-----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, LAG7zkAjUvps3NI5t8EqgCGW9Mdfz995+hgIWgd934pFrUyeWrhZofQo/hZ2AXGn Smi4gbxzbVW13G57ZzMwIg== 0000950123-99-010093.txt : 19991115 0000950123-99-010093.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950123-99-010093 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748382 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 September 30, 1999 [ ] 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: 17,218,560 common shares, par value $.0001 per share on November 10, 1999. 2 PART 1. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 1999 (Unaudited) and December 31, 1998 (in thousands, except share and per share data)
September 30, December 31, ASSETS: 1999 1998 -------- ------ Real estate, at cost $ 679,826 $ 675,793 Less: accumulated depreciation and amortization 78,979 66,076 --------- --------- 600,847 609,717 Cash and cash equivalents 6,201 11,084 Restricted cash 2,512 3,545 Investment in unconsolidated entities 4,223 -- Other assets, net 41,734 22,661 --------- --------- $ 655,517 $ 647,007 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Mortgages payable $ 311,752 $ 300,279 Credit facility borrowings 58,921 52,621 Subordinated notes payable, including accrued interest 1,936 1,973 Origination fees payable, including accrued interest 6,827 5,849 Accounts payable and other liabilities 5,139 6,760 --------- --------- 384,575 367,482 Minority interests 69,008 74,381 --------- --------- 453,583 441,863 --------- --------- 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: Common shares, par value $0.0001 per share, authorized 40,000,000 shares, 16,997,285 and 17,103,532 shares issued and outstanding in 1999 and 1998, respectively 2 2 Additional paid-in-capital 241,126 241,924 Deferred compensation, net (749) -- Accumulated distributions in excess of net income (60,822) (59,155) --------- --------- 179,557 182,771 Less: notes receivable from officers/shareholders (1,992) (1,996) --------- --------- 177,565 180,775 --------- --------- $ 655,517 $ 647,007 ========= =========
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 INCOME Three and nine months ended September 30, 1999 and 1998 (Unaudited and in thousands, except per share data)
Three months ended Nine months ended September 30, September 30, 1999 1998 1999 1998 -------- -------- -------- ------ Revenues: Rental $ 18,796 $ 16,869 $ 56,331 $ 44,324 Interest and other 412 286 988 1,805 -------- -------- -------- -------- 19,208 17,155 57,319 46,129 -------- -------- -------- -------- Interest 7,188 6,271 21,320 16,287 Depreciation and amortization of real estate 4,425 4,057 13,325 10,739 Amortization of deferred expenses 241 249 726 733 General and administrative 1,188 1,184 3,384 2,985 Property operating 436 257 1,351 602 -------- -------- -------- -------- 13,478 12,018 40,106 31,346 -------- -------- -------- -------- Income before gain (loss) on sale of properties and minority interests 5,730 5,137 17,213 14,783 Gain (loss) on sale of properties 2,351 -- 3,049 (388) -------- -------- -------- -------- Income before minority interests 8,081 5,137 20,262 14,395 Minority interests 1,731 1,006 4,680 2,765 -------- -------- -------- -------- Net income $ 6,350 $ 4,131 $ 15,582 $ 11,630 ======== ======== ======== ======== Net income per common share: Basic $ 0.34 $ 0.21 $ 0.81 $ 0.58 Diluted $ 0.32 $ 0.20 $ 0.79 $ 0.58
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, 1999 and 1998 (Unaudited and dollars in thousands)
1999 1998 ------- ------ Net cash provided by operating activities $ 30,107 $ 22,105 --------- --------- Cash flows from investing activities: Acquisitions of real estate, net (26,741) (133,740) Proceeds from sale of real estate, net 19,465 24,113 Joint venture investment (4,223) -- Real estate deposits (17,481) -- --------- --------- Net cash used in investing activities (28,980) (109,627) --------- --------- Cash flows from financing activities: Proceeds of mortgages and notes payable 30,775 55,148 Dividends to common and preferred shareholders (17,249) (16,150) Principal payments on debt, excluding normal amortization (5,513) (9,982) Principal amortization payments (8,709) (3,826) Change in credit facility borrowing, net 6,300 41,221 Proceeds from issuance of limited partnership units -- 23,449 Cash distributions to minority partners (4,937) (2,722) Proceeds from the issuance of common shares, net 615 492 Repurchase of common shares (5,830) (654) Other financing activities, net (1,462) 2,016 --------- --------- Net cash (used in) provided by financing activities (6,010) 88,992 --------- --------- Change in cash and cash equivalents (4,883) 1,470 Cash and cash equivalents, at beginning of period 11,084 3,640 --------- --------- Cash and cash equivalents, at end of period $ 6,201 $ 5,110 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 22,654 $ 16,176 ========= ========= Cash paid during the period for taxes $ 81 $ 183 ========= =========
