<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number 1-12386
LEXINGTON CORPORATE PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 13-3717318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
355 Lexington Avenue
New York, NY 10017
(Address of principal executive offices) (Zip code)
(212) 692-7260
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x. No .
Indicate the number of shares outstanding of each of the registrant's classes of
common shares, as of the latest practicable date: 16,521,077 common shares,
par value $.0001 per share on April 30, 1998.
<PAGE> 2
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1998 (Unaudited) and December 31, 1997
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Real estate, at cost $ 503,335 $ 466,348
Less: accumulated depreciation and amortization 54,160 50,993
--------- ---------
449,175 415,355
Property held for sale 24,501 24,501
Cash and cash equivalents 4,858 3,640
Restricted cash 4,739 5,499
Escrow deposits 13,393 1,249
Other assets, net 16,646 16,871
--------- ---------
$ 513,312 $ 467,115
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable, including accrued interest $ 245,930 $ 220,560
Subordinated notes payable, including accrued interest 1,936 1,973
Origination fees payable, including accrued interest and accumulated
accretion 4,629 4,627
Accounts payable and other liabilities 3,265 4,880
--------- ---------
255,760 232,040
Minority interests 51,937 28,240
--------- ---------
307,697 260,280
--------- ---------
Preferred shares, par value $0.0001 per share; authorized 10,000,000
shares. Class A Senior Cumulative Convertible Preferred, liquidation
preference $25,000; 2,000,000 shares issued and outstanding 24,369 24,369
--------- ---------
Shareholders' equity:
Excess shares, par value $0.0001 per share; authorized 40,000,000 shares,
issued none -- --
Common shares, par value $0.0001 per share, authorized 40,000,000 shares,
16,521,077 and 16,509,610 shares issued and outstanding in 1998 and
1997, respectively 2 2
Additional paid-in-capital 235,381 235,469
Accumulated distributions in excess of net income (54,137) (53,005)
--------- ---------
Total shareholders' equity 181,246 182,466
--------- ---------
$ 513,312 $ 467,115
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
<PAGE> 3
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Quarters ended March 31, 1998 and 1997
(Unaudited and in thousands, except share and per share data)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, March 31,
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Rental $ 12,977 $ 9,699
Interest and other 1,003 125
----------- -----------
13,980 9,824
----------- -----------
Expenses:
Interest expense 4,645 4,240
Depreciation and amortization of real estate 3,167 2,461
Amortization of deferred expenses 242 194
General and administrative expenses 956 870
Other expenses 110 219
----------- -----------
9,120 7,984
----------- -----------
Income before minority interests and extraordinary item 4,860 1,840
Minority interests 798 274
----------- -----------
Income before extraordinary item 4,062 1,566
Extraordinary item - loss on extinguishment of debt -- 56
----------- -----------
Net income $ 4,062 $ 1,510
=========== ===========
Net income (loss) per common share - basic:
Income (loss) before extraordinary item, per common share $ 0.21 $ (0.01)
Extraordinary item - loss on extinguishment of debt, per common share -- (0.01)
----------- -----------
Basic net income (loss) per common share $ 0.21 $ (0.02)
=========== ===========
Weighted average common shares outstanding 16,514,711 9,433,799
=========== ===========
Net income (loss) per common share - diluted:
Income (loss) before extraordinary item, per common share $ 0.20 $ (0.01)
Extraordinary item - loss on extinguishment of debt, per common share -- (0.01)
----------- -----------
Diluted net income (loss) per common share $ 0.20 $ (0.02)
=========== ===========
Weighted average common shares outstanding 20,874,498 9,433,799
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 4
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters ended March 31, 1998 and 1997
(Unaudited and in thousands)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, March 31,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,062 $ 1,510
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,409 2,655
(Decrease) increase in accounts payable and other liabilities (1,615) 282
Other adjustments, net 375 30
-------- --------
Total adjustments 2,169 2,967
-------- --------
Net cash provided by operating activities 6,231 4,477
-------- --------
Cash flows used in investing activities:
Additions to real estate assets, net of issuance
of special limited partnership units (36,987) (24,329)
-------- --------
Cash flows from financing activities:
Dividends to common and preferred shareholders (5,193) (2,734)
Increase in escrow deposits (12,144) --
Repayments on mortgage notes (4,029) (12,676)
Proceeds of mortgage notes payable 29,800 30,200
Proceeds from issuance of special limited partnership units 23,449 --
Cash distributions to minority interests (551) (366)
Common shares issued 167 169
Preferred shares issued, net of offering costs -- 8,348
Other financing activities, net 475 (1,427)
-------- --------
Net cash provided by financing activities 31,974 21,514
-------- --------
Increase in cash and cash equivalents 1,218 1,662
Cash and cash equivalents at beginning of period 3,640 2,468
-------- --------
Cash and cash equivalents at end of period $ 4,858 $ 4,130
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 5,081 $ 4,240
======== ========
Cash paid during the period for taxes $ 15 $ 14
======== ========
Supplemental disclosure of non-cash investing
and financing activities:
</TABLE>
On March 19, 1997, in connection with an acquisition of properties involving a
partnership, the Company issued partnership units as partial satisfaction of the
purchase price. The proceeds from the issuance of these partnership units have
been recorded as minority interest in the accompanying consolidated financial
statements.
