<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 June 30, 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: 17,191,814 common shares, par
value $.0001 per share on July 30, 1998.
<PAGE> 2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1998 (Unaudited) and December 31, 1997
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS: 1998 1997
---- ----
<S> <C> <C>
Real estate, at cost $ 584,608 $ 466,348
Less: accumulated depreciation and amortization 56,563 50,993
--------- ---------
528,045 415,355
Property held for sale 2,937 24,501
Cash and cash equivalents 3,646 3,640
Restricted cash 4,735 5,499
Escrow deposits 276 1,249
Other assets, net 17,789 16,871
--------- ---------
$ 557,428 $ 467,115
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgage notes payable $ 285,040 $ 219,553
Subordinated notes payable, including accrued interest 1,973 1,973
Accrued interest payable on mortgage notes 1,283 1,007
Origination fees payable 4,639 4,627
Accounts payable and other liabilities 3,160 4,880
--------- ---------
296,095 232,040
Minority interests 51,976 28,240
--------- ---------
348,071 260,280
--------- ---------
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,
17,189,773 and 16,509,610 shares issued and outstanding in 1998 and
1997, respectively 2 2
Additional paid-in-capital 243,084 235,469
Accumulated distributions in excess of net income (56,100) (53,005)
--------- ---------
186,986 182,466
Less: notes receivable from officer shareholders (1,998) --
--------- ---------
Total shareholders' equity 184,988 182,466
--------- ---------
$ 557,428 $ 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 June 30, 1998 and 1997 and
Six Months Ended June 30, 1998 and 1997
(Unaudited and in thousands, except share and per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental $14,478 $ 10,479 $27,455 $ 20,178
Interest and other 516 159 1,519 284
-------- ------- -------- ---------
14,994 10,638 28,974 20,462
-------- ------- -------- ---------
Expenses:
Interest expense 5,371 4,343 10,016 8,583
Depreciation and amortization of real estate 3,515 2,614 6,682 5,075
Amortization of deferred expenses 242 221 484 415
General and administrative expenses 952 974 1,908 1,844
Property arbitration litigation expense -- 167 -- 167
Other expenses 128 184 238 403
-------- ------- -------- ---------
10,208 8,503 19,328 16,487
-------- ------- -------- ---------
Income before loss on sale of property, minority
interests and extraordinary item 4,786 2,135 9,646 3,975
Loss on sale of property (388) -- (388) --
-------- ------- -------- ---------
Income before minority interests and extraordinary item 4,398 2,135 9,258 3,975
Minority interests 961 365 1,759 639
-------- ------- -------- ---------
Income before extraordinary item 3,437 1,770 7,499 3,336
Extraordinary item - loss on extinguishment of debt -- 1,466 -- 1,522
-------- ------- -------- ---------
Net income $ 3,437 $ 304 $ 7,499 $ 1,814
======== ======== ======== =========
Income (loss) per common share - basic:
Income before extraordinary item $ 0.17 $ 0.14 $ 0.38 $ 0.13
Extraordinary item - loss on extinguishment of debt -- (0.15) -- (0.16)
-------- ------- -------- ---------
Net income (loss) $ 0.17 $ (0.01) $ 0.38 $ (0.03)
======== ======= ======== =========
Income (loss) per common share - diluted:
Income before extraordinary item $ 0.17 $ 0.13 $ 0.37 $ 0.13
Extraordinary item - loss on extinguishment of debt -- (0.14) -- (0.16)
-------- -------- -------- ---------
Net income (loss) $ 0.17 $ (0.01) $ 0.37 $ (0.03)
======== ======= ======== =========
</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
Six Months ended June 30, 1998 and 1997
(Unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 14,285 $ 9,504
--------- --------
Cash flows from investing activities:
Additions to real estate assets, net of issuance
of limited partnership units (115,967) (32,382)
Net proceeds from sale of property 24,113 --
--------- --------
Net cash used in investing activities (91,854) (32,382)
--------- --------
Cash flows from financing activities:
Dividends to common and preferred shareholders (10,594) (5,638)
Repayments on mortgage notes (43,822) (64,548)
Prepayment premium on early retirement of debt -- (1,698)
Proceeds of mortgage notes payable 109,305 54,450
Proceeds from issuance of limited partnership units 23,449 --
Cash distributions to minority interests (1,606) (910)
Proceeds from the issuance of common shares, net 329 35,908
Proceeds from the issuance of preferred shares, net -- 16,086
Other financing activities, net 514 (1,373)
--------- --------
Net cash provided by financing activities 77,575 32,277
--------- --------
Increase in cash and cash equivalents 6 9,399
Cash and cash equivalents, at beginning of period 3,640 2,468
--------- --------
Cash and cash equivalents, at end of period $ 3,646 $ 11,867
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 9,724 $ 7,995
