<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 27, 1998
LEXINGTON CORPORATE PROPERTIES TRUST
(Exact Name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Maryland 1-12386 13-3717318
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
</TABLE>
355 Lexington Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 692-7260
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events.
Lexington Corporate Properties Trust (the "Company") has acquired 8 properties
(the "Property Acquisitions") comprising approximately 1.1 million square feet
of gross leasable area in 7 states. These Property Acquisitions were acquired,
at various times during 1998, for an aggregate purchase price of approximately
$91.2 million.
Although none of the Property Acquisitions individually represent a "significant
acquisition" pursuant to the rules governing the reporting of transactions under
this Current Report on Form 8-K, the Company considers these acquisitions in the
aggregate to be material in relation to its overall financial position and
results of operations. Consequently, this report has been filed for the purpose
of providing certain historical financial information for certain acquired
properties and pro forma financial information for the Property Acquisitions.
Specific information with respect to each of the Property Acquisitions is as
follows:
On March 27, 1998, the Company completed the acquisition of an 81,744 square
foot two-story office facility in Hebron, Kentucky (the "Hebron Property") for
approximately $8.1 million. The Hebron Property is leased to Fidelity Corporate
Real Estate, LLC under a lease expiring in April 2007. The current annual net
rent is $776,568 and will increase by 14.5% on May 1, 2002.
On March 27, 1998, the Company completed the acquisition of a 255,019 square
foot office/warehouse facility in Bristol, Pennsylvania (the "Bristol Property")
for approximately $12.5 million. The Bristol Property is leased to Jones Apparel
Group for 15 years. The annual net rent is $1.15 million and will increase in
years 2003 and 2008 by 10%.
On March 27, 1998, the Company completed the acquisition of two properties in
Livonia, Michigan (the "Livonia Properties") for approximately $16.4 million.
The Livonia Properties are leased to Kelsey-Hayes Corporation and are subject to
net leases which expire in April 2007. The average annual net rents are
approximately $1.64 million including escalations at various rates over the term
of the lease.
The Company funded the purchase of the Hebron Property and Bristol Property
through draws of $4.3 million and $5.2 million, respectively, on its temporary
bridge financing. The Livonia Properties were funded through a $14.8 million
draw on the Company's line of credit. These borrowings bear interest at
approximately 7.0% per annum.
On May 11, 1998, the Company completed the acquisition of a 157,525 square foot
retail property in Anchorage, Alaska (the "Anchorage Property") for
approximately $17.6 million. The Anchorage Property is leased to Eagle Hardware
& Garden, Inc. under a net lease expiring in October 2017. The current annual
rent is $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, the lease provides for the tenant to
pay percentage rent of 2% of annual sales in excess of $50 million.
On May 11, 1998, the Company completed the acquisition of a 133,791 square foot
retail property in Federal Way, Washington (the "Federal Way Property") for
approximately $13.7 million. The Federal Way Property is leased to Eagle
Hardware & Garden, Inc. under a net lease expiring in July 2017. The current
annual rent is $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, the lease provides for the
tenant to pay percentage rent of 2% of annual sales in excess of $38.5 million.
<PAGE> 3
In connection with the acquisition of the Anchorage Property and Federal Way
Property the Company obtained ten year, non-recourse mortgage indebtedness of
approximately $11.3 million and $8.7 million, respectively, each bearing
interest at 7.48% per annum.
On May 15, 1998, the Company completed the acquisition of a 142,400 square foot
industrial property in Columbia, South Carolina (the "Columbia Property") for
approximately $3.1 million and will invest an additional $1.1 million to expand
the Columbia Property by 43,560 square feet. The Columbia Property is leased to
Stone Container Corporation under a net lease expiring in August 2012. The lease
is subject to periodic fixed increases and the average annual net rent during
the lease term is approximately $548,000.
On May 18, 1998, the Company completed the acquisition of a 126,355 square foot
Class A office property in Palm Beach Gardens, Florida (the "Palm Beach Gardens
Property") for approximately $19.8 million. The Palm Beach Gardens Property is
100% occupied by six tenants with 72% of the property leased to Wackenhut
Corporation under a semi-gross lease expiring in February 2011. The remainder of
the property is net leased under terms which expire between June 2001 and July
2004. The current annual rent, net of all operating expenses, is approximately
$1.8 million. In connection with this acquisition the Company obtained ten year
non-recourse mortgage indebtedness of approximately $13.8 million bearing
interest at 7.0% per annum.
