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, 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: 22,284,160 common shares, par
value $.0001 per share on November 9, 2001.
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2001 (Unaudited) and December 31, 2000
(in thousands, except share and per share data)
September 30, December 31,
2001 2000
------------- -------------
ASSETS:
Real estate, at cost $ 684,727 $ 682,627
Less: accumulated depreciation and amortization 111,878 98,429
------------- -------------
572,849 584,198
Cash and cash equivalents 15,766 4,792
Restricted cash 1,729 1,598
Investment in and advances to non-consolidated entities 48,778 40,836
Other assets, net 45,396 36,953
------------- -------------
$ 684,518 $ 668,377
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgages and notes payable $ 348,763 $ 345,505
Credit facility -- 41,821
Origination fees payable, including accrued interest 6,654 6,703
Accounts payable and other liabilities 6,459 6,473
------------- -------------
361,876 400,502
Minority interests 57,365 64,812
------------- -------------
419,241 465,314
------------- -------------
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,
22,001,271 and 16,863,394 shares issued and outstanding in 2001 and 2000, respectively 2 2
Additional paid-in-capital 311,231 240,112
Deferred compensation, net (1,779) (1,019)
Accumulated distributions in excess of net income (70,382) (62,227)
------------- --------------
239,072 176,868
Less: notes receivable from officers/shareholders (1,973) (1,983)
------------- --------------
Total shareholders' equity 237,099 174,885
------------- --------------
$ 684,518 $ 668,377
============ ==============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
2
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three and nine months ended September 30, 2001 and 2000
(Unaudited and in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Rental $ 19,091 $ 19,247 $ 57,825 $ 57,565
Equity in earnings of non-consolidated entities 780 475 2,196 1,108
Interest and other 351 365 882 1,057
------------ ------------ ------------ ------------
20,222 20,087 60,903 59,730
------------ ------------ ------------ ------------
Expenses:
Interest 7,292 7,401 22,636 22,056
Depreciation and amortization of real estate 4,731 4,362 13,449 13,155
Amortization of deferred expenses 436 415 1,192 1,088
General and administrative 1,225 1,240 3,682 3,838
Property operating 436 338 1,150 1,106
------------ ------------ ------------ ------------
14,120 13,756 42,109 41,243
------------ ------------ ------------ ------------
Income before gain on sale of properties, minority
interests and extraordinary item 6,102 6,331 18,794 18,487
Gain on sale of properties -- 297 -- 2,959
------------ ------------ ------------ ------------
Income before minority interests and extraordinary
item 6,102 6,628 18,794 21,446
Minority interests 1,181 1,508 3,935 4,509
------------ ------------ ------------ ------------
Income before extraordinary item 4,921 5,120 14,859 16,937
Extraordinary item (2,874) -- (3,144) --
------------ ------------ ------------ ------------
Net income $ 2,047 $ 5,120 $ 11,715 $ 16,937
============ ============ ============ ============
Income per common share-basic:
Income before extraordinary item $ 0.21 $ 0.26 $ 0.70 $ 0.89
Extraordinary item (0.14) -- (0.17) --
------------ ------------ ------------ ------------
Net income $ 0.07 $ 0.26 $ 0.53 $ 0.89
============ ============ ============ ============
Weighted average common shares outstanding 20,615,907 16,906,036 18,364,342 16,889,606
============ ============ ============ ============
Income per common share-diluted:
Income before extraordinary item $ 0.20 $ 0.26 $ 0.69 $ 0.85
Extraordinary item (0.13) -- (0.17) --
------------ ------------ ------------ ------------
Net income $ 0.07 $ 0.26 $ 0.52 $ 0.85
============ ============ ============ ============
Weighted average common shares outstanding 21,011,999 22,765,499 18,674,703 24,627,639
============ ============ ============ ============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2001 and 2000
(Unaudited and in thousands, except share data)
2001 2000
----- -----
Net cash provided by operating activities $ 28,943 $ 27,587
-------- --------
Cash flows from investing activities:
Acquisitions of real estate and tenant improvements (2,101) (27,116)
Investment in and advances to non-consolidated entities (8,752) (16,182)
Pending acquisition costs (533) --
Real estate deposits (300) (4,633)
Investment in partnerships (1,065) --
Proceeds from sale of real estate, net -- 19,402
-------- --------
Net cash used in investing activities (12,751) (28,529)
-------- --------
Cash flows from financing activities:
Proceeds of mortgages and notes payable 59,244 45,300
Dividends to common and preferred shareholders (19,870) (17,394)
Principal payments on debt, excluding normal amortization (47,196) (13,093)
Principal amortization payments (8,397) (7,819)
Change in credit facility borrowings, net (41,821) (6,500)
Cash distributions to minority partners (4,708) (4,702)
Proceeds from the issuance of common shares, net 64,684 818
Repurchase of common shares/units (349) (3,211)
Increase in escrow deposits (516) --
Other financing activities, net (2,714) (270)
Penalties paid on early retirement of debt (3,575) --
-------- --------
Net cash used in financing activities (5,218) (6,871)
-------- --------
Change in cash and cash equivalents 10,974 (7,813)
Cash and cash equivalents, at beginning of period 4,792 8,837
-------- --------
Cash and cash equivalents, at end of period $ 15,766 $ 1,024
======== ========
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 412,275 and 124,023 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 $5,625 and $1,668, 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 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.
