<PAGE> 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, 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: 9,415,915 shares of common
stock, par value $.0001 per share, on October 30, 1996.
<PAGE> 2
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 (Unaudited) and December 31, 1995
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
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 49,225,852 43,715,721
----------- ------------
253,414,666 200,507,056
Cash 2,863,756 2,588,515
Deferred expenses (net of accumulated amortization
of $2,787,975 in 1996 and $2,343,262 in 1995) (note 2) 3,564,894 3,753,553
Rent receivable (note 2) 7,737,724 7,701,420
Restricted cash 3,980,448 3,464,554
Investment in partnerships 173,202 170,127
Escrow deposits (note 4) 104,400 654,400
Other assets 3,588,712 2,376,611
------------ -------------
$ 275,427,802 $ 221,216,236
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable (notes 3 and 5) $ 157,318,896 $ 121,249,633
Subordinated notes payable, including accrued interest 1,936,435 1,973,241
Accrued interest payable 330,877 440,788
Accounts payable and other liabilities 2,397,716 558,617
Minority interests, net 797,777 475,846
----------- -----------
162,781,701 124,698,125
----------- -----------
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, 9,415,915
and 9,331,982 shares issued and outstanding
in 1996 and 1995, respectively 942 933
Additional paid in capital 112,645,159 96,517,178
----------- ----------
Total stockholders' equity 112,646,101 96,518,111
----------- ----------
$ 275,427,802 $ 221,216,236
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 3
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarters ended September 30,1996 and 1995 and
Nine Months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Quarter Ended Quarter Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Revenues:
Rental (notes 2, 3, and 6) $ 8,551,559 $ 6,257,241 $ 22,805,441 $ 18,061,734
Interest and other 103,046 119,001 330,961 364,976
------------ ------------ ----------- -----------
8,654,605 6,376,242 23,136,402 18,426,710
------------ ------------ ----------- -----------
Expenses:
Interest expense 3,612,824 2,452,582 9,213,254 7,762,246
Depreciation 2,117,331 1,468,711 5,510,131 4,299,997
Amortization of deferred expenses 152,944 129,365 450,278 320,502
General and administrative expenses 759,718 799,869 2,146,992 1,854,883
Property operating expenses 197,450 128,884 498,636 403,207
------------ ------------ ----------- -----------
6,840,267 4,979,411 17,819,291 14,640,835
------------ ------------ ----------- -----------
Income before gain on sale of properties,
lease termination proceeds, extraordinary
item and minority interests 1,814,338 1,396,831 5,317,111 3,785,875
Gain on sale of properties - - - 1,514,400
Proceeds from lease termination - - - 1,600,000
------------ ------------ ----------- -----------
Income before extraordinary item and minority
interests 1,814,338 1,396,831 5,317,111 6,900,275
Loss on extinguishment of debt - - - 4,578,346
------------ ------------ ----------- -----------
Income before minority interests 1,814,338 1,396,831 5,317,111 2,321,929
Minority interests 259,771 37,861 460,601 54,050
------------ ------------ ----------- -----------
Net income $ 1,554,567 $ 1,358,970 $ 4,856,510 $ 2,267,879
============ ============ ============= =============
Income before extraordinary item and minority
interests, per share $ 0.20 $ 0.15 $ 0.57 $ 0.75
Loss on extinguishment of debt, per share - - - 0.50
Minority interests, per share 0.03 - 0.05 0.01
---- ------- ---- ----
Net income per share $ 0.17 $ 0.15 $ 0.52 $ 0.24
==== ==== ==== ====
Weighted average shares outstanding 9,407,726 9,255,465 9,383,055 9,259,818
============ ============ ============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
1996 1995
-------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,856,510 $ 2,267,879
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 5,960,409 4,620,499
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
(Increase) decrease in rent receivable (36,304) 340,013
Increase (decrease) in accounts payable and other liabilities 726,593 (167,672)
(Decrease) increase in accrued interest payable (146,717) 23,779
Accrued interest added to principal balance
of mortgage notes - 34,192
Minority interests 460,601 54,050
Amortization of discount on mortgage notes payable 6,573 3,287
Income from unconsolidated partnerships (8,640) (171)
Increase in other assets (554,803) (2,463,615)
------------- -------------
Total adjustments 6,407,712 1,931,208
------------- -------------
Net cash provided by operating activities 11,264,222 4,199,087
------------- -------------
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 (7,690,162) (7,511,927)
Decrease in escrow deposits 550,000 -
Repayments on mortgage notes (6,324,953) (74,604,596)
Proceeds of mortgage notes payable 4,990,000 69,913,344
Increase in deferred expenses (149,051) (2,914,479)
Common stock issued 869,812 730,712
Common stock repurchased - (1,055,597)
Increase in restricted cash (515,894) (5,406,457)
Cash distributions to minority interests (486,251) (136,979)
------------- -------------
Net cash used in financing activities (8,756,499) (20,985,979)
------------- -------------
