EXHIBIT 99.1
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial data for the Company as
of and for each of the years in the five-year period ended December 31, 2002.
The selected consolidated financial data for the Company should be read in
conjunction with the Consolidated Financial Statements and the related notes
appearing elsewhere in this Annual Report on Form 10-K. ($000's, except per
share data)
2002 2001 2000 1999 1998
--------- -------- -------- -------- ---------
Total revenues $ 99,393 $ 81,482 $ 78,689 $ 75,881 $ 63,954
Operating expenses, including
minority interest (70,677) (63,983) (60,153) (60,180) (47,873)
Transactional expenses -- -- -- -- (559)
Gain (loss) on sale of properties -- -- 2,959 5,127 (388)
Income from continuing operations 28,716 17,499 21,495 20,828 15,134
Income from discontinued operations 1,879 563 457 519 603
Net income 30,595 18,062 21,952 21,347 15,737
Income from continuing operations per
common share-basic 1.04 0.76 1.12 1.08 0.75
Income from continuing operations per
common share-diluted 1.02 0.74 1.08 1.06 0.74
Income from discontinued operations - basic 0.07 0.03 0.03 0.03 0.04
Income from discontinued operations - diluted 0.07 0.03 0.02 0.02 0.04
Net income per common share-basic 1.11 0.79 1.15 1.11 0.79
Net income per common share-diluted 1.09 0.77 1.10 1.08 0.78
Cash dividends declared per common share 1.32 1.29 1.23 1.20 1.18
Net cash provided by operating activities 57,732 41,277 41,175 39,783 32,380
Net cash used in investing activities (106,030) (64,321) (38,549) (64,942) (111,080)
Net cash provided by
(used in) financing activities 46,532 32,115 (6,671) 22,912 86,144
Ratio of earnings to combined fixed
charges and preferred dividends 1.81 1.41 1.55 1.57 1.49
Real estate assets, net 779,150 714,047 584,198 606,592 609,717
Investments in non-consolidated entities 54,261 48,764 40,836 11,523 --
Total assets 902,471 822,153 668,377 656,481 647,007
Mortgages and notes payable 491,517 455,771 387,326 372,254 354,281
Funds from operations(1) 61,818 47,126 46,316 40,652 35,141
Rent received below straight-line rent 2,426 2,755 2,804 2,054 2,411
The Company believes that the book value of its real estate assets, which
reflects the historical cost of such real estate assets less accumulated
depreciation, is not indicative of the current market value of its properties.
Historical operating results are not necessarily indicative of future operating
results.
- --------
(1) 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, but
limited, 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 included in the calculation of FFO the dilutive effect of
the deemed conversion of its outstanding exchangeable notes which were redeemed
by the Company in 2001. 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.
1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. The Company has operated as a REIT since October 1993.
As of December 31, 2002, the Company owned or had interests in 103 real estate
properties. During 2002, the Company purchased 9 properties, including
non-consolidated investments, for $148.0 million.
During 2002, the Company sold 5 properties (including a 77.3% interest in a
property) and one building in the Palm Beach Gardens, Florida property for $20.8
million, which resulted in an aggregate gain of approximately $1.1 million.
During 2001, the Company sold one property for $4.1 million which approximated
book value.
CRITICAL ACCOUNTING POLICIES
The Company's accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which require management to make estimates that affect the amounts
of revenues, expenses, assets and liabilities reported. The following are
critical accounting policies which are important to the portrayal of the
Company's financial condition and results of operations and which require some
of management's most difficult, subjective and complex judgments. The accounting
for these matters involves the making of estimates based on current facts,
circumstances and assumptions which could change in a manner that would
materially affect management's future estimate with respect to such matters.
Accordingly, future reported financial conditions and results could differ
materially from financial conditions and results reported based on management's
current estimates.
Revenue Recognition. The Company recognizes revenue in accordance with Statement
of Financial Accounting Standards No. 13 "Accounting for Leases" (SFAS No.13).
SFAS No.13 requires that revenue be recognized on a straight-line basis over the
term of the lease unless another systematic and rational basis is more
representative of the time pattern in which the use benefit is derived from the
leased property.
Gains on sales of real estate are recognized pursuant to the provisions of SFAS
No. 66 "Accounting for Sales of Real Estate." The specific timing of the sale is
measured against various criteria in SFAS No. 66 related to the terms of the
transactions and any continuing involvement in the form of management or
financial assistance associated with the properties. If the sales criteria are
not met, the gain is deferred and the finance, installment or cost recovery
method, as appropriate, is applied until the sales criteria are met.
Accounts Receivable. The Company continuously monitors collections from its
tenants and would make a provision for estimated losses based upon historical
experience and any specific tenant collection issues that the Company has
identified.
Real Estate. The Company evaluates the carrying value of all real estate held to
determine if an impairment has occurred which would require the recognition of a
loss. The evaluation includes reviewing anticipated cash flows of the property,
based on current leases in place, coupled with an estimate of proceeds to be
realized upon sale. However, estimating future sale proceeds is highly
subjective and such estimates could differ materially from actual results.
LIQUIDITY AND CAPITAL RESOURCES
Since becoming a public company, the Company's principal source of capital for
growth has been the public and private equity markets, selective secured
indebtedness, its unsecured credit facility, issuance of OP Units and
undistributed funds from operations.
The Company's current $60.0 million variable rate unsecured revolving credit
facility, which is scheduled to expire in March 2004, has made available funds
to finance acquisitions and meet any short-term working capital requirements. As
of December 31, 2002, $31.0 million was outstanding at an interest
2
rate of 3.20%. The Company pays an unused facility fee equal to 25 basis points
if 50% or less of the facility is utilized and 15 basis points if greater than
50% of the facility is utilized.
Since its formation in 1993, the Company has raised, through the issuance of
common shares, preferred shares and OP Units, aggregate capital of approximately
$234.5 million for the purposes of making acquisitions and retiring
indebtedness. In addition, the Company has purchased $109.8 million in real
estate through the direct issuance of its common shares and OP Units.
During 2002, the Company completed a 2.7 million common share offering at $15.85
per share raising $40.5 million of net proceeds. The proceeds were used to repay
debt and fund acquisitions.
Dividends. 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 and/or 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 as a percentage of FFO,
reserving such amounts as it considers necessary for the maintenance or
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.
Dividends paid to common shareholders increased to $35.8 million in 2002,
compared to $25.0 million in 2001 and $20.8 million in 2000. The Company's
dividend and distribution FFO payout ratio, on a per share basis, for 2002,
2001, and 2000 was 71.0%, 76.0% and 69.3% 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
operating partnership units valued at $18.9 million and paying $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 $9.4 million.
Rents are paid semi-annually in arrears. The property is encumbered by a
non-recourse first mortgage, bearing imputed interest at 7% per annum with an
outstanding balance of $25.6 million at December 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
currently provides after debt service cash flow to the Company of $3.2 million.
The property is a warehouse distribution facility utilized in Kmart's logistical
operation. As of December 31, 2002 the Company had $7.3 million in accounts
receivable from Kmart (including $2.0 million in straight-line rents and $2.6
million in pre-petition rent). Kmart is current in its rental obligation to the
Company since filing for bankruptcy and the next rental payment is due April 1,
2003.
The Company believes 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 as
reported in the Consolidated Statements of Cash Flows increased to $57.7 million
for 2002 from $41.3 million for 2001 and $41.2 million for 2000.
Net cash used in investing activities totaled $106.0 million in 2002, $64.3
million in 2001 and $38.5 million in 2000. 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 dispositions. In connection with the acquisition of
the Net Partnerships, the Company acquired $3.8 million of cash in 2001.
Net cash provided by (used in) financing activities totaled $46.5 million in
2002, $32.1 million in 2001 and $(6.7) million in 2000. Cash provided by (used
in) financing activities during each year was
3
primarily attributable to proceeds from equity offerings, non-recourse 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 of real estate, 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 as such partnership interests are
redeemed for common shares.
The following table provides certain information with respect to such
partnership interests as of December 31, 2002 (assuming the Company's annual
dividend rate remains at the current $1.34 per share).
Total Current
Redeemable Total Number Current Annualized Annualized
for common shares: of Units Affiliate Units Per Unit Distribution Distribution ($000)
- ------------------ ------------ --------------- --------------------- -------------------
At any time 3,499,108 1,401,159 $ 1.34 $ 4,689
At any time 1,254,152 120,374 1.08 1,354
At any time 114,059 52,144 1.12 128
January 2003 17,901 -- -- --
December 2003 1,341 -- 1.34 2
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 1.34 60
--------- --------- ------ -------
5,257,365 1,623,550 $ 1.19 $ 6,248
========= ========= ====== =======
Affiliate units, which are included in total units, represent OP Units held by
two executive officers (including their affiliates) of the Company.
FINANCING
Revolving Credit Facility. The Company's $60.0 million unsecured credit
facility, which expires March 2004, bears interest at 150-250 basis points over
LIBOR depending on the amount of properties the Company owns free and clear of
mortgage debt, and has an interest rate period of one, three, or six months, at
the option of the Company. The credit facility contains various leverage, debt
service coverage, net worth maintenance and other customary covenants. As of
December 31, 2002, $31.0 million was outstanding and $24.8 million was available
to be drawn. The Company had six outstanding letters of credit aggregating $4.2
million which expire in 2003 ($0.3 million), 2004 ($0.6 million), 2005 ($2.5
million), 2007 ($0.4 million) and 2010 ($0.4 million).
Debt Service Requirements. The Company's principal liquidity needs are the
payment of interest and principal on outstanding indebtedness. As of December
31, 2002, a total of 66 of the Company's 87 consolidated properties were subject
to outstanding mortgages which had an aggregate principal amount of $448.0
million. As of December 31, 2002 the weighted average interest rate on the
Company's outstanding mortgages, including line of credit borrowings and other
corporate debt, was approximately 6.95%. The scheduled principal amortization
payments for the next five years are as follows: $17.4 million in 2003; $17.7
million in 2004; $16.1 million in 2005, $14.5 million in 2006 and $15.3 million
in 2007. Approximate balloon payment amounts, having a weighted average interest
rate of 6.74%, excluding line of credit borrowings and other corporate debt, due
the next five years are as follows: $0 million in 2003; $14.4 million in 2004;
$76.6 million in 2005, $0 in 2006 and $0 in 2007. The ability of
4
the Company to make such balloon payments will depend upon its ability to
refinance the mortgage related thereto, sell the related property, have
available amounts under its unsecured credit facility or access other capital.
The ability of the Company to accomplish such goals will be affected by numerous
economic factors affecting the real estate industry, including the availability
and cost of mortgage debt at the time, the Company's equity in the mortgaged
properties, the financial condition of the Company, the operating history of the
mortgaged properties, the then current tax laws and the general national,
regional and local economic conditions.
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 five of the
properties, the Company has a level of property operating expense responsibility
and a sixth obligates the Company to pay real estate taxes in 2003 and for the
tenant to be responsible thereafter. 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.
The Company's tenants pay the rental obligations on ground leases either
directly to the fee holder or to the Company as increased rent. The annual
ground lease rental payment obligations for each of the next five years is $0.9
million.
Origination Fees Payable. In connection with certain acquisitions, the Company
assumed obligations ($2.2 million in principal plus accrued interest) which bear
interest on the outstanding principal balances only at rates ranging from 12.3%
to 19.0%. The scheduled annual payments for the next five years are as follows:
$0.4 million in 2003; $0.4 million in 2004; $0.4 million in 2005; $0.7 million
in 2006 and $0.9 million in 2007. As of December 31, 2002, $6.6 million is
outstanding of which $3.4 million is due to two executive officers of the
Company.
Shares Repurchase. The Company's Board of Trustees has authorized the Company to
repurchase, from time to time, up to 2.0 million common shares and operating
partnership units depending on market conditions and other factors. As of
December 31, 2002, the Company had repurchased approximately 1.4 million common
shares and operating partnership units, at an average price of approximately
$10.55 per common share/unit. No common shares or units were repurchased in
2002.