========= ========
Cash paid during the period for taxes $ 114 $ 73
========= ========
Supplemental disclosure of non-cash investing
and financing activities:
</TABLE>
In connection with the acquisition of certain properties, the Company issued
partnership units as partial satisfaction of the respective purchase prices, in
the amount of $5,780 and $6,000, during the six months ended June 30, 1998 and
1997, respectively. The issuance of these partnership units have been recorded
as minority interest in the accompanying condensed consolidated balance sheets.
During 1998, holders of an aggregate of 525,433 partnership units redeemed such
units to common shares of the Company. This redemption resulted in an increase
in shareholders' equity and a corresponding decrease in minority interest of
$5,650.
During 1998, the Company issued 131,000 common shares to two officers in
exchange for notes aggregating $1,998 which mature on February 14, 2003, bear
interest at 7.6% per annum and are secured by the common shares issued.
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 5
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 61
net leased office, industrial and retail 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
which is distributed to its shareholders, 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.
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 these
partnerships 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.
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, operating partnership units and
exchangeable redeemable secured notes are excluded from the 1998 and
1997 computations since they are anti-dilutive, except for the quarter
ended June 30, 1997, in which the operating partnership units are
dilutive and are therefore included in the calculation.
<PAGE> 6
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the quarters
and six months ended June 30, 1998 and 1997 (in thousands, except share
and per share data).
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
BASIC
<S> <C> <C> <C> <C>
Income before extraordinary item $ 3,437 $ 1,770 $ 7,499 $ 3,336
Less:
Preferred dividends (609) (347) (1,218) (513)
Deemed additional preferred dividends -- (78) -- (1,566)
------------ ------------ ------------ -----------
Income attributed to common shareholders
before extraordinary item 2,828 1,345 6,281 1,257
Extraordinary item - loss on extinguishment of debt -- (1,466) -- (1,522)
------------ ------------ ------------ -----------
Net income (loss) attributed to common
shareholders $ 2,828 $ (121) $ 6,281 $ (265)
============ ============ ============ ===========
Weighted average number of common shares
outstanding 16,758,370 9,693,814 16,637,214 9,564,525
============ ============ ============ ===========
Income (loss) per common share - basic:
Income before extraordinary item $ 0.17 $ 0.14 $ 0.38 $ 0.13
Extraordinary item - loss on extinguishment of debt -- (0.15) -- (0.16)
------------ ------------ ------------ -----------
Net income (loss) $ 0.17 $ (0.01) $ 0.38 $ (0.03)
============ ============ ============ ===========
DILUTED
Income attributed to common holders
before extraordinary item $ 2,828 $ 1,345 $ 6,281 $ 1,257
Add: minority interests attributed to limited
partnership units assuming conversion of such units -- 328 -- --
------------ ------------ ------------ -----------
Income attributed to common
shareholders before extraordinary item 2,828 1,673 6,281 1,257
Extraordinary item - loss on extinguishment of debt -- (1,787)* -- (1,522)
------------ ------------ ------------ -----------
Net income (loss) attributed to common
shareholders $ 2,828 $ (114) $ 6,281 $ (265)
============ ============ ============ ===========
Weighted average number of shares used in calculation
of basic earnings per share 16,758,370 9,693,814 16,637,214 9,564,525
Add incremental shares representing:
Shares issuable upon exercise of employee
stock options 197,337 113,805 222,180 124,142
Shares issuable upon conversion of limited
partnership units -- 3,000,445 -- --
------------ ------------ ------------ -----------
Weighted average number of shares used in calculation
of diluted earnings per common share 16,955,707 12,808,064 16,859,394 9,688,667
============ ============ ============ ===========
Net income (loss) per common share - diluted:
Income before extraordinary item $ 0.17 $ 0.13 $ 0.37 $ 0.13
Extraordinary item - loss on extinguishment of debt -- (0.14) -- (0.16)
------------ ------------ ------------ -----------
Diluted net income (loss) $ 0.17 $ (0.01) $ 0.37 $ (0.03)
============ ============ ============ ===========
</TABLE>
<PAGE> 7
*Since the limited partnership units are assumed to be converted to
common shares and the corresponding minority interest is added back,
the minority interest attributable to the extraordinary item, which had
been netted against such item is also added back.