<PAGE> 5
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
(1) The Company
Lexington Corporate Properties Trust (the "Company") is a self-managed
and self-administered real estate investment trust ("REIT") that
acquires, owns and manages a geographically diversified portfolio of
net leased office, industrial and retail properties. As of March 31,
1998, the Company owned controlling interests in fifty-five properties
(the "Properties") and minority interests in two additional properties.
The real properties owned by the Company are subject to triple net
leases to corporate tenants. The Company was organized in 1993 to
combine and continue to expand the business of two affiliated limited
partnerships (the "Partnerships").
The Company has qualified as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended (the "Code"). A
real estate investment trust is generally not subject to Federal income
tax on that portion of its real estate investment trust taxable income
("Taxable Income") which is distributed to its stockholders, provided
that at least 95% of Taxable Income is distributed. Accordingly, no
provision for Federal income taxes has been made.
The unaudited financial statements reflect all adjustments which are,
in the opinion of management, necessary to a fair statement of the
results for the interim periods presented. For a more complete
understanding of the Company's operations and financial position,
reference is made to the financial statements previously filed with the
Securities and Exchange Commission with the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
(2) Summary of Significant Accounting Policies
Basis of Presentation and Consolidation. The Company's consolidated
financial statements are prepared on the accrual basis of accounting
for financial and Federal income tax reporting purposes. 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"). The Company is the
sole general partner and majority limited partner of LCIF and LCIF II
as well as a general partner and majority limited partner in four other
partnerships and, accordingly, accounts for them on a consolidated
basis. Entities in which the Company has an interest of less than 50%
are accounted for under the equity method and the investments in these
partnerships are included in other assets in the accompanying
consolidated balance sheets.
Real Estate. The Company applied the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. 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. Real estate held for
investment is carried at cost less accumulated depreciation unless
declines in values of the Properties are considered other than
temporary. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
<PAGE> 6
Depreciation for financial reporting purposes is determined by the
straight-line method over the estimated economic useful lives of the
Properties. The Company depreciates buildings and building improvements
over a 40-year period or the remaining useful lives from the dates of
acquisition, land improvements over a 20-year period, and fixtures and
equipment over a 12-year period. Depreciation for tax purposes is
determined in accordance with the Modified Accelerated Cost Recovery
System. Amortization of the land estates for financial reporting and
tax purposes is determined by the straight-line method over the
respective remaining useful lives from the dates of acquisition.
Revenue. The Company has determined that the leases relating to the
Properties are operating leases. Rental revenue is recognized on a
straight-line basis over the minimum lease terms.
Earnings Per Share. Basic net income per share is computed by dividing
net income reduced by preferred dividends by the weighted average
number of common shares outstanding during the period.
Diluted net income per share amounts are similarly computed but include
the effect, when dilutive, of the Company's other securities. The
Company's preferred shares and exchangeable redeemable secured notes
are excluded from the 1998 computation since they are anti-dilutive.
The Company's preferred shares, operating partnership units and
exchangeable redeemable secured notes are excluded from the 1997
computation since they are anti-dilutive.
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the quarters
ended March 31, 1998 and 1997 (in thousands, except share and per share
data).