RESULTS OF OPERATIONS ($000)
Increase
(Decrease)
Selected Income Statement Data 2002 2001 2000 2002-2001 2001-2000
-------- -------- -------- ---------- ----------
Total revenues $ 99,393 $ 81,482 $ 78,689 $ 17,911 $ 2,793
Total expenses 65,112 59,522 54,315 5,590 5,207
Interest 33,523 29,623 29,266 3,900 357
Depreciation and amortization
of real estate 21,211 17,722 17,160 3,489 562
General & administrative 5,733 4,932 4,891 801 41
Property operating 2,355 1,624 1,504 731 120
Debt satisfaction charges 397 3,983 -- (3,586) 3,983
Total income from discontinued
operations 1,879 563 457 1,316 106
Net income 30,595 18,062 21,952 12,533 (3,890)
Comparison of 2002 to 2001
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 of $17.9 million, $15.6 million is primarily
attributable to rental revenue from properties purchased in 2001 (primarily the
purchase of properties from Net 1 L.P. and Net 2 L.P. in November 2001) and
owned in 2002 ($14.3 million) and properties purchased in 2002 ($2.9 million)
offset by a reduction in rental revenue from a decrease in overall portfolio
occupancy from 99.7% to 99.2% ($0.3 million) and the joint venturing of a single
property in 2002 ($1.5 million). Of the remaining $2.3 million in revenue growth
in 2002, $1.8 million was attributable to an increase in earnings from
non-consolidated entities and $0.5 million was
5
attributable primarily to higher interest earned due to greater cash balances
carried. The $3.9 million increase in interest expense due to the growth of the
Company's portfolio has been partially offset by a reduction in the weighted
average interest rate from 7.28% for the year ended December 31, 2001 to 6.95%
for the year ended December 31, 2002 due to debt refinancings, scheduled
principal amortization payments, lower variable interest rates and lower
interest rates on new debt incurred by the Company. The Company's general and
administrative expenses, which increased in absolute dollars due to the
acquisition of properties from Net 1 L.P. and Net 2 L.P., decreased to 5.8% of
revenue in 2002 compared with 6.1% in 2001. 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, two properties in which the
Company has a level of operating expense responsibility and an estimate of
expenses for the Kmart property. Debt satisfaction charges decreased $3.6
million due to the timing of debt retirements. Net income increased in 2002 due
to the impact of items discussed above plus an increase of $1.3 million in
income from discontinued operations, primarily gains on sale of properties.
The Company's non-consolidated entities had aggregate net income of $14.1
million in 2002 compared with $10.2 million in 2001. The increase in net income
is primarily attributable to an increase in rental revenue of $7.7 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. Advisory fee
income increased by $0.3 million in 2002 due to the timing of transactions which
generate acquisition fees. These revenue sources were partly offset by an
increase in (i) interest expense of $2.5 million in 2002 due to partially
funding third quarter 2002 and fourth quarter 2001 acquisitions with the use of
non-recourse mortgage debt and the joint venturing of a single property in 2002,
and (ii) depreciation expense of $1.5 million in 2002 due to more depreciable
assets owned.
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, generate acquisition, debt placement and asset
management fees when such properties are acquired by joint venture or advisory
programs, growth in net income is dependent on index adjusted rents (6 leases),
percentage rents (2 leases), reduced interest expense on amortizing mortgages
and by controlling variable overhead costs. However, there are many factors
beyond management's control that could offset these items including, without
limitation, increased interest rates of variable debt ($78.4 million as of
December 31, 2002 at a weighted average interest rate of 3.88%) and tenant
monetary defaults. Effective January 1, 2003, the Company converted its
non-voting interest in LRA to a 99% voting interest and accordingly LRA will be
consolidated for financial reporting purposes instead of being treated under the
equity method as it currently is. Had LRA been consolidated historically,
general and administrative expenses as a percentage of revenue, excluding
revenues related to discontinued operations, would have been 7.0%, 7.5%, and
7.7% for the years ended December 31, 2002, 2001, and 2000, respectively.
Comparison of 2001 to 2000
Of the increase in total revenues in 2001 of $2.8 million, $1.5 million is
attributable to increased earnings from non-consolidated entities established in
1999. The remaining revenue growth in 2001 was primarily attributable to
increased rental revenues from the purchase of Net 1 L.P. and Net 2 L.P. in
November 2001 ($1.3 million). The increase in interest expense due to the growth
of the Company's portfolio has been partially offset by a reduction in the
weighted average interest rate from 7.79% at December 31, 1999 to 7.28% at
December 31, 2001 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 have remained constant in 2001 in
absolute dollars and decreased to 6.1% of revenue in 2001 compared to 6.2% of
revenue in 2000 due to the growth of the Company's portfolio relative to these
expenses. The increase in property operating expenses in 2001 relates to costs
incurred relating to two properties that became vacant in 2001, which resulted
in the Company incurring property level operating expenses which normally are
the responsibility of the tenant, and a third property in which the Company has
a level of expense responsibility. Debt satisfaction charges increased $4.0
million due to the timing of debt retirements. Net income decreased in 2001 due
to the impact of items discussed above offset by a $3.0 million reduction in
gains on sales of properties.
The Company's non-consolidated entities had aggregate net income of $10.2
million in 2001 and $4.8 million in 2000. The increase in net income is
primarily attributable to an increase in rental income of $21.1 million in 2001
attributable to acquisition of properties and expansion of an existing property.
Advisory fee income, which includes acquisition and asset management fees,
decreased by $0.5 million
6
in 2001 due to the reduction in the amount of acquisitions made by LAC in 2001
compared to 2000 which was partially offset by acquisitions made by the private
investment fund client in 2001. These revenue sources were partly offset by an
increase in (i) interest expense of $9.0 million in 2001 due to increased
acquisition leverage, (ii) depreciation expense of $4.0 million in 2001 due to
more depreciable assets owned and (iii) property operating/general and
administrative expenses of $2.2 million in 2001 due to an increase in the asset
base and advisory accounts.
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, but limited,
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
included in the calculation of FFO the dilutive effect of the deemed conversion
of its outstanding exchangeable notes, which were fully satisfied in 2001. 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 FFO and cash flow
activities for each of the years in the three year period ended December 31,
2002 ($000):
2002 2001 2000
---------- ---------- ----------
Net income $ 30,595 $ 18,062 $ 21,952
Depreciation and amortization of real estate 21,480 18,312 17,513
Minority interests' share of net income 5,627 5,215 5,772
Gain on sale of properties (1,172) -- (2,959)
Amortization of leasing commissions 677 769 503
Deemed conversion of notes payable -- 1,000 1,582
Joint venture adjustment-depreciation 4,611 3,768 1,953
--------- --------- ---------
Funds From Operations $ 61,818 $ 47,126 $ 46,316
========= ========= =========
Cash flows from operating activities $ 57,732 $ 41,277 $ 41,175
Cash flows used in investing activities (106,030) (64,321) (38,549)
Cash flows from (used in) financing activities 46,532 32,115 (6,671)
Previously reported Funds From Operations included an add back for extraordinary
items of $345 in 2002 and $3,144 in 2001.
The Company's dividend and distribution FFO payout ratio, on a per share basis,
was 71.0%, 76.0% and 69.3% for the years ended December 31, 2002, 2001 and 2000
respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company's adoption of SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets," required the Company to reclassify to
discontinued operations for all periods presented the results of the property
held for sale and all properties sold subsequent to January 1, 2002. 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. Accordingly, the extraordinary items previously recorded in
2002 and 2001 have been eliminated and the charges have been reflected in
continuing operations. In July 2002, the FASB issued SFAS No. 146 which requires
that exit or disposal costs be recorded when incurred and be measured at fair
value. SFAS No. 146 is effective for an exit or disposal activity initiated
after December 31, 2002. The Company does not expect that this statement will
have any effect on the Company's consolidated results of operations or financial
position.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 requires that companies that absorb the majority of another entity's
expected losses, receive a majority of its expected residual returns, or both,
as a result of holding variable interests, which are ownership, contractual, or
other economic interests in an
7
entity, consolidate the variable interest entity. The consolidation requirements
apply to all variable interest entities created after January 31, 2003 and all
other existing entities beginning July 1, 2003. The Company has not determined
the impact the adoption of FIN 46 will have on its consolidated results of
operations or financial position. However, it is possible that the adoption of
FIN 46 will require the Company to consolidate its Florence joint venture.
Financial information for this joint venture is included in footnote 5 of the
Company's financial statements.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," which elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. The initial recognition and
measurement provisions of this Interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The Company
believes that the adoption of this interpretation will not have a material
effect to the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's exposure to market risk relates to its variable rate debt. As of
December 31, 2002 and 2001 the Company's variable rate indebtedness represented
15.9% and 12.7%, respectively, of total mortgages and notes payable. During 2002
and 2001, this variable rate indebtedness had a weighted average interest rate
of 4.12% and 6.56%, respectively. Had the weighted average interest rate been
100 basis points higher the Company's net income would have been reduced by $0.8
million and $0.3 million in 2002 and 2001, respectively.
8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
INDEX
Page
----
Independent Auditors' Report 10
Consolidated Balance Sheets as of December 31, 2002 and 2001 11
Consolidated Statements of Income
for the years ended December 31, 2002, 2001 and 2000 12
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2002, 2001 and 2000 13
Consolidated Statements of Cash Flows
for the years ended December 31, 2002, 2001 and 2000 14
Notes to Consolidated Financial Statements 15-38
Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation 39-41
9
INDEPENDENT AUDITORS' REPORT
The Shareholders
Lexington Corporate Properties Trust:
We have audited the consolidated financial statements of Lexington Corporate
Properties Trust and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lexington Corporate
Properties Trust and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in Notes 2 and 5 Lexington Corporate Properties Trust and
subsidiaries adopted the provisions of Statement of Financial Accounting
Standards No. 145 relating to all gains and losses on extinguishment of debt
and effective January 1, 2002, Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".
/s/ KPMG LLP
------------------
New York, New York
January 28, 2003, except as to note
19 which is as of March 15, 2003
and except as to notes 2 and 5 which
are as of September 26, 2003.
