10-Q 1 y52514e10-q.txt LEXINGTON CORPORATE PROPERTIES TRUST 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from _________________ to ________________ Commission File Number 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) (212) 692-7260 ----------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate the number of shares outstanding of each of the registrant's classes of common shares, as of the latest practicable date: 21,856,541 common shares, par value $.0001 per share on August 10, 2001. 2 PART 1. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2001 (Unaudited) and December 31, 2000 (in thousands, except share and per share data)
June 30, December 31, 2001 2000 ----- ----- ASSETS: Real estate, at cost $ 684,187 $ 682,627 Less: accumulated depreciation and amortization 107,147 98,429 --------- --------- 577,040 584,198 Cash and cash equivalents 10,935 4,792 Restricted cash 1,819 1,598 Investment in and advances to non-consolidated entities 46,193 40,836 Other assets, net 40,581 36,953 --------- --------- $ 676,568 $ 668,377 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Mortgages and notes payable $ 398,569 $ 345,505 Credit facility -- 41,821 Origination fees payable, including accrued interest 6,671 6,703 Accounts payable and other liabilities 5,041 6,473 --------- --------- 410,281 400,502 Minority interests 58,834 64,812 --------- --------- 469,115 465,314 --------- --------- 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, 17,520,896 and 16,863,394 shares issued and outstanding in 2001 and 2000, respectively 2 2 Additional paid-in-capital 247,968 240,112 Deferred compensation, net (1,917) (1,019) Accumulated distributions in excess of net income (64,801) (62,227) --------- --------- 181,252 176,868 Less: notes receivable from officers/shareholders (1,977) (1,983) --------- --------- Total shareholders' equity 179,275 174,885 --------- --------- $ 676,568 $ 668,377 ========= =========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 3 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three and six months ended June 30, 2001 and 2000 (Unaudited and in thousands, except per share data)
Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenues: Rental $ 19,371 $ 19,298 $ 38,734 $ 38,318 Equity in earnings of non-consolidated entities 806 231 1,416 633 Interest and other 271 504 531 692 ------------ ------------ ------------ ------------ 20,448 20,033 40,681 39,643 ------------ ------------ ------------ ------------ Expenses: Interest 7,712 7,221 15,344 14,655 Depreciation and amortization of real estate 4,361 4,367 8,718 8,793 Amortization of deferred expenses 408 380 756 673 General and administrative 1,215 1,312 2,457 2,598 Property operating 343 399 714 768 ------------ ------------ ------------ ------------ 14,039 13,679 27,989 27,487 ------------ ------------ ------------ ------------ Income before gain on sale of properties, minority interests and extraordinary item 6,409 6,354 12,692 12,156 Gain on sale of properties -- 2,662 -- 2,662 ------------ ------------ ------------ ------------ Income before minority interests and extraordinary item 6,409 9,016 12,692 14,818 Minority interests 1,319 1,670 2,754 3,001 ------------ ------------ ------------ ------------ Income before extraordinary item 5,090 7,346 9,938 11,817 Extraordinary item -- -- (270) -- ------------ ------------ ------------ ------------ Net income $ 5,090 $ 7,346 $ 9,668 $ 11,817 ============ ============ ============ ============ Income per common share-basic: Income before extraordinary item $ 0.25 $ 0.40 $ 0.50 $ 0.63 Extraordinary item -- -- (0.02) -- ------------ ------------ ------------ ------------ Net income $ 0.25 $ 0.40 $ 0.48 $ 0.63 ============ ============ ============ ============ Weighted average common shares outstanding 17,351,400 16,838,967 17,219,900 16,881,301 ============ ============ ============ ============ Income per common share-diluted: Income before extraordinary item $ 0.25 $ 0.36 $ 0.48 $ 0.59 Extraordinary item -- -- (0.01) -- ------------ ------------ ------------ ------------ Net income $ 0.25 $ 0.36 $ 0.47 $ 0.59 ============ ============ ============ ============ Weighted average common shares outstanding 23,109,844 26,599,876 23,039,062 24,604,990 ============ ============ ============ ============
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 4 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 2001 and 2000 (Unaudited and in thousands, except share data)
