ITEM 1. BUSINESS
General
Lexington Corporate Properties Trust (the "Company"), formerly Lexington Corporate Properties, Inc., is a Maryland statutory real estate investment trust that acquires, owns, and manages a diverse portfolio of office, industrial and retail properties. The real properties owned by the Company are, with one exception, subject to triple net leases to corporate tenants. References herein to the "Company" shall include references to the Company, two affiliated partnerships (the "Partnerships") and the Company's predecessor, Lexington Corporate Properties, Inc., a Delaware corporation which was organized in October 1993, reincorporated in Maryland in June 1994 and was merged into the Company on December 31, 1997.
As of December 31, 1997, the Company's real property portfolio consisted of fifty properties (or interests therein) (the "Properties") located in twenty-five states, including warehousing, distribution and manufacturing facilities, office buildings and retail properties containing an aggregate of approximately 6.95 million net rentable square feet of space. This does not include the Newark, California property held for sale. All of the Company's Properties, with one exception, are subject to triple net leases, which are generally characterized as leases in which the tenant bears all, or substantially all, of the costs and cost increases for real estate taxes, insurance and ordinary maintenance. The Company also has ownership interests of 33.85% and 19% in two partnerships whose real estate assets each consist of a property subject to a triple net lease. These two properties consist of an aggregate of 217,000 square feet of net rentable space. For the years ended December 31, 1997, 1996 and 1995, the Company's Properties generated consolidated rental revenue of approximately $42.5 million, $31.2 million and $24.5 million, respectively. The Properties are more fully described in Item 2
ITEM 2. PROPERTIES
As of December 31, 1997, the net book value of the Company's real property portfolio totaled approximately $415.4 million, not including the Newark, California property held for sale. The Company does not believe that historical book value is necessarily indicative of current fair market value. As of December 31, 1997, forty-one of the fifty-one Properties were subject to outstanding mortgages, including accrued and unpaid interest as of such date, of approximately $220.6 million. This debt includes the amount outstanding under the Company's secured revolving credit facility and the REMIC financing.
1997 Property Acquisitions
During 1997, the Company made the following acquisitions:
* Consists of three properties; two located in New Kingston, PA, one in Mechanicsburg, PA.
Information Regarding Properties Representing in Excess of 10% of Rental Revenue
Additional information regarding the Glendale Property, the Newark Property and the Salt Lake City Property is set forth in the table below and in Schedule III to this report on Form 10-K.
Minimum Future Rent
Minimum future rents receivable under non-cancelable operating leases during the base terms for the Properties owned by the Company at December 31, 1997 are as follows (in $000's):
Currently, only one of the Properties, the property located in Memphis, Tennessee is vacant and being marketed for re-leasing. The marketing program has included a national mailing to brokers.
Table Regarding Real Estate Holdings
The table on the following pages sets forth certain information relating to the Company's real property portfolio as of December 31, 1997, not including the Newark, California property held for sale:
(E) Estimated
* The tenant did not renew its lease and the property is currently vacant. The Company is marketing the property for re-lease.
(E) Estimated
(E) Estimated
(E) Estimated
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
(E) Estimated.
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(1) The Company holds a leasehold interest in the land on which this building is situated. The Company owns in fee simple the land on which the other building is situated.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company was sued in the United States District Court for the Northern District of Illinois on May 31, 1995, by United Municipal Leasing Corporation. The complaint filed in this case alleged that the Company breached a letter of intent by failing to execute definitive documentation and close a transaction in which the plaintiff proposed to sell property to the Company. The complainant sought $800,000 in monetary damages. During 1997, the Court ruled in favor of the Company. No monetary damages were incurred by the Company in connection with this matter.
On August 26, 1996, Ross Stores, Inc., the tenant in the Newark Property, exercised an option to purchase such Property for its fair market value. In connection with this negotiation the Company was required to post a bond in an amount equivalent to one year's rent. After some deliberation the parties have negotiated to sell the property on or about April 1, 1998 for $24.55 million.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the last quarter of the calendar year ended December 31, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information relating to the executive officers of the Company:
NAME BUSINESS EXPERIENCE
E. ROBERT ROSKIND Mr. Roskind has served as the Chairman of the Board Age 53 of Directors and Co-Chief Executive Officer of the Company since October 1993. He founded The LCP Group, L.P. ("LCP") in 1973 and has been its Chairman since 1976. LCP has acted as general partner in limited partnerships in which the Company has had prior dealings. Prior to founding LCP, Mr. Roskind headed the net-leasing financing area of Lehman Brothers Inc. He is also a general partner for a variety of entities which serve as the general partner of various partnerships that hold net leased real properties or interests therein. Mr. Roskind is a director of Berkshire Realty Company, Inc., Krupp Government Income Trust I and Krupp Government Income Trust II. Mr. Roskind received his B.S. in 1966 from the University of Pennsylvania and is a 1969 Harlan Fiske Stone Graduate of the Columbia Law School. He has been a member of the Bar of the State of New York since 1970.
RICHARD J. ROUSE Mr. Rouse has served as Co-Chief Executive Officer Age 52 and a director of the Company since October 1993. He served as the President of the Company from October 1993 to April 1996, and since April 1996 has served as the Vice Chairman. Mr. Rouse was also a managing director of LCP. He had been associated with LCP since 1979 and had been engaged there in all aspects of net lease finance, acquisition and syndication and corporate financing transactions. Mr. Rouse graduated from Michigan State University in 1968 and received his M.B.A. in 1970 from the Wharton School of Finance and Commerce of the University of Pennsylvania.
T. WILSON EGLIN Mr. Eglin has served as Chief Operating Officer of Age 33 the Company since October 1993 and a director since May 1994. He served as Executive Vice President from October 1993 to April 1, 1996, and since April 1996 has served as the President. Prior to his current position with the Company, Mr. Eglin had been associated with LCP from 1987 to 1993 and had been its Vice President-Acquisitions from 1990 to 1993. In connection with his responsibilities with LCP, Mr. Eglin was an officer of affiliated companies that own and manage over 400 net leased real
properties and was involved in all aspects of real estate acquisition and finance, principally in net leased transactions. Mr. Eglin received his B.A. from Connecticut College in 1986.
ANTONIA G. TRIGIANI Ms. Trigiani has served as the Chief Financial Age 37 Officer and Treasurer of the Company since October 1993. She had been associated with LCP since 1989 and had been its Vice President - Asset Management since 1990 until resigning from her position with LCP in April 1996. Prior to joining LCP, she was associated with HRE Properties, a REIT listed on the New York Shares Exchange, and Merrill Lynch, Hubbard Inc., a real estate division of Merrill Lynch & Co., Inc. In 1982, Ms. Trigiani received her B.A. in business administration from Saint Mary's College at Notre Dame University.
PAUL R. WOOD Mr. Wood has served as the Vice President, Chief Age 38 Accounting Officer and Secretary of the Company since October 1993. He had been associated with LCP from 1988 to 1993 and from 1990 to 1993 had been responsible for all accounting activities relating to the net leased properties managed by LCP and its affiliates. Prior to joining LCP, Mr. Wood was, from 1987 to 1988, associated with E. F. Hutton & Company Inc. as a senior accountant. Mr. Wood received his B.B.A. from Adelphi University in 1982 and has been a Certified Public Accountant since 1985.
STEPHEN C. HAGEN Mr. Hagen has served as Senior Vice President of the Age 55 Company since October 1996. Mr. Hagen had been associated with LCP from 1995 to 1996. Prior to joining LCP, Mr. Hagen was a principal of Pharus Realty Investments, a money manager focused on real estate sharess, and also served as Chief Operating Officer of HRE Properties, a New York Shares Exchange listed REIT. Mr. Hagen received his B.S. from the University of Kansas in 1965 and his M.B.A. from the Wharton School of Finance and Commerce in 1968.
PHILIP L. KIANKA Mr. Kianka joined the Company in 1997 as Vice Age 41 President of Asset Management. Prior to joining Lexington, from 1985 through 1997, Mr. Kianka served as a Vice President and Senior Asset Manager at Merrill Lynch Hubbard, Inc., a real estate division of Merrill Lynch & Co., Inc. Mr. Kianka was involved in real estate acquisitions, development and asset management for a national portfolio of diversified properties. Mr. Kianka received his B.A. from Clemson University in 1978 and his M.A. from Clemson University in 1981.
JANET M. KAZ Ms. Kaz has served as Vice President of the Company Age 34 since May 1995 and as Asset Manager since October 1993. Prior to that, Ms. Kaz was a member of LCP's property acquisition team from 1986 to 1990 and a member of LCP's asset management team from 1991 to 1993. Ms. Kaz received her B.A. from Muhlenberg College in 1985.
PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Common Shares of the Company are listed for trading on the New York Stock Exchange ("NYSE") under the symbol "LXP." The following table sets forth the high and low sales prices as reported by the NYSE for the Common Shares of the Company for each of the periods indicated below:
The closing price of the shares of the Company's Common Shares was $14.625 on February 27, 1998.
As of February 27, 1998, the Company had 2,549 shareholders of record.
The Company's annualized dividend rate for the years ended December 31, 1997 and 1996 was $1.16 and $1.12 per share respectively. The Company's current annualized dividend rate is $1.16 per share.
On February 13, 1998, the Company paid a dividend of $.29 per share to shareholders of record on January 30, 1998.
Following is a summary of the taxable nature of the Company's dividends for the three years ended December 31:
Dividends per share of $0.73, $1.00 and $0.68 were required for the Company to maintain its REIT status in 1997, 1996 and 1995, respectively.
ITEM 6.
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, 1997. 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 report. (All amounts, except per share data, in $000's.)
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(1) Loss on extinguishment of debt is reported as an extraordinary item on the consolidated statements of income.
(2) The Company believes that Funds From Operations enhances an investor's understanding of the Company's financial condition, results of operations and cash flows. The Company believes that Funds From Operations is an appropriate measure of the performance of an equity REIT, and that it can be one measure of a REIT's ability to make cash distributions. Funds From Operations is defined 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 debt restructuring and sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." The Company's method of calculating Funds From Operations excludes other non-recurring revenue and expense items and may be different from methods used by other REITs and accordingly, is not comparable to such other REITs. Funds From Operations should not be considered an alternative to net income, as an indicator of the Company's 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.
ITEM 7.
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 when it initially issued 9.3 million shares of its Common Shares, approximately 169,000 units of special limited partnership units (which are exchangeable for an equivalent number common shares shares) and approximately $1.877 million in principal amount of 7.75% Subordinated Notes due 2000.
As of December 31, 1997, the Company was the indirect or direct owner of fifty-one triple net leased real estate properties (or interests therein) (including the Newark, California property held for sale).
On December 31, 1997, the Company completed a reorganization, becoming a Maryland statutory real estate investment trust. Immediately prior to the reorganization, the Company had been a Maryland corporation. The reorganization did not result in any material change in the Company's business or operations.
Liquidity and Capital Resources
Real Estate Assets. As of December 31, 1997, the Company's real estate assets consisted of the Properties. The Properties are located in twenty-five states and contain an aggregate of approximately 7.5 million square feet of net rentable space. With one exception, each Property is subject to a single tenant triple net lease, which is generally characterized as a lease in which the tenant pays all or substantially all of the cost and cost increases for real estate taxes, capital expenditures, insurance and ordinary maintenance of the Property.
During 1997, the Company acquired fourteen properties in ten states at a cost of approximately $178.8 million. For further information reference is made to the chart on page 5, Item 2.
The Company's principal sources of liquidity are revenue generated from the Properties, interest on cash balances, amounts available under its Credit Facility and amounts that may be raised through the sale of securities in private or public offerings. For the year ended December 31, 1997, such leases on the Properties generated approximately $42.5 million in revenue compared to $31.2 million in 1996. On the basis of the leases in place as of December 31, 1997, minimum annual rent receivable under non-cancelable leases is $48.9 million for 1998.
Dividends. The Company has made quarterly distributions since October, 1986 without interruption. The Company paid a dividend of $.27 per share to shareholders in respect of each of the calendar quarters of 1995; a dividend of $.27 per share to shareholders in respect of the first quarter of 1996; $.28 per share in respect of the second and third quarters of 1996; and $.29 per share in respect of the fourth quarter of 1996 and the first, second and third quarters of 1997. The dividend paid in respect of the fourth quarter of 1997, in the amount of $.29 per share, was paid on February 13, 1998 to shareholders of record as of January 30, 1998. The Company's annualized dividend rate is currently $1.16 per share.
UPREIT Structure. The Company's UPREIT structure permits the Company to effect acquisitions by issuing to a seller, as a form of consideration, interests in partnerships controlled by the Company. All of such interests are redeemable at certain times for Common Shares on a one-for-one basis and all of such interests require the Company to pay certain distributions to the holders of such interests. The Company accounts for these interests in a manner similar to a minority interest holder. The number of Common Shares that will be outstanding in the future should be expected to increase, and minority interest expense should be expected to decrease, from time to time, as such partnership interests are redeemed for Common Shares. The table set forth below provides certain information with respect to such partnership interests as of December 31, 1997 (assuming the Company's dividend rate remains at $1.16 per share).
Of the total number of units, 313,435 are owned by affiliates of the Company.
Financing
Exchangeable Redeemable Secured Notes. In March 1997, in connection with the acquisition of certain properties leased to Exel, LCIF sold $25 million of 8% Exchangeable Redeemable Secured Notes (the "Notes") to an institutional investor in a private placement. The Notes require interest only payments at 8% per annum, payable semi-annually in arrears, and have a seven year term. The Notes are secured by first mortgage liens on the Exel Properties, are guaranteed by Lexington, and can be exchanged by the holders for Lexington common shares at $13 per share beginning in the year 2000, subject to adjustment. The Notes may be redeemed at Lexington's option after three years at a price of 103.2% of the principal amount, declining to par after five years. The Notes are subordinated to obligations under Lexington's Credit Facility.
Partnership Mergers. In connection with the acquisition of the Exel Properties, an unaffiliated partnership (the "Exel Partnership") merged into a subsidiary of the Company, Lepercq Corporate Income Fund L.P., ("LCIF"). As a result of the merger, LCIF issued 480,028 partnership units redeemable for the Company's Common Shares, which units are entitled to distributions at the same dividend rate as Common Shares. At the time of the merger, the Exel Partnership's sole assets were approximately $6.0 million of cash from the prior sale of a property and the right to acquire the Exel Properties in a tax-free exchange under Internal Revenue Code Section 1031.
On January 29, 1998 two affiliated partnerships merged into LCIF. As a result of the merger, LCIF issued 1,454,906 partnership units redeemable for the Company's Common Shares, which units are entitled to distributions at the same dividend rate as common shares. At the time of the merger, the partnerships' sole assets were approximately $23.5 million in cash from prior property sales and the right to acquire properties in tax free exchanges under Internal Revenue Code Section 1031. The Company is currently in the process of completing such tax free exchanges.
Revolving Credit Facility. In February 1997, the Company's secured revolving credit facility (the "Credit Facility") was amended to extend the maturity date to June 1999 and to increase the maximum borrowing availability to $60.0 million. The Credit Facility bears interest at 1.5% over LIBOR and has an interest rate period of one month, three months, 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. Due to these covenants, approximately $30 million was available to the Company at December 31, 1997. The Credit Facility matures on June 1, 1999, but will automatically renew for successive two year terms unless the lender notifies the Company at least twelve months in advance of the scheduled or extended maturity date of its intention to terminate the Credit Facility. As of December
31, 1997, the Company had borrowed $12 million. As the Credit Facility is collateralized by seven of the Company's Properties, this amount is included in the balance of mortgage notes payable as of December 31, 1997.
Preferred Shares Sale. On December 31, 1996, the Company entered into an agreement with Five Arrows Realty Securities L.L.C ("Five Arrows") providing for the sale of up to 2,000,000 shares of Senior Cumulative Convertible Preferred Shares ("Preferred Shares") for an aggregate price of $25 million. In connection with such sale, the Company has entered into certain related agreements with Five Arrows, providing, among other things, for certain registration rights with respect to such shares and the right to designate a member of the Board of Directors under certain circumstances. The Preferred Shares, which are convertible at any time at the holder's option into Common Shares on a one-for-one basis, are entitled to quarterly distributions equal to the greater of $.295 per share or 105% of the quarterly common share dividend.
On January 21, 1997, the Company sold 700,000 shares of Preferred Shares to Five Arrows and used the proceeds of $8.75 million to repay approximately $8.0 million of mortgage debt, including prepayment premiums of $520,000. Such mortgage debt had been bearing interest at 12.625% per annum and would have required interest and principal payments of approximately $1.45 million in 1997.
On April 28, 1997, the Company sold an additional 625,000 shares of Convertible Preferred Shares to Five Arrows. Net proceeds to the Company were approximately $7.8 million. On May 1, 1997, the Company used the net proceeds to acquire the Rancho Bernardo Property for $7.7 million.
