General

      The Company is a self-managed and self-administered Maryland statutory real estate investment trust that acquires, owns and manages a geographically diverse portfolio of net leased office, industrial and retail properties and provides investment advisory and asset management services to institutional investors in the net lease area. The Company’s predecessor was organized in October 1993 and merged into the Company on December 31, 1997.

      The Company’s Internet address is www.lxp.com. The Company makes available free of charge through its web site its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after it electronically files such materials with the Securities and Exchange Commission. We also have made available on our web site copies of our current Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Code of Business Conduct and Ethics, and Corporate Governance Guidelines. In the event of any changes to these charters or the code or the guidelines, changed copies will also be made available on our web site.

      As of December 31, 2004, the Company’s real property portfolio consisted of 154 properties or interests therein located in 37 states, including warehousing, distribution and manufacturing facilities, office buildings and retail properties containing an aggregate 32.3 million net rentable square feet of space. In addition, Lexington Realty Advisors, Inc. (“LRA”), a wholly-owned taxable REIT subsidiary, manages 2 properties for an unaffiliated third party. The Company’s properties are generally subject to triple net leases, which are characterized as leases in which the tenant bears all, or substantially all, of the costs and cost increases for real estate taxes, insurance and ordinary maintenance. Of the Company’s 154 properties, 7 provide for operating expense stops and one is subject to a modified gross lease. As of December 31, 2004, 98.1% of net rentable square feet were subject to a lease.

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      The Company manages its real estate and credit risk through geographic, industry, tenant and lease maturity diversification. For the year ended December 31, 2004, the fifteen largest tenants/guarantors, which occupied 42 properties, represented 43.5% of trailing twelve month base rent, including the Company’s proportionate share of base rent from non-consolidated entities, properties held for sale and properties sold through date of sale. The fifteen largest tenants/guarantors are as follows:

(1)	Tenant declared bankruptcy and rejected the lease during the fourth quarter of 2004 and the property is currently vacant.

      As of December 31, 2003 and 2002, the fifteen largest tenants/guarantors represented 46.1% and 51.6% of trailing twelve month base rent, respectively, including the Company’s proportionate share of base rent from non-consolidated entities, properties held for sale and properties sold through date of sale. In 2004, 2003 and 2002, no tenant/guarantor represented greater than 10% of annual base rent.

Objectives and Strategy

      The Company’s primary objectives are to increase Funds From Operations, cash available for distribution per share to its shareholders, and net asset value per share. In an effort to achieve these objectives, management focuses on:

	•	acquiring portfolios and individual net lease properties from third parties, completing sale/leaseback transactions and acquiring build-to-suit properties;
	•	entering into strategic co-investment programs which generate higher equity returns than direct investments due to acquisition, asset management and debt placement fees and in some cases increased leverage levels;
	•	managing assets through lease extensions, revenue enhancing property expansions, opportunistic property sales and redeployment of assets;
	•	refinancing existing indebtedness at lower average interest rates and increasing the Company’s access to capital to finance property acquisitions and expansions; and
	•	entering into third party advisory contracts to generate advisory fee revenue.

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Acquisition Strategies

      The Company seeks to enhance its net lease property portfolio through acquisitions of general purpose, efficient, well-located properties in growing markets. Management has diversified the Company’s portfolio by geographical location, tenant industry segment, lease term expiration and property type. Management believes that such diversification should help insulate the Company from regional recession, industry specific downturns and price fluctuations by property type. Prior to effecting any acquisitions, management analyzes the (i) property’s design, construction quality, efficiency, functionality and location with respect to the immediate sub-market, city and region; (ii) lease integrity with respect to term, rental rate increases, corporate guarantees and property maintenance provisions; (iii) present and anticipated conditions in the local real estate market; and (iv) prospects for selling or re-leasing the property on favorable terms in the event of a vacancy. Management also evaluates each potential tenant’s financial strength, growth prospects, competitive position within its respective industry and a property’s strategic location and function within a tenant’s operations or distribution systems. Management believes that its comprehensive underwriting process is critical to the assessment of long-term profitability of any investment by the Company.

      Acquisitions of Portfolio and Individual Net Lease Properties. The Company seeks to acquire portfolio and individual properties that are leased to creditworthy tenants under long-term net leases. Management believes there is significantly less competition for the acquisition of property portfolios containing a number of net leased properties located in more than one geographic region. Management also believes that the Company’s geographical diversification, acquisition experience and access to capital will allow it to compete effectively for the acquisition of such net leased properties.

