<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee required]
For the fiscal year ended December 31, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee required]
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) dentification No.)
355 Lexington Avenue
New York, NY 10017
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 692-7260
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------------------ -----------------------
Common Stock, par value $.0001 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 28, 1997 was $117,605,477.
Number of shares of common stock outstanding as of February 28, 1997 was
9,439,716. Number of shares of preferred stock outstanding as of February 28,
1997 was 700,000.
Documents incorporated by reference: The Definitive Proxy Statement for
Registrant's 1997 Annual Meeting of Stockholders is incorporated herein by
reference into Part III.
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PART I.
Forward-Looking Statements
When used in this Form 10-K Report, the words "believes," "expects," "estimates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially. In particular, among the factors that could
cause actual results to differ materially are continued qualification as a real
estate investment trust, general business and economic conditions, competition,
increases in real estate construction costs, interest rates, accessibility of
debt and equity capital markets and other risks inherent in the real estate
business including tenant defaults, potential liability relating to
environmental matters and illiquidity of real estate investments. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
ITEM 1. BUSINESS
General
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.
As of December 31, 1996, the Company's real property portfolio consisted of
thirty-eight properties (or interests therein) (the "Properties") located in
twenty-three states, including warehousing, distribution and manufacturing
facilities, office buildings and retail properties. The Company's real estate
investments contain an aggregate of approximately 5.2 million net rentable
square feet of space. All of the Company's Properties are subject to triple net
leases, which are generally characterized as leases in which the tenant bears
all, or substantially all, of the costs and cost increases for real estate
taxes, insurance and ordinary maintenance. The Company also has ownership
interests of 33.85% and 19% in two partnerships whose real estate assets each
consist of a property subject to a triple net lease. These two properties
consist of an aggregate of 217,000 square feet of net rentable space. For the
years ended December 31, 1996, 1995 and 1994, the Company's Properties generated
consolidated rental revenue of approximately $31,244,000, $24,523,000 and
$25,894,000, respectively. The Properties are more fully described in Item 2
below.
Of the thirty-eight Properties indirectly or directly owned by the Company only
the three following properties accounted for 10% or more of consolidated rental
revenues for the years ended December 31:
Property 1996 1995 1994
-------- ---- ---- ----
Glendale, Arizona 8% 13% 13%
Newark, California 10% 13% 13%
Salt Lake City, Utah 16% - -
Objectives and Strategy
The Company's objective is to generate quarterly dividends for the holders of
shares of Common Stock. The Company's strategy is to attempt to increase its
operating cash flow available for dividends, both through internal measures and,
externally, through the acquisition of new real property investments. The
Company expects that its future real property investments will likely be
structured as equity or mortgage debt investments in commercial properties
subject to triple net leases, although the Company also has authority to make a
variety of other real estate or real estate-related investments such as in the
securities of other entities that own real estate.
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Competition
The real estate business is highly competitive and the Company competes with
numerous established companies having significant resources and experience.
Environmental Matters
Under various federal, state and local environmental laws, statutes, ordinances,
rules and regulations, an owner of real property may be liable for the costs of
removal or redemption of certain hazardous or toxic substances at, on, in or
under such property as well as certain other potential costs relating to
hazardous or toxic substances (including government fines and penalties and
damages for injuries to persons and adjacent property). Such laws often impose
liability without regard to whether the owner knew of, or was responsible for,
the presence or disposal of such substances. Although the Company's tenants are
primarily responsible for any environmental damage and claims related to the
leased premises, in the event of the bankruptcy or inability of the tenant of
such premises to satisfy any obligations with respect thereto the Company may be
required to satisfy such obligations. In addition, under certain environmental
laws, the Company, as the owner of such properties, may be held directly liable
for any such damages or claims irrespective of the provisions of any lease.
From time to time, in connection with the conduct of the Company's business, and
prior to the acquisition of any property from a third party or as required by
the Company's financing sources, the Company authorizes the preparation of Phase
I environmental reports with respect to its properties. Based upon such
environmental reports and management's ongoing review of its properties, as of
the date of this Report, management was not aware of any environmental condition
with respect to any of the Company's properties which management believed would
be reasonably likely to have a material adverse effect on the Company. There can
be no assurance, however, that (i) the discovery of environmental conditions,
the existence or severity of which were previously unknown, (ii) changes in law,
(iii) the conduct of tenants or (iv) activities relating to properties in the
vicinity of the Company's properties will not expose the Company to material
liability in the future. Changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions may result in significant unanticipated
expenditures or may otherwise adversely affect the operations of the Company's
tenants, which would adversely affect the Company's funds from operations.
Employees
As of December 31, 1996, the Company had a total of twenty-one employees.
ITEM 2. PROPERTIES
As of December 31, 1996, the net book value of the Company's real property
portfolio totaled approximately $288,068,000. The Company does not believe that
historical book value is necessarily indicative of current fair market value. As
of December 31, 1996, thirty-seven of the thirty-eight Properties were subject
to outstanding mortgages, including accrued and unpaid interest as of such date,
of approximately $186,188,000. On January 22, 1997, the outstanding principal
balances of mortgages secured by four properties, in an aggregate amount of
$7,996,817, were repaid in full.
1996 Property Acquisitions:
During 1996, the Company made the following acquisitions:
o On May 22, 1996, the Company, through LCIF, acquired the headquarters of
Northwest Pipeline Corporation in exchange for an aggregate of 1,715,294
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 from the selling
partnership, and
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9,000 shares of Lexington common stock were issued to such affiliates in
exchange for accrued but unpaid management fees. The holders of the 114,006
units will have the same conversion rights as described above, and will
receive a quarterly distribution of $0.27 per unit (or $1.08 per annum).
The holders of the 9,000 shares of common stock will be entitled to
quarterly dividend payments as common stockholders. Total assets acquired
and total liabilities assumed in the exchange were approximately $56.9
million and $38.5 million, respectively. The consolidated statement of
income for the year ended December 31, 1996 includes 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, and is scheduled to increase on October 1, 1997. The
property is subject to two mortgage notes which had a total outstanding
principal balance of approximately $35.6 million as of December 31, 1996.
o 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 (the "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.
o On December 23, 1996, the Company acquired three industrial properties for
approximately $14.7 million.
Two of the properties, located in Plymouth, Michigan and Oberlin, Ohio,
were acquired for $11.3 million and are net-leased to Johnson Controls,
Inc. for a term of ten years. The annual base rent is $1.14 million, or
approximately 10.08% of the aggregate purchase price, and will be adjusted
annually by three times the percentage increase in the Consumer Price
Index, not to exceed 4.5% per annum. The two properties total 245,320
square feet. The aggregate purchase price and related acquisition costs of
these two properties were satisfied with funds from a draw on the Company's
Credit Facility.
The third acquired property, totaling 72,868 square feet and located in
Franklin, North Carolina, is net-leased to SKF USA for a term of
approximately 18 years. The purchase price was approximately $3.4 million.
The annual base rent is $322,397, or approximately 9.46% of the purchase
price, and will increase every three years by the percentage increase in
the Consumer Price Index, not to exceed 3% per annum. The purchase price
and related acquisition costs were satisfied by temporary financing in the
form of a bridge loan in the amount of approximately $2.8 million, and
cash.
o On December 31, 1996, the Company, through LCIF, simultaneously
acquired five properties from three partnerships, in exchange for special
limited partnership units in LCIF. These units become convertible into the
Company's common stock on a one-for-one basis on various dates. The
unitholders will receive a quarterly distribution of up to $0.28 per unit
(or $1.12 per unit per annum), beginning on various dates, subject to
decrease by an amount proportionate to any decrease in distributions on
shares of the Company's common stock.
Additionally, 51,092 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 fees for services rendered in
connection with the acquisition of the properties. The affiliated holders
of these units will have the same conversion rights as previously
described, with the initial date for eligible conversion being January 15,
1999, subsequently convertible annually on each January 15 thereafter.
These affiliated unitholders will also receive quarterly distributions as
previously described.
The three partnerships involved in the transaction were Toy Properties
Associates II ("Toy II"), Toy Properties Associates V ("Toy V") and Fort
Street Partners ("Fort Street"). Details of the acquisitions involving the
three respective partnerships follows.
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In the Toy II transaction, the Company acquired three retail stores located
in Tulsa, Oklahoma; Clackamas, Oregon; and Lynwood, Washington; (the "Toy
II Properties") containing an aggregate of 129,070 square feet and leased
to Toys `R' Us, Inc. under triple net leases which expire on May 31, 2006
and which are subject to five, five-year renewal options. The current
annual aggregate rent is approximately $1,067,000. As of December 31, 1996,
the Toy II Properties were subject to mortgage notes with an outstanding
aggregate principal balance of $5,827,758, bearing interest at a rate of
12.625% per annum. On January 22, 1997, the aggregate principal balance of
these notes, in the amount of $5,801,069, plus an aggregate prepayment
premium of approximately $377,000, were all paid in full.
In the consummation of the Toy II transaction, 72,580 LCIF units were
transferred to the limited and general partners of Toy II, and 22,420 units
were transferred to affiliates of the Company in exchange for their
contractual rights to fees from Toy II. The distribution rights on these
units began immediately and the initial date for eligible conversion is
January 15, 1999, with conversions permissible annually on each January 15
thereafter.
In the Toy V transaction, the Company acquired a 123,293 square foot
distribution center located in Houston, Texas, (the "Toy V Property")
leased to Toys `R' Us, Inc. under a triple net lease which expires on
August 31, 2006, and which is subject to five, five-year renewal options.
The current annual rent is approximately $400,000. As of December 31, 1996,
the Toy V Property was subject to a mortgage note with an outstanding
principal balance of $2,195,746, bearing interest at a rate of 12.625% per
annum. On January 22, 1997, the aggregate principal balance plus a
prepayment premium of approximately $143,000 were paid in full.
In the consummation of the Toy V transaction, 23,587 LCIF units were
transferred to the limited and general partners of Toy V, and 11,413 units
were transferred to affiliates of the Company in exchange for their
contractual rights to fees from Toy V. The distribution and conversion
rights on these units are identical to those in the Toy II transaction,
previously described.
In the Fort Street transaction, the Company acquired an 85,610 square foot
retail facility located in Honolulu, Hawaii (the "Fort Street Property"),
leased to Liberty House, Inc. under a triple net lease which expires on
September 30, 2009, and which is subject to one 115 month renewal option,
one two-year renewal option and three five-year renewal options. The
current annual rent is approximately $963,000. As of December 31, 1996, the
Fort Street Property was subject to a mortgage note with an outstanding
principal balance of $6,189,675, bearing interest at 10.25% per annum.
Equal monthly payments of interest and principal sufficient to fully
amortize the note by September 30, 2010 are required.
In the consummation of the Fort Street transaction, 207,741 LCIF units were
transferred to limited and general partners of Fort Street. The
distribution and conversion rights on these units are the same as
previously described in the Toy II transaction except that the holders of
these units do not begin to receive distributions and do not become
eligible to convert their units until January 15, 2006. Additionally,
17,259 units were transferred to affiliates of the Company in exchange for
their contractual rights to fees from Fort Street. The distribution and
conversion rights (and applicable dates) on these units are identical to
those in the Toy II and Toy V transactions, previously described.
Information Regarding Properties Representing in Excess of 10% of Rental
Revenue:
Glendale, Arizona Property
The Glendale, Arizona property (the "Glendale Property") is a 252,300 square
foot research and development facility built in 1985 and located on 51.79 acres
at 19019 N. 59th Avenue in Glendale, Arizona. The Glendale Property is owned in
fee simple title and is pledged as collateral under the Company's Credit
Facility. The Glendale Property has been 100% occupied by Honeywell, Inc., for
the last five years pursuant to a triple net lease which expires on July 15,
2001, subject to four, five-year renewal options. As of December 31, 1995, the
annual net rent from this property was $3,840,000 ($15.22 per square foot) and
decreased to $1,892,250 commencing on July 16, 1996 as a result of a lease
amendment signed in 1995 pertaining to the renewal periods. The net lease
requires the tenant to pay for all property operating expenses,
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including maintenance, insurance charges and real estate taxes. In the opinion
of management, the Glendale Property is adequately covered by insurance.
Additional information regarding the Glendale Property is as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Occupancy 100% 100% 100% 100% 100%
Number of tenants 1 1 1 1 1
Annual straight-line
rental revenue $2,648,801 $3,248,776 $3,248,776 $3,248,776 $3,248,776
Rent per square
foot $ 10.50 $ 12.88 $ 12.88 $ 12.88 $ 12.88
Percentage of con-
solidated rental
revenue 8% 13% 13% 13% 13%
</TABLE>
Newark, California Property
The Newark, California property (the "Newark Property") is a 525,056 square foot
office/warehouse facility built in 1984-85 and located on 23.16 acres at 8333
and 8311 Central Avenue, in Newark, California. The Newark Property is owned in
fee simple title and is pledged as collateral for the debt incurred under the
$70 million secured debt offering completed in May 1995 (the "REMIC Financing").
This debt, which is secured by fifteen properties, had an outstanding balance of
$68,804,233 at December 31, 1996, of which $15,726,458 is allocated to the
Newark Property. The Newark Property has been 100% occupied by Ross Stores, Inc.
for the last five years pursuant to a triple net lease which expires on August
31, 2002, subject to six, five-year renewal options. Ross Stores, Inc. has
exercised an option to purchase the property for its fair market value.
California state court ruled in favor of the tenant's motion to confirm an
arbitration decision which would allow the tenant to purchase the property for
$24.8 million on or about September 1, 1997. This motion was confirmed and the
Company is appealing the decision, the outcome of which cannot be determined.
The net book value of the assets related to the Newark Property at December 31,
1996 is $25,690,333, which includes approximately $989,000 of straight-line rent
receivable and approximately $559,000 of deferred expenses related to the REMIC
Financing allocated to the Property. If the Company does not prevail on its
appealing of the decision, the potential loss on the property would be
approximately $430,000. As of December 31, 1996, the annual net rent for this
property was $3,255,492 ($6.20 per square foot) and is scheduled to increase to
$3,442,404 ($6.56 per square foot) commencing September 1, 1997. The net lease
requires the tenant to pay for all property operating expenses, including
maintenance, insurance charges and real estate taxes. In the opinion of
management, the Newark Property is adequately covered by insurance.
Additional information regarding the Newark Property is as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Occupancy 100% 100% 100% 100% 100%
Number of tenants 1 1 1 1 1
Annual straight-line
rental revenue $3,242,364 $3,242,364 $3,242,364 $3,242,364 $3,242,364
Rent per square
foot $ 6.37 $ 6.37 $ 6.37 $ 6.37 $ 6.37
Percentage of con-
solidated rental
revenue 10% 13% 13% 13% 13%
</TABLE>
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Salt Lake City, Utah Property
The Salt Lake City, Utah property (the "Utah Property") acquired on May 22, 1996
is a 295,000 square foot office facility and 600 car parking garage built in
1982 and located on 19.79 acres at 295 Chipeta Way, Salt Lake City, Utah. The
Utah Property was acquired on May 22, 1996 in an exchange transaction involving
a partnership, with the limited and general partners of the partnership
receiving special limited partnership units in LCIF. In the transaction, the
Company assumed the debt on the Property, consisting of two notes, which had an
outstanding aggregate balance of approximately $35.6 million at December 31,
1996. The Property has been 100% occupied by Northwest Pipeline Corp., as its
corporate headquarters, for the last five years pursuant to a triple net lease
which expires on September 30, 2009, subject to one nine-year and one ten-year
renewal option. The tenant has an option to purchase the Utah Property for its
fair market value, which option may be exercised on September 30, 2009, the end
of the primary lease term. As of December 31, 1996, the annual net rent for this
property was approximately $8.16 million ($27.68 per square foot) subject to a
CPI adjustment commencing October 1, 1997. The net lease requires the tenant to
pay for all property operating expenses, including maintenance, insurance
charges and real estate taxes. In the opinion of management, the Utah Property
is adequately covered by insurance.
Additional information regarding the Utah Property is as follows:
1996
----
Occupancy 100%
Number of tenants 1
Annual straight-line
rental revenue
(from acquisition date,
May 22,1996 to
December 31, 1996) $5,102,884
Rent per square
foot $ 27.68
Percentage of con-
solidated rental
revenue 16%
Additional information regarding the Glendale Property, the Newark Property and
the Salt Lake City Property is set forth in Schedule III to this report on Form
10-K.