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1998 March 31, 1997
------------ ------------
<S> <C> <C>
BASIC
Income before extraordinary item $ 4,062 $ 1,566
Less:
Preferred dividends (609) (166)
Deemed additional preferred dividends -- (1,488)
------------ ------------
Basic income (loss) attributed to common shareholders
before extraordinary item 3,453 (88)
Extraordinary item - loss on extinguishment of debt -- (56)
------------ ------------
Basic net income (loss) attributed to common
shareholders $ 3,453 $ (144)
============ ============
Weighted average number of common shares
outstanding 16,514,711 9,433,799
============ ============
Net income (loss) per common share - basic:
Income (loss) before extraordinary item $ 0.21 (0.01)
Extraordinary item - loss on extinguishment of debt
-- (0.01)
------------ ------------
Basic net income (loss) $ 0.21 $ (0.02)
============ ============
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1998 March 31, 1997
------------ ------------
<S> <C> <C>
DILUTED
Basic Income (loss) attributed to common holders
before extraordinary item $ 3,453 $ (88)
Add: minority interests attributed to limited
partnership units assuming conversion of such units 759 --
------------ ------------
Diluted income (loss) attributed to common
shareholders before extraordinary item 4,212 (88)
Extraordinary item - loss on extinguishment of debt -- (56)
------------ ------------
Diluted net income (loss) attributed to common
shareholders $ 4,212 $ (144)
============ ============
Weighted average number of shares used in calculation
of basic earnings per share 16,514,711 9,433,799
Add incremental shares representing:
Shares issuable upon exercise of employee stock options 208,752 --
Shares issuable upon conversion of limited partnership
units 4,151,035 --
------------ ------------
Weighted average number of shares used in calculation
of diluted earnings per common share 20,874,498 9,433,799
============ ============
Net income (loss) per common share - diluted:
Income (loss) before extraordinary item $ 0.20 $ (0.01)
Extraordinary item - loss on extinguishment of debt -- (0.01)
------------ ------------
Diluted net income (loss) per common share $ 0.20 $ (0.02)
============ ============
</TABLE>
To compute earnings per share for the quarter ended March
31, 1997, net income attributed to common shareholders was reduced by
the deemed additional preferred dividend relating to the sale of the
preferred shares. Income per common share data for the quarter ended
March 31, 1997 has been restated by ($0.16) to reflect the deemed
dividend of the beneficial conversion feature of the preferred shares.
In accordance with the provisions of SFAS 128, Earnings Per Share,
the Company has restated its earnings per share for the
quarter ended March 31, 1997.
Use of Estimates. 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.
Recent Accounting Pronouncements. In June 1997, SFAS No. 130,
"Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," were issued. SFAS
No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that
is displayed with the same prominence as other financial statements.
Reclassification of financial statements for earlier periods, provided
for comparative purposes,
<PAGE> 8
is required. The statement also requires the accumulated balance of
other comprehensive income to be displayed separately from retained
earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS No. 131 establishes standards for reporting
information about operating segments in annual and interim financial
statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Categories required to be reported as well as reconciled to the
financial statements are segment profit or loss, certain specific
revenue and expense items, and segment assets. SFAS No. 130 and No. 131
are effective for fiscal years beginning after December 15, 1997. The
adoption of these standards had no impact on the Company's consolidated
financial position and consolidated operating results as of and for the
quarter ended March 31, 1998.
Reclassifications. Certain amounts included in the 1997 financial
statements have been reclassified to conform with the 1998
presentation.
(3) Investments in Real Estate
During the quarter ended March 31, 1998, the Company made the following
acquisitions:
<TABLE>
<CAPTION>
Annualized Net
Base Rent Lease Rentable
Date of Acquisition @ 3-31-98 Expiration Square
Acquisition Tenant Location Cost ($M) ($000's) Date Feet
----------- ------ -------- --------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1998
----
March 27 Jones Apparel Group, Inc. Bristol, PA $12.509 $ 1,150 03-13 255,019
March 27 Fidelity Corporate Real Estate, LLC Hebron, KY 8.056 777 04-07 81,744
March 27 Kelsey-Hayes Corp. Livonia, MI * 16.406 1,523 04-07 180,230
------- -------- -------
TOTALS $36.971 $ 3,450 516,993
======= ======== =======
</TABLE>
* The Livonia, Michigan acquisition consists of two properties; the
office/headquarters of Kelsey-Hayes Corporation and an adjacent
research and development building also leased to Kelsey-Hayes.
