- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2003 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.) ONE PENN PLAZA NEW YORK, NY 10119 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 692-7200 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS - ---------------------------------------------- NAME OF EACH EXCHANGE ON WHICH REGISTERED ---------------------------------------------- COMMON SHARES, PAR VALUE $.0001 NEW YORK STOCK EXCHANGE 8.05 % SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES NEW YORK STOCK EXCHANGE </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. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Act) Yes [X] No [ ] The aggregate market value of the voting shares held by non-affiliates of the Registrant as of June 30, 2003, which was the last business day of the Registrant's most recently completed second fiscal quarter was $593,745,987, based on the closing price of common shares as of that date, which was $17.70 per share. Number of common shares outstanding as of February 23, 2004 was 41,193,478. Number of preferred shares outstanding as of February 23, 2004 was 3,160,000. DOCUMENTS INCORPORATED BY REFERENCE: The Definitive Proxy Statement for Registrant's 2004 Annual Meeting of Shareholders, or the Proxy Statement, is incorporated herein by reference into Part III. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PART I. CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS Certain information included or incorporated by reference in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act, and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," "project," or the negative of these words or other similar words or terms. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in economic conditions generally and the real estate market specifically, adverse developments with respect to our tenants, legislative/regulatory changes including changes to laws governing the taxation of REITs, availability of debt and equity capital, interest rates, competition, supply and demand for properties in our current and proposed market areas and policies and guidelines applicable to REITs. These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference in this Annual Report on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed or incorporated by reference in this Annual Report on Form 10-K may not occur and our actual results could differ materially from those anticipated or implied in the forward-looking statements. 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 and 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. The Company's Internet address is www.lxp.com. The Company makes available free of charge through its web site its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after it electronically files such materials with the Securities and Exchange Commission. As of December 31, 2003, the Company's real property portfolio consisted of 118 properties or interests therein located in thirty-five states, including warehousing, distribution and manufacturing facilities, office buildings and retail properties containing an aggregate 23.0 million net rentable square feet of space. In addition, Lexington Realty Advisors, Inc. ("LRA"), a wholly owned subsidiary, manages 2 properties for a third party. 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. Of the Company's 118 properties, six provide for operating expense stops, two are subject to modified gross leases and one required the Company to be responsible for real estate taxes in 2003 and for the tenant to be responsible thereafter. As of December 31, 2003, 98.8% of net rentable square feet were subject to a lease. The Company manages its real estate and credit risk through geographic, industry, tenant and lease maturity diversification. As of December 31, 2003, the fifteen largest tenants/guarantors, which occupy 34 properties, represented 46.1% of trailing twelve month rent, including the Company's proportionate share of 1
non-consolidated entities and rental revenue from properties sold through date of sale. The fifteen tenants are as follows: <Table> <Caption> NUMBER OF TENANT (GUARANTOR) PROPERTIES PROPERTY TYPE - ------------------ ---------- --------------------- <S> <C> <C> Kmart Corporation................................... 1 Industrial Northwest Pipeline Corp............................. 1 Office Exel Logistics, Inc. (NFC plc)...................... 4 Industrial Honeywell, Inc...................................... 4 Office Owens Corning....................................... 4 Industrial Circuit City Stores, Inc............................ 4 Office (1)/Retail (3) Vartec Telecom, Inc................................. 1 Office Michaels Stores, Inc................................ 1 Industrial Bally Total Fitness Corp............................ 5 Retail Aventis Pharmaceuticals, Inc.(1).................... 1 Office Blue Cross Blue Shield of South Carolina, Inc.(1)... 1 Office Quest Diagnostics, Inc.............................. 1 Office Artesyn North America, Inc. (Balfour Beatty PLC).... 1 Office Nextel Finance Company.............................. 4 Office Wells Fargo Home Mortgage, Inc...................... 1 Office --- 34 === </Table> - --------------- (1) These properties are owned by non-consolidated entities. As of December 31, 2002 and 2001 the fifteen largest tenants/guarantors represented 51.6% and 59.3% of trailing twelve month rent, respectively, including the Company's proportionate share of non-consolidated entities and rental revenue from properties sold through date of sale. In 2003 and 2002, no tenant represented greater than 10% of rental income and in 2001 Northwest Pipeline Corp. and Kmart Corporation each represented 11% of rental income. 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 achieve these objectives management focuses on: - acquiring portfolios and individual net lease properties from third parties, completing sale/leaseback transactions, acquiring build-to-suit properties and opportunistically using common shares and operating partnership units to effect acquisitions; - entering into strategic co-investment programs which generate higher equity returns than direct investments due to acquisition, asset management and debt placement fees and in some cases increased leverage levels; - entering into third party advisory contracts to generate advisory fee revenue; - effectively managing assets through lease extensions, revenue enhancing property expansions, opportunistic property sales and redeployment of assets, when advisable; - 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 and operating partnership units when they trade at a discount to net asset value. 2
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. 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 re-leasing 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 property owner, as a form of consideration in exchange for the property, 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 primary 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 ("CRF"). The joint venture entity, Lexington Acquiport Company, LLC ("LAC"), was created to acquire high quality office and industrial real estate properties net leased to investment and non-investment grade single tenant users. The Company and CRF committed to make equity contributions to LAC of up to $50 million and $100 million, respectively. As of December 31, 2003, LAC has completed its acquisition program and no more investments will be made by this entity. In addition, LAC financed a portion of acquisition costs through the use of non-recourse mortgages. During 2003, LAC made two acquisitions, for $49.5 million (including closing costs), of which $33.3 million was funded through non-recourse mortgages, maturing in 2012. As of December 31, 2003, LAC had ownership interest in 11 properties. The property leases, which expire at various dates ranging from 2009 to 2016, provide for current annual net cash rent of approximately $36.3 million. LAC also has an investment, an $11.0 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, 2003, LAC had made investments totaling $380.3 million. In 2003, the Company and CRF purchased a property for $22.7 million directly as partners and therefore it is not owned by LAC. The tenant has a lease, which is scheduled to expire in 2021 but can be canceled anytime after September 2011 with a payment which currently is $23.4 million. The purchase price was partially funded through a $19.2 million non-recourse mortgage maturing in 2021. LRA has a management agreement with LAC and the separate partnership whereby LRA will perform certain services for a fee relating to the acquisition (75 basis points of cost) and management (200 basis points of rent collected annually) of the investments. During 2003 and 2002, LRA earned asset management fees of 3
$0.5 million and $0.7 million relating to this management agreement, respectively. In 2003 and 2002, LRA earned $0.3 million and $0.2 million in acquisition fees, respectively. In December 2001, the Company and CRF announced the formation of Lexington Acquiport Company II, LLC ("LAC II"). The Company and CRF have committed to fund $50 million and $150 million, respectively, to purchase up to $560 million in single tenant net lease office and industrial properties. LRA, in addition to earning the same fees as discussed above, earns 50 basis points for all mortgage debt directly placed. LAC II has not made any investments as of December 31, 2003. The Company is required to first offer to LAC II all of the Company's opportunities to acquire office and industrial properties requiring a minimum investment of $10.0 million which are net leased primarily to investment grade tenants for a minimum term of ten years, are available for immediate delivery and satisfy other specified investment criteria. Only if CRF elects not to approve the joint venture's pursuit of an acquisition opportunity may the Company pursue the opportunity directly. In October 2003, the Company entered into a joint venture agreement with CLPF-LXP/Lion Venture GP, LLC ("Clarion"). The joint venture entity Lexington/Lion Venture LP ("LION"), was created to acquire high quality office, industrial and retail properties net leased to investment and non-investment grade single tenant users. The Company and Clarion committed to make equity contributions to LION of up to $30 million and $70 million, respectively, of which $52.0 million has been funded as of December 31, 2003. In addition, LION finances a portion of acquisition costs through the use of non-recourse mortgages. During 2003, LION made three acquisitions, all of which were contributed from its partners, for $74.6 million, of which $36.3 million was funded through non-recourse mortgages maturing in 2011 (currently $22.8 million) and 2014 (currently $13.4 million). The property leases, which expire at various dates ranging from 2009 to 2013, provide for current annual cash rent of approximately $7.5 million. LRA has a management agreement with LION whereby LRA will perform certain services for a fee relating to acquisition and management of the LION investments. During 2003, LRA earned $0.3 million in acquisition fees. The Company is required to first offer to LION all of the Company's opportunities to acquire office, industrial and retail properties requiring a minimum investment $15.0 million to $40.0 million which are net leased primarily to non-investment grade tenants for a minimum term of at least five years, are available for immediate delivery and satisfy other specified investment criteria. Only if Clarion elects not to approve the joint venture's pursuit of an acquisition opportunity may the Company pursue the opportunity directly. In 1999, the Company also formed a joint venture to own a property net leased to Blue Cross Blue Shield of South Carolina, Inc. 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 each of 2003 and 2002, LRA earned fees of $0.1 million relating to this management contract. In January 2002, the Company sold a 77.3% interest in its Florence, South Carolina ("Florence") property net leased to Washington Mutual Home Loans, Inc., along with the proportionate share of mortgage debt for $4.6 million in proceeds. The third party purchasers have the right for six months commencing 24 months after the sale (January 2004 thru June 2004) to put their interest back to the Company for OP Units in LCIF, valued at $4.6 million. The number of OP Units issued will be based upon 95% of the average closing price of the Company's common shares for the 20 trading days preceding conversion date with a minimum conversion price of $13.92 and maximum conversion price of $15.82 per operating partnership unit. The OP Units will have the same distribution rate as the common shares. LRA provides management services to Florence for a fee, which is 3.5% of rents, earning $0.1 million in 2003 and 2002. 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 $140 million in single tenant, net leased office, industrial and 4
retail properties in the United States. LRA earns 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. The fund made no purchases in 2003 or 2002 and LRA earned $0.1 million in asset management fees each year. 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 also acquires, 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. Competition. Through our predecessor entities the Company has been in the net lease business for 30 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 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 the Company's 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 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. 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 5
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 24 of its properties. During 2003, the Company entered into 1 lease extension for a lease scheduled to expire in 2004, for an additional 2 years and a 5.7% increase over the then average rental revenue. As of December 31, 2003, the scheduled lease maturities for each of the next five years are as follows: <Table> <Caption> NUMBER RENTABLE 2003 YEAR ENDED OF SQUARE REVENUE DECEMBER 31, LEASES FEET ($000'S) - ------------ ------ --------- -------- <S> <C> <C> <C> 2004.................................................. 2 109,104 $ 1,302 2005.................................................. 7 956,408 7,311 2006.................................................. 15 1,980,307 12,700 2007.................................................. 9 2,398,870 16,542 2008.................................................. 8 788,946 8,923 -- --------- ------- 41 6,233,635 $46,778 == ========= ======= </Table> Included in the 2008 amounts is a lease ($1,699 in revenue and 177,747 rentable square feet) for a property owned by a non-consolidated entity. 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. Property Sales. The Company will sell properties on an opportunistic basis when management believes that the return realized from selling a property will exceed the expected return from continuing to hold such property. ACCESS TO CAPITAL AND REFINANCING EXISTING INDEBTEDNESS During 2003, the Company completed common share offerings of 4.5 million shares at $16.44 per share and 5.3 million shares at $18.98 per share, raising aggregate net proceeds of $174.0 million. In addition, the Company issued 3.16 million preferred shares at $25 per share and a coupon of 8.05%, raising net proceeds of $76.3 million. During 2003, the Company, including its non-consolidated entities, repaid $131.9 million in mortgages ($78.1 million fixed rate and $53.8 million variable rate) at a weighted average interest rate of 6.47% (8.04% weighted average fixed rate and 4.18% weighted average variable rate), which resulted in debt satisfaction charges of $8.5 million. During 2003, the Company, including its non-consolidated entities, obtained $179.6 million in non-recourse mortgage financings on properties at a fixed weighted average interest rate of 5.76%. The proceeds of the financings were used to partially fund acquisitions. 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 6.95% as of December 31, 2002 to approximately 6.24% as of December 31, 2003. Scheduled balloon payments (excluding amounts owed under 6
the line of credit agreement which total $94.0 million at December 31, 2003 and is scheduled to expire in 2006) over the next five years are as follows ($000's): <Table> <Caption> WEIGHTED AVERAGE BALLOON AMOUNTS INTEREST RATE --------------- ------------- <S> <C> <C> 2004..................................................... $14,456 4.14% 2005..................................................... -- -- 2006..................................................... -- -- 2007..................................................... -- -- 2008..................................................... 70,492 6.62% ------- ---- $84,948 6.20% ======= ==== </Table> The Company's variable rate unsecured credit facility bears interest at 150-250 basis points over the Company's option of 1, 3 or 6 month LIBOR, depending on the amount of properties the Company owns free and clear of mortgage debt, and is scheduled to mature in August 2006. The Company can extend the maturity date to August 2007 if no default exists for a fee of 25 basis points. As of December 31, 2003, $94.0 million outstanding under this facility bore interest at a rate of 2.64%. Common Share Repurchase. The Company's Board of Trustees authorized the repurchase of up to 2.0 million common shares and/or OP Units. As of December 31, 2003, the Company has repurchased approximately 1.4 million common shares/OP Units at an average price of $10.55 per share/OP Unit. The Company did not repurchase any common shares or OP Units under this plan in 2003 or 2002. OTHER Employees. As of December 31, 2003, the Company had thirty-three employees. Industry Segments. The Company operates in one industry segment, investment in single tenant, net leased real properties. ITEM 2. PROPERTIES REAL ESTATE PORTFOLIO As of December 31, 2003, the Company owned or had interests in approximately 23.0 million square feet of rentable space in 118 office, industrial and retail properties. As of December 31, 2003, the Company's properties were 98.8% leased based upon net rentable square feet. As of December 31, 2003, the number, percentage of trailing 12 month rental revenue (including rental revenue from properties sold through date of sale and the Company's proportionate share of non-consolidated entities) and square footage mix of the Company's portfolio is as follows: <Table> <Caption> SQUARE NUMBER RENT FOOTAGE ------ ----- ------- <S> <C> <C> <C> Office...................................................... 52 57.6% 36.3% Industrial.................................................. 39 31.9% 56.1% Retail...................................................... 27 10.5% 7.6% --- ----- ----- 118 100.0% 100.0% === ===== ===== </Table> The Company's properties are generally 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), one in Fishers, Indiana, one in Valley Forge, Pennsylvania, two in South Carolina (Fort Mill and Greenville), one in Columbia, Maryland and one in Novato, California are subject to leases in which the Company is responsible for a portion of the real estate taxes, utilities and general maintenance. In addition, the Company was responsible for real estate taxes for its property in Westmont, Illinois for 2003 and the tenant is responsible thereafter. The Lake Mary and Fishers properties are owned by LAC and the Novato property is 7
owned by LION. The Company is responsible for all operating expenses of any vacant properties. As of December 31, 2003, the Company has one vacant property (Phoenix, Arizona). The Company's tenants represent a variety of industries including general retailing, finance and insurance, energy, transportation and logistics, technology, telecommunications and defense. For the year ended December 31, 2003 revenues, including revenues earned by non-consolidated entities and rental revenue recognized on properties sold through date of sale, were earned from 86 tenants in 20 different industries. Tenant Leases. A substantial portion of the Company's income consists of base rent under long-term leases. As of December 31, 2003, the weighted average remaining term under the Company's leases is approximately 7.6 years. Of the 119 current leases, 77 contain scheduled rent increases, 8 contain an increase based upon the Consumer Price Index, 3 contain fixed step down provisions, 31 are flat throughout the remaining lease term and 3 retail leases (which also are flat throughout the remaining lease term) contain a percentage rent clause. Ground Leases. The Company has 9 properties accounting for $15.2 million of 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 from 2028 through 2072. The contractual rents due under these ground leases for each of the next five years and thereafter (excluding renewal options) is as follows: <Table> <Caption> RENTAL YEAR ENDING PAYMENTS DECEMBER 31, ($000'S) - ------------ -------- <S> <C> 2004........................................................ $ 898 2005........................................................ 898 2006........................................................ 898 2007........................................................ 898 2008........................................................ 898 Thereafter.................................................. 7,173 ------- $11,663 ======= </Table> TABLE REGARDING REAL ESTATE HOLDINGS The table on the following pages sets forth certain information relating to the Company's real property portfolio, including non-consolidated properties, as of December 31, 2003. 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 non-consolidated entities if less than five years, with the exception of the Memphis, Tennessee, Columbia, Maryland and Phoenix, Arizona properties. During the last five years the Memphis property was not leased from February 1998 to October 1999, the Phoenix property has not been leased since December 1, 2003 and the Columbia property has not been leased from September 2001 to April 2003 when a lease for 17,100 square feet was executed and in September 2003 the remaining 46,724 square feet were leased. The Memphis property has a tenant lease for 35,000 square feet out of a total of 141,359 square feet and the tenant is responsible for all operating expenses. ($000's). 8
LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART <Table> <Caption> LAND NET TENANT YEAR CONSTRUCTED/ AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET - ----------------- ---------------------------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> OFFICE 295 Chipeta Way Northwest Pipeline Corp.(1) 1982 19.79 295,000 Salt Lake City, UT 5200 Metcalf Avenue Employers Reinsurance Corporation 1980 & 2003 26.20 320,198 Overland Park, KS 1600 Viceroy Drive VarTec Telecom, Inc. 1986 8.17 249,452 Dallas, TX 9950 Mayland Drive Circuit City Stores, Inc.(1) 1990 19.71 288,562 Richmond, VA 2750 Monroe Boulevard Quest Diagnostics, Inc.(6) 1985 & 2001 10.50 109,281 Valley Forge, PA 1301 California Circle Artesyn North America, Inc. 1985 6.34 100,026 Milpitas, CA (Balfour Beatty plc.) 3476 Stateview Boulevard Wells Fargo Home Mortgage, Inc.(5) 2002 15.99 169,083 Fort Mill, SC 700 Oakmont Lane North American Van Lines(7) 1989 17.93 269,715 Westmont, IL (SIRVA, Inc.) 13651 McLearen Road Boeing North American Services, Inc. 1987 10.39 159,664 Herndon, VA 2211 South 47th Street Avnet, Inc. 1997 11.33 176,402 Phoenix, AZ 1401/1501 Nolan Ryan Parkway Seimens Dematic Postal Automation, 2003 14.14 233,783 Arlington, TX L.P. 5600 Broken Sound Boulevard Oce Printing Systems USA, Inc. 1983 & 2002 12.19 143,290 Boca Raton, FL 4200 RCA Boulevard The Wackenhut Corp.(4) 1996 7.70 114,518 Palm Beach Gardens, FL 701 Brookfield Parkway Verizon Wireless(9) 2000 & 2001 16.71 192,884 Greenville, SC 200 Executive Boulevard South Hartford Fire Insurance Co 1983 12.40 153,364 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.) 9201 State Line Employers Reinsurance Corporation 1963 & 2003 7.17 166,641 Kansas City, MO 26210 and 26220 Enterprise Court Apria Healthcare, Inc. 2001 7.23 100,012 Lake Forest, CA <Caption> 2004 2004 ESTIMATED ESTIMATED MINIMUM STRAIGHT-LINE ESTIMATED CASH RENTAL REAL ESTATE BASE REVENUE REVENUE TAXES PROPERTY LOCATION LEASE TERM ($000) ($000) ($000)(10) - ----------------- ------------------- ------------- ------------- --------------- <S> <C> <C> <C> <C> OFFICE 295 Chipeta Way 10/01/82 - 09/30/09 $ 8,773 $ 8,773 $ 8 Salt Lake City, UT 5200 Metcalf Avenue 01/22/03 - 12/31/18 $ 3,842 $ 3,842 $ 449 Overland Park, KS 1600 Viceroy Drive 04/11/00 - 09/30/15 $ 3,445 $ 3,486 $ 490 Dallas, TX 9950 Mayland Drive 02/28/90 - 02/28/10 $ 2,859 $ 2,791 $ 159 Richmond, VA 2750 Monroe Boulevard 05/01/01 - 04/30/11 $ 2,360 $ 2,554 $ 172 Valley Forge, PA 1301 California Circle 12/10/85 - 12/09/05 $ 2,893 $ 2,548 $ 135 Milpitas, CA 3476 Stateview Boulevard 01/25/03 - 01/30/13 $ 2,539 $ 2,539 $ 110 Fort Mill, SC 700 Oakmont Lane 12/01/02 - 11/30/15 $ 2,298 $ 2,516 $ 348 Westmont, IL 13651 McLearen Road 05/31/99 - 05/30/08 $ 2,638 $ 2,477 $ 135 Herndon, VA 2211 South 47th Street 11/15/97 - 11/14/07 $ 2,553 $ 2,468 $ 9 Phoenix, AZ 1401/1501 Nolan Ryan Parkway 01/15/04 - 01/14/14 $ 2,287 $ 2,357 $ 382 Arlington, TX 5600 Broken Sound Boulevard 02/15/02 - 02/14/20 $ 2,012 $ 2,245 $ 87 Boca Raton, FL 4200 RCA Boulevard 02/15/96 - 02/28/11 $ 2,182 $ 2,149 $ 373 Palm Beach Gardens, FL 701 Brookfield Parkway 01/11/02 - 01/31/12 $ 1,933 $ 2,067 $ 182 Greenville, SC 200 Executive Boulevard South 09/01/91 - 12/31/05 $ 2,166 $ 2,009 $ 326 Southington, CT 19019 No. 59th Avenue 07/16/86 - 07/15/06 $ 2,002 $ 1,980 $ 405 Glendale, AZ 401 Elm Street 07/22/97 - 12/17/06 $ 1,870 $ 1,870 $ 147 Marlborough, MA 9201 State Line 01/22/03 - 05/30/19 $ 1,833 $ 1,833 $ 345 Kansas City, MO 26210 and 26220 Enterprise Court 02/01/01 - 01/31/12 $ 1,651 $ 1,792 $ 230 Lake Forest, CA </Table> 9
