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, 2001
[ ] 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: 21,856,541 common shares, par
value $.0001 per share on August 10, 2001.
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PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2001 (Unaudited) and December 31, 2000
(in thousands, except share and per share data)
June 30, December 31,
2001 2000
----- -----
ASSETS:
Real estate, at cost $ 684,187 $ 682,627
Less: accumulated depreciation and amortization 107,147 98,429
--------- ---------
577,040 584,198
Cash and cash equivalents 10,935 4,792
Restricted cash 1,819 1,598
Investment in and advances to non-consolidated entities 46,193 40,836
Other assets, net 40,581 36,953
--------- ---------
$ 676,568 $ 668,377
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgages and notes payable $ 398,569 $ 345,505
Credit facility -- 41,821
Origination fees payable, including accrued interest 6,671 6,703
Accounts payable and other liabilities 5,041 6,473
--------- ---------
410,281 400,502
Minority interests 58,834 64,812
--------- ---------
469,115 465,314
--------- ---------
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
--------- ---------
Common shares, par value $0.0001 per share; 287,888 shares issued and outstanding,
liquidation preference $3,886 3,809 3,809
--------- ---------
Shareholders' equity:
Common shares, par value $0.0001 per share, authorized 40,000,000 shares,
17,520,896 and
16,863,394 shares issued and outstanding in 2001 and 2000,
respectively 2 2
Additional paid-in-capital 247,968 240,112
Deferred compensation, net (1,917) (1,019)
Accumulated distributions in excess of net income (64,801) (62,227)
--------- ---------
181,252 176,868
Less: notes receivable from officers/shareholders (1,977) (1,983)
--------- ---------
Total shareholders' equity 179,275 174,885
--------- ---------
$ 676,568 $ 668,377
========= =========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three and six months ended June 30, 2001 and 2000
(Unaudited and in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Rental $ 19,371 $ 19,298 $ 38,734 $ 38,318
Equity in earnings of non-consolidated entities 806 231 1,416 633
Interest and other 271 504 531 692
------------ ------------ ------------ ------------
20,448 20,033 40,681 39,643
------------ ------------ ------------ ------------
Expenses:
Interest 7,712 7,221 15,344 14,655
Depreciation and amortization of real estate 4,361 4,367 8,718 8,793
Amortization of deferred expenses 408 380 756 673
General and administrative 1,215 1,312 2,457 2,598
Property operating 343 399 714 768
------------ ------------ ------------ ------------
14,039 13,679 27,989 27,487
------------ ------------ ------------ ------------
Income before gain on sale of properties, minority
interests and extraordinary item 6,409 6,354 12,692 12,156
Gain on sale of properties -- 2,662 -- 2,662
------------ ------------ ------------ ------------
Income before minority interests and extraordinary
item 6,409 9,016 12,692 14,818
Minority interests 1,319 1,670 2,754 3,001
------------ ------------ ------------ ------------
Income before extraordinary item 5,090 7,346 9,938 11,817
Extraordinary item -- -- (270) --
------------ ------------ ------------ ------------
Net income $ 5,090 $ 7,346 $ 9,668 $ 11,817
============ ============ ============ ============
Income per common share-basic:
Income before extraordinary item $ 0.25 $ 0.40 $ 0.50 $ 0.63
Extraordinary item -- -- (0.02) --
------------ ------------ ------------ ------------
Net income $ 0.25 $ 0.40 $ 0.48 $ 0.63
============ ============ ============ ============
Weighted average common shares outstanding 17,351,400 16,838,967 17,219,900 16,881,301
============ ============ ============ ============
Income per common share-diluted:
Income before extraordinary item $ 0.25 $ 0.36 $ 0.48 $ 0.59
Extraordinary item -- -- (0.01) --
------------ ------------ ------------ ------------
Net income $ 0.25 $ 0.36 $ 0.47 $ 0.59
============ ============ ============ ============
Weighted average common shares outstanding 23,109,844 26,599,876 23,039,062 24,604,990
============ ============ ============ ============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2001 and 2000
(Unaudited and in thousands, except share data)
2001 2000
-------- --------
Net cash provided by operating activities $ 21,172 $ 19,869
-------- --------
Cash flows from investing activities:
Acquisitions of real estate and tenant improvements (1,560) (27,077)
Investment in and advances to non-consolidated entities (6,517) (6,005)
Real estate deposits (359) (5,547)
Investment in partnerships (1,122) --
Proceeds from sale of real estate, net -- 16,335
-------- --------
Net cash used in investing activities (9,558) (22,294)
-------- --------
Cash flows from financing activities:
Proceeds of mortgages and notes payable 59,244 36,800
Dividends to common and preferred shareholders (12,242) (11,471)
Principal payments on debt, excluding normal amortization -- (13,093)
Principal amortization payments (6,184) (5,476)
Change in credit facility borrowings, net (41,821) (4,500)
Cash distributions to minority partners (3,201) (3,113)