Supplemental disclosure of non-cash investing and financing activities: During 1999 and 1998, holders of an aggregate of 254,964 and 525,433 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 $3,486 and $5,650, respectively. During 1999, the Company issued 69,850 common shares to certain employees and trustees resulting in $877 of deferred compensation. These common shares vest ratably over a 2 to 5 year period. During 1999, the purchaser of two of the Company's real estate properties assumed mortgage debt of approximately $10,156. 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. During 1998, the Company issued $25,596 in limited partnership units as partial satisfaction of the purchase price of real estate. The issuance of these units has been recorded as minority interests in the accompanying unaudited condensed consolidated balance sheets. During 1998, the Company assumed indebtedness of $42,226 as partial satisfaction of the purchase price of real estate. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999 (Unaudited and 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 sixty-four 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 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 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, 1998. (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. The Company accounts for its investments in non-controlled entities under the equity method of accounting. Earnings Per Share. Basic net income per share is computed by dividing net income reduced by preferred dividends by the weighted average number of common shares outstanding during the period. Diluted net income per share amounts are similarly computed but include the effect, when dilutive, of in-the-money common share options and the Company's other dilutive securities, which can include operating partnership units, preferred shares and exchangeable redeemable secured notes. The Company's preferred shares are excluded from the nine months of 1999 and 1998 calculations and the three months of 1998 calculation and the exchangeable redeemable secured notes are excluded from the 1998 calculations since they are anti-dilutive. 6 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, 1999 and 1998.
Three months ended Nine months ended September 30, September 30, 1999 1998 1999 1998 ---- ---- ---- ---- BASIC Net income $ 6,350 $ 4,131 $ 15,582 $ 11,630 Less preferred dividends (630) (630) (1,890) (1,848) ------------ ------------ ------------ ------------ Net income attributed to common shareholders $ 5,720 $ 3,501 $ 13,692 $ 9,782 ============ ============ ============ ============ Weighted average number of common shares outstanding 16,923,101 17,057,436 16,976,508 16,778,827 ============ ============ ============ ============ Net income per common share - basic: $ 0.34 $ 0.21 $ 0.81 $ 0.58 ============ ============ ============ ============ DILUTED Net income attributed to common shareholders $ 5,720 $ 3,501 $ 13,692 $ 9,782 Add incremental income attributed to assumed conversion of dilutive securities 2,809 992 6,022 2,672 ------------ ------------ ------------ ------------ Net income attributed to common shareholders $ 8,529 $ 4,493 $ 19,714 $ 12,454 ============ ============ ============ ============ Weighted average number of shares used in calculation of basic earnings per share 16,923,101 17,057,436 16,976,508 16,778,827 Add incremental shares representing: Shares issuable upon exercise of employee stock options 20,829 90,336 19,346 181,698 Shares issuable upon conversion of dilutive securities 9,940,208 5,133,917 8,041,086 4,639,221 ------------ ------------ ------------ ------------ Weighted average number of shares used in calculation of diluted earnings per common share 26,884,138 22,281,689 25,036,940 21,599,746 ============ ============ ============ ============ Net income per common share - diluted: $ 0.32 $ 0.20 $ 0.79 $ 0.58 ============ ============ ============ ============
