<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 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.
<PAGE> 2
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Real estate, at cost: (notes 3 and 4) $369,740,141 $339,410,672
Less: accumulated depreciation and amortization 53,803,498 51,342,953
------------ ------------
315,936,643 288,067,719
Cash and cash equivalents 4,129,554 2,468,189
Restricted cash 4,188,642 3,750,138
Deferred expenses (net of accumulated amortization
of $3,147,571 in 1997 and $2,955,205 in 1996) (note 2) 4,483,724 3,733,930
Rent receivable (note 2) 8,022,878 7,842,568
Other assets 3,359,236 3,263,570
------------ ------------
$340,120,677 $309,126,114
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable (note 4) $203,292,811 $185,766,458
Subordinated notes payable, including accrued interest 1,936,435 1,973,241
Accrued interest payable on mortgage notes 401,310 421,929
Origination fees payable, including accumulated accretion
of $409,372 in 1997 and $394,512 in 1996 (note 6) 472,568 457,508
Accrued interest on origination fees payable (note 6) 3,961,122 3,920,989
Accounts payable and other liabilities 1,676,126 1,394,109
------------ ------------
211,740,372 193,934,234
------------ ------------
Minority interests (note 7) 28,428,418 22,532,733
------------ ------------
240,168,790 216,466,967
------------ ------------
Stockholders' equity (note 8):
Preferred stock, par value $0.0001 per share;
authorized 10,000,000 shares. Class A Senior Cumulative
Convertible Preferred, liquidation preference $12.50 per
share, 700,000 shares issued and outstanding at March 31, 1997 70 --
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, 9,439,716 and
9,426,900 shares issued and outstanding
in 1997 and 1996, respectively 944 943
Additional paid in capital 99,950,873 92,658,204
------------ ------------
Total stockholders' equity 99,951,887 92,659,147
------------ ------------
$340,120,677 $309,126,114
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 3
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarters ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Rental (notes 2, 3 and 5) $ 9,698,804 $ 6,657,359
Interest and other 125,403 141,997
----------- -----------
9,824,207 6,799,356
----------- -----------
Expenses:
Interest expense (notes 4 and 6) 4,240,097 2,558,827
Depreciation and amortization of real estate 2,460,545 1,565,067
Amortization of deferred expenses 194,221 146,596
General and administrative expenses 869,763 664,947
Property operating expenses 218,403 136,795
Other expenses 68,843 --
----------- -----------
8,051,872 5,072,232
----------- -----------
Income before minority interests 1,772,335 1,727,124
Minority interests (note 7) 261,885 53,679
----------- -----------
Net income $ 1,510,450 $ 1,673,445
=========== ===========
Net income per common share:
Primary $ 0.14 $ 0.18
=========== ===========
Fully diluted (note 2) $ 0.13 $ 0.18
=========== ===========
Weighted average common shares outstanding:
Primary 9,931,535 9,362,667
=========== ===========
Fully diluted (note 2) 11,966,761 9,362,667
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,510,450 $ 1,673,445
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,654,766 1,711,663
Write-off of unamortized deferred loan fees 45,303 --
(Increase) decrease in rent receivable (180,310) 44,587
Increase in accounts payable and other liabilities 282,017 605,858
Decrease in accrued interest payable (17,292) (127,537)
Accretion on origination fees payable 15,060 --
Minority interests 261,885 53,679
Amortization of discount on mortgage notes payable 2,191 2,191
Income from unconsolidated partnerships (3,870) (1,930)
Increase in other assets (93,651) (786,476)
------------ ------------
Total adjustments 2,966,099 1,502,035
------------ ------------
Net cash provided by operating activities 4,476,549 3,175,480
------------ ------------
Cash flows used in investing activities:
Additions to real estate assets, net of issuance
of special limited partnership units (24,329,469) (93,686)
------------ ------------
Cash flows from financing activities:
Dividends to stockholders (2,734,452) (2,528,621)
Decrease in escrow deposits -- 550,000
Repayments on mortgage notes (12,675,838) (4,020,561)
Proceeds of mortgage notes payable 30,200,000 2,890,000
Increase in deferred expenses (987,463) (20,635)
Common stock issued 168,786 431,157
Preferred stock issued, net of syndication costs 8,347,956 --
Increase in restricted cash (438,504) (415,151)
Cash distributions to minority interests (366,200) (45,660)
------------ ------------
Net cash provided by (used in) financing activities 21,514,285 (3,159,471)
------------ ------------
Increase (decrease) in cash and cash equivalents 1,661,365 (77,677)
Cash and cash equivalents at beginning of period 2,468,189 2,588,515
------------ ------------
Cash and cash equivalents at end of period $ 4,129,554 $ 2,510,838
============ ============
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
<PAGE> 5
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Quarters ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, March 31,
1997 1996
---------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $4,240,138 $2,684,173
========== ==========
Cash paid during the period for taxes $ 13,725 $ 9,064
========== ==========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
On March 19, 1997, in connection with an acquisition of properties involving a
partnership, the Company issued partnership units as partial satisfaction of the
purchase price (see notes 3 and 7). The proceeds from the issuance of these
partnership units have been recorded as minority interest in the accompanying
consolidated financial statements.
