1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Amendment No. 1 to Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 1, 1997
LEXINGTON CORPORATE PROPERTIES, INC.
(Exact Name of Registrant as specified in its charter)
Maryland 1-12386 13-3717318
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
355 Lexington Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 692-7260
Not Applicable
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
The Registrant has entered into a definitive agreement to acquire, through a
merger, Corporate Realty Income Trust I ("CRIT"). A description of such
acquisition and merger is set forth on the Registrant's Current Report on Form
8-K filed with the Commission on June 2, 1997.
Item 7. Financial Statements, Pro Forma Information and Exhibits.
(a) Financial statements of properties acquired.
Corporate Realty Income Trust I Audited Financial Statements for the year ended
December 31, 1996.
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of
Corporate Realty Income Trust I
We have audited the accompanying balance sheets of Corporate Realty Income
Trust I as of December 31, 1996 and 1995, and the related statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the financial statement
schedule listed in the Index at item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, in 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 financial statements referred to above present fairly, in
all material respects, the financial position of Corporate Realty Income Trust
I as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
ERNST & YOUNG LLP
New York, New York
January 29, 1997
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CORPORATE REALTY INCOME TRUST I
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
ASSETS:
Real estate, at cost:
Land $ 715,400 $ 715,400
Buildings 31,884,600 31,884,600
----------- -----------
32,600,000 32,600,000
Less: accumulated depreciation 5,054,542 4,257,428
----------- -----------
27,545,458 28,342,572
Cash and cash equivalents 834,489 531,435
Rent receivable -- 206,510
Prepaid expenses 102,525 101,877
Deferred rent receivable 2,020,078 1,867,274
Deferred financing costs, net of accumulated amortization
of $143,594 in 1996 and $120,731 in 1995 82,564 105,427
----------- -----------
Total assets $30,585,114 $31,155,095
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgage loans payable $15,404,146 $15,470,369
Accrued expenses 78,436 80,652
Due to affiliate 13,941 9,590
Dividends payable 353,772 353,772
----------- -----------
Total liabilities 15,850,295 15,914,383
Shareholders' equity:
Shares of beneficial interest $.10 par value; 20,000,000
shares authorized; 1,010,776 shares issued and
outstanding 101,078 101,078
Additional paid-in capital 14,633,741 15,139,634
Retained earnings -- --
----------- -----------
Total shareholders' equity 14,734,819 15,240,712
----------- -----------
Total liabilities and shareholders' equity $30,585,114 $31,155,095
=========== ===========
See accompanying notes
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CORPORATE REALTY INCOME TRUST I
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
---------- ---------- ----------
INCOME:
Rental $3,423,267 $3,423,267 $3,423,267
Dividend and interest 36,699 19,556 20,124
---------- ---------- ----------
3,459,966 3,442,823 3,443,391
EXPENSES:
Interest 1,407,881 1,421,200 1,459,015
Depreciation 797,114 797,114 797,115
Base annual fee to related party 175,152 173,028 164,005
General and administrative 170,626 148,057 146,398
---------- ---------- ----------
2,550,773 2,539,399 2,566,533
---------- ---------- ----------
Net income $ 909,193 $ 903,424 $ 876,858
========== ========== ==========
Net income per share $ .90 $ .89 $ .87
========== ========== ==========
Dividend per share $ 1.40 $ 1.40 $ 1.40
========== ========== ==========
See accompanying notes
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CORPORATE REALTY INCOME TRUST I
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Shares of
Beneficial
Interest, Additional Retained
Par Value Paid-in Capital Earnings Total
---------- --------------- ---------- ------------
Balance as of December 31, 1993 $101,078 $ 16,189,524 $ -- $ 16,290,602
Net income -- -- 876,858 876,858
Dividends -- (538,228) (876,858) (1,415,086)
-------- ------------ --------- ------------
Balance as of December 31, 1994 101,078 15,651,296 -- 15,752,374
Net income -- -- 903,424 903,424
Dividends -- (511,662) (903,424) (1,415,086)
-------- ------------ --------- ------------
Balance as of December 31, 1995 101,078 15,139,634 -- 15,240,712
Net income -- -- 909,193 909,193
Dividends -- (505,893) (909,193) (1,415,086)
-------- ------------ --------- ------------
Balance as of December 31, 1996 $101,078 $ 14,633,741 $ -- $ 14,734,819
======== ============ ========= ============
See accompanying notes
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CORPORATE REALTY INCOME TRUST I
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities: $ 909,193 $ 903,424 $ 876,858
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of deferred
financing costs 819,977 819,893 819,485
Interest accrued into the balance of the
mortgage payable -- 24,486 139,373
Changes in assets and liabilities:
Decrease (increase) in rent receivable 206,510 (206,510) --
Increase in prepaid expenses (648) (8,293) (3,577)
Decrease in accrued expenses (2,216) (6,553) (1,919)
Increase in deferred rent receivable (152,804) (190,605) (359,877)
Increase in deferred financing costs -- (2,463) --
Increase (decrease) in due to affiliate 4,351 (93,559) 55,714
Decrease in rent received in advance -- -- (39,375)
----------- ----------- -----------
Total adjustments 875,170 336,396 609,724
----------- ----------- -----------
Net cash provided by operating activities 1,784,363 1,239,820 1,486,582
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on mortgage (66,223) (60,244) (54,804)
Dividends paid to shareholders (1,415,086) (1,415,086) (1,415,086)
----------- ----------- -----------
Net cash used in financing activities (1,481,309) (1,475,330) (1,469,890)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 303,054 (235,510) 16,692
Cash and cash equivalents at beginning of period 531,435 766,945 750,253
----------- ----------- -----------
Cash and cash equivalents at end of period $ 834,489 $ 531,435 $ 766,945
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest during the years ended
December 31, 1996, 1995, and 1994
amounted to $1,377,102, $1,382,706 and
$1,296,921, respectively.
