FORM 10-Q/A1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 1-13375
TOWER REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 13-3938558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 West 45th Street, 24th Floor, New York, New York 10036
(Address of Principal Executive Offices)
(Zip Code)
(212) 768-9010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
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 No X
---- ----
The registrant became subject to the filing requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, on October 9, 1997.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of common stock, par value $0.01 per share,
outstanding on November 21, 1997 was 16,920,455.
1
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
TOWER REALTY TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1997
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in Tower Equities Management, Inc.................................................. $ 187
Cash.......................................................................................... 66
Accounts receivable........................................................................... 190
Amounts due from affiliates................................................................... 750
Deferred charges.............................................................................. 11,200
---- ---------------
Total assets................................................................ $ 12,393
==== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Debt.......................................................................................... $ 12,299
Accounts payable and accrued expenses......................................................... 487
---- ---------------
Total liabilities........................................................... 12,786
---- ---------------
Commitments and contingencies
Shareholders' deficit:
Preferred shares, 50,000,000 shares authorized, none
issued and outstanding...............................................................
Common shares, $.01 par value, 150,000,000 shares
authorized; 1,000 shares issued and outstanding ..................................... 1
Accumulated deficit..................................................................... (394)
---- ---------------
Total shareholders' deficit................................................. (393)
---- ---------------
Total liabilities and shareholders' deficit................................. $ 12,393
==== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
TOWER REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share amounts)
For the Period
from March 27,
1997 (Date of
Three Months Inception)
Ended September through
30, September 30,
1997 1997
----------------------- ---------------------
<S> <C> <C>
Revenues:
Management and other fees........................................ $ 1,147 $ 1,147
Interest income.................................................. -- 33
----------------------- ---------------------
Total revenues....................................... 1,147 1,180
----------------------- ---------------------
Expenses:
General and administrative expenses.............................. 1,532 1,532
Interest expense................................................. 53 229
----------------------- ---------------------
Total expenses....................................... 1,585 1,761
----------------------- ---------------------
Equity in income of Tower Equities Management, Inc..................... 127 187
----------------------- ---------------------
Net loss............................................................... $ (311) $ (394)
======================= =====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
TOWER REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the period from March 27, 1997 (date of inception) through September 30, 1997
(Unaudited)
(dollars in thousands)
<S> <C>
Cash flow from operating activities:
Net loss............................................................................... $ (394)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Equity in income of Tower Equities Management, Inc............................. (187)
Change in accounts receivable ................................................. (190)
Change in accounts payable and accrued expenses................................ 487
-------------------
Net cash flow provided by operating activities............................. (284)
-------------------
Cash flow from investing activities:.........................................................
Increase in deferred charges........................................................... (11,200)
Increase in due from affiliates........................................................ (750)
-------------------
Net cash flow used in investing activities................................. (11,950)
-------------------
Cash flow from financing activities:.........................................................
Proceeds from issuance of debt............................................................... 12,299
Proceeds from issuance of common stock....................................................... 1
------------------
Net cash flow provided by investing activities............................. 12,300
------------------
Net increase in cash......................................................................... 66
Cash, at inception.......................................................................... --
------------------
Cash, end of period......................................................................... $ 66
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. Organization:
Tower Realty Trust, Inc. (collectively with its subsidiaries, the
"Company") was organized in the state of Maryland on March 27, 1997. The
Company intends to operate so as to qualify as a real estate investment
trust ("REIT") for federal income tax purposes, commencing with its taxable
year ending December 31, 1997. Upon consummation of the Company's initial
public offering on October 16, 1997 (the "Offering") (see Note 4), the
Company acquired a sole 1% general partner interest in Tower Realty
Operating Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"), and a 90.4% limited partner interest in the Operating
Partnership.
The Company has been formed to continue and expand the commercial real
estate business of Tower Equities & Real Estate Corp. and its affiliates
(collectively with its predecessor entities and affiliates, "Tower
Equities"), including developing, acquiring, owning, renovating, managing,
and leasing office properties in midtown Manhattan, Phoenix, Tucson, and
Orlando markets.
On March 31, 1997 interests in certain partnerships, properties and limited
liability companies were contributed to the Operating Partnership in exchange
for units of limited partnership interest in the Operating Partnership ("OP
Units"). Certain of these interests were owned by the Operating Partnership
after consummation of the Offering. Simultaneously with such contribution of
interests, the Company issued $4.0 million of notes to certain investors advised
by Morgan Stanley Asset Management, Inc. ("MSAM") which are collateralized by
the Properties (as defined in Note 4 below). At September 30, 1997, the balance
on borrowings under the notes has been increased to approximately $12.3 million.
The notes bear interest at a rate of 15% per annum and are payable quarterly, in
arrears. Upon completion of the Offering, all notes were converted into shares
of common stock, par value $0.01 per share, of the Company ("Common Stock"). All
interests contributed in the previously described transactions were recorded at
zero as the historical carry-over basis of these interests were negative. Under
the original partnership agreements with respect to the contributed interests,
these partners are not required to fund any partners' deficit balances to the
Operating Partnership.
2. Summary of Significant Accounting Policies:
Cash
Cash consists of funds held at a major financial institution which balance
at times exceeds insurable limits.
Due from (to) Affiliates
Due from (to) affiliates represents amounts paid in connection with the
Offering and formation transactions by or on behalf of affiliates. All of
these amounts will be settled as of October 16, 1997.
Deferred Charges
Deferred charges consists of expenses incurred in connection with the
Offering which were charged to additional paid-in capital upon completion
of the Offering.
Revenue Recognition
Management fee income from properties which will be owned by the Operating
Partnership upon consummation of the Offering is recognized as earned under
the terms of agreements in effect upon completion of the Offering.
Construction fees are recognized ratably over each project's construction
period and leasing fees are generally recognized upon tenant occupancy of
the leased premises unless such fees are irrevocably due and payable upon
lease execution, in which case recognition occurs on the lease execution
date. Upon consummation of the Offering, such fees will be eliminated.
7
<PAGE>
TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Use of Estimates in the Preparation of the Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Recently Issued Accounting Standards:
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"),
No. 129 "Disclosure of Information About Capital Structure" ("SFAS 129"),
No. 130 "Reporting Comprehensive Income" ("SFAS 130"), and No. 131
"Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). All of these statements are effective for fiscal years
beginning after December 15, 1997.
SFAS 128 specifies the computation, representation and disclosure
requirements for earnings per share. SFAS 129 establishes standards for
disclosing information about an entity's capital structure such as
information about securities, liquidation preference of preferred stock and
redeemable stock. SFAS 130 specifies the presentation and disclosure
requirement for reporting comprehensive income which includes those items
which have been formerly reported as a component of shareholders' equity.
SFAS 131 establishes the disclosure requirements for reporting segment
information.
Management believes that, when adopted, SFAS 128, 129, 130 and 131 will not
have a significant impact on the Company's results of operations or
financial position.
4. Formation Transactions:
The Offering
As of October 16, 1997, the Company consummated an initial public offering
of 13,817,250 shares of Common Stock (including the exercise of the
underwriters' overallotment option) and effected concurrent private
placements (the "Concurrent Private Placements") of 1,153,845 shares of
Common Stock at a price of $26.00 per share and realized gross proceeds
therefrom of $389.25 million. The Representatives of the several
Underwriters for the Offering in the United States and Canada were Merrill
Lynch & Co., Legg Mason Wood Walker, Incorporated, Morgan Stanley Dean
Witter, Prudential Securities Incorporated, Smith Barney Inc., and
NationsBanc Montgomery Securities, Inc. The Lead Managers of the several
International Managers for the Offering outside of the United States and
Canada were Merrill Lynch International, Legg Mason Wood Walker,
Incorporated, Morgan Stanley Dean Witter, Prudential-Bache Securities.,
Smith Barney Inc., and NationsBanc Montgomery Securities, Inc. The net cash
proceeds to the Company from the Offering and the Concurrent Private
Placements, after deducting the estimated underwriting discount of $23.4
million and estimated expenses of the Offering of $12.5 million, were
approximately $353.35 million. Such net cash proceeds were contributed to
the Operating Partnership in exchange, in part, for the Company's
approximate 91.4% interest therein (which includes an 90.4% limited partner
interest and a 1% general partner interest). The Operating Partnership used
the proceeds received from the Company, the $54 million net cash proceeds
from the Company's term loan facility (the "Term Loan") borrowed concurrent
with the Offering and approximately $12.3 million of proceeds received in
exchange from the MSAM Notes as follows: (i) approximately $247.5 million
for repayment of certain indebtedness (including associated prepayment
penalties) relating to the Properties and the partnerships that own the
Properties (the "Property Partnerships"); (ii) approximately $114.5 million
to acquire certain equity, debt and fee interests in the Properties; (iii)
approximately $2.4 million to pay for commitment fees and expenses relating
to the Term Loan and the Company's unsecured line of credit (the "Line of
Credit"); (iv) approximately $3.0 million to pay transfer taxes and other
expenses associated with the acquisitions of the Properties; and (v) the
remaining approximately $52.2 million for working capital and future
property acquisitions. Pending application of cash proceeds, the Company
8
<PAGE>
TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
has invested such portion of the net proceeds in interest-bearing accounts
and short-term, interest-bearing securities, which are consistent with the
Company's intention to qualify for taxation as a REIT.