See accompanying notes to consolidated financial statements.
<PAGE> 6
LEXINGTON CORPORATE PROPERTIES, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
(1) The Company
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 has qualified as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended (the "Code"). A
real estate investment trust is generally not subject to Federal income
tax on that portion of its real estate investment trust taxable income
("Taxable Income") which is distributed to its stockholders, provided
that at least 95% of Taxable Income is distributed. No provision for
Federal income taxes has been made in the consolidated financial
statements, as the Company believes it is in compliance with the Code
and has distributed all of its Taxable Income.
The Company and its consolidated subsidiaries are required to file tax
returns in various states. States vary with respect to the taxation of
REITs. Some states have a tax based on capital within the state; other
states, not recognizing the REIT dividends paid deduction, have a tax
based on apportioned income as applicable to 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.
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, 1996.
(2) Summary of Significant Accounting Policies
BASIS OF PRESENTATION. 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
or the remaining useful lives from the dates of acquisition, 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.
Amortization of the land estates for financial reporting and tax
purposes is determined by the straight-line method over the respective
remaining useful lives from the dates of acquisition.
(Continued)
<PAGE> 7
(2) Continued
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").
Partnerships in which the Company has an interest of greater than 50%
are accounted for on a consolidated basis and partnership interests of
less than 50% are accounted for under the equity method.
REVENUE. The Company has determined that the leases relating to the
Properties 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 FINANCING EXPENSES AND FEES. 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.
Origination fees payable obligations have been discounted using an
annual rate of 13%.
EARNINGS PER SHARE. Primary net income per share is computed by
dividing net income reduced by preferred dividends by the weighted
average number of common and diluted common equivalent shares
outstanding during the period. Reported primary per-share amounts are
based on 9,931,535 and 9,362,667 common and common equivalent shares in
1997 and 1996, respectively.
Fully diluted net income per share amounts are similarly computed but
include the effect, when dilutive of the Company's other potentially
dilutive securities. Fully diluted net income excludes preferred
dividends and is increased by minority interests resulting from the
assumed conversion of the limited operating partnership units. The
Company's preferred stock and exchangeable redeemable secured notes are
excluded from the 1997 computation due to their anti-dilutive effect
during that period. The Company's limited operating partnership units
are excluded from the 1996 computation due to immateriality. Reported
fully diluted per share amounts are based on 11,966,761 and 9,362,667
common and common equivalent shares in 1997 and 1996, respectively.
Certain amounts included in the prior years' financial statements have
been reclassified to conform with the current year's presentation.
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.
<PAGE> 8
(3) Investments in Real Estate
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%.
On March 19, 1997, the Company acquired three industrial properties
(the "Exel Properties") for approximately $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.
(4) Mortgage Notes Payable
On January 22, 1997, the mortgages secured by four of the Company's
Properties were paid in full. The aggregate principal amount was
$7,996,817 and the aggregate prepayment premiums were approximately
$520,000. The stated interest rate on these four mortgages was 12.625%.
On February 20, 1997, in connection with the acquisition of the
Tuscaloosa Property, the Company borrowed an additional $2.9 million
under its revolving credit facility (the "Credit Facility").
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 Stock, par value $.0001 per share ("Common Stock") at $13 per
share beginning in the year 2000, subject to adjustment. The Notes may
be redeemed by the Company 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.
On March 31, 1997, the Company repaid in full the bridge financing
secured by a mortgage on the Franklin, North Carolina Property, which
had a principal amount of $2,828,640. This amount was satisfied with
cash and with proceeds from permanent financing obtained on this
Property in the amount of $2.3 million. The new mortgage, which has an
eighteen-year term, bears interest at 8.5% per annum and requires
monthly payments of interest and principal which will be sufficient to
fully amortize the principal balance at maturity on April 1, 2015.
