-----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, QXzGxgmMqy5yaJObK3LYOD0LLXzciBYxFD+HzmGmNS5USlLDb9eZh+b6djDnBpZ4 WYXbxhK4oBSTsIBoHAsGtg== 0000950123-96-004473.txt : 19960816 0000950123-96-004473.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950123-96-004473 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEXINGTON CORPORATE PROPERTIES INC CENTRAL INDEX KEY: 0000910108 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133717318 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12386 FILM NUMBER: 96613642 BUSINESS ADDRESS: STREET 1: 355 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126927200 MAIL ADDRESS: STREET 1: 355 LEXINGTON AVE STREET 2: 14TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 LEXINGTON CORPORATE PROPERTIES, INC. 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, 1996 [ ] 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, INC. (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 stock, as of the latest practicable date: 9,401,897 shares of common stock, par value $.0001 per share, on July 30, 1996. 2 PART 1. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1996 (Unaudited) and December 31, 1995 ASSETS
June 30, December 31, 1996 1995 ---- ---- Real estate, at cost: (notes 3, 4 and 5) Buildings and building improvements $254,562,395 $196,431,021 Land 34,573,496 34,287,129 Land improvements 2,830,339 2,830,339 Fixtures and equipment 10,674,288 10,674,288 ------------ ------------ 302,640,518 244,222,777 Less: accumulated depreciation 47,108,521 43,715,721 ------------ ------------ 255,531,997 200,507,056 Cash 2,431,069 2,588,515 Deferred expenses (net of accumulated amortization of $2,636,887 in 1996 and $2,343,262 in 1995) (note 2) 3,715,982 3,753,553 Rent receivable (note 2) 7,623,620 7,701,420 Restricted cash 4,182,568 3,464,554 Investment in partnerships 171,166 170,127 Escrow deposits (note 4) 104,400 654,400 Other assets 3,757,080 2,376,611 ------------ ------------ $277,517,882 $221,216,236 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage notes payable (notes 3 and 5) $158,496,978 $121,249,633 Subordinated notes payable, including accrued interest 1,973,241 1,973,241 Accrued interest payable 411,915 440,788 Accounts payable and other liabilities 2,159,187 558,617 Minority interests, net 585,357 475,846 ------------ ------------ 163,626,678 124,698,125 ------------ ------------ Stockholders' equity: Preferred stock, par value $0.0001 per share; authorized 10,000,000 shares, issued none -- -- Excess stock, par value $0.0001 per share; authorized 40,000,000 shares, issued none -- -- Common stock, par value $0.0001 per share, authorized 40,000,000 shares, 9,400,101 and 9,331,982 shares issued and outstanding in 1996 and 1995, respectively 940 933 Additional paid in capital 113,890,264 96,517,178 ------------ ------------ Total stockholders' equity 113,891,204 96,518,111 ------------ ------------ $277,517,882 $221,216,236 ============ ============
See accompanying notes to unaudited consolidated financial statements. 3 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Quarters ended June 30,1996 and 1995 and Six Months Ended June 30, 1996 and 1995 (Unaudited)
Six Months Six Months Quarter Ended Quarter Ended Ended Ended June 30, June 30, June 30, June 30, 1996 1995 1996 1995 ------ ------ ------ ----- Revenues: Rental (notes 2, 3, and 6) $7,596,523 $ 6,025,132 $14,253,882 $11,804,493 Interest and other 85,918 162,817 227,915 245,975 ---------- ----------- ----------- ----------- 7,682,441 6,187,949 14,481,797 12,050,468 ---------- ----------- ----------- ----------- Expenses: Interest expense 3,020,899 2,566,089 5,600,430 5,309,664 Depreciation 1,827,733 1,371,653 3,392,800 2,831,286 Amortization of deferred expenses 150,738 104,715 297,334 191,137 General and administrative expenses 743,031 520,562 1,387,274 1,055,014 Property operating expenses 164,391 131,287 301,186 274,323 ---------- ----------- ----------- ----------- 5,906,792 4,694,306 10,979,024 9,661,424 ---------- ----------- ----------- ----------- Income before gain on sale of properties, lease termination proceeds, extraordinary item and minority interests 1,775,649 1,493,643 3,502,773 2,389,044 Gain on sale of properties -- -- -- 1,514,400 Proceeds from lease termination -- -- -- 1,600,000 ---------- ----------- ----------- ----------- Income before extraordinary item and minority interests 1,775,649 1,493,643 3,502,773 5,503,444 Loss on extinguishment of debt -- 4,578,346 -- 4,578,346 ---------- ----------- ----------- ----------- Income (loss) before minority interests 