4
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 generally 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 September 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 preferred shares, operating
partnership units and exchangeable redeemable secured notes. The
preferred shares, operating partnership units and exchangeable
redeemable secured notes are excluded from all 2001 computations since
they are anti-dilutive. The preferred shares are excluded from the
three and nine months ended September 30, 2000 computations and the
exchangeable redeemable secured notes are excluded from the three
months ended September 30, 2000 computation. During the third quarter
of 2001 the Company retired all redeemable secured notes.
5
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, 2001 and 2000.
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
BASIC
Income before extraordinary item $ 4,921 $ 5,120 $ 14,859 $ 16,937
Less preferred dividends 672 651 2,016 1,911
------------ ------------ ------------ ------------
Income attributed to common shareholders
before extraordinary item 4,249 4,469 12,843 15,026
Extraordinary item (2,874) -- (3,144) --
------------ ------------ ------------ ------------
Net income attributed to common shareholders $ 1,375 $ 4,469 $ 9,699 $ 15,026
============ ============ ============ ============
Weighted average number of common shares
outstanding 20,615,907 16,906,036 18,364,342 16,889,606
============ ============ ============ ============
Income per common share - basic:
Income before extraordinary item $ 0.21 $ 0.26 $ 0.70 $ 0.89
Extraordinary item (0.14) -- (0.17) --
------------ ------------ ------------ ------------
Net income $ 0.07 $ 0.26 $ 0.53 $ 0.89
============ ============ ============ ============
DILUTED
Income attributed to common shareholders before
extraordinary item - basic $ 4,249 $ 4,469 $ 12,843 $ 15,026
Add incremental income attributed to assumed
conversion of dilutive securities -- 1,419 -- 5,827
------------ ------------ ------------ ------------
Income attributed to common shareholders before
extraordinary item - diluted 4,249 5,888 12,843 20,853
Extraordinary item (2,874) -- (3,144) --
------------ ------------ ------------ ------------
Net income attributed to common shareholders -
diluted $ 1,375 $ 5,888 $ 9,699 $ 20,853
============ ============ ============ ============
Weighted average number of common shares used in
calculation of basic earnings per share 20,615,907 16,906,036 18,364,342 16,889,606
Add incremental shares representing:
Shares issuable upon exercise of employee
stock options 396,092 131,716 310,361 87,035
Shares issuable upon conversion of dilutive
securities -- 5,727,747 -- 7,650,998
------------ ------------ ------------ ------------
Weighted average number of shares used in
calculation of diluted earnings per common
share 21,011,999 22,765,499 18,674,703 24,627,639
============ ============ ============ ============
Income per common share-diluted:
Income before extraordinary item $ 0.20 $ 0.26 $ 0.69 $ 0.85
Extraordinary item (0.13) -- (0.17) --
------------ ------------ ------------ ------------
Net income $ 0.07 $ 0.26 $ 0.52 $ 0.85
============ ============ ============ ============
6
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.
Recently Issued Accounting Pronouncements. In October 2001, the FASB
issued the Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"). FAS 144 addresses financial accounting and reporting for the
disposal of long-lived assets. FAS 144 becomes effective for financial
statements issued for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years. The Company does not
expect the pronouncement to have a material impact on its consolidated
financial position, results of operations or cash flows.
Reclassifications. Certain amounts included in the 2000 financial
statements have been reclassified to conform with the 2001
presentation.
(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 purchase money note was satisfied with the
proceeds of an $11,000 non-recourse mortgage. The mortgage bears
interest at 7.33%, requires annual debt service payments of $908 and
matures in August 2011 when a balloon payment of $9,675 is due. 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 developed 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 was completed in October 2001 for $10,900. The tenant has
entered into a lease for the expansion which expires on September 30,
2009 (the expiration date of the primary lease), at a weighted average
rental rate of 18.6% of the construction costs. The Company funded 40%
of the construction 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 nine months ended September 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.
