-----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, CWQvbb5Yl9XaMVrDhbUJjqhhhowZFlJnU92J48TwaBgPt2AnYs+rnSLkXfaXFe0c wk+vqVmmar5pOkEUkQ3kRQ== 0000950123-01-003001.txt : 20010409 0000950123-01-003001.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950123-01-003001 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEXINGTON CORPORATE PROPERTIES TRUST 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: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12386 FILM NUMBER: 1590019 BUSINESS ADDRESS: STREET 1: 355 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126927260 MAIL ADDRESS: STREET 1: 355 LEXINGTON AVE STREET 2: 14TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON CORPORATE PROPERTIES INC DATE OF NAME CHANGE: 19930816 10-K405 1 y47282e10-k405.txt LEXINGTON CORPORATE PROPERTIES TRUST 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-12386 LEXINGTON CORPORATE PROPERTIES TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 13-3717318 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 355 LEXINGTON AVENUE NEW YORK, NY 10017 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 692-7260 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ----------------------------------------------- --------------------------------------------- NEW YORK STOCK EXCHANGE COMMON SHARES, PAR VALUE $.0001
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting shares held by non-affiliates of the Registrant as of March 15, 2001 was $215,973,314. Number of common shares outstanding as of March 15, 2001 was 17,564,622. Number of preferred shares outstanding as of March 15, 2001 was 2,000,000. DOCUMENTS INCORPORATED BY REFERENCE: The Definitive Proxy Statement for Registrant's 2001 Annual Meeting of Shareholders is incorporated herein by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I. FORWARD-LOOKING STATEMENTS When used in this Form 10-K Annual Report, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. In particular, among the factors that could cause actual results to differ materially are continued qualification as a real estate investment trust, general business and economic conditions, competition, increases in real estate construction costs, interest rates, accessibility of debt and equity capital markets and other risks inherent in the real estate business including tenant defaults or financial difficulties, potential liability relating to environmental matters and illiquidity of real estate investments. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. ITEM 1. BUSINESS GENERAL Lexington Corporate Properties Trust (the "Company"), is a self-managed and self-administered real estate investment trust that acquires, owns and manages a geographically diverse portfolio of net leased office, industrial and retail properties. Lexington Realty Advisors, Inc. ("LRA"), an affiliate of the Company, 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. As of December 31, 2000, the Company's real property portfolio consisted of 71 properties (or interests therein) (the "Properties") located in twenty-nine states, including warehousing, distribution and manufacturing facilities, office buildings and retail properties containing an aggregate 12.6 million net rentable square feet of space. 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. The Company manages its real estate and credit risk through geographic, industry, tenant and lease maturity diversification. As of December 31, 2000 the five largest tenants/guarantors, which occupy ten Properties, represented 33.3% of annualized rental revenue:
% OF ANNUALIZED RENTAL TENANT/GUARANTOR REVENUE PROPERTY TYPES ---------------- ---------- -------------- Kmart Corporation -- 1 property............................. 9.9% Industrial Northwest Pipeline Corp. -- 1 property...................... 9.5% Office Exel Logistics, Inc. -- 4 properties........................ 5.4% Industrial Honeywell, Inc. -- 3 properties............................. 4.6% Office Vartec Telecom, Inc. -- 1 property.......................... 3.9% Office ---- 33.3% ====
As of December 31, 1999 and 1998 the five largest tenants/guarantors represented 38.1% and 39.3% of annualized revenues, respectively. Northwest Pipeline Corp. and Kmart Corporation are the only current tenants that represented greater than 10% of annualized revenues in 1999 and 1998. 1 3 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 obtain these objectives management focuses on: - effectively managing assets through lease extensions, revenue enhancing property expansions, opportunistic property sales and redeployment of assets, when advisable; - entering into strategic co-investment programs which generate higher equity returns than direct investments due to acquisition and asset management fees and in some cases increased leverage levels; - entering into third party advisory contracts to generate advisory fee revenue; - acquiring portfolios and individual net lease properties from third parties, completing sale/leaseback transactions, acquiring build-to-suit properties and opportunistically using operating partnership units to effect acquisitions; - refinancing existing indebtedness at lower average interest rates and increasing the Company's access to capital to finance property acquisitions and expansions; and - repurchasing common shares when they trade at a discount to net asset value. Internal Growth; Effectively Managing Assets 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. Since February 1994, the Company has entered into lease extensions of three years or more on 18 of its Properties. During 2000, the Company entered into 5 lease extensions for Properties with leases scheduled to expire in 2000 through 2002 for an average of 7.5 years and a 13.9% increase over the then current average rental revenue. As of December 31, 2000, the scheduled lease maturities for each of the next five years are as follows:
NUMBER CURRENT % OF OF SQUARE ANNUAL ANNUALIZED LEASES FOOTAGE RENT ($000'S) RENTS --------- --------- ------------- ---------- 2001.................................. 2 269,924 $ 770 0.86% 2002.................................. 2 290,800 777 0.86% 2003.................................. 1 179,280 1,900 2.11% 2004.................................. 2 175,000 789 0.88% 2005.................................. 5 799,350 6,119 6.80% -- --------- ------- ----- 12 1,714,354 $10,355 11.51% == ========= ======= =====
Revenue Enhancing Property Expansions. The Company undertakes expansions of its Properties based on tenant requirements. The Company believes that selective property expansions can provide it with attractive rates of return and actively seeks such opportunities. As of December 31, 2000, the Company has not committed to undertake any expansion of an existing Property. 2 4 Property Sales and Redeployment of Assets. The Company may determine to sell a Property if it deems such disposition to be in the Company's best interest. During 2000, the Company sold three Properties for $19.6 million, 10.7% above original cost, resulting in $3.0 million in gains. 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 with the intention of providing steady internal growth with low volatility. 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 releasing 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. Operating Partnership Structure. The operating partnership structure enables the Company to acquire properties by issuing to a seller, as a form of consideration, 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 while preserving the Company's available cash for other purposes, including the payment of dividends and distributions. The Company has used OP Units as a form of consideration in connection with the acquisition of 22 Properties. 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. Joint Venture Co-Investments. 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 ("NYSCRF"). The joint venture entity, Lexington Acquiport Company, LLC ("LAC"), acquires high quality office and industrial real estate properties net leased to investment and non-investment grade single tenant users. The Company and NYSCRF have committed to make equity contributions to LAC of up to $50 million and $100 million, respectively, of which $97.1 million has been funded as of December 31, 2000. Property acquisitions will be additionally funded through the use of up to $278 million in non-recourse mortgages. During 2000, LAC made six acquisitions, including one from the Company, for $235 million, of which $100.3 million was funded through non-recourse mortgages which mature in 2010 ($82.5 million) and 2012 ($17.8 million) and have a weighted average interest rate of 8.02%. An additional $53 million was funded with a three month bridge loan with interest at 175 basis points over LIBOR (8.20% at December 31, 2000). Subsequent to year end, LAC refinanced the bridge loan with permanent non-recourse mortgage financing of $42 million at an interest rate of 7.35% and $11 million in member contributions. The Property leases, which expire at various dates ranging from 2009 to 2011, provide for annual net rental revenues of approximately $26.6 million. During 1999, LAC made one investment, an $11 million participating note, which was used to partially fund the purchase of a 327,325 square foot office property in Texas for $34.8 million. As of December 31, 2000, LAC has made investments totaling $270 million. 3 5 LRA has entered into a management agreement with LAC whereby LRA will perform certain services for a fee relating to the acquisition (75 basis points of cost) and management (2% of rent collected annually) of the LAC investments. During 2000, LRA earned fees of $2.0 million relating to this management agreement. In 1999, the Company also formed a joint venture to own a property net leased to Blue Cross/Blue Shield of South Carolina. The Company has a 40% interest in the joint venture and LRA entered into a management agreement with similar terms as the management agreement with LAC. During 2000, LRA earned fees of $91,000 relating to this management contract. Advisory Contracts. In 2000 LRA entered into 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 $150 million in single tenant, net-leased office, industrial and retail properties in the United States. LRA will earn 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. 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 may also acquire, 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 does not assume the risk associated with the construction phase of a project. During 2000, LRA acquired a "build-to-suit" property, net leased to Sygma Network, Inc. (guaranteed by Sysco Corporation) for $8.9 million at an average unleveraged yield of 10.50%. The purchase was partially funded with a 15 year, $6.9 million mortgage note which bears interest at 9.0% and requires annual principal and interest payments of $692,000. Partnership Acquisitions. On November 14, 2000, the Company entered into an agreement to acquire Net 1 L.P. and Net 2 L.P. (together the "Net Partnerships") in a merger transaction. The general partner of each of the Net Partnerships are affiliates of E. Robert Roskind, Chairman of the Board of Trustees and Co-Chief Executive Officer of the Company. The Net Partnerships own 25 properties in fifteen states, which generate $15.1 million of net rental revenue. The properties have a remaining weighted average lease term of 9.2 years and are net leased to 18 tenants. As currently proposed, the Company will issue $65 million of securities to the sellers and assume approximately $78 million of mortgage financing with a weighted average interest rate of 8%. The limited partners of the Net Partnerships will receive at least 50% of their merger consideration in the Company's 8.5% convertible subordinated debentures due 2009 with up to 50% of their merger consideration in the Company's common shares at a price not less than $11.00 per share and no greater than $13.00 per share. The limited partners can elect to receive more of their consideration in the convertible subordinated debentures. The convertible subordinated debentures are exchangeable by the holder into the Company's common shares at $14.00 per share after four years and redeemable after five years with cash or common shares in the event the common share price exceeds $14.00. The transaction is subject to customary closing conditions, including approval by the Company's shareholders and the Net Partnerships' limited partners. Refinancing Existing Indebtedness and Increasing Access to Capital As a result of the Company's financing activities, the weighted average interest rate on the Company's outstanding indebtedness has been reduced from approximately 8.17% as of December 31, 1997 to 4 6 approximately 7.83% as of December 31, 2000. Scheduled balloon payments, excluding the $41.8 million outstanding on the variable rate unsecured credit facility, over the next five years are as follows ($000's):
WEIGHTED AVERAGE BALLOON AMOUNT INTEREST RATE -------------- ------------- 2001..................................................... $ 1,000 9.50% 2002..................................................... 10,624 7.46% 2003..................................................... -- -- 2004..................................................... 25,260 8.00% 2005..................................................... 67,914 8.16% -------- ---- $104,798 8.06% ======== ====
During 2000, the Company obtained $87.8 million in non-recourse mortgage financing on Properties at a weighted average interest rate of 7.97% and a maturity of 8.75 years. The proceeds of the financing were used to (i) repay borrowings under the line of credit, (ii) satisfy maturing mortgages and (iii) fund joint venture investments. The Company's variable rate unsecured credit facility bears interest at 137.5 basis points over the Company's option of 1, 3 or 6 month LIBOR and is scheduled to mature in July 2001. As of December 31, 2000, the $41.8 million outstanding under this facility bore interest at a weighted average rate of 8.03%. As of March 15, 2001, the interest rate on outstanding borrowings on the line of credit was 6.78%. The Company is currently in discussions with lending institutions to provide three year loan facilities to satisfy the outstanding borrowings on the current line at maturity. Common Share Repurchase. The Company's Board of Trustees authorized the repurchase of up to 2 million common shares and/or operating partnership units. As of December 31, 2000, the Company has repurchased approximately 1.4 million common shares/units at an average price of $10.62. Competition. Through our predecessor entities the Company has been in the net lease business for 27 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 actively 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 our focus on net-lease properties located throughout the United States, the Company does not 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 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 5 7 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 Company. There can be no assurance, however, that (i) the discovery of environmental conditions, the existence or severity of which were previously unknown, (ii) changes in law, (iii) the conduct of tenants or (iv) activities relating to properties in the vicinity of the Company's Properties, will not expose the Company to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on Properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the Company's tenants, which would adversely affect the Company's financial condition and results of operations, including funds from operations. Employees. As of December 31, 2000, the Company had twenty-eight employees. Industry Segments. The Company operates in one industry segment, investment in single tenant, net leased real property located throughout the United States. ITEM 2. PROPERTIES Real Estate Portfolio As of December 31, 2000, the Company owned or had interests in approximately 12.6 million square feet of rentable space in 71 office, industrial and retail properties. The Company's Properties are currently 100% leased. The number, and percentage of annualized revenues and square footage mix of the Company's portfolio is as follows:
SQUARE NUMBER REVENUE FOOTAGE ------ ------- ------- Office...................................................... 28 60% 41% Industrial.................................................. 22 28% 47% Retail...................................................... 21 12% 12% -- --- --- 71 100% 100% == === ===
The Company's Properties are subject to triple net leases, however, in certain leases the Company is responsible for roof and structural repairs. In such situations the Company performs annual inspections of the Properties. Two of the Company's Properties in Florida (Palm Beach Gardens and Lake Mary) and one in Fishers, Indiana are subject to leases in which the landlord is responsible for a portion of the real estate taxes, utilities and general maintenance. The Company's tenants represent a variety of industries including banking, computer and software services, health and fitness, general purpose retailing, manufacturing, insurance and warehousing, and have a weighted average credit strength of investment grade quality. A substantial portion of the Company's income consists of base rent under long-term leases. As of December 31, 2000, the average remaining term under the Company's leases is approximately 8 years. Of the 71 current leases, 49 contain scheduled rent increases and 5 contain an increase based upon the Consumer Price Index. In addition, one retail lease that contains no scheduled base rental increases does contain a percentage rent clause. The Company has 11 Properties accounting for $15.6 million of annualized rental revenue that are subject to long term ground leases where a third party owns and has leased the underlying land to the Company. In each of these situations the rental payments made to the landowner are passed on to the Company's tenant. At the end of these long-term ground leases, unless extended, the land together with all improvements thereon revert to the landowner. These ground leases, including renewal options, expire at various dates through 2074. 6 8 TABLE REGARDING REAL ESTATE HOLDINGS The table on the following pages sets forth certain information relating to the Company's real property portfolio, including joint venture properties, as of December 31, 2000. All the Properties listed have been fully leased by tenants for the last five years, or since the date of purchase by the Company or its joint venture entities if less than five years, with the exception of the Memphis, Tennessee Property. During the last five years this Property was not leased from February 1998 to October 1999. All other Properties owned by the Company or its joint venture entities have been leased in the past five years. In addition, the Company has no current plan to renovate, improve or develop any existing Property ($000's except per square foot data). 7 9
YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- OFFICE 3615 North 27th Avenue Bank One, Arizona, N.A 1960 & 1979 10.26 179,280 Phoenix, AZ 1301 California Circle Stevens-Arnold, Inc 1985 6.34 100,026 Milpitas, CA (BICC Public Ltd. Co.) 200 Executive Boulevard Hartford Fire Insurance Co 1983 12.40 153,364 South Southington, CT 19019 No. 59th Avenue Honeywell, Inc 1985 51.79 252,300 Glendale, AZ 401 Elm Street Lockheed Martin Corporation 1960 & 1988 36.94 126,000 Marlborough, MA (Honeywell, Inc.) 12000 Tech Center Drive Kelsey-Hayes Company (Tech I) 1987 & 1988 5.72 80,230 Livonia, MI 2300 Litton Lane Fidelity Corporate 1987 24.00 81,744 Hebron, KY Real Estate, LLC (2) 2211 South 47th Street Avnet, Inc 1997 11.33 176,402 Phoenix, AZ 160 Clairemont Avenue Allied Holdings, Inc 1983 2.98 112,248 Decatur, GA 13651 McLearen Road Boeing North American Services, Inc 1987 10.39 159,664 Herndon, VA 2210 Enterprise Drive Fleet Mortgage Group, Inc 1998 16.53 177,747 Florence, SC 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- OFFICE 3615 North 27th Avenue 11/30/88 - 11/30/03 (1) 5 year $ 1,900 $ 1,900 Phoenix, AZ 12/01/98 - 11/30/03: $10.60 1301 California Circle 12/10/85 - 12/10/05 (9) 5 year $ 2,562 $ 2,548 Milpitas, CA 12/01/00 - 05/31/03: $25.56 06/01/03 - 12/10/05: $28.92 200 Executive Boulevard 09/01/91 - 12/31/05 (1) 5 year $ 2,165 $ 2,158 South 01/01/95 - 12/31/05: $14.12 Southington, CT 19019 No. 59th Avenue 07/16/86 - 07/15/06 (2) 5 year $ 1,950 $ 1,997 Glendale, AZ 07/16/96 - 07/15/01: $7.50 07/16/01 - 07/15/06: $8.00 401 Elm Street 07/22/97 - 12/17/06 (6) 5 year $ 1,671 $ 1,671 Marlborough, MA 07/22/97 - 12/17/01: $13.26 12/18/01 - 12/17/06: 75% of cumulative increase in CPI 12000 Tech Center Drive 05/01/97 - 04/30/07 (2) 5 year $ 635 $ 679 Livonia, MI 05/01/99 - 04/30/02: $7.91 05/01/02 - 04/30/05: $8.75 05/01/05 - 04/30/07: $9.25 2300 Litton Lane 05/01/97 - 04/30/07 (2) 5 year $ 777 $ 965 Hebron, KY 05/01/97 - 04/30/02: $9.50 05/01/02 - 04/30/07: $11.00 2211 South 47th Street 05/11/00 - 11/14/07 (2) 5 year $ 2,335 $ 2,468 Phoenix, AZ 05/11/00 - 10/31/00: $12.11 11/01/00 - 10/31/03: $13.24 11/01/03 - 10/31/06: $14.47 11/01/06 - 11/14/07: $15.81 160 Clairemont Avenue 01/01/98 - 12/31/07 (2) 5 year $ 1,464 $ 1,530 Decatur, GA 01/01/01 - 12/31/07: $13.05 Rent increases 2.75% annually 13651 McLearen Road 05/31/99 - 05/30/08 (2) 5 year $ 2,358 $ 2,585 Herndon, VA 05/31/00 - 05/30/01: $13.74 05/31/01 - 05/30/02: $15.50 05/31/02 - 05/30/03: $15.89 05/31/03 - 05/30/04: $16.28 05/31/04 - 05/30/05: $16.69 05/31/05 - 05/30/06: $17.11 05/31/06 - 05/30/07: $17.54 05/31/07 - 05/30/08: $17.98 2210 Enterprise Drive 06/10/98 - 06/30/08 (2) 5 year $ 1,520 $ 1,635 Florence, SC 06/10/98 - 06/30/03: $8.55 07/01/03 - 06/30/08: $9.84
8 10
YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- 295 Chipeta Way Northwest Pipeline Corp. (1) 1982 19.79 295,000 Salt Lake City, UT 421 Butler Farm Road Nextel Communications of the Mid- 2000 7.81 56,515 Hampton, VA Atlantic, Inc 9950 Mayland Drive Circuit City Stores, Inc. (1) 1990 19.71 288,562 Richmond, VA 10419 North 30th Street Time Customer Service, Inc 1986 14.38 132,981 Tampa, FL (Time, Inc.) 4200 RCA Boulevard The Wackenhut Corp. (5) 1996 7.70 127,855 Palm Beach Gardens, FL 250 Rittenhouse Circle Jones Apparel Group, Inc. (4) 1982 15.63 255,019 Bristol, PA 180 Rittenhouse Circle Jones Apparel Group, Inc 1998 4.73 96,000 Bristol, PA 250 Turnpike Road Honeywell Consumer Products 1984 9.83 57,698 Southborough, MA 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- 295 Chipeta Way 10/01/82 - 09/30/09 (1) 9 year $ 8,571 $ 8,571 Salt Lake City, UT 10/01/97 - 09/30/09: $29.06 (1) 10 year subject to a CPI adjustment on a portion of the rent. 421 Butler Farm Road 01/15/00 - 01/14/10 (2) 5 year $ 668 $ 719 Hampton, VA 01/15/00 - 01/14/01: $11.60 01/15/01 - 01/14/02: $11.83 01/15/02 - 01/14/03: $12.07 01/15/03 - 01/14/04: $12.31 01/15/04 - 01/14/05: $12.56 01/15/05 - 01/14/06: $12.81 01/15/06 - 01/14/07: $13.07 01/15/07 - 01/14/08: $13.33 01/15/08 - 01/14/09: $13.60 01/15/09 - 01/14/10: $13.87 9950 Mayland Drive 02/28/90 - 02/28/10 (4) 10 year $ 2,859 $ 2,791 Richmond, VA 03/01/00 - 02/28/10: $9.91 (1) 5 year 10419 North 30th Street 04/01/87 - 07/31/10 (2) 5 Year $ 1,301 $ 1,457 Tampa, FL 08/01/00 - 07/31/01: $9.67 08/01/01 - 07/31/02: $9.94 08/01/02 - 07/31/03: $10.21 08/01/03 - 07/31/04: $10.49 08/01/04 - 07/31/05: $10.78 08/01/05 - 07/31/06: $11.07 08/01/06 - 07/31/07: $11.38 08/01/07 - 07/31/08: $11.69 08/01/08 - 07/31/09: $12.01 08/01/09 - 07/31/10: $12.34 4200 RCA Boulevard 02/15/96 - 02/28/11 (3) 5 year $ 2,276 $ 2,280 Palm Beach Gardens, FL 12/01/97 - 02/28/11: $17.80 250 Rittenhouse Circle 03/26/98 - 03/25/13 (2) 5 year $ 1,150 $ 1,347 Bristol, PA 03/26/98 - 03/26/03: $4.51 03/27/03 - 03/26/08: $4.96 03/27/08 - 03/25/13: $5.46 180 Rittenhouse Circle 08/01/98 - 07/31/13 None $ 825 $ 970 Bristol, PA 08/01/00 - 07/31/01: $8.49 08/01/01 - 07/31/13: Rent increases 3% per year 250 Turnpike Road 10/01/95 - 09/30/15 (4) 5 Year $ 432 $ 432 Southborough, MA 10/01/00 - 09/30/05: $7.49 Increase based upon CPI every 5 years
9 11
YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- 1600 Viceroy Drive VarTec Telecom, Inc 1986 8.17 249,452 Dallas, TX ------ ---------- Office Subtotal 296.43 3,158,087 ------ ---------- INDUSTRIAL 6950 Greenwood Parkway Allegiance Healthcare Corp. (1) 1990 10.15 123,924 Bessemer, AL (Baxter International, Inc.) 567 South Riverside Drive Crown Cork & Seal Co., Inc 1970 & 1976 5.80 146,000 Modesto, CA 109 Stevens Street Unisource Worldwide, Inc 1958 & 1969 6.97 168,800 Jacksonville, FL 222 Tappan Drive North The Gerstenslager Company 1970 26.57 296,720 Mansfield, OH (Worthington Industries) 904 Industrial Road Tenneco Automotive 1968 & 1972 20.00 195,640 Marshall, MI Operating Company, Inc 1601 Pratt Avenue Tenneco Automotive 1979 8.26 53,600 Marshall, MI Operating Company, Inc 4425 Purks Road Lear Technologies, LLC 1989 & 1998 12.00 183,717 Auburn Hills, MI (Lear Corporation) (General Motors Corp.) 245 Salem Church Road Exel Logistics Inc 1985 12.52 252,000 Mechanicsburg, PA (NFC plc) 6 Doughton Road Exel Logistics Inc 1989 24.38 330,000 New Kingstown, PA (NFC plc) 34 East Main Street Exel Logistics Inc 1981 9.66 179,200 New Kingstown, PA (NFC plc) 450 Stern Street Johnson Controls, Inc 1996 20.10 111,160 Oberlin, OH 12025 Tech Center Drive Kelsey-Hayes Company (Tech II) 1987 & 1988 9.18 100,000 Livonia, MI 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- 1600 Viceroy Drive 09/04/97 - 09/30/15 (2) 5 year $ 3,195 $ 3,486 Dallas, TX 09/01/00 - 08/31/03: $12.81 09/01/03 - 08/31/07: $13.81 09/01/07 - 09/30/15: $14.81 ------- ------- $40,614 $42,189 ------- ------- INDUSTRIAL 6950 Greenwood Parkway 09/01/91 - 09/01/01 (2) 5 year $ 314 $ 314 Bessemer, AL 09/01/91 - 09/01/01: $3.81 567 South Riverside Drive 09/26/86 - 09/25/01 (1) 5 year $ 224 $ 224 Modesto, CA 09/26/96 - 09/25/01: $2.04 109 Stevens Street 10/01/87 - 09/30/02 None $ 380 $ 380 Jacksonville, FL 10/01/97 - 09/30/02: $2.25 222 Tappan Drive North 10/01/99 - 05/31/05 (3) 5 year $ 674 $ 667 Mansfield, OH 10/01/99 - 05/31/05: $2.27 904 Industrial Road 08/18/87 - 08/17/05 None $ 587 $ 583 Marshall, MI 08/18/00 - 08/17/03: $3.00 08/18/03 - 08/17/05: $3.10 1601 Pratt Avenue 08/18/87 - 08/17/05 None $ 161 $ 163 Marshall, MI 08/18/00 - 08/17/03: $3.00 08/18/03 - 08/17/05: $3.10 4425 Purks Road 07/23/98 - 07/22/06 None $ 1,325 $ 1,365 Auburn Hills, MI 07/23/98 - 07/22/02: $7.21 07/23/02 - 07/22/06: $7.63 245 Salem Church Road 11/15/91 - 11/30/06 (2) 5 year $ 1,009 $ 1,000 Mechanicsburg, PA 12/01/00 - 11/30/03: $4.01 12/01/03 - 11/30/06: $4.38 6 Doughton Road 11/15/91 - 11/30/06 (2) 5 year $ 1,361 $ 1,349 New Kingstown, PA 12/01/00 - 11/30/03: $4.12 12/01/03 - 11/30/06: $4.51 34 East Main Street 11/15/91 - 11/30/06 (2) 5 year $ 659 $ 654 New Kingstown, PA 12/01/00 - 11/30/03: $3.68 12/01/03 - 11/30/06: $4.02 450 Stern Street 12/23/96 - 12/22/06 (2) 5 year $ 586 $ 586 Oberlin, OH 12/23/00 - 12/22/01: $5.27 Annual increase of 3x CPI, but not more than 4.5% 12025 Tech Center Drive 05/01/97 - 04/30/07 (2) 5 year $ 916 $ 958 Livonia, MI 05/01/99 - 04/30/02: $9.16 05/01/02 - 04/30/05: $9.75 05/01/05 - 04/30/07: $10.25
10 12
YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- One Spicer Drive Dana Corporation 1983 & 1985 20.95 148,000 Gordonsville, TN 541 Perkins Jones Road Kmart Corp 1982 103.00 1,700,000 Warren, OH 3350 Miac Cove Road Mimeo.com, Inc. (3) 1987 10.92 141,359 Memphis, TN 3102 Queen Palm Drive Time Customer Service, Inc 1986 15.02 229,605 Tampa, FL (Time, Inc.) 6345 Brackbill Boulevard Exel Logistics, Inc 1985 & 1991 29.01 507,000 Mechanicsburg, PA (NFC plc) 2280 Northeast Drive Ryder Integrated Logistics, Inc 1996 & 1997 25.70 276,480 Waterloo, IA (Ryder Systems, Inc.) 3501 West Avenue H Michaels Stores, Inc 1998 37.18 431,250 Lancaster, CA 7150 Exchequer Drive Corporate Express Office 1998 5.23 65,043 Baton Rouge, LA Products, Inc (CEX Holdings, Inc.) 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- One Spicer Drive 01/01/84 - 08/31/07 (2) 5 year $ 335 $ 341 Gordonsville, TN 08/01/99 - 07/31/02: $2.26 (1) 4 year, 08/01/02 - 07/31/05: $2.33 11 months 08/01/05 - 08/31/07: $2.40 541 Perkins Jones Road 10/01/82 - 09/30/07 (10) 5 year $ 8,409 $ 8,932 Warren, OH 10/01/98 - 09/30/02: $4.95 10/01/02 - 09/30/07: $5.51 3350 Miac Cove Road 11/01/99 - 10/31/09 None $ 537 $ 537 Memphis, TN 11/01/99 - 10/31/02: $5.00 11/01/02 - 10/31/04: $5.00 11/01/04 - 10/31/09: $5.50 3102 Queen Palm Drive 08/01/87 - 07/31/10 (2) 5 year $ 906 $ 1,015 Tampa, FL 08/01/00 - 07/31/01: $3.90 08/01/01 - 07/31/02: $4.01 08/01/02 - 07/31/03: $4.12 08/01/03 - 07/31/04: $4.23 08/01/04 - 07/31/05: $4.35 08/01/05 - 07/31/06: $4.47 08/01/06 - 07/31/07: $4.59 08/01/07 - 07/31/08: $4.72 08/01/08 - 07/31/09: $4.85 08/01/09 - 07/31/10: $4.98 6345 Brackbill Boulevard 10/29/90 - 03/19/12 (2) 10 year $ 1,771 $ 1,852 Mechanicsburg, PA 03/20/97 - 03/19/02: $3.49 03/20/02 - 03/19/07: $4.02 03/20/07 - 03/19/12: greater of $4.62 or fair market rent as specified in lease 2280 Northeast Drive 08/01/97 - 07/31/12 (3) 5 year $ 891 $ 1,004 Waterloo, IA 08/01/97 - 07/31/02: $3.22 08/01/02 - 07/31/07: $3.61 08/01/07 - 07/31/12: $4.04 3501 West Avenue H 06/19/98 - 06/18/13 (3) 5 year $ 1,398 $ 1,430 Lancaster, CA 06/19/98 - 06/18/03: $3.24 06/19/03 - 06/18/08: $3.31 06/19/08 - 06/18/13: $3.39 7150 Exchequer Drive 11/01/98 - 10/31/13 (3) 5 year $ 330 $ 368 Baton Rouge, LA 11/01/98 - 10/31/01: $5.02 11/01/01 - 10/31/04: $5.32 11/01/04 - 10/31/07: $5.64 11/01/07 - 10/31/10: $5.98 11/01/10 - 10/31/13: $6.34
11 13
YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- 324 Industrial Park Road SKF USA, Inc 1996 21.13 72,868 Franklin, NC ------ ---------- Industrial Subtotal 433.73 5,712,366 ------ ---------- RETAIL 4450 California Street Mervyn's 1976 11.00 122,000 Bakersfield, CA (Dayton Hudson Corp.) 6475 Dobbin Road MOR Dobbin LLC 1983 2.50 60,000 Columbia, MD Amigoland Shopping Center Montgomery Ward & Co., Inc. (1) 1973 7.61 115,000 Mexico St. & Palm Blvd Brownsville, TX 24100 Laguna Hills Mall Federated Department Stores, Inc. 1974 11.00 160,000 Laguna Hills, CA (1) 7111 Westlake Terrace The Home Depot USA, Inc. (1) 1980 7.61 95,000 Bethesda, MD 6910 S. Memorial Highway Toys "R" Us, Inc. (1) 1981 4.44 43,123 Tulsa, OK 12535 SE 82nd Avenue Toys "R" Us, Inc. (1) 1981 5.85 42,842 Clackamas, OR 18601 Alderwood Mall Blvd Toys "R" Us, Inc. (1) 1981 3.64 43,105 Lynnwood, WA 5917 S. La Grange Road Bally Total Fitness Corp 1987 2.73 25,250 Countryside, IL 1160 White Horse Road Physical Fitness Centers of 1987 2.87 31,750 Voorhees, NJ Philadelphia, Inc (Bally Total Fitness Corp.) 5801 Bridge Street Champion Fitness IV, Inc 1977 & 1987 3.66 24,990 DeWitt, NY (Bally Total Fitness Corp.) 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- 324 Industrial Park Road 12/23/96 - 12/31/14 (3) 10 year $ 340 $ 340 Franklin, NC 01/01/00 - 12/31/02: $4.67 01/01/03 - 12/31/14: CPI every 3 years ------- ------- $23,113 $24,062 ------- ------- RETAIL 4450 California Street 02/23/77 - 12/31/02 (5) 5 year $ 407 $ 397 Bakersfield, CA 01/01/78 - 12/31/02: $3.34 6475 Dobbin Road 08/01/83 - 08/01/04 (5) 5 year $ 628 $ 637 Columbia, MD 01/20/00 - 01/19/01: $10.34 01/20/01 - 01/19/02: $10.48 01/20/02 - 01/19/03: $10.79 01/20/03 - 01/19/04: $11.08 01/20/04 - 08/01/04: $8.53 Amigoland Shopping Center 11/01/74 - 10/31/04 (3) 5 year $ 153 $ 153 Mexico St. & Palm Blvd 11/01/74 - 10/31/04: $1.33 Brownsville, TX 24100 Laguna Hills Mall 02/01/76 - 01/31/06 (1) 8 year $ 677 $ 673 Laguna Hills, CA 02/01/80 - 01/31/06: $4.23 (2) 15 year (1) 6 year 7111 Westlake Terrace 05/01/81 - 04/30/06 (1) 10 year $ 772 $ 648 Bethesda, MD 05/01/96 - 04/30/06: $8.13 (3) 5 year 6910 S. Memorial Highway 06/01/81 - 05/31/06 (5) 5 year $ 361 $ 356 Tulsa, OK 02/01/98 - 05/31/01: $8.26 06/01/01 - 05/31/06: $8.40 12535 SE 82nd Avenue 06/01/81 - 05/31/06 (5) 5 year $ 424 $ 417 Clackamas, OR 02/01/98 - 05/31/01: $9.74 06/01/01 - 05/31/06: $9.91 18601 Alderwood Mall Blvd 06/01/81 - 05/31/06 (5) 5 year $ 395 $ 389 Lynnwood, WA 02/01/98 - 05/31/01: $9.03 06/01/01 - 05/31/06: $9.18 5917 S. La Grange Road 07/13/87 - 07/12/07 (2) 5 year $ 574 $ 542 Countryside, IL 07/13/97 - 07/12/02: $22.73 07/13/02 - 07/12/07: $26.14 1160 White Horse Road 07/14/87 - 07/13/07 (2) 5 year $ 713 $ 673 Voorhees, NJ 07/14/97 - 07/13/02: $22.45 07/14/02 - 07/13/07: $25.82 5801 Bridge Street 08/19/87 - 08/18/07 (2) 5 year $ 444 $ 419 DeWitt, NY 08/19/97 - 08/18/02: $17.78 08/19/02 - 08/18/07: $20.45
12 14
YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- 2655 Shasta Way Fred Meyer, Inc 1986 13.90 178,204 Klamath Falls, OR 7272 55th Street Circuit City Stores, Inc 1988 3.90 45,308 Sacramento, CA 6405 South Virginia St Comp USA, Inc 1988 2.72 31,400 Reno, NV 5055 West Sahara Avenue Circuit City Stores, Inc 1988 2.57 36,053 Las Vegas, NV 4733 Hills & Dales Road Scandinavian Health Spa, Inc 1987 3.32 37,214 Canton, OH (Bally Total Fitness Holding Corp.) Fort Street Mall Liberty House, Inc. (1) 1980 1.22 85,610 King St Honolulu, HI 7055 Highway 85 South Wal-Mart Stores, Inc 1985 8.61 81,911 Riverdale, GA 150 NE 20th Street Fred Meyer, Inc 1986 8.81 118,179 Newport, OR 9580 Livingston Road GFS Realty, Inc 1976 10.60 107,337 Oxon Hill, MD (Giant Food, Inc.) Rockshire Village Center GFS Realty, Inc. (1) 1977 7.32 51,682 West Ritchie Parkway (Giant Food, Inc.) Rockville, MD ------ ---------- Retail Subtotal 125.91 1,535,958 ------ ---------- 856.07 10,406,411 ====== ========== 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- 2655 Shasta Way 03/10/88 - 03/31/08 (3) 10 year $ 1,009 $ 1,009 Klamath Falls, OR 03/10/88 - 03/31/08: $5.66 7272 55th Street 10/28/88 - 10/27/08 (3) 10 year $ 387 $ 376 Sacramento, CA 10/28/98 - 10/27/03: $8.54 10/28/03 - 10/27/08: $9.30 6405 South Virginia St 12/16/88 - 12/15/08 (3) 10 year $ 335 $ 325 Reno, NV 12/16/98 - 12/15/03: $10.65 12/16/03 - 12/15/08: $11.60 5055 West Sahara Avenue 12/16/88 - 12/15/08 (3) 10 year $ 286 $ 278 Las Vegas, NV 12/16/98 - 12/15/03: $7.93 12/16/03 - 12/15/08: $8.64 4733 Hills & Dales Road 01/01/89 - 12/31/08 (2) 5 year $ 668 $ 685 Canton, OH 01/01/01 - 12/31/01: $17.97 01/01/02 - 12/31/08: Rent increases 2.2% annually Fort Street Mall 10/01/80 - 09/30/09 (1) 9 year, $ 963 $ 971 7 months King St 10/01/95 - 09/30/05: $11.25 (1) 2 year Honolulu, HI 10/01/05 - 09/30/09: $11.56 (3) 5 year 7055 Highway 85 South 12/04/85 - 01/31/11 (5) 5 year $ 270 $ 270 Riverdale, GA 12/04/85 - 01/31/11: $3.29 150 NE 20th Street 06/01/86 - 05/31/11 (3) 5 year $ 826 $ 826 Newport, OR 06/01/86 - 05/31/11: $6.99 plus .5% of gross sales over $20 million ($70,000 in 2000) 9580 Livingston Road 01/03/77 - 02/28/14 (4) 5 year $ 408 $ 274 Oxon Hill, MD 03/01/77 - 02/29/04: $3.80 03/01/04 - 02/28/14: $1.91 Rockshire Village Center 01/01/78 - 04/30/17 (2) 10 year $ 224 $ 152 West Ritchie Parkway 01/01/78 - 02/28/05: $4.33 Rockville, MD 03/01/05 - 04/30/17: $2.23 ------- ------- $10,924 $10,470 ------- ------- $74,651 $76,721 ======= =======
- --------------- (E) Estimated (1) The Company holds leasehold interest in the land. The leases, including renewal options, expire at various dates through 2074. (2) Tenant can cancel lease on April 30, 2004 with 270 days notice and a payment of $899. (3) The tenant occupies 107,399 square feet through October 31, 2002 and will fully occupy the property commencing November 1, 2002. (4) Tenant can cancel lease on March 26, 2008 with 12 months notice and a payment of $1,392. (5) The Property contains three buildings with four additional tenants that occupy 31,737 square feet out of the total of 127,855. 13 15 LEXINGTON CORPORATE PROPERTIES TRUST JOINT VENTURE PROPERTY CHART
BASE LEASE TERM YEAR LAND NET AND ANNUAL RENTS TENANT CONSTRUCTED/ AREA RENTABLE PER NET RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET SQUARE FOOT ----------------- ----------------------------- ------------ --------- ----------- ---------------------------- OFFICE 14040 Park Center Road NEC America, Inc. (1) 1987 13.30 108,000 08/01/99 - 07/31/09 Herndon, VA 08/01/00 - 07/31/01: $16.32 08/01/01 - 07/31/09: Rent increases 2.0% annually and by $216 in year six 15375 Memorial Drive Vastar Resources, Inc. (1) 1985 21.77 327,325 09/16/99 - 09/15/09 Houston, TX 09/16/99 - 09/15/02: $10.00 09/16/02 - 09/15/06: $10.50 09/16/06 - 09/15/09: $11.00 550 International Parkway First USA Management 1999 12.80 125,920 10/1/99 - 09/30/09 Lake Mary, FL Services, Inc. (1)(4)(6) 10/01/00 - 09/30/01: $20.60 10/01/01 - 09/30/02: $21.05 10/01/02 - 09/30/03: $21.50 10/01/03 - 09/30/04: $21.95 10/01/04 - 09/30/05: $22.40 10/01/05 - 09/30/06: $22.85 10/01/06 - 09/30/07: $23.30 10/01/07 - 09/30/08: $23.75 10/01/08 - 09/30/09: $24.20 600 International Parkway First USA Management 1997 13.30 125,155 10/1/99 - 09/30/09 Lake Mary, FL Services, Inc. (1)(4)(6) 10/01/00 - 09/30/01: $21.55 10/01/01 - 09/30/02: $22.00 10/01/02 - 09/30/03: $22.45 10/01/03 - 09/30/04: $22.90 10/01/04 - 09/30/05: $23.35 10/01/05 - 09/30/06: $23.80 10/01/06 - 09/30/07: $24.25 10/01/07 - 09/30/08: $24.70 10/01/08 - 09/30/09: $25.15 17 Technology Circle Blue Cross Blue Shield of 1999 42.46 348,410 10/01/99 - 09/30/09 Columbia, SC South Carolina (2) 10/01/99 - 09/30/04: $13.10 10/01/04 - 09/30/09: $15.07 10300 Kincaid Drive Bank One Indiana, N.A. (1)(5) 1999 13.30 193,000 03/29/00 - 10/31/09 Fishers, IN 03/29/00 - 10/31/04: $16.50 11/01/04 - 10/31/09: $17.52 6555 Sierra Drive True North Communications, 1999 9.98 247,254 02/01/00 - 01/31/10 Irving, TX Inc. (1) 02/01/00 - 01/31/05: $16.21 02/01/05 - 01/31/10: $18.05 389-399 Interpace Highway Aventis Pharmaceuticals, Inc 2000 14.00 340,240 06/01/00 - 01/31/10 Morris Corporate Center IV (Pharma Holdings GmbH) (1) 06/01/00 - 01/31/05: $23.06 Parsippany, NJ 02/01/05 - 01/31/10: $26.49 2001 2001 (E) MINIMUM STRAIGHT-LINE RENEWAL CASH RENTAL PROPERTY LOCATION OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------- ----------- -------------- OFFICE 14040 Park Center Road (2) 5 year $ 1,773 $ 2,025 Herndon, VA 15375 Memorial Drive (4) 5 year $ 3,273 $ 3,437 Houston, TX 550 International Parkway (2) 5 year $ 2,608 $ 2,820 Lake Mary, FL 600 International Parkway (2) 5 year $ 2,711 $ 2,921 Lake Mary, FL 17 Technology Circle (2) 5 year $ 4,564 $ 4,906 Columbia, SC 10300 Kincaid Drive (2) 5 year $ 3,185 $ 3,287 Fishers, IN 6555 Sierra Drive (2) 5 year $ 4,009 $ 4,250 Irving, TX 389-399 Interpace Highway (2) 5 year $ 7,844 $ 8,487 Morris Corporate Center IV Parsippany, NJ
14 16
BASE LEASE TERM YEAR LAND NET AND ANNUAL RENTS TENANT CONSTRUCTED/ AREA RENTABLE PER NET RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET SQUARE FOOT ----------------- ----------------------------- ------------ --------- ----------- ---------------------------- 2000 Eastman Drive Structural Dynamic Research 1991 12.36 212,836 05/01/91 - 04/30/11 Milford, OH Corp. (1) 05/01/00 - 04/30/01: $11.80 05/01/01 - 04/30/02: $12.05 05/01/02 - 04/30/03: $12.31 05/01/03 - 04/30/04: $12.57 05/01/04 - 04/30/05: $12.84 05/01/05 - 04/30/06: $13.11 05/01/06 - 04/30/07: $13.39 05/01/07 - 04/30/08: $13.73 05/01/08 - 04/30/09: $13.97 05/01/09 - 04/30/10: $14.27 05/01/10 - 04/30/11: $14.57 ------ --------- Office Subtotal 153.27 2,028,140 ------ --------- INDUSTRIAL 3600 Southgate Drive Sygma Network, Inc. (3) 2000 19.00 149,500 10/15/00 - 10/31/15 Danville, IL (Sysco Corporation) 10/15/00 - 10/31/15: $6.24 ------ --------- Industrial Subtotal 19.00 149,500 ------ --------- 172.27 2,177,640 ====== ========= 2001 2001 (E) MINIMUM STRAIGHT-LINE RENEWAL CASH RENTAL PROPERTY LOCATION OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------- ----------- -------------- 2000 Eastman Drive (3) 5 year $ 2,547 $ 2,790 Milford, OH ------- ------- $32,514 $34,923 ------- ------- INDUSTRIAL 3600 Southgate Drive (2) 5 year $ 933 $ 933 Danville, IL ------- ------- $ 933 $ 933 ------- ------- $33,447 $35,856 ======= =======
- --------------- (E) Estimated (1) The Company has a 33% ownership interest in the entity which owns this Property. (2) The Company has a 40% ownership interest in the entity which owns this Property. (3) The Company has a 99% ownership interest in the entity which owns this Property. (4) The joint venture has operating expense stops on this Property of $1,264. (5) The joint venture has operating expense stops on this Property of $768. (6) The joint venture operates these investments as a single Property. 15 17 ITEM 3. LEGAL PROCEEDINGS The Company is not presently involved in any litigation nor to its knowledge is any litigation threatened against the Company or its subsidiaries that, in management's opinion, would result in any material adverse effect on the Company's ownership, financial condition, management or operation of its Properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 4A. EXECUTIVE OFFICERS AND TRUSTEES OF THE REGISTRANT The following sets forth certain information relating to the executive officers and trustees of the Company:
NAME BUSINESS EXPERIENCE ---- ------------------- E. ROBERT ROSKIND.............. Mr. Roskind has served as the Chairman of the Board of Age 56 Trustees and Co-Chief Executive Officer of the Company since October 1993. He founded the LCP Group, L.P., a real estate advisory firm, in 1973 and has been its Chairman since 1976. The LCP Group, L.P. has been the general partner of various limited partnerships with which the Company has had prior dealings. He is also the general partner of a variety of entities that are general partners of various partnerships that hold net leased real properties or interests in real property. Mr. Roskind received his B.S. in 1966 from the University of Pennsylvania and is a 1969 Harlan Fiske Stone Graduate of the Columbia Law School. He has been a member of the Bar of the State of New York since 1970. He is on the Board of Directors of Clarion CMBS Value Fund, Inc. RICHARD J. ROUSE............... Mr. Rouse has served as Co-Chief Executive Officer and as a AGE 55 trustee of the Company since October 1993. He served as President of the Company from October 1993 to April 1996, and since April 1996 has served as Vice Chairman of the Board of Trustees. Mr. Rouse graduated from Michigan State University in 1968 and received his M.B.A. in 1970 from the Wharton School of Finance and Commerce of the University of Pennsylvania. T. WILSON EGLIN................ Mr. Eglin has served as Chief Operating Officer of the Age 36 Company since October 1993 and as a trustee since May 1994. He served as Executive Vice President from October 1993 to April 1996, and since April 1996 has served as the President. Mr. Eglin received his B.A. from Connecticut College in 1986. PATRICK CARROLL................ Mr. Carroll has served as Chief Financial Officer of the Age 37 Company since May 1998 and Treasurer since January 1999. Prior to joining the Company, Mr. Carroll was, from 1993 to 1998, a Senior Manager in the real estate practice of Coopers & Lybrand L.L.P., a public accounting firm. Mr. Carroll received his B.B.A. from Hofstra University in 1986, his M.S. in Taxation from C.W. Post in 1991, and is a Certified Public Accountant. STEPHEN C. HAGEN............... Mr. Hagen has served as Senior Vice President of the Company Age 58 since October 1996. Mr. Hagen had been associated with the LCP Group, L.P. from 1995 to 1996. Mr. Hagen received his B.S. from the University of Kansas in 1965 and his M.B.A. in 1968 from the Wharton School of Finance and Commerce of the University of Pennsylvania. PAUL WOOD...................... Mr. Wood has served as Vice President, Chief Accounting Age 41 Officer and Secretary of the Company since October 1993. Mr. Wood received his B.B.A. from Adelphi University in 1982 and is a Certified Public Accountant.
16 18
NAME BUSINESS EXPERIENCE ---- ------------------- JANET M. KAZ................... Ms. Kaz has served as Vice President of the Company since Age 37 May 1995 and as Asset Manager since October 1993. Ms. Kaz received her B.A. from Muhlenberg College in 1985. GEORGE WILSON.................. Mr. Wilson has served as Vice President of the Company since Age 40 December 2000 and as an Asset Manager since May 1999. Prior to joining the Company, Mr. Wilson was the Asset Manager for American Real Estate Partners, L.P., a publicly traded net lease real estate partnership from 1994 to 1999. He received his B.A. from Columbia College in 1983 and a M.S. in Real Estate Development from Columbia University in 1986. PHILIP KIANKA.................. Mr. Kianka has served as Vice President of the Company since Age 44 1997. Prior to joining the Company, from 1985 through 1997, Mr. Kianka served as a Vice President and Senior Asset Manager at Merrill Lynch Hubbard, Inc., a real estate division of Merrill Lynch & Co., Inc. Mr. Kianka received his B.A. from Clemson University in 1978 and his M.A. from Clemson University in 1981. NATASHA ROBERTS................ Ms. Roberts has served as Vice President and as a member of Age 34 the acquisition department of the Company since 1997. Prior to joining the Company, Ms. Roberts worked for Net Lease Partners Realty Advisors, a real estate advisory firm and an affiliate of Mr. Roskind from January 1995 to January 1997 and as a licensed real estate broker from February 1992 to January 1995. BRENDAN P. MULLINIX............ Mr. Mullinix has served as a Vice President of the Company Age 26 since February 2000 and as a member of the acquisitions department since October 1996. He received his B.A. from Columbia University in 1996. GEOFFREY DOHRMANN.............. Mr. Dohrmann has served as a trustee since August 2000. Mr. Age 49 Dohrmann co- founded Institutional Real Estate, Inc., a real estate-oriented publishing and consulting company in 1987 and is currently its Chairman and Chief Executive Officer. Mr. Dohrmann also belongs to the advisory boards for the National Real Estate Index, The Journal of Real Estate Portfolio Management and Center for Real Estate Enterprise Management. He is also a fellow of the Homer Hoyt Institute and holds the Certified Financial Planner (CFP) and Counselors of Real Estate (CRE) designations. CARL D. GLICKMAN............... Mr. Glickman has served as a trustee since May 1994. He has Age 74 been President of The Glickman Organization, a real estate development and management firm, since 1953. He is on the Board of Directors of Alliance Tire & Rubber Co., Ltd., Bear Stearns Companies, Inc., Jerusalem Economic Corporation Ltd. and OfficeMax Inc., as well as numerous private companies. JOHN D. MCGURK................. Mr. McGurk has served as a trustee since January 1997, as Age 57 the designee of Five Arrows Realty Securities, L.L.C. He is the founder and President of Rothschild Realty, Inc., the advisor to Five Arrows. Prior to starting Rothschild Realty, Inc. in 1981, Mr. McGurk served as a Regional Vice President for The Prudential Insurance Company of America where he oversaw its New York City real estate loan portfolio, equity holdings, joint ventures and projects under development. Mr. McGurk is a member of the Urban Land Institute, Pension Real Estate Association, Real Estate Board of New York and the National Real Estate Association, and is a member of the Trustee Committee of the Caedmon School. SETH M. ZACHARY................ Mr. Zachary has served as a trustee since November 1993. Age 48 Since 1987, he has been a partner, and is currently the Chairman, of the law firm Paul, Hastings, Janofsky & Walker LLP, counsel to the Company.
17 19 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The common shares of the Company are listed for trading on the New York Stock Exchange ("NYSE") under the symbol "LXP." The following table sets forth the high and low sales prices as reported by the NYSE for the common shares of the Company for each of the periods indicated below:
FOR THE QUARTERS ENDED: HIGH LOW CASH DIVIDEND ----------------------- -------- -------- ------------- December 31, 2000......................................... $11.9375 $10.6875 $0.31 September 30, 2000........................................ 12.2500 11.0625 $0.31 June 30, 2000............................................. 11.3125 9.9375 $0.30 March 31, 2000............................................ 11.6250 9.0000 $0.30 December 31, 1999......................................... $11.2500 $ 8.8125 $0.30 September 30, 1999........................................ 12.8750 10.8750 $0.30 June 30, 1999............................................. 12.0000 10.5000 $0.30 March 31, 1999............................................ 12.8750 9.8750 $0.30
The closing price of the common shares of the Company was $12.95 on March 15, 2001. As of March 15, 2001, the Company had 2,073 common shareholders of record. Dividends. The Company has made quarterly distributions since October 1986 without interruption. The dividends paid in each quarter for the last five years are as follows:
FOR THE QUARTERS ENDED 2000 1999 1998 1997 1996 ---------------------- ----- ----- ----- ----- ----- March 31, ............................................. $0.30 $0.30 $0.29 $0.29 $0.27 June 30, .............................................. $0.30 $0.30 $0.29 $0.29 $0.27 September 30, ......................................... $0.31 $0.30 $0.29 $0.29 $0.28 December 31, .......................................... $0.31 $0.30 $0.30 $0.29 $0.28
The Company's annualized dividend rate is currently $1.24 per share. Following is a summary of the average taxable nature of the Company's dividends for the three years ended December 31:
2000 1999 1998 ------ ------ ------ Total dividends per share................................... $ 1.22 $ 1.20 $ 1.17 ====== ====== ====== Ordinary income........................................... 87.78% 83.73% 88.06% 20% rate gain............................................. 8.48% 10.21% -- 25% rate gain............................................. 3.74% 6.06% 2.30% Percent non-taxable as return of capital.................. -- -- 9.64% ------ ------ ------ 100.00% 100.00% 100.00% ====== ====== ======
While the Company intends to continue paying regular quarterly dividends, future dividend declarations will be at the discretion of the Board of Trustees and will depend on the actual cash flow of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Trustees deems relevant. The actual cash flow available to pay dividends will be affected by a number of factors, including the revenues received from rental properties, the operating expenses of the Company, the interest and principal payments required under various borrowing agreements, the ability of lessees to meet their obligations to the Company and any unanticipated capital expenditures. 18 20 In addition to its common and preferred share offerings, the Company has capitalized the growth in its business through the issuance of secured and unsecured fixed and floating-rate debt. Borrowings under the Company's unsecured revolving credit facility have been a source of funds to both finance the purchase of properties and meet any short-term working capital requirements. The various instruments governing the Company's issuance of its unsecured bank debt impose certain restrictions on the Company with regard to dividends and incurring additional debt obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 6 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. The Company does not believe that the financial covenants contained in its unsecured revolving credit agreement and secured indebtedness will have any adverse impact on the Company's ability to pay dividends in the normal course of business to its common and preferred shareholders or to distribute amounts necessary to maintain its qualifications as a REIT. The Company maintains a dividend reinvestment program pursuant to which common shareholders may elect to automatically reinvest their dividends to purchase common shares of the Company at a 5% discount to the market price and free of commissions and other charges. The Company may, from time to time, either repurchase common shares in the open market, or issue new common shares, for the purpose of fulfilling its obligations under the dividend reinvestment program. Under this program none of the common shares issued through December 31, 2000 were purchased on the open market. ITEM 6. ELECTED FINANCIAL DATA The following sets forth selected consolidated financial data for the Company as of and for each of the years in the five-year period ended December 31, 2000. The selected consolidated financial data for the Company should be read in 19 21 conjunction with the Consolidated Financial Statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. ($000's, except per share data)
2000 1999 1998 1997 1996 -------- -------- --------- --------- -------- Total revenues.................................... $ 80,005 $ 77,300 $ 65,117 $ 43,569 $ 31,675 Operating expenses, including minority interest... (61,012) (61,080) (48,433) (35,304) (26,209) Transactional expenses............................ -- -- (559) -- -- Gain (loss) on sale of properties................. 2,959 5,127 (388) 3,517 -- Loss on extinguishment of debt.................... -- -- -- (3,189) -- -------- -------- --------- --------- -------- Net income........................................ 21,952 21,347 15,737 8,593 5,466 ======== ======== ========= ========= ======== Net income per common share -- basic.............. 1.15 1.11 0.79 0.33 0.58 ======== ======== ========= ========= ======== Net income per common share -- diluted............ 1.10 1.08 0.78 0.32 0.56 ======== ======== ========= ========= ======== Cash dividends paid per common share.............. 1.22 1.20 1.17 1.16 1.10 ======== ======== ========= ========= ======== Net cash provided by operating activities......... 40,803 39,411 32,008 23,823 14,975 ======== ======== ========= ========= ======== Net cash used in investing activities............. (38,549) (64,942) (111,080) (110,767) (16,955) ======== ======== ========= ========= ======== Net cash provided by (used in) financing activities...................................... (6,299) 23,284 86,516 88,116 1,859 ======== ======== ========= ========= ======== Real estate assets, net........................... 584,198 606,592 609,717 416,613 289,326 ======== ======== ========= ========= ======== Total assets...................................... 668,377 656,481 647,007 468,373 310,384 ======== ======== ========= ========= ======== Mortgages and notes payable....................... 387,326 372,254 354,281 220,934 187,740 ======== ======== ========= ========= ======== Funds from operations(1).......................... 46,316 40,652 35,141 21,315 13,783 ======== ======== ========= ========= ======== Rent received below straight line rent............ 3,004 2,054 2,411 924 105 ======== ======== ========= ========= ========
- --------------- (1) The Company believes that Funds From Operations ("FFO") enhances an investor's understanding of the Company's financial condition, results of operations and cash flows. The Company believes that FFO is an appropriate measure of the performance of an equity REIT, and that it can be one measure of a REIT's ability to make cash distributions. FFO is defined in the October 1999 "White Paper", issued by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as "net income (or loss), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." The Company includes in the calculation of FFO the dilutive effect of the deemed conversion of its outstanding exchangeable notes. FFO should not be considered an alternative to net income as an indicator of operating performance or to cash flows from operating activities as determined in accordance with GAAP, or as a measure of liquidity to other consolidated income or cash flow statement data as determined in accordance with GAAP. The Company believes that the book value of its real estate assets, which reflects the historical cost of such real estate assets less accumulated depreciation, is not indicative of the current market value of its Properties. Historical operating results are not necessarily indicative of future operating results. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company, which has elected to qualify as a real estate investment trust under the Internal Revenue Code of 1986, acquires and manages net-leased commercial properties. The Company has operated as a REIT since October 1993. 20 22 As of December 31, 2000, the Company owned (or had interests in) 71 real estate properties. During 2000, the Company purchased nine properties, including joint venture investments, for $273.8 million. During 2000, the Company sold two properties to the Net Partnerships for $15.6 million, which resulted in a gain of approximately $2.3 million, and one property to the tenant for $4.0 million, which resulted in aggregate gains of $3.0 million. LIQUIDITY AND CAPITAL RESOURCES Since becoming a public company, the Company's principal source of capital for growth has been the public and private equity markets, selective secured indebtedness, its unsecured credit facility and issuance of OP Units. The Company's current $60 million unsecured credit facility, which is scheduled to expire in July 2001, has made available funds to finance acquisitions and meet any short-term working capital requirements. As of December 31, 2000, the weighted average interest rate on outstanding borrowings was 8.03%. As of March 15, 2001 the weighted average interest rate was 6.78%. Since its formation in 1993, the Company has raised, through the issuance of common shares, preferred shares and OP Units, aggregate capital of approximately $131 million for the purposes of making acquisitions and retiring indebtedness. In addition, the Company has purchased $77.6 million in real estate through the direct issuance of its common shares and OP Units. Dividends. In connection with its intention to continue to qualify as a REIT for Federal income tax purposes, the Company expects to continue paying regular dividends to its shareholders. These dividends are expected to be paid from operating cash flows which are expected to increase due to property acquisitions and growth in rental revenues in the existing portfolio and from other sources. Since cash used to pay dividends reduces amounts available for capital investments, the Company generally intends to maintain a conservative dividend payout ratio, reserving such amounts as it considers necessary for the expansion of Properties in its portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as the Board of Trustees considers appropriate. Cash dividends paid to common shareholders increased to $20.8 million in 2000, compared to $20.5 million in 1999 and $19.6 million in 1998. The Company's dividend and distribution FFO payout ratio, on a per share basis, for 2000, 1999, and 1998 was 69.3%, 74.1%, and 79.6% respectively. Although the Company receives the majority of its rental payments on a monthly basis, it intends to continue paying dividends quarterly. Amounts accumulated in advance of each quarterly distribution are invested by the Company in short-term money market or other suitable instruments. The Company anticipates that cash flows from operations will continue to provide adequate capital to fund its operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with REIT requirements in both the short-term and long-term. In addition, the Company anticipates that cash on hand, borrowings under its unsecured credit facility, issuance of equity and debt, as well as other alternatives, will provide the necessary capital required by the Company. Cash flows from operations as reported in the Consolidated Statements of Cash Flows increased to $40.8 million for 2000 from $39.4 million for 1999 and $32.0 million for 1998. Net cash used in investing activities totaled $38.5 million in 2000, $64.9 million in 1999 and $111.1 million in 1998. Cash used in investing activities related primarily to investments in real estate properties and joint ventures. Therefore, the fluctuation in investing activities relates primarily to the timing of investments and dispositions. Net cash (used in) provided by financing activities totaled $(6.3) million in 2000, $23.3 million in 1999 and $86.5 million in 1998. Cash (used in) provided by financing activities during each year was primarily attributable to proceeds from non-recourse mortgages and advances/repayments under the Company's credit facility coupled with dividend and distribution payments, debt service payments and the repurchase of the Company's common shares/operating partnership units. UPREIT Structure. The Company's UPREIT structure permits the Company to effect acquisitions by issuing to a seller of real estate, as a form of consideration, interests in partnerships controlled by the Company. All of such interests are redeemable at certain times for common shares on a one-for-one basis and all of such interests require the Company 21 23 to pay certain distributions to the holders of such interests. The Company accounts for these interests in a manner similar to a minority interest holder. The number of common shares that will be outstanding in the future should be expected to increase, and minority interest expense should be expected to decrease as such partnership interests are redeemed for common shares. The following table provides certain information with respect to such partnership interests as of December 31, 2000 (assuming the Company's annual dividend rate remains at $1.24 per share).