See accompanying notes
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CORPORATE REALTY INCOME TRUST I
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, OPERATIONS AND PUBLIC OFFERING
Corporate Realty Income Trust I (the "Company") was organized on June
27, 1989, as a Massachusetts business trust which satisfied the requirements of
the Internal Revenue Code to qualify as a Real Estate Investment Trust
("REIT"). The Company was formed for the purpose of acquiring triple net leased
commercial and industrial real estate properties, leased primarily to single
tenants. The Company was initially capitalized by an affiliate with $200,000
representing 10,000 shares of beneficial interest.
The Company filed a Form S-11 Registration Statement with the
Securities and Exchange Commission, which became effective on October 3, 1989,
covering a maximum offering of 7,500,000 shares of beneficial interest at $20
per share (the "Public Offering"). The shares were offered on a best-efforts
basis. The Public Offering terminated on October 3, 1991. The Company sold
1,010,776 shares representing capital contributions totalling $18,414,129, net
of allowances for offering and organizational expense and commissions paid to
affiliates.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash and time deposits with
maturities from the date of purchase of three months or less. As of
December 31, 1996, the Company had cash of $834,489 of which $811,308
was invested in a money market fund of an affiliate. The Company does
not believe it is exposed to any significant credit risk on cash and
cash equivalents.
Offering Costs
Selling commissions paid and other costs incurred in connection with
the Public Offering were charged against the Shareholders' additional
paid-in capital.
Deferred Financing Costs
Deferred financing costs consist of costs incurred in connection with
obtaining mortgages. These costs are amortized using the
straight-line method over the term of the mortgage, which was
determined to be not materially different from the results of the
interest method. Amortization with respect thereto was $22,863 in
1996, $22,779 in 1995, and $22,370 in 1994 and is included in
interest expense.
Investment in Real Estate
Depreciation of buildings is computed using the straight-line method
over the estimated economic useful life of forty years. The Company
reviews real estate assets for impairment whenever events or changes
in circumstances indicate that the carrying value of assets to be
held and used may not be recoverable. Impaired assets are reported at
the lower of cost or fair value. While management may from time to
time consider offers for the sale of its assets, at December 31,
1996, the real estate assets are considered by management to be held
for use.
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CORPORATE REALTY INCOME TRUST I
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
Net Income Per Share
The amount of net income per share of common stock was calculated
using the actual number of shares outstanding of 1,010,776 shares.
Income Taxes
The Company qualifies as a REIT as defined in the Internal Revenue
Code and, as such, is not taxed on that portion of its taxable income
which is distributed to shareholders provided that at least 95% of
such taxable income is distributed. The Company intends to continue
to distribute substantially all of its taxable income. The Company,
however, may be subject to tax at normal corporate rates on net
income or capital gain not distributed. No provision for federal
income taxes has been made in the accompanying financial statements
as the Company distributed to Shareholders all of its 1996, 1995 and
1994 taxable income. Cash dividends of $1.40 per share in 1996 and
1995 were comprised of a non-taxable return of capital of $.74 and
$.78, respectively, since the Company distributed dividends in excess
of its current earnings and profits, and a distribution of ordinary
income of $.66 and $.62, respectively.
3. INVESTMENT IN REAL ESTATE AND RELATED FINANCING
The Circuit City Property
On March 27, 1990, the Company acquired its first rental property, a
corporate headquarters building located in Richmond, Virginia ("Circuit City").
The Company purchased the building and assumed the rights and obligations under
an operating ground lease (the "Ground Lease") for the underlying land from CRA
Acquisition Corp. ("CRAAC"), an affiliate of the Company, for $25,000,000 (less
certain pro-rated closing amounts). This price reflects the purchase price paid
by CRAAC for the building.
Pursuant to a letter of intent between Corporate Realty Advisors,
Inc., the advisor to the Company ("CRA") and Circuit City Stores, Inc., CRA
arranged for the purchase by CRAAC of the property on February 28, 1990. CRAAC,
a wholly-owned subsidiary of Smith Barney, Inc. was formed solely for the
purpose of acquiring and holding the building until the initial sale of shares
of beneficial interest in the Company and receipt therefrom of sufficient
proceeds to enable the Company to purchase the building.
