-----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, E7UWl8i5zMAdqoIrELGv6FWRkzmf2QrhkondFGdQkp0GHB3dRBCIUkczIBHZTCIr z7AW4Ux2WCgN8eubdpL9LQ== 0000950123-98-007583.txt : 19980817 0000950123-98-007583.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950123-98-007583 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEXINGTON CORPORATE PROPERTIES TRUST CENTRAL INDEX KEY: 0000910108 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133717318 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12386 FILM NUMBER: 98687840 BUSINESS ADDRESS: STREET 1: 355 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126927260 MAIL ADDRESS: STREET 1: 355 LEXINGTON AVE STREET 2: 14TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON CORPORATE PROPERTIES INC DATE OF NAME CHANGE: 19930816 10-Q 1 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, 1998 [ ] 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: 17,191,814 common shares, par value $.0001 per share on July 30, 1998. 2 PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 1998 (Unaudited) and December 31, 1997 (in thousands, except share and per share data)
June 30, December 31, ASSETS: 1998 1997 ---- ---- Real estate, at cost $ 584,608 $ 466,348 Less: accumulated depreciation and amortization 56,563 50,993 --------- --------- 528,045 415,355 Property held for sale 2,937 24,501 Cash and cash equivalents 3,646 3,640 Restricted cash 4,735 5,499 Escrow deposits 276 1,249 Other assets, net 17,789 16,871 --------- --------- $ 557,428 $ 467,115 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Mortgage notes payable $ 285,040 $ 219,553 Subordinated notes payable, including accrued interest 1,973 1,973 Accrued interest payable on mortgage notes 1,283 1,007 Origination fees payable 4,639 4,627 Accounts payable and other liabilities 3,160 4,880 --------- --------- 296,095 232,040 Minority interests 51,976 28,240 --------- --------- 348,071 260,280 --------- --------- 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 --------- --------- Shareholders' equity: Excess shares, par value $0.0001 per share; authorized 40,000,000 shares, issued none -- -- Common shares, par value $0.0001 per share, authorized 40,000,000 shares, 17,189,773 and 16,509,610 shares issued and outstanding in 1998 and 1997, respectively 2 2 Additional paid-in-capital 243,084 235,469 Accumulated distributions in excess of net income (56,100) (53,005) --------- --------- 186,986 182,466 Less: notes receivable from officer shareholders (1,998) -- --------- --------- Total shareholders' equity 184,988 182,466 --------- --------- $ 557,428 $ 467,115 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 3 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Quarters ended June 30, 1998 and 1997 and Six Months Ended June 30, 1998 and 1997 (Unaudited and in thousands, except share and per share data)
Quarter Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Revenues: Rental $14,478 $ 10,479 $27,455 $ 20,178 Interest and other 516 159 1,519 284 -------- ------- -------- --------- 14,994 10,638 28,974 20,462 -------- ------- -------- --------- Expenses: Interest expense 5,371 4,343 10,016 8,583 Depreciation and amortization of real estate 3,515 2,614 6,682 5,075 Amortization of deferred expenses 242 221 484 415 General and administrative expenses 952 974 1,908 1,844 Property arbitration litigation expense -- 167 -- 167 Other expenses 128 184 238 403 -------- ------- -------- --------- 10,208 8,503 19,328 16,487 -------- ------- -------- --------- Income before loss on sale of property, minority interests and extraordinary item 4,786 2,135 9,646 3,975 Loss on sale of property (388) -- (388) -- -------- ------- -------- --------- Income before minority interests and extraordinary item 4,398 2,135 9,258 3,975 Minority interests 961 365 1,759 639 -------- ------- -------- --------- Income before extraordinary item 3,437 1,770 7,499 3,336 Extraordinary item - loss on extinguishment of debt -- 1,466 -- 1,522 -------- ------- -------- --------- Net income $ 3,437 $ 304 $ 7,499 $ 1,814 ======== ======== ======== ========= Income (loss) per common share - basic: Income before extraordinary item $ 0.17 $ 0.14 $ 0.38 $ 0.13 Extraordinary item - loss on extinguishment of debt -- (0.15) -- (0.16) -------- ------- -------- --------- Net income (loss) $ 0.17 $ (0.01) $ 0.38 $ (0.03) ======== ======= ======== ========= Income (loss) per common share - diluted: Income before extraordinary item $ 0.17 $ 0.13 $ 0.37 $ 0.13 Extraordinary item - loss on extinguishment of debt -- (0.14) -- (0.16) -------- -------- -------- --------- Net income (loss) $ 0.17 $ (0.01) $ 0.37 $ (0.03) ======== ======= ======== =========