TOTAL CURRENT CURRENT TOTAL ANNUALIZED ANNUALIZED REDEEMABLE FOR NUMBER AFFILIATE PER UNIT DISTRIBUTION COMMON SHARES: OF UNITS UNITS DISTRIBUTION ($000) -------------- --------- --------- ------------ ------------ At any time................................................ 3,849,204 1,317,759 $1.24 $4,773 At any time................................................ 1,271,073 120,374 1.08 1,373 At any time................................................ 133,050 52,144 1.12 149 June 2002.................................................. 83,400 83,400 1.24 103 January 2003............................................... 17,901 -- -- -- March 2004................................................. 43,734 -- 0.27 12 March 2004................................................. 27,314 -- -- -- November 2004.............................................. 29,976 2,856 -- -- March 2005................................................. 29,384 -- -- -- January 2006............................................... 187,163 416 -- -- February 2006.............................................. 29,886 1,743 -- -- May 2006................................................... 9,368 -- 0.29 3 --------- --------- ----- ------ 5,711,453 1,578,692 $1.12 $6,413 ========= ========= ===== ======
Affiliate units, which are included in total units, represent OP Units held by two executive officers (including their affiliates) of the Company. FINANCING Revolving Credit Facility. The Company's $60 million unsecured credit facility bears interest at 137.5 basis points over LIBOR and has an interest rate period of one, three, or six months, at the option of the Company. During 2000, the Company exercised its option to reduce the credit facility to $60 million from $100 million to reduce unused facility costs. The credit facility contains various leverage, debt service coverage, net worth maintenance and other customary covenants. Approximately $2.8 million was available to the Company at December 31, 2000. The amount of available borrowings can increase by identifying additional unencumbered properties as eligible for the computation of the borrowing base which supports the credit facility. As of December 31, 2000 approximately $41.8 million was outstanding. The Company is currently in discussions with lending institutions to provide three year loan facilities to satisfy the outstanding borrowings on the current line at its maturity in July 2001. Debt Service Requirements. The Company's principal liquidity needs are the payment of interest and principal on outstanding indebtedness. As of December 31, 2000, a total of fifty-two of the Company's consolidated Properties were subject to outstanding mortgages which had an aggregate principal amount of $345.5 million. The weighted average interest rate on the Company's debt, including line of credit borrowings, on such date was approximately 7.83%. Approximate balloon payment amounts, excluding line of credit borrowings, having a weighted average interest rate of 8.06%, due the next five calendar years are as follows: $1.0 million in 2001; $10.6 million in 2002; $0 in 2003; $25.3 million in 2004 and $67.9 million in 2005. The ability of the Company to make such balloon payments will depend upon its ability to refinance the mortgage related thereto, sell the related property, have available amounts under its unsecured credit facility or access other capital. The ability of the Company to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the availability and cost of mortgage debt at the time, the Company's equity in the mortgaged properties, the financial condition of the Company, the operating history of the mortgaged properties, the then current tax laws and the general national, regional and local economic conditions. 22 24 Lease Obligations. Since the Company's tenants bear all or substantially all of the cost of property maintenance and repairs, the Company does not anticipate significant needs for cash for property maintenance or repairs. The Company generally funds property expansions with additional secured borrowings, the repayment of which is funded out of rental increases under the leases covering the expanded properties. Shares Repurchase. The Company's Board of Trustees has authorized the Company to repurchase, from time to time, up to 2,000,000 common shares and operating partnership units depending on market conditions and other factors. As of December 31, 2000, the Company had repurchased approximately 1.4 million common shares and operating partnership units, at an average price of approximately $10.62 per common share/unit. RESULTS OF OPERATIONS ($000)
INCREASE (DECREASE) ---------------------- SELECTED INCOME STATEMENT DATA 2000 1999 1998 2000-1999 1999-1998 ------------------------------ ------- ------- ------- --------- --------- Total revenues.................................... $80,005 $77,300 $65,117 $2,705 $12,183 Total expenses.................................... 54,997 54,642 45,059 355 9,583 Interest........................................ 29,581 29,099 23,055 482 6,044 Depreciation.................................... 17,513 18,000 15,083 (487) 2,917 General & administrative........................ 4,902 4,687 4,518 215 169 Property operating.............................. 1,504 1,865 857 (361) 1,008 Transactional expenses.......................... -- -- 559 -- (559) Net income........................................ $21,952 $21,347 $15,737 $ 605 $ 5,610
Changes in the results of operations for the Company are primarily due to the growth of its portfolio and costs associated with such growth. Of the increase in total revenues in 2000, $1,826 is attributable to increased earnings from co-investment programs established in the third and fourth quarter of 1999. The remaining revenue growth in 2000 was primarily attributable to increase rental revenues from Properties purchased in 1999 and owned for the entire year in 2000. The increase in total revenues in 1999 relates to rental revenues from Properties purchased in 1998 and owned for the entire year in 1999 coupled with rental revenues from 1999 acquisitions. The increase in interest expense due to the growth of the Company's portfolio has been offset by a reduction in the weighted average interest rate from 8.17% as of December 31, 1997 to 7.83% at December 31, 2000 due to debt refinancings, repayments, lower variable interest rates negotiated on the credit facility and lower interest rates on new debt incurred by the Company. The Company's general and administrative expenses have remained the same and/or decreased as a percentage of total revenue to 6.1% in 2000, 6.1% in 1999 and 6.9% in 1998 due to the growth of the Company's portfolio relative to these expenses. The increase in property operating expense in 1999 relates to costs incurred relating to a Property that was vacant through October 1999, which resulted in the Company incurring property level operating expenses which normally are the responsibility of the tenant, and a second Property in which the Company has a level of operating expense responsibility. Transactional expenses in 1998 relate to costs incurred in an abandoned private equity placement. Net income increased in 2000 due to the impact of the items discussed above offset by the reduction in gains on sale of real estate of approximately $2,168. Net income increased in 1999 due to the impact of items discussed above plus a net change of $5,515 in gains on sales of real estate. FUNDS FROM OPERATIONS The Company believes that Funds From Operations ("FFO") enhances an investor's understanding of the Company's financial condition, results of operations and cash flows. The Company believes that FFO is an appropriate measure of the performance of an equity REIT, and that it can be one measure of a REIT's ability to make cash distributions. FFO is defined in the October 1999 "White Paper", issued by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as "net income (or loss), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." The Company includes in the calculation of FFO the dilutive effect of the deemed conversion of its outstanding exchangeable notes. FFO should not be 23 25 considered an alternative to net income as an indicator of operating performance or to cash flows from operating activities as determined in accordance with GAAP, or as a measure of liquidity to other consolidated income or cash flow statement data as determined in accordance with GAAP. The following table reflects the calculation of the Company's FFO and cash flow activities for each of the years in the three year period ended December 31, 2000 ($000):
2000 1999 1998 -------- -------- --------- Net income.................................................. $ 21,952 $ 21,347 $ 15,737 Depreciation and amortization of real estate.............. 17,513 18,000 15,083 Minority interest's share of net income................... 5,772 6,226 3,933 (Gain) loss on sale of property........................... (2,959) (5,127) 388 Amortization of leasing commissions....................... 503 -- -- Deemed conversion of notes payable........................ 1,582 -- -- Joint venture adjustment.................................. 1,953 206 -- -------- -------- --------- Funds From Operations.................................. $ 46,316 $ 40,652 $ 35,141 ======== ======== ========= Cash flows from operating activities........................ $ 40,803 $ 39,411 $ 32,008 Cash flows used in investing activities..................... (38,549) (64,942) (111,080) Cash flows (used in) from financing activities.............. (6,299) 23,284 86,516
The Company's dividend and distribution FFO payout ratio, on a per share basis, was 69.3%, 74.1% and 79.6% for the years ended December 31, 2000, 1999 and 1998 respectively. RECENTLY ISSUED ACCOUNTING STANDARDS. The Company has considered the effect of adopting SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." The adoption of this pronouncement is not expected to have an impact on the Company's consolidated financial position or results of operations since the Company currently does not have any embedded or freestanding derivatives. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's exposure to market risk relates to its variable rate debt. As of December 31, 2000 and 1999 the Company's variable rate indebtedness represented 13.0% and 19.1% of total mortgages and notes payable, respectively. During 2000 and 1999, this variable rate indebtedness had a weighted average interest rate of 7.86% and 7.52%, respectively. Had the weighted average interest rate been 100 basis points higher the Company's net income would have been reduced by $699,000 and $514,000 in 2000 and 1999, respectively. 24 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES INDEX
PAGE ----- Independent Auditors' Report................................ 28 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... 29 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998.......................... 30 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998...... 31 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......................... 32 Notes to Consolidated Financial Statements.................. 33-48 Financial Statement Schedule Schedule III -- Real Estate and Accumulated Depreciation.... 49-50
25 27 INDEPENDENT AUDITORS' REPORT The Shareholders Lexington Corporate Properties Trust: We have audited the consolidated financial statements of Lexington Corporate Properties Trust and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lexington Corporate Properties Trust and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP New York, New York January 23, 2001 26 28 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($000 EXCEPT PER SHARE AMOUNTS) DECEMBER 31,
2000 1999 -------- -------- ASSETS Real estate, at cost: Buildings and building improvements....................... $583,522 $588,866 Land and land estates..................................... 87,606 88,561 Land improvements......................................... 3,154 3,154 Fixtures and equipment.................................... 8,345 8,345 -------- -------- 682,627 688,926 Less: accumulated depreciation............................ 98,429 82,334 -------- -------- 584,198 606,592 Cash and cash equivalents................................... 4,792 8,837 Restricted cash............................................. 1,598 2,470 Deferred expenses (net of accumulated amortization of $5,222 in 2000 and $4,513 in 1999)............................... 7,958 5,508 Rent receivable............................................. 16,583 14,108 Investment in non-consolidated entities..................... 40,836 11,523 Other assets, net........................................... 12,412 7,443 -------- -------- $668,377 $656,481 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgages payable........................................... $345,505 $299,360 Credit facility borrowings.................................. 41,821 70,921 Subordinated notes payable, including accrued interest...... -- 1,973 Origination fees payable, including accrued interest........ 6,703 6,781 Accounts payable and other liabilities...................... 4,312 3,917 Accrued interest payable.................................... 2,161 2,251 -------- -------- 400,502 385,203 Minority interests.......................................... 64,812 66,303 -------- -------- 465,314 451,506 -------- -------- Commitments and contingencies (note 7) Preferred shares, par value $0.0001 per share; authorized 10,000,000 shares. Class A Senior Cumulative Convertible Preferred, liquidation preference $25,000, 2,000,000 shares issued and outstanding............................. 24,369 24,369 -------- -------- Common shares, par value $0.0001 per share; 287,888 shares issued and outstanding, liquidation preference $3,886..... 3,809 3,809 -------- -------- Shareholders' equity: Common shares, par value $0.0001 per share, authorized 40,000,000 shares, 16,863,394 and 16,905,285 shares issued and outstanding in 2000 and 1999, respectively........................................... 2 2 Additional paid-in-capital................................ 240,112 240,339 Deferred compensation, net................................ (1,019) (701) Accumulated distributions in excess of net income......... (62,227) (60,852) -------- -------- 176,868 178,788 Less: notes receivable from officers/shareholders......... (1,983) (1,991) -------- -------- Total shareholders' equity........................ 174,885 176,797 -------- -------- $668,377 $656,481 ======== ========
See accompanying notes to consolidated financial statements. 27 29 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME ($000 EXCEPT PER SHARE AMOUNTS) YEARS ENDED DECEMBER 31,
2000 1999 1998 ---------- ---------- ---------- Revenues: Rental.................................................... $ 76,824 $ 75,760 $ 62,846 Equity in earnings of non-consolidated entities........... 1,851 25 -- Interest and other........................................ 1,330 1,515 2,271 ---------- ---------- ---------- 80,005 77,300 65,117 ---------- ---------- ---------- Expenses: Interest expense.......................................... 29,581 29,099 23,055 Depreciation and amortization of real estate.............. 17,513 18,000 15,083 Amortization of deferred expenses......................... 1,497 991 987 General and administrative expenses....................... 4,902 4,687 4,518 Property operating expenses............................... 1,504 1,865 857 Transactional expenses.................................... -- -- 559 ---------- ---------- ---------- 54,997 54,642 45,059 ---------- ---------- ---------- Income before gain (loss) on sale of properties and minority interests................................................. 25,008 22,658 20,058 Gain (loss) on sale of properties........................... 2,959 5,127 (388) ---------- ---------- ---------- Income before minority interests............................ 27,967 27,785 19,670 Minority interests.......................................... 6,015 6,438 3,933 ---------- ---------- ---------- Net income............................................. $ 21,952 $ 21,347 $ 15,737 ========== ========== ========== Net income per common share -- basic........................ $ 1.15 $ 1.11 $ 0.79 ========== ========== ========== Weighted average common shares outstanding.................. 16,900,039 16,979,925 16,835,414 ========== ========== ========== Net income per common share -- diluted...................... $ 1.10 $ 1.08 $ 0.78 ========== ========== ========== Weighted average common shares outstanding.................. 24,714,219 24,945,267 21,983,876 ========== ========== ==========
See accompanying notes to consolidated financial statements. 28 30 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ($000 EXCEPT PER SHARE AMOUNTS) YEARS ENDED DECEMBER 31,
ACCUMULATED NOTES ADDITIONAL DEFERRED DISTRIBUTIONS RECEIVABLE NUMBER OF PAID-IN COMPENSATION, IN EXCESS OF OFFICERS/ SHARES AMOUNT CAPITAL NET NET INCOME SHAREHOLDERS TOTAL EQUITY ---------- ------ ---------- ------------- ------------- ------------ ------------ Balance at December 31, 1997..... 16,509,610 $2 $235,469 $ -- $(53,005) $ -- $182,466 Net income....................... -- -- -- -- 15,737 -- 15,737 Dividends paid to common shareholders ($1.17 per share)......................... -- -- -- -- (19,633) -- (19,633) Dividends paid to preferred shareholders ($1.2285 per share)......................... -- -- -- -- (2,254) -- (2,254) Common shares issued, net........ 723,797 -- 8,013 -- -- (1,996) 6,017 Common shares repurchased and retired........................ (129,875) -- (1,558) -- -- -- (1,558) ---------- -- -------- ------- -------- ------- -------- Balance at December 31, 1998..... 17,103,532 2 241,924 -- (59,155) (1,996) 180,775 Net income....................... -- -- -- -- 21,347 -- 21,347 Dividends paid to common shareholders ($1.20 per share)......................... -- -- -- -- (20,524) -- (20,524) Dividends paid to preferred shareholders ($1.26 per share)......................... -- -- -- -- (2,520) -- (2,520) Common shares issued, net........ 673,262 -- 7,635 (701) -- -- 6,934 Common shares repurchased and retired........................ (871,509) -- (9,220) -- -- -- (9,220) Repayments on notes.............. -- -- -- -- -- 5 5 ---------- -- -------- ------- -------- ------- -------- Balance at December 31, 1999..... 16,905,285 2 240,339 (701) (60,852) (1,991) 176,797 Net income....................... -- -- -- -- 21,952 -- 21,952 Dividends paid to common shareholders ($1.22 per share)......................... -- -- -- -- (20,765) -- (20,765) Dividends paid to preferred shareholders ($1.281 per share)......................... -- -- -- -- (2,562) -- (2,562) Common shares issued, net........ 353,494 -- 3,866 (664) -- -- 3,202 Amortization of deferred compensation................... -- -- -- 346 -- -- 346 Common shares repurchased and retired........................ (395,385) -- (4,093) -- -- -- (4,093) Repayments on notes.............. -- -- -- -- -- 8 8 ---------- -- -------- ------- -------- ------- -------- Balance at December 31, 2000..... 16,863,394 $2 $240,112 $(1,019) $(62,227) $(1,983) $174,885 ========== == ======== ======= ======== ======= ========
See accompanying notes to consolidated financial statements 29 31 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ($000) YEARS ENDED DECEMBER 31,
2000 1999 1998 -------- --------- --------- Cash flows from operating activities: Net income................................................ $ 21,952 $ 21,347 $ 15,737 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 19,010 18,991 16,070 Minority interests..................................... 6,015 6,438 3,933 Loss (gain) on sale of properties...................... (2,959) (5,127) 388 Other non-cash charges................................. 714 244 75 Equity in earnings of non-consolidated entities........ (1,851) (25) -- Distributions from non-consolidated entities........... 1,092 -- -- Increase (decrease) in accounts payable and other liabilities........................................... 310 (1,013) (292) Other adjustments, net................................. (3,480) (1,444) (3,903) -------- --------- --------- Net cash provided by operating activities......... 40,803 39,411 32,008 -------- --------- --------- Cash flows from investing activities: Net proceeds from sale of properties...................... 19,402 31,548 24,113 Proceeds from sale of joint venture interest.............. -- 10,781 -- Investment in real estate................................. (27,116) (102,987) (135,193) Investments in non-consolidated entities.................. (26,247) (4,284) -- Advances to non-consolidated entities..................... (4,588) -- -- -------- --------- --------- Net cash used in investing activities............. (38,549) (64,942) (111,080) -------- --------- --------- Cash flows from financing activities: Proceeds of mortgages and notes payable................... 84,340 56,075 119,862 Change in credit facility borrowing, net.................. (29,100) 18,300 40,621 Dividends to common and preferred shareholders............ (23,327) (23,044) (21,887) Principal payments on debt, excluding normal amortization........................................... (15,066) (5,513) (64,412) Principal amortization payments........................... (11,646) (10,468) (6,939) Proceeds from the issuance of limited partnership units... -- -- 23,449 Common shares issued, net of offering costs............... 1,402 4,676 293 Cash distributions to minority interests.................. (6,323) (6,533) (4,381) Decrease in escrow deposits............................... 724 104 1,145 Increase in deferred expenses............................. (4,090) (1,718) (1,631) Decrease in restricted cash............................... 872 745 1,954 Common shares/partnership units repurchased............... (4,093) (9,220) (1,558) Other..................................................... 8 (120) -- -------- --------- --------- Net cash (used in) provided by financing activities...................................... (6,299) 23,284 86,516 -------- --------- --------- Change in cash and cash equivalents......................... (4,045) (2,247) 7,444 Cash and cash equivalents, beginning of year................ 8,837 11,084 3,640 -------- --------- --------- Cash and cash equivalents, end of year...................... $ 4,792 $ 8,837 $ 11,084 ======== ========= =========
See accompanying notes to consolidated financial statements. 30 32 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000'S EXCEPT PER SHARE DATA) (1) THE COMPANY Lexington Corporate Properties Trust, (the "Company"), is a self-managed and self-administered Maryland statutory real estate investment trust ("REIT") that acquires, owns, and manages a geographically diversified portfolio of net leased office, industrial and retail properties. Lexington Realty Advisors, Inc. ("LRA"), an affiliate of the Company, provides investment advisory and asset management services to institutional investors in the net-lease area. As of December 31, 2000 the Company owned or had interests in 71 properties in 29 states. The real properties owned by the Company are subject to triple net leases to corporate tenants, although for three investments the leases provide a level of operating expenses which are landlord responsibilities. The Company's Board of Trustees authorized the Company to repurchase, from time to time, up to 2,000,000 common shares and/or operating partnership units, depending on market conditions and other factors. As of December 31, 2000, the Company repurchased approximately 1.4 million common shares/partnership units at an average price of approximately $10.62 per common share/partnership unit. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis Of Presentation and Consolidation. The Company's consolidated financial statements are prepared on the accrual basis of accounting. The financial statements reflect the accounts of the Company and its controlled subsidiaries, including Lepercq Corporate Income Fund L.P. ("LCIF") and Lepercq Corporate Income Fund II L.P. ("LCIF II"). The Company is the sole general partner and majority limited partner of LCIF and LCIF II. Real Estate. Real estate assets are stated at cost, less accumulated depreciation and amortization. If there is an event or change in circumstance that indicates an impairment in the value of a property has occurred, the Company's policy is to assess any impairment in value by making a comparison of the current and projected operating cash flows of each such property over its remaining useful life, on an undiscounted basis, to the carrying amount of the property. If such carrying amounts are in excess of the estimated projected operating cash flows of the property, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair market value. No such impairment loss has occurred. Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties. The Company generally depreciates buildings and building improvements over a 40-year period, land improvements over a 20-year period, and fixtures and equipment over a 12-year period. Only costs incurred to third parties in acquiring properties are capitalized. No internal costs (rents, salaries, overhead) are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred. Significant renovations which extend the useful life of the properties are capitalized. Investments in non-consolidated entities. The Company accounts for its investments in non-consolidated entities under the equity method. Revenue. Rental revenue is recognized on a straight-line basis over the minimum lease terms. The Company's rent receivable primarily represents the amount of the excess of rental revenues recognized on a straight-line basis over the annual rents collectible under the leases. The Company recognizes percentage rent revenue when the cash is received from the tenant. Deferred Expenses. Deferred expenses consist primarily of debt placement, mortgage loan and other loan fees, and are amortized using the straight-line method, which approximates the interest method, over the terms of the debt instruments. Tax Status. The Company has made an election to qualify, and believes it is operating so as to qualify, as a real estate investment trust under the Internal Revenue Code. A real estate investment trust is generally not subject to Federal income tax on that portion of its real estate investment trust taxable income which is distributed to its shareholders, provided that at least 95% of taxable income is distributed. As distributions have equaled or exceeded taxable income, no 31 33 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) provision for Federal income taxes has been made. State and local income taxes, which are not significant, have been provided for those states and localities in which the Company operates and is subject to an income tax. A summary of the average taxable nature of the Company's dividends for each of the years in the three year period ended December 31, 2000 is as follows:
2000 1999 1998 ------ ------ ------ Total dividends per share................................... $ 1.22 $ 1.20 $ 1.17 ====== ====== ====== Ordinary income............................................. 87.78% 83.73% 88.06% 20% rate gain............................................... 8.48% 10.21% -- 25% rate gain............................................... 3.74% 6.06% 2.30% Percent non-taxable as return of capital.................... -- -- 9.64% ------ ------ ------ 100.00% 100.00% 100.00% ====== ====== ======
Earnings Per Share. Basic net income per share is computed by dividing net income reduced by preferred dividends by the weighted average number of common shares outstanding during the period. Diluted net income per share amounts are similarly computed but include the effect, when dilutive, of in-the-money common share options and the Company's other dilutive securities which can include operating partnership units, exchangeable notes and convertible preferred shares. In 2000 and 1999 the preferred shares were not dilutive and in 1998 preferred shares and exchangeable notes were not dilutive. Cash and Cash Equivalents. The Company considers all highly liquid instruments with maturities of three months or less from the date of purchase to be cash equivalents. Restricted Cash. Restricted cash includes tenant security deposits and amounts for certain debt obligations including funding requirements. Use of Estimates. Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Recently Issued Accounting Standards. The Company has considered the effect of adopting SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". The adoption of this pronouncement is not expected to have an impact on the Company's consolidated financial position or results of operations since the Company currently does not have any embedded or freestanding derivatives. Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform with the current year presentation. (3) EARNINGS PER SHARE The following is a reconciliation of numerators and denominators of the basic and diluted earnings per share computations for each of the years in the three year period ended December 31, 2000:
2000 1999 1998 ----------- ----------- ----------- BASIC Net income.............................................. $ 21,952 $ 21,347 $ 15,737 Less dividends attributable to preferred shares......... (2,562) (2,520) (2,478) ----------- ----------- ----------- Net income attributed to common shareholders............ $ 19,390 $ 18,827 $ 13,259 =========== =========== =========== Weighted average number of common shares outstanding.... 16,900,039 16,979,925 16,835,414 =========== =========== =========== Net income per common share -- basic.................... $ 1.15 $ 1.11 $ 0.79 =========== =========== ===========
32 34 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA)
2000 1999 1998 ----------- ----------- ----------- DILUTED Net income attributed to common shareholders............ $ 19,390 $ 18,827 $ 13,259 Add incremental income attributed to assumed conversion of dilutive securities................................ 7,772 8,225 3,831 ----------- ----------- ----------- Net income attributed to common shareholders............ $ 27,162 $ 27,052 $ 17,090 =========== =========== =========== Weighted average number of shares used in calculation of basic earnings per share.............................. 16,900,039 16,979,925 16,835,414 Add incremental shares representing: Shares issuable upon exercise of employee stock options............................................ 166,806 4,194 156,391 Shares issuable upon conversion of dilutive securities......................................... 7,647,374 7,961,148 4,992,071 ----------- ----------- ----------- Weighted average number of shares used in calculation of diluted earnings per common share..................... 24,714,219 24,945,267 21,983,876 =========== =========== =========== Net Income per common share -- diluted.................. $ 1.10 $ 1.08 $ 0.78 =========== =========== ===========
(4) INVESTMENTS IN REAL ESTATE During 2000, 1999 and 1998 the Company made the following acquisitions, excluding acquisitions made by joint venture entities:
NET ANNUALIZED RENTABLE DATE OF ACQUISITION BASE RENT LEASE SQUARE ACQUISITION TENANT LOCATION COST DECEMBER 31, EXPIRES FEET - ----------- --------------------------------------- ---------------------- ----------- ------------ ------- --------- 2000 March 20 Nextel Communications of the Mid- Hampton, VA Atlantic, Inc. $ 6,715 $ 719 01-10 56,515 May 11 Avnet, Inc. Phoenix, AZ 23,250 2,468 10-07 176,402 -------- ------- --------- $ 29,965 $ 3,187 232,917 ======== ======= ========= 1999 January 20 Corporate Express Office Products, Inc. Henderson, NC $ 7,416 $ 791 01-14 196,946 August 13 NEC America, Inc. Herndon, VA 19,000 2,006 07-09 108,000 December 22 Jones Apparel Group, Inc. Bristol, PA 8,782 970 07-13 96,000 December 28 Boeing Services Corp. Herndon, VA 25,636 2,585 05-08 159,664 December 29 Honeywell Consumer Products Southborough, MA 4,747 412 09-15 57,698 -------- ------- --------- $ 65,581 $ 6,764 618,308 ======== ======= ========= 1998 March 27 Jones Apparel Group, Inc. Bristol, PA $ 12,539 $ 1,224 03-13 255,019 March 27 Fidelity Corporate Real Estate, LLC Hebron, KY 8,077 817 04-07 81,744 March 27 Kelsey-Hayes (Tech I & II) Livonia, MI 16,442 1,637 04-07 180,230 May 11 Eagle Hardware & Garden, Inc. Federal Way, WA 13,751 1,233 08-17 133,861 May 11 Eagle Hardware & Garden, Inc. Anchorage, AK 17,690 1,588 10-17 157,525 May 15 Stone Container Corporation Columbia, SC 4,230 549 08-12 185,960 May 18 The Wackenhut Corporation Palm Beach Gardens, FL 19,817 2,241 02-11 127,855 June 19 Michaels Stores, Inc. Lancaster, CA 15,102 1,430 06-13 431,250 July 2 Fleet Mortgage Group, Inc. Florence, SC 15,061 1,635 06-08 177,747 July 24 Lear Technologies LLC Auburn Hills, MI 13,939 1,365 07-06 183,717 August 27 Kmart Corporation Warren, OH 63,877 8,932 09-07 1,700,000 October 26 Corporate Express Office Products, Inc. Baton Rouge, LA 3,425 368 10-13 65,043 December 31 Hechinger Property Company Columbia, MD 4,880 549 08-04 60,000 -------- ------- --------- TOTAL $208,830 $23,568 3,739,951 ======== ======= =========
33 35 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) The Company sold three properties in 2000, seven properties in 1999 and one property in 1998 for an aggregate selling price of $19,600, $63,900 and $24,100, respectively, which resulted in gains in 2000 and 1999 of $2,959 and $5,127, respectively, and a loss of $388 in 1998. In addition, in 2000 the Company contributed its Herndon, Virginia Property (along with a non-recourse mortgage note) which was purchased in 1999 to a joint venture entity for a capital contribution of $2,393. The following unaudited pro forma operating information for the years ended December 31, 2000, and 1999 has been prepared as if all Company acquisitions and dispositions in 2000 and 1999 had been consummated as of January 1, 1999. The information does not purport to be indicative of what the operating results of the Company would have been had the acquisitions and dispositions been consummated on January 1, 1999. Unaudited pro forma amounts are as follows:
DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- Revenues.................................................... $80,357 $76,035 Net income.................................................. $18,984 $15,238 Net income per common share: Basic..................................................... $ 0.97 $ 0.75 Diluted................................................... $ 0.96 $ 0.75
(5) INVESTMENT IN NON-CONSOLIDATED ENTITIES The Company has investments in various real estate joint ventures. The business of each joint venture is to acquire, finance, hold for investment and sell single tenant net leased real estate. Lexington Acquiport Company, LLC Lexington Acquiport Company, LLC ("LAC"), is a joint venture with the Comptroller of the State of New York as Trustee for the Common Retirement Fund ("CRF"). The Company and CRF have committed to contribute up to $50,000 and $100,000, respectively, to invest in high quality office and industrial net leased real estate. Through December 31, 2000 total contributions are $97,095. LRA earns annual management fees of 2% of rent collected and acquisition fees equaling 75 basis points of purchase price of each property investment. All allocations of profit, loss and cash flows are made one-third to the Company and two-thirds to CRF. During 2000 and 1999, LAC made the following investments:
NET ANNUALIZED RENTABLE DATE OF ACQUISITION BASE RENT LEASE SQUARE ACQUISITION TENANT LOCATION COST DECEMBER 31, EXPIRES FEET - ----------- ------------------------------ -------------- ----------- ------------ ------- --------- 2000 January 20 Structural Dynamics Research Milford, OH $ 26,900 $ 2,790 04-11 212,836 Corporation March 29 Bank One Indiana, N.A. Fishers, IN 24,500 3,287 10-09 193,000 April 17 NEC America, Inc. Herndon, VA 19,087 2,025 07-09 108,000 September 6 True North Communications Inc. Irving, TX 41,850 4,250 01-10 247,254 September 28 First USA Management Services, Lake Mary, FL 41,700 5,741 09-09 251,075 Inc. December 27 Aventis Pharmaceuticals, Inc. Parsippany, NJ 81,000 8,487 01-10 340,240 -------- ------- --------- $235,037 $26,580 1,352,405 ======== ======= ========= 1999 September 15 Vastar Resources, Inc. Houston, TX $ 34,770 $ 3,436 09-09 327,325 ======== ======= =========
In 1999, LAC made an $11,009 investment in a participating note receivable, which has a stated interest rate of 6.9% and a 50% interest in the property cash flows from the entity that owns the Houston, Texas Property. 34 36 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Summarized financial information for LAC as of December 31, 2000, and 1999 is as follows:
2000 1999 -------- ------- Real estate, net............................................ $236,076 $ -- Note receivable............................................. 11,009 11,009 Cash and cash equivalents................................... 3,459 2 Other assets................................................ 3,262 496 -------- ------- $253,806 $11,507 ======== ======= Mortgage payable............................................ $152,874 $ -- Accounts payable............................................ 218 297 Other liabilities........................................... 840 18 Equity...................................................... 99,874 11,192 -------- ------- $253,806 $11,507 ======== ======= Revenues.................................................... $ 10,525 $ 267 Interest expense............................................ (4,327) -- Depreciation of real estate................................. (1,765) -- Other....................................................... (1,222) (85) -------- ------- Net income............................................. $ 3,211 $ 182 ======== =======