Table Regarding Real Estate Holdings:
The table on the following pages sets forth certain information relating to the
Company's real property portfolio:
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<TABLE>
<CAPTION>
PROPERTY TYPE/ NET
TENANT / YEAR LAND AREA RENTABLE
PROPERTY LOCATION (GUARANTOR) CONSTRUCTED (ACRES) SQUARE FEET
- -------------------------- ---------------------- -------------------- -------------- -------------
<S> <C> <C> <C> <C>
8333 & 8311 Central Ave. Ross Stores, Inc. Office/Warehouse 23.16 525,056
Newark, CA 1984 - 1985
3350 Miac Cove Rd. Federal Express Office/Industrial 10.92 141,359
Memphis, TN Corp. 1987
3615 North 27th Ave. Bank One, Office 10.26 179,280
Phoenix, AZ Arizona, N.A. 1960 & 1979
Tappan Park White Consolidated Warehouse/ 26.57 296,720
22 Chambers Rd. Industries Distribution
Mansfield, OH 1970
55 Fairbanks Stratus Computer, Office/Research/ 17.02 202,087
Marlborough, MA Inc. Development
1988
904 Industrial Rd. Walker Manufacturing Office/Industrial 20.00 195,640
Marshall, MI Company 1968 & 1972
(Tenneco
Automotive, Inc.)
1601 Pratt Ave. Walker Manufacturing Office/Industrial 8.26 53,600
Marshall, MI Company (Tenneco 1979
Automotive, Inc.)
19019 No. 59th Ave. Honeywell, Inc. Research/ 51.79 252,300
Glendale, AZ Development
1985
567 South Riverside Dr. Crown Cork & Seal Warehouse/ 5.80 146,000
Modesto, CA Company, Inc. Manufacturing
1970 & 1976
10419 North 30th St. Time, Inc. Office 14.38 132,981
Tampa, FL 1986
<CAPTION>
MINIMUM RENT STRAIGHT-LINE
BASE LEASE TERM AND ANNUAL RENTS RENEWAL COLLECTIBLE RENTAL
PROPERTY LOCATION PER NET RENTABLE SQUARE FOOT OPTIONS IN 1997 REVENUE IN 1997
- -------------------------- ------------------------------------ ----------------- ------------ ------------------------
<S> <C> <C> <C> <C>
8333 & 8311 Central Ave. 11/01/86 - 08/31/02 (6) 5 year $2,170,328 $2,170,328
Newark, CA 09/01/92 - 08/31/97: $ 6.20 *
09/01/97 - 08/31/02: $ 6.56
3350 Miac Cove Rd. 02/01/88 - 01/31/98 (1) 5 year $1,284,948 $1,185,780
Memphis, TN 02/01/93 - 01/31/98: $ 9.09
3615 North 27th Ave. 11/30/88 - 11/30/98 (2) 5 year $1,967,059 $1,967,059
Phoenix, AZ 12/01/93 - 05/31/96: $ 10.26
06/01/96 - 11/30/98: $ 10.97
Tappan Park 12/31/86 - 12/31/01 ** (2) 5 year $593,436 $593,436
22 Chambers Rd. 01/01/92 - 12/31/96: $ 1.75
Mansfield, OH 01/01/97 - 12/31/01: $ 2.00
55 Fairbanks 01/30/90 - 01/31/00 (2) 10 year $2,253,776 $2,253,776
Marlborough, MA 02/01/95 - 01/31/00: $ 11.15
904 Industrial Rd. 08/18/87 - 08/17/00 none $461,238 $434,148
Marshall, MI 08/18/94 - 08/17/97: $ 2.28
08/18/97 - 08/17/00: $ 2.49 ***
1601 Pratt Ave. 08/18/87 - 08/17/00 none $157,909 $148,631
Marshall, MI 08/18/94 - 08/17/97: $ 2.85
08/18/97 - 08/17/00: $ 3.11 ***
19019 No. 59th Ave. 07/16/86 - 07/15/01 (4) 5 year $1,892,250 $1,892,250
Glendale, AZ 07/16/92 - 07/15/96: $ 15.22
07/16/96 - 07/15/01: $ 7.50
567 South Riverside Dr. 09/26/86 - 09/25/01 (1) 5 year $293,460 $293,460
Modesto, CA 09/26/86 - 09/25/96: $ 2.74
09/26/96 - 09/25/01: $ 2.01
10419 North 30th St. 04/1/87 - 03/31/02 (4) 5 Year $1,102,412 $1,098,549
Tampa, FL 01/01/96 - 12/31/96: $ 7.82
01/01/97 - 12/31/97: $ 8.29
01/01/98 - 12/31/98: $ 8.78
01/01/99 - 12/31/99: $ 9.31
01/01/00 - 12/31/00: $ 9.87
01/01/01 - 12/31/01: $ 10.46
01/01/02 - 03/31/02: $ 11.09
</TABLE>
* The tenant has exercised an option to purchase the Property for its fair
market value on or before September 1, 1997. The California state court ruled in
favor of the tenant's motion to confirm an arbitration decision which would
allow the tenant to purchase the property for $24.8 million on or about that
date. The Company is appealing the decision.
** Effective March 1, 1999, the tenant may cancel this lease upon 12 months
notice (by March 1, 1998) and pay a cancellation penalty of $197,812, equal to
four months rent.
*** Minimum rent due for second renewal. Actual rent will be equal to the
greater of the minimum rent or the CPI adjusted rent.
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<TABLE>
<CAPTION>
PROPERTY TYPE/ NET
TENANT / YEAR LAND AREA RENTABLE
PROPERTY LOCATION (GUARANTOR) CONSTRUCTED (ACRES) SQUARE FEET
- -------------------------- ---------------------- -------------------- -------------- -------------
<S> <C> <C> <C> <C>
3102 Queen Palm Dr. Time Customer Office/Warehouse 15.02 229,605
Tampa, FL Service, Inc. 1986
(Time, Inc.)
109 Stevens St. Unisource Warehouse/ 7.00 168,800
Jacksonville, FL Worldwide, Inc. Industrial
1958 & 1969
9580 Livingston Rd. GFS Realty, Inc. Retail 10.60 107,337
Oxon Hill, MD (Giant Food, Inc.) 1976
Amigoland Shopping Ctr. Montgomery Ward Retail 7.61 115,000
(Mexico St. & Palm Blvd.) & Co., Inc. 1973
Brownsville, TX
Rockshire Village Ctr. GFS Realty, Inc. Retail 7.32 51,682
West Ritchie Pkway. (Giant Food, Inc.) 1977
Rockville, MD
200 Southington Exec. The Hartford Fire Office 12.40 153,364
Park, Southington, CT Insurance Company 1983
24100 Laguna Hills Mall Federated Retail 11.00 160,000
Laguna Hills, CA Department 1974
Stores, Inc.
6910 S. Memorial Hwy. Toys "R" Us, Inc. Retail 4.44 43,123
Tulsa, OK 1981
12535 SE 82nd Ave. Toys "R" Us, Inc. Retail 5.85 42,842
Clackamas, OR 1981
18601 Alderwood Mall Blvd. Toys "R" Us, Inc. Retail 3.64 43,105
Lynnwood, WA 1981
West Wingfoot Rd. Toys "R" Us, Inc. Industrial 7.56 123,293
Houston, TX 1981
46600 Port St. Johnson Controls, Industrial 24.00 134,160
Plymouth, MI Inc. 1996
<CAPTION>
MINIMUM RENT STRAIGHT-LINE
BASE LEASE TERM AND ANNUAL RENTS RENEWAL COLLECTIBLE RENTAL
PROPERTY LOCATION PER NET RENTABLE SQUARE FOOT OPTIONS IN 1997 REVENUE IN 1997
- -------------------------- ------------------------------------ ----------------- ------------ ----------------------
<S> <C> <C> <C> <C>
3102 Queen Palm Dr. 08/1/87 - 07/31/02 (1) 5 year $913,828 $799,537
Tampa, FL 08/01/94 - 07/31/96: $ 3.87
08/01/96 - 07/31/98: $ 3.98
08/01/98 - 07/31/01: $ 4.16
08/01/01 - 07/31/02: $ 4.39
109 Stevens St. 10/01/87 - 09/30/02 none $354,480 $334,311
Jacksonville, FL 10/01/92 - 09/30/97: $ 2.05
10/01/97 - 09/30/02: $ 2.25
9580 Livingston Rd. 01/03/77 - 02/29/04 (6) 5 year $408,360 $407,388
Oxon Hill, MD 03/01/77 - 02/29/04: $ 3.80
Amigoland Shopping Ctr. 11/01/74 - 10/31/04 (3) 5 year $152,760 $152,364
(Mexico St. & Palm Blvd.) 1/01/74 - 10/31/04: $ 1.33
Brownsville, TX
Rockshire Village Ctr. 01/01/78 - 02/28/05 (1) 12 year $224,020 $224,020
West Ritchie Pkway. 01/01/78 - 02/28/05: $ 4.33 (2) 10 year
Rockville, MD
200 Southington Exec. 09/01/91 - 12/31/05 (1) 5 year $2,165,500 $2,008,540
Park, Southington, CT 01/01/95 - 12/31/05: $ 14.12
24100 Laguna Hills Mall 02/01/76 - 01/31/06 (1) 8 year $676,602 $673,464
Laguna Hills, CA 02/01/80 - 01/31/06: $ 4.23 (2) 15 year
(1) 6 year
6910 S. Memorial Hwy. 06/01/81 - 05/31/06 (5) 5 year $326,925 $356,001
Tulsa, OK 06/01/86 - 01/31/98: $ 7.58
02/01/98 - 05/31/01: $ 8.26
06/01/01 - 05/31/06: $ 8.40
12535 SE 82nd Ave. 06/01/81 - 05/31/06 (5) 5 year $382,783 $417,091
Clackamas, OR 07/01/94 - 01/31/98: $ 8.93
02/01/98 - 05/31/01: $ 9.74
06/01/01 - 05/31/06: $ 9.91
18601 Alderwood Mall Blvd. 06/01/81 - 05/31/06 (5) 5 year $357,331 $389,027
Lynnwood, WA 06/01/86 - 01/31/98: $ 8.29
02/01/98 - 05/31/01: $ 9.03
06/01/01 - 05/31/06: $ 9.18
West Wingfoot Rd. 09/01/81 - 08/31/06 (5) 5 year $400,200 $478,450
Houston, TX 09/01/87 - 04/30/98: $ 3.25
05/01/98 - 08/31/06: $ 3.98
46600 Port St. 12/23/96 - 12/22/06 (2) 5 year $648,801 $648,801
Plymouth, MI 12/23/96 - 12/22/97: $ 4.84
12/23/97 - 12/22/06:
adjusted by increase in
the Consumer Price Index
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
PROPERTY TYPE/ NET
TENANT / YEAR LAND AREA RENTABLE
PROPERTY LOCATION (GUARANTOR) CONSTRUCTED (ACRES) SQUARE FEET
- -------------------------- ---------------------- -------------------- -------------- -------------
<S> <C> <C> <C> <C>
450 Stern St. Johnson Controls, Industrial 25.2 111,160
Oberlin, OH Inc. 1996
5917 South La Grange Rd. Bally Total Fitness Retail/ 2.73 25,250
Countryside, IL Corp. Health Club
1987
1160 White Horse Rd. Physical Fitness Retail/ 2.87 31,750
Voorhees, NJ Centers of Health Club
Philadelphia, Inc. 1987
(Bally Total Fitness
Corp.)
5801 Bridge St. Bally Total Fitness Retail/ 3.66 24,990
DeWitt, NY Corp. Health Club
1977 & 1987
2655 Shasta Way Fred Meyer, Inc. Retail 13.90 178,204
Klamath Falls, OR 1986
7272 55th St. Circuit City Retail 3.93 45,308
Sacramento, CA Stores, Inc. 1988
6405 South Viriginia St Circuit City Retail 2.72 31,400
Reno, NV Stores, Inc. 1988
5055 West Sahara Ave. Circuit City Retail 2.57 36,053
Las Vegas, NV Stores, Inc. 1988
4733 Hills & Dales Scandinavian Retail/ 3.32 37,214
Canton, OH Health Spa, Inc. Health Club
(Bally Total Fitness 1987
Holding Corp.)
Highway 21 South Wal-Mart Stores, Retail 5.21 56,132
Jacksonville, AL Inc. 1982
295 Chipeta Way Northwest Pipeline Office 19.79 295,000
Salt Lake City, UT Corp. 1982
King St. (Fort Street Mall) Liberty House, Inc. Retail 1.22 85,610
Honolulu, HI 1980
<CAPTION>
MINIMUM RENT STRAIGHT-LINE
BASE LEASE TERM AND ANNUAL RENTS RENEWAL COLLECTIBLE RENTAL
PROPERTY LOCATION PER NET RENTABLE SQUARE FOOT OPTIONS IN 1997 REVENUE IN 1997
- -------------------------- ------------------------------------ ----------------- ------------ ----------------------
<S> <C> <C> <C> <C>
450 Stern St. 12/23/96 - 12/22/06 (2) 5 year $491,042 $491,042
Oberlin, OH 12/23/96 - 12/22/97: $ 4.42
12/23/97 - 12/22/06:
adjusted by increase in
the Consumer Price Index
5917 South La Grange Rd. 07/13/87 - 07/12/07 (2) 5 year $534,037 $541,781
Countryside, IL 07/13/92 - 07/12/97: $ 19.77
07/13/97 - 07/12/02: $ 22.73
07/13/02 - 07/12/07: $ 26.14
1160 White Horse Rd. 07/14/87 - 07/13/07 (2) 5 year $662,981 $672,857
Voorhees, NJ 07/14/92 - 07/13/97 $ 19.52
07/14/97 - 07/13/02: $ 22.45
07/14/02 - 07/13/07: $ 25.82
5801 Bridge St. 08/19/87 - 08/18/07 (2) 5 year $407,652 $419,444
DeWitt, NY 08/19/92 - 08/18/97: $ 15.46
08/19/97 - 08/18/02: $ 17.78
08/19/02 - 08/18/07: $ 20.45
2655 Shasta Way 03/10/88 - 03/31/08 (3) 10 year $1,009,375 $1,009,375
Klamath Falls, OR 03/10/88 - 03/31/08: $ 5.66
7272 55th St. 10/28/88-10/27/08 (3) 10 year $352,580 $375,798
Sacramento, CA 10/28/93-10/27/98: $ 7.78
10/28/98-10/27/03: $ 8.54
10/28/03-10/27/08: $ 9.30
6405 South Viriginia St 12/16/88 - 12/15/08 (3) 10 year $304,794 $324,866
Reno, NV 12/16/93 - 12/15/98: $ 9.71
12/16/98 - 12/15/03: $ 10.65
12/16/03 - 12/15/08: $ 11.60
5055 West Sahara Ave. 12/16/88 - 12/15/08 (3) 10 year $260,560 $277,719
Las Vegas, NV 12/16/93 - 12/15/98: $ 7.23
12/16/98 - 12/15/03: $ 7.93
12/16/03 - 12/15/08: $ 8.64
4733 Hills & Dales 01/01/89 - 12/31/08 (2) 5 year $612,692 $685,387
Canton, OH 01/01/96 - 12/31/96: $ 16.11
01/01/97 - 12/31/97: $ 16.46
2.2% annual escalations
thereafter
Highway 21 South 08/31/83 - 01/31/09 (5) 5 year $146,040 $146,040
Jacksonville, AL 09/01/87 - 01/31/09: $ 2.60
295 Chipeta Way 10/01/82 - 09/30/09 (1) 9 year $8,266,357 $8,266,357
Salt Lake City, UT 10/01/95 - 09/30/97: $ 27.68 (1) 10 year
10/01/97 - 09/30/09: $ 29.06
subject to a CPI adjustment
on a portion of the rent.