CRAAC is an affiliate of the company and of CRA.
The building is encumbered by a deed of trust and security agreement
which collateralizes a non-recourse note from CRAAC to Principal Mutual Life
Insurance Company ("PML") for $12,500,000. Upon purchase, the Company assumed
responsibility for payment on the note which had a balance of $12,506,552 and
agreed to comply with the terms of the deed of trust. The principal of the note
is payable in full on March 1, 2000. For the first five years of the note,
interest accrued at the rate of 9.25%, payable monthly at a rate of 8.5%, with
the difference being added to the principal balance. The rate of interest on the
note was subject to adjustment at the end of five years to reflect the then
current interest rate offered by PML for a real estate loan of similar quality,
term and amount, with the setting of an amortization arrangement as is then
prevalent in the lending industry. The Company reached an agreement with PML
and, effective March 1, 1995, the note bears interest at an annual rate of
8.875%, payable monthly. Principal plus interest accrued during the first five
years of the loan, amounting to $13,093,133, is payable on March 1, 2000.
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CORPORATE REALTY INCOME TRUST I
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
The Company also borrowed $3,156,990 from CRAAC to fund the
acquisition of Circuit City (the "Note"). The borrowing from CRAAC was not
collateralized and was paid in installments as proceeds were received from
investor closings. The note was fully repaid on April 30, 1991.
The Property is currently subject to a triple net lease with Circuit
City under which Circuit City is obligated to pay all costs of maintenance and
repair, real estate taxes, insurance and operating expenses of the property. The
term of the lease is for 20 years commencing on February 28, 1990. Circuit City
has five options to renew and extend the lease consisting of four ten-year
periods followed by one five-year period. The monthly rental for years one
through five was $189,583 payable monthly in advance. The monthly rental for
years six through ten is $206,510 and monthly rental for years eleven through
twenty will be $238,281. The base rent for each renewal term will be adjusted
for by the percent change in the consumer price index, as defined. Rent
attributable to Circuit City represented 76% of total rental income in 1996.
The land covered by and supporting the use of the property is leased
to the Company by Circuit City under the Ground Lease, which is a long-term,
fully subordinated lease. The basic term of the Ground Lease is coterminous with
the lease on the building with Circuit City. The Company also has renewal
options extending for an additional 45 years, for a total of 65 years. In the
event of default, the Ground Lease would remain in effect.
The Allegiance Property (formerly, the "Baxter Property")
On October 9, 1991, the Company acquired beneficial interest in, but
not legal title to, land in Bessemer, Alabama and a 123,924 square foot
distribution center built thereon (together, the "Allegiance Property") for
$4,500,000. The Allegiance Property is located on 10.16 acres in the Greenwood
Exchange development, an industrial park in Bessemer. The Allegiance Property is
serving as a regional distribution center for Allegiance Healthcare Corporation
("Allegiance"), formerly Baxter Healthcare Corporation ("Baxter"), an affiliate
of Baxter International Inc. Allegiance was formed as a result of the spin-off
by Baxter International Inc. completed in September 1996. Assets of Baxter were
transferred to Allegiance, including all of Baxter's rights and obligations
under the lease.
In June 1992 the Company obtained $1,000,000 pursuant to a financing
arrangement with the Industrial Development Board of the City of Bessemer (the
"IDB"), under which the IDB issued a first mortgage industrial revenue bond in
the amount of $1,000,000 to Modern Woodman of America. The payment of such
revenue bond is collateralized by a first mortgage lien on the Allegiance
Property. The loan is due on September 1, 2001 and bears interest at an annual
rate of 9.5% with monthly payments of interest only until maturity. The Company
entered into a lease obligation under which the lease payments equal an amount
sufficient to service the revenue bond. The Company accounts for this obligation
as financing. The Company has the option to record legal title to the Allegiance
Property at any time after the revenue bond has been paid in full for a nominal
purchase price.
The Allegiance Property is being leased to Allegiance under a
pre-existing ten-year triple net lease (the "Allegiance Lease") which commenced
on November 1, 1991, with a base annual rent of $472,500. Allegiance is required
to pay all taxes, utility charges, insurance, maintenance and repairs,
management fees and all other charges relating to the use and occupancy of the
building. Baxter International, Inc., continues to unconditionally guarantee all
of Allegiance's obligations under the lease as assigned by Baxter to Allegiance.
Under the terms of the lease, Allegiance has two five-year renewal options at
rents which reflect
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CORPORATE REALTY INCOME TRUST I
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
increases in the Consumer Price Index, as published by the Bureau of Labor
Statistics of the United States Department of Labor, from the initial
commencement date of the lease through the renewal date. Any increase in rents
may not be less than 3% nor more than 5% on a compounded annual basis. Rent
attributable to Allegiance represented 14% of total rental income in 1996.
Allegiance has the right under the lease to require the Company to
expand the distribution center by an additional 88,920 square feet. If
Allegiance exercises this right the rent due under the Allegiance lease will
increase. Allegiance may exercise this right at any time during the initial ten
years of the lease. If Allegiance does not exercise this option within the first
five years of the lease, Allegiance would be obligated to pay the Company an
additional $100,000 if it later exercised the expansion option.
