LEPERCQ CORPORATE INCOME FUND L P - FORM 10-Q - August 7, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2014.
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________________ to ________________
Commission File Number 33-04215
 
LEPERCQ CORPORATE INCOME FUND L.P.
(Exact name of registrant as specified in its charter)

Delaware
13-3779859
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One Penn Plaza – Suite 4015
New York, NY
10119
(Address of principal executive offices)
(Zip Code)
(212) 692-7200
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer (Do not check if a smaller reporting company) x
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

There is no public market for units of Limited Partnership Interest. Accordingly, information with respect to the aggregate market value of units of Limited Partnership Interest has not been supplied.
 
 
 
 
 
 
 
 
 
 


TABLE OF CONTENTS

TABLE OF CONTENTS



2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($000, except unit data)

 
June 30,
2014 (unaudited)
 
December 31,
2013
Assets:
 
 
 
Real estate, at cost
$
899,603

 
$
892,621

Real estate - intangible assets
154,768

 
154,768

 
1,054,371

 
1,047,389

Less: accumulated depreciation and amortization
231,906

 
217,905

Real estate, net
822,465

 
829,484

Cash and cash equivalents
6,024

 
13,164

Restricted cash
2,045

 
4,328

Investment in and advances to non-consolidated entity
4,672

 
5,098

Deferred expenses, net
13,231

 
10,174

Loans receivable, net
18,627

 
19,220

Rent receivable - current
649

 
1,127

Rent receivable - deferred
35,246

 
19,594

Other assets
12,585

 
12,250

Total assets
$
915,544

 
$
914,439

 
 
 
 
Liabilities and Partners' Capital:
 
 
 
Liabilities:
 
 
 
Mortgages and notes payable
$
329,165

 
$
339,179

Co-borrower debt
134,750

 
91,551

Related party advances, net
12,444

 
7,703

Accounts payable and other liabilities
7,262

 
7,412

Accrued interest payable
1,073

 
1,307

Deferred revenue - including below market leases, net
5,109

 
611

Distributions payable
21,886

 
13,606

Prepaid rent
6,397

 
5,003

Total liabilities
518,086

 
466,372

 
 
 
 
Commitments and contingencies

 

Partners' capital
397,458

 
448,067

Total liabilities and partners' capital
$
915,544

 
$
914,439



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


3

LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, $000, except unit data)

 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Gross revenues:
 
 
 
 
 
 
 
 
Rental
 
$
27,552

 
$
15,414

 
$
55,399

 
$
30,952

Tenant reimbursements
 
2,268

 
1,319

 
4,409

 
2,578

Total gross revenues
 
29,820

 
16,733

 
59,808

 
33,530

Expense applicable to revenues:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
(7,329
)
 
(6,330
)
 
(14,570
)
 
(12,684
)
Property operating
 
(3,195
)
 
(2,684
)
 
(6,357
)
 
(5,504
)
General and administrative
 
(1,824
)
 
(1,271
)
 
(4,289
)
 
(2,483
)
Non-operating income
 
795

 
818

 
1,596

 
1,634

Interest and amortization expense
 
(7,471
)
 
(2,921
)
 
(13,897
)
 
(6,119
)
Debt satisfaction charges, net
 
(267
)
 
(1,558
)
 
(267
)
 
(1,558
)
Income before provision for income taxes, equity in income (losses) of non-consolidated entity and discontinued operations
 
10,529

 
2,787

 
22,024

 
6,816

Provision for income taxes
 
(23
)
 
(29
)
 
(75
)
 
(57
)
Equity in income (losses) of non-consolidated entity
 
34

 
(43
)
 
66

 
(71
)
Income from continuing operations
 
10,540

 
2,715

 
22,015

 
6,688

Discontinued operations:
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations
 
—

 
(58
)
 
—

 
402

Debt satisfaction gains (charges), net
 
—

 
(2,687
)
 
—

 
1,711

Gains on sales of properties
 
—

 
10,394

 
—

 
10,394

Impairment charges
 
—

 
—

 
—

 
(5,979
)
Total discontinued operations
 
—

 
7,649

 
—

 
6,528

Net income
 
$
10,540

 
$
10,364

 
$
22,015

 
$
13,216

Income per unit:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.15

 
$
0.06

 
$
0.32

 
$
0.15

Income from discontinued operations
 
—

 
0.17

 
—

 
0.15

Net income
 
$
0.15

 
$
0.23

 
$
0.32

 
$
0.30

Weighted-average units outstanding
 
68,110,509

 
44,131,032

 
68,110,509

 
44,131,032



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


4

LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited, $000, except unit amounts)

Six Months ended June 30, 2014
 
Units
 
Partners' Capital
Balance December 31, 2013
 
68,280,702

 
$
448,067

Changes in co-borrower debt
 
—

 
(43,199
)
Redemption of units
 
(170,193
)
 
(1,962
)
Distributions
 
—

 
(27,463
)
Net Income
 
—

 
22,015

Balance June 30, 2014
 
68,110,509

 
$
397,458

 
 
 
 
 
Six Months ended June 30, 2013
 
 
 
 
Balance December 31, 2012
 
44,131,032

 
$
216,544

Changes in co-borrower debt
 
—

 
(6,997
)
Distributions
 
—

 
(19,790
)
Net Income
 
—

 
13,216

Balance June 30, 2013
 
44,131,032

 
$
202,973



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


5

LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, $000)
 
Six Months ended June 30
 
2014
 
2013
Net cash provided by operating activities
$
21,398

 
$
18,378

Cash flows from investing activities:
 
 
 
Investments in real estate under construction
(1,979
)
 
(1,738
)
Capital expenditures
(1,332
)
 
(821
)
Net proceeds from sale of properties
—

 
25,124

Principal payments received on loans receivable
677

 
950

Distributions from non-consolidated entity in excess of accumulated earnings
492

 
26

Increase in deferred leasing costs
(2,227
)
 
(328
)
Change in escrow deposits and restricted cash
2,283

 
867

Net cash provided by (used in) investing activities
(2,086
)
 
24,080

Cash flows from financing activities:
 
 
 
Distributions to partners
(19,183
)
 
(1,203
)
Principal amortization payments
(1,014
)
 
