-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Aa+fvzZ/MDZxFcnnm6W8hTPiKQVStkdo+ebke105kNsB0Qq2d0n+IlXEqzEHsnwr SmgQgQPXPxBGIpiSeadNtg== 0000950123-97-002192.txt : 19970317 0000950123-97-002192.hdr.sgml : 19970317 ACCESSION NUMBER: 0000950123-97-002192 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970314 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEXINGTON CORPORATE PROPERTIES INC CENTRAL INDEX KEY: 0000910108 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133717318 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12386 FILM NUMBER: 97556780 BUSINESS ADDRESS: STREET 1: 355 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126927200 MAIL ADDRESS: STREET 1: 355 LEXINGTON AVE STREET 2: 14TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 8-K/A 1 LEXINGTON CORPORATE PROPERTIES, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K/A Amendment No. 1 to Form 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 31, 1996 LEXINGTON CORPORATE PROPERTIES, INC. (Exact Name of Registrant as specified in its charter) MARYLAND 1-12386 13-3717318 (State or other jurisdiction (Commission File (IRS Employer of incorporation) Number) Identification No.) 355 LEXINGTON AVENUE, NEW YORK, NEW YORK 10017 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (212) 692-7260 NOT APPLICABLE (Former name or former address, if changed since last report) 2 Item 2. Acquisition or Disposition of Assets Pursuant to three Contribution Agreements, each dated as of December 31, 1996, Lexington Corporate Properties, Inc., a real estate investment trust organized under the laws of the State of Maryland (the "Registrant"), through its subsidiary Lepercq Corporate Income Fund L.P. ("LCIF"), a limited partnership organized under the laws of the State of Delaware, acquired five properties (the "Properties") from three limited partnerships through three exchange transactions (individually, the "Toy II Exchange", "the "Toy V Exchange" and the "Fort Street Exchange", and collectively, the "Exchanges"). Following the Exchanges, the tenants occupying the Properties will continue to occupy their respective properties in accordance with the terms of their respective leases. Certain information regarding each of the Exchanges is set forth below. Acquisition from Toy Properties Associates II. Pursuant to a Contribution Agreement dated as of December 31, 1996, the Registrant acquired three retail stores located in Tulsa, Oklahoma; Clackamas, Oregon and Lynnwood, Washington (collectively, the "Toy II Buildings"), together with Toy II's leasehold interests in the land on which the Toy II Buildings are located (collectively, the "Toy II Properties"), from Toy Properties Associates II, a limited partnership organized under the laws of the State of New York ("Toy II"). The Toy II Buildings, which contain an aggregate of 129,369 square feet, are leased to Toys 'R' Us, Inc. under triple net leases which expire on May 31, 2006 and which are subject to five, five-year renewal options. In addition, under the terms of such leases the tenant has the right to purchase the Toy II Buildings as of May 31, 2006 for the fair market value thereof as determined by the terms of the leases. The land on which the Toy II Buildings are located is leased to the Registrant under rent-free leases which expire on August 31, 2011, subject to the right of the Registrant to lease the land for an additional 50 years at specified rental rates. In connection with the Exchange, the Registrant effected the following: (1) The Registrant transferred to Toy II 72,580 limited partnership units in LCIF ("Units" and each a "Unit"). The number of Units exchanged for the Toy II Properties was based on a valuation of the Toy II Properties of $9,296,982 based upon a discounting of the after-tax cash flow at approximately 4.75%. The holders of the Units are entitled to quarterly distributions of $0.28 per Unit ($1.12 per annum), subject to decrease by an amount proportionate to any decrease in distributions on shares of the Registrant's common stock, par value $.0001 per share (the "Common Stock"). In no event will distributions on the Units exceed $1.12 annually. Each Unit will be exchangeable for one share of the Registrant's Common Stock, subject to certain anti-dilution adjustments, on January 15, 1999 and annually on each January 15 thereafter. (2) The Registrant assumed liability under three mortgage notes (the "Toy II Notes") to which the Toy II Buildings are subject. The Toy II Notes had an outstanding aggregate principal balance of approximately $5,827,758 on December 31, 1996. The Toy II Notes bear interest at a rate of 12.625% per annum, require equal monthly payments of 2 3 interest and principal sufficient to fully amortize the note by May 31, 2006 and can be prepaid at any time after July 1, 1996 at a fixed premium of 6.5% of the outstanding principal balance of the Toy II Notes, which percentage declines rateably over the remaining ten years of the notes. (3) The Registrant assumed a $2,253,063 obligation of Toy II (the "Toy II Fee") (which includes interest accrued as of December 31, 1996) payable to The LCP Group, L.P. ("LCP"), for services rendered in connection with the acquisition of the Toy II Properties in 1980. LCP is owned and controlled by E. Robert Roskind, Chairman and Co-Chief Executive Officer of the Registrant. (4) The Registrant transferred 20,105 Units to LCP and 2,315 Units to Richard J. Rouse, Vice-Chairman and Co-Chief Executive Officer of the Registrant, in exchange for their contribution of their contractual rights to receive from Toy II (i) certain future management fees that would have been payable had current management arrangements remained in effect, (ii) a 2% disposition fee payable upon the ultimate disposition of the Toy II Buildings and (iii) a .5% refinancing fee payable upon a refinancing of the Toy II Notes. The Units transferred to LCP and Mr. Rouse are entitled to distributions equal to distributions on the Units transferred to Toy II, and will be exchangeable for shares of Common Stock on the same terms as the Units transferred to Toy II. The general partners of Toy II are Mr. Rouse and Capital Properties Associates II, a limited partnership which is controlled by Mr. Roskind. II. Acquisition from Toy Properties Associates V. Pursuant to a Capital Contribution Agreement dated as of December 31, 1996, the Registrant acquired a 123,293 square foot distribution center located in Houston, Texas (the "Toy V Building"), together with Toy V's leasehold interest in the land on which the Toy V Building is located (collectively, the "Toy V Property") from Toy Properties Associates V, a limited partnership organized under the laws of the State of Texas ("Toy V"). The Toy V Building is leased to Toys 'R' Us, Inc. under a triple net lease which expires on August 31, 2006, and which is subject to five, five-year renewal options. In addition, under the terms of such lease, the tenant has the right to purchase the Toy V Building as of August 31, 2006 for the fair market value thereof as determined by the terms of the lease. The land on which the Toy V Building is located is leased to the Registrant under a rent-free lease which expires on August 31, 2011, subject to the right of the Registrant to lease the land for an additional 50 years at specified rental rates. In connection with the Toy V Exchange, the Registrant effected the following: (1) The Registrant transferred to Toy V 23,587 Units. The number of Units exchanged for the Toy V Property was based on a valuation of the Toy V Property of $3,426,532, based upon a discounting of after-tax cash flow at approximately 5.50%. Holders of the Units are entitled to quarterly distributions of $0.28 per Unit ($1.12 per 3 4 annum), subject to decrease by an amount proportionate to any decrease in distributions on shares of the Registrant's Common Stock. In no event will distributions on the Units exceed $1.12 annually. Each Unit will be exchangeable for one share of Common Stock, subject to certain anti-dilution adjustments, on January 15, 1999 and annually on each January 15 thereafter. (2) The Registrant assumed liability under one mortgage note (the "Toy V Note") to which the Toy V Building is subject. The Toy V Note had an outstanding principal balance of approximately $2,195,746 on December 31, 1996. The Toy V Note bears interest at a rate of 12.625% per annum, requires equal monthly payments of interest and principal sufficient to fully amortize the note by August 31, 2006 and can be prepaid at any time after September 1, 1996 at a fixed premium of 6.5% of the outstanding principal balance of the Toy V Note, which percentage declines rateably over the remaining ten years of the note. (3) The Registrant assumed a $1,322,115 obligation of Toy V (the "Toy V Fee"), (which includes interest accrued as of December 31, 1996) payable to LCP for services rendered in connection with the acquisition of the Toy V Property in 1981. (4) The Registrant transferred 10,451 Units to LCP and 962 Units to Mr. Rouse, in exchange for their contribution of their contractual rights to receive from Toy V (i) certain future management fees that would have been payable had current management arrangements