King St. (Fort Street Mall) 10/01/80 - 09/30/09 (1) 9 yrs 7 mos $962,981 $971,340
Honolulu, HI 10/01/95 - 09/30/05: $ 11.25 (1) 2 year
10/01/05 - 09/30/09: $ 11.56 (3) 5 year
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
PROPERTY TYPE/ NET
TENANT / YEAR LAND AREA RENTABLE
PROPERTY LOCATION (GUARANTOR) CONSTRUCTED (ACRES) SQUARE FEET
- -------------------------- ---------------------- -------------------- -------------- -------------
<S> <C> <C> <C> <C>
7055 Highway 85 South Wal-Mart Stores, Retail 8.61 81,911
Riverdale, GA Inc. 1985
Highway 101 Fred Meyer, Inc. Retail 8.81 118,179
Newport, OR 1986
6345 Brackbill Blvd. Exel Logistics, Warehouse/ 29.01 507,000
Mechanicsburg, PA Inc. (NFC plc) Distribution
1985 & 1991
Industrial Blvd. SKF USA, Inc. Manufacturing 21.13 72,868
Franklin, NC 1996
------------- -------------
459.28 5,235,363
============= =============
<CAPTION>
MINIMUM RENT STRAIGHT-LINE
BASE LEASE TERM AND ANNUAL RENTS RENEWAL COLLECTIBLE RENTAL
PROPERTY LOCATION PER NET RENTABLE SQUARE FOOT OPTIONS IN 1997 REVENUE IN 1997
- -------------------------- ------------------------------------ ----------------- ------------ ----------------------
<S> <C> <C> <C> <C>
7055 Highway 85 South 12/04/85 - 01/31/11 (5) 5 year $269,770 $269,770
Riverdale, GA 12/04/85 - 01/31/11: $ 3.29
Highway 101 06/01/86 - 05/31/11 (3) 5 year $826,086 $826,086
Newport, OR 06/01/86 - 05/31/11: $ 6.99
plus .5% of gross sales in
excess of $20,000,000
($55,291 in 1996)
6345 Brackbill Blvd. 10/29/90 - 03/19/12 (2) 10 year $1,724,113 $1,933,440
Mechanicsburg, PA 11/20/95 - 03/19/97: $ 3.07
03/20/97 - 03/19/02: $ 3.49
03/20/02 - 03/19/07: $ 4.02
03/20/07 - 03/19/12:
greater of $4.62 or fair market
rent as specified in the lease
Industrial Blvd. 12/23/96 - 12/31/14 (3) 10 year $322,397 $322,397
Franklin, NC 12/23/96 - 12/31/99: $ 4.42
01/01/00 - 12/31/14:
adjusted by increase in the
Consumer Price Index
------------ ----------------------
$36,341,863 $36,460,110
============ ======================
</TABLE>
11
<PAGE> 12
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
<TABLE>
<CAPTION>
PROPERTY TYPE/ NET
TENANT YEAR LAND AREA RENTABLE
% OWNED PROPERTY LOCATION (GUARANTOR) CONSTRUCTED (ACRES) SQUARE FEET
- -------- -------------------------- ---------------------- -------------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
19.00% 4450 California Street Mervyn's Retail 11.00 122,000
Bakersfield, CA (Dayton Hudson Corp.) 1976
33.85% 7111 Westlake Terrace Hechinger & Co. Retail 7.61 95,000
Bethesda, MD 1980
------------- ---------------
18.61 217,000
============= ===============
<CAPTION>
MINIMUM RENT STRAIGHT-LINE
BASE LEASE TERM AND ANNUAL RENTS RENEWAL COLLECTIBLE RENTAL
% OWNED PROPERTY LOCATION PER NET RENTABLE SQUARE FOOT OPTIONS IN 1997 REVENUE IN 1997
- -------- -------------------------- ------------------------------------ ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
19.00% 4450 California Street 02/23/77 - 12/31/02 (5)5 year $406,948 $397,154
Bakersfield, CA 01/01/78 - 12/31/02: $ 3.34
33.85% 7111 Westlake Terrace 05/01/81 - 04/30/06 (1)10 year $772,382 $647,869
Bethesda, MD 05/01/96 - 04/30/96: $ 7.50 (3)5 year
05/01/96 - 04/30/06: $ 8.13
------------ -------------------
$1,179,330 $1,045,023
============ ===================
</TABLE>
12
<PAGE> 13
MINIMUM FUTURE RENT
Minimum future rents receivable under the leases during the base terms for the
properties owned by the Company at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
904 Industrial, 1601 Pratt,
Newark Memphis Phoenix Mansfield Marlborough Marshall Marshall Glendale
Year Property Property Property Property Property Property Property Property
- ----- ---------- ---------- ---------- ------------- ----------- --------------- ----------- -----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 2,170,328* 1,284,948 1,967,059 593,436 2,253,776 461,238 157,909 1,892,250
1998 107,079 1,803,137 593,436 2,253,776 487,144 166,696 1,892,250
1999 98,906** 2,253,776 487,144 166,696 1,892,250
2000 187,815 307,171 105,111 1,892,250
2001 1,103,812
---------- ---------- ---------- ------------- ----------- --------------- ----------- -----------
Total $2,170,328 $1,392,027 $3,770,196 $ 1,285,778 $ 6,949,143 $ 1,742,697 $ 596,412 $ 8,672,812
========== ========== ========== ============= =========== =============== =========== ===========
<CAPTION>
Modesto N. Tampa Tampa Jacksonville, Oxon Hill Brownsville Rockville Southington
Year Property Property Property Fla. Property Property Property Property Property
- ----- ---------- ---------- ---------- ------------- ----------- --------------- ----------- -----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 293,460 1,102,412 913,828 354,480 408,360 152,760 224,020 2,165,500
1998 293,460 1,167,573 931,044 379,800 408,360 152,760 224,020 2,165,500
1999 293,460 1,238,053 955,157 379,800 408,360 152,760 224,020 2,165,500
2000 293,460 1,312,522 955,157 379,800 408,360 152,760 224,020 2,165,500
2001 220,095 1,390,981 977,157 379,800 408,360 152,760 224,020 2,165,500
2002 368,690 587,980 284,850 408,360 152,760 224,020 2,165,500
2003 408,360 152,760 224,020 2,165,500
2004 68,060 127,300 224,020 2,165,500
2005 37,337 2,165,500
---------- ---------- ---------- ------------- ----------- --------------- ----------- -----------
Total $1,393,935 $6,580,231 $5,320,323 $ 2,158,530 $ 2,926,580 $ 1,196,620 $ 1,829,497 $19,489,500
========== ========== ========== ============= =========== =============== =========== ===========
</TABLE>
* The tenant has exercised an option to purchase the Property for
its fair market value on or before September 1, 1997. The
California state court ruled in favor of the tenant's motion to
confirm an arbitration decision which would allow the tenant to
purchase the property for $24.8 million on or about that date. The
Company is appealing the decision.
** Effective March 1, 1999, the tenant of the Mansfield
property may cancel this lease upon twelve months notice
and pay a lease cancellation penalty of $197,812, equal to
four months rent.
13
<PAGE> 14
MINIMUM FUTURE RENT
<TABLE>
<CAPTION>
Laguna Hills Tulsa Clackamas Lynwood Houston Plymouth Oberlin Illinois
Year Property Property Property Property Property Property Property Property
- ----- ------------ ---------- ---------- ------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 676,602 326,925 382,783 357,331 400,200 648,801 491,042 534,037
1998 676,602 353,665 414,335 386,480 460,713 648,801 491,042 573,965
1999 676,602 356,096 417,204 389,130 490,970 648,801 491,042 573,965
2000 676,602 356,096 417,204 389,130 490,970 648,801 491,042 573,965
2001 676,602 359,678 421,431 393,035 490,970 648,801 491,042 573,965
2002 676,602 362,237 424,450 395,825 490,970 648,801 491,042 614,143
2003 676,602 362,237 424,450 395,825 490,970 648,801 491,042 660,060
2004 676,602 362,237 424,450 395,825 490,970 648,801 491,042 660,060
2005 676,602 362,237 424,450 395,825 490,970 648,801 491,042 660,060
2006 56,384 150,932 176,854 164,927 327,313 648,801 491,042 660,060
2007 352,032
------------ ---------- ---------- ------------- ----------- --------------- ----------- -----------
Total $ 6,145,802 $3,352,340 $3,927,611 $ 3,663,333 $ 4,625,016 $ 6,488,010 $ 4,910,420 $ 6,436,312
============ ========== ========== ============= =========== =============== =========== ===========
New Jersey New York Klamath Falls Sacramento Reno Las Vegas Canton Alabama
Year Property Property Property Property Property Property Property Property
- ----- ---------- ---------- ------------- ------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 662,981 407,652 1,009,375 352,580 304,794 260,560 612,692 146,040
1998 712,828 444,360 1,009,375 357,735 305,753 261,380 626,172 146,040
1999 712,828 444,360 1,009,375 386,978 334,530 285,981 639,948 146,040
2000 712,828 444,360 1,009,375 386,978 334,530 285,981 654,027 146,040
2001 712,828 444,360 1,009,375 386,978 334,530 285,981 668,415 146,040
2002 762,428 468,800 1,009,375 386,978 334,530 285,981 683,120 146,040
2003 819,752 511,014 1,009,375 393,173 335,489 286,801 698,149 146,040
2004 819,752 511,014 1,009,375 421,376 364,266 311,401 713,508 146,040
2005 819,752 511,014 1,009,375 421,376 364,266 311,401 729,206 146,040
2006 819,752 511,014 1,009,375 421,376 364,266 311,401 745,248 146,040
2007 439,478 323,642 1,009,375 421,376 364,266 311,401 761,644 146,040
2008 252,345 347,320 353,100 301,356 778,400 146,040
2009 12,170
---------- ---------- ------------- ------------- ----------- --------------- ----------- -----------
Total $7,995,207 $5,021,590 $ 11,355,470 $ 4,684,224 $ 4,094,320 $ 3,499,625 $ 8,310,529 $ 1,764,650
========== ========== ============= ============= =========== =============== =========== ===========
</TABLE>
14
<PAGE> 15
MINIMUM FUTURE RENT
<TABLE>
<CAPTION>
Utah Honolulu Riverdale Newport Pennsylvania North Carolina
Year Property Property Property Property Property Property Total
- ----- -------------- ------------ ------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 8,266,357 962,981 269,770 826,086 1,724,113 322,397 36,341,863
1998 8,571,292 962,981 269,770 826,086 1,771,260 322,397 33,619,067
1999 8,571,292 962,981 269,770 826,086 1,771,260 322,397 31,443,518
2000 8,571,292 962,981 269,770 826,086 1,771,260 322,397 29,125,641
2001 8,571,292 962,981 269,770 826,086 1,771,260 322,397 27,790,302
2002 8,571,292 962,981 269,770 826,086 1,979,100 322,397 25,305,108
2003 8,571,292 962,981 269,770 826,086 2,036,952 322,397 24,289,898
2004 8,571,292 962,981 269,770 826,086 2,036,952 322,397 24,021,077
2005 7,958,295 969,642 269,770 826,086 2,036,952 322,397 23,048,396
2006 6,119,304 989,625 269,770 826,086 2,036,952 322,397 17,568,919
2007 6,119,304 989,625 269,770 826,086 2,275,966 322,397 14,932,402
2008 6,119,304 989,625 269,770 826,086 2,342,496 322,397 13,048,239
2009 4,589,478 742,219 269,770 826,086 2,342,496 322,397 9,104,616
2010 269,770 826,086 2,342,496 322,397 3,760,749
2011 22,481 344,202 2,342,496 322,397 3,031,576
2012 510,060 322,397 832,457
2013 322,397 322,397
2014 322,397 322,397
-------------- ------------ ------------ ------------ ------------ -------------- ------------
Total $ 99,171,086 $ 12,384,584 $ 3,799,261 $ 11,909,406 $ 31,092,071 $ 5,803,146 $317,908,622
============== ============ ============ ============ ============ ============== ============
</TABLE>
15
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
The Company was sued in the United States District Court for the Northern
District of Illinois on May 31, 1995, by United Municipal Leasing Corporation.
The complaint filed in this case alleges that the Company breached a letter of
intent by failing to execute definitive documentation and close a transaction in
which the plaintiff proposed to sell property to the Company. The complaint
seeks $800,000 in monetary damages. The Company believes that this suit is
without merit, and plans to vigorously defend its position and, in any case,
would not expect a material adverse effect on the Company in the event of a
negative outcome.
On August 26, 1996, Ross Stores, Inc., the tenant in the Newark Property,
exercised an option to purchase such Property for its fair market value. The
tenant filed a motion in California state court on February 19, 1997 to
confirm an arbitration decision which would allow the tenant to purchase the
Property for $24.8 million on or about September 1, 1997. On March 18,1997,
the California state court ruled in favor of the tenant's motion. The Company
is appealing the decision, the outcome of which cannot be determined.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
last quarter of the calendar year ended December 31, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information relating to the executive officers
of the Company:
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE
<S> <C>
E. ROBERT ROSKIND Mr. Roskind has served as the Chairman of the Board of
Age 52 Directors and Co-Chief Executive Officer of the Company since October 1993. He
founded The LCP Group, L.P. ("LCP") in 1973 and has been its Chairman since 1976.
Prior to founding LCP, Mr. Roskind headed the net-leasing financing area of Lehman
Brothers Inc. He is also currently serving as the Chairman of Net Lease Partners
Realty Advisors, Inc., a pension fund real estate advisory firm. He is also a general
partner for a variety of entities which serve as the general partner of various
partnerships that hold net leased real properties or interests therein. Mr. Roskind
is a director of Berkshire Realty Company, Inc., Krupp Government Income Trust I and
Krupp Government Income Trust II. Mr. Roskind received his B.S. in 1966 from the
University of Pennsylvania and is a 1969 Harlan Fiske Stone Graduate of the Columbia
Law School. He has been a member of the Bar of the State of New York since 1970.
RICHARD J. ROUSE Mr. Rouse has served as Co-Chief Executive Officer and a
Age 51 director of the Company since October 1993. He served as the President of the Company
from October 1993 to April 1996, and since April 1996 has served as the Vice
Chairman. Mr. Rouse was also a managing director of LCP. He had been associated with
LCP since 1979 and had been engaged there in all aspects of net lease finance,
acquisition and syndication and corporate financing transactions. Mr. Rouse graduated
from Michigan State University in 1968 and received his M.B.A. in 1970 from the
Wharton School of Finance and Commerce of the University of Pennsylvania.
T. WILSON EGLIN Mr. Eglin has served as Chief Operating Officer of the
Age 32 Company since October 1993 and a director since May 1994. He served as Executive Vice
President from October 1993 to April 1,1996, and since April 1996 has served as the
President.
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
Prior to his current position with the Company, Mr. Eglin had been
associated with LCP from 1987 to 1993 and had been its Vice President-Acquisitions
from 1990 to 1993. In connection with his responsibilities with LCP, Mr. Eglin was an
officer of affiliated companies that own and manage over 400 net leased real
properties and was involved in all aspects of real estate acquisition and finance,
principally in net leased transactions. Mr. Eglin received his B.A. from Connecticut
College in 1986.
ANTONIA G. TRIGIANI Ms. Trigiani has served as the Chief Financial Officer
Age 36 and Treasurer of the Company since October 1993. She had been associated with LCP
since 1989 and had been its Vice President - Asset Management since 1990 until
resigning from her position with LCP in April 1996. Prior to joining LCP, she was
associated with HRE Properties, a REIT listed on the New York Stock Exchange, and
Merrill Lynch, Hubbard Inc., a real estate division of Merrill Lynch & Co., Inc. In
1982, Ms. Trigiani received her B.A. in business administration from Saint Mary's
College at Notre Dame University.
PAUL R. WOOD Mr. Wood has served as the Vice President, Chief
Age 37 Accounting Officer and Secretary of the Company since October 1993. He had been
associated with LCP from 1988 to 1993 and from 1990 to 1993 had been responsible for
all accounting activities relating to the net leased properties managed by LCP and its
affiliates. Prior to joining LCP, Mr. Wood was, from 1987 to 1988, associated with E.
F. Hutton & Company Inc. as a senior accountant. Mr. Wood received his B.B.A. from
Adelphi University in 1982 and has been a Certified Public Accountant since 1985.
PETER J. KINNUNEN Mr. Kinnunen has served as Senior Vice President of the Company
Age 44 since October 1996. He had previously been associated with LCP from 1977 to 1988.
Prior to joining LCP, Mr. Kinnunen served as Managing Director of Lepercq, de Neuflize
& Co., Inc. an investment banking firm. Mr. Kinnunen received his B.A. from the
University of Virginia in 1974 and his M.B.A. from the Amos Tuck School at Dartmouth
College in 1977.
STEPHEN C. HAGEN Mr. Hagen has served as Senior Vice President of the Company
Age 54 since October 1996. Mr. Hagen had been associated with LCP from 1995 to 1996. Prior
to joining LCP, Mr. Hagen was a principal of Pharus Realty Investments, a money
manager focused on real estate stocks, and also served as Chief Operating Officer of
HRE Properties, a New York Stock Exchange listed REIT. Mr. Hagen received his B.S.
from the University of Kansas in 1965 and his M.B.A. from the Wharton School of
Finance and Commerce in 1968.