2001 2000 -------- -------- Net cash provided by operating activities $ 21,172 $ 19,869 -------- -------- Cash flows from investing activities: Acquisitions of real estate and tenant improvements (1,560) (27,077) Investment in and advances to non-consolidated entities (6,517) (6,005) Real estate deposits (359) (5,547) Investment in partnerships (1,122) -- Proceeds from sale of real estate, net -- 16,335 -------- -------- Net cash used in investing activities (9,558) (22,294) -------- -------- Cash flows from financing activities: Proceeds of mortgages and notes payable 59,244 36,800 Dividends to common and preferred shareholders (12,242) (11,471) Principal payments on debt, excluding normal amortization -- (13,093) Principal amortization payments (6,184) (5,476) Change in credit facility borrowings, net (41,821) (4,500) Cash distributions to minority partners (3,201) (3,113) Proceeds from the issuance of common shares, net 1,368 539 Repurchase of common shares/units (192) (3,211) Increase in escrow deposits (246) -- Other financing activities, net (2,197) 241 -------- -------- Net cash used in financing activities (5,471) (3,284) -------- -------- Change in cash and cash equivalents 6,143 (5,709) Cash and cash equivalents, at beginning of period 4,792 8,837 -------- -------- Cash and cash equivalents, at end of period $ 10,935 $ 3,128 ======== ========
Supplemental Disclosure of Non Cash Investing and Financing Activities: During 2001 and 2000, the Company issued 100,000 and 73,800 common shares, respectively, to certain employees and trustees resulting in $1,181 and $664, respectively, of deferred compensation. These common shares vest ratably primarily over a 5 year period. During 2001 and 2000, holders of an aggregate of 388,732 and 68,759 partnership units, respectively, redeemed such units for common shares of the Company. This redemption resulted in an increase in shareholders' equity and a corresponding decrease in minority interests of $5,330 and $830, respectively. During 2001, the Company purchased a property in Winchester, Virginia for $14,400 of which $10,800 was financed by the seller through a purchase money note. The property was subsequently contributed to the Company's joint venture with an institutional partner at cost. During 2000, 83,400 partnership units were issued to acquire two real estate asset management contracts valued at $585. During 2000, the Company sold a property and received a $3,067 note which bears interest at 10%. The note subsequently was repaid. During 2000, the Company purchased a property and issued a $3,488 promissory note to the seller. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 5 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 (Unaudited and dollars in thousands, except share and per share data) (1) The Company Lexington Corporate Properties Trust (the "Company") is a self-managed and self-administered real estate investment trust ("REIT") that acquires, owns and manages a geographically diversified portfolio of net leased office, industrial and retail properties. The real properties owned by the Company are subject to triple net leases to corporate tenants. The Company was organized in 1993 to combine and continue to expand the business of two affiliated limited partnerships. As of June 30, 2001 the Company had ownership interests in seventy-three properties and managed an additional twenty-five properties. The Company has qualified as a REIT under the Internal Revenue Code of 1986, as amended. A REIT 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 90% of taxable income is distributed. Accordingly, no provision for Federal income taxes has been made. The unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods. For a more complete understanding of the Company's operations and financial position, reference is made to the financial statements previously filed with the Securities and Exchange Commission with the Company's Annual Report on Form 10-K for the year ended December 31, 2000. (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 consolidated 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. 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, preferred shares and exchangeable redeemable secured notes. The preferred shares and exchangeable redeemable secured notes are excluded from all 2001 computations since they are anti-dilutive. The Company's preferred shares are excluded from the six months ended June 30, 2000 computations since they are anti-dilutive. 5 6 The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three and six months ended June 30, 2001 and 2000.
Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ BASIC Income before extraordinary item $ 5,090 $ 7,346 $ 9,938 $ 11,817 Less preferred dividends 672 630 1,344 1,260 ------------ ------------ ------------ ------------ Income attributed to common shareholders before extraordinary item 4,418 6,716 8,594 10,557 Extraordinary item -- -- (270) -- ------------ ------------ ------------ ------------ Net income attributed to common shareholders $ 4,418 $ 6,716 $ 8,324 $ 10,557 ============ ============ ============ ============ Weighted average number of common shares outstanding 17,351,400 16,838,967 17,219,900 16,881,301 ============ ============ ============ ============ Income per common share - basic: Income before extraordinary item $ 0.25 $ 0.40 $ 0.50 $ 0.63 Extraordinary item -- -- (0.02) -- ------------ ------------ ------------ ------------ Net income $ 0.25 $ 0.40 $ 0.48 $ 0.63 ============ ============ ============ ============ DILUTED Income attributed to common shareholders before extraordinary item - basic $ 4,418 $ 6,716 $ 8,594 $ 10,557 Add incremental income attributed to assumed conversion -- of dilutive securities 1,267 2,752 2,613 3,908 ------------ ------------ ------------ ------------ Income attributed to common shareholders before extraordinary item - diluted 5,685 9,468 11,207 14,465 Extraordinary item -- -- (270) -- ------------ ------------ ------------ ------------ Net income attributed to common shareholders - diluted $ 5,685 $ 9,468 $ 10,937 $ 14,465 ============ ============ ============ ============ Weighted average number of common shares used in calculation of basic earnings per share 17,351,400 16,838,967 17,219,900 16,881,301 Add incremental shares representing: Shares issuable upon exercise of employee stock options 325,777 79,998 287,234 72,604 Shares issuable upon conversion of dilutive securities 5,432,667 9,680,911 5,531,928 7,651,085 ------------ ------------ ------------ ------------ Weighted average number of shares used in calculation of diluted earnings per common share 23,109,844 26,599,876 23,039,062 24,604,990 ============ ============ ============ ============ Income per common share-diluted: Income before extraordinary item $ 0.25 $ 0.36 $ 0.48 $ 0.59 Extraordinary item -- -- (0.01) -- ------------ ------------ ------------ ------------ Net income $ 0.25 $ 0.36 $ 0.47 $ 0.59 ============ ============ ============ ============
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 financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Reclassifications. Certain amounts included in the 2000 financial statements have been reclassified to conform with the 2001 presentation. 6 7 (3) Investments in Joint Ventures The Company's joint venture with an institutional partner has acquired one property in 2001, for $14,400, of which $10,800 was funded through a purchase money note. The lease, which expires in 2011, provides for annual rental revenues of approximately $1,514. This property was purchased, at cost, from the Company. The Company's joint venture with a private investor has agreed to develop a 107,894 square foot expansion of its 348,410 square foot office building in Columbia, South Carolina. The property, net leased to Blue Cross Blue Shield of South Carolina, was purchased in 1999 for $42,500. The expansion, which is estimated to be completed by October 2001, is estimated to cost $10,500. The tenant will lease the expansion for eight years at a weighted average rental rate of 18.5% of construction costs. The Company is obligated to fund 40% of the costs and will receive 40% of all cash flows. (4) 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 the six months ended June 30, 2001 and 2000 the following tenants represented 10% or greater of rental revenues:
2001 2000 ---- ---- Northwest Pipeline Corporation 11% 11% Kmart Corporation 12% 12%
Both of these tenants are publicly registered companies subject to the 1934 Securities and Exchange Act and accordingly file financial information with the Securities and Exchange Commission. The following is a summary of the most recent audited and unaudited financial data for all tenants that represent greater than 10% of the Company's revenues: Northwest Pipeline Corporation
Year end First Quarter ended 12/31/00 3/31/01 -------- -------- Operating revenues $296,361 $ 71,198 Operating expenses 146,499 36,761 Net income 79,742 17,532 Current assets $121,799 $125,795 Non current assets 982,280 978,695 Current liabilities 110,039 101,516 Non current liabilities 524,659 526,061 Shareholder's equity 469,381 476,913
7 8 Kmart Corporation -----------------
Year end First Quarter ended 1/31/01 5/2/01 ----------- ----------- Sales $37,028,000 $ 8,337,000 Cost of Sales 29,658,000 6,608,000 Net loss 244,000 25,000 Current assets $ 7,624,000 $ 8,548,000 Non current assets 7,006,000 7,044,000 Current liabilities 3,799,000 4,474,000 Non current liabilities 3,861,000 4,148,000 Redeemable preferred securities 887,000 887,000 Shareholder's equity 6,083,000 6,083,000
