<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A(1)
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] 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: 9,441,716 shares of common
stock, par value $.0001 per share on April 30, 1997.
(1) Notwithstanding such Amendment, information set forth herein speaks as of
and for the dates referred to in the Form 10-Q originally filed by the
Registrant. Reference is made to annual and current reports filed by the
Registrant since March 31, 1997, for information regarding the Registrant.
<PAGE> 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2 is amended and restated in its entirety as follows.
General
Lexington Corporate Properties, Inc. is a self-managed and self-administered
real estate investment trust ("REIT") that acquires, owns and manages a
geographically diversified portfolio of net leased office, industrial and retail
properties. The Company owns controlling interests in 43 Properties and minority
interests in two additional properties. The Properties owned by the Company are
subject to triple net leases, the majority of which are net leased to investment
grade corporate tenants. The Company was organized in 1993 to combine and
continue to expand the business of two affiliated limited partnerships (the
"Partnerships"). 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 Company was organized to combine, continue and expand the business of
Lepercq Corporate Income Fund L.P. ("LCIF") and Lepercq Corporate Income Fund II
L.P. ("LCIF II") (together, the "Partnerships"), which own, operate and manage a
diverse portfolio of real properties. The Company, which has elected to qualify
as a real estate investment trust under the Internal Revenue Code of 1986,
acquired the Partnerships through mergers which were effected as of October 12,
1993. In connection with the mergers, the Company issued 9,303,409 shares of its
Common Stock, 169,109 units of special limited partner interest in the
Partnerships (which are exchangeable for an equivalent number of shares of
Common Stock) and $1,877,390 in principal amount of 7.75% Subordinated Notes due
2000.
The mergers were accounted for as business combinations of entities under common
control using the "as if pooling-of-interest" method of accounting, with the
Company as the surviving entity. Under this method, the assets and liabilities
of the Partnerships have been recorded by the Company at their carrying values.
As of March 31, 1997, the Company was the indirect or direct owner of forty-two
real estate properties (or interests therein) (the "Properties") triple net
leased to corporations, and owned minority interests in two additional triple
net leased properties.
Liquidity and Capital Resources
LIQUIDITy. The Company's principal sources of liquidity are revenue generated
from the Properties, interest on cash balances, amounts available under its
Credit Facility described below and proceeds from capital market transactions.
For the quarter ended March 31, 1997, leases on the Properties generated
approximately $9,699,000 in revenue compared to $6,657,000 for the same period
in 1996.
REAL ESTATE ASSETS. As of March 31, 1997, the Company's real estate assets
consisted of the Properties and two minority interests. The Properties are
located in twenty-three states and contain an aggregate of 6,055,363 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 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.
<PAGE> 3
DEBT SERVICE REQUIREMENTS. The Company's principal liquidity needs are the
payment of interest and principal on outstanding mortgage debt. As of March 31,
1997, a total of forty-one properties were subject to outstanding mortgages
which had an aggregate principal amount, including accrued interest, of
$203,694,121. The weighted average interest rate on the Company's debt on such
date was approximately 8.73% per annum. Approximate balloon payment amounts for
the next five calendar years are due as follows: $10,007,000 in 1998;
$31,963,000 in 1999 (including $26.4 million currently outstanding under the
Credit Facility which may be extended) and $7,966,000 in 2000. There are no
balloon payments due during 1997, 2001 or 2002. 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 its Credit Facility sufficient to satisfy such balloon payments. The
ability of the Company to accomplish such goals will be influenced 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. As of March 31, 1997, the Company's total
consolidated indebtedness (including origination fees payable and the related
accrued interest) was approximately $210 million.
MORTGAGE REFINANCING. The Company has entered into agreements to refinance $22.1
million of mortgage debt secured by the Salt Lake City, Utah Property. In
connection with the refinancing, the Company expects to borrow approximately
$24.25 million, with the excess proceeds used to pay debt restructuring and
transaction costs and to fund working capital. The new mortgage debt is expected
to bear interest at 7.61% per annum and commencing January 1, 1998, will require
annual debt service payments of approximately $2.95 million, sufficient to fully
amortize the principal balance at maturity on October 1, 2009. The interest rate
on the mortgage is currently 12.9% per annum and the mortgage requires annual
interest and principal payments of approximately $4.32 million. The refinancing
is expected to close prior to June 1, 1997.
LEASE OBLIGATIONS. Because the Company's tenants bear all or substantially all
of the cost of property maintenance and capital improvements, the Company does
not anticipate significant needs for cash for property maintenance or repairs.
The Company generally funds property expansions with additional secured
borrowings, the repayment of which is funded out of rental increases under the
leases covering the expanded properties.
