1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-12386 LEXINGTON CORPORATE PROPERTIES TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) <TABLE> <S> <C> MARYLAND 13-3717318 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 355 LEXINGTON AVENUE NEW YORK, NY 10017 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 692-7260 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ----------------------------------------------- --------------------------------------------- NEW YORK STOCK EXCHANGE COMMON SHARES, PAR VALUE $.0001 </TABLE> SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting shares held by non-affiliates of the Registrant as of March 15, 2001 was $215,973,314. Number of common shares outstanding as of March 15, 2001 was 17,564,622. Number of preferred shares outstanding as of March 15, 2001 was 2,000,000. DOCUMENTS INCORPORATED BY REFERENCE: The Definitive Proxy Statement for Registrant's 2001 Annual Meeting of Shareholders is incorporated herein by reference into Part III. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 PART I. FORWARD-LOOKING STATEMENTS When used in this Form 10-K Annual Report, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. In particular, among the factors that could cause actual results to differ materially are continued qualification as a real estate investment trust, general business and economic conditions, competition, increases in real estate construction costs, interest rates, accessibility of debt and equity capital markets and other risks inherent in the real estate business including tenant defaults or financial difficulties, potential liability relating to environmental matters and illiquidity of real estate investments. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. ITEM 1. BUSINESS GENERAL Lexington Corporate Properties Trust (the "Company"), is a self-managed and self-administered real estate investment trust that acquires, owns and manages a geographically diverse portfolio of net leased office, industrial and retail properties. Lexington Realty Advisors, Inc. ("LRA"), an affiliate of the Company, provides investment advisory and asset management services to institutional investors in the net lease area. The Company's predecessor was organized in October 1993 and merged into the Company on December 31, 1997. As of December 31, 2000, the Company's real property portfolio consisted of 71 properties (or interests therein) (the "Properties") located in twenty-nine states, including warehousing, distribution and manufacturing facilities, office buildings and retail properties containing an aggregate 12.6 million net rentable square feet of space. The Company's Properties are generally subject to triple net leases, which are 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 manages its real estate and credit risk through geographic, industry, tenant and lease maturity diversification. As of December 31, 2000 the five largest tenants/guarantors, which occupy ten Properties, represented 33.3% of annualized rental revenue: <TABLE> <CAPTION> % OF ANNUALIZED RENTAL TENANT/GUARANTOR REVENUE PROPERTY TYPES ---------------- ---------- -------------- <S> <C> <C> Kmart Corporation -- 1 property............................. 9.9% Industrial Northwest Pipeline Corp. -- 1 property...................... 9.5% Office Exel Logistics, Inc. -- 4 properties........................ 5.4% Industrial Honeywell, Inc. -- 3 properties............................. 4.6% Office Vartec Telecom, Inc. -- 1 property.......................... 3.9% Office ---- 33.3% ==== </TABLE> As of December 31, 1999 and 1998 the five largest tenants/guarantors represented 38.1% and 39.3% of annualized revenues, respectively. Northwest Pipeline Corp. and Kmart Corporation are the only current tenants that represented greater than 10% of annualized revenues in 1999 and 1998. 1
3 OBJECTIVES AND STRATEGY The Company's primary objectives are to increase Funds From Operations, cash available for distribution per share to its shareholders, and net asset value per share. In an effort to obtain these objectives management focuses on: - effectively managing assets through lease extensions, revenue enhancing property expansions, opportunistic property sales and redeployment of assets, when advisable; - entering into strategic co-investment programs which generate higher equity returns than direct investments due to acquisition and asset management fees and in some cases increased leverage levels; - entering into third party advisory contracts to generate advisory fee revenue; - acquiring portfolios and individual net lease properties from third parties, completing sale/leaseback transactions, acquiring build-to-suit properties and opportunistically using operating partnership units to effect acquisitions; - refinancing existing indebtedness at lower average interest rates and increasing the Company's access to capital to finance property acquisitions and expansions; and - repurchasing common shares when they trade at a discount to net asset value. Internal Growth; Effectively Managing Assets Tenant Relations and Lease Compliance. The Company maintains close contact with its tenants in order to understand their future real estate needs. The Company monitors the financial, property maintenance and other lease obligations of its tenants through a variety of means, including periodic reviews of financial statements and physical inspections of the Properties. The Company performs annual inspections of those Properties where it has an ongoing obligation with respect to the maintenance of the Property and for all Properties during each of the last three years immediately prior to a scheduled lease expiration. Biannual physical inspections are undertaken for all other Properties. Extending Lease Maturities. The Company seeks to extend its leases in advance of their expiration in order to maintain a balanced lease rollover schedule and high occupancy levels. Since February 1994, the Company has entered into lease extensions of three years or more on 18 of its Properties. During 2000, the Company entered into 5 lease extensions for Properties with leases scheduled to expire in 2000 through 2002 for an average of 7.5 years and a 13.9% increase over the then current average rental revenue. As of December 31, 2000, the scheduled lease maturities for each of the next five years are as follows: <TABLE> <CAPTION> NUMBER CURRENT % OF OF SQUARE ANNUAL ANNUALIZED LEASES FOOTAGE RENT ($000'S) RENTS --------- --------- ------------- ---------- <S> <C> <C> <C> <C> 2001.................................. 2 269,924 $ 770 0.86% 2002.................................. 2 290,800 777 0.86% 2003.................................. 1 179,280 1,900 2.11% 2004.................................. 2 175,000 789 0.88% 2005.................................. 5 799,350 6,119 6.80% -- --------- ------- ----- 12 1,714,354 $10,355 11.51% == ========= ======= ===== </TABLE> Revenue Enhancing Property Expansions. The Company undertakes expansions of its Properties based on tenant requirements. The Company believes that selective property expansions can provide it with attractive rates of return and actively seeks such opportunities. As of December 31, 2000, the Company has not committed to undertake any expansion of an existing Property. 2
4 Property Sales and Redeployment of Assets. The Company may determine to sell a Property if it deems such disposition to be in the Company's best interest. During 2000, the Company sold three Properties for $19.6 million, 10.7% above original cost, resulting in $3.0 million in gains. Acquisition Strategies The Company seeks to enhance its net lease property portfolio through acquisitions of general purpose, efficient, well-located properties in growing markets. Management has diversified the Company's portfolio by geographical location, tenant industry segment, lease term expiration and property type with the intention of providing steady internal growth with low volatility. Management believes that such diversification should help insulate the Company from regional recession, industry specific downturns and price fluctuations by property type. Prior to effecting any acquisitions, management analyzes the (i) property's design, construction quality, efficiency, functionality and location with respect to the immediate sub-market, city and region; (ii) lease integrity with respect to term, rental rate increases, corporate guarantees and property maintenance provisions; (iii) present and anticipated conditions in the local real estate market; and (iv) prospects for selling or releasing the property on favorable terms in the event of a vacancy. Management also evaluates each potential tenant's financial strength, growth prospects, competitive position within its respective industry and a property's strategic location and function within a tenant's operations or distribution systems. Management believes that its comprehensive underwriting process is critical to the assessment of long-term profitability of any investment by the Company. Operating Partnership Structure. The operating partnership structure enables the Company to acquire properties by issuing to a seller, as a form of consideration, interests in the Company's operating partnerships ("OP Units"). Management believes that this structure facilitates the Company's ability to raise capital and to acquire portfolio and individual properties by enabling the Company to structure transactions which may defer tax gains for a contributor of property while preserving the Company's available cash for other purposes, including the payment of dividends and distributions. The Company has used OP Units as a form of consideration in connection with the acquisition of 22 Properties. Acquisitions of Portfolio and Individual Net Lease Properties. The Company seeks to acquire portfolio and individual properties that are leased to creditworthy tenants under long-term net leases. Management believes there is significantly less competition for the acquisition of property portfolios containing a number of net leased properties located in more than one geographic region. Management also believes that the Company's geographical diversification, acquisition experience and access to capital will allow it to compete effectively for the acquisition of such net leased properties. Joint Venture Co-Investments. In 1999, the Company entered into a joint venture agreement with The Comptroller of the State of New York as Trustee of the Common Retirement Fund ("NYSCRF"). The joint venture entity, Lexington Acquiport Company, LLC ("LAC"), acquires high quality office and industrial real estate properties net leased to investment and non-investment grade single tenant users. The Company and NYSCRF have committed to make equity contributions to LAC of up to $50 million and $100 million, respectively, of which $97.1 million has been funded as of December 31, 2000. Property acquisitions will be additionally funded through the use of up to $278 million in non-recourse mortgages. During 2000, LAC made six acquisitions, including one from the Company, for $235 million, of which $100.3 million was funded through non-recourse mortgages which mature in 2010 ($82.5 million) and 2012 ($17.8 million) and have a weighted average interest rate of 8.02%. An additional $53 million was funded with a three month bridge loan with interest at 175 basis points over LIBOR (8.20% at December 31, 2000). Subsequent to year end, LAC refinanced the bridge loan with permanent non-recourse mortgage financing of $42 million at an interest rate of 7.35% and $11 million in member contributions. The Property leases, which expire at various dates ranging from 2009 to 2011, provide for annual net rental revenues of approximately $26.6 million. During 1999, LAC made one investment, an $11 million participating note, which was used to partially fund the purchase of a 327,325 square foot office property in Texas for $34.8 million. As of December 31, 2000, LAC has made investments totaling $270 million. 3
5 LRA has entered into a management agreement with LAC whereby LRA will perform certain services for a fee relating to the acquisition (75 basis points of cost) and management (2% of rent collected annually) of the LAC investments. During 2000, LRA earned fees of $2.0 million relating to this management agreement. In 1999, the Company also formed a joint venture to own a property net leased to Blue Cross/Blue Shield of South Carolina. The Company has a 40% interest in the joint venture and LRA entered into a management agreement with similar terms as the management agreement with LAC. During 2000, LRA earned fees of $91,000 relating to this management contract. Advisory Contracts. In 2000 LRA entered into an advisory and asset management agreement to invest and manage $50 million of equity on behalf of a private investment fund. The investment program could, depending on leverage utilized, acquire up to $150 million in single tenant, net-leased office, industrial and retail properties in the United States. LRA will earn acquisition fees (90 basis points of total acquisition costs), annual asset management fees (30 basis points of gross asset value) and a promoted interest of 16% of the return in excess of an internal rate of return of 10% earned by the private investment fund. Sale/Leaseback Transactions. The Company seeks to acquire portfolio and individual net lease properties in sale/leaseback transactions. The Company selectively pursues sale/leaseback transactions with creditworthy sellers/tenants with respect to properties that are integral to the sellers'/tenants' ongoing operations. Build-to-Suit Properties. The Company may also acquire, after construction has been completed, "build-to-suit" properties that are entirely pre-leased to their intended corporate users before construction. As a result, the Company does not assume the risk associated with the construction phase of a project. During 2000, LRA acquired a "build-to-suit" property, net leased to Sygma Network, Inc. (guaranteed by Sysco Corporation) for $8.9 million at an average unleveraged yield of 10.50%. The purchase was partially funded with a 15 year, $6.9 million mortgage note which bears interest at 9.0% and requires annual principal and interest payments of $692,000. Partnership Acquisitions. On November 14, 2000, the Company entered into an agreement to acquire Net 1 L.P. and Net 2 L.P. (together the "Net Partnerships") in a merger transaction. The general partner of each of the Net Partnerships are affiliates of E. Robert Roskind, Chairman of the Board of Trustees and Co-Chief Executive Officer of the Company. The Net Partnerships own 25 properties in fifteen states, which generate $15.1 million of net rental revenue. The properties have a remaining weighted average lease term of 9.2 years and are net leased to 18 tenants. As currently proposed, the Company will issue $65 million of securities to the sellers and assume approximately $78 million of mortgage financing with a weighted average interest rate of 8%. The limited partners of the Net Partnerships will receive at least 50% of their merger consideration in the Company's 8.5% convertible subordinated debentures due 2009 with up to 50% of their merger consideration in the Company's common shares at a price not less than $11.00 per share and no greater than $13.00 per share. The limited partners can elect to receive more of their consideration in the convertible subordinated debentures. The convertible subordinated debentures are exchangeable by the holder into the Company's common shares at $14.00 per share after four years and redeemable after five years with cash or common shares in the event the common share price exceeds $14.00. The transaction is subject to customary closing conditions, including approval by the Company's shareholders and the Net Partnerships' limited partners. Refinancing Existing Indebtedness and Increasing Access to Capital As a result of the Company's financing activities, the weighted average interest rate on the Company's outstanding indebtedness has been reduced from approximately 8.17% as of December 31, 1997 to 4
6 approximately 7.83% as of December 31, 2000. Scheduled balloon payments, excluding the $41.8 million outstanding on the variable rate unsecured credit facility, over the next five years are as follows ($000's): <TABLE> <CAPTION> WEIGHTED AVERAGE BALLOON AMOUNT INTEREST RATE -------------- ------------- <S> <C> <C> 2001..................................................... $ 1,000 9.50% 2002..................................................... 10,624 7.46% 2003..................................................... -- -- 2004..................................................... 25,260 8.00% 2005..................................................... 67,914 8.16% -------- ---- $104,798 8.06% ======== ==== </TABLE> During 2000, the Company obtained $87.8 million in non-recourse mortgage financing on Properties at a weighted average interest rate of 7.97% and a maturity of 8.75 years. The proceeds of the financing were used to (i) repay borrowings under the line of credit, (ii) satisfy maturing mortgages and (iii) fund joint venture investments. The Company's variable rate unsecured credit facility bears interest at 137.5 basis points over the Company's option of 1, 3 or 6 month LIBOR and is scheduled to mature in July 2001. As of December 31, 2000, the $41.8 million outstanding under this facility bore interest at a weighted average rate of 8.03%. As of March 15, 2001, the interest rate on outstanding borrowings on the line of credit was 6.78%. The Company is currently in discussions with lending institutions to provide three year loan facilities to satisfy the outstanding borrowings on the current line at maturity. Common Share Repurchase. The Company's Board of Trustees authorized the repurchase of up to 2 million common shares and/or operating partnership units. As of December 31, 2000, the Company has repurchased approximately 1.4 million common shares/units at an average price of $10.62. Competition. Through our predecessor entities the Company has been in the net lease business for 27 years and has established close relationships with a large number of major corporate tenants and maintains a broad network of contacts including developers, brokers and lenders. In addition, management is associated with and/or actively participates in many industry organizations. Notwithstanding these relationships, there are numerous commercial developers, real estate companies, financial institutions and other investors with greater financial resources, that compete with the Company in seeking properties for acquisition and tenants who will lease space in these properties. Due to our focus on net-lease properties located throughout the United States, the Company does not encounter the same competitors in each region of the United States since most competitors are locally and/or regionally focused. The Company's competitors include other REITs, pension funds, private companies and individuals. Environmental Matters. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or redemption of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances. Although the Company's tenants are primarily responsible for any environmental damage and claims related to the leased premises, in the event of the bankruptcy or inability of the tenant of such premises to satisfy any obligations with respect to such environmental liability, the Company may be required to satisfy such obligations. In addition, the Company as the owner of such properties may be held directly liable for any such damages or claims irrespective of the provisions of any lease. From time to time, in connection with the conduct of the Company's business, and prior to the acquisition of any property from a third party or as required by the Company's financing sources, the Company authorizes the preparation of Phase I environmental reports with respect to its Properties. Based upon such 5