The Tower Equities management and leasing companies and Properties Atlantic
Inc. management and leasing company (which, prior to the Offering, was
controlled and operated by Clifford Stein, Managing Director, Southeast
Region of the Company) contributed an undivided 95% interest in the assets
of such companies to the Operating Partnership which, in turn,
recontributed such assets to Tower Equities Management, Inc. (the
"Management Company") in exchange for 100% of the non-voting stock and 5%
of the voting stock in the Management Company (which collectively is
entitled to receive 95% of the dividends).
The Management Company and each of the members of Tower Equities that hold
interests in seven retail properties that continue to be owned by Tower
Equities after the consummation of the Offering and certain related
transactions (the "Excluded Properties") entered into management agreements
with respect to each of the Excluded Properties. In consideration for the
services to be provided under the management agreements, the Management
Company will receive a property management fee and applicable leasing
commissions which will be determined by reference to existing market rates
for similar transactions.
The Properties
Upon consummation of the Offering and certain related transactions
(collectively, the "Formation Transactions"), the Operating Partnership
owns 21 office properties (the "Properties"). The Company also owns or has
an option to acquire four parcels of land adjacent to four of the
Properties (the "Development Parcels"), which can support 2.2 million of
rentable square feet of development.
Term Loan
The Operating Partnership has entered into a $107.0 million seven year Term
Loan with Merrill Lynch Credit Corporation and borrowed approximately $54
million under such facility at the closing of the Offering. Interest in the
Term Loan was fixed at a rate equal to .9% in excess of seven-year United
States Treasury Notes at the closing of the Offering.
Line of Credit
The Company has entered into the $200 million unsecured Line of Credit with
(Merrill Lynch Capital Corporation. The Line of Credit may be used, among
other things, to finance its acquisition of additional office properties,
to refinance existing indebtedness and for general working capital
requirements.
Interim Financial Information
The Company's financial statements as of September 30, 1997, present the
Company's financial position, the results of its operations and its cash
flows before the Offering and the Formation Transactions. Included in this
Quarterly Report on Form 10-Q is financial information for Tower
Predecessor which includes the accounts of Tower Equities, an equity
interest in the properties owned by the DRA Joint Ventures, and an equity
interest in a partnership controlling the 2800 North Central Property. See
Note 1 of Notes to Condensed Combined Financial Statements of Tower
Predecessor for a description of the interests comprising the DRA Joint
Ventures. The accounts are presented on a combined basis as the above
properties were under the control of common ownership and management and
were subject to the formation of the Company.
9
<PAGE>
TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
The Company's unaudited financial statements have been prepared pursuant to
the rules and regulations promulgated by the Securities and Exchange
Commission (the "SEC") and should be read in conjunction with the financial
statements and notes thereto of the Company, Tower Predecessor, DRA Joint
Ventures and 100 Wall Street included in the Company's final prospectus,
dated October 9, 1997 (the "Prospectus"). These notes to the financial
statements highlight significant changes to the notes included in the
Prospectus and present interim disclosures required by the SEC. The
accompanying financial statements reflect, in the opinion of management,
all adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
5. Investment in Tower Equities Management, Inc.:
The Company records its investment in the Management Company using the
equity method of accounting and, therefore, reports its share of income and
expenses based on its 95% ownership interest in the economics of the
Management Company. The Management Company, a non-qualified REIT
subsidiary, provides property management, brokerage and construction
services for the Properties, to third parties and for joint venture
properties. Presented below is condensed financial information of the
Management Company:
Balance Sheet
September 30, 1997
(unaudited)
ASSETS:
Cash................................................... $ 75
Accounts receivable.................................... 78
Due from affiliates.................................... 380
Equipment.............................................. 113
------------------
Total assets................................. $ 646
==================
LIABILITIES AND OWNERS' EQUITY:
Accounts payable and accrued expenses.................. $ 449
Owners' equity......................................... 197
------------------
Total liabilities and owners' equity........ $ 646
==================
10
<PAGE>
TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Statement of Operations
Period from inception (March 27, 1997) through September 30, 1997
(Unaudited)
Revenues:
Management fees......................................... $ 361
Construction, leasing and other fees.................... 283
--------------
Total revenues.................................. 644
--------------
Expenses:
General office and administration....................... 332
Depreciation and amortization........................... 9
--------------
Total expenses.................................. 341
--------------
Income before taxes............................. 303
Income tax expense...................................... 106
--------------
Net income...................................... $ 197
==============
6. Pro Forma Information:
The following unaudited pro forma condensed consolidated balance sheet and
statements of operations of the Company are presented as if the
consummation of the Formation Transactions and the application of the net
proceeds of the Offering had occurred on September 30, 1997 and January 1,
1996, respectively. Such pro forma and estimated information is based in
part upon the combined statements of operations of the Tower Predecessor
included elsewhere in this Quarterly Report on Form 10-Q. Such information
should be read in conjunction with the Financial Statements listed in the
index of this Quarterly Report on Form 10-Q and in the Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of
the Formation Transactions and the Offering have been made. The pro forma
information is not necessarily indicative of what the actual financial
position would have been at September 30, 1997, or what the actual results
of operations would have been for the nine months ended September 30, 1997
and September 30, 1996, respectively, had the Formation Transactions been
consummated on September 30, 1997 or January 1, 1996, respectively, and
carried forward through the interim period presented, nor do they purport
to present the future financial position or results of operations of the
Company.
