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 March 31, 2002
[ ] 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: 26,905,716 common shares, par
value $.0001 per share on April 30, 2002.
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2002 (Unaudited) and December 31, 2001
(in thousands, except share and per share data)
March 31, December 31,
ASSETS: 2002 2001
---------- ----------
Real estate, at cost $ 824,196 $ 830,788
Less: accumulated depreciation and amortization 118,861 116,741
---------- ----------
705,335 714,047
Cash and cash equivalents 10,562 13,863
Restricted cash 1,972 1,825
Investment in non-consolidated entities 49,408 48,764
Rent receivable - current 2,835 1,081
Rent receivable - deferred 18,212 17,945
Other assets, net 23,349 24,628
---------- ----------
$ 811,673 $ 822,153
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgages and notes payable $ 444,587 $ 445,771
Credit facility borrowings -- 10,000
Origination fees payable, including accrued interest 6,587 6,636
Accounts payable and other liabilities 7,378 6,996
---------- ----------
458,552 469,403
Minority interests 57,693 57,859
---------- ----------
516,245 527,262
---------- ----------
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,
24,593,271 and 24,219,409 shares issued and outstanding in 2002 and
2001, respectively 2 2
Additional paid-in-capital 344,877 342,161
Deferred compensation (2,447) (1,641)
Accumulated distributions in excess of net income (72,709) (71,836)
---------- ----------
269,723 268,686
Less: Notes receivable from officers/shareholders (2,473) (1,973)
---------- ----------
Total shareholders' equity 267,250 266,713
---------- ----------
$ 811,673 $ 822,153
========== ==========
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 months ended March 31, 2002 and 2001
(Unaudited and in thousands, except share and per share data)
2002 2001
------------ ------------
Revenues:
Rental $ 22,995 $ 19,363
Equity in earnings of non-consolidated entities 1,426 610
Interest and other 392 260
------------ ------------
24,813 20,233
------------ ------------
Expenses:
Interest 8,250 7,632
Depreciation and amortization of real estate 5,183 4,357
General and administrative 1,579 1,242
Property operating 806 371
Amortization of deferred expenses 487 348
------------ ------------
16,305 13,950
------------ ------------
Income before gains on sale, minority interests and
extraordinary item 8,508 6,283
Gains on sale 854 --
------------ ------------
Income before minority interests and extraordinary item 9,362 6,283
Minority interests 1,401 1,435
------------ ------------
Income before extraordinary item 7,961 4,848
Extraordinary item -- 270
------------ ------------
Net income $ 7,961 $ 4,578
============ ============
Income per common share-basic:
Income before extraordinary item $ 0.30 $ 0.24
Extraordinary item -- (0.01)
------------ ------------
Net income $ 0.30 $ 0.23
============ ============
Weighted average common shares outstanding 24,509,064 17,086,939
============ ============
Income per common share-diluted:
Income before extraordinary item $ 0.29 $ 0.24
Extraordinary item -- (0.01)
------------ ------------
Net income $ 0.29 $ 0.23
============ ============
Weighted average common shares outstanding 30,088,259 22,961,096
============ ============
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
Three months ended March 31, 2002 and 2001
(Unaudited and in thousands)
2002 2001
---------- ----------
Net cash provided by operating activities $ 13,311 $ 7,931
---------- ----------
Cash flows from investing activities:
Additions to real estate assets (17,445) (1,257)
Net proceeds from the sale of properties 12,296 --
Investment in non-consolidated entities -- (7,294)
Real estate deposits -- (697)
---------- ----------
Net cash used in investing activities (5,149) (9,248)
---------- ----------
Cash flows from financing activities:
Dividends to common and preferred shareholders (8,834) (5,992)
Change in credit facility borrowings (10,000) (19,000)
Principal amortization payments (2,515) (2,117)
Proceeds of mortgages and notes payable 11,000 27,644
Increase in deferred costs (237) (1,327)
Cash distributions to minority interests (1,567) (1,613)
Proceeds from the issuance of common shares, net 1,086 684
Change in restricted cash (147) (120)
Change in escrow deposits (249) --
Other financing activities, net -- 3
---------- ----------
Net cash used in financing activities (11,463) (1,838)
---------- ----------
Change in cash and cash equivalents (3,301) (3,155)
Cash and cash equivalents, at beginning of period 13,863 4,792
---------- ----------
Cash and cash equivalents, at end of period $ 10,562 $ 1,637
========== ==========
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
March 31, 2002
(Unaudited and dollars in thousands, except 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.