DIVIDENDS. The Company paid a dividend of $.27 per share to stockholders 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, and $.29 per
share in respect of the fourth quarter of 1996. On April 21, 1997, the Company
declared a dividend in respect of the first quarter of 1997 of $.29 per share to
stockholders of record as of April 30, 1997 to be paid on May 14, 1997. The
Company's annualized dividend rate is currently $1.16 per share.
REVOLVING CREDIT FACILITY. The Company's Credit Facility provides for a maximum
committed amount of $60,000,000. Borrowings under the Credit Facility bear
interest at 1.5% over LIBOR. The facility matures on June 1, 1999, but will
automatically renew for successive two year terms unless the lender notifies the
Company at least twelve months in advance of the scheduled or extended maturity
date of its intention to terminate the Credit Facility. As of March 31, 1997,
the Company had borrowed $27.9 million. As the Credit Facility is collateralized
by seven of the Company's Properties, this amount is included in the balance of
mortgage notes payable as of March 31, 1997. On April 1, 1997, the Company used
excess proceeds from the sale of the Notes to reduce the amount outstanding
under the Credit Facility by $1.5 million, from $27.9 million to $26.4 million.
PREFERRED STOCK SALE. On December 31, 1996, the Company entered into an
agreement with Five Arrows providing for the sale of up to 2,000,000 shares of
Class A Senior Cumulative Convertible Preferred Stock ("Preferred Stock"). Under
the terms of the agreement, the Company may sell the Preferred Stock to Five
Arrows at up to three closings, at the Company's option, during 1997 for an
aggregate price of approximately $25 million. In connection with such sale, the
Company has entered into certain related agreements with Five Arrows, providing,
among other things, for certain registration rights with respect to such shares
and the right to designate a member of the Board of Directors under certain
circumstances. The Company elected John McGurk to the Board of Directors as of
January 1997. The Preferred Stock, which is convertible into Common Stock on a
one-for-one basis, is entitled to quarterly dividend equal to the greater of
$.295 or 105% of the Common Stock dividend.
<PAGE> 4
On January 21, 1997, the Company sold 700,000 shares of Preferred Stock to Five
Arrows and used the proceeds to repay $7,996,817 of mortgage debt, including
prepayment premiums of $520,000. Such mortgage debt had been bearing interest at
12.625% per annum and would have required interest and principal payments of
approximately $1.45 million in 1997.
On April 28, 1997, the Company sold an additional 625,000 shares of Preferred
Stock to Five Arrows.
EXCHANGEABLE REDEEMABLE SECURED NOTES. In March 1997, in connection with the
acquisition of the Exel Properties, LCIF sold $25 million of 8% Exchangeable
Redeemable Secured Notes (the "Notes") to an institutional investor in a private
placement. The Notes require interest only payments at 8% per annum, payable
semi-annually in arrears, and have a seven-year term. The Notes are secured by
first mortgage liens on the Exel Properties, are guaranteed by the Company, and
are exchangeable for the Company's Common at $13 per share beginning in the year
2000, subject to adjustment. The Notes may be redeemed after three years at a
price of 103.2% of the principal amount, declining to par after five years. The
Notes are subordinated in right of payment to the Company's obligations under
the Credit Facility.
OPERATING PARTNERSHIP STRUCTURE. The Company controls two principal operating
partnerships. This operating partnership subsidiary 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 operating partnership
interests as of March 31, 1997.
<PAGE> 5
<TABLE>
<CAPTION>
1997 CONVERTIBLE TO
ANNUALIZED SHARES OF TOTAL ANNUAL
NUMBER OF PER UNIT COMMON STOCK DISTRIBUTION
PARTNERSHIP OR CLASS UNITS ISSUED DISTRIBUTION AS OF: IN 1997
- -------------------------------------------- -------------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C>
LCIF - Special Limited Partners 112,229 $ 1.16 At any time $ 130,185
LCIF II - Special Limited Partners 56,880 $ 1.16 At any time $ 65,981
--------- ----------- ----------- ----------
Subtotal: Special Limited Partners 169,109 $ 196,166
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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
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Subtotal: Red Butte Creek Associates 1,829,300 $1,255,220
--------- ----------
Fort Street Partners 207,741 $ -- 1/06 N/A
17,259 $ 1.12 1/99 $ 19,330
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Subtotal: Fort Street Partners 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
Exel Partnership 480,028 $ 1.16 4/99 $ 556,832
--------- ----------
Grand Total 3,000,471 $2,190,690
========= ==========
</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 described in the table above
until such units become eligible for conversion into 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 Fort Street Partners units consisting of 17,259 units, the Toy
Properties Associates II units and Toy Properties Associates V units receive
distributions that are equal to distributions on Common Stock, with an annual
cap of $1.12. The holders of 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 into Common Stock. The holders of the Exel Partnership units receive
distributions that are equal to distributions on Common Stock.