The following unaudited pro forma operating information for the
quarters ended March 31, 1998 and 1997 has been prepared as if the
1998 and 1997 acquisitions and the 1997 disposition had been
consummated as of January 1, 1997. The information does not purport to
be indicative of what the operating results of the Company would have
been had the acquisitions or disposition been consummated on that
date. Pro forma amounts are as follows:
<PAGE> 9
<TABLE>
<CAPTION>
($000's, except per share data)
Unaudited Unaudited
Pro forma Pro forma
Quarter ended Quarter ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues $ 14,886 $ 14,819
Income before extraordinary item 4,234 2,747
Net income 4,234 2,691
Per common share:
Income before extraordinary item - basic 0.22 0.12
Income before extraordinary item - diluted 0.21 0.11
Net income - basic 0.22 0.11
Net income - diluted 0.21 0.11
</TABLE>
(4) Mortgage Notes Payable
On March 26, 1998, the Company obtained temporary bridge financing in
the amount of $15 million. The total principal amount, plus any accrued
but unpaid interest shall be due and payable on May 26, 1998. The
interest rate in effect at March 31, 1998 was 7.0625% per annum.
During the quarter ended March 31, 1998, the Company drew down an
additional $14.8 million under its line of credit for property
acquisitions. As of March 31, 1998, this draw down was bearing interest
at 7.1875% per annum. The amount outstanding on the credit facility as
of March 31, 1998 was $24 million.
(5) Leases
Minimum future rents receivable under non-cancelable operating leases
as of March 31, 1998 are as follows (in 000's):
<TABLE>
<CAPTION>
Year ending
December 31
-----------
<S> <C>
1998 (9 months) $ 39,280
1999 52,647
2000 52,779
2001 50,484
2002 47,417
2003 47,164
2004-2008 180,407
2009-2013 39,657
2014 322
---------
$ 510,157
=========
</TABLE>
(6) 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 common shares on a one-for-one basis at various dates through May
2006.
On January 29, 1998 two affiliated partnerships merged into LCIF. As a
result of the merger, LCIF and LCIF II issued 1,670,212 partnership
units redeemable for the Company's common shares, and which are
entitled to distributions at the same dividend rate as common shares.
At the time of the merger, the partnerships' sole assets were
approximately $24 million in cash from prior property sales and the
right to
<PAGE> 10
acquire properties in tax free exchanges under Internal Revenue Code
Section 1031. The Company completed one of the tax free exchanges upon
the acquisition of the Hebron, Kentucky Property. As of March 31, 1998,
the Company was in the process of completing the other tax free
exchange, with approximately $13.3 million of cash remaining in escrow
on that date.
As of March 31, 1998, the total number of special limited partnership
units of LCIF and LCIF II outstanding was 4,670,657. These units,
subject to certain adjustments through the date of conversion, have
distributions per unit in varying amounts up to $1.16 per unit.
Minority interests in the accompanying consolidated financial
statements relate to interests in such partnerships held by parties
other than the Company.
(7) Subsequent Events
On April 22, 1998, the Company declared a dividend of $.29 per share to
shareholders of record on April 30, 1998 to be paid on May 15, 1998.
The Company has received a commitment from Fleet National Bank for a
three year $100 million unsecured revolving credit facility to replace
its $60 million secured credit facility. The unsecured credit facility
will bear interest at a rate of 1.10% to 1.375% over LIBOR, depending
on the Company's level of indebtedness. In the event the Company
obtains an investment grade credit rating, the credit facility will
bear interest at a rate of 0.7% to 1.10% over LIBOR, depending on the
applicable debt rating. The Company's present credit facility bears
interest at 1.50% over LIBOR. The transaction, which is subject to
customary documentation and other closing conditions, is expected to
close during the second quarter of 1998, although there can be no
assurance that all conditions to funding will be satisfied.
The Company anticipates that the Newark Property will be sold on or
about May 28, 1998 for $24.55 million, the negotiated sales price.
On May 11, 1998, the Company acquired a 133,791 square foot retail
facility in Federal Way, Washington for $13.7 million. In connection
with the acquisition, the Company incurred non-recourse mortgage
indebtedness of approximately $8.7 million. The mortgage debt bears
interest at 7.48% per annum, requires monthly payments of $61,000 and
matures on May 11, 2008, when a balloon payment of approximately $7.5
million is due. The Federal Way, Washington Property is subject to a
net-lease to Eagle Hardware and Garden which expires on July 31, 2017.