10
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
($000 except per share amounts)
December 31,
2002 2001
--------- ---------
ASSETS
Real estate, at cost
Buildings and building improvements $ 770,375 $ 702,494
Land and land estates 131,496 116,795
Land improvements 3,154 3,154
Fixtures and equipment 8,345 8,345
--------- ---------
913,370 830,788
Less: accumulated depreciation 134,220 116,741
--------- ---------
779,150 714,047
Investment in and advances to non-consolidated entities 54,261 48,764
Cash and cash equivalents 12,097 13,863
Deferred expenses (net of accumulated amortization
of $6,269 in 2002 and $4,411 in 2001) 8,168 8,875
Rent receivable 23,650 19,026
Other assets, net 25,145 17,578
--------- ---------
$ 902,471 $ 822,153
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable $ 460,517 $ 445,771
Credit facility borrowings 31,000 10,000
Origination fees payable, including accrued interest 6,565 6,636
Accounts payable and other liabilities 8,003 5,489
Accrued interest payable 2,755 1,507
--------- ---------
508,840 469,403
Minority interests 56,846 57,859
--------- ---------
565,686 527,262
--------- ---------
Commitments and contingencies (notes 7, 9 and 13)
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 in 2001 -- 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
80,000,000 shares, 29,742,160 and 24,219,409 shares
issued and outstanding in 2002 and 2001, respectively 3 2
Additional paid-in-capital 414,989 342,161
Deferred compensation, net (1,766) (1,641)
Accumulated distributions in excess of net income (77,777) (71,836)
--------- ---------
335,449 268,686
Less: notes receivable from officers/shareholders (2,473) (1,973)
--------- ---------
Total shareholders' equity 332,976 266,713
--------- ---------
$ 902,471 $ 822,153
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
11
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Income
($000 except per share amounts)
Years ended December 31,
2002 2001 2000
----------- ----------- -----------
Revenues:
Rental $ 92,666 $ 77,022 $ 75,508
Equity in earnings of non-consolidated entities 5,079 3,328 1,851
Interest and other 1,648 1,132 1,330
----------- ----------- -----------
99,393 81,482 78,689
----------- ----------- -----------
Expenses:
Interest expense 33,523 29,623 29,266
Debt satisfaction charges 397 3,983 --
Depreciation and amortization of real estate 21,211 17,722 17,160
Amortization of deferred expenses 1,893 1,638 1,494
General and administrative expenses 5,733 4,932 4,891
Property operating expenses 2,355 1,624 1,504
----------- ----------- -----------
65,112 59,522 54,315
----------- ----------- -----------
Income from continuing operations before gain
on sale of properties and minority interests 34,281 21,960 24,374
Gain on sale of properties -- -- 2,959
----------- ----------- -----------
Income from continuing operations before minority
interests 34,281 21,960 27,333
Minority interests 5,565 4,461 5,838
----------- ----------- -----------
Income from continuing operations 28,716 17,499 21,495
----------- ----------- -----------
Discontinued operations:
Income from discontinued operations 823 563 457
Gains on sales of properties 1,056 -- --
----------- ----------- -----------
Total income from discontinued operations 1,879 563 457
----------- ----------- -----------
Net income $ 30,595 $ 18,062 $ 21,952
=========== =========== ===========
Income per common share - basic:
Income from continuing operations $ 1.04 $ 0.76 $ 1.12
Income from discontinued operations 0.07 0.03 0.03
----------- ----------- -----------
Net income $ 1.11 $ 0.79 $ 1.15
=========== =========== ===========
Weighted average common shares outstanding 27,026,789 19,522,323 16,900,039
=========== =========== ===========
Income per common share - diluted:
Income from continuing operations $ 1.02 $ 0.74 $ 1.08
Income from discontinued operations 0.07 0.03 0.02
----------- ----------- -----------
Net income $ 1.09 $ 0.77 $ 1.10
=========== =========== ===========
Weighted average diluted common shares outstanding 27,326,891 19,862,880 24,714,219
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
12
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
($000 except per share amounts)
Years ended December 31,
Accumulated Notes
Additional Deferred Distributions Receivable Total
Number of Paid-in Compensation, In Excess of Officers / Shareholders'
Shares Amount Capital net Net Income Shareholders Equity
---------- ------ --------- ------------ ------------- ------------ ------------
Balance at December 31, 1999 16,905,285 $ 2 $ 240,339 $ (701) $ (60,852) $ (1,991) $ 176,797
Net income -- -- -- -- 21,952 -- 21,952
Dividends paid to common share-
holders ($1.22 per share) -- -- -- -- (20,765) -- (20,765)
Dividends paid to preferred share-
holders ($1.281 per share) -- -- -- -- (2,562) -- (2,562)
Common shares issued, net 353,494 -- 3,866 (664) -- -- 3,202
Amortization of deferred compensation -- 346 -- -- 346
Common shares repurchased and retired (395,385) -- (4,093) -- -- -- (4,093)
Repayments on notes -- -- -- -- -- 8 8
---------- ------ --------- ---------- --------- ---------- ----------
Balance at December 31, 2000 16,863,394 2 240,112 (1,019) (62,227) (1,983) 174,885
Net income -- -- -- 18,062 -- 18,062
Dividends paid to common share-
holders ($1.27 per share) -- -- -- -- (25,004) -- (25,004)
Dividends paid to preferred share-
holders ($1.3335 per share) -- -- -- -- (2,667) -- (2,667)
Common shares issued, net 7,368,015 -- 102,206 (1,181) -- -- 101,025
Amortization of deferred compensation -- -- -- 559 -- -- 559
Common shares repurchased and retired (12,000) -- (157) -- -- -- (157)
Repayments on notes -- -- -- -- -- 10 10
---------- ------ --------- ---------- --------- ---------- ----------
Balance at December 31, 2001 24,219,409 2 342,161 (1,641) (71,836) (1,973) 266,713
Net income -- -- -- -- 30,595 -- 30,595
Dividends paid to common share-
holders ($1.32 per share) -- -- -- -- (35,843) -- (35,843)
Dividends paid to preferred share-
holders ($0.3465 per share) -- -- -- -- (693) -- (693)
Conversion of preferred shares 2,000,000 -- 24,369 -- -- -- 24,369
Common shares issued, net 3,522,751 1 48,459 (860) -- (500) 47,100
Amortization of deferred compensation -- -- -- 735 -- -- 735
---------- ------ --------- ---------- --------- ---------- ----------
Balance at December 31, 2002 29,742,160 $ 3 $ 414,989 $ (1,766) $ (77,777) $ (2,473) $ 332,976
========== ====== ========= ========== ========= ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
13
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
($000)
Years ended December 31,
2002 2001 2000
------------ ----------- -----------
Cash flows from operating activities:
Net income $ 30,595 $ 18,062 $ 21,952
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects
from acquisitions:
Depreciation and amortization 23,375 19,952 19,010
Minority interests 5,708 4,534 6,015
Gain on sale of properties (1,056) -- (2,959)
Straight-line rents (2,426) (2,755) (2,804)
Other non-cash charges 1,016 1,508 714
Equity in earnings of non-consolidated entities (5,079) (3,328) (1,851)
Distributions from non-consolidated entities 5,704 4,593 1,092
Increase (decrease) in accounts
payable and other liabilities 539 (2,140) 310
Other adjustments, net (644) 851 (304)
------------ ----------- -----------
Net cash provided by operating activities 57,732 41,277 41,175
------------ ----------- -----------
Cash flows from investing activities:
Net proceeds from sale of properties 20,756 4,107 19,402
Acquisition of the Net Partnerships, net of debt assumed
and $3,777 in cash -- (27,835) --
Investments in real estate (114,272) (19,363) (27,116)
Investments in non-consolidated entities (5,539) (5,620) (26,247)
Advances to non-consolidated entities (2,158) (4,195) (4,588)
Investment in and advances to the Net Partnerships -- (10,979) --
Real estate deposits (4,817) (436) --
------------ ----------- -----------
Net cash used in investing activities (106,030) (64,321) (38,549)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds of mortgages and notes payable 49,165 100,194 84,340
Change in credit facility borrowing, net 21,000 (31,821) (29,100)
Dividends to common and preferred shareholders (36,536) (27,671) (23,327)
Dividend reinvestment plan proceeds 4,870 2,507 1,391
Principal payments on debt, excluding normal
amortization (10,049) (48,611) (15,066)
Principal amortization payments (14,091) (12,354) (11,646)
Origination fee amortization payments (372) (372) (372)
Common shares issued, net of offering costs 41,595 61,021 11
Cash distributions to minority interests (6,304) (6,236) (6,323)
Change in escrow deposits (1,396) (1,002) 1,596
Increase in deferred expenses (1,350) (3,203) (4,090)
Common shares/partnership units repurchased -- (348) (4,093)
Other -- 11 8
------------ ----------- -----------
Net cash provided by (used in)
financing activities 46,532 32,115 (6,671)
------------ ----------- -----------
Change in cash and cash equivalents (1,766) 9,071 (4,045)
Cash and cash equivalents, beginning of year 13,863 4,792 8,837
------------ ----------- -----------
Cash and cash equivalents, end of year $ 12,097 $ 13,863 $ 4,792
============ =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
14
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
(1) THE COMPANY
Lexington Corporate Properties Trust (the "Company") is a self-managed
and self-administered Maryland statutory real estate investment trust
("REIT") that acquires, owns, and manages a geographically diversified
portfolio of net leased office, industrial and retail properties and
provides investment advisory and asset management services to
institutional investors in the net lease area. As of December 31, 2002
the Company owned or had interests in 103 properties in 30 states and
Canada. The real properties owned by the Company are generally subject
to triple net leases to corporate tenants, however four provide for
operating expense stops, one is subject to a modified gross lease and
one requires the Company to be responsible for real estate taxes in
2003 and for the tenant to be responsible thereafter.
The Company's Board of Trustees authorized the Company to repurchase,
from time to time, up to 2.0 million common shares and/or operating
partnership units, depending on market conditions and other factors. As
of December 31, 2002, the Company repurchased approximately 1.4 million
common shares/partnership units at an average price of approximately
$10.55 per common share/ partnership unit. No shares or units were
repurchased in 2002.
(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.
Real Estate. Real estate assets are stated at cost, less accumulated
depreciation and amortization. If there is an event or change in
circumstance that indicates that an impairment in the value of a
property has occurred, the Company's policy is to assess any impairment
in value by making a comparison of the current and projected operating
cash flows of each such property over its remaining useful life, on an
undiscounted basis, to the carrying amount of the property. If such
carrying amounts are in excess of the estimated projected operating
cash flows of the property, the Company would recognize an impairment
loss equivalent to an amount required to adjust the carrying amount to
its estimated fair market value.
For acquisitions that are consummated subsequent to June 30, 2001, the
effective date of Statement of Financial Accounting Standards No. 141,
("SFAS No. 141") "Business Combinations," the fair value of the real
estate acquired must be allocated among building, land, tenant
improvements, the origination value of leases and the fair value (or
negative value) of above or below market leases. The Company adopted
the provisions of SFAS No.141 and determined that the purchase price to
be allocated to origination value of leases and the fair value of above
or below market leases were immaterial.
Depreciation is determined by the straight-line method over the
remaining estimated economic useful lives of the properties. The
Company generally depreciates buildings and building improvements over
periods not exceeding 40 years, land improvements over a 20-year
period, and fixtures and equipment over a 12-year period.
Only costs incurred to third parties in acquiring properties are
capitalized. No internal costs (rents, salaries, overhead) are
capitalized. Expenditures for maintenance and repairs are charged to
operations as incurred. Significant renovations which extend the useful
life of the properties are capitalized.
Investments in non-consolidated entities. The Company accounts for its
investments in less than 50% owned entities and Lexington Realty
Advisors, Inc. ("LRA") under the equity method since it has influence
over, but does not control such entities. Effective January 1, 2003 the
Company
15
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
converted its non-voting interest in LRA to a 99% voting interest and
accordingly, effective this date, LRA will be consolidated.
Revenue. The Company recognizes revenue in accordance with SFAS No. 13.
SFAS No. 13 requires that revenue be recognized on a straight-line
basis over the term of the lease unless another systematic and
rationale basis is more representative of the time pattern in which the
use benefit is derived from the leased property. The Company's rent
receivable primarily represents the amount of the excess of rental
revenues recognized over the annual rents collectible under the leases.
The Company recognizes percentage rent revenue when the cash is
received from the tenant unless it is a fixed amount in which case the
Company recognizes it ratably over the accounting period.
Gains on sales of real estate are recognized pursuant to the provisions
of SFAS No. 66 "Accounting for Sales of Real Estate." The specific
timing of the sale is measured against various criteria in SFAS No. 66
related to the terms of the transactions and any continuing involvement
in the form of management or financial assistance associated with the
properties. If the sales criteria are not met, the gain is deferred and
the finance, installment or cost recovery method, as appropriate, is
applied until the sales criteria are met.
Deferred Expenses. Deferred expenses consist primarily of debt
placement, mortgage loan and other loan fees, and are amortized using
the straight-line method, which approximates the interest method, over
the terms of the debt instruments.
Tax Status. The Company has made an election to qualify, and believes
it is operating so as to qualify, as a real estate investment trust
under the Internal Revenue 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. As distributions have equaled or exceeded taxable income,
no provision for Federal income taxes has been made. State and local
income taxes, which are not significant, have been provided for those
states and localities in which the Company operates and is subject to
an income tax. LRA has elected to be treated as a taxable reit
subsidiary.
A summary of the average taxable nature of the Company's dividends for
each of the years in the three year period ended December 31, 2002 is
as follows:
2002 2001 2000
-------- -------- --------
Total dividends per share $ 1.32 $ 1.27 $ 1.22
======== ======== ========
Ordinary income 77.89% 95.46% 87.78%
Short-term capital gain 2.27 -- --
20% rate gain 4.12 -- 8.48
25% rate gain 5.65 -- 3.74
Percent non-taxable as return of capital 10.07 4.54 --
-------- -------- --------
100.00% 100.00% 100.00%
======== ======== ========
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, preferred shares,
operating partnership units and exchangeable redeemable secured notes.
The Company's preferred shares are excluded from the December 31, 2002
and 2000 computations since they are anti-dilutive. The Company's
preferred shares, operating partnership units and exchangeable
redeemable secured notes are excluded from the 2001 computations since
they are anti-dilutive. The Company's preferred shares were converted
into common shares in April 2002 and the exchangeable redeemable
secured notes were redeemed in July 2001.
16
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
Cash and Cash Equivalents. The Company considers all highly liquid
instruments with maturities of three months or less from the date of
purchase to be cash equivalents.
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), the useful lives of real estate and the
allocation of purchase price to individual properties purchased in a
portfolio. Actual results could differ from those estimates.
Recently Issued Accounting Standards. SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" establishes a single
accounting model for long-lived assets to be disposed of by sale and
provides implementation guidance with respect to accounting for
impairment of long-lived assets. Also, SFAS No. 144 requires that
discontinued operations be measured at the lower of carrying amount or
fair value less cost to sell, similar to the basis used for other
long-lived assets. Additionally, future operating losses of
discontinued operations are no longer recognized before they occur.
Under SFAS No. 144, the properties sold by the Company to third parties
are considered to be discontinued operations. However, properties
contributed to entities in which the Company maintains an ownership
interest are not considered to be discontinued operations under SFAS
No. 144 due to the Company's continuing involvement with the property
(See Note 5). 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.