(5) Minority Interests In conjunction with several of the Company's acquisitions, sellers were given interests in LCIF or LCIF II as a form of consideration. All of such interests are redeemable at certain times for common shares on a one-for-one basis at various dates through May 2006. As of June 30, 2001 the total number of limited partnership units of LCIF and LCIF II outstanding was 5,291,842. These units, subject to certain adjustments through the date of redemption, require distributions per unit in varying amounts from $0 to $1.28 per annum and have a current average distribution of $1.15 per annum. (6) Mortgages and Notes Payable During the six months ended June 30, 2001, the Company obtained the following mortgages: - Obtained a $12,500 variable rate second mortgage on its Warren, Ohio property. The mortgage note provides for quarterly interest payments, matures in October 2007 when the entire $12,500 is due and currently bears interest at 7.69%. - Obtained a $15,144 non-recourse mortgage on its Glendale, Arizona property. The mortgage note bears interest at 7.40%, provides for annual debt service payments of $1,258 and matures in April 2011 when a balloon payment of $13,115 is due. - Obtained a three year $35,000 unsecured credit facility with Fleet Bank to replace its $60,000 credit facility which was scheduled to expire in July 2001. The new facility bears interest at LIBOR plus 150-250 basis points depending on the level of the Company's indebtedness. The credit facility contains customary financial covenants including restrictions on the level of indebtedness and net worth maintenance provisions. As of June 30, 2001 the Company was in compliance with all covenants and there were no borrowings outstanding on the facility. Unamortized capitalized costs of $270 incurred in obtaining the $60,000 credit facility were written off when the Company replaced the facility. - Obtained a $17,100 non-recourse mortgage on its Milpitas, California property. The mortgage note bears interest at LIBOR plus 297 (currently 6.92%) and matures in July 2004 when a balloon payment is due. - Obtained a $7,500 non-recourse mortgage on its Auburn Hills, Michigan property. The mortgage note bears interest at 7.01%, provides for annual debt service payments of $637 and matures in June 2011 when a balloon payment of $5,918 is due. - Obtained a $7,000 non-recourse mortgage on its Decatur, Georgia property. The mortgage note bears interest at 6.72%, provides for annual debt service payments of $579 and matures in June 2008 when a balloon payment of $6,049 is due. 8 9 (7) Related Party Transactions In 2001 and 2000, the Company earned $80 and $17, respectively in asset management fees from two partnerships controlled by the Company's Chairman. In 2001 and 2000, the Company incurred reimbursable expenses relating to these partnerships of $275 and $161, respectively. In 2001 the Company purchased a total of 10,479 limited partnership units in these two partnerships for approximately $1,100. On July 20, 2001, the Company announced amended terms of the agreement to acquire these partnerships. Under the new proposal, the Company would pay limited partners $64,350 in cash and common shares, and would assume existing debt of the partnerships. The limited partners would recieve the merger consideration, payable 50% in cash and 50% in the Company's common shares issued at a value not less than $14 per share nor more than $16 per share. The transaction is subject to customary conditions, including approval by the Company's shareholders and the partnership's limited partners. (8) Subsequent Events The Company sold 4,000,000 common shares at $15.20 per share raising net proceeds of $57,720. The Company declared a dividend of $0.32 per share payable on August 14, 2001 to shareholders of record on July 31, 2001. The Company repaid $34,388 in property specific mortgage debt resulting in an extraordinary charge of approximately $3,000. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in thousands, except per share data) Forward-Looking Statements When used in this Form 10-Q 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, 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. 