JANET M. KAZ Ms. Kaz has served as Vice President of the Company since May
Age 33 1995 and as Asset Manager since October 1993. Prior to that, Ms. Kaz was a member of
LCP's property acquisition team from 1986 to 1990 and a member of LCP's asset
management team from 1991 to 1993. Ms. Kaz received her B.A. from Muhlenberg College
in 1985.
</TABLE>
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is listed for trading on the New York Stock
Exchange ("NYSE") under the symbol "LXP." The following table sets forth the
high and low sales prices as reported by the NYSE for the Common Stock of the
Company for each of the periods indicated below:
<TABLE>
<CAPTION>
For the Quarters Ended: High Low Cash Dividend
----------------------- ---- --- -------------
<S> <C> <C> <C>
December 31, 1996 $ 15.000 $12.125 $ 0.29
September 30, 1996 13.375 11.500 $ 0.28
June 30, 1996 12.375 11.125 $ 0.28
March 31, 1996 12.125 10.500 $ 0.27
December 31, 1995 11.250 9.625 $ 0.27
September 30, 1995 11.375 10.000 $ 0.27
June 30, 1995 11.000 9.125 $ 0.27
March 31, 1995 9.500 8.625 $ 0.27
</TABLE>
The closing price of the shares of the Company's Common Stock was $12.875 on
February 28, 1997.
As of February 28, 1997, the Company had 2,449 stockholders of record.
The Company's annualized dividend rate for the years ended December 31, 1996 and
1995 was $1.12 and $1.08 per share respectively. The Company's current
annualized dividend rate is $1.16 per share.
On February 14, 1997, the Company paid a dividend of $.29 per share to
stockholders of record on January 31, 1997.
Following is a summary of the taxable nature of the Company's dividends for the
three years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total dividends per share $ 1.10 $ 1.08 $ 1.08
====== ====== ======
Percent taxable as
ordinary income 95.46% 41.36% 89.90%
Percent taxable as
long-term capital gains - 24.71% -
Percent non-taxable as
return of capital 4.54% 33.93% 10.10%
------ ------ ------
100.00% 100.00% 100.00%
====== ====== ======
</TABLE>
Dividends per share of $1.00 and $0.68 were required for the Company to maintain
its REIT status in 1996 and 1995, respectively.
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial data for the Company as
of and for each of the years in the five-year period ended December 31, 1996.
The selected consolidated financial data for the Company should be read in
conjunction with the Consolidated Financial Statements and the related notes
appearing elsewhere in this report.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 31,675,355 $ 25,001,762 $ 26,037,906 $ 25,870,791 $ 25,797,248
Gain on sale of
properties $ - $ 1,514,400 $ - $ - $ -
Proceeds from lease
termination $ - $ 1,600,000 $ - $ - $ -
Expenses of the
mergers $ - $ - $ - $ (2,441,008) $ -
Transactional expenses $ (644,047) $ - $ - $ - $ (1,494,515)
Loss on extinguish-
ment of debt1 $ - $ (4,849,226) $ - $ - $ -
Expenses, including
minority interest $ (25,565,484) $ (19,982,936) $ (20,559,110) $ (18,902,010) $ (19,109,367)
------------- ------------ ------------ ------------ --------------
Net income $ 5,465,824 $ 3,284,000 $ 5,478,796 $ 4,527,773 $ 5,193,366
============ ============ ============ ============ =============
Net income per share $ 0.58 $ 0.35 $ 0.59 $ 0.48 $ 0.56
============ ============ ============ ============ =============
Cash dividends de-
clared per share $ 1.12 $ 1.08 $ 1.08 $ 0.24 $ -
============ ============ ============ ============ ============
Net cash provided by
operating activities $ 14,972,348 $ 7,216,497 $ 12,423,001 $ 11,151,273 $ 12,001,982
Net cash (used in)
provided by
investing activities $ (16,951,527) $ 7,886,892 $ - $ - $ (2,869,478)
Net cash provided by
(used in)
financing activities $ 1,858,853 $ (15,610,902) $ (12,304,039) $ (12,779,971) $ (8,254,120)
------------ ------------ ------------ ------------ --------------
Net (decrease) increase
in cash $ (120,326) $ (507,513) $ 118,962 $ (1,628,698) $ 878,384
============= ============ ============ ============ =============
Total assets $ 309,126,114 $ 221,216,236 $ 216,019,450 $ 222,466,930 $ 230,386,588
============ ============ ============ ============ =============
Long-term obligations
(including related
accrued interest) $ 190,566,884 $ 121,690,421 $ 110,064,581 $ 112,500,673 $ 115,221,696
============ ============ ============ ============ =============
Funds from operations(2) $ 13,632,948 $ 11,955,349 $ 11,387,718 $ 12,877,703 $ 12,580,306
============ ============ ============ ============ =============
Funds from operations,
per share(2) $ 1.45 $ 1.29 $ 1.22 $ 1.38 $ 1.35
============ ============ ============ ============ =============
Rent received above
(below) straight line
rent $ (104,610) $ 399,812 $ 568,592 $ 419,876 $ (771,139)
============= ============ ============ ============ =============
</TABLE>
- ----------
(1) Loss on extinguishment of debt is reported as an
extraordinary item on the consolidated statements of income. (2) Funds From
Operations, is defined by the National Association of Real Estate Investment
Trusts as net income or loss excluding gains or losses from debt restructuring
and sales of property plus depreciation and amortization, and after adjustments
for minority interest, unconsolidated partnerships and joint ventures
(adjustments for minority interests, unconsolidated partnerships and joint
ventures are calculated to reflect Funds From Operations on the same basis).
Funds From Operations does not represent cash flow from operations as defined by
generally accepted accounting principles, should not be considered as an
alternative to net income as an indicator of the Company's operating
performance, and is not indicative of cash available to fund all cash flow
needs. In March 1995, NAREIT issued a clarification of its definition of FFO
effective for years beginning after December 31, 1995. The clarification
provides that amortization of deferred financing costs and depreciation of
non-rental real estate assets are no longer to be added back to net income in
arriving at FFO. The Company adopted these changes and the calculations of FFO
for the years ended December 31, 1995, 1994, 1993 and 1992 have been revised
accordingly. The FFO per share has been calculated without the potential effect
of outstanding stock options or the conversion of special limited partnership
units.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company was organized to combine, continue and expand the business of 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 December 31, 1996, the Company was the indirect or direct owner of
thirty-eight real estate properties (or interests therein) (the "Properties")
triple net leased to corporations.
Liquidity and Capital Resources
Real Estate Assets. As of December 31, 1996, the Company's real estate assets
consisted of the Properties. The Properties are located in twenty-three states
and contain an aggregate of 5,235,363 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.
The Company's principal sources of liquidity are revenue generated from the
Properties, interest on cash balances and amounts available under its Credit
Facility and amounts that may be raised through the sale of preferred shares
described below or other private or public offerings. For the year ended
December 31, 1996, such leases on the Properties generated approximately
$31,244,000 in revenue compared to $24,523,000 in 1995. Minimum annual rent
receivable under non-cancelable leases is $36,342,000 for 1997.
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,
and $.28 per share in respect of the second and third quarters. The dividend
paid in respect of the fourth quarter of 1996, in the amount of $.29 per share,
was paid on February 14, 1997 to stockholders of record as of January 31, 1997.
The Company's annualized dividend rate is currently $1.16 per share.
UPREIT Structure. The Company's UPREIT structure permits the Company to effect
acquisitions by issuing to a seller, as a form of consideration, interests in
partnerships controlled by the Company. All of such interests are 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 as of December 31, 1996.
20
<PAGE> 21
<TABLE>
<CAPTION> 1997 Convertible
Number of Annualized Shares of Total Annual
Units Per Unit Common Distribution
Partnership or Class Issued Distribution Stock 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
---------- ------------
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
---------- ------------
Grand Total 2,520,443 $ 1,633,858
========== ============
</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 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 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 to Common Stock.
During 1996, the Company made the following acquisitions:
Northwest Pipeline Corporation. On May 22, 1996, the Company, through LCIF,
acquired the headquarters of Northwest Pipeline Corporation. Total assets
acquired and total liabilities assumed in the exchange were approximately $56.9
million and $38.5 million, respectively. The consolidated statement of income
for the year ended December 31, 1996 includes 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 $35.6 million as of December 31, 1996.
21
<PAGE> 22
Jacksonville, Alabama Property. 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 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.
Plymouth, Michigan, Oberlin, Ohio and North Carolina Properties. On December 23,
1996, the Company acquired three industrial properties for approximately $14.7
million. Two of the properties, located in Plymouth, Michigan and Oberlin, Ohio,
were acquired for $11.3 million and net-leased to Johnson Controls, Inc. for a
term of ten years. The annual base rent is $1.14 million, or approximately
10.08% of the purchase price, and will be adjusted annually by three times the
percentage increase in the Consumer Price Index, not to exceed 4.5% per annum.
The two properties total 245, 320 square feet. The aggregate purchase price and
related acquisition costs of these two properties were satisfied with funds from
a draw on the Company's Credit Facility.
The third acquired property, totaling 72,868 square feet and located in
Franklin, North Carolina, was net-leased to SKF USA for a term of approximately
18 years. The purchase price was approximately $3.4 million. The annual net rent
is equal to approximately 9.46% of the purchase price and will increase every
three years by the percentage increase in the Consumer Price Index, not to
exceed 3% per annum. The purchase price and related acquisition costs were
satisfied by temporary financing in the form of a bridge loan in the amount of
approximately $2.8 million, and cash.
Affiliated Partnership Acquisitions. On December 31, 1996, the Company, through
LCIF, simultaneously acquired five properties from three partnerships, following
which the partnerships were dissolved.
The three partnerships involved in the transaction were Toy Properties
Associates II ("Toy II"), Toy Properties Associates V ("Toy V") and Fort Street
Partners ("Fort Street"). Details of the acquisitions involving the three
respective partnerships follows.
Toys R Us Retail Properties. In the Toy II transaction, the Company acquired
three retail stores located in Tulsa, Oklahoma; Clackamas, Oregon; and Lynwood,
Washington; (the "Toy II Properties") containing an aggregate of 129,070 square
feet and leased to Toys `R' Us, Inc. under triple net leases which expire on May
31, 2006 and which are subject to five, five-year renewal options. The current
annual aggregate rent is approximately $1,067,000. As of December 31, 1996, the
Toy II Properties were subject to mortgage notes with an outstanding aggregate
principal balance of $5,827,758, bearing interest at a rate of 12.625% per
annum. On January 22, 1997, the aggregate principal balance of these notes, in
the amount of $5,801,069, plus an aggregate prepayment premium of approximately
$377,000, were all paid in full.
Toys R Us Distribution Facility. In the Toy V transaction, the Company acquired
a 123,293 square foot distribution center located in Houston, Texas, (the "Toy V
Property") leased to Toys `R' Us, Inc. under a triple net lease which expires on
August 31, 2006, and which is subject to five, five-year renewal options. The
current annual rent is approximately $400,000. As of December 31, 1996, the Toy
V Property was subject to a mortgage note with an outstanding balance of
$2,195,746, bearing interest at a rate of 12.625% per annum. On January 22,
1997, the aggregate principal balance plus a prepayment premium of approximately
$143,000 was paid in full.
Fort Street Property. In the Fort Street transaction, the Company acquired an
85,610 square foot retail facility located in Honolulu, Hawaii (the "Fort Street
Property"), leased to Liberty House, Inc. under a triple net lease which expires
on September 30, 2009, and which is subject to one 115 month renewal option, one
two-year renewal option and three five-year renewal options. The current annual
rent is approximately $963,000. As of December 31, 1996, the Fort Street
Property was subject to a mortgage note with an outstanding balance of
$6,189,675, bearing interest at 10.25% per annum. Equal monthly payments of
interest and principal sufficient to fully amortize the note by September 30,
2010 are required.
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
22
<PAGE> 23
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%.
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.
Exchangeable Redeemable Secured Notes. In connection with the acquisition of
certain properties leased to Exel, 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, will be guaranteed by Lexington,
and can be exchanged for Lexington common stock at $13 per share beginning in
the year 2000, subject to adjustment. The Notes may be redeemed at Lexington's
option after three years at a price of 103.2% of the principal amount, declining
to par after five years. The Notes are subordinated to obligations under
Lexington's Credit Facility.
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 480,000 partnership units exchangeable for
Lexington 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 Excel Properties in a tax-free exchange
under Internal Revenue Code Section 1031.
Revolving Credit Facility. The Company's Credit Facility, in a maximum committed
amount of $60,000,000, bears 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 December 31, 1996, the Company had borrowed $25 million. As the
Credit Facility is collateralized by six of the Company's Properties, this
amount is included in the balance of mortgage notes payable as of December 31,
1996.
Preferred Stock Sale. On December 31, 1996, the Company entered into an
agreement with Five Arrows Realty Securities L.L.C ("Five Arrows") providing for
the sale of up to 2,000,000 shares of 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 Lexington'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 Preferred
Stock, which is convertible into common stock on a one-for-one basis, is
entitled to quarterly distributions 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 of $8.75 million 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.
Debt Service Requirement. The Company's principal liquidity needs are the
payment of interest and principal on outstanding mortgage debt. As of December
31, 1996, a total of thirty-seven properties were subject to outstanding
mortgages which had an aggregate principal amount, including accrued interest,
of $186,188,387. The weighted average interest rate on the Company's debt on
such date was approximately 9.04%. Approximate balloon payment amounts for the
next five calendar years are due as follows: $2,829,000 in 1997; $10,007,000 in
1998; $30,563,000 in 1999 (including the $25,000,000 Credit Facility which may
be extended) and $7,966,000 in 2000. There are no balloon payments due during
2001. The amount due in 1997 consists of the bridge financing obtained in the
acquisition of the Franklin, North Carolina Property, in the amount of
$2,828,640, which must be refinanced by June 23, 1997 or repaid in
23
<PAGE> 24
full. See Note 6 of the Company's Consolidated Financial Statements. 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 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. As of December 31, 1996, the
Company's total consolidated indebtedness (including origination fees payable
and the related accrued interest) was approximately $193 million. See also
"Funds From Operations" below.
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.
Stock Repurchase. 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, 1996, the Company had repurchased 172,100
shares, at an average price of approximately $9.80 per share, all of which have
been retired.
Results of Operations
Year ended December 31, 1996 compared to year ended December 31, 1995
Total Revenues. Total revenues for the year ended December 31, 1996 were
$31,675,355, an increase of $6,673,593 from the year ended December 31, 1995.
The increase in total revenues was attributable to an increase in rental
revenue, primarily due to revenues from properties acquired in August and
December 1995, and May 1996.
Total Expenses. Total expenses for the year ended December 31, 1996 were
$25,519,469 an increase of $5,629,284 from the year ended December 31, 1995. The
increase was primarily attributable to increases in interest expense,
depreciation and general and administrative expenses, and transactional expenses
incurred in 1996.
Interest expense for the year ended December 31, 1996 was $12,817,528, an
increase of $2,522,352 from the year ended December 31, 1995, which was
primarily due to interest expense incurred on the mortgage notes assumed in the
exchange transaction of May 22, 1996 to acquire the Salt Lake City, Utah
Property.
Depreciation expense for the year ended December 31, 1996 was $7,627,232, an
increase of $1,809,994 from the year ended December 31, 1995, which was
primarily due to properties acquired in August and December 1995 and May 1996.
General and administrative expenses for the year ended December 31, 1996 were
$3,125,100, a $431,340 increase from the year ended December 31, 1995. This
increase is due to an increase in performance-based compensation of $146,702 and
an increase in professional fees.
The transactional expenses totaled $644,047 and were comprised of costs of
$169,530 associated with a proposed equity offering which was abandoned in favor
of the completed private equity placement, and $474,517 of expenses incurred in
connection with transactions in progress for which expenses are required to be
charged to current operations.
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 expenses reimbursed pursuant to the
management agreements.
Net income. Net income for the year ended December 31, 1996 was $5,465,824 an
increase of $2,181,824 from the year ended December 31, 1995. The increase was
primarily attributable to a non-recurring loss on extinguishment of debt
incurred in 1995 in the amount of $4,849,226, offset by non-recurring items in
1995 relating to the sale of the Eagan Property on March 31,
24
<PAGE> 25
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.
Year ended December 31, 1995 compared to year ended December 31, 1994
Total Revenues. Total revenues for the year ended December 31, 1995 were
$25,001,762, a decrease of $1,036,144 from the year ended December 31, 1994. The
decrease in total revenues resulted from a property sale that occurred in March,
1995. The loss of revenue resulting from the property sale was partially offset
by an increase in interest income of $334,648 and revenues from new
acquisitions.
