10-Q 1 y54728e10-q.txt LEXINGTON CORPORATE PROPERTIES TRUST 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 September 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: 22,284,160 common shares, par value $.0001 per share on November 9, 2001. PART 1. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2001 (Unaudited) and December 31, 2000 (in thousands, except share and per share data)
September 30, December 31, 2001 2000 ------------- ------------- ASSETS: Real estate, at cost $ 684,727 $ 682,627 Less: accumulated depreciation and amortization 111,878 98,429 ------------- ------------- 572,849 584,198 Cash and cash equivalents 15,766 4,792 Restricted cash 1,729 1,598 Investment in and advances to non-consolidated entities 48,778 40,836 Other assets, net 45,396 36,953 ------------- ------------- $ 684,518 $ 668,377 ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY: Mortgages and notes payable $ 348,763 $ 345,505 Credit facility -- 41,821 Origination fees payable, including accrued interest 6,654 6,703 Accounts payable and other liabilities 6,459 6,473 ------------- ------------- 361,876 400,502 Minority interests 57,365 64,812 ------------- ------------- 419,241 465,314 ------------- ------------- 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, 22,001,271 and 16,863,394 shares issued and outstanding in 2001 and 2000, respectively 2 2 Additional paid-in-capital 311,231 240,112 Deferred compensation, net (1,779) (1,019) Accumulated distributions in excess of net income (70,382) (62,227) ------------- -------------- 239,072 176,868 Less: notes receivable from officers/shareholders (1,973) (1,983) ------------- -------------- Total shareholders' equity 237,099 174,885 ------------- -------------- $ 684,518 $ 668,377 ============ ==============
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three and nine months ended September 30, 2001 and 2000 (Unaudited and in thousands, except per share data)
Three months ended Nine months ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: Rental $ 19,091 $ 19,247 $ 57,825 $ 57,565 Equity in earnings of non-consolidated entities 780 475 2,196 1,108 Interest and other 351 365 882 1,057 ------------ ------------ ------------ ------------ 20,222 20,087 60,903 59,730 ------------ ------------ ------------ ------------ Expenses: Interest 7,292 7,401 22,636 22,056 Depreciation and amortization of real estate 4,731 4,362 13,449 13,155 Amortization of deferred expenses 436 415 1,192 1,088 General and administrative 1,225 1,240 3,682 3,838 Property operating 436 338 1,150 1,106 ------------ ------------ ------------ ------------ 14,120 13,756 42,109 41,243 ------------ ------------ ------------ ------------ Income before gain on sale of properties, minority interests and extraordinary item 6,102 6,331 18,794 18,487 Gain on sale of properties -- 297 -- 2,959 ------------ ------------ ------------ ------------ Income before minority interests and extraordinary item 6,102 6,628 18,794 21,446 Minority interests 1,181 1,508 3,935 4,509 ------------ ------------ ------------ ------------ Income before extraordinary item 4,921 5,120 14,859 16,937 Extraordinary item (2,874) -- (3,144) -- ------------ ------------ ------------ ------------ Net income $ 2,047 $ 5,120 $ 11,715 $ 16,937 ============ ============ ============ ============ Income per common share-basic: Income before extraordinary item $ 0.21 $ 0.26 $ 0.70 $ 0.89 Extraordinary item (0.14) -- (0.17) -- ------------ ------------ ------------ ------------ Net income $ 0.07 $ 0.26 $ 0.53 $ 0.89 ============ ============ ============ ============ Weighted average common shares outstanding 20,615,907 16,906,036 18,364,342 16,889,606 ============ ============ ============ ============ Income per common share-diluted: Income before extraordinary item $ 0.20 $ 0.26 $ 0.69 $ 0.85 Extraordinary item (0.13) -- (0.17) -- ------------ ------------ ------------ ------------ Net income $ 0.07 $ 0.26 $ 0.52 $ 0.85 ============ ============ ============ ============ Weighted average common shares outstanding 21,011,999 22,765,499 18,674,703 24,627,639 ============ ============ ============ ============
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, 2001 and 2000 (Unaudited and in thousands, except share data)
2001 2000 ----- ----- Net cash provided by operating activities $ 28,943 $ 27,587 -------- -------- Cash flows from investing activities: Acquisitions of real estate and tenant improvements (2,101) (27,116) Investment in and advances to non-consolidated entities (8,752) (16,182) Pending acquisition costs (533) -- Real estate deposits (300) (4,633) Investment in partnerships (1,065) -- Proceeds from sale of real estate, net -- 19,402 -------- -------- Net cash used in investing activities (12,751) (28,529) -------- -------- Cash flows from financing activities: Proceeds of mortgages and notes payable 59,244 45,300 Dividends to common and preferred shareholders (19,870) (17,394) Principal payments on debt, excluding normal amortization (47,196) (13,093) Principal amortization payments (8,397) (7,819) Change in credit facility borrowings, net (41,821) (6,500) Cash distributions to minority partners (4,708) (4,702) Proceeds from the issuance of common shares, net 64,684 818 Repurchase of common shares/units (349) (3,211) Increase in escrow deposits (516) -- Other financing activities, net (2,714) (270) Penalties paid on early retirement of debt (3,575) -- -------- -------- Net cash used in financing activities (5,218) (6,871) -------- -------- Change in cash and cash equivalents 10,974 (7,813) Cash and cash equivalents, at beginning of period 4,792 8,837 -------- -------- Cash and cash equivalents, at end of period $ 15,766 $ 1,024 ======== ========