Increase ( decrease) in cash 220,279 (439,834)
Cash at beginning of period 2,588,515 3,096,028
Cash received in acquisition 54,962 64,113
------------- -------------
Cash at end of period $ 2,863,756 $ 2,720,307
============= ==============
</TABLE>
(Continued)
<PAGE> 5
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Nine Months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
1996 1995
-------- ------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 9,353,398 $ 7,700,988
========== =========
Cash paid during the period for taxes $ 131,746 $ 167,396
============ ===========
Supplemental disclosure of non-cash operating activities:
Deferred expenses reclassified to other assets $ 90,912 $ -
============ ============
</TABLE>
Supplemental disclosure of non-cash investing activities:
On August 1, 1995, the Company acquired ownership interests in six partnerships
in exchange for special limited partnership units. The financial position of
four of these partnerships is included in the consolidated balance sheets as of
September 30, 1996 and December 31, 1995. Total assets acquired and total
liabilities assumed in the exchange were $10,231,767 and $10,179,310,
respectively. The Company's proportionate share of the remaining two
partnerships is included in investment in partnerships.
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.
<PAGE> 6
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 and its
majority owned subsidiaries, including Lepercq Corporate Income Fund
L.P. ("LCIF") and Lepercq Corporate Income Fund II L.P. ("LCIF II"), on
a consolidated basis. When the Company owns less than 50% of an entity,
its investment is accounted for under the equity method. The Company
anticipates merging LCIF and LCIF II during or at the end of the fourth
quarter of 1996.
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.
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
<PAGE> 7
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 at least the
requisite amount 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 income.
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 September 30, 1996 and
1995 was 9,407,726 and 9,255,465, respectively. The weighted average
number of shares outstanding during the nine months ended September 30,
1996 and 1995 was 9,383,055 and 9,259,818, 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.
Effective 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 nine months ended
September 30, 1996.
Effective 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 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 the Company's common stock on a one-for-one
basis on May 22, 1998, the
<PAGE> 8
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 nine months ended September 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 $36.2 million as of September 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.
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.
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 totaled approximately $37.4 million. The
first note, which had an outstanding principal balance of approximately
$13.4 million as of September 30, 1996, bears interest at 7.87% per
annum and fully amortizes at maturity on October 1, 2005. The second
note, which had an outstanding principal balance of $22.8 million as of
September 30, 1996, bears interest at 12.9% per annum and fully
<PAGE> 9
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.
Principal paydowns of the mortgage notes payable (including balloon
payments) for the succeeding five years are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
<S> <C> <C>
1996 (3 months) $ 1,208,700
1997 5,133,797
1998 28,708,145
1999 11,388,223
2000 14,095,441
2001 6,204,150
</TABLE>
Included in the amount for 1998 is the $13.2 million outstanding as of
September 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. As discussed under "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Liquidity and
Financial Resources," the Company has received a commitment letter from
the primary lender under this facility to expand and extend this
facility.
(6) Leases
Minimum future rents receivable under non-cancelable operating leases
as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
<S> <C> <C>
1996 (3 months) $ 8,238,151
1997 32,967,564
1998 31,436,170
1999 29,692,831
2000 27,715,418
2001 26,758,647
Thereafter 136,378,178
-----------
$293,186,959
===========
</TABLE>
(7) Subsequent Events
On October 15, 1996, the Company declared a dividend of $.28 per share
to stockholders of record on October 30, 1996 to be paid on November
14, 1996.
The Company has entered into a binding purchase agreement to acquire
three manufacturing facilities (the "Johnson Controls Properties")
which are located in Alabama, Ohio and Michigan, contain an aggregate
of 304,120 square feet and will, upon closing of the acquisitions, be
leased to Johnson Controls, Inc. under net leases which expire ten
years from the closing. Consideration for the Johnson Controls
Properties is expected to consist of $14.17 million in cash. The
Johnson Controls Properties, under the terms of their applicable
leases, would be expected to generate a total of approximately $1.43
million of rental revenue for the Company in 1997.