On December 31, 1997, the Company sold an additional 675,000 shares of Convertible Preferred Shares to Five Arrows. Net proceeds to the Company were approximately $8.4 million. The Company used the net proceeds to satisfy a portion of the purchase price of the Decatur, Georgia Property.
Debt Service Requirements. The Company's principal liquidity needs are the payment of interest and principal on outstanding mortgage debt. As of December 31, 1997, a total of forty-one properties were subject to outstanding mortgages which had an aggregate principal amount, including accrued interest, of $220.56 million. The weighted average interest rate on the Company's debt on such date was approximately 8.17%. Approximate balloon payment amounts for the next five calendar years are due as follows: $10.01 million in 1998; $17.56 million in 1999 (including the $12 million Credit Facility which may be extended); $13.09 million in 2000; $1.00 million in 2001 and $771,000 in 2002. See Note 5 of the Company's Consolidated Financial Statements. The ability of 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 credit facility or access to other capital sufficient to satisfy such balloon payments. The ability of the Company to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the available mortgage rates 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 at the time. The Company intends to repay balloon payments due in 1998 with amounts available under the Credit Facility. As of December 31, 1997, the Company's total consolidated indebtedness (including subordinated notes payable and origination fees payable and the respective related accrued interest) was approximately $227 million. See also "Funds From Operations" below.
Lease Obligations. Because the Company's tenants bear all or substantially all of the cost of property maintenance and capital improvements, the Company does not anticipate significant needs for cash for property maintenance or repairs. The Company generally funds property expansions with additional secured borrowings, the repayment of which is funded out of rental increases under the leases covering the expanded properties.
Shares Repurchase. On November 15, 1994, the Company announced that its Board of Directors had authorized the Company to repurchase, from time to time, up to 1,000,000 shares of its outstanding Common Shares, depending on market conditions and other factors. As of December 31, 1997, the Company had repurchased 172,100 shares, at an average price of approximately $9.80 per share, all of which have been retired. There has been no repurchase of shares since 1995.
Impact of Year 2000
The Company is evaluating its computer and communication systems to identify the systems that could be affected by the "Year 2000" issue. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's systems
that have time-sensitive software may recognize a date using "00"as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Company presently believes that the Year 2000 problem will not pose operational problems for the Company's computer and communication systems and will not have a material impact on the operations of the Company.
Changes in the results of operations for the Company are primarily due to the growth of its portfolio and costs associated with such growth. The increase in interest expense due to the growth of the Company's portfolio has been offset in 1997 by a reduction in the weighted average interest rate from 9.04% as of December 31, 1996 to 8.17% as of December 31, 1997, due to debt refinancings and repayments. The Company's general and administrative expenses have decreased as a percentage of rental revenue to 9% in 1997 from 10% in 1996 and 11% in 1995 due to the growth of the Company's portfolio relative to these expenses. Other expenses in 1996 included $644,000 of expenses which were comprised of costs associated with a proposed equity offering which was abandoned in favor of the completed private equity placement, and expenses incurred in connection with transactions in progress for which expenses are required to be charged to current operations.
The increase in net income for the year ended December 31, 1997 was primarily attributable to the gain on sale of the Stratus Property in the amount of $3.517 million offset by extraordinary losses on extinguishment of debt (net of minority interest) including $1.667 million in connection with the Stratus Property mortgage repayment and $1.466 million in connection with the Salt Lake City debt refinancing.
The increase in net income for the year ended December 31, 1996 was primarily atrributable to a loss on extinguishment of debt incurred in 1995 in the amount of approximately $4.849 million offset by items relating to the sale of the Eagan, Minnesota property, a gain on the sale of approximately $1.5 million and proceeds from lease termination of $1.6 million, less the related write-off of deferred rent receivable of approximately $678,000.
Funds From Operations
Management believes that Funds From Operations enhances an investor's understanding of the Company's financial condition, results of operations and cash flows and believes it is an appropriate performance measure for an equity REIT which provides an indication of a REIT's ability to make cash distributions. Funds From Operations is defined 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 debt restructuring and sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." The Company's method of calculating Funds From Operations excludes other non-recurring revenue and expense items and may be different from methods used by other REITs and, accordingly, is not comparable to such other REITs. Funds From Operations 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 the years ended December 31, 1997, 1996 and 1995 ($000).
The Company's dividends paid to shareholders and distributions paid to unitholders amounted to approximately 73.5%, 77.9% and 84.6% of the Company's Funds From Operations for the years ended December 31, 1997, 1996 and 1995 respectively.
Accounting Standards
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, were issued. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. Reclassification of financial statements for earlier periods, provided for comparative purposes, is required. The statement also requires the accumulated balance of other comprehensive income to be displayed separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. SFAS No. 131 establishes standards for reporting information about operating segments in annual and interim financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Categories required to be reported as well as reconciled to the financial statements are segment profit or loss, certain specific revenue and expense items, and segment assets. SFAS No. 130 and No. 131 are effective for fiscal years beginning after December 15, 1997. These standards will have no impact on the Company's operations.
- ---------- (1) For purposes of the calculation of Funds From Operations ("FFO"), the Company has added back to net income amounts for non-recurring shares compensation which management believes to be appropriate adjustments based on the non-recurring and unusual nature of such amounts. The Company's method of calculating FFO may be different from methods used by other REITs. Non-recurring shares compensation represents the expense of a simultaneous exercise and re-granting of options to the Company's management during the period between July 1995 and January 1996, which was intended to increase management's ownership in the Company (a practice which has been discontinued). The Board of Directors has determined that the Company will not engage in such practices in the future. In 1996 transactional expenses of $644 were incurred. Management believes such expenses were of an unusual and significant nature for the Company at the time they were incurred. If such amount was added back to net income, FFO for 1996 would have been $15.015 million.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES (formerly Lexington Corporate Properties, Inc.) INDEX
Page ---- Independent Auditors' Report 23
Consolidated Balance Sheets as of December 31, 1997 and 1996 24
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 25
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995 26
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 27-28
Notes to Consolidated Financial Statements 29-44
Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation 45-47
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Independent Auditors' Report
The Shareholders Lexington Corporate Properties Trust:
We have audited the consolidated financial statements of Lexington Corporate Properties Trust, formerly Lexington Corporate Properties, Inc., and consolidated 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 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, 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 consolidated subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles. 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.
KPMG Peat Marwick LLP
New York, New York January 22, 1998
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets ($000 except share and per share amounts) December 31, 1997 and 1996
See accompanying notes to consolidated financial statements.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Income ($000 except share and per share amounts) Years ended December 31, 1997, 1996 and 1995
See accompanying notes to consolidated financial statements.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity ($000 except share and per share amounts) Years ended December 31, 1997, 1996 and 1995
See accompanying notes to consolidated financial statements.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
($000)
Years ended December 31, 1997, 1996 and 1995
See accompanying notes to consolidated financial statements.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Supplemental disclosure of non-cash investing and financing activities:
On December 31, 1997, the Company issued 1,284,725 common shares in exchange for all the shares of another company. The transaction was valued at $19.8 million and consisted of the acquisition of three properties for $35.1 million less $15.3 million of mortgage indebtedness assumed.
On July 9, 1997, in connection with a property acquisition, the Company assumed approximately $5.9 million of first mortgage financing and issued a $600 note to the seller.
On March 19, 1997, in connection with an acquisition of properties involving a partnership, the Company issued partnership units as partial satisfaction of the aggregate purchase price of $27.4 million. The issuance of these partnership units have been recorded as minority interest in the amount of $6.0 million in the accompanying consolidated financial statements.
On December 31, 1996, the Company completed an acquisition transaction involving a partnership, whereby five properties were acquired in exchange for special limited partnership units, following which the selling partnership was dissolved. Total assets acquired and total liabilities assumed in the exchanges were $22.2 million and $18.4 million, respectively.
On May 22, 1996, the Company completed an acquisition transaction involving a partnership, whereby a property was acquired in exchange for special limited partnership units, following which the selling partnership was dissolved. Total assets acquired and total liabilities assumed in the exchange were approximately $56.9 million and $38.5 million, respectively.
On August 1, 1995, the Company acquired ownership interests in six partnerships in exchange for special limited partnership units. The financial position of four of these partnerships is included in the consolidated balance sheets as of December 31, 1996 and 1995. Total assets and total liabilities acquired in the exchange were $10.2 million and $10.2 million, respectively. The Company's proportionate share of the remaining two partnerships is included in investment in partnerships.