remained in effect, (ii) a 2% disposition fee payable upon the ultimate disposition of the Toy V Building and (iii) a .5% refinancing fee payable upon any refinancing of the Toy V Note. The Units transferred to LCP and Mr. Rouse are entitled to distributions equal to distributions on the Units transferred to Toy V, and will be exchangeable for shares of Common Stock on the same terms as the Units transferred to Toy V. The general partner of Toy V, Capital Properties Associates IV, is controlled by Mr. Roskind. III. Acquisition from Fort Street Partners. Pursuant to a Capital Contribution Agreement dated as of December 31, 1996, the Registrant acquired from Fort Street Partners, a limited partnership organized under the laws of the State of Connecticut ("Fort Street"), Fort Street's interest in an 85,610 square foot retail facility located in Honolulu, Hawaii (the "Fort Street Building"). The Fort Street Building is leased to Liberty House, Inc. under a triple net lease which expires on September 30, 2009 and which is subject to one 115-month renewal option, one two-year renewal option and three five-year renewal options. In addition, under the terms of such lease, the tenant has the right to purchase the Fort Street Property upon the expiration of the initial lease term on September 30, 2009 for the fair market value thereof as determined by the terms of the lease. In connection with the Fort Street Exchange, the Registrant effected the following: 4 5 (1) The Registrant transferred to Fort Street 207,741 Units. The number of Units exchanged for the Fort Street Property was based on a valuation of the Fort Street Property of $9,536,957, based upon a discounting of the after-tax cash flow at approximately 8.25%. Holders of the Units will not be entitled to distributions on the Units prior to January 15, 2006. Beginning on January 15, 2006, holders of the Units will be entitled to quarterly distributions of $0.28 per Unit ($1.12 per annum), subject to decrease by an amount proportionate to any decrease in distributions on shares of the Registrant's Common Stock. In no event will distributions on the Units exceed $1.12 annually. Each Unit will be exchangeable for one share of Common Stock, subject to certain anti-dilution adjustments, on January 15, 2006 and annually on each January 15 thereafter. (2) The Registrant assumed liability under one mortgage note (the "Fort Street Note") to which the Fort Street Building is subject. The Fort Street Note had an outstanding principal balance of approximately $6,189,675 on December 31, 1996. The Fort Street Note bears interest at a rate of 10.25% per annum and requires equal monthly payments of interest and principal sufficient to fully amortize the note by September 30, 2010. (3) The Registrant assumed a $2,124,061 obligation of Fort Street (the "Fort Street Fee") (which includes interest accrued as of December 31, 1996), payable to LCP for services rendered in connection with the acquisition of the Fort Street Property in 1981. (4) The Registrant transferred 13,444 Units to LCP and 3,815 Units to Mr. Rouse in exchange for their contribution of their contractual rights to receive from Fort Street certain future management fees that would have been payable had current management arrangements remained in effect and a 2% disposition fee payable upon the ultimate disposition of the Fort Street Building. LCP and Mr. Rouse are entitled to quarterly distributions on these Units of $0.28 per Unit ($1.12 per annum), subject to decreases by an amount proportionate to any decrease in the Registrant's Common Stock. In no event will distributions on these Units exceed $1.12 annually. Each Unit will be exchangeable for one share of Common Stock, subject to certain anti-dilution adjustments, on January 15, 1999 and annually on each January 15 thereafter. The general partner of Fort Street, Glenrouse Associates, is a partnership comprised of three individuals, including Mr. Roskind and Mr. Rouse. 5 6 Item 7. Financial Statements, Pro Forma Information and Exhibits. (a) Financial statements of properties acquired. Toy Properties Associates II Financial Statements for the year ended December 31, 1995 (audited) and for the nine month period ended September 30, 1996 (unaudited). Toy Properties Associates V Financial Statements for the year ended December 31, 1995 (audited) and for the nine month period ended September 30, 1996 (unaudited). Fort Street Partners Limited Partnership Financial Statements for the year ended December 31, 1995 (audited) and for the nine month period ended September 30, 1996 (unaudited). (b) Pro forma financial information. Lexington Corporate Properties, Inc. and Consolidated Subsidiaries Pro Forma Combined Financial Statements for the year ended December 31, 1995 and as of and for the nine months ended September 30, 1996. (c) Exhibits. 2.1 Contribution Agreement, dated as of December 31, 1996, among Toy Properties Associates II, Lepercq Corporate Income Fund L.P., Lex GP-1, Inc., The LCP Group, L.P., Richard J. Rouse and Lexington Toy II Trust.* 2.2 Contribution Agreement, dated as of December 31, 1996, among Toy Properties Associates V, Lepercq Corporate Income Fund L.P., Lex GP-1, Inc., The LCP Group, L.P., Richard J. Rouse and Lexington Toy V Trust.* 2.3 Contribution Agreement, dated as of December 31, 1996, among Fort Street Partners Limited Partnership, Lepercq Corporate Income Fund L.P., Lex GP-1, Inc., The LCP Group, L.P., Richard J. Rouse and Lexington Fort Street Trust.* - -------------- * Previously filed 6 7 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 hereunto duly authorized. LEXINGTON CORPORATE PROPERTIES, INC. By: /s/ Antonia G. Trigiani -------------------------------------- Antonia G. Trigiani Chief Financial Officer and Treasurer Date: March 14, 1997 7 8 INDEX TO FINANCIAL STATEMENTS Toy Properties Associates II Financial Statements .................................................. F- Toy Properties Associates V Financial Statements .................................................. F- Fort Street Partners Limited Partnership Financial Statements .................................................. F- 9 TOY PROPERTIES ASSOCIATES II FINANCIAL STATEMENTS 10 INDEPENDENT AUDITORS' REPORT The Partners Toy Properties Associates II: We have audited the accompanying balance sheet of Toy Properties Associates II (a New York Limited Partnership) as of December 31, 1995, and the related statements of operations, changes in partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that out audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Toy Properties Associates II as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP October 7, 1996 New York, New York 11 TOY PROPERTIES ASSOCIATES II (A New York Limited Partnership) Balance Sheets
September 30, December 31, 1996 1995 ---- ---- ASSETS (unaudited) Real estate, at cost (notes 4 and 5): Building improvements $ 3,962,968 $ 3,962,968 Land estates 3,187,812 3,187,812 ----------- ----------- 7,150,780 7,150,780 Less accumulated depreciation and amortization 3,305,746 3,154,712 ----------- ----------- 3,845,034 3,996,068 Cash 5,067 3,594 Deferred charges, net of accumulated amortization of $43,547 and $41,417 for 1996 and 1995, respectively 27,453 29,583 Rent receivable (note 5) 1,374,933 1,409,978 Due from lender 918 918 Other assets 23,539 23,539 ----------- ----------- $ 5,276,944 $ 5,463,680 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgage notes payable (note 4) $ 5,906,169 $ 6,127,158 Origination fee payable, including accumulated accretion of $168,137 and $150,021 in 1996 and 1995, respectively (note 6) 196,017 177,901 Accrued interest on origination fee payable (note 6) 1,449,176 1,377,513 ----------- ----------- 7,551,362 7,682,572 Partners' deficit (note 1) (2,274,418) (2,218,892) ----------- ----------- $ 5,276,944 $ 5,463,680 =========== ===========
See accompanying notes to financial statements. 12 TOY PROPERTIES ASSOCIATES II (A New York Limited Partnership) Statements of Operations
Nine Months Year Ended Ended September 30, December 31, ------------------- ------------ 1996 1995 1995 ---- ---- ---- (unaudited) Income: Rental income (note 5) $ 765,234 $ 765,234 $ 1,020,312 ----------- ----------- ----------- Expenses: Mortgage note interest (note 4) 571,027 597,110 789,180 Origination fee interest including accretion of discount on origination fee (note 6) 89,779 87,582 117,128 Depreciation and amortization 153,164 153,164 204,217 Management fee (note 7) 3,000 4,500 6,000 Other expenses 3,790 3,836 4,650 ----------- ----------- ----------- 820,760 846,192 1,121,175 ----------- ----------- ----------- Net loss $ (55,526) $ (80,958) $ (100,863) =========== =========== =========== Net loss allocated: To the general partner $ (1,110) $ (1,619) $ (2,017) To the class A limited partners (32,649) (47,603) (59,308) To the special limited partners (21,767) (31,736) (39,538) ----------- ----------- ----------- $ (55,526) $ (80,958) $ (100,863) =========== =========== =========== Net loss per unit of limited partnership interest: To the class A limited partners $ (1,306) $ (1,904) $ (2,372) =========== =========== =========== To the special limited partners $ (5,442) $ (7,934) $ (9,885) =========== =========== ===========