7 environmental reports and management's ongoing review of its Properties, as of the date of this Annual Report, management is not aware of any environmental condition with respect to any of the Company's Properties which management believes would be reasonably likely to have a material adverse effect on the Company. There can be no assurance, however, that (i) the discovery of environmental conditions, the existence or severity of which were previously unknown, (ii) changes in law, (iii) the conduct of tenants or (iv) activities relating to properties in the vicinity of the Company's Properties, will not expose the Company to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on Properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the Company's tenants, which would adversely affect the Company's financial condition and results of operations, including funds from operations. Employees. As of December 31, 2000, the Company had twenty-eight employees. Industry Segments. The Company operates in one industry segment, investment in single tenant, net leased real property located throughout the United States. ITEM 2. PROPERTIES Real Estate Portfolio As of December 31, 2000, the Company owned or had interests in approximately 12.6 million square feet of rentable space in 71 office, industrial and retail properties. The Company's Properties are currently 100% leased. The number, and percentage of annualized revenues and square footage mix of the Company's portfolio is as follows: <TABLE> <CAPTION> SQUARE NUMBER REVENUE FOOTAGE ------ ------- ------- <S> <C> <C> <C> Office...................................................... 28 60% 41% Industrial.................................................. 22 28% 47% Retail...................................................... 21 12% 12% -- --- --- 71 100% 100% == === === </TABLE> The Company's Properties are subject to triple net leases, however, in certain leases the Company is responsible for roof and structural repairs. In such situations the Company performs annual inspections of the Properties. Two of the Company's Properties in Florida (Palm Beach Gardens and Lake Mary) and one in Fishers, Indiana are subject to leases in which the landlord is responsible for a portion of the real estate taxes, utilities and general maintenance. The Company's tenants represent a variety of industries including banking, computer and software services, health and fitness, general purpose retailing, manufacturing, insurance and warehousing, and have a weighted average credit strength of investment grade quality. A substantial portion of the Company's income consists of base rent under long-term leases. As of December 31, 2000, the average remaining term under the Company's leases is approximately 8 years. Of the 71 current leases, 49 contain scheduled rent increases and 5 contain an increase based upon the Consumer Price Index. In addition, one retail lease that contains no scheduled base rental increases does contain a percentage rent clause. The Company has 11 Properties accounting for $15.6 million of annualized rental revenue that are subject to long term ground leases where a third party owns and has leased the underlying land to the Company. In each of these situations the rental payments made to the landowner are passed on to the Company's tenant. At the end of these long-term ground leases, unless extended, the land together with all improvements thereon revert to the landowner. These ground leases, including renewal options, expire at various dates through 2074. 6
8 TABLE REGARDING REAL ESTATE HOLDINGS The table on the following pages sets forth certain information relating to the Company's real property portfolio, including joint venture properties, as of December 31, 2000. All the Properties listed have been fully leased by tenants for the last five years, or since the date of purchase by the Company or its joint venture entities if less than five years, with the exception of the Memphis, Tennessee Property. During the last five years this Property was not leased from February 1998 to October 1999. All other Properties owned by the Company or its joint venture entities have been leased in the past five years. In addition, the Company has no current plan to renovate, improve or develop any existing Property ($000's except per square foot data). 7
9 <TABLE> <CAPTION> YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- <S> <C> <C> <C> <C> OFFICE 3615 North 27th Avenue Bank One, Arizona, N.A 1960 & 1979 10.26 179,280 Phoenix, AZ 1301 California Circle Stevens-Arnold, Inc 1985 6.34 100,026 Milpitas, CA (BICC Public Ltd. Co.) 200 Executive Boulevard Hartford Fire Insurance Co 1983 12.40 153,364 South Southington, CT 19019 No. 59th Avenue Honeywell, Inc 1985 51.79 252,300 Glendale, AZ 401 Elm Street Lockheed Martin Corporation 1960 & 1988 36.94 126,000 Marlborough, MA (Honeywell, Inc.) 12000 Tech Center Drive Kelsey-Hayes Company (Tech I) 1987 & 1988 5.72 80,230 Livonia, MI 2300 Litton Lane Fidelity Corporate 1987 24.00 81,744 Hebron, KY Real Estate, LLC (2) 2211 South 47th Street Avnet, Inc 1997 11.33 176,402 Phoenix, AZ 160 Clairemont Avenue Allied Holdings, Inc 1983 2.98 112,248 Decatur, GA 13651 McLearen Road Boeing North American Services, Inc 1987 10.39 159,664 Herndon, VA 2210 Enterprise Drive Fleet Mortgage Group, Inc 1998 16.53 177,747 Florence, SC <CAPTION> 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- <S> <C> <C> <C> <C> OFFICE 3615 North 27th Avenue 11/30/88 - 11/30/03 (1) 5 year $ 1,900 $ 1,900 Phoenix, AZ 12/01/98 - 11/30/03: $10.60 1301 California Circle 12/10/85 - 12/10/05 (9) 5 year $ 2,562 $ 2,548 Milpitas, CA 12/01/00 - 05/31/03: $25.56 06/01/03 - 12/10/05: $28.92 200 Executive Boulevard 09/01/91 - 12/31/05 (1) 5 year $ 2,165 $ 2,158 South 01/01/95 - 12/31/05: $14.12 Southington, CT 19019 No. 59th Avenue 07/16/86 - 07/15/06 (2) 5 year $ 1,950 $ 1,997 Glendale, AZ 07/16/96 - 07/15/01: $7.50 07/16/01 - 07/15/06: $8.00 401 Elm Street 07/22/97 - 12/17/06 (6) 5 year $ 1,671 $ 1,671 Marlborough, MA 07/22/97 - 12/17/01: $13.26 12/18/01 - 12/17/06: 75% of cumulative increase in CPI 12000 Tech Center Drive 05/01/97 - 04/30/07 (2) 5 year $ 635 $ 679 Livonia, MI 05/01/99 - 04/30/02: $7.91 05/01/02 - 04/30/05: $8.75 05/01/05 - 04/30/07: $9.25 2300 Litton Lane 05/01/97 - 04/30/07 (2) 5 year $ 777 $ 965 Hebron, KY 05/01/97 - 04/30/02: $9.50 05/01/02 - 04/30/07: $11.00 2211 South 47th Street 05/11/00 - 11/14/07 (2) 5 year $ 2,335 $ 2,468 Phoenix, AZ 05/11/00 - 10/31/00: $12.11 11/01/00 - 10/31/03: $13.24 11/01/03 - 10/31/06: $14.47 11/01/06 - 11/14/07: $15.81 160 Clairemont Avenue 01/01/98 - 12/31/07 (2) 5 year $ 1,464 $ 1,530 Decatur, GA 01/01/01 - 12/31/07: $13.05 Rent increases 2.75% annually 13651 McLearen Road 05/31/99 - 05/30/08 (2) 5 year $ 2,358 $ 2,585 Herndon, VA 05/31/00 - 05/30/01: $13.74 05/31/01 - 05/30/02: $15.50 05/31/02 - 05/30/03: $15.89 05/31/03 - 05/30/04: $16.28 05/31/04 - 05/30/05: $16.69 05/31/05 - 05/30/06: $17.11 05/31/06 - 05/30/07: $17.54 05/31/07 - 05/30/08: $17.98 2210 Enterprise Drive 06/10/98 - 06/30/08 (2) 5 year $ 1,520 $ 1,635 Florence, SC 06/10/98 - 06/30/03: $8.55 07/01/03 - 06/30/08: $9.84 </TABLE> 8
10 <TABLE> <CAPTION> YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- <S> <C> <C> <C> <C> 295 Chipeta Way Northwest Pipeline Corp. (1) 1982 19.79 295,000 Salt Lake City, UT 421 Butler Farm Road Nextel Communications of the Mid- 2000 7.81 56,515 Hampton, VA Atlantic, Inc 9950 Mayland Drive Circuit City Stores, Inc. (1) 1990 19.71 288,562 Richmond, VA 10419 North 30th Street Time Customer Service, Inc 1986 14.38 132,981 Tampa, FL (Time, Inc.) 4200 RCA Boulevard The Wackenhut Corp. (5) 1996 7.70 127,855 Palm Beach Gardens, FL 250 Rittenhouse Circle Jones Apparel Group, Inc. (4) 1982 15.63 255,019 Bristol, PA 180 Rittenhouse Circle Jones Apparel Group, Inc 1998 4.73 96,000 Bristol, PA 250 Turnpike Road Honeywell Consumer Products 1984 9.83 57,698 Southborough, MA <CAPTION> 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- <S> <C> <C> <C> <C> 295 Chipeta Way 10/01/82 - 09/30/09 (1) 9 year $ 8,571 $ 8,571 Salt Lake City, UT 10/01/97 - 09/30/09: $29.06 (1) 10 year subject to a CPI adjustment on a portion of the rent. 421 Butler Farm Road 01/15/00 - 01/14/10 (2) 5 year $ 668 $ 719 Hampton, VA 01/15/00 - 01/14/01: $11.60 01/15/01 - 01/14/02: $11.83 01/15/02 - 01/14/03: $12.07 01/15/03 - 01/14/04: $12.31 01/15/04 - 01/14/05: $12.56 01/15/05 - 01/14/06: $12.81 01/15/06 - 01/14/07: $13.07 01/15/07 - 01/14/08: $13.33 01/15/08 - 01/14/09: $13.60 01/15/09 - 01/14/10: $13.87 9950 Mayland Drive 02/28/90 - 02/28/10 (4) 10 year $ 2,859 $ 2,791 Richmond, VA 03/01/00 - 02/28/10: $9.91 (1) 5 year 10419 North 30th Street 04/01/87 - 07/31/10 (2) 5 Year $ 1,301 $ 1,457 Tampa, FL 08/01/00 - 07/31/01: $9.67 08/01/01 - 07/31/02: $9.94 08/01/02 - 07/31/03: $10.21 08/01/03 - 07/31/04: $10.49 08/01/04 - 07/31/05: $10.78 08/01/05 - 07/31/06: $11.07 08/01/06 - 07/31/07: $11.38 08/01/07 - 07/31/08: $11.69 08/01/08 - 07/31/09: $12.01 08/01/09 - 07/31/10: $12.34 4200 RCA Boulevard 02/15/96 - 02/28/11 (3) 5 year $ 2,276 $ 2,280 Palm Beach Gardens, FL 12/01/97 - 02/28/11: $17.80 250 Rittenhouse Circle 03/26/98 - 03/25/13 (2) 5 year $ 1,150 $ 1,347 Bristol, PA 03/26/98 - 03/26/03: $4.51 03/27/03 - 03/26/08: $4.96 03/27/08 - 03/25/13: $5.46 180 Rittenhouse Circle 08/01/98 - 07/31/13 None $ 825 $ 970 Bristol, PA 08/01/00 - 07/31/01: $8.49 08/01/01 - 07/31/13: Rent increases 3% per year 250 Turnpike Road 10/01/95 - 09/30/15 (4) 5 Year $ 432 $ 432 Southborough, MA 10/01/00 - 09/30/05: $7.49 Increase based upon CPI every 5 years </TABLE> 9
11 <TABLE> <CAPTION> YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- <S> <C> <C> <C> <C> 1600 Viceroy Drive VarTec Telecom, Inc 1986 8.17 249,452 Dallas, TX ------ ---------- Office Subtotal 296.43 3,158,087 ------ ---------- INDUSTRIAL 6950 Greenwood Parkway Allegiance Healthcare Corp. (1) 1990 10.15 123,924 Bessemer, AL (Baxter International, Inc.) 567 South Riverside Drive Crown Cork & Seal Co., Inc 1970 & 1976 5.80 146,000 Modesto, CA 109 Stevens Street Unisource Worldwide, Inc 1958 & 1969 6.97 168,800 Jacksonville, FL 222 Tappan Drive North The Gerstenslager Company 1970 26.57 296,720 Mansfield, OH (Worthington Industries) 904 Industrial Road Tenneco Automotive 1968 & 1972 20.00 195,640 Marshall, MI Operating Company, Inc 1601 Pratt Avenue Tenneco Automotive 1979 8.26 53,600 Marshall, MI Operating Company, Inc 4425 Purks Road Lear Technologies, LLC 1989 & 1998 12.00 183,717 Auburn Hills, MI (Lear Corporation) (General Motors Corp.) 245 Salem Church Road Exel Logistics Inc 1985 12.52 252,000 Mechanicsburg, PA (NFC plc) 6 Doughton Road Exel Logistics Inc 1989 24.38 330,000 New Kingstown, PA (NFC plc) 34 East Main Street Exel Logistics Inc 1981 9.66 179,200 New Kingstown, PA (NFC plc) 450 Stern Street Johnson Controls, Inc 1996 20.10 111,160 Oberlin, OH 12025 Tech Center Drive Kelsey-Hayes Company (Tech II) 1987 & 1988 9.18 100,000 Livonia, MI <CAPTION> 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- <S> <C> <C> <C> <C> 1600 Viceroy Drive 09/04/97 - 09/30/15 (2) 5 year $ 3,195 $ 3,486 Dallas, TX 09/01/00 - 08/31/03: $12.81 09/01/03 - 08/31/07: $13.81 09/01/07 - 09/30/15: $14.81 ------- ------- $40,614 $42,189 ------- ------- INDUSTRIAL 6950 Greenwood Parkway 09/01/91 - 09/01/01 (2) 5 year $ 314 $ 314 Bessemer, AL 09/01/91 - 09/01/01: $3.81 567 South Riverside Drive 09/26/86 - 09/25/01 (1) 5 year $ 224 $ 224 Modesto, CA 09/26/96 - 09/25/01: $2.04 109 Stevens Street 10/01/87 - 09/30/02 None $ 380 $ 380 Jacksonville, FL 10/01/97 - 09/30/02: $2.25 222 Tappan Drive North 10/01/99 - 05/31/05 (3) 5 year $ 674 $ 667 Mansfield, OH 10/01/99 - 05/31/05: $2.27 904 Industrial Road 08/18/87 - 08/17/05 None $ 587 $ 583 Marshall, MI 08/18/00 - 08/17/03: $3.00 08/18/03 - 08/17/05: $3.10 1601 Pratt Avenue 08/18/87 - 08/17/05 None $ 161 $ 163 Marshall, MI 08/18/00 - 08/17/03: $3.00 08/18/03 - 08/17/05: $3.10 4425 Purks Road 07/23/98 - 07/22/06 None $ 1,325 $ 1,365 Auburn Hills, MI 07/23/98 - 07/22/02: $7.21 07/23/02 - 07/22/06: $7.63 245 Salem Church Road 11/15/91 - 11/30/06 (2) 5 year $ 1,009 $ 1,000 Mechanicsburg, PA 12/01/00 - 11/30/03: $4.01 12/01/03 - 11/30/06: $4.38 6 Doughton Road 11/15/91 - 11/30/06 (2) 5 year $ 1,361 $ 1,349 New Kingstown, PA 12/01/00 - 11/30/03: $4.12 12/01/03 - 11/30/06: $4.51 34 East Main Street 11/15/91 - 11/30/06 (2) 5 year $ 659 $ 654 New Kingstown, PA 12/01/00 - 11/30/03: $3.68 12/01/03 - 11/30/06: $4.02 450 Stern Street 12/23/96 - 12/22/06 (2) 5 year $ 586 $ 586 Oberlin, OH 12/23/00 - 12/22/01: $5.27 Annual increase of 3x CPI, but not more than 4.5% 12025 Tech Center Drive 05/01/97 - 04/30/07 (2) 5 year $ 916 $ 958 Livonia, MI 05/01/99 - 04/30/02: $9.16 05/01/02 - 04/30/05: $9.75 05/01/05 - 04/30/07: $10.25 </TABLE> 10
12 <TABLE> <CAPTION> YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- <S> <C> <C> <C> <C> One Spicer Drive Dana Corporation 1983 & 1985 20.95 148,000 Gordonsville, TN 541 Perkins Jones Road Kmart Corp 1982 103.00 1,700,000 Warren, OH 3350 Miac Cove Road Mimeo.com, Inc. (3) 1987 10.92 141,359 Memphis, TN 3102 Queen Palm Drive Time Customer Service, Inc 1986 15.02 229,605 Tampa, FL (Time, Inc.) 6345 Brackbill Boulevard Exel Logistics, Inc 1985 & 1991 29.01 507,000 Mechanicsburg, PA (NFC plc) 2280 Northeast Drive Ryder Integrated Logistics, Inc 1996 & 1997 25.70 276,480 Waterloo, IA (Ryder Systems, Inc.) 3501 West Avenue H Michaels Stores, Inc 1998 37.18 431,250 Lancaster, CA 7150 Exchequer Drive Corporate Express Office 1998 5.23 65,043 Baton Rouge, LA Products, Inc (CEX Holdings, Inc.) <CAPTION> 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- <S> <C> <C> <C> <C> One Spicer Drive 01/01/84 - 08/31/07 (2) 5 year $ 335 $ 341 Gordonsville, TN 08/01/99 - 07/31/02: $2.26 (1) 4 year, 08/01/02 - 07/31/05: $2.33 11 months 08/01/05 - 08/31/07: $2.40 541 Perkins Jones Road 10/01/82 - 09/30/07 (10) 5 year $ 8,409 $ 8,932 Warren, OH 10/01/98 - 09/30/02: $4.95 10/01/02 - 09/30/07: $5.51 3350 Miac Cove Road 11/01/99 - 10/31/09 None $ 537 $ 537 Memphis, TN 11/01/99 - 10/31/02: $5.00 11/01/02 - 10/31/04: $5.00 11/01/04 - 10/31/09: $5.50 3102 Queen Palm Drive 08/01/87 - 07/31/10 (2) 5 year $ 906 $ 1,015 Tampa, FL 08/01/00 - 07/31/01: $3.90 08/01/01 - 07/31/02: $4.01 08/01/02 - 07/31/03: $4.12 08/01/03 - 07/31/04: $4.23 08/01/04 - 07/31/05: $4.35 08/01/05 - 07/31/06: $4.47 08/01/06 - 07/31/07: $4.59 08/01/07 - 07/31/08: $4.72 08/01/08 - 07/31/09: $4.85 08/01/09 - 07/31/10: $4.98 6345 Brackbill Boulevard 10/29/90 - 03/19/12 (2) 10 year $ 1,771 $ 1,852 Mechanicsburg, PA 03/20/97 - 03/19/02: $3.49 03/20/02 - 03/19/07: $4.02 03/20/07 - 03/19/12: greater of $4.62 or fair market rent as specified in lease 2280 Northeast Drive 08/01/97 - 07/31/12 (3) 5 year $ 891 $ 1,004 Waterloo, IA 08/01/97 - 07/31/02: $3.22 08/01/02 - 07/31/07: $3.61 08/01/07 - 07/31/12: $4.04 3501 West Avenue H 06/19/98 - 06/18/13 (3) 5 year $ 1,398 $ 1,430 Lancaster, CA 06/19/98 - 06/18/03: $3.24 06/19/03 - 06/18/08: $3.31 06/19/08 - 06/18/13: $3.39 7150 Exchequer Drive 11/01/98 - 10/31/13 (3) 5 year $ 330 $ 368 Baton Rouge, LA 11/01/98 - 10/31/01: $5.02 11/01/01 - 10/31/04: $5.32 11/01/04 - 10/31/07: $5.64 11/01/07 - 10/31/10: $5.98 11/01/10 - 10/31/13: $6.34 </TABLE> 11
13 <TABLE> <CAPTION> YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- <S> <C> <C> <C> <C> 324 Industrial Park Road SKF USA, Inc 1996 21.13 72,868 Franklin, NC ------ ---------- Industrial Subtotal 433.73 5,712,366 ------ ---------- RETAIL 4450 California Street Mervyn's 1976 11.00 122,000 Bakersfield, CA (Dayton Hudson Corp.) 6475 Dobbin Road MOR Dobbin LLC 1983 2.50 60,000 Columbia, MD Amigoland Shopping Center Montgomery Ward & Co., Inc. (1) 1973 7.61 115,000 Mexico St. & Palm Blvd Brownsville, TX 24100 Laguna Hills Mall Federated Department Stores, Inc. 1974 11.00 160,000 Laguna Hills, CA (1) 7111 Westlake Terrace The Home Depot USA, Inc. (1) 1980 7.61 95,000 Bethesda, MD 6910 S. Memorial Highway Toys "R" Us, Inc. (1) 1981 4.44 43,123 Tulsa, OK 12535 SE 82nd Avenue Toys "R" Us, Inc. (1) 1981 5.85 42,842 Clackamas, OR 18601 Alderwood Mall Blvd Toys "R" Us, Inc. (1) 1981 3.64 43,105 Lynnwood, WA 5917 S. La Grange Road Bally Total Fitness Corp 1987 2.73 25,250 Countryside, IL 1160 White Horse Road Physical Fitness Centers of 1987 2.87 31,750 Voorhees, NJ Philadelphia, Inc (Bally Total Fitness Corp.) 5801 Bridge Street Champion Fitness IV, Inc 1977 & 1987 3.66 24,990 DeWitt, NY (Bally Total Fitness Corp.) <CAPTION> 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- <S> <C> <C> <C> <C> 324 Industrial Park Road 12/23/96 - 12/31/14 (3) 10 year $ 340 $ 340 Franklin, NC 01/01/00 - 12/31/02: $4.67 01/01/03 - 12/31/14: CPI every 3 years ------- ------- $23,113 $24,062 ------- ------- RETAIL 4450 California Street 02/23/77 - 12/31/02 (5) 5 year $ 407 $ 397 Bakersfield, CA 01/01/78 - 12/31/02: $3.34 6475 Dobbin Road 08/01/83 - 08/01/04 (5) 5 year $ 628 $ 637 Columbia, MD 01/20/00 - 01/19/01: $10.34 01/20/01 - 01/19/02: $10.48 01/20/02 - 01/19/03: $10.79 01/20/03 - 01/19/04: $11.08 01/20/04 - 08/01/04: $8.53 Amigoland Shopping Center 11/01/74 - 10/31/04 (3) 5 year $ 153 $ 153 Mexico St. & Palm Blvd 11/01/74 - 10/31/04: $1.33 Brownsville, TX 24100 Laguna Hills Mall 02/01/76 - 01/31/06 (1) 8 year $ 677 $ 673 Laguna Hills, CA 02/01/80 - 01/31/06: $4.23 (2) 15 year (1) 6 year 7111 Westlake Terrace 05/01/81 - 04/30/06 (1) 10 year $ 772 $ 648 Bethesda, MD 05/01/96 - 04/30/06: $8.13 (3) 5 year 6910 S. Memorial Highway 06/01/81 - 05/31/06 (5) 5 year $ 361 $ 356 Tulsa, OK 02/01/98 - 05/31/01: $8.26 06/01/01 - 05/31/06: $8.40 12535 SE 82nd Avenue 06/01/81 - 05/31/06 (5) 5 year $ 424 $ 417 Clackamas, OR 02/01/98 - 05/31/01: $9.74 06/01/01 - 05/31/06: $9.91 18601 Alderwood Mall Blvd 06/01/81 - 05/31/06 (5) 5 year $ 395 $ 389 Lynnwood, WA 02/01/98 - 05/31/01: $9.03 06/01/01 - 05/31/06: $9.18 5917 S. La Grange Road 07/13/87 - 07/12/07 (2) 5 year $ 574 $ 542 Countryside, IL 07/13/97 - 07/12/02: $22.73 07/13/02 - 07/12/07: $26.14 1160 White Horse Road 07/14/87 - 07/13/07 (2) 5 year $ 713 $ 673 Voorhees, NJ 07/14/97 - 07/13/02: $22.45 07/14/02 - 07/13/07: $25.82 5801 Bridge Street 08/19/87 - 08/18/07 (2) 5 year $ 444 $ 419 DeWitt, NY 08/19/97 - 08/18/02: $17.78 08/19/02 - 08/18/07: $20.45 </TABLE> 12