The annual net rent is approximately $1.23 million and will increase on
August 1, 2002 and every five years thereafter by the cumulative change
in the Consumer Price Index for the previous five years, not to exceed
15%. In addition to the base rent, the tenant pays as additional rent
an amount equal to 2% of annual gross sales in excess of $38.5 million.
On May 11, 1998, the Company acquired a 157,525 square foot retail
facility in Anchorage, Alaska for approximately $17.6 million, of which
$4.0 million consisted of 279,191 operating partnership units. In
connection with the acquisition, the Company incurred non-recourse
mortgage indebtedness of approximately $11.3 million. The mortgage
bears interest at 7.48% per annum, requires monthly payments of $79,000
and matures on May 11, 2008, when a balloon payment of $9.8 million is
due. The Anchorage, Alaska Property is subject to a net-lease to Eagle
Hardware and Garden which expires on October 31, 2017. The annual net
rent is approximately $1.59 million and will increase on November 1,
2002 and every five years thereafter by the cumulative change in the
Consumer Price Index for the previous five years, not to exceed 15%. In
addition to the base rent, the tenant pays as additional rent an amount
equal to 2% of gross sales in excess of $50.0 million.
<PAGE> 11
The Company has received a proposal from the existing lender to
refinance mortgage debt secured by the Company's properties in Tampa,
Florida. This debt, in amounts of $4.3 million and $5.7 million, was
scheduled to mature on May 1, 1998 and June 1, 1998, respectively. The
Company expects to refinance this debt with the existing lender at an
interest rate of approximately 145 basis points over 4 year U.S.
Treasury Issues.
<PAGE> 12
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
When used in this Form 10-Q Report, the words "believes," "expects," "estimates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially. In particular, among the factors that could
cause actual results to differ materially 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.
General
The Company, which has elected to qualify as a real estate investment trust
under the Internal Revenue Code of 1986, acquires and manages net-leased
commercial properties.
As of March 31, 1998, the Company owned fifty-seven real estate properties (or
interests therein) (the "Properties") (including the Newark, California Property
which is held for sale).
Liquidity and Capital Resources
Real Estate Assets. As of March 31, 1998, the Company's real estate assets were
located in twenty-six states and contained an aggregate of approximately 8.2
million square feet of net rentable space (including the Newark, California
Property which is held for sale). The Properties are subject to tenant triple
net leases, which are 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.
During the quarter ended March 31, 1998, the Company made the following
acquisitions:
<TABLE>
<CAPTION>
Annualized Net
Base Rent Lease Rentable
Date of Acquisition @ 3-31-98 Expiration Square
Acquisition Tenant Location Cost ($M) ($000's) Date Feet
- ----------- --------------------------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998
- ----
March 27 Jones Apparel Group, Inc. Bristol, PA $ 12.509 $ 1,150 03-13 255,019
March 27 Fidelity Corporate Real Estate, LLC Hebron, KY 8.056 777 04-07 81,744
March 27 Kelsey-Hayes Corp. Livonia, MI * 16.406 1,523 04-07 180,230
---------- ---------- ----------
TOTALS $ 36.971 $ 3,450 516,993
========== ========== ==========
</TABLE>
* The Livonia, Michigan acquisition consists of two properties; the
office/headquarters of Kelsey-Hayes Corporation and an adjacent research and
development building also leased to Kelsey-Hayes.
The Company's principal sources of liquidity are revenue generated from the
Properties, interest on cash balances, amounts available under its Credit
Facility and amounts that may be raised through the sale of securities in
private or public offerings. For the quarter ended March 31, 1998, such leases
on the Properties generated approximately $13.0 million in revenue compared to
$9.7 million during the same period in 1997.