As of December 31, 2000, the LAC properties are 100% leased, have scheduled lease expiration dates ranging from 2009 to 2011 and provide for annual net rental revenue of $26,600. The mortgages payable bear interest at rates ranging from 7.60% to 8.20% and mature at various dates ranging from 2001 to 2012. Subsequent to year end, LAC satisfied a $53,000 bridge loan, bearing interest at 8.20% and scheduled to mature March 2001, encumbering one property with a $42,000 non-recourse mortgage note bearing interest at 7.35% with a scheduled maturity of March 2011, and a capital contribution of $11,000 from the members. After this refinancing the non-recourse mortgage notes bear interest at rates ranging from 7.35% to 8.19% and mature at various dates ranging from 2010 to 2012. Lexington Columbia LLC Lexington Columbia LLC ("Columbia") is a joint venture established December 30, 1999 with a private investor. Its sole purpose is to own a property in Columbia, South Carolina net leased to Blue Cross/Blue Shield of South Carolina. The purchase price of the property was approximately $42,500 and partially funded through a 10 year, $25,300 mortgage note bearing interest at 7.85%. The note provides for annual principal and interest payments of $2,196 with a balloon payment of $22,100 at maturity. The lease, which expires September 2009, provides for an annual rental payment of $4,906. In accordance with the partnership agreement, net cash flows, as defined, will be allocated 40% to the Company and 60% to the partner until both parties have received a 12.5% return on capital. Thereafter cash flows will be distributed 60% to the Company and 40% to the partner. LRA earns annual asset management fees of 2% of rents collected. 35 37 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Summarized financial information for the underlying property investment as of December 31, 2000 and 1999 is as follows:
2000 1999 ------- ------- Real estate, net............................................ $41,043 $42,667 Other assets................................................ 992 650 ------- ------- $42,035 $43,317 ======= ======= Mortgage payable............................................ $25,071 $25,258 Equity...................................................... 16,964 18,059 ------- ------- $42,035 $43,317 ======= ======= Rental income............................................... $ 4,906 -- Interest expense............................................ (2,009) -- Depreciation................................................ (1,624) -- Other....................................................... (143) -- ------- ------- Net income............................................. $ 1,130 -- ======= =======
Lexington Realty Advisors, Inc. The Company also has a 99% non-voting ownership interest in LRA, which provides management services to institutional investors and invests directly in real estate projects. 36 38 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Summarized financial information for LRA as of December 31, 2000 and 1999 is as follows:
2000 1999 ------- ---- Real estate, net............................................ $ 8,983 $ -- Development costs........................................... 13,190 -- Cash........................................................ 261 441 Other assets................................................ 304 20 ------- ---- $22,738 $461 ======= ==== Mortgages payable........................................... $ 6,875 $ -- Construction loan payable................................... 8,759 -- Advances from affiliates.................................... 5,814 329 Other....................................................... 857 129 Equity...................................................... 433 3 ------- ---- $22,738 $461 ======= ==== Advisory fees............................................... $ 1,619 $576 Other income................................................ 70 -- ------- ---- 1,689 576 ------- ---- Operating expenses.......................................... 1,104 573 Interest expense............................................ 19 -- Other....................................................... 136 -- ------- ---- 1,259 573 ------- ---- Net income............................................. $ 430 $ 3 ======= ====
The operating expenses incurred by LRA relate primarily to personnel costs reimbursed to the Company. Development costs relate to the built-to-suit project LRA is developing in Chester, South Carolina which is net leased to Owens Corning, Inc. for annual rental payments of $1,505 through January 2021. The project was completed in January 2001 and Owens Corning, Inc. commenced rental payments at that time. In December 2000 LRA purchased a Property in Danville, Illinois for $8,900 net leased to Sygma Network, Inc. under a net lease which provides current rental payments of $933 through October 2015. The acquisition was partially funded through a $6,875 non-recourse mortgage note which bears interest at 9.00% and matures in January 2016. (6) MORTGAGES AND NOTES PAYABLE The following table sets forth certain information regarding the Company's mortgage and notes payable as of December 31, 2000 and 1999:
2001 ESTIMATED INTEREST ANNUAL BALLOON PROPERTY LEVEL DEBT 2000 1999 RATE MATURITY DEBT SERVICE PAYMENT ------------------- -------- -------- -------- -------- ------------ -------- Bessemer, AL................... $ 1,000 $ 1,000 9.500% 09-01-01 $ 71 $ 1,000 Tampa, FL (Queen Palm Dr.)(c)...................... 4,151 4,223 7.050% 08-15-02 367 4,020 Tampa, FL (North 30th) (c)..... 5,220 5,467 7.050% 08-15-02 624 4,768 Gordonsville, TN............... 974 1,070 9.500% 10-01-02 194 771 Bakersfield, CA................ 1,623 1,862 9.350% 12-01-02 405 1,065
37 39 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA)
2001 ESTIMATED INTEREST ANNUAL BALLOON PROPERTY LEVEL DEBT 2000 1999 RATE MATURITY DEBT SERVICE PAYMENT ------------------- -------- -------- -------- -------- ------------ -------- Columbia, MD................... 1,340 1,680 10.750% 07-20-03 529 -- Oxon Hill, MD.................. 1,118 1,419 6.250% 03-01-04 381 -- Mechanicsburg, PA (3 Exel properties) (d)...... 25,000 25,000 8.000% 03-20-04 2,000 25,000 Brownsville, TX................ 680 770 8.375% 11-01-04 150 260 Rockville, MD.................. 782 927 8.820% 03-01-05 221 -- Marlborough, MA (e)............ 8,459 -- 8.660% 08-01-05 832 7,913 REMIC Financing (b)............ 65,271 66,258 8.100% 05-25-05 6,353 60,001 Salt Lake City, UT............. 8,252 9,633 7.870% 10-01-05 2,099 -- Laguna Hills, CA............... 3,416 3,779 8.375% 02-01-06 666 1,020 Bethesda, MD................... 2,844 3,230 9.250% 05-01-06 669 -- Warren, OH..................... 33,635 37,250 7.000% 10-01-07 6,160 -- Bristol, PA.................... 9,994 -- 7.400% 02-01-08 831 9,262 Phoenix, AZ.................... 3,488 -- 7.500% 05-11-10 262 3,488 Phoenix, AZ.................... 15,060 -- 7.890% 06-05-08 1,434 12,591 Palm Beach Gardens, FL......... 13,455 13,611 7.010% 06-15-08 1,105 11,866 Hebron, KY..................... 5,534 5,589 7.000% 10-23-08 451 4,935 Florence, SC................... 9,800 -- 7.500% 02-01-09 869 8,443 Canton, OH..................... 2,198 2,368 9.490% 02-28-09 388 -- Baton Rouge, LA................ 2,081 2,134 7.375% 03-01-09 208 1,470 Bristol, PA.................... 6,408 6,518 7.250% 04-01-09 571 5,228 Livonia, MI (2 Properties)..... 11,338 11,427 7.800% 04-01-09 992 10,236 Salt Lake City, UT............. 18,411 19,843 7.610% 10-01-09 2,901 -- Richmond, VA................... 16,892 13,093 8.100% 02-01-10 1,511 15,237 Hampton, VA.................... 4,580 -- 8.260% 04-01-10 415 4,139 Honolulu, HI................... 5,173 5,536 10.250% 10-01-10 841 -- Herndon, VA.................... 19,240 -- 8.180% 12-05-10 1,723 17,276 Dallas, TX..................... 22,477 22,774 7.490% 12-31-12 2,020 15,961 Lancaster, CA.................. 11,002 11,112 7.020% 09-01-13 900 8,614 Franklin, NC................... 2,169 2,218 8.500% 04-01-15 240 -- Southborough, MA............... 2,440 2,535 7.500% 09-01-15 275 -- Henderson, NC (f).............. -- 4,710 7.390% 05-01-09 -- -- Herndon, VA (g)................ -- 12,324 7.600% 09-01-10 -- -- -------- -------- ------- ------- -------- 345,505 299,360 7.801% 39,658 234,564 -------- -------- ------- ------- --------
2001 ESTIMATED INTEREST ANNUAL BALLOON CORPORATE LEVEL DEBT 2000 1999 RATE MATURITY DEBT SERVICE PAYMENT -------------------- -------- -------- -------- -------- ------------ -------- Credit Facility (a)............ 41,821 70,921 8.030% 07-24-01 45,179 41,821 -------- -------- ------- ------- -------- Total.......................... $387,326 $370,281 7.826% $84,837 $276,385 ======== ======== ======= ======= ========
- --------------- (a) The Company's $60,000 unsecured revolving credit facility, bears interest at 137.5 basis points over LIBOR and has an interest rate period of one, three or six months, at the option of the Company, which at December 31, 2000 was 8.03%. During 2000, the Company exercised its option to reduce the credit facility to $60,000 from $100,000 to reduce unused facility costs. The facility is provided by a consortium of five banks, with Fleet Bank, NA, as agent. 38 40 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) The credit facility contains various leverage, debt service coverage, net worth maintenance and other customary covenants all of which the Company is in compliance. Due to these covenants, approximately $2,829 was available to the Company at December 31, 2000. The amount of available borrowings can increase by identifying additional unencumbered properties as eligible for the computation of the borrowing base which supports the credit facility. The Company is currently negotiating with lending institutions to provide three year credit facilities to replace the current credit facility upon maturity. (b) The REMIC Financing is secured by mortgages on 17 Properties. (c) The mortgages on the two Tampa, Florida Properties are cross-collateralized. (d) The Notes can be exchanged by the holders for the Company's common shares at $13.00 per share subject to adjustment. The Notes may be redeemed at the Company's option at a price of 103.2% of the principal amount, declining to par after March 2002. The Notes are subordinated to obligations under the Company's credit facility. (e) The note bears interest at 190 basis points over 90 day LIBOR (8.66% at December 31, 2000). (f) Mortgage satisfied on sale of Property in 2000. (g) Property contributed to joint venture in 2000. Scheduled principal paydowns of the mortgages and notes payable, excluding borrowings under the credit facility, for the next five years and thereafter are as follows:
YEARS ENDING SCHEDULED DECEMBER 31, AMORTIZATION BALLOON TOTAL ------------ ------------ -------- -------- 2001....................................................... $ 12,952 $ 1,000 $ 13,952 2002....................................................... 13,874 10,624 24,498 2003....................................................... 14,335 -- 14,335 2004....................................................... 14,589 25,260 39,849 2005....................................................... 13,801 67,914 81,715 Thereafter................................................. 41,390 129,766 171,156 -------- -------- -------- $110,941 $234,564 $345,505 ======== ======== ========
(7) LEASES Minimum future rental receipts under noncancellable tenant leases assuming no new or negotiated leases for the next five years and thereafter are as follows:
YEAR ENDING DECEMBER 31, ------------ 2001........................................................ $ 74,651 2002........................................................ 75,219 2003........................................................ 76,285 2004........................................................ 75,083 2005........................................................ 73,448 Thereafter.................................................. 229,911 -------- $604,597 ========
The Company leases its corporate headquarters, but no other corporate facility, for approximately $263 per annum through June 30, 2004. 39 41 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) (8) MINORITY INTERESTS In conjunction with several of the Company's acquisitions, sellers were given interests in Partnerships controlled by the Company as a form of consideration. All of such interests are redeemable at certain times for common shares on a one-for-one basis. As of December 31, 2000, there were 5,711,453 operating partnership units outstanding of which 5,253,327 are currently redeemable for common shares. These units, subject to certain adjustments through the date of conversion, currently have annual distributions per unit in varying amounts from $0 to $1.24 per unit with a weighted average distribution of $1.12 per unit. (9) PREFERRED AND COMMON SHARES The preferred shares are cumulative and convertible at any time at the holder's option into common shares on a one-for-one basis and are entitled to quarterly dividends equal to the greater of $.295 per share or 105% of the quarterly common shares dividend. Currently the quarterly dividend is $.3255 per share. The preferred shares may be redeemed by the Company after December 31, 2001 at a premium of 6% over the liquidation preference of $12.50 per share, with such premium declining to zero on or after December 31, 2011. Each share is entitled to one vote. In certain instances, including a change of control of the Company (as defined in the agreement), the holder of the preferred shares may require the Company to redeem its shares at a price equal to $12.75 per share plus any accrued dividends. During 1999, the Company issued 287,888 common shares in a transaction which raised approximately $3,886. The holders of the common shares have agreed not to sell more than 20% of the common shares each year for a five year period. On the fifth anniversary of the transaction, the holders of the common shares have the right to put to the Company their shares, up to 287,888, at $13.50 per share. (10) BENEFIT PLANS The Company maintains a common share option plan pursuant to which qualified and non-qualified options may be issued. In 1998 the number of options that can be issued under the plan were increased by 800,000. Options granted under the plan generally vest over a period of one to four years, expire five years from date of grant and are exercisable at the market price of the date of grant. Share option activity during the years indicated is as follows:
WEIGHTED-AVERAGE NUMBER OF EXERCISE PRICE PER SHARES SHARE --------- ------------------ Balance at December 31, 1997................................ 1,039,197 $11.62 Granted................................................... 386,600 15.11 Exercised................................................. (8,230) 10.28 Forfeited................................................. (7,370) 14.51 --------- ------ Balance at December 31, 1998................................ 1,410,197 12.58 Granted................................................... 286,625 12.06 Exercised................................................. (5,000) 9.00 Forfeited................................................. (188,174) 12.13 --------- ------ Balance at December 31, 1999................................ 1,503,648 12.54 Granted................................................... 831,625 9.85 Forfeited................................................. (26,000) 13.12 Expired................................................... (331,250) 11.13 --------- ------ Balance at December 31, 2000................................ 1,978,023 $11.63 ========= ======
40 42 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) The following is additional disclosures for common share options outstanding at December 31, 2000:
EXERCISABLE OPTIONS RANGE OF REMAINING ---------------------------- EXERCISE OUTSTANDING LIFE AVERAGE EXERCISE PRICES OPTIONS (YEARS) NUMBER PRICE - ------------------- ----------- --------- --------- ---------------- $ 9.00 - $ 10.875 524,375 3.96 141,094 $ 9.18 $11.125 - $12.5625 1,099,048 2.36 1,037,642 $11.71 $13.1875 - $ 15.25 354,600 2.03 46,250 $15.03
There are 466,747 options available for grant. The per share weighted average fair value of options granted during 2000, 1999 and 1998 were estimated to be $2.02, $2.41 and $3.46, respectively, using a Black-Scholes option pricing formula. The more significant assumptions underlying the determination of such fair values include: (i) a risk free interest rate of 5%; (ii) an expected life of five years; (iii) volatility factors of 19.20%, 16.94% and 18.47% for 2000, 1999 and 1998, respectively; (iv) and actual dividends paid. The Company has elected to adopt the disclosure only provisions of SFAS No. 123. Accordingly no compensation cost has been recognized with regard to options granted in the accompanying consolidated statements of income. If stock based compensation cost had been recognized based upon the fair value at the date of grant for options awarded in 2000, 1999 and 1998 the Company's pro forma net income and pro forma net income per share would have been:
2000 1999 1998 ------- ------- ------- Pro forma net income........................................ $20,001 $20,384 $14,737 Pro forma net income per share Basic..................................................... $ 1.03 $ 1.05 $ 0.73 Diluted................................................... $ 1.02 $ 1.04 $ 0.73
The Company has a 401(k) retirement savings plan covering all eligible employees. The Company will match 25% of the first 4% of employee contributions. In addition, based on its profitability, the Company may make a discretionary contribution at each fiscal year end to all eligible employees. The matching and discretionary contributions are subject to vesting under a schedule providing for 25% annual vesting starting with the first year of employment and 100% vesting after four years of employment. Approximately $107, $98 and $77 were contributed in 2000, 1999 and 1998, respectively. The Company sponsors a deferred compensation plan for certain officers in which restricted common shares, which vest over five years, granted for the benefit of the officers are held in trust. The officers exert no control over the common shares in the trust and the common shares are available to the general creditors of the Company. As of December 31, 2000 and 1999, there were 139,847 and 63,792 common shares, respectively, in the trust. (11) LEGAL PROCEEDINGS The Company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. (12) RELATED PARTY TRANSACTIONS During 2000, the Company announced that it has agreed to acquire Net 1 L.P. and Net 2 L.P. (collectively, the "Net Partnerships"), in a merger transaction valued at approximately $143,000. The Net Partnerships own twenty-five properties in fifteen states, which generate approximately $15,100 of net rental revenue. The properties have a remaining weighted average lease term of approximately 9.2 years and are net-leased to eighteen tenants. 41 43 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) As currently proposed, the Company will issue approximately $65,000 of securities to the sellers and assume approximately $78,000 of mortgage financing with a weighted interest rate of approximately 8%. The limited partners will receive at least 50% of their merger consideration in the Company's 8.5% convertible subordinated debentures due 2009 with up to 50% of the merger consideration payable in the Company's common shares issued at a price not less than $11.00 per share and no greater than $13.00 per share. The convertible subordinated debentures are exchangeable by the holder after four years into the Company's common shares at $14.00 per share and may be redeemed by the Company after five years with cash or with common shares in the event the Company's share price exceeds $14.00. The Company's Chairman and Co-Chief Executive Officer, is the controlling shareholder of the general partners of the Net Partnerships. The general partners will receive merger consideration valued on the same basis as the limited partners for their 1% ownership interest in the Net Partnerships payable in operating partnership units. The units, which will have economic rights comparable to the economic rights of the limited partner's merger consideration, will be convertible into the Company's common shares on a one-for-one basis at certain points in the future. Definitive terms of the transaction will be set forth in a joint consent and proxy solicitation statement and prospectus being prepared by the Company and the Net Partnerships for regulatory review. The transaction has been approved by the independent members of the Board of Trustees. The transaction is subject to customary closing conditions, including the approval of the Company's shareholders and the limited partners of the Net Partnerships. During 2000, the Company sold two properties to the Net Partnerships which are located in Henderson, North Carolina (leased to Corporate Express Office Products, Inc.) and Plymouth, Michigan (leased to Johnson Controls, Inc). for $15,600 resulting in gains of $2,300. The sales were approved by the independent members of the Board of Trustees. During 2000, the Company issued 83,400 operating partnership units in LCIF to acquire the property management contract for the Net Partnerships. This acquisition was made from an affiliate of the Chairman of the Company and increased other assets and minority interest by $585. The transaction has been approved by the independent members of the Board of Trustees. The fees earned during 2000, under this contract, were $91 and the reimbursement of costs for services provided by the Company on behalf of the Net Partnerships were $359, $435 and $393 for the years ended December 31, 2000, 1999 and 1998, respectively. The reimbursements are shown net, in the Company's general and administrative expenses in the accompanying consolidated statements of income. The Company an/or LRA also received brokerage commissions relating to the purchase and sale of properties by the Net Partnerships, with unaffiliated parties, totaling $120 and $175 in 2000 and 1999, respectively, which are included in interest and other income in the accompanying consolidated statements of income. During 1999, the Company sold four properties to the Net Partnerships which are located in Jacksonville, Alabama (leased to Wal-Mart Stores, Inc.); Columbia, South Carolina (leased to Stone Container Corp.); San Diego, California (leased to Cymer, Inc.) and Phoenix, Arizona (leased to Bull HN Information Systems, Inc.) for an aggregate sales price, which included a $1,200, 8% interest only accruing 5 year note, of $26,900 resulting in a gain of $2,544. The Company purchased two properties for $13,500 from the Net Partnerships. These purchases and sales were approved by the independent members of the Board of Trustees. In connection with the acquisition of certain properties in 1996, the Company assumed an obligation to pay The LCP Group, L.P., an affiliate of the Company's Chairman, an aggregate principal amount of $1,778 for rendering services in connection with the original acquisition of the properties in 1980 and 1981. Simple interest is payable monthly from available net cash flow of the respective original properties on the various unpaid principal portions of the fees, at annual rates ranging from 12.25% to 19%. Monthly installment payments are to commence at various dates to satisfy principal and current interest payments as well as any unpaid accrued interest outstanding. During 1998, the Company issued 1,187,228 operating partnership units to the Co-Chief Executive Officers and an affiliate of one of the Co-Chief Executive Officers in exchange for their interests in certain partnerships and related contractual obligations. During 1998, the Company issued 131,000 common shares to two officers in exchange for notes aggregating $1,998 which mature on February 14, 2003, bear interest at 7.6% per annum and are secured by the common shares issued. 42 44 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) (13) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable The Company estimates that the fair value approximates carrying value due to the relatively short maturity of the instruments. Mortgages, Notes and Subordinated Notes Payables The Company determines the fair value of these instruments based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this, the Company has determined that the fair value of these instruments approximates carrying values. (14) CONCENTRATION OF RISK The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties, avoiding dependency on a single property and the creditworthiness of its tenants. For each of the years in the three year period ended December 31, 2000 the following tenants represented 10% or greater of revenues:
2000 1999 1998 ---- ---- ---- Northwest Pipeline Corporation.............................. 11% 11% 14% Kmart Corporation........................................... 11% 11% --
The following is a summary of the most recent quarterly and annual financial data for all tenants that represent greater than 10% of the Company's consolidated revenues:
FOR THE NINE MONTHS ENDED 10/25/00 YEAR ENDED KMART CORPORATION (UNAUDITED) 1/31/99 ----------------- ------------------- ----------- Sales....................................................... $25,392,000 $35,925,000 Cost of sales............................................... 20,530,000 28,102,000 Net income (loss)........................................... (493,000) 403,000 Assets...................................................... 16,141,000 15,104,000 Liabilities................................................. 10,321,000 8,800,000 Shareholders' equity........................................ 5,820,000 6,304,000
FOR THE NINE MONTHS ENDED 9/30/00 YEAR ENDED NORTHWEST PIPELINE CORPORATION (UNAUDITED) 12/31/99 ------------------------------ ------------------- ----------- Operating revenues.......................................... $ 222,693 $ 287,793 Operating expenses.......................................... 108,074 144,446 Net income.................................................. 62,542 73,013 Assets...................................................... 1,087,066 1,074,233 Liabilities................................................. 614,885 604,594 Shareholder equity.......................................... 472,181 469,639
(15) SUPPLEMENTAL DISCLOSURE OF STATEMENT OF CASH FLOW INFORMATION During 2000, 1999 and 1998, the Company paid $29,758, $29,157 and $21,916, respectively, for interest and $126, $115 and $261, respectively, for taxes. 43 45 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) In 2000, the Company contributed a property (along with a non-recourse mortgage note) which was purchased in 1999 to a joint venture entity for a capital contribution of $2,393. During 2000, 1999 and 1998, holders of an aggregate of 131,907, 506,882 and 525,433 operating partnership units, respectively, redeemed such units for common shares of the Company. These redemptions resulted in increases in shareholders' equity and corresponding decreases in minority interests of $1,768, $5,824 and $5,650, respectively. During 2000, the Company issued 83,400 operating partnership units in LCIF to acquire a property management contract. This acquisition was made from an affiliate of the Chairman of the Company and increased other assets and minority interest by $585. During 2000, the Company purchased a property and issued a note payable to the seller of $3,488 as partial satisfaction of the purchase price. During 2000 and 1999, the Company issued 73,800 and 69,850 common shares to certain employees and trustees resulting in $664 and $877 of deferred compensation. These common shares vest ratably over a 2 to 5 year period. During 1999, the Net Partnerships purchased two of the Company's real estate properties assuming mortgage debt of approximately $10,156 and issuing a note payable to the Company for $1,200. During 1998, in connection with the acquisition of certain properties, the Company assumed $44,200 in mortgage indebtedness as partial satisfaction of the purchase price. During 1998, in connection with the acquisition of certain properties, the Company issued $28,800 in operating partnership units as partial satisfaction of the purchase price. The issuance of these operating partnership units have been recorded as minority interest in the accompanying consolidated balance sheets. During 1998, the Company issued 131,000 common shares, at the current market price, to two officers in exchange for notes aggregating $1,998 which mature on February 14, 2003, bear interest at 7.6% per annum and are secured by the common shares issued. (16) UNAUDITED QUARTERLY FINANCIAL DATA
THREE MONTHS ENDED ---------------------------------- MARCH 31, JUNE 30, ---------------- --------------- 2000 1999 2000 1999 ------- ------ ------ ------ Revenues.................................................... $19,610 19,161 20,033 18,950 Net income.................................................. $ 4,471 4,363 7,346 4,869 Net income per common share: Basic..................................................... $ 0.23 0.22 0.40 0.25 Diluted................................................... $ 0.23 0.22 0.36 0.24
THREE MONTHS ENDED ---------------------------------- SEPTEMBER 30, DECEMBER 31, ---------------- --------------- 2000 1999 2000 1999 ------- ------ ------ ------ Revenues.................................................... $20,087 19,208 20,275 19,981 Net income.................................................. $ 5,120 6,350 5,015 5,765 Net income per common share: Basic..................................................... $ 0.26 0.34 0.26 0.30 Diluted................................................... $ 0.26 0.32 0.25 0.30
The sum of the quarterly income per common share amounts may not equal the full year amounts primarily because the computations of the weighted average number of common shares outstanding for each quarter and the full year are made independently. 44 46 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION SCHEDULE III ($000) INITIAL COST TO COMPANY AND GROSS AMOUNT AT WHICH CARRIED AT END OF YEAR(A)
LAND ACCUMULATED AND BUILDINGS DEPRECIATION LAND AND AND DESCRIPTION LOCATION ENCUMBRANCES ESTATES IMPROVEMENTS TOTAL AMORTIZATION - -------------------------------- ------------------------ ------------ ------- ------------ -------- ------------- Warehouse & Manufacturing....... Modesto, CA $ 2,041 $ 257 $ 3,809 $ 4,066 $ 1,361 Office.......................... Southington, CT 8,405 3,240 20,440 23,680 8,413 Research & Development.......... Glendale, AZ -- 4,996 24,392 29,388 10,910 Retail/Health Club.............. Countryside, IL 2,314 628 3,722 4,350 1,645 Retail/Health Club.............. Voorhees NJ 2,927 577 4,820 5,397 2,027 Retail/Health Club.............. DeWitt, NY 1,769 445 3,043 3,488 1,284 Warehouse & Distribution........ Mansfield, OH 3,198 120 5,869 5,989 1,779 Industrial...................... Marshall, MI 2,143 33 3,378 3,411 1,363 Industrial...................... Marshall, MI 817 14 926 940 374 Retail.......................... Newport, OR 5,988 1,400 7,270 8,670 2,824 Office & Warehouse.............. Memphis, TN 6,464 1,053 11,174 12,227 3,516 Warehouse & Distribution........ Mechanicsburg, PA 9,866 1,439 13,987 15,426 3,260 Office & Warehouse.............. Tampa, FL 4,151 1,389 7,629 9,018 2,706 Retail.......................... Klamath Falls, OR 6,804 727 9,160 9,887 2,929 Office.......................... Tampa, FL 5,220 1,900 9,755 11,655 3,026 Warehouse & Industrial.......... Jacksonville, FL -- 157 3,034 3,191 971 Retail.......................... Sacramento, CA 2,279 885 2,705 3,590 1,100 Office.......................... Phoenix, AZ -- 2,804 13,921 16,725 4,205 Retail.......................... Reno, NV 1,973 1,200 1,904 3,104 756 Retail.......................... Las Vegas, NV 1,769 900 1,759 2,659 697 Retail.......................... Rockville, MD 782 -- 1,784 1,784 521 Retail.......................... Oxon Hill, MD 1,118 403 2,765 3,168 709 Retail.......................... Brownsville, TX 680 -- 1,242 1,242 363 Retail.......................... Laguna Hills, CA 3,416 255 5,035 5,290 1,250 Retail.......................... Riverdale, GA -- 333 2,233 2,566 279 Retail/Health Club.............. Canton, OH 2,198 602 3,819 4,421 477 Office.......................... Salt Lake City, UT 26,663 -- 55,404 55,404 9,881 Manufacturing................... Franklin, NC 2,169 386 3,062 3,448 306 Industrial...................... Oberlin, OH 2,172 276 4,515 4,791 452 Retail.......................... Tulsa, OK -- 447 2,432 2,879 538 Retail.......................... Clackamas, OR -- 523 2,847 3,370 630 Retail.......................... Lynwood, WA -- 488 2,658 3,146 588 Retail.......................... Honolulu, HI 5,173 -- 11,147 11,147 1,829 Warehouse....................... New Kingston, PA (Silver Springs) 5,500 674 5,360 6,034 508 Warehouse....................... New Kingston, PA (Cumberland) 11,250 1,380 10,963 12,343 1,039 Warehouse....................... Mechanicsburg, PA (Hampden IV) 8,250 1,012 8,039 9,051 762 Office/Research & Development... Marlborough, MA 8,459 1,707 13,834 15,541 1,196 Office.......................... Dallas, TX 22,477 3,582 29,063 32,645 2,391 Warehouse....................... Waterloo, IA 4,342 1,025 8,296 9,321 665 Office/Research & Development... Milipitas, CA -- 3,542 18,603 22,145 1,395 Industrial...................... Gordonsville, TN 974 52 3,325 3,377 287 Office.......................... Decatur, GA -- 975 13,677 14,652 1,026 Office.......................... Richmond, VA 16,892 -- 27,282 27,282 2,538 Industrial...................... Bessemer, AL 1,000 664 4,238 4,902 377 Office/Warehouse................ Bristol, PA 9,994 2,508 10,031 12,539 690 Office.......................... Hebron, KY 5,534 1,615 6,462 8,077 444 Office.......................... Livonia, MI 5,360 1,554 6,219 7,773 428 Research & Development.......... Livonia, MI 5,978 1,733 6,936 8,669 477 Office.......................... Palm Beach Gardens, FL 13,455 3,960 15,924 19,884 1,044 Warehouse/Distribution.......... Lancaster, CA 11,002 2,028 13,117 15,145 828 Office.......................... Florence, SC 9,800 3,012 12,067 15,079 753 Industrial...................... Auburn Hills, MI -- 2,788 11,169 13,957 679 USEFUL LIFE COMPUTING DEPRECIATION IN LATEST INCOME DATE DATE STATEMENTS DESCRIPTION ACQUIRED CONSTRUCTED (YEARS) - -------------------------------- ---------- ----------- ----------------------- Warehouse & Manufacturing....... Sept. 1986 1970 & 1976 40 & 12 Office.......................... Oct. 1986 1983 40 & 12 Research & Development.......... Nov. 1986 1985 40 & 12 Retail/Health Club.............. Jul. 1987 1987 40 & 12 Retail/Health Club.............. Jul. 1987 1987 40 & 12 Retail/Health Club.............. Aug. 1987 1977 & 1987 40 & 12 Warehouse & Distribution........ Jul. 1987 1970 40, 20 & 12 Industrial...................... Aug. 1987 1968 & 1972 40, 20 & 12 Industrial...................... Aug. 1987 1979 40, 20 & 12 Retail.......................... Sept. 1987 1986 40, 20 & 12 Office & Warehouse.............. Feb. 1988 1987 40 Warehouse & Distribution........ Oct. 1990 1985 & 1991 40 Office & Warehouse.............. Nov. 1987 1986 40 & 20 Retail.......................... Mar. 1988 1986 40 Office.......................... Jul. 1988 1986 40 Warehouse & Industrial.......... Jul. 1988 1958 & 1969 40 & 20 Retail.......................... Oct. 1988 1988 40, 20 & 12 Office.......................... Nov. 1988 1960 & 1979 40 Retail.......................... Dec. 1988 1988 40, 20 & 12 Retail.......................... Dec. 1988 1988 40, 20 & 12 Retail.......................... Aug. 1995 1977 22.375, 16.583 & 15.583 Retail.......................... Aug. 1995 1976 21.292 Retail.......................... Aug. 1995 1973 18.542 Retail.......................... Aug. 1995 1974 20 & 20.5 Retail.......................... Dec. 1995 1985 40 Retail/Health Club.............. Dec. 1995 1987 40 Office.......................... May 1996 1982 25.958 Manufacturing................... Dec. 1996 1996 40 Industrial...................... Dec. 1996 1996 40 Retail.......................... Dec. 1996 1981 23.583 & 13.583 Retail.......................... Dec. 1996 1981 23.583 & 13.583 Retail.......................... Dec. 1996 1981 23.583 & 13.583 Retail.......................... Dec. 1996 1980 24.33 Warehouse....................... Mar. 1997 1981 40 Warehouse....................... Mar. 1997 1989 40 Warehouse....................... Mar. 1997 1985 40 Office/Research & Development... Jul. 1997 1960 & 1988 40 Office.......................... Sept. 1997 1986 40 Warehouse....................... Oct. 1997 1996 & 1997 40 Office/Research & Development... Dec. 1997 1985 40 Industrial...................... Dec. 1997 1983 & 1985 34.75 Office.......................... Dec. 1997 1983 40 Office.......................... Dec. 1997 1990 32.25 Industrial...................... Dec. 1997 1990 33.75 Office/Warehouse................ Mar. 1998 1982 40 Office.......................... Mar. 1998 1987 40 Office.......................... Mar. 1998 1987 & 1988 40 Research & Development.......... Mar. 1998 1987 & 1988 40 Office.......................... May 1998 1996 40 Warehouse/Distribution.......... Jun. 1998 1998 40 Office.......................... Jul. 1998 1998 40 Industrial...................... Jul. 1998 1989 & 1998 40
45 47 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION SCHEDULE III ($000) -- (CONTINUED)
LAND ACCUMULATED AND BUILDINGS DEPRECIATION LAND AND AND DESCRIPTION LOCATION ENCUMBRANCES ESTATES IMPROVEMENTS TOTAL AMORTIZATION - -------------------------------- ------------------------ ------------ ------- ------------ -------- ------------- Warehouse/Distribution.......... Warren, OH 33,635 10,231 51,280 61,511 5,023 Warehouse/Distribution.......... Baton Rouge, LA 2,081 685 2,748 3,433 150 Retail.......................... Columbia, MD 1,340 1,002 4,016 5,018 200 Retail.......................... Bakersfield, CA 1,623 400 1,619 2,019 435 Retail.......................... Bethesda, MD 2,844 926 2,415 3,341 893 Office.......................... Bristol, PA 6,408 1,073 7,709 8,782 201 Office.......................... Southborough, MA 2,440 456 4,291 4,747 112 Office.......................... Herndon, VA 19,240 5,127 20,570 25,697 519 Office.......................... Hampton, VA 4,580 1,353 5,446 6,799 108 Office.......................... Phoenix, AZ 18,548 4,665 18,682 23,347 292 -------- ------- -------- -------- ------- Total...................... $345,505 $87,606 $595,021 $682,627 $98,429 ======== ======= ======== ======== ======= USEFUL LIFE COMPUTING DEPRECIATION IN LATEST INCOME DATE DATE STATEMENTS DESCRIPTION ACQUIRED CONSTRUCTED (YEARS) - -------------------------------- ---------- ----------- ----------------------- Warehouse/Distribution.......... Aug. 1998 1982 40 Warehouse/Distribution.......... Oct. 1998 1998 40 Retail.......................... Dec. 1998 1983 40 Retail.......................... Aug. 1995 1976 40 Retail.......................... Aug. 1995 1980 40 Office.......................... Dec. 1999 1998 40 Office.......................... Dec. 1999 1984 40 Office.......................... Dec. 1999 1987 40 Office.......................... Mar. 2000 2000 40 Office.......................... May 2000 1997 40 Total......................