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.
<PAGE> 9
(5) Leases
Minimum future rents receivable under non-cancelable operating leases
as of March 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending
December 31
<S> <C>
1997 (9 months) $ 29,216,672
1998 36,679,859
1999 34,504,310
2000 32,207,854
2001 31,108,149
2002 28,622,955
Thereafter 148,144,754
------------
$340,484,553
============
</TABLE>
(6) Related Party Transactions
In connection with the origination fees payable, the Company is
obligated to pay The LCP Group, L.P. ("LCP"), a related party to the
Company, an aggregate principal amount of $1,778,250 for rendering
services in connection with the original acquisitions of certain
properties. Simple interest is payable monthly from available net cash
flow of the respective original properties on the various unpaid
principal portions of the fees, at annual rates ranging from 12.25% to
19%. Monthly installment payments are to commence at various dates to
satisfy principal and current interest payments as well as any unpaid
accrued interest outstanding. The original principal amounts have been
discounted at an annual rate of 13%.
(7) Minority Interests
In conjunction with several of the Company's acquisitions, sellers were
given interests in partnerships controlled by the Company as a form of
consideration. All of such interests are convertible at certain times
into shares of Common Stock on a one-for-one basis at various dates
through May 2006. (See Liquidity and Capital Resources - Operating
Partnership Structure).
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 special 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.
Following the acquisition of the Exel Properties, the total number of
special limited partnership units of LCIF outstanding as of March 31,
1997 was 3,000,443. These units, subject to certain adjustments through
the date of conversion, have distributions per unit in varying amounts
up to $1.16 per unit. Minority interests in the accompanying
consolidated financial statements relate to interests in such
partnerships held by parties other than the Company.
<PAGE> 10
(8) Preferred Stock
On December 31, 1996, the Company entered into a definitive agreement
with Five Arrows Realty Securities L.L.C. ("Five Arrows") providing for
the sale of up to 2,000,000 shares of Class A Senior Cumulative
Convertible Preferred Stock ("Preferred Stock"). In connection with
this transaction, the Company designated 2,000,000 shares as "Class A
Preferred Stock" and reserved for issuance up to 2,000,000 shares of
its Common Stock upon the conversion of the 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 $25 million. In connection with such
sale, the Company has entered into certain related agreements with Five
Arrows, providing, among other things, for certain demand and piggyback
registration rights with respect to such shares and the right to
designate a member of the Board of Directors under certain
circumstances. Five Arrows designated John McGurk, and Mr. McGurk was
appointed to the Board of Directors in January 1997. The Preferred
Stock, which is convertible into Common Stock on a one-for-one basis,
is entitled to quarterly dividends equal to the greater of $.295 or
105% of the Common Stock dividend.
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 prepayments of $520,000. The interest rate on such
mortgage debt had been 12.625% per annum, interest and principal
payments on such debt would have been approximately $1.45 million in
1997.
(9) Subsequent Events
On April 21, 1997, the Company declared a dividend of $.29 per share to
stockholders of record on April 30, 1997 to be paid on May 14, 1997.
On April 28, 1997, the Company sold an additional 625,000 shares of
Preferred Stock to Five Arrows (the "April Preferred Stock Sale"). Net
proceeds to the Company were approximately $7.8 million.
On May 1, 1997, the Company used the net 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.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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> 12
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 dividends equal to the greater
of $.295 or 105% of the Common Stock dividend.
<PAGE> 13
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> 14
<TABLE>
<CAPTION>
1997 CONVERTIBLE TO
ANNUALIZED PER SHARES OF TOTAL ANNUAL
NUMBER OF UNITS UNIT COMMON STOCK DISTRIBUTION
PARTNERSHIP OR CLASS 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
------------- ----------
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
------------- ----------
Fort Street Partners 207,741 $ -- 1/06 N/A
17,259 $ 1.12 1/99 $ 19,330
------------- ----------
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> 15
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> 16
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 considers funds from operations ("FFO") to be an appropriate measure
of the performance of an equity REIT. FFO 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." The Company's method of
calculating FFO, which also excludes other non-recurring revenue and expense
items, may be different from methods used by other REITs, and, accordingly, may
not be comparable to such other REITs. FFO 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 cash available to fund all cash
flow needs and liquidity, including the Company's ability to make distributions.
