<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 September 30, 1999
[ ] 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: 17,218,560 common shares, par
value $.0001 per share on November 10, 1999.
<PAGE> 2
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1999 (Unaudited) and December 31, 1998
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS: 1999 1998
-------- ------
<S> <C> <C>
Real estate, at cost $ 679,826 $ 675,793
Less: accumulated depreciation and amortization 78,979 66,076
--------- ---------
600,847 609,717
Cash and cash equivalents 6,201 11,084
Restricted cash 2,512 3,545
Investment in unconsolidated entities 4,223 --
Other assets, net 41,734 22,661
--------- ---------
$ 655,517 $ 647,007
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgages payable $ 311,752 $ 300,279
Credit facility borrowings 58,921 52,621
Subordinated notes payable, including accrued
interest 1,936 1,973
Origination fees payable, including accrued
interest 6,827 5,849
Accounts payable and other liabilities 5,139 6,760
--------- ---------
384,575 367,482
Minority interests 69,008 74,381
--------- ---------
453,583 441,863
--------- ---------
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:
Common shares, par value $0.0001 per share,
authorized 40,000,000 shares, 16,997,285 and
17,103,532 shares issued and outstanding in
1999 and 1998, respectively 2 2
Additional paid-in-capital 241,126 241,924
Deferred compensation, net (749) --
Accumulated distributions in excess
of net income (60,822) (59,155)
--------- ---------
179,557 182,771
Less: notes receivable from
officers/shareholders (1,992) (1,996)
--------- ---------
177,565 180,775
--------- ---------
$ 655,517 $ 647,007
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE> 3
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three and nine months ended September 30, 1999 and 1998
(Unaudited and in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 18,796 $ 16,869 $ 56,331 $ 44,324
Interest and other 412 286 988 1,805
-------- -------- -------- --------
19,208 17,155 57,319 46,129
-------- -------- -------- --------
Interest 7,188 6,271 21,320 16,287
Depreciation and amortization
of real estate 4,425 4,057 13,325 10,739
Amortization of deferred expenses 241 249 726 733
General and administrative 1,188 1,184 3,384 2,985
Property operating 436 257 1,351 602
-------- -------- -------- --------
13,478 12,018 40,106 31,346
-------- -------- -------- --------
Income before gain (loss) on sale
of properties and minority interests 5,730 5,137 17,213 14,783
Gain (loss) on sale of properties 2,351 -- 3,049 (388)
-------- -------- -------- --------
Income before minority interests 8,081 5,137 20,262 14,395
Minority interests 1,731 1,006 4,680 2,765
-------- -------- -------- --------
Net income $ 6,350 $ 4,131 $ 15,582 $ 11,630
======== ======== ======== ========
Net income per common share:
Basic $ 0.34 $ 0.21 $ 0.81 $ 0.58
Diluted $ 0.32 $ 0.20 $ 0.79 $ 0.58
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE> 4
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1999 and 1998
(Unaudited and dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Net cash provided by operating activities $ 30,107 $ 22,105
--------- ---------
Cash flows from investing activities:
Acquisitions of real estate, net (26,741) (133,740)
Proceeds from sale of real estate, net 19,465 24,113
Joint venture investment (4,223) --
Real estate deposits (17,481) --
--------- ---------
Net cash used in investing activities (28,980) (109,627)
--------- ---------
Cash flows from financing activities:
Proceeds of mortgages and notes payable 30,775 55,148
Dividends to common and preferred shareholders (17,249) (16,150)
Principal payments on debt, excluding normal
amortization (5,513) (9,982)
Principal amortization payments (8,709) (3,826)
Change in credit facility borrowing, net 6,300 41,221
Proceeds from issuance of limited partnership
units -- 23,449
Cash distributions to minority partners (4,937) (2,722)
Proceeds from the issuance of common shares, net 615 492
Repurchase of common shares (5,830) (654)
Other financing activities, net (1,462) 2,016
--------- ---------
Net cash (used in) provided by financing activities (6,010) 88,992
--------- ---------
Change in cash and cash equivalents (4,883) 1,470
Cash and cash equivalents, at beginning of period 11,084 3,640
--------- ---------
Cash and cash equivalents, at end of period $ 6,201 $ 5,110
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 22,654 $ 16,176
========= =========
Cash paid during the period for taxes $ 81 $ 183
========= =========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
During 1999 and 1998, holders of an aggregate of 254,964 and 525,433
partnership units, respectively, redeemed such units for common shares of the
Company. This redemption resulted in an increase in shareholders' equity and
a corresponding decrease in minority interests of $3,486 and $5,650,
respectively.