1,775,649 (3,084,703) 3,502,773 925,098 Minority interests 147,151 (53,982) 200,830 16,189 ---------- ----------- ----------- ----------- Net income (loss) $1,628,498 $(3,030,721) $ 3,301,943 $ 908,909 ========== =========== =========== =========== Income before extraordinary item and minority interests, per share $ 0.19 $ 0.16 $ 0.37 $ 0.59 Loss on extinguishment of debt, per share -- 0.49 -- 0.49 Minority interests, per share 0.02 -- 0.02 -- ---------- ----------- ----------- ----------- Net income (loss) per share $ 0.17 $ (0.33) $ 0.35 $ 0.10 ========== =========== =========== =========== Weighted average shares outstanding 9,383,641 9,260,153 9,370,584 9,262,025 ========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements. 4 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months ended June 30, 1996 and 1995 (Unaudited)
Six Months Ended Six Months Ended June 30, June 30, 1996 1995 ---- ---- Cash flows from operating activities: Net income $ 3,301,943 $ 908,909 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,690,134 3,022,423 Gain on sale of properties -- (1,514,400) Write-off of deferred rent receivable -- 678,078 Write-off of unamortized deferred loan fees -- 323,168 Decrease in rent receivable 77,800 314,400 Increase in accounts payable and other liabilities 488,064 121,669 Decrease in accrued interest payable (28,873) (9,462) Accrued interest added to principal balance of mortgage notes -- 34,192 Minority interests 200,830 16,189 Amortization of discount on mortgage notes payable 4,382 1,096 Income from unconsolidated partnerships (4,748) - Increase in other assets (723,171) (1,572,172) ----------- ----------- Total adjustments 3,704,418 1,415,181 ----------- ----------- Net cash provided by operating activities 7,006,361 2,324,090 ----------- ----------- Cash flows from investing activities: Additions to real estate assets (2,287,444) -- Net proceeds from sale of properties -- 16,347,058 ----------- ----------- Net cash (used in) provided by investing activities (2,287,444) 16,347,058 ----------- ----------- Cash flows from financing activities: Dividends to stockholders (5,057,631) (5,008,294) Decrease in escrow deposits 550,000 - Repayments on mortgage notes (5,144,680) (73,920,193) Proceeds of mortgage notes payable 4,990,000 69,913,344 Increase in deferred expenses (149,051) (2,825,532) Common stock issued 689,370 303,402 Common stock repurchased -- (739,342) Increase in restricted cash (718,014) (5,320,693) Cash distributions to minority interests (91,319) (91,319) ----------- ----------- Net cash used in financing activities (4,931,325) (17,688,627) ----------- ----------- (Decrease) increase in cash (212,408) 982,521 Cash at beginning of period 2,588,515 3,096,028 Cash received in acquisition 54,962 -- ----------- ----------- Cash at end of period $ 2,431,069 $ 4,078,549 =========== ===========
(Continued) 5 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued Six Months ended June 30, 1996 and 1995 (Unaudited)
Six Months Ended Six Months Ended June 30, June 30, 1996 1995 ------ ----- Supplemental disclosure of cash flow information: Cash paid during the period for interest $5,624,921 $5,283,838 ========== ========== Cash paid during the period for taxes $ 61,946 $ 90,465 ========== ========== Supplemental disclosure of non-cash operating activities: Deferred expenses reclassified to other assets $ 90,912 $ -- ========== ==========
Supplemental disclosure of non-cash investing activities: On May 22, 1996, the Company completed an acquisition transaction involving a partnership, whereby a property was acquired in exchange for special limited partnership units, following which the selling partnership was dissolved. Total assets acquired and total liabilities assumed in the exchange were $56,949,560 and $38,510,149, respectively. See accompanying notes to unaudited consolidated financial statements. 6 LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 (Unaudited) (1) The Company Lexington Corporate Properties, Inc. (the "Company") is a Maryland corporation which was organized to combine and continue to expand the business of two affiliated Delaware limited partnerships (the "Partnerships") which own, operate and manage a diverse portfolio of real properties. The real properties owned by the Company are subject to triple net leases to corporate tenants. References herein to the "Company" shall include references to the Company, the Partnerships and the Company's predecessor, Lexington Corporate Properties, Inc., a Delaware corporation which was organized in October 1993 and was merged into the Company on June 27, 1994. The unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. 