As of March 31, 2002 the Company had an ownership interest in 97
properties and managed an additional 2 properties.
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 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
condition and 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, 2001.
(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
controlled subsidiaries, including Lepercq Corporate Income Fund L.P.
("LCIF"), Lepercq Corporate Income Fund II L.P. ("LCIF II") and Net 3
Acquisition L.P. ("Net 3"). The Company is the sole general partner and
majority limited partner of LCIF, LCIF II and Net 3.
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 and convertible
preferred shares. The Company's preferred shares are excluded from the
2002 computation since they are anti-dilutive and the preferred shares and
exchangeable redeemable secured notes are excluded from the 2001
computation since they are anti-dilutive.
Recently Issued Accounting Standards. The Company's adoption of SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets," had
no impact of the Company's consolidated financial position or results of
operations. In April 2002, the FASB issued SFAS No. 145 which rescinds
SFAS No. 4 which required all gains and losses on extinguishment of debt
to be classified as an extraordinary item. The Company will adopt the
provisions of SFAS No. 145 effective January 1, 2003. Had the statement
been adopted earlier the extraordinary item recorded in 2001 would have
been eliminated and the charge would have been reflected in interest
expense.
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 consolidated financial
statements in conformity with generally accepted accounting principles.
The most significant estimates made include the recoverability of accounts
receivable (primarily related to straight-line rents) and the useful lives
of assets. Actual results could differ from those estimates.
Reclassification. Certain amounts included in 2001 financial statements
have been reclassified to conform with the 2002 presentation.
5
(3) Earnings per Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the quarters
ended March 31, 2002 and 2001.
2002 2001
------------ ------------
BASIC
Income before extraordinary item $ 7,961 $ 4,848
Less preferred dividends (693) (672)
------------ ------------
Income attributed to common shareholders
before extraordinary item 7,268 4,176
Extraordinary item -- 270
------------ ------------
Net income attributed to common shareholders $ 7,268 $ 3,906
============ ============
Weighted average number of common shares outstanding 24,509,064 17,086,939
============ ============
Income per common share-basic:
Income before extraordinary item $ 0.30 $ 0.24
Extraordinary item -- (0.01)
------------ ------------
Net income $ 0.30 $ 0.23
============ ============
DILUTED
Income attributed to common shareholders before
extraordinary item - basic $ 7,268 $ 4,176
Add incremental income attributed to assumed
conversion of dilutive securities 1,347 1,346
------------ ------------
Income attributed to common shareholders before
extraordinary item 8,615 5,522
Extraordinary item -- 270
------------ ------------
Net income attributed to common shareholders $ 8,615 $ 5,252
============ ============
Weighted average number of shares used in calculation
of basic earnings per share 24,509,064 17,086,939
Add incremental shares representing:
Shares issuable upon exercise of employee share options 272,174 241,864
Shares issuable upon conversion of dilutive securities 5,307,021 5,632,293
------------ ------------
Weighted average number of shares used in calculation
of diluted earnings per common share 30,088,259 22,961,096
============ ============
Income per common share-diluted:
Income before extraordinary item $ 0.29 $ 0.24
Extraordinary item -- (0.01)
------------ ------------
Net income $ 0.29 $ 0.23
============ ============
6
(4) Investments in Real Estate
In March 2002, the Company purchased a property in Lake Forest, California
leased to Apria Healthcare Group, Inc. for $16,970. The lease, which
expires in 2012, provides for annual rental revenues of $1,800. The
purchase price was partially funded through an $11,000 non-recourse
mortgage which bears interest at 7.26%, provides for annual debt service
of $901 and matures January 2012 when a balloon payment of $9,708 is due.