Proceeds from the issuance of common shares, net 1,368 539
Repurchase of common shares/units (192) (3,211)
Increase in escrow deposits (246) --
Other financing activities, net (2,197) 241
-------- --------
Net cash used in financing activities (5,471) (3,284)
-------- --------
Change in cash and cash equivalents 6,143 (5,709)
Cash and cash equivalents, at beginning of period 4,792 8,837
-------- --------
Cash and cash equivalents, at end of period $ 10,935 $ 3,128
======== ========
Supplemental Disclosure of Non Cash Investing and Financing Activities:
During 2001 and 2000, the Company issued 100,000 and 73,800 common shares,
respectively, to certain employees and trustees resulting in $1,181 and $664,
respectively, of deferred compensation. These common shares vest ratably
primarily over a 5 year period.
During 2001 and 2000, holders of an aggregate of 388,732 and 68,759 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 $5,330 and $830, respectively.
During 2001, the Company purchased a property in Winchester, Virginia for
$14,400 of which $10,800 was financed by the seller through a purchase money
note. The property was subsequently contributed to the Company's joint venture
with an institutional partner at cost.
During 2000, 83,400 partnership units were issued to acquire two real estate
asset management contracts valued at $585.
During 2000, the Company sold a property and received a $3,067 note which bears
interest at 10%. The note subsequently was repaid.
During 2000, the Company purchased a property and issued a $3,488 promissory
note to the seller.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(Unaudited and dollars 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
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.
As of June 30, 2001 the Company had ownership interests in
seventy-three properties and managed an additional twenty-five
properties.
The Company has qualified as a REIT under the Internal Revenue Code of
1986, as amended. A REIT 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 90% 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, 2000.
(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.
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 preferred shares and exchangeable redeemable
secured notes are excluded from all 2001 computations since they are
anti-dilutive. The Company's preferred shares are excluded from the
six months ended June 30, 2000 computations since they are
anti-dilutive.
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The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the three and six months
ended June 30, 2001 and 2000.
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
BASIC
Income before extraordinary item $ 5,090 $ 7,346 $ 9,938 $ 11,817
Less preferred dividends 672 630 1,344 1,260
------------ ------------ ------------ ------------
Income attributed to common shareholders before
extraordinary item 4,418 6,716 8,594 10,557
Extraordinary item -- -- (270) --
------------ ------------ ------------ ------------
Net income attributed to common shareholders $ 4,418 $ 6,716 $ 8,324 $ 10,557
============ ============ ============ ============
Weighted average number of common shares outstanding 17,351,400 16,838,967 17,219,900 16,881,301
============ ============ ============ ============
Income per common share - basic:
Income before extraordinary item $ 0.25 $ 0.40 $ 0.50 $ 0.63
Extraordinary item -- -- (0.02) --
------------ ------------ ------------ ------------
Net income $ 0.25 $ 0.40 $ 0.48 $ 0.63
============ ============ ============ ============
DILUTED
Income attributed to common shareholders before
extraordinary item - basic $ 4,418 $ 6,716 $ 8,594 $ 10,557
Add incremental income attributed to assumed conversion --
of dilutive securities 1,267 2,752 2,613 3,908
------------ ------------ ------------ ------------
Income attributed to common shareholders before
extraordinary item - diluted 5,685 9,468 11,207 14,465
Extraordinary item -- -- (270) --
------------ ------------ ------------ ------------
Net income attributed to common shareholders - diluted $ 5,685 $ 9,468 $ 10,937 $ 14,465
============ ============ ============ ============
Weighted average number of common shares used in
calculation of basic earnings per share 17,351,400 16,838,967 17,219,900 16,881,301
Add incremental shares representing:
Shares issuable upon exercise of employee stock
options 325,777 79,998 287,234 72,604
Shares issuable upon conversion of dilutive securities 5,432,667 9,680,911 5,531,928 7,651,085
------------ ------------ ------------ ------------
Weighted average number of shares used in calculation of
diluted earnings per common share 23,109,844 26,599,876 23,039,062 24,604,990
============ ============ ============ ============
Income per common share-diluted:
Income before extraordinary item $ 0.25 $ 0.36 $ 0.48 $ 0.59
Extraordinary item -- -- (0.01) --
------------ ------------ ------------ ------------
Net income $ 0.25 $ 0.36 $ 0.47 $ 0.59
============ ============ ============ ============
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 2000 financial statements
have been reclassified to conform with the 2001 presentation.