The following table reflects the Company's FFO for the quarter ended March 31,
1997:
<TABLE>
<S> <C>
Income before minority interests $ 1,772,335
Add back:
Depreciation and amortization of real estate 2,460,545
Transactional expenses 68,843
------------
FFO - shares and partnership units 4,301,723
Less:
Minority interests share of depreciation (354,247)
Minority interests share of income (261,885)
------------
FFO per common and preferred shares $ 3,685,591
============
Weighted average common and preferred
shares outstanding 9,970,466
Weighted average OP units outstanding 2,584,443
------------
Total weighted average shares and units 12,554,909
============
FFO per share and partnership unit $ .34
============
FFO per common and preferred share $ .37
============
</TABLE>
<PAGE> 17
The Company has begun reporting funds from operations on a fully diluted basis
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.
The Company's distributions declared to be paid to stockholders (including
preferred stockholders) amounted to approximately 80% of the Company's FFO for
the quarter ended March 31, 1997.
<PAGE> 18
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
11 Schedule of Computations of Per
Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended
March 31, 1997.
Acquisition of five properties from three limited
partnerships through three exchange transactions
dated December 31, 1996 - filed January 15, 1997.
Acquisition of five properties from three limited
partnerships through three exchange transactions
dated December 31, 1996 - filed January 15, 1997, and
Amendment No.1 thereto filed March 14, 1997.
Announcement of the Company's intentions regarding
legal proceedings with Ross Stores, Inc. dated
February 4, 1997 - Item 5 - Other Events - filed
February 6, 1997.
Sale of 700,000 shares of the Company's Class A
Senior Cumulative Convertible Preferred Stock (the
"Preferred Stock") pursuant to an Investment
Agreement between the Company and Five Arrows Realty
Securities L.L.C. for the sale of up to 2,000,000
shares of the Company's Preferred Stock, dated
January 21, 1997 - filed February 10, 1997.
<PAGE> 19
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: May 15, 1997 By:
--------------------- /s/ E. Robert Roskind
--------------------------------------------
E. Robert Roskind
Chairman and Co-Chief Executive Officer
Date: May 15, 1997 By:
--------------------- /s/ Paul R. Wood
---------------------------------------------
Paul R. Wood
Vice President and Chief Accounting Officer
<PAGE> 1
Exhibit 11
Schedule of Computations of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ending
March 31, 1997
PRIMARY
<S> <C>
Net income for primary earnings per common share $ 1,344,667
===========
Weighted average number of common shares outstanding 9,433,799
Add: common share equivalents (determined using
the "treasury stock" method) representing shares issuable
upon exercise of employee stock options 122,961
Add: common share equivalents (determined using
the "treasury stock" method) representing shares issuable
upon conversion of limited partnership units 374,775
-----------
Weighted average number of shares used in calculation
of primary earnings per share 9,931,535
===========
Primary earnings per share $ 0.14
===========
FULLY DILUTED
Net income attributable to common stock $ 1,344,667
Add: minority interests attributed to limited
partnership units assuming conversion of such units
(estimate) 200,000
-----------
Net income fully diluted earnings per share $ 1,544,667
===========
Weighted average number of shares used in calculation
of primary earnings per share 9,931,535
Add incremental shares representing:
Shares issuable upon conversion of limited partnership
units not in primary earnings per share calculation 2,035,226
Weighted average number of shares used in calculation
of fully diluted earnings per share 11,966,761
===========
Fully diluted earnings per share $ 0.13
===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AS CONTAINED IN THE COMPANY'S
10-Q FOR MARCH 31, 1997. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,318,196
<SECURITIES> 0
<RECEIVABLES> 8,022,878
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 369,740,141
<DEPRECIATION> (53,803,498)
<TOTAL-ASSETS> 340,120,677
<CURRENT-LIABILITIES> 0
<BONDS> 205,701,814
0
70
<COMMON> 944
<OTHER-SE> 99,950,873
<TOTAL-LIABILITY-AND-EQUITY> 340,120,677
<SALES> 0
<TOTAL-REVENUES> 9,824,207
<CGS> 0
<TOTAL-COSTS> 2,678,948
<OTHER-EXPENSES> 194,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,240,097
<INCOME-PRETAX> 1,772,335
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,510,450
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,510,450
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.15
</TABLE>