11
<PAGE>
TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1997
(unaudited)
Pro Forma Adjustments
-------------------------------------------------------
The Offering
and
The Concurrent
Company Predecessor Acquisition Private Other Pro
Historical Historical Properties Placement Adjustments Forma
------------- ------------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------------- ------------- ------------- -------------- ------------- ----------
Real estate, net $ 128,077 $ 326,595 $ 454,672
Deferred charges, net $ 11,200 11,779 $ 11,200 $ 1,274 13,053
Receivables, net 190 4,343 (1,333) 3,200
Unbilled rent receivable 14,230 (14,230)
Escrowed funds 765 (765)
Cash and cash equivalents 66 4,947 (398,179) 364,598 79,742 51,174
Investments in joint ventures 188 4,725 2,098 (4,725) 2,286
Other assets 2,648 3,120 (2,648) 3,120
------------- ------------- ------------- -------------- ------------- ----------
Total assets $ 11,644 $ 171,514 $ (66,366) $ 353,398 $ 57,315 $ 527,505
============= ============= ============= ============== ============= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Debt on real estate $ 12,299 $ 194,638 $ (150,354) $ 54,417 $ 11,000
Accounts payable and other
liabilities 487 26,384 (13,919) 12,952
Amounts due to (from) affiliates (749) 10,723 (9,974)
------------- ------------- ------------- ------------- ----------
Total liabilities 12,037 231,745 (150,354) 30,524 123,952
------------- ------------- ------------- ------------- ----------
Minority interest in Operating
Partnership 8,580 26,066 34,646
------------- ------------- ----------
Shareholders' equity:
Preferred shares, 50,000,000
shares authorized, none
issued and outstanding
Common shares, $.01 par value,
150,000,000 shares
authorized; 1,000 shares
issued and outstanding
(historical) and 16,920,455
shares issued and
outstanding (pro forma) 1 10 $ 150 8 169
Additional paid-in capital 29,318 353,248 (14,134) 368,432
Owners' equity (deficit) (394) (60,231) 46,080 14,851 (306)
----------- ------------- ------------- -------------- ------------- ----------
Total shareholders' equity
deficit) (393) (60,231) 75,408 353,398 725 368,907
----------- ------------- ------------- ------------- ------------- ----------
Total liabilities and $ 11,644 $ 171,514 $ (66,366) $ 353,398 $ 57,315 $ 527,505
shareholders' equity
(deficit)
=========== ============= ============= ============== ============= ==========
</TABLE>
12
<PAGE>
TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Pro Forma Condensed Consolidated Statements of Operations
(unaudited)
Nine Months Ended
September 30,
------------------------------
1997 1996
------------ -------------
Revenues:
Rental income.............................. $ 56,286 $ 52,943
Other revenues............................. 322 271
------------ ------------
Total revenues.................... 56,608 53,214
------------ ------------
Expenses:
Property operating and maintenance......... 14,428 14,287
Real estate taxes.......................... 8,268 8,008
General office and administration.......... 2,956 2,574
Interest expense........................... 6,029 6,029
Depreciation and amortization.............. 10,282 9,269
Ground rent and air rights expense......... 449 449
------------ ------------
Total expenses.................... 42,412 40,616
------------ ------------
Equity in income of joint ventures............ 288 245
------------ ------------
Income before minority interest............... 14,484 12,843
Minority interest in Operating Partnership.... 1,185 1,105
------------ ------------
Net income $ 13,299 $ 11,738
============ ============
Net income per share $ 0.79 $ 0.69
============ ============
Weighted average number of common shares
outstanding 16,920 16,920
============= ============
13
<PAGE>
TOWER PREDECESSOR
CONDENSED COMBINED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------- ------------------
(unaudited)
ASSETS
<S> <C> <C>
Real estate........................................................ $ 172,969 $ 169,619
Less: accumulated depreciation................................. (44,892) (40,555)
------------------- ------------------
128,077 129,064
Deferred charges, net.............................................. 11,779 11,636
Receivables, net of allowance for doubtful accounts of
approximately $2,500 for all periods............................ 4,343 2,776
Unbilled rent receivable........................................... 14,230 15,242
Escrowed funds..................................................... 765 413
Cash and cash equivalents.......................................... 4,947 4,985
Investments in joint ventures...................................... 4,725 5,316
Other assets....................................................... 2,648 3,555
------------------- ------------------
Total assets $ 171,514 $ 172,987
=================== ==================
LIABILITIES AND OWNERS' DEFICIT
Real estate debt................................................... $ 194,638 $ 202,892
Deferred real estate taxes......................................... 12,951 12,951
Accounts payable and other liabilities............................. 13,433 12,867
Amounts due to affiliates.......................................... 10,723 6,147
------------------- ------------------
Total liabilities............................... 231,745 234,857
Commitments and contingencies
Owners' deficit.................................................... (60,231) (61,870)
------------------- ------------------
Total liabilities and owners' deficit $ 171,514 $ 172,987
=================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements
.
14
<PAGE>
TOWER PREDECESSOR
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income................................... $ 6,992 $ 5,637 $ 20,513 $ 19,103
Management fees................................. 73 304 318 930
Construction, leasing and other fees........... 88 347 562 890
------------- ------------- ------------- -------------
Total revenues.................. 7,153 6,288 21,393 20,923
------------- ------------- ------------- -------------
Expenses:
Property operating and maintenance.............. 1,506 1,417 4,209 4,198
Real estate taxes............................... 1,162 1,168 3,493 3,528
General office and administration............... 384 872 2,130 2639
Interest expense................................ 3,744 3,516 10,772 10,688
Depreciation and amortization................... 1,761 1,612 5,255 4,996
Ground rent and air rights expense.............. 150 150 449 449
------------- ------------- ------------- -------------
Total expenses.................. 8,707 8,735 26,308 26,498
------------- ------------- ------------- -------------
Equity in income of joint ventures................. 17 97 85 295
------------- ------------- ------------- -------------
Loss before extraordinary gain on
early extinguishment of debt.................... (1,537) (2,350) (4,830) (5,280)
Extraordinary gain on early extinguishment
of debt......................................... 6,475
------------- ------------- ------------- -------------
Net (loss) income.................................. $ (1,537) $ (2,350) $ 1,645 $ (5,280)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
TOWER PREDECESSOR
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss)............................................................ $ 1,645 $ (5,280)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:..................................................................
Depreciation and amortization............................................. 4,349 4,137
Amortization of deferred financing costs.................................. 906 859
Equity in income of joint ventures, net of distributions.................. (2)
Extraordinary gain on early extinguishment of debt........................ (6,475)
Change in:................................................................
Deferred charges........................................................ (1,049) (406)
Receivables............................................................. (1,567) 2,163
Unbilled rent receivable................................................ 1,012 603
Escrowed funds (352) (867)
Other assets............................................................ 907 840
Deferred real estate taxes..............................................
Accounts payable and other liabilities.................................. 566 (384)
--------------- --------------
Net cash flow (used in) provided by operating activities............ (58) 1,663
--------------- --------------
Cash flow from investing activities:............................................
Improvements to real estate.................................................. (3,362) (1,768)
Distribution from joint ventures in excess of equity in income............... 591
Proceeds from disposal of assets.............................................
--------------- --------------
Net cash flow used in investing activities.......................... (2,771) (1,768)
--------------- --------------
Cash flow from financing activities:............................................
Partners' distributions, net................................................. (6) (788)
Proceeds from real estate debt............................................... 15,581 2,094
Repayment of real estate debt................................................ (17,360) (2,700)
Amounts due to affiliates.................................................... 4,576 558
-------------- ---------------
Net cash flow provided by (used in) financing activities............ 2,791 (836)
-------------- ---------------
Net decrease in cash and cash equivalents....................................... (38) (941)
Cash and cash equivalents, beginning of periods................................... 4,985 5,208
--------------- --------------
Cash and cash equivalents, end of periods $ 4,947 $ 4,267
=============== ==============
Supplemental cash flow information:
Cash paid for interest....................................................... $ 9,753 $ 9,977
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. Organization and Basis of Presentation:
The accompanying combined statement of operations of Tower Predecessor has
been presented on a combined historical cost basis because of common
ownership and management, and because the assets and liabilities were the
subject of a business combination with Tower Realty Trust, Inc. (the
"Company") and Tower Realty Operating Partnership, L.P. (the "Operating
Partnership"), both newly formed entities. Upon consummation of the
Company's initial public offering on October 16, 1997 (the "Offering"), the
Company owns a sole 1% general partner interest and a 90.4% limited partner
interest in the Operating Partnership.
The following entities comprising the Tower Predecessor were controlled and
managed by Tower Equities and Real Estate Corp. and its affiliates
(collectively with its predecessor entities and affiliates, "Tower
Equities") (which is controlled by Lawrence H. Feldman, Chairman of the
Board, Chief Executive Officer and President of the Company):
<TABLE>
<CAPTION>
Lawrence H.
Feldman's
Ownership Interest Location
----------------------- ------------------------
<S> <C> <C>
Tower 45 6% New York City
120 Mineola Boulevard 5% Long Island, NY
Maitland Forum 15% Maitland, FL
Maitland Center Parkway (3 properties) 90% Maitland, FL
5750 Major Boulevard (purchased in October 1996) 6% Orlando, FL
Management Companies 90% New York City and
Maitland, FL
</TABLE>
Lawrence H. Feldman owned a majority general partner interest in the
partnerships owning these properties. The accompanying combined financial
statements include 100% of the assets, liabilities and operations of these
properties.
Lawrence H. Feldman held a non-controlling interest in the partnerships
that own the following properties listed in the following table. Lawrence
H. Feldman was a general partner and an affiliate of DRA Advisors, Inc.
("DRA") which was the managing general partner in each partnership. The
accompanying combined financial statements include these investments in the
DRA Joint Ventures using the equity method of accounting (see Note 4). Upon
consummation of the Offering, the Company purchased all of the partnership
interests in the DRA Joint Ventures.
17
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Lawrence H.
Feldman's
Ownership Interest Location
------------------------ --------------------------
<S> <C> <C>
286 Madison Avenue 3% New York City
290 Madison Avenue 3% New York City
292 Madison Avenue 3% New York City
Corporate Center Building (6 properties) 20% Phoenix, AZ
5151 East Broadway 3% Tucson, AZ
One Orlando Center 3% Orlando, FL
</TABLE>
Prior to consummation of the Offering, Lawrence H. Feldman also held a 3.8%
non-controlling interest in a partnership controlling the 2800 North
Central Avenue Property. The accompanying combined financial statements
include this investment using the equity method of accounting (see Note 4).
The Company, upon consummation of the Offering, acquired this interest and
the interests of other members of Tower Equities (10% aggregate interest).