See accompanying notes to unaudited condensed consolidated financial statements. 4 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months ended June 30, 1998 and 1997 (Unaudited and in thousands, except share data)
Six Months Ended June 30, 1998 1997 ---- ---- Net cash provided by operating activities $ 14,285 $ 9,504 --------- -------- Cash flows from investing activities: Additions to real estate assets, net of issuance of limited partnership units (115,967) (32,382) Net proceeds from sale of property 24,113 -- --------- -------- Net cash used in investing activities (91,854) (32,382) --------- -------- Cash flows from financing activities: Dividends to common and preferred shareholders (10,594) (5,638) Repayments on mortgage notes (43,822) (64,548) Prepayment premium on early retirement of debt -- (1,698) Proceeds of mortgage notes payable 109,305 54,450 Proceeds from issuance of limited partnership units 23,449 -- Cash distributions to minority interests (1,606) (910) Proceeds from the issuance of common shares, net 329 35,908 Proceeds from the issuance of preferred shares, net -- 16,086 Other financing activities, net 514 (1,373) --------- -------- Net cash provided by financing activities 77,575 32,277 --------- -------- Increase in cash and cash equivalents 6 9,399 Cash and cash equivalents, at beginning of period 3,640 2,468 --------- -------- Cash and cash equivalents, at end of period $ 3,646 $ 11,867 ========= ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 9,724 $ 7,995 ========= ======== Cash paid during the period for taxes $ 114 $ 73 ========= ======== Supplemental disclosure of non-cash investing and financing activities:
In connection with the acquisition of certain properties, the Company issued partnership units as partial satisfaction of the respective purchase prices, in the amount of $5,780 and $6,000, during the six months ended June 30, 1998 and 1997, respectively. The issuance of these partnership units have been recorded as minority interest in the accompanying condensed consolidated balance sheets. During 1998, holders of an aggregate of 525,433 partnership units redeemed such units to common shares of the Company. This redemption resulted in an increase in shareholders' equity and a corresponding decrease in minority interest of $5,650. During 1998, the Company issued 131,000 common shares to two officers in exchange for notes aggregating $1,998 which mature on February 14, 2003, bear interest at 7.6% per annum and are secured by the common shares issued. See accompanying notes to unaudited condensed consolidated financial statements. 5 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 (Unaudited) (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 61 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 (the "Partnerships"). 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 which is distributed to its shareholders, provided that at least 95% 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 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, 1997. (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 majority-owned 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 as well as a general partner and majority limited partner in four other partnerships and, accordingly, accounts for these partnerships on a consolidated basis. Entities in which the Company has an interest of less than 50% are accounted for under the equity method and the investments in these partnerships are included in other assets in the accompanying consolidated balance sheets. 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 the Company's other securities. The Company's preferred shares, operating partnership units and exchangeable redeemable secured notes are excluded from the 1998 and 1997 computations since they are anti-dilutive, except for the quarter ended June 30, 1997, in which the operating partnership units are dilutive and are therefore included in the calculation. 6 The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the quarters and six months ended June 30, 1998 and 1997 (in thousands, except share and per share data).