- --------------- (A) The initial cost includes the purchase price paid by the Company and acquisition fees and expenses. The total cost basis of the Company's Properties at December 31, 2000 for Federal income tax purposes was approximately $444 million. Reconciliation of real estate owned:
2000 1999 1998 -------- -------- -------- Balance at the beginning of the year.................... $688,926 $675,793 $467,606 Additions during year................................... 30,603 115,006 208,187 Properties sold during year............................. (17,727) (101,873) -- Property contributed to joint venture during year....... (19,175) -- -- -------- -------- -------- Balance at end of year.................................. $682,627 $688,926 $675,793 ======== ======== ========
Reconciliation of accumulated depreciation and amortization: Balance at beginning of year............................ $ 82,334 $ 66,076 $ 50,993 Depreciation and amortization expense................... 17,513 18,000 15,083 Accumulated depreciation and amortization of properties sold during year..................................... (1,162) (1,742) -- Accumulated depreciation of property contributed to joint venture during year............................ (256) -- -- -------- -------- -------- Balance at end of year.................................. $ 98,429 $ 82,334 $ 66,076 ======== ======== ========
46 48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding trustees and executive officers of the Company required to be furnished pursuant to this item is set forth in Item 4A of this report. ITEM 11. EXECUTIVE COMPENSATION The information required to be furnished pursuant to this item will be set forth under the caption "Compensation of Executive Officers" in the Proxy Statement, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required to be furnished pursuant to this item will be set forth under the captions "Principal Security Holders" and "Share Ownership of Trustees and Executive Officers" in the Proxy Statement, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required to be furnished pursuant to this item will be set forth under the caption "Election of Trustees -- Certain Relationships and Related Transactions" in the Proxy Statement, and is incorporated herein by reference. During 2000, the Company announced that it has agreed to acquire Net 1 L.P. and Net 2 L.P. (collectively, the "Net Partnerships"), in a merger transaction valued at approximately $143 million. The Net Partnerships own twenty-five properties in fifteen states, which generate approximately $15.1 million of net rental revenue. The properties have a remaining weighted average lease term of approximately 9.2 years and are net- leased to eighteen tenants. As currently proposed, the Company will issue approximately $65 million of securities to the sellers and assume approximately $78 million of mortgage financing with a weighted interest rate of approximately 8%. The limited partners will receive at least 50% of their merger consideration in Lexington's 8.5% convertible subordinated debentures due 2009 with up to 50% of the merger consideration payable in the Company's common shares issued at a price not less than $11.00 per share and no greater than $13.00 per share. The convertible subordinated debentures are exchangeable by the holder after four years into the Company's common shares at $14.00 per share and may be redeemed by the Company after five years with cash or with common shares in the event the Company's share price exceeds $14.00. The Company's Chairman and Co-Chief Executive Officer is the controlling shareholder of the general partners of the Net Partnerships. The general partners will receive merger consideration valued on the same basis as the limited partners for their 1% ownership interest in the Net Partnerships payable in operating partnership units. The units, which will have economic rights comparable to the economic rights of the limited partner's merger consideration, will be convertible into Lexington's common shares on a one-for-one basis at certain points in the future. Definitive terms of the transaction will be set forth in a joint consent and proxy solicitation statement and prospectus being prepared by the Company and the Net Partnerships for regulatory review. The transaction is subject to customary closing conditions, including the approval of the Company's shareholders and the limited partners of the Net Partnerships. During 2000, the Company issued 83,400 operating partnership units in LCIF to acquire the property management contract for the Net Partnerships. This acquisition was made from an affiliate of the Chairman of the Company and increased other assets and minority interest by $585,000. The fees earned during 2000, under this contract, were $91,000 and the reimbursement of costs for services provided by the Company on behalf of the Net Partnerships were $359,000, $435,000 and $393,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The reimbursements are 47 49 shown net, in the Company's general and administrative expenses in the accompanying consolidated statements of income. The Company and LRA also received brokerage commissions relating to the purchase and sale of properties by the Net Partnerships, with unaffiliated parties, totaling $120,000 and $175,000 in 2000 and 1999, respectively, which is included in interest and other income in the accompanying consolidated statements of income. During 2000, the Company sold two properties to the Net Partnerships for $15.6 million which resulted in gains of $2.3 million. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
PAGE ---- (a)(1) Financial Statements........................................ 29-48 (2) Financial Statement Schedule................................ 49-50 (3) Exhibits.................................................... 52-53
EXHIBIT NO. EXHIBIT - ----------- ------- 2.1 -- Form of Agreement and Plan of Merger by and among Lexington Corporate Properties, Inc. (the "Company"), Lepercq Corporate Income Fund L.P. ("LCIF I") and Lex M-1, L.P. (filed as Appendix C-I to the Company's Registration Statement of Form S-4 (File No. 33-66858) (the "Form S-4"))* 2.2 -- Form of Agreement and Plan of Merger by and among the Company, Lepercq Corporate Income Fund II L.P. ("LCIF II"), and Lex M-2, L.P. (filed as Appendix C-II to the Form S-4)* 2.3 -- Form of Agreement and Articles of Merger between the Company and Lexington Corporate Properties -- Maryland, Inc. (filed as Exhibit 2.3 to Report on 10-K for year ended December 31, 1993 (the "1993 10-K"))* 2.4 -- Agreement and Plan of Merger between the Company and Lexington Corporate Properties Trust (filed as Exhibit 2.1 to Form 8-K filed 1-16-98.)* 3.1 -- Declaration of Trust of the Company, dated December 31, 1997 (filed as Exhibit 3.1 to Form 8K filed 1-16-98)* 3.2 -- By-Laws of the Company (filed as Exhibit 3.2 to Form 10-K filed 3-31-98)* 4.1 -- Specimen of Common Shares Certificate of the Trust (filed as Exhibit 3.2 to Form 10-K filed 3-31-98)* 10.8 -- Form of 1994 Outside Director Shares Plan of the Company (filed as Exhibit 10.8 to 1993 10-K)* 10.24 -- Class A Mortgage Note to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 in the amount of $34,000,000 (filed as Exhibit 10.24 to Report on 10-K for year ended December 31, 1995 (the "1995 10-K"))* 10.25 -- Class B Mortgage Note to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 in the amount of $18,500,000 (filed as Exhibit 10.25 to the 1995 10-K)* 10.26 -- Class C Mortgage Note to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 in the amount of $17,500,000 (filed as Exhibit 10.26 to the 1995 10-K)* 10.28 -- Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases, Rents and Security Deposits to First American Title Insurance Company and Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 (filed as Exhibit 10.28 to the 1995 10-K)* 10.29 -- Assignment of Leases, Rents, and Security Deposits to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 (filed as Exhibit 10.29 to the 1995 10-K)*
48 50
EXHIBIT NO. EXHIBIT - ----------- ------- 10.30 -- Cash Collateral Account, Security, Pledge and Assignment Agreement with the Bank of New York, as agent and Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 (filed as Exhibit 10.30 to the 1995 10-K)* 10.31 -- Trust and Servicing Agreement with Pacific Mutual Life Insurance Company, LaSalle National Bank and ABN AMRO Bank N.V. dated May 19, 1995 (filed as Exhibit 10.31 to the 1995 10-K)* 10.33 -- Investment Agreement dated as of December 31, 1996 with Five Arrows Realty Securities L.L.C. * 10.34 -- Operating Agreement dated as of January 21, 1997 with Five Arrows Realty Securities L.L.C. * 10.35 -- Articles Supplementary Classifying 2,000,000 shares of Preferred Shares as Class A Senior Cumulative Convertible Preferred Shares and 2,000,000 shares of Excess Shares as Excess Class A Preferred Shares of the Company* 10.37 -- Unsecured Revolving Credit Agreement with Fleet National Bank as administrative agent for itself and lenders dated July 22, 1998 in the amount of $60,000,000 (filed as Exhibit 10.37 to the 1998 10-K)* 10.38 -- Operating Agreement and Management Agreement between the Company and Lexington Acquiport Company, LLC (filed as Exhibit 2 to Form 8-K filed August 31, 1999)* 10.39 -- Form of Employment Agreement between the Company and E. Robert Roskind dated September 20, 1999 (filed as Exhibit 10.39 to Form 10-K filed March 15, 2000)* 10.40 -- Investment Advisory and Asset Management Agreement by and between AGAR International Holdings Ltd. and Lexington Realty Advisors, Inc. 12 -- Statement of Computation of Ratio of Earnings to Fixed Charges 21 -- List of Subsidiaries of the Company 23 -- Consent of KPMG LLP 27 -- Financial Data Schedule as of and for the year ended December 31, 2000
- --------------- * Incorporated by reference. (b) Reports on Form 8-K and Form 8-K/A Current Report on Form 8-K dated November 14, 2000 49 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LEXINGTON CORPORATE PROPERTIES TRUST BY: /s/ E. ROBERT ROSKIND ---------------------------------------- E. Robert Roskind Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated.
SIGNATURE TITLE --------- ----- /s/ E. ROBERT ROSKIND Chairman of the Board of Trustees and Co-Chief Executive - --------------------------------------------------- Officer E. Robert Roskind /s/ RICHARD J. ROUSE Vice Chairman of the Board of Trustees and Co-Chief - --------------------------------------------------- Executive Officer Richard J. Rouse /s/ T. WILSON EGLIN President and Chief Operating Officer and Trustee - --------------------------------------------------- T. Wilson Eglin /s/ PATRICK CARROLL Chief Financial Officer and Treasurer - --------------------------------------------------- Patrick Carroll /s/ PAUL R. WOOD Vice President, Chief Accounting Officer and Secretary - --------------------------------------------------- Paul R. Wood /s/ GEOFFREY DOHRMANN Trustee - --------------------------------------------------- Geoffrey Dohrmann /s/ CARL D. GLICKMAN Trustee - --------------------------------------------------- Carl D. Glickman /s/ JOHN D. MCGURK Trustee - --------------------------------------------------- John D. McGurk /s/ SETH M. ZACHARY Trustee - --------------------------------------------------- Seth M. Zachary
DATE: March 28, 2001 50 EX-10.40 2 y47282ex10-40.txt INVESTMENT ADVISORY & ASSET MANAGEMENT AGREEMENT 1 EXHIBIT 10.40 EXECUTION COPY ================================================================================ INVESTMENT ADVISORY AND ASSET MANAGEMENT AGREEMENT BY AND BETWEEN AGAR INTERNATIONAL HOLDINGS LTD. AND LEXINGTON REALTY ADVISORS, INC. ================================================================================ 2
TABLE OF CONTENTS ARTICLE I. APPOINTMENT, DUTIES AND SHARI' A COMPLIANCE; AUTHORITY; ADVISOR'S REPRESENTATIONS AND WARRANTIES; AGAR'S REPRESENTATION.......2 Section 1.1 Appointment, Duties and Shari'a Compliance. .........................2 Section 1.2 Authority. ..........................................................2 Section 1.3 Advisor's Representations, Warranties and Certain Agreements of Advisor. ..........................................................2 Section 1.4 AGAR's Representations. .............................................5 ARTICLE II. TERM..................................................................6 ARTICLE III. DESCRIPTION OF SERVICES...............................................6 Section 3.1 Investment Advisory Services. .......................................6 Section 3.2 Asset Management Services. .........................................10 ARTICLE IV. COMPENSATION FOR SERVICES............................................16 Section 4.1 General. ...........................................................16 Section 4.2 Invoices. ..........................................................16 Section 4.3 Payment of Expenses. ...............................................16 ARTICLE V. INDEPENDENT CONTRACTORS STATUS.......................................17 ARTICLE VI. INDEMNITY............................................................17 ARTICLE VII. INFORMATION..........................................................18 ARTICLE VIII. NO CONFLICTS ALLOCATION OF INVESTMENT OPPORTUNITIES..................18 ARTICLE IX. AFFILIATED ENTITIES..................................................19 ARTICLE X. NO WARRANTY AS TO VALUE OR PROFITABILITY.............................19 ARTICLE XI. MISCELLANEOUS........................................................19 Section 11.1 Assignment. ........................................................19 Section 11.2 Modification and Amendment. ........................................20 Section 11.3 Licenses; Compliance with Law........................................20 Section 11.4 Severability. ......................................................20 Section 11.5 Resolution of Disputes. ............................................20
3 Section 11.6 Governing Law; Certain Construction Rules. .........................21 Section 11.7 Notice. ............................................................21 Section 11.8 Termination. .......................................................24 Section 11.9 Shari'a Requirements. ..............................................24 Section 11.10 Integration, Incorporation by Reference. ...........................24
4 Exhibit A - Investment Criteria Exhibit B - Hold/Sell Decision Analysis Exhibit C - Investment Proposal Summary Exhibit D - Summary of Financial Analysis and Due Diligence Exhibit E - Cash Management Procedures To Be Followed, As Permitted By Shari'a Rules Exhibit F - Form of Quarterly Reports Exhibit G - Advisor Fees Exhibit H - Authorized Persons For Agar Exhibit I - List of Consultants
5 INVESTMENT ADVISORY AND ASSET MANAGEMENT AGREEMENT This Investment Advisory and Asset Management Agreement (this "AGREEMENT"), made and entered into as of the ____ day of August, 2000, by and between AGAR INTERNATIONAL HOLDINGS LTD., a corporation organized under the laws of the British Virgin Islands ("AGAR"), and LEXINGTON REALTY ADVISORS, INC., a corporation organized under the laws of Delaware ("ADVISOR"). WITNESSETH THAT: WHEREAS, AGAR desires to invest in and finance real estate projects in the United States in conformity with the rules and principles of the Glorious Shari'a, as such rules and principles are determined and interpreted through advice provided to AGAR by Shari'a scholars and communicated in writing to Advisor by AGAR (such rules and principles, as thus determined, interpreted and communicated, being hereinafter called the "SHARI'A") and in accordance with the "INVESTMENT CRITERIA", as hereinafter defined; WHEREAS, AGAR desires to contract with one or more investment managers who shall have the power to acquire, manage, finance or dispose of AGAR's real estate assets as AGAR shall approve from time to time; WHEREAS, AGAR desires to advise certain United States entities (hereinafter collectively called the "USCos" and individually called a "USCo") and to procure for the USCos the benefit of this Agreement with respect to the USCos' investment in, and financing of, real estate projects in the United States, likewise in conformity with the Shari'a; WHEREAS, The Townsend Group ("TOWNSEND") provides consultant services to AGAR with respect to certain of AGAR's investments in the United States, and AGAR desires that Townsend act as its consultant in connection with the provision by Advisor of investment advisory services to AGAR pursuant to this Agreement; and WHEREAS, Advisor has represented that it is experienced in the real estate investment advisory and asset management business; 6 NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, AGAR and Advisor, intending to be legally bound, agree as provided herein. ARTICLE I. APPOINTMENT, DUTIES AND SHARI' A COMPLIANCE; AUTHORITY; ADVISOR'S REPRESENTATIONS AND WARRANTIES; AGAR'S REPRESENTATION SECTION 1.1 APPOINTMENT, DUTIES AND SHARI'A COMPLIANCE. On the terms and subject to the conditions hereof, AGAR hereby appoints Advisor as its investment advisor and asset manager as to certain of AGAR's prospective investments in United States real property; and Advisor, on said terms and subject to such conditions, hereby accepts such appointment and agrees, as provided herein, to provide (a) advice and investment services to AGAR with respect to the investment of certain assets of AGAR in real estate projects in the United States, and (b) asset management services with respect to investments in real estate projects in the United States made hereunder or otherwise by AGAR (hereinafter referred to as an "INVESTMENT" or the "INVESTMENTS" or a "PROPERTY" or the "PROPERTIES", as the context dictates). With respect to all Investments and leases for space in the Properties (including, with respect to leases, modifications, renewals and extensions thereof), proposed to AGAR by Advisor or entered into on AGAR's behalf by Advisor, Advisor will use best efforts to ensure compliance with the Shari'a. Such best efforts shall include identifying factors which violate or are inconsistent (or which Advisor believes would violate or be inconsistent) with Shari'a principles, based on a description of such principles communicated, in writing, to Advisor by AGAR. SECTION 1.2 AUTHORITY. Advisor hereby accepts the foregoing appointment and agrees that it shall seek out and recommend to AGAR United States real estate investments which Advisor believes are advisable as Investments hereunder by AGAR and which comply with the Investment Criteria as set forth on EXHIBIT A. Advisor shall not make any Investment on behalf of AGAR unless Advisor is authorized to do so, as more fully provided hereafter. SECTION 1.3 ADVISOR'S REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF ADVISOR. Advisor represents, warrants and agrees that: -2- 7 1.3.1 STANDARDS OF CARE. Advisor shall perform its duties hereunder in a good, efficient manner using such care and diligence as real estate investment advisers of portfolios similar to the portfolio proposed to be acquired by AGAR are expected to use within the industry. 1.3.2 COMPLIANCE WITH LAWS; FIDUCIARY UNDERTAKING. Advisor shall become a registered investment advisor under the New York General Business Law (the "ACT") and is in compliance in all material respects, and will continue to be in compliance during the entire term of this Agreement, with the Act. Advisor is not required by such Act to register as an investment adviser under the provisions of the U.S. Investment Advisers Act of 1940, as amended (the "1940 Act"). However, Advisor agrees that, in addition to the other standards of performance provided herein for Advisor and Advisor's other fiduciary duties hereunder, Advisor shall act as a "fiduciary" with respect to the conduct of its investment advisory responsibilities to AGAR hereunder as fully and to the same extent as Advisor would be required to do so if Advisor were registered as an investment adviser under the 1940 Act. 1.3.3 EXPERIENCE OF PERSONNEL. The personnel of Advisor who will be responsible for carrying out this Agreement are individuals experienced in the making of real estate investments of the nature contemplated by this Agreement and, specifically, the Investment Criteria, and are also experienced in the performance of the various functions contemplated by this Agreement. 1.3.4 CHANGE IN CONTROL. Advisor shall promptly give AGAR "NOTICE" (as defined in Section 11.7 hereof) in the event of any change in control of Advisor. Change in control is defined as a change of greater than 33% in the ownership of Advisor or the death, incapacity, resignation or removal of either E. Robert Roskind or T. Wilson Eglin as executives of Advisor. Advisor shall also give AGAR Notice of any proposed change in the personnel primarily responsible for the performance of the duties of Advisor specified in this Agreement. The personnel initially primarily responsible for the performance of Advisor's duties under this Agreement are T. Wilson Eglin and Richard J. Rouse. 1.3.5 ADVISOR'S INSURANCE. Advisor has procured and shall maintain at all times at its expense during the term of this Agreement Errors and Omissions/Professional Liability Insurance and Financial Institutional Bond Insurance in the amount of $5,000,000 per claims made and in the aggregate. If requested to do so, Advisor shall furnish to AGAR on an annual basis a certificate evidencing such insurance setting forth (i) the amount(s) and types of coverage, (ii) policy number(s), (iii) expiration date(s), (iv) carrier name(s), and (v) deductibles. Furthermore, Advisor shall promptly provide Notice to AGAR of any termination or reduction in the amount or scope of coverage. Advisor shall be permitted to maintain the foregoing coverage on a "blanket" or "umbrella" basis; -3- 8 provided that in no event shall less than the full amount of coverage required by this Agreement be available for claims arising hereunder or in connection herewith. The maintenance of Errors and Omission/Professional Liability Insurance or Financial Institutional Bond Insurance shall not release Advisor from any obligations or liabilities under this Agreement. 1.3.6 ADVISOR NOTICE REQUIREMENT. Advisor shall promptly give AGAR and Townsend Notice in the event that any of the foregoing acknowledgments, representations, warranties or agreements shall no longer be true. In addition, Advisor shall promptly (but in no event later than ten days after Advisor receives notice thereof) give AGAR and Townsend Notice of any event or circumstance respecting any Property or Investment which has resulted in, or reasonably can be expected to result in, (a) material physical damage to a Property, (b) any legal action, suit, investigation, examination or other legal proceeding commenced for, by or against AGAR, any USCo, Townsend, Advisor or any third-party managing agent or tenant relating to the ownership, operation, management or occupancy of any Property or Investment or (c) a reduction in aggregate revenues or an increase in aggregate expenditures of three percent (3%) or more from the amounts shown in the applicable Annual Budget as to such Property or Investment. 1.3.7 INVESTMENT EXCLUSIVE. AGAR shall have an exclusive right of first offer with respect to all investment opportunities identified by Advisor, with a sale price of less than U.S.$20 million in the following categories: (i) Properties dedicated to retail sales; (ii) Properties with a lease due to expire within 10 years of the date the Investment Proposal Summary is provided to AGAR; (iii) Properties under construction, with construction completion targeted for no sooner than 90 days after the date the Investment Proposal Summary is provided to AGAR; and (iv) Properties that this Agreement permits to be offered first to the New York Common Retirement Fund (the "New York Fund") and which have been offered to and rejected by the New York Fund. In addition, AGAR shall have an exclusive right of first offer with respect to all investment opportunities identified by Advisor with a sale price of less than U.S.$10 million. -4- 9 AGAR shall have an alternating right of first offer with the New York Fund with respect to any Property with a tenant whose credit rating is less than investment grade and the sale price is less than U.S. $20 million and greater than U.S. $10 million. Advisor shall offer AGAR sufficient Properties for AGAR to fill its allocation prior to making any new acquisitions for the portfolio held by Lexington Corporate Properties Trust ("LXP"). Notwithstanding any provision in this Section 1.3.7 save for the next sentence of this paragraph, Advisor, on behalf of LXP, shall have a right of first offer with respect to investment opportunities when such investment is required by Advisor and/or LXP in order to complete an exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended" (a "1031 EXCHANGE TRANSACTION") within the required time periods, provided, however, that, if there are more than two 1031 Exchange Transactions during any 12 month period, Advisor shall first obtain AGAR's consent prior to consummating any additional 1031 Exchange Transactions in said 12 month period. Notwithstanding the next preceding sentence, neither Advisor nor LXP shall have the right in any calendar year during the term hereof to effect a 1031 Exchange Transaction free of the first offer rights of AGAR specified above unless and until Advisor shall have given AGAR an opportunity to make at least one Investment in a Property qualifying hereunder in such year. Advisor shall provide notice to AGAR at the earliest practical time after determining to pursue a 1031 Exchange Transaction. SECTION 1.4 AGAR'S REPRESENTATIONS. AGAR represents that: 1.4.1 ERISA APPLICABILITY. Funds used in conjunction with the transactions contemplated by this Agreement will not be plan assets of any employee benefit plan or its related trust (as such terms are defined by the U.S. Employee Retirement Income Security Act of 1974 as amended "ERISA") and as such are not subject to ERISA or the regulations promulgated thereunder; and 1.4.2 DUE ORGANIZATION AND AUTHORITY. AGAR is a company that has been duly organized, validly exists and is in good standing under the laws of its jurisdiction of incorporation; AGAR is authorized to undertake the business contemplated by the Agreement; the person signing this Agreement on behalf of AGAR has the authority to sign the agreement and bind AGAR; and this Agreement does not conflict with any other agreements of AGAR or conflict with its Articles of Incorporation or By-laws. -5- 10 ARTICLE II. TERM This Agreement, and the rights, duties and obligations of the parties hereunder, shall commence as of the date first above written (the "COMMENCEMENT DATE") and, subject to the provisions of Section 11.8 hereof, shall continue until the third (3rd) anniversary of the Commencement Date. Thereafter, this Agreement shall be automatically renewed for successive one (1) year periods on each anniversary of the Commencement Date unless either AGAR or Advisor shall have given the other at least thirty (30) days' Notice of its desire not to renew this Agreement. ARTICLE III. DESCRIPTION OF SERVICES SECTION 3.1 INVESTMENT ADVISORY SERVICES. Advisor shall provide the following investment advisory services to AGAR with respect to prospective Investments by AGAR: 3.1.1 INVESTMENT CRITERIA. The criteria (the "INVESTMENT CRITERIA") that will be used in seeking Investments for AGAR are attached to this Agreement as EXHIBIT A. The Investment Criteria may be amended from time to time by Notice in Section 11.7 hereof from AGAR to Advisor as AGAR, in its discretion, redefines and refines its investment and portfolio objectives and policies. However, AGAR acknowledges that, if the Investment Criteria are broadened at any future time, Advisor may be obligated under then existing contractual arrangements with other clients to present certain Investment opportunities to such other clients. 3.1.2 ANNUAL BUSINESS PLAN. Advisor shall prepare for AGAR's approval an Annual Business Plan for each calendar year setting forth the general and specific criteria for its investment allocation and approach for the ensuing year (once approved, herein the "ANNUAL BUSINESS PLAN" for the ensuing year); provided however, Advisor shall prepare an Annual Business Plan within forty-five (45) days after acquisition of any Property if a Property is acquired (or Advisor otherwise assumes management of a Property at AGAR's request) during the course of any calendar year; and, provided further, that Advisor shall prepare and provide to AGAR an Annual Business Plan for the remainder of the 2000 calendar year within 30 days after the execution of this Agreement. The investment criteria set forth therein shall be consistent with the Investment Criteria and shall include diversification criteria and risk/return expectations. A -6- 11 preliminary draft of each proposed annual business plan shall be submitted for AGAR's approval no later than October 1 for AGAR's review or approval on or before November 15. As part of each annual business plan, Advisor shall include a proposed annual budget and business plan for AGAR's portfolio and for each individual Property as more specifically described in Section 3.2.3 hereof. The proposed annual business plan shall also include a narrative description of Advisor's proposed investment strategy for the ensuing year for each Property and for the portfolio as a whole (including leasing, operations and capital programs) and an estimated income and cash flow statement for the ensuing year, including gross revenues, expenses, percentage rent, additional interest, property management fees, net operating income, tenant improvements, leasing commissions, capital expenditures, cash flow before and after debt service, tenant expiration schedules, quarterly distribution projections, an internal (Advisor) opinion of value for each Property and a hold/sell decision evaluation (with a comparison to the exit strategy described in the Investment Proposal Notice, as hereinafter defined, and the prior year's Annual Business Plan and including the analysis described on EXHIBIT B, attached hereto.) 