The Company was formed with the intent of qualifying as a Real Estate
Investment Trust ("REIT") under the Internal Revenue Code of 1986, as
amended. The Company raised equity through the Offering and concurrent
private placements (the "Concurrent Private Placements"). The proceeds from
the Offering and the Concurrent Private Placements were used to purchase a
sole 1% general partnership interest and 90.4% limited partnership interest
in the Operating Partnership which, directly or indirectly, holds the
operating assets and liabilities of the Company.
All significant intercompany transactions and balances have been eliminated
in the combined financial statements.
2. Summary of Significant Accounting Policies:
Real Estate
Real estate and leasehold improvements are stated at cost. In accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of," Tower Predecessor records impairment writedowns on
long-lived assets, when events and circumstances indicate that the assets
might be impaired and the estimated undiscounted cash flows to be
generated by those assets are less than the carrying amounts of those
assets. No such impairment losses have been recognized in these financial
statements.
18
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Depreciation on buildings and improvements is provided under the
straight-line method over an estimated useful life of thirty to forty
years. Depreciation on furniture and fixtures is provided under the
straight-line method over an estimated useful life of five to seven years.
When assets are sold or retired, their costs and related accumulated
depreciation are removed from the accounts with the resulting gains or
losses reflected in net income or loss. Expenditures for maintenance and
repairs are charged to operations as incurred.
Deferred Charges
Deferred financing costs are recorded at cost and are being amortized on
the straight-line method, which approximates the interest method over the
life of the related debt. Leasing commissions and leasehold improvements
are deferred and amortized over the lesser of useful life or terms of the
related leases. Other deferred charges are amortized over terms applicable
to the expenditure.
Escrowed Funds
Escrowed funds are comprised of funds held for the payment of real estate
taxes and mortgage interest.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and investments with
maturities of three months or less when purchased. The majority of Tower
Predecessor's cash and cash equivalents are held at major financial
institutions which balances at times exceed insurance limits. For purposes
of the statement of cash flows, all transactions between Tower Predecessor
and other affiliated entities have been accounted for as settled in cash at
the time the transaction was recorded.
Receivables and Deferred Real Estate Taxes
Deferred real estate taxes represent a portion of real estate taxes accrued
from 1988 through 1995 for the Tower 45 property which are payable to the
taxing authority commencing on July 1, 1998 in payments of approximately
$1.3 million per year. A portion of these deferred real estate taxes are
expected to be recovered from tenants (approximately $2.5 million) and is
recorded as a receivable in the accompanying financial statements.
Income Taxes
Tower Predecessor is not a legal entity subject to federal, state or local
income taxes. No provision for income taxes is necessary in the financial
statements of Tower Predecessor since the Tower Predecessor's statements
combine the operations and balances of partnerships which are not subject
to income tax. The tax effect of its activities accrues to the individual
partners of the respective entity.
19
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Revenue Recognition
Tower Predecessor, as a lessor, has retained substantially all of the risks
and benefits of ownership of the rental properties and accounts for its
leases as operating leases. Space is leased to tenants under leases ranging
from three to 10 years. Rental income is recognized over the terms of the
leases as it is earned. Unbilled rental revenue represents rental income
earned on a straight-line basis in excess of rent payments received
pursuant to terms of the individual lease agreements.
Management fee income from third parties and joint venture properties
through March 27, 1997 is recognized as earned under the terms of the
related agreements. Construction fees are recognized ratably over each
project's construction period and leasing fees are generally recognized
upon tenant occupancy of the leased premises unless such fees are
irrevocably due and payable upon lease execution, in which case recognition
occurs on the lease execution date.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates relate to the
recoverability of real estate, unbilled rent receivable and investment in
joint ventures. Actual results could differ from those estimates.
3. Interim Financial Information:
The Company's unaudited interim condensed combined financial statements as of
September 30, 1997 and for the three and nine months ended September 30, 1997
and 1996 have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The notes to the interim financial
statements included herein are intended to highlight significant changes to the
notes to the December 31, 1996 audited financial statements and present interim
disclosures required by the SEC. Such information should be read in conjunction
with the Financial Statements listed in the index of this Quarterly Report on
Form 10-Q and in the Company's final prospectus, dated October 9, 1997, relating
to the Offering (the "Prospectus"). The accompanying interim financial
statements reflect, in the opinion of management, all adjustments necessary for
a fair presentation of the interim financial statements. All such adjustments
are of a normal and recurring nature. The results of operations for the nine
months ended September 30, 1997 and 1996 are not necessarily indicative of Tower
Predecessor's future results of operations for the full year ended December 31,
1997.
20
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
4. Investments in Joint Ventures:
Tower Predecessor accounts for its investments in joint ventures using the
equity method of accounting and therefore reports its share of income and
losses based on the Lawrence Feldman's ownership interests in the
respective entities as described in Note 1.
Presented below is condensed combined financial information of the DRA
Joint Ventures:
DRA JOINT VENTURE
Combined Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------- -----------------
(unaudited)
ASSETS:
<S> <C> <C>
Real estate, net of accumulated depreciation................... $ 139,693 $ 140,759
Other assets................................................... 22,144 19,249
-------------------- ------------------
Total assets....................................... $ 161,837 $ 160,008
====--============== ==================
LIABILITIES and OWNERS' EQUITY:
Debt on real estate............................................ $ 131,301 $ 126,517
Accounts payable and other liabilities......................... 4,285 3,956
-------------------- ------------------
Total liabilities.................................. 135,586 130,473
Owners' equity................................................. 26,251 29,535
-------------------- ------------------
Total liabilities and owners' equity............... $ 161,837 $ 160,008
==================== ======-===========
</TABLE>
21
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
DRA JOINT VENTURE
Combined Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Month Ended Nine Months Ended
September 30, September 30,
-------------------------------- ----------------------------------
1997 1996 1997 1996
----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Rental income.............................. $ 7,639 $ 7,509 $ 22,142 $ 21,840
Management fees and other.................. 60 42 143 140
------------- --------------- ------------- ----------------
Total revenues.................... 7,699 7,551 22,285 21,980
------------- --------------- ------------- ----------------
Expenses:
Property operating expenses, real estate taxes and
management fees............................ 3,451 3,329 9,657 9,894
Interest expense.............................. 2,925 2,571 8,617 7,387
Depreciation and amortization................. 1,230 1,107 3,537 3,056
------------- --------------- -------------- ---------------
Total expenses.................... 7,606 7,007 21,811 20,337
------------- --------------- -------------- ---------------
Net income........................ $ 93 $ 544 $ 474 $ 1,643
============= =============== ============== ===============
2800 NORTH CENTRAL PROPERTY
Balance Sheets
September 30, December 31,
1997 1996
------------------- -----------------
(unaudited)
ASSETS:
Real estate, net of accumulated depreciation................... $ 31,076 $ 30,638
Other assets................................................... 2,660 2,244
-------------------- -----------------
Total assets................................ $ 33,736 $ 32,882
==================== =================
LIABILITIES and OWNERS' EQUITY:
Debt on real estate............................................ $ 26,489 $ 25,021
Accounts payable and other liabilities......................... 1,395 1,285
--------------------- -----------------
Total liabilities........................... 27,884 26,306
Owners' equity................................................. 5,852 6,576
-------------------- -----------------
Total liabilities and owners' equity........ $ 33,736 $ 32,882
==================== =================
</TABLE>
22
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
2800 NORTH CENTRAL PROPERTY
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Period from May
Nine Months 1996 through
Three Month Ended Ended September 30,
September 30, September 30,
----------------------------------- ----------------- ------------------
1997 1996 1997 1996
--------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income........................ $ 1,370 $ 1,368 $ 4,149 $ 2,243
Management fees and other............ 3 9 12 12
--------------- --------------- ----------------- ------------------
Total revenues............... 1,373 1,377 4,161 2,255
--------------- --------------- ----------------- ------------------
Expenses:
Property operating expenses, real estate taxes
and management fees..................
752 731 2,112 1,206
Interest expense........................ 665 851 1,930 962
Depreciation and amortization........... 290 190 844 295
--------------- --------------- ----------------- -----------------
Total expenses............... 1,707 1,772 4,886 2,463
--------------- --------------- ----------------- ------------------
Net loss $ (334) $ (395) $ (725) $ (208)
=============== =============== ================= ==================
5. Real Estate Debt:
Real estate debt consists of the following (in thousands):
September 30, December 31,
1997 1996
--------------------- ---------------------
(unaudited)
Tower 45.................................................. $ 145,305 $ 147,616
120 Mineola Boulevard..................................... 11,260 18,892
Maitland Forum............................................ 24,698 29,409
Maitland Center Parkway (3 properties).................... 7,523 4,437
5750 Major Boulevard...................................... 4,650 2,538
--------------------- ---------------------
$ 193,436 $ 202,892
===================== =====================
The interest rate on the mortgage loans referred to above (with the
exception of Tower 45) are calculated based on the GECC Commercial Paper
Rate, plus an additional rate ranging from 3.25% to 4.50%. These mortgages
</TABLE>
23
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
are collateralized by the land, building and improvements, furniture and
fixtures, machinery and equipment and tenant leases and sub leases. The
Tower 45 rate is based on the 30-day LIBOR, plus and additional rate
ranging from 1.75% to 2.50%. This loan is collateralized by the Company's
rights in a lease on the air and corresponding development rights adjacent
to the property.