Total Expenses. Total expenses for the year ended December 31, 1995 were
$19,890,185, a decrease of $571,338 from the year ended December 31, 1994.
Interest expense for the year ended December 31, 1995 was $10,295,176, a
decrease of $687,133 from 1994 as a result of debt refinancing. General and
administrative expenses for the year ended December 31, 1995 were $2,693,760, an
increase of $277,574 from the year ended December 31, 1994. The increase in
general and administrative expense is attributable to an expense of $441,562
relating to performance-based stock compensation. Property operating expenses
for the year ended December 31, 1995 were $620,058 a decrease of $188,360,
resulting from appraisal and environmental audit work undertaken in 1994.
Net Income. Net income for the year ended December 31, 1995 was $3,284,000, a
decrease of $2,194,796 from the year ended December 31, 1994. The decrease in
net income in 1995 was primarily attributable to a $4,849,226 loss on
extinguishment of debt, of which approximately $4.6 million was incurred by the
Company in connection with the REMIC Financing, which was partially offset when
the Company recognized a $1,514,400 gain and $1,600,000 of lease termination
proceeds resulting from the sale of the Company's property in Eagan, Minnesota.
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." 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 funds available to fund cash
needs.
25
<PAGE> 26
The following table reflects the calculation of the Company's FFO for the year
ended December 31, 1996:
Income before minority interests $ 6,155,886
Add back:
Depreciation of real estate 7,627,232
Depreciation from unconsolidated
partnerships 59,062
Transactional expenses 644,047
Cashless performance-based compensation 588,265
Less:
Minority interests share of depreciation (751,482)
Minority interests share of income (690,062)
-------------
Funds from operations $ 13,632,948
=============
The Company's dividends paid to stockholders amounted to approximately 76% of
the Company's funds from operations for the year ended December 31, 1996.
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
INDEX
Page
----
Independent Auditors' Report 28
Consolidated Balance Sheets as of December 31, 1996 and 1995 29
Consolidated Statements of Income
for the years ended December 31, 1996, 1995 and 1994 30
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 31
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 32-33
Notes to Consolidated Financial Statements 34-49
Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation 50-52
- --------------------
All other schedules have been omitted because the required financial information
is not applicable or the information is shown in the consolidated financial
statements or notes thereto.
27
<PAGE> 28
Independent Auditors' Report
The Stockholders
Lexington Corporate Properties, Inc.:
We have audited the consolidated financial statements of Lexington Corporate
Properties, Inc. and consolidated subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lexington Corporate
Properties, Inc. and consolidated subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
New York, New York
January 21, 1997
28
<PAGE> 29
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
---- ----
<S> <C> <C>
Real estate, at cost (notes 3 and 6):
Buildings and building improvements $287,534,071 $196,431,021
Land and land estates 38,371,974 34,287,129
Land improvements 2,830,339 2,830,339
Fixtures and equipment 10,674,288 10,674,288
------------ ------------
339,410,672 244,222,777
Less: accumulated depreciation 51,342,953 43,715,721
------------ ------------
288,067,719 200,507,056
Cash and cash equivalents 2,468,189 2,588,515
Restricted cash (note 4) 3,750,138 3,464,554
Deferred expenses (net of accumulated
amortization of $ 2,955,205 in 1996
and $2,343,262 in 1995) 3,733,930 3,753,553
Rent receivable (note 2) 7,842,568 7,701,420
Investment in partnerships (note 2) 172,058 170,127
Escrow deposits (note 5) 104,400 654,400
Other assets 2,987,112 2,376,611
------------ ------------
$309,126,114 $221,216,236
============ ============
Liabilities and Stockholders' Equity
Mortgage notes payable (note 6) $185,766,458 $121,249,633
Subordinated notes payable, including accrued
interest (note 7) 1,973,241 1,973,241
Accrued interest payable on mortgage notes (note 6) 421,929 440,788
Origination fees payable, including accumulated
accretion of $394,512 in 1996 (note 9) 457,508 --
Accrued interest on origination fees payable (note 9) 3,920,989 --
Accounts payable and other liabilities 1,394,109 558,617
------------ ------------
193,934,234 124,222,279
------------ ------------
Minority interests (note 10) 22,532,733 475,846
------------ ------------
216,466,967 124,698,125
------------ ------------
Commitments and contingencies (note 3)
Stockholders' equity (notes 1 and 12):
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, 9,426,900 and
9,331,982 shares issued and outstanding in
1996 and 1995, respectively 943 933
Additional paid-in-capital 92,658,204 96,517,178
------------ ------------
Total stockholders' equity 92,659,147 96,518,111
------------ ------------
$309,126,114 $221,216,236
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental (note 8) $ 31,244,063 $ 24,522,884 $ 25,893,676
Interest and other 431,292 478,878 144,230
------------ ------------ ------------
31,675,355 25,001,762 26,037,906
------------ ------------ ------------
Expenses:
Interest expense (notes 6 and 7) 12,817,528 10,295,176 10,982,309
Depreciation 7,627,232 5,817,238 5,908,922
Amortization of deferred expenses 619,362 463,953 345,688
Property operating expenses 686,200 620,058 808,418
General and administrative expenses (notes 9,
11 and 14) 3,125,100 2,693,760 2,416,186
Transactional expenses 644,047 -- --
------------ ------------ ------------
25,519,469 19,890,185 20,461,523
------------ ------------ ------------
Income before minority interests, gain on sale of
properties, lease termination proceeds, and
extraordinary item 6,155,886 5,111,577 5,576,383
Minority interests (note 10) 690,062 92,751 97,587
------------ ------------ ------------
Income before gain on sale of properties,
lease termination proceeds and extraordinary
item 5,465,824 5,018,826 5,478,796
Gain on sale of properties -- 1,514,400 --
Proceeds from lease termination -- 1,600,000 --
------------ ------------ ------------
Income before extraordinary item 5,465,824 8,133,226 5,478,796
Extraordinary item - loss on extinguishment
of debt -- 4,849,226 --
------------ ------------ ------------
Net income $ 5,465,824 $ 3,284,000 $ 5,478,796
============ ============ ============
Income before extraordinary item,
per share $ 0.58 $ 0.88 $ 0.59
Extraordinary item - loss on extinguishment
of debt, per share -- (0.53) --
------------ ------------ ------------
Net income per share $ 0.58 $ 0.35 $ 0.59
============ ============ ============
Weighted average shares outstanding 9,392,727 9,263,169 9,306,173
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional Total
Number Common paid-in stockholders'
of shares stock capital equity
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 9,303,409 $ 9,303 $ 105,642,554 $ 105,651,857
Net income -- -- 5,478,796 5,478,796
Dividends paid to stockholders
($1.08 per share) -- -- (9,771,306) (9,771,306)
Exchange of shares for subordinated
notes payable (2,224) -- (22,240) (22,240)
Change in par value of stock -- (8,374) 8,374 --
Common stock issued 17,275 -- 154,019 154,019
Common stock repurchased and retired (30,100) -- (271,440) (271,440)
------------- ------------- ------------- -------------
Balance at December 31, 1994 9,288,360 929 101,218,757 101,219,686
Net income -- -- 3,284,000 3,284,000
Dividends paid to stockholders
($1.08 per share) -- -- (10,010,808) (10,010,808)
Exchange of special limited partnership
units for partnership interests -- -- 1,503,315 1,503,315
Common stock issued 185,622 18 1,936,520 1,936,538
Common stock repurchased
and retired (142,000) (14) (1,414,606) (1,414,620)
------------- ------------- ------------- -------------
Balance at December 31, 1995 9,331,982 933 96,517,178 96,518,111
Net income -- -- 5,465,824 5,465,824
Dividends paid to stockholders
($1.10 per share) -- -- (10,326,618) (10,326,618)
Common stock issued 94,918 10 1,001,820 1,001,830
------------- ------------- ------------- -------------
Balance at December 31, 1996 9,426,900 $ 943 $ 92,658,204 $ 92,659,147
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,465,824 $ 3,284,000 $ 5,478,796
------------ ------------ ------------
Adjustments to reconcile net
income to net cash provided by operating activities net of effects from
purchase of partnership assets:
Depreciation and amortization 8,246,594 6,281,191 6,254,610
Net gain from 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 (141,148) 394,301 570,985
Amortization of discount on
mortgage notes payable 8,764 5,478 --
Income from unconsolidated
partnerships (12,735) (355) --
Increase (decrease) in accounts
payable and other liabilities 746,342 (364,027) 436,853
(Decrease) increase in accrued
interest payable (18,859) 93,972 (80,748)
` Accrued interest added to principal
balance of mortgage notes -- 34,192 124,071
Minority interests 690,062 92,751 97,587
Deferred lease costs -- -- (200,000)
Increase in other assets (12,496) (2,091,852) (259,153)
------------ ------------ ------------
Total adjustments 9,506,524 3,932,497 6,944,205
------------ ------------ ------------
Net cash provided by
operating activities 14,972,348 7,216,497 12,423,001
------------ ------------ ------------
Cash flows from investing activities:
Net proceeds from sale of properties -- 16,347,058 --
Acquisitions of real estate properties
and partnerships, net of cash acquired (16,954,912) (8,460,166) --
Distributions from unconsolidated
partnerships 3,385 -- --
------------ ------------ ------------
Net cash (used in) provided by
investing activities (16,951,527) 7,886,892 --
------------ ------------ ------------
</TABLE>
32
<PAGE> 33
2
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds of mortgage notes payable $ 19,618,640 $ 84,513,344 $ -
Increase in deferred expenses (294,323) (3,242,138) -
Dividends to stockholders (10,326,618) (10,010,808) (9,771,306)
Repayments on mortgage notes (7,533,655) (83,196,026) (2,437,748)
(Increase) decrease in restricted cash (285,584) (3,464,554) 200,000
Decrease (increase) in escrow deposits 550,000 (550,000) -
Proceeds from issuance of common stock 1,001,830 1,936,538 154,019
Common stock repurchased - (1,414,620) (271,440)
Cash distributions to minority interests (871,437) (182,638) (177,564)
----------------- --------------- --------------
Net cash provided by (used in)
financing activities 1,858,853 (15,610,902) (12,304,039)
---------------- --------------- --------------
(Decrease) increase in cash (120,326) (507,513) 118,962
Cash and cash equivalents at beginning of year 2,588,515 3,096,028 2,977,066
---------------- --------------- --------------
Cash and cash equivalents at end of year $ 2,468,189 $ 2,588,515 $ 3,096,028
================ =============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 12,827,623 $ 10,161,534 $ 10,938,986
================ =============== ==============
Cash paid during the year for taxes $ 155,740 $ 181,921 $ 137,947
================ =============== ==============
</TABLE>
Supplemental disclosure of non-cash investing and financing 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
December 31, 1996 and 1995. Total assets and total liabilities acquired 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 and December 31, 1996, the Company completed two separate acquisition
transactions involving certain partnerships, whereby six properties were
acquired in exchange for special limited partnership units, following which the
selling partnerships were dissolved. Total assets acquired and total liabilities
assumed in the exchanges were $79,128,985 and $56,890,723, respectively. The
difference has been recorded as minority interest.
For the year ended December 31, 1994, the Company exchanged common stock with a
value of $22,240 for subordinated notes payable.
See accompanying notes to consolidated financial statements.
33
<PAGE> 34
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(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 total number of shares of all classes of capital stock that the
Company has authority to issue is 90,000,000 shares, consisting of
40,000,000 shares of common stock with a par value of $.0001 per share,
40,000,000 shares of excess stock with a par value of $.0001 per share
and 10,000,000 shares of preferred stock with a par value of $.0001 per
share.
The excess stock is not entitled to receive dividends, except upon
liquidation of the Company. Such shares vote as a single class with
holders of shares of the Company's Common Stock. The excess stock and
Common Stock are considered equal for purposes of liquidation of the
Company.
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, 1996, the Company had
repurchased 172,100 shares at an average price of approximately $9.80 per
share, all of which have been retired.
(2) Summary of Significant Accounting Policies
The Company's consolidated financial statements are prepared on the
accrual basis of accounting for financial and Federal income tax
reporting purposes. Depreciation for financial reporting purposes is
determined by the straight-line method over the remaining 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.
Acquisition fees incurred in connection with properties acquired have
been capitalized as a cost of the properties upon acquisition.
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").
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.
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
represents 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.
Origination fees payable obligations have been discounted using an annual
rate of 13%.
34
<PAGE> 35
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(2), Continued
The Company has qualified as a real estate investment trust under 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.
A summary of the taxable nature of the Company's dividends for the three
years ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total dividends per share $1.10 $1.08 $ 1.08
===== ===== ======
Percent taxable as ordinary
income 95.46% 41.36% 89.90%
Percent taxable as long-term
capital gains - 24.71% -
Percent non-taxable as
return of capital 4.54% 33.93% 10.10%
------ ------ ------
100.00% 100.00% 100.00%
====== ====== ======
</TABLE>
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. There are no significant temporary
differences giving rise to deferred taxes.
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 for the years ended December 31, 1996, 1995, and 1994 was
9,392,727, 9,263,169 and 9,306,173, respectively. The assumed exercise of
outstanding stock options using the treasury stock method and conversion
of special limited partnership units are not considered dilutive.
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 note payable and accounts payable and other
liabilities are carried at cost, which approximates fair value.
35
<PAGE> 36
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(2), Continued
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments to be cash equivalents. Cash and cash
equivalents on the balance sheet at December 31, 1996 includes $2,177,035
of money market instruments.
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, on January 1, 1996. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Adoption of this Statement did not have any impact on the Company's
financial position, results of operations, or liquidity.
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, Accounting for Stock-Based Compensation, which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
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) Investments in Real Estate
The Company's real property portfolio as of December 31, 1996 consists of
thirty-eight properties (or interests therein) (the "Properties") located
in twenty-three states, including warehousing, distribution and
manufacturing facilities, office buildings and retail properties. All of
the Company's properties are subject to triple net leases, which are
generally characterized as leases in which the tenant bears all, or
substantially all, of the costs and cost increase for real estate taxes,
insurance and ordinary maintenance.
The Company's Properties were acquired between 1986 and 1990 and in 1995
and 1996. The purchase prices on the Properties were satisfied with
capital contributions of the Partnerships along with proceeds of mortgage
financing, issuance of the Company's common stock and the issuance of
special limited partnership units in one of the Partnerships.
36
<PAGE> 37
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(3), Continued
During 1996, the Company made the following acquisitions:
On May 22, 1996, the Company, through LCIF, acquired the headquarters of
Northwest Pipeline Corporation in exchange for an aggregate of 1,715,294
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 from the
selling partnership, 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 described above, 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 as common
stockholders. Total assets acquired and total liabilities assumed in the
exchange were approximately $56.9 million and $38.5 million,
respectively. The consolidated statement of income for the year ended
December 31, 1996 includes 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 $35.6 million
as of December 31, 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 (the "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.
On December 23, 1996, the Company acquired three industrial properties
for approximately $14.7 million. Two of the properties, located in
Plymouth, Michigan and Oberlin, Ohio, were acquired for $11.3 million and
net-leased to Johnson Controls, Inc. for a term of ten years. The annual
base rent is $1.14 million, or approximately 10.08% of the purchase
price, and will be adjusted annually by three times the percentage
increase in the Consumer Price Index, not to exceed 4.5% per annum. The
two properties total 245,320 square feet. The aggregate purchase price
and related acquisition costs of these two properties were satisfied with
funds from a draw on the Company's Credit Facility.
37
<PAGE> 38
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(3), Continued
The third acquired property, totaling 72,868 square feet and located in
Franklin, North Carolina, was net-leased to SKF USA for a term of
approximately eighteen years. The purchase price was approximately $3.4
million. The annual net rent is equal to approximately 9.46% of the
purchase price and will increase every three years by the percentage
increase in the Consumer Price Index, not to exceed 3% per annum. The
purchase price and related acquisition costs were satisfied by temporary
financing in the form of a bridge loan in the amount of approximately
$2.8 million, and cash.
On December 31, 1996, the Company, through LCIF, simultaneously acquired
five properties from three partnerships, in exchange for special limited
partnership units in LCIF. These units become convertible into the
Company's common stock on a one-for-one basis on various dates. The
unitholders will receive a quarterly distribution of $0.28 per unit (or
$1.12 per unit per annum), beginning on various dates, subject to
decrease by an amount proportionate to any decrease in distributions on
shares of the Company's common stock.
Additionally, 51,092 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 fees for
services rendered in connection with the acquisition of the properties.