During 1999, the Company issued 69,850 common shares to certain employees and
trustees resulting in $877 of deferred compensation. These common shares vest
ratably over a 2 to 5 year period.
During 1999, the purchaser of two of the Company's real estate properties
assumed mortgage debt of approximately $10,156.
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.
During 1998, the Company issued $25,596 in limited partnership units as
partial satisfaction of the purchase price of real estate. The issuance of
these units has been recorded as minority interests in the accompanying
unaudited condensed consolidated balance sheets.
During 1998, the Company assumed indebtedness of $42,226 as partial
satisfaction of the purchase price of real estate.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE> 5
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited and in thousands, except share and per share data)
(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 sixty-four 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 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 present a fair statement of the
results for the interim periods. 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, 1998.
(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
consolidated 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. The Company accounts for its investments in non-controlled
entities under the equity method of accounting.
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 in-the-money common share options and the
Company's other dilutive securities, which can include operating
partnership units, preferred shares and exchangeable redeemable secured
notes. The Company's preferred shares are excluded from the nine months of
1999 and 1998 calculations and the three months of 1998 calculation and
the exchangeable redeemable secured notes are excluded from the 1998
calculations since they are anti-dilutive.
<PAGE> 6
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the three and
nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC
Net income $ 6,350 $ 4,131 $ 15,582 $ 11,630
Less preferred dividends (630) (630) (1,890) (1,848)
------------ ------------ ------------ ------------
Net income attributed to
common shareholders $ 5,720 $ 3,501 $ 13,692 $ 9,782
============ ============ ============ ============
Weighted average number of common
shares outstanding 16,923,101 17,057,436 16,976,508 16,778,827
============ ============ ============ ============
Net income per common share - basic: $ 0.34 $ 0.21 $ 0.81 $ 0.58
============ ============ ============ ============
DILUTED
Net income attributed to common
shareholders $ 5,720 $ 3,501 $ 13,692 $ 9,782
Add incremental income attributed
to assumed conversion of dilutive
securities 2,809 992 6,022 2,672
------------ ------------ ------------ ------------
Net income attributed to common
shareholders $ 8,529 $ 4,493 $ 19,714 $ 12,454
============ ============ ============ ============
Weighted average number of shares used
in calculation of basic earnings
per share 16,923,101 17,057,436 16,976,508 16,778,827
Add incremental shares representing:
Shares issuable upon exercise of
employee stock options 20,829 90,336 19,346 181,698
Shares issuable upon conversion
of dilutive securities 9,940,208 5,133,917 8,041,086 4,639,221
------------ ------------ ------------ ------------
Weighted average number of shares
used in calculation of diluted
earnings per common share 26,884,138 22,281,689 25,036,940 21,599,746
============ ============ ============ ============
Net income per common share - diluted: $ 0.32 $ 0.20 $ 0.79 $ 0.58
============ ============ ============ ============
</TABLE>
Use of Estimates. Management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities and the reported amounts
of revenues and expenses 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 1998 financial
statements have been reclassified to conform with the 1999 presentation.
(3) Investments in Real Estate
During 1999, the Company purchased a property for $7,300 in Henderson,
North Carolina leased to Corporate Express Office Products, Inc., whose
lease expires January 31, 2014, and provides for annual revenue of $791.
The Company also purchased a property for $19,100 in Herndon, Virginia
leased to NEC America, Inc., whose lease expires August 12, 2009, and
provides for annual revenue of $2,006.