Accordingly, the extraordinary items previously recorded in 2002 and
2001 have been eliminated and the charges have been reflected in
continuing operations. In July 2002, the FASB issued SFAS No. 146 which
requires that exit or disposal costs be recorded when incurred and be
measured at fair value. SFAS No. 146 is effective for an exit or
disposal activity initiated after December 31, 2002. The Company does
not expect that this statement will have any effect on the Company's
consolidated results of operations or financial position.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"). FIN 46 requires that companies that absorb the majority of
another entity's expected losses, receive a majority of its expected
residual returns, or both, as a result of holding variable interests,
which are ownership, contractual, or other economic interests in an
entity, consolidate the variable interest entity. The consolidation
requirements apply to all variable interest entities created after
January 31, 2003 and all other existing entities beginning July 1,
2003. The Company has not determined the impact the adoption of FIN 46
will have on its consolidated results of operations or financial
position. However, it is possible that the adoption of FIN 46 will
require the Company to consolidate its Florence joint venture.
Financial information for this joint venture is included in Footnote 5.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," which elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees
that it has issued. The initial recognition and measurement provisions
of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company
believes that the adoption of this interpretation will not have a
material effect to the Company's financial statements.
17
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
Common Share Options. The Company has elected to adopt the disclosure only
provisions of SFAS No. 123 "Accounting for Stock-Based Compensation," and
accounts for its option plan under the recognition provisions of Accounting
Principles Board Opinion No.25 "Accounting for Stock Issued to Employees."
Accordingly, no compensation cost has been recognized with regard to options
granted in the consolidated statements of income.
The per share weighted average fair value of options granted during 2002, 2001
and, 2000 were estimated to be $2.42, $2.00 and $2.02, respectively, using a
Black-Scholes option pricing formula. The more significant assumptions
underlying the determination of such fair values include: (i) a risk free
interest rate of 3.32% in 2002 and 3.35% in 2001 and 5% in 2000; (ii) an
expected life of five years; (iii) volatility factors of 15.11%, 15.79% and
19.20% for 2002, 2001 and 2000, respectively; and (iv) actual dividends paid.
If stock based compensation cost had been recognized based upon the fair value
at the date of grant for options awarded in 2002, 2001 and 2000 the Company's
pro forma net income and pro forma net income per share would have been:
2002 2001 2000
---- ---- ----
Net income, as reported $ 30,595 $ 18,062 $ 21,952
Pro forma net income $ 29,620 $ 16,653 $ 20,001
Net income per share, as reported
Basic $ 1.11 $ 0.79 $ 1.15
Diluted $ 1.09 $ 0.77 $ 1.10
Pro forma net income per share
Basic $ 1.07 $ 0.72 $ 1.03
Diluted $ 1.06 $ 0.70 $ 1.02
Reclassifications. Certain amounts included in prior years' financial statements
have been reclassified to conform with the current year presentation.
18
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
(3) EARNINGS PER SHARE
The following is a reconciliation of numerators and denominators of the
basic and diluted earnings per share computations for each of the years
in the three year period ended December 31, 2002:
2002 2001 2000
------------ ------------ ------------
BASIC
Income from continuing operations $ 28,716 $ 17,499 $ 21,495
Less dividends attributable to preferred shares (693) (2,709) (2,562)
------------ ------------ ------------
Income attributed to common shareholders from
continuing operations 28,023 14,790 18,933
Total income from discontinued operations 1,879 563 457
------------ ------------ ------------
Net income attributed to common shareholders $ 29,902 $ 15,353 $ 19,390
============ ============ ============
Weighted average number of common shares outstanding 27,026,789 19,522,323 16,900,039
============ ============ ============
Income per common share - basic:
Income from continuing operations $ 1.04 $ 0.76 $ 1.12
Income from discontinued operations 0.07 0.03 0.03
------------ ------------ ------------
Net income $ 1.11 $ 0.79 $ 1.15
============ ============ ============
DILUTED
Income attributed to common shareholders from
continuing operations $ 28,023 $ 14,790 $ 18,933
Add incremental income attributed to assumed
conversion of dilutive securities -- -- 7,709
------------ ------------ ------------
Income attributed to common shareholders from
continuing operations 28,023 14,790 26,642
Income from discontinued operations 1,879 563 520
------------ ------------ ------------
Net income attributed to common shareholders $ 29,902 $ 15,353 $ 27,162
============ ============ ============
Weighted average number of shares used in calculation
of basic earnings per share 27,026,789 19,522,323 16,900,039
Add incremental shares representing:
Shares issuable upon exercise of employee
stock options 300,102 340,557 166,806
Shares issuable upon conversion of dilutive securities -- -- 7,647,374
------------ ------------ ------------
Weighted average number of shares used in calculation
of diluted earnings per common share 27,326,891 19,862,880 24,714,219
============ ============ ============
Income per common share - diluted:
Income from continuing operations $ 1.02 $ 0.74 $ 1.08
Income from discontinued operations 0.07 0.03 0.02
------------ ------------ ------------
Net income $ 1.09 $ 0.77 $ 1.10
============ ============ ============
19
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
(4) INVESTMENTS IN REAL ESTATE
During 2002 and 2001 the Company made the following acquisitions,
excluding acquisitions made by non-consolidated entities:
Net
Rentable
Date of Acquisition Base Rent Lease Square
Acquisition Tenant Location Cost December 31, Expires Feet
- ------------- ----------------------- ---------------- ------------ ------------ ------- ---------
2002
March 15 Apria Healthcare Group,
Inc. Lake Forest, CA $ 16,970 $ 1,791 01-12 100,012
August 27 Quest Diagnostics, Inc. Valley Forge, PA 19,500 2,161 04-11 109,281
August 30 AdvancePCS, Inc. Knoxville, TN 8,100 822 05-13 59,748
September 26 Anda Pharmaceuticals, Inc. Groveport, OH 11,800 1,206 03-12 354,676
December 27 North American Van Lines Westmont, IL 24,825 2,516 11-15 269,715
December 30 Wells Fargo Home Mortgage Fort Mill, SC 17,933 1,868 01-13 169,083
-------- --------- ---------
$ 99,128 $ 10,364 1,062,515
======== ========= =========
2001
March 30 Kraft Foods North,
America, Inc. Winchester, VA $ 14,400 $ 1,515 06-11 344,700
November 28 Bull HN Information Phoenix, AZ 11,436 1,086 10-05 137,058
Systems, Inc.
November 28 Hollywood Entertainment Wilsonville, OR 13,328 1,531 11-08 122,853
Corp.
November 28 Nextel Communications of Hampton, VA 11,667 1,302 12-09 100,632
the Mid-Atlantic, Inc.
November 28 The Tranzonic Companies Highland Heights, OH 6,318 762 02-09 119,641
November 28 Hewlett Packard Company San Diego, CA 8,700 888 01-10 65,755
November 28 Cox Communication, Inc. Tuscon, AZ 3,284 401 09-10 28,591
November 28 IKON Office Solutions Milford, CT 2,832 337 12-04 27,360
November 28 Associated Grocers of Ocala, FL 19,013 2,238 12-18 668,034
Florida, Inc.
November 28 Corporate Express Office Henderson, NC 7,442 810 01-14 196,946
Products, Inc.
November 28 Stone Container Corp- Columbia, SC 4,638 571 08-12 185,961
oration
November 28 Johnson Controls, Inc. Plymouth, MI 7,663 809 12-06 134,160
November 28 The Tranzonic Companies Tempe, AZ 1,892 202 02-09 49,951
November 28 Ameritech Services, Inc. Columbus, OH 1,594 255 05-05 20,000
November 28 Sam's Real Estate Business Westland, MI 7,221 753 01-09 102,826
Trust
November 28 Wal-Mart Stores, Inc. Gainesville, GA 2,631 328 01-09 89,199
November 28 Kohl's Department Stores, Eau Claire, WI 4,302 462 01-15 76,164
Inc.
November 28 Wal-Mart Real Estate Jacksonville, AL 1,959 146 01-09 56,132
Business Trust
November 28 Best Buy Co, Inc. Canton, OH 4,417 465 02-18 46,350
November 28 Best Buy Co, Inc. Spartanburg, SC 4,167 395 02-18 45,800
November 28 Bally's Health & Fitness Phoenix, AZ 5,627 808 06-08 36,556
Corp.
November 28 Greyhound Lines Inc. Stockton, CA 1,296 193 12-09 17,000
November 28 Circuit City Stores, Inc. Lynchburg, VA 797 101 11-06 9,300
20
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
Net
Rentable
Date of Acquisition Base Rent Lease Square
Acquisition Tenant Location Cost December 31, Expires Feet
- -------------- --------------------- ---------- ----------- ------------ -------- --------
2001
November 28 Wal-Mart Stores, Inc. Sumter, SC 4,107 328 01-08 103,377
December 11 Owens Corning Hebron, OH 8,447 989 05-09 400,522
December 11 Owens Corning Hebron, OH 5,340 648 02-10 250,410
-------- --------- ---------
$164,518 $ 18,323 3,435,278
======== ========= =========
The Company sold four properties and one building in the Palm Beach Gardens,
Florida property in 2002, one property in 2001 and three properties in 2000 for
aggregate selling prices of $16,342, $4,107 and $19,600, respectively, which
resulted in gains in 2002, 2001 and 2000 of $ 1,172, $0 and $2,959,
respectively. In addition, the Company sold a 77.3% interest in a property
(along with the related non-recourse mortgage) 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 six month period
commencing January 2004 for $4,581. In addition, in 2001 and 2000 the Company
contributed the Winchester, Virginia and Herndon, Virginia properties (along
with non-recourse mortgage notes), respectively to Lexington Acquiport Company,
LLC for capital contributions of $1,168 and $2,393, respectively.
During 2002, the Company expanded its property in Lancaster, California net
leased to Michaels Stores, Inc. The expansion, which cost $15,200, is leased to
the tenant through September 2019 at annual rent of $1,808. In connection with
the expansion, the initial lease term was also extended to September 2019.
The Company has not presented pro forma information for 2002 because the
acquisitions and dispositions are not significant individually or in the
aggregate. The following unaudited pro forma operating information for the year
ended December 31, 2001 has been prepared as if all Company acquisitions and
dispositions (including non-consolidated entities) in 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. Unaudited pro forma amounts
are as follows:
December 31, 2001
-----------------
Revenues $ 95,710
Net income $ 22,563
Net income per common share:
Basic $ 0.92
Diluted $ 0.91
21
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
(5) DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144
established criteria beyond that previously specified in Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS
121"), to determine when a long-lived assets is classified as held for
sale, and it provides a single accounting model for the disposal of
long-lived assets. SFAS 144 was effective beginning January 1, 2002. In
accordance with SFAS 144, the Company now reports as discontinued
operations assets held for sale (as defined by SFAS 144) as of the end
of the current period and assets sold subsequent to January 1, 2002.
All results of these discontinued operations, are included in a
separate component of income on the Consolidated Statements of Income
under discontinued operations. This change has resulted in certain
reclassifications of 2002, 2001 and 2000 financial statement amounts.
The following represents the operating results for the properties sold
in 2002 (see Note 4) and 2003 (Bakersfield, California; Tempe, Arizona
and Jacksonville, Alabama - held for sale) for the applicable periods:
Year ended December 31,
2002 2001 2000
---- ---- ----
Revenues $ 1,226 $ 1,380 $ 1,316
Pre-tax income, including gains on sales $ 1,879 $ 563 $ 457
(6) INVESTMENT IN NON-CONSOLIDATED ENTITIES
The Company has investments in various real estate joint ventures. The
business of each joint venture is to acquire, finance, hold for
investment or sell single tenant net leased real estate.
22
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
Lexington Acquiport Company, LLC
Lexington Acquiport Company, LLC ("LAC"), is a joint venture with the
Comptroller of the State of New York as Trustee for the Common Retirement Fund
("CRF"). The joint venture agreement expires December 2011. The Company and CRF
originally committed to contribute up to $50,000 and $100,000, respectively, to
invest in high quality office and industrial net leased real estate. Through
December 31, 2002 total contributions were $127,623. LRA earns annual management
fees of 2% of rent collected and acquisition fees equaling 75 basis points of
purchase price of each property investment. All allocations of profit, loss and
cash flows are made one-third to the Company and two-thirds to CRF.
During 2001, the Company and CRF announced the formation of Lexington Acquiport
Company II, LLC ("LAC II"). The Company and CRF have committed an additional
$50,000 and $150,000, respectively. In addition to the fees LRA currently earns
on acquisitions and asset management, LRA will also earn 50 basis points on all
mortgage debt directly placed. All allocations of profit, loss and cash flows
from all properties acquired by this joint venture will be allocated 25% to the
Company and 75% to CRF. There have been no investments made under this program.