On May 11, 1998, the Company acquired a 133,791 square foot retail facility in
Federal Way, Washington for $13.7 million. In connection with the acquisition,
the Company incurred non-recourse mortgage indebtedness of approximately $8.7
million. The mortgage debt bears interest at 7.48% per annum, requires monthly
payments of
<PAGE> 13
$61,000 and matures on May 11, 2008 when a balloon payment of approximately $7.5
million is due. The Federal Way, Washington Property is subject to a net-lease
to Eagle Hardware and Garden which expires on July 31, 2017. The annual net rent
is approximately $1.23 million and will increase on August 1, 2002 and every
five years thereafter by the cumulative change in the Consumer Price Index for
the previous five years, not to exceed 15%. In addition to the base rent, the
tenant pays as additional rent an amount equal to 2% of annual gross sales in
excess of $38.5 million.
On May 11, 1998, the Company acquired a 157,525 square foot retail facility in
Anchorage, Alaska for approximately $17.6 million, of which $4.0 million
consisted of 279,191 operating partnership units. In connection with the
acquisition, the Company incurred non-recourse mortgage indebtedness of
approximately $11.3 million. The mortgage bears interest at 7.48% per annum,
requires monthly payments of $79,000 and matures on May 11, 2008, when a balloon
payment of $9.8 million is due. The Anchorage, Alaska Property is subject to a
net-lease to Eagle Hardware and Garden which expires on October 31, 2017. The
annual net rent is approximately $1.59 million and will increase on November 1,
2002 and every five years thereafter by the cumulative change in the Consumer
Price Index for the previous five years, not to exceed 15%. In addition to the
base rent, the tenant pays as additional rent an amount equal to 2% of gross
sales in excess of $50.0 millioncompletion of the expansion, the existing lease
will be amended to provide for a new fifteen year term and the annual rental
rate will be increased to $465,000.
Dividends. The Company has made quarterly distributions since October, 1986
without interruption. The Company paid a dividend of $.27 per share to
shareholders in respect of each of the calendar quarters of 1995; a dividend of
$.27 per share to shareholders in respect of the first quarter of 1996; $.28 per
share in respect of the second and third quarters of 1996; and $.29 per share in
respect of the fourth quarter of 1996 and each of the calendar quarters of 1997.
The Company declared a dividend in respect of the first quarter of 1998, in the
amount of $.29 per share to shareholders of record as of April 30, 1998 to be
paid on May 15, 1998. 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 redeemable at
certain times for common shares on a one-for-one basis and all of such interests
require the Company to pay certain distributions to the holders of such
interests. The Company accounts for these interests in a manner similar to a
minority interest holder. The number of common shares that will be outstanding
in the future should be expected to increase, and minority interest expense
should be expected to decrease, from time to time, as such partnership interests
are redeemed for common shares. The table set forth below provides certain
information with respect to such partnership interests as of March 31, 1998.
<PAGE> 14
<TABLE>
<CAPTION>
Total
1998 Annual
Redeemable Annualized Distribution
for Shares of Number Per Unit in 1998
Common Shares as of: of Units Distribution ($000's)
- ------------------- ------------ ------------ -------------
<S> <C> <C> <C>
At any time 169,109 $ 1.160 $ 196
May 1998 1,715,294 0.975 1,672
May 1998 114,006 1.080 123
January 1999 147,246 1.120 165
January 1999 1,670,212 1.160 1,937
April 1999 480,028 1.160 557
January 2003 7,441 -- --
March 2004 52,335 0.270 14
November 2004 35,400 -- --
March 2005 36,825 -- --
January 2006 207,728 -- --
February 2006 23,267 -- --
May 2006 11,766 0.290 3
------------ ------------
Total 4,670,657 $ 4,667
============ ============
</TABLE>
Financing
Partnership Mergers. On January 29, 1998, two affiliated partnerships merged
into LCIF. As a result of the merger, LCIF and LCIF II issued 1,670,212
partnership units redeemable for the Company's common shares, and which are
entitled to distributions at the same dividend rate as common shares. At the
time of the merger, the partnerships' sole assets were approximately $24
million in cash from prior property sales and the right to acquire properties in
tax free exchanges under Internal Revenue Code Section 1031. The Company
completed one of the tax free exchanges upon the acquisition of the Hebron,
Kentucky Property. As of March 31, 1998 the Company was in the process of
completing the other tax free exchange, with approximately $13.3 million of cash
remaining in escrow on that date.
Bridge Financing. On March 26, 1998, the Company obtained temporary bridge
financing in the amount of $15 million. The total principal amount, plus any
accrued but unpaid interest shall be due and payable on May 26, 1998. The
interest rate in effect at March 31, 1998 was 7.0625% per annum.