The Company sold five properties which are located in Cottondale, Alabama
(leased to Johnson Controls, Inc.); Jacksonville, Alabama (leased to
Wal-Mart Stores, Inc.); Columbia, South Carolina (leased to Stone
Container Corp.); San Diego, California (leased to Cymer, Inc.) and
Phoenix, Arizona (leased to Bull HN Information Systems, Inc.) for an
aggregate sales price of approximately $30,200 resulting in a gain of
approximately $3,100. All the properties, except Cottondale, Alabama, were
sold to an affiliate of a Co-Chief Executive Officer of the Company.
<PAGE> 7
The following unaudited pro forma operating information for the nine
months ended September 30, 1999 and 1998 has been prepared as if the 1999
and 1998 acquisitions and dispositions had been consummated as of January
1, 1998. The information does not purport to be indicative of what the
operating results of the Company would have been had the acquisitions and
dispositions been consummated on that date or to be indicative of
operating results which can be expected for future periods. The unaudited
pro forma amounts are as follows:
<TABLE>
<CAPTION>
Pro forma
Nine months ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Revenues $56,559 $57,437
Net income $12,317 $13,729
Net income per common share:
Basic $ 0.61 $ 0.71
Diluted $ 0.61 $ 0.70
</TABLE>
The Company entered into a 10-year lease for its Memphis, Tennessee
property effective November 1, 1999. The annual net revenue under the
lease is $686.
(4) Joint Venture Investments
The Company has an investment in a real estate joint venture. The business
of the joint venture is to acquire, finance, hold for investment and sell
single tenant net leased real estate.
The real estate investment, which was made on September 15, 1999, is a
341,000 square foot office property located in Houston, Texas net leased
to Vastar Resources, Inc. for annual rental payments of $3,437 through
September 2009. The purchase price of $34,800 was partially funded through
a 10-year, $22,750 non-recourse mortgage note bearing interest at 7.58%
which provides for annual principal and interest payments of $2,032 with a
balloon payment of $18,229 at maturity. The remaining funding was provided
by a 12-year, $11,008 participating loan from Lexington Acquiport LLC, a
joint venture between the Company and New York State Common Retirement
Fund, with the balance of the purchase price funded by the Company. The
participating note has a current annual interest rate of 6.9% and a 50%
participation in operating cash flows of the property, as defined. The
note is convertible, at the holder's option, into an equity position in
the underlying property.
Summarized financial information for the underlying real estate investment
as of and for the period ended September 30, 1999 is as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Real estate, net $ 35,269
Other assets 885
-------
$ 36,154
=======
Mortgage payable $ 22,750
Note payable 11,008
Other liabilities 633
Equity 1,763
-------
$ 36,154
=======
</TABLE>
<TABLE>
<CAPTION>
1999
----
<S> <C>
Rental revenue $ 134
Interest expense (111)
Depreciation of real estate (29)
Other (7)
-------
Net loss $ (13)
=======
</TABLE>
<PAGE> 8
Included in interest and other income in the accompanying statement of
income is approximately $40 representing the Company's equity in the loss
of the unconsolidated entities.
(5) Minority Interests
In conjunction with several of the Company's acquisitions, sellers were
given interests in LCIF or LCIF II 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 September 30, 1999, the total number of limited partnership units of
LCIF and LCIF II outstanding was 6,006,697. These units, subject to
certain adjustments through the date of redemption, require distributions
per unit in varying amounts up to $1.20 per annum and have a current
average distribution of $1.09 per annum. Minority interests in the
accompanying consolidated financial statements include the interests in
such partnerships held by parties other than the Company.
(6) Mortgages Payable
During the nine months ended September 30, 1999 the Company:
(i) Obtained a $11,480 mortgage, bearing interest at 7.80% secured by
its Livonia, Michigan Properties. The mortgage, which matures
April 2009, provides for annual principal and interest payments of
approximately $992 and a balloon payment at maturity of $10,000.