Use of Estimates. Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Reclassifications. Certain amounts included in the 1998 financial statements have been reclassified to conform with the 1999 presentation. (3) Investments in Real Estate During 1999, the Company purchased a property for $7,300 in Henderson, North Carolina leased to Corporate Express Office Products, Inc., whose lease expires January 31, 2014, and provides for annual revenue of $791. The Company also purchased a property for $19,100 in Herndon, Virginia leased to NEC America, Inc., whose lease expires August 12, 2009, and provides for annual revenue of $2,006. The Company sold five properties which are located in Cottondale, Alabama (leased to Johnson Controls, Inc.); Jacksonville, Alabama (leased to Wal-Mart Stores, Inc.); Columbia, South Carolina (leased to Stone Container Corp.); San Diego, California (leased to Cymer, Inc.) and Phoenix, Arizona (leased to Bull HN Information Systems, Inc.) for an aggregate sales price of approximately $30,200 resulting in a gain of approximately $3,100. All the properties, except Cottondale, Alabama, were sold to an affiliate of a Co-Chief Executive Officer of the Company. 7 The following unaudited pro forma operating information for the nine months ended September 30, 1999 and 1998 has been prepared as if the 1999 and 1998 acquisitions and dispositions had been consummated as of January 1, 1998. The information does not purport to be indicative of what the operating results of the Company would have been had the acquisitions and dispositions been consummated on that date or to be indicative of operating results which can be expected for future periods. The unaudited pro forma amounts are as follows:
Pro forma Nine months ended September 30, 1999 1998 ---- ---- Revenues $56,559 $57,437 Net income $12,317 $13,729 Net income per common share: Basic $ 0.61 $ 0.71 Diluted $ 0.61 $ 0.70
The Company entered into a 10-year lease for its Memphis, Tennessee property effective November 1, 1999. The annual net revenue under the lease is $686. (4) Joint Venture Investments The Company has an investment in a real estate joint venture. The business of the joint venture is to acquire, finance, hold for investment and sell single tenant net leased real estate. The real estate investment, which was made on September 15, 1999, is a 341,000 square foot office property located in Houston, Texas net leased to Vastar Resources, Inc. for annual rental payments of $3,437 through September 2009. The purchase price of $34,800 was partially funded through a 10-year, $22,750 non-recourse mortgage note bearing interest at 7.58% which provides for annual principal and interest payments of $2,032 with a balloon payment of $18,229 at maturity. The remaining funding was provided by a 12-year, $11,008 participating loan from Lexington Acquiport LLC, a joint venture between the Company and New York State Common Retirement Fund, with the balance of the purchase price funded by the Company. The participating note has a current annual interest rate of 6.9% and a 50% participation in operating cash flows of the property, as defined. The note is convertible, at the holder's option, into an equity position in the underlying property. Summarized financial information for the underlying real estate investment as of and for the period ended September 30, 1999 is as follows:
1999 ---- Real estate, net $ 35,269 Other assets 885 ------- $ 36,154 ======= Mortgage payable $ 22,750 Note payable 11,008 Other liabilities 633 Equity 1,763 ------- $ 36,154 =======
1999 ---- Rental revenue $ 134 Interest expense (111) Depreciation of real estate (29) Other (7) ------- Net loss $ (13) =======
8 Included in interest and other income in the accompanying statement of income is approximately $40 representing the Company's equity in the loss of the unconsolidated entities. (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, 1999, the total number of limited partnership units of LCIF and LCIF II outstanding was 6,006,697. These units, subject to certain adjustments through the date of redemption, require distributions per unit in varying amounts up to $1.20 per annum and have a current average distribution of $1.09 per annum. Minority interests in the accompanying consolidated financial statements include the interests in such partnerships held by parties other than the Company. (6) Mortgages Payable During the nine months ended September 30, 1999 the Company: (i) Obtained a $11,480 mortgage, bearing interest at 7.80% secured by its Livonia, Michigan Properties. The mortgage, which matures April 2009, provides for annual principal and interest payments of approximately $992 and a balloon payment