CRF can presently elect to put their equity position in LAC to the Company. The
Company has the option of issuing common shares for the fair market value of
CRF's equity position (as defined) or cash for 110% of the fair market value of
CRF's equity position. The per common share value of shares issued for CRF's
equity position will be the greater of (i) the price of the Company's common
shares on the closing date (ii) the Company's funds from operations per share
(as defined) multiplied by 8.5 or (iii) $13.40 for LAC properties (all
properties that are currently owned) and $15.20 for LAC II properties purchased.
The Company has the right not to accept any property (thereby reducing the fair
market value of CRF's equity position) that does not meet certain underwriting
criteria (e.g. lease term and tenant credit). In addition, the operating
agreement contains a mutual buy-sell provision in which either partner can force
the sale of any property.
During 2002, 2001 and 2000, LAC made the following investments:
Net Rentable
Date of Acquisition Base Rent Lease Square
Acquisition Tenant Location Cost December 31, Expires Feet
- ----------------------------------------------------------------------------- -----------------------------------
2002
August 5 TNT Logistics North America, Inc. Laurens, SC $ 27,100 $ 3,227 08-12 1,164,000
August 5 TNT Logistics North America, Inc. Temperance, MI 18,186 2,161 08-12 752,000
---------- --------- ---------
$ 45,286 $ 5,388 1,916,000
========== ========= =========
2001
May 6 Kraft Foods North America, Inc. Winchester, VA $ 14,400 $ 1,515 05-11 344,700
========== ========= =========
2000
January 20 Structural Dynamics Research Milford, OH $ 26,900 $ 2,790 04-11 212,836
Corporation
March 29 Bank One Indiana, N.A. Fishers, IN 24,500 3,287 10-09 193,000
April 17 NEC America, Inc. Herndon, VA 19,087 2,025 08-09 108,000
September 6 True North Communications, Inc. Irving, TX 41,850 4,250 01-10 247,254
September 28 First USA Management Services, Lake Mary, FL 41,700 5,741 09-09 251,075
Inc.
December 27 Aventis Pharmaceuticals, Inc. Parsippany, NJ 81,000 8,487 01-10 340,240
---------- --------- ---------
$ 235,037 $ 26,580 1,352,405
========== ========= =========
23
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
In 1999, LAC also made an $11,009 investment in a participating note receivable,
which has a stated interest rate of 6.9% and a 50% interest in the property cash
flows from the entity that owns the Houston, Texas property.
Summarized balance sheet data as of December 31, 2002 and 2001 and income
statement data for the years ended December 31, 2002, 2001 and 2000 is as
follows:
2002 2001
---------- ----------
Real estate, net $ 286,311 $ 245,537
Note receivable 11,009 11,009
Cash and cash equivalents 3,989 3,623
Other assets 6,580 5,147
---------- ----------
$ 307,889 $ 265,316
========== ==========
Mortgages payable $ 180,223 $ 151,697
Other liabilities 1,934 1,351
Equity 125,732 112,268
---------- ----------
$ 307,889 $ 265,316
========== ==========
2002 2001 2000
---------- ---------- ----------
Revenues $ 31,228 $ 28,661 $ 10,525
Interest expense (12,628) (11,910) (4,327)
Depreciation of real estate (5,408) (4,932) (1,765)
Other (2,925) (3,147) (1,222)
--------- --------- ---------
Net income $ 10,267 $ 8,672 $ 3,211
========= ========= =========
As of December 31, 2002, the LAC properties are 100% leased and have scheduled
lease expiration dates ranging from 2009 to 2012.
Minimum future rental receipts under non-cancelable tenant operating leases,
assuming no new or negotiated leases, for the next five years and thereafter are
as follows:
Year ending
December 31,
- ------------
2003 $ 31,688
2004 32,010
2005 34,005
2006 34,493
2007 34,760
Thereafter 89,909
----------
$ 256,865
==========
24
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
The mortgages payable bear interest at rates ranging from 6.00% to 8.19% and
mature at various dates ranging from 2010 to 2012. Scheduled principal
amortization and balloon payments for the mortgages for the next five years and
thereafter are as follows:
Year ending Scheduled Balloon
December 31, Amortization Payments Total
- ------------ ------------ --------- ---------
2003 $ 2,218 $ -- $ 2,218
2004 2,401 -- 2,401
2005 2,643 -- 2,643
2006 2,866 -- 2,866
2007 3,123 -- 3,123
Thereafter 12,761 154,211 166,972
--------- --------- ---------
$ 26,012 $ 154,211 $ 180,223
========= ========= =========
Lexington Columbia LLC
Lexington Columbia LLC ("Columbia") is a joint venture established December 30,
1999 with a private investor. Its sole purpose is to own a property in Columbia,
South Carolina net leased to Blue Cross Blue Shield of South Carolina through
September 2009. The purchase price of the property was approximately $42,500 and
was partially funded through a 10 year, $25,300 non-recourse mortgage note
bearing interest at 7.85%. In accordance with the operating agreement, net cash
flows, as defined, will be allocated 40% to the Company and 60% to the partner
until both parties have received a 12.5% return on capital. Thereafter cash
flows will be distributed 60% to the Company and 40% to the partner.
During 2001, Columbia expanded the property by 107,894 square feet bringing the
total square feet of the property to 456,304. The $10,900 expansion was funded
40% by the Company and 60% by the partner. The tenant has leased the expansion
through September 2009 at an average additional annual rent of $2,000. Cash
flows from the expansion will be distributed 40% to the Company and 60% to the
partner.
LRA earns annual asset management fees of 2% of rents collected.
Summarized financial information for the underlying property investment as of
December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001 and
2000 is as follows:
2002 2001
-------- --------
Real estate, net $ 48,454 $ 50,442
Other assets 2,438 1,529
-------- --------
$ 50,892 $ 51,971
======== ========
Mortgage payable $ 24,653 $ 24,863
Accrued interest 167 --
Equity 26,072 27,108
-------- --------
$ 50,892 $ 51,971
======== ========
25
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
2002 2001 2000
--------- ---------- ----------
Rental income $ 6,930 $ 5,412 $ 4,906
Interest expense (1,970) (1,851) (2,009)
Depreciation (1,988) (1,664) (1,624)
Other (196) (133) (143)
-------- --------- ---------
Net income $ 2,776 $ 1,764 $ 1,130
======== ========= =========
Minimum future rental receipts under the non-cancelable operating lease,
assuming no new or renegotiated lease, for the next five years and thereafter is
as follows:
Year ending
December 31,
- ------------
2003 $ 6,415
2004 6,655
2005 7,377
2006 7,377
2007 7,377
Thereafter 12,908
--------
$ 48,109
========
Scheduled principal amortization and balloon payment for the mortgage for the
next five years and thereafter is as follows:
Year ending Scheduled Balloon
December 31, Amortization Payment Total
- ------------ ------------ -------- --------
2003 $ 243 $ -- $ 243
2004 257 -- 257
2005 284 -- 284
2006 307 -- 307
2007 332 -- 332
Thereafter 644 22,586 23,230
-------- -------- --------
$ 2,067 $ 22,586 $ 24,653
======== ======== ========
Lexington Realty Advisors, Inc.
The Company has a 99% non-voting ownership interest in LRA, which provides
management services to institutional investors and invests directly in real
estate properties. The voting common shares are held by officers of the Company
and one independent third party. (See Footnote 1)
26
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
Summarized balance sheet data as of December 31, 2002 and 2001 and income
statement data for the years ended December 31, 2002, 2001 and 2000 is as
follows:
2002 2001
-------- --------
Real estate, net $ 41,613 $ 39,737
Cash 1,579 806
Other assets 403 785
-------- --------
$ 43,595 $ 41,328
======== ========
Mortgages payable $ 30,028 $ 30,480
Advances from the Company 12,167 10,009
Other liabilities 651 598
Equity 749 241
-------- --------
$ 43,595 $ 41,328
======== ========
2002 2001 2000
-------- -------- --------
Rental income $ 4,499 $ 2,558 $ --
Advisory fees 1,417 1,125 1,619
Other income 6 14 70
-------- -------- --------
5,922 3,697 1,689
-------- -------- --------
Interest expense (2,582) (1,574) (19)
Operating expenses (1,716) (1,555) (1,104)
Depreciation expense (1,116) (760) --
Other -- -- (136)
-------- -------- --------
(5,414) (3,889) (1,259)
-------- -------- --------
Net income (loss) $ 508 $ (192) $ 430
======== ======== ========
Included in operating expenses for the years ended December 31, 2002, 2001 and
2000 are personnel costs reimbursable to the Company of $1,189, $1,008 and
$1,104 respectively.
During 2002 and 2001 LRA made the following acquisitions:
Net
Rentable
Date of Acquisition Base Rent Lease Square
Acquisition Tenant Location Cost December 31, Expires Feet
- --------------------------------------------------------- --------------------------------------------
2002
August 5 TNT Canada, Inc. Alberta, Canada $ 2,896 $ 331 08-12 122,876
========= ========= =======
2001
January 15 Owens Corning, Inc. Chester, SC $ 15,401 $ 1,619 12-20 193,891
December 27 Harbor Freight Tools, Inc. Dillon, SC 16,113 1,812 12-16 474,473
--------- --------- -------
$ 31,514 $ 3,431 668,364
========= ========= =======
27
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
Minimum future rental receipts under non-cancelable tenant operating
leases, assuming no new or negotiated leases, for the next five years
and thereafter are as follows:
Year ending
December 31,
- ------------
2003 $ 4,513
2004 4,513
2005 4,513
2006 4,524
2007 4,677
Thereafter 47,517
--------
$ 70,257
========
Scheduled principal amortization and balloon payments for the mortgages
for the next five years and thereafter are as follows:
Year ending Scheduled Balloon
December 31, Amortization Payments Total
- ------------ ------------ ---------- ---------
2003 $ 636 $ -- $ 636
2004 594 10,474 11,068
2005 452 -- 452
2006 491 -- 491
2007 532 -- 532
Thereafter 6,998 9,851 16,849
------- ---------- ---------
$ 9,703 $ 20,325 $ 30,028
======= ========== =========
Lexington Florence LLC
Lexington Florence LLC ("Florence") is a joint venture established in
January 2002 with unaffiliated investors. Its sole purpose is to own a
property in Florence, South Carolina net leased to Washington Mutual
Home Loans, Inc. through June 2008. The property is encumbered by a
non- recourse mortgage bearing interest at 7.50% per annum which
matures February 2009. The Company sold a 77.3% interest in Florence to
the unaffiliated investors for $4,581. The investors have the right to
put their interests in Florence to the Company for units in LCIF
(valued at $4,581). The number of units issued will have a minimum
price of $13.92 and a maximum price of $15.82.
The put is effective January 2004 and expires June 2004.
LRA earns annual asset management fees of 3.5% of rents collected.
