Kirkland's signed a letter of intent to lease the building long term from New York-based Lexington, a national investor in net-leased properties. The transaction is expected to close in the next four to six weeks, after which construction of the new facility will begin on 80 acres of land within Airport Industrial Park, near Interstate 40. The new facility is expected to be complete in the first quarter of fiscal 2004 and fully operational in the second quarter of fiscal 2004.

New York-based Lexington says it will build the new building and lease it to Kirkland's for an initial term of 15 years beginning in May 2004. The letter of intent gives Kirkland's the option to expand the facility by an additional 400,000 sf to support future store growth, as well as two successive five-year renewal options at the end of the initial 15-year lease term.

Kirkland's says the new facility will replace the three buildings in Jackson that currently support the Company's central distribution effort, all of which are leased facilities. Kirkland's says it expects to pay early termination fees in connection with the termination of its existing warehouse leases, resulting in a pretax charge of $1.2 million in the third quarter.