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(3) Investments in Joint Ventures
The Company's joint venture with an institutional partner has acquired
one property in 2001, for $14,400, of which $10,800 was funded through
a purchase money note. The lease, which expires in 2011, provides for
annual rental revenues of approximately $1,514. This property was
purchased, at cost, from the Company.
The Company's joint venture with a private investor has agreed to
develop a 107,894 square foot expansion of its 348,410 square foot
office building in Columbia, South Carolina. The property, net leased
to Blue Cross Blue Shield of South Carolina, was purchased in 1999 for
$42,500. The expansion, which is estimated to be completed by October
2001, is estimated to cost $10,500. The tenant will lease the expansion
for eight years at a weighted average rental rate of 18.5% of
construction costs. The Company is obligated to fund 40% of the costs
and will receive 40% of all cash flows.
(4) Concentration of Risk
The Company seeks to reduce its operating and leasing risks through
diversification achieved by the geographic distribution of its
properties, avoiding dependency on a single property and the
creditworthiness of its tenants.
For the six months ended June 30, 2001 and 2000 the following tenants
represented 10% or greater of rental revenues:
2001 2000
---- ----
Northwest Pipeline Corporation 11% 11%
Kmart Corporation 12% 12%
Both of these tenants are publicly registered companies subject to the
1934 Securities and Exchange Act and accordingly file financial
information with the Securities and Exchange Commission.
The following is a summary of the most recent audited and unaudited
financial data for all tenants that represent greater than 10% of the
Company's revenues:
Northwest Pipeline Corporation
Year end First Quarter ended
12/31/00 3/31/01
-------- --------
Operating revenues $296,361 $ 71,198
Operating expenses 146,499 36,761
Net income 79,742 17,532
Current assets $121,799 $125,795
Non current assets 982,280 978,695
Current liabilities 110,039 101,516
Non current liabilities 524,659 526,061
Shareholder's equity 469,381 476,913
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Kmart Corporation
-----------------
Year end First Quarter ended
1/31/01 5/2/01
----------- -----------
Sales $37,028,000 $ 8,337,000
Cost of Sales 29,658,000 6,608,000
Net loss 244,000 25,000
Current assets $ 7,624,000 $ 8,548,000
Non current assets 7,006,000 7,044,000
Current liabilities 3,799,000 4,474,000
Non current liabilities 3,861,000 4,148,000
Redeemable preferred securities 887,000 887,000
Shareholder's equity 6,083,000 6,083,000
(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 June 30, 2001 the total number of limited partnership units of
LCIF and LCIF II outstanding was 5,291,842. These units, subject to
certain adjustments through the date of redemption, require
distributions per unit in varying amounts from $0 to $1.28 per annum
and have a current average distribution of $1.15 per annum.
(6) Mortgages and Notes Payable
During the six months ended June 30, 2001, the Company obtained the
following mortgages:
- Obtained a $12,500 variable rate second mortgage on its
Warren, Ohio property. The mortgage note provides for
quarterly interest payments, matures in October 2007 when the
entire $12,500 is due and currently bears interest at 7.69%.
- Obtained a $15,144 non-recourse mortgage on its Glendale,
Arizona property. The mortgage note bears interest at 7.40%,
provides for annual debt service payments of $1,258 and
matures in April 2011 when a balloon payment of $13,115 is
due.