28
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
Summarized financial information for the underlying property investment
as of December 31, 2002 and for the period January 25, 2002 (date of
inception) to December 31, 2002 is as follows:
Real estate, net $ 15,544
Other assets 656
---------
$ 16,200
=========
Mortgage payable $ 9,544
Other liabilities 163
Equity 6,493
---------
$ 16,200
=========
Rental income $ 1,576
Interest expense (676)
Depreciation (304)
Other (46)
---------
Net income $ 550
=========
Minimum future rental receipts under the non-cancelable operating
lease, assuming no new or renegotiated lease, for the next five years
and thereafter is as follows:
Year ending
December 31,
- ------------
2003 $ 1,635
2004 1,750
2005 1,750
2006 1,750
2007 1,750
Thereafter 875
-------
$ 9,510
=======
Scheduled principal amortization and balloon payment for the mortgage
for the next five years and thereafter is as follows:
Year ending Scheduled Balloon
December 31, Amortization Payment Total
- ------------ ------------ ------- -------
2003 $ 149 $ -- $ 149
2004 158 -- 158
2005 173 -- 173
2006 186 -- 186
2007 201 -- 201
Thereafter 234 8,443 8,677
------- ------- -------
$ 1,101 $ 8,443 $ 9,544
======= ======= =======
29
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
(7) MORTGAGES AND NOTES PAYABLE
The following table sets forth certain information regarding the
Company's mortgage and notes payable as of December 31, 2002 and 2001:
2003
Estimated
Annual
Debt Balloon
Property Level Debt - Fixed Rate 2002 2001 Interest Rate Maturity Service Payment
- -------------------------------- ----------- ----------- ------------- -------- ---------- ----------
Gainesville, GA $ 219 $ 396 13.000% 01-01-04 $ 219 $ --
Oxon Hill, MD 457 825 6.250% 03-01-04 381 --
REMIC Financing (b) 63,054 64,205 8.150% 05-25-05 6,353 60,001
Salt Lake City, UT 5,145 6,759 7.870% 10-01-05 2,099 --
Bethesda, MD 1,955 2,456 9.250% 05-01-06 669 --
Warren, OH 25,615 29,763 7.000% 10-01-07 6,160 --
Bristol, PA 9,833 9,916 7.400% 02-01-08 831 9,262
Decatur, GA 6,830 6,936 6.720% 06-01-08 579 6,049
Phoenix, AZ 14,553 14,805 7.890% 06-05-08 1,434 12,591
Palm Beach Gardens, FL 11,509 13,288 7.010% 06-15-08 970 10,418
Canton, OH 3,395 3,459 7.150% 08-11-08 313 2,936
Spartanburg, SC 2,819 2,873 7.150% 08-11-08 260 2,438
Hebron, KY 5,414 5,479 7.000% 10-23-08 451 4,935
Gainesville, GA (f) 837 777 7.500% 01-01-09 -- --
Ocala, FL 13,429 13,746 7.250% 02-01-09 1,332 10,700
Canton, OH 1,823 2,010 9.490% 02-28-09 388 --
Baton Rouge, LA 1,969 2,025 7.375% 03-01-09 208 1,470
Bristol, PA 6,190 6,298 7.250% 04-01-09 571 5,228
Livonia, MI (2 properties) 11,133 11,240 7.800% 04-01-09 992 10,236
Henderson, NC 4,497 4,574 7.390% 05-01-09 417 3,854
Westland, MI 3,320 3,611 10.500% 09-01-09 683 --
Salt Lake City, UT 15,204 16,868 7.610% 10-01-09 2,901 --
Richmond, VA 16,633 16,772 8.100% 02-01-10 1,511 15,257
Hampton, VA 4,512 4,545 8.260% 04-01-10 415 4,144
Hampton, VA 7,357 7,415 8.270% 04-01-10 677 6,758
Tampa, FL (Queen Palm Dr.) 6,096 6,150 6.880% 08-01-10 485 5,495
Tampa, FL (North 30th) 8,427 8,500 6.930% 08-01-10 674 7,603
Herndon, VA 18,964 19,107 8.180% 12-05-10 1,723 17,301
San Diego, CA 4,347 4,422 7.500% 01-01-11 411 3,420
Tuscon, AZ 2,483 2,519 7.500% 01-01-11 226 2,076
Columbia, SC 3,472 3,522 7.540% 01-01-11 317 2,905
Valley Forge, PA 13,306 -- 7.120% 02-10-11 1,166 10,927
Glendale, AZ 14,930 15,054 7.400% 04-01-11 1,258 13,365
Auburn Hills, MI 7,325 7,444 7.010% 06-01-11 637 5,918
Plymouth, MI 4,866 4,932 7.960% 07-01-11 463 3,949
New Kingston, PA 7,364 7,450 7.790% 01-01-12 678 6,101
Mechanicsburg, PA 5,437 5,500 7.780% 01-01-12 500 4,503
New Kingston, PA 3,509 3,550 7.780% 01-01-12 323 2,906
Lake Forest, CA 10,939 -- 7.260% 02-01-12 901 9,708
Groveport, OH (g) 7,800 -- 6.030% 10-01-12 477 6,860
Dallas, TX 21,785 22,128 7.490% 12-31-12 2,020 16,030
Fort Mill, SC 11,657 -- 6.000% 01-01-13 839 9,904
Lancaster, CA 10,761 10,881 7.020% 09-01-13 900 8,637
Knoxville, TN (h) 5,330 -- 5.950% 09-01-13 356 4,488
Eau Claire, WI 2,360 2,470 8.000% 07-01-14 313 --
Franklin, NC 2,053 2,111 8.500% 04-01-15 263 --
Southborough, MA 2,251 2,345 7.500% 09-01-15 275 --
Phoenix, AZ (k) -- 5,154 8.120% -- -- --
Phoenix, AZ (k) -- 3,488 7.500% -- -- --
30
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
2003
Estimated
Annual
Debt Balloon
Property Level Debt - Fixed Rate 2002 2001 Interest Rate Maturity Service Payment
- ------------------------------------- --------- --------- --------------- ---------- ----------- ----------
Brownsville, TX (l) -- 616 8.375% -- -- --
Florence, SC (m) -- 9,681 7.500% -- -- --
--------- --------- ----- -------- --------
413,164 398,065 7.534% 46,019 308,373
--------- --------- ----- -------- --------
Property Level debt - Variable Rate
- -----------------------------------
Milpitas, CA (a) (e) 17,100 17,100 4.409% 07-01-04 2,299 14,356
Marlborough, MA (c) 8,102 8,306 3.610% 08-01-05 524 7,477
Hebron, OH (d) (2 properties) 9,651 9,800 3.688% 12-05-05 542 9,080
--------- --------- ----- -------- --------
34,853 35,206 4.024% 3,365 30,913
--------- --------- ----- -------- --------
Corporate Level Debt
- --------------------
Credit Facility (i) 31,000 10,000 3.199% 03-30-04 1,005 31,000
Warren, OH (j) 12,500 12,500 5.170% 10-01-07 655 12,500
--------- --------- ----- -------- --------
43,500 22,500 3.765% 1,660 43,500
--------- --------- ----- -------- --------
Total $ 491,517 $ 455,771 6.952% $ 51,044 $ 382,786
========= ========= ===== ======== =========
(a) Floating rate debt, 30 day LIBOR plus 297 bps.
(b) The REMIC Financing is secured by mortgages on 17 properties.
(c) Floating rate debt, 90 day LIBOR plus 190 bps.
(d) Floating rate debt, 30 day LIBOR plus 225 bps.
(e) Commencing 03/01/03 all property cash flows will be used for principal
amortization.
(f) Accrual only through 01/31/04. Commencing 02/01/04 annual debt service of
$218 is due.
(g) Interest only through April 2004, and $563 in annual debt service
thereafter.
(h) Interest only through May 2003, and $381 in annual debt service thereafter.
(i) The Company's $60,000 unsecured revolving credit facility, which expires
March 2004, bears interest at 150-250 basis points over LIBOR depending on the
amount of properties the Company owns free and clear of mortgage debt and has an
interest rate period of one, three or six months, at the option of the Company,
which rate at December 31, 2002 was 3.20%. The credit facility is provided by
Fleet Bank, NA. The credit facility contains various leverage, debt service
coverage, net worth maintenance and other customary covenants with which the
Company is in compliance as of December 31, 2002. Approximately $24,836 was
available to the Company at December 31, 2002. The Company has six outstanding
letters of credit aggregating $4,164 which mature between 2003 and 2010. The
Company pays an unused facility fee equal to 25 basis points of 50% or less of
the facility is utilized and 15 basis points if greater than 50% of the facility
is utilized.
(j) Floating rate debt, 90 day LIBOR plus 375 bps.
(k) Note was satisfied in 2002.
(l) Property was sold in 2002 and mortgage assumed.
(m) Property was sold to a joint venture in 2002 therefore is no longer
consolidated.
31
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
Scheduled principal amortization and balloon payments for mortgages and
notes payable for the next five years and thereafter are as follows:
Years ending Scheduled Balloon
December 31, Amortization Payments Total
- ------------ ------------- ---------- ---------
2003 $ 17,417 $ -- $ 17,417
2004 17,709 45,356 63,065
2005 16,117 76,558 92,675
2006 14,496 -- 14,496
2007 15,313 12,500 27,813
Thereafter 27,679 248,372 276,051
------------ ---------- ---------
$ 108,731 $ 382,786 $ 491,517
============ ========== =========
(8) ORIGINATION FEES PAYABLE
In connection with certain acquisitions the Company assumed obligations
($2,178 in principal plus accrued interest) which bear interest, on the
outstanding principal balances only at rates ranging from 12.3% to
19.0%. As of December 31, 2002, $3,411 in origination fees payable are
owed to two executive officers of the Company.
The scheduled payments of these obligations for the next five years and
thereafter are as follows:
Years ending
December 31, Principal Interest Total
- ------------ ----------- ---------- ---------
2003 $ 89 $ 283 $ 372
2004 98 274 372
2005 110 262 372
2006 452 209 661
2007 773 141 914
Thereafter 5,043 331 5,374
----------- ---------- ---------
$ 6,565 $ 1,500 $ 8,065
=========== ========== =========
(9) LEASES
Minimum future rental receipts under noncancellable tenant operating
leases, assuming no new or negotiated leases, for the next five years
and thereafter are as follows:
Year ending
December 31,
- ------------
2003 $ 99,279
2004 101,887
2005 100,016
2006 87,839
2007 75,321
Thereafter 274,879
---------
$ 739,221
=========
The Company holds various leasehold interests in properties. The ground
rent on these properties are either directly paid by the tenants or
reimbursed to the Company as additional rent.
32
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
Minimum future rental payments under all noncancellable leasehold
interests for the next five years and thereafter are as follows:
Year ending
December 31,
- -----------
2003 $ 898
2004 898
2005 898
2006 898
2007 898
Thereafter 8,071
---------
$ 12,561
=========
The Company leases its corporate headquarters, but no other corporate
facility, for approximately $263 per annum through June 30, 2004.
(10) MINORITY INTERESTS
In conjunction with several of the Company's acquisitions, sellers were
issued interests in partnerships controlled by the Company as a form of
consideration. All of such interests are redeemable at certain times
for common shares on a one-for-one basis. As of December 31, 2002,
there were 5,257,365 operating partnership units outstanding of which
4,867,319 were currently redeemable for common shares. As of December
31, 2002 these units, subject to certain adjustments through the date
of conversion, had annual distributions per unit in varying amounts
from $0 to $1.32 per unit with a weighted average distribution of $1.17
per unit.
(11) PREFERRED AND COMMON SHARES
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. The note
provides for forgiveness of the principal balance under certain
circumstances.
During 2002, the holders of the Company's outstanding 2,000,000
preferred shares converted these shares into 2,000,000 common shares.
During 2002 and 2001, holders of an aggregate of 50,997 and 418,411
partnership units redeemed such units for common shares of the Company.
These redemptions resulted in an increase in shareholders' equity and
corresponding decrease in minority interest of $619 and $5,713,
respectively.
During 2002 and 2001, the Company issued 2,690,000 and 4,400,000 common
shares raising $40,508 and $63,400 in proceeds, respectively, which was
used to retire mortgage debt and fund acquisitions. In addition, in
2001 the Company issued 2,143,840 common shares valued at $31,622 in
connection with the acquisition of the Net Partnerships.
33
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
(12) BENEFIT PLANS
The Company maintains a common share option plan pursuant to which
qualified and non-qualified options may be issued. Options granted
under the plan generally vest over a period of one to four years and
expire five years from date of grant. No compensation cost is reflected
in net income as all options granted under the plan had an exercise
price equal to the market value of the underlying common shares on the
date of grant.
Share option activity during the years indicated is as follows:
Weighted-Average
Number of Shares Exercise Price Per Share
---------------- ------------------------
Balance at December 31, 1999 1,503,648 $ 12.54
Granted 831,625 9.85
Forfeited (26,000) 13.12
Expired (331,250) 11.13
---------- ----------
Balance at December 31, 2000 1,978,023 11.63
Granted 568,000 11.99
Exercised (603,142) 11.02
Forfeited (9,308) 12.17
Expired (5,000) 11.25
---------- ----------
Balance at December 31, 2001 1,928,573 11.93
Granted 411,500 15.50
Exercised (1,050,866) 11.59
Forfeited (53,650) 11.98
Expired (2,500) 14.25
---------- ----------
Balance at December 31, 2002 1,233,057 $ 13.39
========== ==========
The following is additional disclosures for common share options
outstanding at December 31, 2002:
Options Outstanding Exercisable Options
----------------------------------------- -----------------------
Weighted Weighted
Range of Average Remaining Average
Exercise Exercise Life Exercise
Prices Number Price (Years) Number Price
--------- --------- -------- -------- ------- --------
$9.00-$10.875 153,863 $ 9.23 1.9 117,897 $ 9.22
$11.8125-$12.5625 407,082 11.91 2.5 228,766 11.94
$13.1875-$15.50 672,112 15.23 2.7 331,237 15.13
--------- -------- --- ------- --------
1,233,057 $ 13.39 2.5 677,900 $ 13.03
========= ======== === ======= ========
34
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
There are 1,584,749 options available for grant at December 31, 2002.