Quarter Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- BASIC Income before extraordinary item $ 3,437 $ 1,770 $ 7,499 $ 3,336 Less: Preferred dividends (609) (347) (1,218) (513) Deemed additional preferred dividends -- (78) -- (1,566) ------------ ------------ ------------ ----------- Income attributed to common shareholders before extraordinary item 2,828 1,345 6,281 1,257 Extraordinary item - loss on extinguishment of debt -- (1,466) -- (1,522) ------------ ------------ ------------ ----------- Net income (loss) attributed to common shareholders $ 2,828 $ (121) $ 6,281 $ (265) ============ ============ ============ =========== Weighted average number of common shares outstanding 16,758,370 9,693,814 16,637,214 9,564,525 ============ ============ ============ =========== Income (loss) per common share - basic: Income before extraordinary item $ 0.17 $ 0.14 $ 0.38 $ 0.13 Extraordinary item - loss on extinguishment of debt -- (0.15) -- (0.16) ------------ ------------ ------------ ----------- Net income (loss) $ 0.17 $ (0.01) $ 0.38 $ (0.03) ============ ============ ============ =========== DILUTED Income attributed to common holders before extraordinary item $ 2,828 $ 1,345 $ 6,281 $ 1,257 Add: minority interests attributed to limited partnership units assuming conversion of such units -- 328 -- -- ------------ ------------ ------------ ----------- Income attributed to common shareholders before extraordinary item 2,828 1,673 6,281 1,257 Extraordinary item - loss on extinguishment of debt -- (1,787)* -- (1,522) ------------ ------------ ------------ ----------- Net income (loss) attributed to common shareholders $ 2,828 $ (114) $ 6,281 $ (265) ============ ============ ============ =========== Weighted average number of shares used in calculation of basic earnings per share 16,758,370 9,693,814 16,637,214 9,564,525 Add incremental shares representing: Shares issuable upon exercise of employee stock options 197,337 113,805 222,180 124,142 Shares issuable upon conversion of limited partnership units -- 3,000,445 -- -- ------------ ------------ ------------ ----------- Weighted average number of shares used in calculation of diluted earnings per common share 16,955,707 12,808,064 16,859,394 9,688,667 ============ ============ ============ =========== Net income (loss) per common share - diluted: Income before extraordinary item $ 0.17 $ 0.13 $ 0.37 $ 0.13 Extraordinary item - loss on extinguishment of debt -- (0.14) -- (0.16) ------------ ------------ ------------ ----------- Diluted net income (loss) $ 0.17 $ (0.01) $ 0.37 $ (0.03) ============ ============ ============ ===========
7 *Since the limited partnership units are assumed to be converted to common shares and the corresponding minority interest is added back, the minority interest attributable to the extraordinary item, which had been netted against such item is also added back. Use of Estimates. 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 statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Reclassifications. Certain amounts included in the 1997 financial statements have been reclassified to conform with the 1998 presentation. (3) Investments in Real Estate During the six months ended June 30, 1998, the Company made the following acquisitions:
Annualized Lease Net Base Rent Expiration Rentable Date of Acquisition @ 6-30-98 Date Square Acquisition Tenant Location Cost ($M) ($000's) (month/year) Feet ----------- ------ -------- --------- -------- ------------ ---- 1998 ---- March 27 Jones Apparel Group, Inc. Bristol, PA $ 12.539 $ 1,150 03-13 255,019 March 27 Fidelity Corporate Real Estate, LLC Hebron, KY 8.077 777 04-07 81,744 March 27 Kelsey-Hayes Corp. Livonia, MI* 16.437 1,523 04-07 180,230 May 11 Eagle Hardware & Garden. Inc. Federal Way, WA 13.747 1,233 08-17 133,861 May 11 Eagle Hardware & Garden. Inc. Anchorage, AK 17.685 1,587 10-17 157,525 May 15 Stone Container Corporation Columbia, SC** 3.178 328 08-12 142,400 May 18 Wackenhut Corporation *** Palm Beach Gardens, FL 19.799 2,434 02-11 126,355 June 19 Michaels Stores, Inc. Lancaster, CA 15.046 1,398 06-13 431,250 --------- ------ --------- TOTALS $ 106.508 $ 10,430 1,508,384 ========= ====== =========
*The Livonia, Michigan acquisition consists of two properties; the office/headquarters of Kelsey-Hayes Corporation and an adjacent research and development building also leased to Kelsey Hayes. **The Columbia, South Carolina Property is currently under construction to add approximately 43,560 square feet of expansion space. Base rent will be increased upon the completion of the expansion. ***The Palm Beach Gardens, Florida Property is currently leased to five tenants and one subtenant, with the Wackenhut Corporation as the primary tenant. Lease expiration dates for these other tenants vary from 2001 to 2006. On June 3, 1998, the Company completed the sale of the Newark, California Property, realizing net proceeds of $24.1 million and recognizing a loss of $0.4 million. 8 The following unaudited pro forma operating information for the six months ended June 30, 1998 and 1997 has been prepared as if the 1998 and 1997 acquisitions and dispositions had been consummated as of January 1, 1997. The information does not purport to be indicative of what the operating results of the Company would have been had the acquisitions or dispositions been consummated on that date. The unaudited pro forma amounts are as follows:
($000's, except per share data) Pro forma Six Months Ended June 30, 1998 1997 ---- ---- Revenues $31,715 $31,444 Income before extraordinary item 8,219 5,536 Net income 8,219 4,104 Per common share: Income before extraordinary item - basic $ 0.42 $ 0.36 Income before extraordinary item - diluted $ 0.42 $ 0.34 Net income - basic $ 0.42 $ 0.21 Net income - diluted $ 0.42 $ 0.21
(4) Mortgage Notes Payable The Company has obtained temporary bridge financing, which matures August 31, 1998, to fund certain acquisitions. As of June 30, 1998, the total principal amount outstanding on the bridge financing was approximately $37.2 million bearing interest at 7.04% per annum. As of June 30, 1998 the amount outstanding on the Company's credit facility was $9 million bearing interest at 7.2% per annum. As of June 30, 1998, the Company had approximately $5.2 million aggregate available under the bridge financing and the credit facility. The Company expects to satisfy these outstanding balances with the committed $100 million unsecured credit facility. The Company has received a commitment from Fleet National Bank for a three year $100 million unsecured revolving credit facility to replace its $60 million secured credit facility. The unsecured credit facility will bear interest at a rate of 1.10% to 1.375% over LIBOR, depending on the Company's level of indebtedness. In the event the Company obtains an investment grade credit rating, the credit facility will bear interest at a rate of 0.7% to 1.10% over LIBOR, depending on the applicable debt rating. The Company's present credit facility bears interest at 1.50% over LIBOR. The transaction, which is subject to customary documentation and other closing conditions, is expected to close during the third quarter of 1998, although there can be no assurance that all conditions to funding will be satisfied. (5) Minority Interests In conjunction with several of the Company's acquisitions, sellers were given interests in partnerships controlled by the Company as a form of consideration. All of such interests are redeemable at certain times for common shares on a one-for-one basis at various dates through May 2006. As of June 30, 1998, the total number of limited partnership units of LCIF and LCIF II outstanding was 4,549,831. These units, subject to certain adjustments through the date of redemption, have distributions per unit in varying amounts up to $1.16 per unit. Minority interests in the accompanying consolidated financial statements include the interests in such partnerships held by parties other than the Company. (6) Subsequent Events On July 22, 1998, the Company declared a dividend of $.29 per share to its common shareholders of record on July 30, 1998 to be paid on August 14, 1998. The Company also declared a dividend of $.3045 per share to its preferred shareholders of record on July 30, 1998 to be paid on August 14, 1998. On July 2, 1998, the Company acquired a 179,300 square foot office building in Florence, South Carolina (the "Florence Property") for approximately $15 million. The Florence Property was the Company's first build-to-suit project and is net 9 leased to Fleet Mortgage Group for 10 years with an average annual net rent of approximately $1.6 million. The funding for this acquisition was made on June 30, 1998 and accordingly has been reflected as real estate and mortgages payable in the accompanying condensed consolidated balance sheet. On July 24, 1998, the Company acquired a 184,000 square foot manufacturing and distribution facility in Auburn Hills, Michigan (the "Auburn Hills Property") for approximately $13.8 million. The Auburn Hills Property is another build-to-suit project and is net leased to GM Inland Seat for 8 years with an average annual net rent of approximately $1.4 million. The Company funded the purchases of the Florence Property and the Auburn Hills Property through aggregate draws of approximately $29.0 million on its temporary bridge financing. These borrowings bear interest at approximately 7.0% per annum. The Company has reached an agreement with the general partners of an affiliated partnership to acquire a 1.7 million square foot distribution facility in Warren, Ohio (the "Proposed Acquisition Property") for approximately $63.9 million including the assumption of $42.2 million in mortgage debt with an ascribed interest rate of 7.0%, the issuance of $18.85 million in Operating Partnership Units and $2.85 million in cash. The mortgage debt matures in October 1, 2007, and provides for semi-annual principal and interest payments of $3,080,000. The Proposed Acquisition Property is leased to K-Mart Corporation under a net lease which expires on September 30, 2007. The average annual net rent under the lease is $8.9 million. Two of the general partners of the partnership are the Co-Chief Executive Officers of the Company and as part of this transaction will receive approximately $6 million in Operating Partnership Units in exchange for their partnership interest, a management contract and beneficial interest in a deferred installment obligation. The Company has received a proposal from the existing lender to refinance mortgage debt secured by the Company's properties in Tampa, Florida. This debt, in amounts of $4.3 million and $5.7 million, was scheduled to mature on May 1, 1998 and June 1, 1998, respectively. The Company expects to refinance this debt with the existing lender at an interest rate of approximately 145 basis points over 4 year U.S. Treasury Issues (7.05% as of June 30, 1998). 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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, 1998, the Company owned sixty-one real estate properties (or interests therein) (the "Properties). Liquidity and Capital Resources Real Estate Assets. As of June 30, 1998, the Company's real estate assets were located in twenty-eight states and contained an aggregate of approximately 8.7 million square feet of net rentable space. The Properties are subject to tenant 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. Sixty of the sixty-one properties are currently leased. During the six months ended June 30, 1998, the Company made the following acquisitions:
Annualized Lease Net Base Rent Expiration Rentable Date of Acquisition @ 6-30-98 Date Square Acquisition Tenant Location Cost ($M) ($000's) (month/year) Feet - ----------- ------ -------- --------- -------- ------------ ---- 1998 - ---- March 27 Jones Apparel Group, Inc. Bristol, PA $ 12.539 $ 1,150 03-13 255,019 March 27 Fidelity Corporate Real Estate, LLC Hebron, KY 8.077 777 04-07 81,744 March 27 Kelsey-Hayes Corp. Livonia, MI* 16.437 1,523 04-07 180,230 May 11 Eagle Hardware & Garden. Inc. Federal Way, WA 13.747 1,233 08-17 133,861 May 11 Eagle Hardware & Garden. Inc. Anchorage, AK 17.685 1,587 10-17 157,525 May 15 Stone Container Corporation Columbia, SC** 3.178 328 08-12 142,400 May 18 Wackenhut Corporation *** Palm Beach Gardens, FL 19.799 2,434 02-11 126,355 June 19 Michaels Stores, Inc. Lancaster, CA 15.046 1,398 06-13 431,250 --------- ------ --------- TOTALS $ 106.508 $ 10,430 1,508,384 ========= ====== =========
* The Livonia, Michigan acquisition consists of two properties; the office/headquarters of Kelsey-Hayes Corporation and an adjacent research and development building also leased to Kelsey Hayes. **The Columbia, South Carolina Property is currently under construction to add approximately 43,560 square feet of expansion space. Base rent will be increased upon the completion of the expansion. ***The Palm Beach Gardens, Florida Property is currently leased to five tenants and one subtenant, with the Wackenhut Corporation as the primary tenant. Lease expiration dates for these other tenants vary from 2001 to 2006. 11 On June 3, 1998, the Company completed the sale of the Newark, California Property, realizing net proceeds of $24.1 million and recognizing a loss of $0.4 million. The Company's principal sources of liquidity are revenue generated from the Properties, interest on cash balances, amounts available under its credit facility and amounts that may be raised through the sale of securities in private or public offerings. For the quarter and six months ended June 30, 1998, such leases on the Properties generated approximately $14.5 million and $27.5 million in revenue compared to $10.5 million and $20.2 million during the same periods in 1997. On July 2, 1998, the Company acquired a 179,300 square foot office building in Florence, South Carolina (the "Florence Property") for approximately $15 million. The Florence Property was the Company's first build-to-suit project and is net leased to Fleet Mortgage Group for 10 years with an average annual net rent of approximately $1.6 million. The funding for this acquisition was made on June 30, 1998 and accordingly has been reflected as real estate and mortgages payable in the accompanying condensed consolidated balance sheet. On July 24, 1998, the Company acquired a 184,000 square foot manufacturing