Scheduled Principal repayments of debt on real estate at December 31, 1996,
are as follows:
Years Ending
December 31, Amounts
--------------------
(in thousands)
1997 $ 1,138
1998 170,945
2001 28,271
Thereafter 2,538
--------------------
$ 202,892
====================
During the nine months ended September 30, 1997, the debt on 120 Mineola
Boulevard was extinguished with proceeds from another lender of $11,260.
Gain on the early extinguishment of debt totalled $6,475.
6. Related Party Transactions
Under the terms of various management agreements, Tower Predecessor
receives cost reimbursements and property management, leasing and tenant
service fees from certain affiliates in which Tower Equities have ownership
interests. Cost reimbursements are comprised primarily of salary and
employee benefit recoveries and reimbursements of certain administrative
costs. For the nine months ended September 30, 1997 and 1996, fees and cost
derived from these agreements totalled $0.2 million and $1.6 million,
respectively.
Amounts due to affiliates at September 30, 1997 and 1996, consisted
primarily of loans payable to affiliates of Tower Predecessor.
7. Commitments and Contingencies:
Tower Predecessor is subject to various legal proceedings and claims that arise
in the ordinary course of the business. These matters are generally covered by
insurance. Management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or liquidity of Tower Predecessor.
24
<PAGE>
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which involve certain risks and uncertainties. The Company's actual results
in future periods may be materially different from any future performance
anticipated herein. Each forward-looking statement that the Company
believes is material is accompanied by a cautionary statement or statements
identifying important factors that could cause actual results to differ
materially from those described in the forward-looking statement. In the
context of forward-looking information provided in this Quarterly Report on
Form 10-Q and in other reports, please refer to the discussion of risk
factors detailed in, as well as the other information contained in, the
Company's filings with the Securities and Exchange Commission during the
past 12 months.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Company has been formed to continue and expand the commercial real estate
business of Tower Equities, including developing, acquiring, owning, renovating,
managing, and leasing office properties in midtown Manhattan, Phoenix, Tucson,
and Orlando markets. The Company's operations will be carried out through
subsidiaries which consist primarily of the Operating Partnership, the
Management Company and other subsidiary partnerships, joint ventures, general
partnerships and limited companies through which the Operating Partnership owns
certain of the properties. The Company will form additional subsidiaries or
affiliates in cases where the Company determines that the use of a separate
entity is advisable.
As a result of the Offering and the related Formation Transactions, the
Operating Partnership owns and operates 21 office properties (the "Properties").
The Company also owns or has an option to acquire four parcels of land adjacent
to four of the Properties (the "Development Parcels"), which can support
approximately 2.2 million of rentable square feet of development.
The following discussion is based primarily on the combined financial statements
of Tower Predecessor for periods prior to the completion of the Offering and
related Formation Transactions. The pro forma condensed consolidated balance
sheet is presented as if the Offering and the Formation Transactions had
occurred on September 30, 1997. The pro forma results of operations are
presented as if the Offering and the Formation Transactions had occurred on
January 1, 1996. The combined financial statements include the assets,
liabilities and operations of the properties and predecessor management
companies to be acquired by the Company in the Formation Transactions from
entities controlled and managed by Tower Equities as follows: Tower 45, 120
Mineola Boulevard, Maitland Forum, the three Maitland Center Parkway Properties,
5750 Major Boulevard and the predecessor management companies, including Tower
Equities and Realty Corp., CXX Mineola Management Corp., Forum Realty and
Management Corp., and Tower Equities of Arizona L.L.C.
Results of Operations
Comparison of the Three Months Ended September 30, 1997 to the Three Months
Ended September 30, 1996
Total revenues for the three months ended September 30, 1997 increased by $0.9
million, or 14%, to $7.2 million as compared to $6.3 million for three months
ended September 30, 1996. Rental income for the three months ended September 30,
1997 increased by $1.4 million, or 25%, to $7.0 million as compared to $5.6
million for the three months ended September 30, 1996 due to (i) the purchase of
5750 Major Boulevard in October 1996 which increased rental
25
<PAGE>
income by $0.1 million and (ii) increased rental rates from new leases at the
Tower 45, Maitland Forum and Maitland Center Parkway Properties.
Management fee income decreased $0.2 million to $0.1 million for the three
months ended September 30, 1997 as compared to $0.3 million for the three months
ended September 30, 1996 due to the fact that management fee income for the
period from July 1, 1997 through September 30, 1997 is recorded by the
Management Company. Construction, leasing, and other fees relating to one office
and seven retail properties as well as the DRA Joint Ventures and 2800 North
Central Property for the three months ended September 30, 1997 decreased by $0.3
million as compared to the three months ended September 30, 1996 for the same
reason.
Total expenses remained constant for three months ended September 30, 1997 and
1996 at $8.7 million. Expenses excluding interest and depreciation and
amortization decreased by $0.4 million or 13%, from $3.6 million for the three
months ended September 30, 1996 to $3.2 million for the three months ended
September 30, 1997. Expenses, excluding interest and depreciation and
amortization, as a percentage of total revenues, decreased from 57.4% for the
three months ended September 30, 1996 to 44.8% for the three months ended
September 30, 1997 due primarily to decreases in general and administrative
costs. Management believes that expenses as a percentage of revenues will
decrease for the remainder of 1997. Each component of expenses excluding
interest and depreciation and amortization changed as a percentage of total
revenues as follows:
Three Months Ended
September 30,
--------------------------------
1997 1996
------------- -------------
Property operating and maintenance......... 21.1% 22.5%
Real estate taxes.......................... 16.2 18.6
General office and administration.......... 5.4 13.9
Ground rent and air rights................. 2.1 2.4
------------- -----------
44.8% 57.4%
Interest expense increased by $0.2 million, or 6.5% to $3.7 million for the
three months ended September 30, 1997 as compared to $3.5 million for the three
months ended September 30, 1996 due to an increase in average outstanding debt
balances.
Equity in joint ventures decreased slightly by $0.1 million for the three months
ended September 30, 1997 due primarily to higher interest expense as a result of
higher interest rates on the debt of the DRA Joint Venture properties, offset by
increased rental income of the DRA Joint Venture properties.
Net loss decreased by $0.9 million to net loss of $1.5 million for the three
months ended September 30, 1997 as compared to net loss of $2.4 million
primarily due to the effect of the above explanations.
Comparison of the Nine Months Ended September 30, 1997 to the Nine Months Ended
September 30, 1996
Total revenues for the nine months ended September 30, 1997 increased by $0.5
million, or 2.4%, to $21.4 million as compared to $20.9 million for nine months
ended September 30, 1996. Rental income increased by $1.4 million, or 7.3%, to
$20.5 million as compared to $19.1 million for the nine months ended September
30, 1996 due to (i) the
26
<PAGE>
purchase of 5750 Major Boulevard in October 1996 which increased rental income
by $0.3 million and (ii) increased rental rates from new leases at the Tower 45,
Maitland Forum and Maitland Center Parkway Properties.
Management fee income decreased $0.6 million to $0.3 million for the nine months
ended September 30, 1997 as compared to $0.9 million for the nine months ended
September 30, 1996 due to the fact that management fee income for the period
from January 1, 1997 through September 30, 1997 is recorded by the Management
Company. Construction, leasing, and other fees relating to one office and seven
retail properties as well as the DRA Joint Ventures and 2800 North Central
Property for the nine months ended September 30, 1997 decreased by $0.3 million
as compared to the nine months ended September 30, 1996, for the same reason.