(4,046
)
Increase in deferred financing costs
(34
)
 
—

Principal payments on debt, excluding normal amortization
(9,000
)
 
(44,397
)
Related party advances, net
4,741

 
10,969

Redemption of OP units
(1,962
)
 
—

Net cash used in financing activities
(26,452
)
 
(38,677
)
Change in cash and cash equivalents
(7,140
)
 
3,781

Cash and cash equivalents, at beginning of period
13,164

 
7,347

Cash and cash equivalents, at end of period
$
6,024

 
$
11,128


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, $000, except share/unit data)


(1)    The Partnership and Financial Statement Presentation

Lepercq Corporate Income Fund L.P. (together with its consolidated subsidiaries, except when the context only applies to the parent entity, the “Partnership”) was organized in 1986 as a limited partnership under the Delaware Revised Uniform Limited Partnership Act. The Partnership's sole general partner, Lex GP-1 Trust (the “General Partner”), is a wholly-owned subsidiary of Lexington Realty Trust (“Lexington”). The Partnership serves as an operating partnership subsidiary for Lexington. On December 30, 2013, another operating partnership subsidiary of Lexington, Lepercq Corporate Income Fund II L.P. (“LCIF II”), was merged with and into the Partnership, with the Partnership as the surviving entity. As the merger was between entities under common control, the operations of LCIF II are combined with the Partnership in these condensed consolidated financial statements at the historical cost basis and all periods presented include the results of operations of LCIF II. As of June 30, 2014 and December 31, 2013, Lexington, through Lex LP-1 Trust, a wholly-owned subsidiary, and the General Partner, owned approximately 95.0% of the outstanding units of the Partnership.

The Partnership owns a diversified portfolio of equity and debt investments in single-tenant properties and land. As of June 30, 2014 and December 31, 2013, the Partnership had equity ownership interests in 42 consolidated properties located in 24 states. A majority of the real properties in which the Partnership had an interest and all land interests are generally subject to net leases or similar leases where the tenant pays all or substantially all of the cost, including cost increases, for real estate taxes, insurance, utilities and ordinary maintenance of the property. However, certain leases provide that the landlord is responsible for certain operating expenses.

In connection with the merger of LCIF II with and into the Partnership, former LCIF II partners representing 170,193 limited partner interests (“OP units”) elected or were deemed to elect to receive an aggregate amount of $1,962 in cash for such OP units.

Basis of Presentation and Consolidation. The Partnership's unaudited condensed consolidated financial statements are prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”). The financial statements reflect the accounts of the Partnership and its consolidated subsidiaries. The Partnership consolidates its wholly-owned subsidiaries, partnerships and joint ventures which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if the Partnership is the primary beneficiary of a variable interest entity (“VIE”). Entities which the Partnership does not control and entities which are VIEs in which the Partnership is not the primary beneficiary are accounted for under appropriate GAAP.

The financial statements contained in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2014 (this “Quarterly Report”) have been prepared by the Partnership in accordance with GAAP for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the three and six months ended June 30, 2014 and 2013, are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the Partnership's audited consolidated financial statements and notes thereto included in the Partnership's Form 10-K for the year ended December 31, 2013 filed with the SEC on March 17, 2014 (“Annual Report”).

Earnings Per Unit. Net income per unit is computed by dividing net income by the weighted-average number of units outstanding during the period. There are no potential dilutive securities.

Unit Redemptions. The Partnership's limited partner units that are issued and outstanding, other than those held by Lexington, are currently redeemable at certain times, only at the option of the holders, for shares of beneficial interests of Lexington, par value $0.0001 per share, classified as common stock (“common shares”), on a one to approximately 1.13 basis, subject to future adjustments. These units are not mandatorily redeemable by the Partnership.
 

7
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, $000, except share/unit data)

Allocation of Overhead Expenses. The Partnership does not pay a fee to the General Partner for the day-to-day management of the Partnership. Certain expenses incurred by the General Partner and its affiliates, including Lexington, such as corporate-level interest, amortization of deferred loan costs, payroll and general and administrative expenses are allocated to the Partnership and reimbursed to the General Partner in accordance with the Partnership's partnership agreement. The allocation is based upon gross rental revenues.

Distributions; Allocations of Income and Loss. As provided in the Partnership's partnership agreement, distributions and income and loss for financial reporting purposes are allocated to the partners based on their ownership of units. Special allocation rules included in the partnership agreement affect the allocation of taxable income and loss. The Partnership paid or accrued gross distributions of $27,463 ($0.40 per weighted-average unit) and $19,790 ($0.45 per weighted-average unit) to its partners during the six months ended June 30, 2014 and 2013, respectively. Certain units owned indirectly by Lexington are entitled to aggregate annual distributions of $3.25 per unit.
 
Use of Estimates. The Partnership has made a number of significant estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these consolidated financial statements in conformity with GAAP. These estimates and assumptions are based on management's best estimates and judgment. The Partnership evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. The Partnership adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed, the determination of VIEs and which entities should be consolidated, the determination of impairment of long-lived assets, loans receivable and equity method investments and the useful lives of long-lived assets. Actual results could differ materially from those estimates.
 
Fair Value Measurements. The Partnership follows the guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("Topic 820"), to determine the fair value of financial and non-financial instruments. Topic 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 - unobservable inputs, which are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Partnership utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk.

Acquisition, Development and Construction Arrangements. The Partnership evaluates loans receivable where the Partnership participates in residual profits through loan provisions or other contracts to ascertain whether the Partnership has the same risks and rewards as an owner or a joint venture partner. Where the Partnership concludes that such arrangements are more appropriately treated as an investment in real estate, the Partnership reflects such loan receivable as an equity investment in real estate under construction in the consolidated balance sheets. In these cases, no interest income is recorded on the loan receivable and the Partnership records capitalized interest during the construction period. In arrangements where the Partnership engages a developer to construct a property or provide funds to a tenant to develop a property, the Partnership will capitalize the funds provided to the developer/tenant and internal costs of interest and real estate taxes, if applicable, during the construction period.
 
Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform to the current year presentation, including certain statements of operations captions including activities for properties sold in 2013, which are presented in discontinued operations.
 

