LXP

Business Context and Reporting Period

Company: Lexington Corporate Properties Trust (LXP Industrial Trust)

Filing Type: Form 10-Q (Quarterly Report)

Period Ended: March 31, 2001

Business Overview: A self-managed REIT owning and managing a geographically diversified portfolio of net-leased office, industrial, and retail properties. As of March 31, 2001, the Company owned interests in 73 properties (approx. 13.1 million sq. ft.) and managed 25 additional properties. All owned properties were leased.

Key Financial Metrics

Note: All dollar figures in thousands except per share data.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by $623 (3.2%) to $20,233. This was driven by a $208 increase in equity earnings from non-consolidated entities and $343 in increased rental revenues from 2000 acquisitions and CPI adjustments.
• Net Income: Increased by $107 to $4,578. This growth was partially offset by a $270 extraordinary loss related to the write-off of capitalized costs for a replaced credit facility.
• Debt Structure: Total mortgages and notes payable increased by $25,529 due to new financing for acquisitions. Conversely, credit facility borrowings decreased by $19,000 as the Company repaid portions of its line of credit.
• Acquisitions: Purchased a property in Winchester, Virginia for $14,400 (partially financed via seller note). This property was subsequently sold to a joint venture on May 3, 2001.
• Operating Expenses: General and administrative expenses decreased as a percentage of total revenue to 6.1% from 6.6% in the prior year.

Guidance, Outlook, and Risks

• Dividends: Declared a quarterly dividend of $0.32 per share for Q1 2001, payable May 15, 2001. The annualized dividend rate is $1.28 per share. The Company intends to maintain a conservative payout ratio (71.1% of FFO in Q1 2001) to fund expansion and debt reduction.
• Liquidity: Principal sources include rental revenue, a new $35,000 unsecured credit facility (replacing a $60,000 facility), and potential equity/debt offerings. Cash on hand was $1,637 at period end.
• Financing Updates: Secured a $12,500 second mortgage (8.83% interest) and a $15,144 non-recourse mortgage (7.40% interest). The new credit facility bears interest at LIBOR plus 150-250 basis points.
• Risks:
  • Tenant Concentration: Northwest Pipeline Corporation and Kmart Corporation each represented 11% of revenues. Kmart reported a net loss in its most recent fiscal year.
  • Interest Rate Risk: Variable rate indebtedness represented 11.1% of total long-term debt. A 100 basis point increase in rates would reduce net income by approximately $130.
  • REIT Qualification: Continued qualification as a REIT is essential to avoid federal income tax; requires distributing at least 90% of taxable income.

Investor Verification Checklist

• FFO Payout Ratio: Verify the sustainability of the 71.1% payout ratio against future cash flows and capital expenditure needs.
• Tenant Credit Quality: Review the financial stability of Kmart Corporation, which accounts for 11% of revenue and recently reported a net loss.
• Debt Maturities: Assess the impact of the $13,115 balloon payment due in April 2011 on the Glendale, Arizona property and the $12,500 balloon due in October 2007 on the Warren, Ohio property.
• UPREIT Conversions: Monitor the redemption of partnership units (5.5 million outstanding) into common shares, which will increase share count and dilute earnings per share over time.
• Extraordinary Items: Confirm the one-time nature of the $270 write-off related to the credit facility replacement.