Total expenses for the nine months ended September 30, 1997 decreased by $0.2
million, or 0.7%, to $26.3 million as compared to $26.5 million for the nine
months ended September 30, 1996. Expenses excluding interest and depreciation
and amortization decreased by $0.5 million, or 5%, from $10.8 million for the
nine months ended September 30, 1996 to $10.3 million for the nine months ended
September 30, 1997. Expenses excluding interest and depreciation and
amortization, as a percentage of total revenues, decreased from 51.7% for the
nine months ended September 30, 1996 to 48.0% for the nine months ended
September 30, 1997 due primarily to decreases in general and administrative
costs. Management believes that expenses as a percentage of revenues will
decrease for the remainder of 1997. Each component of expenses excluding
interest and depreciation and amortization changed as a percentage of total
revenues as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
-----------------------------
1997 1996
---------- -----------
<S> <C> <C>
Property operating and maintenance............................................ 19.6% 20.1%
Real estate taxes............................................................. 16.3 16.9
General office and administration............................................. 10.0 12.6
Ground rent and air rights.................................................... 2.1 2.1
------------ -----------
48.0% 51.7%
</TABLE>
Interest expense increased by $0.1 million, or 0.9%, to $10.8 million for the
nine months ended September 30, 1997 as compared to $10.7 million for the nine
months ended September 30, 1996 due to a increase in average outstanding debt
balances.
Equity in joint ventures decreased slightly by $0.2 million to $0.1 million for
the nine months ended September 30, 1997 as compared to $0.3 million for the
nine months ended September 30, 1996 due primarily to higher interest expense
due to higher interest rates on the debt of the DRA Joint Venture properties,
offset by increased rental income of the DRA Joint Venture property.
Net loss decreased by $6.9 million, to net income of $1.6 million for the nine
months ended September 30, 1997 as compared to net loss of $5.3 million
primarily due to extraordinary gain on extinguishment of debt for one of the
properties.
27
<PAGE>
Pro Forma Operating Results
Nine Months Ended September 30, 1997
For the nine months ended September 30, 1997, pro forma net income would have
been $13.3 million compared to a historical net loss before extraordinary item
(gain on extinguishment of debt) of $4.8 million for the same period. The pro
forma operating results for the nine months ended September 30, 1997 include
rental revenues and property expenses (operating, maintenance, real estate taxes
and depreciation) on a gross basis from the DRA Joint Ventures whereas the
historical financial statements of Tower Predecessor include the equity in
earnings of the DRA Joint Ventures. Likewise, pro forma operating results
include the acquisition of the Century Plaza and 100 Wall Street properties, the
results of which are not included in the historical statement of operations.
The decrease in the pro forma management, construction, leasing and other fees
by $1.7 million primarily results from the Company's transfer of certain
management contracts and predecessor management companies and personnel to the
Management Company for the pro forma statement of operations. General and
administrative expenses remained consistent as compared to the combined Company
and Tower Predecessor.
Interest expense decreased $5.0 million, or 45%, in the pro forma statement of
operations due to mortgage loans repaid concurrent with the Offering and lower
interest rates on the $89.0 million Term Loan (including $35.0 million which has
been assumed will be utilized to repay mortgage indebtedness relating to the
Tower 45 Property). The Term Loan is expected to bear interest at a fixed rate
equal to .9% in excess of seven-year United States Treasury Notes at the closing
of the Offering. The seven-year Treasury note rate of 6.06% as of October 9,
1997 was used for the calculation of the interest rate in the pro forma results.
Liquidity and Capital Resources
Historically, property operations, long-term mortgage financing and partner
equity contributions were the principal sources of capital used by the Tower
Predecessor to acquire, renovate and develop office properties. In connection
with the Formation Transactions, the Company issued notes to fund certain costs
relating to the Offering and the formation of the Company. Upon consummation of
the Offering and Formation Transactions, (i) holders of the notes converted the
notes (the "MSAM Notes") into approximately 886,200 shares of restricted common
stock, and purchased an additional $20.0 million of shares of restricted common
stock in the Concurrent Private Placements and (ii) certain private investment
funds sponsored by the Carlyle Group purchased $10.0 million of shares of
restricted common stock in the Concurrent Private Placements. Proceeds from
these transactions and the Offering were used to repay and modify the terms of
certain indebtedness, to acquire debt, equity and fee interests in the
Properties, reduce its total indebtedness to approximately $113.7 million
(including its pro rata of joint venture debt), to acquire additional properties
and establish working capital cash reserves. In the future, the Company intends
to rely upon Funds from Operations and debt and equity financing as its sources
of funding for developing, acquiring, and renovating properties. The Company
expects that, after the Offering and related Formation Transactions, Funds from
Operations will be significantly greater than it has been historically because
of the repayment and modification of certain debt in connection with the
Offering and the acquisitions of additional properties.
Mortgage Financing. Upon completion of the Offering, the Concurrent Private
Placements, and the Formation Transactions and the application of the net
proceeds therefrom, the Company reduced total consolidated indebtedness to
approximately $113.7 million (including its pro rata share of joint venture
debt), which will initially be collateralized by 10 of the Properties, with a
weighted average interest rate of 7.14% (see the mortgage indebtedness table
below). There will be a total of approximately $0.2 million of scheduled loan
principal payments due during the year ending
28
<PAGE>
December 31, 1998. The mortgage indebtedness will represent approximately 19.1%
of the Company's total market capitalization.
Mortgage Indebtedness. As of the consummation of the Offering, the Company had
outstanding approximately $111.0 million of total consolidated mortgage
indebtedness, and approximately $2.7 million of unconsolidated investment
indebtedness, as follows:
<TABLE>
<CAPTION>
Estimated
Principal Interest Annual Debt Maturity Balance at
Property(ies) Amount Rate Service Date Maturity
--------------- --------- ---------------- ------------------- --------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Corporate Center Properties 21,000 7.55% $ 1,586 January 1, 2006 $ 17,926
Corporate Center Properties 1,000 8.37% 84 January 1, 2006 843
2800 North Central 2,658 9.41% 250 May 31, 1999 (2) 2,658
Property (1)............
Term Loan 89,000 (3) 6.96% (4) 6,194 (4) (4) 83,741
--------------- --------- ---------------- --------------
Total Weighted Average.... $ 113,658 7.14% $ 8,114 $ 105,168
=============== ========= ================ ==============
</TABLE>
- ---------------------
(1) Represents the Company's share of joint venture debt relating to this
Property, in which the Company holds a 10% unconsolidated equity
interest. The lender holds a right to certain participation payments
upon the occurrence of certain events, including sales, maturity,
refinancing or other disposition of the underlying property.
(2) Subject to certain conditions, the borrower under this loan may extend
the maturity date to May 31, 2000.
(3) At the consummation of the Offering, the principal balance of the Term
Loan will be $54.0 million and will be secured by the One Orlando
Center, 286 Madison Avenue, 290 Madison Avenue, and 292 Madison Avenue
Properties. Separately, $35.0 million of mortgage indebtedness, that
will not be repaid concurrent with the Offering, will be secured by the
Tower 45 Property. It has been assumed for pro forma purposes that the
indebtedness encumbering the Tower 45 Property will be repaid with an
additional $35.0 million borrowing under the Term Loan, at which time
the Tower 45 Property will secure the Term Loan and the three Madison
Avenue Properties will become unencumbered.
(4) The Term Loan is expected to bear interest at a fixed rate equal to .9%
in excess of seven-year United States Treasury Notes at the closing of
the Offering. The seven-year Treasury note rate of 6.06% as of October
9, 1997 was used for the calculation of the interest rate in the table
above. The Term Loan will mature seven years after the consummation of
the Offering.
In addition, the Company has assumed a liability for deferred real estate taxes
of $12.9 million which accrued from 1988 through 1995 relating to the Tower 45
Property. This deferred real estate tax liability is to be repaid commencing on
July 1, 1998 in payments of approximately $1.3 million per year. Approximately
$2.5 million is expected to be recovered from tenants and accordingly is
recorded as a receivable which is also assumed by the Company.
The Line of Credit. The Company has entered into the $200 million Line of
Credit, which will be used primarily to finance the acquisition of, and
investment in, office properties, to refinance existing indebtedness, and for
general working capital needs. The Line of Credit is unsecured and has a three
year term.
29
<PAGE>
The Company believes that the Offering, the Concurrent Private Placements, and
the Formation Transactions will improve its financial performance through
changes in its capital structure, principally the substantial reduction in its
overall debt and its debt to equity ratio. The Company anticipates that
distributions will be paid from cash available for distribution, which is
expected to exceed cash historically available for distribution as a result of
the reduction in debt service resulting from the repayment of indebtedness.