See accompanying notes to financial statements. 13 TOY PROPERTIES ASSOCIATES II (A New York Limited Partnership) Statements of Changes in Partners' Deficit
Class A Special General Limited Limited Total Partners Partners Partners ----- -------- -------- -------- Partners' deficit at December 31, 1994 $(2,118,029) $ (243,980) $ (782,771) $(1,091,278) Net loss for the year (100,863) (2,017) (59,308) (39,538) ----------- ----------- ----------- ----------- Partners' deficit at December 31, 1995 (2,218,892) (245,997) (842,079) (1,130,816) Net loss for the period (unaudited) (55,526) (1,110) (32,649) (21,767) ----------- ----------- ----------- ----------- Partners' deficit at September 30, 1996 (unaudited) $(2,274,418) $ (247,107) $ (874,728) $(1,152,583) =========== =========== =========== ===========
See accompanying notes to financial statements. 14 TOY PROPERTIES ASSOCIATES II (A New York Limited Partnership) Statements of Cash Flows
Nine Months Year Ended Ended September 30, December 31, ------------------- ------------ 1996 1995 1995 ---- ---- ---- (unaudited) Cash flows from operating activities: Net loss $ (55,526) $ (80,958) $(100,863) --------- --------- --------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 153,164 153,164 204,217 Accumulated accretion on origination fee payable 18,116 15,919 21,578 Decrease in rent receivable 35,045 35,045 46,727 Increase in other assets -- (812) (2,778) Origination fee interest 71,663 71,663 95,550 Increase in accrued management fee -- 1,500 -- --------- --------- --------- Total adjustments 277,988 276,479 365,294 --------- --------- --------- Net cash provided by operating activities 222,462 195,521 264,431 --------- --------- --------- Cash flows used in financing activities: Principal payments on mortgage note (220,989) (194,907) (264,063) --------- --------- --------- Increase in cash 1,473 614 368 Cash at beginning of period 3,594 3,226 3,226 --------- --------- --------- Cash at end of period $ 5,067 $ 3,840 $ 3,594 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 571,027 $ 597,110 $ 789,180 ========= ========= =========
See accompanying notes to financial statements. 15 TOY PROPERTIES ASSOCIATES II (A New York Limited Partnership) Notes to Financial Statements December 31, 1995 and September 30, 1996 and 1995 (unaudited) (1) ORGANIZATION Toy Properties Associates II (the "Partnership") was formed in August, 1980 under the Uniform Limited Partnership Act of the State of New York for the purposes of acquiring three estate-for-years interests (the "Land Estates") together with all building improvements (collectively, the "Property") located in Tulsa, Oklahoma; Lynwood, Washington; and Clackamas, Oregon, and leasing the Property to Toys 'R' Us. The general partners of the Partnership (the "General Partners") are Richard J. Rouse and Capital Properties Associates II, a limited partnership comprised of seven individuals, including E. Robert Roskind, the general partner, and Mr. Rouse, a limited partner. Mr. Roskind and Mr. Rouse are co-chief executive officers of Lexington Corporate Properties, Inc. Four Special Limited Partnership units were sold at $197,585 per unit. Twenty-five Class A Limited Partnership Units were sold at a cost of $40,000 per unit. All Limited Partners' capital contributions have been paid. The Partnership Agreement provides that the General Partners will be allocated 2%, the Special Limited Partners 39.2% and the Class A Limited Partners 58.8% of the profits and losses as well as distributions of cash from operations. (2) SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING The financial statements of the Partnership have been prepared on the accrual basis of accounting. DEPRECIATION AND AMORTIZATION Depreciation and amortization on the building improvements and land estate are on the straight-line method over the 40 year and 30 year useful lives, respectively. RENTAL INCOME The Partnership has determined that the leases relating to the property are operating leases. Rental revenue is recognized on a straight-line basis over the minimum lease terms. The Partnership's rent receivable primarily represents the amounts of the excess of rental revenue recognized on a straight-line basis over the annual rents collectible under the leases. DEFERRED CHARGES Deferred charges are comprised of mortgage commitment fees which are being amortized on the straight-line basis over the 25-year term of the permanent financing. (Continued) 16 2 TOY PROPERTIES ASSOCIATES II (A New York Limited Partnership) Notes to Financial Statements (2), CONTINUED ORIGINATION FEE PAYABLE The origination fee payable (see note 6) has a stated interest rate of 12.25% per annum on a simple interest basis. In accordance with generally accepted accounting principles, the obligation was discounted using an annual rate of 13%. The present value of this obligation at the date of issuance amounted to $27,880. INCOME TAXES No provision has been made for income taxes since any such liability is the liability of the individual partners. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The Partnership's cash, due from lender and accrued interest on origination fee payable are carried at cost, which approximates fair value. USE OF ESTIMATES Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (3) UNAUDITED INFORMATION The unaudited financial statements as of September 30, 1996 and for the nine-month periods ended September 30, 1996 and 1995 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results of operations, cash flows and financial position as of and for the periods presented. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes thereto. The results for the interim periods presented are not necessarily indicative of results to be expected for the full years. (Continued) 17 3 TOY PROPERTIES ASSOCIATES II (A New York Limited Partnership) Notes to Financial Statements (4) MORTGAGE NOTES PAYABLE The nonrecourse mortgage notes are collateralized by the Partnership's interest in the Property and all rentals payable under the leases with Toys 'R' Us, and bear interest at 12.625% per annum. The notes provide for monthly payments of principal and interest of $88,002 to fully amortize the loan by maturity in June 2006. Principal payments required for each of the next five years are as follows:
Year ending Amount ----------- ------ 1996 $ 299,399 1997 339,465 1998 384,891 1999 436,396 2000 494,793 ==========
The estimated fair value of the mortgage notes payable at December 31, 1995 is $6,525,423. (5) NET LEASE ACQUISITION OF PROPERTY On August 27, 1980, pursuant to commitments obtained by an affiliate, the Partnership acquired three Land Estates, representing a 30-year interest in certain parcels of land together with all building improvements constructed to date on such land from Toys 'R' Us. Pursuant to a development agreement with the Partnership, Toys 'R' Us completed the improvements, consisting of three retail toy stores, in September 1980. Simultaneous with the acquisition of the Land Estates and the building improvements, the Partnership also acquired from Toys 'R' Us an option to enter into ground leases (the "Remainder Ground Leases") of the land upon expiration of the Land Estates. The Remainder Ground Leases will have an initial term of five years and may be extended for an additional five renewal terms of five years each. PROPERTY LEASES The Partnership and Toys 'R' Us entered into three net leases on August 27, 1980, whereby Toys 'R' Us leased the Partnership's interest beginning in May 1981. Toys 'R' Us is responsible for all operating expenses relating to the Property, including property taxes, maintenance, repairs, renewals and betterments. The leases expire May 31, 2006 and provide Toys 'R' Us with five five-year optional renewal terms. Toys 'R' Us has the option to purchase the Property from the Partnership at the expiration of the original term of the lease at a price equal to the fair market value of such Property. (Continued) 18 4 TOY PROPERTIES ASSOCIATES II (A New York Limited Partnership) Notes to Financial Statements (5), CONTINUED MINIMUM FUTURE RENTALS Minimum future rentals under the net leases are summarized as follows:
Year ending December 31, Amount ------------ ------ 1996 $ 1,067,039 1997 1,067,039 1998 1,154,480 1999 1,162,430 2000 1,162,430 Thereafter 6,396,905 --------------- $ 12,010,323 ===============
(6) ORIGINATION FEE PAYABLE The Partnership is obligated to pay an affiliate of the General Partners a fee of $780,000 for rendering services in connection with the structuring and arranging of the acquisition of the Property. Simple interest accrues at the rate of 12.25% per annum. Interest is payable out of available cash flow, as defined in the origination fee agreement, until the end of the original term of the lease with the balance of the obligation payable in 62 monthly installments beginning with the first renewal period on June 1, 2006. The original principal amount has been discounted at a rate of thirteen percent. (7) TRANSACTIONS WITH RELATED PARTIES For performing all administrative functions of the Partnership, an affiliate of the General Partners receives an annual fee of $6,000. 19 TOY PROPERTIES ASSOCIATES V FINANCIAL STATEMENTS 20 INDEPENDENT AUDITORS' REPORT The Partners Toy Properties Associates V: We have audited the accompanying balance sheet of Toy Properties Associates V (a Texas Limited Partnership) as of December 31, 1995, and the related statements of operations, changes in partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Toy Properties Associates V as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP October 7, 1996 New York, New York 21 TOY PROPERTIES ASSOCIATES V (A Texas Limited Partnership) Balance Sheets