8
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, $000, except share/unit data)

Recently Issued Accounting Guidance. In February 2013, the FASB issued Accounting Standards Update 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date, (“ASU 2013-04”), requiring recognition of such obligations as the sum of (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. The Partnership early adopted this new guidance in 2013 retrospectively (see note 7).

In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for reporting discontinued operations and improves financial statement disclosures. Under this guidance, only disposals representing a strategic shift in operations that have a major effect on an organization's operations and financial results should be presented as discontinued operations. The new guidance is effective in the first quarter of 2015. It is anticipated that the implementation of this guidance will reduce the number of future property dispositions the Partnership makes, if any, that will be classified as discontinued operations in the Partnership's condensed consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the guidance for revenue recognition to eliminate the industry-specific revenue recognition guidance and replace it with a principle based approach for determining revenue recognition. The new guidance is effective for reporting periods beginning after December 15, 2016. The Partnership is currently evaluating the impact of the adoption of the new guidance on its condensed consolidated financial statements.

(2)     Investments in Real Estate

The Partnership's real estate, net, consists of the following at June 30, 2014 and December 31, 2013:
 
 
 
June 30, 2014
 
December 31, 2013
Real estate, at cost:
 
 
 
 
Buildings and building improvements
 
$
572,487

 
$
567,309

Land, land estates and land improvements
 
325,074

 
325,074

Fixtures and equipment
 
84

 
84

Construction in progress
 
1,958

 
154

Real estate intangibles:
 
 
 
 
In-place lease values
 
130,387

 
130,387

Tenant relationships
 
20,350

 
20,350

Above-market leases
 
4,031

 
4,031

 
 
1,054,371

 
1,047,389

Accumulated depreciation and amortization(1)
 
(231,906
)
 
(217,905
)
Real estate, net
 
$
822,465

 
$
829,484

(1)
Includes accumulated amortization of real estate intangible assets of $47,831 and $44,940 in 2014 and 2013, respectively.

In addition, the Partnership had below-market leases, net of accumulated accretion, which are included in deferred revenue, of $393 and $539, respectively, as of June 30, 2014 and December 31, 2013.

(3)     Sales of Real Estate and Discontinued Operations

During the six months ended June 30, 2013, the Partnership sold its interest in a property for a gross sales price of $25,900. In addition, the Partnership conveyed its interest in two properties, along with the respective escrow deposits, in satisfaction of an aggregate $29,859 of non-recourse secured mortgage loans and recognized aggregate debt satisfaction gains, net, of $1,711. These dispositions resulted in aggregate gains on sales of properties of $10,394 and impairment charges of $5,979.

9
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, $000, except share/unit data)


At June 30, 2014, the Partnership had no properties classified as held for sale.

The following presents the operating results for disposed properties during 2013:
 
 
Three Months Ending
 
Six Months Ending
 
 
June 30, 2013
 
June 30, 2013
Total gross revenues
 
$
1,026

 
$
2,421

Pre-tax net income
 
$
7,649

 
$
6,528


(4)    Loans Receivable

As of June 30, 2014 and December 31, 2013, the Partnership's loans receivable are comprised primarily of mortgage loans on real estate.
The following is a summary of the Partnership's loans receivable as of June 30, 2014 and December 31, 2013:
 
 
Loan carrying-value(1)
 
 
 
 
Loan
 
6/30/2014
 
12/31/2013
 
Interest Rate
 
Maturity Date
Westmont, IL(2)
 
$
12,417

 
$
12,610

 
6.45
%
 
10/2015
Southfield, MI
 
6,210

 
6,610

 
4.55
%
 
02/2015
 
 
$
18,627

 
$
19,220

 
 
 
 
(1)
Loan carrying value includes accrued interest and is net of origination costs and loan losses, if any.
(2)
Borrower is delinquent on debt service payments. Tenant at office property collateral terminated its lease. The Partnership recognized an impairment of $13,939 during the fourth quarter of 2013. During the six months ended June 30, 2014, the Partnership recognized $853 of interest income relating to the impaired loan and the loan had an average recorded investment value of $12,514 during the six months ended June 30, 2014. At June 30, 2014, the impaired loan receivable had a contractual unpaid balance of $26,357.

The Partnership has two types of financing receivables: loans receivable and a capitalized financing lease. The Partnership determined that its financing receivables operate within one portfolio segment as they are within the same industry and use the same impairment methodology. The Partnership's loans receivable are secured by commercial real estate assets and the capitalized financing lease is for a commercial property located in Greenville, South Carolina. In addition, the Partnership assesses all financing receivables for impairment, when warranted, based on an individual analysis of each receivable.
The Partnership's financing receivables operate within one class of financing receivables as these assets are collateralized by commercial real estate and similar metrics are used to monitor the risk and performance of these assets. The Partnership uses credit quality indicators to monitor financing receivables such as quality of collateral, the underlying tenant's credit rating and collection experience. As of June 30, 2014, the financing receivables were performing as anticipated other than the Westmont, Illinois loan as discussed above and there were no significant delinquent amounts outstanding.

(5)    Investments in and Advances to Non-Consolidated Entity

On September 1, 2012, the Partnership acquired a 2% equity interest in Net Lease Strategic Assets Fund L.P. (“NLS”) for cash of $189 and the issuance of 457,211 limited partner units to Lexington. At the date of acquisition, NLS owned 41 properties totaling 5.8 million square feet in 23 states, plus a 40% tenant-in-common interest in an office property.
 
The Partnership's carrying value in NLS at June 30, 2014 and December 31, 2013 was $4,672 and $5,098, respectively. The Partnership recognized net income (loss) from NLS of $66 and $(71) in equity in income (losses) from non-consolidated entity during the six months ending June 30, 2014 and 2013, respectively. In addition, the Partnership received distributions of $492 and $26 from NLS during the six months ending June 30, 2014 and 2013, respectively.


10
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, $000, except share/unit data)

(6)    Fair Value Measurements

The following table presents the Partnership's assets and liabilities from continuing operations measured at fair value on a non-recurring basis during the year ended December 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall:
 
Balance
 
Fair Value Measurements Using
Description
December 31, 2013
 
(Level 1)
 
(Level 2)
 
(Level 3)
Impaired loan receivable*
$
12,610

 
$
—

 
$
—

 
$
12,610

*Represents a non-recurring fair value measurement.