The Dana Property
On September 28, 1992, pursuant to a Purchase and Sale Agreement
dated as of May 15, 1992 between the Company and Shannon Properties Inc.
("Shannon"), a Delaware corporation, the Company purchased all of Shannon's
rights, title and interest in the land and a 148,000 square foot regional
assembly facility built thereon (together, the "Dana Property"). The Company
purchased the rights to the Dana Property for $3,100,000. The building is
located on 20.95 acres in Gordonsville, Tennessee and is serving as a regional
assembly facility for Dana Corporation ("Lessee, Dana").
The Company financed 50% of the purchase price of the Dana Property
by obtaining a first mortgage loan from American Fidelity Assurance Company in
the principal amount of $1,550,000. The loan is due on October 1, 2002 and bears
interest at an annual rate of 9.5% with a 15-year amortization of monthly
payments of principal and interest of $16,185 and a balloon payment in the
amount of $770,669 payable upon maturity of the loan. The loan is secured by a
deed of trust with respect to the Dana Property and assignment of the lease with
Dana. At December 31, 1996, the balance of the loan was $1,311,013.
The Dana Property is being leased to Dana under a pre-existing triple
net lease (the "Dana Lease") whereby Dana is required to pay all taxes, utility
charges, insurance, maintenance and repairs, management fees and all other
charges relating to the use and occupancy of the Dana Property. The lease is for
a term of 15 years, expiring on August 31, 2007. Dana has three options to renew
and extend the lease consisting of two five-year periods followed by one term of
four years and eleven months. The rent is payable monthly in advance. The rental
is $26,324.17 per month for the three-year period ending July 31, 1996;
$27,113.92 per month for the three-year period ending July 31, 1999; $27,927.33
per month for the three-year period ending July 31, 2002; $28,765.17 per month
for the three-year period ending July 31, 2005 and $29,544.75 per month
thereafter through August 31, 2007. The base rent for each renewal term will be
fixed and will equal market rates, but, in no event less than 95% or greater
than 105% of the rent in the year immediately proceeding such option period.
Rent attributable to Dana represented 10% of the total rental income in 1996.
4. AGREEMENTS AND TRANSACTIONS WITH RELATED PARTIES
The Company maintains an interest-bearing customer account with Smith
Barney Inc. ("SB"). Interest of $36,699, $19,556, and $20,124 was earned by the
Company for 1996, 1995 and 1994, respectively, on this account. For purposes of
these financial statements, the Company considers its SB account to be cash.
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CORPORATE REALTY INCOME TRUST I
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
The Company declared dividends of $14,000 for each of years 1996,
1995 and 1994 on the 10,000 shares of beneficial interest owned by CRA, which is
a wholly owned subsidiary of SB.
Both an officer and a director of CRA serve on the five-member Board
of Trustees of the Company.
The Company has entered into an Advisory Services Agreement (the
"Advisory Agreement") with CRA. Under the terms of the Advisory Agreement, CRA
will (a) recommend real estate investment opportunities consistent with the
Company's investment policies and objectives; (b) provide advice to, and act as
agent for, the acquisition, financing, refinancing, leasing and disposition of
real estate investments; (c) recommend for investment assets other than real
estate that generate qualifying REIT income; and (d) provide day-to-day
management and administrative services for the Company.
The Advisory Agreement provides for fees to be paid by the Company to
CRA as follows: (a) a base annual fee of 10% of the adjusted cash flow from
operations, except that if total operating expenses of the Company for any
twelve-month period exceed the greater of 2% of the Company's average invested
assets as defined, or 25% of the Company's net income as defined, then the base
annual fee will be reduced to a level that would not exceed such limit (the
amount of such reduction to be deferred until and paid at such time as total
operating expenses are less than the limit defined above); (b) an incentive fee
of 15% of cash proceeds from sales or refinancings of the Company's equity
interest in real property, after certain priority distributions to shareholders
and other limitations as defined; (c) a subordinated disposition fee amounting
to the lesser of (i) 3% of the sale price of a property at the time of a sale
after certain priority distributions to shareholders and other limitations as
defined, or (ii) the fee customarily charged by unaffiliated parties for
rendering similar services; (d) a mortgage placement fee amounting to the lesser
of (i) 1% of the amount of financing or refinancing obtained by CRA, or (ii) the
fee customarily charged by unaffiliated parties rendering similar services. The
mortgage placement fee will be reduced by the amount of any mortgage placement
fee previously earned by CRA with respect to the same property. The Company paid
mortgage placement fees to CRA of $125,000 with respect to the Circuit City loan
and $10,000 with respect to the Baxter loan. The base annual fees for 1996, 1995
and 1994 amounted to $175,152, $173,028 and $164,005, respectively, of which
$13,941 was unpaid as of December 31, 1996. Such amount was subsequently paid in
February of 1997.