at maturity of $10,000. (ii) Obtained a $4,700 mortgage, bearing interest at 7.39% secured by its Henderson, North Carolina Property. The mortgage, which matures May 2009, provides for annual principal and interest payments of approximately $417 and a balloon payment at maturity of $3,800. (iii) Obtained a $2,180 mortgage, bearing interest at 7.375% secured by its Baton Rouge, Louisiana Property. The mortgage, which matures February 2009, provides for annual principal and interest payments of approximately $208 and a balloon payment at maturity of $1,500. (iv) Satisfied its $5,500 balloon mortgage payment due on its Phoenix, Arizona Property. The mortgage had an interest rate of 10.75% per annum. (v) Obtained a $12,375 mortgage, bearing interest at 7.60% secured by its Herndon, Virginia Property. The mortgage, which matures September 2010, provides for annual principal and interest payments of approximately $1,107 and a balloon payment at maturity of $9,740. (vi) As partial consideration for the sale of two properties, the purchaser assumed $10,156 in mortgage debt at a weighted average interest rate of 7.84%. (7) Subsequent Events The Company declared a $0.30 and $0.315 dividend on its common and preferred shares, respectively, for shareholders of record on November 1, 1999, payable November 15, 1999. The Company purchased a 348,410 square foot office building located in Columbia, South Carolina net leased to Blue Cross Blue Shield of South Carolina for approximately $42,500. The lease, which expires September 30, 2009 and contains two 5-year renewal options, provides for annual rental revenues of approximately $4,907. The purchase was partially financed through a $25,300 mortgage note. The mortgage note, which bears interest at 7.85%, matures in September 2009, provides for annual principal and interest payments of $2,196 and a balloon payment of $22,551 at maturity. The Company has repurchased 317,311 common shares/units at an average price of $9.64 per share/unit. The Company issued 287,888 common shares in connection with a merger of a private corporation. The assets of the corporation consisted of $3,900 and the right to complete a tax-free exchange by acquiring two properties for $13,400. 9 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 failure to continue to qualify as a real estate investment trust, general business and economic conditions, competition, increases in real estate construction costs, change in 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, 1999, the Company owned sixty-four real estate properties or interests therein (the "Properties). Liquidity and Capital Resources Real Estate Assets. As of September 30, 1999, the Company's real estate assets, including joint venture investments, were located in twenty-nine states and contained an aggregate of approximately 11.0 million square feet of net rentable space. The Properties are subject to tenant triple net leases, which are generally characterized as leases 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. All of the sixty- four properties are currently leased. During the nine months ended September 30, 1999, the Company acquired two properties for $26.4 million at an unleveraged average annual yield of 10.59% and sold five properties for an aggregate price of $30.2 million resulting in a gain of approximately $3.0 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 nine months ended September 30, 1999, the leases on the Properties generated approximately $56.3 million in revenue compared to $44.3 million during the same period in 1998. Dividends. The Company has made quarterly distributions since October 1986 without interruption. The Company paid a dividend of $.27 per share to common shareholders in respect of each of the calendar quarters of 1995 and the first quarter of 1996; $.28 per share in respect of the second and third quarters of 1996; $.29 per share in respect of the fourth quarter of 1996, each of the calendar quarters of 1997 and the first and second quarters of 1998; $0.30 per share in respect of the third and fourth quarters of 1998 and the first and second quarters of 1999. The Company declared a dividend in respect of the third quarter of 1999, in the amount of $.30 per share to shareholders of record as of November 1, 1999 to be paid on November 15, 1999. The Company's annualized dividend rate is currently $1.20 per share. 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 of the Company 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, 1999. 10