During the three months ended March 31, 2002, the Company sold its
properties in Modesto, California and Bessemer, Alabama for net proceeds
of $7,882 and realized a gain of $854. In addition, the Company sold a 77%
interest in a property in Florence, South Carolina for net proceeds of
$4,414 and deferred a $671 gain on sale since the purchasers can put their
interests in the property to the Company for a 2 year period.
The following pro forma operating information for the three months ended
March 31, 2002 and 2001 has been prepared as if all Company acquisitions
and dispositions (including non-consolidated entities) in 2002 and 2001
had been consummated as of January 1, 2001. 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
January 1, 2001. Pro forma amounts are as follows:
March 31,
2002 2001
---- ----
Revenues $ 24,852 $ 23,475
Income before extraordinary item $ 7,182 $ 6,017
Net income $ 7,182 $ 5,747
Income before extraordinary item per common share
Basic $ 0.26 $ 0.28
Diluted $ 0.26 $ 0.27
Net income per common share
Basic $ 0.26 $ 0.26
Diluted $ 0.26 $ 0.26
(5) Investment in Non-Consolidated Entities
The Company has interests in non-consolidated entities ranging from 22%
to 99%. As of March 31, 2002, these investments have total real estate
and notes payable of $383,388 and $238,118, respectively. For the three
months ended March 31, 2002 and 2001, combined revenues, expenses and net
income were $11,708, and $9,784; $8,341 and $7,835; and $3,367 and
$1,949, respectively.
(6) 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 three months ended March 31, 2002, no single tenant represented
greater than 10% of revenues and for the three months ended March 31,
2001, the following tenants represented greater than 10% of revenues:
Northwest Pipeline Corporation 11%
Kmart Corporation 11%
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
(7) Minority Interests
In conjunction with several of the Company's acquisitions, sellers were
given interests in LCIF, LCIF II, or Net 3 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 November 2006.
As of March 31, 2002, the total number of limited partnership units of
LCIF, LCIF II and Net 3 outstanding was 5,307,021. These units, subject to
certain adjustments through the date of redemption, currently have annual
distributions per unit in varying amounts from $0 to $1.32 per unit with a
weighted average distribution of $1.17 per unit.
(8) Related Party Transactions
In January 2002, the Company issued 34,483 common shares in respect of a
15 year, 8% interest only recourse note to an officer for $500.
In 2001, the Company earned $35 in asset management fees from two
partnerships controlled by the Company's Chairman. The Company incurred
reimbursable expenses relating to these partnerships of $177.
All related party transactions are approved by the independent members of
the Board of Trustees.
(9) Supplemental Disclosure of Statement of Cash Flow Information
During 2002 and 2001, the Company paid $7,718 and $7,771, respectively,
for interest.
During 2002, the Company sold a property to a newly formed joint venture
for $4,414 in net proceeds and a deemed capital contribution of $643.
During 2002 and 2001, the Company issued 64,249 and 100,000 common shares,
respectively, to certain employees and trustees resulting in $996 and
$1,181 of deferred compensation, respectively. These common shares vest
ratably, primarily over a 5 year period.
During 2002, the Company issued 34,483 common shares in respect of a 15
year, 8% interest only recourse note to an officer for $500.
During 2001, holders of an aggregate of 197,885 partnership units redeemed
such units for common shares of the Company. This redemption resulted in
an increase in shareholders' equity and corresponding decrease in minority
interest of $2,603.
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.
(10) Subsequent Events
In April 2002, the holder of the Company's 2 million preferred shares
converted its interest into 2 million common shares.