14 <TABLE> <CAPTION> YEAR NET TENANT CONSTRUCTED/ LAND AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET ----------------- ------------------------------------ ------------ --------- ----------- <S> <C> <C> <C> <C> 2655 Shasta Way Fred Meyer, Inc 1986 13.90 178,204 Klamath Falls, OR 7272 55th Street Circuit City Stores, Inc 1988 3.90 45,308 Sacramento, CA 6405 South Virginia St Comp USA, Inc 1988 2.72 31,400 Reno, NV 5055 West Sahara Avenue Circuit City Stores, Inc 1988 2.57 36,053 Las Vegas, NV 4733 Hills & Dales Road Scandinavian Health Spa, Inc 1987 3.32 37,214 Canton, OH (Bally Total Fitness Holding Corp.) Fort Street Mall Liberty House, Inc. (1) 1980 1.22 85,610 King St Honolulu, HI 7055 Highway 85 South Wal-Mart Stores, Inc 1985 8.61 81,911 Riverdale, GA 150 NE 20th Street Fred Meyer, Inc 1986 8.81 118,179 Newport, OR 9580 Livingston Road GFS Realty, Inc 1976 10.60 107,337 Oxon Hill, MD (Giant Food, Inc.) Rockshire Village Center GFS Realty, Inc. (1) 1977 7.32 51,682 West Ritchie Parkway (Giant Food, Inc.) Rockville, MD ------ ---------- Retail Subtotal 125.91 1,535,958 ------ ---------- 856.07 10,406,411 ====== ========== <CAPTION> 2001 2001 (E) BASE LEASE TERM AND MINIMUM STRAIGHT-LINE ANNUAL RENTS PER NET RENEWAL CASH RENTAL PROPERTY LOCATION RENTABLE SQUARE FOOT OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------------------------- ------------- ----------- -------------- <S> <C> <C> <C> <C> 2655 Shasta Way 03/10/88 - 03/31/08 (3) 10 year $ 1,009 $ 1,009 Klamath Falls, OR 03/10/88 - 03/31/08: $5.66 7272 55th Street 10/28/88 - 10/27/08 (3) 10 year $ 387 $ 376 Sacramento, CA 10/28/98 - 10/27/03: $8.54 10/28/03 - 10/27/08: $9.30 6405 South Virginia St 12/16/88 - 12/15/08 (3) 10 year $ 335 $ 325 Reno, NV 12/16/98 - 12/15/03: $10.65 12/16/03 - 12/15/08: $11.60 5055 West Sahara Avenue 12/16/88 - 12/15/08 (3) 10 year $ 286 $ 278 Las Vegas, NV 12/16/98 - 12/15/03: $7.93 12/16/03 - 12/15/08: $8.64 4733 Hills & Dales Road 01/01/89 - 12/31/08 (2) 5 year $ 668 $ 685 Canton, OH 01/01/01 - 12/31/01: $17.97 01/01/02 - 12/31/08: Rent increases 2.2% annually Fort Street Mall 10/01/80 - 09/30/09 (1) 9 year, $ 963 $ 971 7 months King St 10/01/95 - 09/30/05: $11.25 (1) 2 year Honolulu, HI 10/01/05 - 09/30/09: $11.56 (3) 5 year 7055 Highway 85 South 12/04/85 - 01/31/11 (5) 5 year $ 270 $ 270 Riverdale, GA 12/04/85 - 01/31/11: $3.29 150 NE 20th Street 06/01/86 - 05/31/11 (3) 5 year $ 826 $ 826 Newport, OR 06/01/86 - 05/31/11: $6.99 plus .5% of gross sales over $20 million ($70,000 in 2000) 9580 Livingston Road 01/03/77 - 02/28/14 (4) 5 year $ 408 $ 274 Oxon Hill, MD 03/01/77 - 02/29/04: $3.80 03/01/04 - 02/28/14: $1.91 Rockshire Village Center 01/01/78 - 04/30/17 (2) 10 year $ 224 $ 152 West Ritchie Parkway 01/01/78 - 02/28/05: $4.33 Rockville, MD 03/01/05 - 04/30/17: $2.23 ------- ------- $10,924 $10,470 ------- ------- $74,651 $76,721 ======= ======= </TABLE> - --------------- (E) Estimated (1) The Company holds leasehold interest in the land. The leases, including renewal options, expire at various dates through 2074. (2) Tenant can cancel lease on April 30, 2004 with 270 days notice and a payment of $899. (3) The tenant occupies 107,399 square feet through October 31, 2002 and will fully occupy the property commencing November 1, 2002. (4) Tenant can cancel lease on March 26, 2008 with 12 months notice and a payment of $1,392. (5) The Property contains three buildings with four additional tenants that occupy 31,737 square feet out of the total of 127,855. 13
15 LEXINGTON CORPORATE PROPERTIES TRUST JOINT VENTURE PROPERTY CHART <TABLE> <CAPTION> BASE LEASE TERM YEAR LAND NET AND ANNUAL RENTS TENANT CONSTRUCTED/ AREA RENTABLE PER NET RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET SQUARE FOOT ----------------- ----------------------------- ------------ --------- ----------- ---------------------------- <S> <C> <C> <C> <C> <C> OFFICE 14040 Park Center Road NEC America, Inc. (1) 1987 13.30 108,000 08/01/99 - 07/31/09 Herndon, VA 08/01/00 - 07/31/01: $16.32 08/01/01 - 07/31/09: Rent increases 2.0% annually and by $216 in year six 15375 Memorial Drive Vastar Resources, Inc. (1) 1985 21.77 327,325 09/16/99 - 09/15/09 Houston, TX 09/16/99 - 09/15/02: $10.00 09/16/02 - 09/15/06: $10.50 09/16/06 - 09/15/09: $11.00 550 International Parkway First USA Management 1999 12.80 125,920 10/1/99 - 09/30/09 Lake Mary, FL Services, Inc. (1)(4)(6) 10/01/00 - 09/30/01: $20.60 10/01/01 - 09/30/02: $21.05 10/01/02 - 09/30/03: $21.50 10/01/03 - 09/30/04: $21.95 10/01/04 - 09/30/05: $22.40 10/01/05 - 09/30/06: $22.85 10/01/06 - 09/30/07: $23.30 10/01/07 - 09/30/08: $23.75 10/01/08 - 09/30/09: $24.20 600 International Parkway First USA Management 1997 13.30 125,155 10/1/99 - 09/30/09 Lake Mary, FL Services, Inc. (1)(4)(6) 10/01/00 - 09/30/01: $21.55 10/01/01 - 09/30/02: $22.00 10/01/02 - 09/30/03: $22.45 10/01/03 - 09/30/04: $22.90 10/01/04 - 09/30/05: $23.35 10/01/05 - 09/30/06: $23.80 10/01/06 - 09/30/07: $24.25 10/01/07 - 09/30/08: $24.70 10/01/08 - 09/30/09: $25.15 17 Technology Circle Blue Cross Blue Shield of 1999 42.46 348,410 10/01/99 - 09/30/09 Columbia, SC South Carolina (2) 10/01/99 - 09/30/04: $13.10 10/01/04 - 09/30/09: $15.07 10300 Kincaid Drive Bank One Indiana, N.A. (1)(5) 1999 13.30 193,000 03/29/00 - 10/31/09 Fishers, IN 03/29/00 - 10/31/04: $16.50 11/01/04 - 10/31/09: $17.52 6555 Sierra Drive True North Communications, 1999 9.98 247,254 02/01/00 - 01/31/10 Irving, TX Inc. (1) 02/01/00 - 01/31/05: $16.21 02/01/05 - 01/31/10: $18.05 389-399 Interpace Highway Aventis Pharmaceuticals, Inc 2000 14.00 340,240 06/01/00 - 01/31/10 Morris Corporate Center IV (Pharma Holdings GmbH) (1) 06/01/00 - 01/31/05: $23.06 Parsippany, NJ 02/01/05 - 01/31/10: $26.49 <CAPTION> 2001 2001 (E) MINIMUM STRAIGHT-LINE RENEWAL CASH RENTAL PROPERTY LOCATION OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------- ----------- -------------- <S> <C> <C> <C> OFFICE 14040 Park Center Road (2) 5 year $ 1,773 $ 2,025 Herndon, VA 15375 Memorial Drive (4) 5 year $ 3,273 $ 3,437 Houston, TX 550 International Parkway (2) 5 year $ 2,608 $ 2,820 Lake Mary, FL 600 International Parkway (2) 5 year $ 2,711 $ 2,921 Lake Mary, FL 17 Technology Circle (2) 5 year $ 4,564 $ 4,906 Columbia, SC 10300 Kincaid Drive (2) 5 year $ 3,185 $ 3,287 Fishers, IN 6555 Sierra Drive (2) 5 year $ 4,009 $ 4,250 Irving, TX 389-399 Interpace Highway (2) 5 year $ 7,844 $ 8,487 Morris Corporate Center IV Parsippany, NJ </TABLE> 14
16 <TABLE> <CAPTION> BASE LEASE TERM YEAR LAND NET AND ANNUAL RENTS TENANT CONSTRUCTED/ AREA RENTABLE PER NET RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET SQUARE FOOT ----------------- ----------------------------- ------------ --------- ----------- ---------------------------- <S> <C> <C> <C> <C> <C> 2000 Eastman Drive Structural Dynamic Research 1991 12.36 212,836 05/01/91 - 04/30/11 Milford, OH Corp. (1) 05/01/00 - 04/30/01: $11.80 05/01/01 - 04/30/02: $12.05 05/01/02 - 04/30/03: $12.31 05/01/03 - 04/30/04: $12.57 05/01/04 - 04/30/05: $12.84 05/01/05 - 04/30/06: $13.11 05/01/06 - 04/30/07: $13.39 05/01/07 - 04/30/08: $13.73 05/01/08 - 04/30/09: $13.97 05/01/09 - 04/30/10: $14.27 05/01/10 - 04/30/11: $14.57 ------ --------- Office Subtotal 153.27 2,028,140 ------ --------- INDUSTRIAL 3600 Southgate Drive Sygma Network, Inc. (3) 2000 19.00 149,500 10/15/00 - 10/31/15 Danville, IL (Sysco Corporation) 10/15/00 - 10/31/15: $6.24 ------ --------- Industrial Subtotal 19.00 149,500 ------ --------- 172.27 2,177,640 ====== ========= <CAPTION> 2001 2001 (E) MINIMUM STRAIGHT-LINE RENEWAL CASH RENTAL PROPERTY LOCATION OPTIONS RENT ($000) REVENUE ($000) ----------------- ---------- ----------- -------------- <S> <C> <C> <C> 2000 Eastman Drive (3) 5 year $ 2,547 $ 2,790 Milford, OH ------- ------- $32,514 $34,923 ------- ------- INDUSTRIAL 3600 Southgate Drive (2) 5 year $ 933 $ 933 Danville, IL ------- ------- $ 933 $ 933 ------- ------- $33,447 $35,856 ======= ======= </TABLE> - --------------- (E) Estimated (1) The Company has a 33% ownership interest in the entity which owns this Property. (2) The Company has a 40% ownership interest in the entity which owns this Property. (3) The Company has a 99% ownership interest in the entity which owns this Property. (4) The joint venture has operating expense stops on this Property of $1,264. (5) The joint venture has operating expense stops on this Property of $768. (6) The joint venture operates these investments as a single Property. 15
17 ITEM 3. LEGAL PROCEEDINGS The Company is not presently involved in any litigation nor to its knowledge is any litigation threatened against the Company or its subsidiaries that, in management's opinion, would result in any material adverse effect on the Company's ownership, financial condition, management or operation of its Properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 4A. EXECUTIVE OFFICERS AND TRUSTEES OF THE REGISTRANT The following sets forth certain information relating to the executive officers and trustees of the Company: <TABLE> <CAPTION> NAME BUSINESS EXPERIENCE ---- ------------------- <S> <C> E. ROBERT ROSKIND.............. Mr. Roskind has served as the Chairman of the Board of Age 56 Trustees and Co-Chief Executive Officer of the Company since October 1993. He founded the LCP Group, L.P., a real estate advisory firm, in 1973 and has been its Chairman since 1976. The LCP Group, L.P. has been the general partner of various limited partnerships with which the Company has had prior dealings. He is also the general partner of a variety of entities that are general partners of various partnerships that hold net leased real properties or interests in real property. 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. He is on the Board of Directors of Clarion CMBS Value Fund, Inc. RICHARD J. ROUSE............... Mr. Rouse has served as Co-Chief Executive Officer and as a AGE 55 trustee of the Company since October 1993. He served as President of the Company from October 1993 to April 1996, and since April 1996 has served as Vice Chairman of the Board of Trustees. 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 the Age 36 Company since October 1993 and as a trustee since May 1994. He served as Executive Vice President from October 1993 to April 1996, and since April 1996 has served as the President. Mr. Eglin received his B.A. from Connecticut College in 1986. PATRICK CARROLL................ Mr. Carroll has served as Chief Financial Officer of the Age 37 Company since May 1998 and Treasurer since January 1999. Prior to joining the Company, Mr. Carroll was, from 1993 to 1998, a Senior Manager in the real estate practice of Coopers & Lybrand L.L.P., a public accounting firm. Mr. Carroll received his B.B.A. from Hofstra University in 1986, his M.S. in Taxation from C.W. Post in 1991, and is a Certified Public Accountant. STEPHEN C. HAGEN............... Mr. Hagen has served as Senior Vice President of the Company Age 58 since October 1996. Mr. Hagen had been associated with the LCP Group, L.P. from 1995 to 1996. Mr. Hagen received his B.S. from the University of Kansas in 1965 and his M.B.A. in 1968 from the Wharton School of Finance and Commerce of the University of Pennsylvania. PAUL WOOD...................... Mr. Wood has served as Vice President, Chief Accounting Age 41 Officer and Secretary of the Company since October 1993. Mr. Wood received his B.B.A. from Adelphi University in 1982 and is a Certified Public Accountant. </TABLE> 16
18 <TABLE> <CAPTION> NAME BUSINESS EXPERIENCE ---- ------------------- <S> <C> JANET M. KAZ................... Ms. Kaz has served as Vice President of the Company since Age 37 May 1995 and as Asset Manager since October 1993. Ms. Kaz received her B.A. from Muhlenberg College in 1985. GEORGE WILSON.................. Mr. Wilson has served as Vice President of the Company since Age 40 December 2000 and as an Asset Manager since May 1999. Prior to joining the Company, Mr. Wilson was the Asset Manager for American Real Estate Partners, L.P., a publicly traded net lease real estate partnership from 1994 to 1999. He received his B.A. from Columbia College in 1983 and a M.S. in Real Estate Development from Columbia University in 1986. PHILIP KIANKA.................. Mr. Kianka has served as Vice President of the Company since Age 44 1997. Prior to joining the Company, 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 received his B.A. from Clemson University in 1978 and his M.A. from Clemson University in 1981. NATASHA ROBERTS................ Ms. Roberts has served as Vice President and as a member of Age 34 the acquisition department of the Company since 1997. Prior to joining the Company, Ms. Roberts worked for Net Lease Partners Realty Advisors, a real estate advisory firm and an affiliate of Mr. Roskind from January 1995 to January 1997 and as a licensed real estate broker from February 1992 to January 1995. BRENDAN P. MULLINIX............ Mr. Mullinix has served as a Vice President of the Company Age 26 since February 2000 and as a member of the acquisitions department since October 1996. He received his B.A. from Columbia University in 1996. GEOFFREY DOHRMANN.............. Mr. Dohrmann has served as a trustee since August 2000. Mr. Age 49 Dohrmann co- founded Institutional Real Estate, Inc., a real estate-oriented publishing and consulting company in 1987 and is currently its Chairman and Chief Executive Officer. Mr. Dohrmann also belongs to the advisory boards for the National Real Estate Index, The Journal of Real Estate Portfolio Management and Center for Real Estate Enterprise Management. He is also a fellow of the Homer Hoyt Institute and holds the Certified Financial Planner (CFP) and Counselors of Real Estate (CRE) designations. CARL D. GLICKMAN............... Mr. Glickman has served as a trustee since May 1994. He has Age 74 been President of The Glickman Organization, a real estate development and management firm, since 1953. He is on the Board of Directors of Alliance Tire & Rubber Co., Ltd., Bear Stearns Companies, Inc., Jerusalem Economic Corporation Ltd. and OfficeMax Inc., as well as numerous private companies. JOHN D. MCGURK................. Mr. McGurk has served as a trustee since January 1997, as Age 57 the designee of Five Arrows Realty Securities, L.L.C. He is the founder and President of Rothschild Realty, Inc., the advisor to Five Arrows. Prior to starting Rothschild Realty, Inc. in 1981, Mr. McGurk served as a Regional Vice President for The Prudential Insurance Company of America where he oversaw its New York City real estate loan portfolio, equity holdings, joint ventures and projects under development. Mr. McGurk is a member of the Urban Land Institute, Pension Real Estate Association, Real Estate Board of New York and the National Real Estate Association, and is a member of the Trustee Committee of the Caedmon School. SETH M. ZACHARY................ Mr. Zachary has served as a trustee since November 1993. Age 48 Since 1987, he has been a partner, and is currently the Chairman, of the law firm Paul, Hastings, Janofsky & Walker LLP, counsel to the Company. </TABLE> 17
19 PART II. 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: <TABLE> <CAPTION> FOR THE QUARTERS ENDED: HIGH LOW CASH DIVIDEND ----------------------- -------- -------- ------------- <S> <C> <C> <C> December 31, 2000......................................... $11.9375 $10.6875 $0.31 September 30, 2000........................................ 12.2500 11.0625 $0.31 June 30, 2000............................................. 11.3125 9.9375 $0.30 March 31, 2000............................................ 11.6250 9.0000 $0.30 December 31, 1999......................................... $11.2500 $ 8.8125 $0.30 September 30, 1999........................................ 12.8750 10.8750 $0.30 June 30, 1999............................................. 12.0000 10.5000 $0.30 March 31, 1999............................................ 12.8750 9.8750 $0.30 </TABLE> The closing price of the common shares of the Company was $12.95 on March 15, 2001. As of March 15, 2001, the Company had 2,073 common shareholders of record. Dividends. The Company has made quarterly distributions since October 1986 without interruption. The dividends paid in each quarter for the last five years are as follows: <TABLE> <CAPTION> FOR THE QUARTERS ENDED 2000 1999 1998 1997 1996 ---------------------- ----- ----- ----- ----- ----- <S> <C> <C> <C> <C> <C> March 31, ............................................. $0.30 $0.30 $0.29 $0.29 $0.27 June 30, .............................................. $0.30 $0.30 $0.29 $0.29 $0.27 September 30, ......................................... $0.31 $0.30 $0.29 $0.29 $0.28 December 31, .......................................... $0.31 $0.30 $0.30 $0.29 $0.28 </TABLE> The Company's annualized dividend rate is currently $1.24 per share. Following is a summary of the average taxable nature of the Company's dividends for the three years ended December 31: <TABLE> <CAPTION> 2000 1999 1998 ------ ------ ------ <S> <C> <C> <C> Total dividends per share................................... $ 1.22 $ 1.20 $ 1.17 ====== ====== ====== Ordinary income........................................... 87.78% 83.73% 88.06% 20% rate gain............................................. 8.48% 10.21% -- 25% rate gain............................................. 3.74% 6.06% 2.30% Percent non-taxable as return of capital.................. -- -- 9.64% ------ ------ ------ 100.00% 100.00% 100.00% ====== ====== ====== </TABLE> While the Company intends to continue paying regular quarterly dividends, future dividend declarations will be at the discretion of the Board of Trustees and will depend on the actual cash flow of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Trustees deems relevant. The actual cash flow available to pay dividends will be affected by a number of factors, including the revenues received from rental properties, the operating expenses of the Company, the interest and principal payments required under various borrowing agreements, the ability of lessees to meet their obligations to the Company and any unanticipated capital expenditures. 18
20 In addition to its common and preferred share offerings, the Company has capitalized the growth in its business through the issuance of secured and unsecured fixed and floating-rate debt. Borrowings under the Company's unsecured revolving credit facility have been a source of funds to both finance the purchase of properties and meet any short-term working capital requirements. The various instruments governing the Company's issuance of its unsecured bank debt impose certain restrictions on the Company with regard to dividends and incurring additional debt obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 6 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. The Company does not believe that the financial covenants contained in its unsecured revolving credit agreement and secured indebtedness will have any adverse impact on the Company's ability to pay dividends in the normal course of business to its common and preferred shareholders or to distribute amounts necessary to maintain its qualifications as a REIT. The Company maintains a dividend reinvestment program pursuant to which common shareholders may elect to automatically reinvest their dividends to purchase common shares of the Company at a 5% discount to the market price and free of commissions and other charges. The Company may, from time to time, either repurchase common shares in the open market, or issue new common shares, for the purpose of fulfilling its obligations under the dividend reinvestment program. Under this program none of the common shares issued through December 31, 2000 were purchased on the open market. ITEM 6. ELECTED 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, 2000. The selected consolidated financial data for the Company should be read in 19