See accompanying notes to consolidated financial statements.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements December 31, 1997, 1996 and 1995
(1) The Company
Lexington Corporate Properties Trust, formally Lexington Corporate Properties, Inc. (the "Company"), is a Maryland statutory real estate investment trust that acquires, owns, and manages a diverse portfolio of office, industrial and retail properties. The real properties owned by the Company are, with one exception, subject to triple net leases to corporate tenants. References herein to the "Company" shall include references to the Company, two affiliated partnerships (the "Partnerships") and the Company's predecessor, Lexington Corporate Properties, Inc., a Delaware corporation which was organized in October 1993, reincorporated in Maryland in June 1994 and was merged into the Company on December 31, 1997.
The total number of shares of all classes of capital shares that the Company has authority to issue is 90,000,000 shares, consisting of 40,000,000 shares of common shares with a par value of $.0001 per share, 40,000,000 shares of excess shares with a par value of $.0001 per share and 10,000,000 shares of preferred shares with a par value of $.0001 per share.
The excess shares are not entitled to receive dividends, except upon liquidation of the Company. Such shares vote as a single class with holders of shares of the Company's Common Shares. The excess shares and Common Shares are considered equal for purposes of liquidation of the Company.
On November 15, 1994, the Company announced that its Board of Directors had authorized the Company to repurchase, from time to time, up to 1,000,000 shares of its outstanding Common Shares, depending on market conditions and other factors. As of December 31, 1997, the Company had repurchased 172,100 shares at an average price of approximately $9.80 per share, all of which have been retired. There has been no repurchase of shares since 1995.
(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 for financial and Federal income tax reporting purposes. The financial statements reflect the accounts of the Company and its majority-owned subsidiaries, including, Lepercq Corporate Income Fund L.P. ("LCIF") and Lepercq Corporate Income Fund II L.P. ("LCIF II"). The Company is the sole general partner and majority limited partner of LCIF and LCIF II as well as general partner and majority limited partner in four other partnerships and, accordingly, accounts for them on a consolidated basis. Entities in which the Company has an interest of less than 50% are accounted for under the equity method and the investments in these partnerships are included in other assets in the accompanying consolidated balance sheets.
Real Estate. The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement in 1996 and its application in 1997 did not have any impact on the Company's financial position or results of operations.
Depreciation for financial reporting purposes is determined by the straight-line method over the remaining estimated economic useful lives of the properties. The Company depreciates buildings and building improvements over a 40-year period or the remaining useful lives from the dates of acquisition, land improvements over a 20-year period, and fixtures and equipment over a 12-year period. Acquisition fees incurred in connection with properties acquired have been capitalized as a
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(2), Continued
cost of the properties upon acquisition. Depreciation for tax purposes is determined in accordance with the Modified Accelerated Cost Recovery System.
Revenue. The Company has determined that the leases relating to the properties are operating leases. Rental revenue is recognized on a straight-line basis over the minimum lease terms. The Company's rent receivable primarily represents the amounts of the excess of rental revenues recognized on a straight-line basis over the annual rents collectible under the leases.
Deferred Financing Fees And Expenses. Deferred expenses are composed principally 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 mortgages.
Origination Fees. Origination fees payable obligations have been discounted using an annual rate of 13%.
Tax Status. The Company has qualified as a real estate investment trust under the Code. A real estate investment trust is generally not subject to Federal income tax on that portion of its real estate investment trust taxable income ("Taxable Income") which is distributed to its shareholders, provided that at least 95% of Taxable Income is distributed. No provision for Federal income taxes has been made in the consolidated financial statements, as the Company believes it is in compliance with the Code and has distributed all of its taxable income.
A summary of the taxable nature of the Company's dividends for the three years ended December 31 is as follows:
The Company and its consolidated subsidiaries are required to file tax returns in various states. States vary with respect to the taxation of REITs. Some states have a tax based on capital within the state; other states, not recognizing the REIT dividends paid deduction, have a tax based on apportioned income as it would any corporation. There are states that tax under both methods as well as states that have no additional taxes other than the minimum state tax requirement. The provision for state taxes is included in general and administrative expenses in the consolidated statements of income. There are no significant temporary differences giving rise to deferred taxes.
Earnings Per Share. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, Earnings Per Share ("APB 15") and specifies the computation, presentation, and disclosure requirements for earnings per share ("EPS") for entities with publicly held common shares or potential common shares. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS and fully diluted EPS with diluted EPS. This statement was adopted as required for the period ended December 31, 1997; the corresponding 1996 and 1995 per share data has been restated. Basic net income per share is computed by dividing net income reduced by preferred dividends and the "deemed dividends" described in note 9 by the weighted average number of common shares outstanding during the period. Reported basic per share amounts are based on 11,444,589, 9,392,727 and 9,263,169 common shares for the years ended December 31, 1997, 1996 and 1995, respectively.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(2), Continued
Diluted net income per share amounts are similarly computed but include the effect, when dilutive, of the Company's other potentially dilutive securities. Diluted net income attributable to common shares is computed after giving effect to preferred dividends. The Company's Convertible Preferred Shares, OP Units and Exchangeable Notes are excluded from the 1997 computation due to their anti- dilutive effect during that period. The Company's Operating Partnership Units are included in the 1996 and 1995 computations due to their dilutive effect. Reported diluted per share amounts are based on 11,639,683, 10,897,011 and 9,502,355 common and common equivalent shares for the years ended December 31, 1997, 1996 and 1995, respectively.
Fair Value of Financial Instruments. The Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial Instruments, defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The Company's cash and cash equivalents, mortgage notes payable, subordinated notes payable, and accounts payable and other liabilities are carried at cost, which approximates fair value.
Cash and Cash Equivalents. For purposes of the statements of cash flows, the Company considers all highly liquid instruments to be cash equivalents. Cash and cash equivalents on the balance sheets at December 31, 1997 and 1996 includes $3.64 million and $2.18 million of money market instruments, respectively.
Stock Based Compensation. Prior to January 1, 1996, the Company accounted for its shares option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying shares exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all shares-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee shares option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Use of Estimates. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
Reclassifications. Certain amounts included in the prior years' financial statements have been reclassified to conform with the current year's presentation.
(3) Investments in Real Estate
The Company's real property portfolio as of December 31, 1997 consists of fifty-one properties (or interests therein) (the "Properties") located in twenty-five states, including warehousing, distribution and manufacturing facilities, office buildings and retail properties. All of the Company's properties, with one exception, are subject to triple net leases, which are generally characterized as leases in which the tenant bears all, or substantially all, of the costs and cost increase for real estate taxes, insurance and ordinary maintenance.
The purchase prices on the Properties were satisfied with existing cash, proceeds of mortgage and equity financings, issuance of the Company's common shares, and the issuance of special limited partnership units of one of the Partnerships.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(3), Continued
On September 2, 1997, the Company sold its property leased to Stratus Computer, Inc. in Marlborough, Massachusetts for approximately $21.36 million, realizing a gain of approximately $3.5 million. The Company also repaid a first mortgage loan with a balance of approximately $9.97 million and a related prepayment premium of approximately $1.86 million. The Company also incurred a write-off of unamortized loan costs of approximately $171,000.
On March 31, 1995, the Company sold the Eagan, Minnesota Property for $16.55 million, realizing a gain of approximately $1.5 million. Additionally, the Company received lease termination proceeds of $1.6 million in connection with this transaction. The Company also incurred a write-off of deferred rent receivable in the amount of approximately $678,000 which is recorded as a reduction of rental revenue on the consolidated statements of income.
During 1997, 1996 and 1995 the Company made the following acquisitions:
* Consists of three properties; two located in New Kingston, PA, one in Mechanicsburg, PA.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(3), Continued
The acquisitions made during 1997, 1996 and 1995 have been accounted for using the purchase method of accounting.
The following unaudited pro forma operating information for the years ended December 31, 1997 and 1996 has been prepared as if the acquisitions in 1997 and 1996 had been consummated as of January 1, 1996 and were carried forward through December 31, 1997. The information does not purport to be indicative of what the operating results of the Company would have been had the acquisitions been consummated on that date. Pro forma amounts are as follows:
The Company is committed to purchase a 103,000 square foot light industrial facility in Auburn Hills, Michigan (the "Auburn Hills Property") for approximately $13.875 million. The Auburn Hills Property will be leased to General Motors Corporation for eight years. The existing building will be renovated and an 81,000 square foot expansion completed in the third quarter of 1998 when the Company will acquire the property. On the basis of a project cost of $13.875 million, the annual net rent during the first four years would be $1.326 million and would escalate at the end of the fourth year by 6%.