7
The following is a summary of the most recent audited and unaudited
financial data for these two tenants:
Northwest Pipeline Corporation
------------------------------
Year end Second Quarter ended
12/31/00 6/30/01
-------- --------
Operating revenues $296,361 $143,079
Operating expenses 146,499 73,110
Net income 79,742 35,667
Current assets $121,799 $118,521
Non current assets 982,280 978,814
Current liabilities 110,039 87,612
Non current liabilities 524,659 524,675
Shareholder's equity 469,381 485,048
Kmart Corporation
-----------------
Year end Second Quarter ended
1/31/01 8/1/01
------- ------
Sales $37,028,000 $17,255,000
Cost of Sales 29,658,000 13,667,000
Net loss 244,000 120,000
Current assets $ 7,624,000 $ 8,174,000
Non current assets 7,006,000 7,175,000
Current liabilities 3,799,000 3,849,000
Non current liabilities 3,861,000 4,548,000
Redeemable preferred securities 887,000 887,000
Shareholders' equity 6,083,000 6,065,000
(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 September 30, 2001 the total number of limited partnership units
of LCIF and LCIF II outstanding was 5,268,299. 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.
8
(6) Mortgages and Notes Payable
During the nine months ended September 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 bears interest at 375 basis points
above 90 day LIBOR (7.27% at September 30, 2001).
- 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 September 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 297
basis points above 30 day LIBOR (6.55% at September 30,
2001) 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.
During the third quarter of 2001 the Company satisfied the following
mortgages:
Property Balance Rate Scheduled Maturity
-------- ------- ---- ------------------
Bessemer, AL $ 1,000 9.500% 9/01/01
Tampa, FL 5,023 7.050% 8/15/02
Tampa, FL 4,094 7.050% 8/15/02
Gordonsville, TN 895 9.500% 10/01/02
Bakersfield, CA 1,030 9.350% 12/01/02
Columbia, MD 1,340 10.750% 7/20/03
Mechanicsburg, PA 25,000 8.000% 3/20/04
Rockville, MD 704 8.820% 3/01/05
Laguna Hills, CA 3,123 8.375% 2/01/06
Honolulu, HI 4,987 10.250% 10/01/10
------- --------
$47,196 8.259%
======= ========
The mortgage satisfactions resulted in an extraordinary charge of
approximately $2,874, net of the impact on minority interests.
9
(7) Related Party Transactions
In 2001 and 2000, the Company earned $112 and $55, respectively, in
asset management fees from two partnerships in which the Company's
Chairman is the general partner. In 2001 and 2000, the Company incurred
reimbursable expenses relating to these partnerships of $411 and $311,
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
receive 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. The Special Meeting of Shareholders to
vote on these acquisitions is scheduled for November 28, 2001.
(8) Equity Offering
During the third quarter of 2001, the Company sold 4,000,000 common
shares at $15.20 per share raising net proceeds of $57,720. In
addition, the underwriters exercised their over-allotment option and
purchased an additional 400,000 common shares from the Company for net
proceeds of $5,644.
10
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 September 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 September 30, 2001, the Company's real estate assets
were located in twenty-nine states and contained an aggregate of approximately
13.2 million square feet of net rentable space, including a 107,894 square foot
expansion which was completed in October 2001. 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 September 30, 2001 71 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 nine months ended September 30, 2001, the
Company generated $57,825 in rental revenue compared to $57,565 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 third
quarter of 2001, in the amount of $.32 per share to shareholders of record as of
October 31, 2001 to be paid on November 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 $17,875 in 2001 compared
to $15,483 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.
11
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 were
$28,943 for the nine months ended September 30, 2001 and $27,587 for the nine
months ended September 30, 2000.
Net cash used in investing activities totaled $12,751 and $28,529 for the nine
months ended September 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 $5,218 and $6,871 for the nine
months ended September 30, 2001 and 2000, respectively. Cash used in financing
activities during 2001 was primarily attributable to the issuance of common
shares and repayment of mortgage debt with the proceeds from the common share
offering. All other financing activities in 2001 and all financing activities in
2000 were 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 September 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 3,436,929 $ 1.28 $ 4,399
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
----------- -------- -----------
5,268,299 $ 1.15 $ 6,043
=========== ======== ===========
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 September 30, 2001 the
Company was in compliance with all covenants and there were no borrowings
outstanding on the facility.
12
Financing Transactions. During the nine months ending September 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 bears interest at 375 basis points
above 90 day LIBOR (7.27% at September 30, 2001).
- 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 September 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 297
basis points above 30 day LIBOR (6.55% at September 30, 2001)
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.