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, 1995. (2) Summary of Significant Accounting Policies The Company's financial statements are prepared on the accrual basis of accounting for financial and Federal income tax reporting purposes. Real estate, which is held for investment, is carried at cost less accumulated depreciation unless declines in values of the properties are considered other than temporary. Depreciation for financial reporting purposes is determined by the straight-line method over the estimated economic useful lives of the properties. The Company 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. Depreciation for tax purposes is determined in accordance with the Modified Accelerated Cost Recovery System. The financial statements reflect the accounts of the Company, Lepercq Corporate Income Fund L.P. ("LCIF"), Lepercq Corporate Income Fund II L.P. ("LCIF II"), Union Hills Associates and Union Hills Associates II (collectively, "Union Hills"), F.M. Associates and F.M. Associates II (collectively, "F.M. Associates"), North Tampa Associates, Yankee Drive Associates, LXP Funding Corp. ("Funding"), LXP Canton, Inc. ("Canton"), LXP I, L.P. ("LXP I") and LXP II, L.P. ("LXP II"), on a consolidated basis. LCIF owns an aggregate 99.99% general partnership interest in each of Union Hills and F.M. Associates. LCIF II owns an aggregate 99.9999% general partnership interest in each of North Tampa Associates and Yankee Drive Associates. Funding and Canton are both wholly-owned subsidiaries of the Company. LCIF and LCIF II own 99% limited partnership interests in LXP I and LXP II, respectively. LXP I, Inc. and LXP II, Inc., wholly owned subsidiaries of the Company, own 1% general partnership interests in LXP I and LXP II, respectively. In addition, partnerships in which the Company has an interest of greater than 50% are accounted for on a consolidated basis and partnership interests of less than 50% are accounted for under the equity method. The Company has determined that the leases relating to the properties owned by the Company are operating leases. Rental revenue is recognized on a straight-line basis over the minimum lease terms. The Company's rent receivable primarily consists of the amounts of the excess of rental revenues recognized on a straight-line basis over the annual rents collectible under the leases. 7 Deferred expenses are composed principally 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 mortgages. Fees incurred in connection with properties acquired have been capitalized as a cost of the properties upon acquisition. The Company has qualified as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "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 ("Taxable Income") which is distributed to its stockholders, provided that at least 95% of Taxable Income is distributed. No provision for Federal income taxes has been made in the consolidated financial statements, as the Company believes it is in compliance with the Code and has distributed all of its Taxable Income. The Company and its consolidated subsidiaries are required to file tax returns in various states. States vary with respect to the taxation of REITs. Some states have a tax based on capital within the state; other states, not recognizing the REIT dividends paid deduction, have a tax based on apportioned income as it would any corporation. There are states that tax under both methods as well as states that have no additional taxes other than the minimum state tax requirement. The provision for state taxes is included in general and administrative expenses in the consolidated statements of operations. Net income per share is computed on the basis of the weighted average shares of common stock outstanding. The weighted average number of shares outstanding during the quarters ended June 30, 1996 and 1995 was 9,383,641 and 9,260,153, respectively. The weighted average number of shares outstanding during the six months ended June 30, 1996 and 1995 was 9,370,584 and 9,262,025, respectively. Certain amounts included in the prior years' financial statements have been reclassified to conform with the current year's presentation. The Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments," defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The Company's cash, mortgage notes payable, subordinated notes payable, and accounts payable and other liabilities are carried at cost which approximates fair value. On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This SFAS establishes the recognition and measurement criteria for impairment losses on long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This SFAS requires that an impairment loss be recognized when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of this SFAS had no effect on the Company's results of operations or its financial condition for the six months ended June 30, 1996. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." This SFAS encourages the adoption of a new accounting method for employee stock-based compensation plans and applies to all arrangements whereby an employee receives stock or other equity instruments of an employer based on the price of the employer's stock. These arrangements include restricted stock, stock options and stock appreciation rights. The SFAS also permits the retention of the Company's current method of accounting for these plans under "Accounting Principles Board" Opinion No. 25. The Company will continue its current method of accounting for stock-based compensation and therefore, pro forma disclosures in footnotes will be provided on an annual basis with the Company's Annual Report on Form 10-K. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial 8 statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (3) Properties On May 22, 1996, the Company completed an acquisition transaction involving a partnership. As a result of this transaction, LCIF acquired the headquarters of Northwest Pipeline Corporation from a partnership, following which the selling partnership was dissolved. In exchange, limited and general partners of the partnership received an aggregate of 1,715,295 special limited partnership units in LCIF. The units become convertible into Lexington common stock on a one-for-one basis on May 22, 1998, the second anniversary of the transaction. The unitholders will receive a quarterly distribution of $0.165 per unit (or $0.66 per unit per annum) through January 1, 1998, increasing to $0.27 per unit per quarter (or $1.08 per unit per annum) thereafter. Additionally, 114,006 special limited partnership units in LCIF were issued to affiliates of the Company in exchange for the affiliates' contribution of their contractual right to receive certain future management and disposition fees, and 9,000 shares of Lexington common stock were issued to the affiliates in exchange for accrued but unpaid management fees. The holders of the 114,006 units will have the same conversion rights as the limited and general partners of the partnership, and will receive a quarterly distribution of $0.27 per unit (or $1.08 per annum), and the holders of the 9,000 shares of common stock will be entitled to quarterly dividend payments. Total assets acquired and total liabilities assumed in the exchange were approximately $56.9 million and $38.5 million, respectively. The consolidated statements of operations for the quarter and six months ended June 30, 1996 include the operating results of the acquired partnership commencing May 22, 1996. The acquisition consisted of a 295,000 square foot office building and a 600 car parking garage located in Salt Lake City, Utah. The property is 100% occupied by and leased to Northwest Pipeline Corporation under a net lease which expires on September 30, 2009, subject to two renewal options for a total of nineteen years. The property is located on land leased through September 17, 2018, subject to a ten year renewal option. The current annual net rent is approximately $8.16 million, net of payments under the land lease. The property is subject to two mortgage notes which have a total outstanding principal balance of approximately $36.8 million as of June 30, 1996. On May 31, 1996, the Company acquired a 56,132 square foot retail facility in Jacksonville, Alabama for a purchase price of $2,014,000. The purchase price and related acquisition costs were satisfied with funds from a draw on the Company's revolving credit facility, in the amount of $2.1 million. The property is leased to Wal-Mart Stores, Inc. under a net lease which expires on January 31, 2009, with annual net rent of $146,040. (4) Escrow Deposits On December 7, 1995, the Company, through its wholly owned subsidiary, LXP Canton, Inc. ("Canton"), acquired a fitness center in Canton, Ohio. The purchase price was $4,100,000 with such consideration consisting of 100,000 shares of Common Stock of the Company and $3,012,500 in cash. As a condition relating to the issuance of the Common Stock, the Company was required to register the stock within 90 days of