September 30, December 31, 1996 1995 ---- ---- (unaudited) ASSETS Real estate, at cost (notes 4 and 5): Building improvements $ 2,487,823 $ 2,487,823 Land estate 449,395 449,395 ----------- ----------- 2,937,218 2,937,218 Less accumulated depreciation and amortization 1,176,919 1,119,040 ----------- ----------- 1,760,299 1,818,178 Cash 894 2,352 Mortgage brokerage fee, net of accumulated amortization of $22,323 and $21,213 in 1996 and 1995, respectively 14,677 15,787 Partnership loan costs, net of accumulated amortization of $6,637 and $6,307 in 1996 and 1995, respectively 4,363 4,693 Rent receivable (note 5) 876,810 885,910 Due from lender 491 491 ----------- ----------- $ 2,657,534 $ 2,727,411 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgage loan payable (note 4) $ 2,224,419 $ 2,305,229 Origination fee payable including accumulated accretion of $125,786 and $112,126 in 1996 and 1995, respectively (note 6) 147,254 133,594 Accrued interest on origination fee payable (note 6) 963,870 915,135 Other liabilities 3,844 2,595 ----------- ----------- 3,339,387 3,356,553 Partners' deficit (note 1) (681,853) (629,142) ----------- ----------- $ 2,657,534 $ 2,727,411 =========== ===========
See accompanying notes to financial statements. 22 TOY PROPERTIES ASSOCIATES V (A Texas Limited Partnership) Statements of Operations
Nine Months Ended Year Ended September 30, December 31, -------------------------- ------------ 1996 1995 1995 ---- ---- ---- (unaudited) Revenues: Rental income (note 5) $ 291,051 $ 291,051 $ 388,068 --------- --------- --------- Expenses: Mortgage loan interest (note 4) 214,935 224,472 297,765 Origination fee interest, including accretion of discount on origination fee (note 6) 62,395 60,733 81,244 Depreciation and amortization 59,319 59,319 79,096 Management fee (note 7) 3,750 3,750 5,000 Other expenses 3,363 1,788 2,495 --------- --------- --------- 343,762 350,062 465,600 --------- --------- --------- Net loss $ (52,711) $ (59,011) $ (77,532) ========= ========= ========= Net loss allocated: To the general partner $ (527) $ (590) $ (775) To the limited partners (52,184) (58,421) (76,757) --------- --------- --------- $ (52,711) $ (59,011) $ (77,532) ========= ========= ========= Net loss per unit of limited partnership interest $ (1,739) $ (1,947) $ (2,559) ========= ========= =========
See accompanying notes to financial statements. 23 TOY PROPERTIES ASSOCIATES V (A Texas Limited Partnership) Statements of Changes in Partners' Deficit
General Limited Total Partner Partners ----- ------- -------- Partners' deficit at December 31, 1994 $(551,610) $ (99,154) $(452,456) Net loss for the year (77,532) (775) (76,757) --------- --------- --------- Partners' deficit at December 31, 1995 (629,142) (99,929) (529,213) Net loss for the period (unaudited) (52,711) (527) (52,184) --------- --------- --------- Partners' deficit at September 30, 1996 (unaudited) $(681,853) $(100,456) $(581,397) ========= ========= =========
See accompanying notes to financial statements. 24 TOY PROPERTIES ASSOCIATES V (A Texas Limited Partnership) Statements of Cash Flows
Nine Months Ended Year Ended September 30, December 31, -------------------------- ------------ 1996 1995 1995 ---- ---- ---- (unaudited) Cash flows from operating activities: Net loss $ (52,711) $ (59,011) $ (77,532) --------- --------- --------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 59,319 59,319 79,096 Accumulated accretion on origination fee payable 13,660 11,998 16,264 Increase in other assets -- (587) -- Increase in other liabilities 1,249 1,250 2,501 Decrease in rent receivable 9,100 9,100 12,132 Origination fee interest 48,735 48,735 64,980 --------- --------- --------- Total adjustments 132,063 129,815 174,973 --------- --------- --------- Net cash provided by operating activities 79,352 70,804 97,441 --------- --------- --------- Cash flows from financing activities: Principal payments on mortgage notes (80,810) (71,272) (96,560) --------- --------- --------- Net (decrease) increase in cash (1,458) (468) 881 Cash at beginning of period 2,352 1,471 1,471 --------- --------- --------- Cash at end of period $ 894 $ 1,003 $ 2,352 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 214,935 $ 224,472 $ 297,765 ========= ========= =========
See accompanying notes to financial statements. 25 TOY PROPERTIES ASSOCIATES V (A Texas Limited Partnership) Notes to Financial Statements December 31, 1995 and September 30, 1996 and 1995 (unaudited) (1) ORGANIZATION Toy Properties Associates V (the "Partnership") is a Texas limited partnership organized on June 16, 1981, to acquire a new distribution center and estate-for-years interest in the underlying land (collectively the "Property") for $3,257,750. The property, located in Houston, Texas, is net leased to Toys 'R' Us, Inc. ("Toys 'R' Us"). Capital Properties Associates IV (the "General Partner") is a limited partnership comprised of eight individuals, including E. Robert Roskind, the general partner, and Richard J. Rouse, a limited partner. Mr. Roskind and Mr. Rouse are co-chief executive officers of Lexington Corporate Properties, Inc. In December 1983, 30 units of limited partnership interest were sold to investor limited partners (the "Limited Partners"). Each unit was sold for $30,935 payable in eight installments. All Limited Partners' capital contributions have been paid. The Partnership Agreement provides that profits and losses and distributions of the Partnership shall be allocated 99% to the Limited Partners and 1% to the General Partner. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING The financial statements of the Partnership have been prepared on the accrual basis of accounting. DEPRECIATION AND AMORTIZATION Depreciation and amortization on the building improvements and land estate is on the straight-line method over the 40-year and 30 year useful lives, respectively. RENTAL INCOME The Partnership has determined that the lease relating to the property is an operating lease. Rental revenue is recognized on a straight-line basis over the minimum lease terms. The Partnership's rent receivable primarily represents the amounts of the excess of rental revenue recognized on a straight-line basis over the annual rents collectible under the lease. (Continued) 26 2 TOY PROPERTIES ASSOCIATES V (A Texas Limited Partnership) Notes to Financial Statements (2), CONTINUED ORIGINATION FEE PAYABLE The origination fee payable (see note 6) has a stated interest rate of 19% per annum on a simple interest basis. In accordance with generally accepted accounting principles, the obligation was discounted using an annual rate of 13%. The present value of this obligation at the date of issuance amounted to $21,468. AMORTIZATION OF DEFERRED EXPENSES The mortgage brokerage fee is amortized on a straight-line basis over the 25-year term of the mortgage loan. The partnership loan costs include legal fees which are amortized on a straight-line basis over the 25-year term of the mortgage loan. INCOME TAXES No provision has been made for income taxes since any such liability is the liability of the individual partners. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines fair value of a financial instruments as the amount at which the instruments could be exchanged in a current transaction between willing parties. The Partnership's cash, due from lender, accrued interest on origination fee payable and other liabilities are carried at cost, which approximates fair value. USE OF ESTIMATES Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (3) UNAUDITED INFORMATION The unaudited financial statements and related notes as of September 30, 1996 and for the nine month periods ended September 30, 1996 and 1995 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results of operations, cash flows and financial position as of and for the periods presented. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes thereto. The results for the interim periods presented are not necessarily indicative of results to be expected for the full years. (Continued) 27 3 TOY PROPERTIES ASSOCIATES V (A Texas Limited Partnership) Notes to Financial Statements (4) MORTGAGE LOAN PAYABLE The Partnership received a long-term mortgage loan from the State of California Public Employees Retirement System. The non-recourse financing is secured by a mortgage on the Property and an assignment of the net lease. The mortgage loan provides for interest at the rate of 12.625% per annum with monthly payments of principal and interest of $32,860 through 2006 to fully amortize the mortgage loan. The mortgage loan became prepayable on September 1, 1996. Principal payments required for each of the next five years are as follows:
Year ending December 31 Amount ----------- ------ 1996 $ 109,483 1997 124,133 1998 140,743 1999 159,578 2000 180,932 ========
The estimated fair value of the mortgage loan payable at December 31, 1995 is $2,455,069. (5) NET LEASE ACQUISITION OF PROPERTY On June 30, 1981, the Partnership acquired a Land Estate, representing a 30-year interest in a parcel of land, from Toys 'R' Us, together with all building improvements constructed to date on such land. Simultaneous with the acquisition of the Land Estate and the building improvements, the Partnership also acquired from Toys 'R' Us an option to enter into a ground lease (the "Remainder Ground Lease") of the land upon the expiration of the Land Estate. The Remainder Ground Lease will have an initial term of five years and may be extended for an additional five renewal terms of five years each. NET LEASE The Partnership entered into a net lease with Toys 'R' Us. Toys 'R' Us is obligated to pay all operating expenses, taxes, assessments, insurance, and required capital expenditures. The primary term of the 25-year net lease expires on August 31, 2006. Toys 'R' Us has options for five renewal terms of five years each. Toys 'R' Us has the option to purchase the Property from the Partnership at the expiration of the original term of the lease at a price equal to the fair market value of such Property. (Continued) 28 4 TOY PROPERTIES ASSOCIATES V (A Texas Limited Partnership) Notes to Financial Statements (5), CONTINUED Minimum future rentals under the net lease are summarized as follows:
Year ending December 31 Amount ----------- ------ 1996 $ 400,200 1997 400,200 1998 460,713 1999 490,970 2000 490,970 Thereafter 2,782,163 --------------- $ 5,025,216 ===============
(6) ORIGINATION FEE PAYABLE The Partnership is obligated to pay an affiliate of the General Partner a fee of $342,000 for rendering services in connection with the acquisition of the Property. Simple interest is payable monthly from available cash flow after the first $10,000 of annual cash flow, at the rate of 19% per annum on the unpaid portion of this fee. Accrual of interest commenced upon admission of the Limited Partners. On May 1, 1998, the Partnership is required to begin making monthly payments of $7,436 to retire the obligation. Unpaid accrued interest outstanding on September 1, 2006, will be satisfied by 59 monthly payments of $17,155. The original principal amount has been discounted at a rate of thirteen percent. (7) TRANSACTION WITH RELATED PARTIES For performing all administrative functions of the Partnership, an affiliate of the General Partner receives an annual fee of $5,000. 29 FORT STREET PARTNERS FINANCIAL STATEMENTS 30 INDEPENDENT AUDITORS' REPORT The Board of Directors Fort Street Partners Limited Partnership: We have audited the accompanying balance sheet of Fort Street Partners Limited Partnership (a Connecticut Limited Partnership) as of December 31, 1995, and the related statements of operations, changes in partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fort Street Partners Limited Partnership as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP October 7, 1996 New York, New York 31 FORT STREET PARTNERS LIMITED PARTNERSHIP (A Connecticut Limited Partnership) Balance Sheets
September 30, December 31, 1996 1995 ------------ ------------ (unaudited) ASSETS Real estate, at cost (notes 4 and 5): Building improvements $ 6,670,228 $ 6,670,228 Less accumulated depreciation (2,570,772) (2,445,704) ----------- ----------- 4,099,456 4,224,524 Cash 25,146 41,732 Lease negotiation fee, net of accumulated amortization of $58,814 and $55,953 in 1996 and 1995, respectively 51,811 54,672 Mortgage brokerage fee, net of accumulated amortization of $4,213 and $4,008 in 1996 and 1995, respectively 3,990 4,195 Rent receivable (note 5) 1,993,863 2,102,849 Other assets 7,293 3,034 ----------- ----------- $ 6,181,559 $ 6,431,006 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgage note payable (note 4) $ 6,240,487 $ 6,385,369 Origination fee payable, including accumulated accretion of $86,010 and $76,775 in 1996 and 1995, respectively (note 6) 99,658 90,423 Accrued interest on origination fee payable (note 6) 1,442,791 1,467,811 Accounts payable -- 595 ----------- ----------- 7,782,936 7,944,198 Partners' deficit (note 1) (1,601,377) (1,513,192) ----------- ----------- $ 6,181,559 $ 6,431,006 =========== ===========
See accompanying notes to financial statements. 32 FORT STREET PARTNERS LIMITED PARTNERSHIP (A Connecticut Limited Partnership) Statements of Operations
Nine Months Year ended Ended September 30, December 31, ----------------------- ------------ 1996 1995 1995 --------- --------- ------------ (unaudited) Income: Rental income (note 5) $ 613,250 $ 613,250 $ 817,667 Interest income 114 396 405 --------- --------- --------- 613,364 613,646 818,072 --------- --------- --------- Expenses: Mortgage note interest (note 4) 485,995 494,402 658,513 Origination fee interest, including amortization of origination fee payable (note 6) 84,294 83,171 111,074 Depreciation and amortization 128,134 128,134 170,844 Management fee (note 7) 1,875 1,875 2,500 Other 3,693 1,766 2,353 --------- --------- --------- 703,991 709,348 945,284 --------- --------- --------- Net loss $ (90,627) $ (95,702) $(127,212) ========= ========= ========= Net loss allocated: To the general partner (906) (957) (1,272) To the limited partners (89,721) (94,745) (125,940) --------- --------- --------- $ (90,627) $ (95,702) $(127,212) ========= ========= ========= Net loss per unit of limited partnership unit $ (2,991) $ (3,158) $ (4,198) ========= ========= =========
See accompanying notes to financial statements. 33 FORT STREET PARTNERS LIMITED PARTNERSHIP (A Connecticut Limited Partnership) Statements of Changes in Partners' Deficit
General Limited Total Partner Partners ----------- -------- ----------- Partners' deficit at December 31, 1994 $(1,349,350) $(37,980) $(1,311,370) Cash distributions (36,630) -- (36,630) Net loss for the year (127,212) (1,272) (125,940) ----------- -------- ----------- Partners' deficit at December 31, 1995 (1,513,192) (39,252) (1,473,940) Cash contributions (unaudited) 2,442 -- 2,442 Net loss for the period (unaudited) (90,627) (906) (89,721) ----------- -------- ----------- Partners' deficit at September 30, 1996 (unaudited) $(1,601,377) $(40,158) $(1,561,219) =========== ======== ===========
See accompanying notes to financial statements. 34 FORT STREET PARTNERS LIMITED PARTNERSHIP (A Connecticut Limited Partnership) Statements of Cash Flows
Nine Months Year ended Ended September 30, December 31, 1996 1995 1995 --------- --------- ------------ (unaudited) Cash flows from operating activities: Net loss $ (90,627) $ (95,702) $(127,212) --------- --------- --------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 128,134 128,134 170,844 Decrease (increase) in rent receivable 108,986 (52,476) (68,168) Increase in other assets (4,259) (55,064) (2,100) (Decrease) increase in accrued interest on origination fee payable (25,020) 75,059 100,078 Increase in accumulated accretion on origination fee payable 9,235 8,112 10,996 (Decrease) increase in accounts payable (595) -- 595 --------- --------- --------- Total adjustments 216,481 103,765 212,245 --------- --------- --------- Net cash provided by operating activities 125,854 8,063 85,033 --------- --------- --------- Cash flows from financing activities: Principal payments on mortgage note (144,882) -- (45,881) Cash contributions (distributions) from/to partners 2,442 (36,630) (36,630) --------- --------- --------- Net cash used in financing activities (142,440) (36,630) (82,511) --------- --------- --------- Net (decrease) increase in cash (16,586) (28,567) 2,522 Cash at beginning of period 41,732 39,210 39,210 --------- --------- --------- Cash at end of period $ 25,146 $ 10,643 $ 41,732 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 586,074 $ 494,402 $ 658,513 ========= ========= =========