      Co-Investment Programs. In 1999, the Company entered into a joint venture agreement with The Comptroller of the State of New York as Trustee of the Common Retirement Fund (“CRF”). The joint venture entity, Lexington Acquiport Company, LLC (“LAC”), was created to acquire high quality office and industrial real estate properties net leased to investment and non-investment grade single tenant users. The Company and CRF committed to make equity contributions to LAC of up to $50 million and $100 million, respectively. LAC has completed its acquisition program and no more investments will be made by this entity. In addition, LAC financed a portion of acquisition costs through the use of non-recourse mortgages. As of December 31, 2004, LAC owned 11 properties.

      LAC also has an investment in an $11.0 million participating note which was used to partially fund the purchase of a 327,325 square foot office property in Houston, Texas for $34.8 million. As of December 31, 2004, LAC had made investments totaling $380.3 million.

      In 2003, the Company and CRF purchased a property for $22.7 million directly as partners and therefore, it is not owned by LAC. The purchase price was partially funded through a $19.2 million non-recourse mortgage maturing in 2021.

      LRA has a management agreement with LAC and the separate partnership whereby LRA will perform certain services for a fee relating to the acquisition and management of the investments.

      In December 2001, the Company and CRF announced the formation of Lexington Acquiport Company II, LLC (“LAC II”). The Company and CRF have committed to make equity contributions to LAC II of up to $50 million and $150 million, respectively, to purchase up to $560 million in single tenant office and industrial properties net leased to investment and non-investment grade tenants. As of December 31, 2004, $76.5 million has been funded. LRA, in addition to earning acquisition and asset management fees, earns a fee for all mortgage debt directly placed. During 2004, LAC II acquired nine properties (four from the Company) for an aggregate capitalized cost of $239.7 million ($131.6 million for properties transferred from the Company at cost). These acquisitions were partially funded by the use of $118.7 non-recourse mortgages, which bear interest at fixed rates ranging from 5.3% to 6.3% and mature at various dates ranging from 2014 to 2019. In addition, the Company advanced $45.8 million in loans to LAC II to purchase three of the properties. Subsequent to year end all advances were repaid.

      The Company is required to first offer to LAC II all of the Company’s opportunities to acquire office and industrial properties generally requiring a minimum investment of $15 million, which are net leased primarily

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      In October 2003, the Company entered into a joint venture agreement with CLPF-LXP/ Lion Venture GP, LLC (“Clarion”). The joint venture entity Lexington/ Lion Venture L.P. (“LION”), was created to acquire high quality office, industrial and retail properties net leased to investment and non-investment grade single tenant users. The Company and Clarion initially committed to make equity contributions to LION of up to $30 million and $70 million, respectively. In 2004, the Company and Clarion increased their equity commitment by $25.7 million and $60.0 million, respectively. As of December 31, 2004, $149.6 million of the commitments has been funded. In addition, LION finances a portion of the acquisitions through the use of non-recourse mortgages. During 2004, LION made ten acquisitions (one was transferred from the Company) for an aggregate capitalized cost of $291.3 million, ($20.7 million for the property transferred from the Company at cost) of which $173.3 million was funded through non-recourse mortgages, which bear interest at fixed rates (including imputed rates), ranging from 4.8% to 6.8% and mature at various dates ranging from 2009 to 2019.

      LRA has a management agreement with LION whereby LRA will perform certain services for a fee relating to acquisition, financing and management of the LION investments.

      The Company is required to first offer to LION all of the Company’s opportunities (other than the opportunities it is required to offer LAC II) to acquire office, industrial and retail properties requiring a minimum investment $15.0 million to $40.0 million which are net leased primarily to non-investment grade tenants for a minimum term of at least five years, are available for immediate delivery and satisfy other specified investment criteria. Only if Clarion elects not to approve the joint venture’s pursuit of an acquisition opportunity may the Company pursue the opportunity directly.