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.
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 six months ended June 30, 1998, the Company made the
following acquisitions:
<TABLE>
<CAPTION>
Annualized Lease Net
Base Rent Expiration Rentable
Date of Acquisition @ 6-30-98 Date Square
Acquisition Tenant Location Cost ($M) ($000's) (month/year) Feet
----------- ------ -------- --------- -------- ------------ ----
1998
----
<S> <C> <C> <C> <C> <C> <C> <C>
March 27 Jones Apparel Group, Inc. Bristol, PA $ 12.539 $ 1,150 03-13 255,019
March 27 Fidelity Corporate Real Estate, LLC Hebron, KY 8.077 777 04-07 81,744
March 27 Kelsey-Hayes Corp. Livonia, MI* 16.437 1,523 04-07 180,230
May 11 Eagle Hardware & Garden. Inc. Federal Way, WA 13.747 1,233 08-17 133,861
May 11 Eagle Hardware & Garden. Inc. Anchorage, AK 17.685 1,587 10-17 157,525
May 15 Stone Container Corporation Columbia, SC** 3.178 328 08-12 142,400
May 18 Wackenhut Corporation *** Palm Beach
Gardens, FL 19.799 2,434 02-11 126,355
June 19 Michaels Stores, Inc. Lancaster, CA 15.046 1,398 06-13 431,250
--------- ------ ---------
TOTALS $ 106.508 $ 10,430 1,508,384
========= ====== =========
</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 Columbia, South Carolina Property is currently under construction
to add approximately 43,560 square feet of expansion space. Base rent
will be increased upon the completion of the expansion.
***The Palm Beach Gardens, Florida Property is currently leased to five
tenants and one subtenant, with the Wackenhut Corporation as the
primary tenant. Lease expiration dates for these other tenants vary
from 2001 to 2006.
On June 3, 1998, the Company completed the sale of the Newark,
California Property, realizing net proceeds of $24.1 million and
recognizing a loss of $0.4 million.
<PAGE> 8
The following unaudited pro forma operating information for the six
months ended June 30, 1998 and 1997 has been prepared as if the 1998
and 1997 acquisitions and dispositions 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 dispositions been consummated on that date. The
unaudited pro forma amounts are as follows:
<TABLE>
<CAPTION>
($000's, except per share data)
Pro forma
Six Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Revenues $31,715 $31,444
Income before extraordinary item 8,219 5,536
Net income 8,219 4,104
Per common share:
Income before extraordinary item - basic $ 0.42 $ 0.36
Income before extraordinary item - diluted $ 0.42 $ 0.34
Net income - basic $ 0.42 $ 0.21
Net income - diluted $ 0.42 $ 0.21
</TABLE>
(4) Mortgage Notes Payable
The Company has obtained temporary bridge financing, which matures
August 31, 1998, to fund certain acquisitions. As of June 30, 1998, the
total principal amount outstanding on the bridge financing was
approximately $37.2 million bearing interest at 7.04% per annum. As of
June 30, 1998 the amount outstanding on the Company's credit facility
was $9 million bearing interest at 7.2% per annum. As of June 30, 1998,
the Company had approximately $5.2 million aggregate available under
the bridge financing and the credit facility. The Company expects to
satisfy these outstanding balances with the committed $100 million
unsecured credit facility.