The Company is committed to purchase a 179,300 square foot office facility in Florence, South Carolina (the "Florence Property") for approximately $15.02 million. The Florence Property will be leased to Fleet Mortgage Group, Inc. for ten years. On the basis of a project cost of $15.02 million, the annual net rent during the first five years would be $1,520,464 and would escalate at the end of the fifth year by 17%. Construction of the property is scheduled for completion in the third quarter of 1998. The Company expects to close shortly thereafter subject to certain contingencies including the acceptance of the property by the tenant.
(4) Restricted Cash
On May 19, 1995, the Company, through its wholly owned subsidiary, LXP Funding Corp., completed a $70 million secured debt offering (the "REMIC Financing") by issuing commercial mortgage pass-through certificates. As a condition of the REMIC Financing, the trustee, established as part of the REMIC Financing, maintains a restricted cash account. Rent from the fifteen properties securing the debt is required to be deposited into this account. Additionally, there are certain reserves that are required to be funded and maintained in this account. The monthly debt service payments are made from the account and, after considering reserve requirements, any excess funds are transferred to the Company.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Mortgage Notes Payable
The Company's aggregate consolidated mortgage notes payable and related accrued interest as of December 31, 1997 was $220.56 million which consists of indebtedness outstanding under the REMIC Financing, borrowings outstanding under the Company's Credit Facility, and outstanding mortgage indebtedness related to nineteen of the Properties. Except as noted, all such debt bears interest at fixed rates. All of the Company's mortgages are nonrecourse and are secured by first mortgage liens on the properties and by collateral assignments of the leases.
The following table sets forth certain information regarding the Company's aggregate mortgage indebtedness (including accrued interest) as of December 31, 1997 and 1996 (in $000's):
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(5), Continued
(a) The REMIC Financing is secured by mortgages on the following fifteen Properties: Modesto, California; Mansfield, Ohio; Marshall, Michigan (904 Industrial Road); Marshall, Michigan (1601 Pratt Avenue); Memphis, Tennessee; Mechanicsburg, Pennsylvania; Newark, California; Countryside, Illinois; Voorhees, New Jersey; Dewitt, New York; Newport, Oregon; Sacramento, California; Reno, Nevada; Las Vegas, Nevada; and Klamath Falls, Oregon. Due to the impending sale of the Newark, California Property (see Note 10), the Company is currently working to substitute that property with another pursuant to the terms of the agreement.
(b) In February 1997, the Company's secured revolving credit facility (the "Credit Facility") was amended to extend the maturity to June 1, 1999 and to increase the maximum borrowing availibility to $60 million. The Company's Credit Facility bears interest at 1.5% over LIBOR 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. Due to these covenants, approximately $30 million was available to the Company at December 31, 1997. The Credit Facility matures on June 1, 1999, but will automatically renew for successive two-year terms unless the lender notifies the Company at least twelve months in advance of the scheduled or extended maturity date of its intention to terminate the Credit Facility. As of December 31, 1997, the amount outstanding under the Credit Facility was $12 million, with a weighted average interest rate of approximately 8.13% per annum. Based on the weighted average interest rate in effect as of December 31, 1997, debt service payments on the Credit Facility in 1998 would total $976,000.
The Credit Facility is secured by first mortgage liens on the following seven Properties: Glendale, Arizona; Southington, Connecticut; Riverdale, Georgia; Jacksonville, Alabama; Plymouth, Michigan; Oberlin, Ohio; and Cottondale, Alabama. The Credit Facility requires compensating balances of $250,000.
The Credit Facility contains various leverage, debt service coverage, net worth maintenance, and other customary covenants. The Company is in compliance with such covenants.
(c) The mortgages on the two Tampa, Florida Properties are cross-collateralized. The Company intends to repay balloon payments due on these properties in 1998 with amounts available under the Credit Facility.
(d) In March 1997, in connection with the acquisition of these properties, LCIF sold $25 million of Notes to an institutional investor in a private placement. The Notes require interest only payments at 8% per annum, payable semi-annually in arrears, and have a seven year term. The Notes are secured by these properties, are guaranteed by the Company, and can be exchanged by the holders for the Company's common shares at $13 per share beginning in the year 2000, subject to adjustment. The Notes may be redeemed at the Company's option after three years at a price of 103.2% of the principal amount, declining to par after five years. The Notes are subordinated to obligation under the Company's Credit Facility.
(e) As of December 31, 1996, this note on the Salt Lake City, Utah Property was bearing interest at a rate of 12.9% per annum and had a maturity date of October 1, 2005. This note was refinanced on May 30, 1997, with a new note bearing interest at 7.61% per annum and having a maturity date of October 1, 2009.
(f) As of December 31, 1996, the mortgage on the Franklin, North Carolina Property consisted of temporary bridge financing bearing interest at 8.25% per annum. On March 31, 1997, the bridge financing was repaid in full with proceeds from permanent financing, bearing interest at 8.50% per annum and having a maturity date of April 1, 2015.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(5), Continued
(g) On January 22, 1997, the mortgages encumbering these four properties were paid in full. The aggregate principal amount paid was $7,997,000 and the aggregate prepayment premiums were approximately $520,000. The stated interest rate on each of the four mortgages was 12.625% per annum. The loans were assumed in December 1996 in connection with an acquisition and assigned a fair value such that the prepayment premiums were included in the carrying value on the balance sheet at acquisition.
(h) The mortgage was paid off in conjunction with the sale of this property (see Note 3).
(i) Principal paydowns of the mortgage notes payable for the succeeding fifteen years are as follows (in 000's):
On September 2, 1997, the Company sold its property leased to Stratus Computers, Inc. In connection with the sale, the Company, after repaying a first mortgage loan, realized a prepayment premium of approximately $1.86 million and incurred a write-off of unamortized loan costs of approximately $171,000.
On May 30, 1997, the Company completed the refinancing of $22.1 million of mortgage debt secured by the Salt Lake City, Utah Property. In connection with the refinancing, the Company realized a prepayment premium of approximately $1.67 million and incurred a write-off of unamortized loan costs of approximately $130,000.
The amounts shown as extraordinary item - loss on extinguishment of debt for the above transactions are recorded net of the minority interests in the consolidated statements of income.
On May 19, 1995, the Company completed the $70 million REMIC Financing by issuing commercial mortgage pass-through certificates. Of the fifteen properties securing the REMIC Financing, eight properties had been encumbered by mortgage debt of approximately $50.83 million in the aggregate, which had been repaid out of the proceeds from the REMIC Financing. In connection with this repayment, the Company incurred prepayment premiums totaling approximately $4.068 million and the write-off of unamortized deferred expenses and other related costs of approximately $510,000.
On November 15, 1995, the Company closed on a revolving credit facility with a maximum committed amount of $25 million. Upon the closing of the revolving credit facility, the Company borrowed approximately $8.4 million and repaid an existing mortgage loan secured by its property in Southington, Connecticut. In connection with this repayment, a prepayment premium of approximately $271,000 was incurred.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Subordinated Notes Payable
Unitholders of the Partnerships who denied consent to the mergers described in Note 1 and qualified as dissenters received, in lieu of Common Shares, Subordinated Notes of the Company having a principal amount equal to the net asset value of the Units exchanged for such notes. The notes were issued under an indenture between the Company and The Bank of New York, as Trustee. The notes bear interest at 7.75% per annum, payable semi-annually on January 1 and July 1 of each year, and are due on October 12, 2000. The Subordinated Notes are redeemable at the Company's option, in whole or in part at a redemption price equal to 100% of the principal amount plus all accrued and unpaid interest through the date of redemption.
(7) Leases
Minimum future rents receivable under noncancellable operating leases as of December 31, 1997 are as follows (in 000's):
The leases are triple net leases which generally require the lessee to pay all or substantially all taxes, insurance, maintenance, and all other similar charges and expenses relating to the Properties and their use and occupancy.
Each of the following properties accounted for 10% or more of consolidated rental revenues for the years ended December 31:
In addition, the Company leases office space under a non-cancelable lease. Minimum future rental payments under this lease as of December 31, 1997 are approximately as follows (in $000's):
Rental expense under this lease for the years ended December 31, 1997, 1996 and 1995 was (in $000's) $202, $126, and $114, respectively.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Minority Interests
In conjunction with several of the Company's acquisitions, sellers were given 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 at various dates through May 2006. The total number of special limited partnership units outstanding as of December 31, 1997 was 3,000,445. These units, subject to certain adjustments through the date of conversion, have distributions per unit in varying amounts up to $1.16 per unit. Minority interests in the accompanying consolidated financial statements relates to interests in the Partnerships held by parties other than the Company.