The Company believes that its principal short-term liquidity needs are to fund
normal recurring expenses, debt service requirements, deferred real estate
taxes, and the distribution requirements to maintain the Company's REIT
qualification under the Internal Revenue Code. The Properties require periodic
investment of capital for tenant-related capital expenditures and for general
capital improvements. For the year ending December 31, 1995 through December 31,
1996 and the nine months ended September 30, 1997, the Company's recurring
tenant improvements and leasing commissions averaged $12.42 per square foot of
leased space per year. The Company expects that the average annual costs of
recurring tenant improvements and leasing commissions will be approximately $3.1
million based upon average annual square footage of leases which expire during
the years ending December 31, 1997 through December 31, 2000 of 199,620 square
feet. The Company expects the cost of general capital improvements to the
Properties to average approximately $0.5 million annual based upon an estimate
of $0.15 per square foot.
Funds from Operations and EBITDA
The Company calculates Funds from Operations based upon guidance from the
National Association of Real Estate Investment Trusts ("NAREIT"). Funds from
Operations is defined as net income (computed in accordance with GAAP),
excluding gains or losses from debt restructuring and sales of property, plus
depreciation and amortization on real estate, and after adjustments for
unconsolidated partnerships and joint ventures.
The Company believes that Funds from Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to incur and service
debt, to make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by other
REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than the
Company. Funds from Operations does not represent cash generated from operating
activities determined in accordance with GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make cash distributions.
EBITDA is defined as operating income before mortgage and other interest, income
taxes, depreciation and amortization. The Company believes EBITDA is also useful
to investors as an indicator of the Company's ability to service debt or pay
cash distributions. EBITDA, as calculated by the Company, may not be comparable
to EBITDA reported by other REITs that do not define EBITDA exactly as the
Company defines that term. EBITDA does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to operating income or net income as an indicator of performance or
as an alternative to cash flows from operating activities as an indicator of
liquidity.
30
<PAGE>
The Company's share (pro forma) and Tower Predecessor's (historical) Funds from
Operations and EBITDA are as follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Pro Forma Historical Pro Forma Historical
1997 1997 1996 1996
----------------- --------------- ---------------- ------------------
Funds from Operations............... $ 22.8 $ 1.1 $ 20.3 $ 0.3
EBITDA.............................. $ 28.2 $ 18.2 $ 25.7 $ 10.8
</TABLE>
Funds from Operations and EBITDA for the nine months ended September 30, 1997
(pro forma) increased over Funds from Operations and EBITDA (historical) for the
same time period by $21.7 million and $10.0 million, respectively. The increases
are primarily attributable to the acquisition of the DRA Joint Ventures and the
Century Plaza and 100 Wall Street Properties in connection with the Formation
Transactions.
Funds from Operations and EBITDA (pro forma) for the nine months ended September
30, 1996 increased over Funds from Operations and EBITDA (historical) for the
same period by $20.0 million and $14.9 million, respectively. The increases are
primarily attributable to the acquisition of the DRA Joint Ventures and the
Century Plaza and 100 Wall Street Properties in connection with the Formation
Transactions.
Inflation
The Company's leases with the majority of its tenants require the tenants to pay
most operating expenses, including real estate taxes and insurance, and
increases in common area maintenance expenditures, which partially offsets the
Company's exposure to increases in costs and operating expenses resulting from
inflation.
Recently Issued Accounting Standards
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"), No.
129 "Disclosure of Information About Capital Structure" ("SFAS 129"), No. 130
"Reporting Comprehensive Income" ("SFAS 130"), and No. 131 "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"). All of these
statements are effective for fiscal years beginning after December 15, 1997.
SFAS 128 specifies the computation, representation and disclosure requirements
for earnings per share. SFAS 129 establishes standards for disclosing
information about an entity's capital structure such as information about
securities, liquidation preference of preferred stock and redeemable stock. SFAS
130 specifies the presentation and disclosure requirement for reporting
comprehensive income which includes those items which have been formerly
reported as a component of shareholders' equity. SFAS 131 establishes the
disclosure requirements for reporting segment information.
Management believes that, when adopted, SFAS 128, 129, 130 and 131 will not have
a significant impact on the Company's results of operations or financial
position.
31
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The exhibits listed in the Exhibit Index immediately preceding the
exhibits are filed as part of this Quarterly Report on Form 10-Q.
b) Reports on Form 8-K: None
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWER REALTY TRUST, INC.
(Registrant)
Date: November 28, 1997 By: /s/ Lawrence H. Feldman
---------------------------
Name: Lawrence H. Feldman
Title: Chairman of the Board, Chief
Executive Officer and President
Date: November 28, 1997 By: /s/ Thomas Woodward
--------------------------
Name: Thomas Woodward
Title: Controller
(Chief Accounting Officer)
33
<PAGE>
Exhibit Index
The following exhibits are filed as part of this Quarterly Report on Form 10-Q.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1* Amended and Restated Articles of Incorporation of the Company
3.2* Amended and Restated By-Laws of the Company
4.1* Form of Common Stock Certificate for the Company
10.1* Form of Amendment and Restatement of Agreement of Limited
Partnership of Tower Realty Operating Partnership, L.P.,
by and among Tower Realty Trust, Inc., as general partner,
Lawrence H. Feldman, as initial Limited Partner, and the
Persons set forth in Exhibit A thereto
10.2* Form of Exchange Rights Agreement
10.3* Form of Registration Rights Amendment
10.4* Form of Lock-up Agreement
10.5* Form of Tower Realty Trust, Inc. 1997 Incentive Plan
10.6* Form of Tower Realty Trust, Inc. Non-Employee Directors' Incentive Plan
10.7* Form of Employment Agreement between the Company and Lawrence H.
Feldman
10.8* Form of Employment Agreement between the Company and Robert L. Cox
10.9* Form of Employment Agreement between the Company and Joseph D.
Kasman
10.10* Form of Indemnification Agreement between the Company and its executive
officers and directors
10.11* Purchase Agreement, dated as of March 31, 1997, among
Tower Realty Trust, Inc., Tower Realty Operating
Partnership, L.P. and each of the investors signatory
thereto, as amended by the Purchase Agreement Supplement
dated as of May 15, 1997, Purchase Agreement Supplement
No. 2, dated as of May 29, 1997, Purchase Agreement
Supplement No. 3, dated as of May 29, 1997, Purchase
Agreement Supplement No. 4, dated as of July 9, 1997,
Purchase Agreement Supplement No. 5, dated as of July 31,
1997
10.12* Contribution Agreement (OP Units-CXX Mineola Limited Partnership) by
and among Tower Realty Operating Partnership, L.P. and Jeffrey Feldman
10.13* Amendment to Contribution Agreement by and among Tower Realty
Operating Partnership, L.P. and Jeffrey Feldman
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.14* Second Amendment to Contribution Agreement by and between Tower
Realty Operating Partnership, L.P. and Jeffrey Feldman
10.15* Contribution Agreement (Cash-Stellar Associates) by and among Tower
Realty Operating Partnership, L.P. and Laurie Jacoby
10.16* First Amendment to Contribution Agreement by and between Tower Realty
Operating Partnership, L.P. and Laurie Jacoby
10.17* Contribution Agreement (OP Units) by and among Tower Realty Operating
Partnership, L.P. and Bama Equities, Inc.
10.18* Amendment to Contribution Agreement by and among Tower Realty
Operating Partnership, L.P. and Bama Equities, Inc.
10.19* Second Amendment to Contribution Agreement by and between Tower
Realty Operating Partnership, L.P. and Bama Equities, Inc.
10.20* Contribution Agreement (Cash-Stellar Associates) by and among Tower
Realty Operating Partnership, L.P. and Valerie Herts Kalnitzky
10.21* First Amendment to Contribution Agreement by and between Tower Realty
Operating Partnership, L.P. and Valerie Hertz Kalnitzky
10.22* Assignment Agreement by Charles M. Kotick, as nominee (CXX)
10.23* Contribution Agreement by and between Tower Realty Operating
Partnership, L.P. and Allan B. Mendelsohn, as Chapter 7 Trustee of Edward
Feldman
10.24* Option Agreement, dated as of July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Dana II Associates Limited Partnership
10.25* Option Agreement, dated July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Tower 45 Ventures Limited Partnership
10.26* Option Agreement, dated July 31, 1997, by and between Tower Realty
Operating Partnership, L.P. and Feldman Tower 45, Inc.
10.27* Contribution Agreement between Maitland Property Investors, Limited and
Tower Realty Operating Partnership, L.P., dated as of August 4, 1997
10.28* Non-Competition Agreement, dated as of August 4, 1997 among Tower
Realty Operating Partnership L.P., Properties Atlantic, Inc., Clifford Stein
and Reid Berman
35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.29* Assets Contribution Agreement, dated as of August 4, 1996, between Tower
Realty Operating Partnership, L.P., and Properties Atlantic, Inc., Clifford
Stein, and Reid Berman
10.30* Option Agreement, dated as of July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Stellar Associates
10.31* Option Agreement, dated as of July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Carlyle Industries, Inc.