See accompanying notes to financial statements. 35 FORT STREET PARTNERS LIMITED PARTNERSHIP (A Connecticut Limited Partnership) Notes to Financial Statements December 31, 1995 and September 30, 1996 and 1995 (unaudited) (1) ORGANIZATION Fort Street Partners Limited Partnership (the "Partnership") is a Connecticut Limited Partnership organized on May 1, 1981, to acquire a leasehold interest and to lease, under a net lease, a department store in Honolulu, Hawaii (the "Property") to Liberty House, Inc. ("Liberty House"), a wholly owned subsidiary of Amfac, Inc. Glenrouse Associates (the "General Partner"), the sole General Partner, is a general partnership comprised of three individuals, including E. Robert Roskind and Richard J. Rouse. Mr. Roskind and Mr. Rouse are co-chief executive officers of Lexington Corporate Properties, Inc. In May 1981, 30 units of limited partnership interest were sold to Investor Limited Partners (the "Limited Partners"). All Limited Partners' capital contributions have been paid. The Partnership Agreement provides that profits and losses and distributions of the Partnership shall be allocated 99% to the Limited Partners and 1% of the General Partner. (2) SIGNIFICANT ACCOUNTING POLICIES BASICS OF ACCOUNTING The financial statements of the Partnership have been prepared on the accrual basis of accounting. DEPRECIATION Depreciation on the building improvements is on the straight-line method over the 40 year useful life. AMORTIZATION OF DEFERRED EXPENSES The lease negotiation fee is amortized on a straight-line basis over the 29-year term of the lease. The mortgage brokerage fee is amortized on a straight-line basis over the 30-year term of the permanent mortgage loan. RENTAL INCOME The Partnership has determined that the lease relating to the property is an operating lease. Rental revenue is recognized on a straight-line basis over the minimum lease terms. The Partnership's rent receivable primarily represents the amounts of the excess of rental revenue recognized on a straight-line basis over the annual rents collectible under the lease. (Continued) 36 2 FORT STREET PARTNERS LIMITED PARTNERSHIP (A Connecticut Limited Partnership) Notes to Financial Statements (2), CONTINUED ORIGINATION FEE PAYABLE The origination fee payable (see note 6) has a stated interest rate of 15.25% per annum on a simple interest basis. In accordance with generally accepted accounting principles, the obligation was discounted using an annual rate of 13%. The present value of this obligation at the date of issuance amounted to $13,648. INCOME TAXES No provision has been made for income taxes since any such liability is the liability of the individual partners. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The Partnership's cash, accrued interest on origination fee payable and accounts payable are carried at cost, which approximates fair value. USE OF ESTIMATES Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (3) UNAUDITED INFORMATION The unaudited financial statements and related notes as of September 30, 1996 and for the nine-month periods ended September 30, 1996 and 1995 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results of operations, cash flows and financial position as of and for the periods presented. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes thereto. The results for the interim periods presented are not necessarily indicative of results to be expected for the full years. (4) MORTGAGE NOTE PAYABLE The Partnership received a long-term mortgage loan in 1981 from Principal Financial Group. The non-recourse financing is secured by a mortgage on the Property and an assignment of the net lease. The permanent financing provides for interest at the rate of 10.25% per annum with monthly payments of $54,934 of interest only for the first 15 years, through September 30, 1995, and monthly payments of principal and interest of $70,097 thereafter to fully amortize the loan by its maturity on October 1, 2010. The mortgage financing may not be prepaid before October 1, 2003. (Continued) 37 3 FORT STREET PARTNERS LIMITED PARTNERSHIP (A Connecticut Limited Partnership) Notes to Financial Statements (4), CONTINUED Principal payments required for the next five years are as follows:
Year ending December 31 Amount ----------- --------- 1996 $ 195,694 1997 216,722 1998 240,009 1999 265,800 2000 294,361 =========
The estimated fair value of the mortgage note payable at December 31, 1995 is $6,704,637. (5) NET LEASE The Partnership entered into a net lease with Liberty House. Liberty House is obligated to pay all operating expenses, taxes, assessments, insurance, and required capital expenditures. The primary term of the lease expires on September 30, 2009. Liberty House has options to five renewal terms, the first for nine years and seven months, the second for two years, and the third through fifth for five years each. Liberty House has the option to purchase the Property from the Partnership at the expiration of the original term of the lease at a price equal to the fair market value of such Property. Minimum future rentals under the net lease are summarized as follows: Year ending December 31, Amount ------------ ----------- 1996 $ 962,981 1997 962,981 1998 962,981 1999 962,981 2000 962,981 Thereafter 8,532,660 ----------- $ 13,347,565 ============
(6) ORIGINATION FEE PAYABLE The Partnership is obligated to pay an affiliate of the General Partner a fee of $656,250 for rendering services in connection with the acquisition of the Property. Simple interest is payable monthly from available net cash flow as defined in the Partnership Agreement, after the first $15,000 of annual net cash flow has been distributed to the partners, at the (Continued) 38 4 FORT STREET PARTNERS LIMITED PARTNERSHIP (A Connecticut Limited Partnership) Notes to Financial Statements (6), CONTINUED rate of 15.25% per annum on the unpaid portion of this fee. Accrual of interest commenced upon admission of the Limited Partners. Commencing October 1, 2010, the Partnership is required to make twelve monthly payments to satisfy principal plus current interest payments (see note 2). Additionally, accrued interest, if any, shall be paid in 120 equal monthly payments to retire the remaining balance of accrued interest. The original principal amount has been discounted at a rate of thirteen percent. (7) TRANSACTIONS WITH RELATED PARTIES For performing all administrative functions of the Partnership, an affiliate of the General Partner receives an annual fee of $2,500. 39 PRO FORMA INFORMATION 40 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES PRO FORMA COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 The following pro forma combined financial statements of Lexington Corporate Properties, Inc. and Consolidated Subsidiaries (the "Company"), the LP Properties acquisitions and other partnership and property acquisitions listed below ("the Acquired Partnerships and Properties") (together, the "Consolidated Company") have been prepared by combining the historical financial statements of the Company and the Acquired Partnerships and Properties, where applicable, adjusted to give effect to the acquisition of the Acquired Partnerships and Properties by the Company, as well as other pro forma adjustments. The accompanying pro forma combined balance sheet for the Consolidated Company as of September 30, 1996 has been prepared as if the acquisitions had been consummated on that date. The accompanying pro forma combined statements of income for the year ended December 31, 1995 and the nine months ended September 30, 1996 have been prepared as if the acquisitions had been consummated as of January 1, 1995 and January 1, 1996, respectively. These pro forma combined financial statements of the Consolidated Company must be read in conjunction with the historical financial statements of the Company and the Acquired Partnerships and Properties, where applicable. These pro forma combined financial statements are not indicative of what the financial position or results of operations would have been had the acquisitions been consummated on the dates indicated or necessarily indicative of the Company's results in the future. The Acquired Partnerships and Properties Acquisition Date Barnes Properties August 1, 1995 Red Butte Creek (the "Northwest Property") May 22, 1996 LP Properties December 31, 1996 Walmart - Riverdale, GA December 1, 1995 Bally's - Canton, OH December 7, 1995 Walmart - Jacksonville, AL May 31, 1996 SKF - Franklin, NC December 23, 1996 Johnson Controls - Plymouth, MI December 23, 1996 Johnson Controls - Oberlin, OH December 23, 1996 41 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES PRO FORMA COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1995
BARNES HISTORICAL LEXINGTON (1/1-7/31/95 LP PROPERTIES RED BUTTE CREEK HISTORICAL ONLY) (A) HISTORICAL HISTORICAL --------------------------------------------------------------- Revenues: Rental $24,522,884 $ 850,059 $ 2,226,047 $5,904,421 Interest and other 478,878 (1,547) 405 2,486 ---------------------------------------------------------- Total Revenues 25,001,762 848,512 2,226,452 5,906,907 ---------------------------------------------------------- Expenses: Interest expense 10,295,176 478,127 2,054,904 4,695,003 Depreciation 5,817,238 216,034 445,309 872,816 Amortization of deferred expenses 463,953 5,331 8,848 19,930 Management fees -- -- 13,500 85,000 Property operating expenses 620,058 -- -- 202,180 General and administrative expenses 2,693,760 8,419 9,498 2,640 ---------------------------------------------------------- Total Expenses 19,890,185 707,911 2,532,059 5,877,569 ---------------------------------------------------------- Income (loss) before minority interests and extraordinary items 5,111,577 140,601 (305,607) 29,338 Minority interests 92,751 46,933 -- -- ---------------------------------------------------------- Pro Forma Net income (loss) before extraordinary items $ 5,018,826 $ 93,668 $ (305,607) $ 29,338 ========================================================== Pro forma net income before extraordinary items, per share $ 0.54 $ -- $ -- $ -- ========================================================== Cash dividends declared per share $ 1.08 $ -- $ -- $ -- ========================================================== Weighted average shares outstanding 9,263,169 -- -- -- ========================================================== WALMART - BALLY'S - RIVERDALE, GA CANTON, OH WALMART - SKF - (1/1-11/30/95 (1/1-12/6/95 JKSONVILLE, AL FRANKLIN, NC ONLY) (B) ONLY) (B) (C) (C) -------------------------------------------------------------- Revenues: Rental $247,291 $549,549 $ 146,040 $322,397 Interest and other -- -- -- -- ---------------------------------------------------------- Total Revenues 247,291 549,549 146,040 322,397 ---------------------------------------------------------- Expenses: Interest expense 177,891 238,620 145,523 233,363 Depreciation 55,811 91,753 43,978 75,635 Amortization of deferred expenses -- -- -- -- Management fees -- -- -- -- Property operating expenses -- -- -- -- General and administrative expenses -- -- -- -- ---------------------------------------------------------- Total Expenses 233,702 330,373 189,501 308,998 ---------------------------------------------------------- Income (loss) before minority interests and extraordinary items 13,589 219,176 (43,461) 13,399 Minority interests -- -- -- -- ---------------------------------------------------------- Pro Forma Net income (loss) before extraordinary items $ 13,589 $219,176 $ (43,461) $ 13,399 ========================================================== Pro forma net income before extraordinary items, per share $ -- $ -- $ -- $ -- ========================================================== Cash dividends declared per share $ -- $ -- $ -- $ -- ========================================================== Weighted average shares outstanding -- -- -- -- ==========================================================
(continued) 42 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES PRO FORMA COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1995 (CONTINUED)
JOHNSON JOHNSON CONTROLS - CONTROLS - PLYMOUTH, MI OBERLIN, OH PRO FORMA (C) (C) ADJUSTMENTS TOTAL PRO FORMA -------------------------------------------------------------- Revenues: Rental $648,801 $491,042 $ (9,309)(G) $ 36,248,716 349,494 (H) Interest and other -- -- 480,222 ------------------------------------------- ------------ Total Revenues 648,801 491,042 340,185 36,728,938 ------------------------------------------- ------------ Expenses: Interest expense 450,056 340,624 -- 19,109,287 Depreciation 120,882 112,220 1,571,656 (D) 9,591,126 167,794 (I) Amortization of deferred expenses -- -- -- 498,062 Management fees -- -- (98,500) (E) -- Property operating expenses -- -- -- 822,238 General and administrative expenses -- -- -- 2,714,317 ------------------------------------------- ------------ Total Expenses 570,938 452,844 1,640,950 32,735,030 ------------------------------------------- ------------ Income (loss) before minority interests and extraordinary items 77,863 38,198 (1,300,765) 3,993,908 Minority interests -- -- 504,019 (F) 643,703 ------------------------------------------- ------------ Pro Forma Net income (loss) before extraordinary items $ 77,863 $ 38,198 $(1,804,784) $ 3,350,205 =========================================== ============ Pro forma net income before extraordinary items, per share $ -- $ -- $ (0.18) $ 0.36 =========================================== ============ Cash dividends declared per share $ -- $ -- $ -- $ 1.08 =========================================== ============ Weighted average shares outstanding -- -- 9,000 9,272,169 =========================================== ============
See accompanying notes to unaudited pro forma financial statements. 43 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 Rental revenue in the combined pro forma statement of income (both historical and pro forma) is generated from leases that are "net leases", under which the tenant is responsible for substantially all costs of real estate taxes, insurance and ordinary maintenance. Applicable to the Canton, Ohio Property, pro forma rental income represents straight-line rent under FASB #13, calculated as the difference between the cash rent paid under the lease and the straight-line rent over the term of the lease. Pro forma interest expense is calculated based on annual interest rates on the respective debt as of the acquisition dates. A. This column reflects historical results for the period January 1, 1995 to July 31, 1995 for the six Barnes Properties which Lexington Corporate Properties, Inc. (the "Company") acquired on August 1, 1995. The results of operations for the period August 1, 1995 through December 31, 1995 are included in the Company's historical financial data. B. These columns reflect pro forma adjustments for the period from January 1 to November 30, 1995 for the Riverdale, Georgia Property (acquired December 1, 1995), and for the period from January 1 to December 6, 1995 for the Canton, Ohio Property (acquired December 7, 1995). The results of operations for the periods from the respective acquisition dates to December 31, 1995 are included in the Company's historical financial data. C. The Jacksonville, Alabama Property, the Franklin, North Carolina Property, the Plymouth, Michigan Property and the Oberlin, Ohio Property were all acquired during 1996. These columns reflect pro forma adjustments for the year ended December 31, 1995 for these properties. D. This amount represents depreciation expense for the year ended December 31, 1995 of $211,412 and $1,236,543 on the stepped-up bases of the real estate for the LP Properties and the Red Butte Creek Associates Property (the "Northwest Property"), respectively and $123,701 on the Barnes Properties for the period January 1, 1995 to July 31, 1995. E. This amount represents the elimination of the accrued but unpaid Northwest Property management fee of $85,000 and of the LP Properties management fees of $13,500 which would not be payable by the Company under the terms of the acquisitions. F. This amount represents the effect on minority interest of the issuance of partnership units in a subsidiary of the Company in the Northwest Property acquisition and the acquisition of the LP Properties. 44 NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995. Continued from previous page. G. This amount represents the elimination of straight-line rental revenue which was recorded under FASB #13 for the LP Properties prior to the acquisition of the LP Properties by the Company. H. This amount represents straight-line rental revenue recorded under FASB #13 for the LP Properties as if the acquisitions had been consummated as of January 1, 1995. I. This amount represents depreciation expense on amounts allocated to real estate from purchase price adjustments as if the acquisitions of the LP Properties had occurred on January 1, 1995. 45 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES PRO FORMA COMBINED BALANCE SHEET SEPTEMBER 30, 1996
LP Lexington Properties Red Butte Creek Walmart - SKF - Franklin, Historical Historical Historical (A) Jacksonville, NC (C) AL (B) ----------------------------------------------------------------------------- Assets: Real estate, at cost $302,640,518 $ 16,758,226 $ -- $ -- $3,413,111 less: accumulated depreciation and amortization 49,225,852 7,053,437 -- -- -- ---------------------------------------------------------------------------- 253,414,666 9,704,789 -- -- 3,413,111 Cash 2,863,756 31,107 -- -- -- Restricted cash 3,980,448 -- -- -- -- Deferred expenses, net 3,564,894 102,294 -- -- -- Rent receivable 7,737,724 4,245,606 -- -- -- Investment in partnerships 173,202 -- -- -- -- Escrow deposits 104,400 -- -- -- -- Other assets 3,588,712 32,241 -- -- -- ---------------------------------------------------------------------------- Total assets $275,427,802 $ 14,116,037 $ -- $ -- $3,413,111 ============================================================================ Liabilities and Stockholder's Equity: Mortgage notes payable $157,318,896 $ 14,371,075 $ -- $ -- $2,828,640 Purchase mortgage note, including accretion -- -- -- -- -- Origination fee payable, including accretion -- 442,929 -- -- -- Subordinated notes payable, including accrued interest 1,936,435 -- -- -- -- Accrued interest payable 330,877 3,855,837 -- -- -- Accounts payable and other liabilities 2,397,716 3,844 -- -- -- Minority interests, net 797,777 -- -- -- -- ---------------------------------------------------------------------------- 162,781,701 18,673,685 -- -- 2,828,640 ---------------------------------------------------------------------------- Stockholder's equity: Common stock 942 -- -- -- -- Additional paid-in-capital / partners' capital 112,645,159 (4,557,648) -- -- 584,471 ---------------------------------------------------------------------------- Total stockholder's equity / partners' capital 112,646,101 (4,557,648) -- -- 584,471 ---------------------------------------------------------------------------- $275,427,802 $ 14,116,037 $ -- $ -- $3,413,111 ============================================================================