There were no non-recurring measurements during the six months ended June 30, 2014.

The table below sets forth the carrying amounts and estimated fair values of the Partnership's financial instruments as of June 30, 2014 and December 31, 2013:
 
 
As of June 30, 2014
 
As of December 31, 2013
 
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Assets
 
 
 
 
 
 
 
 
Loans Receivable (Level 3)
 
$
18,627

 
$
16,505

 
$
19,220

 
$
16,960

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Debt (Level 3)
 
$
463,915

 
$
469,149

 
$
430,730

 
$
431,573


The Partnership estimates the fair values of its loans receivable by using an estimated discounted cash flow analysis consisting of scheduled cash flows and discount rate estimates to approximate those that a willing buyer and seller might use and/or the estimated value of the underlying collateral. The fair value of the Partnership's debt is estimated by using a discounted cash flow analysis, based upon estimates of market interest rates.

Fair values cannot be determined with precision, may not be substantiated by comparison to quoted prices in active markets and may not be realized upon sale. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks and estimates of future cash flows, could significantly affect the fair value measurement amounts.
 
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable. The Partnership estimates that the fair value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates carrying value due to the relatively short maturity of the instruments.

(7)    Mortgages and Notes Payable and Co-Borrower Debt

The Partnership had outstanding mortgages and notes payable of $329,165 and $339,179 as of June 30, 2014 and December 31, 2013, respectively. Interest rates, including imputed rates, ranged from 4.7% to 6.5% at June 30, 2014 and December 31, 2013 and the mortgages and notes payable mature between 2015 and 2027. The weighted-average interest rate at June 30, 2014 and December 31, 2013 was, in each case, approximately 5.0%.

Lexington, and the Partnership as co-borrower, have a $400,000 unsecured revolving credit facility with KeyBank National Association (“KeyBank”), as agent. The unsecured revolving credit facility matures in February 2017 but can be extended until February 2018 at Lexington’s option. The unsecured revolving credit facility bears interest at LIBOR plus 0.95% to 1.725% (1.15% as of June 30, 2014) depending on Lexington's unsecured investment-grade debt rating. At June 30, 2014, the unsecured revolving credit facility had no amounts outstanding, outstanding letters of credit of $16,144 and availability of $383,856, subject to covenant compliance.

11
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, $000, except share/unit data)

Lexington, and the Partnership as co-borrower, have a five-year $250,000 unsecured term loan facility from KeyBank, as agent. The unsecured term loan matures in February 2018, may be prepaid without penalty and requires regular payments of interest only at interest rates ranging from LIBOR plus 1.10% to 2.10% (1.35% as of June 30, 2014) depending on Lexington's unsecured investment-grade debt rating. As of June 30, 2014, interest rate swap agreements were entered into to fix the LIBOR component at a weighted-average rate of 1.09% through February 2018 on the $250,000 of outstanding LIBOR-based borrowings.
Lexington, and the Partnership as co-borrower, have a $255,000 unsecured term loan from Wells Fargo Bank, National Association (“Wells Fargo”), as agent. The term loan matures in January 2019. The term loan requires regular payments of interest only at interest rates ranging from LIBOR plus 1.50% to 2.25% (1.75% as of June 30, 2014) depending on Lexington's unsecured investment-grade debt rating. Lexington may prepay any outstanding borrowings under the term loan facility at a premium through January 12, 2016 and at par thereafter. Interest rate swap agreements were entered into to fix the LIBOR component at a weighted-average rate of 1.42% through January 2019 on the $255,000 of outstanding LIBOR-based borrowings.
Lexington was in compliance with all applicable financial covenants contained in its corporate level debt agreements at June 30, 2014.
In accordance with the guidance of ASU 2013-04, the Partnership recognizes a proportion of the outstanding amounts of the above mentioned term loans and revolving credit facility, as it is a co-borrower with Lexington, as co-borrower debt in the accompanying balances sheets. In accordance with the Partnership’s partnership agreement, the Partnership is allocated a portion of these debts based on gross rental revenues, which represents its agreed to obligation. The Partnership's allocated co-borrower debt was $134,750 and $91,551 as of June 30, 2014 and December 31, 2013, respectively. Changes in co-borrower debt are recognized in partners’ capital in the accompanying condensed consolidated statements of changes in partners’ capital.
 
Mortgages payable and secured loans are generally collateralized by real estate and the related leases. Certain mortgages payable have yield maintenance or defeasance requirements relating to any prepayments. In addition, certain mortgages are cross-collateralized and cross-defaulted.

(8)    Concentration of Risk

Subject to the terms of the partnership agreement, the Partnership seeks to reduce its operating and leasing risks through the geographic diversification of its properties, tenant industry diversification, avoidance of dependency on a single asset and the creditworthiness of its tenants. For the six months ended June 30, 2014 and 2013, the following tenants represented greater than 10% of rental revenues:
 
 
2014
 
2013
LG-39 Ground Tenant LLC
 
15.7
%
 
—
%
FC-Canal Ground Tenant LLC
 
13.4
%
 
—
%
AL-Stone Ground Tenant LLC
 
12.3
%
 
—
%

The Partnership net leases these individual land parcels to the tenants under non-cancellable 99-year leases. The improvements on these parcels are owned by the tenants under the Partnership leases and currently consist of three high-rise hotels located in New York, NY. The hotels are known as the Element New York Times Square West, the Sheraton Tribeca New York Hotel and the DoubleTree by Hilton Hotel New York City - Financial District, respectively.

Cash and cash equivalent balances at certain institutions may exceed insurable amounts. The Partnership believes it mitigates this risk by investing in or through major financial institutions.

(9)    Related Party Transactions

The Partnership had the following related party transactions in addition to related party transactions discussed elsewhere in this report and the audited consolidated financial statements in the Annual Report.