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 third quarter of 1998, although there can be no
assurance that all conditions to funding will be satisfied.
(5) 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 redeemable at certain times
for common shares on a one-for-one basis at various dates through May
2006.
As of June 30, 1998, the total number of limited partnership units of
LCIF and LCIF II outstanding was 4,549,831. These units, subject to
certain adjustments through the date of redemption, have distributions
per unit in varying amounts up to $1.16 per unit. Minority interests in
the accompanying consolidated financial statements include the
interests in such partnerships held by parties other than the Company.
(6) Subsequent Events
On July 22, 1998, the Company declared a dividend of $.29 per share to
its common shareholders of record on July 30, 1998 to be paid on August
14, 1998. The Company also declared a dividend of $.3045 per share to
its preferred shareholders of record on July 30, 1998 to be paid on
August 14, 1998.
On July 2, 1998, the Company acquired a 179,300 square foot office
building in Florence, South Carolina (the "Florence Property") for
approximately $15 million. The Florence Property was the Company's
first build-to-suit project and is net
<PAGE> 9
leased to Fleet Mortgage Group for 10 years with an average annual net
rent of approximately $1.6 million. The funding for this acquisition
was made on June 30, 1998 and accordingly has been reflected as real
estate and mortgages payable in the accompanying condensed consolidated
balance sheet.
On July 24, 1998, the Company acquired a 184,000 square foot
manufacturing and distribution facility in Auburn Hills, Michigan (the
"Auburn Hills Property") for approximately $13.8 million. The Auburn
Hills Property is another build-to-suit project and is net leased to GM
Inland Seat for 8 years with an average annual net rent of
approximately $1.4 million.
The Company funded the purchases of the Florence Property and the
Auburn Hills Property through aggregate draws of approximately $29.0
million on its temporary bridge financing. These borrowings bear
interest at approximately 7.0% per annum.
The Company has reached an agreement with the general partners of an
affiliated partnership to acquire a 1.7 million square foot
distribution facility in Warren, Ohio (the "Proposed Acquisition
Property") for approximately $63.9 million including the assumption of
$42.2 million in mortgage debt with an ascribed interest rate of 7.0%,
the issuance of $18.85 million in Operating Partnership Units and $2.85
million in cash. The mortgage debt matures in October 1, 2007, and
provides for semi-annual principal and interest payments of $3,080,000.
The Proposed Acquisition Property is leased to K-Mart Corporation under
a net lease which expires on September 30, 2007. The average annual net
rent under the lease is $8.9 million. Two of the general partners of
the partnership are the Co-Chief Executive Officers of the Company and
as part of this transaction will receive approximately $6 million in
Operating Partnership Units in exchange for their partnership interest,
a management contract and beneficial interest in a deferred installment
obligation.
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 (7.05% as of June 30, 1998).
<PAGE> 10
ITEM 2. MANAGEMENT'S 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 June 30, 1998, the Company owned sixty-one real estate properties (or
interests therein) (the "Properties).
Liquidity and Capital Resources
Real Estate Assets. As of June 30, 1998, the Company's real estate assets were
located in twenty-eight states and contained an aggregate of approximately 8.7
million square feet of net rentable space. 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. Sixty of the sixty-one properties are currently leased.