In May 2002, the Company's tenant (Mervyn's) in its Bakersfield,
California property exercised a 5 year lease renewal option which provides
for annual rents of $209. The lease, which was scheduled to expire on
December 31, 2002, is now scheduled to expire December 21, 2007.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
When used in this Form 10-Q Report, the words "believes," "expects," "estimates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially. In particular, among the factors that could
cause actual results to differ materially are continued qualification as a real
estate investment trust, general business and economic conditions, competition,
increases in real estate construction costs, interest rates, accessibility of
debt and equity capital markets and other risks inherent in the real estate
business including tenant defaults, potential liability relating to
environmental matters and illiquidity of real estate investments. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
General
The Company, which has elected to qualify as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended, acquires and
manages net-leased commercial properties. The Company has operated as a REIT
since October 1993.
As of March 31, 2002, the Company owned (or had interests in) 97 real estate
properties and managed 2 additional properties.
Liquidity and Capital Resources
Real Estate Assets. As of March 31, 2002, the Company's real estate assets were
located in thirty states and contained an aggregate of approximately 16.5
million square feet of net rentable space. The Properties are generally subject
to 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. Approximately 98.3% of square feet is subject to a lease.
During the three months ended March 31, 2002, the Company purchased one property
for $17.0 million and sold two properties and an interest in a third for net
cash proceeds of $12.3 million.
The Company's principal sources of liquidity are revenues 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 three months ended March 31, 2002, the
leases on the Properties generated $23.0 million in revenue compared to $19.4
million during the same period in 2001.
Dividends. The Company has made quarterly distributions since October 1986
without interruption. The Company declared a dividend in respect of the first
quarter of 2002, in the amount of $0.33 per share to shareholders of record as
of April 30, 2002 to be paid on May 15, 2002. The Company's annualized dividend
rate is currently $1.32 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 $8.1 million in 2002
compared to $5.3 million in 2001. The Company's dividend and distribution FFO
payout ratio on a per share basis for 2002 and 2001, was 70.2% and 68.9%,
respectively.
Although the Company receives the majority of its rental payments on a monthly
basis, it intends to continue paying dividends quarterly. The Company's two
largest tenants, as a percentage of revenue, pay their rent semi-annually (Kmart
Corporation) and quarterly (Northwest Pipeline Corp.). Amounts accumulated in
advance of each quarterly distribution are invested by the Company in short-term
money market or other suitable instruments.
Kmart, the Company's largest tenant based upon rental revenues, filed for
Chapter 11 bankruptcy protection on January 22, 2002. Kmart leases a 1.7 million
square foot distribution facility in Warren, Ohio. The Company acquired the
Property in 1998 by assuming a non-recourse mortgage of $42.2 million, issuing
9
operating partnership units valued at $18.9 million and $2.8 million in cash.
The Company has no retail properties leased to Kmart. The Kmart lease expires
on September 30, 2007. Annual net rents are presently $8.4 million ($4.95 per
square foot) and increase to $9.4 million on October 1, 2002. Rents are paid
semi-annually in arrears. The Property is encumbered by a non-recourse first
mortgage, bearing interest at an imputed rate of 7% with an outstanding balance
of $29.8 million at March 31, 2002. Annual debt service on this non-recourse
mortgage, which fully amortizes by maturity on October 1, 2007, is $6.2
million. Accordingly, this Property lease currently provides after debt service
cash flow to Company of $2.2 million.
The Property is one of sixteen-leased warehouse distribution facilities utilized
in Kmart's logistical operation. According to Kmart, this facility ranks third
by distribution volume, is the primary supply source for 167 open Kmart retail
stores (approximately 9% of Kmart's total) and also supplies other distribution
facilities used by Kmart. As of March 31, 2002 the Company had $6.1 million in
accounts receivable from Kmart (including $1.9 million in straight-line rents).
On April 1, 2002 Kmart paid the Company $1.6 million in rent which was all the
post-petition rent owed. The pre-petition rent would be paid to the Company if
and when Kmart affirms the lease on the Property as part of its reorganization
and the accrued straight-lined rent would be realized over the remaining lease
term. There have been no discussions with Kmart with respect to the lease.
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 to
$13.3 million and $7.9 million for the three months ended March 31, 2002 and
2001, respectively.