The Company has entered into agreements to acquire eight properties
(the "LP Properties") currently owned by five limited partnerships
which are affiliated with The LCP Group, L.P.("LCP"). LCP is owned and
controlled by E. Robert Roskind, Chairman of the Board of the Company.
These properties consist of:
<PAGE> 10
(i) a 123,293 square foot warehouse facility in Houston, Texas that is
leased to Toys "R" Us under a net lease which expires in 2006; (ii)
three retail properties located in Tulsa, Oklahoma; Clackamas, Oregon
and Lynnwood, Washington that are leased to Toys "R" Us under net
leases which expire in 2006; (iii) three retail facilities located in
Baltimore, Maryland; Jenkintown, Pennsylvania and Richmond, Virginia
containing an aggregate of 220,830 square feet that are leased to
Hechinger Company under net leases which expire in 2005 and 2006 and
(iv) a retail facility located in Honolulu, Hawaii that is leased to
Liberty House, Inc. under a net lease which expires in 2009.
Consideration for the properties is expected to consist of
approximately 804,621 units representing interests in a partnership
controlled by the Company and the assumption by such partnership of
approximately $34.2 million of mortgage debt which matures between 2003
and 2021. The units to be issued in exchange for the LP Properties will
receive quarterly distributions of $95,834 ($383,335 on an annualized
basis) and will be convertible into shares of Common Stock on a
one-to-one basis beginning in 1999, 2003, and 2006. The properties
under the terms of their applicable leases, would be expected to
generate approximately $4.6 million of rental revenue for the Company
in 1997.
The Company has been granted an option by LCP, exercisable any time to
acquire (i) general partnership interests currently owned by LCP in two
limited partnerships, Net 1 L.P. and Net 2 L.P. (collectively, the "Net
Partnerships"), which own net leased office, industrial and retail
properties and (ii) a 49% equity interest in an affiliated pension fund
advisory company and real estate management company which
manages five net leased properties with an aggregate value of
approximately $25 million. Under the terms of the option, the Company,
subject to review of any such transaction by the independent members of
its Board of Directors, may acquire the general partnership interests
in either or both of the Net Partnerships at their fair market value
based upon a formula relating to partnership cash flows, with the
Company retaining the option of paying such fair market value in
securities of the Company, units representing interests in partnerships
controlled by the Company or cash (or a combination thereof). The
Company has no current plans to exercise the option.
The Company recently hired three former employees of LCP who previously
performed certain management duties for the Net Partnerships and
entered into a management agreement with LCP with respect to the Net
Partnerships pursuant to which the Net Partnerships will pay to the
Company management compensation previously paid by the Net Partnerships
to LCP (which aggregated approximately $220,000 in 1995). The cost of
the new employees is expected to be offset by such management
compensation.
Ross Stores, Inc., the tenant of the Newark, California Property, has
exercised an option to purchase such property for its fair market value
as encumbered by a lease that expires on August 31, 2002 and presently
provides for annual rental payments of $3,255,492. The purchase price,
which would be paid at a closing on or before September 1, 1997, will
be determined by arbitration based on estimates of fair market value
submitted by the tenant and the Company. As of October 29, 1995, the
Company and the tenant had submitted fair market value estimates of $32
million and $23.8 million, respectively. The Company's estimate of fair
market value is based on market research and an appraisal prepared by a
nationally recognized appraisal firm. The arbitration period extends
until January 15, 1997. Ross Stores, Inc., will have no obligation to
acquire the Newark, California Property if the arbitrator determines
that the estimate of fair market value submitted by the Company more
closely approximates the arbitrator's opinion of fair market value. As
of September 30, 1996, the book value of the Newark, California
Property was $24,323,184.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
As of September 30, 1996, the Company owned controlling interests in thirty real
estate properties (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 4,579,202
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, insurance, ordinary maintenance and structural repairs 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, and a dividend
of $.28 per share for the second quarter of 1996. On October 15, 1996, the
Company declared a dividend for the third quarter of 1996 of $.28 per share to
stockholders of record as of October 30, 1996 to be paid on November 14, 1996.
The Company's annualized dividend rate is currently $1.12 per share.