      In June 2004, the Company entered into a joint venture agreement with the Utah State Retirement Investment Fund (“Utah”). The joint venture entity, Triple Net Investment Company LLC (“TNI”), was created to acquire high quality office and industrial properties net leased to non-investment grade single tenant users. The Company and Utah initially committed to fund equity contributions to TNI of $15 million and $35 million, respectively. In December 2004, the Company and Utah increased their equity commitment by $21.4 million and $50.0 million, respectively. As of December 31, 2004, $39.9 million of the commitments has been funded. In addition, TNI finances a portion of acquisition costs through the use of non-recourse mortgages. During 2004, TNI made eleven acquisitions (three of which were transferred from the Company) for an aggregate $114.5 million, ($46.0 million for properties transferred from the Company at cost) of which $73.9 million was funded through non-recourse mortgages, which bear interest at fixed rates (including imputed rates) ranging from 4.9% to 7.9% and mature at various dates ranging from 2010 to 2018.

      LRA has a management agreement with TNI whereby LRA will perform certain services for a fee relating to acquisition, financing and management of the TNI investment.

      The Company is required to first offer to Utah all of the Company’s opportunities (other than the opportunities it is required to offer LAC II and LION) to acquire office and industrial properties requiring a minimum investment of $8 million to $30 million, which are net leased to non-investment grade tenants for a minimum term of at least seven years, are generally available for immediate delivery and satisfy other specified investment criteria. Only if Utah elects not to approve the joint venture’s pursuit of an acquisition opportunity may the Company pursue the opportunity directly.

      In 1999, the Company also formed a joint venture to own a property net leased to Blue Cross Blue Shield of South Carolina, Inc. The Company has a 40% interest in the joint venture and LRA entered into a management agreement with the joint venture with similar terms as the management agreement with the above mentioned joint venture programs.

      In January 2002, the Company sold a 77.3% interest in its Florence, South Carolina property net leased to Washington Mutual Home Loans, Inc., along with the proportionate share of mortgage debt for $4.6 million in

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      Operating Partnership Structure. The operating partnership structure enables the Company to acquire properties by issuing to a property owner, as a form of consideration in exchange for the property, interests in the Company’s operating partnerships (“OP Units”). Management believes that this structure facilitates the Company’s ability to raise capital and to acquire portfolio and individual properties by enabling the Company to structure transactions which may defer tax gains for a contributor of property.

      Advisory Contracts. In addition to the contracts discussed above, LRA has an advisory and asset management agreement to invest and manage $50 million of equity on behalf of a private investment fund. The investment program could, depending on leverage utilized, acquire up to $140 million in single tenant, net leased office, industrial and retail properties in the United States. LRA earns acquisition fees (90 basis points of total acquisition costs), annual asset management fees (30 basis points of gross asset value) and a promoted interest of 16% of the return in excess of an internal rate of return of 10% earned by the private investment fund. The investment fund made no purchases in 2004 or 2003.

      Sale/ Leaseback Transactions. The Company seeks to acquire portfolio and individual net lease properties in sale/leaseback transactions. The Company selectively pursues sale/leaseback transactions with creditworthy sellers/tenants with respect to properties that are integral to the sellers’/tenants’ ongoing operations.

      Build-to-Suit Properties. The Company seeks to acquire, generally after construction has been completed, “build-to-suit” properties that are entirely pre-leased to their intended corporate users before construction. As a result, the Company generally does not assume the risk associated with the construction phase of a project.

      Competition. Through our predecessor entities the Company has been in the net lease business for over 30 years and has established close relationships with a large number of major corporate tenants and maintains a broad network of contacts including developers, brokers and lenders. In addition, management is associated with and/or participates in many industry organizations. Notwithstanding these relationships, there are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial resources that compete with the Company in seeking properties for acquisition and tenants who will lease space in these properties. Due to the Company’s focus on net lease properties located throughout the United States, the Company does not generally encounter the same competitors in each region of the United States since most competitors are locally and/or regionally focused. The Company’s competitors include other REITs, pension funds, private companies and individuals.

      Environmental Matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or redemption of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances. Although generally the Company’s tenants are primarily responsible for any environmental damage and claims related to the leased premises, in the event of the bankruptcy or inability of the tenant of such premises to satisfy any obligations with respect to such environmental liability, the Company may be required to satisfy such obligations. In addition, the Company as the owner of such properties may be held directly liable for any such damages or claims irrespective of the provisions of any lease.