- During the third quarter of 2001 the Company satisfied the
following mortgages:
Property Balance Rate Maturity
-------- ------- ---- --------
Bessemer, AL $ 1,000 9.500% 9/01/01
Tampa, FL 5,023 7.050% 8/15/02
Tampa, FL 4,094 7.050% 8/15/02
Gordonsville, TN 895 9.500% 10/01/02
Bakersfield, CA 1,030 9.350% 12/01/02
Columbia, MD 1,340 10.750% 7/20/03
Mechanicsburg, PA 25,000 8.000% 3/20/04
Rockville, MD 704 8.820% 3/01/05
Laguna Hills, CA 3,123 8.375% 2/01/06
Honolulu, HI 4,987 10.250% 10/01/10
------- -------
$47,196 8.259%
======= ========
The mortgage satisfactions resulted in an extraordinary charge of $2,874, net of
the impact on minority interests.
Debt Service Requirements. The Company's principal liquidity needs are the
payment of interest and principal on outstanding mortgage debt. As of September
30, 2001, a total of 44 properties, excluding properties held by
non-consolidated entities, were subject to outstanding mortgages, which had an
aggregate principal amount of $348,763. The weighted average interest rate on
the Company's debt on such date was approximately 7.54%.
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.
13
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 for the three and nine months ended September 30, 2001, $305
and $1,088, 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
nine months ended September 30, 2001, $ (156) and $260, 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 less the
impact of rental loss due to vacancies in the third quarter of 2001. The change
in interest expense of $(109) and $580 for the three and nine months ended
September 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, lower interest rates
on new debt incurred by the Company and the repayment of mortgage debt in the
third quarter of 2001. The Company's general and administrative expenses have
decreased as a percentage of total revenue to approximately 6.0% for the nine
months ended September 30, 2001 from approximately 6.4% for the nine months
ended September 30, 2000 due to the growth of the Company's portfolio relative
to these expenses. Gain on sale of properties decreased in 2001 compared to 2000
due to the timing of sales. The extraordinary item in 2001 relates to the costs
incurred in satisfying mortgage debt prior to scheduled maturity dates. Minority
interest expense decreased by $327 and $574 for the three and nine months ended
September 30, 2001, respectively, due to the redemption of operating partnership
units in 2001 and the impact of debt satisfaction. Net income decreased for the
three and nine months ended September 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 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 nine months ended September 30, 2001
and 2000.
2001 2000
-------- --------
Net income $ 11,715 $ 16,937
Add back:
Depreciation and amortization of real estate 13,449 13,155
Extraordinary item 3,144 --
Minority interest's share of net income 3,817 4,327
Amortization of leasing commissions 574 332
Deemed conversion of notes payable 1,000 1,082
Joint venture adjustment 2,772 1,322
Gains on sale of properties -- (2,959)
-------- --------
Funds from operations $ 36,471 $ 34,196
======== ========
Cash flows from operating activities $ 28,943 $ 27,587
Cash flows from investing activities (12,751) (28,529)
Cash flows from financing activities (5,218) (6,871)
14
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk relates to its variable rate indebtedness.
As of September 30, 2001 and 2000, the Company's variable rate indebtedness
represented 10.9% and 17.2% of total long-term indebtedness, respectively.
During the three and nine months ended September 30, 2001 and 2000, this
variable rate indebtedness had a weighted average interest rate of 6.67% and
7.14% and 7.94% and 7.74%, respectively, and had the weighted average interest
rate been 100 basis points higher, the Company's net income for the three and
nine months ended September 30, 2001 and 2000 would have been reduced by
approximately $104 and $344 and $153 and $501, respectively.
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 - not
applicable.
ITEM 5. Other Information - not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Reports on Form 8-K and Form 8-K/A filed
during the quarter ended September 30, 2001.
(i) Form 8-K dated July 20, 2001, filed
July 23, 2001. Announced amended
terms of its agreement to acquire
the Net Partnerships in a merger
transaction valued at approximately
$140 million.
(ii) Form 8-K dated July 25, 2001, filed
July 25, 2001. Provided the
explanation of Regulation FD
Disclosure.
(iii) Form 8-K/A dated July 20, 2001,
filed July 25, 2001. Provided
proforma financial information
regarding the proposed acquisition
of Net 1 L.P. and Net 2 L.P. as of
March 31, 2001 and for the three
months ended March 31, 2001 and for
the year ended December 31, 2000.
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: November 13, 2001 By: /s/ E. Robert Roskind
----------------- -----------------------------------------
E. Robert Roskind
Chairman and Co-Chief Executive Officer
Date: November 13, 2001 By: /s/ Patrick Carroll
----------------- -----------------------------------------
Patrick Carroll
Chief Financial Officer and Treasurer
17