Current Total Redeemable Annualized Annualized for Shares of Number Per Unit Distribution Common Shares as of: of Units Distribution ($000) - ------------------- ---------- ------------- ------------ At any time 3,962,663 $1.20 $ 4,755 At any time 1,273,368 1.08 1,375 At any time 134,110 1.12 150 December 1999 214,802 1.20 258 January 2003 13,698 - - March 2004 52,335 0.27 14 March 2004 27,314 - - November 2004 35,400 - - March 2005 38,661 - - January 2006 207,728 - - February 2006 34,852 - - May 2006 11,766 0.29 3 --------- ----- --------- Total 6,006,697 $1.09 $ 6,555 ========= ===== =========
Subsequent to September 30, 1999, the Company purchased 161,218 of these Units at an average price of $9.32 per Unit. An additional 72,252 Units were redeemed for common shares. Financing Revolving Credit Facility. As of September 30, 1999, the amount outstanding on the Company's credit facility was approximately $58.9 million, bore interest at 6.8125% per annum and had $8.4 million available for additional borrowings. Subsequent to September 30, 1999 a letter of credit issued by the Company was cancelled, increasing the amount available for borrowing under the credit facility to $11.3 million. Debt Service Requirements. The Company's principal liquidity needs are the payment of interest and principal on outstanding mortgage debt. As of September 30, 1999, a total of forty-eight properties were subject to outstanding mortgages, which had an aggregate principal amount of $311.8 million. The weighted average interest rate on the Company's mortgages and notes payable, including line of credit borrowings, on such date was approximately 7.38%. 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 Year 2000 compliance issue concerns the inability of computer systems to accurately calculate, store or use a date after 1999. This could result in a system failure or miscalculations causing disruptions of operations. The Year 2000 issue affects virtually all companies and organizations. The Company has been taking the necessary steps to understand the nature and extent of the work required to make its core information computer systems and non-information embedded systems Year 2000 compliant. The Company has determined that it will not be necessary to modify, update or replace its computer hardware and software applications. The vendor that provides the Company's existing general ledger software has released a Year 2000 compliant version of its product, which the Company is currently using. The cost of the general ledger system did not have a material effect on the Company's financial condition or results of operations. The Company's properties, which have no scheduled lease expirations prior to August 17, 2000, are subject to net leases and accordingly the Year 2000 compliance of embedded systems (e.g., security, HVAC, fire and elevator systems) are the responsibility of the tenants. The Company has contacted each of its tenants asking them to identify and evaluate the changes and modifications necessary to make these systems compliant for Year 2000 processing. The costs associated with the effect to make the embedded 11 systems Year 2000 compliant are the tenants' responsibility. However, no assurances can be given that the Properties embedded systems will be Year 2000 compliant by December 31, 1999 and compliance costs, if any, incurred by the Company would not be significant. The Company is communicating with significant third-party service providers and vendors with which it does business to determine the efforts being made on their part for compliance. The Company is attempting to receive compliance certificates from all third parties that have a material impact on the Company's operations, but no assurance can be given with respect to the cost or timing of such efforts or the potential effects of any failure to comply. Management has closely monitored the Company's entire Year 2000 compliance function. At this time, the Company has not developed and does not anticipate developing any contingency plans with respect to Year 2000 issues. Results of Operations ($000)
Three months ended Nine months ended September 30, September 30, Increase Selected Income Statement Data 1999 1998 Increase 1999 1998 (Decrease) ------ ------ -------- ------ ------ ---------- Total revenues $ 19,208 $ 17,155 $ 2,053 $ 57,319 $ 46,129 $ 11,190 Rental 18,796 16,869 1,927 56,331 44,324 12,007 Interest and other 412 286 126 988 1,805 (817) Total expenses 13,478 12,018 1,460 40,106 31,346 8,760 Interest 7,188 6,271 917 21,320 16,287 5,033 Depreciation & amortization of real estate 4,425 4,057 368 13,325 10,739 2,586 General & administrative 1,188 1,184 4 3,384 2,985 399 Property operating 436 257 179 1,351 602 749 Net Income 6,350 4,131 2,219 15,582 11,630 3,952