During the six months ended June 30, 1998, the Company made the following
acquisitions:
<TABLE>
<CAPTION>
Annualized Lease Net
Base Rent Expiration Rentable
Date of Acquisition @ 6-30-98 Date Square
Acquisition Tenant Location Cost ($M) ($000's) (month/year) Feet
- ----------- ------ -------- --------- -------- ------------ ----
1998
- ----
<S> <C> <C> <C> <C> <C> <C>
March 27 Jones Apparel Group, Inc. Bristol, PA $ 12.539 $ 1,150 03-13 255,019
March 27 Fidelity Corporate Real Estate, LLC Hebron, KY 8.077 777 04-07 81,744
March 27 Kelsey-Hayes Corp. Livonia, MI* 16.437 1,523 04-07 180,230
May 11 Eagle Hardware & Garden. Inc. Federal Way, WA 13.747 1,233 08-17 133,861
May 11 Eagle Hardware & Garden. Inc. Anchorage, AK 17.685 1,587 10-17 157,525
May 15 Stone Container Corporation Columbia, SC** 3.178 328 08-12 142,400
May 18 Wackenhut Corporation *** Palm Beach
Gardens, FL 19.799 2,434 02-11 126,355
June 19 Michaels Stores, Inc. Lancaster, CA 15.046 1,398 06-13 431,250
--------- ------ ---------
TOTALS $ 106.508 $ 10,430 1,508,384
========= ====== =========
</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 Columbia, South Carolina Property is currently under construction to add
approximately 43,560 square feet of expansion space. Base rent will be increased
upon the completion of the expansion.
***The Palm Beach Gardens, Florida Property is currently leased to five tenants
and one subtenant, with the Wackenhut Corporation as the primary tenant. Lease
expiration dates for these other tenants vary from 2001 to 2006.
<PAGE> 11
On June 3, 1998, the Company completed the sale of the Newark, California
Property, realizing net proceeds of $24.1 million and recognizing a loss of $0.4
million.
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 and six months ended June 30, 1998,
such leases on the Properties generated approximately $14.5 million and $27.5
million in revenue compared to $10.5 million and $20.2 million during the same
periods in 1997.
On July 2, 1998, the Company acquired a 179,300 square foot office building in
Florence, South Carolina (the "Florence Property") for approximately $15
million. The Florence Property was the Company's first build-to-suit project and
is net leased to Fleet Mortgage Group for 10 years with an average annual net
rent of approximately $1.6 million. The funding for this acquisition was made on
June 30, 1998 and accordingly has been reflected as real estate and mortgages
payable in the accompanying condensed consolidated balance sheet.
On July 24, 1998, the Company acquired a 184,000 square foot manufacturing and
distribution facility in Auburn Hills, Michigan (the "Auburn Hills Property")
for approximately $13.8 million. The Auburn Hills Property is another
build-to-suit project and is net leased to GM Inland Seat for 8 years with an
average annual net rent of approximately $1.4 million.
The Company funded the purchases of the Florence Property and the Auburn Hills
Property through aggregate draws of approximately $29.0 million on its temporary
bridge financing. These borrowings bear interest at approximately 7.0% per
annum.
The Company has reached an agreement with the general partners of an affiliated
partnership to acquire a 1.7 million square foot distribution facility in
Warren, Ohio (the "Proposed Acquisition Property") for approximately $63.9
million including the assumption of $42.2 million in mortgage debt with an
ascribed interest rate of 7.0%, the issuance of $18.85 million in Operating
Partnership Units and $2.85 million in cash. The mortgage debt matures in
October 1, 2007, and provides for semi-annual principal and interest payments of
$3,080,000. The Proposed Acquisition Property, is leased to K-Mart Corporation
under a net lease which expires on September 30, 2007. The average annual net
rent under the lease is $8.9 million. Two of the general partners of the
partnership are the Co-Chief Executive Officers of the Company and as part of
this transaction will receive approximately $6 million in Operating Partnership
Units in exchange for their partnership interest, a management contract and
beneficial interest in a deferred installment obligation.