<Table> <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART LAND NET TENANT YEAR CONSTRUCTED/ AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET - ----------------- ---------------------------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> 1600 Eberhardt Road Nextel Communications of Texas, Inc. 2001 14.26 108,800 Temple, TX 9275 SW Peyton Lane Hollywood Entertainment Corporation 1980 & 1998 8.72 122,853 Wilsonville, OR 160 Clairemont Avenue Allied Holdings, Inc. 1983 2.98 112,248 Decatur, GA 10419 North 30th Street Time Customer Service, Inc. 1986 14.38 132,981 Tampa, FL (Time, Inc.) 250 Rittenhouse Circle Jones Apparel Group USA, Inc.(3) 1982 15.63 255,019 Bristol, PA 400 Butler Farm Road Nextel Communications of the 1999 14.34 100,632 Hampton, VA Mid-Atlantic, Inc. (Nextel Finance Company) 6455 State Highway 303 NE Nextel West Corporation 2001 6.90 60,200 Bremerton, WA 13430 N. Black Canyon Freeway Bull HN Information Systems, Inc. 1985 & 1994 13.37 137,058 Phoenix, AZ 4455 American Way Bell South Mobility, Inc. 1997 5.73 70,100 Baton Rouge, LA 180 Rittenhouse Circle Jones Apparel Group USA, Inc. 1998 4.73 96,000 Bristol, PA 16275 Technology Drive Cymer, Inc. 1989 2.73 65,755 San Diego, CA (Hewlett Packard) 2401 Cherahala Boulevard Advance PCS, Inc. 2002 7.97 59,748 Knoxville, TN 421 Butler Farm Road Nextel Communications of the 2000 7.81 56,515 Hampton, VA Mid-Atlantic, Inc. (Nextel Finance Company) 12000 Tech Center Drive Kelsey-Hayes Company 1987 & 1988 5.72 80,230 Livonia, MI 100 Barnes Road Minnesota Mining and Manufacturing 1978 & 1985 39.80 44,400 Wallingford, CT Company 1440 East 15th Street Cox Communications, Inc. 1988 3.58 28,591 Tucson, AZ 250 Turnpike Road Honeywell Consumer Products 1984 9.83 57,698 Southborough, MA 183 Plains Road IKON Office Solutions, Inc. 1994 3.01 27,360 Milford, CT 2300 Litton Lane Fidelity Corporate 1987 24.00 81,744 Hebron, KY Real Estate, LLC <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART 2004 2004 ESTIMATED ESTIMATED MINIMUM STRAIGHT-LINE ESTIMATED CASH RENTAL REAL ESTATE BASE REVENUE REVENUE TAXES PROPERTY LOCATION LEASE TERM ($000) ($000) ($000)(10) - ----------------- ------------------- ------------- ------------- --------------- <S> <C> <C> <C> <C> 1600 Eberhardt Road 02/01/01 - 01/31/16 $ 1,384 $ 1,559 $ 77 Temple, TX 9275 SW Peyton Lane 09/29/98 - 11/30/08 $ 1,468 $ 1,531 $ 87 Wilsonville, OR 160 Clairemont Avenue 01/01/98 - 12/31/07 $ 1,588 $ 1,530 $ 242 Decatur, GA 10419 North 30th Street 04/01/87 - 07/31/10 $ 1,411 $ 1,410 $ 194 Tampa, FL 250 Rittenhouse Circle 03/26/98 - 03/25/13 $ 1,265 $ 1,385 $ 190 Bristol, PA 400 Butler Farm Road 03/20/00 - 12/31/09 $ 1,264 $ 1,302 $ 37 Hampton, VA 6455 State Highway 303 NE 02/01/01 - 01/31/16 $ 969 $ 1,113 $ 66 Bremerton, WA 13430 N. Black Canyon Freeway 10/11/94 - 10/10/05 $ 1,144 $ 1,086 $ 283 Phoenix, AZ 4455 American Way 11/01/97 - 10/31/12 $ 992 $ 1,084 $ 162 Baton Rouge, LA 180 Rittenhouse Circle 08/01/98 - 07/31/13 $ 901 $ 970 $ 204 Bristol, PA 16275 Technology Drive 06/01/96 - 01/01/10 $ 882 $ 888 $ 91 San Diego, CA 2401 Cherahala Boulevard 06/01/02 - 05/31/13 $ 786 $ 822 $ 40 Knoxville, TN 421 Butler Farm Road 01/15/00 - 01/14/10 $ 709 $ 719 $ 81 Hampton, VA 12000 Tech Center Drive 05/01/97 - 04/30/07 $ 702 $ 679 $ 107 Livonia, MI 100 Barnes Road 01/01/04 - 07/01/10 $ 538 $ 606 $ 29 Wallingford, CT 1440 East 15th Street 10/01/90 - 09/30/16 $ 428 $ 457 $ 82 Tucson, AZ 250 Turnpike Road 10/01/95 - 09/30/15 $ 433 $ 433 $ 90 Southborough, MA 183 Plains Road 12/23/94 - 12/31/04 $ 337 $ 337 $ 44 Milford, CT 2300 Litton Lane 07/01/96 - 04/30/04 $ 332 $ 322 $ 80 Hebron, KY </Table> 10
<Table> <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART LAND NET TENANT YEAR CONSTRUCTED/ AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET - ----------------- ---------------------------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> 3615 North 27th Avenue Vacant 1960 & 1979 10.26 179,280 Phoenix, AZ -------- ---------- Office Subtotal 528.37 5,497,387 -------- ---------- INDUSTRIAL 541 Perkins Jones Road Kmart Corp. 1982 103.00 1,700,000 Warren, OH 2425 Highway 77 North James Hardie Building Products, Inc. 1996 & 1997 45.29 425,816 Waxahachie, TX (James Hardie Industries NV) 3501 West Avenue H Michaels Stores, Inc. 1998 & 2002 37.18 762,775 Lancaster, CA 8305 SE 58th Avenue Associated Grocers of Florida, Inc. 1976 63.48 668,034 Ocala, FL 43955 Plymouth Oaks Boulevard Tower Automotive Products 1996 & 1998 18.40 290,133 Plymouth, MI Company (Tower Automotive, Inc.) 6345 Brackbill Boulevard Exel Logistics, Inc. 1985 & 1991 29.01 507,000 Mechanicsburg, PA (NFC plc) 224 Harbor Freight Road Harbor Freight Tools USA, Inc. 2001 74.95 474,473 Dillon, SC (Central Purchasing, Inc.) 590 Ecology Lane Owens Corning 2001 39.52 193,891 Chester, SC 4425 Purks Road Lear Technologies LLC 1989 & 1998 12.00 183,717 Auburn Hills, MI (Lear Corporation) (General Motors Corp.) 6 Doughten Road Exel Logistics Inc. 1989 24.38 330,000 New Kingston, PA (NFC plc) 6500 Adelaide Court Anda Pharmaceuticals 2002 22.67 354,676 Groveport, OH (Andrx Corporation) 7500 Chavenelle Road The McGraw Hill Companies, Inc. 2002 21.80 330,988 Dubuque, IA 3102 Queen Palm Drive Time Customer Service, Inc. 1986 15.02 229,605 Tampa, FL (Time, Inc.) 2280 Northeast Drive Ryder Integrated Logistics, Inc. 1996 & 1997 25.70 276,480 Waterloo, IA (Ryder Systems, Inc.) 245 Salem Church Road Exel Logistics Inc. 1985 12.52 252,000 Mechanicsburg, PA (NFC plc) 200 Arrowhead Drive Owens Corning 1999 21.62 400,522 Hebron, OH <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART 2004 2004 ESTIMATED ESTIMATED MINIMUM STRAIGHT-LINE ESTIMATED CASH RENTAL REAL ESTATE BASE REVENUE REVENUE TAXES PROPERTY LOCATION LEASE TERM ($000) ($000) ($000)(10) - ----------------- ------------------- ------------- ------------- --------------- <S> <C> <C> <C> <C> 3615 North 27th Avenue -- -- -- $ 241 Phoenix, AZ -------- -------- ------- $ 69,669 $ 70,529 $ 6,919 -------- -------- ------- INDUSTRIAL 541 Perkins Jones Road 10/01/82 - 09/30/07 $ 9,359 $ 8,932 $ 389 Warren, OH 2425 Highway 77 North 10/07/00 - 03/31/20 $ 3,400 $ 3,400 $ 331 Waxahachie, TX 3501 West Avenue H 06/19/98 - 09/30/19 $ 3,234 $ 3,304 $ 191 Lancaster, CA 8305 SE 58th Avenue 01/08/99 - 12/31/18 $ 2,064 $ 2,238 $ 1,255 Ocala, FL 43955 Plymouth Oaks Boulevard 11/01/02 - 10/31/12 $ 1,886 $ 1,886 $ 11 Plymouth, MI 6345 Brackbill Boulevard 10/29/90 - 03/19/12 $ 2,037 $ 1,852 $ 94 Mechanicsburg, PA 224 Harbor Freight Road 12/05/01 - 12/04/16 $ 1,642 $ 1,812 $ 162 Dillon, SC 590 Ecology Lane 01/01/01 - 12/31/20 $ 1,619 $ 1,619 $ 4 Chester, SC 4425 Purks Road 07/23/88 - 07/22/06 $ 1,405 $ 1,365 $ 250 Auburn Hills, MI 6 Doughten Road 11/15/91 - 11/30/06 $ 1,488 $ 1,349 $ 108 New Kingston, PA 6500 Adelaide Court 04/01/02 - 03/31/12 $ 1,151 $ 1,206 $ 54 Groveport, OH 7500 Chavenelle Road 11/13/01 - 11/30/15 $ 1,031 $ 1,164 $ 84 Dubuque, IA 3102 Queen Palm Drive 08/01/87 - 07/31/10 $ 983 $ 1,010 $ 137 Tampa, FL 2280 Northeast Drive 08/01/97 - 07/31/12 $ 998 $ 1,004 $ 365 Waterloo, IA 245 Salem Church Road 11/15/91 - 11/30/06 $ 1,104 $ 1,000 $ 77 Mechanicsburg, PA 200 Arrowhead Drive 03/01/01 - 05/31/09 $ 974 $ 985 $ 17 Hebron, OH </Table> 11
<Table> <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART LAND NET TENANT YEAR CONSTRUCTED/ AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET - ----------------- ---------------------------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> 12025 Tech Center Drive Kelsey-Hayes Company 1987 & 1988 9.18 100,000 Livonia, MI 3600 Southgate Drive Sygma Network, Inc. 2000 19.00 149,500 Danville, IL (Sysco Corporation) 46600 Port Street Johnson Controls, Inc. 1996 24.00 134,160 Plymouth, MI 1133 Poplar Creek Road Corporate Express Office 1998 19.09 196,946 Henderson, NC Products, Inc. (Buhrmann N.V.) 222 Tappan Drive North The Gerstenslager Company 1970 26.57 296,720 Mansfield, OH (Worthington Industries) 34 East Main Street Exel Logistics Inc. 1981 9.66 179,200 New Kingston, PA (NFC plc) 450 Stern Street Johnson Controls, Inc. 1996 20.10 111,160 Oberlin, OH 191 Arrowhead Drive Owens Corning 2000 13.62 250,410 Hebron, OH 1700 47th Avenue North Owens Corning 2003 8.90 18,620 Minneapolis, MN 109 Stevens Street Unisource Worldwide, Inc. 1958 & 1969 6.97 168,800 Jacksonville, FL 904 Industrial Road Tenneco Automotive 1968 & 1972 20.00 195,640 Marshall, MI Operating Company, Inc. (Tenneco Automotive, Inc.) 128 Crews Drive Stone Container Corporation 1968 & 1998 10.76 185,961 Columbia, SC 7150 Exchequer Drive Corporate Express Office 1998 5.23 65,043 Baton Rouge, LA Products, Inc. (Buhrmann N.V.) 324 Industrial Park Road SKF USA, Inc. 1996 21.13 72,868 Franklin, NC 187 Spicer Drive Dana Corp. 1983 & 1985 20.95 148,000 Gordonsville, TN 300 McCormick Boulevard Ameritech Services, Inc. 1990 10.12 20,000 Columbus, OH 1601 Pratt Avenue Tenneco Automotive 1979 8.26 53,600 Marshall, MI Operating Company, Inc. (Tenneco Automotive, Inc.) 3350 Miac Cove Road Mimeo.com, Inc.(2) 1987 10.92 141,359 Memphis, TN -------- ---------- <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART 2004 2004 ESTIMATED ESTIMATED MINIMUM STRAIGHT-LINE ESTIMATED CASH RENTAL REAL ESTATE BASE REVENUE REVENUE TAXES PROPERTY LOCATION LEASE TERM ($000) ($000) ($000)(10) - ----------------- ------------------- ------------- ------------- --------------- <S> <C> <C> <C> <C> 12025 Tech Center Drive 05/01/97 - 04/30/07 $ 975 $ 958 $ 67 Livonia, MI 3600 Southgate Drive 10/15/00 - 10/31/15 $ 933 $ 933 $ 143 Danville, IL 46600 Port Street 05/19/00 -12/22/06 $ 847 $ 847 $ 62 Plymouth, MI 1133 Poplar Creek Road 01/20/99 - 01/31/14 $ 754 $ 810 $ 61 Henderson, NC 222 Tappan Drive North 10/01/99 - 05/31/05 $ 674 $ 667 $ 81 Mansfield, OH 34 East Main Street 11/15/91 - 11/30/06 $ 720 $ 654 $ 46 New Kingston, PA 450 Stern Street 12/23/96 - 12/22/06 $ 641 $ 641 $ 75 Oberlin, OH 191 Arrowhead Drive 06/01/01 - 02/28/10 $ 578 $ 605 $ 11 Hebron, OH 1700 47th Avenue North 07/01/03 - 06/30/15 $ 538 $ 596 $ 0 Minneapolis, MN 109 Stevens Street 10/01/87 - 09/30/09 $ 559 $ 588 $ 33 Jacksonville, FL 904 Industrial Road 08/18/87 - 08/17/05 $ 606 $ 583 $ 70 Marshall, MI 128 Crews Drive 12/16/82 - 08/31/12 $ 541 $ 571 $ 120 Columbia, SC 7150 Exchequer Drive 11/01/98 - 10/31/13 $ 349 $ 368 $ 48 Baton Rouge, LA 324 Industrial Park Road 12/23/96 - 12/31/14 $ 363 $ 363 $ 12 Franklin, NC 187 Spicer Drive 01/01/84 - 08/31/07 $ 345 $ 341 $ 49 Gordonsville, TN 300 McCormick Boulevard 09/14/90 - 05/31/05 $ 255 $ 255 $ 21 Columbus, OH 1601 Pratt Avenue 08/18/87 - 08/17/05 $ 166 $ 163 $ 34 Marshall, MI 3350 Miac Cove Road 11/01/99 - 10/31/09 $ 178 $ 154 $ 82 Memphis, TN -------- -------- ------- </Table> 12
<Table> <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART LAND NET TENANT YEAR CONSTRUCTED/ AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET - ----------------- ---------------------------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> Industrial Subtotal 831.00 9,868,097 -------- ---------- RETAIL 2655 Shasta Way Fred Meyer, Inc. 1986 13.90 178,204 Klamath Falls, OR Fort Street Mall Liberty House, Inc.(1) 1980 1.22 85,610 King Street Honolulu, HI 150 NE 20th Street Fred Meyer, Inc. 1986 8.81 118,179 Highway 101 Newport, OR 12235 N. Cave Creek Bally's Health & Tennis Corp. 1988 3.00 36,556 Phoenix, AZ 6475 Dobbin Road Offenbacher Aquatics 1983 2.50 17,100 Columbia, MD Haverty Furniture Companies, Inc. 46,724 35400 Cowan Road Sam's Real Estate Business Trust 1987 & 1997 9.70 102,826 Westland, MI 4733 Hills & Dales Road Scandinavian Health Spa, Inc. 1987 3.32 37,214 Canton, OH (Bally Total Fitness Holding Corp.) 7111 Westlake Terrace The Home Depot USA, Inc.(1)(8) 1980 & 2001 7.61 95,000 Bethesda, MD 24100 Laguna Hills Mall Federated Department Stores, Inc.(1) 1974 11.00 160,000 Laguna Hills, CA 1160 White Horse Road Physical Fitness Centers of 1987 2.87 31,750 Voorhees, NJ Philadelphia, Inc. (Bally Total Fitness Corp.) 5917 S. La Grange Road Bally Total Fitness Corp. 1987 2.73 25,250 Countryside, IL 4831 Whipple Avenue, N.W. Best Buy Co., Inc. 1995 6.59 46,350 Canton, OH 3711 Gateway Drive Kohl's Department Stores, Inc. 1994 6.24 76,164 Eau Claire, WI 12535 SE 82nd Avenue Toys "R" Us, Inc.(1) 1981 5.85 42,842 Clackamas, OR 5801 Bridge Street Champion Fitness IV, Inc. 1977 & 1987 3.66 24,990 DeWitt, NY (Bally Total Fitness Corp.) 399 Peachwood Centre Drive Best Buy Co., Inc. 1996 7.49 45,800 Spartanburg, SC 18601 Alderwood Mall Boulevard Toys "R" Us, Inc.(1) 1981 3.64 43,105 Lynnwood, WA <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART 2004 2004 ESTIMATED ESTIMATED MINIMUM STRAIGHT-LINE ESTIMATED CASH RENTAL REAL ESTATE BASE REVENUE REVENUE TAXES PROPERTY LOCATION LEASE TERM ($000) ($000) ($000)(10) - ----------------- ------------------- ------------- ------------- --------------- <S> <C> <C> <C> <C> $ 44,397 $ 44,223 $ 4,544 -------- -------- ------- RETAIL 2655 Shasta Way 03/10/88 - 03/31/08 $ 1,009 $ 1,009 $ 158 Klamath Falls, OR Fort Street Mall 10/01/80 - 09/30/09 $ 963 $ 971 $ 194 King Street Honolulu, HI 150 NE 20th Street 06/01/86 - 05/31/11 $ 826 $ 826 $ 126 Highway 101 Newport, OR 12235 N. Cave Creek 07/01/88 - 06/30/08 $ 852 $ 821 $ 77 Phoenix, AZ 6475 Dobbin Road 04/01/03 - 03/31/13 $ 161 $ 186 $ 19 Columbia, MD 10/01/03 - 09/30/24 $ 140 $ 632 $ 55 35400 Cowan Road 06/06/97 - 01/31/09 $ 753 $ 753 $ 21 Westland, MI 4733 Hills & Dales Road 01/01/89 - 12/31/08 $ 713 $ 685 $ 23 Canton, OH 7111 Westlake Terrace 05/01/81 - 04/30/06 $ 772 $ 679 $ 304 Bethesda, MD 24100 Laguna Hills Mall 02/01/76 - 01/31/06 $ 677 $ 673 $ 13 Laguna Hills, CA 1160 White Horse Road 07/14/87 - 07/13/07 $ 820 $ 673 $ 105 Voorhees, NJ 5917 S. La Grange Road 07/13/87 - 07/12/07 $ 660 $ 542 $ 886 Countryside, IL 4831 Whipple Avenue, N.W. 02/27/98 - 02/26/18 $ 465 $ 465 $ 32 Canton, OH 3711 Gateway Drive 06/22/94 - 01/25/15 $ 460 $ 463 $ 49 Eau Claire, WI 12535 SE 82nd Avenue 06/01/81 - 05/31/06 $ 424 $ 424 $ 49 Clackamas, OR 5801 Bridge Street 08/19/87 - 08/18/07 $ 511 $ 419 $ 15 DeWitt, NY 399 Peachwood Centre Drive 02/27/98 - 02/26/18 $ 395 $ 395 $ 15 Spartanburg, SC 18601 Alderwood Mall Boulevard 06/01/81 - 05/31/06 $ 396 $ 391 $ 46 Lynnwood, WA </Table> 13
<Table> <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART LAND NET TENANT YEAR CONSTRUCTED/ AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET - ----------------- ---------------------------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> 7272 55th Street Circuit City Stores, Inc. 1988 3.93 45,308 Sacramento, CA 6910 S. Memorial Highway Toys "R" Us, Inc.(1) 1981 4.44 43,123 Tulsa, OK 2275 Browns Bridge Road Wal-Mart Stores, Inc. 1984 8.10 89,199 Gainesville, GA 6405 South Viriginia St. Comp USA, Inc. 1988 2.72 31,400 Reno, NV 7055 Highway 85 South Wal-Mart Stores East, Inc. 1985 8.61 81,911 Riverdale, GA 9580 Livingston Road GFS Realty, Inc. 1976 10.60 107,337 Oxon Hill, MD (Giant Food, Inc.) 121 South Center Street Greyhound Lines, Inc. 1968 1.67 17,000 Stockton, CA Rockshire Village Center GFS Realty, Inc.(1) 1977 7.32 51,682 2401 Wootton Parkway (Giant Food, Inc.) Rockville, MD A1 21 South Wal-Mart Real Estate Business Trust 1983 5.21 56,132 Jacksonville, AL 2832 Candlers Mountain Road Circuit City Stores, Inc. 1986 0.84 9,300 Lynchburg, VA -------- ---------- Retail Subtotal 153.57 1,746,056 -------- ---------- Grand Total 1,512.94 17,111,540 ======== ========== <Caption> LEXINGTON CORPORATE PROPERTIES TRUST PROPERTY CHART 2004 2004 ESTIMATED ESTIMATED MINIMUM STRAIGHT-LINE ESTIMATED CASH RENTAL REAL ESTATE BASE REVENUE REVENUE TAXES PROPERTY LOCATION LEASE TERM ($000) ($000) ($000)(10) - ----------------- ------------------- ------------- ------------- --------------- <S> <C> <C> <C> <C> 7272 55th Street 10/28/88 - 10/27/08 $ 421 $ 376 $ 63 Sacramento, CA 6910 S. Memorial Highway 06/01/81 - 05/31/06 $ 362 $ 358 $ 35 Tulsa, OK 2275 Browns Bridge Road 12/29/83 - 01/31/09 $ 328 $ 328 $ 7 Gainesville, GA 6405 South Viriginia St. 12/16/88 - 12/15/08 $ 364 $ 325 $ 60 Reno, NV 7055 Highway 85 South 12/04/85 - 01/31/11 $ 270 $ 270 $ 4 Riverdale, GA 9580 Livingston Road 01/03/77 - 02/28/14 $ 239 $ 274 $ 28 Oxon Hill, MD 121 South Center Street 02/28/89 - 12/31/09 $ 201 $ 201 $ 15 Stockton, CA Rockshire Village Center 01/01/78 - 06/19/17 $ 224 $ 152 $ 90 2401 Wootton Parkway Rockville, MD A1 21 South 06/29/99 - 01/31/09 $ 146 $ 146 $ 20 Jacksonville, AL 2832 Candlers Mountain Road 11/21/86 - 11/20/06 $ 101 $ 101 $ 8 Lynchburg, VA -------- -------- ------- $ 13,653 $ 13,538 $ 2,517 -------- -------- ------- $127,719 $128,290 $13,980 ======== ======== ======= </Table> - --------------- (1) The Company holds a leasehold interest in the land. The leases, including renewal options, expire at various dates ranging from 2028 through 2072. (2) The tenant occupies 35,000 square feet, however is responsible for all operating expenses. (3) Tenant can cancel lease on March 26, 2008 with 12 months notice and a payment of $1,392. (4) The Property contains two buildings with one additional tenant that occupies 18,400 square feet out of the total of 114,518. (5) Base rent is escalated 3% each year after subtracting the first year operating expense amount from the rent. Expense stop to be determined effective on first anniversary (01/01/04). Tenant has the right to reduce leased space by 27,000 square feet (01/31/08) with 6 months notice and a payment estimated to be $696. The tenant can cancel lease on 01/31/10 with 12 months notice and a payment estimated to be $3,968. (6) Expense stop on this property is $393 per annum. (7) Tenant can cancel lease on November 30, 2013 with 12 months notice and a payment of $1,300. In addition, the Company was responsible for real estate taxes in 2003. (8) The Company has a 33.85% economic interest in the property. (9) Expense stop on this property is $112 per annum. (10) The Company recognized $1,042 in real estate taxes in 2003. 14
LEXINGTON CORPORATE PROPERTIES TRUST JOINT VENTURE PROPERTY CHART <Table> <Caption> LAND NET TENANT YEAR CONSTRUCTED/ AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET - ----------------- ----------------------------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> OFFICE 389-399 Interpace Parkway Aventis, Inc 2000 14.00 340,240 Morris Coporate Center IV (Aventis Pharma Holding GmbH)(12) Parsippany, NJ 17 Technology Circle Blue Cross Blue Shield 1999 & 2001 46.82 456,304 Columbia, SC of South Carolina, Inc.(13) 100 Wood Hollow Drive Greenpoint Mortgage Funding, Inc.(14)(17) 2001 12.93 124,600 Novato, CA 6555 Sierra Drive True North Communications, Inc.(12) 1999 9.98 247,254 Irving, TX 15375 Memorial Drive Vastar Resources, Inc.(12) 1985 21.77 327,325 Houston, TX 10300 Kincaid Drive Bank One Indiana, N.A.(12)(15) 1999 13.30 193,000 Fishers, IN 600 Business Center Drive First USA Management 1997 13.30 125,155 Lake Mary, FL Services, Inc.(12)(16)(18) 550 International Parkway First USA Management 1999 12.80 125,920 Lake Mary, FL Services, Inc.(12)(16)(18) 2000 Eastman Drive Structural Dynamics Research Corp.(12) 1991 12.36 212,836 Milford, OH 3701 Corporate Drive Motorola, Inc.(12) 2001 23.70 119,829 Farmington Hills, MI 14040 Park Center Road NEC America, Inc.(12) 1987 13.30 108,000 Herndon, VA 70 Valley Stream Parkway IKON Office Solutions, Inc.(14) 1987 10.40 106,855 Malvern, PA 2210 Enterprise Drive Washington Mutual Home Loans, Inc.(11) 1998 16.53 177,747 Florence, SC 1110 Bayfield Drive Honeywell International, Inc.(12) 1980 & 2002 26.35 166,575 Colorado Springs, CO -------- ---------- Office Subtotal 247.54 2,831,640 -------- ---------- INDUSTRIAL 101 Michelin Drive TNT Logistics North America, Inc.(12) 1991 & 1992 118.14 1,164,000 Laurens, SC (TNT Logistics Holdings B.V.) & 1993 (TPG N.V.) 7111 Crabb Road TNT Logistics North America, Inc.(12) 1978 & 1993 51.41 752,000 Temperance, MI (TNT Logistics Holdings B.V.) (TPG N.V.) <Caption> 2004 2004 ESTIMATED ESTIMATED ESTIMATED MINIMUM STRAIGHT-LINE REAL CASH RENTAL ESTATE BASE REVENUE REVENUE TAXES PROPERTY LOCATION LEASE TERM ($000) ($000) ($000)(20) - ----------------- ------------------- ------------- ------------- -------------- <S> <C> <C> <C> <C> OFFICE 389-399 Interpace Parkway 06/01/00 - 01/31/10 $ 7,844 $ 8,487 $ 408 Morris Coporate Center IV Parsippany, NJ 17 Technology Circle 10/01/99 - 09/30/09 $ 6,655 $ 6,930 $ 4 Columbia, SC 100 Wood Hollow Drive 06/30/00 - 07/31/11 $ 4,300 $ 4,864 $ 291 Novato, CA 6555 Sierra Drive 02/01/00 - 01/31/10 $ 4,009 $ 4,250 $ 593 Irving, TX 15375 Memorial Drive 09/16/99 - 09/15/09 $ 3,437 $ 3,437 $ 312 Houston, TX 10300 Kincaid Drive 11/01/99 - 10/31/09 $ 3,217 $ 3,287 $ 98 Fishers, IN 600 Business Center Drive 10/01/99 - 09/30/09 $ 2,880 $ 2,921 $ 225 Lake Mary, FL 550 International Parkway 10/01/99 - 09/30/09 $ 2,778 $ 2,820 $ 213 Lake Mary, FL 2000 Eastman Drive 05/01/91 - 04/30/11 $ 2,713 $ 2,790 $ 424 Milford, OH 3701 Corporate Drive 12/28/01 - 12/31/16 $ 2,714 $ 2,714 $ 443 Farmington Hills, MI 14040 Park Center Road 08/13/99 - 08/12/09 $ 1,967 $ 2,025 $ 109 Herndon, VA 70 Valley Stream Parkway 09/22/03 - 09/30/13 $ 1,923 $ 1,995 $ 282 Malvern, PA 2210 Enterprise Drive 06/10/98 - 06/30/08 $ 1,750 $ 1,699 $ 5 Florence, SC 1110 Bayfield Drive 11/15/02 - 11/30/13 $ 1,535 $ 1,637 $ 137 Colorado Springs, CO ------- ------- ------ $47,722 $49,856 $3,544 ------- ------- ------ INDUSTRIAL 101 Michelin Drive 08/05/02 - 08/04/12 $ 3,103 $ 3,228 $ 383 Laurens, SC 7111 Crabb Road 08/05/02 - 08/04/12 $ 2,078 $ 2,162 $ 100 Temperance, MI </Table> 15
<Table> <Caption> LEXINGTON CORPORATE PROPERTIES TRUST JOINT VENTURE PROPERTY CHART LAND NET TENANT YEAR CONSTRUCTED/ AREA RENTABLE PROPERTY LOCATION (GUARANTOR) REDEVELOPED (ACRES) SQUARE FEET - ----------------- ----------------------------------------- ----------------- -------- ----------- <S> <C> <C> <C> <C> 291 Park Center Drive Kraft Foods North America, Inc. (12) 2001 25.50 344,700 Winchester, VA 121 Technology Drive Heidelberg Web Systems, Inc.(12)(19) 1986 & 2003 173.00 500,500 Durham, NH 1109 Commerce Boulevard Linens-N-Things, Inc.(14) 1998 14.40 262,644 Logan Township, NJ -------- ---------- Industrial Subtotal 382.45 3,023,844 -------- ---------- Total 629.99 5,855,484 ======== ========== <Caption> LEXINGTON CORPORATE PROPERTIES TRUST JOINT VENTURE PROPERTY CHART 2004 2004 ESTIMATED ESTIMATED ESTIMATED MINIMUM STRAIGHT-LINE REAL CASH RENTAL ESTATE BASE REVENUE REVENUE TAXES PROPERTY LOCATION LEASE TERM ($000) ($000) ($000)(20) - ----------------- ------------------- ------------- ------------- -------------- <S> <C> <C> <C> <C> 291 Park Center Drive 06/01/01 - 05/31/11 $ 1,420 $ 1,515 $ 73 Winchester, VA 121 Technology Drive 12/30/01 - 12/30/21 $ 1,503 $ 1,343 $ 691 Durham, NH 1109 Commerce Boulevard 12/21/98 - 01/31/09 $ 1,258 $ 1,251 $ 197 Logan Township, NJ ------- ------- ------ $ 9,362 $ 9,499 $1,444 ------- ------- ------ $57,084 $59,355 $4,988 ======= ======= ====== </Table> - --------------- (11) The Company has a 22.7% economic interest in the entity which owns this property. (12) The Company has a 33 1/3% economic interest in the entity which owns this property. (13) The Company has a 40% economic interest in the entity which owns this property. (14) The Company has a 30% economic interest in the entity which owns this property. (15) The joint venture has operating expense stops on this property of $768 per annum. (16) The joint venture operates these investments as a single property. (17) The joint venture has operating expense stops on this property of $917 per annum. (18) The joint venture has operating expense stops on this property of $1,264 per annum. (19) The tenant can cancel the lease anytime after 9/30/11 for a payment which on 9/30/11 is $23,433. (20) The non-consolidated entities recognized $738 in real estate taxes in 2003, gross of expense stops. 16
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 Executive Officers and Trustees 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 58 Trustees since October 1993 and was Co-Chief Executive Officer of the Company until January 2003. 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. 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 is on the Board of Directors of Clarion CMBS Value Fund, Inc. RICHARD J. ROUSE..................... Mr. Rouse has served as Chief Investment Officer of the Age 58 Company since January 2003 and as a trustee of the Company since October 1993. He served as President of the Company from October 1993 to April 1996, was Co-Chief Executive Officer of the Company from October 1993 until January 2003, 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 Executive Officer of the Age 39 Company since January 2003, Chief Operating Officer since October 1993, President since April 1996 and as a trustee since May 1994. He served as Executive Vice President from October 1993 to April 1996. Mr. Eglin received his B.A. from Connecticut College in 1986. PATRICK CARROLL...................... Mr. Carroll has served as Chief Financial Officer of the Age 40 Company since May 1998, Treasurer since January 1999 and Executive Vice President since January 2003. 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 1995, and is a Certified Public Accountant. </Table> 17
<Table> <Caption> NAME BUSINESS EXPERIENCE ---- ------------------- <S> <C> JOHN B. VANDER ZWAAG................. Mr. Vander Zwaag has been employed by the Company since May Age 46 2003 and currently is Executive Vice President. From 1982 to 1992, he was employed by The LCP Group serving as Director of Acquisitions from 1987 to 1992. Between his employment by The LCP Group and the Company, Mr. Vander Zwaag was managing director of Chesterton Binswanger Capital Advisors (1992 - 1997) and Managing Director with Cohen Financial (1997 - 2003). He received his B.A. from Amherst University in 1979 and his M.B.A. from Columbia University in 1982. WILLIAM N. CINNAMOND, JR. ........... Mr. Cinnamond has served as Senior Vice President since Age 55 September 2001. Prior to joining the Company, Mr. Cinnamond served as Vice President and Office/Industrial Real Estate Asset Management Sector Head for J.P. Morgan Fleming Asset Management, Inc. from 1989 to 2001. Mr. Cinnamond graduated from Boston University in 1970 and received his M.B.A. from Syracuse University in 1972. PAUL R. WOOD......................... Mr. Wood has served as Vice President, Chief Accounting Age 43 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. GEOFFREY DOHRMANN.................... Mr. Dohrmann has served as a trustee since August 2000. Mr. Age 53 Dorhmann 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 Counselors of Real Estate (CRE) designation. CARL D. GLICKMAN..................... Mr. Glickman has served as a trustee since May 1994. He has Age 77 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., and Jerusalem Economic Corporation Ltd. JAMES GROSFELD....................... Mr. Grosfeld has served as a trustee since November 2003. He Age 66 also serves as a Director of Copart, Inc., Ramco-Gershenson Properties Trust and BlackRock, Inc. He has served on the Advisory Board of the Federal National Mortgage Association and as Director of Interstate Bakeries Corporation and Addington Resources. He was Chairman and Chief Executive Officer of Pulte Home Corporation from 1974 to 1990. He received his B.A. from Amherst College in 1959 and L.L.B. from Columbia Law School in 1962. </Table> 18