(9) Preferred Shares
On December 31, 1996, the Company entered into a definitive agreement with Five Arrows Realty Securities L.L.C. ("Five Arrows") providing for the sale of up to 2,000,000 shares of Senior Cumulative Convertible Preferred Shares (" Preferred Shares"). In connection with this transaction, the Company designated 2,000,000 shares as "Excess Class A Preferred Shares" and reserved for issuance up to 2,000,000 shares of its Common Shares upon the conversion of the Preferred Shares. In connection with such sale, the Company has entered into certain related agreements with Five Arrows, providing, among other things, for certain registration rights with respect to such shares and the right to designate a member of the Board of Directors under certain circumstances. The Preferred Shares, which is convertible at any time at the holder's option into common shares on a one-for-one basis, is entitled to quarterly dividends equal to the greater of $.295 per share or 105% of the quarterly common shares dividend.
During 1997, all of the Preferred Shares were sold. Based on the market price of the Company's common shares on the dates of issuance, the Preferred Shares were deemed to have a beneficial conversion feature equal to the difference between the market price per share and $12.50 per share. This difference, which is non-cash and was non-recurring, amounted to approximately $3.5 million for the year ended December 31, 1997 and has been recorded as a dividend, with an offset to additional paid-in capital, in the accompanying statements of changes in shareholders' equity.
The Preferred Shares may be redeemed by the Company after December 31, 2001 at a premium of 6% over the liquidation preference of $12.50 per share, with such premium declining to zero on or after December 31, 2011. Each share is entitled to one vote.
In certain instances, including a change of control of the Company (as defined in the agreement), the holder of the Preferred Shares may require the Company to redeem its shares at a price equal to $13.75 per share plus any accrued dividends.
(10) Legal Proceedings
The Company was sued in the United States District Court for the Northern District of Illinois on May 31, 1995, by United Municipal Leasing Corporation. The complaint filed in this case alleged that the Company breached a letter of intent by failing to execute definitive documentation and close a transaction in which the plaintiff proposed to sell property to the Company. The complainant sought $800,000 in monetary damages. In 1997, the Court ruled in favor of the Company. No monetary damages were incurred by the Company.
On August 26, 1996, Ross Stores, Inc., the tenant in the Newark Property, exercised an option to purchase such Property for its fair market value. In connection with this negotiation the Company was required to post a bond in an amount equivalent to one year's rent. After some deliberation the parties have negotiated to sell the property on or about April 1, 1998 for $24.55 million.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Continued,
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.
(11) Stock Option Plan
On June 17, 1993, the Company's Board of Directors adopted a stock option plan (the "Plan") pursuant to which stock options may be granted to officers and key employees. The Plan authorized grants of options to purchase up to 800,000 shares of authorized but unissued common shares. The Plan was amended on May 23, 1996 to increase by 800,000 the number of Common Shares available for the grant of options thereunder, subject to certain limitations. Stock options are granted with an exercise price equal to the shares' fair market value at the date of grant.
All stock options are exercisable over five-year terms and, with the exception of those shown below, vest immediately.
In 1997, the Compensation Committee granted 221,897 options to key employees. Those options will vest on the fourth anniversary of the grant. Vesting will accelerate upon an executive's retiring (as defined by the Compensation Committee), death or disability. In addition, 25% of the options will vest in any year in which Funds From Operations ("FFO") increases by an amount equal to or greater than 10% over the FFO achieved in the preceding year.
Additionally, each independent trustee of the Company receives options each year to purchase 2,500 common shares at the fair market value as of the date of grant. Such grants automatically occur on each January 1. All options granted to the directors are exercisable, after a one-year holding period, for a period not to exceed five years from the date of grant.
At December 31, 1997, there were 560,803 additional options available for grant under the Plan. The per share weighted-average fair value of share options granted at market during 1997, 1996 and 1995 was $3.75, $2.60 and $1.85 on the date of grant using the Black Scholes option-pricing model. The per share weighted average fair value of share options granted with an exercise price less than market during 1997 was $5.83. The following weighted-average assumptions were used: risk-free interest rate of 6.5% and an expected life of five years for all years and volatility factors of 17.09%, 16.29% and 15.02% for the years 1997, 1996 and 1995, respectively. The model was based on actual dividends paid, which, on an annualized basis were $1.16, $1.10 and $1.08 per share for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its share options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its share options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts below (in $000's):
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Continued,
Pro forma net income reflects only options granted in 1997, 1996 and 1995. Therefore, the full impact of calculating compensation cost for shares options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost for options granted prior to January 1, 1995 is not considered.
Share option activity during the periods indicated is as follows:
(1) In 1996 and 1995, certain officers and employees exchanged existing options for new options with exercise prices equal to the fair market value of the common shares at that time. These options are reflected in the amounts exercised and granted in the table above. The difference between the exercise prices of the original and the new options, which amounted to $588,000 and $442,000 in 1996 and 1995, respectively, has been reflected in general and administrative expenses in the accompanying financial statements.
At December 31, 1997, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $9.00 to $14.50 and 3.18 years, respectively.
At December 31, 1997, 1996 and 1995, the number of options exercisable was 837,300, 767,800, and 405,000, respectively, and the weighted-average exercise price of those options was $11.45, $11.29 and $11.09, respectively.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Employee Benefit Plan
Effective January 1, 1994, the Company established 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 $80,000, $75,000 and $59,000 were contributed in 1997, 1996 and 1995, respectively.
(13) Related Party Transactions
The Company has been granted an option by the LCP Group, L.P. ("LCP"), exercisable any time, to acquire the general partnership interests currently owned by LCP in two limited partnerships, Net 1 L.P. and Net 2 L.P. (collectively, the "Net Partnerships"), which own net leased office, industrial and retail properties. Under the terms of the option, the Company, subject to review of any such transaction by the independent members of its Board of Trustees, may acquire the general partnership interests in either or both of the Net Partnerships at their fair market value based upon a formula relating to partnership cash flows, with the Company retaining the option of paying such fair market value in securities of the Company, units representing interests in partnerships controlled by the Company or cash (or a combination thereof). The Chairman of the Company is a partner in LCP.
The Company currently provides administrative and acquisition support to the Net Partnerships and is reimbursed for the costs of such services. The reimbursements amounted to $279,000 and $197,000 for the years ended December 31, 1997 and 1996, respectively, and are shown net of the Company's general and administrative expenses in the accompanying statements of income. There were no reimbursements for 1995.
In connection with the origination fees payable obligations, the Company is obligated to pay LCP an aggregate principal amount of $1,778,000 for rendering services in connection with the original acquisitions of certain properties. 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 12.25% to 19%. Monthly installment payments are to commence at various dates to satisfy principal and current interest payments as well as any unpaid accrued interest outstanding. The original principal amounts have been discounted at an annual rate of thirteen percent.
A member of the Company's Board of Trustees is a partner in the firm that serves as general counsel to the Company. The Company intends to continue to retain the services of this firm for general, corporate and other matters.
(14) Subsequent Events (Unaudited)
On January 29, 1998, the Company completed the acquisition of partnership interests in two limited partnerships in exchange for the Company's operating partnership units. The assets of the partnerships acquired included approximately $23.5 million in cash. The units are exchangeable for an equal number of Common Shares and are entitled to receive distributions at the same dividend rate as the Company's common shares.
On February 13, 1998, the Company paid a dividend of $.29 per share to shareholders of record on January 30, 1998.
On March 27, 1998, the Company completed the acquisition of an 81,744 square foot two-story office facility in Hebron, Kentucky (the "Hebron Property") for approximately $8.045 million. The Hebron Property is leased to Fidelity Corporate Real Estate, LLC under a lease expiring April 2007. The current annual net rent is $776,568 and will increase by 14.5% on May 1, 2002.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Continued,
On March 27, 1998, the Company completed the acquisition of a 419,205 office/warehouse facility in Bristol, Pennsylvania (the "Bristol Property") for approximately $12.5 million. The Bristol Property is leased to Jones Apparel Group for 15 years. The annual net rent is $1.15 million and will increase in years 2003 and 2008 by 10%.