(ii) Obtained a $4,700 mortgage, bearing interest at 7.39% secured by
its Henderson, North Carolina Property. The mortgage, which
matures May 2009, provides for annual principal and interest
payments of approximately $417 and a balloon payment at maturity
of $3,800.
(iii) Obtained a $2,180 mortgage, bearing interest at 7.375% secured by
its Baton Rouge, Louisiana Property. The mortgage, which matures
February 2009, provides for annual principal and interest payments
of approximately $208 and a balloon payment at maturity of $1,500.
(iv) Satisfied its $5,500 balloon mortgage payment due on its Phoenix,
Arizona Property. The mortgage had an interest rate of 10.75% per
annum.
(v) Obtained a $12,375 mortgage, bearing interest at 7.60% secured by
its Herndon, Virginia Property. The mortgage, which matures
September 2010, provides for annual principal and interest
payments of approximately $1,107 and a balloon payment at maturity
of $9,740.
(vi) As partial consideration for the sale of two properties, the
purchaser assumed $10,156 in mortgage debt at a weighted average
interest rate of 7.84%.
(7) Subsequent Events
The Company declared a $0.30 and $0.315 dividend on its common and
preferred shares, respectively, for shareholders of record on November 1,
1999, payable November 15, 1999.
The Company purchased a 348,410 square foot office building located in
Columbia, South Carolina net leased to Blue Cross Blue Shield of South
Carolina for approximately $42,500. The lease, which expires September 30,
2009 and contains two 5-year renewal options, provides for annual rental
revenues of approximately $4,907. The purchase was partially financed
through a $25,300 mortgage note. The mortgage note, which bears interest
at 7.85%, matures in September 2009, provides for annual principal and
interest payments of $2,196 and a balloon payment of $22,551 at maturity.
The Company has repurchased 317,311 common shares/units at an average
price of $9.64 per share/unit.
The Company issued 287,888 common shares in connection with a merger of a
private corporation. The assets of the corporation consisted of $3,900 and
the right to complete a tax-free exchange by acquiring two properties for
$13,400.
<PAGE> 9
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 failure to continue to qualify as a
real estate investment trust, general business and economic conditions,
competition, increases in real estate construction costs, change in 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 September 30, 1999, the Company owned sixty-four real estate properties or
interests therein (the "Properties).
Liquidity and Capital Resources
Real Estate Assets. As of September 30, 1999, the Company's real estate assets,
including joint venture investments, were located in twenty-nine states and
contained an aggregate of approximately 11.0 million square feet of net rentable
space. The Properties are subject to tenant triple net leases, which are
generally characterized as leases 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. All of the sixty- four
properties are currently leased.
During the nine months ended September 30, 1999, the Company acquired two
properties for $26.4 million at an unleveraged average annual yield of 10.59%
and sold five properties for an aggregate price of $30.2 million resulting in a
gain of approximately $3.0 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 nine months ended September 30, 1999, the
leases on the Properties generated approximately $56.3 million in revenue
compared to $44.3 million during the same period in 1998.
Dividends. The Company has made quarterly distributions since October 1986
without interruption. The Company paid a dividend of $.27 per share to common
shareholders in respect of each of the calendar quarters of 1995 and the first
quarter of 1996; $.28 per share in respect of the second and third quarters of
1996; $.29 per share in respect of the fourth quarter of 1996, each of the
calendar quarters of 1997 and the first and second quarters of 1998; $0.30 per
share in respect of the third and fourth quarters of 1998 and the first and
second quarters of 1999. The Company declared a dividend in respect of the third
quarter of 1999, in the amount of $.30 per share to shareholders of record as of
November 1, 1999 to be paid on November 15, 1999. The Company's annualized
dividend rate is currently $1.20 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 of the Company 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 September
30, 1999.