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 decrease in interest and other income for the nine month period was primarily due to income recorded on the Newark, California Property, which was sold during the second quarter of 1998, and interest income earned on the increased escrow deposits. 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 to 7.38% as of September 30, 1999 from 7.71% as of September 30, 1998, due to debt refinancings and repayments. The Company's general and administrative expenses decreased as a percentage of revenue to 6.18% and 5.90% for the three and nine months ended September 30, 1999, respectively, from 6.90% and 6.47% for the three and nine months ended September 30, 1998 due to the growth of the Company's portfolio relative to these expenses. The increase in property operating expenses relates to the previous vacancy of the Memphis property and certain landlord operating expense responsibilities for the Palm Beach Gardens, Florida property. The tenant in the Company's Dallas, Texas Property has been experiencing liquidity problems. The Company entered into an agreement with the tenant who deferred $100,000 of its $268,000 monthly rent for the period March 1, 1999 to June 30, 1999 and $126,000 of its monthly rent from July 1, 1999 to November 30, 1999. 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 12 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 three and nine months ended September 30, 1999 and 1998 ($000).
Three months ended Nine months ended September 30, September 30, 1999 1998 1999 1998 ---- ---- ---- ---- Net income $ 6,350 $ 4,131 $ 15,582 $ 11,630 Adjustments: Depreciation and amortization of real estate 4,425 4,057 13,325 10,739 (Gain) loss on sale of properties (2,351) -- (3,049) 388 Minority interest's share of net income 1,679 1,006 4,522 2,765 Joint venture adjustment 29 -- 29 -- --------- --------- --------- --------- Funds From Operations $ 10,132 $ 9,194 $ 30,409 $ 25,522 ========= ========= ========= ========= Cash flows from operating activities $ 11,582 $ 7,820 $ 30,107 $ 22,105 Cash flows from investing activities (26,740) (17,773) (28,980) (109,627) Cash flows from financing activities 13,044 11,417 (6,010) 88,992
The Company's aggregate dividends paid to shareholders and distributions paid to unit holders amounted to approximately 73.2% of the Company's Funds From Operations for the nine months ended September 30, 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk relates to its variable rate unsecured credit facility. As of September 30, 1999 the Company's variable rate indebtedness represented 15.5% of total long-term indebtedness. During the three and nine months ended September 30, 1999 this variable rate indebtedness had a weighted average interest rate of 6.61%. Had the weighted average interest rate been 100 basis points higher the Company's net income would have been approximately $124 and $390 less for the three and nine months ended September 30, 1999, respectively. 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 - not applicable. ITEM 5 Other Information - not applicable. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits -
Exhibit No. Exhibit ----------- ------- 27 Financial Data Schedule as of and for the nine months ended September 30, 1999
(b) Reports on Form 8-K filed during the quarter ended September 30, 1999. There was one 8-K filed during the quarter ended September 30, 1999. (i) Form 8-K dated July 14, 1999, filed August 3, 1999. Announced that the Company entered into a joint venture agreement. 14 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 12, 1999 By: /s/ E. ROBERT ROSKIND ---------------------------------- E. Robert Roskind Chairman and Co-Chief Executive Officer Date: November 12, 1999 By: /s/ PATRICK CARROLL ---------------------------------- Patrick Carroll Chief Financial Officer and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AS CONTAINED IN THE COMPANY'S FORM 10Q FOR SUCH PERIOD AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q. DOLLARS ARE IN THOUSANDS, EXCEPT PER SHARE DATA. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 8,713 0 0 0 0 0 679,826 78,979 655,517 0 379,436 24,369 0 2 177,563 655,517 0 57,319 0 14,676 726 0 21,320 20,262 0 15,582 0 0 0 15,582 .81 .79
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