The Advisory Agreement also provides for CRA to be reimbursed for
expenses incurred related to goods and materials acquired and administrative
services performed for the Company as defined. This reimbursement will be
payable out of adjusted cash from operations and amounts charged for services
will not exceed an amount equal to the lesser of (i) the actual cost of such
services, or (ii) 90% of the competitive price which would be charged by an
unaffiliated person for such services. The Company incurred $41,393 in 1996,
$40,682 in 1995 and $32,000 in 1994 for such services.
The Advisory Agreement is automatically renewable for one-year
periods, unless either party presents in writing a notice of non-renewal to the
other not less than sixty days before the end of any such year. In addition, CRA
is entitled to receive all earned but unpaid fees as of the date of termination,
including an amount in lieu of the incentive fee equal to 15% of the difference
between the fair market value of the properties on the date of termination and
the cash invested by the Company in the properties, plus an amount equal to a
cumulative noncompounded annual return of 8% on shareholders' capital, less cash
distributed to shareholders related to sales and refinancings, as defined. If
the Advisory Agreement is terminated in connection with a change of control or
for good reason as defined, then CRA shall be entitled to receive a
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CORPORATE REALTY INCOME TRUST I
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
termination fee equal to the lesser of (i) the sum of (a) the excess of 15% of
gross proceeds over the aggregate offering and organization expenses, plus
interest as defined; (b) the excess of 6% of gross proceeds over acquisition
expenses, plus interest as defined; and (c) for each year or portion thereof
from the initial closing date under the Public Offering through the date of
termination of the Advisory Agreement, the excess, if any, of the Base Annual
Fee for such year or portion thereof over limits on total operating expenses
indicated above for such year or portion thereof, plus interest as defined, or
(ii) the sum of (a) the Subordinated Disposition Fee and the Incentive Fee
which would be payable if the Trust were liquidated on the Termination Date,
based upon the appraised fair market value of all of the Properties and other
assets of the Company as of the termination date; and (b) the discounted value
of the aggregate Base Annual Fee payable to the Advisor from the termination
date to and including December 31, 2002, as defined.
In accordance with the Advisory Agreement, CRA was entitled to
receive 3% of the gross proceeds raised in the public offering as a
nonaccountable expense allowance for organizational and offering costs
(excluding the selling commission). CRA was responsible for all organization and
offering costs and acquisition expenses incurred by the Company. Also 6% of
gross proceeds raised in the public offering were paid to Smith Barney Harris
Upham & Co. ("SBHU"), the selling agent, now named SB, for commissions. However,
as described in Supplement No. 3 to the Company's Prospectus the 3% expense
allowance for offering and organization costs and the 6% payment for commissions
was not charged to a major institutional investor who purchased $5,000,000 worth
of shares in 1991. CRA was paid $39,270 in 1991 and $396,361 in 1990,
respectively, for the expense allowance for offering and organizational costs.
SBHU was paid $78,540 in 1991 and $792,721 in 1990 for selling commissions.
CRA has entered into a management and consulting services agreement
with Hadley Paige Ellis, Inc. ("HPE"), an S Corporation whose sole shareholder
was both a Trustee of the Company and the President of CRA from 1989 to December
1992. The agreement stipulates that HPE will provide consulting services with
respect to the selection, financing, refinancing, leasing and disposition of
properties and other REIT qualifying investments.
5. RENTAL INCOME
In accordance with the Financial Accounting Standards Board Statement
No. 13, "Accounting for Leases," the Company recognizes rental income on a
straight-line basis over the fixed term of the lease period. Rental income is
net of the rent due to Circuit City under the terms of the ground lease.
Deferred rent receivable represents unbilled future rentals. The following
reconciles rental income received to rental income recognized in 1996, 1995 and
1994.
1996 1995 1994
---------- ---------- ----------
Rental income received $3,270,463 $3,232,662 $3,063,390
Deferred rent receivable 152,804 190,605 359,877
---------- ---------- ----------
Rental income recognized $3,423,267 $3,423,267 $3,423,267
========== ========== ==========
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CORPORATE REALTY INCOME TRUST I
NOTES TO FINANCIAL STATEMENTS, (CONTINUED)
6. LEASES
Minimum future rentals under noncancellable operating leases as of
December 31, 1996 are as follows:
Year ending December 31
-----------------------
1997 $ 3,275,992
1998 3,275,992
1999 3,280,059
2000 3,603,461
2001 3,588,253
Thereafter 25,379,645
-----------
Total $42,403,402
===========
Circuit City is required to make all payments under the Ground Lease
when and as such payments become due and payable. The obligation of Circuit City
to pay rent under the Ground lease is in addition to rent payable for the
building.
Minimum future payments to be made under the General Lease as of
December 31, 1996 are as follows:
Year ending December 31
-----------------------
1997 $ 219,714
1998 219,714
1999 219,714
2000 247,210
2001 247,210
Thereafter 2,069,334
----------
Total $3,222,896
==========
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure on the fair
value of financial instruments. Certain of the Company's assets and liabilities
are considered financial instruments. Fair value estimates, methods and
assumptions are set forth below.