The affiliated holders of these units will have the same conversion
rights as previously described, with the initial date for eligible
conversion being January 15, 1999, subsequently convertible annually on
each January 15 thereafter. These affiliated unitholders will also
receive quarterly dividends as previously described.
The three partnerships involved in the transaction were Toy Properties
Associates II ("Toy II"), Toy Properties Associates V ("Toy V") and Fort
Street Partners ("Fort Street"). Details of the acquisitions involving
the three respective partnerships follows.
In the Toy II transaction, the Company acquired three retail stores
located in Tulsa, Oklahoma; Clackamas, Oregon; and Lynwood, Washington;
(the "Toy II Properties") containing an aggregate of 129,070 square feet
and leased to Toys `R' Us, Inc. under triple net leases which expire on
May 31, 2006 and which are subject to five, five-year renewal options.
The current annual aggregate rent is approximately $1,067,000. As of
December 31, 1996, the Toy II Properties were subject to mortgage notes
with an outstanding aggregate principal balance of $5,827,758, bearing
interest at a rate of 12.625% per annum. On January 22, 1997, the
aggregate principal balance of these notes, in the amount of $5,801,069,
plus an aggregate prepayment premium of approximately $377,000, were all
paid in full.
In the consummation of the Toy II transaction, 72,580 LCIF units were
transferred to the limited and general partners of Toy II, and 22,420
units were transferred to affiliates for their contractual rights to fees
from Toy II. The distribution rights on these units began immediately and
the initial date for eligible conversion is January 15, 1999,
subsequently convertible annually on each January 15 thereafter.
In the Toy V transaction, the Company acquired a 123,293 square foot
distribution center located in Houston, Texas, (the "Toy V Property")
leased to Toys `R' Us, Inc. under a triple net lease which expires on
August 31, 2006, and which is subject to five, five-year renewal options.
The current annual rent is approximately $400,000. As of December 31,
1996, the Toy V Property was subject to a mortgage note with an
outstanding balance of $2,195,746, bearing interest at a rate of 12.625%
per annum. On January 22, 1997, the aggregate principal balance plus a
prepayment premium of approximately $143,000 were paid in full.
38
<PAGE> 39
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(3), Continued
In the consummation of the Toy V transaction, 23,587 LCIF units were
transferred to the limited and general partners of Toy V, and 11,413
units were transferred to affiliates for their contractual rights to fees
from Toy V. The distribution and conversion rights on these units are
identical to those in the Toy II transaction, previously described.
In the Fort Street transaction, the Company acquired an 85,610 square
foot retail facility located in Honolulu, Hawaii (the "Fort Street
Property"), leased to Liberty House, Inc. under a triple net lease which
expires on September 30, 2009, and which is subject to one 115 month
renewal option, one two-year renewal option and three five-year renewal
options. The current annual rent is approximately $963,000. As of
December 31, 1996, the Fort Street Property was subject to a mortgage
note with an outstanding balance of $6,189,675, bearing interest at
10.25% per annum. Equal monthly payments of interest and principal
sufficient to fully amortize the note by September 30, 2010 are required.
In the consummation of the Fort Street transaction, 207,741 LCIF units
were transferred to limited and general partners of Fort Street. The
distribution and conversion rights on these units are the same as
previously described except that the holders of these units do not begin
to receive distributions and do not become eligible to convert their
units until January 15, 2006. Additionally, 17,259 units were transferred
to affiliates for their contractual rights to fees from Fort Street. The
distribution and conversion rights (and applicable dates) on these units
are identical to those in the Toy II and Toy V transactions, previously
described.
The acquisitions made during 1996 have been accounted for using the
purchase method of accounting.
The following unaudited pro forma operating information for the year
ended December 31, 1996 has been prepared as if the above acquisitions
had been consummated as of January 1, 1996 and does not purport to be
indicative of what the operating results would have been had the
acquisitions been consummated on that date. Pro forma amounts are as
follows:
Unaudited
Pro forma Historical
December 31, 1996 December 31, 1996
----------------- -----------------
Revenues $39,022,299 $31,675,355
Net income $ 5,471,349 $ 5,465,824
Net income per share $ 0.56 $ 0.58
The unaudited pro forma net income per share reflects the dilutive
effect of certain convertible limited partnership units treated as common
stock equivalents as if those units were issued at January 1, 1996.
(4) Restricted Cash
On May 19, 1995, the Company, through its wholly owned subsidiary, LXP
Funding Corp., completed a $70 million secured debt offering (the "REMIC
Financing") by issuing commercial mortgage pass-through certificates. As
a condition of the REMIC Financing, the trustee, established as part of
the REMIC Financing, maintains a restricted cash account. Rent from the
fifteen secured properties is required to be deposited into this account.
Additionally, there are certain reserves that are required to be funded
and maintained in this account. The monthly debt service payments are
made from the account and, after considering reserve requirements, any
excess funds are transferred to the Company.
39
<PAGE> 40
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Escrow Deposits
On December 7, 1995, the Company, through a wholly owned subsidiary
acquired a fitness center in Canton, Ohio. The purchase price was
$4,100,000, 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 this obligation, 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, and the escrow monies were
returned to the Company.
(6) Mortgage Notes Payable
The Company's aggregate consolidated mortgage notes payable as of
December 31, 1996 was $185,766,458, which consisted of indebtedness
outstanding under the REMIC Financing, borrowings outstanding under the
Company's Credit Facility and outstanding mortgage indebtedness related
to sixteen Properties.
As of December 31, 1996, the indebtedness outstanding under the REMIC
Financing was $68,804,233, with a weighted average interest rate of
approximately 8.10% per annum. The REMIC Financing debt matures on May
25, 2005, with a balloon payment in the amount of $60,001,000 due on that
date. An aggregate amount of $6,352,611 in debt service payments will be
due in 1997 on the REMIC Financing.
The REMIC Financing is secured by mortgages on the following fifteen
Properties: Modesto, California; Mansfield, Ohio; Marshall, Michigan (904
Industrial Road); Marshall, Michigan (1601 Pratt Avenue); Memphis,
Tennessee; Mechanicsburg, Pennsylvania; Newark, California; Countryside,
Illinois; Voorhees, New Jersey; Dewitt, New York; Newport, Oregon;
Sacramento, California; Reno, Nevada; Las Vegas, Nevada; and Klamath
Falls, Oregon.
The Company's Credit Facility, in a maximum committed amount of $60
million, bears 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 December 31, 1996, the Company had borrowed
$25 million, with a weighted average interest rate of approximately 7.12%
per annum. Based on the weighted average interest rate in effect as of
December 31, 1996, debt service payments on the Credit Facility in 1997
would total $1,785,102.
The Credit Facility is secured by first mortgage liens on the following
six Properties: Glendale, Arizona; Southington, Connecticut; Riverdale,
Georgia; Jacksonville, Alabama; Plymouth, Michigan; and Oberlin, Ohio.
The Credit Facility requires compensating balances of $250,000.
As of December 31, 1996, a total of sixteen properties (in addition to
the Properties securing the REMIC Financing and the Credit Facility) were
subject to outstanding mortgages with an aggregate outstanding principal
balance of $91,962,225. The following table sets forth certain
information regarding outstanding mortgage indebtedness on the sixteen
properties as of December 31, 1996:
40
<PAGE> 41
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(6), Continued
<TABLE>
<CAPTION>
Mortgage
Balance as of Debt Service
December 31, Interest Balloon Payments due
Property Location 1996 Rate Maturity Payment in 1997
- ---------------------- ------------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Phoenix, AZ $ 5,712,523 10.75% 5/1/99 $ 5,562,818 $ 692,707
Marlborough, MA 10,344,052 10.18% 9/15/00 7,965,612 1,590,857
Tampa, FL
(10,419 North 30th St.) 6,128,173 8.60% 6/1/98 5,717,444 784,539
Tampa, FL
(3102 Queen Palm Dr.) 4,289,775 9.125% 5/1/98 4,289,775 391,442
Oxon Hill, MD 2,216,834 6.25% 3/1/04 -- 381,042
Brownsville, TX 996,894 8.375% 11/1/04 259,894 150,380
Rockville, MD 1,294,393 8.82% 3/1/05 -- 221,491
Laguna Hills, CA 4,702,379 8.375% 2/1/06 1,020,332 665,711
Tulsa, OK 1,912,378 * -- -- *
Clackamas, OR 2,212,326 * -- -- *
Lynwood, WA 2,090,252 * -- -- *
Houston, TX 2,342,267 * -- -- *
Canton, OH 2,792,015 9.49% 2/26/09 -- 387,719
Salt Lake City, UT 13,185,515 7.87% 10/1/05 -- 2,098,896
22,445,599 12.90% 10/1/05 -- 4,316,798
------------ ------------
35,631,114 6,415,694
------------ ------------
Honolulu, HI 6,468,210 10.25% 10/1/10 -- 841,170
Franklin, NC 2,828,640 7.1875% 6/23/97 -- 205,897
------------ ------------
$ 91,962,225 $ 12,728,649
============ ============
</TABLE>
* On January 22, 1997, the mortgages on the following four Properties were
paid in full: Tulsa, Oklahoma; Clackamas, Oregon; Lynwood, Washington;
and Houston, Texas. The aggregate principal amount paid was $7,996,817
and the aggregate prepayment premiums were approximately $520,000. The
stated interest rate on these four mortgages was 12.625%.
The mortgages on the two Tampa, Florida Properties are
cross-collateralized.
The weighted average interest rate on the two mortgage notes on the Salt
Lake City, Utah Property at December 31, 1996 was 11.038% per annum.
The mortgage on the Franklin, NC Property represents temporary bridge
financing which, if not refinanced by June 23, 1997, must be repaid in
full, including any accrued but unpaid interest. The annual interest rate
was 8.25% through January 1, 1997, and was adjusted to 7.1875% as of
February 1, 1997.
All of the Company's mortgages are nonrecourse and are secured by first
mortgage liens on the properties and by collateral assignments of the
leases.
41
<PAGE> 42
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(6), Continued
Principal paydowns of the mortgage notes payable for the succeeding five
years are as follows:
Year ending December 31 Amount
----------------------- ------
1997 $ 8,205,848
1998 15,748,155
1999 36,654,022
2000 14,389,803
2001 6,530,142
These amounts do not include the repayments of the four mortgages, in the
amount of approximately $8 million, on January 22, 1997, as previously
discussed. Included in the amount for 1997 is the bridge financing of
approximately $2.8 million which must either be refinanced or repaid on
June 23, 1997. 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 and $25 million currently outstanding under
the Credit Facility, although it automatically extends for successive
two-year periods unless the Company is properly notified by the lender of
its intention to terminate the facility, according to the terms of the
agreement. Included in the amount for 2000 is a balloon payment for the
Marlborough Property - $7,965,712. Balloon payments on the notes issued
in the REMIC Financing, in the aggregate of $60 million, are due in 2005.
(7) Subordinated Notes Payable
Unitholders of the Partnerships who denied consent to the mergers
described in Note 1 and qualified as dissenters received, in lieu of
shares of Common Stock, Subordinated Notes of the Company having a
principal amount equal to the net asset value of the Units exchanged for
such notes. The notes were issued under an indenture between the Company
and The Bank of New York, as Trustee. The notes bear interest at 7.75%
per annum, payable semi-annually on January 1 and July 1 of each year,
and are due on October 12, 2000.
42
<PAGE> 43
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Leases
Minimum future rents receivable under noncancellable operating leases as
of December 31, 1996 are as follows:
Year ending December 31 Amount
----------------------- ------
1997 $ 36,341,863
1998 33,619,067
1999 31,443,518
2000 29,125,641
2001 27,790,302
Thereafter 159,588,231
---------------
$ 317,908,622
===============
The leases are triple net leases which generally require the lessee to
pay all or substantially all taxes, insurance, maintenance, and all other
similar charges and expenses relating to the Properties and their use and
occupancy.
Percentage rent from the Newport Property for the years ended December
31, 1996, 1995 and 1994 amounted to $55,291, $45,172 and $42,538,
respectively.
Each of the following properties accounted for 10% or more of
consolidated rental revenues for the years ended December 31:
Property 1996 1995 1994
-------- ---- ---- ----
Glendale 8% 13% 13%
Newark 10% 13% 13%
Utah 16% - -
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. California state
court ruled in favor of the tenant's motion to confirm an arbitration
decision which would allow the tenant to purchase the property for $24.8
million on or about September 1, 1997. This motion was confirmed and the
Company is appealing the decision, the outcome of which cannot be
determined. The net book value of the assets related to the Newark
Property at December 31, 1996 is $25,690,333, which includes
approximately $989,000 of straight-line rent receivable and
approximately $559,000 of deferred expenses related to the REMIC
Financing allocated to the Property. If the Company does not prevail on
its appealing of the decision, the potential loss on the property would
be approximately $430,000.
(9) Related Party Transactions
The Company has been granted an option by the LCP Group, L.P. ("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 six net leased properties with an aggregate value
of approximately $39 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).
43
<PAGE> 44
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(9), Continued
On October 1, 1996, the Company 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.
From the inception of the management agreement (October 1, 1996) to
December 31, 1996, such compensation amounted to $48,435.
In connection with the origination fees payable obligations, the Company
is obligated to pay LCP 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 thirteen percent.
A member of the Company's Board of Directors is a partner in the firm
that serves as general counsel to the Company. The Company intends to
continue to retain the services of this firm for general, corporate and
other matters.
(10) 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. The total number of special limited partnership units
outstanding as of December 31, 1996 was 2,520,433. 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 relates to interests
in such partnerships held by parties other than the Company.
(11) Employee Benefit Plan
Effective January 1, 1994, the Company established a 401(k) retirement
savings plan covering all eligible employees. The Company will match 25%
of the first 4% of employee contributions. In addition, based on its
profitability, the Company may make a discretionary contribution at each
fiscal year end to all eligible employees. Approximately $74,501, $59,261
and $41,950 were contributed in 1996, 1995 and 1994, respectively.
(12) 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 Senior Cumulative Convertible
Preferred Stock ("Preferred Stock"). In connection with this
transaction, the Company designated 2,000,000 shares as "Excess 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 Lexington'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 Preferred Stock,
which is convertible into common stock on a one-for-one basis, is
entitled to dividends equal to the greater of $.295 or 105% of the common
stock dividend.
44
<PAGE> 45
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(12), Continued
On January 21, 1997, the Company sold 700,000 shares of Preferred Stock
to Five Arrows and used the proceeds of $8.75 million to repay
$7,996,817 of mortgage debt, including prepayments of $520,000. Such
mortgage debt had been bearing interest at a stated rate of 12.625% per
annum and would have required interest and principal payments of
approximately $1.45 million in 1997.
(13) Legal Proceedings
The Company was sued in the United States District Court for the
Northern District of Illinois on May 31, 1995, by United Municipal
Leasing Corporation. The complaint filed in this case alleges that the
Company breached a letter of intent by failing to execute definitive
documentation and close a transaction in which the plaintiff proposed to
sell property to the Company. The complaint seeks $800,000 in monetary
damages. The Company believes that this suit is without merit, and plans
to vigorously defend its position and, in any case, would not expect a
material adverse effect on the Company in the event of a negative
outcome.
The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
(14) Stock Option Plan
On June 17, 1993, the Company's Board of Directors adopted a stock
option plan (the "Plan") pursuant to which stock options may be granted
to officers and key employees. The Plan authorized grants of options to
purchase up to 800,000 shares of authorized but unissued common stock.
The Plan was amended on May 23, 1996 to increase by 800,000 the number
of shares of Common Stock available for the grant of options thereunder,
subject to certain limitations. Stock options are granted with an
exercise price equal to the stock's fair market value at the date of
grant. All stock options vest immediately and are exercisable over five
-year terms.
Additionally, each independent director of the Company receives options
each year to purchase 2,500 shares of common stock at the fair market
value as of the date of grant. Such grants automatically occur on each
January 1. An initial grant of options for 2,500 shares of common stock
was made to each independent director effective as of November 1, 1993.
All options granted to the directors are exercisable, after a one-year
holding period, for a period not to exceed five years from the date of
grant.
At December 31, 1996, there were 298,272 additional options available
for grant under the Plan. The per share weighted-average fair value of
stock options granted during 1996 and 1995 was $2.60 and $1.85 on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: risk-free interest rate of 6.5%
and an expected life of five years for both of the years and volatility
factors of 16.29% and 15.02% for the years 1996 and 1995, respectively.
The model was based on actual dividends paid, which, on an annualized
basis were $1.10 and $1.08 per share for the years ended
December 31, 1996 and 1995, respectively.