The Company has a 401(k) retirement savings plan covering all eligible
employees. The Company will match 25% of the first 4% of employee
contributions. In addition, based on its profitability, the Company may
make a discretionary contribution at each fiscal year end to all
eligible employees. The matching and discretionary contributions are
subject to vesting under a schedule providing for 25% annual vesting
starting with the first year of employment and 100% vesting after four
years of employment. Approximately $124, $112 and $107 were contributed
in 2002, 2001 and 2000, respectively.
The Company has established a trust for certain officers in which
nonvested common shares, which vest ratably over five years, granted
for the benefit of the officers are deposited. The officers exert no
control over the common shares in the trust and the common shares are
available to the general creditors of the Company. As of December 31,
2002 and 2001, there were 265,385 and 227,708 common shares,
respectively, in the trust. In addition, certain officers can delay, to
a specified date, the receipt of common shares that would be received
upon exercise of common share options. These common shares are
deposited in the trust. As of December 31, 2002 there were 222,615
common shares deposited in the trust.
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
The Company, including its non-consolidated entities, is obligated
under certain tenant leases to fund the expansion of the underlying
leased properties.
(14) RELATED PARTY TRANSACTIONS
In 2002, the Company issued 34,483 common shares in respect of a
15-year, 8% interest only recourse note to an officer for $500.
On November 28, 2001, the Company acquired Net 1 L.P. and Net 2 L.P.
(collectively, the "Net Partnerships"), in a merger transaction valued
at approximately $136,300, which owned twenty-three properties in
fourteen states. The Company issued 2,143,840 common shares (valued at
$31,622), 44,858 operating partnership units (valued at $661), $31,612
in cash and assumed approximately $61,389 of third party mortgage debt
(excluding $11,114 in Net Partnership obligations to the Company). The
Company's Chairman was the controlling shareholder of the general
partners of the Net Partnerships. The general partners received 44,858
operating partnership units valued on the same basis as the limited
partners for their 1% ownership interest in the Net Partnerships. The
units, which receive distributions equal to the dividends on common
shares, are convertible into the Company's common shares on a
one-for-one basis beginning November 2006.
During 2001, the Company issued 24,620 common shares to acquire a
company controlled by the Chairman, whose sole asset was a mortgage
note receivable from a 64% owned partnership of the Company.
35
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
During 2001, the Company renegotiated $1,973 in notes receivable from
two officers. The notes were issued in connection with the officers'
purchases of 131,000 common shares at $15.25 per common share. The new
notes have a 15-year maturity, are 8% interest only, recourse to the
officers and provide for forgiveness of the principal balances if
certain operating results are achieved.
During 2000, the Company sold two properties to the Net Partnerships
which are located in Henderson, North Carolina (leased to Corporate
Express Office Products, Inc.) and Plymouth, Michigan (leased to
Johnson Controls, Inc.) for $15,600 resulting in gains of $2,300.
During 2000, the Company issued 83,400 operating partnership units in
LCIF to acquire the property management contract for the Net
Partnerships from an affiliate of the Chairman of the Company and was
subsequently sold to LRA for $585. The fees earned during 2001 and
2000, under this contract, were $139 and $91 and the reimbursement of
costs for services provided by the Company on behalf of the Net
Partnerships were $564 and $359 for the years ended December 31, 2001
and 2000, respectively. The reimbursements are shown net, in the
Company's general and administrative expenses in the accompanying
consolidated statements of income.
The Company and LRA also received brokerage commissions relating to the
purchase and sale of properties by the Net Partnerships, with
unaffiliated parties, totaling $120 in 2000 which is included in
interest and other income in the accompanying consolidated statements
of income.
In connection with the acquisition of certain properties in 1996, the
Company assumed an obligation to pay The LCP Group, L.P., an affiliate
of the Company's Chairman, an aggregate principal amount of $2,178 for
rendering services in connection with the original acquisition of the
properties in 1980 and 1981. Simple interest is payable monthly from
available net cash flow of the respective original properties on the
various unpaid principal portions of the fees, at annual rates ranging
from 12.3% to 19.0%.
All related party acquisitions, sales and loans were approved by the
independent members of the Board of Trustees.
(15) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts
-------------------------------------------------------------------
Payable
-------
The Company estimates that the fair value approximates carrying value
due to the relatively short maturity of the instruments.
Mortgages and Notes Payable
---------------------------
The Company determines the fair value of these instruments based on a
discounted cash flow analysis using a discount rate that approximates
the current borrowing rates for instruments of similar maturities.
Based on this, the Company has determined that the fair value of these
instruments approximates carrying values.
(16) 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.
36
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
For the year ended December 31, 2002, no tenant represented 10% or more
of rental income. For the years ended December 31, 2001 and 2000 the
following tenants represented 10% or greater of rental income:
2001 2000
-------- ------
Northwest Pipeline Corporation 11% 11%
Kmart Corporation 11% 11%
Both of these tenants are publicly registered companies subject to the
Securities Exchange Act of 1934, as amended and accordingly file
financial information with the Securities and Exchange Commission.
(17) SUPPLEMENTAL DISCLOSURE OF STATEMENT OF CASH FLOW INFORMATION
During 2002, 2001 and 2000, the Company paid $32,255, $30,624 and
$29,758, respectively, for interest and $262, $204 and $126,
respectively, for taxes.
During 2002, the holder of the Company's 2 million preferred shares
converted them into 2 million common shares.
In 2002, 2001 and 2000, the Company contributed properties (along with
non-recourse mortgage notes) to joint venture entities for capital
contributions of $643, $1,168 and $2,393, respectively.
During 2002, 2001 and 2000, holders of an aggregate of 50,997, 418,411
and 102,849 operating partnership units, respectively, redeemed such
units for common shares of the Company. These redemptions resulted in
increases in shareholders' equity and corresponding decreases in
minority interests of $619, $5,713 and $1,438, respectively.
During 2001, the Company purchased the Net Partnerships by issuing, in
addition to $31,612 in cash, 2,143,840 common shares (valued at
$31,622), 44,858 operating partnership units (valued at $661), assumed
$61,389 in third party debt and $11,114 in Net Partnership debt
obligations to the Company.
During 2000, the Company issued 83,400 operating partnership units
(valued at $585) in LCIF to acquire a property management contract from
an affiliate of the Chairman of the Company.
During 2000, the Company purchased a property and issued a note payable
to the seller of $3,488 as partial satisfaction of the purchase price.
During 2002, 2001 and 2000, the Company issued 64,249, 100,000 and
73,800 common shares to certain employees and trustees resulting in
$996, $1,181 and $664 of deferred compensation. These common shares
vest ratably over a 2 to 5 year period.
37
LEXINGTON CORPORATE PROPERTIES TRUST
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
($000's except per share data)
(18) UNAUDITED QUARTERLY FINANCIAL DATA
2002
-----------------------------------------------------------------------------
3/31/02 6/30/02 9/30/02 12/31/02
----------- ----------- ----------- ------------
Revenues (1) $ 24,258 $ 24,199 $ 24,884 $ 26,052
Net income $ 7,961 $ 7,879 $ 7,646 $ 7,109
Net income per common share:
Basic $ 0.30 $ 0.30 $ 0.28 $ 0.24
Diluted $ 0.29 $ 0.29 $ 0.28 $ 0.24
2001
-----------------------------------------------------------------------------
3/31/01 6/30/01 9/30/01 12/31/01
----------- ----------- ----------- ------------
Revenues (1) $ 19,904 $ 20,118 $ 19,904 $ 21,556
Net income $ 4,578 $ 5,090 $ 2,047 $ 6,347
Net income per common share:
Basic $ 0.23 $ 0.25 $ 0.07 $ 0.25
Diluted $ 0.23 $ 0.25 $ 0.07 $ 0.24
(1) All periods have been adjusted to reflect the impact of properties sold
during the six months ended June 30, 2003 and during the year ended Decemeber
31, 2002, and properties classified as held for sale which are reflected in
discontinued operations in the Consolidated Statements of Income.
The sum of the quarterly income per common share amounts may not equal the
full year amounts primarily because the computations of the weighted
average number of common shares outstanding for each quarter and the full
year are made independently.
(19) SUBSEQUENT EVENTS
Subsequent to year end, the Company purchased a property for $23,500 net
leased to Oce Printing Systems USA, Inc. through February 2020. The
purchase was partially funded through the use of a $15,275 interest only,
non-recourse mortgage which bears interest at 5.25%, and matures March
2008. The lease provides for an average annual rent of $2,245.
The Company also obtained a $16,380 non-recourse mortgage note for its
Westmont, Illinois property. The mortgage bears interest at 6.21%, provides
for annual debt service of $1,292 and matures March 2018 when a balloon
payment of $9,662 is due.
The Company also obtained a $9,000 non-recourse mortgage note for the
expansion of its Lancaster, California property. The mortgage bears
interest at 5.92%, provides for annual debt service of $642 and matures
September 2013 when a balloon payment of $7,518 is due.