the closing, or it would have been obligated to repurchase all of the Common Stock at $10.875 per share. To secure the obligation of the Company to effect the registration of the Common Stock or to repurchase the Common Stock, the Company was required at the closing to deposit $550,000 into an escrow account. On March 6, 1996, the registration of the Common Stock was effected, resulting in a return of the escrow monies to the Company. (5) Mortgage Notes Payable On February 26, 1996, first mortgage financing of $2.89 million was obtained, secured by the Canton, Ohio Property, which was acquired on December 7, 1995. The loan has a thirteen year term to maturity and bears interest at 9.49% per annum. 9 On February 29, 1996, the Company used approximately $2.87 million of the Canton, Ohio Property mortgage proceeds and approximately $630,000 in cash to reduce the amount outstanding under the revolving credit facility on that date by $3.5 million, from $14.6 million to $11.1 million. On May 22, 1996, the Company completed an acquisition transaction (see note (3)), in which a property was acquired subject to two mortgage notes. The aggregate outstanding principal balance of the two notes assumed in the transaction totalled approximately $37.4 million. The first note had an outstanding principal balance of approximately $13.7 million as of June 30, 1996, bears interest at 7.87% per annum and fully amortizes at maturity on October 1, 2005. The second note had an outstanding principal balance of $23.1 million as of June 30, 1996, bears interest at 12.9% per annum and fully amortizes at maturity on October 1, 2005. The second note may be prepaid on October 1, 1997, subject to a 4.75% prepayment penalty. On May 31, 1996, the Company borrowed an additional $2.1 million under its revolving credit facility in connection with the acquisition of the Jacksonville, Alabama property. The principal amount outstanding under this facility on June 30, 1996 was $13.2 million. Principal paydowns of the mortgage notes payable (including balloon payments) for the succeeding five years are as follows:
Year ending December 31, Amount 1996 (6 months) $ 2,388,975 1997 5,133,797 1998 28,708,145 1999 11,388,223 2000 14,095,441 2001 6,204,150
Included in the amount for 1998 is the $13.2 million outstanding as of June 30, 1996 under the revolving credit facility, which, under certain conditions the Company has a right to convert to a five-year fully amortizing term loan at the scheduled maturity date of November 14, 1998. (6) Leases Minimum future rents receivable under non-cancelable operating leases as of June 30, 1996 are as follows:
Year ending December 31, 1996 (6 months) $ 16,600,390 1997 32,374,112 1998 30,842,720 1999 29,099,391 2000 27,121,978 2001 26,165,207 Thereafter 136,378,178 ------------ $298,581,976 ============
(7) Subsequent Events On July 16, 1996, the Company declared a dividend of $.28 per share to stockholders of record on July 30, 1996 to be paid on August 14, 1996. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General As of June 30, 1996, the Company was the indirect or direct owner of thirty real estate properties (or interests therein) (the "Properties") triple net leased to corporations and located in nineteen states, and owned minority interests in two additional triple net leased properties. The Properties contain an aggregate of 4,562,982 square feet of net rentable space. Each Property is subject to a single tenant triple net lease, which is generally characterized as a lease in which each tenant generally pays all or substantially all of the cost and cost increases for real estate taxes, capital expenditures, insurance and ordinary maintenance of the Property. Liquidity and Capital Resources The Company paid a dividend of $.27 per share to stockholders for each of the calendar quarters of 1994 and 1995 and the first quarter of 1996. On July 16, 1996, the Company declared a dividend for the second quarter of 1996 of $.28 per share to stockholders of record as of July 30, 1996 to be paid on August 14, 1996. The Company's annualized dividend rate is currently $1.12 per share. The Company's principal sources of liquidity are revenues generated from the Properties, interest on cash balances and amounts available under its revolving credit facility. For the quarter and six months ended June 30, 1996, leases on the Properties generated approximately $7,597,000 and $14,254,000 in revenue compared to $6,025,000 and $11,804,000 for the same periods in 1995. On May 22, 1996, the Company completed an acquisition transaction