<PAGE> 10
<TABLE>
<CAPTION>
Current Total
Redeemable Annualized Annualized
for Shares of Number Per Unit Distribution
Common Shares as of: of Units Distribution ($000)
- ------------------- ---------- ------------- ------------
<S> <C> <C> <C>
At any time 3,962,663 $1.20 $ 4,755
At any time 1,273,368 1.08 1,375
At any time 134,110 1.12 150
December 1999 214,802 1.20 258
January 2003 13,698 - -
March 2004 52,335 0.27 14
March 2004 27,314 - -
November 2004 35,400 - -
March 2005 38,661 - -
January 2006 207,728 - -
February 2006 34,852 - -
May 2006 11,766 0.29 3
--------- ----- ---------
Total 6,006,697 $1.09 $ 6,555
========= ===== =========
</TABLE>
Subsequent to September 30, 1999, the Company purchased 161,218 of these Units
at an average price of $9.32 per Unit. An additional 72,252 Units were redeemed
for common shares.
Financing
Revolving Credit Facility. As of September 30, 1999, the amount outstanding on
the Company's credit facility was approximately $58.9 million, bore interest at
6.8125% per annum and had $8.4 million available for additional borrowings.
Subsequent to September 30, 1999 a letter of credit issued by the Company was
cancelled, increasing the amount available for borrowing under the credit
facility to $11.3 million.
Debt Service Requirements. The Company's principal liquidity needs are the
payment of interest and principal on outstanding mortgage debt. As of September
30, 1999, a total of forty-eight properties were subject to outstanding
mortgages, which had an aggregate principal amount of $311.8 million. The
weighted average interest rate on the Company's mortgages and notes payable,
including line of credit borrowings, on such date was approximately 7.38%.
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 Year 2000 compliance issue concerns the inability of computer systems to
accurately calculate, store or use a date after 1999. This could result in a
system failure or miscalculations causing disruptions of operations. The Year
2000 issue affects virtually all companies and organizations.
The Company has been taking the necessary steps to understand the nature and
extent of the work required to make its core information computer systems and
non-information embedded systems Year 2000 compliant. The Company has determined
that it will not be necessary to modify, update or replace its computer hardware
and software applications.
The vendor that provides the Company's existing general ledger software has
released a Year 2000 compliant version of its product, which the Company is
currently using. The cost of the general ledger system did not have a material
effect on the Company's financial condition or results of operations.
The Company's properties, which have no scheduled lease expirations prior to
August 17, 2000, are subject to net leases and accordingly the Year 2000
compliance of embedded systems (e.g., security, HVAC, fire and elevator systems)
are the responsibility of the tenants. The Company has contacted each of its
tenants asking them to identify and evaluate the changes and modifications
necessary to make these systems compliant for Year 2000 processing. The costs
associated with the effect to make the embedded
<PAGE> 11
systems Year 2000 compliant are the tenants' responsibility. However, no
assurances can be given that the Properties embedded systems will be Year 2000
compliant by December 31, 1999 and compliance costs, if any, incurred by the
Company would not be significant.
The Company is communicating with significant third-party service providers and
vendors with which it does business to determine the efforts being made on their
part for compliance. The Company is attempting to receive compliance
certificates from all third parties that have a material impact on the Company's
operations, but no assurance can be given with respect to the cost or timing of
such efforts or the potential effects of any failure to comply.
Management has closely monitored the Company's entire Year 2000 compliance
function. At this time, the Company has not developed and does not anticipate
developing any contingency plans with respect to Year 2000 issues.
Results of Operations ($000)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
Increase
Selected Income Statement Data 1999 1998 Increase 1999 1998 (Decrease)
------ ------ -------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 19,208 $ 17,155 $ 2,053 $ 57,319 $ 46,129 $ 11,190
Rental 18,796 16,869 1,927 56,331 44,324 12,007
Interest and other 412 286 126 988 1,805 (817)
Total expenses 13,478 12,018 1,460 40,106 31,346 8,760
Interest 7,188 6,271 917 21,320 16,287 5,033
Depreciation & amortization of
real estate 4,425 4,057 368 13,325 10,739 2,586
General & administrative 1,188 1,184 4 3,384 2,985 399
Property operating 436 257 179 1,351 602 749
Net Income 6,350 4,131 2,219 15,582 11,630 3,952
</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 decrease in
interest and other income for the nine month period was primarily due to income
recorded on the Newark, California Property, which was sold during the second
quarter of 1998, and interest income earned on the increased escrow deposits.