3.1.3 INVESTMENT SEARCH; PERIOD FOR APPROVAL BY AGAR. Advisor shall identify and recommend to AGAR and Townsend real estate investment opportunities that are consistent with the Investment Criteria and the Annual Business Plan and that Advisor believes would constitute prudent investments if made. Immediately upon identifying such investments, Advisor shall proceed to negotiate on behalf of AGAR, and in conjunction with Townsend and legal counsel (as selected by AGAR), a non-binding letter of intent, which shall provide for the preparation of a formal contract of purchase and sale, which contract shall provide for a reasonable opportunity (typically not less than thirty (30) days) for due diligence investigation and inspection. Each non-binding letter of intent shall expressly state that the final terms of the transaction, and the form and content of the final, binding legal documentation, shall be subject to the approval of AGAR. For each such investment, Advisor will present in writing to AGAR and Townsend by Notice, together with a copy of the executed letter of intent, an "INVESTMENT PROPOSAL SUMMARY" containing at least those items of information set forth on EXHIBIT C, attached hereto, and such other information as Advisor, AGAR or Townsend determines is relevant and material (each such Notice transmitting an Investment Proposal Summary being hereafter called an "INVESTMENT PROPOSAL NOTICE"). To the extent practicable, Advisor shall orally inform AGAR and Townsend of the essential details of the investment opportunity prior to delivery of an Investment Proposal Notice. Simultaneously with the delivery of each Investment Proposal Notice, Advisor shall confirm in writing to AGAR if Advisor or any affiliate of Advisor (i) has any direct or indirect interest in the proposed Property or if its purchase by AGAR will benefit Advisor or any -7- 12 affiliate of Advisor, except as provided herein with respect to payment of certain fees by AGAR to Advisor; (ii) has any business relationship with the seller of the Property attendant to the proposed transaction; and (iii) has any knowledge of any other potential conflicts of interest arising out of the proposed transaction. Within seven (7) days after the date on which an Investment Proposal Notice is received by AGAR, AGAR will, in its sole discretion, determine and give Notice (a "PRELIMINARY INTEREST NOTICE") to Advisor if AGAR has a preliminary interest in proceeding with respect to the particular Investment opportunity; provided, however, that such seven (7) day period will be extended by two (2) days if the Investment Proposal Notice is received by AGAR on a Thursday or Friday, which are non-business days in Saudi Arabia. If AGAR fails to give a Preliminary Interest Notice to Advisor within such period, AGAR will be deemed to have rejected the particular Investment Proposal, and Advisor will notify the third party Seller and terminate the letter of intent. If AGAR gives a Preliminary Interest Notice that indicates preliminary interest in an Investment, AGAR shall be deemed to have authorized Advisor to pursue the acquisition of the Property in question on behalf of AGAR, as described more fully below. 3.1.4 CONTRACT NEGOTIATION. If AGAR gives a Preliminary Interest Notice as to an Investment opportunity recommended by Advisor in an Investment Proposal Notice, then, upon receipt of AGAR's Preliminary Interest Notice, which shall be followed within seven (7) days thereafter by a money deposit of up to 3% of the Investment asking price in accordance with the instructions given in the Investment Proposal Notice, Advisor, in cooperation with Townsend, AGAR's appointed legal and tax counsel and other approved consultants, shall conduct negotiations regarding a formal, binding contract of purchase and sale. The money deposit shall be held in a non-interest bearing account in accordance with the instructions given in the Investment Proposal Notice. Each contract of purchase and sale shall: (i) require AGAR to place in escrow a good faith deposit not exceeding 3% of the purchase price under such contract (it being understood that Advisor will use best efforts to negotiate the lowest deposit possible); (ii) be contingent upon AGAR's complete satisfaction with the results of the due diligence and any inspection and satisfaction of all conditions to AGAR's obligation to effect the purchase; and (iii) specify that all good faith deposits will be refundable until the expiration of the due diligence period and satisfaction of all conditions to AGAR's obligations to effect the purchase and thereafter will be credited toward the purchase price. 3.1.5 DUE DILIGENCE AND CLOSING. During the due diligence period, Advisor, shall perform a financial analysis of such Investment and shall conduct a due diligence investigation with respect to the physical condition of the Property, working, as appropriate, with Townsend, legal counsel and other professional consultants selected by Advisor and approved and employed by AGAR. Advisor's due diligence investigation shall at a minimum include the review and analysis set -8- 13 forth on EXHIBIT D, attached hereto. AGAR may determine that it is desirable to employ outside experts and consultants to review the physical components of any improvements which constitute a part of a prospective Investment and other aspects of the proposed Investment, including environmental specialists, market consultants, appraisers, engineers, tax certiorari specialists, construction consultants, insurance consultants, architects, and accountants. In any such case, Advisor shall identify such firms as, in its judgment, are appropriate to the investigation and analysis of the prospective Investment under consideration and shall provide a cost estimate to AGAR for the proposed services to be performed by each such firm. Advisor will, upon receiving AGAR's prior written approval, engage such firms on behalf of AGAR and at AGAR's expense. Attached hereto as Exhibit I is a list of pre-approved vendors that may be used by Advisor; any other vendor shall be used only after AGAR's approval. Thereafter, Advisor will monitor the activities and performance of such outside consultants and will deliver to AGAR, upon request, copies of all reports or conclusions made or reached by such consultants. If at any time during the investment process, AGAR advises Advisor that it or Townsend wishes to visit and inspect the subject Property, then Advisor shall arrange for AGAR's or Townsend's representatives (or representatives of both) to have an opportunity to inspect the Property and to have their reasonable questions answered by the Advisor's outside consultants and representatives of the third party seller. During the due diligence period Advisor, usually working with third party mortgage brokers, will identify the most attractive financing available and provide analysis of such financing, as well as financings proposed by AGAR, provided, however, Advisor will not incur any costs associated therewith until after such Investment has been approved. All Property or portfolio financings shall be structured so as to comply with the Shari'a. At least seven (7) days prior to the conclusion of the described financial analysis and due diligence, Advisor shall prepare and furnish to AGAR and Townsend by Notice a final report (the "RECOMMENDATION REPORT NOTICE") containing the conclusions and recommendations of Advisor with respect to the proposed Investment, highlighting risks and deviations from the Investment Proposal Summary and giving Advisor's advice and recommendations concerning the results of third party consultant's reports. AGAR shall be deemed to have disapproved the Investment unless AGAR gives Notice to Advisor within seven (7) days after a Recommendation Report Notice is received by AGAR that AGAR approves the Investment in question; provided, however, that such seven (7) day period will be extended by two (2) days if the Recommendation Report Notice is received by AGAR on a Thursday or Friday, which are non-business days in Saudi Arabia. -9- 14 If AGAR approves an Investment opportunity recommended by Advisor in a Recommendation Report Notice, then Advisor, in cooperation with Townsend, AGAR's appointed legal and tax counsel and other approved consultants, shall supervise the closing of the transaction (the "CLOSING"). At least ten (10) days prior to the proposed date for signing the binding legal documentation pertaining to a particular Investment, Advisor shall prepare and give to AGAR and Townsend by Notice a summary of the transaction and a summary of all material terms of the legal documentation and, in particular, shall highlight any terms that differ from those set forth in the applicable non-binding letter of intent and the Recommendation Report Notice. All binding legal documents as to each Investment shall be executed and delivered only by an authorized officer of AGAR, unless AGAR, acting in its sole discretion, shall authorize another party to execute such documents on AGAR's behalf. SECTION 3.2 ASSET MANAGEMENT SERVICES. With respect to AGAR's Investments, Advisor shall provide the following asset management services: 3.2.1 RENTAL OF PROPERTY. It is not expected that there will be any significant leasing activity at the Properties; however, to the extent leasing is necessary, Advisor shall supervise all such leasing and all occupancy matters with respect to the Investments, subject to the final approval of AGAR and any leasing restrictions or limitations included in any restrictive covenant or other instrument or document affecting any particular Property of which Advisor is aware. All leasing of a particular Property and any modifications, renewals or extensions thereof shall be in conformity with the investment guidelines for such Property (if necessary) proposed by Advisor and approved by AGAR. AGAR shall designate from time to time those individuals who shall have signature authority for all leases of Properties owned by AGAR. 3.2.2 MANAGEMENT OF PROPERTY. Advisor shall monitor the tenants' compliance with the terms of the applicable leases, including terms regarding maintenance of each Property. It is not generally expected that net lease assets require property managers. To the extent it becomes necessary, and subject to prior written approval by Notice from AGAR, Advisor shall select, arrange for, supervise and, if appropriate, replace third-party managing and leasing agents (selected for their expertise in the local market area), mortgage brokers and agents engaged to assist with debt financing and independent contractors with respect to the maintenance, repair, operation and leasing of each Property, pursuant to contracts ("SERVICE CONTRACTS") containing such terms as Advisor has recommended to AGAR. Except as otherwise provided herein, such Service Contracts shall be subject to the prior written approval, given by Notice of AGAR and shall be entered into by Advisor in the name of and on behalf of AGAR. Property management fees shall be competitive in the relevant local market, and -10- 15 Advisor shall review each property management arrangement no less frequently than once every two (2) years to confirm that the fees payable thereunder are competitive in the local market area. Payments for services rendered under the Service Contracts shall be the obligation of AGAR. Advisor shall supervise the administration of and performance of all work done under all Service Contracts and shall monitor compliance of all service-providers with the terms and conditions of their respective Service Contracts, regardless of whether expenditures therefor are set forth in the applicable "ANNUAL BUDGET", as hereafter defined. In furtherance of the foregoing, AGAR must by Notice approve in writing and in advance all third party engagements for services which are not identified in previously approved Annual Budgets and/or which provide for payments in an amount which may exceed the approved guidelines in each Property's Annual Budget, it being agreed that the Annual Budget for each Property will contain cost and expenditure guidelines under which Advisor may enter into third-party service arrangements and Service Contracts without the further approval of AGAR. 3.2.3 ANNUAL BUDGET. Advisor will oversee the annual budgeting process with respect to each Property. Advisor shall prepare a draft annual budget (including both operating and capital budget considerations) and business plan for each Property for the ensuing calendar year and submit such draft budgets to AGAR and Townsend no later than October 1 for AGAR's review and approval on or prior to November 15. The Annual Budget may include a reasonable reserve for emergency expenses. Once approved by AGAR, the annual budget for a Property shall be its "Annual Budget" for the ensuing calendar year. Until AGAR approves an Annual Budget for a particular Property, the Property shall continue to be operated under the Annual Budget applicable thereto for the prior year and previously approved by AGAR with each expense line item increased by no more than 3%. At or before the time of the Closing of the acquisition of any Property, Advisor shall propose to AGAR and Townsend, and Advisor and AGAR shall agree upon, a budget for the Property to be acquired for the remainder of the calendar year in which the Closing date will occur, and such budget shall be the Annual Budget for that Property for such period. Advisor shall oversee the management and operation of each Property in accordance with the applicable Annual Business Plan and the applicable Annual Budget and shall review and approve all operating and capital expenditures at the Properties to ensure compliance with the applicable Annual Business Plan and the applicable Annual Budget. 3.2.4 EMERGENCY EXPENDITURES. In addition to any contingency and reserve items contained in the Annual Budget applicable to a particular Property, Advisor shall be authorized to make emergency expenditures with respect to a Property not contemplated by the said Annual Budget and without the prior -11- 16 approval of AGAR (a) if Advisor believes such expenditure to be necessary to correct any condition that eminently threatens loss of life or serious personal injury or property damage or that constitutes a violation of law the sanction for which is imprisonment or a material fine or civil penalty and (b) if Advisor reasonably believes that, given the urgent and emergency nature of the condition in question, it would not be prudent to take the time necessary to seek the approval of AGAR for such expenditures. If any expenditures are made under this Section 3.2.4, Advisor shall immediately thereafter advise AGAR and Townsend thereof by Notice, which Notice shall also explain why the conditions in question could not reasonably be expected to be contemplated by the applicable Annual Budget and why it was necessary to make such expenditure without obtaining the prior approval of AGAR. 3.2.5 PROCUREMENT OF INSURANCE. Advisor will recommend whether to obtain and maintain for AGAR, at AGAR's expense, public liability and extended coverage casualty insurance. If such insurance is obtained, it shall be from reputable, independent insurance companies as contemplated by the Annual Budget for each Property and as, in the reasonable opinion of Advisor, may be necessary and appropriate for the protection of the Properties and the interests of AGAR and Advisor. Advisor shall seek to obtain such insurance at the lowest available cost and, with the prior approval of AGAR, may employ at the expense of AGAR an insurance consultant to advise in that regard. Any cost savings as to insurance which Advisor may derive by including AGAR and its Properties in an "umbrella" or "package" policy(ies) also covering other assets under management by Advisor on behalf of other clients shall be passed along to AGAR. 3.2.6 COLLECTION OF RENT AND OTHER SUMS. Advisor shall collect (or supervise the collection by any third-party managing agents engaged pursuant to Section 3.2.2 hereof) all fixed rent, percentage rent, additional rent and other sums payable by tenants of the Properties or portions thereof and shall review the accounts of any third-party managing agents in respect of all items of income and expense of each Property. All rents and other funds received with respect to the Properties shall be deposited in an account opened in the name of AGAR or an affiliate thereof at a financial institution approved by AGAR, and such rent and other funds shall not be commingled with Advisor's funds or the funds of any other client of Advisor. Advisor agrees (and shall instruct any third-party managing agents engaged) that no sums collected from the Properties shall be deposited in interest-bearing accounts, and all cash management activities for the Properties, whether handled by Advisor or by a third-party managing agent, shall be conducted in compliance with the provisions of EXHIBIT E hereto (which EXHIBIT describes cash management procedures which AGAR is satisfied will be in compliance with the rules and principles of the Shari'a). Advisor shall use its best efforts to ensure that all necessary steps are taken with respect to the -12- 17 enforcement on behalf of AGAR of any and all rights and remedies of AGAR under any leases, including, but not limited to, the giving of all notices, whether of default or of intention to end the term of a lease or otherwise, which in the judgment of Advisor are desirable or proper for the protection of the interests of AGAR. Advisor shall not commence, or cause any third-party property manager to commence, any legal action or to take any step to terminate any lease, that, if such lease were being entered as a new lease, would require AGAR's prior approval, without first obtaining the written approval of AGAR. 3.2.7 REPORTS TO AGAR AND TOWNSEND. Advisor shall provide to AGAR and Townsend quarterly and, to the extent not already provided in the Annual Business Plan, annual reports in narrative form with respect to each of the Investments and the portfolio as a whole and shall provide other reports at such other times as AGAR or Townsend may reasonably request. Such quarterly and annual reports shall be in the format attached hereto as EXHIBIT F and shall describe the nature, status and progress of the Investments and shall be delivered to AGAR and Townsend no later than (i) forty-five (45) days after the end of each calendar quarter, in the case of the quarterly reports and (ii) sixty (60) days after the end of each calendar year, in the case of the annual reports. In addition, Advisor shall prepare and deliver to AGAR and Townsend no later than twenty (20) days after the end of each calendar quarter a "flash report" with respect to each Investment summarizing (in a preliminary manner) the financial performance of each Investment during the prior calendar quarter and any material developments regarding such Investments. Such "flash report" shall also contain a description of any and all deposits of rental and other income made to AGAR's account pursuant to Section 3.2.6 hereof. Advisor shall prepare and maintain, or cause to be prepared and maintained, complete and accurate books and records relating to each Investment and each Property, showing all receipts, disbursements and other transactions. Such books and records shall be the property of AGAR and shall be open to inspection by AGAR or its authorized representatives (including Townsend) on, reasonable notice to Advisor, at the office of Advisor during normal business hours. Using an independent firm of certified public accountants approved in writing by AGAR, Advisor shall cause annual financial statements of the corporations (including USCos holding the Properties) to be prepared and audited at AGAR's request in compliance with U.S. generally accepted accounting principles, consistently applied ("GAAP"), using the historical cost basis method, and shall deliver such audited financial statements to AGAR or to any other corporation (such as a USCo) thus audited. The fee and expense charges of the firm of independent certified public accountants which conducts the audit(s) shall be borne by AGAR (or the respective USCo), and AGAR's obligation to pay such charges shall survive the termination of this Agreement. -13- 18 3.2.8 TAX MATTERS. Advisor, without incurring any responsibility or liability to AGAR for the payment of any taxes, or interest, penalties or other required payments thereon, shall cooperate with AGAR's U.S. tax consultants who are responsible for the preparation of all U.S. federal, state and local income tax returns for AGAR. Advisor shall fully cooperate with any AGAR consultants, lawyers and accountants with respect to minimizing AGAR's taxes and structuring investments, including making all books and records with respect to a Property available upon reasonable notice to such consultants and exploring with them various alternatives with respect to the Investments, it being understood that the responsibility for the accurate preparation of such tax returns and for such tax planning and structuring, based on information and materials presented to such consultants, shall lie with AGAR's U.S. tax consultants. 3.2.9 PERIODIC MEETINGS. At times mutually agreed upon by Advisor and AGAR, representatives of Advisor generally prepared to discuss AGAR's Investments shall meet with representatives of AGAR (in Saudi Arabia once a year), at Advisor's expense, to discuss the general operation of the Investments and/or to review any matter pertaining to Advisor's duties or performance hereunder. 3.2.10 SALE OR OTHER DISPOSITION OF INVESTMENTS. As described in Section 3.1.2 hereof, Advisor shall review each of the Investments with respect to AGAR's continued ownership, sale or other disposition thereof on an annual basis and shall make recommendations in those regards to AGAR and Townsend in the proposed Annual Business Plan. If AGAR gives Notice to Advisor that it wishes to sell or otherwise dispose of any Investment, Advisor shall provide the following services with respect thereto: (a) prepare (or cause to be prepared) and appropriately distribute basic marketing materials and sales brochures relating to the Investment; (b) screen prospective purchasers of, or other parties that may wish to acquire an interest in, the Investment; (c) analyze, and consult with AGAR and Townsend regarding any offers received to purchase or otherwise invest in the Investment (whether using equity or otherwise), and make recommendations in writing containing such information and detail as AGAR shall need to make a reasoned decision as to whether to proceed with the proposed transaction; (d) upon receiving the written approval of AGAR to proceed with a sale or other disposition, negotiate with prospective purchaser(s) or -14- 19 other investor(s) a non-binding letter of intent containing the material business terms and conditions of such sale or other disposition of the Investment; (e) negotiate the final legal documentation with respect to such sale or disposition, consistent with the business terms and conditions previously approved by AGAR, and supervise the Closing thereof (provided AGAR approves in writing going forward with the Closing); (f) generally, consult with and advise AGAR and Townsend as to all aspects of the transaction; and (g) hire as necessary, with AGAR's written consent and at AGAR's expense, any professionals and/or consultants necessary to assist in the sale and marketing process. At least ten (10) days prior to the proposed date of signing of the binding legal documentation pertaining to a particular sale or other disposition, Advisor shall prepare and deliver to AGAR and Townsend a summary of the transaction and a summary of the material terms of all legal documentation and, in particular, shall highlight any terms that differ in any material respect from those of the applicable non-binding letter of intent. All binding legal documents as to the sale or other disposition of any interest in any Investment shall be executed and delivered only by an authorized officer of AGAR, unless AGAR, acting in its sole discretion, shall authorize another party to execute such documents on behalf of AGAR. In the event Advisor determines (as is probable) that the services of an independent real estate broker would be useful to facilitate or otherwise arrange for the sale of an Investment, Advisor shall so advise AGAR and Townsend and, as and to the extent approved in writing by AGAR, Advisor shall arrange for and negotiate contracts with a broker or brokers whose fees shall be AGAR's responsibility. 3.2.11 GOVERNMENT REGULATIONS. Advisor shall use its best efforts to insure that each Property is managed in compliance with all laws and regulations of any U.S. federal, state, county or municipal authority having jurisdiction over such Property. 3.2.12 RENTAL COMMISSIONS. It is not expected that there will be any significant leasing activity at the Properties. However, to the extent leasing is necessary, neither Advisor nor any affiliate thereof shall charge leasing commissions with respect to leasing any Property, and, to the extent necessary, Advisor shall use its best efforts to have the applicable on-site property manager -15- 20 (i.e., the third-party managing agent if one is engaged) lease the Properties whenever practical. To the extent necessary and subject to the prior written approval of AGAR, and in accordance with the leasing criteria and guidelines approved by AGAR, Advisor may employ the services of outside leasing brokers and/or agents, the payment of whose commissions shall be the responsibility of AGAR. 3.2.13 CORPORATE MATTERS. Upon the request of AGAR, Advisor, or an affiliate thereof, shall, in cooperation with legal counsel to the respective USCos, provide administrative services for such USCos, including maintaining corporate and/or other records, preparing corporate resolutions and preparing and making required governmental filings. Any franchise taxes, incorporation fees or other charges of such nature relating to the USCos shall be paid by the respective USCo, as shall the fees and expenses of legal counsel to such USCos. ARTICLE IV. COMPENSATION FOR SERVICES SECTION 4.1 GENERAL. AGAR shall pay to Advisor the fees described on EXHIBIT G, attached hereto. SECTION 4.2 INVOICES. Advisor's invoices for each of the fees due Advisor pursuant to EXHIBIT G of this Agreement shall include a detailed analysis showing how such fee was computed by Advisor, which analysis shall set forth the purchase price, Closing costs and brokerage commissions and other fees, capital expenditures, leasing fees, tenant improvement allowances and concessions and any other items which form the basis upon and from which the fee was computed. Fees shall be determined using GAAP on an accrual basis. SECTION 4.3 PAYMENT OF EXPENSES. AGAR shall be responsible for all fees and expenses paid to third party consultants engaged on behalf of AGAR (provided said engagement is permitted hereunder or approved by Notice in writing from AGAR) in conjunction with the transactions contemplated by this Agreement. Such fees shall be paid by AGAR to the extent feasible, as an acquisition expense at Closing. If payment at Closing is not feasible and Advisor is holding funds to be distributed to AGAR, Advisor may make disbursements from said funds, after having given prior Notice to AGAR. In the event that payment at Closing is not feasible and Advisor is not holding sufficient funds to make such disbursement, Advisor shall submit, in a timely manner (so as to avoid penalties and interest) invoices to AGAR for payment. Such fees and expenses shall include (i) lawyers' fees; (ii) accountants' fees; (iii) engineers' fees; and (iv) third party appraisal costs. In connection with the investigation of any proposed Property acquisition pursuant to Section 3.1.4 hereof, such fees shall be payable irrespective of -16- 21 whether such proposed acquisition is consummated; provided, however, that where a proposed acquisition is not consummated by AGAR and is subsequently consummated by another of Advisor's clients, said fees shall only be reimbursable to the extent such other client of Advisor does not utilize the services, etc., for which such fees were incurred. ARTICLE V. INDEPENDENT CONTRACTORS STATUS Advisor is an independent contractor and not an employee, partner or joint venturer of AGAR for any purpose whatsoever. Advisor is acting solely as AGAR's investment advisor and asset manager on the terms and subject to the conditions hereof and solely for AGAR's account and upon AGAR's credit. ARTICLE VI. INDEMNITY Except as otherwise provided in this Agreement or applicable law, AGAR shall hold Advisor harmless from and indemnify Advisor against any and all liability, loss, damage, court costs and reasonable expense (including reasonable lawyers' fees) which Advisor may incur or suffer as a result of any claim against Advisor arising out of any action taken, omitted, or suffered to be taken by it in good faith in accordance with the rights or powers conferred on it by this Agreement or instructions from AGAR written in accordance with this Agreement, except where such liability, loss, damage, court costs or expense results from the negligence, bad faith, fraud, willful misconduct, violation of law or violation or breach of obligations or responsibilities of Advisor under this Agreement on the part of Advisor or any of its officers, directors or employees. Advisor hereby waives its right of subrogation with respect to any and all losses indemnified hereby, it being the intention of the parties that Advisor shall only seek recovery from AGAR of its actual loss, net of any of AGAR's insurance proceeds which Advisor receives as a result of such event. Except as otherwise provided in this Agreement or applicable law, Advisor shall hold AGAR harmless from and indemnify AGAR against any and all liability, loss, damage, court costs and reasonable expense (including reasonable lawyers' fees) which AGAR may incur or suffer as a result of any claim against AGAR arising out of any action taken, omitted, or suffered to be taken by Advisor that is not in good faith or which is not in accordance with the rights or powers conferred on Advisor by this Agreement or instructions from AGAR written in accordance with this Agreement or where such liability, loss, damage, court costs or expense result from the negligence, bad faith, fraud, willful misconduct, or violation of law or violation or breach of obligations or -17- 22 responsibilities of Advisor under this Agreement on the part of Advisor or any of its officers, directors or employees. AGAR hereby waives its right of subrogation with respect to any and all losses indemnified hereby, it being the intention of the parties that AGAR shall only seek recovery from Advisor of its actual loss, net of any of Advisor's or AGAR's insurance proceeds which AGAR receives as a result of such event. Except as otherwise provided in this Agreement or applicable law, AGAR shall have a claim or cause of action hereunder against Advisor for any liability, loss, damage, expenses (including reasonable lawyers' fees) or court costs which AGAR may incur or suffer arising out of any action taken, omitted, or suffered to be taken by Advisor only if the action taken, omitted or suffered to be taken by Advisor (acting by or through any of its directors, officers, or employees) (a) was not in accordance with the rights or powers conferred on Advisor by this Agreement or pursuant to written instructions given by AGAR to Advisor in accordance with this Agreement, (b) resulted from the negligence, bad faith, fraud, wilful misconduct or violation of law of or by Advisor or (c) resulted from a violation or breach by Advisor of any of the obligations or responsibilities of Advisor under this Agreement. ARTICLE VII. INFORMATION Advisor will provide information hereunder to Townsend and AGAR which will be based upon representations and other data supplied to Advisor by other parties to prospective transactions. Although Advisor will use reasonable efforts to verify the accuracy of such representations and other data, Advisor shall not be liable to AGAR if such information shall prove to have been inaccurate, false, or misleading in any respect, provided Advisor's attempted verification did not involve negligence, bad faith, willful misconduct, violation of law or violation or breach of obligations or responsibilities of Advisor under this Agreement, on the part of Advisor or any of its officers, directors or employees. ARTICLE VIII. NO CONFLICTS ALLOCATION OF INVESTMENT OPPORTUNITIES AGAR acknowledges and agrees that Advisor is and will be engaged by other, unrelated investors to perform services similar