<PAGE> 6
PARTNERSHIP MERGER. In connection with the acquisition of the Exel Properties,
an unaffiliated partnership (the "Exel Partnership") merged into LCIF. As a
result of the merger, LCIF issued 480,028 partnership units exchangeable for
Common Stock, which units are entitled to distributions at the same dividend
rate as Common Stock. At the time of the merger, the Exel Partnership's sole
assets were approximately $6.0 million of cash (from the prior sale of a
property) and the right to acquire the Properties in a tax-free exchange under
Internal Revenue Code Section 1031. The proceeds from the issuance of these
partnership units were recorded as minority interest in the accompanying
consolidated financial statements.
During the quarter ended March 31, 1997, the Company completed the following
acquisitions:
TUSCALOOSA, ALABAMA PROPERTY. On February 20, 1997, the Company completed the
acquisition of a 58,800 square foot industrial property (the "Tuscaloosa
Property") in Tuscaloosa, Alabama for approximately $2.9 million. The Tuscaloosa
Property is leased to Johnson Controls, Inc. for ten years. The annual net rent
is $288,608 and escalates annually by three times the percentage change in the
Consumer Price Index, not to exceed 4.5% in any year.
EXEL LOGISTICS PROPERTIES. On March 19, 1997, the Company acquired three
industrial properties (the "Exel Properties") for $27.0 million. The Exel
Properties contain 761,200 square feet on 46.56 acres near Harrisburg,
Pennsylvania and are subject to net-leases with Exel Logistics, Inc. ("Exel")
which expire on November 30, 2006. The current annual net rent is $2,536,941 and
will increase by 9.27% on December 1, 1997 and by 9.27% every three years
thereafter. The obligations of Exel under the leases are unconditionally
guaranteed by its parent company, NFC plc.
RANCHO BERNARDO PROPERTY. On May 1, 1997, the Company used the proceeds of the
April Preferred Stock Sale to acquire a property in Rancho Bernardo, California
(the "Rancho Bernardo Property") for $7,725,000. The Rancho Bernardo Property
contains 65,755 net rentable square feet and is leased to Cymer, Inc. under the
terms of a net lease which expires on December 31, 2009. The lease provides for
annual rental payments of $736,872, which will increase to $755,294 on June 1,
1997 and by approximately 5% every two years thereafter. The average annual net
rent payable during the remaining lease term is $860,419, or approximately 11.1%
of the purchase price.
Results of Operations
Quarter ended March 31, 1997 compared to quarter ended March 31, 1996
TOTAL REVENUES. Total revenues for the quarter ended March 31, 1997 were
$9,824,207, an increase of $3,024,851 from the same period in 1996. The increase
in total revenues was attributable to an increase in rental revenue of
$3,041,445, which resulted principally from the acquisition of properties in May
and December 1996 and in February and March 1997.
TOTAL EXPENSES. Total expenses for the quarter ended March 31, 1997 were
$8,051,872, an increase of $2,979,640 from the same period in 1996. The increase
was primarily attributable to increases in interest expense, depreciation and
amortization of real estate, and general and administrative expenses, all of
which increased principally as a result of property acquisitions and increased
portfolio activity.
Interest expense for the quarter ended March 31, 1997, in the amount of
$4,240,097, increased $1,681,270 from the same period in 1996 primarily due to
interest expense incurred on the mortgage notes assumed in the acquisition of
the Salt Lake City, Utah Property in May 1996 and on additional debt obtained or
assumed in connection with acquisitions in May and December 1996 and February
and March 1997. Depreciation and amortization of real estate for the quarter
ended March 31, 1997, in the amount of $2,460,545, increased $895,478 from the
same period in 1996 primarily due to properties acquired in May and December
1996 and February and March 1997. General and administrative expenses for the
quarter ended March 31, 1997, in the amount of $869,763, increased $204,816 from
the same period in 1996 as a result of increases in various operating costs due
to the incremental growth of the Company.
<PAGE> 7
NET INCOME. Net income for the quarter ended March 31, 1997 was $1,510,450, a
decrease of $162,995 from the same period in 1996. Net income per share was
$0.16 and $0.18 per share for the quarters ended March 31, 1997 and 1996,
respectively. The decrease was attributable to an increase in income allocated
to minority interests ("minority interest expense") in the amount of $208,206,
combined with the increase in total expenses discussed above, offset by the
increase in total revenues discussed above. The increase in minority interest
expense is attributable to additional partnership interests issued to parties
other than the Company in connection with properties acquired in May and
December 1996 and March 1997.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128").