Revolving Credit Facility. In February 1997, the Company's secured revolving
credit facility (the "Credit Facility") was amended to extend the maturity date
to June 1999 and to increase the maximum borrowing availability to $60.0
million. The Credit Facility bears interest at 1.5% over LIBOR and has, at the
Company's option, an interest rate period of one month, three months, or six
months. The Credit Facility contains various leverage, debt service coverage,
net worth maintenance and other customary covenants. During the quarter ended
March 31, 1998, the Company drew down an additional $14.8 million under its line
of credit for property acquisitions. As of March 31, 1998, this draw down was
bearing interest at 7.1875% per annum. The amount outstanding on the credit
facility as of March 31, 1998 was $24 million.
The Company has received a commitment from Fleet National Bank for a three year
$100 million unsecured revolving credit facility to replace its $60 million
secured credit facility. The unsecured credit facility will bear interest at a
rate of 1.10% to 1.375% over LIBOR, depending on the Company's level of
indebtedness. In the event the Company obtains an investment grade credit
rating, the credit facility will bear interest at a rate of 0.7% to 1.10% over
LIBOR, depending on the applicable debt rating. The Company's present credit
facility bears interest at 1.50% over LIBOR. The transaction, which is subject
to customary documentation and other closing conditions, is expected to close
during the second quarter of 1998, although there can be no assurance that all
conditions to funding will be satisfied.
Debt Service Requirements. The Company's principal liquidity needs are the
payment of interest and principal on outstanding mortgage debt. As of March 31,
1998, a total of forty-one properties were subject to outstanding
<PAGE> 15
mortgages which had an aggregate principal amount, including accrued interest,
of $245.93 million. The weighted average interest rate on the Company's debt on
such date was approximately 8.04%. Approximate balloon payment amounts for the
next five calendar years are due as follows: $25.01 million in 1998 (including
the $15 million bridge financing); $29.56 million in 1999 (including the $24
million on the Credit Facility which may be extended or replaced); $13.09
million in 2000; $1.00 million in 2001 and $771,000 in 2002. There are no
balloon payments due in 2003. The Company has received a proposal from the
existing lender to refinance mortgage debt secured by the Company's properties
in Tampa, Florida. This debt, in amounts of $4.3 million and $5.7 million, was
scheduled to mature on May 1, 1998 and June 1, 1998, respectively. The Company
expects to refinance this debt with the existing lender at an interest rate of
approximately 145 basis points over 4 year U.S. Treasury Issues. 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, have
available amounts under its credit facility or access to other capital
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.
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.
Results of Operations ($000)
<TABLE>
<CAPTION>
Quarters ended
March 31,
Selected Income Statement Data 1998 1997 Increase(Decrease)
----------- --------- ------------------
<S> <C> <C> <C>
Total revenues $ 13,980 $ 9,824 $ 4,156
Rental 12,977 9,699 3,278
Interest and other 1,003 125 878
Total expenses $ 9,120 7,984 $ 1,136
Interest 4,645 4,240 405
Depreciation & amortization of real estate 3,167 2,461 706
General & administrative 956 870 86
Minority interests 798 274 524
Net Income $ 4,062 $ 1,510 $ 2,552
</TABLE>
Changes in the results of operations for the Company were primarily due to the
growth of its portfolio and costs associated with such growth. The increase in
interest income and other revenue was primarily due to income recorded on the
Newark, California Property, which is held for sale, and interest income earned
on the escrow deposits held in connection with the partnership mergers. The
increase in interest expense due to the growth of the Company's portfolio was
partially offset by a reduction in the weighted average interest rate from 8.73%
as of March 31, 1997 to 8.04% as of March 31, 1998, due to debt refinancings and
repayments. The Company's general and administrative expenses decreased as a
percentage of rental revenue to 7% for the quarter ended March 31, 1998 from 9%
for the quarter ended March 31, 1997 due to the growth of the Company's
portfolio relative to these expenses.