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. As of June 30, 2001, the Company had ownership interests in 73 real estate properties, including eleven held by non-consolidated entities, and managed 25 additional properties. Liquidity and Capital Resources Real Estate Assets. As of June 30, 2001, the Company's real estate assets were located in twenty-nine states and contained an aggregate of approximately 13.1 million square feet of net rentable space. The Properties are generally subject to triple net leases, which are generally characterized as a lease in which the tenant pays all or substantially all of the cost and cost increases for real estate taxes, capital expenditures, insurance and ordinary maintenance of the Property. As of June 30, 2001 all of the 73 Properties were leased to tenants. The Company's principal sources of liquidity are revenue generated from the Properties, interest on cash balances, amounts available under its unsecured credit facility and amounts that may be raised through the sale of securities in private or public offerings. For the six months ended June 30, 2001, the Company generated $38,734 in revenue compared to $38,318 during the same period in 2000. Dividends. The Company has made quarterly distributions since October 1986 without interruption. The Company declared a dividend in respect of the second quarter of 2001, in the amount of $.32 per share to shareholders of record as of July 31, 2001 to be paid on August 14, 2001. The Company's annualized dividend rate is currently $1.28 per share. 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 $10,919 in 2001 compared to $10,211 in 2000. 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 was $21,172 for the six months ended June 30, 2001 and $19,869 for the six months ended June 30, 2000. 10 11 Net cash used in investing activities totaled $9,558 and $22,294 for the six months ended June 30, 2001 and 2000, respectively. 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. Net cash used in financing activities totaled $5,471 and $3,284 for the six months ended June 30, 2001 and 2000, respectively. Cash used in financing activities during each period was primarily attributable to proceeds from 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, 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 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, from time to time, as such partnership interests are redeemed for common shares. The table set forth below provides certain information with respect to such partnership interests as of June 30, 2001, based on the current $1.28 annual dividend.
Current Redeemable Annualized Total For Shares of Number Per Unit Annualized Common Shares as of: of Units Distribution Distribution -------------------- --------- ------------ ------------ At any time 3,460,472 $ 1.28 $ 4,429 At any time 1,271,073 1.08 1,373 At any time 133,050 1.12 149 June 2002 83,400 1.28 107 January 2003 17,901 -- -- March 2004 43,734 0.27 12 March 2004 19,510 -- -- November 2004 24,552 -- -- March 2005 29,384 -- -- January 2006 171,168 -- -- February 2006 28,230 -- -- May 2006 9,368 0.29 3 ----------- -------- ----------- 5,291,842 $ 1.15 $ 6,073 =========== ======== ===========
Financing Revolving Credit Facility. The Company obtained a three year $35,000 unsecured credit facility to replace its $60,000 credit facility which was scheduled to expire in July 2001. The new facility bears interest at LIBOR plus 150-250 basis points depending on the level of the Company's indebtedness. The credit facility contains customary financial covenants including restrictions on the level of indebtedness and net worth maintenance provisions. As of June 30, 2001 the Company was in compliance with all covenants and there were no borrowings outstanding on the facility. 11 12 Financing Transactions. During the six months ending June 30, 2001 the Company completed the following financing transactions: - Obtained a $12,500 variable rate second mortgage on its Warren, Ohio property. The mortgage note provides for quarterly interest payments, matures in October 2007 when the entire $12,500 is due and currently bears interest at 7.69%. - Obtained a $15,144 non-recourse mortgage on its Glendale, Arizona property. The mortgage note bears interest at 7.40%, provides for annual debt service payments of $1,258 and matures in April 2011 when a balloon payment of $13,115 is due. - Obtained a $17,100 non-recourse mortgage on its Milpitas, California property. The mortgage note bears interest at LIBOR plus 297 (currently 6.92%) and matures in July 2004 when a balloon payment is due. - Obtained a $7,500 non-recourse mortgage on its Auburn Hills, Michigan property. The mortgage note bears interest at 7.01%, provides for annual debt service payments of $637 and matures in June 2011 when a balloon payment of $5,918 is due. - Obtained a $7,000 non-recourse mortgage on its Decatur, Georgia property. The mortgage note bears interest at 6.72%, provides for annual debt service payments of $579 and matures in June 2008 when a balloon payment of $6,049 is due. Debt Service Requirements. The Company's principal liquidity needs are the payment of interest and principal on outstanding mortgage debt. As of June 30, 2001, a total of 56 properties, excluding properties held by non-consolidated entities, were subject to outstanding mortgages, which had an aggregate principal amount of $398,569. The weighted average interest rate on the Company's debt on such date was approximately 7.67%. Lease Obligations. Since the Company's tenants bear all or substantially all of the cost of property maintenance and