<Table> <Caption> NAME BUSINESS EXPERIENCE ---- ------------------- <S> <C> KEVIN W. LYNCH....................... Mr. Lynch has served as a trustee from May 1996 to May 2000 Age 51 and again from May 2003 to the present. Mr. Lynch co-founded and has been a Principal of The Townsend Group since 1983. The Townsend Group is the largest real estate consulting firm to institutional investors in the United States. Mr. Lynch is a frequent industry speaker and member of the Pension Real Estate Association and the National Council of Real Estate Investment Fiduciaries. He currently sits on the Real Estate Advisory Board for New York University and is a Director for First Industrial Realty Trust. STANLEY R. PERLA..................... Mr. Perla has served as a trustee since April 2003. Mr. Age 60 Perla, a licensed Certified Public Accountant, was a partner for Ernst & Young LLP, a public accounting firm. He served as Ernst & Young's National Director of Real Estate Accounting as well as Ernst & Young's National Accounting and Auditing Committee. He is an active member of the National Association of Real Estate Investment Trusts and the National Association of Real Estate Companies. Mr. Perla also served on the real estate committees of the New York State Society of Certified Public Accounts and the American Institute of Certified Public Accountants. Mr. Perla is also a director of American Mortgage Acceptance Company. SETH M. ZACHARY...................... Mr. Zachary has served as a trustee since November 1993. Age 51 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> 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 closing 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 - ----------------------- ------ ------ <S> <C> <C> December 31, 2003........................................... $20.85 $19.06 September 30, 2003.......................................... 19.94 17.49 June 30, 2003............................................... 18.23 17.12 March 31, 2003.............................................. 17.20 15.63 December 31, 2002........................................... $16.25 $15.01 September 30, 2002.......................................... 16.75 15.35 June 30, 2002............................................... 16.50 15.26 March 31, 2002.............................................. 15.99 14.25 </Table> The closing price of the common shares of the Company was $21.66 on February 23, 2004. As of February 23, 2004, the Company had 3,058 common shareholders of record. Dividends. The Company has made quarterly distributions since October 1986 without interruption. The common share dividends paid in each quarter for the last five years are as follows: <Table> <Caption> QUARTERS ENDED 2003 2002 2001 2000 1999 - -------------- ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> March 31,................................. $0.335 $0.330 $0.310 $0.300 $0.300 June 30,.................................. $0.335 $0.330 $0.320 $0.300 $0.300 September 30,............................. $0.335 $0.330 $0.320 $0.310 $0.300 December 31,.............................. $0.335 $0.330 $0.320 $0.310 $0.300 </Table> The Company's current quarterly common share dividend rate is $0.35 per share, or $1.40 per common share on an annualized basis. Following is a summary of the average taxable nature of the Company's common share dividends for the three years ended December 31: <Table> <Caption> 2003 2002 2001 ------- ------- ------- <S> <C> <C> <C> Total dividends per share............................... $ 1.34 $ 1.32 $ 1.27 ======= ======= ======= Ordinary income......................................... 68.94% 77.89% 95.46% Short-term capital gain................................. -- 2.27 -- 15% rate gain........................................... 3.10 -- -- 20% rate gain........................................... -- 4.12 -- 25% rate gain........................................... 0.70 5.65 -- Return of capital....................................... 27.26 10.07 4.54 ------- ------- ------- 100.00% 100.00% 100.00% ======= ======= ======= </Table> The Company's per share dividend on its Series B Cumulative Redeemable Preferred Shares is $2.0125 per annum. 20
Following is a summary of the average taxable nature of the Company's dividend on its Series B Cumulative Redeemable Preferred Shares for the year ended December 31, 2003: <Table> <S> <C> Ordinary income............................................. 89.20% 15% rate gain............................................... 8.05 25% rate gain............................................... 2.75 ------ 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. 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 7 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 and operating partnership limited partners may elect to automatically reinvest their dividends and distributions 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 were purchased on the open market. As of December 31, 2003, approximately 8.1 million common shares and OP Units are enrolled in the dividend reinvestment program. Equity Compensation Plan Information. The following table sets forth certain information, as of December 31, 2003, with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance. <Table> <Caption> NUMBER OF SECURITIES REMAINING AVAILABLE FOR NUMBER OF SECURITIES FUTURE ISSUANCE UNDER TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A)) -------------------- -------------------- ----------------------- PLAN CATEGORY (A) (B) (C) - ------------- -------------------- -------------------- ----------------------- <S> <C> <C> <C> Equity compensation plans approved by security holders...................... 521,530 $13.94 1,449,252 Equity compensation plans not approved by security holders.......... -- -- -- ------- ------ --------- Total................................... 521,530 $13.94 1,449,252 ======= ====== ========= </Table> 21
ITEM 6. SELECTED FINANCIAL DATA The following sets forth selected consolidated financial data for the Company as of and for each of the years in the five-year period ended December 31, 2003. The selected consolidated financial data for the Company should be read in conjunction with the Consolidated Financial Statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. ($000's, except per share data) <Table> <Caption> 2003 2002 2001 2000 1999 ---------- --------- -------- -------- -------- <S> <C> <C> <C> <C> <C> Total revenues........................... $ 120,520 $ 98,332 $ 80,556 $ 77,764 $ 74,955 Operating expenses, including minority interest............................... (89,673) (69,828) (63,270) (59,395) (59,400) Gain on sale of properties............... -- -- -- 2,959 5,127 Income from continuing items............. 30,847 28,504 17,286 21,328 20,682 Total income from discontinued items..... 2,802 2,091 776 624 665 Net income............................... 33,649 30,595 18,062 21,952 21,347 Net income allocable to common shareholders........................... 30,257 29,902 15,353 19,390 18,827 Income from continuing operations per common share-basic..................... 0.81 1.03 0.75 1.11 1.07 Income from continuing operations per common share-diluted................... 0.80 1.02 0.73 1.07 1.05 Income from discontinued operations-basic....................... 0.08 0.08 0.04 0.04 0.04 Income from discontinued operations-diluted..................... 0.08 0.07 0.04 0.03 0.03 Net income per common share-basic........ 0.89 1.11 0.79 1.15 1.11 Net income per common share-diluted...... 0.88 1.09 0.77 1.10 1.08 Cash dividends declared per common share.................................. 1.355 1.325 1.290 1.230 1.200 Net cash provided by operating activities............................. 71,815 57,732 41,277 41,175 39,783 Net cash used in investing activities.... (298,883) (106,030) (64,321) (38,549) (64,942) Net cash provided by (used in) financing activities............................. 229,316 46,532 32,115 (6,671) 22,912 Ratio of earnings to combined fixed charges and preferred dividends........ 1.63 1.82 1.40 1.55 1.57 Real estate assets, net.................. 1,001,772 779,150 714,047 584,198 606,592 Investments in non-consolidated entities............................... 69,225 54,261 48,764 40,836 11,523 Total assets............................. 1,207,411 902,471 822,153 668,377 656,481 Mortgages, notes payable and credit facility, including discontinued operations............................. 551,385 491,517 455,771 387,326 372,254 Funds from operations(1)................. 64,502 61,818 47,126 46,316 40,652 Rent received below straight-line rent... 3,790 2,426 2,755 2,804 2,054 </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, but limited, measure of the performance of an equity REIT. FFO is defined in the April 2002 "White Paper", issued by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as "net income (or loss), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." The Company included in the calculation of FFO the dilutive effect of the deemed conversion of its outstanding exchangeable notes which were redeemed by the Company in 2001. FFO should not be 22
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 throughout the United States. The Company has operated as a REIT since October 1993. As of December 31, 2003, the Company owned or had interests in 118 real estate properties encompassing 23 million rentable square feet. During 2003, the Company purchased 19 properties, including non-consolidated investments, for $414.0 million. During 2003, the Company sold four properties for net proceeds of $11.1 million, which resulted in an aggregate gain of $2.2 million. In addition, the Company contributed 2 properties to the LION joint venture; Clarion paid the Company directly $23.8 million for their proportionate ownership interest. As of December 31, 2003, the Company leased properties to 86 tenants in 20 different industries and the weighted average lease term based upon annualized rental revenue is 7.6 years. The Company's revenues and cash flows are generated predominantly from property rent receipts. Growth in revenue and cash flows is directly correlated to the Company's ability to (i) acquire income producing properties and (ii) to release properties that are vacant, or may become vacant, at favorable rental rates. The challenge the Company faces in purchasing properties is finding investments that will provide an attractive return without compromising the Company's real estate underwriting criteria. The Company believes it has access to acquisition opportunities due to its relationship with developers, brokers, corporate users and sellers. In the past three years, the Company has experienced minimal lease turnover, and accordingly minimal capital expenditures. There can be no assurance that this will continue. Through 2008 the Company has 41 leases expiring which generate approximately $46.8 million in rental revenue. Releasing these properties at favorable effective rates is the primary focus of the Company. The primary risks associated with re-tenanting properties are (i) the period of time required to find a new tenant (ii) whether rental rates will be lower than previously received (iii) the significant leasing costs such as commissions and tenant improvement allowances and (iv) the payment of operating costs such as real estate taxes and insurance while there is no offsetting revenue. The Company addresses these risks by contacting tenants well in advance of lease maturity to get an understanding of their occupancy needs, contacting local brokers to determine the depth of the rental market and, if required, retaining local expertise to assist in the re-tenanting of a property. As part of the acquisition underwriting process, the Company focuses on buying general purpose real estate which can be leased to other tenants without significant modification to the properties. No assurance can be given that once a property becomes vacant it will subsequently be re-let. During 2002, the Company sold 5 properties (including a 77.3% interest in a property) and one building in the Palm Beach Gardens, Florida property for $20.8 million, which resulted in an aggregate gain of approximately $1.1 million. During 2001, the Company sold one property for $4.1 million which approximated book value. CRITICAL ACCOUNTING POLICIES The Company's accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported. The following are 23
critical accounting policies which are important to the portrayal of the Company's financial condition and results of operations and which require some of management's most difficult, subjective and complex judgments. The accounting for these matters involves the making of estimates based on current facts, circumstances and assumptions which could change in a manner that would materially affect management's future estimate with respect to such matters. Accordingly, future reported financial conditions and results could differ materially from financial conditions and results reported based on management's current estimates. Revenue Recognition. The Company recognizes revenue in accordance with Statement of Financial Accounting Standards No. 13 "Accounting for Leases" (SFAS No. 13). SFAS No. 13 requires that revenue be recognized on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Gains on sales of real estate are recognized pursuant to the provisions of SFAS No. 66 "Accounting for Sales of Real Estate." The specific timing of the sale is measured against various criteria in SFAS No. 66 related to the terms of the transactions and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. Accounts Receivable. The Company continuously monitors collections from its tenants and would make a provision for estimated losses based upon historical experience and any specific tenant collection issues that the Company has identified. Purchase Accounting for Acquisition of Real Estate. The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values. The fair value of the tangible assets of an acquired property (which includes land, building and improvements) is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land, building and improvements based on management's determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions. In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the difference between the current in-place lease rent and a management estimate of current market rents. The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (i) the purchase price paid for a property over (ii) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationships based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases and customer relationships are amortized to expense over the remaining non-cancelable periods of the respective leases. Impairment of Real Estate. The Company evaluates the carrying value of all real estate held to determine if an impairment has occurred which would require the recognition of a loss. The evaluation includes reviewing anticipated cash flows of the property, based on current leases in place, coupled with an estimate of proceeds to be realized upon sale. However, estimating future sale proceeds is highly subjective and such estimates could differ materially from actual results. 24
LIQUIDITY AND CAPITAL RESOURCES Since becoming a public company, the Company's principal sources of capital for growth has been the public and private equity markets, selective secured indebtedness, its unsecured credit facility, issuance of OP Units and undistributed funds from operations. The Company expects to continue to have access to and use these sources in the future; however, there are factors that may have a material adverse effect on the Company's access to capital sources. The Company's ability to incur additional debt to fund acquisitions is dependent upon its existing leverage, the value of the assets the Company is attempting to leverage and general economic conditions which may be outside of management's influence. The Company's current $100.0 million variable rate unsecured revolving credit facility, which is scheduled to expire in August 2006, has made available funds to finance acquisitions and meet any short-term working capital requirements. As of December 31, 2003, $94.0 million was outstanding at an interest rate of 2.64%. Subsequent to year end, the Company repaid $30.0 million of its outstanding line balance. The Company pays an unused facility fee equal to 25 basis points if 50% or less of the facility is utilized and 15 basis points if greater than 50% of the facility is utilized. The Company has the option to extend the maturity to August 2007, if no defaults exist, for a payment of $0.3 million. Since its formation in 1993, the Company has raised, through the issuance of common shares, preferred shares and OP Units, aggregate capital of approximately $484.8 million for the purposes of making acquisitions and retiring indebtedness. In addition, the Company has purchased $109.8 million in real estate through the direct issuance of its common shares and OP Units. During 2003, the Company completed a 4.5 million common share offering at $16.44 per share and a 5.3 million common share offering at $18.98 per share raising an aggregate of $174.0 million of net proceeds. The Company completed a 3.16 million preferred share offering at $25.00 per share with a 8.05% coupon raising net proceeds of $76.3 million. The proceeds of these offerings were used to repay debt and fund acquisitions. Dividends. In connection with its intention to continue to qualify as a REIT for Federal income tax purposes, the Company expects to continue paying regular dividends to its shareholders. These dividends are expected to be paid from operating cash flows and/or from other sources. Since cash used to pay dividends reduces amounts available for capital investments, the Company generally intends to maintain a conservative dividend payout ratio as a percentage of FFO, reserving such amounts as it considers necessary for the maintenance or expansion of properties in its portfolio, debt reduction, the acquisition of interests in new properties as suitable opportunities arise, and such other factors as the Board of Trustees considers appropriate. Dividends paid to common shareholders increased to $45.8 million in 2003, compared to $35.8 million in 2002 and $25.0 million in 2001. Although the Company receives the majority of its rental payments on a monthly basis, it intends to continue paying dividends quarterly. The Company's second largest tenant, as a percentage of revenue, pays its rent quarterly (Northwest Pipeline Corp.). Amounts accumulated in advance of each quarterly distribution are invested by the Company in short-term money market or other suitable instruments. The Company believes that cash flows from operations will continue to provide adequate capital to fund its operating and administrative expenses, regular debt service obligations and all dividend payments in accordance with REIT requirements in both the short-term and long-term. In addition, the Company anticipates that cash on hand, borrowings under its unsecured credit facility, issuance of equity and debt, as well as other alternatives, will provide the necessary capital required by the Company. Cash flows from operations as reported in the Consolidated Statements of Cash flows increased to $71.8 million for 2003 from $57.7 million for 2002 and $41.3 million for 2001. Cash flows from operations was negatively impacted in 2003, 2002 and 2001 by the payment of $7.2 million, $0.3 million and $3.6 million, respectively in prepayment penalties on debt satisfactions. Net cash used in investing activities totaled $298.9 million in 2003, $106.0 million in 2002 and $64.3 million in 2001. Cash used in investing activities related primarily to investments in real estate properties 25
and joint ventures. Therefore, the fluctuation in investing activities relates primarily to the timing of investments and dispositions. In connection with the acquisition of the Net Partnerships, the Company acquired $3.8 million of cash in 2001. Net cash provided by financing activities totaled $229.3 million in 2003, $46.5 million in 2002 and $32.1 million in 2001. Cash provided by (used in) financing activities during each year was primarily attributable to proceeds from equity offerings, non-recourse mortgages and advances/repayments under the Company's credit facility coupled with dividend and distribution payments and debt service payments. UPREIT Structure. The Company's UPREIT structure permits the Company to effect acquisitions by issuing to a property owner, as a form of consideration in exchange for the property, OP Units in partnerships controlled by the Company. All of such OP Units are redeemable at certain times for common shares on a one-for-one basis and all of such OP Units require the Company to pay certain distributions to the holders of such OP Units. The Company accounts for these OP Units 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 OP Units are redeemed for common shares. The following table provides certain information with respect to such OP units as of December 31, 2003 (assuming the Company's annualized dividend rate remains at the current $1.40 per share). <Table> <Caption> CURRENT TOTAL ANNUALIZED CURRENT TOTAL PER OP ANNUALIZED REDEEMABLE FOR NUMBER AFFILIATE UNIT DISTRIBUTION COMMON SHARES: OF OP UNITS OP UNITS DISTRIBUTION ($000) - -------------- ----------- --------- ------------ ------------ <S> <C> <C> <C> <C> At any time.................................... 3,446,783 1,401,159 $1.40 $4,825 At any time.................................... 1,254,152 120,374 1.08 1,354 At any time.................................... 114,059 52,144 1.12 128 March 2004..................................... 43,734 -- 0.27 12 March 2004..................................... 19,510 -- -- -- November 2004.................................. 24,552 2,856 -- -- March 2005..................................... 29,384 -- -- -- March 2005..................................... 12,893 -- 1.40 18 January 2006................................... 171,168 416 -- -- January 2006................................... 231,763 120,662 1.40 324 February 2006.................................. 28,230 1,743 -- -- May 2006....................................... 9,368 -- 0.29 3 November 2006.................................. 44,858 44,858 1.40 63 --------- --------- ----- ------ 5,430,454 1,744,212 $1.24 $6,727 ========= ========= ===== ====== </Table> Affiliate OP Units, which are included in total OP Units, represent OP Units held by two executive officers (including their affiliates) of the Company. FINANCING Revolving Credit Facility. The Company's $100.0 million unsecured credit facility, which expires August 2006 and can be extended by the Company for one year with a payment of $0.3 million, bears interest at 150-250 basis points over LIBOR depending on the amount of properties the Company owns free and clear of mortgage debt, and has an interest rate period of one, three, or six months, at the option of the Company. The credit facility contains various leverage, debt service coverage, net worth maintenance and other customary covenants. As of December 31, 2003, $94.0 million was outstanding and $1.8 million was available to be drawn. The Company had six outstanding letters of credit aggregating $4.2 million which expire in 2004 ($0.9 million), 2005 ($2.5 million), 2007 ($0.4 million) and 2010 ($0.4 million). This credit facility replaced 26
the Company's previous $60.0 million credit facility which was scheduled to expire in March 2004. The previous facility contained similar covenants. Debt Service Requirements. The Company's principal liquidity needs are the payment of interest and principal on outstanding indebtedness. As of December 31, 2003, a total of 55 of the Company's 100 consolidated properties, including one property held for sale, were subject to outstanding mortgages which had an aggregate principal amount of $457.4 million. As of December 31, 2003 the weighted average interest rate on the Company's outstanding debt, including line of credit borrowings, was approximately 6.24%. The scheduled principal amortization payments for the next five years are as follows: $15.4 million in 2004; $15.5 million in 2005; $16.3 million in 2006, $17.2 million in 2007 and $11.5 million in 2008. Approximate balloon payment amounts, having a weighted average interest rate of 6.20%, excluding line of credit borrowings, due the next five years are as follows: $14.5 million in 2004; $0 million in 2005, $0 in 2006; $0 in 2007 and $70.5 million in 2008. 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. The Company expects to continue to use property specific, non-recourse mortgages as it believes that by properly matching a debt obligation, including the balloon maturity risk, with a lease expiration the Company's cash-on-cash returns increase and the exposure to residual valuation risk is reduced. Lease Obligations. Since the Company's tenants bear all or substantially all of the cost of property operations, maintenance and repairs, the Company does not anticipate significant needs for cash for these costs. For eight of the properties, the Company has a level of property operating expense responsibility and a ninth obligated the Company to pay real estate taxes in 2003 and for the tenant to be responsible thereafter. The Company generally funds property expansions with additional secured borrowings, the repayment of which is funded out of rental increases under the leases covering the expanded properties. To the extent there is a vacancy in a property, the Company would be obligated for all operating expenses, including real estate taxes and insurance. The Company's tenants pay the rental obligations on ground leases either directly to the fee holder or to the Company as increased rent. The annual ground lease rental payment obligations for each of the next five years is $0.9 million. Step Down Renewals The leases on the following properties contain renewal options, exercisable by the tenant, with rents per square foot less than that paid in 2003: <Table> <Caption> ANNUAL RENT PER NET RENTABLE TENANT RENTABLE SQUARE FOOT -- RENEWAL OPTION TERM AND RENEWAL PROPERTY LOCATION (GUARANTOR) SQUARE FEET 2003 NET RENT PER SQUARE FOOT - ----------------- -------------------- ----------- -------------- ------------------------------- <S> <C> <C> <C> <C> 295 Chipeta Way Northwest Pipeline 295,000 $29.06 10/01/09 - 09/15/18: $11.73 Salt Lake City, UT Corp. plus base cost component ($.06) adjusted by CPI, plus ($.03) 450 Stern Street Johnson Controls, 111,160 $ 5.75 12/23/06 - 12/22/11: $3.65 Oberlin, OH Inc. 12/23/11 - 12/22/16: $4.20 46600 Port Street Johnson Controls, 134,160 $ 6.29 12/23/06 - 12/22/11: $4.00 Plymouth, MI Inc. 12/23/11 - 12/22/16: $4.60 </Table> 27