Cash and Cash Equivalents, Rent Receivable, Prepaid Expenses and
Accrued Expenses
11
14
CORPORATE REALTY INCOME TRUST I
NOTES TO FINANCIAL STATEMENTS, (Continued)
The carrying amount of these assets and liabilities approximates fair
value due to the short-term nature of such accounts.
Mortgage Notes Payable
The fair values for mortgage notes payable are estimated using
discounted cash flow analyses, based on the Company's incremental borrowing rate
for similar types of borrowing arrangements. The Company has determined that the
estimated fair value of its mortgage notes payable to be approximately their
carrying values as of December 31, 1996 and 1995.
12
15
SCHEDULE III
CORPORATE REALTY INCOME TRUST I
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
--------------------------------------------
INITIAL COST TO COMPANY AND GROSS
AMOUNT AT WHICH CARRIED AT END OF PERIOD (A)
LIFE ON WHICH
DEPRECIATION IN
BUILDINGS AND ACCUMULATED LATEST STATEMENT
IMPROVEMENTS DEPRECIATION DATE OF DATE OF OPERATIONS
DESCRIPTION ENCUMBRANCES LAND(B) (B) TOTAL (C) CONSTRUCTION ACQUIRED IS COMPUTED
- ------------------- ------------ ---------- ----------- ----------- ------------ ------------ ------------- --------------
Office Building
Richmond, VA $13,093,133 -0- $25,000,000 $25,000,000 $4,227,150 1990 March 1990 40 years
Distribution Center
Bassemer, AL 1,000,000 663,800 3,836,200 4,500,000 503,500 1991 October 1991 40 years
Assembly Facility
Gordonsville, TN 1,311,013 51,600 3,048,400 3,100,000 323,892 1983 September 1992 40 years
----------- ---------- ------------ ----------- ----------
$15,404,146 $ 715,400 $ 31,884,600 $32,600,000 $5,054,542
=========== ========== ============ =========== ==========
Notes:
(A) There is no difference between cost for financial reporting purposes and
cost for federal income tax purposes.
(B) Reconciliation of real estate owned:
1996 1995 1994
----------- ----------- -----------
Balance at beginning of year $32,600,000 $32,600,000 $32,600,000
Addition during period: Building and land -- -- --
----------- ----------- -----------
Balance at end of year $32,600,000 $32,600,000 $32,600,000
=========== =========== ===========
(C) Reconciliation of accumulated depreciation:
BALANCE AT BEGINNING OF YEAR $ 4,257,428 $ 3,460,314 $ 2,663,199
DEPRECIATION EXPENSE 797,114 797,114 797,115
----------- ----------- -----------
BALANCE AT END OF YEAR $ 5,054,542 $ 4,257,428 $ 3,460,314
=========== =========== ===========
16
(b) Pro forma financial information.
The following unaudited pro forma consolidated financial statements of the
Registrant for the year ended December 31, 1996 and as of and for the three
months ended March 31, 1997 have been prepared from the historical consolidated
financial statements of the Registrant for the year ended December 31, 1996 and
as of and for the three months ended, as adjusted to give effect to the
following pro forma adjustments: (i) acquisitions consummated since January 1,
1997; (ii) the pending acquisitions of Corporate Realty Income Trust I and a
property located in Phoenix, Arizona leased to Bull HN Information Systems (the
"Pending Acquisitions"); (iii) the refinancing on May 30, 1997 of the property
in Salt Lake City leased to Northwest Pipeline Corporation (the "Salt Lake City
Property") (the "Salt Lake City Refinancing"); (iv) the issuance and sale of a
total of 1,325,000 shares of convertible preferred stock; (v) the possible sale
of the Ross Stores Newark Property described in the Registrant's filing on Form
8-K dated February 4, 1997 and (vi) acquisitions consummated in 1996, as such
pro forma financial statements relate to 1996. The accompanying pro forma
statements of income for the year ended December 31, 1996 and the three months
ended March 31, 1997 have been prepared as if these events had been consummated
as of January 1, 1996 and January 1, 1997, respectively. The accompanying pro
forma balance sheet has been prepared as if these events had been consummated on
March 31, 1997. The Registrant has not completed all evaluations necessary to
finalize the purchase price allocations for the Pending Acquisitions and,
accordingly, actual adjustments that reflect other evaluations of the purchased
assets and assumed liabilities may differ from the pro forma adjustments
presented herein. There can be no assurance that the Pending Acquisitions or the
sale of the Ross Stores Newark Property will be consummated, or, if consummated,
as to the terms or timing thereof. The unaudited pro forma financial statements
do not purport to be indicative of what the results of the Registrant would have
been had the transactions been completed on the dates assumed, nor is such
financial data necessarily indicative of the results of operations of the
Registrant that may exist in the future. The unaudited pro forma financial
statements must be read in conjunction with the notes thereto and with the
historical consolidated financial statements of the Registrant.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL ADJUSTMENTS (1) PRO FORMA
---------- --------------- ---------
(in thousands, except
per share data)
Revenue:
Rental $31,244 $12,754 $43,998
Interest and other 431 39 470
------- ------- -------
Total revenues 31,675 12,793 44,468
Expenses:
Interest expense 12,818 4,526 17,344
Depreciation 7,627 3,267 10,894
Amortization of deferred expenses 619 98 717
Property operating expenses 686 79 765
General and administrative expenses 3,125 173 3,298
Transactional expenses 644 -- 644
------- ------- -------
Total expenses 25,519 8,143 33,662
------- ------- -------
Income before minority interests 6,156 4,650 10,806
Minority interests 690 908 (2) 1,598
------- ------- -------
Net income $ 5,466 $ 3,742 $ 9,208
======= ======= =======
Per share data (3)
Net income
Primary $ 0.58 $ 0.68
Fully diluted 0.58 0.66
Weighted average common shares
outstanding
Primary 9,393 1,751 11,144
Fully diluted 9,393 4,377 13,770
17
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) This column reflects (i) the addition of historical results of operations
for the period from January 1 to the respective acquisition dates for the
properties acquired by the Company during 1996 and for a 12-month period
for properties acquired since January 1, 1997 and for the Pending
Acquisitions; (ii) the elimination of the results of operations of the Ross
Stores Newark Property as if the sale had taken place on January 1, 1996;
and (iii) the Salt Lake City Refinancing. The results of operations for
properties acquired during 1996, from their respective acquisition dates
through December 31, 1996 are included in the Company's historical 1996
consolidated statement of income. The results of operations consist
principally of rental revenue, interest expense and depreciation expense.