involving a partnership. As a result of this transaction, LCIF acquired the headquarters of Northwest Pipeline Corporation from a partnership, following which the selling partnership was dissolved. In exchange, limited and general partners of the partnership received an aggregate of 1,715,295 special limited partnership units in LCIF. The units become convertible into Lexington common stock on a one-for-one basis on May 22, 1998, the second anniversary of the transaction. The unitholders will receive a quarterly distribution of $0.165 per unit (or $0.66 per unit per annum) through January 1, 1998, increasing to $0.27 per unit per quarter (or $1.08 per unit per annum) thereafter. Additionally, 114,006 special limited partnership units in LCIF were issued to affiliates of the Company in exchange for the affiliates' contribution of their contractual right to receive certain future management and disposition fees, and 9,000 shares of Lexington common stock were issued to the affiliates in exchange for accrued but unpaid management fees. The holders of the 114,006 units will have the same conversion rights as the limited and general partners of the partnership, and will receive a quarterly distribution of $0.27 per unit (or $1.08 per annum), and the holders of the 9,000 shares of common stock will be entitled to quarterly dividend payments. Total assets acquired and total liabilities assumed in the exchange were approximately $56.9 million and $38.5 million, respectively. The consolidated statements of operations for the quarter and six months ended June 30, 1996 include the operating results of the acquired partnership commencing May 22, 1996. The acquisition consisted of a 295,000 square foot office building and a 600 car parking garage located in Salt Lake City, Utah. The property is 100% occupied by and leased to Northwest Pipeline Corporation under a net lease which expires on September 30, 2009, subject to two renewal options for a total of nineteen years. The property is located on land leased through September 17, 2018, subject to a ten year renewal option. The current annual net rent is approximately $8.16 million, net of payments under the land lease. The property is subject to two mortgage notes which have a total outstanding principal balance of approximately $36.8 million as of June 30, 1996. On May 31, 1996, the Company acquired a 56,132 square foot retail facility in Jacksonville, Alabama for a purchase price of $2,014,000. The purchase price and related acquisition costs were satisfied with funds from a 11 draw on the Company's revolving credit facility, in the amount of $2.1 million. The property is leased to Wal-Mart Stores, Inc. under a net lease which expires on January 31, 2009, with annual net rent of $146,040. The Company's revolving credit facility, in a maximum committed amount of $25 million, bears interest at 1.5% over LIBOR and matures on November 14, 1998. On such date, under certain conditions, the facility may be converted at the Company's option to a five-year fully-amortizing term loan. On February 26, 1996, first mortgage financing of $2.89 million was obtained, secured by the Canton, Ohio Property. On February 29, 1996, the Company used approximately $2.87 million of the Canton, Ohio mortgage proceeds and approximately $630,000 in cash to reduce the amount outstanding under the Company's revolving credit facility on that date by $3.5 million. On May 31, 1996 an additional draw in the amount of $2.1 million was made in connection with the Jacksonville, Alabama property acquisition. As the revolving credit facility is collateralized by four of the Company's Properties, the outstanding principal amount of $13.2 million is included in the balance of mortgage notes payable as of June 30, 1996. The Company's principal liquidity needs are the payment of interest and principal on outstanding mortgage debt. As of June 30, 1996, a total of twenty-nine Properties were subject to outstanding mortgages which had an aggregate principal amount (including accrued interest in the amount of $411,915) of approximately $158,909,000. The weighted average interest rate on the Company's debt on that date was 8.8%. Approximate principal amounts of mortgages are due as follows: $2,389,000 in 1996 (6 months); $5,134,000 in 1997; $15,508,000 in 1998; $11,388,000 in 1999; $14,095,000 in 2000; $6,204,000 in 2001. Included in the amount for 1998 are balloon payments for the Tampa Property - $4,289,775; and the North Tampa Property - $5,717,444. Included in the amount for 1999 is a balloon payment for the Phoenix Property - $5,562,818. Included in the amount for 2000 is a balloon payment for the Marlborough Property - $7,965,712. Balloon payments in the aggregate of $60 million on the notes issued in the REMIC financing, are due in 2005. In addition, any amounts outstanding under the revolving credit facility on November 14, 1998 would be due and owing on such date, except that, under certain conditions, the Company has a right to convert the credit facility to a five-year fully-amortizing loan. 