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, each of the calendar quarters of 1997 and
the first quarter of 1998. The Company declared a dividend in respect of the
second quarter of 1998, in the amount of $.29 per share to shareholders of
record as of July 30, 1998 to be paid on August 14, 1998. The Company's
annualized dividend rate is currently $1.16 per share.
<PAGE> 12
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 June 30, 1998.
<TABLE>
<CAPTION>
Current Total
Redeemable Annualized Annualized
for Shares of Number Per Unit Distribution
Common Shares as of: of Units Distribution ($000's)
- -------------------- -------- ------------ --------
<S> <C> <C> <C>
At any time 169,109 $ 1.16 $ 196
At any time 1,303,867 1.08 1,408
January 1999 147,246 1.12 165
January 1999 1,670,212 1.16 1,937
April 1999 480,028 1.16 557
May 1999 279,191 1.16 324
December 1999 125,416 1.16 145
January 2003 7,441 - -
March 2004 52,335 0.27 14
November 2004 35,400 - -
March 2005 36,825 - -
January 2006 207,728 - -
February 2006 23,267 - -
May 2006 11,766 0.29 3
------------ ----------
Total 4,549,831 $ 4,749
============ ==========
</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. As of June 30, 1998,
the Company had completed the tax free exchanges.
Bridge Financing. The Company has obtained temporary bridge financing to fund
certain acquisitions. As of June 30, 1998, the total principal amount
outstanding on the bridge financing was approximately $37.2 million bearing
interest at 7.04% per annum.
Revolving Credit Facility. As of June 30, 1998 the amount outstanding on the
Company's credit facility was $9 million bearing interest at 7.2% per annum.
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 third 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 June 30,
1998, a total of forty-seven properties were subject to outstanding mortgages
which had an aggregate principal amount, including accrued interest, of $286.3
million. The weighted average interest rate on the Company's debt on such date
was approximately 7.91%. Approximate balloon payment amounts for the next five
calendar years are due as follows: $0 in 1998 (excluding the $37.2 million
bridge financing which is expected to be repaid through the new three year $100
million credit
<PAGE> 13
facility and $10 million in mortgage notes currently being refinanced); $15.56
million in 1999 (excluding the $9 million currently outstanding on the credit
facility which is expected to be rolled into the new three year $100 million
credit facility); $13.09 million in 2000; $1.00 million in 2001 and $10.77
million 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. Since 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.
Impact of Year 2000.
The Company is evaluating its computer and communication systems to identify the
systems that could be affected by the "Year 2000" issue. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of the Company's systems that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that the Year 2000 problem will
not pose operational problems for the Company's computer and communication
systems and will not have a material impact on the operations of the Company.
Results of Operations ($000)
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
Increase Increase
Selected Income Statement Data 1998 1997 (Decrease) 1998 1997 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $14,994 $10,638 $ 4,356 $28,974 $20,462 $ 8,512
Rental 14,478 10,479 3,999 27,455 20,178 7,277
Interest and other 516 159 357 1,519 284 1,235
Total expenses $10,208 8,503 $ 1,705 $19,328 $16,487 $ 2,841
Interest 5,371 4,343 1,028 10,016 8,583 1,433
Depreciation & amortization of real estate 3,515 2,614 901 6,682 5,075 1,607
General & administrative 952 1,141 (189) 1,908 2,011 (103)
Minority interests 961 365 596 1,759 639 1120
Extraordinary loss - debt extinguishment -- 1,466 (1,466) -- 1,522 (1,522)
Net Income $ 3,437 $ 304 $ 3,133 $ 7,499 $ 1,814 $ 5,685
</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 was sold, 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 8.35% as of
June 30, 1997 to 7.91% as of June 30, 1998, due to debt refinancings and
repayments. The Company's general and administrative expenses decreased as a
percentage of revenue to 6.3% and 6.6% for the quarter and six months ended June
30, 1998, respectively, from 9.2% and 9.0% for the quarter and six months ended
June 30, 1997 due to the growth of the Company's portfolio relative to these
expenses.
<PAGE> 14
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) 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 and six months ended June
30, 1998 and 1997 ($000).