Rental revenue in these financial statements (both historical and
pro forma) is generated from leases that are "net leases", under which the
tenant is responsible for substantially all costs of real estate taxes,
insurance and ordinary maintenance. Rental income represents
straight-line rent as provided by generally accepted accounting principles,
calculated as the difference between the cash rent paid under the
lease and the average rent due over the noncancellable term of the lease.
The pro forma revenue adjustment consists of the effect of the following
transactions as if they had occurred on January 1, 1996. The adjustment for
depreciation expense relates to the depreciation from purchase price
adjustments as if the acquisitions described above had occurred on
January 1, 1996.
Rental
Revenue Depreciation
------- ------------
CRIT Acquisition $ 3,557 $ 922
Acquisition of the Salt Lake City Property 3,264 824
Acquisition of properties leased to Toys "R" Us,
Inc. (the "Toys Properties") and Liberty House, Inc. 2,595 840
Acquisition of properties leased to Excel
Logistics, Inc. (the "Excel Pennsylvania Properties") 2,949 601
Acquisition of a property leased to Bull
Information Systems 1,023 243
Other acquisitions 2,608 563
Sale of Ross Stores Newark Property (3,242) (726)
-------- -------
$ 12,754 $ 3,267
======== =======
Applicable pro forma interest expense is calculated based on annual
interest rates on the respective debt as of the acquisition dates. The pro
forma interest expense adjustments includes (i) the impact of the Salt Lake
City Refinancing; (ii) paydown of the Company's line of credit facility
with proceeds from the sale of the Ross Stores Newark Property; (iii)
repayment of the Toys Properties debt with proceeds from the issuance of
convertible preferred stock; and (iv) the impact of interest on
acquisitions described above as if they had occurred on January 1, 1996.
(2) This amount represents the minority interest in the net income of a
subsidiary partnership of the Company due to the issuance of OP Units in
the acquisition of the Salt Lake City Property, the acquisition of the Toys
Properties, and the acquisition of the Exel Pennsylvania Properties.
(3) Primary net income per share is computed by dividing net income (reduced by
preferred dividends) by the weighted average number of common and diluted
common equivalent shares outstanding during the period. Fully diluted net
income per share amounts are similarly computed but include the effect when
dilutive of the Company's other potentially dilutive securities. Fully
dilutive net income excludes preferred dividends and is increased by
minority interest resulting from the assumed conversion of the limited
operating partnership units. The convertible preferred stock and
the Company's 8% Exchangeable Notes are excluded from the pro forma
computations due to their anti-dilutive effect during the period.