Net cash used in investing activities totaled $5.1 million and $9.3 million for
the three months ended March 31, 2002 and 2001, 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 and sales of properties.
Net cash used in financing activities totaled $11.5 million and $1.8 million for
the three months ended March 31, 2002 and 2001, respectively. Cash used in
financing activities during each period was primarily attributable to proceeds
from non-recourse mortgages and advances/repayments under the Company's credit
facility coupled with dividend and distribution payments and debt service
payments.
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 March 31, 2002,
based on the current $1.32 annual dividend.
Current Total Current
Total Annualized Annualized
Number Affiliate Per Unit Distribution
Of Units Units Distribution ($000)
-------- ----- ------------ ------
At any time 3,430,793 1,317,759 $ 1.32 $ 4,529
At any time 1,271,073 120,374 1.08 1,373
At any time 133,050 52,144 1.12 149
June 2002 83,400 83,400 1.32 110
January 2003 17,901 -- -- --
March 2004 43,734 -- 0.27 12
March 2004 19,510 -- -- --
November 2004 24,552 2,856 -- --
March 2005 29,384 -- -- --
January 2006 171,168 416 -- --
February 2006 28,230 1,743 -- --
May 2006 9,368 -- 0.29 3
November 2006 44,858 44,858 1.32 59
---------- ---------- ---------- ----------
5,307,021 1,623,550 $ 1.17 $ 6,235
========== ========== ========== ==========
10
Financing
Revolving Credit Facility. The Company's $60.0 million unsecured credit facility
bears interest at LIBOR plus 150-250 basis points depending on the amount of
properties free and clear of mortgage debt. The credit facility contains
customary financial covenants including restrictions on the level of
indebtedness and net worth maintenance provisions. As of March 31, 2002 the
Company is in compliance with all covenants, there are no borrowings outstanding
on the facility and $56.7 million is available to be borrowed.
Financing Transactions. During the three months ending March 31, 2002 the
Company completed the following financing transaction:
- Obtained a $11.0 million non-recourse mortgage on its Lake Forest,
California property. The mortgage note bears interest at 7.26%,
provides for annual debt service payments of $0.9 million and
matures in January 2012 when a balloon payment of $9.7 million is
due.
Debt Service Requirements. The Company's principal liquidity needs are the
payment of interest and principal on outstanding mortgage debt. As of March 31,
2002, a total of 64 of the Company's 84 consolidated Properties were subject to
outstanding mortgages, which had an aggregate principal amount of $432.1
million. The weighted average interest rate on the Company's debt, on such date
was approximately 7.34%. The scheduled principal amortization payments for the
remainder of 2002 and for 2003, 2004, 2005 and 2006 are $12.0 million, $15.5
million, $16.4 million, $15.7 million and $13.9 million, respectively. The
scheduled balloon payments for the remainder of 2002 and for 2003, 2004, 2005
and 2006 are $0, $0, $17.4 million, $81.0 million and $0, respectively.
Lease Obligations. Since the Company's tenants bear all or substantially all of
the cost of Property operations, maintenance and repairs, the Company does not
anticipate significant needs for cash for these costs. For three of the
Properties, the Company does have a level of property operating expense
responsibility. 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. To the extent there is a
vacancy in a Property, the Company would be obligated for all operating
expenses, including real estate taxes and insurance.
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 in 2002, $3.6 million is attributable to rental revenue from
Properties purchased in 2001 and owned for the entire quarter in 2002 and a
Property purchased in 2002. Of the remaining $0.9 million in revenue growth in
2002, $0.8 million was attributable to earnings from non-consolidated entities.
The increase in interest expense due to the growth of the Company's portfolio
has been offset by a reduction in the weighted average interest rate from 7.72%
at March 31, 2001 to 7.34% at March 31, 2002 due to debt refinancings,
repayments, lower variable interest rates and lower interest rates on new debt
incurred by the Company. The Company's general and administrative expenses
increased due to the acquisition of 23 properties from Net 1 L.P. and Net 2 L.P.
and increased to 6.4% of revenue in 2002 compared with 6.1% in 2001. The
increase in property operating expenses increased due to the vacancy of one
Property in the third quarter of 2001, which resulted in the Company incurring
Property level operating expenses which normally are the responsibility of the
tenant, and a second Property in which the Company has a level of operating
expense responsibility. Net income increased in 2002 due to the impact of items
discussed above plus $854 in gains on sale of Properties.
