This excerpt taken from the LXP 10-K filed Mar 16, 2005.
Off-Balance Sheet Arrangements
Non-Consolidated Real Estate Entities. As of December 31, 2004, the Company has investments in various real estate entities with varying structures. These investments include the Companys 33 1/3% non-controlling interest in Lexington Acquiport Company, LLC; its 25% non-controlling interest in Lexington Acquiport Company II, LLC; its 40% non-controlling interest in Lexington Columbia LLC; its 30% non-controlling interest in Lexington/Lion Venture L.P.; its 30% non-controlling interest in Triple Net Investment Company LLC and its 33 1/3% non-controlling interest in Lexington Durham Limited Partnership. The properties owned by these entities are financed with individual non-recourse mortgage loans. Non-recourse mortgage debt is generally defined as debt whereby the lenders sole recourse with respect to borrower defaults is limited to the value of the property collateralized by the mortgage. The lender generally does not have recourse against any other assets owned by the borrower or any of the members of the borrower, except for certain specified expectations listed in the particular loan documents. These exceptions generally relate to limited circumstances including breaches of material representations.
The Company invests in entities with third parties to increase portfolio diversification, reduce the amount of equity invested in any one property and to increase returns on equity due to the realization of advisory fees. See footnote 6 to the consolidated financial statements for summary combined balance sheet and income statement data relating to these entities.
In addition, the Company has issued $3.9 million in letters of credit.
The Companys exposure to market risk relates to its debt. As of December 31, 2004 and 2003, the Companys variable rate indebtedness represented 1.8% and 19.9%, respectively, of total mortgages and notes payable. During 2004 and 2003, this variable rate indebtedness had a weighted average interest rate of 3.6% and 4.0%, respectively. Had the weighted average interest rate been 100 basis points higher the Companys net income would have been reduced by $0.3 million and $0.6 million in 2004 and 2003, respectively. As of December 31, 2004 and 2003, the Companys fixed rate debt, including discontinued operations, was $752.2 million and $441.7 million, respectively which represented 98.2% and 80.1%, respectively, of total long-term indebtedness. The weighted average interest rate as of December 31, 2004 of fixed rate debt was 6.6%, which is approximately 110 basis points higher than the fixed rate debt obtained by the Company during 2004. With no fixed rate debt maturing until 2008, the Company believes it has limited market risk exposure to rising interest rates as it relates to its fixed rate debt obligations. However, had the fixed interest rate been higher by 100 basis points, the Companys net income would have been reduced by $6.5 million and $4.5 million, for years ended December 31, 2004 and 2003, respectively.