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, Earnings Per
Share ("APB 15") and specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock or potential common stock. SFAS No. 128 replaces the presentation
of primary EPS with a presentation of basic EPS and fully diluted EPS with
diluted EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement will be adopted for both interim and annual period ending after
December 15, 1997.
Under SFAS 128, basic and diluted EPS would have been $0.14 and $0.13 per share
for the quarter ended March 31, 1997, and for the quarter ended March 31, 1996,
basic and diluted EPS would have been $0.18 per share.
Funds from Operations
The Company believes that Funds From Operations enhances an investor's
understanding of the Company's financial condition, results of operations and
cash flows. The Company believes that Funds From Operations is an appropriate
measure of the performance of an equity REIT, and that it can be one measure of
a REIT's ability to make cash distributions. Funds From Operations is defined by
the National Association of Real Estate Investment Trusts, Inc. as "net income
(or loss) (computed in accordance with generally accepted accounting
principles), 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 the Company's
operating performance or to cash flows from operating activities as determined
in accordance with generally accepted accounting principles ("GAAP"), or a
measure of liquidity to other consolidated income or cash flow statement data as
determined in accordance with GAAP.
The Company reports Funds From Operations ("FFO") on a fully diluted basis
(Total FFO) assuming the conversion of all operating partnership units. This
reporting method treats all operating partnership units as common stock
equivalents even though many units are not immediately convertible and receive
distributions below the level paid in respect of the Company's common stock.
The following table reflects the Company's FFO for the quarter ended March 31,
1997 and 1996:
<TABLE>
<CAPTION>
Quarter ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net Income $ 1,510,450 $ 1,673,445
Add back:
Depreciation and amortization of real estate 2,460,545 1,565,067
Minority interests share of income 261,885 53,679
------------- -------------
Total FFO - for shares and partnership units before
items below 4,232,880 3,292,191
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Adjustments of other non-recurring items (1)
Non-recurring stock compensation -- 147,066
------------ -----------
Total FFO for shares and partnership units 4,232,880 3,439,257
Less:
Minority interests share of depreciation (354,247) (1,930)
Minority interests share of income (261,885) (53,679)
------------ -----------
FFO per common and preferred shares only $ 3,616,748 $ 3,383,648
============ ===========
Weighted average common and preferred
shares outstanding 9,970,466 9,357,527
Weighted average OP units outstanding 2,584,443 336,144
------------ -----------
Total weighted average shares and units 12,554,909 9,693,671
============ ===========
</TABLE>
Below are the cash flows provided by (used in) operating, investing and
financing activities for the quarter ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Quarter ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows provided by (used in):
Operating activities $ 4,476,549 $ 3,175,480
Investing activities (24,329,469) (93,686)
Financing activities 21,514,285 3,159,471
============= =============
</TABLE>
The number of weighted average shares used by the Company in calculating FFO
differs from those used in calculating earnings per share under generally
accepted accounting principles.
The Company's dividends declared, on a weighted average basis, to be paid to
stockholders (including preferred stockholders) amounted to approximately 80% of
the Company's FFO for the quarter ended March 31, 1997. The Company's total
declared dividends and partnership distributions, on a weighted average basis,
amounted to approximately 78% of the Company's FFO for the quarter ended March
31, 1997.
- --------
(1) For purposes of the calculation of Funds From Operations, the Company has
added back to net income amounts for transactional expenses and non-recurring
stock compensation, which management believes to be appropriate adjustments
based on the non-recurring and unusual nature of such amounts. The Company's
method of calculating Funds From Operations may be different from methods used
by other REITs. Non-recurring stock compensation represents the expense of a
simultaneous exercise and re-granting of options to the Company's management
during the period between July 1995 and January 1996, which was intended to
increase management's ownership in the Company (a practice which has been
discontinued). The Board of Directors has determined that the Company will not
engage in such practices in the future. As of March 31, 1997 transactional
expenses of $68,843 were incurred. Management believes such expenses were of an
unusual and significant nature for the Company at the time they were incurred.
If such amount was added back to net income, Funds From Operations for the
period ending March 31, 1997 would have been $4,301,723.
<PAGE> 9
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: November 14, 1997 By:/s/ E. Robert Roskind
---------------------------------
E. Robert Roskind
Chairman and Co-Chief Executive Officer
Date: November 14, 1997 By:/s/ Paul R. Wood
----------------------------------
Paul R. Wood
Vice President and Chief Accounting Officer