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 3,437 $ 304 $ 7,499 $ 1,814
Add back:
Depreciation and amortization of real estate 3,515 2,614 6,682 5,075
Minority interest's share of net income 961 365 1,759 639
Loss on sale of real estate 388 -- 388 --
Loss from debt restructuring -- 1,466 -- 1,522
Property arbitration litigation expense -- 167 -- 167
-------- -------- -------- --------
Funds From Operations $ 8,301 $ 4,916 $ 16,328 $ 9,217
======== ======== ======== ========
Cash flows from operating activities $ 8,054 $ 5,027 $ 14,285 $ 9,504
Cash flows from investing activities (54,867) (8,053) (91,854) (32,382)
Cash flows from financing activities 45,601 10,763 77,575 32,277
======== ======== ======== ========
</TABLE>
The Company's dividends paid to shareholders and distributions paid to
unitholders amounted to approximately 80.5% of the Company's Funds From
Operations for the quarter ended June 30, 1998.
Accounting Standards Not Yet Adopted
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. This
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of SFAS 133 is not expected to have any impact on
the financial position or results of operations of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE> 15
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 -
At the Company's Annual Meeting of Shareholders held on May
20, 1998, the following actions were taken:
The shareholders elected the seven individuals nominated to
serve as trustees of the Company until the 1999 Annual
Meeting, as set forth in Proposal No. 1 in the Company's
Notice of Annual Meeting of Shareholders and Proxy Statement
for the Annual Meeting (together, the "Proxy Statement"). The
seven individuals elected, and the number of votes cast for,
or withheld, with respect to each of them, follows:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
E. Robert Roskind 13,470,053 311,631
Richard J. Rouse 13,470,474 311,210
T. Wilson Eglin 13,640,278 141,406
Carl D. Glickman 13,494,455 287,229
Kevin W. Lynch 13,681,453 100,231
John D. McGurk 13,675,752 105,932
Seth M. Zachary 13,470,073 311,611
</TABLE>
The shareholders also approved the following other proposal
set forth in the Company's Proxy Statement, with the number of
votes for, against and abstaining set forth:
Proposal 2: To approve the Company's 1998 Share Option Plan.
<TABLE>
<CAPTION>
For Against Abstained
<S> <C> <C> <C>
11,886,198 1,522,674 372,812
</TABLE>
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 six months ended June 30,
1998
27.2 Financial Data Schedule - restated
earnings per share for the six
months ended June 30, 1997
(b) Reports on Form 8-K filed during the quarter
ended June 30, 1998 - none.
<PAGE> 16
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: August 14, 1998 By: /s/ E. Robert Roskind
-------------------------- -----------------------------------------
E. Robert Roskind
Chairman and Co-Chief Executive Officer
Date: August 14, 1998 By: /s/ Patrick Carroll
-------------------------- -----------------------------------------
Patrick Carroll
Chief Financial 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 SIX MONTHS ENDED JUNE 30, 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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,381
<SECURITIES> 0
<RECEIVABLES> 8,288
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 584,608
<DEPRECIATION> 56,563
<TOTAL-ASSETS> 557,428
<CURRENT-LIABILITIES> 0
<BONDS> 292,935
24,369
0
<COMMON> 2
<OTHER-SE> 184,986
<TOTAL-LIABILITY-AND-EQUITY> 557,428
<SALES> 0
<TOTAL-REVENUES> 28,974
<CGS> 0
<TOTAL-COSTS> 6,920
<OTHER-EXPENSES> 484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,016
<INCOME-PRETAX> 9,258
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,499
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,499
<EPS-PRIMARY> 0.38<F1>
<EPS-DILUTED> 0.37
<FN>
<F1>The amount is reported as EPS Basic and not for EPS Primary.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30,
1998 AND 1997 AS CONTAINED IN THE COMPANY'S FORM 10-Q FOR JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<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> (0.03)<F1>
<EPS-DILUTED> (0.03)
<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>