<Table> <Caption> ANNUAL RENT PER NET RENTABLE TENANT RENTABLE SQUARE FOOT -- RENEWAL OPTION TERM AND RENEWAL PROPERTY LOCATION (GUARANTOR) SQUARE FEET 2003 NET RENT PER SQUARE FOOT - ----------------- -------------------- ----------- -------------- ------------------------------- <S> <C> <C> <C> <C> 541 Perkins Jones Kmart Corp. 1,700,000 $ 5.51 10/01/07 - 09/30/12: $2.67 Road 10/01/12 - 09/30/17: $2.67 Warren, OH 10/01/17 - 09/30/22: $2.67 10/01/22 - 09/30/27: $2.67 10/01/27 - 09/30/32: $2.67 10/01/32 - 09/30/37: $2.67 10/01/37 - 09/30/42: FMV 10/01/42 - 09/30/47: FMV 10/01/47 - 09/30/52: FMV 10/01/52 - 09/30/57: FMV 24100 Laguna Hills Federated Department 160,000 $ 4.23 02/01/06 - 04/16/14: $1.81 Mall Stores, Inc. 04/17/14 - 04/16/29: $1.81 Laguna Hills, CA 04/17/29 - 04/16/44: $1.81 04/17/44 - 04/16/50: $1.81 7111 Westlake Terrace The Home Depot USA, 95,000 $ 8.13 05/01/06 - 04/30/16: $3.96 Bethesda, MD Inc. 05/01/16 - 04/30/21: $3.96 05/01/21 - 04/30/26: $3.96 05/01/26 - 04/30/31: $3.17 6910 S. Memorial Toys "R" Us, Inc. 43,123 $ 8.40 06/01/06 - 05/31/11: $5.92 Highway 06/01/11 - 05/31/16: $5.92 Tulsa, OK 06/01/16 - 05/31/21: $5.92 06/01/21 - 05/31/26: $5.92 06/01/26 - 05/31/31: $5.92 12535 SE 82nd Avenue Toys "R" Us, Inc. 42,842 $ 9.91 06/01/06 - 05/31/11: $6.96 Clackamas, OR 06/01/11 - 05/31/16: $6.96 06/01/16 - 05/31/21: $6.96 06/01/21 - 05/31/26: $6.96 06/01/26 - 05/31/31: $6.96 18601 Alderwood Mall Toys "R" Us, Inc. 43,105 $ 9.18 06/01/06 - 05/31/11: $6.48 Blvd. 06/01/11 - 05/31/16: $6.48 Lynnwood, WA 06/01/16 - 05/31/21: $6.48 06/01/21 - 05/31/26: $6.48 06/01/26 - 05/31/31: $6.48 A1 21 South Wal-Mart Real Estate 56,132 $ 2.60 02/01/09 - 01/31/14: $2.42 Jacksonville, AL Business Trust plus 1% of gross sales 02/01/14 - 01/31/19: $2.42 plus 1% of gross sales 02/01/19 - 01/31/24: $2.42 plus 1% of gross sales 02/01/24 - 01/31/29: $2.42 plus 1% of gross sales 02/01/29 - 01/31/34: $2.42 plus 1% of gross sales 9580 Livingston Road GFS Realty, Inc. 107,337 $ 3.80 03/01/14 - 02/29/19: $1.53 Oxon Hill, MD (Giant Food, Inc.) 03/01/19 - 02/29/24: $1.53 03/01/24 - 02/29/29: $1.15 03/01/29 - 02/29/34: $1.15 </Table> 28
<Table> <Caption> ANNUAL RENT PER NET RENTABLE TENANT RENTABLE SQUARE FOOT -- RENEWAL OPTION TERM AND RENEWAL PROPERTY LOCATION (GUARANTOR) SQUARE FEET 2003 NET RENT PER SQUARE FOOT - ----------------- -------------------- ----------- -------------- ------------------------------- <S> <C> <C> <C> <C> Rockshire Village GFS Realty, Inc. 51,682 $ 4.33 06/20/17 - 05/31/27: $1.78 Center (Giant Food, Inc.) 06/01/27 - 05/31/37: $1.33 2401 Wootton Parkway Rockville, MD 590 Ecology Lane Owens Corning 193,891 $ 8.35 01/01/21 - 12/31/25: $6.41 Chester, SC 01/01/26 - 12/31/30: $7.08 </Table> Origination Fees Payable. In connection with certain acquisitions, the Company assumed obligations ($2.2 million in principal plus accrued interest) which bore interest on the outstanding principal balances only at rates ranging from 12.3% to 19.0%. During 2003, the Company satisfied $5.6 million in origination fees payable including accrued interest by issuing 231,763 OP Units which resulted in a gain of $0.9 million. The scheduled annual payments for each of the next five years for the remaining origination fees payable is $0.1 per annum. As of December 31, 2003, $0.8 million is outstanding of which $0.4 million is due to two executive officers of the Company. The following summarizes the Company's principal contractual obligations as of December 31, 2003 ($000's): <Table> <Caption> 2009 AND 2004 2005 2006 2007 2008 THEREAFTER TOTAL ------- ------- ------- ------- ------- -------------- -------- <S> <C> <C> <C> <C> <C> <C> <C> Mortgages payable -- normal amortization................... $15,429 $15,521 $16,303 $17,238 $11,469 $ 34,944 $110,904 Mortgages payable -- balloon maturities..................... 14,456(2) -- -- -- 70,492 261,533 346,481 Credit facility.................. -- -- 94,000 -- -- -- 94,000 Operating lease obligation(1).... 1,395 1,395 1,395 1,395 1,395 7,173 14,148 Deferred installment obligation..................... 37 37 85 110 110 429 808 ------- ------- ------- ------- ------- -------- -------- $31,317 $16,953 111,783 $18,743 $83,466 $304,079 $566,341 ======= ======= ======= ======= ======= ======== ======== </Table> - --------------- (1) Amounts include rent for the Company's corporate office which is fixed through 2008 and adjusted to fair market value as determined at January 2009. (2) The Company has the ability to extend the maturity of this mortgage note to 2005 and 2006. The Company currently expects to exercise its right to extend maturity of the note until 2005. Capital Expenditures. Due to the net lease structure the Company does not incur significant expenditures in the ordinary course of business to maintain its properties. However, in the future, as leases expire the Company expects to incur costs in extending the existing tenant lease or re-tenanting the properties. The amounts of these expenditures can vary significantly depending on tenant negotiations, market conditions and rental rates. These expenditures are expected to be funded from operating cash flows or borrowings on the credit facility. Shares Repurchase. The Company's Board of Trustees has authorized the Company to repurchase, from time to time, up to 2.0 million common shares and OP Units depending on market conditions and other factors. As of December 31, 2003, the Company had repurchased approximately 1.4 million common shares and OP Units, at an average price of approximately $10.55 per common share/OP Unit. No common shares or OP Units were repurchased in 2003 and 2002. 29
RESULTS OF OPERATIONS ($000) <Table> <Caption> INCREASE (DECREASE) --------------------- SELECTED INCOME STATEMENT DATA 2003 2002 2001 2003-2002 2002-2001 - ------------------------------ -------- ------- ------- --------- --------- <S> <C> <C> <C> <C> <C> Total revenues............................. $120,520 $98,332 $80,556 $22,188 $17,776 Total expenses............................. 85,708 64,442 59,057 21,266 5,385 Interest................................. 34,881 33,161 29,331 1,720 3,830 Depreciation and amortization of real estate................................ 27,110 21,049 17,534 6,061 3,515 General & administrative................. 10,043 5,728 4,947 4,315 781 Property operating....................... 3,882 2,347 1,624 1,535 723 Debt satisfaction charges................ 7,566 345 3,993 7,221 (3,648) Income from continuing operations.......... 30,847 28,504 17,286 2,343 11,218 Total income from discontinued operations............................... 2,802 2,091 776 711 1,315 Net income................................. 33,649 30,595 18,062 3,054 12,533 Net income allocable to common shareholders............................. 30,257 29,902 15,353 355 14,549 </Table> COMPARISON OF 2003 TO 2002 Of the increase in total revenues in 2003 of $22.2 million, $20.1 million is primarily attributable to increased rental revenues from properties purchased in 2003 and those purchased in 2002 and held for the entire period in 2003 ($14.3 million); the consolidation of LRA ($4.4 million) and the expansion of a single property ($1.4 million). The increase in advisory fees of $1.4 million relates to the consolidation of LRA. The increase in equity in earnings of non-consolidated entities relates to the increase in the net income of the non- consolidated entities due to the acquisition of properties and the formation of a new joint venture in 2003. The increase in interest expense due to the growth of the Company's portfolio and related increase in mortgages and borrowings outstanding of $59.9 million has been partially offset by a reduction in the weighted average interest rate from 6.95% at December 31, 2002 to 6.24% at December 31, 2003 due to debt refinancings, repayments, lower variable interest rates and lower interest rates on new debt incurred by the Company. The Company's general and administrative expenses have increased in 2003 by $4.3 million primarily due to the consolidation of LRA ($1.9 million); increased personnel costs ($1.7 million); occupancy costs ($0.2 million) and professional service costs ($0.2 million). The increase in property operating expenses in 2003 relates to the acquisition of properties in 2003 and 2002 in which the Company has a level of operating expense responsibility. Net income increased in 2003 due to the impact of items discussed above, plus an increase of $1.1 million in gains on sales of properties offset by an increase of $7.2 million in debt satisfaction charges relating to the timing of the prepayment of indebtedness. Net income allocable to common shareholders increased due to the items discussed above offset by an increase in preferred dividends of $2.7 million on the preferred shares issued in 2003. The Company's non-consolidated entities had aggregate net income of $16.5 million in 2003 compared to $13.6 million in 2002. The increase in net income is primarily attributable to an increase in rental income of $6.8 million in 2003 attributable to acquisition of properties and the formation of a new joint venture. This revenue source was partly offset by an increase in (i) interest expense of $2.1 million in 2003 due to increased acquisition leverage and (ii) depreciation expense of $1.6 million in 2003 due to more depreciable assets owned. The financial information for non-consolidated entities does not include information for LRA. Any increase in net income in future periods will be closely tied to the level of acquisitions made by the Company. Without acquisitions, which in addition to generating rental revenue, generate acquisition, debt placement and asset management fees when such properties are acquired by joint venture or advisory programs, growth in net income is dependent on index adjusted rents (8 leases), percentage rents (3 leases), reduced interest expense on amortizing mortgages and by controlling variable overhead costs. However, there are many factors beyond management's control that could offset these items including, without limitation, 30
increased interest rates of variable debt ($109.7 million as of December 31, 2003 at a weighted average interest rate of 2.85%) and tenant monetary defaults. COMPARISON OF 2002 TO 2001 Changes in the results of operations for the Company are primarily due to the growth of its portfolio and costs associated with such growth. Of the increase in total revenues in 2002 of $17.8 million, $15.5 million is primarily attributable to rental revenue from properties purchased in 2001 (primarily the purchase of properties from Net 1 L.P. and Net 2 L.P. in November 2001) and owned for the entire period in 2002 and properties purchased in 2002 ($17.3 million) offset by a reduction in rental revenue from a decrease in overall portfolio occupancy from 99.7% to 99.2% ($0.3 million) and the joint venturing of a single property in 2002 ($1.5 million). Of the remaining $2.3 million in revenue growth in 2002, $1.8 million was attributable to an increase in earnings from non-consolidated entities and $0.5 million was attributable primarily to higher interest earned due to greater cash balances carried. The $3.8 million increase in interest expense is due to the growth of the Company's portfolio has been partially offset by a reduction in the weighted average interest rate from 7.28% for the year ended December 31, 2001 to 6.95% for the year ended December 31, 2002 due to debt refinancings, scheduled principal amortization payments, lower variable interest rates and lower interest rates on new debt incurred by the Company. The Company's general and administrative expenses increased due to the acquisition of properties from Net 1 L.P. and Net 2 L.P. Property operating expenses increased due to the vacancy of one property in the third quarter of 2001, which resulted in the Company incurring property level operating expenses which normally are the responsibility of the tenant, two properties in which the Company has a level of operating expense responsibility and an estimate of expenses for the Kmart property. Net income increased in 2002 due to the impact of items discussed above plus $1.0 million in gains on sale of properties and a net reduction of $3.6 million in charges relating to the timing of the prepayment of indebtedness. Net income allocable to common shareholders increased due to the items discussed above plus a net reduction in preferred dividends of $2.0 million resulting from the conversion of 2 million preferred shares to 2 million common shares in 2002. The Company's non-consolidated entities had aggregate net income of $13.6 million in 2002 compared with $10.4 million in 2001. The increase in net income is primarily attributable to an increase in rental revenue of $5.8 million in 2002 attributable to the acquisition of properties, the expansion of an existing property and the joint venturing of a single property in 2002. These revenue sources was partly offset by an increase in (i) interest expense of $1.5 million in 2002 due to partially funding of acquisitions with the use of non-recourse mortgage debt and the joint venturing of a single property in 2002, and (ii) depreciation expense of $1.1 million in 2002 due to more depreciable assets owned. The financial information for non-consolidated entities does not include information for LRA. Inflation. The Company's long term leases contain provisions to mitigate the adverse impact of inflation on its operating results. Such provisions include clauses entitling the Company to receive (i) scheduled fixed base rent increases and (ii) base rent increases based upon the consumer price index. In addition, the majority of the Company's leases require tenants to pay operating expenses, including maintenance, real estate taxes, insurance and utilities, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Environmental Matters. Based upon management's ongoing review of its properties, management is not aware of any environmental condition with respect to any of the Company's properties, which 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, 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. 31
FUNDS FROM OPERATIONS The Company believes that Funds From Operations ("FFO") enhances an investor's understanding of the Company's financial condition, results of operations and cash flows. The Company believes that FFO is an appropriate, but limited, measure of the performance of an equity REIT. FFO is defined in the April 2002 "White Paper", issued by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") as "net income (or loss), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." The Company included in the calculation of FFO the dilutive effect of the deemed conversion of its outstanding exchangeable notes, which were fully satisfied in 2001. FFO should not be considered an alternative to net income as an indicator of operating performance or to cash flows from operating activities as determined in accordance with GAAP, or as a measure of liquidity to other consolidated income or cash flow statement data as determined in accordance with GAAP. The following table reflects the calculation of the Company's FFO and cash flow activities for each of the years in the three year period ended December 31, 2003 ($000): <Table> <Caption> 2003 2002 2001 --------- --------- -------- <S> <C> <C> <C> Net income allocable to common shareholders................ $ 30,257 $ 29,902 $ 15,353 Depreciation and amortization of real estate............. 27,634 21,480 18,312 Minority interests' share of net income.................. 4,039 5,510 5,215 Gain on sale of properties............................... (2,191) (1,055) -- Amortization of leasing commissions...................... 812 677 769 Deemed conversion of notes payable....................... -- -- 1,000 Joint venture adjustment-depreciation.................... 3,951 4,611 3,768 Preferred shares-Series A................................ -- 693 2,709 --------- --------- -------- Funds From Operations................................. $ 64,502 $ 61,818 $ 47,126 ========= ========= ======== Cash flows from operating activities....................... $ 71,815 $ 57,732 $ 41,277 Cash flows used in investing activities.................... (298,883) (106,030) (64,321) Cash flows from financing activities....................... 229,316 46,532 32,115 </Table> RECENTLY ISSUED ACCOUNTING STANDARDS In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities ("VIEs"), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company will be required to adopt FIN 46R in the first fiscal period beginning after March 15, 2004. Upon adoption of FIN 46R, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. It is not anticipated that the effect on the Company's Consolidated Financial Statements would be material. FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS 150"), was issued in May 2003. SFAS 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS 150 also includes required disclosures for financial instruments within its scope. For the 32
Company, SFAS 150 was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, SFAS 150 will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of SFAS 150. In April 2002, FASB Statement No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS 145"), was issued. SFAS 145 amends existing guidance on reporting gains and losses on the extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as the use of such extinguishments have become part of the risk management strategy of many companies. SFAS 145 also amends FASB Statement No. 13, Accounting for Leases, to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale- leaseback transactions. The provisions of SFAS 145 related to the rescission of FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, were applied in fiscal years beginning after May 15, 2002. The provisions of SFAS 145 related to Statement 13 were effective for transactions occurring after May 15, 2002. The adoption of SFAS 145 required the Company to record as debt satisfaction charges, as a component of continuing operations, costs incurred in the early retirement of debt instead of as an extraordinary item. In June 2002, FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"), was issued. SFAS 146 addresses financial accounting and reporting or costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The provisions of SFAS 146 were effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. The adoption of SFAS 146 had no impact on the Company. In November 2002, FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34 ("FIN 45"), was issued. FIN 45 enhances the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. FIN 45 also clarifies that a guarantor is required to recognized, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of FIN 45 were applicable to guarantees issued or modified after December 31, 2002 and the disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 had no impact on the Company. In December 2002, FASB Statement No. 148, Accounting for Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB Statement No. 123 ("SFAS 148"), was issued. SFAS 148 amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements. Disclosures required by this standard are included in the notes to these consolidated financial statements. OFF-BALANCE SHEET ARRANGEMENTS The Company does not have any off-balance sheet arrangements. 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, 2003 and 2002 the Company's variable rate indebtedness represented 19.9% and 15.9%, respectively, of total mortgages and notes payable. During 2003 and 2002, this variable rate indebtedness had a weighted average interest rate of 3.98% and 4.12%, respectively. Had the weighted average interest rate been 100 basis points higher the Company's net income would have been reduced by $0.6 million and $0.8 million in 2003 and 2002, respectively. 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES INDEX <Table> <Caption> PAGE ----- <S> <C> Independent Auditors' Report................................ 35 Consolidated Balance Sheets as of December 31, 2003 and 2002...................................................... 36 Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001.......................... 37 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2003, 2002 and 2001...... 38 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001.......................... 39 Notes to Consolidated Financial Statements.................. 40-65 Financial Statement Schedule Schedule III -- Real Estate and Accumulated Depreciation.... 66-68 </Table> 34
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, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003 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. /s/ KPMG LLP New York, New York February 24, 2004 35
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($000 EXCEPT PER SHARE AMOUNTS) DECEMBER 31, <Table> <Caption> 2003 2002 ---------- -------- <S> <C> <C> ASSETS Real estate, at cost Buildings and building improvements....................... $ 973,475 $770,375 Land and land estates..................................... 178,077 131,496 Land improvements......................................... 2,666 3,154 Fixtures and equipment.................................... 8,177 8,345 ---------- -------- 1,162,395 913,370 Less: accumulated depreciation............................ 160,623 134,220 ---------- -------- 1,001,772 779,150 Properties held for sale -- discontinued operations......... 36,478 -- Intangible assets, net of accumulated amortization of $299...................................................... 14,736 -- Investment in and advances to non-consolidated entities..... 69,225 54,261 Cash and cash equivalents................................... 15,923 12,097 Deferred expenses (net of accumulated amortization of $4,891 in 2003 and $6,269 in 2002)............................... 10,013 8,168 Rent receivable............................................. 24,069 23,650 Other assets, net........................................... 35,195 25,145 ---------- -------- $1,207,411 $902,471 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgages and notes payable................................. $ 455,940 $460,517 Credit facility borrowings.................................. 94,000 31,000 Mortgage note payable -- discontinued operations............ 1,445 -- Origination fees payable, including accrued interest........ 808 6,565 Accounts payable and other liabilities...................... 8,283 8,003 Accrued interest payable.................................... 1,576 2,755 Prepaid rent................................................ 2,482 -- ---------- -------- 564,534 508,840 Minority interests.......................................... 59,220 56,846 ---------- -------- 623,754 565,686 ---------- -------- Commitments and contingencies (notes 7, 9 and 13) Common shares, par value $0.0001 per share; 287,888 shares issued and outstanding, liquidation preference $3,886..... 3,809 3,809 ---------- -------- Shareholders' equity: Preferred shares, par value $0.0001 per share; authorized 10,000,000 shares. Series B Cumulative Redeemable Preferred, liquidation preference $79,000, 3,160,000 shares issued and outstanding in 2003.................. 76,315 -- Common shares, par value $0.0001 per share, authorized 80,000,000 shares, 40,394,113 and 29,742,160 shares issued and outstanding in 2003 and 2002, respectively........................................... 4 3 Additional paid-in-capital................................ 601,501 414,989 Deferred compensation, net................................ (6,265) (1,766) Accumulated distributions in excess of net income......... (91,707) (77,777) ---------- -------- 579,848 335,449 Less: notes receivable from officers/shareholders......... -- (2,473) ---------- -------- Total shareholders' equity............................. 579,848 332,976 ---------- -------- $1,207,411 $902,471 ========== ======== </Table> The accompanying notes are an integral part of these consolidated financial statements. 36
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME ($000 EXCEPT PER SHARE AMOUNTS) YEARS ENDED DECEMBER 31, <Table> <Caption> 2003 2002 2001 ----------- ----------- ----------- <S> <C> <C> <C> Revenues: Rental.............................................. $ 111,658 $ 91,606 $ 76,096 Equity in earnings of non-consolidated entities..... 5,734 5,079 3,328 Advisory fees....................................... 1,401 -- -- Interest and other.................................. 1,727 1,647 1,132 ----------- ----------- ----------- 120,520 98,332 80,556 ----------- ----------- ----------- Expenses: Interest expense.................................... 34,881 33,161 29,331 Debt satisfaction charges........................... 7,566 345 3,993 Depreciation and amortization of real estate........ 27,110 21,049 17,534 Amortization of deferred expenses................... 2,226 1,812 1,628 General and administrative expenses................. 10,043 5,728 4,947 Property operating expenses......................... 3,882 2,347 1,624 ----------- ----------- ----------- 85,708 64,442 59,057 ----------- ----------- ----------- Income from continuing operations before minority interests........................................... 34,812 33,890 21,499 Minority interests.................................... 3,965 5,386 4,213 ----------- ----------- ----------- Income from continuing operations..................... 30,847 28,504 17,286 ----------- ----------- ----------- Discontinued operations: Income from discontinued operations................. 611 1,036 776 Gains on sales of properties........................ 2,191 1,055 -- ----------- ----------- ----------- Total income from discontinued operations........... 2,802 2,091 776 ----------- ----------- ----------- Net income............................................ $ 33,649 $ 30,595 $ 18,062 Dividends attributable to preferred shares -- Series A................................................... -- (693) (2,709) Dividends attributable to preferred shares -- Series B................................................... (3,392) -- -- ----------- ----------- ----------- Net income allocable to common shareholders........... $ 30,257 $ 29,902 $ 15,353 =========== =========== =========== Income per common share -- basic: Income from continuing operations..................... $ 0.81 $ 1.03 $ 0.75 Income from discontinued operations................... 0.08 0.08 0.04 ----------- ----------- ----------- Net income............................................ $ 0.89 $ 1.11 $ 0.79 =========== =========== =========== Weighted average common shares outstanding............ 34,074,935 27,026,789 19,522,323 =========== =========== =========== Income per common share -- diluted: Income from continuing operations..................... $ 0.80 $ 1.02 $ 0.73 Income from discontinued operations................... 0.08 0.07 0.04 ----------- ----------- ----------- Net income............................................ $ 0.88 $ 1.09 $ 0.77 =========== =========== =========== Weighted average diluted common shares outstanding.... 39,493,872 27,326,891 19,862,880 =========== =========== =========== </Table> The accompanying notes are an integral part of these consolidated financial statements. 37