The annualized Funds From Operations ("FFO") generated by the Property
Acquisitions equates to an aggregate annualized yield of approximately 9.6% on
the Company's total unleveraged investment in such properties. The FFO for the
Property Acquisitions, excluding the Anchorage Property and the Federal Way
Property, equates to an aggregate annualized yield of approximately 9.9% on the
total unleveraged investment in such properties. The Anchorage Property and the
Federal Way Property, which currently generate a 9.0% FFO yield, are expected to
generate a recurring annual FFO yield in excess of 9.0% due to the Consumer
Price Index rental increases and percentage rent clauses in the tenant leases.
Item 7. Financial Statements, Pro Forma Information and Exhibits.
[a] [b] Financial Statements and Pro Forma Financial Information
The financial statements and pro forma financial information
filed herewith is as follows:
Independent Auditors' Report.
Combined Historical Summary of Revenue and Certain Operating
Expenses for the Year Ended December 31, 1997 of Certain
Acquired Properties.
Notes to Combined Historical Summary of Revenue and Certain
Operating Expenses for the Year Ended December 31, 1997 of
Certain Acquired Properties.
Estimates of Net Income and Funds from Operations of Certain
Acquired Properties.
Notes to Estimates of Net Income and Funds from Operations of
Certain Acquired Properties.
<PAGE> 4
Pro Forma Condensed Consolidated Balance Sheet as of March
31, 1998.
Pro Forma Condensed Consolidated Statements of Income for the
Year Ended December 31, 1997 and the Three Months Ended March
31, 1998.
Notes to Pro Forma Condensed Consolidated Financial
Statements.
[c] Exhibits
* 23.1 Consent of KPMG Peat Marwick LLP
- ------------------
*Filed herewith
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders
of Lexington Corporate Properties Trust
We have audited the accompanying Combined Historical Summary of Revenue and
Certain Operating Expenses of Certain Acquired Properties, as defined in the
accompanying Note 1, for the year ended December 31, 1997. This combined
historical summary is the responsibility of the management of the Lexington
Corporate Properties Trust. Our responsibility is to express an opinion on the
combined historical summary based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined historical summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined historical summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the combined
historical summary. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Combined Historical Summary of Revenue and Certain Operating
Expenses of Certain Acquired Properties has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 2, and is not intended to be a complete
presentation of the revenue and expenses of the Certain Acquired Properties.
In our opinion, the combined historical summary referred to above presents
fairly, in all material respects, the revenue and certain operating expenses, as
described in Note 2, of Certain Acquired Properties for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
New York, New York KPMG Peat Marwick LLP
June 11, 1998
<PAGE> 6
Lexington Corporate Properties Trust
Certain Acquired Properties
Combined Historical Summary of Revenue
And Certain Operating Expenses
For the Year Ended December 31, 1997
(dollars in thousands)
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Rental revenues $ 4,164
Certain operating expenses -
Excess of revenues over certain -----
operating expenses $ 4,164
=====
</TABLE>
The accompanying notes are an integral part of this combined historical summary.
<PAGE> 7
Lexington Corporate Properties Trust
Notes to Combined Historical Summary
of Revenues And Certain Operating Expenses
1. Certain Acquired Properties
The Combined Historical Summary of Revenue and Certain Operating Expenses
relates to the operations of the following certain acquired properties (the
"Certain Acquired Properties"), while under ownership previous to Lexington
Corporate Properties Trust:
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<CAPTION>
Property Name Tenants Location
- ------------- ------- --------
<S> <C> <C>
The Livonia Properties Kelsey Hayes Corporation Livonia, MI
The Anchorage Property Eagle Hardware & Garden Inc. Anchorage, AK
The Federal Way Property Eagle Hardware & Garden Inc. Federal Way, WA
</TABLE>
The aggregate purchase price of these properties was approximately $47.7 million
and was partially financed through $34.8 million in debt bearing interest at a
weighted average rate of 7.27%.
2. Basis of Presentation
The Combined Historical Summary has been prepared on the accrual method of
accounting. In accordance with the regulations of the Securities and Exchange
Commission, mortgage interest, depreciation and general and administrative
expenses have been excluded from certain operating expenses, as such costs are
dependent upon a particular owner, purchase price or other financial agreement.
3. Revenue Recognition
Minimum revenues from rental property are recognized on a straight-line basis
over the terms of the related leases.