21 conjunction with the Consolidated Financial Statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. ($000's, except per share data) <TABLE> <CAPTION> 2000 1999 1998 1997 1996 -------- -------- --------- --------- -------- <S> <C> <C> <C> <C> <C> Total revenues.................................... $ 80,005 $ 77,300 $ 65,117 $ 43,569 $ 31,675 Operating expenses, including minority interest... (61,012) (61,080) (48,433) (35,304) (26,209) Transactional expenses............................ -- -- (559) -- -- Gain (loss) on sale of properties................. 2,959 5,127 (388) 3,517 -- Loss on extinguishment of debt.................... -- -- -- (3,189) -- -------- -------- --------- --------- -------- Net income........................................ 21,952 21,347 15,737 8,593 5,466 ======== ======== ========= ========= ======== Net income per common share -- basic.............. 1.15 1.11 0.79 0.33 0.58 ======== ======== ========= ========= ======== Net income per common share -- diluted............ 1.10 1.08 0.78 0.32 0.56 ======== ======== ========= ========= ======== Cash dividends paid per common share.............. 1.22 1.20 1.17 1.16 1.10 ======== ======== ========= ========= ======== Net cash provided by operating activities......... 40,803 39,411 32,008 23,823 14,975 ======== ======== ========= ========= ======== Net cash used in investing activities............. (38,549) (64,942) (111,080) (110,767) (16,955) ======== ======== ========= ========= ======== Net cash provided by (used in) financing activities...................................... (6,299) 23,284 86,516 88,116 1,859 ======== ======== ========= ========= ======== Real estate assets, net........................... 584,198 606,592 609,717 416,613 289,326 ======== ======== ========= ========= ======== Total assets...................................... 668,377 656,481 647,007 468,373 310,384 ======== ======== ========= ========= ======== Mortgages and notes payable....................... 387,326 372,254 354,281 220,934 187,740 ======== ======== ========= ========= ======== Funds from operations(1).......................... 46,316 40,652 35,141 21,315 13,783 ======== ======== ========= ========= ======== Rent received below straight line rent............ 3,004 2,054 2,411 924 105 ======== ======== ========= ========= ======== </TABLE> - --------------- (1) The Company believes that Funds From Operations ("FFO") enhances an investor's understanding of the Company's financial condition, results of operations and cash flows. The Company believes that FFO is an appropriate measure of the performance of an equity REIT, and that it can be one measure of a REIT's ability to make cash distributions. FFO is defined in the October 1999 "White Paper", issued by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as "net income (or loss), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." The Company includes in the calculation of FFO the dilutive effect of the deemed conversion of its outstanding exchangeable notes. FFO should not be considered an alternative to net income as an indicator of operating performance or to cash flows from operating activities as determined in accordance with GAAP, or as a measure of liquidity to other consolidated income or cash flow statement data as determined in accordance with GAAP. The Company believes that the book value of its real estate assets, which reflects the historical cost of such real estate assets less accumulated depreciation, is not indicative of the current market value of its Properties. Historical operating results are not necessarily indicative of future operating results. 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. 20
22 As of December 31, 2000, the Company owned (or had interests in) 71 real estate properties. During 2000, the Company purchased nine properties, including joint venture investments, for $273.8 million. During 2000, the Company sold two properties to the Net Partnerships for $15.6 million, which resulted in a gain of approximately $2.3 million, and one property to the tenant for $4.0 million, which resulted in aggregate gains of $3.0 million. LIQUIDITY AND CAPITAL RESOURCES Since becoming a public company, the Company's principal source of capital for growth has been the public and private equity markets, selective secured indebtedness, its unsecured credit facility and issuance of OP Units. The Company's current $60 million unsecured credit facility, which is scheduled to expire in July 2001, has made available funds to finance acquisitions and meet any short-term working capital requirements. As of December 31, 2000, the weighted average interest rate on outstanding borrowings was 8.03%. As of March 15, 2001 the weighted average interest rate was 6.78%. Since its formation in 1993, the Company has raised, through the issuance of common shares, preferred shares and OP Units, aggregate capital of approximately $131 million for the purposes of making acquisitions and retiring indebtedness. In addition, the Company has purchased $77.6 million in real estate through the direct issuance of its common shares and OP Units. Dividends. In connection with its intention to continue to qualify as a REIT for Federal income tax purposes, the Company expects to continue paying regular dividends to its shareholders. These dividends are expected to be paid from operating cash flows which are expected to increase due to property acquisitions and growth in rental revenues in the existing portfolio and from other sources. Since cash used to pay dividends reduces amounts available for capital investments, the Company generally intends to maintain a conservative dividend payout ratio, reserving such amounts as it considers necessary for the expansion of Properties in its portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as the Board of Trustees considers appropriate. Cash dividends paid to common shareholders increased to $20.8 million in 2000, compared to $20.5 million in 1999 and $19.6 million in 1998. The Company's dividend and distribution FFO payout ratio, on a per share basis, for 2000, 1999, and 1998 was 69.3%, 74.1%, and 79.6% respectively. Although the Company receives the majority of its rental payments on a monthly basis, it intends to continue paying dividends quarterly. Amounts accumulated in advance of each quarterly distribution are invested by the Company in short-term money market or other suitable instruments. The Company anticipates that cash flows from operations will continue to provide adequate capital to fund its operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with REIT requirements in both the short-term and long-term. In addition, the Company anticipates that cash on hand, borrowings under its unsecured credit facility, issuance of equity and debt, as well as other alternatives, will provide the necessary capital required by the Company. Cash flows from operations as reported in the Consolidated Statements of Cash Flows increased to $40.8 million for 2000 from $39.4 million for 1999 and $32.0 million for 1998. Net cash used in investing activities totaled $38.5 million in 2000, $64.9 million in 1999 and $111.1 million in 1998. Cash used in investing activities related primarily to investments in real estate properties and joint ventures. Therefore, the fluctuation in investing activities relates primarily to the timing of investments and dispositions. Net cash (used in) provided by financing activities totaled $(6.3) million in 2000, $23.3 million in 1999 and $86.5 million in 1998. Cash (used in) provided by financing activities during each year was primarily attributable to proceeds from non-recourse mortgages and advances/repayments under the Company's credit facility coupled with dividend and distribution payments, debt service payments and the repurchase of the Company's common shares/operating partnership units. UPREIT Structure. The Company's UPREIT structure permits the Company to effect acquisitions by issuing to a seller of real estate, as a form of consideration, interests in partnerships controlled by the Company. All of such interests are redeemable at certain times for common shares on a one-for-one basis and all of such interests require the Company 21
23 to pay certain distributions to the holders of such interests. The Company accounts for these interests in a manner similar to a minority interest holder. The number of common shares that will be outstanding in the future should be expected to increase, and minority interest expense should be expected to decrease as such partnership interests are redeemed for common shares. The following table provides certain information with respect to such partnership interests as of December 31, 2000 (assuming the Company's annual dividend rate remains at $1.24 per share). <TABLE> <CAPTION> TOTAL CURRENT CURRENT TOTAL ANNUALIZED ANNUALIZED REDEEMABLE FOR NUMBER AFFILIATE PER UNIT DISTRIBUTION COMMON SHARES: OF UNITS UNITS DISTRIBUTION ($000) -------------- --------- --------- ------------ ------------ <S> <C> <C> <C> <C> At any time................................................ 3,849,204 1,317,759 $1.24 $4,773 At any time................................................ 1,271,073 120,374 1.08 1,373 At any time................................................ 133,050 52,144 1.12 149 June 2002.................................................. 83,400 83,400 1.24 103 January 2003............................................... 17,901 -- -- -- March 2004................................................. 43,734 -- 0.27 12 March 2004................................................. 27,314 -- -- -- November 2004.............................................. 29,976 2,856 -- -- March 2005................................................. 29,384 -- -- -- January 2006............................................... 187,163 416 -- -- February 2006.............................................. 29,886 1,743 -- -- May 2006................................................... 9,368 -- 0.29 3 --------- --------- ----- ------ 5,711,453 1,578,692 $1.12 $6,413 ========= ========= ===== ====== </TABLE> Affiliate units, which are included in total units, represent OP Units held by two executive officers (including their affiliates) of the Company. FINANCING Revolving Credit Facility. The Company's $60 million unsecured credit facility bears interest at 137.5 basis points over LIBOR and has an interest rate period of one, three, or six months, at the option of the Company. During 2000, the Company exercised its option to reduce the credit facility to $60 million from $100 million to reduce unused facility costs. The credit facility contains various leverage, debt service coverage, net worth maintenance and other customary covenants. Approximately $2.8 million was available to the Company at December 31, 2000. The amount of available borrowings can increase by identifying additional unencumbered properties as eligible for the computation of the borrowing base which supports the credit facility. As of December 31, 2000 approximately $41.8 million was outstanding. The Company is currently in discussions with lending institutions to provide three year loan facilities to satisfy the outstanding borrowings on the current line at its maturity in July 2001. Debt Service Requirements. The Company's principal liquidity needs are the payment of interest and principal on outstanding indebtedness. As of December 31, 2000, a total of fifty-two of the Company's consolidated Properties were subject to outstanding mortgages which had an aggregate principal amount of $345.5 million. The weighted average interest rate on the Company's debt, including line of credit borrowings, on such date was approximately 7.83%. Approximate balloon payment amounts, excluding line of credit borrowings, having a weighted average interest rate of 8.06%, due the next five calendar years are as follows: $1.0 million in 2001; $10.6 million in 2002; $0 in 2003; $25.3 million in 2004 and $67.9 million in 2005. 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 unsecured credit facility or access other capital. The ability of the Company to accomplish such goals will be affected by numerous economic factors affecting the real estate industry, including the availability and cost of mortgage debt at the time, the Company's equity in the mortgaged properties, the financial condition of the Company, the operating history of the mortgaged properties, the then current tax laws and the general national, regional and local economic conditions. 22
24 Lease Obligations. Since the Company's tenants bear all or substantially all of the cost of property maintenance and repairs, 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. The Company's Board of Trustees has authorized the Company to repurchase, from time to time, up to 2,000,000 common shares and operating partnership units depending on market conditions and other factors. As of December 31, 2000, the Company had repurchased approximately 1.4 million common shares and operating partnership units, at an average price of approximately $10.62 per common share/unit. RESULTS OF OPERATIONS ($000) <TABLE> <CAPTION> INCREASE (DECREASE) ---------------------- SELECTED INCOME STATEMENT DATA 2000 1999 1998 2000-1999 1999-1998 ------------------------------ ------- ------- ------- --------- --------- <S> <C> <C> <C> <C> <C> Total revenues.................................... $80,005 $77,300 $65,117 $2,705 $12,183 Total expenses.................................... 54,997 54,642 45,059 355 9,583 Interest........................................ 29,581 29,099 23,055 482 6,044 Depreciation.................................... 17,513 18,000 15,083 (487) 2,917 General & administrative........................ 4,902 4,687 4,518 215 169 Property operating.............................. 1,504 1,865 857 (361) 1,008 Transactional expenses.......................... -- -- 559 -- (559) Net income........................................ $21,952 $21,347 $15,737 $ 605 $ 5,610 </TABLE> Changes in the results of operations for the Company are primarily due to the growth of its portfolio and costs associated with such growth. Of the increase in total revenues in 2000, $1,826 is attributable to increased earnings from co-investment programs established in the third and fourth quarter of 1999. The remaining revenue growth in 2000 was primarily attributable to increase rental revenues from Properties purchased in 1999 and owned for the entire year in 2000. The increase in total revenues in 1999 relates to rental revenues from Properties purchased in 1998 and owned for the entire year in 1999 coupled with rental revenues from 1999 acquisitions. The increase in interest expense due to the growth of the Company's portfolio has been offset by a reduction in the weighted average interest rate from 8.17% as of December 31, 1997 to 7.83% at December 31, 2000 due to debt refinancings, repayments, lower variable interest rates negotiated on the credit facility and lower interest rates on new debt incurred by the Company. The Company's general and administrative expenses have remained the same and/or decreased as a percentage of total revenue to 6.1% in 2000, 6.1% in 1999 and 6.9% in 1998 due to the growth of the Company's portfolio relative to these expenses. The increase in property operating expense in 1999 relates to costs incurred relating to a Property that was vacant through October 1999, which resulted in the Company incurring property level operating expenses which normally are the responsibility of the tenant, and a second Property in which the Company has a level of operating expense responsibility. Transactional expenses in 1998 relate to costs incurred in an abandoned private equity placement. Net income increased in 2000 due to the impact of the items discussed above offset by the reduction in gains on sale of real estate of approximately $2,168. Net income increased in 1999 due to the impact of items discussed above plus a net change of $5,515 in gains on sales of real estate. FUNDS FROM OPERATIONS The Company believes that Funds From Operations ("FFO") enhances an investor's understanding of the Company's financial condition, results of operations and cash flows. The Company believes that FFO is an appropriate measure of the performance of an equity REIT, and that it can be one measure of a REIT's ability to make cash distributions. FFO is defined in the October 1999 "White Paper", issued by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as "net income (or loss), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." The Company includes in the calculation of FFO the dilutive effect of the deemed conversion of its outstanding exchangeable notes. FFO should not be 23
25 considered an alternative to net income as an indicator of operating performance or to cash flows from operating activities as determined in accordance with GAAP, or as a measure of liquidity to other consolidated income or cash flow statement data as determined in accordance with GAAP. The following table reflects the calculation of the Company's FFO and cash flow activities for each of the years in the three year period ended December 31, 2000 ($000): <TABLE> <CAPTION> 2000 1999 1998 -------- -------- --------- <S> <C> <C> <C> Net income.................................................. $ 21,952 $ 21,347 $ 15,737 Depreciation and amortization of real estate.............. 17,513 18,000 15,083 Minority interest's share of net income................... 5,772 6,226 3,933 (Gain) loss on sale of property........................... (2,959) (5,127) 388 Amortization of leasing commissions....................... 503 -- -- Deemed conversion of notes payable........................ 1,582 -- -- Joint venture adjustment.................................. 1,953 206 -- -------- -------- --------- Funds From Operations.................................. $ 46,316 $ 40,652 $ 35,141 ======== ======== ========= Cash flows from operating activities........................ $ 40,803 $ 39,411 $ 32,008 Cash flows used in investing activities..................... (38,549) (64,942) (111,080) Cash flows (used in) from financing activities.............. (6,299) 23,284 86,516 </TABLE> The Company's dividend and distribution FFO payout ratio, on a per share basis, was 69.3%, 74.1% and 79.6% for the years ended December 31, 2000, 1999 and 1998 respectively. RECENTLY ISSUED ACCOUNTING STANDARDS. The Company has considered the effect of adopting SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." The adoption of this pronouncement is not expected to have an impact on the Company's consolidated financial position or results of operations since the Company currently does not have any embedded or freestanding derivatives. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's exposure to market risk relates to its variable rate debt. As of December 31, 2000 and 1999 the Company's variable rate indebtedness represented 13.0% and 19.1% of total mortgages and notes payable, respectively. During 2000 and 1999, this variable rate indebtedness had a weighted average interest rate of 7.86% and 7.52%, respectively. Had the weighted average interest rate been 100 basis points higher the Company's net income would have been reduced by $699,000 and $514,000 in 2000 and 1999, respectively. 24