45
<PAGE> 46
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(14), Continued
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income would have been
reduced to the pro forma amounts below:
1996 1995
---- ----
Net income As reported $ 5,465,824 $ 3,284,000
Pro forma 4,993,924 3,270,125
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost for options granted
prior to January 1, 1995 is not considered.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Balance at December 31, 1993 400,000 $ 10.00
Granted 7,500 10.125
Exercised (-) (-)
Forfeited (-) (-)
Expired (-) (-)
----------- -----------
Balance at December 31, 1994 407,500 10.00
Granted(1) 586,300 10.46
Exercised(1) (392,500) (10.00)
Forfeited (-) (-)
Expired (-) (-)
----------- -----------
Balance at December 31, 1995 601,300 10.45
Granted(1) 367,800 11.56
Exercised(1) (191,300) ( 9.15)
Forfeited (5,300) 11.39
Expired (-) (-)
----------- -----------
Balance at December 31, 1996 772,500 $10.72
=========== ===========
</TABLE>
- --------
(1) In 1996 and 1995, certain officers and employees exchanged existing options
for new options with exercise prices equal to the fair market value of the
common stock at that time. These options are reflected in the amounts
exercised and granted in the table above. The difference between the
exercise prices of the original and the new options, which amounted to
$588,000 and $442,000 in 1996 and 1995, respectively, has been
reflected in general and administrative expenses in the accompanying
financial statements.
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $9.00 to $11.875
and 3.75 years, respectively.
At December 31, 1996 1995 and 1994, the number of options exercisable
was 775,300, 405,000 and 397,500, respectively, and the weighted-average
exercise price of those options was $11.29, $11.09 and $10.00,
respectively.
(15) Subsequent Events (Unaudited)
On February 14, 1997, the Company paid a dividend of $.29 per share to
stockholders of record on January 31, 1997.
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%.
46
<PAGE> 47
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(15), Continued
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.
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, will be guaranteed by Lexington, and be exchanged for
Lexington common stock 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 to Lexington's revolving credit
facility.
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 480,000 partnership units
exchangeable for Lexington 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.
47
<PAGE> 48
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------
March 31 June 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $6,799,356 5,862,519 7,682,441 6,187,949
Expenses 5,072,232 4,967,118 5,906,792 4,694,306
---------- ---------- ---------- ----------
Income before minority interests,
gain on sale of properties,
lease termination proceeds
and extraordinary item 1,727,124 895,401 1,775,649 1,493,643
Minority Interests 53,679 70,172 147,151 (53,982)
---------- ---------- ---------- ----------
Income before gain on sale of
properties, lease termination
proceeds and extraordinary item 1,673,445 825,229 1,628,498 1,547,625
Gain on sale of properties -- 1,514,400 -- --
Proceeds from lease termination -- 1,600,000 -- --
---------- ---------- ---------- ----------
Income before extraordinary item 1,673,445 3,939,629 1,628,498 1,547,625
Extraordinary item - loss on
extinguishment of debt -- -- -- 4,578,346
---------- ---------- ---------- ----------
Net income (loss) $1,673,445 3,939,629 1,628,498 (3,030,721)
========== ========== ========== ==========
Income before extraordinary
item, per share $ 0.18 0.43 0.17 0.16
Extraordinary item - loss on
extinguishment of debt,
per share -- -- -- (0.49)
---------- ---------- ---------- ----------
Net income (loss) per share $ 0.18 0.43 0.17 (0.33)
========== ========== ========== ==========
</TABLE>
(Continued)
48
<PAGE> 49
LEXINGTON CORPORATE PROPERTIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------
September 30, December 31,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $8,654,605 6,376,242 8,538,953 6,575,052
Expenses 6,840,267 4,979,411 7,700,178 5,249,350
---------- ---------- ---------- ----------
Income before minority interests
and extraordinary item 1,814,338 1,396,831 838,775 1,325,702
Minority interests 259,771 37,861 229,461 38,700
---------- ---------- ---------- ----------
Income before extraordinary
item 1,554,567 1,358,970 609,314 1,287,002
Extraordinary item - loss on
extinguishment of debt -- -- -- 270,880
---------- ---------- ---------- ----------
Net income $1,554,567 1,358,970 609,314 1,016,122
========== ========== ========== ==========
Income before extraordinary
item, per share $ 0.17 0.15 0.06 0.14
Extraordinary item - loss on
extinguishment of debt,
per share -- -- -- (0.03)
---------- ---------- ---------- ----------
Net income per share $ 0.17 0.15 0.06 0.11
========== ========== ========== ==========
</TABLE>
49
<PAGE> 50
LEXINGTON COPRPORATE PROPERTIES, INC. SCHEDULE III
AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation
Initial cost to Company and Partnerships and gross amount
at which carried at end of year (A)
<TABLE>
<CAPTION>
Encumbrances Land & Land Buildings & Accumulated
Description (B) Estates Improvements Total (C) Depreciation (D) Date Acquired
- --------------------------------------- ------------ ----------- ------------ ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Warehousing & manufacturing facility
Modesto, CA $ 2,157,556 $ 257,088 $ 3,809,437 $ 4,066,525 $ 980,136 Sept. 1986
Office building
Southington, CT 8,615,162 3,240,000 20,367,113 23,607,113 6,278,970 Oct. 1986
Research & development facility
Glendale, AZ 10,724,855 4,995,941 24,392,114 29,388,055 8,270,994 Nov. 1986
Health club facilities:
Countryside, IL 2,445,230 627,879 3,722,427 4,350,306 1,206,623 Jul. 1987
Voorhees Township, NJ 3,092,497 576,565 4,820,082 5,396,647 1,476,501 Jul. 1987
DeWitt, NY 1,869,881 444,752 3,043,041 3,487,793 958,698 Aug. 1987
Warehouse & distribution facility
Mansfield, OH 3,380,170 120,000 4,597,100 4,717,100 1,233,573 Jul. 1987
Office & industrial facility
Marshall, MI 2,265,433 32,909 3,378,023 3,410,932 979,400 Aug. 1987
Office & industrial facility
Marshall, MI 863,022 13,591 925,486 939,077 269,360 Aug. 1987
Warehouse & office facilities
Newark, CA 15,768,510 5,000,000 25,843,850 30,843,850 6,702,192 Aug. 1987
Retail shopping facility
Newport, OR 6,328,830 1,400,000 7,269,591 8,669,591 1,969,244 Sept. 1987
Publishing facility
Memphis, TN 6,832,260 1,053,422 10,908,335 11,961,757 2,420,300 Feb. 1988
Office & research development facility
Marlborough, MA 10,387,928 3,500,000 17,975,942 21,475,942 3,295,651 Jan. 1990
Warehouse & distribution facility
Mechanicsburg, PA 10,428,187 1,439,384 13,986,477 15,425,861 1,861,269 Oct. 1990
Office, warehousing &
manufacturing facility
Tampa, FL 4,322,395 1,388,861 7,563,231 8,952,092 1,866,457 Nov. 1987
Retail department store
Klamath Falls, OR 7,191,852 727,072 9,159,425 9,886,497 2,013,129 Mar. 1988
Office building
North Tampa, FL 6,172,092 1,900,197 9,715,678 11,615,875 2,051,144 Jul. 1988
<CAPTION>
Useful life on which
depreciation in latest
Date income statements is computed
Description Constructed computed
- --------------------------------------- ------------ -----------------------------
<S> <C> <C>
Warehousing & manufacturing facility
Modesto, CA 1970 & 1976 40 & 12 years
Office building
Southington, CT 1983 40 & 12 years
Research & development facility
Glendale, AZ 1985 40 & 12 years
Health club facilities:
Countryside, IL 1987 40 & 12 years
Voorhees Township, NJ 1987 40 & 12 years
DeWitt, NY 1977 & 1987 40 & 12 years
Warehouse & distribution facility
Mansfield, OH 1970 40, 20 &12 years
Office & industrial facility
Marshall, MI 1968 & 1972 40, 20 &12 years
Office & industrial facility
Marshall, MI 1979 40, 20 &12 years
Warehouse & office facilities
Newark, CA 1984-1985 40 & 12 years
Retail shopping facility
Newport, OR 1986 40, 20 &12 years
Publishing facility
Memphis, TN 1987 40 years
Office & research development facility
Marlborough, MA 1988 40 & 20 years
Warehouse & distribution facility
Mechanicsburg, PA 1985 & 1991 40 years
Office, warehousing &
manufacturing facility
Tampa, FL 1986 40 & 20 years
Retail department store
Klamath Falls, OR 1986 40 years
Office building
North Tampa, FL 1986 40 years
</TABLE>
(Continued)
50
<PAGE> 51
LEXINGTON COPRPORATE PROPERTIES, INC. SCHEDULE III
AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation
Initial cost to Company and Partnerships and gross amount
at which carried at end of year (A)
<TABLE>
<CAPTION>
Encumbrances Land & Land Buildings & Accumulated
Description (B) Estates Improvements Total (C) Depreciation (D) Date Acquired
- --------------------------------------- ------------ ----------- ------------ ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Industrial warehouse
Jacksonville, FL $ -- $ 156,986 $ 3,015,336 $ 3,172,322 $ 646,828 Jul. 1988
Retail store
Sacramento, CA 2,409,271 885,000 2,705,059 3,590,059 740,300 Oct. 1988
Office complex
Phoenix, AZ 5,712,523 2,803,848 13,920,637 16,724,485 2,813,119 Nov. 1988
Retail store
Reno, NV 2,085,637 1,200,000 1,903,958 3,103,958 505,044 Dec. 1988
Retail store
Las Vegas, NV 1,869,881 900,000 1,758,830 2,658,830 465,604 Dec. 1988
Retail store
Rockville, MD 1,294,393 -- 1,726,238 1,726,238 176,649 Aug. 1995
Retail store
Oxon Hill, MD 2,216,834 403,000 2,131,243 2,534,243 242,691 Aug. 1995
Retail store
Brownsville, TX 1,003,851 -- 1,242,005 1,242,005 94,898 Aug. 1995
Retail store
Laguna Hills, CA 4,735,198 254,783 4,273,670 4,528,453 300,311 Aug. 1995
Retail store
Riverdale, GA 947,330 363,420 2,232,438 2,595,858 55,811 Dec. 1995
Health club facility
Canton, OH 2,792,015 602,431 3,807,608 4,410,039 95,190 Dec. 1995
Office building
Salt Lake City, UT 35,631,114 -- 55,392,063 55,392,063 1,345,316 May 1996
Retail store
Jacksonville, AL 747,992 286,367 1,763,267 2,049,634 27,551 May 1996
<CAPTION>
Useful life on which
depreciation in latest
Date income statements is computed
Description Constructed computed
- --------------------------------------- ------------ -----------------------------
<S> <C> <C>
Industrial warehouse
Jacksonville, FL 1958 & 1969 40 & 20 years
Retail store
Sacramento, CA 1988 40, 20 & 12 years
Office complex
Phoenix, AZ 1960 & 1979 40 years
Retail store
Reno, NV 1988 40, 20 & 12 years
Retail store
Las Vegas, NV 1988 40, 20 & 12 years
Retail store
Rockville, MD 1977 22.375, 16.583
& 15.583 years
Retail store
Oxon Hill, MD 1976 21.292 years
Retail store
Brownsville, TX 1973 18.542 years
Retail store
Laguna Hills, CA 1974 20 & 20.5 years
Retail store
Riverdale, GA 1985 40 years
Health club facility
Canton, OH 1987 40 years
Office building
Salt Lake City, UT 1982 25.958 years
Retail store
Jacksonville, AL 1982 40 years
</TABLE>
(Continued)
51
<PAGE> 52
LEXINGTON COPRPORATE PROPERTIES, INC. SCHEDULE III
AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation
Initial cost to Company and Partnerships and gross amount
at which carried at end of year (A)
<TABLE>
<CAPTION>
Encumbrances Land & Land Buildings & Accumulated
Description (B) Estates Improvements Total (C) Depreciation (D) Date Acquired
- ---------------------- ------------ ----------- ------------ ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing facility
Franklin, NC $ 2,834,474 $ 385,868 $ 3,027,243 $ 3,413,111 $ -- Dec. 1996
Industrial facility
Plymouth, MI 2,297,630 1,460,649 4,835,275 6,295,924 -- Dec. 1996
Industrial facility
Oberlin, OH 1,738,950 276,231 4,488,809 4,765,040 -- Dec. 1996
Retail stores:
Tulsa, OK 1,912,379 446,869 2,231,994 2,678,863 -- Dec. 1996
Clackamas, OR 2,212,326 523,221 2,611,642 3,134,863 -- Dec. 1996
Lynwood, WA 2,090,252 488,431 2,439,561 2,927,992 -- Dec. 1996
Industrial facility
Houston, TX 2,342,267 217,209 3,535,814 3,753,023 -- Dec. 1996
Retail store
Honolulu, HI 6,468,210 -- 10,518,656 10,518,656 -- Dec. 1996
------------ ----------- ------------ ------------ ----------------
$186,188,387 $38,371,974 $301,038,698 $339,410,672 $ 51,342,953
============ =========== ============ ============ ================
<CAPTION>
Original useful life on which
depreciation in latest
Date income statements is computed
Description Constructed computed
- ---------------------- -------------- -----------------------------
<S> <C> <C>
Manufacturing facility
Franklin, NC 1996 40 years
Industrial facility
Plymouth, MI 1996 40 years
Industrial facility
Oberlin, OH 1996 40 years
Retail stores:
Tulsa, OK 1981 23.583 $ 13.583 years
Clackamas, OR 1981 23.583 & 13.583 years
Lynwood, WA 1981 23.583 & 13.583 years
Industrial facility
Houston, TX 1981 24.5 & 14.5 years
Retail store
Honolulu, HI 1980 24.33 years
</TABLE>
(A) The initial cost includes the purchase price paid by the Company
or the Partnerships and acquisition fees and expenses. The total
cost basis of the Company's Properties at December 31, 1996 for
Federal income tax purposes was $219,295,769.The total costs of
the properties acquired may exceed the initial costs due to the
Company's or Partnerships' subsequent incurrence of other costs
related to the acquisition.
(B) Balances include accrued interest payable at December 31, 1996 in
the amount of $421,929.
(C) Reconciliation of real etate owned:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Balance at the beginning of the year $ 244,222,777 $ 243,280,456 $ 243,280,456
Additions during year 95,187,895 18,555,219 -
Properties sold during year - (17,612,898) -
---------------- ----------------- -----------------
Balance at end of year $ 339,410,672 $ 244,222,777 $ 243,280,456
================ ================= =================
(D) Reconciliation of real etate owned:
Balance at beginning of year $ 43,715,721 $ 40,678,723 $ 34,769,801
Depreciation expense 7,627,232 5,817,238 5,908,922
Accumulated depreciation of
properties sold during year - (2,780,240) -
---------------- ----------------- -----------------
Balance at end of year $ 51,342,953 $ 43,715,721 $ 40,678,723
================ ================= =================
</TABLE>
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors of the Company required to be furnished
pursuant to this item is set forth under the caption "Election of Directors" in
the Proxy Statement and is incorporated herein by reference. The information
regarding executive officers of the Company required to be furnished pursuant to
this item is set forth in Item 4A of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this item is set forth
under the caption "Compensation of Executive Officers" in the Proxy Statement,
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished pursuant to this item is set forth
under the captions "Principal Security Holders" and "Stock Ownership of
Directors and Executive Officers" in the Proxy Statement, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished pursuant to this item is set forth
under the caption "Election of Directors - Certain Relationships and Related
Transactions" in the Proxy Statement, and is incorporated herein by reference.
Note, the Definitive Proxy Statement will be filed with the Securities and
Exchange Commission on or about April 22, 1997.
53
<PAGE> 54
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Page
----
(a)(1) Financial Statements 28-49
(2) Financial Statement Schedules 50-52
(3) Exhibits
Exhibit No. Exhibit
2.1 -- Form of Agreement and Plan of Merger by and among Lexington Corporate
Properties, Inc. (the "Company"), Lepercq Corporate Income Fund L.P.
("LCIF I") and Lex M-1, L.P. (filed as Appendix C-I to the Company's
Registration Statement of Form S-4 (File No. 33-66858) (the "Form
S-4"))*
2.2 -- Form of Agreement and Plan of Merger by and among the Company,
Lepercq Corporate Income Fund II L.P. ("LCIF II"), and Lex M-2, L.P.