On March 27, 1998, the Company completed the acquisition of two properties in Livonia, Michigan (the "Livonia Properties") for approximately $16.4 million. The Livonia Properties are leased to Kelsey-Hayes Corporation and are subject to net leases which expire in April 2007. The current annual net rents are approximately $1.52 million and escalate at various rates over the term of the lease.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Quarterly Financial Data (Unaudited) ($000 except per share data)
* This item has been reclassified from Expenses, as shown in the First Quarter report.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Continued,
The reported amounts for minority interest and for extraordinary items in the quarters ended March 30, June 30, and September 30, 1997 have been adjusted by offsetting amounts from those reported in the Company's quarterly filings on Form 10-Q. As a result, income before extraordinary items per common share has been restated by $0.00, ($0.03) and ($0.03), respectively. Net income and net income per common share for those periods were not affected by these adjustments.
In addition, as described in notes 2 and 9, to compute earnings per share, net income attributed to common shareholders was reduced by the deemed dividend relating to the sales of the Preferred Shares. Income per common share data for the quarters ended March 31 and June 30, 1997 has been restated by ($0.16) and ($0.01), respectively , to reflect the deemed dividend of the beneficial conversion feature of the Preferred Shares.
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES Real Estate and Accumulated Depreciated and Amortization Schedule III ($000)
Initial cost to Company and Gross Amount at which carried at End of Year (A)
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES Real Estate and Accumulated Depreciated and Amortization Schedule III ($000)
(continued)
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES Real Estate and Accumulated Depreciated and Amortization Schedule III ($000) (continued)
(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, 1997 for Federal income tax purposes was $337,491 (not including the Newark, CA property held for sale). The total costs of the properties acquired may exceed the initial costs due to the Company's or Partnership's subsequent incurrence of other costs related to the acquisition, however such amounts have not been significant.
(B) Balances include accrued interest payable at December 31, 1997 in the amount of $1,007.
(C) Reconciliation of real estate owned:
(D) Reconciliation of accumulated depreciation and amortization:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10.
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors of the Company required to be furnished pursuant to this item is set forth under the caption "Election of Trustees" in the Proxy Statement and is incorporated herein by reference. The information regarding executive officers of the Company required to be furnished pursuant to this item is set forth in Item 4A of this report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this item is set forth under the caption "Compensation of Executive Officers" in the Proxy Statement, and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished pursuant to this item is set forth under the captions "Principal Security Holders" and "Share Ownership of Trustees and Executive Officers" in the Proxy Statement, and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished pursuant to this item is set forth under the caption "Election of Trustees - Certain Relationships and Related Transactions" in the Proxy Statement, and is incorporated herein by reference.
Note, the Definitive Proxy Statement will be filed with the Securities and Exchange Commission on or about April 17, 1998.
PART IV.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Page ---- (a)(1) Financial Statements 23-44 (2) Financial Statement Schedules 45-47 (3) Exhibits
Exhibit No. Exhibit - ----------- ------- 2.1 -- Form of Agreement and Plan of Merger by and among Lexington Corporate Properties, Inc. (the "Company"), Lepercq Corporate Income Fund L.P. ("LCIF I") and Lex M-1, L.P. (filed as Appendix C-I to the Company's Registration Statement of Form S-4 (File No. 33-66858) (the "Form S-4"))*
2.2 -- Form of Agreement and Plan of Merger by and among the Company, Lepercq Corporate Income Fund II L.P. ("LCIF II"), and Lex M-2, L.P. (filed as Appendix C-II to the Form S-4)*
2.3 -- Form of Agreement and Articles of Merger between the Company and Lexington Corporate Properties - Maryland, Inc. (filed as Exhibit 2.3 to Report on 10-K for year ended December 31, 1993 (the "1993 10-K"))*
2.4 -- Agreement and Plan of Merger between the Company and Lexington Corporate Properties Trust (filed as Exhibit 2.1 to Form 8-K filed 1-16-98.)*
3.1 -- Declaration of Trust of the Company, dated December 31, 1997 (filed as Exhibit 3.1 to Form 8K filed 1-16-98)*
3.2 -- By-Laws of the Company
4.1 -- Specimen of Common Shares Certificate of the Trust
4.2 -- Form of Indenture between the Company and The Bank of New York, as Trustee, including the form of 7.75% Subordinated Note due 2000 (filed as Exhibit 4.2 to the Form S-4)*
10.7 -- Form of Incentive Stock Option Agreement by and between the Company and E. Robert Roskind (filed as Exhibit 10.7 to the Form S-4)*
10.8 -- Form of 1994 Outside Director Shares Plan of the Company (filed as Exhibit 10.8 to 1993 10-K)*
10.9 -- Form of Incentive Stock Option Agreement by and between the Company and Richard J. Rouse (filed as Exhibit 10.8 to the Form S-4)*
10.10 -- Form of Incentive Stock Option Agreement by and between the Company and T. Wilson Eglin (filed as Exhibit 10.10 to the Form S-4)*
10.11 -- Form of Incentive Stock Option Agreement by and between the Company and Antonia G. Trigiani (filed as Exhibit 10.11 to the Form S-4)*
10.12 -- Form of Non-Qualified Stock Option Agreement by and between the Company and E. Robert Roskind (filed as Exhibit 10.12 to the Form S-4)*
10.13 -- Form of Non-Qualified Stock Option Agreement by and between the Company and Richard J. Rouse (filed as Exhibit 10.13 to the Form S-4)*
10.14 -- Form of Non-Qualified Stock Option Agreement by and between the Company and T. Wilson Eglin (filed as Exhibit 10.14 to the Form S-4)*
10.15 -- Form of Non-Qualified Stock Option Agreement by and between the Company and Antonia G. Trigiani (filed as Exhibit 10.15 to the Form S-4)*
Exhibit No. Exhibit - ----------- ------- 10.16 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and E. Robert Roskind, Director and Co-Chief Executive Officer (filed as Exhibit 10.15 to the Form S-4)*
10.17 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and Richard J. Rouse, Director and Co-Chief Executive Officer (filed as Exhibit 10.16 to the Form S-4)*
10.18 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and T. Wilson Eglin, Executive Officer (filed as Exhibit 10.17 to the Form S-4)*
10.19 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and Antonia G. Trigiani, Executive Officer (filed as Exhibit 10.18 to the Form S-4)*
10.20 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and Paul R. Wood, Executive Officer (filed as Exhibit 10.19 to the Form S-4)*
10.21 -- Form of Indemnification Agreement by and between the Company and Seth M. Zachary, Director (filed as Exhibit 10.20 to the Form S-4)*
10.24 -- Class A Mortgage Note to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 in the amount of $34,000,000 (filed as Exhibit 10.24 to Report on 10-K for year ended December 31, 1995 (the "1995 10-K"))*
10.25 -- Class B Mortgage Note to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 in the amount of $18,500,000 (filed as Exhibit 10.25 to the 1995 10-K)*
10.26 -- Class C Mortgage Note to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 in the amount of $17,500,000 (filed as Exhibit 10.26 to the 1995 10-K)*
10.28 -- Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases, Rents and Security Deposits to First American Title Insurance Company and Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 (filed as Exhibit 10.28 to the 1995 10-K)*
10.29 -- Assignment of Leases, Rents, and Security Deposits to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 (filed as Exhibit 10.29 to the 1995 10-K)*
10.30 -- Cash Collateral Account, Security, Pledge and Assignment Agreement with the Bank of New York, as agent and Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 (filed as Exhibit 10.30 to the 1995 10-K)*
10.31 -- Trust and Servicing Agreement with Pacific Mutual Life Insurance Company, LaSalle National Bank and ABN AMRO Bank N.V. dated May 19, 1995 (filed as Exhibit 10.31 to the 1995 10-K)*
10.32 -- Revolving Credit and Term Loan Agreement with Fleet National Bank dated November 14, 1995 in the amount of $25,000,000 (filed as Exhibit 10.32 to the 1995 10-K)*
10.33 -- Investment Agreement dated as of December 31, 1996 with Five Arrows Realty Securities L.L.C.*
10.34 -- Operating Agreement dated as of January 21, 1997 with Five Arrows Realty Securities L.L.C.*
10.35 -- Articles Supplementary Classifying 2,000,000 shares of Preferred Shares as Class A Senior Cumulative Convertible Preferred Shares and 2,000,000 shares of Excess Shares as Excess Class A Preferred Shares of the Company*
Exhibit No. Exhibit - ----------- ------- 10.36 -- Amended and Restated Revolving Credit Agreement with Fleet National Bank dated February 20, 1997 in the amount of $60,000,000 (filed as Exhibit 10.36 to Report on 10-K for year ended December 31, 1996)*
11 -- Schedule of Computations of Per Share Earnings
12 -- Statement of Computation of Ratio of Earnings to Fixed Charges (filed as Exhibit 12 to the Form S-4)*
21 -- List of Subsidiaries of the Company
23 -- Consent of KPMG Peat Marwick LLP
27.1 -- Financial Data Schedule as of and for the year ended December 31, 1997
27.2 -- Financial Data Schedule -- restated earnings per share for the year ended December 31, 1996
27.3 -- Financial Data Schedule -- restated earnings per share for the year ended December 31, 1995
(b) Reports on Form 8-K and Form 8-K/A
Issuance and sale of up to 2.875 million shares of Common Stock in a public offering - filed November 14, 1997.