and distribution facility in Auburn Hills, Michigan (the "Auburn Hills Property") for approximately $13.8 million. The Auburn Hills Property is another build-to-suit project and is net leased to GM Inland Seat for 8 years with an average annual net rent of approximately $1.4 million. The Company funded the purchases of the Florence Property and the Auburn Hills Property through aggregate draws of approximately $29.0 million on its temporary bridge financing. These borrowings bear interest at approximately 7.0% per annum. The Company has reached an agreement with the general partners of an affiliated partnership to acquire a 1.7 million square foot distribution facility in Warren, Ohio (the "Proposed Acquisition Property") for approximately $63.9 million including the assumption of $42.2 million in mortgage debt with an ascribed interest rate of 7.0%, the issuance of $18.85 million in Operating Partnership Units and $2.85 million in cash. The mortgage debt matures in October 1, 2007, and provides for semi-annual principal and interest payments of $3,080,000. The Proposed Acquisition Property, is leased to K-Mart Corporation under a net lease which expires on September 30, 2007. The average annual net rent under the lease is $8.9 million. Two of the general partners of the partnership are the Co-Chief Executive Officers of the Company and as part of this transaction will receive approximately $6 million in Operating Partnership Units in exchange for their partnership interest, a management contract and beneficial interest in a deferred installment obligation. Dividends. The Company has made quarterly distributions since October, 1986 without interruption. The Company paid a dividend of $.27 per share to shareholders in respect of each of the calendar quarters of 1995; a dividend of $.27 per share to shareholders in respect of the first quarter of 1996; $.28 per share in respect of the second and third quarters of 1996; and $.29 per share in respect of the fourth quarter of 1996, each of the calendar quarters of 1997 and the first quarter of 1998. The Company declared a dividend in respect of the second quarter of 1998, in the amount of $.29 per share to shareholders of record as of July 30, 1998 to be paid on August 14, 1998. The Company's annualized dividend rate is currently $1.16 per share. 12 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, 1998.
Current Total Redeemable Annualized Annualized for Shares of Number Per Unit Distribution Common Shares as of: of Units Distribution ($000's) - -------------------- -------- ------------ -------- At any time 169,109 $ 1.16 $ 196 At any time 1,303,867 1.08 1,408 January 1999 147,246 1.12 165 January 1999 1,670,212 1.16 1,937 April 1999 480,028 1.16 557 May 1999 279,191 1.16 324 December 1999 125,416 1.16 145 January 2003 7,441 - - March 2004 52,335 0.27 14 November 2004 35,400 - - March 2005 36,825 - - January 2006 207,728 - - February 2006 23,267 - - May 2006 11,766 0.29 3 ------------ ---------- Total 4,549,831 $ 4,749 ============ ==========
Financing Partnership Mergers. On January 29, 1998, two affiliated partnerships merged into LCIF. As a result of the merger, LCIF and LCIF II issued 1,670,212 partnership units redeemable for the Company's common shares, and which are entitled to distributions at the same dividend rate as common shares. At the time of the merger, the partnerships' sole assets were approximately $24 million in cash from prior property sales and the right to acquire properties in tax free exchanges under Internal Revenue Code Section 1031. As of June 30, 1998, the Company had completed the tax free exchanges. Bridge Financing. The Company has obtained temporary bridge financing to fund certain acquisitions. As of June 30, 1998, the total principal amount outstanding on the bridge financing was approximately $37.2 million bearing interest at 7.04% per annum. Revolving Credit Facility. As of June 30, 1998 the amount outstanding on the Company's credit facility was $9 million bearing interest at 7.2% per annum. The Company has received a commitment from Fleet National Bank for a three year $100 million unsecured revolving credit facility to replace its $60 million secured credit facility. The unsecured credit facility will bear interest at a rate of 1.10% to 1.375% over LIBOR, depending on the Company's level of indebtedness. In the event the Company obtains an investment grade credit rating, the credit facility will bear interest at a rate of 0.7% to 1.10% over LIBOR, depending on the applicable debt rating. The Company's present credit facility bears interest at 1.50% over LIBOR. The transaction, which is subject to customary documentation and other closing conditions, is expected to close during the third quarter of 1998, although there can be no assurance that all conditions