38
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
Initial cost to Company and Gross Amount at which carried at End of Year (A)
- --------------------------------------------------------------------------------------------------------------------
Land
and Buildings
Land and
Description Location Encumbrances Estates Improvements Total
- --------------------------------------------------------------------------------------------------------------------
Office Southington, CT $ 8,120 $ 3,240 $ 20,440 $ 23,680
Research & Development Glendale, AZ 14,930 4,996 24,392 29,388
Retail/Health Club Countryside, IL 2,235 628 3,722 4,350
Retail/Health Club Voorhees NJ 2,827 577 4,820 5,397
Retail/Health Club DeWitt, NY 1,709 445 3,043 3,488
Warehouse & Distribution Mansfield, OH 3,089 120 5,965 6,085
Industrial Marshall, MI 2,071 33 3,378 3,411
Industrial Marshall, MI 789 14 926 940
Retail Newport, OR 5,784 1,400 7,270 8,670
Office & Warehouse Memphis, TN 6,245 1,053 11,174 12,227
Warehouse & Distribution Mechanicsburg, PA 9,531 1,439 13,987 15,426
Office & Warehouse Tampa, FL 6,096 1,389 7,762 9,151
Retail Klamath Falls, OR 6,573 727 9,160 9,887
Office Tampa, FL 8,427 1,900 9,854 11,754
Warehouse & Industrial Jacksonville, FL - 157 3,563 3,720
Retail Sacramento, CA 2,202 885 2,705 3,590
Office Phoenix, AZ - 2,804 13,921 16,725
Retail Reno, NV 1,906 1,200 1,904 3,104
Retail Las Vegas, NV 1,709 900 1,759 2,659
Retail Rockville, MD - - 1,784 1,784
Retail Oxon Hill, MD 457 403 2,765 3,168
Retail Laguna Hills, CA - 255 5,035 5,290
Retail Riverdale, GA - 333 2,233 2,566
Retail/Health Club Canton, OH 1,823 602 3,819 4,421
Office Salt Lake City, UT 20,349 - 55,404 55,404
Manufacturing Franklin, NC 2,053 386 3,062 3,448
Industrial Oberlin, OH 2,098 276 4,515 4,791
Retail Tulsa, OK - 447 2,432 2,879
Retail Clackamas, OR - 523 2,847 3,370
Retail Lynwood, WA - 488 2,658 3,146
Retail Honolulu, HI - - 11,147 11,147
Warehouse New Kingston, PA
(Silver Springs) 3,509 674 5,360 6,034
Warehouse New Kingston, PA
(Cumberland) 7,364 1,380 10,963 12,343
Warehouse Mechanicsburg, PA
(Hampden IV) 5,437 1,012 8,039 9,051
Office/ Research & Development Marlborough, MA 8,102 1,999 13,834 15,833
Office Dallas, TX 21,785 3,582 30,598 34,180
Warehouse Waterloo, IA 4,194 1,025 8,296 9,321
Office/ Research & Development Milpitas, CA 17,100 3,542 18,603 22,145
Industrial Gordonsville, TN 1,972 52 3,325 3,377
Office Decatur, GA 6,829 975 13,677 14,652
Office Richmond, VA 16,634 - 27,282 27,282
Office/Warehouse Bristol, PA 9,833 2,508 10,031 12,539
Office Hebron, KY 5,414 1,615 6,462 8,077
Office Livonia, MI 5,344 1,554 6,219 7,773
Office Valley Forge, PA 13,306 3,960 15,891 19,851
Research & Development Livonia, MI 5,789 1,733 6,936 8,669
Office Palm Beach Gardens, FL 11,509 3,576 14,249 17,825
Warehouse/ Distribution Lancaster, CA 10,761 2,028 28,225 30,253
- -------------------------------------------------------------------------------------------------------------------------------
Useful life computing
Accumulated depreciation in
Depreciation latest income
and Date Date statements
Description Location Amortization Acquired Constructed (years)
- -------------------------------------------------------------------------------------------------------------------------------
Office Southington, CT $ 9,344 Oct. 1986 1983 40 & 12
Research & Development Glendale, AZ 11,952 Nov. 1986 1985 40 & 12
Retail/Health Club Countryside, IL 1,802 Jul. 1987 1987 40 & 12
Retail/Health Club Voorhees NJ 2,237 Jul. 1987 1987 40 & 12
Retail/Health Club DeWitt, NY 1,414 Aug. 1987 1977 & 1987 40 & 12
Warehouse & Distribution Mansfield, OH 2,117 Jul. 1987 1970 40, 20 & 12
Industrial Marshall, MI 1,521 Aug. 1987 1968 & 1972 40, 20 & 12
Industrial Marshall, MI 418 Aug. 1987 1979 40, 20 & 12
Retail Newport, OR 3,267 Sept. 1987 1986 40, 20 & 12
Office & Warehouse Memphis, TN 5,010 Feb. 1988 1987 40
Warehouse & Distribution Mechanicsburg, PA 3,959 Oct. 1990 1985 & 1991 40
Office & Warehouse Tampa, FL 3,131 Nov. 1987 1986 40 & 20
Retail Klamath Falls, OR 3,387 Mar. 1988 1986 40
Office Tampa, FL 3,519 Jul. 1988 1986 40
Warehouse & Industrial Jacksonville, FL 1,133 Jul. 1988 1958 & 1969 40 & 20
Retail Sacramento, CA 1,240 Oct. 1988 1988 40, 20 & 12
Office Phoenix, AZ 5,258 Nov. 1988 1960 & 1979 40 & 3
Retail Reno, NV 850 Dec. 1988 1988 40, 20 & 12
Retail Las Vegas, NV 784 Dec. 1988 1988 40, 20 & 12
Retail Rockville, MD 669 Aug. 1995 1977 22.375, 16.583 & 15.583
Retail Oxon Hill, MD 967 Aug. 1995 1976 21.292
Retail Laguna Hills, CA 1,764 Aug. 1995 1974 20 & 20.5
Retail Riverdale, GA 391 Dec. 1995 1985 40
Retail/Health Club Canton, OH 668 Dec. 1995 1987 40
Office Salt Lake City, UT 14,150 May 1996 1982 25.958
Manufacturing Franklin, NC 459 Dec. 1996 1996 40
Industrial Oberlin, OH 677 Dec. 1996 1996 40
Retail Tulsa, OK 811 Dec. 1996 1981 23.583 & 13.583
Retail Clackamas, OR 949 Dec. 1996 1981 23.583 & 13.583
Retail Lynwood, WA 886 Dec. 1996 1981 23.583 & 13.583
Retail Honolulu, HI 2,755 Dec. 1996 1980 24.33
Warehouse New Kingston, PA
(Silver Springs) 776 Mar. 1997 1981 40
Warehouse New Kingston, PA
(Cumberland) 1,587 Mar. 1997 1989 40
Warehouse Mechanicsburg, PA
(Hampden IV) 1,164 Mar. 1997 1985 40
Office/ Research & Development Marlborough, MA 1,888 Jul. 1997 1960 & 1988 40
Office Dallas, TX 3,924 Sept. 1997 1986 40
Warehouse Waterloo, IA 1,080 Oct. 1997 1996 & 1997 40
Office/ Research & Development Milpitas, CA 2,325 Dec. 1997 1985 40
Industrial Gordonsville, TN 478 Dec. 1997 1983 & 1985 34.75
Office Decatur, GA 1,710 Dec. 1997 1983 40
Office Richmond, VA 4,230 Dec. 1997 1990 32.25
Office/Warehouse Bristol, PA 1,191 Mar. 1998 1982 40
Office Hebron, KY 767 Mar. 1998 1987 40
Office Livonia, MI 739 Mar. 1998 1987 & 1988 40
Office Valley Forge, PA 149 Aug. 2002 1985 & 2001 40
Research & Development Livonia, MI 824 Mar. 1998 1987 & 1988 40
Office Palm Beach Gardens, FL 1,648 May 1998 1996 40
Warehouse/ Distribution Lancaster, CA 1,592 Jun. 1998 1998 40
39
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
- --------------------------------------------------------------------------------------------------
Land
and Buildings
Land and
Description Location Encumbrances Estates Improvements Total
- --------------------------------------------------------------------------------------------------
Industrial Auburn Hills, MI 7,325 2,788 11,169 13,957
Warehouse/ Distribution Warren, OH 38,115 10,231 51,280 61,511
Warehouse/ Distribution Baton Rouge, LA 1,969 685 2,748 3,433
Retail Columbia, MD - 1,002 4,294 5,296
Retail Bakersfield, CA - 400 1,662 2,062
Retail Bethesda, MD 1,955 926 2,415 3,341
Office Bristol, PA 6,190 1,073 7,709 8,782
Office Southborough, MA 2,251 456 4,291 4,747
Office Herndon, VA 18,964 5,127 20,570 25,697
Office Hampton, VA 4,512 1,353 5,446 6,799
Office Phoenix, AZ 14,553 4,665 18,682 23,347
Industrial Hebron, OH 3,764 1,063 4,296 5,359
Industrial Hebron, OH 5,887 1,681 6,794 8,475
Retail Phoenix, AZ - 1,126 4,501 5,627
Retail Stockton, CA - 259 1,037 1,296
Retail Lynchburg, VA - 159 638 797
Office San Diego, CA 4,347 1,740 6,960 8,700
Office Phoenix, AZ - 2,287 9,149 11,436
Industrial Henderson, NC 4,497 1,488 5,954 7,442
Industrial Tempe, AZ - 378 1,514 1,892
Industrial Columbus, OH - 319 1,275 1,594
Office Tuscon, AZ 2,484 657 2,794 3,451
Retail Eau Claire, WI 2,360 860 3,442 4,302
Office Milford, CT - 567 2,265 2,832
Retail Westland, MI 3,320 1,444 5,777 7,221
Retail Canton, OH 3,395 883 3,534 4,417
Retail Spartanburg, SC 2,819 833 3,334 4,167
Office Wilsonville, OR - 2,666 10,662 13,328
Industrial Ocala, FL 13,429 3,803 15,210 19,013
Retail Jacksonville, AL - 392 1,567 1,959
Industrial Columbia, SC 3,472 928 3,710 4,638
Office Hampton, VA 7,357 2,333 9,351 11,684
Industrial Plymouth, MI 4,866 1,533 6,130 7,663
Retail Gainesville, GA 1,056 526 2,105 2,631
Office Lake Forest, CA 10,939 3,442 13,779 17,221
Office Knoxville, TN 5,330 1,624 6,503 8,127
Industrial Groveport, OH 7,800 2,385 9,547 11,932
Office Westmont, IL - 4,978 19,940 24,918
Office Fort Mill, SC 11,656 3,601 14,404 18,005
--------- --------- --------- --------
Total $ 460,517 $ 131,496 $ 781,874 $913,370
========= ========= ========= ========
- --------------------------------------------------------------------------------------------------------------------
Useful life computing
Accumulated depreciation in
Depreciation latest income
and Date Date statements
Description Location Amortization Acquired Constructed (years)
- --------------------------------------------------------------------------------------------------------------------
Industrial Auburn Hills, MI 1,237 Jul. 1998 1989 & 1998 40
Warehouse/ Distribution Warren, OH 9,305 Aug. 1998 1982 10 &40
Warehouse/ Distribution Baton Rouge, LA 287 Oct. 1998 1998 40
Retail Columbia, MD 411 Dec. 1998 1983 40
Retail Bakersfield, CA 586 Aug. 1995 1976 40
Retail Bethesda, MD 1,209 Aug. 1995 1980 40
Office Bristol, PA 586 Dec. 1999 1998 40
Office Southborough, MA 326 Dec. 1999 1984 40
Office Herndon, VA 1,547 Dec. 1999 1987 40
Office Hampton, VA 380 Mar. 2000 2000 40
Office Phoenix, AZ 1,225 May 2000 1997 40
Industrial Hebron, OH 111 Dec. 2001 2000 40
Industrial Hebron, OH 176 Dec. 2001 1999 40
Retail Phoenix, AZ 127 Nov. 2001 1988 40
Retail Stockton, CA 29 Nov. 2001 1968 40
Retail Lynchburg, VA 18 Nov. 2001 1986 40
Office San Diego, CA 196 Nov. 2001 1989 40
Office Phoenix, AZ 257 Nov. 2001 1985 & 1994 40
Industrial Henderson, NC 167 Nov. 2001 1998 40
Industrial Tempe, AZ 43 Nov. 2001 1981 40
Industrial Columbus, OH 36 Nov. 2001 1990 40
Office Tuscon, AZ 74 Nov. 2001 1988 40
Retail Eau Claire, WI 97 Nov. 2001 1994 40
Office Milford, CT 64 Nov. 2001 1994 40
Retail Westland, MI 162 Nov. 2001 1987 & 1997 40
Retail Canton, OH 99 Nov. 2001 1995 40
Retail Spartanburg, SC 94 Nov. 2001 1996 40
Office Wilsonville, OR 300 Nov. 2001 1980 & 1998 40
Industrial Ocala, FL 428 Nov. 2001 1976 40
Retail Jacksonville, AL 44 Nov. 2001 1983 40
Industrial Columbia, SC 104 Nov. 2001 1968 & 1998 40
Office Hampton, VA 263 Nov. 2001 1999 40
Industrial Plymouth, MI 172 Nov. 2001 1996 40
Retail Gainesville, GA 59 Nov. 2001 1984 40
Office Lake Forest, CA 273 Mar. 2002 2001 40
Office Knoxville, TN 61 Aug. 2002 2002 40
Industrial Groveport, OH 70 Sep. 2002 2002 40
Office Westmont, IL 21 Dec. 2002 1989 40
Office Fort Mill, SC 15 Dec. 2002 2002 40
---------
Total $ 134,220
=========
40
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Real Estate and Accumulated Depreciation and Amortization
Schedule III ($000)
(A) The initial cost includes the purchase price paid by the Company and
acquisition fees and expenses. The total cost basis of the Company's
properties at December 31, 2002 for Federal income tax purposes was
approximately $669 million.
Reconciliation of real estate owned:
2002 2001 2000
-------------------------------------
Balance at the beginning of the year $ 830,788 $ 682,627 $ 688,926
Additions during year 116,264 166,668 30,603
Properties sold during year (18,621) (4,107) (17,727)
Property contributed to joint venture
during year (15,061) (14,400) (19,175)
--------- --------- ---------
Balance at end of year $ 913,370 $ 830,788 $ 682,627
========= ========= =========
Balance at beginning of year $ 116,741 $ 98,429 $ 82,334
Depreciation and amortization expense 21,480 18,312 17,513
Accumulated depreciation and
amortization of properties sold
during year (2,934) - (1,162)
Accumulated depreciation of property
contributed to joint venture
during year (1,067) - (256)
--------- --------- ---------
Balance at end of year $ 134,220 $ 116,741 $ 98,429
========= ========= =========
41
Lexington Corporate Properties Trust
Ratio of earnings to combined fixed charges and preferred dividends
For the year ended December 31,
($000's)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Earnings
Income from continuing operations $ 28,716 $ 17,499 $ 21,495 $ 20,828 $ 15,135
Interest expense 33,920 33,198 29,266 28,754 22,893
Amortization expense - debt cost 1,218 1,404 1,064 968 930
Equity in earnings from joint ventures (4,561) (3,502) (1,428) (61) (52)
Cash received from joint ventures 5,660 4,110 810 -- 3
------ ------ ------ ------ ------
Total $ 64,953 $ 52,710 $ 51,207 $ 50,490 $ 38,909
====== ======= ====== ====== ======
Fixed Charges
Interest expense $ 33,920 $ 33,198 $ 29,266 $ 28,754 $ 22,893
Capitalized interest expense 24 168 241 -- --
Preferred stock dividend 693 2,667 2,562 2,520 2,254
Amortization expense - debt cost 1,218 1,404 1,064 968 930
------ ------ ------ ------ ------
Total $ 35,855 $ 37,437 $ 33,132 $ 32,242 $ 26,077
====== ====== ====== ====== ======
Ratio 1.81 1.41 1.55 1.57 1.49
====== ====== ====== ====== ======
42