to the investment advisory and asset management services provided to AGAR hereunder and that such engagement and the provision of said services shall not be deemed to create a conflict of interest with respect to, or a breach of, Advisor's obligations and duties hereunder; provided that Advisor shall comply with the provisions of Section 1.3.7 hereof and otherwise shall allocate all investment opportunities among its clients, including AGAR, in a fair and impartial -18- 23 manner, taking into account each client's individual investment guidelines, criteria and objectives. Subject to its obligations under Section 1.3.7 hereof, Advisor shall allocate investment opportunities which are suitable for more than one client among its clients on an established basis which is fair and reasonable. In each quarterly report provided to AGAR and Townsend under Section 3.2.7 hereof, Advisor shall list all investment opportunities which are consistent with AGAR's Investment Criteria which were not recommended to AGAR but which were recommended to another client of Advisor during the previous calendar quarter. At AGAR's or Townsend's request, Advisor will provide AGAR and Townsend with a copy of its internal policies regarding the allocation among its clients of investment opportunities, and any changes therein will promptly be communicated to AGAR and Townsend by Advisor. It is the intention of the parties, that, if an Investment opportunity is rejected (or deemed rejected) by AGAR, Advisor may either purchase or otherwise acquire the Property for the account of a client or for its own account. ARTICLE IX. AFFILIATED ENTITIES Advisor shall not enter into any contract, agreement or other arrangement in connection with any Investment with any party with respect to which Advisor or any person or entity related to or affiliated with Advisor has any direct or indirect ownership or control unless such contract, agreement or arrangement and the nature of the affiliation and/or common ownership between Advisor and such related person or entity has been fully disclosed to and approved in advance and in writing by AGAR. ARTICLE X. NO WARRANTY AS TO VALUE OR PROFITABILITY Notwithstanding any provision of this Agreement to the contrary, Advisor makes no representation or warranty as to the performance of any Investment or that any Investment recommended or managed by Advisor will be profitable. ARTICLE XI. MISCELLANEOUS SECTION 11.1 ASSIGNMENT. No assignment or delegation of this Agreement or of any of its rights or duties hereunder shall be made by Advisor without the consent of AGAR. Except as provided in this Section 11.1, AGAR may not assign this Agreement without the prior written consent of Advisor. Notwithstanding anything in this Agreement to the contrary, upon Notice to Advisor, AGAR shall have the right to assign -19- 24 to (i) any USCo the rights of AGAR hereunder (including, without limitation, the right to purchase at a Closing an Investment previously approved by AGAR) and to delegate to such USCo the duties of AGAR hereunder with respect to any Investment acquired by such USCo (including, without limitation, the obligation of AGAR to pay to Advisor any fees that would have been payable hereunder to Advisor with respect to the acquisition, management and disposition of such Investment if AGAR had acquired the Investment, itself); and (ii) any entity that controls, is controlled by or is under common control with AGAR. In the event of such an assignment and delegation by AGAR to a USCo, (a) the USCo shall assume in writing all of the duties and obligations hereunder of AGAR to Advisor, and (b) AGAR shall remain primarily liable to Advisor in the event the USCo fails to perform any such duties or obligations. SECTION 11.2 MODIFICATION AND AMENDMENT. This Agreement may not be modified or amended or any provision hereof waived, unless such modification or amendment or waiver is in writing and signed by all parties to this Agreement. SECTION 11.3 LICENSES; COMPLIANCE WITH LAW. Advisor shall, at its own expense, qualify to do business and obtain and maintain such licenses or authorizations as may be required by applicable law for the performance by Advisor of its services hereunder. SECTION 11.4 SEVERABILITY. No determination by any governmental, judicial, regulatory or other authority that any provision in this Agreement is invalid, illegal or unenforceable in any instance shall affect the validity, legality or enforceability of (a) any other provision hereof or (b) such provision in any circumstance not controlled by such determination. Each such provision shall be valid and enforceable to the fullest extent allowed by, and shall be construed wherever possible as being consistent with, law. SECTION 11.5 RESOLUTION OF DISPUTES. The parties shall attempt to settle any dispute between them under this Agreement in an amicable fashion. To this end, the parties shall confer and negotiate in an effort to reach a solution on any disputed issue. However, either party hereto may give Notice to the other (an "ARBITRATION NOTICE") if such party believes that a particular dispute cannot be resolved by negotiation. Any dispute, controversy or claim arising under this Agreement as to which an Arbitration Notice is given shall be finally settled by arbitration conducted in New York City pursuant to the U.S. Federal Arbitration Act and under the Rules of the American Arbitration Association as presently in force, except as otherwise provided in this Section 11.5. The arbitration shall be conducted before a tribunal composed of three arbitrators. Each party shall appoint an arbitrator who has no financial, fiduciary or other relationship to such party and who has national standing in the United States in the field of real estate investment and management, obtain its appointee's acceptance of such appointment, and give Notice of such appointment and acceptance to the other party within ten (10) days after a Notice of Arbitration is given. The two (2) -20- 25 party-appointed arbitrators shall jointly appoint the third arbitrator, who shall be unrelated to either of the parties and who also shall be a person of national standing in the United States in the field of real estate investment and management, shall obtain the appointee's acceptance of such appointment and shall give Notice to the parties of such appointment and acceptance within twenty (20) days after the latter of the two party-appointed arbitrators has been appointed and has accepted. All decisions of the arbitral tribunal shall be made by majority vote of the three arbitrators comprising the tribunal. The arbitration shall be conducted in the English language. The parties shall be entitled to engage in reasonable discovery, including requests for the production of relevant documents. Depositions may be ordered by the arbitral panel upon a showing of need. The arbitral panel shall not be empowered to grant exemplary, punitive or other damages in excess of compensatory damages, and the parties hereby waive any claim to any such damages in excess of compensatory damages. The party prevailing on substantially all of its claims in an arbitration hereunder shall be entitled to recover its costs, including reasonable lawyers' fees, for the arbitration proceedings, as well as for any ancillary proceeding, including a proceeding to compel or enjoin arbitration, to request interim measures or to confirm or set aside an award. Judgment on an arbitration award hereunder may be entered in any federal or state court in the State of New York. SECTION 11.6 GOVERNING LAW; CERTAIN CONSTRUCTION RULES. This Agreement shall be governed and applied in accordance with the laws of the State of New York. The word "including" when used herein shall be deemed to mean "including, without limitation" except where the context expressly requires the contrary construction. The various headings and sub-headings in this Agreement are included for convenience of reference only and shall not be considered part of, or be deemed to affect the meaning of, any part of this Agreement. SECTION 11.7 NOTICE. Each notice, approval, consent or other communication required or permitted to be given or made hereunder or pursuant to any Exhibit hereto ("NOTICE") shall be in writing and shall be delivered personally or by courier or sent by telefax. A Notice shall be deemed given when delivered personally, when delivered by a courier or one day after being transmitted by telefax, (a) provided the day after the transmission of a telefax to AGAR is not a Thursday or a Friday, in which case such telefax Notice shall be deemed given to AGAR on the first Saturday thereafter; (b) provided the day after the transmission of a telefax to the Advisor is not a Saturday or Sunday, in which case such telefax Notice shall be deemed given to the Advisor on the first Monday thereafter and, (c) provided further, that, if such Notice is transmitted by telefax, such Notice shall not be deemed effectively given until and unless the recipient either acknowledges that such telefax has been received in fully legible condition or responds to such telefax without indicating that it was received in garbled or illegible form. Notice shall also be deemed to have been given at the time of such refusal if a party hereto refuses to accept personal or courier delivery of a Notice. Until -21- 26 further Notice, given pursuant to the provisions of this Section 11.7, Notices shall be delivered or transmitted as follows: If to AGAR: Sh. Saleh Bin Mahfouz Real Estate Managing Director P.O. Box 4384 Jeddah 21491 Kingdom of Saudi Arabia Facsimile: 9662-683-2229 Eng. Aidarous Albar USA Regional Coordinator P.O. Box 4384 Jeddah 21491 Kingdom of Saudi Arabia Facsimile: 9662-650-1119 with required copies being sent at the same time and by the same means to: King & Spalding Attn: W. Donald Knight, Jr., Esq. 191 Peachtree Street Atlanta, Georgia 30303-1763 Facsimile: 404-572-5145 and Camille A. Chebeir c/o SEDCO Services Inc. 33 East 67th Street New York, NY 10021 Facsimile: 212-805-2526 and The Townsend Group c/o Terrence Ahern M.K. Ferguson Plaza 1500 West Third Street Suite 410 -22- 27 Cleveland, Ohio 44113 Facsimile: 216-781-1407 If to Townsend: The Townsend Group c/o Terrence Ahern M.K. Ferguson Plaza 1500 West Third Street Suite 410 Cleveland, Ohio 44113 Facsimile: 216-781-1407 If to Advisor: Lexington Realty Advisors, Inc. Attn: T. Wilson Eglin 355 Lexington Avenue New York, New York 10017-6603 Facsimile: 212- 986-6972 with a required copy being sent at the same time and by the same means to: Paul, Hastings, Janofsky & Walker LLP Attn: Barry A. Brooks, Esq. 399 Park Avenue New York, New York 10022 Facsimile: 212-319-4090 SECTION 11.8 TERMINATION. Notwithstanding the provisions of Section 2, this Agreement may be terminated by AGAR (a) at any time, with or without cause, upon thirty (30) days' prior Notice to Advisor, and (b) immediately, upon Notice to Advisor, in the event Advisor engages in negligence, bad faith or willful misconduct hereunder, or if Advisor breaches this Agreement and such breach is not cured within thirty (30) days after Notice thereof to Advisor. This Agreement may be terminated by Advisor (A) at any time, with or without cause, upon one hundred twenty (120) days' prior Notice to AGAR and (B) immediately upon Notice to AGAR if AGAR breaches this Agreement and such breach is not cured within thirty (30) days after Notice thereof to AGAR. Upon termination of this Agreement, whether at the expiration of its term or otherwise, the parties shall have no further obligation to each other except as follows: (i) If AGAR selected a new advisor within one hundred twenty (120) days after termination of this Agreement, Advisor shall ensure that the transfer of its duties to such new advisor with -23- 28 respect to the Investments then under its management is completed in an orderly, effective and timely fashion during such one hundred twenty (120) day period; (ii) AGAR shall remain obligated hereunder to pay the fees and expenses of all third-party consultants and managers engaged in accordance herewith on behalf of AGAR prior to the termination hereof (regardless of whether this Agreement previously stated that such obligation would survive said termination) subject only to Section 4.3 hereof; (iii) AGAR shall remain obligated to pay all fees and expenses due to Advisor under this Agreement which accrued, but were unpaid, prior to the termination hereof; (iv) AGAR and Advisor shall each remain obligated to perform their respective obligations under Article VI hereof; (v) Advisor shall remain obligated to pay all amounts due to third parties or to AGAR as provided in this Agreement which arose or accrued prior to the termination hereof; (vi)Advisor shall complete the investment process with respect to any proposed Investment under any letter of intent or purchase agreement which was executed prior to the termination, provided AGAR shall remain obligated to pay to Advisor fees related to the acquisition as per this Agreement; (vii) except for proposed Investments under an executed letter of intent or purchase agreement, Advisor may terminate acquisition activities upon thirty (30) days' notice in the event Advisor terminates this Agreement under subsection (a) of this Section 11.8; and (viii) each party hereto shall remain liable for any breach of this Agreement, or any other liability or obligation hereunder of such party, which occurred or accrued prior to termination hereof. In addition, the provisions of Section 11.5 shall survive the termination of this Agreement. SECTION 11.9 SHARI'A REQUIREMENTS. Advisor acknowledges, understands and agrees that all Investments must be made, financed or refinanced, held and disposed of hereunder in accordance with the rules and principles of the Shari'a which have been provided to Advisor in writing; provided, however, that, notwithstanding any provision hereof to the contrary, Advisor shall have no obligation or responsibility with respect to Shari'a compliance except to act hereunder as directed, in writing, by AGAR. It is understood that, if AGAR realizes any profits or income as a result of an activity that is in violation of the Shari'a, it is the intention of AGAR that such profits or income will be contributed by AGAR to a charity selected by AGAR. If AGAR engaged in the activity as a result of Advisor's having taken action directly in violation of specific written instructions given to Advisor under the terms hereof by AGAR, then Advisor shall compensate AGAR and make it whole for the loss of such profits or income that have been contributed to charity, as indicated above. SECTION 11.10 INTEGRATION, INCORPORATION BY REFERENCE. This Agreement embodies the entire understanding of the parties with respect to the subject matter hereof, and, save where expressly referred to herein, there are no further or other agreements or understandings, written or oral, in effect between or among the parties relating to the subject matter hereof. All Exhibits hereto shall be deemed incorporated herein by the references thereto made herein. [BALANCE OF THE PAGE INTENTIONALLY LEFT BLANK.] -24- 29 IN WITNESS WHEREOF, the parties have executed this Investment Advisory and Asset Management Agreement the day and year first above written. AGAR: AGAR INTERNATIONAL HOLDINGS LTD. By: ----------------------------- Its: ----------------------- ADVISOR: LEXINGTON REALTY ADVISORS, INC. By: ----------------------------- Its: ----------------------- GUARANTY In consideration of AGAR's entering into the above Investment Advisory and Asset Management Agreement (the "Agreement") with Advisor, an affiliate of the undersigned, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby unconditionally and absolutely guarantees the full and timely performance by Advisor of all of Advisor's obligations and responsibilities to AGAR under the Agreement. This is a guaranty of payment and performance and not of collection, and it shall not be necessary for AGAR to take any action to enforce the Agreement against Advisor before proceeding against the undersigned under this guaranty. This guaranty shall continue in full effect in the event of any amendment of the Agreement or waiver granted thereunder, regardless of whether the undersigned has notice of such amendment or waiver or has agreed or consented thereto; and this guaranty shall apply fully to the obligations of Advisor under the Agreement, as amended or affected by waiver. Any dispute under this guaranty shall be resolved by the method provided in Section 11.5 of the Agreement. -25- 30 Capitalized terms not defined in this guaranty shall have the meanings ascribed to them in the Agreement. The rights of AGAR under this guaranty may be assigned by AGAR, in whole or in part, as fully, to the same extent and to the same party(ies) as specified with respect to AGAR in Section 11.1 of the Agreement. The undersigned agrees that it may not delegate any of its duties under this guaranty. IN WITNESS WHEREOF, the undersigned has caused this guaranty to be signed on its behalf by its duly authorized officers, as of the date of the Agreement. LEXINGTON CORPORATE PROPERTIES TRUST By: ---------------------------------------- Name: --------------------------------- Office: ------------------------------- By: ---------------------------------------- Name: --------------------------------- Office: ------------------------------- -26- 31 EXHIBIT A INVESTMENT CRITERIA Investment Criteria LEXINGTON REALTY ADVISORS, INC. THIS ATTACHMENT is subject to the terms and conditions set forth in the INVESTMENT ADVISORY AND ASSET MANAGEMENT AGREEMENT ("AGREEMENT") entered into on the day of August, 2000 by and between the AGAR International Holdings Ltd. ("AGAR") and LEXINGTON REALTY ADVISORS, INC. (the "ADVISOR") Set forth below are the investment criteria to be utilized by Advisor in acquiring net leased investment properties located in the United States on behalf of AGAR. As used herein, the term "Consultant" means The Townsend Group, AGAR's real estate consultant. AGAR, with the advice of Consultant, retains the discretion to approve or reject any proposed real estate purchase or sale and the authority to engage or terminate the Advisor. I. PROPERTY INVESTMENT CRITERIA These criteria establish required attributes of the investments, minimum numerical thresholds relating to certain elements of the investments, and preferred, but not necessarily required, characteristics of the investments. Advisor shall acquire properties which possess the required attributes and meet or exceed the minimum numerical thresholds. Whenever possible, Advisor shall select properties which have the preferred characteristics set forth below. Advisor shall only consider Investments in Properties having tenants with a credit rating of "BB-" and higher. Any deviation or noncompliance with required investment criteria must be approved by AGAR in writing in advance of any acquisition's being effected by Advisor. 32 AGAR INTERNATIONAL HOLDINGS LTD. INVESTMENT GUIDELINES LEXINGTON REALTY ADVISORS, INC. A. GLOBAL REQUIRED CRITERIA Unless otherwise specified, the required criteria set forth below applies to all investments made by Advisor on behalf of AGAR for this separate account. Allocation: $50 million Investment Strategy: Subject to the terms of Section 3.1 of the main body of this Agreement, Advisor will on behalf of AGAR and/or a particular USCo, invest in institutional quality single-tenant net-leased ("net lease") properties. To assure preservation of capital and appreciation potential, the primary underwriting focus will be the real estate attributes of the properties. All properties should exhibit strong current income returns and potential for future appreciation Ownership Structure: Advisor shall execute acquisitions on behalf of AGAR, or at its direction, utilizing such corporations or other legal entities as AGAR shall direct, including corporations organized under the laws of states of the United States (USCos"). Acquisition Prices: Acquisition prices per property are anticipated to be no more than $20 million, with an average anticipated equity investment size of $8 million to $15 million. Annual Cash Returns: Properties shall be expected to generate a first year unleveraged distributable cash return (after fees) of no less than 7%. Total Returns (IRR): Advisor acknowledges, as of the date of this Agreement, that the returns, for these types of properties, when underwritten on a conservative basis, are approximately 9% - 10% per annum, unleveraged and net of fees. Therefore, minimum total returns projected over the specified holding period shall not be less than 9% per annum, unleveraged, net of fees (when evaluated on a conservative basis) and should exceed the yield on the lessee's corporate bonds by at least 150 basis points and the yield on 10-year U.S.
A-2 33 AGAR INTERNATIONAL HOLDINGS LTD. INVESTMENT GUIDELINES LEXINGTON REALTY ADVISORS, INC. Treasuries by at least 250 basis points. Appraisals: Advisor shall have each property appraised by an independent MAI appraiser approved by the Consultant during the fourth, seventh and tenth year after the date the first Property is acquired for the Client Account and then every two years thereafter, except that a Property purchased during any 12 month period prior to any of such scheduled appraisal dates shall not be appraised as scheduled hereunder, but shall be valued at its purchase price until the next succeeding scheduled appraisal. Advisor shall provide an internal opinion of value of each property annually. Compliance with Advisor may consider only property investments Environmental which comply fully with all local, state federal govern- Regulations: mental regulations regarding exposure to hazardous substances or other contaminants which may jeopardize the public's safety. Prior to any acquisition, evidence must be supplied to AGAR and Consultant, in the form of engineering reports or certifications attesting to the absence of asbestos, hazardous waste materials, and any other hazardous substances on the property or the property site, or specifying that the contaminants have been contained and managed historically in accordance with all relevant local, state and U.S. federal governmental statutes, laws, regulations, and standards. To the extent that any such contaminant has not been properly contained or managed, or otherwise is present on the property in unacceptable levels requiring remediation, Advisor shall not proceed with acquisition of the property, notwithstanding the potential for remediation. Leverage: Shari'a compliant nonrecourse leverage may be used in order to increase portfolio level diversification and/or if the interest rate on the debt is at or below prevailing market rates and lower than the projected net unleveraged total return (IRR) for the investment. Leverage may not exceed 75% on any individual property.
A-3 34 AGAR INTERNATIONAL HOLDINGS LTD. INVESTMENT GUIDELINES LEXINGTON REALTY ADVISORS, INC. Net Lease Tenant Credit Requirements: Tenant selection shall be an integral part of the investment process, and no investment shall be made without either an executed lease or a tenant's binding letter of intent. No tenant shall be considered unless it has achieved the required investment grade credit rating (or, alternatively, has compiled a credit history which is equivalent to such investment grade rating, if the tenant's credit is not rated), or unless such tenant's lease obligations are guaranteed unconditionally by an entity whose credit rating or history meets that minimum criterion. Guarantees and other credit enhancements shall be obtained whenever possible. Lease Terms: Lease terms shall have a minimum of seven years remaining. Leases shall be triple-net with possible exclusions for roof and other structural responsibility. Leases with 10 year terms or longer shall be preferred. Leases shall be CPI indexed or have structured rent increases, generally every two to five years, with increases averaging 2% to 3% per year on a portfolio basis.
B. GLOBAL PREFERRED CRITERIA Unless otherwise specified, the preferred criteria set forth below apply to all investments made by Advisor on behalf of AGAR for this separate account. Generally: Assets will be located in diverse, growing economies in supply-constrained locations. Properties will have functional layouts, good visibility/identity and a clear management and exit strategy. Target Markets: Target markets preferably will have a minimum population of 750,000 and exhibit strong economic growth prospects. Tenant credit considerations may supersede geographical target preferences. Diversification: Preferably, no more than 40% of the portfolio will be located in any economic region (Northeast, Mideast, East North Central, West North Central, Southeast, Southwest, Mountain, Pacific). Tenant credit
A-4 35 AGAR INTERNATIONAL HOLDINGS LTD. INVESTMENT GUIDELINES LEXINGTON REALTY ADVISORS, INC. considerations will supersede diversification objectives. C. OFFICE CRITERIA Generally: Office investments shall be low to mid-rise institutional quality assets in prominent Class "A" locations. Properties will be post-1980 construction, or significantly rehabilitated within the past ten years. Lease Terms: Minimum remaining lease term of 7 years. Property Age/Life Cycle: Advisor will concentrate on suburban office structures where construction is completed. Forward commitments will be considered so long as AGAR does not bear development risk or any excessive capital market risk. Physical Characteristics Office buildings shall be of high quality con- Generally: struction. Commercial parks or suburban settings shall be preferred. Urban/downtown locations will be permitted. Special purpose features or operations shall not be considered. The following characteristics also are preferred: - proximity to commercial amenities for tenant convenience; - location in geographical areas demonstrating sustained growth over the previous five years and projected continued growth; - simple building configurations with five floors or fewer; - total square footage between 50,000 and 200,000 square feet. Three to four parking spaces per thousand square feet of building area and, depending upon tenant requirements, ample visitor parking; - attractive landscaping features, either existing
A-5 36 AGAR INTERNATIONAL HOLDINGS LTD. INVESTMENT GUIDELINES LEXINGTON REALTY ADVISORS, INC. or designed; - simple interior build-outs; and - proximity to major highways or interstates. D. RETAIL CRITERIA Generally: Retail investments shall be single-story institutional quality assets in prominent Class "A" locations. Properties will be post-1980 construction, or significantly rehabilitated within the past ten years. Property Age/Life Cycle: Advisor will concentrate on properties where construction is completed. Forward commitments will be considered so long as AGAR does not bear development risk or any excessive capital market risk. Physical Characteristics Generally: Retail structures shall be of high quality construction. Structures shall contain a minimum of 30,000 square feet of interior space. The following characteristics are also preferred: - rectangular building footprints with ceiling heights of no less than 18 feet; - location in or proximate to existing retail centers with strong performance histories or, in the case of a new development, a location in geographical areas exhibiting strong retail growth patterns in the previous five-year period; - proximity to major highways or interstates; - excellent access; - five parking spaces per thousand square feet of building area; and - adequate signage.
A-6 37 AGAR INTERNATIONAL HOLDINGS LTD. INVESTMENT GUIDELINES LEXINGTON REALTY ADVISORS, INC. E. INDUSTRIAL CRITERIA Property Age/Life Cycle: Advisor will concentrate primarily on industrial properties ten years of age or less. Bulk warehouse/distribution properties are preferred. While it is not expected that Advisor will acquire properties prior to the completion of construction, Advisor may enter into forward commitments to purchase properties on behalf of AGAR upon the completion of construction, provided that AGAR does not bear development risk or any excessive capital market risk. Property Profiles: Buildings shall be of high quality construction with a physical layout that accommodates multiple tenants and facilitates easy traffic flow. Clear heights should be at least 22 (but preferably 24 to 30) feet for distribution and manufacturing facilities and at least 14 (but preferably 18 to 30) feet for business park properties. Special purpose facilities should be avoided. The following characteristics also are preferred: - minimum interior square footage of the structure or structures of 100,000 square feet; - well located in primary industrial corridors within target markets; target markets shall exhibit a strong logical relationship to regional or national distribution trends; - rectangular building footprints with building depths no greater than 240 feet unless cross-docked; - adequate dock and/or grade level doors (one per 7,000 square feet); - proximity to major highways or interstates; - no more than 10-15% office build-out for distribution and manufacturing buildings;
A-7 38 AGAR INTERNATIONAL HOLDINGS LTD. INVESTMENT GUIDELINES LEXINGTON REALTY ADVISORS, INC. - tilt-up concrete or masonry construction; - 6" concrete floors; Fibermesh preferred; - truck turning area of approximately 120 feet from the edge of building to the edge of the parking lot for distribution and manufacturing buildings; - approximately one parking space per 1,000 square feet of building area for distribution/manufacturing buildings; - two to three parking spaces per 1,000 square feet of building area for business park properties; - sprinklered.
A-8 39 AGAR INTERNATIONAL HOLDINGS LTD. INVESTMENT GUIDELINES LEXINGTON REALTY ADVISORS, INC.
II. ISLAMIC INVESTMENT GUIDELINES Property Types: All property types are acceptable, except those from which more than "negligible" lease income is derived from tenants involved in the following "Non-permissible" activities: - alcohol, tobacco, pork, and pornography; - establishments which serve liquor; and - gambling casinos or the manufacture of gambling paraphernalia. In addition, properties should not derive the majority of lease income from "doubtful activities" from tenants which engage in: - movies theaters (non-pornographic); and - financial institutions such as banks, brokerage firms, investment funds and insurance companies. Property Locations: There are no specific restrictions, but locations established largely for the purposes of supporting Non-permissible activities should be excluded from investment consideration. Examples of such restricted locations may include places such as Las Vegas, Nevada, and Atlantic City, New Jersey. Financing: All property and/or portfolio financings will adhere to the principals of Shari'a as provided to Advisor in writing. Economics and prudent thinking will dictate limitations on the financing amounts. It is anticipated that financing amounts will not exceed 75% of the asset value. Handling Excess Cash: Cash management procedures shall conform to the guidelines set forth in EXHIBIT E of the Investment
A-9 40 AGAR INTERNATIONAL HOLDINGS LTD. INVESTMENT GUIDELINES LEXINGTON REALTY ADVISORS, INC. Advisory and Asset Management Agreement of which this EXHIBIT A is a part. Review and Approvals: AGAR will review and approve Shari'a compliance for each investment proposal.
