations. I don't know if you have this kind of detail, but at the end of the quarter through '15, I think 18% of your GAAP rents expire. When you include the stuff that you've closed on post the quarter, how much of that stuff affected '13, '14 and '15? Is that number close to 16%, 15% or?

Well, the leases that we extended subsequent to quarter end were two 2015 and one 2014 renewals. So the 2014 we pushed out I believe four years, and the 2015, we pushed out I believe to 2016 and 2017. So the rents were relatively flat with the exception of, as Will said, the Moody's rent, which was a 2014 lease, so it will push it out a little bit, but it will still be within, in certain cases it will still be within through 2017.

Okay, and just out of curiosity, how come you could not extend it out for longer than a couple of years in some of those cases?

Well the Moody's was four years, and it just comes down to market what the tenant is willing to do.

Okay, and then the CapEx you said $53.7 million for the year, that is up versus $42 million, and that's just the function of basically what you just talked about, just a lot more --?

In essence, it is pushing the 2014 CapEx, TI and leasing cost into 2013 because of these additional extensions we've gotten into.

Okay, and then lastly, Will, given the comments on kind of the timing of acquisitions and there being kind of a brief pause here, your guidance did not change, but do you feel like because of that, maybe we should be thinking more towards the lower end, or do you feel fine with the range you've given thus far?

Well, we feel fine with the range we have given obviously, but there has been a little bit of a drag, but not anything that is overly meaningful I guess.

Okay, all right, thank you.

We will take our next question from Jamie Feldman with Bank of America Merrill Lynch.

Great, thanks. I guess first thinking about some of the leasing activity in the quarter and after the quarter? Are you seeing any change in some of the regions, or kind of what is the pickup in leasing activity telling you about how the economy is faring in some of these markets over the past couple quarters?

Well, we have not had enough renewal activity in any one market to I think be able to draw any conclusion about specific markets. I definitely think that the economy is fine, it is not a fast-growing economy, but the fact that we can do so many 10-year renewals on office buildings compared to six months ago or a year ago or two years ago I think is heartening and does mean that our tenants in many cases have greater confidence and greater visibility on their need for our properties. So I thought from that standpoint, it was a real positive.

And then what kind of rent bumps are you getting?

We are usually getting 2% a year in most renewals. in the BofA lease, we got 2.75%, but it is still mainly at 2% escalator.

Okay. And then going back to your comment before on your maintaining margins or lease margins not coming down as much as cap rates. Can you talk a little bit more about that, like what you think is your current cost of capital versus where you can put money to work and what was it historically?

Well, I guess our 10-year financing is probably in the 4.75% range today. I guess historically, one question is how far back do you want to go. I mean we have seen -- I would say the margin in sort of 2006, 2007 might've been 150 basis points versus in many cases 250 today which is still healthy. I've worked long enough to remember when leverage was negative earlier in my career, so it is still I think a pretty healthy margin. You have to -- the big thing you have to be careful about is using inexpensive financing to pay too high a price per foot. I think that is still the main governor on our acquisition activity.

Okay, and I'm sorry if I missed it, did you say what your current pipeline looks like now for both build-to-suit and acquisitions?

We've specified what is real, in other words what is under contract and what is being funded, and I would say we have pretty good visibility on adding another 250 million to the pipeline between now and year-end.

And that would be build-to-suit and acquisition?

That would be build-to-suit and acquisitions but still predominantly build-to-suit.

Okay. And then thinking about your same store, I think you were down 2.5% in the first half. Based on some of the comments you made about move outs, what do you guys think you end up with for the full-year, or at least where do you think year-end occupancy ends up based on what you know is moving out?

I think when we look at it projecting going out, roughly 2.5% is decline is what we expect, and we would expect by year-end occupancy to remain relatively flat to where it is today.

Okay, great, thank you.

And that concludes today's question-and-answer session. Mr. Eglin, I will turn the conference back to you for any additional or closing remarks.

Well again, thank you for joining us this morning. We're very excited about our prospects in 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 Gabby Reyes, or you can find additional information on the company on our website at www.lxp.com. In addition, you may contact me or the other members of senior management with any questions. Thanks again.

Ladies and gentlemen, this concludes today's conference. We thank you for your participation.