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 convertible at certain
times into shares of Common Stock 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. As a result, the Company's net income and funds from
operations are reduced proportionally based on the amount of the distributions
required to be paid by the terms of such partnership interests. The number of
shares of Common Stock 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 converted into shares of Common
Stock. The table set forth below provides certain information with respect to
such partnership interests:
<TABLE>
<CAPTION>
Convertible
Current into Shares
Annualized of Common
Number of Per Unit Stock Total Annual
Partnership or Class Units Issued Distribution as of: Distribution
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
LCIF-Special Limited Partners 112,229 $1.12 At any time $ 125,696
LCIF II- Special Limited Partners 56,880 $1.12 At any time $ 63,706
---------------- -----------------
Subtotal: Special Limited Partners 169,109 $ 189,402
---------------- -----------------
Barnes Partnerships:
Barngiant Livingston 52,335 $0.27 3/04 $ 14,130
Barnhale Modesto 23,267 $ - 2/06 N/A
Barnes Rockshire 36,825 $ - 3/05 N/A
Barnvyn Bakersfield 7,441 $ - 1/03 N/A
Barnhech Montgomery 11,766 $0.29 5/06 $ 3,412
Barnward Brownsville 35,400 $ - 11/04 N/A
---------------- -----------------
Subtotal: Barnes Partnerships 167,034 $ 17,542
---------------- -----------------
Red Butte Creek Associates 1,715,294 $0.66 5/98 $1,132,094
114,006 $1.08 5/98 $ 123,126
---------------- -----------------
Subtotal: Red Butte Creek Associates 1,829,300 $1,255,220
---------------- -----------------
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
Convertible
Current into Shares
Annualized of Common
Number of Per Unit Stock Total Annual
Partnership or Class Units Issued Distribution as of: Distribution
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Pending Acquisitions:
Abington Center Associates 185,478 $1.12 1/99 $ 207,735
224,143 $ - 1/03 N/A
---------------- -----------------
409,621 $ 207,735
---------------- -----------------
Barnhech Richmond Associates 30,474 $ - 1/06 N/A
9,526 $1.12 1/99 $ 10,669
---------------- -----------------
40,000 $ 10,669
---------------- -----------------
Fort Street Partners 207,741 $ - 1/06 N/A
17,259 $1.12 1/99 $ 19,330
---------------- -----------------
225,000 $ 19,330
---------------- -----------------
Toy Properties Associates II 95,000 $1.12 1/99 $ 106,400
Toy Properties Associates V 35,000 $1.12 1/99 $ 39,200
---------------- -----------------
Subtotal: Pending Acquisitions 804,621 $ 383,334
---------------- -----------------
Grand Total 2,970,064 $1,845,498
================ =================
</TABLE>
Holders of the LCIF and LCIF II special limited partner units receive
distributions that are equal to distributions on Common Stock. Holders of the
Barnes Partnerships units receive distributions as noted until such units become
eligible for conversion to Common Stock, upon which date they will receive
distributions based on their respective partnership interest ownership
percentages. The distribution to the class of Red Butte Creek Associates units
consisting of 1,715,294 units will increase to $1.08 per unit annually in
January 1998. The holders of the class of Red Butte Creek Associates units
consisting of 114,006 units receive distributions that are equal to
distributions on Common Stock, with an annual cap of $1.08 per unit. Holders of
the class of Abington Center Associates units consisting of 185,478 units, the
class of Barnhech Richmond Associates units consisting of 9,526 units, the class
of Fort Street Partners units consisting of 17,259 units, the Toy Properties
Associates II units and the Toy Properties Associates V units receive
distributions that are equal to distributions on Common Stock, with an annual
cap of $1.12 per unit. The holders of the class of Abington Center Associates
units consisting of 224,143 units, the class of Barnhech Richmond Associates
units consisting of 30,474 units and the class of Fort Street Partners units
consisting of 207,741 units will receive distributions that are equal to
distributions on Common Stock, with an annual cap of $1.12, when they become
eligible for conversion to Common Stock.
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 nine months ended September 30, 1996,
leases on the Properties generated approximately $8,552,000 and $22,805,000 in
revenue compared to $6,257,000 and $18,062,000 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 the Company's 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
<PAGE> 13
unpaid management fees. The holders of the 114,006 units will have the same
conversion rights as the holders of the units issued to 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 on the same basis as all
holders of the Company's Common Stock. 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 nine months ended September 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 $36.2 million as of September 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.
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 currently
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 September 30, 1996.
In October 1996, the Company received a commitment letter from its lender under
the revolving credit facility, subject to the execution of definitive
documentation and the placement of mortgage liens on certain properties, to
increase the maximum borrowing available under the credit facility by up to an
additional $35 million, subsequent to which the Company's maximum borrowing
available thereunder would be up to $60 million. Under the terms of the
commitment, the credit facility will be automatically renewed for successive two
year periods following its restated maturity date of June 1, 1999, unless the
lender notifies the Company of its intention to terminate the credit facility at
least twelve months in advance of the scheduled or extended maturity date. The
transaction is subject to completion of definitive documentation and other
closing conditions, and is expected to close before December 31, 1996, although
no assurance can be given that the transaction will be completed.