26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES INDEX <TABLE> <CAPTION> PAGE ----- <S> <C> Independent Auditors' Report................................ 28 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... 29 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998.......................... 30 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998...... 31 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.......................... 32 Notes to Consolidated Financial Statements.................. 33-48 Financial Statement Schedule Schedule III -- Real Estate and Accumulated Depreciation.... 49-50 </TABLE> 25
27 INDEPENDENT AUDITORS' REPORT The Shareholders Lexington Corporate Properties Trust: We have audited the consolidated financial statements of Lexington Corporate Properties Trust and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lexington Corporate Properties Trust and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP New York, New York January 23, 2001 26
28 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($000 EXCEPT PER SHARE AMOUNTS) DECEMBER 31, <TABLE> <CAPTION> 2000 1999 -------- -------- <S> <C> <C> ASSETS Real estate, at cost: Buildings and building improvements....................... $583,522 $588,866 Land and land estates..................................... 87,606 88,561 Land improvements......................................... 3,154 3,154 Fixtures and equipment.................................... 8,345 8,345 -------- -------- 682,627 688,926 Less: accumulated depreciation............................ 98,429 82,334 -------- -------- 584,198 606,592 Cash and cash equivalents................................... 4,792 8,837 Restricted cash............................................. 1,598 2,470 Deferred expenses (net of accumulated amortization of $5,222 in 2000 and $4,513 in 1999)............................... 7,958 5,508 Rent receivable............................................. 16,583 14,108 Investment in non-consolidated entities..................... 40,836 11,523 Other assets, net........................................... 12,412 7,443 -------- -------- $668,377 $656,481 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgages payable........................................... $345,505 $299,360 Credit facility borrowings.................................. 41,821 70,921 Subordinated notes payable, including accrued interest...... -- 1,973 Origination fees payable, including accrued interest........ 6,703 6,781 Accounts payable and other liabilities...................... 4,312 3,917 Accrued interest payable.................................... 2,161 2,251 -------- -------- 400,502 385,203 Minority interests.......................................... 64,812 66,303 -------- -------- 465,314 451,506 -------- -------- Commitments and contingencies (note 7) Preferred shares, par value $0.0001 per share; authorized 10,000,000 shares. Class A Senior Cumulative Convertible Preferred, liquidation preference $25,000, 2,000,000 shares issued and outstanding............................. 24,369 24,369 -------- -------- Common shares, par value $0.0001 per share; 287,888 shares issued and outstanding, liquidation preference $3,886..... 3,809 3,809 -------- -------- Shareholders' equity: Common shares, par value $0.0001 per share, authorized 40,000,000 shares, 16,863,394 and 16,905,285 shares issued and outstanding in 2000 and 1999, respectively........................................... 2 2 Additional paid-in-capital................................ 240,112 240,339 Deferred compensation, net................................ (1,019) (701) Accumulated distributions in excess of net income......... (62,227) (60,852) -------- -------- 176,868 178,788 Less: notes receivable from officers/shareholders......... (1,983) (1,991) -------- -------- Total shareholders' equity........................ 174,885 176,797 -------- -------- $668,377 $656,481 ======== ======== </TABLE> See accompanying notes to consolidated financial statements. 27
29 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME ($000 EXCEPT PER SHARE AMOUNTS) YEARS ENDED DECEMBER 31, <TABLE> <CAPTION> 2000 1999 1998 ---------- ---------- ---------- <S> <C> <C> <C> Revenues: Rental.................................................... $ 76,824 $ 75,760 $ 62,846 Equity in earnings of non-consolidated entities........... 1,851 25 -- Interest and other........................................ 1,330 1,515 2,271 ---------- ---------- ---------- 80,005 77,300 65,117 ---------- ---------- ---------- Expenses: Interest expense.......................................... 29,581 29,099 23,055 Depreciation and amortization of real estate.............. 17,513 18,000 15,083 Amortization of deferred expenses......................... 1,497 991 987 General and administrative expenses....................... 4,902 4,687 4,518 Property operating expenses............................... 1,504 1,865 857 Transactional expenses.................................... -- -- 559 ---------- ---------- ---------- 54,997 54,642 45,059 ---------- ---------- ---------- Income before gain (loss) on sale of properties and minority interests................................................. 25,008 22,658 20,058 Gain (loss) on sale of properties........................... 2,959 5,127 (388) ---------- ---------- ---------- Income before minority interests............................ 27,967 27,785 19,670 Minority interests.......................................... 6,015 6,438 3,933 ---------- ---------- ---------- Net income............................................. $ 21,952 $ 21,347 $ 15,737 ========== ========== ========== Net income per common share -- basic........................ $ 1.15 $ 1.11 $ 0.79 ========== ========== ========== Weighted average common shares outstanding.................. 16,900,039 16,979,925 16,835,414 ========== ========== ========== Net income per common share -- diluted...................... $ 1.10 $ 1.08 $ 0.78 ========== ========== ========== Weighted average common shares outstanding.................. 24,714,219 24,945,267 21,983,876 ========== ========== ========== </TABLE> See accompanying notes to consolidated financial statements. 28
30 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ($000 EXCEPT PER SHARE AMOUNTS) YEARS ENDED DECEMBER 31, <TABLE> <CAPTION> ACCUMULATED NOTES ADDITIONAL DEFERRED DISTRIBUTIONS RECEIVABLE NUMBER OF PAID-IN COMPENSATION, IN EXCESS OF OFFICERS/ SHARES AMOUNT CAPITAL NET NET INCOME SHAREHOLDERS TOTAL EQUITY ---------- ------ ---------- ------------- ------------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 1997..... 16,509,610 $2 $235,469 $ -- $(53,005) $ -- $182,466 Net income....................... -- -- -- -- 15,737 -- 15,737 Dividends paid to common shareholders ($1.17 per share)......................... -- -- -- -- (19,633) -- (19,633) Dividends paid to preferred shareholders ($1.2285 per share)......................... -- -- -- -- (2,254) -- (2,254) Common shares issued, net........ 723,797 -- 8,013 -- -- (1,996) 6,017 Common shares repurchased and retired........................ (129,875) -- (1,558) -- -- -- (1,558) ---------- -- -------- ------- -------- ------- -------- Balance at December 31, 1998..... 17,103,532 2 241,924 -- (59,155) (1,996) 180,775 Net income....................... -- -- -- -- 21,347 -- 21,347 Dividends paid to common shareholders ($1.20 per share)......................... -- -- -- -- (20,524) -- (20,524) Dividends paid to preferred shareholders ($1.26 per share)......................... -- -- -- -- (2,520) -- (2,520) Common shares issued, net........ 673,262 -- 7,635 (701) -- -- 6,934 Common shares repurchased and retired........................ (871,509) -- (9,220) -- -- -- (9,220) Repayments on notes.............. -- -- -- -- -- 5 5 ---------- -- -------- ------- -------- ------- -------- Balance at December 31, 1999..... 16,905,285 2 240,339 (701) (60,852) (1,991) 176,797 Net income....................... -- -- -- -- 21,952 -- 21,952 Dividends paid to common shareholders ($1.22 per share)......................... -- -- -- -- (20,765) -- (20,765) Dividends paid to preferred shareholders ($1.281 per share)......................... -- -- -- -- (2,562) -- (2,562) Common shares issued, net........ 353,494 -- 3,866 (664) -- -- 3,202 Amortization of deferred compensation................... -- -- -- 346 -- -- 346 Common shares repurchased and retired........................ (395,385) -- (4,093) -- -- -- (4,093) Repayments on notes.............. -- -- -- -- -- 8 8 ---------- -- -------- ------- -------- ------- -------- Balance at December 31, 2000..... 16,863,394 $2 $240,112 $(1,019) $(62,227) $(1,983) $174,885 ========== == ======== ======= ======== ======= ======== </TABLE> See accompanying notes to consolidated financial statements 29
31 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ($000) YEARS ENDED DECEMBER 31, <TABLE> <CAPTION> 2000 1999 1998 -------- --------- --------- <S> <C> <C> <C> Cash flows from operating activities: Net income................................................ $ 21,952 $ 21,347 $ 15,737 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 19,010 18,991 16,070 Minority interests..................................... 6,015 6,438 3,933 Loss (gain) on sale of properties...................... (2,959) (5,127) 388 Other non-cash charges................................. 714 244 75 Equity in earnings of non-consolidated entities........ (1,851) (25) -- Distributions from non-consolidated entities........... 1,092 -- -- Increase (decrease) in accounts payable and other liabilities........................................... 310 (1,013) (292) Other adjustments, net................................. (3,480) (1,444) (3,903) -------- --------- --------- Net cash provided by operating activities......... 40,803 39,411 32,008 -------- --------- --------- Cash flows from investing activities: Net proceeds from sale of properties...................... 19,402 31,548 24,113 Proceeds from sale of joint venture interest.............. -- 10,781 -- Investment in real estate................................. (27,116) (102,987) (135,193) Investments in non-consolidated entities.................. (26,247) (4,284) -- Advances to non-consolidated entities..................... (4,588) -- -- -------- --------- --------- Net cash used in investing activities............. (38,549) (64,942) (111,080) -------- --------- --------- Cash flows from financing activities: Proceeds of mortgages and notes payable................... 84,340 56,075 119,862 Change in credit facility borrowing, net.................. (29,100) 18,300 40,621 Dividends to common and preferred shareholders............ (23,327) (23,044) (21,887) Principal payments on debt, excluding normal amortization........................................... (15,066) (5,513) (64,412) Principal amortization payments........................... (11,646) (10,468) (6,939) Proceeds from the issuance of limited partnership units... -- -- 23,449 Common shares issued, net of offering costs............... 1,402 4,676 293 Cash distributions to minority interests.................. (6,323) (6,533) (4,381) Decrease in escrow deposits............................... 724 104 1,145 Increase in deferred expenses............................. (4,090) (1,718) (1,631) Decrease in restricted cash............................... 872 745 1,954 Common shares/partnership units repurchased............... (4,093) (9,220) (1,558) Other..................................................... 8 (120) -- -------- --------- --------- Net cash (used in) provided by financing activities...................................... (6,299) 23,284 86,516 -------- --------- --------- Change in cash and cash equivalents......................... (4,045) (2,247) 7,444 Cash and cash equivalents, beginning of year................ 8,837 11,084 3,640 -------- --------- --------- Cash and cash equivalents, end of year...................... $ 4,792 $ 8,837 $ 11,084 ======== ========= ========= </TABLE> See accompanying notes to consolidated financial statements. 30
32 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000'S EXCEPT PER SHARE DATA) (1) THE COMPANY Lexington Corporate Properties Trust, (the "Company"), is a self-managed and self-administered Maryland statutory real estate investment trust ("REIT") that acquires, owns, and manages a geographically diversified portfolio of net leased office, industrial and retail properties. Lexington Realty Advisors, Inc. ("LRA"), an affiliate of the Company, provides investment advisory and asset management services to institutional investors in the net-lease area. As of December 31, 2000 the Company owned or had interests in 71 properties in 29 states. The real properties owned by the Company are subject to triple net leases to corporate tenants, although for three investments the leases provide a level of operating expenses which are landlord responsibilities. The Company's Board of Trustees authorized the Company to repurchase, from time to time, up to 2,000,000 common shares and/or operating partnership units, depending on market conditions and other factors. As of December 31, 2000, the Company repurchased approximately 1.4 million common shares/partnership units at an average price of approximately $10.62 per common share/partnership unit. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis Of Presentation and Consolidation. The Company's consolidated financial statements are prepared on the accrual basis of accounting. The financial statements reflect the accounts of the Company and its controlled subsidiaries, including Lepercq Corporate Income Fund L.P. ("LCIF") 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. Real Estate. Real estate assets are stated at cost, less accumulated depreciation and amortization. If there is an event or change in circumstance that indicates an impairment in the value of a property has occurred, the Company's policy is to assess any impairment in value by making a comparison of the current and projected operating cash flows of each such property over its remaining useful life, on an undiscounted basis, to the carrying amount of the property. If such carrying amounts are in excess of the estimated projected operating cash flows of the property, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its estimated fair market value. No such impairment loss has occurred. Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties. The Company generally depreciates buildings and building improvements over a 40-year period, land improvements over a 20-year period, and fixtures and equipment over a 12-year period. Only costs incurred to third parties in acquiring properties are capitalized. No internal costs (rents, salaries, overhead) are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred. Significant renovations which extend the useful life of the properties are capitalized. Investments in non-consolidated entities. The Company accounts for its investments in non-consolidated entities under the equity method. Revenue. Rental revenue is recognized on a straight-line basis over the minimum lease terms. The Company's rent receivable primarily represents the amount of the excess of rental revenues recognized on a straight-line basis over the annual rents collectible under the leases. The Company recognizes percentage rent revenue when the cash is received from the tenant. Deferred Expenses. Deferred expenses consist primarily of debt placement, mortgage loan and other loan fees, and are amortized using the straight-line method, which approximates the interest method, over the terms of the debt instruments. Tax Status. The Company has made an election to qualify, and believes it is operating so as to qualify, as a real estate investment trust under the Internal Revenue Code. A real estate investment trust is generally not subject to Federal income tax on that portion of its real estate investment trust taxable income which is distributed to its shareholders, provided that at least 95% of taxable income is distributed. As distributions have equaled or exceeded taxable income, no 31
33 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) provision for Federal income taxes has been made. State and local income taxes, which are not significant, have been provided for those states and localities in which the Company operates and is subject to an income tax. A summary of the average taxable nature of the Company's dividends for each of the years in the three year period ended December 31, 2000 is as follows: <TABLE> <CAPTION> 2000 1999 1998 ------ ------ ------ <S> <C> <C> <C> Total dividends per share................................... $ 1.22 $ 1.20 $ 1.17 ====== ====== ====== Ordinary income............................................. 87.78% 83.73% 88.06% 20% rate gain............................................... 8.48% 10.21% -- 25% rate gain............................................... 3.74% 6.06% 2.30% Percent non-taxable as return of capital.................... -- -- 9.64% ------ ------ ------ 100.00% 100.00% 100.00% ====== ====== ====== </TABLE> Earnings Per Share. Basic net income per share is computed by dividing net income reduced by preferred dividends by the weighted average number of common shares outstanding during the period. Diluted net income per share amounts are similarly computed but include the effect, when dilutive, of in-the-money common share options and the Company's other dilutive securities which can include operating partnership units, exchangeable notes and convertible preferred shares. In 2000 and 1999 the preferred shares were not dilutive and in 1998 preferred shares and exchangeable notes were not dilutive. Cash and Cash Equivalents. The Company considers all highly liquid instruments with maturities of three months or less from the date of purchase to be cash equivalents. Restricted Cash. Restricted cash includes tenant security deposits and amounts for certain debt obligations including funding requirements. Use of Estimates. Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Recently Issued Accounting Standards. The Company has considered the effect of adopting SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". The adoption of this pronouncement is not expected to have an impact on the Company's consolidated financial position or results of operations since the Company currently does not have any embedded or freestanding derivatives. Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform with the current year presentation. (3) EARNINGS PER SHARE The following is a reconciliation of numerators and denominators of the basic and diluted earnings per share computations for each of the years in the three year period ended December 31, 2000: <TABLE> <CAPTION> 2000 1999 1998 ----------- ----------- ----------- <S> <C> <C> <C> BASIC Net income.............................................. $ 21,952 $ 21,347 $ 15,737 Less dividends attributable to preferred shares......... (2,562) (2,520) (2,478) ----------- ----------- ----------- Net income attributed to common shareholders............ $ 19,390 $ 18,827 $ 13,259 =========== =========== =========== Weighted average number of common shares outstanding.... 16,900,039 16,979,925 16,835,414 =========== =========== =========== Net income per common share -- basic.................... $ 1.15 $ 1.11 $ 0.79 =========== =========== =========== </TABLE> 32