12
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, $000, except share/unit data)

The Partnership had outstanding net advances owed to Lexington of $12,444 and $7,703 as of June 30, 2014 and December 31, 2013, respectively. The advances are payable on demand. Lexington earned unit distributions of $26,261 and $18,608 during the six months ended June 30, 2014 and 2013, respectively.
The Partnership was allocated interest expense by Lexington, in accordance with the Partnership's partnership agreement, relating to certain lending facilities of $4,506 and $1,550 for the six months ended June 30, 2014 and 2013, respectively.
Lexington, on behalf of the General Partner, pays for certain general administrative and other costs on behalf of the Partnership from time to time. These costs are reimbursable by the Partnership. These costs were approximately $3,918 and $2,427 for the six months ended June 30, 2014 and 2013, respectively.
 A Lexington affiliate provides property management services for certain Partnership properties. The Partnership recognized property operating expenses, including from discontinued operations, of $512 and $620 for the six months ended June 30, 2014 and 2013, respectively, for aggregate fees and reimbursements charged by the affiliate.
(10)    Commitments and Contingencies

In addition to the commitments and contingencies disclosed elsewhere, the Partnership has the following commitments and contingencies.
 
The Partnership is obligated under certain tenant leases, including its proportionate share for leases for non-consolidated entities, to fund the expansion of the underlying leased properties. During the six months ended June 30, 2014, the Partnership commenced the expansion of the Byhalia, Mississippi property for an estimated cost of $15,300. The Partnership, under certain circumstances, may guarantee to tenants the completion of base building improvements and the payment of tenant improvement allowances and lease commissions on behalf of its subsidiaries.

The Partnership and Lexington are parties to a funding agreement under which each party may be required to fund distributions made on account of OP units or dividends made on account of Lexington common shares. Pursuant to the funding agreement, the parties agreed that, if the Partnership does not have sufficient cash available to make a quarterly distribution to its limited partners in an amount equal to whichever is applicable of (1) a specified distribution set forth in its partnership agreement or (2) the cash dividend payable with respect to a whole or fractional Lexington common share into which the partnership's common units would be converted if they were redeemed for Lexington common shares in accordance with the partnership agreement, Lexington will fund the shortfall. Payments under the agreement will be made in the form of loans to the Partnership and will bear interest at prevailing rates as determined by Lexington in its discretion but no less than the applicable federal rate. The Partnership's right to receive these loans will expire if no OP units remain outstanding and all such loans were repaid. No amounts have been advanced under this agreement.

In May 2014, the Partnership guaranteed $250,000 aggregate principal amount of 4.40% Senior Notes due 2024 (“2024 Senior Notes”) issued by Lexington at an issuance price of 99.883% of the principal amount and in June 2013, the Partnership guaranteed $250,000 aggregate principal amount of 4.25% Senior Notes due 2023 (“ 2023 Senior Notes”) issued by Lexington at an issuance price of 99.026% of the principal amount, collectively the Senior Notes. The Senior Notes are unsecured and pay interest semi-annually in arrears. Lexington may redeem the Senior Notes at its option at any time prior to maturity in whole or in part by paying the principal amount of the notes being redeemed plus a premium. In January 2014, the Partnership also guaranteed $250,000 original principal amount of Lexington's 4.25% Senior Notes due 2023 that were registered under the Securities Act of 1933, as amended, and were issued in exchange for the 2023 Senior Notes.
During 2010, the Partnership guaranteed $115,000 aggregate principal amount of 6.00% Convertible Guaranteed Notes due 2030 (“Guaranteed Notes”) issued by Lexington. The Guaranteed Notes pay interest semi-annually in arrears and mature in January 2030. The holders of the Guaranteed Notes may require Lexington to repurchase their notes in January 2017, January 2020 and January 2025 for cash equal to 100% of the notes to be repurchased, plus any accrued and unpaid interest. The Guaranteed Notes are convertible by the holders under certain circumstances for cash, Lexington common shares or a combination of cash and common shares at Lexington's election. As of June 30, 2014, $26,186 original principal amount of Guaranteed Notes were outstanding.


13
LEPERCQ CORPORATE INCOME FUND L.P. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, $000, except share/unit data)

From time to time, the Partnership is directly or indirectly involved in legal proceedings arising in the ordinary course of the Partnership's business. The Partnership believes, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on the Partnership's business, financial condition and results of operations.

(11)    Supplemental Disclosure of Statement of Cash Flow Information

In addition to disclosures discussed elsewhere, during the six months ended June 30, 2014 and 2013, the Partnership paid $13,467 and $5,262, respectively, for interest and $94 and $68, respectively, for income taxes.
(12)    Subsequent Events

Subsequent to June 30, 2014 and in addition to disclosures elsewhere in the financial statements, the Partnership disposed of its interest in an industrial property to an unrelated third party for a disposition price of $41,000.

14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Introduction

When we use the terms “the Partnership,” “we,” “us” and “our,” we mean Lepercq Corporate Income Fund L.P. and all entities owned by us, including non-consolidated entities, except where it is clear that the term means only the parent company. References to Lex GP are to our general partner, Lex GP-1 Trust, a Delaware statutory trust, and references to Lex LP are to Lex LP-1 Trust, a Delaware statutory trust, which hold together approximately 95.0% of our OP units. When we use the term “Lexington” or “LXP,” we mean Lexington Realty Trust and when we use the term “REIT” we mean real estate investment trust. All references to “LCIF II” in this Quarterly Report mean Lepercq Corporate Income Fund II L.P., which was merged with and into us on December 31, 2013. References herein to ‘‘this Quarterly Report” are to this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2014. The results of operations for the three and six months ended June 30, 2014 and 2013 are not necessarily indicative of the results that may be expected for the full year.

The following is a discussion and analysis of our unaudited condensed consolidated financial condition and results of operations for the three and six months ended June 30, 2014 and 2013, and significant factors that could affect our prospective financial condition and results of operations. This discussion should be read together with the accompanying unaudited condensed consolidated financial statements and notes thereto and with our consolidated financial statements and notes thereto included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 17, 2014, which we refer to as our Annual Report. Historical results may not be indicative of future performance.

Forward-Looking Statements. This Quarterly Report, together with other statements and information publicly disseminated by us, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “estimates,” “projects,” “may,” “plans,” “predicts,” “will,” “will likely result” or similar expressions. Readers should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. In particular, among the factors that could cause actual results, performances or achievements to differ materially from current expectations, strategies or plans include, among others, any risks discussed below in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and under the headings “Risk Factors” in this Quarterly Report and “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report and other periodic reports filed with the SEC. Except as required by law, we undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Accordingly, there is no assurance that our expectations will be realized.
 