The future minimum revenues from rental properties under the terms of all
noncancellable tenant leases are approximately as follows (in $000's):
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1998 $ 4,343
1999 4,361
2000 4,370
2001 4,370
2002 4,455
Thereafter 49,070
------
$ 70,969
======
</TABLE>
<PAGE> 8
Lexington Corporate Properties Trust
Estimates of Net Income and
Funds From Operations
of
Certain Acquired Properties
(Unaudited and dollars in thousands)
The following represents an estimate of the net income and funds from operations
expected to be generated from the operation of the Certain Acquired Properties
based upon the Combined Historical Summary of Revenue and Certain Operating
Expenses for the year ended December 31, 1997. These estimated results do not
purport to represent results of operations for these properties in the future
and were prepared on the basis described in the accompanying notes which should
be read in conjunction herewith.
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Estimated Net Income:
Excess of revenues over certain operating expenses $ 4,164
Less: Estimated depreciation (Note 1) 978
---
Estimated net income $ 3,186
=====
Estimated Funds from Operations:
Estimated net income $ 3,186
Add: Estimated depreciation (Note 1) 978
---
Estimated funds from operations $ 4,164
=====
</TABLE>
<PAGE> 9
Lexington Corporate Properties Trust
Notes to Estimates of Net Income
and Funds From Operations
Of
Certain Acquired Properties
(Unaudited)
1. Basis of Presentation
Depreciation has been estimated based upon an allocation of the purchase prices
for the Certain Acquired Properties to land (20%) and building (80%) and
assuming a 39 year useful life applied on a straight-line method.
No income taxes have been provided because the Company is organized and operates
in such a manner so as to qualify as a Real Estate Investment Trust under the
provisions of the Internal Revenue Code ("Code"). Accordingly, the Company
generally will not pay Federal income tax provided that distributions to its
shareholders equal at least the amount of its real estate investment trust
taxable income as defined under the Code.
2. Acquisition Considerations
In assessing the properties acquired, the Company's management considered the
(i) credit worthiness of the tenant, (ii) remaining lease term, including
scheduled rent increases, (iii) local economic markets and (iv) physical
condition and configuration of the property.
3. Operational Results
Management is not aware of any material factors that would cause the reported
financial information in the accompanying Combined Historical Summary of Revenue
and Certain Operating Expenses and Estimates of Net Income and Funds from
Operations of Certain Acquired Properties to be misleading.
<PAGE> 10
Lexington Corporate Properties Trust
Pro Forma Condensed Consolidated Balance Sheet and Statements of Income
The accompanying Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1998 gives effect to the purchase of four properties (the "Four Properties")
acquired by the Company in May 1998 as if these properties had been acquired as
of March 31, 1998.
The accompanying Pro Forma Condensed Consolidated Statements of Income for the
year ended December 31, 1997 and the three months ended March 31, 1998 assume
that the Property Acquisitions and all 1997 acquisitions had occurred as of
January 1, 1997. The pro forma information is based on the historical financial
statements of the Company after giving effect to the acquisition of these
properties.
The Pro Forma Condensed Consolidated Balance Sheet and the Statements of Income
have been prepared by the management of the Company. These pro forma statements
may not be indicative of the results that would have actually occurred if the
Property Acquisitions had been in effect on the dates indicated. Also, they may
not be indicative of the results that may be achieved in the future. The Pro
Forma Condensed Consolidated Balance Sheet and Statements of Income should be
read in conjunction with the Company's audited financial statements as of
December 31, 1997 and for the year then ended (which are contained in the
Company's Form 10-K for the year ended December 31, 1997), and the unaudited
condensed consolidated financial statements as of March 31, 1998 and for the
three months then ended (which are contained in the Company's Form 10-Q for the
period ended March 31, 1998) and the accompanying notes thereto.
<PAGE> 11
Lexington Corporate Properties Trust
Pro Forma Condensed Consolidated Balance Sheet
March 31, 1998
(Unaudited and in thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Real estate, net $ 449,175 $ 54,300 $ 503,475
Property held for sale 24,501 -- 24,501
Cash and cash equivalents 4,858 -- 4,858
Restricted cash 4,739 -- 4,739
Escrow deposits 13,393 (13,289) 104
Other assets, net 16,646 -- 16,646
-------- --------- --------
$ 513,312 $ 41,011 $ 554,323
======= ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgage notes payable, including accrued interest $ 245,930 $ 37,011 $ 282,941
Subordinated notes payable, including accrued interest 1,936 -- 1,936
Origination fees payable, including accrued interest
and accumulated accretion 4,629 -- 4,629
Accounts payable and other liabilities 3,265 -- 3,265
--------- --------- ---------
255,760 37,011 292,771
Minority interests 51,937 4,000 55,937
-------- ------- --------
307,697 41,011 348,708
------- ------ -------
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
shares issued and outstanding 2 -- 2
Additional paid-in-capital 235,381 -- 235,381
Accumulated distributions in excess of net income (54,137) -- (54,137)
-------- --------- --------
Total shareholders' equity 181,246 -- 181,246
------- --------- -------
$ 513,312 $ 41,011 $ 554,323
======= ====== =======
</TABLE>
<PAGE> 12
Lexington Corporate Properties Trust
Notes to Pro Forma Condensed Consolidated Balance Sheet
(Unaudited)
1. Pro Forma Adjustments
The adjustment to real estate, net reflects the purchase price of the Four
Properties.