The Company's principal liquidity needs are the payment of interest and
principal on outstanding mortgage debt. As of September 30, 1996, a total of
twenty-nine Properties were subject to outstanding mortgages which had an
approximate aggregate amount outstanding of $157,650,000 (including accrued
interest in the amount of $330,877). 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: $1,209,000 in 1996 (3 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.
As discussed above, the terms of the revolving loan may be amended to extend the
maturity date.
<PAGE> 14
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 structural repairs, 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 nine months ended September 30, 1996.
Results of Operations
Quarter and nine months ended September 30, 1996 compared to quarter and nine
months ended September 30, 1995
Total Revenues. Total revenues for the quarter and nine months ended September
30, 1996 were $8,654,605 and $23,136,402, representing increases of $2,278,363
and $4,709,692 from the same respective periods in 1995. The increases in
revenues were attributable to increases in rental revenue of $2,294,318 and
$4,743,707 for the quarter and nine month periods, respectively. Rental revenue
increased primarily due to revenues from properties acquired in August and
December 1995, and May 1996.
Total Expenses. Total expenses for the quarter and nine months ended September
30, 1996 were $6,840,267 and $17,819,291, representing increases of $1,860,856
and $3,178,456 from the same respective periods in 1995. The increases during
both periods were primarily attributable to increases in interest expense and
depreciation and additionally for the nine month period, an increase in general
and administrative expenses.
Interest expense for the quarter and nine months ended September 30, 1996
increased $1,160,242 and $1,451,008 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. Depreciation expense for the quarter and nine
months ended September 30, 1996 increased $648,620 and $1,210,134 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 nine months
ended September 30, 1996 increased $292,109 from the same period in 1995
primarily due to an expense of $441,198 incurred in 1996 relating to
performance-based stock compensation, compared to a similar expense of $220,781
incurred in 1995. Additionally, professional fees increased during the nine
months ended September 30, 1996 compared to the same period in 1995.
The Company has added two senior corporate officers and one additional employee
as employees as of October 1. 1996, in connection with the Company entering into
management agreements with two partnerships which own 59 single tenant net-
leased office, industrial and retail properties. The cost of the additional
overhead is expected to be offset by compensation earned by the Company and
expenses reimbursed pursuant to the management agreements.
Net Income. Net income for the quarter and nine months ended September 30, 1996
was $1,554,567 and $4,856,510, representing increases of $195,597 and $2,588,631
from the same respective periods in 1995. The increase during the quarter ended
September 30, 1996 was primarily attributable to the increase in rental revenue
discussed above. The increase during the nine months ended September 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, offset by
<PAGE> 15
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 $3,413,481 and $2,827,510 for the
quarters ended September 30, 1996 and 1995, and $9,943,188 and $9,631,651 for
the nine months ended September 30, 1996 and 1995, respectively. Funds from
operations for the nine months ended September 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 77% of the Company's funds from operations for the quarter ended
September 30, 1996.
<PAGE> 16
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
(b) Reports on Form 8-K filed during the quarter ended
September 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.
<PAGE> 17
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: 11/8/96 By: /s/ E. Robert Roskin
------------------- ------------------------------------------
E. Robert Roskind
Chairman and Co-Chief Executive Officer
Date: 11/8/96 By: /s/ Paul R. Wood
------------------- ------------------------------------------
Paul R. Wood
Vice President and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
consolidated statement of income for the nine months ended September 30, 1996
and the consolidated balance sheet as of September 30, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 6,948,604
<SECURITIES> 0
<RECEIVABLES> 7,737,724
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 302,640,518
<DEPRECIATION> (49,225,852)
<TOTAL-ASSETS> 275,427,802
<CURRENT-LIABILITIES> 0
<BONDS> 159,255,331
0
0
<COMMON> 942
<OTHER-SE> 112,645,159
<TOTAL-LIABILITY-AND-EQUITY> 275,427,802
<SALES> 0
<TOTAL-REVENUES> 23,136,402
<CGS> 0
<TOTAL-COSTS> 6,008,767
<OTHER-EXPENSES> 450,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,213,254
<INCOME-PRETAX> 5,317,111
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,856,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,856,510
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