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 NUMBER OF NUMBER OF ADDITIONAL DEFERRED DISTRIBUTIONS PREFERRED COMMON PAID-IN COMPENSATION, IN EXCESS OF SHARES AMOUNT SHARES AMOUNT CAPITAL NET NET INCOME ---------- ------- ---------- ------ ---------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> <C> Balance at December 31, 2000....... 16,863,394 $2 $240,112 $(1,019) $(62,227) Net income......................... -- -- -- -- -- -- 18,062 Dividends paid to common shareholders ($1.27 per share)... -- -- -- -- -- -- (25,004) Dividends paid to preferred shareholders ($1.3335 per share)........................... -- -- -- -- -- -- (2,667) Common shares issued, net.......... -- -- 7,368,015 -- 102,206 (1,181) -- Amortization of deferred compensation..................... -- -- -- -- -- 559 -- Common shares repurchased and retired.......................... -- -- (12,000) -- (157) -- -- Repayments on notes................ -- -- -- -- -- -- -- ---------- ------- ---------- -- -------- ------- -------- Balance at December 31, 2001....... 24,219,409 2 342,161 (1,641) (71,836) Net income......................... -- -- -- -- -- -- 30,595 Dividends paid to common shareholders ($1.32 per share)... -- -- -- -- -- -- (35,843) Dividends paid to preferred shareholders ($0.3465 per share)........................... -- -- -- -- -- -- (693) Conversion of preferred shares..... -- -- 2,000,000 -- 24,369 -- -- Common shares issued, net.......... -- -- 3,522,751 1 48,459 (860) -- Amortization of deferred compensation..................... -- -- -- -- -- 735 -- ---------- ------- ---------- -- -------- ------- -------- Balance at December 31, 2002....... -- -- 29,742,160 3 414,989 (1,766) (77,777) Net income......................... -- -- -- -- -- -- 33,649 Dividends paid to common shareholders ($1.34 per share)... -- -- -- -- -- -- (45,777) Dividends paid to preferred shareholders ($0.5702 per share)........................... -- -- -- -- -- -- (1,802) Common shares issued, net.......... -- -- 10,810,177 1 188,985 (5,887) -- Issuance of preferred shares, net.............................. 3,160,000 76,315 -- -- -- -- -- Amortization of deferred compensation..................... -- -- -- -- -- 1,388 -- Repayments on notes................ -- -- (158,224) (2,473) -- -- ---------- ------- ---------- -- -------- ------- -------- Balance at December 31, 2003....... 3,160,000 $76,315 40,394,113 $4 $601,501 $(6,265) $(91,707) ========== ======= ========== == ======== ======= ======== <Caption> NOTES RECEIVABLE TOTAL OFFICERS/ SHAREHOLDERS' SHAREHOLDERS EQUITY ------------ ------------- <S> <C> <C> Balance at December 31, 2000....... $(1,983) $174,885 Net income......................... -- 18,062 Dividends paid to common shareholders ($1.27 per share)... -- (25,004) Dividends paid to preferred shareholders ($1.3335 per share)........................... -- (2,667) Common shares issued, net.......... -- 101,025 Amortization of deferred compensation..................... -- 559 Common shares repurchased and retired.......................... -- (157) Repayments on notes................ 10 10 ------- -------- Balance at December 31, 2001....... (1,973) 266,713 Net income......................... -- 30,595 Dividends paid to common shareholders ($1.32 per share)... -- (35,843) Dividends paid to preferred shareholders ($0.3465 per share)........................... -- (693) Conversion of preferred shares..... -- 24,369 Common shares issued, net.......... (500) 47,100 Amortization of deferred compensation..................... -- 735 ------- -------- Balance at December 31, 2002....... (2,473) 332,976 Net income......................... -- 33,649 Dividends paid to common shareholders ($1.34 per share)... -- (45,777) Dividends paid to preferred shareholders ($0.5702 per share)........................... -- (1,802) Common shares issued, net.......... -- 183,099 Issuance of preferred shares, net.............................. -- 76,315 Amortization of deferred compensation..................... -- 1,388 Repayments on notes................ 2,473 -- ------- -------- Balance at December 31, 2003....... $ -- $579,848 ======= ======== </Table> The accompanying notes are an integral part of these consolidated financial statements. 38
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ($000) YEARS ENDED DECEMBER 31, <Table> <Caption> 2003 2002 2001 --------- --------- -------- <S> <C> <C> <C> Cash flows from operating activities: Net income............................................... $ 33,649 $ 30,595 $ 18,062 Adjustments to reconcile net income to net cash provided by operating activities, net of effects from acquisitions: Depreciation and amortization......................... 29,572 23,375 19,952 Minority interests.................................... 4,276 5,707 4,534 Gain on sale of properties............................ (2,191) (1,055) -- Straight-line rents................................... (3,790) (2,426) (2,755) Other non-cash charges................................ 2,026 1,016 1,508 Equity in earnings of non-consolidated entities....... (5,734) (5,079) (3,328) Distributions from non-consolidated entities.......... 8,495 5,704 4,593 Increase (decrease) in accounts payable and other liabilities......................................... 1,708 539 (2,140) Other adjustments, net................................ 3,804 (644) 851 --------- --------- -------- Net cash provided by operating activities........... 71,815 57,732 41,277 --------- --------- -------- Cash flows from investing activities: Net proceeds from sale/transfer of properties............ 34,943 20,756 4,107 Acquisition of the Net Partnerships, net of debt assumed and $3,777 in cash.................................... -- -- (27,835) Investments in properties................................ (327,435) (114,272) (19,363) Investments in non-consolidated entities................. (6,824) (5,539) (5,620) Advances to non-consolidated entities.................... (2,331) (2,158) (4,195) Investment in and advances to the Net Partnerships....... -- -- (10,979) Real estate deposits..................................... (23,101) (4,817) (436) Distribution of loan proceeds from non-consolidated entities.............................................. 26,899 -- -- Increase in deferred leasing costs....................... (1,034) -- -- --------- --------- -------- Net cash used in investing activities............... (298,883) (106,030) (64,321) --------- --------- -------- Cash flows from financing activities: Proceeds of mortgages and notes payable.................. 90,882 49,165 100,194 Change in credit facility borrowing, net................. 63,000 21,000 (31,821) Dividends to common and preferred shareholders........... (47,579) (36,536) (27,671) Dividend reinvestment plan proceeds...................... 7,095 4,870 2,507 Principal payments on debt, excluding normal amortization.......................................... (107,942) (10,049) (48,611) Principal amortization payments.......................... (16,121) (14,091) (12,354) Origination fee amortization payments.................... (406) (372) (372) Common shares issued, net of offering costs.............. 174,152 41,595 61,021 Preferred shares issued, net of offering costs........... 76,315 -- -- Cash distributions to minority interests................. (6,618) (6,304) (6,236) Change in escrow deposits and restricted cash............ 451 (1,396) (1,002) Increase in deferred expenses............................ (3,913) (1,350) (3,203) Common shares/partnership units repurchased.............. -- -- (348) Other.................................................... -- -- 11 --------- --------- -------- Net cash provided by financing activities........... 229,316 46,532 32,115 --------- --------- -------- Cash attributable to newly consolidated entity............. 1,578 -- -- --------- --------- -------- Change in cash and cash equivalents........................ 3,826 (1,766) 9,071 Cash and cash equivalents, beginning of year............... 12,097 13,863 4,792 --------- --------- -------- Cash and cash equivalents, end of year..................... $ 15,923 $ 12,097 $ 13,863 ========= ========= ======== </Table> The accompanying notes are an integral part of these consolidated financial statements. 39
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000'S EXCEPT PER SHARE DATA) (1) THE COMPANY Lexington Corporate Properties Trust (the "Company") is a self-managed and self-administered Maryland statutory real estate investment trust ("REIT") that acquires, owns, and manages a geographically diversified portfolio of net leased office, industrial and retail properties and provides investment advisory and asset management services to institutional investors in the net lease area. As of December 31, 2003, the Company owned or had interests in 118 properties in 35 states. The real properties owned by the Company are generally subject to triple net leases to corporate tenants, however six provide for operating expense stops, two are subject to modified gross leases and one required the Company to be responsible for real estate taxes in 2003 and for the tenant to be responsible thereafter. The Company's Board of Trustees authorized the Company to repurchase, from time to time, up to 2.0 million common shares and/or operating partnership units ("OP Units") in it's three controlled operating partnership subsidiaries, depending on market conditions and other factors. As of December 31, 2003, the Company repurchased approximately 1.4 million common shares/OP Units at an average price of approximately $10.55 per common share/OP Unit. No shares or OP Units were repurchased in 2003 or 2002. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation. The Company's consolidated financial statements are prepared on the accrual basis of accounting. The financial statements reflect the accounts of the Company and its controlled subsidiaries, including Lepercq Corporate Income Fund L.P. ("LCIF"), Lepercq Corporate Income Fund II L.P. ("LCIF II"), Net 3 Acquisition L.P. ("Net 3"), Lexington Realty Advisors, Inc. ("LRA") and Lexington Contributions, Inc. ("LCI"), a wholly owned subsidiary. The Company is the sole equity owner of each of the general partner and majority limited partner of LCIF, LCIF II and Net 3. Effective January 1, 2003, the Company converted its non-voting interest in LRA to a 100% voting interest and accordingly has consolidated LRA in 2003 while it was accounted for under the equity method in 2002 and 2001. Earnings Per Share. Basic net income per share is computed by dividing net income reduced by preferred dividends, if applicable, 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 OP Units. Recently Issued Accounting Standards. In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities ("VIEs"), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company will be required to adopt FIN 46R in the first fiscal period beginning after March 15, 2004. Upon adoption of FIN 46R, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. It is not anticipated that the effect on the Company's Consolidated Financial Statements would be material. 40
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS 150"), was issued in May 2003. SFAS 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS 150 also includes required disclosures for financial instruments within its scope. For the Company, SFAS 150 was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, SFAS 150 will be effective for the Company on January 1, 2005. The effective date of this pronouncement has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of SFAS 150. In April 2002, FASB Statement No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS 145"), was issued. SFAS 145 amends existing guidance on reporting gains and losses on the extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as the use of such extinguishments have become part of the risk management strategy of many companies. SFAS 145 also amends FASB Statement No. 13, Accounting for Leases, to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. The provisions of Statement 145 related to the rescission of FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, were applied in fiscal years beginning after May 15, 2002. The provisions of SFAS 145 related to SFAS 13 were effective for transactions occurring after May 15, 2002. The adoption of SFAS 145 required the Company to record as debt satisfaction charges, as a component of continuing operations, costs incurred in the early retirement of debt instead of as an extraordinary item. In June 2002, FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"), was issued. SFAS 146 addresses financial accounting and reporting or costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The provisions of SFAS 146 were effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. The adoption of SFAS 146 had no impact on the Company. In November 2002, FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34 ("FIN 45"), was issued. FIN 45 enhances the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. FIN 45 also clarifies that a guarantor is required to recognized, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the FIN 45 were applicable to guarantees issued or modified after December 31, 2002 and the disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 had no impact on the Company. In December 2002, FASB Statement No. 148, Accounting for Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB Statement No. 123 ("SFAS 148"), was issued. SFAS 148 amends FASB SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements. Disclosures required by this standard are included in the notes to these consolidated financial statements. 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 41
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) revenues and expenses to prepare these consolidated financial statements in conformity with generally accepted accounting principles. The most significant estimates made include the recoverability of accounts receivable (primarily related to straight-line rents) and the useful lives of assets. Actual results could differ from those estimates. Purchase Accounting for Acquisition of Real Estate. The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values. The fair value of the tangible assets of an acquired property (which includes land, building and improvements) is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to land, building and improvements based on management's determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions. In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the difference between the current in-place lease rent and a management estimate of current market rents. The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (i) the purchase price paid for a property over (ii) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationships based on management's evaluation of the specific characteristics of each tenant's lease. The value of in-place leases and customer relationships are amortized to expense over the remaining non-cancelable periods of the respective leases. Revenue Recognition. The Company recognizes revenue in accordance with Statement of Financial Accounting Standards No. 13 Accounting for Leases ("SFAS 13"). SFAS 13 requires that revenue be recognized on a straight line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. Gains on sales of real estate are recognized pursuant to the provisions of Statement of Financial Accounting Standards No. 66 Accounting for Sales of Real Estate ("SFAS 66"). The specific timing of the sale is measured against various criteria in SFAS 66 related to the terms of the transactions and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met. Accounts Receivable. The Company continuously monitors collections from its tenants and would make a provision for estimated losses based upon historical experience and any specific tenant collection issues that the Company has identified. Real Estate. The Company evaluates the carrying value of all real estate held to determine if an impairment has occurred which would require the recognition of a loss. The evaluation includes reviewing anticipated cash flows of the property, based on current leases in place, coupled with an estimate of proceeds to be realized upon sale. However, estimating future sale proceeds is highly subjective and such estimates could differ materially from actual results. 42
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Depreciation is determined by the straight-line method over the remaining estimated economic useful lives of the properties. The Company generally depreciates buildings and building improvements over periods not exceeding 40 years, land improvements over a 20-year period, and fixtures and equipment over a 12-year period. Only costs incurred to third parties in acquiring properties are capitalized. No internal costs (rents, salaries, overhead) are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred. Significant renovations which extend the useful life of the properties are capitalized. Investments in non-consolidated entities. The Company accounts for its investments in less than 50% owned entities under the equity method unless pursuant to FIN 46R consolidation is required. Deferred Expenses. Deferred expenses consist primarily of debt placement costs and are amortized using the straight-line method, which approximates the interest method, over the terms of the debt instruments and leasing costs which are amortized over the life of the lease. Deferred Compensation. Deferred compensation consists of the value of non-vested common shares issued by the Company to employees and trustees. The deferred compensation is amortized ratably over the vesting period which generally is five years. Tax Status. The Company has made an election to qualify, and believes it is operating so as to qualify, as a REIT under the Internal Revenue Code. A REIT is generally not subject to Federal income tax on that portion of its REIT taxable income which is distributed to its shareholders, provided that at least 90% of taxable income is distributed. As distributions have equaled or exceeded taxable income, no provision for Federal income taxes has been made. State and local income taxes, which are not significant, have been provided for those states and localities in which the Company operates and is subject to an income tax. LRA and LCI have elected to be treated as taxable REIT subsidiaries. A summary of the average taxable nature of the Company's common dividends for each of the years in the three year period ended December 31, 2003 is as follows: <Table> <Caption> 2003 2002 2001 ------ ------ ------ <S> <C> <C> <C> Total common dividends per share............................ $ 1.34 $ 1.32 $ 1.27 ====== ====== ====== Ordinary income............................................. 68.94% 77.89% 95.46% Short-term capital gain..................................... -- 2.27 -- 15% rate gain............................................... 3.10 -- -- 20% rate gain............................................... -- 4.12 -- 25% rate gain............................................... 0.70 5.65 -- Return of capital........................................... 27.26 10.07 4.54 ------ ------ ------ 100.00% 100.00% 100.00% ====== ====== ====== </Table> 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. Common Share Options. The Company has elected to continue to account for its option plan under the recognition provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized with regard to options granted in the Consolidated Statements of Income. 43
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Common share options granted generally vest ratably over a four-year term and expire five years from the date of grant. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding common share option awards in each period: <Table> <Caption> 2003 2002 2001 ------- ------- ------- <S> <C> <C> <C> Net income allocable to common shareholders, as reported -- basic.................................. $30,257 $29,902 $15,353 Add: Stock based employee compensation expense include in reported net income.................. -- -- -- Deduct: Total stock based employee compensation expense determined under fair value based method for all awards.................................. 509 975 1,409 ------- ------- ------- Pro forma net income -- basic........................ $29,748 $28,927 $13,944 ======= ======= ======= Net income per share -- basic Basic -- as reported............................... $ 0.89 $ 1.11 $ 0.79 ======= ======= ======= Basic -- pro forma................................. $ 0.87 $ 1.07 $ 0.71 ======= ======= ======= Net income allocable to common shareholders, as reported -- diluted................................ $34,740 $29,902 $15,353 Add: Stock based employee compensation expense include in reported net income.................. -- -- -- Deduct: Total stock based employee compensation expense determined under fair value based method for all awards.................................. 509 975 1,409 ------- ------- ------- Pro forma net income -- diluted...................... $34,231 $28,927 $13,944 ======= ======= ======= Net income per share -- diluted Diluted -- as reported............................. $ 0.88 $ 1.09 $ 0.77 ======= ======= ======= Diluted -- pro forma............................... $ 0.87 $ 1.06 $ 0.70 ======= ======= ======= </Table> The per share weighted average fair value of options granted during 2002 and 2001 were estimated to be $2.42 and $2.00, respectively, using a Black-Scholes option pricing formula. The more significant assumptions underlying the determination of such fair values include: (i) a risk free interest rate of 3.32% in 2002 and 3.35% in 2001; (ii) an expected life of five years; (iii) volatility factors of 15.11% and 15.79% for 2002 and 2001, respectively; and (iv) actual dividends paid. The value of common share options issued in 2003 were estimated to be $2.42. Reclassifications. Certain amounts included in prior years' financial statements have been reclassified to conform with the current year presentation. 44
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) (3) EARNINGS PER SHARE The following is a reconciliation of numerators and denominators of the basic and diluted earnings per share computations for each of the years in the three year period ended December 31, 2003: <Table> <Caption> 2003 2002 2001 ----------- ----------- ----------- <S> <C> <C> <C> BASIC Income from continuing operations..................... $ 30,847 $ 28,504 $ 17,286 Less -- dividends attributable to preferred shares.... (3,392) (693) (2,709) ----------- ----------- ----------- Income attributed to common shareholders from continuing operations............................... 27,455 27,811 14,577 Total income from discontinued operations............. 2,802 2,091 776 ----------- ----------- ----------- Net income attributed to common shareholders.......... $ 30,257 $ 29,902 $ 15,353 =========== =========== =========== Weighted average number of common shares outstanding......................................... 34,074,935 27,026,789 19,522,323 =========== =========== =========== Income per common share -- basic: Income from continuing operations..................... $ 0.81 $ 1.03 $ 0.75 Income from discontinued operations................... 0.08 0.08 0.04 ----------- ----------- ----------- Net income............................................ $ 0.89 $ 1.11 $ 0.79 =========== =========== =========== DILUTED Income attributed to common shareholders from continuing operations............................... $ 27,455 $ 27,811 $ 14,577 Add -- incremental income attributed to assumed conversion of dilutive securities................... 3,965 -- -- ----------- ----------- ----------- Income attributed to common shareholders from continuing operations............................... 31,420 27,811 14,577 Income from discontinued operations................... 3,320 2,091 776 ----------- ----------- ----------- Net income attributed to common shareholders.......... $ 34,740 $ 29,902 $ 15,353 =========== =========== =========== Weighted average number of shares used in calculation of basic earnings per share......................... 34,074,935 27,026,789 19,522,323 Add -- incremental shares representing: Shares issuable upon exercise of employee share options............................................. 202,504 300,102 340,557 Shares issuable upon conversion of dilutive securities.......................................... 5,216,433 -- -- ----------- ----------- ----------- Weighted average number of shares used in calculation of diluted earnings per common share................ 39,493,872 27,326,891 19,862,880 =========== =========== =========== Income per common share -- diluted: Income from continuing operations..................... $ 0.80 $ 1.02 $ 0.73 Income from discontinued operations................... 0.08 0.07 0.04 ----------- ----------- ----------- Net income............................................ $ 0.88 $ 1.09 $ 0.77 =========== =========== =========== </Table> 45