- Obtained a three year $35,000 unsecured credit facility with
Fleet Bank to replace its $60,000 credit facility which was
scheduled to expire in July 2001. The new facility bears
interest at LIBOR plus 150-250 basis points depending on the
level of the Company's indebtedness. The credit facility
contains customary financial covenants including restrictions
on the level of indebtedness and net worth maintenance
provisions. As of June 30, 2001 the Company was in compliance
with all covenants and there were no borrowings outstanding on
the facility. Unamortized capitalized costs of $270 incurred
in obtaining the $60,000 credit facility were written off when
the Company replaced the facility.
- Obtained a $17,100 non-recourse mortgage on its Milpitas,
California property. The mortgage note bears interest at LIBOR
plus 297 (currently 6.92%) and matures in July 2004 when a
balloon payment is due.
- Obtained a $7,500 non-recourse mortgage on its Auburn Hills,
Michigan property. The mortgage note bears interest at 7.01%,
provides for annual debt service payments of $637 and matures
in June 2011 when a balloon payment of $5,918 is due.
- Obtained a $7,000 non-recourse mortgage on its Decatur,
Georgia property. The mortgage note bears interest at 6.72%,
provides for annual debt service payments of $579 and matures
in June 2008 when a balloon payment of $6,049 is due.
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(7) Related Party Transactions
In 2001 and 2000, the Company earned $80 and $17, respectively
in asset management fees from two partnerships controlled by the
Company's Chairman. In 2001 and 2000, the Company incurred
reimbursable expenses relating to these partnerships of $275 and $161,
respectively. In 2001 the Company purchased a total of 10,479 limited
partnership units in these two partnerships for approximately $1,100.
On July 20, 2001, the Company announced amended terms of the agreement
to acquire these partnerships. Under the new proposal, the Company
would pay limited partners $64,350 in cash and common shares, and
would assume existing debt of the partnerships. The limited partners
would recieve the merger consideration, payable 50% in cash and 50% in
the Company's common shares issued at a value not less than $14 per
share nor more than $16 per share. The transaction is subject to
customary conditions, including approval by the Company's shareholders
and the partnership's limited partners.
(8) Subsequent Events
The Company sold 4,000,000 common shares at $15.20 per share raising
net proceeds of $57,720.
The Company declared a dividend of $0.32 per share payable on August
14, 2001 to shareholders of record on July 31, 2001.
The Company repaid $34,388 in property specific mortgage debt
resulting in an extraordinary charge of approximately $3,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, except per share data)
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, 2001, the Company had ownership interests in 73 real estate
properties, including eleven held by non-consolidated entities, and managed 25
additional properties.
Liquidity and Capital Resources
Real Estate Assets. As of June 30, 2001, the Company's real estate assets were
located in twenty-nine states and contained an aggregate of approximately 13.1
million square feet of net rentable space. The Properties are generally subject
to 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. As of June 30, 2001 all of the 73 Properties were leased to tenants.
The Company's principal sources of liquidity are revenue generated from the
Properties, interest on cash balances, amounts available under its unsecured
credit facility and amounts that may be raised through the sale of securities in
private or public offerings. For the six months ended June 30, 2001, the Company
generated $38,734 in revenue compared to $38,318 during the same period in 2000.
Dividends. The Company has made quarterly distributions since October 1986
without interruption. The Company declared a dividend in respect of the second
quarter of 2001, in the amount of $.32 per share to shareholders of record as of
July 31, 2001 to be paid on August 14, 2001. The Company's annualized dividend
rate is currently $1.28 per share.
In connection with its intention to continue to qualify as a REIT for Federal
income tax purposes, the Company expects to continue paying regular dividends to
its shareholders. These dividends are expected to be paid from operating cash
flows which are expected to increase due to property acquisitions and growth in
rental revenues in the existing portfolio and from other sources. Since cash
used to pay dividends reduces amounts available for capital investments, the
Company generally intends to maintain a conservative dividend payout ratio,
reserving such amounts as it considers necessary for the expansion of Properties
in its portfolio, debt reduction, the acquisition of interests in new properties
as suitable opportunities arise, and such other factors as the Board of Trustees
considers appropriate.
Cash dividends paid to common shareholders increased to $10,919 in 2001 compared
to $10,211 in 2000. Although the Company receives the majority of its rental
payments on a monthly basis, it intends to continue paying dividends quarterly.