      From time to time, in connection with the conduct of the Company’s business, and prior to the acquisition of any property from a third party or as required by the Company’s financing sources, the Company authorizes the preparation of Phase I environmental reports with respect to its properties. Based upon such environmental reports and management’s ongoing review of its properties, as of the date of this Annual Report, management is not aware of any environmental condition with respect to any of the Company’s properties which management believes would be reasonably likely to have a material adverse effect on the

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      Tenant Relations and Lease Compliance. The Company maintains close contact with its tenants in order to understand their future real estate needs. The Company monitors the financial, property maintenance and other lease obligations of its tenants through a variety of means, including periodic reviews of financial statements and physical inspections of the properties. The Company performs annual inspections of those properties where it has an ongoing obligation with respect to the maintenance of the property and for all properties during each of the last three years immediately prior to a scheduled lease expiration. Biannual physical inspections are undertaken for all other properties.

      Extending Lease Maturities. The Company seeks to extend its leases in advance of their expiration in order to maintain a balanced lease rollover schedule and high occupancy levels. During 2004, the Company entered into 10 lease extensions for leases scheduled to expire at various dates ranging from 2005 to 2021, for an average 6.4 years.

      Revenue Enhancing Property Expansions. The Company undertakes expansions of its properties based on tenant requirements or marketing opportunities. The Company believes that selective property expansions can provide it with attractive rates of return and actively seeks such opportunities.

      Property Sales. The Company sells properties when management believes that the return realized from selling a property will exceed the expected return from continuing to hold such property.

Access to Capital and Refinancing Existing Indebtedness

      During 2004 and 2003, the Company completed common share offerings of 6.9 million and 9.8 million shares, respectively, raising aggregate net proceeds of $144.0 million and $174.0 million, respectively. During 2004, the Company issued 2.7 million convertible preferred shares (currently convertible into approximately 5.0 million common shares) at $50 per share and a dividend rate of 6.50%, raising net proceeds of $131.1 million. In 2003, the Company issued 3.16 million redeemable preferred shares at $25 per share and a dividend rate of 8.05%, raising net proceeds of $76.3 million.

      During 2003, the Company, including its non-consolidated entities, repaid $131.9 million in mortgages, which resulted in aggregate debt satisfaction charges of $8.5 million.

      During 2004, the Company, including its non-consolidated entities, obtained and/or assumed $699.1 million in non-recourse mortgage financings on properties at a fixed weighted average interest rate (including imputed interest rates) of 5.8%. The proceeds of the financings were used to partially fund acquisitions.

      As a result of the Company’s financing activities, the weighted average fixed interest rate on the Company’s outstanding indebtedness has been reduced from approximately 7.1% as of December 31, 2003, to

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      The Company’s variable rate unsecured credit facility bears interest at 150-250 basis points over the Company’s option of 1, 3 or 6 month LIBOR rates, depending on the amount of properties the Company owns free and clear of mortgage debt, and is scheduled to mature in August 2006. The Company can extend the maturity date to August 2007, if no default exists for a fee of 25 basis points. As of December 31, 2004, no borrowings were outstanding under this facility. The Company has issued letters of credit aggregating $3.9 million in accordance with provisions in certain non-recourse mortgages, which expire at various dates ranging from 2010 to 2012.

      In 1999, the Company issued 287,888 common shares in which it had the obligation to repurchase for $13.50 per share through December 2004. As of December 31, 2004 the obligation expired and the Company has included such shares in shareholders’ equity.

      Common Share Repurchase. The Company’s Board of Trustees authorized the repurchase of up to 2.0 million common shares and/or OP Units. As of December 31, 2004, the Company has repurchased approximately 1.4 million common shares/ OP Units at an average price of $10.59 per share/ OP Unit.

Other

      Employees. As of December 31, 2004, the Company had forty employees.

      Industry Segments. The Company operates in one industry segment, investment in single tenant, net leased real properties.

      Recent Developments. On February 25, 2005, the Company entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) to purchase a portfolio of 27 properties from unaffiliated sellers. The total purchase price is approximately $786.0 million.

      Under the Purchase and Sale Agreement, the closing of the transaction will occur no earlier than March 25, 2005. Each of the Company and Sellers has the right to extend the closing date until no later than April 29, 2005, by giving written notice to the other party on or before March 22, 2005. The agreement is subject to a number of closing conditions, all of which must be satisfied for the closing to occur.

      To finance the acquisition, the Company received a loan commitment from JP Morgan Chase Bank, N.A., for $558.3 million of non-recourse first mortgage loans secured by individual first mortgages on each of the properties and on five other properties which the Company presently owns free and clear. The loans bear interest at a weighted average fixed rate of 5.20%. The loans will mature in six to ten years with a weighted average maturity of approximately eight years. The loans are subject to final documentation and standard closing conditions.