Johnson Controls- Johnson Controls - Pro Forma Total Pro Plymouth, MI (C) Oberlin, OH (C) Adjustments Forma ------------------------------------------------------ ------------- Assets: Real estate, at cost $6,295,924 $ 4,765,040 $ 8,798,726 (D) $ 339,863,714 (7,053,437)(F) 4,245,606 (J) less: accumulated depreciation and amortization -- -- (7,053,437)(F) 49,225,852 ------------------------------------------------------ ------------- 6,295,924 4,765,040 13,044,332 290,637,862 Cash -- -- -- 2,894,863 Restricted cash -- -- -- 3,980,448 Deferred expenses, net -- -- -- 3,667,188 Rent receivable -- -- (4,245,606)(J) 7,737,724 Investment in partnerships -- -- -- 173,202 Escrow deposits -- -- -- 104,400 Other assets -- -- -- 3,620,953 ------------------------------------------------------ ------------- Total assets $6,295,924 $ 4,765,040 $ 8,798,726 $ 312,816,640 ====================================================== ============= Liabilities and Stockholder's Equity: Mortgage notes payable $6,261,220 $ 4,738,780 $ -- $ 185,518,611 Purchase mortgage note, including accretion -- -- -- -- Origination fee payable, including accretion -- -- -- 442,929 Subordinated notes payable, including accrued interest -- -- -- 1,936,435 Accrued interest payable -- -- -- 4,186,714 Accounts payable and other liabilities -- -- -- 2,401,560 Minority interests, net -- -- 1,753,741(I) 2,551,518 ------------------------------------------------------ ------------- 6,261,220 4,738,780 1,753,741 197,037,767 ------------------------------------------------------ ------------- Stockholder's equity: Common stock -- -- -- 942 Additional paid-in-capital / partners' capital 34,704 26,260 8,798,726 115,777,931 (1,753,741)(I) ------------------------------------------------------ ------------- Total stockholder's equity / partners' capital 34,704 26,260 7,044,985 115,778,873 ------------------------------------------------------ ------------- $6,295,924 $ 4,765,040 $ 8,798,726 $ 312,816,640 ====================================================== =============
See accompanying notes to unaudited pro forma financial statements. 46 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES PRO FORMA COMBINED STATEMENT OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 1996
Walmart - Red Butte Creek Jacksonville, AL SKF - Franklin, Lexington LP Properties Historical (1/1- (1/1-5/30/96 NC Historical Historical 5/21/96 only) (A) only) (B) (C) ===================================================================================== Revenues: Rental $22,805,441 $ 1,669,535 $3,264,007 $ 60,850 $241,798 Interest and other 330,961 114 1,430 -- -- ------------------------------------------------------------------------------------- Total Revenues 23,136,402 1,669,649 3,265,437 60,850 241,798 ------------------------------------------------------------------------------------- Expenses: Interest expense 9,213,254 1,508,425 1,623,058 60,635 175,022 Depreciation 5,510,131 333,981 340,494 18,324 56,726 Amortization of deferred expenses 450,278 6,636 7,775 -- -- Management fees -- 8,625 33,159 -- -- Property operating expenses 498,636 -- 78,872 -- -- General and administrative expenses 2,146,992 10,846 162,111 -- -- ------------------------------------------------------------------------------------- Total Expenses 17,819,291 1,868,513 2,245,469 78,959 231,748 ------------------------------------------------------------------------------------- Income (loss) before minority interests 5,317,111 (198,864) 1,019,968 (18,109) 10,050 Minority interests 460,601 -- -- -- -- ------------------------------------------------------------------------------------- Pro Forma Net income (loss) $ 4,856,510 $ (198,864) $1,019,968 $(18,109) $ 10,050 ===================================================================================== Pro Forma Net income per share $ 0.52 $ -- $ -- $ -- $ -- ===================================================================================== Cash dividends declared per share $ 0.83 $ -- $ -- $ -- $ -- ===================================================================================== Weighted average shares outstanding 9,383,055 -- -- -- -- =====================================================================================
Johnson Johnson Controls - Controls - Plymouth, MI Oberlin, OH Pro Forma Total Pro (C) (C) Adjustments Forma ========================================== =========== Revenues: Rental $486,601 $368,281 $ 153,130 (K) $29,173,106 (L) 123,463 Interest and other -- -- -- 332,505 ------------------------------------------ ----------- Total Revenues 486,601 368,281 276,593 29,505,611 ------------------------------------------ ----------- Expenses: Interest expense 337,542 255,468 -- 13,173,404 Depreciation 90,662 84,165 648,731 (E) 7,214,281 (M) 131,067 Amortization of deferred expenses -- -- -- 464,689 Management fees -- -- (41,784)(G) -- Property operating expenses -- -- -- 577,508 General and administrative expenses -- -- -- 2,319,949 ------------------------------------------ ----------- Total Expenses 428,204 339,633 738,014 23,749,831 ------------------------------------------ ----------- Income (loss) before minority interests 58,397 28,648 (461,421) 5,755,780 Minority interests -- -- 409,119 (H) 869,720 ------------------------------------------ ----------- Pro Forma Net income (loss) $ 58,397 $ 28,648 $(870,540) $ 4,886,060 ========================================== =========== Pro Forma Net income per share $ -- $ -- $ 0.00 $ 0.52 ========================================== =========== Cash dividends declared per share $ -- $ -- $ -- $ 0.83 ========================================== =========== Weighted average shares outstanding -- -- -- 9,383,055 ========================================== ===========
See accompanying notes to unaudited pro forma financial statements. 47 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES UNAUDITED NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Rental revenue in these pro forma combined financial statements (both historical and pro forma) is generated from leases that are "net leases", under which the tenant is responsible for substantially all costs of real estate taxes, insurance and ordinary maintenance. Pro forma mortgage notes payable consists of borrowing obtained at the time of acquisition, where applicable. Applicable pro forma interest expense is calculated based on annual interest rates on the respective debt as of the acquisition dates. A. This column reflects historical results for the period from January 1 to May 21, 1996 for the Northwest Property acquired by Lexington Corporate Properties, Inc. on May 22, 1996. The results of operations for the period from May 22 to September 30, 1996 and all balance sheet data as of September 30, 1996 are included in the Company's historical financial data. B. This column reflects pro forma adjustments for the period from January 1 to May 30, 1996 for the Jacksonville, Alabama Property (acquired May 31, 1996). The results of operations for the period from May 31 to September 30, 1996 and all balance sheet data as of September 30, 1996 are included in the Company's historical financial data. C. The Franklin, North Carolina Property, the Plymouth, Michigan Property and the Oberlin, Ohio Property were all acquired during December 1996. The pro forma combined statement of income reflects pro forma adjustments for the nine months ended September 30, 1996 for these properties as if the acquisition had taken place on January 1, 1996. The pro forma combined balance sheet reflects pro forma adjustments as if the acquisitions occurred on September 30, 1996. D. This amount represents a step-up in basis of the real estate based on the acquisition of the LP Properties by Lexington. E. This amount represents depreciation expense of $164,976 and $483,755 on the stepped-up bases of the real estate for the LP Properties for the nine months ended September 30, 1996, and the Northwest Property building, for the period from January 1, 1996 to May 22, 1996, respectively. F. This amount represents the entry to reflect the LP Properties at their net book value as of September 30, 1996 prior to allocating the purchase price to the fair value of assets acquired and liabilities assumed. 48 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996. Continued from previous page. G. This amount represents the elimination of the Northwest Property management fee of $33,159 and of the LP Properties management fees of $8,625 which would not be payable by the Company under the terms of the acquisitions. H. This amount represents the minority interest in the net income of LCIF due to the issuance of partnership units in the Northwest Property acquisition and the acquisition of the LP Properties. I. This amount represents the effect on minority interest as a result of the issuance of partnership units in conjunction with the acquisition of the LP Properties. J. This amount represents purchase price adjustments to historical rent receivable of the LP Properties as of September 30, 1996. K. This amount represents the elimination of straight-line rental revenue which was recorded under FASB #13 for the LP Properties prior to the acquisition of the LP Properties by the Company. L. This amount represents straight-line rental revenue recorded under FASB #13 for the LP Properties as if the acquisitions had been consummated as of January 1,1996. M. This amount represents depreciation expense on amounts allocated to real estate from purchase price adjustments as if the acquisitions of the LP Properties had occurred on January 1, 1996. -----END PRIVACY-ENHANCED MESSAGE-----