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) (4) INVESTMENTS IN REAL ESTATE During 2003 and 2002, the Company made the following acquisitions, excluding acquisitions made by non-consolidated entities: <Table> <Caption> NET RENTABLE DATE OF ACQUISITION LEASE SQUARE ACQUISITION TENANT LOCATION COST EXPIRES FEET ----------- -------------------------------------- --------------- ----------- ------- --------- <S> <C> <C> <C> <C> <C> 2003 - --------------------- February Oce Printing Systems USA, Inc Boca Raton, FL $ 23,551 2020 143,290 June Owens Corning Minneapolis, MN 4,610 2015 18,620 July The McGraw-Hill Companies, Inc Dubuque, IA 11,424 2015 330,988 August Verizon Wireless Greenville, SC 21,745 2012 192,884 September Tower Automotive Products Company Plymouth, MI 20,710 2012 290,133 October Nextel Communications of Texas, Inc Temple, TX 15,301 2016 108,800 October Nextel West Corporation Bremerton, WA 11,301 2016 60,200 December Employers Reinsurance Corporation Overland Park, KS 53,779 2018 320,198 December Employers Reinsurance Corporation Kansas City, MO 25,676 2019 166,641 December Bell South Mobility, Inc Baton Rouge, LA 10,742 2012 70,100 December Minnesota Mining and Manufacturing Wallingford, CT 5,525 2010 44,400 December Siemens Dematic Postal Automation L.P. Arlington, TX 30,286 2014 233,783 December James Hardie Building Products, Inc Waxahachie, TX 32,568 2020 425,816 -------- --------- $267,218 2,405,853 ======== ========= 2002 - --------------------- March Apria Healthcare Group, Inc Lake Forest, CA $ 16,970 2012 100,012 August Quest Diagnostics, Inc Valley Forge, 19,500 2011 109,281 PA August AdvancePCS, Inc Knoxville, TN 8,100 2013 59,748 September Anda Pharmaceuticals, Inc Groveport, OH 11,800 2012 354,676 December North American Van Lines Westmont, IL 24,825 2015 269,715 December Wells Fargo Home Mortgage Fort Mill, SC 17,933 2013 169,083 -------- --------- $ 99,128 1,062,515 ======== ========= </Table> The 2003 acquisitions do not include the purchases of a property in Novato, California and Malvern, Pennsylvania which were acquired by the Company and subsequently transferred to a joint venture during 2003. The Company received $23,849 in cash resulting from these transfers. The Company sold four properties, to unrelated parties, in 2003, four properties and one building in the Palm Beach Gardens, Florida property in 2002 and one property in 2001 for aggregate net proceeds of $11,094, $16,342 and $4,107, respectively, which resulted in gains in 2003, 2002 and 2001 of $2,191, $1,055 and $0, respectively. In addition, the Company sold in 2002 a 77.3% interest in a property (along with the related non-recourse mortgage) in Florence, South Carolina for net proceeds of $4,414 and deferred a $671 gain on sale since the purchasers can put their interests in the property to the Company for a six month period commencing January 2004 for $4,581. 46
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) During 2002, the Company expanded its property in Lancaster, California net leased to Michaels Stores, Inc. The expansion, which cost $15,200, is leased to the tenant through September 2019 for an annual rent of $1,808. In connection with the expansion, the initial lease term was also extended to September 2019. The following unaudited pro forma operating information for the years ended December 31, 2003 and 2002 has been prepared as if all Company acquisitions and dispositions (including non-consolidated entities) in 2003 and 2002 had been consummated as of January 1, 2002. 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, 2002. Unaudited pro forma amounts are as follows: <Table> <Caption> DECEMBER 31, DECEMBER 31, 2003 2002 ------------ ------------ <S> <C> <C> Revenues.................................................... $137,757 $129,268 Net income.................................................. $ 42,296 $ 43,765 Net income per common share: Basic..................................................... $ 1.14 $ 1.59 Diluted................................................... $ 1.09 $ 1.52 </Table> (5) DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 established criteria beyond that previously specified in Statement of Financial Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS 121"), to determine when a long-lived assets is classified as held for sale, and it provides a single accounting model for the disposal of long-lived assets. SFAS 144 was effective beginning January 1, 2002. In accordance with SFAS 144, the Company now reports as discontinued operations assets held for sale (as defined by SFAS 144) as of the end of the current period and assets sold subsequent to January 1, 2002. All results of these discontinued operations are included in a separate component of income on the Consolidated Statements of Income under discontinued operations. At December 31, 2003, the Company has three properties held for sale with an aggregate carrying value of $36,478 which management anticipates will be sold in 2004. One of these properties is encumbered by a non-recourse mortgage payable of $1,445. The following presents the operating results for the properties sold and held for sale in 2003 and 2002 for the applicable periods: <Table> <Caption> YEAR ENDED DECEMBER 31, ------------------------ 2003 2002 2001 ------ ------ ------ <S> <C> <C> <C> Revenues................................................... $1,422 $2,287 $2,306 Pre-tax income, including gains on sales................... $2,963 $2,091 $ 776 </Table> (6) INVESTMENT IN NON-CONSOLIDATED ENTITIES The Company has investments in various real estate joint ventures. The business of each joint venture is to acquire, finance, hold for investment or sell single tenant net leased real estate. Lexington Acquiport Company, LLC Lexington Acquiport Company, LLC ("LAC"), is a joint venture with the Comptroller of the State of New York as Trustee for the Common Retirement Fund ("CRF"). The joint venture agreement expires in 47
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) December 2011. The Company and CRF originally committed to contribute up to $50,000 and $100,000, respectively, to invest in high quality office and industrial net leased real estate. Through December 31, 2003 total contributions to LAC were $144,332. In 2003, the Company and CRF purchased a property outside the LAC joint venture which required an aggregate capital contribution of $3,751. The partners agreed that the aggregate of these contributions would close the funding obligations to LAC. LRA earns annual management fees of 2% of rent collected and acquisition fees equaling 75 basis points of purchase price of each property investment. All allocations of profit, loss and cash flows are made one-third to the Company and two-thirds to CRF. During 2001, the Company and CRF announced the formation of Lexington Acquiport Company II, LLC ("LAC II"). The Company and CRF have committed $50,000 and $150,000, respectively. In addition to the fees LRA currently earns for acquisitions and asset management in LAC, LRA will also earn 50 basis points on all mortgage debt directly placed in LAC II. All allocations of profit, loss and cash flows from all properties acquired by this joint venture will be allocated 25% to the Company and 75% to CRF. As of December 31, 2003, LAC II has not made any investments. CRF can presently elect to put their equity position in LAC to the Company. The Company has the option of issuing common shares for the fair market value of CRF's equity position (as defined) or cash for 110% of the fair market value of CRF's equity position. The per common share value of shares issued for CRF's equity position will be the greater of (i) the price of the Company's common shares on the closing date (ii) the Company's funds from operations per share (as defined) multiplied by 8.5 or (iii) $13.40 for LAC properties (all properties that are currently owned) and $15.20 for LAC II properties. The Company has the right not to accept any property (thereby reducing the fair market value of CRF's equity position) that does not meet certain underwriting criteria (e.g. lease term and tenant credit). In addition, the operating agreement contains a mutual buy-sell provision in which either partner can force the sale of any property. During 2003 and 2002, LAC made the following investments: <Table> <Caption> NET RENTABLE DATE OF ACQUISITION LEASE SQUARE ACQUISITION TENANT LOCATION COST EXPIRES FEET - ----------- --------------------------------- -------------------- ----------- ------- --------- <S> <C> <C> <C> <C> <C> 2003 March Motorola, Inc. Farmington Hills, MI $32,650 2016 119,829 December Honeywell, International, Inc. Colorado Springs, CO 16,800 2013 166,575 ------- --------- $49,450 286,404 ======= ========= 2002 August TNT Logistics North America, Inc. Laurens, SC $27,100 2012 1,164,000 August TNT Logistics North America, Inc. Temperance, MI 18,186 2012 752,000 ------- --------- $45,286 1,916,000 ======= ========= </Table> 48
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Summarized balance sheet data as of December 31, 2003 and 2002 and income statement data for the years ended December 31, 2003, 2002 and 2001 is as follows: <Table> <Caption> 2003 2002 -------- -------- <S> <C> <C> Real estate, net............................................ $328,525 $286,311 Note receivable............................................. 11,009 11,009 Cash and cash equivalents................................... 2,309 3,989 Other assets................................................ 11,712 6,580 -------- -------- $353,555 $307,889 ======== ======== Mortgages payable........................................... $211,071 $180,223 Other liabilities........................................... 6,617 1,934 Equity...................................................... 135,867 125,732 -------- -------- $353,555 $307,889 ======== ======== </Table> <Table> <Caption> 2003 2002 2001 -------- -------- -------- <S> <C> <C> <C> Revenues.................................................... $ 36,696 $ 31,228 $ 28,661 Interest expense............................................ (14,453) (12,628) (11,910) Depreciation of real estate................................. (6,786) (5,408) (4,932) Other....................................................... (3,147) (2,925) (3,147) -------- -------- -------- Net income................................................ $ 12,310 $ 10,267 $ 8,672 ======== ======== ======== </Table> As of December 31, 2003, the LAC properties are 100% leased and have scheduled lease expiration dates ranging from 2009 to 2016. Minimum future rental receipts under the non-cancelable portion of the 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> 2004........................................................ $ 36,259 2005........................................................ 38,262 2006........................................................ 38,842 2007........................................................ 39,468 2008........................................................ 39,912 Thereafter.................................................. 67,275 -------- $260,018 ======== </Table> 49
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) The mortgages payable bear interest at rates ranging from 5.42% to 8.19% and mature at various dates ranging from 2010 to 2012. Scheduled principal amortization and balloon payments for the mortgages for the next five years and thereafter are as follows: <Table> <Caption> YEAR ENDING SCHEDULED BALLOON DECEMBER 31, AMORTIZATION PAYMENTS TOTAL - ------------ ------------ -------- -------- <S> <C> <C> <C> 2004.............................................. $ 2,881 $ -- $ 2,881 2005.............................................. 3,160 -- 3,160 2006.............................................. 3,410 -- 3,410 2007.............................................. 3,705 -- 3,705 2008.............................................. 3,969 -- 3,969 Thereafter........................................ 11,738 182,208 193,946 ------- -------- -------- $28,863 $182,208 $211,071 ======= ======== ======== </Table> In 2003, the Company and CRF purchased a property outside the LAC partnership for $22,700. The property is subject to a lease through 2021, but can be canceled by the tenant in September 2011 with a payment of $23,433. If cancelled after September 2011 the termination payment is determined based upon a scheduled amount. In all situations the termination payment exceeds the estimated balance outstanding on the non-recourse mortgage encumbering the property. The property acquisition was partially funded through the assumption of a $19,182 non-recourse mortgage that bears interest at 6.73% and matures in 2021. There are no principal amortization payments required under this note from 2004 through 2008. During 2003, LRA earned an acquisition fee of $114. All allocations of profit, loss and cash flows are made one-third to the Company and two-third to CRF. In addition, LRA earns fees under the same structure as the LAC agreement. Minimum future rental receipts under the non-cancelable portion of the tenant lease, assuming no new or negotiated lease, for the next five years and thereafter are as follows: <Table> <Caption> YEAR ENDING DECEMBER 31, - ------------ <S> <C> 2004........................................................ $ 1,833 2005........................................................ 1,833 2006........................................................ 1,665 2007........................................................ 1,665 2008........................................................ 1,315 Thereafter.................................................. 3,884 ------- $12,195 ======= </Table> 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, Inc. through September 2009. The purchase price of the property was approximately $42,500 and was partially funded through a 10 year, $25,300 non-recourse mortgage note bearing 50
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) interest at 7.85%. In accordance with the operating agreement, net cash flows, as defined, will be allocated 40% to the Company and 60% to the partner until both parties have received a 12.5% return on capital. Thereafter cash flows will be distributed 60% to the Company and 40% to the partner. During 2001, Columbia expanded the property by 107,894 square feet bringing the total square feet of the property to 456,304. The $10,900 expansion was funded 40% by the Company and 60% by the partner. The tenant has leased the expansion through September 2009 for an average annual rent of $2,000. Cash flows from the expansion will be distributed 40% to the Company and 60% to the partner. LRA earns annual asset management fees of 2% of rents collected. Summarized financial information for the underlying property investment as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 is as follows: <Table> <Caption> 2003 2002 ------- ------- <S> <C> <C> Real estate, net............................................ $46,465 $48,454 Other assets................................................ 2,727 2,438 ------- ------- $49,192 $50,892 ======= ======= Mortgage payable............................................ $24,410 $24,653 Accrued interest............................................ 165 167 Equity...................................................... 24,617 26,072 ------- ------- $49,192 $50,892 ======= ======= </Table> <Table> <Caption> 2003 2002 2001 ------- ------- ------- <S> <C> <C> <C> Rental income......................................... $ 6,930 $ 6,930 $ 5,412 Interest expense...................................... (1,952) (1,970) (1,851) Depreciation.......................................... (1,988) (1,988) (1,664) Other................................................. (184) (196) (133) ------- ------- ------- Net income.......................................... $ 2,806 $ 2,776 $ 1,764 ======= ======= ======= </Table> 51
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Minimum future rental receipts under the non-cancelable operating lease, assuming no new or renegotiated lease, for the next five years and thereafter is as follows: <Table> <Caption> YEAR ENDING DECEMBER 31, - ------------ <S> <C> 2004........................................................ $ 6,655 2005........................................................ 7,377 2006........................................................ 7,377 2007........................................................ 7,377 2008........................................................ 7,377 Thereafter.................................................. 5,531 ------- $41,694 ======= </Table> Scheduled principal amortization and balloon payment for the mortgage payable for the next five years and thereafter is as follows: <Table> <Caption> YEAR ENDING SCHEDULED BALLOON DECEMBER 31, AMORTIZATION PAYMENT TOTAL - ------------ ------------ ------- ------- <S> <C> <C> <C> 2004................................................ $ 257 $ -- $ 257 2005................................................ 284 -- 284 2006................................................ 307 -- 307 2007................................................ 332 -- 332 2008................................................ 355 -- 355 Thereafter.......................................... 289 22,586 22,875 ------ ------- ------- $1,824 $22,586 $24,410 ====== ======= ======= </Table> Lexington/Lion Venture L.P. Lexington/Lion Venture LP (LION) was formed on October 1, 2003 by the Company and CLPF-LXP/ Lion Venture GP, LLC (Clarion), to invest in high quality single tenant net leased retail, office and industrial real estate. The limited partnership agreement provides for a ten-year term unless terminated sooner pursuant to the terms of the partnership agreement. The limited partnership agreement provides for the Company and Clarion to invest up to $30,000 and $70,000, respectively, and to leverage these investments up to a maximum of 60%. LRA earns acquisition and asset management fees as defined in the operating agreement. All allocation of profit, loss and cash flows are made 30% to the Company and 70% to Clarion until each partner receives a 12% internal rate of return. The Company is eligible to receive a promoted interest of 15% of the internal rate of return in excess of 12%. No promoted interest was earned in 2003. Clarion can elect to put their equity position in LION to the Company commencing when $100,000 in capital is contributed to the venture or January 2, 2006, whichever occurs first. The Company has the option of issuing common shares for the fair market value of Clarion's equity position (as defined) or cash for 100% of the fair market value of Clarion's equity position. The per common share value of shares issued for Clarion's equity position will be the greater of (i) the price of the Company's common shares on the closing date (ii) the Company's funds from operations per share (as defined) multiplied by 9.0 or (iii) $19.00. The Company has the right not to accept any property (thereby reducing the fair market value of Clarion's equity 52
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) position) that does not meet certain underwriting criteria (e.g. lease term and tenant credit). In addition, the operating agreement contains a mutual buy-sell provision in which either partner can force the sale of any property. Summarized balance sheet data as of December 31, 2003 and income statement data for the period October 1, 2003 (date of inception) to December 31, 2003 is as follows: <Table> <S> <C> Real estate, net............................................ $70,648 Cash........................................................ 1,006 Other assets................................................ 4,331 ------- $75,985 ======= Mortgages payable........................................... $36,206 Other liabilities........................................... 791 Equity...................................................... 38,988 ------- $75,985 ======= Rental income............................................... $ 1,334 ------- Interest expense............................................ (268) Operating expenses.......................................... (321) Depreciation and amortization expenses...................... (313) ------- (902) ------- Net income.................................................. $ 432 ======= </Table> As of December 31, 2003, LION owns the following properties: <Table> <Caption> NET RENTABLE DATE OF ACQUISITION LEASE SQUARE ACQUISITION TENANT LOCATION COST EXPIRES FEET - ----------- --------------------------------- ------------------ ----------- ------- -------- <S> <C> <C> <C> <C> <C> October Greenpoint Mortgage Funding, Inc. Novato, CA $39,574 2011 124,600 October Linens 'n Things, Inc. Logan Township, NJ 12,586 2009 262,644 December Ikon Office Solutions, Inc. Malvern, PA 22,399 2013 106,855 ------- ------- $74,559 494,099 ======= ======= </Table> The Novato, California and Malvern, Pennsylvania properties were contributed by the Company and the Logan Township, New Jersey property was contributed by Clarion. In addition, Clarion paid the Company $23,849 for its net equity position in the properties. 53
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Minimum future rental receipts under non-cancelable tenant operating leases, assuming no new or negotiated leases, for the next five years and thereafter are as follows: <Table> <Caption> YEAR ENDING DECEMBER 31, - ------------ <S> <C> 2004........................................................ $ 7,481 2005........................................................ 7,646 2006........................................................ 7,831 2007........................................................ 8,052 2008........................................................ 8,237 Thereafter.................................................. 23,609 ------- $62,856 ======= </Table> Scheduled principal amortization and balloon payments for the mortgages payable for the next five years and thereafter are as follows: <Table> <Caption> YEAR ENDING SCHEDULED BALLOON DECEMBER 31, AMORTIZATION PAYMENTS TOTAL - ------------ ------------ -------- ------- <S> <C> <C> <C> 2004................................................ $ 441 $ -- $ 441 2005................................................ 473 -- 473 2006................................................ 501 -- 501 2007................................................ 531 -- 531 2008................................................ 557 -- 557 Thereafter.......................................... 2,160 31,543 33,703 ------ ------- ------- $4,663 $31,543 $36,206 ====== ======= ======= </Table> Lexington Florence LLC Lexington Florence LLC ("Florence") is a joint venture established in January 2002 with unaffiliated investors. Its sole purpose is to own a property in Florence, South Carolina net leased to Washington Mutual Home Loans, Inc. through June 2008. The property is encumbered by a non-recourse mortgage bearing interest at 7.50% per annum which matures February 2009. The Company sold a 77.3% interest in Florence to the unaffiliated investors for $4,581. The investors have the right to put their interests in Florence to the Company for OP Units in LCIF (valued at $4,581). The number of OP Units issued will have a minimum price of $13.92 and a maximum price of $15.82. The put is effective beginning in January 2004 and expires in June 2004. LRA earns annual asset management fees of 3.5% of rents collected. 54
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, 2003 and 2002 and for the year ended December 31, 2003 and for the period January 25, 2002 (date of inception) to December 31, 2002 is as follows: <Table> <Caption> 2003 2002 ------- ------- <S> <C> <C> Real estate, net............................................ $15,227 $15,544 Other assets................................................ 876 656 ------- ------- $16,103 $16,200 ======= ======= Mortgage payable............................................ $ 9,395 $ 9,544 Other liabilities........................................... 164 163 Equity...................................................... 6,544 6,493 ------- ------- $16,103 $16,200 ======= ======= Rental income............................................... $ 1,699 $ 1,576 Interest expense............................................ (720) (676) Depreciation................................................ (317) (304) Other....................................................... (56) (46) ------- ------- Net income................................................ $ 606 $ 550 ======= ======= </Table> Minimum future rental receipts under the non-cancelable operating lease, assuming no new or renegotiated lease, for the next five years and thereafter is as follows: <Table> <Caption> YEAR ENDING DECEMBER 31, - ------------ <S> <C> 2004........................................................ $1,750 2005........................................................ 1,750 2006........................................................ 1,750 2007........................................................ 1,750 2008........................................................ 875 ------ $7,875 ====== </Table> 55
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Scheduled principal amortization and balloon payment for the mortgage payable for the next five years and thereafter is as follows: <Table> <Caption> YEAR ENDING SCHEDULED BALLOON DECEMBER 31, AMORTIZATION PAYMENT TOTAL - ------------ ------------ ------- ------ <S> <C> <C> <C> 2004.................................................. $158 $ -- $ 158 2005.................................................. 173 -- 173 2006.................................................. 186 -- 186 2007.................................................. 201 -- 201 2008.................................................. 216 -- 216 Thereafter............................................ 18 8,443 8,461 ---- ------ ------ $952 $8,443 $9,395 ==== ====== ====== </Table> (7) MORTGAGES AND NOTES PAYABLE The following table sets forth certain information regarding the Company's mortgage and notes payable as of December 31, 2003 and 2002: <Table> <Caption> 2004 ESTIMATED ANNUAL DEBT BALLOON PROPERTY LEVEL DEBT -- FIXED RATE 2003 2002 INTEREST RATE MATURITY SERVICE (G) PAYMENT - --------------------------------- -------- -------- ------------- -------- -------------- -------- <S> <C> <C> <C> <C> <C> <C> Gainesville, GA (first)......... $ 18 $ 219 13.000% 01-01-04 $ 18 $ -- Oxon Hill, MD................... 94 457 6.250% 03-01-04 95 -- Bethesda, MD.................... -- 1,955 9.250% 05-01-06 -- -- Warren, OH...................... 21,172 25,615 7.000% 10-01-07 6,160 -- Bristol, PA..................... 9,729 9,833 7.400% 02-01-08 831 9,262 Boca Raton, FL (f).............. 15,275 -- 5.250% 03-01-08 802 15,275 Decatur, GA..................... 6,695 6,830 6.720% 06-01-08 579 6,049 Phoenix, AZ..................... 14,231 14,553 7.890% 06-05-08 1,434 12,591 Palm Beach Gardens, FL.......... 11,341 11,509 7.010% 06-15-08 970 10,418 Dubuque, IA..................... 7,351 -- 4.890% 08-01-08 513 6,588 Canton, OH...................... 3,325 3,395 7.150% 08-11-08 313 2,936 Spartanburg, SC................. 2,762 2,819 7.150% 08-11-08 260 2,438 Hebron, KY...................... 5,340 5,414 7.000% 10-23-08 451 4,935 Gainesville, GA (e) (second).... 902 837 7.500% 01-01-09 200 -- Ocala, FL....................... 13,059 13,429 7.250% 02-01-09 1,332 10,700 Canton, OH...................... 1,578 1,823 9.490% 02-28-09 388 -- Baton Rouge, LA................. 1,898 1,969 7.375% 03-01-09 208 1,478 Bristol, PA..................... 6,053 6,190 7.250% 04-01-09 571 5,228 Livonia, MI (2 properties)...... 11,026 11,133 7.800% 04-01-09 992 10,236 Henderson, NC................... 4,414 4,497 7.390% 05-01-09 417 3,854 Westland, MI.................... 2,938 3,320 10.500% 09-01-09 683 -- Salt Lake City, UT.............. 13,409 15,204 7.610% 10-01-09 2,901 -- Richmond, VA.................... 16,472 16,633 8.100% 02-01-10 1,511 15,257 Hampton, VA..................... 4,473 4,512 8.260% 04-01-10 415 4,144 Hampton, VA..................... 7,294 7,357 8.270% 04-01-10 677 6,758 Tampa, FL (Queen Palm Dr.)...... 6,034 6,096 6.880% 08-01-10 485 5,495 </Table> 56