to funding will be satisfied. Debt Service Requirements. The Company's principal liquidity needs are the payment of interest and principal on outstanding mortgage debt. As of June 30, 1998, a total of forty-seven properties were subject to outstanding mortgages which had an aggregate principal amount, including accrued interest, of $286.3 million. The weighted average interest rate on the Company's debt on such date was approximately 7.91%. Approximate balloon payment amounts for the next five calendar years are due as follows: $0 in 1998 (excluding the $37.2 million bridge financing which is expected to be repaid through the new three year $100 million credit 13 facility and $10 million in mortgage notes currently being refinanced); $15.56 million in 1999 (excluding the $9 million currently outstanding on the credit facility which is expected to be rolled into the new three year $100 million credit facility); $13.09 million in 2000; $1.00 million in 2001 and $10.77 million in 2002. There are no balloon payments due in 2003. The Company has received a proposal from the existing lender to refinance mortgage debt secured by the Company's properties in Tampa, Florida. This debt, in amounts of $4.3 million and $5.7 million, was scheduled to mature on May 1, 1998 and June 1, 1998, respectively. The Company expects to refinance this debt with the existing lender at an interest rate of approximately 145 basis points over 4 year U.S. Treasury Issues. The ability of the Company to make such balloon payments will depend upon its ability to refinance the mortgage related thereto, sell the related property, have available amounts under its credit facility or access to other capital 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. 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. Impact of Year 2000. The Company is evaluating its computer and communication systems to identify the systems that could be affected by the "Year 2000" issue. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Company presently believes that the Year 2000 problem will not pose operational problems for the Company's computer and communication systems and will not have a material impact on the operations of the Company. Results of Operations ($000)
Quarter ended Six months ended June 30, June 30, Increase Increase Selected Income Statement Data 1998 1997 (Decrease) 1998 1997 (Decrease) ---- ---- ---------- ---- ---- ---------- Total revenues $14,994 $10,638 $ 4,356 $28,974 $20,462 $ 8,512 Rental 14,478 10,479 3,999 27,455 20,178 7,277 Interest and other 516 159 357 1,519 284 1,235 Total expenses $10,208 8,503 $ 1,705 $19,328 $16,487 $ 2,841 Interest 5,371 4,343 1,028 10,016 8,583 1,433 Depreciation & amortization of real estate 3,515 2,614 901 6,682 5,075 1,607 General & administrative 952 1,141 (189) 1,908 2,011 (103) Minority interests 961 365 596 1,759 639 1120 Extraordinary loss - debt extinguishment -- 1,466 (1,466) -- 1,522 (1,522) Net Income $ 3,437 $ 304 $ 3,133 $ 7,499 $ 1,814 $ 5,685
Changes in the results of operations for the Company were primarily due to the growth of its portfolio and costs associated with such growth. The increase in interest income and other revenue was primarily due to income recorded on the Newark, California Property, which was sold, and interest income earned on the escrow deposits held in connection with the partnership mergers. The increase in interest expense due to the growth of the Company's portfolio was partially offset by a reduction in the weighted average interest rate from 8.35% as of June 30, 1997 to 7.91% as of June 30, 1998, due to debt refinancings and repayments. The Company's general and administrative expenses decreased as a percentage of revenue to 6.3% and 6.6% for the quarter and six months ended June 30, 1998, respectively, from 9.2% and 9.0% for the quarter and six months ended June 30, 1997 due to the growth of the Company's portfolio relative to these expenses. 14 Funds From Operations Management believes that Funds From Operations enhances an investor's understanding of the Company's financial condition, results of operations and cash flows and believes it is an appropriate performance measure for an equity REIT which provides an indication of a REIT's ability to make cash distributions. Funds From Operations is defined 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 debt restructuring and sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." The Company's method of calculating Funds From Operations excludes other non-recurring revenue and expense items and may be different from methods used by other REITs and, accordingly, is not comparable to such other REITs. Funds From Operations 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 quarters and six months ended June 30, 1998 and 1997 ($000).