34 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) <TABLE> <CAPTION> 2000 1999 1998 ----------- ----------- ----------- <S> <C> <C> <C> DILUTED Net income attributed to common shareholders............ $ 19,390 $ 18,827 $ 13,259 Add incremental income attributed to assumed conversion of dilutive securities................................ 7,772 8,225 3,831 ----------- ----------- ----------- Net income attributed to common shareholders............ $ 27,162 $ 27,052 $ 17,090 =========== =========== =========== Weighted average number of shares used in calculation of basic earnings per share.............................. 16,900,039 16,979,925 16,835,414 Add incremental shares representing: Shares issuable upon exercise of employee stock options............................................ 166,806 4,194 156,391 Shares issuable upon conversion of dilutive securities......................................... 7,647,374 7,961,148 4,992,071 ----------- ----------- ----------- Weighted average number of shares used in calculation of diluted earnings per common share..................... 24,714,219 24,945,267 21,983,876 =========== =========== =========== Net Income per common share -- diluted.................. $ 1.10 $ 1.08 $ 0.78 =========== =========== =========== </TABLE> (4) INVESTMENTS IN REAL ESTATE During 2000, 1999 and 1998 the Company made the following acquisitions, excluding acquisitions made by joint venture entities: <TABLE> <CAPTION> NET ANNUALIZED RENTABLE DATE OF ACQUISITION BASE RENT LEASE SQUARE ACQUISITION TENANT LOCATION COST DECEMBER 31, EXPIRES FEET - ----------- --------------------------------------- ---------------------- ----------- ------------ ------- --------- <S> <C> <C> <C> <C> <C> <C> 2000 March 20 Nextel Communications of the Mid- Hampton, VA Atlantic, Inc. $ 6,715 $ 719 01-10 56,515 May 11 Avnet, Inc. Phoenix, AZ 23,250 2,468 10-07 176,402 -------- ------- --------- $ 29,965 $ 3,187 232,917 ======== ======= ========= 1999 January 20 Corporate Express Office Products, Inc. Henderson, NC $ 7,416 $ 791 01-14 196,946 August 13 NEC America, Inc. Herndon, VA 19,000 2,006 07-09 108,000 December 22 Jones Apparel Group, Inc. Bristol, PA 8,782 970 07-13 96,000 December 28 Boeing Services Corp. Herndon, VA 25,636 2,585 05-08 159,664 December 29 Honeywell Consumer Products Southborough, MA 4,747 412 09-15 57,698 -------- ------- --------- $ 65,581 $ 6,764 618,308 ======== ======= ========= 1998 March 27 Jones Apparel Group, Inc. Bristol, PA $ 12,539 $ 1,224 03-13 255,019 March 27 Fidelity Corporate Real Estate, LLC Hebron, KY 8,077 817 04-07 81,744 March 27 Kelsey-Hayes (Tech I & II) Livonia, MI 16,442 1,637 04-07 180,230 May 11 Eagle Hardware & Garden, Inc. Federal Way, WA 13,751 1,233 08-17 133,861 May 11 Eagle Hardware & Garden, Inc. Anchorage, AK 17,690 1,588 10-17 157,525 May 15 Stone Container Corporation Columbia, SC 4,230 549 08-12 185,960 May 18 The Wackenhut Corporation Palm Beach Gardens, FL 19,817 2,241 02-11 127,855 June 19 Michaels Stores, Inc. Lancaster, CA 15,102 1,430 06-13 431,250 July 2 Fleet Mortgage Group, Inc. Florence, SC 15,061 1,635 06-08 177,747 July 24 Lear Technologies LLC Auburn Hills, MI 13,939 1,365 07-06 183,717 August 27 Kmart Corporation Warren, OH 63,877 8,932 09-07 1,700,000 October 26 Corporate Express Office Products, Inc. Baton Rouge, LA 3,425 368 10-13 65,043 December 31 Hechinger Property Company Columbia, MD 4,880 549 08-04 60,000 -------- ------- --------- TOTAL $208,830 $23,568 3,739,951 ======== ======= ========= </TABLE> 33
35 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) The Company sold three properties in 2000, seven properties in 1999 and one property in 1998 for an aggregate selling price of $19,600, $63,900 and $24,100, respectively, which resulted in gains in 2000 and 1999 of $2,959 and $5,127, respectively, and a loss of $388 in 1998. In addition, in 2000 the Company contributed its Herndon, Virginia Property (along with a non-recourse mortgage note) which was purchased in 1999 to a joint venture entity for a capital contribution of $2,393. The following unaudited pro forma operating information for the years ended December 31, 2000, and 1999 has been prepared as if all Company acquisitions and dispositions in 2000 and 1999 had been consummated as of January 1, 1999. The information does not purport to be indicative of what the operating results of the Company would have been had the acquisitions and dispositions been consummated on January 1, 1999. Unaudited pro forma amounts are as follows: <TABLE> <CAPTION> DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- <S> <C> <C> Revenues.................................................... $80,357 $76,035 Net income.................................................. $18,984 $15,238 Net income per common share: Basic..................................................... $ 0.97 $ 0.75 Diluted................................................... $ 0.96 $ 0.75 </TABLE> (5) INVESTMENT IN NON-CONSOLIDATED ENTITIES The Company has investments in various real estate joint ventures. The business of each joint venture is to acquire, finance, hold for investment and sell single tenant net leased real estate. Lexington Acquiport Company, LLC Lexington Acquiport Company, LLC ("LAC"), is a joint venture with the Comptroller of the State of New York as Trustee for the Common Retirement Fund ("CRF"). The Company and CRF have committed to contribute up to $50,000 and $100,000, respectively, to invest in high quality office and industrial net leased real estate. Through December 31, 2000 total contributions are $97,095. LRA earns annual management fees of 2% of rent collected and acquisition fees equaling 75 basis points of purchase price of each property investment. All allocations of profit, loss and cash flows are made one-third to the Company and two-thirds to CRF. During 2000 and 1999, LAC made the following investments: <TABLE> <CAPTION> NET ANNUALIZED RENTABLE DATE OF ACQUISITION BASE RENT LEASE SQUARE ACQUISITION TENANT LOCATION COST DECEMBER 31, EXPIRES FEET - ----------- ------------------------------ -------------- ----------- ------------ ------- --------- <S> <C> <C> <C> <C> <C> <C> 2000 January 20 Structural Dynamics Research Milford, OH $ 26,900 $ 2,790 04-11 212,836 Corporation March 29 Bank One Indiana, N.A. Fishers, IN 24,500 3,287 10-09 193,000 April 17 NEC America, Inc. Herndon, VA 19,087 2,025 07-09 108,000 September 6 True North Communications Inc. Irving, TX 41,850 4,250 01-10 247,254 September 28 First USA Management Services, Lake Mary, FL 41,700 5,741 09-09 251,075 Inc. December 27 Aventis Pharmaceuticals, Inc. Parsippany, NJ 81,000 8,487 01-10 340,240 -------- ------- --------- $235,037 $26,580 1,352,405 ======== ======= ========= 1999 September 15 Vastar Resources, Inc. Houston, TX $ 34,770 $ 3,436 09-09 327,325 ======== ======= ========= </TABLE> In 1999, LAC made an $11,009 investment in a participating note receivable, which has a stated interest rate of 6.9% and a 50% interest in the property cash flows from the entity that owns the Houston, Texas Property. 34
36 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Summarized financial information for LAC as of December 31, 2000, and 1999 is as follows: <TABLE> <CAPTION> 2000 1999 -------- ------- <S> <C> <C> Real estate, net............................................ $236,076 $ -- Note receivable............................................. 11,009 11,009 Cash and cash equivalents................................... 3,459 2 Other assets................................................ 3,262 496 -------- ------- $253,806 $11,507 ======== ======= Mortgage payable............................................ $152,874 $ -- Accounts payable............................................ 218 297 Other liabilities........................................... 840 18 Equity...................................................... 99,874 11,192 -------- ------- $253,806 $11,507 ======== ======= Revenues.................................................... $ 10,525 $ 267 Interest expense............................................ (4,327) -- Depreciation of real estate................................. (1,765) -- Other....................................................... (1,222) (85) -------- ------- Net income............................................. $ 3,211 $ 182 ======== ======= </TABLE> As of December 31, 2000, the LAC properties are 100% leased, have scheduled lease expiration dates ranging from 2009 to 2011 and provide for annual net rental revenue of $26,600. The mortgages payable bear interest at rates ranging from 7.60% to 8.20% and mature at various dates ranging from 2001 to 2012. Subsequent to year end, LAC satisfied a $53,000 bridge loan, bearing interest at 8.20% and scheduled to mature March 2001, encumbering one property with a $42,000 non-recourse mortgage note bearing interest at 7.35% with a scheduled maturity of March 2011, and a capital contribution of $11,000 from the members. After this refinancing the non-recourse mortgage notes bear interest at rates ranging from 7.35% to 8.19% and mature at various dates ranging from 2010 to 2012. Lexington Columbia LLC Lexington Columbia LLC ("Columbia") is a joint venture established December 30, 1999 with a private investor. Its sole purpose is to own a property in Columbia, South Carolina net leased to Blue Cross/Blue Shield of South Carolina. The purchase price of the property was approximately $42,500 and partially funded through a 10 year, $25,300 mortgage note bearing interest at 7.85%. The note provides for annual principal and interest payments of $2,196 with a balloon payment of $22,100 at maturity. The lease, which expires September 2009, provides for an annual rental payment of $4,906. In accordance with the partnership agreement, net cash flows, as defined, will be allocated 40% to the Company and 60% to the partner until both parties have received a 12.5% return on capital. Thereafter cash flows will be distributed 60% to the Company and 40% to the partner. LRA earns annual asset management fees of 2% of rents collected. 35
37 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Summarized financial information for the underlying property investment as of December 31, 2000 and 1999 is as follows: <TABLE> <CAPTION> 2000 1999 ------- ------- <S> <C> <C> Real estate, net............................................ $41,043 $42,667 Other assets................................................ 992 650 ------- ------- $42,035 $43,317 ======= ======= Mortgage payable............................................ $25,071 $25,258 Equity...................................................... 16,964 18,059 ------- ------- $42,035 $43,317 ======= ======= Rental income............................................... $ 4,906 -- Interest expense............................................ (2,009) -- Depreciation................................................ (1,624) -- Other....................................................... (143) -- ------- ------- Net income............................................. $ 1,130 -- ======= ======= </TABLE> Lexington Realty Advisors, Inc. The Company also has a 99% non-voting ownership interest in LRA, which provides management services to institutional investors and invests directly in real estate projects. 36
38 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Summarized financial information for LRA as of December 31, 2000 and 1999 is as follows: <TABLE> <CAPTION> 2000 1999 ------- ---- <S> <C> <C> Real estate, net............................................ $ 8,983 $ -- Development costs........................................... 13,190 -- Cash........................................................ 261 441 Other assets................................................ 304 20 ------- ---- $22,738 $461 ======= ==== Mortgages payable........................................... $ 6,875 $ -- Construction loan payable................................... 8,759 -- Advances from affiliates.................................... 5,814 329 Other....................................................... 857 129 Equity...................................................... 433 3 ------- ---- $22,738 $461 ======= ==== Advisory fees............................................... $ 1,619 $576 Other income................................................ 70 -- ------- ---- 1,689 576 ------- ---- Operating expenses.......................................... 1,104 573 Interest expense............................................ 19 -- Other....................................................... 136 -- ------- ---- 1,259 573 ------- ---- Net income............................................. $ 430 $ 3 ======= ==== </TABLE> The operating expenses incurred by LRA relate primarily to personnel costs reimbursed to the Company. Development costs relate to the built-to-suit project LRA is developing in Chester, South Carolina which is net leased to Owens Corning, Inc. for annual rental payments of $1,505 through January 2021. The project was completed in January 2001 and Owens Corning, Inc. commenced rental payments at that time. In December 2000 LRA purchased a Property in Danville, Illinois for $8,900 net leased to Sygma Network, Inc. under a net lease which provides current rental payments of $933 through October 2015. The acquisition was partially funded through a $6,875 non-recourse mortgage note which bears interest at 9.00% and matures in January 2016. (6) MORTGAGES AND NOTES PAYABLE The following table sets forth certain information regarding the Company's mortgage and notes payable as of December 31, 2000 and 1999: <TABLE> <CAPTION> 2001 ESTIMATED INTEREST ANNUAL BALLOON PROPERTY LEVEL DEBT 2000 1999 RATE MATURITY DEBT SERVICE PAYMENT ------------------- -------- -------- -------- -------- ------------ -------- <S> <C> <C> <C> <C> <C> <C> Bessemer, AL................... $ 1,000 $ 1,000 9.500% 09-01-01 $ 71 $ 1,000 Tampa, FL (Queen Palm Dr.)(c)...................... 4,151 4,223 7.050% 08-15-02 367 4,020 Tampa, FL (North 30th) (c)..... 5,220 5,467 7.050% 08-15-02 624 4,768 Gordonsville, TN............... 974 1,070 9.500% 10-01-02 194 771 Bakersfield, CA................ 1,623 1,862 9.350% 12-01-02 405 1,065 </TABLE> 37
39 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) <TABLE> <CAPTION> 2001 ESTIMATED INTEREST ANNUAL BALLOON PROPERTY LEVEL DEBT 2000 1999 RATE MATURITY DEBT SERVICE PAYMENT ------------------- -------- -------- -------- -------- ------------ -------- <S> <C> <C> <C> <C> <C> <C> Columbia, MD................... 1,340 1,680 10.750% 07-20-03 529 -- Oxon Hill, MD.................. 1,118 1,419 6.250% 03-01-04 381 -- Mechanicsburg, PA (3 Exel properties) (d)...... 25,000 25,000 8.000% 03-20-04 2,000 25,000 Brownsville, TX................ 680 770 8.375% 11-01-04 150 260 Rockville, MD.................. 782 927 8.820% 03-01-05 221 -- Marlborough, MA (e)............ 8,459 -- 8.660% 08-01-05 832 7,913 REMIC Financing (b)............ 65,271 66,258 8.100% 05-25-05 6,353 60,001 Salt Lake City, UT............. 8,252 9,633 7.870% 10-01-05 2,099 -- Laguna Hills, CA............... 3,416 3,779 8.375% 02-01-06 666 1,020 Bethesda, MD................... 2,844 3,230 9.250% 05-01-06 669 -- Warren, OH..................... 33,635 37,250 7.000% 10-01-07 6,160 -- Bristol, PA.................... 9,994 -- 7.400% 02-01-08 831 9,262 Phoenix, AZ.................... 3,488 -- 7.500% 05-11-10 262 3,488 Phoenix, AZ.................... 15,060 -- 7.890% 06-05-08 1,434 12,591 Palm Beach Gardens, FL......... 13,455 13,611 7.010% 06-15-08 1,105 11,866 Hebron, KY..................... 5,534 5,589 7.000% 10-23-08 451 4,935 Florence, SC................... 9,800 -- 7.500% 02-01-09 869 8,443 Canton, OH..................... 2,198 2,368 9.490% 02-28-09 388 -- Baton Rouge, LA................ 2,081 2,134 7.375% 03-01-09 208 1,470 Bristol, PA.................... 6,408 6,518 7.250% 04-01-09 571 5,228 Livonia, MI (2 Properties)..... 11,338 11,427 7.800% 04-01-09 992 10,236 Salt Lake City, UT............. 18,411 19,843 7.610% 10-01-09 2,901 -- Richmond, VA................... 16,892 13,093 8.100% 02-01-10 1,511 15,237 Hampton, VA.................... 4,580 -- 8.260% 04-01-10 415 4,139 Honolulu, HI................... 5,173 5,536 10.250% 10-01-10 841 -- Herndon, VA.................... 19,240 -- 8.180% 12-05-10 1,723 17,276 Dallas, TX..................... 22,477 22,774 7.490% 12-31-12 2,020 15,961 Lancaster, CA.................. 11,002 11,112 7.020% 09-01-13 900 8,614 Franklin, NC................... 2,169 2,218 8.500% 04-01-15 240 -- Southborough, MA............... 2,440 2,535 7.500% 09-01-15 275 -- Henderson, NC (f).............. -- 4,710 7.390% 05-01-09 -- -- Herndon, VA (g)................ -- 12,324 7.600% 09-01-10 -- -- -------- -------- ------- ------- -------- 345,505 299,360 7.801% 39,658 234,564 -------- -------- ------- ------- -------- </TABLE> <TABLE> <CAPTION> 2001 ESTIMATED INTEREST ANNUAL BALLOON CORPORATE LEVEL DEBT 2000 1999 RATE MATURITY DEBT SERVICE PAYMENT -------------------- -------- -------- -------- -------- ------------ -------- <S> <C> <C> <C> <C> <C> <C> Credit Facility (a)............ 41,821 70,921 8.030% 07-24-01 45,179 41,821 -------- -------- ------- ------- -------- Total.......................... $387,326 $370,281 7.826% $84,837 $276,385 ======== ======== ======= ======= ======== </TABLE> - --------------- (a) The Company's $60,000 unsecured revolving credit facility, bears interest at 137.5 basis points over LIBOR and has an interest rate period of one, three or six months, at the option of the Company, which at December 31, 2000 was 8.03%. During 2000, the Company exercised its option to reduce the credit facility to $60,000 from $100,000 to reduce unused facility costs. The facility is provided by a consortium of five banks, with Fleet Bank, NA, as agent. 38