Amounts accumulated in advance of each quarterly distribution are invested by
the Company in short-term money market or other suitable instruments.
The Company anticipates that cash flows from operations will continue to provide
adequate capital to fund its operating and administrative expenses, regular debt
service obligations and all dividend payments in accordance with REIT
requirements in both the short-term and long-term. In addition, the Company
anticipates that cash on hand, borrowings under its unsecured credit facility,
issuance of equity and debt, as well as other alternatives, will provide the
necessary capital required by the Company. Cash flows from operations was
$21,172 for the six months ended June 30, 2001 and $19,869 for the six months
ended June 30, 2000.
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Net cash used in investing activities totaled $9,558 and $22,294 for the six
months ended June 30, 2001 and 2000, respectively. Cash used in investing
activities related primarily to investments in real estate properties and joint
ventures. Therefore, the fluctuation in investing activities relates primarily
to the timing of investments.
Net cash used in financing activities totaled $5,471 and $3,284 for the six
months ended June 30, 2001 and 2000, respectively. Cash used in financing
activities during each period was primarily attributable to proceeds from
mortgages and advances/repayments under the Company's credit facility coupled
with dividend and distribution payments, debt service payments and the
repurchase of the Company's common shares/operating partnership units.
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, 2001,
based on the current $1.28 annual dividend.
Current
Redeemable Annualized Total
For Shares of Number Per Unit Annualized
Common Shares as of: of Units Distribution Distribution
- -------------------- --------- ------------ ------------
At any time 3,460,472 $ 1.28 $ 4,429
At any time 1,271,073 1.08 1,373
At any time 133,050 1.12 149
June 2002 83,400 1.28 107
January 2003 17,901 -- --
March 2004 43,734 0.27 12
March 2004 19,510 -- --
November 2004 24,552 -- --
March 2005 29,384 -- --
January 2006 171,168 -- --
February 2006 28,230 -- --
May 2006 9,368 0.29 3
----------- -------- -----------
5,291,842 $ 1.15 $ 6,073
=========== ======== ===========
Financing
Revolving Credit Facility. The Company obtained a three year $35,000 unsecured
credit facility to replace its $60,000 credit facility which was scheduled to
expire in July 2001. The new facility bears interest at LIBOR plus 150-250 basis
points depending on the level of the Company's indebtedness. The credit facility
contains customary financial covenants including restrictions on the level of
indebtedness and net worth maintenance provisions. As of June 30, 2001 the
Company was in compliance with all covenants and there were no borrowings
outstanding on the facility.
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Financing Transactions. During the six months ending June 30, 2001 the Company
completed the following financing transactions:
- Obtained a $12,500 variable rate second mortgage on its
Warren, Ohio property. The mortgage note provides for
quarterly interest payments, matures in October 2007 when the
entire $12,500 is due and currently bears interest at 7.69%.
- Obtained a $15,144 non-recourse mortgage on its Glendale,
Arizona property. The mortgage note bears interest at 7.40%,
provides for annual debt service payments of $1,258 and
matures in April 2011 when a balloon payment of $13,115 is
due.
- Obtained a $17,100 non-recourse mortgage on its Milpitas,
California property. The mortgage note bears interest at LIBOR
plus 297 (currently 6.92%) and matures in July 2004 when a
balloon payment is due.
- Obtained a $7,500 non-recourse mortgage on its Auburn Hills,
Michigan property. The mortgage note bears interest at 7.01%,
provides for annual debt service payments of $637 and matures
in June 2011 when a balloon payment of $5,918 is due.
- Obtained a $7,000 non-recourse mortgage on its Decatur,
Georgia property. The mortgage note bears interest at 6.72%,
provides for annual debt service payments of $579 and matures
in June 2008 when a balloon payment of $6,049 is due.
Debt Service Requirements. The Company's principal liquidity needs are the
payment of interest and principal on outstanding mortgage debt. As of June 30,
2001, a total of 56 properties, excluding properties held by non-consolidated
entities, were subject to outstanding mortgages, which had an aggregate
principal amount of $398,569. The weighted average interest rate on the
Company's debt on such date was approximately 7.67%.
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.