(filed as Appendix C-II to the Form S-4)*
2.3 -- Form of Agreement and Articles of Merger between the Company and
Lexington Corporate Properties - Maryland, Inc. (Filed as Exhibit 2.3
to Report on 10-K for year ended December 31, 1993 (the "1993 10-K"))
3.1 -- Amended and Restated Certificate of Incorporation of the Company,
dated July 22, 1993 (filed as Exhibit 3.1 to the Form S-4)*
3.2 -- Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to
the Form S-4)*
4.1 -- Specimen of Common Stock Certificate of the Company (filed as Exhibit
4.1 to the Form S-4)*
4.2 -- Form of Indenture between the Company and The Bank of New York, as
Trustee, including the form of 7.75% Subordinated Note due 2000
(filed as Exhibit 4.2 to the Form S-4)*
10.1 -- Form of Employment Agreement by and between the Company and E. Robert
Roskind (filed as Exhibit 10.1 to the Form S-4)*
10.2 -- Form of Employment Agreement by and between the Company and Richard
J. Rouse (filed as Exhibit 10.2 to the Form S-4)*
10.3 -- Form of Employment Agreement by and between the Company and T. Wilson
Eglin (filed as Exhibit 10.3 to the Form S-4)*
10.4 -- Form of Employment Agreement by and between the Company and Antonia
G. Trigiani (filed as Exhibit 10.4 to the Form S-4)*
10.5 -- 1993 Stock Option Plan of the Company (filed as Exhibit 10.5 to the
Form S-4)*
10.6 -- Incentive Bonus Plan of the Company (filed as Exhibit 10.6 to the
Form S-4)*
10.7 -- Incentive Stock Option Agreement by and between the Company and E.
Robert Roskind (filed as Exhibit 10.7 to the Form S-4)*
10.8 -- Form of 1994 Outside Director Stock Plan of the Company (filed as
Exhibit 10.8 to 1993 10-K)*
54
<PAGE> 55
Exhibit No. Exhibit
10.9 -- Incentive Stock Option Agreement by and between the Company and
Richard J. Rouse (filed as Exhibit 10.8 to the Form S-4)*
10.10 -- Incentive Stock Option Agreement by and between the Company and T.
Wilson Eglin (filed as Exhibit 10.9 to the Form S-4)*
10.11 -- Incentive Stock Option Agreement by and between the Company and
Antonia G. Trigiani (filed as Exhibit 10.10 to the Form S-4)*
10.12 -- Form of Non-Qualified Stock Option Agreement by and between the
Company and E. Robert Roskind (filed as Exhibit 10.11 to the Form
S-4)*
10.13 -- Form of Non-Qualified Stock Option Agreement by and between the
Company and Richard J. Rouse (filed as Exhibit 10.12 to the Form
S-4)*
10.14 -- Form of Non-Qualified Stock Option Agreement by and between the
Company and T. Wilson Eglin (filed as Exhibit 10.13 to the Form S-4)*
10.15 -- Form of Non-Qualified Stock Option Agreement by and between the
Company and Antonia G. Trigiani (filed as Exhibit 10.14 to the Form
S-4)*
10.16 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and E. Robert Roskind, Director and Co-Chief Executive
Officer (filed as Exhibit 10.15 to the Form S-4)*
10.17 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and Richard J. Rouse, Director and Co-Chief Executive
Officer (filed as Exhibit 10.16 to the Form S-4)*
10.18 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and T. Wilson Eglin, Executive Officer (filed as Exhibit
10.17 to the Form S-4)*
10.19 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and Antonia G. Trigiani, Executive Officer (filed as
Exhibit 10.18 to the Form S-4)*
10.20 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and Paul R. Wood, Executive Officer (filed as Exhibit
10.19 to the Form S-4)*
10.21 -- Form of Indemnification Agreement by and between the Company and Seth
M. Zachary, Proposed Director (filed as Exhibit 10.20 to the Form
S-4)*
10.22 -- Form of Indemnification Agreement by and between the Company and
Kenneth L. Zakin, Proposed Director (filed as Exhibit 10.21 to the
Form S-4)*
10.23 -- Form of Indemnification Agreement by and between the Company and
Harry E. Petersen, Jr., Proposed Director (filed as Exhibit 10.22 to
the Form S-4)*
10.24 -- Class A Mortgage Note to Pacific Mutual Life Insurance Company and
Lexington Mortgage Company dated May 19, 1995 in the amount of
$34,000,000*
10.25 -- Class B Mortgage Note to Pacific Mutual Life Insurance Company and
Lexington Mortgage Company dated May 19, 1995 in the amount of
$18,500,000*
55
<PAGE> 56
Exhibit No. Exhibit
10.26 -- Class C Mortgage Note to Pacific Mutual Life Insurance Company and
Lexington Mortgage Company dated May 19, 1995 in the amount of
$17,500,000*
10.27 -- Class R Mortgage Note to Pacific Mutual Life Insurance Company and
Lexington Mortgage Company dated May 19, 1995 in the amount of
$1,000*
10.28 -- Indenture of Mortgage, Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and Assignment of Leases, Rents and
Security Deposits to First American Title Insurance Company and
Pacific Mutual Life Insurance Company and Lexington Mortgage Company
dated May 19, 1995*
10.29 -- Assignment of Leases, Rents, and Security Deposits to Pacific Mutual
Life Insurance Company and Lexington Mortgage Company dated May 19,
1995*
10.30 -- Cash Collateral Account, Security, Pledge and Assignment Agreement
with the Bank of New York, as agent and Pacific Mutual Life Insurance
Company and Lexington Mortgage Company dated May 19, 1995*
10.31 -- Trust and Servicing Agreement with Pacific Mutual Life Insurance
Company, LaSalle National Bank and ABN AMRO Bank N.V. dated May 19,
1995*
10.32 -- Revolving Credit and Term Loan Agreement with Fleet National Bank
dated November 14, 1995 in the amount of $25,000,000*
10.33 -- Investment Agreement dated as of December 31, 1996 with Five Arrows
Realty Securities L.L.C.*
10.34 -- Operating Agreement dated as of January 21, 1997 with Five Arrows
Realty Securities L.L.C.*
10.35 -- Articles Supplementary Classifying 2,000,000 shares of Preferred
Stock as Class A Senior Cumulative Convertible Preferred Stock and
2,000,000 shares of Excess Stock as Excess Class A Preferred Stock of
the Company*
10.36 -- Amended and Restated Revolving Credit Agreement with Fleet National
Bank dated February 20, 1997 in the amount of $60,000,000
12 -- Statement of Computation of Ratio of Earnings to Fixed Charges (filed
as Exhibit 12 to the Form S-4)*
21 -- List of Subsidiaries of the Company (filed as Exhibit 21 to the Form
S-4)*
23 -- Consent of KPMG Peat Marwick LLP
27 -- Financial Data Schedule
(b) Reports on Form 8-K
None
- ----------------------
* Incorporated by reference.
56
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LEXINGTON CORPORATE PROPERTIES, INC.
By: _____________________________
E. Robert Roskind
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated.
Signature Title
/s/ Robert Roskind
- ---------------------------
E. Robert Roskind Chairman of the Board of Directors
and Co-Chief Executive Officer
/s/ Richard J. Rouse
- ---------------------------
Richard J. Rouse Vice Chairman and Co-Chief
Executive Officer and Director
/s/ T. Wilson Eglin
- ---------------------------
T. Wilson Eglin President and Chief Operating Officer
and Director
/s/ Antonia G. Trigiani
- ---------------------------
Antonia G. Trigiani Chief Financial Officer and Treasurer
/s/ Paul R. Wood
- ---------------------------
Paul R. Wood Vice President, Chief Accounting
/s/ Carl D. Glickman Officer and Secretary
- ---------------------------
Carl D. Glickman Director
/s/ Kevin W. Lynch
- ---------------------------
Kevin W. Lynch Director
/s/ John D. Mc Gurk
- ---------------------------
John D. Mc Gurk Director
/s/ Harry E. Petersen, Jr.
- ---------------------------
Harry E. Petersen, Jr. Director
/s/ Seth M. Zachary
- ---------------------------
Seth M. Zachary Director
DATE: March 31, 1997
57
<PAGE> 58
EXHIBIT INDEX
Exhibit
No. Description
2.1 -- Form of Agreement and Plan of Merger by and among Lexington Corporate
Properties, Inc. (the "Company"), Lepercq Corporate Income Fund L.P.
("LCIF I") and Lex M-1, L.P. (filed as Appendix C-I to the Company's
Registration Statement of Form S-4 (File No. 33-66858) (the "Form
S-4"))*
2.2 -- Form of Agreement and Plan of Merger by and among the Company,
Lepercq Corporate Income Fund II L.P. ("LCIF II"), and Lex M-2, L.P.
(filed as Appendix C-II to the Form S-4)*
2.3 -- Form of Agreement and Articles of Merger between the Company and
Lexington Corporate Properties - Maryland, Inc. (Filed as Exhibit 2.3
to Report on 10-K for year ended December 31, 1993 (the "1993 10-K"))
3.1 -- Amended and Restated Certificate of Incorporation of the Company,
dated July 22, 1993 (filed as Exhibit 3.1 to the Form S-4)*
3.2 -- Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to
the Form S-4)*
4.1 -- Specimen of Common Stock Certificate of the Company (filed as Exhibit
4.1 to the Form S-4)*
4.2 -- Form of Indenture between the Company and The Bank of New York, as
Trustee, including the form of 7.75% Subordinated Note due 2000
(filed as Exhibit 4.2 to the Form S-4)*
10.1 -- Form of Employment Agreement by and between the Company and E. Robert
Roskind (filed as Exhibit 10.1 to the Form S-4)*
10.2 -- Form of Employment Agreement by and between the Company and Richard
J. Rouse (filed as Exhibit 10.2 to the Form S-4)*
10.3 -- Form of Employment Agreement by and between the Company and T. Wilson
Eglin (filed as Exhibit 10.3 to the Form S-4)*
10.4 -- Form of Employment Agreement by and between the Company and Antonia
G. Trigiani (filed as Exhibit 10.4 to the Form S-4)*
10.5 -- 1993 Stock Option Plan of the Company (filed as Exhibit 10.5 to the
Form S-4)*
10.6 -- Incentive Bonus Plan of the Company (filed as Exhibit 10.6 to the
Form S-4)*
10.7 -- Incentive Stock Option Agreement by and between the Company and E.
Robert Roskind (filed as Exhibit 10.7 to the Form S-4)*
10.8 -- Form of 1994 Outside Director Stock Plan of the Company (filed as
Exhibit 10.8 to 1993 10-K)*
<PAGE> 59
Exhibit
No. Description
10.9 -- Incentive Stock Option Agreement by and between the Company and
Richard J. Rouse (filed as Exhibit 10.8 to the Form S-4)*
10.10 -- Incentive Stock Option Agreement by and between the Company and T.
Wilson Eglin (filed as Exhibit 10.9 to the Form S-4)*
10.11 -- Incentive Stock Option Agreement by and between the Company and
Antonia G. Trigiani (filed as Exhibit 10.10 to the Form S-4)*
10.12 -- Form of Non-Qualified Stock Option Agreement by and between the
Company and E. Robert Roskind (filed as Exhibit 10.11 to the Form
S-4)*
10.13 -- Form of Non-Qualified Stock Option Agreement by and between the
Company and Richard J. Rouse (filed as Exhibit 10.12 to the Form
S-4)*
10.14 -- Form of Non-Qualified Stock Option Agreement by and between the
Company and T. Wilson Eglin (filed as Exhibit 10.13 to the Form S-4)*
10.15 -- Form of Non-Qualified Stock Option Agreement by and between the
Company and Antonia G. Trigiani (filed as Exhibit 10.14 to the Form
S-4)*
10.16 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and E. Robert Roskind, Director and Co-Chief Executive
Officer (filed as Exhibit 10.15 to the Form S-4)*
10.17 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and Richard J. Rouse, Director and Co-Chief Executive
Officer (filed as Exhibit 10.16 to the Form S-4)*
10.18 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and T. Wilson Eglin, Executive Officer (filed as Exhibit
10.17 to the Form S-4)*
10.19 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and Antonia G. Trigiani, Executive Officer (filed as
Exhibit 10.18 to the Form S-4)*
10.20 -- Indemnification Agreement, dated as of July 19, 1993, by and between
the Company and Paul R. Wood, Executive Officer (filed as Exhibit
10.19 to the Form S-4)*
10.21 -- Form of Indemnification Agreement by and between the Company and Seth
M. Zachary, Proposed Director (filed as Exhibit 10.20 to the Form
S-4)*
10.22 -- Form of Indemnification Agreement by and between the Company and
Kenneth L. Zakin, Proposed Director (filed as Exhibit 10.21 to the
Form S-4)*
10.23 -- Form of Indemnification Agreement by and between the Company and
Harry E. Petersen, Jr., Proposed Director (filed as Exhibit 10.22 to
the Form S-4)*
10.24 -- Class A Mortgage Note to Pacific Mutual Life Insurance Company and
Lexington Mortgage Company dated May 19, 1995 in the amount of
$34,000,000*
10.25 -- Class B Mortgage Note to Pacific Mutual Life Insurance Company and
Lexington Mortgage Company dated May 19, 1995 in the amount of
$18,500,000*
<PAGE> 60
Exhibit
No. Description
10.26 -- Class C Mortgage Note to Pacific Mutual Life Insurance Company and
Lexington Mortgage Company dated May 19, 1995 in the amount of
$17,500,000*
10.27 -- Class R Mortgage Note to Pacific Mutual Life Insurance Company and
Lexington Mortgage Company dated May 19, 1995 in the amount of
$1,000*
10.28 -- Indenture of Mortgage, Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and Assignment of Leases, Rents and
Security Deposits to First American Title Insurance Company and
Pacific Mutual Life Insurance Company and Lexington Mortgage Company
dated May 19, 1995*
10.29 -- Assignment of Leases, Rents, and Security Deposits to Pacific Mutual
Life Insurance Company and Lexington Mortgage Company dated May 19,
1995*
10.30 -- Cash Collateral Account, Security, Pledge and Assignment Agreement
with the Bank of New York, as agent and Pacific Mutual Life Insurance
Company and Lexington Mortgage Company dated May 19, 1995*
10.31 -- Trust and Servicing Agreement with Pacific Mutual Life Insurance
Company, LaSalle National Bank and ABN AMRO Bank N.V. dated May 19,
1995*
10.32 -- Revolving Credit and Term Loan Agreement with Fleet National Bank
dated November 14, 1995 in the amount of $25,000,000*
10.33 -- Investment Agreement dated as of December 31, 1996 with Five Arrows
Realty Securities L.L.C.*
10.34 -- Operating Agreement dated as of January 21, 1997 with Five Arrows
Realty Securities L.L.C.*
10.35 -- Articles Supplementary Classifying 2,000,000 shares of Preferred
Stock as Class A Senior Cumulative Convertible Preferred Stock and
2,000,000 shares of Excess Stock as Excess Class A Preferred Stock of
the Company*
10.36 -- Amended and Restated Revolving Credit Agreement with Fleet National
Bank dated February 20, 1997 in the amount of $60,000,000
12 -- Statement of Computation of Ratio of Earnings to Fixed Charges (filed
as Exhibit 12 to the Form S-4)*
21 -- List of Subsidiaries of the Company (filed as Exhibit 21 to the Form
S-4)*
23 -- Consent of KPMG Peat Marwick LLP
27 -- Financial Data Schedule
- ----------------------
* Incorporated by reference.
<PAGE> 1
Exhibit 23
Accountant's Consent
The Board of Directors
Lexington Corporate Properties, Inc.:
We consent to incorporation by reference in the registration statement (No.
1-12386) on Form S-3 of Lexington Corporate Properties, Inc. of our report dated
January 21, 1997, relating to the consolidated balance sheets of Lexington
Corporate Properties, Inc. and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, and the related schedule, which report
appears in the December 31, 1996 annual report on Form 10-K of Lexington
Corporate Properties, Inc.
KPMG PEAT MARWICK LLP
New York, New York
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AS CONTAINED IN THE COMPANY'S
10-K FOR DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-K.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 6,218,327
<SECURITIES> 0
<RECEIVABLES> 7,842,568
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 339,410,672
<DEPRECIATION> (51,342,953)
<TOTAL-ASSETS> 309,126,114
<CURRENT-LIABILITIES> 0
<BONDS> 188,197,207
0
0
<COMMON> 943
<OTHER-SE> 92,658,204
<TOTAL-LIABILITY-AND-EQUITY> 309,126,114
<SALES> 0
<TOTAL-REVENUES> 31,675,355
<CGS> 0
<TOTAL-COSTS> 8,313,432
<OTHER-EXPENSES> 619,362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,817,528
<INCOME-PRETAX> 6,155,886
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,465,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,465,824
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