Quarter ended Six months ended June 30, June 30 1998 1997 1998 1997 ---- ---- ---- ---- Net income $ 3,437 $ 304 $ 7,499 $ 1,814 Add back: Depreciation and amortization of real estate 3,515 2,614 6,682 5,075 Minority interest's share of net income 961 365 1,759 639 Loss on sale of real estate 388 -- 388 -- Loss from debt restructuring -- 1,466 -- 1,522 Property arbitration litigation expense -- 167 -- 167 -------- -------- -------- -------- Funds From Operations $ 8,301 $ 4,916 $ 16,328 $ 9,217 ======== ======== ======== ======== Cash flows from operating activities $ 8,054 $ 5,027 $ 14,285 $ 9,504 Cash flows from investing activities (54,867) (8,053) (91,854) (32,382) Cash flows from financing activities 45,601 10,763 77,575 32,277 ======== ======== ======== ========
The Company's dividends paid to shareholders and distributions paid to unitholders amounted to approximately 80.5% of the Company's Funds From Operations for the quarter ended June 30, 1998. Accounting Standards Not Yet Adopted In June, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative Instruments and Hedging Activities". The Statement establishes accounting and reporting standards for derivative instruments and hedging activities. This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The adoption of SFAS 133 is not expected to have any impact on the financial position or results of operations of the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 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 - At the Company's Annual Meeting of Shareholders held on May 20, 1998, the following actions were taken: The shareholders elected the seven individuals nominated to serve as trustees of the Company until the 1999 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 (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 13,470,053 311,631 Richard J. Rouse 13,470,474 311,210 T. Wilson Eglin 13,640,278 141,406 Carl D. Glickman 13,494,455 287,229 Kevin W. Lynch 13,681,453 100,231 John D. McGurk 13,675,752 105,932 Seth M. Zachary 13,470,073 311,611
The shareholders also approved the following other proposal set forth in the Company's Proxy Statement, with the number of votes for, against and abstaining set forth: Proposal 2: To approve the Company's 1998 Share Option Plan.
For Against Abstained 11,886,198 1,522,674 372,812
ITEM 5. Other Information - not applicable. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits - Exhibit No. Exhibit 27.1 Financial Data Schedule as of and for the six months ended June 30, 1998 27.2 Financial Data Schedule - restated earnings per share for the six months ended June 30, 1997 (b) Reports on Form 8-K filed during the quarter ended June 30, 1998 - none. 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: August 14, 1998 By: /s/ E. Robert Roskind -------------------------- ----------------------------------------- E. Robert Roskind Chairman and Co-Chief Executive Officer Date: August 14, 1998 By: /s/ Patrick Carroll -------------------------- ----------------------------------------- Patrick Carroll Chief Financial Officer EX-27.1 2 FINANCIAL DATA SCHEDULE/6 MONTHS ENDED 6/30/98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AS CONTAINED IN THE COMPANY'S FORM 10-Q FOR SUCH PERIOD AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. DOLLARS ARE IN THOUSANDS, EXCEPT PER SHARE DATA. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 8,381 0 8,288 0 0 0 584,608 56,563 557,428 0 292,935 24,369 0 2 184,986 557,428 0 28,974 0 6,920 484 0 10,016 9,258 0 7,499 0 0 0 7,499 0.38 0.37 The amount is reported as EPS Basic and not for EPS Primary.
EX-27.2 3 FINANCIAL DATA SCHEDULE/RESTATED FOR 6-MOS 6/30/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AS CONTAINED IN THE COMPANY'S FORM 10-Q FOR JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (0.03) (0.03) In accordance with Rule 601(c)(2)iii of Regulation S-K, due to the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which is effective for financial statements for periods ending after December 15, 1997, the Company has restated its earnings per share accordingly, as indicated on this schedule.
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