Critical Accounting Policies. 

Management's discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing our unaudited condensed consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. Our accounting policies are discussed under (1) Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report, (2) note 2 to our consolidated financial statements contained in our Annual Report and (3) note 1 to our unaudited condensed consolidated financial statements contained in this Quarterly Report. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report.
 

15

Liquidity
 
Cash Flows. We believe that cash flows from operations will continue to provide adequate capital to fund our operating and administrative expenses, regular debt service obligations and all distribution payments in accordance with our partnership agreement requirements in both the short-term and long-term. However, without a capital event, which would most likely involve LXP, we do not have the ability to fund balloon payments on maturing mortgages or acquire new investments.
 
Cash flows from operations as reported in the condensed consolidated statements of cash flows totaled $21.4 million and $18.4 million during the six months ended June 30, 2014 and 2013, respectively. The underlying drivers that impact working capital and therefore cash flows from operations are the timing of (1) the collection of rents and tenant reimbursements and loan interest payments from borrowers and (2) the payment of interest on mortgage debt and operating and general and administrative costs. We believe the net-lease structure of the leases encumbering a majority of the properties in which we have an interest mitigates the risks of the timing of cash flows from operations since the payment and timing of operating costs related to the properties are generally borne directly by the tenant. Collection and timing of tenant rents is closely monitored by management as part of our cash management program. Cash flows from operations are also impacted by the level of acquisition volume and sales of properties.
 
Net cash provided by (used in) investing activities totaled $(2.1) million and $24.1 million during the six months ended June 30, 2014 and 2013, respectively. Cash provided by investing activities related primarily to collection of loans receivable, distributions from non-consolidated entity in excess of accumulated earnings, net proceeds from the sale of properties and changes in escrow deposits and restricted cash. Cash used in investing activities related primarily to capital expenditures on real estate properties, investments in real estate under construction and an increase in deferred leasing costs. Therefore, the fluctuation in investing activities relates primarily to the timing of investments.
 
Net cash used in financing activities totaled $26.5 million and $38.7 million during the six months ended June 30, 2014 and 2013, respectively. Cash used in financing activities was primarily attributable to distribution payments, redemption of OP units, an increase in deferred financing costs and debt payments. Cash provided by financing activities was primarily attributable to related party advances, net.

Property Specific Debt. As of June 30, 2014 and December 31, 2013, we had $329.2 million and $339.2 million, respectively, of consolidated property specific debt outstanding. As of June 30, 2014, we had no property specific debt with related balloon payments maturing in 2014 and $28.5 million of property specific debt with related balloon payments maturing in 2015. If a mortgage is unable to be refinanced upon maturity, we will be dependent on LXP’s liquidity resources to satisfy such mortgage to avoid transferring the underlying property to the lender or selling the underlying property to a third party.
 
Capital Recycling. Part of our strategy to effectively manage our balance sheet involves pursuing and executing well on property dispositions and recycling of capital. During the six months ended June 30, 2013, we disposed of our interest in a property for a gross sales price of $25.9 million and two properties via foreclosure in full satisfaction of the $29.9 million aggregate related non-recourse mortgage. During the six months ended June 30, 2014, we did not dispose of or acquire any properties.

16

Results of Operations
Three months ended June 30, 2014 compared with the three months ended June 30, 2013. The increase in total gross revenues in the second quarter of 2014 of $13.1 million is primarily attributable to an increase in rental revenue. The increase in rental revenue of $12.1 million was primarily due to new property acquisition revenue of $12.7 million, primarily the New York City land leases, offset in part by a reduction due to lease extensions entered into at rents below previous rental amounts, the net impact of management of certain properties being transferred between the tenant and us and an increase in vacancy at one property.
Depreciation and amortization increased $1.0 million primarily due to property acquisitions.
The increase in property operating expense of $0.5 million is primarily due to the acquisition of one property with operating expense obligations ($0.9 million), offset in part by the net impact of management of certain properties being transferred between the tenant and us ($0.5 million).
The increase in general and administrative expense of $0.6 million is primarily due to an increase in allocable costs from LXP.
The increase in interest and amortization expense of $4.6 million was primarily due to the financing of the New York City land parcels acquired in 2013 and an increase in the allocation of interest from LXP, offset in part by a reduction in interest expense related to mortgages satisfied in 2013.
Debt satisfaction charges, net decreased by $1.3 million, primarily due to the timing of debt satisfactions.
Discontinued operations represent properties sold or held for sale. During the second quarter of 2014, we did not have any discontinued operations. During the second quarter of 2013, discontinued operations generated net income of $7.6 million, primarily due to a gains on sales of properties of $10.4 million, offset in part by debt satisfaction charges, net of $2.7 million.
 The increase in net income of $0.2 million was primarily due to the items discussed above.
Six months ended June 30, 2014 compared with the six months ended June 30, 2013. The increase in total gross revenues in the six months ended June 30, 2014 of $26.3 million is primarily attributable to an increase in rental revenue. The increase in rental revenue of $24.4 million was primarily due to new property acquisition revenue of $25.4 million, primarily the New York City land leases, offset in part by a reduction due to lease extensions entered into at rents below previous rental amounts, the net impact of management of certain properties being transferred between the tenant and us and an increase in vacancy at one property.
Depreciation and amortization increased $1.9 million primarily due to property acquisitions.
The increase in property operating expense of $0.9 million is primarily due to the acquisition of one property with operating expense obligations ($1.8 million), offset in part by the net impact of management of certain properties being transferred between the tenant and us ($0.9 million).
The increase in general and administrative expense of $1.8 million is primarily due to an increase in allocable costs from LXP.
The increase in interest and amortization expense of $7.8 million was primarily due to the financing of the New York City land parcels acquired in 2013 and an increase in the allocation of interest from LXP, offset in part by a reduction in interest expense related to mortgages satisfied in 2013.
Debt satisfaction charges, net decreased by $1.3 million, primarily due to the timing of debt satisfactions.
Discontinued operations represent properties sold or held for sale. During the six months ended June 30, 2014, we did not have any discontinued operations. During the six months ended June 30, 2013, discontinued operations generated net income of $6.5 million, primarily due to gains on sales of properties of $10.4 million, partially offset by impairment charges of $6.0 million.
 The increase in net income of $8.8 million was primarily due to the items discussed above.