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) <Table> <Caption> 2004 ESTIMATED ANNUAL DEBT BALLOON PROPERTY LEVEL DEBT -- FIXED RATE 2003 2002 INTEREST RATE MATURITY SERVICE (G) PAYMENT - --------------------------------- -------- -------- ------------- -------- -------------- -------- <S> <C> <C> <C> <C> <C> <C> Tampa, FL (North 30th).......... 8,342 8,427 6.930% 08-01-10 674 7,603 Herndon, VA..................... 18,807 18,964 8.180% 12-05-10 1,723 17,301 San Diego, CA................... 4,252 4,347 7.500% 01-01-11 411 3,420 Tuscon, AZ...................... 2,444 2,483 7.500% 01-01-11 226 2,076 Columbia, SC.................... 3,419 3,472 7.540% 01-01-11 317 2,905 Valley Forge, PA................ 13,080 13,306 7.120% 02-10-11 1,166 10,927 Glendale, AZ.................... 14,777 14,930 7.400% 04-01-11 1,258 13,365 Auburn Hills, MI................ 7,198 7,325 7.010% 06-01-11 637 5,918 Plymouth, MI.................... 4,787 4,866 7.960% 07-01-11 463 3,949 Greenville, SC.................. 13,886 -- 4.415% 01-01-12 841 11,806 New Kingston, PA................ 7,265 7,364 7.790% 01-01-12 678 6,101 Mechanicsburg, PA............... 5,363 5,437 7.780% 01-01-12 500 4,503 New Kingston, PA................ 3,462 3,509 7.780% 01-01-12 323 2,906 Lake Forest, CA................. 10,832 10,939 7.260% 02-01-12 901 9,708 Groveport, OH (c)............... 7,800 7,800 6.030% 10-01-12 535 6,860 Plymouth, MI.................... 12,776 -- 6.220% 12-10-12 1,026 10,026 Dallas, TX...................... 21,348 21,785 7.490% 12-31-12 2,020 16,030 Fort Mill, SC................... 11,523 11,657 6.000% 01-01-13 839 9,904 Lancaster, CA (first)........... 10,611 10,761 7.020% 09-01-13 900 8,637 Lancaster, CA (second).......... 8,903 -- 5.920% 09-01-13 642 7,518 Knoxville, TN (d)............... 5,295 5,330 5.950% 09-01-13 381 4,496 Eau Claire, WI.................. 2,220 2,360 8.000% 07-01-14 313 -- Franklin, NC.................... 1,965 2,053 8.500% 04-01-15 263 -- Southborough, MA................ 2,132 2,251 7.500% 09-01-15 275 -- Danville, IL.................... 6,623 -- 9.000% 01-01-16 692 4,578 Temple, TX...................... 9,200 -- 6.090% 01-01-16 668 7,446 Bremerton, WA................... 6,800 -- 6.090% 04-01-16 494 5,465 Dillon, SC...................... 12,111 -- 7.900% 12-01-16 1,263 5,273 Westmont, IL.................... 16,170 -- 6.210% 03-01-18 1,292 9,662 REMIC Financing (i)............. -- 63,054 -- -- -- -- Salt Lake City, UT (i).......... -- 5,145 -- -- -- -- -------- -------- ------ ------- -------- 440,274 413,164 7.073% 44,927 332,025 -------- -------- ------ ------- -------- PROPERTY LEVEL DEBT -- VARIABLE RATE Milpitas, CA (a) (b)............ 15,666 17,100 4.140% 07-01-04 2,253 14,456 Marlborough, MA (i)............. -- 8,102 -- -- -- -- Hebron, OH (i).................. -- 9,651 -- -- -- -- -------- -------- ------ ------- -------- 15,666 34,853 4.140% 2,253 14,456 -------- -------- ------ ------- -------- CORPORATE LEVEL DEBT Credit Facility (h)............. 94,000 31,000 2.640% 08-01-06 2,516 94,000 Warren, OH (i).................. -- 12,500 -- -- -- -- -------- -------- ------ ------- -------- 94,000 43,500 2.640% 2,516 94,000 -------- -------- ------ ------- -------- Total........................... $549,940 $491,517 6.232% $49,696 $440,481 ======== ======== ====== ======= ======== </Table> 57
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) (a) Floating rate debt, 30 day LIBOR plus 297 basis points. The Company has the ability to extend maturity date to July 1, 2005 (spread increases to 350 basis points) and to July 1, 2006 (spread increases to 400 basis points). (b) All property cash flows net of interest expense are used for principal amortization. (c) Interest only through April 2004, and $563 in annual debt service thereafter. (d) Interest only through May 2003, and $381 in annual debt service thereafter. (e) Mortgage is accrual only through 01/31/04. Commencing 02/01/04 annual debt service of $218 is due. (f) Interest only through maturity. (g) For mortgages with less than twelve months to maturity, amounts represent remaining payments. (h) In 2003, the Company obtained a $100,000 unsecured revolving credit facility, which expires August 2006, bears interest at 150-250 basis points over LIBOR depending on the amount of properties the Company owns free and clear of mortgage debt and has an interest rate period of one, three or six months, at the option of the Company, which rate at December 31, 2003 was 2.64%. The credit facility is provided by Fleet National Bank, as Administrative Agent and Wachovia Bank, National Association, as Syndication Agent. The credit facility contains various leverage, debt service coverage, net worth maintenance and other customary covenants with which the Company is in compliance as of December 31, 2003. Approximately $1,836 was available to the Company at December 31, 2003. The Company has six outstanding letters of credit aggregating $4,164 which mature between 2004 and 2010. The Company pays an unused facility fee equal to 25 basis points if 50% or less of the facility is utilized and 15 basis points if greater than 50% of the facility is utilized. This facility replaced a $60,000 facility which bore interest at the same spread to LIBOR. (i) The Company satisfied these mortgages in 2003, along with a mortgage on a previously non-consolidated property, which resulted in debt satisfaction charges of $8,462. Scheduled principal amortization and balloon payments for mortgages and notes payable, including mortgages payable related to discontinued operations and the credit facility for the next five years and thereafter are as follows: <Table> <Caption> YEARS ENDING SCHEDULED BALLOON DECEMBER 31, AMORTIZATION PAYMENTS TOTAL - ------------ ------------ -------- -------- <S> <C> <C> <C> 2004.............................................. $ 15,429 $ 14,456 $ 29,885 2005.............................................. 15,521 -- 15,521 2006.............................................. 16,303 94,000 110,303 2007.............................................. 17,238 -- 17,238 2008.............................................. 11,469 70,492 81,961 Thereafter........................................ 34,944 261,533 296,477 -------- -------- -------- $110,904 $440,481 $551,385 ======== ======== ======== </Table> (8) ORIGINATION FEES PAYABLE In connection with certain acquisitions the Company assumed obligations which currently bears interest, on the outstanding principal balances only of 12.5%. During 2003, the Company satisfied $5,641 of these obligations by issuing 231,763 OP Units. The difference between the carrying value of the obligations and the fair value of the OP Units on the date of issuance resulted in a gain of $896 that is netted in debt satisfaction charges on the Consolidated Statements of Income. As of December 31, 2003, $414 in origination fees payable are owed to two executive officers of the Company. 58
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) The scheduled payments of this obligation for the next five years and thereafter is as follows: <Table> <Caption> YEARS ENDING DECEMBER 31, - ------------ <S> <C> 2004........................................................ $ 37 2005........................................................ 37 2006........................................................ 85 2007........................................................ 110 2008........................................................ 110 Thereafter.................................................. 429 ---- $808 ==== </Table> (9) LEASES Minimum future rental receipts under noncancellable tenant operating leases, assuming no new or negotiated leases, for the next five years and thereafter are as follows: <Table> <Caption> YEAR ENDING DECEMBER 31, - ------------ <S> <C> 2004........................................................ $ 128,545 2005........................................................ 126,408 2006........................................................ 114,579 2007........................................................ 102,665 2008........................................................ 87,595 Thereafter.................................................. 456,700 ---------- $1,016,492 ========== </Table> The Company holds various leasehold interests in properties. The ground rent on these properties are either directly paid by the tenants or reimbursed to the Company as additional rent. Minimum future rental payments under all noncancellable leasehold interests for the next five years and thereafter are as follows: <Table> <Caption> YEAR ENDING DECEMBER 31, - ------------ <S> <C> 2004........................................................ $ 898 2005........................................................ 898 2006........................................................ 898 2007........................................................ 898 2008........................................................ 898 Thereafter.................................................. 7,173 ------- $11,663 ======= </Table> During 2003 the Company entered into a new lease for its corporate office. The lease expires December 2015, with rent fixed at $497 per annum through December 2008 and will be adjusted to fair market value, as defined, thereafter. The Company is also responsible for its proportionate share of operating expenses and real 59
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) estate taxes. As an incentive to enter the lease the Company received a payment of $845 which it is amortizing as a reduction of rent expense through December 2008. Rent expense for 2003, 2002 and 2001 was $546, $243 and $237, respectively. (10) MINORITY INTERESTS In conjunction with several of the Company's acquisitions, property owners were issued OP Units as a form of consideration in exchange for the property. All of such interests are redeemable at certain times for common shares on a one-for-one basis. As of December 31, 2003, there were 5,430,454 OP Units outstanding of which 4,814,994 were currently redeemable for common shares. Of the total OP Units outstanding, 1,744,212 are held by two executive officers of the Company. As of December 31, 2003 these OP Units, subject to certain adjustments through the date of conversion, had annual distributions per OP Unit in varying amounts from $0 to $1.40 per unit with a weighted average distribution of $1.24 per OP Unit. (11) PREFERRED AND COMMON SHARES During 2003 and 2002, the Company issued 9,800,000 and 2,690,000 common shares raising $174,023 and $40,508 in proceeds, respectively, which was used to retire mortgage debt and fund acquisitions. During 2003, the Company issued 3,160,000 Series B Cumulative Redeemable Preferred Shares raising net proceeds of $76,315. These shares have a fixed dividend of $2.0125 per share per annum, have a liquidation preference of $79,000, have no voting rights, and are redeemable by the Company at $25.00 per share ($79,000) commencing June 2008. During 2003 and 2002, holders of an aggregate of 71,567 and 50,997 OP Units redeemed such OP Units for common shares of the Company. These redemptions resulted in an increase in shareholders' equity and corresponding decrease in minority interest of $915 and $619, respectively. During 2003, three officers repaid recourse notes to the Company including accrued interest thereon, of $2,522 by delivering to the Company 158,724 common shares. During 2003 and 2002, the Company issued 336,992 and 64,249 common shares, respectively, to certain employees and trustees resulting in $5,887 and $996 of deferred compensation, respectively. These common shares generally vest ratably, primarily over a 5 year period, however in certain situations the vesting is cliff based after 5 years and in other cases vesting only occurs if certain performance criteria are met. During 2002, the Company issued 34,483 common shares in respect of a 15 year, 8% interest only recourse note to an officer for $500. This note was satisfied in 2003. During 2002, the holders of the Company's outstanding 2,000,000 Series A preferred shares converted these shares into 2,000,000 common shares. (12) BENEFIT PLANS The Company maintains a common share option plan pursuant to which qualified and non-qualified options may be issued. Options granted under the plan generally vest over a period of one to four years and expire five years from date of grant. No compensation cost is reflected in net income as all options granted under the plan had an exercise price equal to the market value of the underlying common shares on the date of grant. 60
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) Share option activity during the years indicated is as follows: <Table> <Caption> WEIGHTED-AVERAGE NUMBER OF EXERCISE PRICE SHARES PER SHARE ---------- ---------------- <S> <C> <C> Balance at December 31, 2000............................ 1,978,023 $11.63 Granted............................................... 568,000 11.99 Exercised............................................. (603,142) 11.02 Forfeited............................................. (9,308) 12.17 Expired............................................... (5,000) 11.25 ---------- ------ Balance at December 31, 2001............................ 1,928,573 11.93 Granted............................................... 411,500 15.50 Exercised............................................. (1,050,866) 11.59 Forfeited............................................. (53,650) 11.98 Expired............................................... (2,500) 14.25 ---------- ------ Balance at December 31, 2002............................ 1,233,057 13.39 Granted............................................... 30,000 16.15 Exercised............................................. (687,527) 12.94 Forfeited............................................. (10,500) 15.97 Expired............................................... (43,500) 15.25 ---------- ------ Balance at December 31, 2003............................ 521,530 $13.94 ========== ====== </Table> The following is additional disclosures for common share options outstanding at December 31, 2003: <Table> <Caption> OPTIONS OUTSTANDING EXERCISABLE OPTIONS -------------------------------- -------------------- WEIGHTED WEIGHTED RANGE OF AVERAGE REMAINING AVERAGE EXERCISE EXERCISE LIFE EXERCISE PRICES NUMBER PRICE (YEARS) NUMBER PRICE - ------------------- --------- -------- --------- -------- --------- <S> <C> <C> <C> <C> <C> $9.00-$10.875...... 12,857 $ 9.55 0.8 12,857 $ 9.55 $11.8125-$12.5625.. 191,475 11.89 1.6 156,967 11.91 $13.1875-$15.50.... 317,198 15.36 3.0 176,677 15.22 --------- ------ ---- ------- ------ 521,530 $13.94 2.4 346,501 $13.51 ========= ====== ==== ======= ====== </Table> There are 1,449,252 options available for grant at December 31, 2003. 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 $127, $124 and $112 were contributed in 2003, 2002 and 2001, respectively. The Company has established a trust for certain officers in which non-vested common shares, which vest ratably over five years, granted for the benefit of the officers are deposited. The officers exert no control over the common shares in the trust and the common shares are available to the general creditors of the Company. As of December 31, 2003 and 2002, there were 405,110 and 265,385 common shares, respectively, in the trust. In addition, certain officers can delay, to a specified date, the receipt of common shares that would be received 61
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) upon exercise of common share options. These common shares are deposited in the trust. As of December 31, 2003 and 2002 there were 295,076 and 222,615 common shares, respectively deposited in the trust. (13) COMMITMENTS AND CONTINGENCIES The Company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. The Company, including its non-consolidated entities, are obligated under certain tenant leases to fund the expansion of the underlying leased properties. The Company has entered into a binding letter of intent to purchase, upon completion and rent commencement from the tenant, an office facility in Meridian, Idaho for an estimated obligation of $14,722. The facility is expected to be completed in mid-2004. (14) RELATED PARTY TRANSACTIONS During 2003, the Company issued 231,763 OP Units to satisfy outstanding obligations that resulted in a gain of $896. Of the OP Units issued, the Chairman and the Vice Chairman of the Board of Trustees of the Company received 120,662 units. During 2003, three executive officers repaid recourse notes to the Company including accrued interest thereon, of $2,522 by delivering to the Company 158,724 common shares. As of December 31, 2003 the Company is obligated for $808 resulting from the acquisition of certain properties in 1996. Of the $808, the Chairman and the Vice Chairman of the Board of Trustees are owed $414. In 2002, the Company issued 34,483 common shares in respect of a 15-year, 8% interest only recourse note to the Chief Financial Officer of the Company for $500. This note was satisfied in 2003. On November 28, 2001, the Company acquired Net 1 L.P. and Net 2 L.P. (collectively, the "Net Partnerships"), in a merger transaction valued at approximately $136,300, which owned twenty-three properties in fourteen states. The Company issued 2,143,840 common shares (valued at $31,622), 44,858 OP Units (valued at $661), $31,612 in cash and assumed approximately $61,389 of third party mortgage debt (excluding $11,114 in Net Partnership obligations to the Company). The Company's Chairman was the controlling shareholder of the general partners of the Net Partnerships. The general partners received 44,858 OP Units valued on the same basis as the limited partners for their 1% ownership interest in the Net Partnerships. The OP Units, which receive distributions equal to the dividends on common shares, are convertible into the Company's common shares on a one-for-one basis beginning November 2006. During 2001, the Company issued 24,620 common shares to acquire a company controlled by the Chairman of the Company, whose sole asset was a mortgage note receivable from a 64% owned partnership of the Company. During 2001, the Company renegotiated $1,973 in notes receivable from the current Chief Executive Officer and the Vice-Chairman of the Board of Trustees of the Company. The notes were issued in connection with the officers' purchases of 131,000 common shares at $15.25 per common share. The new notes had a 15- year maturity, were 8% interest only, and recourse to the officers. These notes were satisfied in 2003. 62
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) All related party acquisitions, sales and loans were approved by the independent members of the Board of Trustees. In addition, the Company earns fees from it's joint venture investments (See note 6). (15) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable The Company estimates that the fair value approximates carrying value due to the relatively short maturity of the instruments. Mortgages and Notes Payable The Company determines the fair value of these instruments based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this, the Company has determined that the fair value of these instruments approximates carrying values. (16) CONCENTRATION OF RISK The Company seeks to reduce its operating and leasing risks through diversification achieved by the geographic distribution of its properties, avoiding dependency on a single property and the creditworthiness of its tenants. For the years ended December 31, 2003 and 2002, no tenant represented 10% or more of rental income. For the year ended December 31, 2001 the following tenants represented 10% or greater of rental income: <Table> <S> <C> Northwest Pipeline Corporation.............................. 11% Kmart Corporation........................................... 11% </Table> Both of these tenants are publicly registered companies subject to the Securities Exchange Act of 1934, as amended and accordingly file financial information with the Securities and Exchange Commission. (17) SUPPLEMENTAL DISCLOSURE OF STATEMENT OF CASH FLOW INFORMATION During 2003, the Company issued 231,763 OP Units to satisfy $5,641 in outstanding obligations which resulted in a gain of $896. During 2003, 2002 and 2001, the Company paid $36,467, $32,255 and $30,624, respectively, for interest and $282, $262 and $204, respectively, for taxes. During 2003, three executive officers repaid recourse notes to the Company including accrued interest thereon, of $2,522 by delivering to the Company 158,724 common shares. During 2003, 2002 and 2001, holders of an aggregate of 71,567, 50,997, and 418,411 OP 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 $915, $619 and $5,713, respectively. During 2003, 2002 and 2001, the Company issued 336,992, 64,249 and 100,000 common shares to certain employees and trustees resulting in $5,887, $996 and $1,181 of deferred compensation. During 2002, the holder of the Company's 2,000,000 Series A preferred shares converted them into 2,000,000 common shares. 63
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) In 2003, 2002 and 2001, the Company contributed properties (along with non-recourse mortgage notes) to joint venture entities for capital contributions of $11,649, $643 and $1,168, respectively. During 2001, the Company purchased the Net Partnerships by issuing, in addition to $31,612 in cash, 2,143,840 common shares (valued at $31,622), 44,858 OP Units (valued at $661), assumed $61,389 in third party debt and $11,114 in Net Partnership debt obligations to the Company. During 2003, LRA became a consolidated subsidiary of the Company. The assets and liabilities of LRA as of January 1, 2003 were as follows: <Table> <S> <C> Real estate, net............................................ $41,613 Cash........................................................ 1,579 Other assets................................................ 1,221 Mortgage payable............................................ 30,028 Other liabilities........................................... 1,468 </Table> (18) UNAUDITED QUARTERLY FINANCIAL DATA <Table> <Caption> 2003 -------------------------------------- 3/31/03 6/30/03 9/30/03 12/31/03 ------- ------- ------- -------- <S> <C> <C> <C> <C> Revenues(1)............................................ $28,555 $28,908 $30,881 $32,176 Net income............................................. $ 8,763 $ 2,483 $ 9,962 $12,441 Net income allocable to common shareholders............ $ 8,763 $ 2,271 $ 8,372 $10,851 Net income allocable to common shareholders - per share: Basic................................................ $ 0.29 $ 0.07 $ 0.24 $ 0.28 Diluted.............................................. $ 0.29 $ 0.06 $ 0.24 $ 0.28 </Table> <Table> <Caption> 2002 -------------------------------------- 3/31/02 6/30/02 9/30/02 12/31/02 ------- ------- ------- -------- <S> <C> <C> <C> <C> Revenues(1)............................................ $24,027 $23,960 $24,609 $25,736 Net income............................................. $ 7,961 $ 7,879 $ 7,646 $ 7,109 Net income allocable to common shareholders............ $ 7,268 $ 7,879 $ 7,646 $ 7,109 Net income allocable to common shareholders - per share: Basic................................................ $ 0.30 $ 0.30 $ 0.28 $ 0.24 Diluted.............................................. $ 0.29 $ 0.29 $ 0.28 $ 0.24 </Table> - --------------- (1) All periods have been adjusted to reflect the impact of properties sold during the years ended December 31, 2003 and 2002, and properties classified as held for sale which are reflected in discontinued operations in the Consolidated Statements of Income. The sum of the quarterly income per common share amounts may not equal the full year amounts primarily because the computations of the weighted average number of common shares outstanding for each quarter and the full year are made independently. 64
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($000'S EXCEPT PER SHARE DATA) (19) SUBSEQUENT EVENTS Subsequent to year end the following transactions have occurred: The Company The Company closed on the following non-recourse mortgages: <Table> <Caption> ESTIMATED ANNUAL INTEREST ESTIMATED PROPERTY AMOUNT DEBT SERVICE RATE MATURITY BALLOON - -------- ------- ------------ -------- ------------- --------- <S> <C> <C> <C> <C> <C> Mechanicsburg, PA...................... $13,870 $1,044 5.73% March 2014 $10,501 Newport, OR............................ 7,000 470 5.03% August 2011 5,980 Waterloo, IA........................... 6,800 672 5.61% February 2013 3,505 Mission, TX............................ 6,570 462 5.78% June 2015 5,371 </Table> The Company also purchased a property in Mission, Texas (leased to T-Mobile), Wall, New Jersey (leased to New Jersey Natural Gas) and Redmond, Oregon (leased to T-Mobile) for $10,100, $33,688 and $16,381, respectively. The Company assumed a $27,500 mortgage on the Wall, New Jersey property with a stated interest rate of 7.22%. In addition, the Company contributed its property in Plymouth, Michigan leased to Tower Automotive to LION at its carrying cost of $20,519. The Company also contributed its property in Arlington, Texas leased to Siemens Dematic Postal Automation L.P. to LAC II at its carrying cost of $30,286. LAC II LAC II closed on the following non-recourse mortgage: <Table> <Caption> ESTIMATED ANNUAL INTEREST ESTIMATED PROPERTY AMOUNT DEBT SERVICE RATE MATURITY BALLOON - -------- ------- ------------ -------- ------------- --------- <S> <C> <C> <C> <C> <C> Arlington, TX.......................... $22,000 $1,551 5.81% February 2014 $18,605 </Table> LION LION purchased a property in New Lenox, Illinois (leased to Michaels Stores Procurement Company) for $28,585. LION closed on the following non-recourse mortgage: <Table> <Caption> ESTIMATED ANNUAL INTEREST ESTIMATED PROPERTY AMOUNT DEBT SERVICE RATE MATURITY BALLOON - -------- ------- ------------ -------- ------------- --------- <S> <C> <C> <C> <C> <C> New Lenox, IL.......................... $17,400 $959 5.51% February 2014 $17,400 </Table> 65