40 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) The credit facility contains various leverage, debt service coverage, net worth maintenance and other customary covenants all of which the Company is in compliance. Due to these covenants, approximately $2,829 was available to the Company at December 31, 2000. The amount of available borrowings can increase by identifying additional unencumbered properties as eligible for the computation of the borrowing base which supports the credit facility. The Company is currently negotiating with lending institutions to provide three year credit facilities to replace the current credit facility upon maturity. (b) The REMIC Financing is secured by mortgages on 17 Properties. (c) The mortgages on the two Tampa, Florida Properties are cross-collateralized. (d) The Notes can be exchanged by the holders for the Company's common shares at $13.00 per share subject to adjustment. The Notes may be redeemed at the Company's option at a price of 103.2% of the principal amount, declining to par after March 2002. The Notes are subordinated to obligations under the Company's credit facility. (e) The note bears interest at 190 basis points over 90 day LIBOR (8.66% at December 31, 2000). (f) Mortgage satisfied on sale of Property in 2000. (g) Property contributed to joint venture in 2000. Scheduled principal paydowns of the mortgages and notes payable, excluding borrowings under the credit facility, for the next five years and thereafter are as follows: <TABLE> <CAPTION> YEARS ENDING SCHEDULED DECEMBER 31, AMORTIZATION BALLOON TOTAL ------------ ------------ -------- -------- <S> <C> <C> <C> 2001....................................................... $ 12,952 $ 1,000 $ 13,952 2002....................................................... 13,874 10,624 24,498 2003....................................................... 14,335 -- 14,335 2004....................................................... 14,589 25,260 39,849 2005....................................................... 13,801 67,914 81,715 Thereafter................................................. 41,390 129,766 171,156 -------- -------- -------- $110,941 $234,564 $345,505 ======== ======== ======== </TABLE> (7) LEASES Minimum future rental receipts under noncancellable tenant leases assuming no new or negotiated leases for the next five years and thereafter are as follows: <TABLE> <CAPTION> YEAR ENDING DECEMBER 31, ------------ <S> <C> 2001........................................................ $ 74,651 2002........................................................ 75,219 2003........................................................ 76,285 2004........................................................ 75,083 2005........................................................ 73,448 Thereafter.................................................. 229,911 -------- $604,597 ======== </TABLE> The Company leases its corporate headquarters, but no other corporate facility, for approximately $263 per annum through June 30, 2004. 39
41 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) (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. As of December 31, 2000, there were 5,711,453 operating partnership units outstanding of which 5,253,327 are currently redeemable for common shares. These units, subject to certain adjustments through the date of conversion, currently have annual distributions per unit in varying amounts from $0 to $1.24 per unit with a weighted average distribution of $1.12 per unit. (9) PREFERRED AND COMMON SHARES The preferred shares are cumulative and convertible at any time at the holder's option into common shares on a one-for-one basis and are entitled to quarterly dividends equal to the greater of $.295 per share or 105% of the quarterly common shares dividend. Currently the quarterly dividend is $.3255 per share. 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 $12.75 per share plus any accrued dividends. During 1999, the Company issued 287,888 common shares in a transaction which raised approximately $3,886. The holders of the common shares have agreed not to sell more than 20% of the common shares each year for a five year period. On the fifth anniversary of the transaction, the holders of the common shares have the right to put to the Company their shares, up to 287,888, at $13.50 per share. (10) BENEFIT PLANS The Company maintains a common share option plan pursuant to which qualified and non-qualified options may be issued. In 1998 the number of options that can be issued under the plan were increased by 800,000. Options granted under the plan generally vest over a period of one to four years, expire five years from date of grant and are exercisable at the market price of the date of grant. Share option activity during the years indicated is as follows: <TABLE> <CAPTION> WEIGHTED-AVERAGE NUMBER OF EXERCISE PRICE PER SHARES SHARE --------- ------------------ <S> <C> <C> Balance at December 31, 1997................................ 1,039,197 $11.62 Granted................................................... 386,600 15.11 Exercised................................................. (8,230) 10.28 Forfeited................................................. (7,370) 14.51 --------- ------ Balance at December 31, 1998................................ 1,410,197 12.58 Granted................................................... 286,625 12.06 Exercised................................................. (5,000) 9.00 Forfeited................................................. (188,174) 12.13 --------- ------ Balance at December 31, 1999................................ 1,503,648 12.54 Granted................................................... 831,625 9.85 Forfeited................................................. (26,000) 13.12 Expired................................................... (331,250) 11.13 --------- ------ Balance at December 31, 2000................................ 1,978,023 $11.63 ========= ====== </TABLE> 40
42 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) The following is additional disclosures for common share options outstanding at December 31, 2000: <TABLE> <CAPTION> EXERCISABLE OPTIONS RANGE OF REMAINING ---------------------------- EXERCISE OUTSTANDING LIFE AVERAGE EXERCISE PRICES OPTIONS (YEARS) NUMBER PRICE - ------------------- ----------- --------- --------- ---------------- <S> <C> <C> <C> <C> $ 9.00 - $ 10.875 524,375 3.96 141,094 $ 9.18 $11.125 - $12.5625 1,099,048 2.36 1,037,642 $11.71 $13.1875 - $ 15.25 354,600 2.03 46,250 $15.03 </TABLE> There are 466,747 options available for grant. The per share weighted average fair value of options granted during 2000, 1999 and 1998 were estimated to be $2.02, $2.41 and $3.46, respectively, using a Black-Scholes option pricing formula. The more significant assumptions underlying the determination of such fair values include: (i) a risk free interest rate of 5%; (ii) an expected life of five years; (iii) volatility factors of 19.20%, 16.94% and 18.47% for 2000, 1999 and 1998, respectively; (iv) and actual dividends paid. The Company has elected to adopt the disclosure only provisions of SFAS No. 123. Accordingly no compensation cost has been recognized with regard to options granted in the accompanying consolidated statements of income. If stock based compensation cost had been recognized based upon the fair value at the date of grant for options awarded in 2000, 1999 and 1998 the Company's pro forma net income and pro forma net income per share would have been: <TABLE> <CAPTION> 2000 1999 1998 ------- ------- ------- <S> <C> <C> <C> Pro forma net income........................................ $20,001 $20,384 $14,737 Pro forma net income per share Basic..................................................... $ 1.03 $ 1.05 $ 0.73 Diluted................................................... $ 1.02 $ 1.04 $ 0.73 </TABLE> The Company has a 401(k) retirement savings plan covering all eligible employees. The Company will match 25% of the first 4% of employee contributions. In addition, based on its profitability, the Company may make a discretionary contribution at each fiscal year end to all eligible employees. The matching and discretionary contributions are subject to vesting under a schedule providing for 25% annual vesting starting with the first year of employment and 100% vesting after four years of employment. Approximately $107, $98 and $77 were contributed in 2000, 1999 and 1998, respectively. The Company sponsors a deferred compensation plan for certain officers in which restricted common shares, which vest over five years, granted for the benefit of the officers are held in trust. The officers exert no control over the common shares in the trust and the common shares are available to the general creditors of the Company. As of December 31, 2000 and 1999, there were 139,847 and 63,792 common shares, respectively, in the trust. (11) LEGAL PROCEEDINGS 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. (12) RELATED PARTY TRANSACTIONS During 2000, the Company announced that it has agreed to acquire Net 1 L.P. and Net 2 L.P. (collectively, the "Net Partnerships"), in a merger transaction valued at approximately $143,000. The Net Partnerships own twenty-five properties in fifteen states, which generate approximately $15,100 of net rental revenue. The properties have a remaining weighted average lease term of approximately 9.2 years and are net-leased to eighteen tenants. 41
43 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) As currently proposed, the Company will issue approximately $65,000 of securities to the sellers and assume approximately $78,000 of mortgage financing with a weighted interest rate of approximately 8%. The limited partners will receive at least 50% of their merger consideration in the Company's 8.5% convertible subordinated debentures due 2009 with up to 50% of the merger consideration payable in the Company's common shares issued at a price not less than $11.00 per share and no greater than $13.00 per share. The convertible subordinated debentures are exchangeable by the holder after four years into the Company's common shares at $14.00 per share and may be redeemed by the Company after five years with cash or with common shares in the event the Company's share price exceeds $14.00. The Company's Chairman and Co-Chief Executive Officer, is the controlling shareholder of the general partners of the Net Partnerships. The general partners will receive merger consideration valued on the same basis as the limited partners for their 1% ownership interest in the Net Partnerships payable in operating partnership units. The units, which will have economic rights comparable to the economic rights of the limited partner's merger consideration, will be convertible into the Company's common shares on a one-for-one basis at certain points in the future. Definitive terms of the transaction will be set forth in a joint consent and proxy solicitation statement and prospectus being prepared by the Company and the Net Partnerships for regulatory review. The transaction has been approved by the independent members of the Board of Trustees. The transaction is subject to customary closing conditions, including the approval of the Company's shareholders and the limited partners of the Net Partnerships. During 2000, the Company sold two properties to the Net Partnerships which are located in Henderson, North Carolina (leased to Corporate Express Office Products, Inc.) and Plymouth, Michigan (leased to Johnson Controls, Inc). for $15,600 resulting in gains of $2,300. The sales were approved by the independent members of the Board of Trustees. During 2000, the Company issued 83,400 operating partnership units in LCIF to acquire the property management contract for the Net Partnerships. This acquisition was made from an affiliate of the Chairman of the Company and increased other assets and minority interest by $585. The transaction has been approved by the independent members of the Board of Trustees. The fees earned during 2000, under this contract, were $91 and the reimbursement of costs for services provided by the Company on behalf of the Net Partnerships were $359, $435 and $393 for the years ended December 31, 2000, 1999 and 1998, respectively. The reimbursements are shown net, in the Company's general and administrative expenses in the accompanying consolidated statements of income. The Company an/or LRA also received brokerage commissions relating to the purchase and sale of properties by the Net Partnerships, with unaffiliated parties, totaling $120 and $175 in 2000 and 1999, respectively, which are included in interest and other income in the accompanying consolidated statements of income. During 1999, the Company sold four properties to the Net Partnerships which are located in Jacksonville, Alabama (leased to Wal-Mart Stores, Inc.); Columbia, South Carolina (leased to Stone Container Corp.); San Diego, California (leased to Cymer, Inc.) and Phoenix, Arizona (leased to Bull HN Information Systems, Inc.) for an aggregate sales price, which included a $1,200, 8% interest only accruing 5 year note, of $26,900 resulting in a gain of $2,544. The Company purchased two properties for $13,500 from the Net Partnerships. These purchases and sales were approved by the independent members of the Board of Trustees. In connection with the acquisition of certain properties in 1996, the Company assumed an obligation to pay The LCP Group, L.P., an affiliate of the Company's Chairman, an aggregate principal amount of $1,778 for rendering services in connection with the original acquisition of the properties in 1980 and 1981. Simple interest is payable monthly from available net cash flow of the respective original properties on the various unpaid principal portions of the fees, at annual rates ranging from 12.25% 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. During 1998, the Company issued 1,187,228 operating partnership units to the Co-Chief Executive Officers and an affiliate of one of the Co-Chief Executive Officers in exchange for their interests in certain partnerships and related contractual obligations. During 1998, the Company issued 131,000 common shares to two officers in exchange for notes aggregating $1,998 which mature on February 14, 2003, bear interest at 7.6% per annum and are secured by the common shares issued. 42
44 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) (13) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable The Company estimates that the fair value approximates carrying value due to the relatively short maturity of the instruments. Mortgages, Notes and Subordinated Notes Payables The Company determines the fair value of these instruments based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this, the Company has determined that the fair value of these instruments approximates carrying values. (14) CONCENTRATION OF RISK The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties, avoiding dependency on a single property and the creditworthiness of its tenants. For each of the years in the three year period ended December 31, 2000 the following tenants represented 10% or greater of revenues: <TABLE> <CAPTION> 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Northwest Pipeline Corporation.............................. 11% 11% 14% Kmart Corporation........................................... 11% 11% -- </TABLE> The following is a summary of the most recent quarterly and annual financial data for all tenants that represent greater than 10% of the Company's consolidated revenues: <TABLE> <CAPTION> FOR THE NINE MONTHS ENDED 10/25/00 YEAR ENDED KMART CORPORATION (UNAUDITED) 1/31/99 ----------------- ------------------- ----------- <S> <C> <C> Sales....................................................... $25,392,000 $35,925,000 Cost of sales............................................... 20,530,000 28,102,000 Net income (loss)........................................... (493,000) 403,000 Assets...................................................... 16,141,000 15,104,000 Liabilities................................................. 10,321,000 8,800,000 Shareholders' equity........................................ 5,820,000 6,304,000 </TABLE> <TABLE> <CAPTION> FOR THE NINE MONTHS ENDED 9/30/00 YEAR ENDED NORTHWEST PIPELINE CORPORATION (UNAUDITED) 12/31/99 ------------------------------ ------------------- ----------- <S> <C> <C> Operating revenues.......................................... $ 222,693 $ 287,793 Operating expenses.......................................... 108,074 144,446 Net income.................................................. 62,542 73,013 Assets...................................................... 1,087,066 1,074,233 Liabilities................................................. 614,885 604,594 Shareholder equity.......................................... 472,181 469,639 </TABLE> (15) SUPPLEMENTAL DISCLOSURE OF STATEMENT OF CASH FLOW INFORMATION During 2000, 1999 and 1998, the Company paid $29,758, $29,157 and $21,916, respectively, for interest and $126, $115 and $261, respectively, for taxes. 43
45 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) In 2000, the Company contributed a property (along with a non-recourse mortgage note) which was purchased in 1999 to a joint venture entity for a capital contribution of $2,393. During 2000, 1999 and 1998, holders of an aggregate of 131,907, 506,882 and 525,433 operating partnership units, respectively, redeemed such units for common shares of the Company. These redemptions resulted in increases in shareholders' equity and corresponding decreases in minority interests of $1,768, $5,824 and $5,650, respectively. During 2000, the Company issued 83,400 operating partnership units in LCIF to acquire a property management contract. This acquisition was made from an affiliate of the Chairman of the Company and increased other assets and minority interest by $585. During 2000, the Company purchased a property and issued a note payable to the seller of $3,488 as partial satisfaction of the purchase price. During 2000 and 1999, the Company issued 73,800 and 69,850 common shares to certain employees and trustees resulting in $664 and $877 of deferred compensation. These common shares vest ratably over a 2 to 5 year period. During 1999, the Net Partnerships purchased two of the Company's real estate properties assuming mortgage debt of approximately $10,156 and issuing a note payable to the Company for $1,200. During 1998, in connection with the acquisition of certain properties, the Company assumed $44,200 in mortgage indebtedness as partial satisfaction of the purchase price. During 1998, in connection with the acquisition of certain properties, the Company issued $28,800 in operating partnership units as partial satisfaction of the purchase price. The issuance of these operating partnership units have been recorded as minority interest in the accompanying consolidated balance sheets. During 1998, the Company issued 131,000 common shares, at the current market price, to two officers in exchange for notes aggregating $1,998 which mature on February 14, 2003, bear interest at 7.6% per annum and are secured by the common shares issued. (16) UNAUDITED QUARTERLY FINANCIAL DATA <TABLE> <CAPTION> THREE MONTHS ENDED ---------------------------------- MARCH 31, JUNE 30, ---------------- --------------- 2000 1999 2000 1999 ------- ------ ------ ------ <S> <C> <C> <C> <C> Revenues.................................................... $19,610 19,161 20,033 18,950 Net income.................................................. $ 4,471 4,363 7,346 4,869 Net income per common share: Basic..................................................... $ 0.23 0.22 0.40 0.25 Diluted................................................... $ 0.23 0.22 0.36 0.24 </TABLE> <TABLE> <CAPTION> THREE MONTHS ENDED ---------------------------------- SEPTEMBER 30, DECEMBER 31, ---------------- --------------- 2000 1999 2000 1999 ------- ------ ------ ------ <S> <C> <C> <C> <C> Revenues.................................................... $20,087 19,208 20,275 19,981 Net income.................................................. $ 5,120 6,350 5,015 5,765 Net income per common share: Basic..................................................... $ 0.26 0.34 0.26 0.30 Diluted................................................... $ 0.26 0.32 0.25 0.30 </TABLE> The sum of the quarterly income per common share amounts may not equal the full year amounts primarily because the computations of the weighted average number of common shares outstanding for each quarter and the full year are made independently. 44