Off-Balance Sheet Arrangements
We are co-borrowers or guarantors of corporate borrowing facilities and debt securities of LXP (see note 10 to our unaudited condensed consolidated financial statements with respect to debt securities). In addition, we, from time to time, guarantee certain tenant improvement allowances and lease commissions on behalf of subsidiaries when required by the related tenant or lender. However, we do not believe these guarantees are material to us as the obligations under and risks associated with such guarantees are priced into the rent under the lease or the value of the property.

17

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Our exposure to market risk relates primarily to our fixed-rate debt and, to the extent we rely on LXP for liquidity, LXP’s variable-rate debt. We did not have any variable-rate indebtedness outstanding at June 30, 2014 and 2013. During the three months ended June 30, 2014 and 2013, our variable-rate indebtedness had a weighted-average interest rate of 1.3% and 2.0%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for the three months ended June 30, 2014 and 2013 would have increased by approximately $19 thousand and $62 thousand, respectively. During the six months ended June 30, 2014 and 2013, our variable-rate indebtedness had a weighted-average interest rate of 1.4% and 2.0%, respectively. Had the weighted-average interest rate been 100 basis points higher, our interest expense for the six months ended June 30, 2014 and 2013 would have increased by approximately $41 thousand and $81 thousand, respectively.
 
As of June 30, 2014 and 2013, our consolidated fixed-rate debt, including co-borrower debt, was $463.9 million and $184.3 million, respectively, which represented 100.0% of our total long-term indebtedness, respectively.
 
For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, we derive or estimate fair values using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. However, the determination of estimated cash flows may be subjective and imprecise. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. The following fair value was determined using the interest rates that we believe our outstanding fixed-rate debt would warrant as of June 30, 2014 and are indicative of the interest rate environment as of June 30, 2014, and do not take into consideration the effects of subsequent interest rate fluctuations. Accordingly, we estimate that the fair value of our fixed-rate debt, including co-borrower debt, was $469.1 million as of June 30, 2014.
 
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on cash flows and to lower overall borrowing costs. To achieve these objectives, we manage exposure to fluctuations in market interest rates through the use of fixed-rate debt instruments.


18

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report was made under the supervision and with the participation of our management, including Lex GP's President and Lex GP's Vice President and Treasurer who are our Principal Executive Officer and our Principal Financial/Accounting Officer, respectively. Based upon this evaluation, Lex GP's President and Lex GP's Vice President and Treasurer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including Lex GP's President and Lex GP's Vice President and Treasurer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


19

PART II. OTHER INFORMATION

ITEM 1.
Legal Proceedings.
 
From time to time we are directly and indirectly involved in legal proceedings arising in the ordinary course of our business. We believe, based on currently available information, and after consultation with legal counsel, that although the outcomes of those normal course proceedings are uncertain, the results of such proceedings, in the aggregate, will not have a material adverse effect on our business, financial condition and results of operations.

ITEM 1A.
Risk Factors.
 
There have been no material changes in our risk factors from those disclosed in our Annual Report which are incorporated herein by reference.


20

ITEM 6.    Exhibits.

Exhibit No.
 
 
 
Description
3.1
 
—
 
Fifth Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund L.P. (“the Partnership”), dated as of December 31, 1996, as supplemented (the “LCIF Partnership Agreement”) (filed as Exhibit 3.3 to Lexington Realty Trust’s (“Lexington's”) Registration Statement on Form S-3/A filed September 10, 1999 (the “09/10/99 Registration Statement”))(1)
3.2
 
—
 
Amendment No. 1 to the LCIF Partnership Agreement dated as of December 31, 2000 (filed as Exhibit 3.11 to the Lexington’s Annual Report on Form 10-K for the year ended December 31, 2003, filed February 26, 2004 (the “2003 10-K”))(1)
3.3
 
—
 
First Amendment to the LCIF Partnership Agreement effective as of June 19, 2003 (filed as Exhibit 3.12 to the 2003 10-K)(1)
3.4
 
—
 
Second Amendment to the LCIF Partnership Agreement effective as of June 30, 2003 (filed as Exhibit 3.13 to the 2003 10-K)(1)
3.5
 
—
 
Third Amendment to the LCIF Partnership Agreement effective as of December 31, 2003 (filed as Exhibit 3.13 to the Lexington’s Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 16, 2005 (the “2004 10-K”))(1)
3.6
 
—
 
Fourth Amendment to the LCIF Partnership Agreement effective as of October 28, 2004 (filed as Exhibit 10.1 to the Lexington’s Current Report on Form 8-K filed November 4, 2004)(1)
3.7
 
—
 
Fifth Amendment to the LCIF Partnership Agreement effective as of December 8, 2004 (filed as Exhibit 10.1 to the Lexington’s Current Report on Form 8-K filed December 14, 2004 (the “12/14/04 8-K”))(1)
3.8
 
—
 
Sixth Amendment to the LCIF Partnership Agreement effective as of June 30, 2003 (filed as Exhibit 10.1 to the Lexington’s Current Report on Form 8-K filed January 3, 2005 (the “01/03/05 8-K”))(1)
3.9
 
—
 
Seventh Amendment to the LCIF Partnership Agreement (filed as Exhibit 10.1 to the Lexington’s Current Report on Form 8-K filed November 3, 2005)(1)
3.10
 
—
 
Eighth Amendment to the LCIF Partnership Agreement effective as of March 26, 2009 (filed as Exhibit 10.1 to the Lexington’s Current Report on Form 8-K filed April 27, 2009 (the “4/27/09 8-K”)(1)
3.11
 
—
 
Second Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund II L.P. (“LCIF II”), dated as of August 27, 1998 the (“LCIF II Partnership Agreement”) (filed as Exhibit 3.4 to the 09/10/99 Registration Statement)(1)
3.12
 