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 412,275 and 124,023 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 $5,625 and $1,668, 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 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 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 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 generally 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 September 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 preferred shares, operating partnership units and exchangeable redeemable secured notes. The preferred shares, operating partnership units and exchangeable redeemable secured notes are excluded from all 2001 computations since they are anti-dilutive. The preferred shares are excluded from the three and nine months ended September 30, 2000 computations and the exchangeable redeemable secured notes are excluded from the three months ended September 30, 2000 computation. During the third quarter of 2001 the Company retired all redeemable secured notes. 5 The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the three and nine months ended September 30, 2001 and 2000.
Three months ended Nine months ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- BASIC Income before extraordinary item $ 4,921 $ 5,120 $ 14,859 $ 16,937 Less preferred dividends 672 651 2,016 1,911 ------------ ------------ ------------ ------------ Income attributed to common shareholders before extraordinary item 4,249 4,469 12,843 15,026 Extraordinary item (2,874) -- (3,144) -- ------------ ------------ ------------ ------------ Net income attributed to common shareholders $ 1,375 $ 4,469 $ 9,699 $ 15,026 ============ ============ ============ ============ Weighted average number of common shares outstanding 20,615,907 16,906,036 18,364,342 16,889,606 ============ ============ ============ ============ Income per common share - basic: Income before extraordinary item $ 0.21 $ 0.26 $ 0.70 $ 0.89 Extraordinary item (0.14) -- (0.17) -- ------------ ------------ ------------ ------------ Net income $ 0.07 $ 0.26 $ 0.53 $ 0.89 ============ ============ ============ ============ DILUTED Income attributed to common shareholders before extraordinary item - basic $ 4,249 $ 4,469 $ 12,843 $ 15,026 Add incremental income attributed to assumed conversion of dilutive securities -- 1,419 -- 5,827 ------------ ------------ ------------ ------------ Income attributed to common shareholders before extraordinary item - diluted 4,249 5,888 12,843 20,853 Extraordinary item (2,874) -- (3,144) -- ------------ ------------ ------------ ------------ Net income attributed to common shareholders - diluted $ 1,375 $ 5,888 $ 9,699 $ 20,853 ============ ============ ============ ============ Weighted average number of common shares used in calculation of basic earnings per share 20,615,907 16,906,036 18,364,342 16,889,606 Add incremental shares representing: Shares issuable upon exercise of employee stock options 396,092 131,716 310,361 87,035 Shares issuable upon conversion of dilutive securities -- 5,727,747 -- 7,650,998 ------------ ------------ ------------ ------------ Weighted average number of shares used in calculation of diluted earnings per common share 21,011,999 22,765,499 18,674,703 24,627,639 ============ ============ ============ ============ Income per common share-diluted: Income before extraordinary item $ 0.20 $ 0.26 $ 0.69 $ 0.85 Extraordinary item (0.13) -- (0.17) -- ------------ ------------ ------------ ------------ Net income $ 0.07 $ 0.26 $ 0.52 $ 0.85 ============ ============ ============ ============
6 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. Recently Issued Accounting Pronouncements. In October 2001, the FASB issued the Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 addresses financial accounting and reporting for the disposal of long-lived assets. FAS 144 becomes effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company does not expect the pronouncement to have a material impact on its consolidated financial position, results of operations or cash flows. Reclassifications. Certain amounts included in the 2000 financial statements have been reclassified to conform with the 2001 presentation. (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 purchase money note was satisfied with the proceeds of an $11,000 non-recourse mortgage. The mortgage bears interest at 7.33%, requires annual debt service payments of $908 and matures in August 2011 when a balloon payment of $9,675 is due. 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 developed 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 was completed in October 2001 for $10,900. The tenant has entered into a lease for the expansion which expires on September 30, 2009 (the expiration date of the primary lease), at a weighted average rental rate of 18.6% of the construction costs. The Company funded 40% of the construction 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 nine months ended September 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. 7 The following is a summary of the most recent audited and unaudited financial data for these two tenants: Northwest Pipeline Corporation ------------------------------