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> ACCUMULATED LAND AND BUILDINGS DEPRECIATION LAND AND AND DESCRIPTION LOCATION ENCUMBRANCES ESTATES IMPROVEMENTS TOTAL AMORTIZATION - ----------- ---------------------- ------------ -------- ------------ ---------- ------------- <S> <C> <C> <C> <C> <C> <C> Office......................... Southington, CT $ -- $ 3,240 $ 20,440 $ 23,680 $ 9,809 Research & Development......... Glendale, AZ 14,777 4,996 24,392 29,388 12,473 Retail/Health Club............. Countryside, IL -- 628 3,722 4,350 1,880 Retail/Health Club............. Voorhees, NJ -- 577 4,820 5,397 2,342 Retail/Health Club............. DeWitt, NY -- 445 3,043 3,488 1,479 Warehouse & Distribution....... Mansfield, OH -- 120 5,965 6,085 2,289 Industrial..................... Marshall, MI -- 33 3,378 3,411 1,601 Industrial..................... Marshall, MI -- 14 926 940 440 Retail......................... Newport, OR -- 1,400 7,270 8,670 3,489 Office & Warehouse............. Memphis, TN -- 1,053 11,174 12,227 5,912 Warehouse & Distribution....... Mechanicsburg, PA -- 1,439 13,987 15,426 4,309 Office & Warehouse............. Tampa, FL 6,034 1,389 7,763 9,152 3,348 Retail......................... Klamath Falls, OR -- 727 9,160 9,887 3,616 Office......................... Tampa, FL 8,342 1,900 9,854 11,754 3,767 Warehouse & Industrial......... Jacksonville, FL -- 240 3,637 3,877 1,237 Retail......................... Sacramento, CA -- 885 2,705 3,590 1,309 Office......................... Phoenix, AZ 14,231 2,804 13,921 16,725 7,035 Retail......................... Reno, NV -- 1,200 1,904 3,104 897 Retail......................... Rockville, MD -- -- 1,784 1,784 744 Retail......................... Oxon Hill, MD 94 403 2,765 3,168 1,098 Retail......................... Laguna Hills, CA -- 255 5,035 5,290 2,021 Retail......................... Riverdale, GA -- 333 2,233 2,566 446 Retail/Health Club............. Canton, OH 1,578 602 3,820 4,422 764 Office......................... Salt Lake City, UT 13,409 -- 55,404 55,404 16,284 Manufacturing.................. Franklin, NC 1,965 386 3,062 3,448 536 Industrial..................... Oberlin, OH -- 276 4,515 4,791 790 Retail......................... Tulsa, OK -- 447 2,432 2,879 947 Retail......................... Clackamas, OR -- 523 2,847 3,370 1,109 Retail......................... Lynwood, WA -- 488 2,658 3,146 1,035 Retail......................... Honolulu, HI -- -- 11,147 11,147 3,218 Warehouse...................... New Kingston, PA 3,462 674 5,360 6,034 910 (Silver Springs) Warehouse...................... New Kingston, PA 7,265 1,380 10,963 12,343 1,861 (Cumberland) Warehouse...................... Mechanicsburg, PA 5,363 1,012 8,039 9,051 1,365 (Hampden IV) Office/Research & Marlborough, MA -- 2,013 13,834 15,847 2,233 Development................... Office......................... Dallas, TX 21,348 3,582 30,598 34,180 4,692 Warehouse...................... Waterloo, IA -- 1,025 8,296 9,321 1,288 Office/Research & Milpitas, CA 15,666 3,542 18,603 22,145 2,790 Development................... Industrial..................... Gordonsville, TN -- 52 3,325 3,377 574 Office......................... Decatur, GA 6,695 975 13,677 14,652 2,052 Office......................... Richmond, VA 16,472 -- 27,282 27,282 5,076 Office/Warehouse............... Bristol, PA 9,729 2,508 10,031 12,539 1,442 Office......................... Hebron, KY 5,340 1,615 6,462 8,077 929 Office......................... Livonia, MI 5,430 1,554 6,859 8,413 895 Office......................... Valley Forge, PA 13,080 3,960 15,880 19,840 546 Research & Development......... Livonia, MI 5,596 1,733 6,936 8,669 997 Office......................... Palm Beach Gardens, FL 11,341 3,578 14,249 17,827 2,004 Warehouse/Distribution......... Lancaster, CA 19,514 2,028 28,183 30,211 2,296 Industrial..................... Auburn Hills, MI 7,198 2,788 11,151 13,939 1,515 Warehouse/Distribution......... Warren, OH 21,172 10,231 51,110 61,341 11,445 Warehouse/Distribution......... Baton Rouge, LA 1,898 685 2,742 3,427 356 Retail......................... Columbia, MD -- 1,002 4,872 5,874 567 Office......................... Bristol, PA 6,053 1,073 7,709 8,782 779 Office......................... Southborough, MA 2,132 456 4,291 4,747 434 Office......................... Herndon, VA 18,807 5,127 20,553 25,680 2,061 <Caption> USEFUL LIFE COMPUTING DEPRECIATION IN LATEST DATE DATE INCOME STATEMENTS DESCRIPTION ACQUIRED CONSTRUCTED (YEARS) - ----------- ---------- ----------- ----------------------- <S> <C> <C> <C> 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 & 3 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 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 & Jul. 1997 1960 & 1988 40 Development................... Office......................... Sept. 1997 1986 40 Warehouse...................... Oct. 1997 1996 & 1997 40 Office/Research & Dec. 1997 1985 40 Development................... Industrial..................... Dec. 1997 1983 & 1985 34.75 Office......................... Dec. 1997 1983 40 Office......................... Dec. 1997 1990 32.25 Office/Warehouse............... Mar. 1998 1982 40 Office......................... Mar. 1998 1987 40 Office......................... Mar. 1998 1987 & 1988 40 Office......................... Aug. 2002 1985 & 2001 40 Research & Development......... Mar. 1998 1987 & 1988 40 Office......................... May 1998 1996 40 Warehouse/Distribution......... Jun. 1998 1998 40 Industrial..................... Jul. 1998 1989 & 1998 40 Warehouse/Distribution......... Aug. 1998 1982 10 & 40 Warehouse/Distribution......... Oct. 1998 1998 40 Retail......................... Dec. 1998 1983 40 Office......................... Dec. 1999 1998 40 Office......................... Dec. 1999 1984 40 Office......................... Dec. 1999 1987 40 </Table> 66
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION SCHEDULE III ($000) -- (CONTINUED) <Table> <Caption> ACCUMULATED LAND AND BUILDINGS DEPRECIATION LAND AND AND DESCRIPTION LOCATION ENCUMBRANCES ESTATES IMPROVEMENTS TOTAL AMORTIZATION - ----------- ---------------------- ------------ -------- ------------ ---------- ------------- <S> <C> <C> <C> <C> <C> <C> Office......................... Hampton, VA 4,473 1,353 5,441 6,794 516 Office......................... Phoenix, AZ -- 4,666 18,664 23,330 1,691 Industrial..................... Hebron, OH -- 1,063 4,271 5,334 218 Industrial..................... Hebron, OH -- 1,681 6,754 8,435 345 Retail......................... Phoenix, AZ -- 1,126 4,501 5,627 239 Retail......................... Stockton, CA -- 259 1,037 1,296 55 Retail......................... Lynchburg, VA -- 159 638 797 34 Office......................... San Diego, CA 4,252 1,740 6,960 8,700 370 Office......................... Phoenix, AZ -- 2,287 9,149 11,436 486 Industrial..................... Henderson, NC 4,414 1,488 5,954 7,442 316 Industrial..................... Columbus, OH -- 319 1,275 1,594 68 Office......................... Tucson, AZ 2,444 657 2,627 3,284 140 Retail......................... Eau Claire, WI 2,220 860 3,442 4,302 183 Office......................... Milford, CT -- 567 2,265 2,832 120 Retail......................... Westland, MI 2,938 1,444 5,777 7,221 307 Retail......................... Canton, OH 3,325 883 3,534 4,417 188 Retail......................... Spartanburg, SC 2,762 833 3,334 4,167 177 Office......................... Wilsonville, OR -- 2,666 10,662 13,328 566 Industrial..................... Ocala, FL 13,059 3,803 15,210 19,013 808 Industrial..................... Columbia, SC 3,419 928 3,710 4,638 197 Office......................... Hampton, VA 7,294 2,333 9,351 11,684 496 Industrial..................... Plymouth, MI 4,787 1,533 6,130 7,663 326 Retail......................... Gainesville, GA 920 526 2,105 2,631 112 Office......................... Lake Forest, CA 10,832 3,442 13,769 17,211 617 Office......................... Knoxville, TN 5,295 1,624 6,496 8,120 223 Industrial..................... Groveport, OH 7,800 2,386 9,546 11,932 308 Office......................... Westmont, IL 16,170 4,978 19,894 24,872 519 Office......................... Fort Mill, SC 11,523 3,601 14,404 18,005 375 Industrial..................... Chester, SC -- 535 14,875 15,410 3,095 Industrial..................... Dubuque, IA 7,351 2,052 8,207 10,259 94 Office......................... Boca Raton, FL 15,275 4,290 17,161 21,451 375 Office......................... Greenville, SC 13,886 4,059 16,236 20,295 186 Office......................... Temple, TX 9,200 2,890 11,561 14,451 60 Office......................... Bremerton, WA 6,800 2,144 8,577 10,721 45 Industrial..................... Dillon, SC 12,111 3,223 12,900 16,123 658 Industrial..................... Plymouth, MI 12,776 3,932 15,728 19,660 115 Industrial..................... Danville, IL 6,623 1,796 7,182 8,978 548 Industrial..................... Minneapolis, MN -- 922 3,688 4,610 42 Office......................... Wallingford, CT -- 1,049 4,198 5,247 4 Office......................... Baton Rouge, LA -- 2,023 8,094 10,117 8 Office......................... Overland Park, KS -- 10,008 40,031 50,039 42 Office......................... Kansas City, MO -- 4,758 19,031 23,789 20 Office......................... Arlington, TX -- 5,795 23,181 28,976 -- -------- -------- -------- ---------- -------- Total $455,940 $178,077 $984,318 $1,162,395 $160,623 ======== ======== ======== ========== ======== <Caption> USEFUL LIFE COMPUTING DEPRECIATION IN LATEST DATE DATE INCOME STATEMENTS DESCRIPTION ACQUIRED CONSTRUCTED (YEARS) - ----------- ---------- ----------- ----------------------- <S> <C> <C> <C> Office......................... Mar. 2000 2000 40 Office......................... May 2000 1997 40 Industrial..................... Dec. 2001 2000 40 Industrial..................... Dec. 2001 1999 40 Retail......................... Nov. 2001 1988 40 Retail......................... Nov. 2001 1968 40 Retail......................... Nov. 2001 1986 40 Office......................... Nov. 2001 1989 40 Office......................... Nov. 2001 1985 & 1994 40 Industrial..................... Nov. 2001 1998 40 Industrial..................... Nov. 2001 1990 40 Office......................... Nov. 2001 1988 40 Retail......................... Nov. 2001 1994 40 Office......................... Nov. 2001 1994 40 Retail......................... Nov. 2001 1987 & 1997 40 Retail......................... Nov. 2001 1995 40 Retail......................... Nov. 2001 1996 40 Office......................... Nov. 2001 1980 & 1998 40 Industrial..................... Nov. 2001 1976 40 Industrial..................... Nov. 2001 1968 & 1998 40 Office......................... Nov. 2001 1999 40 Industrial..................... Nov. 2001 1996 40 Retail......................... Nov. 2001 1984 40 Office......................... Mar. 2002 2001 40 Office......................... Aug. 2002 2002 40 Industrial..................... Sep. 2002 2002 40 Office......................... Dec. 2002 1989 40 Office......................... Dec. 2002 2002 40 Industrial..................... Jan. 2001 2001 40 Industrial..................... Jul. 2003 2002 40 Office......................... Feb. 2003 1983 & 2002 40 Office......................... Jul. 2003 2000 & 2001 40 Office......................... Oct. 2003 2001 40 Office......................... Oct. 2003 2001 40 Industrial..................... Dec. 2001 2001 40 Industrial..................... Sep. 2003 1996 & 1998 40 Industrial..................... Dec. 2000 2000 40 Industrial..................... Jul. 2003 2003 40 Office......................... Dec. 2003 1978 & 1985 40 Office......................... Dec. 2003 1997 40 Office......................... Dec. 2003 1980 & 2003 40 Office......................... Dec. 2003 1963 & 2003 40 Office......................... Dec. 2003 2003 40 </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, 2003 for Company's properties at December 31, 2003 for Federal income tax purposes was approximately $895 million. 67
LEXINGTON CORPORATE PROPERTIES TRUST AND CONSOLIDATED SUBSIDIARIES REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION SCHEDULE III ($000) -- (CONTINUED) Reconciliation of real estate owned: <Table> <Caption> 2003 2002 2001 ---------- -------- -------- <S> <C> <C> <C> Balance at the beginning of year................ $ 913,370 $830,788 $682,627 Additions during year........................... 312,209 116,264 166,668 Properties sold during year..................... (9,978) (18,621) (4,107) Property contributed to joint venture during year......................................... (58,837) (15,061) (14,400) Properties consolidated effective 1/1/2003...... 43,499 -- -- Reclassify held for sale properties............. (37,868) -- -- ---------- -------- -------- Balance at end of year.......................... $1,162,395 $913,370 $830,788 ========== ======== ======== Balance of beginning of year.................... $ 134,220 $116,741 $ 98,429 Depreciation and amortization expense........... 27,335 21,480 18,312 Accumulated depreciation and amortization of properties sold during year.................. (1,428) (2,934) -- Accumulated depreciation of property contributed to joint venture............................. -- (1,067) -- Accumulated depreciation of properties consolidated effective 1/1/2003.............. 1,886 -- -- Accumulated depreciation reclassify as held for sale......................................... (1,390) -- -- ---------- -------- -------- Balance at end of year.......................... $ 160,623 $134,220 $116,741 ========== ======== ======== </Table> 68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures. An evaluation of the effectiveness of the design and operation of the Company's "disclosure controls and procedures" (as defined in rule 13a-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) was carried out within 90 days prior to the filing of this annual report. This evaluation was made under the supervision and with the participation of the Company's management, including its Chief Executive Officer and its Chief Financial Officer. Based upon this evaluation, the Company's Chief Executive Officer and its Chief Financial Officer have concluded that the Company's disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Controls. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the Company's evaluation. 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. All other information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statement, and is incorporated herein by reference. 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 During 2003, the Company issued 231,763 OP Units to satisfy outstanding obligations that resulted in a gain of $896. Of the OP Units issued, the Chairman and the Vice Chairman of the Board of Trustees of the Company received 120,662 units. During 2003, three executive officers repaid recourse notes to the Company including accrued interest thereon, of $2,522 by delivering to the Company 158,724 common shares. As of December 31, 2003 the Company is obligated for $808 resulting from the acquisition of certain properties in 1996. Of the $808, the Chairman and the Vice Chairman of the Board of Trustees are owed $414. In 2002, the Company issued 34,483 common shares in respect of a 15-year, 8% interest only recourse note to the Chief Financial Officer for $500. This note was satisfied in 2003. 69
On November 28, 2001, the Company acquired Net 1 L.P. and Net 2 L.P. (collectively, the "Net Partnerships"), in a merger transaction valued at approximately $136,300, which owned twenty-three properties in fourteen states. The Company issued 2,143,840 common shares (valued at $31,622), 44,858 OP Units (valued at $661), $31,612 in cash and assumed approximately $61,389 of third party mortgage debt (excluding $11,114 in Net Partnership obligations to the Company). The Company's Chairman was the controlling shareholder of the general partners of the Net Partnerships. The general partners received 44,858 OP Units valued on the same basis as the limited partners for their 1% ownership interest in the Net Partnerships. The OP Units, which receive distributions equal to the dividends on common shares, are convertible into the Company's common shares on a one-for-one basis beginning November 2006. During 2001, the Company issued 24,620 common shares to acquire a company controlled by the Chairman, whose sole asset was a mortgage note receivable from a 64% owned partnership of the Company. During 2001, the Company renegotiated $1,973 in notes receivable from the current Chief Executive Officer and the Vice Chairman of the Board of Trustees of the Company. The notes were issued in connection with the officers' purchases of 131,000 common shares at $15.25 per common share. The new notes had a 15- year maturity, were 8% interest only and were recourse to the officers. These notes were satisfied in 2003. All related party acquisitions, sales and loans were approved by the independent members of the Board of Trustees. In addition, the Company earns fees from it's joint venture investments (See note 6 of the Consolidated Financial Statements). PART IV. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information required to be furnished pursuant to this item will be set forth under the appropriate captions in the Proxy Statements, and is incorporated herein by reference. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. <Table> <Caption> PAGE ----- <C> <S> <C> (a)(1) Financial Statements........................................ 34-65 (2) Financial Statement Schedule................................ 66-68 (3) Exhibits.................................................... </Table> <Table> <Caption> EXHIBIT NO. EXHIBIT - ----------- ------- <C> <S> <C> 3.1 -- Declaration of Trust of Lexington Corporate Properties Trust (the "Company"), dated December 31, 1997 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed January 16, 1998 (the "1998 8-K"))* 3.2 -- 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 (filed as Exhibit 5.3 to the Company's Current Report on Form 8-K filed February 10, 1997)* 3.3 -- By-Laws of the Company (filed as Exhibit 3.2 to the Company's Annual Report on 10-K for the year ended December 31, 1997 (the "1997 10-K"))* 3.4 -- Articles of Amendment of Declaration of Trust of the Company (filed as Exhibit 3.3 to the Company's Registration Statement on Form S-4 (File No. 333-70790) (the "2001 Form S-4"))* 3.5 -- Articles Supplementary Reclassifying 2,000,0000 Reacquired Class A Senior Cumulative Convertible Preferred Shares and 2,000,000 Unissued Excess Class A Preferred Stock.+ 3.6 -- Amendment No. 1 to Bylaws of the Registrant (filed as Exhibit 3.3 to the Company's Registration Statement of Form 8A filed June 17, 2003).* 3.7 -- Articles Supplementary Relating to the 8.05% Series B Cumulative Redeemable Preferred Stock, par value $.0001 per share (filed as Exhibit 3.3 to the Company's Registration Statement of Form 8A filed June 17, 2003).* </Table> 70
<Table> <Caption> EXHIBIT NO. EXHIBIT - ----------- ------- <C> <S> <C> 3.8 -- Fifth Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund L.P., dated as of December 31, 1996, as supplemented (filed as Exhibit 3.3 to the Company's Registration Statement of Form 3/A filed September 10, 1999).* 3.9 -- Second Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund II L.P., dated as of August 27, 1998 (filed as Exhibit 3.4 to the Company's Registration Statement of Form S-3/A filed September 10, 1999).* 3.10 -- Form of Amended and Restated Agreement of Limited Partnership of Net 3 Acquisition L.P. (filed as Exhibit 99.1 to the Company's Registration Statement of Form S-4 filed October 2, 2001).* 3.11 -- Amendment No. 1 to the Fifth Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund L.P. dated as of December 31, 2000.+ 3.12 -- First Amendment to the Fifth Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund L.P. effective as of June 19, 2003.+ 3.13 -- Second Amendment to the Fifth Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund L.P. effective as of June 30, 2003.+ 3.14 -- First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund II L.P. effective as of June 19, 2003.+ 3.15 -- Second Amendment to the Second Amended and Restated Agreement of Limited Partnership of Lepercq Corporate Income Fund II L.P. effective as of June 30, 2003.+ 3.17 -- First Amendment to the Amended and Restated Agreement of Limited Partnership of Net 3 Acquisition L.P. effective as of November 29, 2001.+ 3.18 -- Second Amendment to the Amended and Restated Agreement of Limited Partnership of Net 3 Acquisition L.P. effective as of June 19, 2003.+ 3.19 -- Third Amendment to the Amended and Restated Agreement of Limited Partnership of Net 3 Acquisition L.P. effective as of June 30, 2003.+ 4.1 -- Specimen of Common Shares Certificate of the Company (filed as Exhibit 3.2 to the 1997 10-K)* 4.2 -- Form of 8.05% Series B Cumulative Redeemable Preferred Stock certificate (filed as Exhibit 3.3 to the Company's Registration Statement of Form 8A filed June 17, 2003).* 10.8 -- Form of 1994 Outside Director Shares Plan of the Company (filed as Exhibit 10.8 to the Company's Annual Report on 10-K for the year ended December 31, 1993)* 10.39 -- Form of Employment Agreement between the Company and E. Robert Roskind dated April 1, 2003+ 10.40 -- Investment Advisory and Asset Management Agreement by and between AGAR International Holdings Ltd. and Lexington Realty Advisors, Inc. ("LRA") (filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000)* 10.42 -- Contribution Agreement between Net 3 Acquisition L.P. ("Net 3) and Lepercq Net 1 L.P., as amended (filed as Exhibit 10.42 to the 2001 Form S-4)* 10.43 -- Contribution Agreement between Net 3 and Lepercq Net 2 L.P., as amended (filed as Exhibit 10.43 to the 2001 Form S-4)* 10.44 -- Unsecured Revolving Credit Agreement with Fleet National Bank as Administrative Agent and Wachovia Bank, National Association, as Syndication Agent dated August 19, 2003 in the amount of $100,000,000 (filed as Exhibit 99.2 to the 8-K dated September 9, 2003)* 10.51 -- Agreement and Plan of Merger by and among the Company, Net 3 and Net 1 L.P., as amended (filed as Exhibit 2.5 to the Company's Registration Statement on Form S-4 (File No. 333-70790) (the "2001 Form S-4"))* 10.52 -- Agreement and Plan of Merger by and among the Company, Net 3 and Net 2 L.P. as amended (filed as Exhibit 2.6 to the 2001 Form S-4)* </Table> 71
<Table> <Caption> EXHIBIT NO. EXHIBIT - ----------- ------- <C> <S> <C> 10.53 -- Form of Indemnification Agreement between the Company and E. Robert Roskind dated June 6, 2002 (filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K filed March 24, 2003)* 10.54 -- Amended and Restated 2002 Equity-Based Award Plan of the Company (filed as Exhibit 10.54 to the Company's Annual Report on Form 10-K filed March 24, 2003)* 12 -- Statement of Computation of Ratio of Earnings to Fixed Charges+ 14.1 -- Code of Ethics and Business Conduct.+ 21 -- List of Subsidiaries of the Trust+ 23 -- Consent of KPMG LLP+ 31.1 -- Certification of Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, 12 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 31.2 -- Certification of Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, 12 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.1 -- Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.2 -- Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 99.1 -- Operating Agreement and Management Agreement between the Company and Lexington Acquiport Company, LLC ("LAC I") (filed as Exhibit 2 to the Company's Current Report on Form 8-K filed August 31, 1999)* 99.2 -- Operating Agreement of Lexington Acquiport Company II, LLC ("LAC II"), dated as of December 5, 2001 (filed as Exhibit 99.4 to the 2001 8-K)* 99.3 -- Management Agreement, dated as of December 5, 2001, by and between LAC II and LRA (filed as Exhibit 99.5 to the 2001 8-K)* 99.4 -- First Amendment to Operating Agreement of LAC I, dated as of December 5, 2001 (filed as Exhibit 99.6 to the 2001 8-K)* 99.5 -- First Amendment to Management Agreement, dated as of December 5, 2001, by and between LAC I and LRA (filed as Exhibit 99.7 to the 2001 8-K)* 99.6 -- Operating Agreement and Management Agreement between the Company and Lexington/ Lion Joint Venture (filed as Exhibit 10.1 to the 8-K dated October 1, 2003) </Table> - --------------- * Incorporated by reference. + Filed Herewith. (b) Reports on Form 8-K and Form 8-K/A Current Report on Form 8-K dated October 31, 2003 Current Report on Form 8-K dated October 24, 2003 Current Report on Form 8-K dated October 3, 2003 72
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/ T. WILSON EGLIN -------------------------------------- T. Wilson Eglin Chief Executive Officer 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 - --------------------------------------------- E. Robert Roskind /s/ RICHARD J. ROUSE Vice Chairman of the Board of Trustees and - --------------------------------------------- Chief Investment Officer Richard J. Rouse /s/ T. WILSON EGLIN Chief Executive Officer, President, Chief - --------------------------------------------- Operating Officer and Trustee T. Wilson Eglin /s/ PATRICK CARROLL Chief Financial Officer, Treasurer and - --------------------------------------------- Executive Vice President 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/ JAMES GROSFELD Trustee - --------------------------------------------- James Grosfeld /s/ KEVIN W. LYNCH Trustee - --------------------------------------------- Kevin Lynch /s/ STANLEY R. PERLA Trustee - --------------------------------------------- Stan Perla /s/ SETH M. ZACHARY Trustee - --------------------------------------------- Seth M. Zachary </Table> DATE: February 26, 2004 73