18
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(in thousands, except
per share data)
Revenue:
Rental $ 9,699 $1,242 (1) $10,941
Interest and other 125 7 132
------- ------ -------
Total revenues 9,824 1,249 11,073
Expenses:
Interest expense 4,240 116 (1) 4,356
Depreciation 2,461 298 (1) 2,759
Amortization of deferred expense 194 115 309
Property operating expenses 218 -- 218
General and administrative expenses 870 -- 870
Other expenses 69 -- 69
------- ------ -------
Total expenses 8,052 529 8,581
------- ------ -------
Income before minority interests 1,772 720 2,492
Minority interests 262 98 (2) 360
------- ------ -------
Net income $ 1,510 $ 622 $ 2,132
======= ====== =======
Per share data: (3)
Net income
Primary $ 0.14 $ 0.15
Fully diluted $ 0.13 $ 0.15
Weighted average common shares
outstanding
Primary 9,932 1,319 11,251
Fully diluted 11,967 1,909 13,876
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Real estate at cost $369,740 $ 20,731 (4) $390,471
Less accumulated depreciation 53,803 (6,884)(5) 46,919
-------- -------- --------
Real estate, net 315,937 27,615 343,552
Other assets 24,184 (4,473)(6) 19,711
-------- -------- --------
Total assets $340,121 $ 23,142 $363,263
======== ======== ========
Mortgage loans payable
(including accrued interest) $203,694 $ (1,794)(7) $201,900
Other liabilities 8,046 1,455 (8) 9,501
Minority interest 28,429 -- 28,429
Stockholders' equity 99,952 23,481 (9) 123,433
-------- -------- --------
Total liabilities and
stockholders' equity $340,121 $ 23,142 363,263
======== ======== ========
19
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AND AS OF MARCH 31, 1997
(ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) These amounts reflect (i) the addition of historical results of operations
for the period from January 1 to the respective acquisition dates for the
properties acquired by the Company during 1997 and for a 3-month period for
the Pending Acquisitions, (ii) the elimination of the results of operations
of the Ross Stores Newark Property as if the sale had taken place on
January 1, 1997 and (iii) the Salt Lake City Refinancing. The results of
operations for properties acquired during 1997, from their respective
acquisition dates through March 31, 1997, are included in the Company's
historical March 31, 1997 consolidated statement of income.
Rental revenue in these financial statements (both historical and
pro forma) is generated from leases that are "net leases," under which the
tenant is responsible for substantially all costs of real estate taxes,
insurance and ordinary maintenance. Rental income represents
straight-line rent as provided by generally accepted accounting
principles, calculated as the difference between the cash rent paid under
the lease and the average rent due over the noncancellable
term of the lease.
The pro forma rental revenue adjustment consists of the following
transactions as if they had occurred on January 1, 1997:
RENTAL REVENUE
--------------
CRIT Acquisition $ 895
Acquisition of a property leased to Bull Information Systems 257
Acquisition of Exel Pennsylvania Properties 648
Other Acquisition 253
Sale of Ross Stores Newark Property (811)
-------
$ 1,242
=======
Applicable pro forma interest expense is calculated based on annual
interest rates on the respective debt as of the acquisition dates. The pro
forma interest expense adjustment includes (i) the impact of the Salt Lake
City Refinancing (ii) repayment of the Company's line of credit
facility with proceeds from the sale of the Ross Stores Newark Property,
and (iii) the impact of interest on acquisitions described above as if
they had occurred on January
1, 1997.
The pro forma depreciation expense adjustment consists of the following
transaction as if they had occurred on January 1, 1997:
DEPRECIATION
------------
CRIT Acquisition $ 237
Acquisition of a property leased to Bull Information Systems 61
Acquisition of Exel Pennsylvania Properties 130
Other Acquisition 52
Sale of Ross Stores Newark Property (182)
-----
$ 298
=====
(2) This amount represents the minority interest in the net income of a
subsidiary partnership of the Company due to the issuance of OP Units
in connection with the acquisition of the Company's Salt Lake
City Property and the acquisition of the Exel Pennsylvania Properties.
(3) Primary net income per share is computed by dividing net income reduced by
preferred dividends by the weighted average number of common and diluted
common equivalent shares outstanding during the period. Fully diluted net
income per share amounts are similarly computed but include the effect when
dilutive of the Company's other potentially dilutive securities. Fully
dilutive net income excluded preferred dividends and is increased by
minority interest resulting from the assumed conversion of the limited
operating partnership units. The company's convertible preferred stock
and the Company's 8% Exchangeable Notes are excluded from the
pro forma computations due to their anti-dilutive effect during the period.
20
(4) This amount consists of the real estate values of the following
transactions as if they had occurred on March 31, 1997:
CRIT Acquisition $ 32,945
Acquisition of a property leased to Bull Information Systems 10,905
Sale of Ross Stores Newark Property (30,844)
Other Acquisition 7,725
--------
$ 20,731
========
(5) This adjustment represents the effect of the sale of the Ross Stores Newark
Property as if it occurred on March 31, 1997.
(6) This adjustment includes the cash portion of the acquisitions of properties
described in (4) above and the write off of deferred rent receivable
related to the possible sale of the Ross Stores Newark Property.
(7) This amount reflects the effects of (i) the Salt Lake City Refinancing,
(ii) repayment of the Company's line of credit facility with the
proceeds of the sale of the Ross Stores Newark Property, and
(iii) assumption of debt in connection with the CRIT Acquisition.
(8) This amount primarily includes the effect of the CRIT Acquisition and the
acquisition of a property leased to Bull Information Systems.
(9) The increase in stockholders' equity is attributable to (i) the issuance of
625 shares of convertible preferred stock at a price of $12.50 per share
and (ii) the issuance of approximately 1,319 shares, of common stock at
$13.00 per share in connection with the CRIT Acquisition.
21
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEXINGTON CORPORATE PROPERTIES, INC.
By: /s/ T. Wilson Eglin
----------------------------------------
T. Wilson Eglin
President and Chief Operating Officer
Date: June 17, 1997