—
 
First Amendment to the LCIF II Partnership Agreement effective as of June 19, 2003 (filed as Exhibit 3.14 to the 2003 10-K)(1)
3.13
 
—
 
Second Amendment to the LCIF II Partnership Agreement effective as of June 30, 2003 (filed as Exhibit 3.15 to the 2003 10-K)(1)
3.14
 
—
 
Third Amendment to the LCIF II Partnership Agreement effective as of December 8, 2004 (filed as Exhibit 10.2 to the 12/14/04 8-K)(1)
3.15
 
—
 
Fourth Amendment to the LCIF II Partnership Agreement effective as of January 3, 2005 (filed as Exhibit 10.2 to the 01/03/05 8-K)(1)
3.16
 
—
 
Agreement and Plan of Merger dated as of December 23, 2013, by and among LCIF and LCIF II (filed as Exhibit 10.1 to Lexington's Current Report on Form 8-K filed on December 24, 2013)(1)

3.17
 
—
 
Sixth Amended and Restated Agreement of Limited Partnership of LCIF, dated as of December 30, 2013 (filed as Exhibit 3.20 to LCIF's Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 17, 2014)(1)
4.1
 
—
 
Indenture, dated as of January 29, 2007, among Lexington (as successor by merger), the other guarantors named therein and U.S. Bank National Association, as trustee (“U.S. Bank”) (filed as Exhibit 4.1 to Lexington’s Current Report on Form 8-K filed January 29, 2007 (the “01/29/07 8-K”))(1)
4.2
 
—
 
Fourth Supplemental Indenture, dated as of December 31, 2008, among Lexington, the other guarantors named therein and U.S. Bank, as trustee (filed as Exhibit 4.1 to Lexington’s Current Report on Form 8-K filed on January 2, 2009)(1)
4.3
 
—
 
Fifth Supplemental Indenture, dated as of June 9, 2009, among Lexington (as successor by merger), the other guarantors named therein and U.S. Bank, as trustee (filed as Exhibit 4.1 to Lexington's Current Report on Form 8-K filed on June 15, 2009)(1)

21

4.4
 
—
 
Sixth Supplemental Indenture, dated as of January 26, 2010 among Lexington, the guarantors named therein and U.S. Bank, as trustee, including the Form of 6.00% Convertible Guaranteed Notes due 2030 (filed as Exhibit 4.1 to Lexington’s Current Report on Form 8-K filed January 26, 2010)(1)
4.5
 
—
 
Seventh Supplemental Indenture, dated as of September 28, 2012, among Lexington, certain subsidiaries of Lexington signatories thereto, and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to Lexington's Current Report on Form 8-K filed on October 3, 2012)(1)
4.6
 
—
 
Eighth Supplemental Indenture, dated as of February 13, 2013, among Lexington, certain subsidiaries of Lexington signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.1 to Lexington's Current Report on Form 8-K filed on February 13, 2013 (the “02/13/13 8-K”))(1)
4.7
 
—
 
Ninth Supplemental Indenture, dated as of May 6, 2013, among Lexington, certain subsidiaries of Lexington signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.1 to Lexington's Current Report on Form 8-K filed on May 8, 2013)(1)
4.8
 
—
 
Tenth Supplemental Indenture, dated as of June 10, 2013, among Lexington, certain subsidiaries of Lexington signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.3 to Lexington's Current Report on Form 8-K filed on June 13, 2013 (the “06/13/13 8-K”))(1)
4.9
 
—
 
Tenth Supplemental Indenture, dated as of September 30, 2013, among Lexington, certain subsidiaries of Lexington signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.1 to Lexington's Current Report on Form 8-K filed on October 3, 2013)(the “10/3/13 8-K”))(1)
4.10
 
—
 
Indenture, dated as of June 10, 2013, among Lexington, certain subsidiaries of Lexington signatories thereto, and U.S. Bank, as trustee (filed as Exhibit 4.1 to the 06/13/13 8-K)(1)
4.11
 
—
 
Indenture dated as of May 9, 2014, among Lexington, the Partnership and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Partnership's Current Report on Form 8-K filed May 13, 2014)(1)
4.12
 
—
 
First Supplemental Indenture, dated as of May 20, 2014, among Lexington, the Partnership and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Partnership's Current Report on Form 8-K filed May 20, 2014)(1)
31.1
 
—
 
Certification of Principal Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2)
31.2
 
—
 
Certification of Principal Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2)
32.1
 
—
 
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
32.2
 
—
 
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
101.INS
 
—
 
XBRL Instance Document (2, 4)
101.SCH
 
—
 
XBRL Taxonomy Extension Schema (2, 4)
101.CAL
 
—
 
XBRL Taxonomy Extension Calculation Linkbase (2, 4)
101.DEF
 
—
 
XBRL Taxonomy Extension Definition Linkbase Document (2, 4)
101.LAB
 
—
 
XBRL Taxonomy Extension Label Linkbase Document (2, 4)
101.PRE
 
—
 
XBRL Taxonomy Extension Presentation Linkbase Document (2, 4)
(1)
Incorporated by reference.
(2)
Filed herewith.
(3)
Furnished herewith. This exhibit shall not be deemed "filed" for purposes of Section 11 or 12 of the Securities Act of 1933, as amended (the "Securities Act"), or Section 18 of the Securities Exchanges Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of those sections, and shall not be part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as set forth by specific reference in such filing or document.

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(4)
The following materials are formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at June 30, 2014 and December 31, 2013; (ii) the Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013; (iii) the Unaudited Condensed Consolidated Statements of Changes in Partners' Capital for the six months ended June 30, 2014 and 2013; (iv) the Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013; and (v) Notes to Unaudited Condensed Consolidated Financial Statements, detailed tagged.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Lepercq Corporate Income Fund L.P.
 
 
By:
Lex GP-1 Trust, its General Partner
 
 
 
 
Dated:
August 7, 2014
By:
/s/ T. Wilson Eglin
 
 
 
T. Wilson Eglin
 
 
 
President
(principal executive officer)

Dated:
August 7, 2014
By:
/s/ Patrick Carroll
 
 
 
Patrick Carroll
 
 
 
Vice President
(principal financial officer and principal accounting officer)


24

LEPERCQ CORPORATE INCOME FUND L P Reports