capital improvements, 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. Results of Operations 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 of $415 and $1,038 for the three and six months ended June 30, 2001, respectively, $575 and $783, respectively, is attributable to increased earnings from co-investment programs established in 1999. The increase relates primarily to the timing of investments. Of the remaining change in revenue for the three and six months ended June 30, 2001, $73 and $416, respectively, was attributable to increased rental revenues from investments made in 2000 and an increase in base rents for leases with consumer price index adjustments. The increase in interest expense of $491 and $689 for the three and six months ended June 30, 2001, respectively, was due to the growth of the Company's portfolio and has been offset by principal amortization payments on existing debt, lower variable interest rates on the credit facility and lower interest rates on new debt incurred by the Company. The Company's general and administrative expenses have decreased as a percentage of total revenue to approximately 6.0% in 2001 from approximately 6.6% in 2000 due to the growth of the Company's portfolio relative to these expenses. Gain on sale of properties decreased by $2,662 in 2001 compared to 2000 since no properties were sold in 2001. Minority interest expense decreased by $351 and $247 for the three and six months ended June 30, 2001, respectively, due to the redemption of operating partnership units in 2001. Net income decreased for the three and six months ended June 30, 2001 compared to 2000 due to the impact of the items discussed above. 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 considered an alternative to net income as an indicator of operating performance or to cash flows from operating 12 13 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 Funds From Operations and cash flow activities for the six months ended June 30, 2001 and 2000.
2001 2000 -------- -------- Net income $ 9,668 $ 11,817 Add back: Depreciation and amortization of real estate 8,718 8,793 Extraordinary item 270 -- Minority interest's share of net income 2,613 2,908 Amortization of leasing commissions 383 167 Deemed conversion of notes payable 1,000 582 Joint venture adjustment 1,919 845 Gains on sale of properties -- (2,662) -------- -------- Funds from operations $ 24,571 $ 22,450 ======== ======== Cash flows from operating activities $ 21,172 $ 19,869 Cash flows from investing activities (9,558) (22,294) Cash flows from financing activities (5,471) (3,284)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk relates to its variable rate unsecured credit facility. As of June 30, 2001 and 2000, the Company's variable rate indebtedness represented 9.5% and 17.8% of total long-term indebtedness, respectively. During the three and six months ended June 30, 2001 and 2000, this variable rate indebtedness had a weighted average interest rate of 6.87% and 7.21% and 7.68% and 7.60%, respectively, and had the weighted average interest rate been 100 basis points higher, the Company's net income for the three and six months ended June 30, 2001 and 2000 would have been reduced by approximately $110 and $240 and $175 and $352, respectively. 13 14 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - not applicable. ITEM 2. Changes in Securities - not applicable. ITEM 3. Defaults under the Senior Securities - not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders - At the Company's Annual Meeting of Shareholders held on May 23, 2001, the following action was taken: The shareholders elected the seven individuals nominated to serve as trustees of the Company until the 2002 Annual Meeting, as set forth in Proposal No. 1 in the Company's Notice of Annual Meeting of Shareholders and Proxy Statement for the Annual Meeting. The seven individuals elected, and the number of votes cast for, or withheld, with respect to each of them, follows:
For Withheld ---------- -------- E. Robert Roskind 14,524,548 325,849 Richard J. Rouse 14,527,129 323,268 T. Wilson Eglin 14,526,432 323,965 Geoffrey Dohrmann 14,675,583 174,814 Carl D. Glickman 14,567,385 283,012 John D. McGurk 14,681,865 168,532 Seth M. Zachary 14,442,958 407,439
ITEM 5. Other Information - not applicable. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits
Exhibit No. Exhibit ----------- ------- 10.41 Underwriters' Agreement for Common Share Offering
(b) Reports on Form 8-K filed during the quarter ended June 30, 2001. None. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Lexington Corporate Properties Trust Date: August 14, 2001 By: /s/ E. Robert Roskind ------------------- --------------------------------------- E. Robert Roskind Chairman and Co-Chief Executive Officer Date: August 14, 2001 By: /s/ Patrick Carroll ------------------- --------------------------------------- Patrick Carroll Chief Financial Officer and Treasurer 15