A-10 41 EXHIBIT B HOLD/SELL DECISION ANALYSIS The hold/sell decision analysis with respect to each Property contained in each proposed Annual Business Plan shall include the following: REASONABLENESS OF VALUATION; LIQUIDITY - - Review of the ability, given market conditions, to divest or liquidate each Property, and determination of the current market value of each Property, i.e., the value at which a Property can be sold within a reasonable time (the "DISPOSITION Value").This analysis shall include a discussion of material assumptions on which any recommendation is based, including terms and conditions of any projected disposition and the estimated time frame within which such a disposition could be affected. STRATEGIC EVALUATION - - Review of each Investment's investment objectives and actual performance. - - Review of each Investment's compliance (e.g., projected returns) with AGAR's Investment Criteria and the prior year's Annual Business Plan. - - Review of market trends relevant to the Investment (such as comparable sales, capitalization rates, discount rates and growth rates) and the Investment's competitive advantages and disadvantages in its markets. OPPORTUNITY COST ANALYSIS - - Review of each Investment's current rate of return and its projected short term and long term rates of return, all on a net of Advisor's fees basis. - - Review of an Investment's internal rate of return, assuming a sale at the Disposition Value. - - Review of an Investment's internal rate of return, assuming a sale at future points in time at an Investment's then projected Disposition Value. - - A review of projected returns of alternative real estate Investments exhibiting comparable risk. 42 REINVESTMENT OPPORTUNITIES - - If Advisor recommends the disposition of any Investment, the disposition review shall include an analysis of available real estate investment opportunities for the proceeds of such disposition, consistent with the applicable Investment Criteria set forth herein and in the Advisor's Annual Business Plan, including an estimate of the cost and time required to effectuate such investment. B-2 43 EXHIBIT C INVESTMENT PROPOSAL SUMMARY Property Identification: Property Location: Property Description (Including Land and Building Area): Proposed Ownership Share to Be Acquired: Investment Description: Asking Price: Current Owner/Seller: Copy of Proposed Letter of Intent: Joint Venture Partner (if any): Broker (if any): Debt - current & proposed (subject to Shari'a rules and principles): Ground lease (if any): Estimate of needed / recommended capital expenditures and detail of same: Projected annual cash on cash return: Appropriate DCF & IRR analysis: Tenancies (including nature of tenant businesses): Rent Roll: Lease Expiration Schedule: Vacancy: Property Age: Environmental Issues (if any): Parking: Basic Property Area Demographics: population, unemployment, employment growth: Preliminary Local Market and Demographic Information: Transaction Timing: Estimated Contract Date: Earnest Money Deposit Amount and Estimated Due Date: Estimated Closing Date: Closing Funds Amount: Letter of Intent Signing Date: Due Diligence Period: Exit Strategy (including timing): Advisor Comments and Recommendation (including negotiation strategy, investment strategy, purchase price and proposed investment's impact on portfolio diversification): 44 Attachments: Photographs, location maps, charts, floor plates, site plans, stacking plans and other available graphics C-2 45 EXHIBIT D SUMMARY OF FINANCIAL ANALYSIS AND DUE DILIGENCE A. FINANCIAL ANALYSIS - - Complete financial review of historical operating statements, if applicable. - - Discounted cash flow projections will be performed subsequent to individual lease and operating expense reviews. All underlying assumptions will be clearly defined. - - Yield sensitivity analysis will be conducted indicating annual dividends and internal rates of return. - - Individual tenant credit review will be conducted, as appropriate. - - A real estate tax and assessment analysis will be conducted, which will include the anticipated impact from sale. - - Conclusion regarding value and pricing. B. MARKET ANALYSIS - - Comprehensive market review will be conducted, including review of competitive product; supply and demand factors; current zoning; local, regional and national factors which may affect the performance of the asset under investigation. - - Historical market data will be gathered and analyzed. Future trends will be forecasted. - - Macro-market and micro-market observations will be summarized in order to determine the subject property's ability to compete effectively in its marketplace, both currently and in the future over the projected holding period. - - Sublease and prime space availability, net and gross absorption review, as appropriate. 46 C. FINANCIAL CONTROLS AND ASSET MANAGEMENT - - When appropriate, matters relating to current and future on-site operations will be examined. - - When appropriate, operational changes will be recommended and efficiency increases will be examined. - - When appropriate, property management and leasing recommendations will be made relating to on-site personnel, contractual services and leasing strategies. An understanding of the accounting systems will be gained prior to closing. - - When appropriate, property accounting records and financial audits will be reviewed together with accounts receivable and accounts payable. - - When appropriate, individual tenant files will be examined, including rental payment histories. - - A construction and design review will be conducted - - Physical aspects of the property will be examined and described. - - Mechanical, electrical, HVAC, vertical transportation, roofing and plumbing systems will be reviewed. Cost estimates relating to deferred maintenance and/or upgrades will be given when appropriate. - - The quality of existing tenant improvements and significant special use improvements or features of the building will be assessed. - - Hazardous materials on or affecting the site will be identified and treatment recommendations set forth. - - Local zoning and building codes will be reviewed to insure compliance. - - If appropriate, review of plans and specifications to determine the accuracy of space measurements relating to rentable and usable areas. D. SUMMARY REPORT Advisor will issue to AGAR and Townsend a comprehensive report including graphics which will define and address all matters examined during the due diligence period, together with conclusions and recommendations relating thereto. D-2 47 EXHIBIT E CASH MANAGEMENT PROCEDURES TO BE FOLLOWED, AS PERMITTED BY SHARI'A RULES All rents, lease charges and other monies received from any Property shall be deposited in non-interest bearing accounts approved by AGAR. Monies from the accounts shall be disbursed only to pay approved expenditures in compliance with the Annual Budget. Authorized signatories for each such account shall be approved in advance by Advisor and AGAR. On a monthly basis, excess cash above approved budgeted monthly expenses and reserves shall be distributed to AGAR pursuant to AGAR's written instructions. Advisor shall provide a monthly written bank reconciliation for each account as soon as practicable after the end of each month. Proceeds from the sale of any Property shall be handled in accordance with escrow instructions prepared by Advisor and approved by AGAR prior to the Property's disposition. E-1 48 EXHIBIT F FORM OF QUARTERLY REPORTS Advisor shall submit quarterly reports detailing the performance of AGAR's Investments on a property-by-property and portfolio basis, substantially in the form attached hereto. Such quarterly report shall include, at a minimum, a description of returns generated by the Investments, occupancy percentages, and a description of any significant event in connection with any Investment. In addition, Advisor shall transmit the following information electronically to Townsend and, if requested by AGAR, to AGAR: Previous quarter's market value Contributions received from AGAR during the quarter Withdrawals paid to AGAR during the quarter Distributions paid to AGAR during the quarter Current net income Appreciation (change in market value during the quarter) Total advisory fees Total investment amount committed by AGAR Total uninvested commitment Gross real estate assets Mortgage(s) payable Cash & short term investments Other assets Other liabilities Property types (apartment, office, industrial, retail, hotel, other) Geographic diversification (Northeast, Mideast, East North Central, West North Central, Southeast, Southwest, Mountain, Pacific) Cash-on-cash return Relevant information for the quarter pertaining to the market and each Property F-1 49 FORM OF ANNUAL REPORTS Each Annual Report shall contain the following information with respect to each Property and for the portfolio of Properties managed: - - A current performance summary, including an investment summary, income summary, total returns, real rate of return, cash-on-cash return and a funded investment summary, including an investment description - - Date of acquisition - - Acquisition costs - - Property value - - Appreciation analysis - - Leasing status - - Lease expirations for current year - - Comparative performance for the prior year and as projected for the year going forward - - Disposition analysis on a Property-by-Property basis - - Significant changes in Advisor's organization, key personnel, investment strategy or philosophy, clients and assets managed during the year F-2 50 EXHIBIT G ADVISOR FEES (LEXINGTON REALTY ADVISORS, INC) A. COMPENSATION. In consideration of the services to be provided under this Agreement, Advisor shall be paid an Acquisition Fee, an Asset Management Fee and an Incentive Fee, as set forth in this EXHIBIT G. Capitalized terms shall have the definitions set forth in this EXHIBIT G, or, if not specifically defined herein, then as set forth in the body of the Agreement. All fees provided herein shall be calculated on a pre-income tax basis. 1. ACQUISITION FEE. The "Acquisition Fee", payable out of the closing escrow account at the time of closing of the acquisition of a Property, shall equal 0.9% (90 basis points) of the total "Acquisition Cost" of the Property; provided, however, that in no case shall the Acquisition Fee plus any mortgage broker fee for a Property exceed $400,000. 2. ASSET MANAGEMENT FEE. The "ASSET MANAGEMENT FEE" shall be 0.3% (30 basis points) of the Gross Asset Value of the Client Account on an annual basis, payable one fourth each quarter in arrears. An invoice for the Asset Management Fee shall be submitted by Advisor within thirty (30) days after the end of each quarter, together with appropriate supporting documentation. Advisor may deduct the Asset Management Fee from receipts of Property rentals otherwise due to be deposited to the account of AGAR or a USCo, as applicable, under Section 3.2.6 of this Agreement. In the event AGAR objects to any such deduction for Asset Management Fees within a reasonable time period after receipt of Advisor's invoice, then Advisor shall deposit the amount of the fees to which AGAR objects into an escrow account maintained at a bank or other financial institution selected by AGAR and located in the City of New York, New York, until such time as the dispute over such fees is resolved as provided in this Agreement. The failure of AGAR (or a USCo) to object under this paragraph 2 as to the payment of all or part of the Asset Management Fee shall not preclude AGAR (or such USCo) from objecting thereto in the context of an audit review under paragraph 5 below. 3. INCENTIVE FEE. The "INCENTIVE FEE" shall be calculated as set forth below in paragraph 3(a) and shall be equal to 16% of the Disposition Proceeds actually received from the sale of each Property that are in excess of the amount of Disposition Proceeds needed to provide AGAR or a USCo, as the case may be, with an annual pre-tax internal rate of return of 10% (as defined below), after payment of all fees and expenses, on the Beginning Investment Value of such Property. As more particularly provided in the paragraphs below, full payment of the Incentive Fee with respect to any Property will be subject to AGAR's (or a USCo's, as the case may be) receiving an annual pre-tax internal G-1 51 rate of return of 10%. Until the tenth anniversary of the date the first Property is acquired for the Client Account, as provided in the following paragraphs (a) through (c), AGAR or the respective USCo shall pay the Advisor any Incentive Fee due with respect to each Property sold or otherwise removed from the Client Account, including Properties removed as a result of the termination of this Agreement. Subject to Holdback Amounts, payment of Incentive Fees for Properties sold or removed as of each Incentive Compensation Date shall be made on the Incentive Compensation Date. If the Client Account acquires a partial interest in a Property through a joint venture, partnership, corporation or trust, only the Client Account's interest in such Property shall be taken into account in calculating the Incentive Fee. (a) FEE AMOUNT. The Incentive Fee for each Property shall be calculated as of its respective Disposition Date, and AGAR and Advisor shall seek to agree on the calculation of the amount of the Incentive Fee for a Property at least five (5) days prior to the date of its sale or removal, with any dispute to be resolved as provided in this Agreement. (i) PROPERTIES SOLD. The Incentive Fee for each Property sold shall equal 16% of the amount by which the Disposition Proceeds received for the Property exceeds the Return Base of the Property as of the Disposition Date, calculated using the Benchmark Rate of Return. (ii) PROPERTIES REMOVED/AGREEMENT TERMINATED. The Incentive Fee for any Property removed from the Client Account or held in the Client Account at such time as the Agreement is terminated shall be calculated as provided in paragraph 3(a)(i) above as if the Disposition Value were the Disposition Proceeds of the Property. (b) FEE PAYMENT. On each Incentive Compensation Date, 75% of any Incentive Fee earned for Properties sold or removed during the quarter of which the Incentive Compensation Date is the last day will be paid to the Advisor. The remaining 25% of any Incentive Fee earned during such quarter (the "HOLDBACK AMOUNT") shall be deposited in an interest bearing escrow account with a financial institution mutually acceptable to AGAR and the Advisor (the "HOLDBACK ACCOUNT"). The Holdback Amount, if any, that is standing in the Holdback Account as of an Incentive Compensation Date and is not attributable to sales or removals of Properties during the quarter of which the Incentive Compensation Date is the last day together with all interest earned thereon, (in the aggregate, the "Available Holdback Amount") shall be fully disbursed to the Advisor or AGAR within ninety (90) days after the next succeeding Incentive Compensation Date, in accordance with paragraph 3(c) below. G-2 52 (c) HOLDBACK ACCOUNT DISBURSEMENTS. For each Incentive Compensation Date on which there is an Available Holdback Amount in the Holdback Account, the Portfolio Return Value will be calculated as of such Incentive Compensation Date and the amount thereof will be agreed upon by AGAR and the Advisor, with any dispute to be resolved as provided in this Agreement. Based upon the Portfolio Return Value, Available Holdback Amount then in the Holdback Account shall be disbursed as follows: (iii) NO DEFICIENCY. If the Portfolio Return Value is an amount equal to or greater than zero (0), the entire Available Holdback Amount shall be paid to the Advisor. (iv) DEFICIENCY. If the Portfolio Return Value is a negative amount (the "DEFICIENCY AMOUNT"), then AGAR shall be paid from the Available Holdback Amount then in the Holdback Account the lesser of: (i) the absolute amount of the Deficiency Amount; or (ii) the entire balance of the Available Holdback Amount then in the Holdback Account. Any portion of the Available Holdback Amount remaining in the Holdback Account after the payment to AGAR shall be paid to the Advisor. (d) Provided that this Agreement has not previously been terminated, beginning on the tenth anniversary of the date the first Property is acquired for the Client Account, Advisor's Incentive Fee shall be calculated and payable based upon the appraised fair market value of the Remaining Properties. Such tenth anniversary, and the same calendar date every two years thereafter shall be an "INCENTIVE CALCULATION DATE". On each Incentive Calculation Date, the Advisor's Incentive Fee shall be equal to sixteen percent (16%) of the amount by which (i) the aggregate Fair Market Value of the Portfolio on the Incentive Calculation Date exceeds (ii) the aggregate Return Base of the Portfolio on the Incentive Calculation Date, subject to a Holdback Amount of 25% of the Incentive Fee payable, provided, however, that upon the sale and/or liquidation of the final Property no Holdback Amount shall be withheld. The Available Holdback Amount of 25% shall be payable on the next Incentive Compensation Date in accordance with paragraph 3(c) above. Fair market value shall be determined in accordance with the procedures outlined in Section B(o) below. No Incentive Fee shall be paid with respect to the sale of any Property or the removal of any Property from the Client Account which occurs on or after the said tenth anniversary, but each such sale or removal shall be taken into account in calculating the Return Base of the Portfolio on the applicable Incentive Calculation Date. 4. MOST FAVORED NATIONS. The Advisor agrees that the Acquisition Fee, the Asset Management Fee and the Incentive Fee established under this Agreement shall not exceed those agreed by it with respect to similar services provided to any other client of Advisor. If, during the term of this Agreement, Advisor agrees to a lower fee for similar G-3 53 services involving any other client under similar terms and conditions, Advisor shall so notify AGAR promptly of the existence of such more favorable fees, and effective immediately upon such notification, this Agreement shall be amended so that thereafter such more favorable fee amounts shall apply hereunder, in lieu of the fee arrangements provided herein. 5. TERMINATION. In the event this Agreement is terminated, the Advisor shall be compensated as provided in paragraphs 1 through 3 of this EXHIBIT G for all services rendered to AGAR in conformity with the Agreement through the date of termination. In such event, the Incentive Fee shall be calculated as if the date of termination were an Incentive Compensation Date, and the Holdback Account shall be settled and distributed to Advisor or AGAR as if all Properties in the Client Account had been sold. 6. ADJUSTMENTS. AGAR shall have the right retroactively to contest any fee payment to Advisor, if, after an audit of any acquisition, any Property or any corporation (including, without limitation, AGAR or any USCo), a discrepancy exists as to the appropriate fee payable to Advisor relative to any Property. AGAR will give Advisor prompt Notice of any discrepancies which may result in such fee adjustment no later than thirty (30) days after receipt of the audit by AGAR. In this regard, AGAR may deposit amounts due Advisor under the then current invoice into an escrow account maintained at a bank or other financial institution selected by AGAR and located in the City of New York, New York, until such time as the dispute over such fees is resolved as provided in this Agreement. B. DEFINITIONS. As used herein, the following terms shall have the meanings set forth below. The meaning of any singular term includes the plural and the meaning of any plural term includes the singular. (a) "ACQUISITION COST" with respect to a specific Property owned by AGAR or by one of the USCos, shall mean the contract purchase price of the Property. (b) "ADVISOR" shall mean LEXINGTON REALTY ADVISORS, INC. (c) "AFFILIATE" shall mean, as to any person, (ix) any other person directly or indirectly controlling, controlled by or under common control with such person, (x) any other person who owns beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital stock, shares of equity interests of such person or of any other person which controls, is controlled by or is under common control with such person, or (xi) any officer, director, employee, partner or trustee of such person or of any person controlling, controlled by or under common control with such person. An "AFFILIATED" person means an Affiliate. G-4 54 (d) "AGAR" shall mean AGAR International Holdings Ltd. (e) "AGREEMENT" shall mean the Investment Advisory and Asset Management Agreement between AGAR and LEXINGTON REALTY ADVISORS, INC., to which this EXHIBIT G is attached and of which it is a part. (f) "ALLOCABLE INDEBTEDNESS" for a Property shall mean the amount of any debt secured solely by the Property or borrowed specifically for the Property from a person unrelated to AGAR or a USCo, as applicable, and/or the pro rata share of portfolio debt or debt secured by more than one Property and all accrued interest thereon. The pro rata share of such portfolio debt or debt secured by more than one Property shall be calculated based on (i) the relative amount of the contract purchase price of each Property, without regard to such portfolio debt, or debt secured by more than one Property, or (ii) any other reasonable method mutually agreed upon by AGAR and the Advisor at the time such financing is secured. (g) "BEGINNING INVESTMENT VALUE" shall mean, for a Property, the total amount capitalizable by AGAR or a USCo, as applicable, upon the acquisition of a Property at the closing of the acquisition, including the Acquisition Cost, closing costs and the Acquisition Fee. For the Portfolio, the term shall mean the total amount capitalizable by AGAR and all USCos with respect to the acquisition of Properties pursuant to this Agreement. (h) "BENCHMARK RATE OF RETURN" or "BRR" shall mean a total pre-tax net rate of return of ten percent (10%) per annum. (i) "CLIENT ACCOUNT" shall mean all Properties held by AGAR and all the Properties held by USCos and managed by Advisor in accordance with the Agreement. (j) "CONSULTANT" shall mean the Townsend Group. (k) "DISPOSITION DATE" shall mean, for a Property, the last day of the quarter in which the Property is sold, or otherwise removed from the Client Account, including by termination of this Agreement. (l) "DISPOSITION PROCEEDS" with respect to a Property means the net pre-tax proceeds from the sale of the Property available to AGAR or the USCo which owns the Property, as applicable, after paying all Allocable Indebtedness as to the Property and all expenses related to the sale, but before the payment of any Incentive Fee related to the sale. G-5 55 (m) "DISPOSITION VALUE" with respect to a Property, shall mean the Fair Market Value of the Property reduced by: (i) an assumed selling cost equal to two and one-half percent (2.5%) of its Fair Market Value; (ii) a reasonable estimate of any applicable real estate transfer taxes that would customarily be paid by AGAR (or by any USCo which owns the Property, as applicable) upon a sale of the Property; and (iii) the unpaid principal balance of, and all accrued interest on, any Allocable Indebtedness. (n) "FAIR MARKET VALUE" shall mean fair market value of the Property, as the Appraisal Institute defines such term. As used with respect to an Incentive Compensation Date, if a Property has been acquired less than twelve (12) months before the Incentive Compensation Date, the Property shall not be appraised (unless the Property has already been the subject of an appraisal by an independent outside appraiser in connection with its acquisition), and Fair Market Value shall mean the contract purchase price of the Property plus (i) closing costs, (ii) the Acquisition Fee paid to the Advisor, and (iii) the cost of any capital improvements and other items added to the basis of the Property, determined in accordance with GAAP for market value accounting, consistently applied. (o) "FAIR MARKET VALUE UPON TERMINATION OF THE AGREEMENT." The following procedures shall apply whenever the Fair Market Value of a Property or Properties is to be determined in connection with the termination of the Agreement or if there is a dispute concerning a valuation. (v) Whenever the Fair Market Value of a Property is to be determined in connection with the termination of the Agreement, AGAR shall have the right to approve an independent appraiser recommended by Advisor to determine such Fair Market Value. Advisor and AGAR shall attempt to agree on the selection of an independent appraiser within thirty (30) days of the date of termination. If Advisor and AGAR have not agreed on such selection within such thirty (30) day period, Consultant shall select an independent appraiser by Notice to Advisor within forty-five (45) days following the termination of the Agreement. By no later than forty-five (45) days following the selection of the appraiser, such appraiser shall submit a draft written appraisal setting forth such person's determination of the Fair Market Value of the Property. (vi) Advisor shall have fifteen (15) days to review the draft written appraisal and submit written comments on such draft to AGAR, Consultant and the appraiser. The appraiser shall, in such person's discretion, duly consider these comments, if any, and shall within ten (10) days of the receipt of such comments, if any, or if Advisor has not responded within such 15-day period, at the expiration of such period, submit a final written appraisal. Advisor shall have ten (10) days to object G-6 56 to such final written appraisal in writing by notice to AGAR and Consultant. If notice of Advisor's objection is not given by Advisor within said ten (10) day period, such written appraisal shall be deemed binding upon AGAR and Advisor. If, however, Advisor submits Notice of its objections to such final written appraisal within said ten (10) day period, Advisor shall then select an independent appraiser which Advisor reasonably believes AGAR would find acceptable who shall submit a written appraisal of the Fair Market Value of the Property within forty-five (45) days. If the higher appraisal differs by five percent (5%) or less from the lower appraisal, then the two appraisals shall be averaged, and such averaged sum shall constitute the appraised Fair Market Value of the Property, which determination shall be binding upon AGAR and Advisor. If the higher appraisal differs by more than five percent (5%) from the lower appraisal, the two appraisers shall, within twenty (20) days of the date of issuance of the second written appraisal, select a third appraiser who shall attempt to reconcile the different appraisals. Within forty-five (45) days of such third appraiser's selection, the third appraiser shall render a final written appraisal of that appraiser's determination of the Fair Market Value of the Property. If the three appraisers are unable to agree upon the Fair Market Value, then the Fair Market Value of the Property shall be deemed to be the average of the two appraisals which are closest in dollar amount to each other, which determination shall be binding upon AGAR and Advisor. (vii) Any appraiser agreed to or designated hereunder shall be disinterested, shall not be an Affiliate of AGAR, Consultant or Advisor, shall be qualified to appraise real estate of the type covered by this Agreement and to be appraised, shall have received the Member Appraisal Institute (or any successor organization of comparable standing if such organization is not then in existence) designation (MAI), and shall have been actively engaged in the appraisal of such real estate in the real estate market in which a subject Property is located for at least five (5) years immediately preceding his designation. (viii) If any appraiser is unable or unwilling to act, such person's successor shall be designated in the same manner as he was designated. (ix) AGAR shall pay the fees and expenses of the first appraiser, and Advisor shall pay the fees and expenses of the second appraiser, if any. Each party shall pay one-half (1/2) of the fees and expenses of the third appraiser, if any. (p) "GROSS ASSET VALUE" shall mean the aggregate Fair Market Value as G-7 57 of the date in question of all Properties in the Client Account. (q) "HOLDBACK ACCOUNT" shall mean the account maintained by AGAR in which 25% of the amount of the Incentive Fee shall be retained and disbursed in accordance with the provisions of paragraphs 3(b), 3 (c) or 3(d). (r) "HOLDBACK AMOUNT" shall mean 25% of the amount of the Incentive Fee that is to be retained in the Holdback Account pursuant to paragraphs 3(b), 3(c) 3(d). (s) "INCENTIVE COMPENSATION DATE" shall mean the last day of each quarter until the tenth anniversary of the date the first Property is acquired for the Client Account in which a Property is sold or otherwise removed from the Client Account. The Final Incentive Compensation Date shall be the last day of the quarter in which occurs the termination of the Agreement or the sale of the final Property in the Client Account, provided that such termination or sale occurs prior to or on the said tenth anniversary. (t) "INVESTMENT PERIOD" shall mean (i) for a Property, the period of time commencing on the last day of the quarter in which AGAR or a USCo advanced the Beginning Investment Value and ending on the last day of the quarter in which the Property is sold or the last day of the quarter in which the Agreement is terminated, as applicable; and (ii) for the Portfolio, the period of time commencing on the last day of the quarter in which AGAR or a USCo effected the acquisition of a Property and ending on the Incentive Compensation Date on which the Portfolio Return Value is being calculated. (u) "PORTFOLIO" shall have the meaning given it in paragraph B(x). (v) "PORTFOLIO CASH FLOW" shall mean for any quarter the sum of all Property Cash Flow from all Properties in the Client Account. (w) "PORTFOLIO RETURN VALUE" shall mean (i) the Disposition Value of the Remaining Properties, minus (ii) the Return Base of the Portfolio, on a given Incentive Compensation Date. (x) "PROPERTY" shall mean a fee estate or other real property interest owned by AGAR or any USCo directly or indirectly through a partnership, joint venture or otherwise which was acquired pursuant to the advice of Advisor and under the procedures set forth in this Agreement. All Properties acquired pursuant to the advice of Advisor and under the procedures set forth in this Agreement and held by AGAR or by any USCo shall constitute the "CLIENT ACCOUNT" or the "PORTFOLIO." (y) "PROPERTY CASH FLOW" shall mean for each Property the net amount (positive or negative) of all cash inflows minus all cash outflows with respect to the G-8 58 Property which occur during a particular calendar quarter. Cash inflows include the rent from the Property, proceeds of Allocable Indebtedness, insurance, condemnations, or sales; and any other receipts related to the acquisition, improvement, leasing, operation, maintenance, protection or disposition of the Property. Cash outflows include the Beginning Investment Value, plus any additional equity advances toward the purchase price of the Property; acquisition, financing and improvement costs of the Property; interest and principal payments on Allocable Indebtedness; Acquisition Fees, Asset Management Fees, audit and appraisal fees assessed against AGAR or any USCo on account of the Property; and any other expenditure related to the acquisition, improvement, leasing, operation, maintenance, protection or disposition of the Property, but shall exclude any applicable Incentive Fee. Cash outflows for this purpose shall not include any payments made to any taxing authority with respect to any income or gain realized by AGAR or any USCo owning a Property. All outflows and inflows shall be deemed to have been made or received, as the case may be, as of the last day of the applicable calendar quarter. Property Cash Flow for the last quarter of an Investment Period shall be increased or decreased, as applicable, by the net amount of any accrued income, minus any accrued expenses. (z) " RATE OF RETURN FACTOR" shall mean the factor used to calculate the Return Base needed to achieve the BRR each quarter during the Investment Period. The Rate of Return Factor for a quarter shall be 1.0241137. (aa) " RETURN BASE" is the amount derived by the methodology described below. The Return Base of a Property or the Portfolio shall be calculated by calendar quarter over the Investment Period of the Property or the Portfolio, as applicable, in the following manner: (x) The Return Base at the end of the previous quarter (using the Beginning Investment Value of the Property, or the Portfolio, as applicable, for the calculation of the first quarter), multiplied by the Rate of Return Factor for the quarter, minus (xi) The Property Cash Flow, or the Portfolio Cash Flow, as applicable, during the current quarter. (bb) "REMAINING PROPERTIES" shall mean all Properties then currently in the Client Account on an Incentive Compensation Date. G-9 59 EXHIBIT H AUTHORIZED PERSONS FOR AGAR We hereby confirm Advisor's authority to accept instructions on behalf of AGAR pertaining to the Investments described in the foregoing Investment Advisory and Asset Management Agreement to which this EXHIBIT H is attached and forms a part, as follows: Advisor may accept and rely upon all instructions in writing, orally or by telephone or other teleprocess given on behalf of AGAR by any person whom Advisor in good faith believes to be any of the persons designated below:
Name Signature ----- --------- Sh. Saleh Bin Mahfouz --------------------------- Aidarous Albar ---------------------------
Notwithstanding anything herein to the contrary, if instructions by AGAR are provided in a form other than written, Advisor will provide to AGAR and Townsend, prior to acting on such instruction, a letter confirming its understanding of such instructions in reasonable detail. Such letter shall be sent via facsimile in accordance with the provisions of Section 11.7 hereof. AGAR shall advise Advisor in writing of any change in the persons designated above and, until Advisor has actually received such written notice and had a reasonable opportunity to act upon it, Advisor is authorized to act upon instructions which Advisor in good faith believes to have been given by any person designated above. Provided Advisor has faithfully and accurately carried out such instructions, Advisor shall be fully protected in, and shall incur no liability to AGAR for acting upon any instructions given in writing or transmitted by telefax or verbally given and confirmed in writing by Advisor as stated above, which Advisor in good faith believes to have been given by any person designated above. H-1 60 In addition, AGAR agrees to hold Advisor and its agents harmless from any and all liability, loss and expense arising directly or indirectly out of Advisor's following AGAR's instructions from any such designated person regarding the Investments. AGAR: Date: By: ---------------- --------------------------------- Title: ------------------ CERTIFICATION: I, the undersigned, duly elected, qualified and acting ___________________ ("Officer") of AGAR, a corporation organized and existing under the laws of [____________] , hereby certify that: 1. The Officer, _________________, signing this EXHIBIT H and agreement has appropriate authority to do so and the signature is genuine. 2. The agents listed in this EXHIBIT H are duly authorized to give instructions to Advisor and their signatures are genuine. IN WITNESS WHEREOF, I have hereunto set by hand and affixed the seal of this _________________ this ____ day of ____________________, 2000. (Seal) Officer: -------------------------- Other Officer*: ----------------------- * If the Officer is authorized to deliver instructions pursuant to this EXHIBIT H, the above certification must also be signed by an additional officer of the corporation. H-2 61 EXHIBIT I PREFERRED LIST OF ENGINEERS, ENVIRONMENTAL CONSULTANTS AND ROOF CONSULTANTS ENGINEERS Asset Advisory Services, Inc. 7000 Central Parkway Suite 250 Atlanta, GA 30328 Attn: George Latham (404) 367-0220 Property Condition Assessments, LLC 16 N. Marengo Avenue Suite 510 Pasadena, CA 91101 Attn: John Luna (626) 685-9560 ENVIRONMENTAL CONSULTANTS BEM Systems, Inc. 100 Passaic Avenue Chatham, NJ 07928 Attn: Sharon Stecker (908) 598-2600 Dames & Moore 5540 Falmouth Street Suite 201 Richmond, VA 23239 Attn: John Spangler (804) 285-6726 Arcadis, Geraghty & Miller, Inc. 8222 South 48th Street Suite 140 I-1 62 Phoenix, AZ 85044 Attn: Katy Brantingham (602) 438-0883 ROOFING CONSULTANTS CRS, Inc. 3810 Monroe-Ansonville Road Monroe, NC 28110 Attn: Dick Baxter (704) 283-8556 Alsan and Associates of Madison 710 No. Meadow Lane Madison, WI Attn: David Wandel (608) 238-6850 I-2 EX-12 3 y47282ex12.txt STATEMENT OF COMPUTATION OF RATIO OF EARNINGS 1 Exhibit 12 Lexington Corporate Properties Trust Ratio of earnings to combined fixed charges and preferred dividends
For the year ended December 31, ------------------------------ 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- EARNINGS - -------- Income before extraordinary items $ 21,952,267 $ 21,346,854 $ 15,737,265 $ 11,781,810 $ 5,465,824 Interest expense 29,581,324 29,098,915 23,054,531 16,644,044 12,817,528 Amortization expense - debt cost 1,066,668 970,720 933,021 822,552 566,142 Equity in earnings from joint ventures (1,427,506) (60,959) (52,172) (35,836) (12,735) Cash received from joint ventures 809,842 3,385 3,385 3,385 ---------- ---------- ---------- ---------- ---------- Total $ 51,982,595 $ 51,355,530 $ 39,676,030 $ 29,215,955 $ 18,840,144 ========== ========== ========== ========== ========== FIXED CHARGES - ------------- Interest expense $ 29,581,324 $ 29,098,915 $ 23,054,531 $ 16,644,044 $ 12,817,528 Capitalized interest expense 240,500 -- -- -- -- Preferred stock dividend 2,562,000 2,520,000 2,253,697 916,242 -- Amortization expense - debt cost 1,066,668 970,720 933,021 822,552 566,142 ---------- ---------- ---------- ---------- ---------- Total $ 33,450,492 $ 32,589,635 $ 26,241,249 $ 18,382,838 $ 13,383,670 ========== ========== ========== ========== ========== RATIO 1.55 1.58 1.51 1.59 1.41 ==== ==== ==== ==== ====
EX-21 4 y47282ex21.txt LIST OF SUBSIDIARIES 1 Exhibit 21 SUBSIDIARIES OF LEXINGTON CORPORATE PROPERTIES TRUST (JURISDICTION OF ORGANIZATION) Acquiport Parsippany Manager L.L.C. (Delaware) Acquiport Sierra Manager Corp. (Delaware) Barnhech Montgomery Associates Limited Partnership (Maryland) Barnvyn Bakersfield Associates L.P. (California) Barnward Brownsville Properties (New York) Leased Properties Management, Inc. (Delaware) Lepercq Corporate Income Fund L.P. (Delaware) Lepercq Corporate Income Fund II L.P. (Delaware) Lex GP-1, Inc. (Delaware) Lex LP-1, Inc. (Delaware) Lexington Baton Rouge L.L.C. (Louisiana) Lexington BCBS L.L.C. (South Carolina) Lexington Bristol L.P. (Delaware) Lexington Bristol Manager, Inc. (Delaware) Lexington Columbia Manager, Inc. (South Carolina) Lexington Dulles LLC (Delaware) Lexington Dulles Manager LLC (Delaware) Lexington English Corp. (Delaware) Lexington Florence LLC (Delaware) Lexington Florence Manager LLC (Delaware) Lexington Hampton LLC (Delaware) Lexington Lancaster L.L.C. (Delaware) Lexington Livonia L.L.C. (Michigan) Lexington Memorial L.L.C. (Delaware) Lexington Richmond LLC (Delaware) Lexington Richmond Manger, Inc. (Delaware) Lexington Sky Harbor LLC (Delaware) Lexington Warren L.L.C. (Delaware) Lexmem, Inc. (Delaware) LXP Canton, Inc. (Delaware) LXP Funding Corp. (Delaware) LXP Memorial L.L.C. (Delaware) LXP I, Inc. (Delaware) LXP I, L.P. (Delaware) LXP II, Inc. (Delaware) LXP II, L.P. (Delaware) North Tampa Associates (Florida) North Tampa-II, Inc. (Delaware) Phoenix Hotel Associates Limited Partnership (Arizona) Savannah Waterfront Hotel LLC (Georgia) Union Hills Associates (Arizona) Union Hills Associates II (Arizona) Union Hills, Inc. (Delaware) EX-23 5 y47282ex23.txt CONSENT OF KPMG LLP 1 Exhibit 23 Accountants' Consent The Shareholders Lexington Corporate Properties Trust: We consent to incorporation by reference in the registration statements on Form S-3 (Nos. 333-49351, 333-57853, 333-70217, 333-76709, 333-85631, 333-92609, and 333-47064) and on Form S-8 (No. 333-85625) of Lexington Corporate Properties Trust of our report dated January 23, 2001, relating to the consolidated balance sheets of Lexington Corporate Properties Trust and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, and the related schedule, which report appears in the December 31, 2000 annual report on Form 10-K of Lexington Corporate Properties Trust. /s/ KPMG LLP New York, New York March 30, 2001 EX-27 6 y47282ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2000 AS CONTAINED IN THE COMPANY'S FORM 10-K FOR SUCH PERIOD AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K. DOLLARS ARE IN THOUSANDS, EXCEPT PER SHARE DATA 1,000 YEAR DEC-31-2000 JAN-01-2000 DEC-31-2000 6,390 0 0 0 0 0 682,627 98,429 668,377 0 394,029 24,369 0 2 174,883 668,377 0 80,005 0 19,017 1,497 0 29,581 27,967 0 21,952 0 0 0 21,952 1.15 1.10
-----END PRIVACY-ENHANCED MESSAGE-----