Acquisition of property on May 1, 1997, and announcement of a definitive agreement to acquire three properties through a merger with CRIT - filed June 17, 1997, and Amendment No. 1 thereto, containing pro forma financial statements for the Registrant for the year ended December 31, 1996 - filed November 17, 1997.
Acquisition of property on September 4, 1997 - filed September 19, 1997, and Amendment No. 1 thereto, containing pro forma financial statements for the Registrant for the year ended December 31, 1996 - filed November 21, 1997.
- ---------- * Incorporated by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LEXINGTON CORPORATE PROPERTIES TRUST
By:/s/ E. Robert Roskind ------------------- E. Robert Roskind Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated.
Signature Title --------- -----
___________________________ E. Robert Roskind Chairman of the Board of Trustees and Co-Chief Executive Officer
___________________________ Richard J. Rouse Vice Chairman of the Board of Trustees and Co-Chief Executive Officer
___________________________ T. Wilson Eglin President and Chief Operating Officer and Trustee
___________________________ Antonia G. Trigiani Chief Financial Officer and Treasurer
___________________________ Paul R. Wood Vice President, Chief Accounting Officer and Secretary
___________________________ Carl D. Glickman Trustee
___________________________ Kevin W. Lynch Trustee
___________________________ John D. McGurk Trustee
___________________________ Seth M. Zachary Trustee
DATE: March 31, 1998
EXHIBIT INDEX
Exhibit No. Exhibit - ----------- ------- 2.1 -- Form of Agreement and Plan of Merger by and among Lexington Corporate Properties, Inc. (the "Company"), Lepercq Corporate Income Fund L.P. ("LCIF I") and Lex M-1, L.P. (filed as Appendix C-I to the Company's Registration Statement of Form S-4 (File No. 33-66858) (the "Form S-4"))*
2.2 -- Form of Agreement and Plan of Merger by and among the Company, Lepercq Corporate Income Fund II L.P. ("LCIF II"), and Lex M-2, L.P. (filed as Appendix C-II to the Form S-4)*
2.3 -- Form of Agreement and Articles of Merger between the Company and Lexington Corporate Properties - Maryland, Inc. (filed as Exhibit 2.3 to Report on 10-K for year ended December 31, 1993 (the "1993 10-K"))*
2.4 -- Agreement and Plan of Merger between the Company and Lexington Corporate Properties Trust (filed as Exhibit 2.1 to Form 8-K filed 1-12-98.)*
3.1 -- Declaration of Trust of the Company, dated December 31, 1997 (filed as Exhibit 3.1 to Form 8K filed 1-16-98)*
3.2 -- By-Laws of the Company
4.1 -- Specimen of Common Shares Certificate of the Trust
4.2 -- Form of Indenture between the Company and The Bank of New York, as Trustee, including the form of 7.75% Subordinated Note due 2000 (filed as Exhibit 4.2 to the Form S-4)*
10.7 -- Form of Incentive Stock Option Agreement by and between the Company and E. Robert Roskind (filed as Exhibit 10.7 to the Form S-4)*
10.8 -- Form of 1994 Outside Director Shares Plan of the Company (filed as Exhibit 10.8 to 1993 10-K)*
10.9 -- Form of Incentive Stock Option Agreement by and between the Company and Richard J. Rouse (filed as Exhibit 10.8 to the Form S-4)*
10.10 -- Form of Incentive Stock Option Agreement by and between the Company and T. Wilson Eglin (filed as Exhibit 10.10 to the Form S-4)*
10.11 -- Form of Incentive Stock Option Agreement by and between the Company and Antonia G. Trigiani (filed as Exhibit 10.11 to the Form S-4)*
10.12 -- Form of Non-Qualified Stock Option Agreement by and between the Company and E. Robert Roskind (filed as Exhibit 10.12 to the Form S-4)*
10.13 -- Form of Non-Qualified Stock Option Agreement by and between the Company and Richard J. Rouse (filed as Exhibit 10.13 to the Form S-4)*
10.14 -- Form of Non-Qualified Stock Option Agreement by and between the Company and T. Wilson Eglin (filed as Exhibit 10.14 to the Form S-4)*
10.15 -- Form of Non-Qualified Stock Option Agreement by and between the Company and Antonia G. Trigiani (filed as Exhibit 10.15 to the Form S-4)*
Exhibit No. Exhibit - ----------- ------- 10.16 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and E. Robert Roskind, Director and Co-Chief Executive Officer (filed as Exhibit 10.15 to the Form S-4)*
10.17 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and Richard J. Rouse, Director and Co-Chief Executive Officer (filed as Exhibit 10.16 to the Form S-4)*
10.18 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and T. Wilson Eglin, Executive Officer (filed as Exhibit 10.17 to the Form S-4)*
10.19 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and Antonia G. Trigiani, Executive Officer (filed as Exhibit 10.18 to the Form S-4)*
10.20 -- Indemnification Agreement, dated as of July 19, 1993, by and between the Company and Paul R. Wood, Executive Officer (filed as Exhibit 10.19 to the Form S-4)*
10.21 -- Form of Indemnification Agreement by and between the Company and Seth M. Zachary, Director (filed as Exhibit 10.20 to the Form S-4)*
10.24 -- Class A Mortgage Note to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 in the amount of $34,000,000 (filed as Exhibit 10.24 to Report on 10-K for year ended December 31, 1995 (the "1995 10-K"))*
10.25 -- Class B Mortgage Note to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 in the amount of $18,500,000 (filed as Exhibit 10.25 to the 1995 10-K)*
10.26 -- Class C Mortgage Note to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 in the amount of $17,500,000 (filed as Exhibit 10.26 to the 1995 10-K)*
10.28 -- Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases, Rents and Security Deposits to First American Title Insurance Company and Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 (filed as Exhibit 10.28 to the 1995 10-K)*
10.29 -- Assignment of Leases, Rents, and Security Deposits to Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 (filed as Exhibit 10.29 to the 1995 10-K)*
10.30 -- Cash Collateral Account, Security, Pledge and Assignment Agreement with the Bank of New York, as agent and Pacific Mutual Life Insurance Company and Lexington Mortgage Company dated May 19, 1995 (filed as Exhibit 10.30 to the 1995 10-K)*
10.31 -- Trust and Servicing Agreement with Pacific Mutual Life Insurance Company, LaSalle National Bank and ABN AMRO Bank N.V. dated May 19, 1995 (filed as Exhibit 10.31 to the 1995 10-K)*
10.32 -- Revolving Credit and Term Loan Agreement with Fleet National Bank dated November 14, 1995 in the amount of $25,000,000 (filed as Exhibit 10.32 to the 1995 10-K)*
10.33 -- Investment Agreement dated as of December 31, 1996 with Five Arrows Realty Securities L.L.C.*
10.34 -- Operating Agreement dated as of January 21, 1997 with Five Arrows Realty Securities L.L.C.*
10.35 -- Articles Supplementary Classifying 2,000,000 shares of Preferred Shares as Class A Senior Cumulative Convertible Preferred Shares and 2,000,000 shares of Excess Shares as Excess Class A Preferred Shares of the Company*
Exhibit No. Exhibit - ----------- ------- 10.36 -- Amended and Restated Revolving Credit Agreement with Fleet National Bank dated February 20, 1997 in the amount of $60,000,000 (filed as Exhibit 10.36 to Report on 10-K for year ended December 31, 1996)*
11 -- Schedule of Computations of Per Share Earnings
12 -- Statement of Computation of Ratio of Earnings to Fixed Charges (filed as Exhibit 12 to the Form S-4)*
21 -- List of Subsidiaries of the Company
23 -- Consent of KPMG Peat Marwick LLP
27.1 -- Financial Data Schedule as of and for the year ended December 31,
27.2 -- Financial Data Schedule -- restated earning per share for the year ended December 31, 1996
27.3 -- Financial Data Schedule -- restated earnings per sharefor the year ended December 31, 1995
* Incorporated by reference.