The Company's non-consolidated entities had aggregate net income of $3.4 million
in 2002 compared with $1.9 million in 2001. The increase in net income is
primarily attributable to an increase in rental revenue of $1.7 million in 2002
attributable to the acquisition of Properties, the expansion of an existing
Property and the joint venturing of a single Property in 2002. In addition,
advisory fee income, which includes acquisition and asset management fees,
increased by $0.3 million in 2002 due to the timing of transactions which
generate acquisition fees and more assets under management. These revenue
sources were partly offset by an increase in (i) interest expense of $0.3
million in 2002 due to partially funding a fourth quarter 2001 acquisition with
the use of a non-recourse mortgage, (ii) depreciation expense of $0.3 million in
2002 due to more depreciable assets owned and (iii) property operating/general
and administrative expenses of $0.1 million in 2002 due to an increase in the
asset base.
The increase in net income in future periods will be closely tied to the level
of acquisitions made by the Company. Without acquisitions, which in addition to
generating rental revenue, generates acquisition, debt placement and asset
management fees from co-investment programs, the sources of growth in net income
are limited to index adjusted rents (10 leases), percentage rents (3 leases),
reduced interest expense on amortizing mortgages and by controlling other
variable overhead costs. However, there are many factors
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beyond management's control, that could offset these items including, without
limitation, increased interest rates of variable debt ($47.6 million as of March
31, 2002 at a weighted average interest rate of 4.72%) and tenant monetary
defaults.
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 April 2002 "White
Paper", issued by the National Association of Real Estate Investment Trusts,
Inc. ("NAREIT") as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect funds from operations on the same
basis. 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
generally accepted accounting principles, or as a measure of liquidity to other
consolidated income or cash flow statement data as determined in accordance with
generally accepted accounting principles.
The following table reflects the calculation of the Company's Funds From
Operations and cash flow activities for the quarters ended March 31, 2002 and
2001 ($000's).
2002 2001
---- ----
Net income $ 7,961 $ 4,578
Add back:
Depreciation and amortization of real estate 5,183 4,357
Extraordinary item -- 270
Minority interest's share of net income 1,347 1,346
Amortization of leasing commissions 174 191
Deemed conversion of notes payable -- 500
Gains on sale (854) --
Joint venture adjustment - depreciation 1,112 881
---------- ----------
Funds from Operations $ 14,923 $ 12,123
========== ==========
Cash flows from operating activities $ 13,311 $ 7,931
Cash flows from investing activities (5,149) (9,248)
Cash flows from financing activities (11,463) (1,838)
For the quarters ended March 31, 2002 and 2001, the Company's dividends and
distribution FFO payout ratio, on a per share basis, was 70.2% and 68.9% of the
Company's Funds From Operations, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk relates to its variable rate debt. As of
March 31, 2002 and 2001, the Company's variable rate indebtedness represented
10.7% and 11.1% of total long-term indebtedness, respectively. During the
quarters ended March 31, 2002 and 2001, this variable rate indebtedness had a
weighted average interest rate of 4.44% and 7.45%, respectively, and had the
weighted average interest rate been 100 basis points higher, the Company's net
income would have been reduced by approximately $140,000 and $130,000,
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 - 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 filed during the quarter ended March 31,
2002.
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: May 14, 2002 By: /s/ E. Robert Roskind
------------------------ ---------------------------------------
E. Robert Roskind
Chairman and Co-Chief Executive Officer
Date: May 14, 2002 By: /s/ Patrick Carroll
------------------------ ---------------------------------------
Patrick Carroll
Chief Financial Officer and Treasurer
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