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 or have available amounts under any credit facilities sufficient to satisfy such balloon payments. The ability of the Company to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the available mortgage rates 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 at the time. Because 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 are funded out of rental increases under the leases covering the expanded properties. On November 15, 1994, the Company announced that its Board of Directors had authorized the Company to repurchase, from time to time, up to 1,000,000 shares of its outstanding common stock, depending on market conditions and other factors. As of December 31, 1995, the Company had repurchased 172,100 shares at an average price of approximately $9.80 per share. No additional shares were repurchased during the six months ended June 30, 1996. Results of Operations Quarter and six months ended June 30, 1996 compared to quarter ended June 30, 1995 Total Revenues. Total revenues for the quarter and six months ended June 30, 1996 were $7,682,441 and $14,481,797, representing increases of $1,494,492 and $2,431,329 from the same respective periods in 1995. The 12 increases in revenues were attributable to increases in rental revenue of $1,517,391 and $2,449,389 for the quarter and six month periods, respectively. Rental revenue increased primarily due to revenues from properties acquired in August and December 1995, and May 1996. Interest and other revenues for the quarter and six months ended June 30, 1996 decreased $76,899 and $18,060 from the same periods in 1995 primarily due to higher interest-bearing cash balances during the second quarter of 1995. Total Expenses. Total expenses for the quarter and six months ended June 30, 1996 were $5,906,792 and $10,979,024, representing increases of $1,212,486 and $1,317,600 from the same respective periods in 1995. The increases were primarily attributable to increases in interest expense, depreciation, general and administrative expenses and amortization. Interest expense for the quarter and six months ended June 30, 1996 increased $454,810 and $290,766 from the same periods in 1995 primarily due to interest expense incurred on the mortgage notes assumed in the exchange transaction of May 22, 1996, offset by debt refinancing in 1995. Depreciation expense for the quarter and six months ended June 30, 1996 increased $456,080 and $561,514 from the same periods in 1995 primarily due to properties acquired in August and December 1995, and May 1996. General and administrative expenses for the quarter and six months ended June 30, 1996 increased $222,469 and $332,260 from the same periods in 1995 primarily due to an expense of $147,066 for the quarter and $294,132 for the six month period relating to performance-based stock compensation incurred in 1996. Additionally, professional fees increased during the quarter ended June 30, 1996 compared to the same period in 1995. Amortization expense for the quarter and six months ended June 30, 1996 increased $46,023 and $106,197 from the same periods in 1995 due to an increase in amortizable deferred loan expenses incurred in connection with the REMIC and revolving credit facility financings in 1995 and the Canton acquisition financing during the first quarter of 1996. Net Income. Net income for the quarter and six months ended June 30, 1996 was $1,628,498 and $3,301,943, representing increases of $4,659,219 and $2,393,034 from the same respective periods in 1995. The increase during the quarter ended June 30, 1996 was primarily attributable to a non-recurring loss on extinguishment of debt incurred in connection with the REMIC financing in the second quarter of 1995 in the amount of $4,578,346, as well as the increase in rental revenue discussed above. The increase during the six months ended June 30, 1996 was primarily attributable to the non-recurring loss on extinguishment of debt discussed above, offset by non-recurring items in 1995 relating to the sale of the Eagan Property on March 31, 1995: a gain on the sale of approximately $1.5 million and proceeds from lease termination of $1.6 million, offset by the related write-off of deferred rent receivable of approximately $678,000. Additionally, the increase in rental revenue discussed above also contributed to the increase in net income. Funds from Operations The Company considers funds from operations to be an appropriate measure of the performance of an equity REIT. Funds from operations is defined by the National Association of Real Estate Investment Trusts as "net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and after adjustments for unconsolidated partnerships and joint ventures." Funds from operations should not be considered as an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity as defined by generally accepted accounting principles, and is not necessarily indicative of funds available to fund cash needs. The Company's funds from operations totalled $3,293,125 and $2,919,278 for the quarters ended June 30, 1996 and 1995, and $6,529,707 and $6,804,141 for the six months ended June 30, 1996 and 1995, respectively. Funds from operations for the six months ended June 30, 1995 includes the non-recurring effects of the lease termination proceeds of $1.6 million relating to the sale of the Eagan Property on March 31, 1995, offset by the related write-off of deferred rent receivable of approximately $678,000, discussed above. The Company's quarterly dividend of $.28 per share amounted to approximately 80% of the Company's funds from operations for the quarter ended June 30, 1996. 13 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 Stockholders held on May 23, 1996, the following actions were taken: The stockholders elected the seven individuals nominated to serve as directors of the Company until the 1997 Annual Meeting, as set forth in Proposal No. 1 in the Company's Notice of Annual Meeting of Stockholders and Proxy Statement for the Annual Meeting (together, the "Proxy Statement"). 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 6,161,620 162,675 Richard J. Rouse 6,162,835 161,460 T. Wilson Eglin 6,171,335 152,960 Carl D. Glickman 5,985,676 338,619 Kevin W. Lynch 6,172,648 151,647 Harry E. Petersen, Jr. 5,991,806 332,489 Seth M. Zachary 5,986,918 337,377
The stockholders also approved the following two other proposals set forth in the Company's Proxy Statement, with the number of votes for, against and abstaining set forth: Proposal 2: To amend the Company's Amended and Restated Articles of Incorporation to (i) increase the number of authorized shares of Common Stock to 40,000,000 from 20,000,000, (ii) increase the number of authorized shares of Excess Stock to 40,000,000 from 10,200,000 and (iii) increase the ownership limitation set forth therein to 9.8% from 5.0%.
For Against Abstained --- ------- --------- 5,671,925 448,838 203,532
Proposal 3: To amend the Company's 1993 Stock Option Plan to increase by 800,000 the number of shares of Common Stock available for the grant of options under the plan.
For Against Abstained --- ------- --------- 3,606,891 786,099 189,081
ITEM 5. Other Information - not applicable. 14 ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits - Exhibit No. Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K filed during the quarter ended June 30, 1996 - Acquisition of the Salt Lake City, Utah Property through an acquisition transaction dated May 22, 1996. -- Item 2 - filed June 5, 1996, and Amendment No. 1 thereto filed August 5, 1996. The date of the report was May 22, 1996, and the report contained the financial statements of Red Butte Creek Associates for the three month period ended March 31, 1996, and for the years ended December 31, 1995 and 1994, and the registrant's pro forma financial statements for the year ended December 31, 1995. 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, Inc. Date: 8/14/96 By: /s/ E. Robert Roskind --------------------- --------------------------------------- E. Robert Roskind Chairman and Co-Chief Executive Officer Date: 8/14/96 By: /s/ Paul R. Wood ----------------------- --------------------------------------- Paul R. Wood Vice President and Chief Accounting Officer 16 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 27 FINANCIAL DATA SCHEDULE EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 6,718,037 0 7,623,620 0 0 0 302,640,518 (47,108,521) 277,517,882 0 160,470,219 0 0 940 113,890,264 277,517,882 0 14,481,797 0 3,693,986 297,334 0 5,600,430 3,502,773 0 3,301,943 0 0 0 3,301,943 0.35 0.35
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