Year end Second Quarter ended 12/31/00 6/30/01 -------- -------- Operating revenues $296,361 $143,079 Operating expenses 146,499 73,110 Net income 79,742 35,667 Current assets $121,799 $118,521 Non current assets 982,280 978,814 Current liabilities 110,039 87,612 Non current liabilities 524,659 524,675 Shareholder's equity 469,381 485,048
Kmart Corporation -----------------
Year end Second Quarter ended 1/31/01 8/1/01 ------- ------ Sales $37,028,000 $17,255,000 Cost of Sales 29,658,000 13,667,000 Net loss 244,000 120,000 Current assets $ 7,624,000 $ 8,174,000 Non current assets 7,006,000 7,175,000 Current liabilities 3,799,000 3,849,000 Non current liabilities 3,861,000 4,548,000 Redeemable preferred securities 887,000 887,000 Shareholders' equity 6,083,000 6,065,000
(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 September 30, 2001 the total number of limited partnership units of LCIF and LCIF II outstanding was 5,268,299. 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. 8 (6) Mortgages and Notes Payable During the nine months ended September 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 bears interest at 375 basis points above 90 day LIBOR (7.27% at September 30, 2001). - 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 September 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 297 basis points above 30 day LIBOR (6.55% at September 30, 2001) 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. During the third quarter of 2001 the Company satisfied the following mortgages:
Property Balance Rate Scheduled Maturity -------- ------- ---- ------------------ Bessemer, AL $ 1,000 9.500% 9/01/01 Tampa, FL 5,023 7.050% 8/15/02 Tampa, FL 4,094 7.050% 8/15/02 Gordonsville, TN 895 9.500% 10/01/02 Bakersfield, CA 1,030 9.350% 12/01/02 Columbia, MD 1,340 10.750% 7/20/03 Mechanicsburg, PA 25,000 8.000% 3/20/04 Rockville, MD 704 8.820% 3/01/05 Laguna Hills, CA 3,123 8.375% 2/01/06 Honolulu, HI 4,987 10.250% 10/01/10 ------- -------- $47,196 8.259% ======= ========
The mortgage satisfactions resulted in an extraordinary charge of approximately $2,874, net of the impact on minority interests. 9 (7) Related Party Transactions In 2001 and 2000, the Company earned $112 and $55, respectively, in asset management fees from two partnerships in which the Company's Chairman is the general partner. In 2001 and 2000, the Company incurred reimbursable expenses relating to these partnerships of $411 and $311, 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 receive 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. The Special Meeting of Shareholders to vote on these acquisitions is scheduled for November 28, 2001. (8) Equity Offering During the third quarter of 2001, the Company sold 4,000,000 common shares at $15.20 per share raising net proceeds of $57,720. In addition, the underwriters exercised their over-allotment option and purchased an additional 400,000 common shares from the Company for net proceeds of $5,644. 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 September 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 September 30, 2001, the Company's real estate assets were located in twenty-nine states and contained an aggregate of approximately 13.2 million square feet of net rentable space, including a 107,894 square foot expansion which was completed in October 2001. 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 September 30, 2001 71 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 nine months ended September 30, 2001, the Company generated $57,825 in rental revenue compared to $57,565 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 third quarter of 2001, in the amount of $.32 per share to shareholders of record as of October 31, 2001 to be paid on November 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 $17,875 in 2001 compared to $15,483 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. 11 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 were $28,943 for the nine months ended September 30, 2001 and $27,587 for the nine months ended September 30, 2000. Net cash used in investing activities totaled $12,751 and $28,529 for the nine months ended September 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 $5,218 and $6,871 for the nine months ended September 30, 2001 and 2000, respectively. Cash used in financing activities during 2001 was primarily attributable to the issuance of common shares and repayment of mortgage debt with the proceeds from the common share offering. All other financing activities in 2001 and all financing activities in 2000 were 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 September 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 3,436,929 $ 1.28 $ 4,399 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 ----------- -------- ----------- 5,268,299 $ 1.15 $ 6,043 =========== ======== ===========
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 September 30, 2001 the Company was in compliance with all covenants and there were no borrowings outstanding on the facility. 12 Financing Transactions. During the nine months ending September 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 bears interest at 375 basis points above 90 day LIBOR (7.27% at September 30, 2001). - 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 September 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 297 basis points above 30 day LIBOR (6.55% at September 30, 2001) 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. - During the third quarter of 2001 the Company satisfied the following mortgages:
Property Balance Rate Maturity -------- ------- ---- -------- Bessemer, AL $ 1,000 9.500% 9/01/01 Tampa, FL 5,023 7.050% 8/15/02 Tampa, FL 4,094 7.050% 8/15/02 Gordonsville, TN 895 9.500% 10/01/02 Bakersfield, CA 1,030 9.350% 12/01/02 Columbia, MD 1,340 10.750% 7/20/03 Mechanicsburg, PA 25,000 8.000% 3/20/04 Rockville, MD 704 8.820% 3/01/05 Laguna Hills, CA 3,123 8.375% 2/01/06 Honolulu, HI 4,987 10.250% 10/01/10 ------- ------- $47,196 8.259% ======= ========
The mortgage satisfactions resulted in an extraordinary charge of $2,874, net of the impact on minority interests. Debt Service Requirements. The Company's principal liquidity needs are the payment of interest and principal on outstanding mortgage debt. As of September 30, 2001, a total of 44 properties, excluding properties held by non-consolidated entities, were subject to outstanding mortgages, which had an aggregate principal amount of $348,763. The weighted average interest rate on the Company's debt on such date was approximately 7.54%. 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. 13 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 for the three and nine months ended September 30, 2001, $305 and $1,088, 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 nine months ended September 30, 2001, $ (156) and $260, 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 less the impact of rental loss due to vacancies in the third quarter of 2001. The change in interest expense of $(109) and $580 for the three and nine months ended September 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, lower interest rates on new debt incurred by the Company and the repayment of mortgage debt in the third quarter of 2001. The Company's general and administrative expenses have decreased as a percentage of total revenue to approximately 6.0% for the nine months ended September 30, 2001 from approximately 6.4% for the nine months ended September 30, 2000 due to the growth of the Company's portfolio relative to these expenses. Gain on sale of properties decreased in 2001 compared to 2000 due to the timing of sales. The extraordinary item in 2001 relates to the costs incurred in satisfying mortgage debt prior to scheduled maturity dates. Minority interest expense decreased by $327 and $574 for the three and nine months ended September 30, 2001, respectively, due to the redemption of operating partnership units in 2001 and the impact of debt satisfaction. Net income decreased for the three and nine months ended September 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 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 nine months ended September 30, 2001 and 2000.
2001 2000 -------- -------- Net income $ 11,715 $ 16,937 Add back: Depreciation and amortization of real estate 13,449 13,155 Extraordinary item 3,144 -- Minority interest's share of net income 3,817 4,327 Amortization of leasing commissions 574 332 Deemed conversion of notes payable 1,000 1,082 Joint venture adjustment 2,772 1,322 Gains on sale of properties -- (2,959) -------- -------- Funds from operations $ 36,471 $ 34,196 ======== ======== Cash flows from operating activities $ 28,943 $ 27,587 Cash flows from investing activities (12,751) (28,529) Cash flows from financing activities (5,218) (6,871)
14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk relates to its variable rate indebtedness. As of September 30, 2001 and 2000, the Company's variable rate indebtedness represented 10.9% and 17.2% of total long-term indebtedness, respectively. During the three and nine months ended September 30, 2001 and 2000, this variable rate indebtedness had a weighted average interest rate of 6.67% and 7.14% and 7.94% and 7.74%, respectively, and had the weighted average interest rate been 100 basis points higher, the Company's net income for the three and nine months ended September 30, 2001 and 2000 would have been reduced by approximately $104 and $344 and $153 and $501, respectively. 15 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 - not applicable. ITEM 5. Other Information - not applicable. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits - None. (b) Reports on Form 8-K and Form 8-K/A filed during the quarter ended September 30, 2001. (i) Form 8-K dated July 20, 2001, filed July 23, 2001. Announced amended terms of its agreement to acquire the Net Partnerships in a merger transaction valued at approximately $140 million. (ii) Form 8-K dated July 25, 2001, filed July 25, 2001. Provided the explanation of Regulation FD Disclosure. (iii) Form 8-K/A dated July 20, 2001, filed July 25, 2001. Provided proforma financial information regarding the proposed acquisition of Net 1 L.P. and Net 2 L.P. as of March 31, 2001 and for the three months ended March 31, 2001 and for the year ended December 31, 2000. 16 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: November 13, 2001 By: /s/ E. Robert Roskind ----------------- ----------------------------------------- E. Robert Roskind Chairman and Co-Chief Executive Officer Date: November 13, 2001 By: /s/ Patrick Carroll ----------------- ----------------------------------------- Patrick Carroll Chief Financial Officer and Treasurer 17