10.32* Option Agreement, dated as of July 31, 1997, by and between Tower Realty
Operating Partnership, L.P. and 120 West 45th Street Associates
10.33* Option Agreement, dated as of July 29, 1997, by and between Tower Realty
Operating Partnership, L.P. and Richard Cooke, Craig Cooke and Brian
Cooke
10.34* Option Agreement, dated as of July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Charles B. Hickcox
10.35* Option Agreement, dated as of July 31, 1997, by and between Tower Realty
Operating Partnership, L.P. and Hazama T-45
10.36* Option Agreement, dated as of July 25, 1997, by and between Tower Realty
Operating Partnership, L.P. and Leo V. Berger
10.37* Omnibus Option Agreement, dated as of July 31, 1997, by and between
Tower Realty Operating Partnership, L.P. and Shoen U.S.A. Inc.
10.38* Option Agreement, dated as of July 28, 1997, by and among
Tower Realty Operating Partnership, L.P., Tower Equities
Management, Inc. and Tower Equities and Realty Corp., CXX
Mineola Management Corp., Forum Management and Realty
Corp., Madison 40/41 Management Corp., Tower 45 Asset
Management Corp. and SJP Realty Corp.
10.39* Contribution Agreement by and between Reid Berman and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.40* Purchase Agreement by and among Tower Realty Operating Partnership,
L.P. and Anthony DiLeonardo dated as of July 31, 1997, as amended by
Amendment No. 1 to Anthony DiLeonardo Purchase Agreement, dated as of
September 18, 1997
10.41* Purchase Agreement by and among Tower Realty Operating Partnership,
L.P. and Carmela Carrano dated as of July 31, 1997, as amended by
Amendment No. 1 to Carmela Carrano Purchase Agreement, dated as of
September 18, 1997
10.42* Contribution Agreement by and between Richard Wisely and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.43* Contribution Agreement by and between Lawrence Stein and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.44* Contribution Agreement by and between Lawrence H. Feldman and Tower
Realty Operating Partnership, L.P. dated as of July 31, 1997
10.45* Contribution Agreement by and between Clifford L. Stein and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.46* Contribution Agreement by and between Robert Adams and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.47* Contribution Agreement by and between Eric Reimer and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.48* Contribution Agreement by and between Reuben Friedberg and Tower
Realty Operating Partnership, L.P. dated as of July 31, 1997
10.49* Contribution Agreement by and between Joseph Kasman and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.50* Contribution Agreement by and between Robert Cox and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.51* Contribution Agreement, dated as of July 31, 1997, by and among Tower
Realty Operating Partnership, L.P. and Joseph Kasman
10.52* Option Agreement, dated as of May 8, 1997, by and among Tower Realty
Operating Partnership, L.P. and Stanley B. Grey
10.53* Option Agreement, dated as of May 8, 1997, by and among Tower Realty
Operating Partnership, L.P. and Michael C. Zerner
10.54* Letter Agreement, dated as of July 28, 1997, between Tower
Realty Trust, Inc., Tower Realty Operating Partnership,
L.P., General Electric Capital Corporation, General
Electric Real Estate Equities, Inc., GENEL Company, Inc.
and GEBAM, Inc.
10.55* Contribution Agreement by and among Tower Realty Trust, Inc., Tower
Realty Operating Partnership, L.P. and DRA Opportunity Fund
10.56* Contribution Agreement by and among Tower Realty Trust, Inc., Tower
Realty Operating Partnership, L.P. and Office Invest Sub LLC
10.57* Supplement and Amendment, dated as of September 11, 1997, to the
Contribution Agreement by and among Tower Realty Trust, Inc., Tower
Realty Operating Partnership, L.P. and Office Invest Sub LLC, as parties to
the original Contribution Agreement, and Feldman MOT Portfolio Corp.,
Feldman FSA Corp., FSA Associates, L.P. and Lawrence H. Feldman
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.58* Purchase and Sale Agreement, dated as of March 31, 1997, by and between
Tower Equities and Realty Corp. and Tower Realty Operating Partnership,
L.P.
10.59* Purchase and Sale Agreement, dated as of September 11,
1997, by and between 100 Wall LLC and Tower Realty
Operating Partnership, L.P.
10.60* Mortgage Loan Commitment, dated as of October 4, 1997, by and between
Merrill Lynch Credit Corporation and one or more subsidiaries of Tower
Realty Operating Partnership, L.P.
10.61* Form of Financial Advisory Fee Agreement by and between Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Tower Realty Trust, Inc. and Tower
Realty Operating Partnership, L.P.
10.62* Form of Supplemental Representations, Warranties and Indemnity
Agreement by and among Lawrence H. Feldman, Robert L. Cox, Joseph D.
Kasman, Eric S. Reimer, Reuben Friedberg and Tower Realty Operating
Partnership, L.P. and Tower Realty Trust, Inc.
10.63* Line of Credit Commitment, dated as of October 4, 1997, by and between
Merrill Lynch Capital Corporation and Tower Realty Operating Partnership,
L.P. and Tower Realty Trust, Inc.
10.64* Purchase and Sale Agreement, dated as of July 25, 1997, by and between
RSH Associates, Joel Wiener, and Lawrence H. Feldman
10.65* Option Agreement, dated as of July 31, 1997, by and
between Tower Realty Operating Partnership, L.P. and
Carmela Carrano, as amended by Amendment No. 1 to Option
Agreement, dated as of September 18, 1997
10.66* Option Agreement, dated as of July 31, 1997, by and
between Tower Realty Operating Partnership, L.P. and
Anthony DiLeonardo, as amended by Amendment No. 1 to
Option Agreement, dated as of September 18, 1997
10.67* Option Agreement, dated as of September 27, 1997, by and between Orlando
Option Holding, L.L.C. and Tower Realty Operating Partnership. L.P.
10.68* Assignment of Real Estate Agreement, dated as of September 24, 1997, by
and between Tower Equities and Realty Corp. and Tower Realty Operating
Partnership, L.P.
10.69* Third Amendment to Escrow Instructions and Addendum thereto and
Option Agreement, dated as of July 23, 1997, by and between Beardsley and
I-17, L.L.C and Deer Valley Towne Center L.L.C and Crystal, Inc.
10.70* Phoenix Land Parcel Option Contract, dated as of September 12, 1997, by
and between Crystal, Inc. and Tower Realty Operating Partnership, L.P.
10.71* Form of Acquisition Advisory Fee Agreement
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.72* Stock Purchase Agreement, dated as of September 19, 1997, by and among
Tower Realty Trust, Inc. and Carlyle Realty Partners, L.P. Carlyle Realty
Qualified Partners, L.P., Carlyle Realty Partners Sunrise, L.P. and Carlyle
Realty Coinvestment, L.P.
27.1 Financial Data Schedule, amended
- --------------------------------
* Previously filed with the Company's Quarterly Report on Form 10-Q, dated November 24, 1997.
</TABLE>
39
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule, as amended, contains summary financial information extracted from
the financial statements of Tower Predecessor for the nine month period ended
September 30, 1997 and the financial statements of Tower Realty Trust, Inc. for
the period from March 27, 1997 (date of inception) through September 30, 1997.
</LEGEND>
Tower Predecessor Tower Realty Trust, Inc.
<S> <C> <C>
<PERIOD-TYPE> 9-Mos 6-Mos
<FISCAL-YEAR-END> Dec-31-1997 Dec-31-1997
<PERIOD-START> Jan-01-1997 Mar-27-1997
<PERIOD-END> Sep-30-1997 Sep-30-1997
<CASH> 4,947 66
<SECURITIES> 0 0
<RECEIVABLES> 6,843 940
<ALLOWANCES> 2,500 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 172,969 0
<DEPRECIATION> 44,892 0
<TOTAL-ASSETS> 171,514 12,393
<CURRENT-LIABILITIES> 0 487
<BONDS> 194,638 12,299
0 0
0 0
<COMMON> 0 1
<OTHER-SE> (60,231) (394)
<TOTAL-LIABILITY-AND-EQUITY> 171,514 12,393
<SALES> 0 0
<TOTAL-REVENUES> 21,393 1,180
<CGS> 0 0
<TOTAL-COSTS> 26,308 1,761
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,772 229
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 6,475 0
<CHANGES> 0 0
<NET-INCOME> 1,645 (394)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