46 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION SCHEDULE III ($000) INITIAL COST TO COMPANY AND GROSS AMOUNT AT WHICH CARRIED AT END OF YEAR(A) <TABLE> <CAPTION> LAND ACCUMULATED AND BUILDINGS DEPRECIATION LAND AND AND DESCRIPTION LOCATION ENCUMBRANCES ESTATES IMPROVEMENTS TOTAL AMORTIZATION - -------------------------------- ------------------------ ------------ ------- ------------ -------- ------------- <S> <C> <C> <C> <C> <C> <C> Warehouse & Manufacturing....... Modesto, CA $ 2,041 $ 257 $ 3,809 $ 4,066 $ 1,361 Office.......................... Southington, CT 8,405 3,240 20,440 23,680 8,413 Research & Development.......... Glendale, AZ -- 4,996 24,392 29,388 10,910 Retail/Health Club.............. Countryside, IL 2,314 628 3,722 4,350 1,645 Retail/Health Club.............. Voorhees NJ 2,927 577 4,820 5,397 2,027 Retail/Health Club.............. DeWitt, NY 1,769 445 3,043 3,488 1,284 Warehouse & Distribution........ Mansfield, OH 3,198 120 5,869 5,989 1,779 Industrial...................... Marshall, MI 2,143 33 3,378 3,411 1,363 Industrial...................... Marshall, MI 817 14 926 940 374 Retail.......................... Newport, OR 5,988 1,400 7,270 8,670 2,824 Office & Warehouse.............. Memphis, TN 6,464 1,053 11,174 12,227 3,516 Warehouse & Distribution........ Mechanicsburg, PA 9,866 1,439 13,987 15,426 3,260 Office & Warehouse.............. Tampa, FL 4,151 1,389 7,629 9,018 2,706 Retail.......................... Klamath Falls, OR 6,804 727 9,160 9,887 2,929 Office.......................... Tampa, FL 5,220 1,900 9,755 11,655 3,026 Warehouse & Industrial.......... Jacksonville, FL -- 157 3,034 3,191 971 Retail.......................... Sacramento, CA 2,279 885 2,705 3,590 1,100 Office.......................... Phoenix, AZ -- 2,804 13,921 16,725 4,205 Retail.......................... Reno, NV 1,973 1,200 1,904 3,104 756 Retail.......................... Las Vegas, NV 1,769 900 1,759 2,659 697 Retail.......................... Rockville, MD 782 -- 1,784 1,784 521 Retail.......................... Oxon Hill, MD 1,118 403 2,765 3,168 709 Retail.......................... Brownsville, TX 680 -- 1,242 1,242 363 Retail.......................... Laguna Hills, CA 3,416 255 5,035 5,290 1,250 Retail.......................... Riverdale, GA -- 333 2,233 2,566 279 Retail/Health Club.............. Canton, OH 2,198 602 3,819 4,421 477 Office.......................... Salt Lake City, UT 26,663 -- 55,404 55,404 9,881 Manufacturing................... Franklin, NC 2,169 386 3,062 3,448 306 Industrial...................... Oberlin, OH 2,172 276 4,515 4,791 452 Retail.......................... Tulsa, OK -- 447 2,432 2,879 538 Retail.......................... Clackamas, OR -- 523 2,847 3,370 630 Retail.......................... Lynwood, WA -- 488 2,658 3,146 588 Retail.......................... Honolulu, HI 5,173 -- 11,147 11,147 1,829 Warehouse....................... New Kingston, PA (Silver Springs) 5,500 674 5,360 6,034 508 Warehouse....................... New Kingston, PA (Cumberland) 11,250 1,380 10,963 12,343 1,039 Warehouse....................... Mechanicsburg, PA (Hampden IV) 8,250 1,012 8,039 9,051 762 Office/Research & Development... Marlborough, MA 8,459 1,707 13,834 15,541 1,196 Office.......................... Dallas, TX 22,477 3,582 29,063 32,645 2,391 Warehouse....................... Waterloo, IA 4,342 1,025 8,296 9,321 665 Office/Research & Development... Milipitas, CA -- 3,542 18,603 22,145 1,395 Industrial...................... Gordonsville, TN 974 52 3,325 3,377 287 Office.......................... Decatur, GA -- 975 13,677 14,652 1,026 Office.......................... Richmond, VA 16,892 -- 27,282 27,282 2,538 Industrial...................... Bessemer, AL 1,000 664 4,238 4,902 377 Office/Warehouse................ Bristol, PA 9,994 2,508 10,031 12,539 690 Office.......................... Hebron, KY 5,534 1,615 6,462 8,077 444 Office.......................... Livonia, MI 5,360 1,554 6,219 7,773 428 Research & Development.......... Livonia, MI 5,978 1,733 6,936 8,669 477 Office.......................... Palm Beach Gardens, FL 13,455 3,960 15,924 19,884 1,044 Warehouse/Distribution.......... Lancaster, CA 11,002 2,028 13,117 15,145 828 Office.......................... Florence, SC 9,800 3,012 12,067 15,079 753 Industrial...................... Auburn Hills, MI -- 2,788 11,169 13,957 679 <CAPTION> USEFUL LIFE COMPUTING DEPRECIATION IN LATEST INCOME DATE DATE STATEMENTS DESCRIPTION ACQUIRED CONSTRUCTED (YEARS) - -------------------------------- ---------- ----------- ----------------------- <S> <C> <C> <C> Warehouse & Manufacturing....... Sept. 1986 1970 & 1976 40 & 12 Office.......................... Oct. 1986 1983 40 & 12 Research & Development.......... Nov. 1986 1985 40 & 12 Retail/Health Club.............. Jul. 1987 1987 40 & 12 Retail/Health Club.............. Jul. 1987 1987 40 & 12 Retail/Health Club.............. Aug. 1987 1977 & 1987 40 & 12 Warehouse & Distribution........ Jul. 1987 1970 40, 20 & 12 Industrial...................... Aug. 1987 1968 & 1972 40, 20 & 12 Industrial...................... Aug. 1987 1979 40, 20 & 12 Retail.......................... Sept. 1987 1986 40, 20 & 12 Office & Warehouse.............. Feb. 1988 1987 40 Warehouse & Distribution........ Oct. 1990 1985 & 1991 40 Office & Warehouse.............. Nov. 1987 1986 40 & 20 Retail.......................... Mar. 1988 1986 40 Office.......................... Jul. 1988 1986 40 Warehouse & Industrial.......... Jul. 1988 1958 & 1969 40 & 20 Retail.......................... Oct. 1988 1988 40, 20 & 12 Office.......................... Nov. 1988 1960 & 1979 40 Retail.......................... Dec. 1988 1988 40, 20 & 12 Retail.......................... Dec. 1988 1988 40, 20 & 12 Retail.......................... Aug. 1995 1977 22.375, 16.583 & 15.583 Retail.......................... Aug. 1995 1976 21.292 Retail.......................... Aug. 1995 1973 18.542 Retail.......................... Aug. 1995 1974 20 & 20.5 Retail.......................... Dec. 1995 1985 40 Retail/Health Club.............. Dec. 1995 1987 40 Office.......................... May 1996 1982 25.958 Manufacturing................... Dec. 1996 1996 40 Industrial...................... Dec. 1996 1996 40 Retail.......................... Dec. 1996 1981 23.583 & 13.583 Retail.......................... Dec. 1996 1981 23.583 & 13.583 Retail.......................... Dec. 1996 1981 23.583 & 13.583 Retail.......................... Dec. 1996 1980 24.33 Warehouse....................... Mar. 1997 1981 40 Warehouse....................... Mar. 1997 1989 40 Warehouse....................... Mar. 1997 1985 40 Office/Research & Development... Jul. 1997 1960 & 1988 40 Office.......................... Sept. 1997 1986 40 Warehouse....................... Oct. 1997 1996 & 1997 40 Office/Research & Development... Dec. 1997 1985 40 Industrial...................... Dec. 1997 1983 & 1985 34.75 Office.......................... Dec. 1997 1983 40 Office.......................... Dec. 1997 1990 32.25 Industrial...................... Dec. 1997 1990 33.75 Office/Warehouse................ Mar. 1998 1982 40 Office.......................... Mar. 1998 1987 40 Office.......................... Mar. 1998 1987 & 1988 40 Research & Development.......... Mar. 1998 1987 & 1988 40 Office.......................... May 1998 1996 40 Warehouse/Distribution.......... Jun. 1998 1998 40 Office.......................... Jul. 1998 1998 40 Industrial...................... Jul. 1998 1989 & 1998 40 </TABLE> 45
47 LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION SCHEDULE III ($000) -- (CONTINUED) <TABLE> <CAPTION> LAND ACCUMULATED AND BUILDINGS DEPRECIATION LAND AND AND DESCRIPTION LOCATION ENCUMBRANCES ESTATES IMPROVEMENTS TOTAL AMORTIZATION - -------------------------------- ------------------------ ------------ ------- ------------ -------- ------------- <S> <C> <C> <C> <C> <C> <C> Warehouse/Distribution.......... Warren, OH 33,635 10,231 51,280 61,511 5,023 Warehouse/Distribution.......... Baton Rouge, LA 2,081 685 2,748 3,433 150 Retail.......................... Columbia, MD 1,340 1,002 4,016 5,018 200 Retail.......................... Bakersfield, CA 1,623 400 1,619 2,019 435 Retail.......................... Bethesda, MD 2,844 926 2,415 3,341 893 Office.......................... Bristol, PA 6,408 1,073 7,709 8,782 201 Office.......................... Southborough, MA 2,440 456 4,291 4,747 112 Office.......................... Herndon, VA 19,240 5,127 20,570 25,697 519 Office.......................... Hampton, VA 4,580 1,353 5,446 6,799 108 Office.......................... Phoenix, AZ 18,548 4,665 18,682 23,347 292 -------- ------- -------- -------- ------- Total...................... $345,505 $87,606 $595,021 $682,627 $98,429 ======== ======= ======== ======== ======= <CAPTION> USEFUL LIFE COMPUTING DEPRECIATION IN LATEST INCOME DATE DATE STATEMENTS DESCRIPTION ACQUIRED CONSTRUCTED (YEARS) - -------------------------------- ---------- ----------- ----------------------- <S> <C> <C> <C> Warehouse/Distribution.......... Aug. 1998 1982 40 Warehouse/Distribution.......... Oct. 1998 1998 40 Retail.......................... Dec. 1998 1983 40 Retail.......................... Aug. 1995 1976 40 Retail.......................... Aug. 1995 1980 40 Office.......................... Dec. 1999 1998 40 Office.......................... Dec. 1999 1984 40 Office.......................... Dec. 1999 1987 40 Office.......................... Mar. 2000 2000 40 Office.......................... May 2000 1997 40 Total...................... </TABLE> - --------------- (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, 2000 for Federal income tax purposes was approximately $444 million. Reconciliation of real estate owned: <TABLE> <CAPTION> 2000 1999 1998 -------- -------- -------- <S> <C> <C> <C> Balance at the beginning of the year.................... $688,926 $675,793 $467,606 Additions during year................................... 30,603 115,006 208,187 Properties sold during year............................. (17,727) (101,873) -- Property contributed to joint venture during year....... (19,175) -- -- -------- -------- -------- Balance at end of year.................................. $682,627 $688,926 $675,793 ======== ======== ======== </TABLE> Reconciliation of accumulated depreciation and amortization: <TABLE> <S> <C> <C> <C> Balance at beginning of year............................ $ 82,334 $ 66,076 $ 50,993 Depreciation and amortization expense................... 17,513 18,000 15,083 Accumulated depreciation and amortization of properties sold during year..................................... (1,162) (1,742) -- Accumulated depreciation of property contributed to joint venture during year............................ (256) -- -- -------- -------- -------- Balance at end of year.................................. $ 98,429 $ 82,334 $ 66,076 ======== ======== ======== </TABLE> 46
48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding trustees and executive officers of the Company required to be furnished pursuant to this item is set forth in Item 4A of this report. ITEM 11. EXECUTIVE COMPENSATION The information required to be furnished pursuant to this item will be set forth under the caption "Compensation of Executive Officers" in the Proxy Statement, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required to be furnished pursuant to this item will be 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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required to be furnished pursuant to this item will be set forth under the caption "Election of Trustees -- Certain Relationships and Related Transactions" in the Proxy Statement, and is incorporated herein by reference. During 2000, the Company announced that it has agreed to acquire Net 1 L.P. and Net 2 L.P. (collectively, the "Net Partnerships"), in a merger transaction valued at approximately $143 million. The Net Partnerships own twenty-five properties in fifteen states, which generate approximately $15.1 million of net rental revenue. The properties have a remaining weighted average lease term of approximately 9.2 years and are net- leased to eighteen tenants. As currently proposed, the Company will issue approximately $65 million of securities to the sellers and assume approximately $78 million of mortgage financing with a weighted interest rate of approximately 8%. The limited partners will receive at least 50% of their merger consideration in Lexington's 8.5% convertible subordinated debentures due 2009 with up to 50% of the merger consideration payable in the Company's common shares issued at a price not less than $11.00 per share and no greater than $13.00 per share. The convertible subordinated debentures are exchangeable by the holder after four years into the Company's common shares at $14.00 per share and may be redeemed by the Company after five years with cash or with common shares in the event the Company's share price exceeds $14.00. The Company's Chairman and Co-Chief Executive Officer is the controlling shareholder of the general partners of the Net Partnerships. The general partners will receive merger consideration valued on the same basis as the limited partners for their 1% ownership interest in the Net Partnerships payable in operating partnership units. The units, which will have economic rights comparable to the economic rights of the limited partner's merger consideration, will be convertible into Lexington's common shares on a one-for-one basis at certain points in the future. Definitive terms of the transaction will be set forth in a joint consent and proxy solicitation statement and prospectus being prepared by the Company and the Net Partnerships for regulatory review. The transaction is subject to customary closing conditions, including the approval of the Company's shareholders and the limited partners of the Net Partnerships. During 2000, the Company issued 83,400 operating partnership units in LCIF to acquire the property management contract for the Net Partnerships. This acquisition was made from an affiliate of the Chairman of the Company and increased other assets and minority interest by $585,000. The fees earned during 2000, under this contract, were $91,000 and the reimbursement of costs for services provided by the Company on behalf of the Net Partnerships were $359,000, $435,000 and $393,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The reimbursements are 47
49 shown net, in the Company's general and administrative expenses in the accompanying consolidated statements of income. The Company and LRA also received brokerage commissions relating to the purchase and sale of properties by the Net Partnerships, with unaffiliated parties, totaling $120,000 and $175,000 in 2000 and 1999, respectively, which is included in interest and other income in the accompanying consolidated statements of income. During 2000, the Company sold two properties to the Net Partnerships for $15.6 million which resulted in gains of $2.3 million. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. <TABLE> <CAPTION> PAGE ---- <C> <S> <C> (a)(1) Financial Statements........................................ 29-48 (2) Financial Statement Schedule................................ 49-50 (3) Exhibits.................................................... 52-53 </TABLE> <TABLE> <CAPTION> EXHIBIT NO. EXHIBIT - ----------- ------- <C> <S> <C> 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 (filed as Exhibit 3.2 to Form 10-K filed 3-31-98)* 4.1 -- Specimen of Common Shares Certificate of the Trust (filed as Exhibit 3.2 to Form 10-K filed 3-31-98)* 10.8 -- Form of 1994 Outside Director Shares Plan of the Company (filed as Exhibit 10.8 to 1993 10-K)* 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)* </TABLE> 48
50 <TABLE> <CAPTION> EXHIBIT NO. EXHIBIT - ----------- ------- <C> <S> <C> 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)* 10.33 -- 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* 10.37 -- Unsecured Revolving Credit Agreement with Fleet National Bank as administrative agent for itself and lenders dated July 22, 1998 in the amount of $60,000,000 (filed as Exhibit 10.37 to the 1998 10-K)* 10.38 -- Operating Agreement and Management Agreement between the Company and Lexington Acquiport Company, LLC (filed as Exhibit 2 to Form 8-K filed August 31, 1999)* 10.39 -- Form of Employment Agreement between the Company and E. Robert Roskind dated September 20, 1999 (filed as Exhibit 10.39 to Form 10-K filed March 15, 2000)* 10.40 -- Investment Advisory and Asset Management Agreement by and between AGAR International Holdings Ltd. and Lexington Realty Advisors, Inc. 12 -- Statement of Computation of Ratio of Earnings to Fixed Charges 21 -- List of Subsidiaries of the Company 23 -- Consent of KPMG LLP 27 -- Financial Data Schedule as of and for the year ended December 31, 2000 </TABLE> - --------------- * Incorporated by reference. (b) Reports on Form 8-K and Form 8-K/A Current Report on Form 8-K dated November 14, 2000 49
51 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. <TABLE> <CAPTION> SIGNATURE TITLE --------- ----- <C> <S> /s/ E. ROBERT ROSKIND Chairman of the Board of Trustees and Co-Chief Executive - --------------------------------------------------- Officer E. Robert Roskind /s/ RICHARD J. ROUSE Vice Chairman of the Board of Trustees and Co-Chief - --------------------------------------------------- Executive Officer Richard J. Rouse /s/ T. WILSON EGLIN President and Chief Operating Officer and Trustee - --------------------------------------------------- T. Wilson Eglin /s/ PATRICK CARROLL Chief Financial Officer and Treasurer - --------------------------------------------------- Patrick Carroll /s/ PAUL R. WOOD Vice President, Chief Accounting Officer and Secretary - --------------------------------------------------- Paul R. Wood /s/ GEOFFREY DOHRMANN Trustee - --------------------------------------------------- Geoffrey Dohrmann /s/ CARL D. GLICKMAN Trustee - --------------------------------------------------- Carl D. Glickman /s/ JOHN D. MCGURK Trustee - --------------------------------------------------- John D. McGurk /s/ SETH M. ZACHARY Trustee - --------------------------------------------------- Seth M. Zachary </TABLE> DATE: March 28, 2001 50