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 to
7.38% as of September 30, 1999 from 7.71% as of September 30, 1998, due to debt
refinancings and repayments. The Company's general and administrative expenses
decreased as a percentage of revenue to 6.18% and 5.90% for the three and nine
months ended September 30, 1999, respectively, from 6.90% and 6.47% for the
three and nine months ended September 30, 1998 due to the growth of the
Company's portfolio relative to these expenses. The increase in property
operating expenses relates to the previous vacancy of the Memphis property and
certain landlord operating expense responsibilities for the Palm Beach Gardens,
Florida property.
The tenant in the Company's Dallas, Texas Property has been experiencing
liquidity problems. The Company entered into an agreement with the tenant who
deferred $100,000 of its $268,000 monthly rent for the period March 1, 1999 to
June 30, 1999 and $126,000 of its monthly rent from July 1, 1999 to November 30,
1999.
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
<PAGE> 12
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 three and nine months ended
September 30, 1999 and 1998 ($000).
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 6,350 $ 4,131 $ 15,582 $ 11,630
Adjustments:
Depreciation and amortization of
real estate 4,425 4,057 13,325 10,739
(Gain) loss on sale of properties (2,351) -- (3,049) 388
Minority interest's share of net income 1,679 1,006 4,522 2,765
Joint venture adjustment 29 -- 29 --
--------- --------- --------- ---------
Funds From Operations $ 10,132 $ 9,194 $ 30,409 $ 25,522
========= ========= ========= =========
Cash flows from operating activities $ 11,582 $ 7,820 $ 30,107 $ 22,105
Cash flows from investing activities (26,740) (17,773) (28,980) (109,627)
Cash flows from financing activities 13,044 11,417 (6,010) 88,992
</TABLE>
The Company's aggregate dividends paid to shareholders and distributions paid to
unit holders amounted to approximately 73.2% of the Company's Funds From
Operations for the nine months ended September 30, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk relates to its variable rate unsecured
credit facility. As of September 30, 1999 the Company's variable rate
indebtedness represented 15.5% of total long-term indebtedness. During the three
and nine months ended September 30, 1999 this variable rate indebtedness had a
weighted average interest rate of 6.61%. Had the weighted average interest rate
been 100 basis points higher the Company's net income would have been
approximately $124 and $390 less for the three and nine months ended September
30, 1999, respectively.
<PAGE> 13
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 -
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<S> <C>
27 Financial Data Schedule as of and for the
nine months ended September 30, 1999
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended
September 30, 1999.
There was one 8-K filed during the quarter ended September
30, 1999.
(i) Form 8-K dated July 14, 1999, filed August 3, 1999.
Announced that the Company entered into a joint
venture agreement.
<PAGE> 14
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: November 12, 1999 By: /s/ E. ROBERT ROSKIND
----------------------------------
E. Robert Roskind
Chairman and Co-Chief Executive
Officer
Date: November 12, 1999 By: /s/ PATRICK CARROLL
----------------------------------
Patrick Carroll
Chief Financial Officer and
Treasurer
<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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AS CONTAINED IN
THE COMPANY'S FORM 10Q FOR SUCH PERIOD AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10Q. DOLLARS ARE IN THOUSANDS, EXCEPT PER SHARE DATA.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,713
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 679,826
<DEPRECIATION> 78,979
<TOTAL-ASSETS> 655,517
<CURRENT-LIABILITIES> 0
<BONDS> 379,436
24,369
0
<COMMON> 2
<OTHER-SE> 177,563
<TOTAL-LIABILITY-AND-EQUITY> 655,517
<SALES> 0
<TOTAL-REVENUES> 57,319
<CGS> 0
<TOTAL-COSTS> 14,676
<OTHER-EXPENSES> 726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,320
<INCOME-PRETAX> 20,262
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,582
<EPS-BASIC> .81
<EPS-DILUTED> .79
</TABLE>