Results of Operations
Changes in the results of operations for the Company are primarily due to the
growth of its portfolio and costs associated with such growth. Of the increase
in total revenues of $415 and $1,038 for the three and six months ended June 30,
2001, respectively, $575 and $783, respectively, is attributable to increased
earnings from co-investment programs established in 1999. The increase relates
primarily to the timing of investments. Of the remaining change in revenue for
the three and six months ended June 30, 2001, $73 and $416, respectively, was
attributable to increased rental revenues from investments made in 2000 and an
increase in base rents for leases with consumer price index adjustments. The
increase in interest expense of $491 and $689 for the three and six months ended
June 30, 2001, respectively, was due to the growth of the Company's portfolio
and has been offset by principal amortization payments on existing debt, lower
variable interest rates on the credit facility and lower interest rates on new
debt incurred by the Company. The Company's general and administrative expenses
have decreased as a percentage of total revenue to approximately 6.0% in 2001
from approximately 6.6% in 2000 due to the growth of the Company's portfolio
relative to these expenses. Gain on sale of properties decreased by $2,662 in
2001 compared to 2000 since no properties were sold in 2001. Minority interest
expense decreased by $351 and $247 for the three and six months ended June 30,
2001, respectively, due to the redemption of operating partnership units in
2001. Net income decreased for the three and six months ended June 30, 2001
compared to 2000 due to the impact of the items discussed above.
Funds From Operations
The Company believes that Funds From Operations ("FFO") enhances an investor's
understanding of the Company's financial condition, results of operations and
cash flows. The Company believes that FFO is an appropriate measure of the
performance of an equity REIT, and that it can be one measure of a REIT's
ability to make cash distributions. FFO is defined in the October 1999 "White
Paper", issued 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 sales
of property, plus real estate depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures." The Company
includes in the calculation of FFO the dilutive effect of the deemed conversion
of its outstanding exchangeable notes. FFO should not be considered an
alternative to net income as an indicator of operating performance or to cash
flows from operating
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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 six months ended June 30, 2001 and
2000.
2001 2000
-------- --------
Net income $ 9,668 $ 11,817
Add back:
Depreciation and amortization of real estate 8,718 8,793
Extraordinary item 270 --
Minority interest's share of net income 2,613 2,908
Amortization of leasing commissions 383 167
Deemed conversion of notes payable 1,000 582
Joint venture adjustment 1,919 845
Gains on sale of properties -- (2,662)
-------- --------
Funds from operations $ 24,571 $ 22,450
======== ========
Cash flows from operating activities $ 21,172 $ 19,869
Cash flows from investing activities (9,558) (22,294)
Cash flows from financing activities (5,471) (3,284)
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 June 30, 2001 and 2000, the Company's variable rate
indebtedness represented 9.5% and 17.8% of total long-term indebtedness,
respectively. During the three and six months ended June 30, 2001 and 2000, this
variable rate indebtedness had a weighted average interest rate of 6.87% and
7.21% and 7.68% and 7.60%, respectively, and had the weighted average interest
rate been 100 basis points higher, the Company's net income for the three and
six months ended June 30, 2001 and 2000 would have been reduced by approximately
$110 and $240 and $175 and $352, respectively.
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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
23, 2001, the following action was taken:
The shareholders elected the seven individuals nominated to
serve as trustees of the Company until the 2002 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. The seven individuals elected, and the
number of votes cast for, or withheld, with respect to each of
them, follows:
For Withheld
---------- --------
E. Robert Roskind 14,524,548 325,849
Richard J. Rouse 14,527,129 323,268
T. Wilson Eglin 14,526,432 323,965
Geoffrey Dohrmann 14,675,583 174,814
Carl D. Glickman 14,567,385 283,012
John D. McGurk 14,681,865 168,532
Seth M. Zachary 14,442,958 407,439
ITEM 5. Other Information - not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Exhibit
----------- -------
10.41 Underwriters' Agreement for Common Share Offering
(b) Reports on Form 8-K filed during the quarter
ended June 30, 2001.
None.
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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, 2001 By: /s/ E. Robert Roskind
------------------- ---------------------------------------
E. Robert Roskind
Chairman and Co-Chief Executive Officer
Date: August 14, 2001 By: /s/ Patrick Carroll
------------------- ---------------------------------------
Patrick Carroll
Chief Financial Officer and Treasurer
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