Funds From Operations
Management believes that Funds From Operations enhances an investor's
understanding of the Company's financial condition, results of operations and
cash flows and believes it is an appropriate performance measure for an equity
REIT which provides an indication of a REIT's ability to make cash
distributions. Funds From Operations is defined by the National Association of
Real Estate Investment Trusts, Inc. (NAREIT) as "net income (or loss) (computed
in accordance with generally accepted accounting principles ("GAAP")), excluding
gains (or losses)
<PAGE> 16
from debt restructuring and sales of property, plus real estate depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures." The Company's method of calculating Funds From Operations excludes
other non-recurring revenue and expense items and may be different from methods
used by other REITs and, accordingly, is not comparable to such other REITs.
Funds From Operations should not be considered an alternative to net income as
an indicator of operating performance or to cash flows from operating activities
as determined in accordance with GAAP, or as a measure of liquidity to other
consolidated income or cash flow statement data as determined in accordance with
GAAP.
The following table reflects the calculation of the Company's Funds From
Operations and cash flow activities for the quarters ended March 31, 1998 and
1997 ($000).
<TABLE>
<CAPTION>
Quarters ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Net income $ 4,062 $ 1,510
Add back:
Depreciation and amortization of real estate 3,167 2,461
Minority interest's share of net income 798 274
Loss from debt restructuring -- 56
-------- --------
Funds From Operations $ 8,027 $ 4,301
======== ========
Cash flows from operating activities $ 6,231 $ 4,477
Cash flows from investing activities (36,987) (24,329)
Cash flows from financing activities 31,974 21,514
======== ========
</TABLE>
The Company's dividends paid to shareholders and distributions paid to
unitholders amounted to approximately 79.4% of the Company's Funds From
Operations for the quarter ended March 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
_____________________________________
Not applicable.
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - not applicable.
ITEM 2. Changes in Securities - not applicable.
ITEM 3. Defaults under the Senior Securities - not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders - not applicable.
ITEM 5. Other Information - not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
Exhibit No. Exhibit
----------- -------
27.1 Financial Data Schedule as of and for the
quarter ended March 31, 1998
27.2 Financial Data Schedule - restated earnings
per share for the quarter ended March 31, 1997
(b) Reports on Form 8-K filed during the quarter ended March 31,
1998 -
Announcement of the merger of Lexington Corporate Properties,
Inc. with and into Lexington Corporate Properties Trust (the
"Company") on December 31, 1997, pursuant to an Agreement and
Plan of Merger - filed January 16, 1998.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Lexington Corporate Properties Trust
Date:_____________________ By:/s/ E. Robert Roskind
___________________________________________
E. Robert Roskind
Chairman and Co-Chief Executive Officer
Date:_____________________ By:/s/ Paul R. Wood
___________________________________________
Paul R. Wood
Vice President and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
INCOME AS OF AND FOR THE QUARTER ENDED MARCH 31, 1998 AS CONTAINED IN THE
COMPANY'S FORM 10-Q FOR SUCH PERIOD AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q. DOLLARS ARE IN THOUSANDS, EXCEPT PER SHARE DATA.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 9,597
<SECURITIES> 0
<RECEIVABLES> 8,042
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 503,335
<DEPRECIATION> (54,160)
<TOTAL-ASSETS> 513,312
<CURRENT-LIABILITIES> 0
<BONDS> 252,495
24,369
0
<COMMON> 2
<OTHER-SE> 181,244
<TOTAL-LIABILITY-AND-EQUITY> 513,312
<SALES> 0
<TOTAL-REVENUES> 13,980
<CGS> 0
<TOTAL-COSTS> 3,277
<OTHER-EXPENSES> 242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,645
<INCOME-PRETAX> 4,860
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,062
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE QUARTERS ENDED MARCH 31,
1998 AND 1997 AS CONTAINED IN THE COMPANY'S FORM 10-Q FOR MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.02)<F1>
<EPS-DILUTED> (0.02)
<FN>
<F1>IN ACCORDANCE WITH RULE 601(c)(2)iii OF REGULATION S-K, DUE TO THE PROVISIONS
OF THE FINANCIAL ACCOUNTING STANDARDS BOARD'S STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128, "EARNINGS PER SHARE," WHICH IS EFFECTIVE FOR FINANCIAL
STATEMENTS FOR PERIODS ENDING AFTER DECEMBER 15, 1997, THE COMPANY HAS RESTATED
ITS EARNINGS PER SHARE ACCORDINGLY, AS INDICATED ON THIS SCHEDULE.
</FN>
</TABLE>