The adjustment to escrow deposits reflects the use of such deposits for the
purchase of the Four Properties.
The adjustment to mortgage notes payable reflects the additional borrowings
relating to the purchase of the Four Properties.
The adjustment to minority interests reflects the value of the additional
operating partnership units issued in connection with the purchase of one
property.
<PAGE> 13
Lexington Corporate Properties Trust
Pro Forma Condensed Consolidated Statement of Income
For the Year ended December 31, 1997
(Unaudited and in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Rental $ 42,493 $ 22,225 $ 64,718
Interest and other 1,076 -- 1,076
------ ------ ------
43,569 22,225 65,794
------ ------ ------
Expenses:
Interest expense 16,644 10,814 27,458
Depreciation and amortization of real estate 10,608 4,916 15,524
Other 5,610 -- 5,610
------ ------ ------
32,862 15,730 48,592
------ ------ ------
Income before gain on sale of properties, minority
interests and extraordinary item 10,707 6,495 17,202
Gain on sale of property 3,517 -- 3,517
------ ------ ------
Income before minority interests and extraordinary item 14,224 6,495 20,719
Minority interests 2,442 1,337 3,779
------- ----- -------
Income before extraordinary item 11,782 5,158 16,940
Extraordinary item - loss on extinguishment of debt 3,189 -- 3,189
------ ------ ------
Net income $ 8,593 $ 5,158 $ 13,751
====== ====== ======
Income per common share - basic:
Income before extraordinary item $ 0.61 $ 0.95
Net income $ 0.33 $ 0.70
Income per common share - diluted:
Income before extraordinary item $ 0.59 $ 0.84
Net income per common share $ 0.32 $ 0.66
</TABLE>
<PAGE> 14
Lexington Corporate Properties Trust
Pro Forma Condensed Consolidated Statement of Income
For the three months ended March 31, 1998
(Unaudited and in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Rental $ 12,977 $ 2,211 $ 15,188
Interest and other 1,003 (183) 820
------ ----- ------
13,980 2,028 16,008
------ ----- ------
Expenses:
Interest expense 4,645 1,020 5,665
Depreciation and amortization of real estate 3,167 463 3,630
Other 1,308 -- 1,308
------ ----- ------
9,120 1,483 10,603
------ ----- ------
Income before minority interests 4,860 545 5,405
Minority interests 798 159 957
------ ----- ------
Net income $ 4,062 $ 386 $ 4,448
====== ====== =======
Net income per common share:
Basic $ 0.21 $ 0.23
Diluted $ 0.20 $ 0.22
</TABLE>
<PAGE> 15
Lexington Corporate Properties Trust
Notes to Pro Forma Condensed Consolidated Statements of Income
(Unaudited)
1. Pro Forma Adjustments
The adjustment to rental revenues relates to the establishment of a new
measurement date for straight lining tenant rents resulting from the
property acquisitions.
The adjustment to interest and other relates to the elimination of interest
earned on funds assumed to have been expended as of January 1, 1997 for
property acquisitions.
The adjustment to interest expense relates to the additional borrowings
related to the acquisition of the properties.
The adjustment for depreciation was based upon an estimated useful life of
40 years using the straight-line method.
The adjustment to minority interest reflect operating partnership
unitholder's proportionate interest in pro forma adjustments.
<PAGE> 16
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 hereunto duly authorized.
Lexington Corporate Properties Trust
Registrant
June 25, 1998 By: /s/ Patrick Carroll
-----------------------
Patrick Carroll
Chief Financial Officer
<PAGE> 1
Exhibit 23.1
The Board of Trustees
Lexington Corporate Properties Trust:
We consent to incorporation by reference in the registration statements (No.
333-56009 and No. 333-49351) on Form S-3 of Lexington Corporate Properties Trust
of our report dated June 11, 1998, relating to the combined historical summary
of revenues and certain operating expenses of certain acquired properties by
Lexington Corporate Properties Trust for the year ended December 31, 1997, which
report appears in this Form 8-K of Lexington Corporate Properties Trust dated
March 27, 1998.
KPMG Peat Marwick LLP
New York, New York
June 23, 1998
