SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
-------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 14, 1999
RECKSON SERVICE INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
(STATE OF INCORPORATION)
0-30162 11-3383642
(COMMISSION FILE NUMBER) (IRS EMPLOYER ID. NUMBER)
10 East 50th Street 10022
New York, New York (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 931-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE>
ITEM 5. OTHER EVENTS.
Reckson Service Industries, Inc. ("RSI" or the "Company") announced
today that the Company and a wholly-owned subsidiary will purchase all of the
4,694,560 shares of Series A Convertible Preferred Stock, 626,202 shares of the
Series B Convertible Preferred Stock and 704,184 warrants and 15,000 options to
purchase Class A Common Stock of VANTAS Incorporated ("VANTAS") owned by Cahill,
Warnock Strategic Partners Fund L.P., Strategic Associates, L.P., and David L.
Warnock (collectively, the "Sellers") as a result of the lapse of a right of
first refusal of certain VANTAS stockholders (the "Tag Along Holders") pursuant
to the terms of a stockholder's agreement. The terms and conditions of the
purchase and sale were reported on the Company's Current Report on Form 8-K
filed October 12, 1999.
In addition, certain Tag Along Holders have exercised their "tag along"
rights to sell their VANTAS securities together with, and generally on the same
terms as, the Sellers. Tag Along Holders have until October 30, 1999 to
exercise their tag along rights. In addition, the Company has contracted to
acquire indirectly additional shares in VANTAS from entities affiliated with
John Halpern.
It is estimated that upon consummation of the transaction RSI's
ownership in VANTAS will increase from approximately 35% to between
approximately 77% and 95%, depending upon whether other Tag Along Holders
exercise their rights to sell their shares. RSI's additional investment will
range from $82 million of cash and 2.0 million shares of RSI common stock to
$121 million of cash and 3.0 million shares of RSI common stock, depending on
the level of participation of the Tag Along Holders.
VANTAS is the largest owner of executive office suites in the United
States, with 190 suites.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The Registrant hereby incorporates by reference its Current
Reports on Form 8-K/A as heretofore filed with the Securities
and Exchange Commission on March 24, 1999 and September 20,
1999.
(B) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial statements were prepared based on the
Company increasing its ownership in VANTAS to 77%.
Reckson Service Industries, Inc.
--------------------------------
Reckson Service Industries, Inc. Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of June 30, 1999
Reckson Service Industries, Inc. Unaudited Pro Forma Condensed
Consolidating Statement of Operations for the six months ended
June 30, 1999
Reckson Service Industries, Inc. Unaudited Pro Forma Condensed
Consolidating Statement of Operations for the year ended
December 31, 1998
Notes to Unaudited Pro Forma Consolidated Financial Statements
VANTAS Incorporated
-------------------
The Registrant hereby incorporates by reference its Current
Reports on Form 8-K/A as heretofore filed with the Securities
and Exchange Commission on March 24, 1999 and September 20,
1999.
(C) EXHIBITS
23.0 Consent of PricewaterhouseCoopers LLP
<PAGE>
Unaudited Pro Forma Consolidated Financial Statements
The following unaudited pro forma financial statements are presented for
illustrative purposes only and are not indicative of the financial position or
results of operations of future periods or the results that actually would have
been realized had RSI (i) acquired directly and through various subsidiaries
approximately $24 million of Series D Convertible Stock ("Series D") of VANTAS
Incorporated ("VANTAS"), for the specified periods and (ii) purchased an
additional 42% interest in VANTAS from third parties for approximately $82
million in cash and issuance of 1,985,602 shares of RSI common stock valued at
$19 per share. As a result of the purchase RSI will increase its basic
beneficial ownership of VANTAS to 77% and accordingly, will consolidate the
operations of VANTAS. Although the precise mix of the sources of funds for this
transaction has not been finalized, for purposes of these pro formas the source
has been assumed to be debt on the same terms as the Company's existing credit
facility. The pro forma financial statements, including the notes thereto, are
qualified in their entirety by reference to, and should be read in conjunction
with, the historical financial statements of RSI as filed on Form 10-K for the
year ended December 31, 1998, the historical financial statements of RSI as
filed on Form 10-Q for the six months ended June 30, 1999, the historical
financial statements of VANTAS as filed September 20, 1999 on Form 8-K/A for the
six months ended June 30, 1999, and the historical financial statements of
VANTAS as filed on Form 8-K/A on March 24, 1999 for the year ended December 31,
1998.
The following pro forma financial statements of RSI give effect to increase in
the beneficial ownership percentage. The pro forma financial statements are
based on the historical financial statements and the notes thereto of RSI, and
VANTAS. The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired.
The pro forma balance sheet of RSI assumes that the purchases of Series D and an
additional 42% interest in VANTAS occurred on June 30, 1999. The pro forma
statements of operations of RSI for the six months ended June 30, 1999 and for
the year ended December 31, 1998 assume that the purchases of Series D and the
additional 42% interest in VANTAS occurred as of January 1, 1998.
RECKSON SERVICE INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RSI VANTAS
UNAUDITED UNAUDITED PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS ELIMINATIONS(2) PRO FORMA
------------- ---------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 192,714 $ 2,002,516 $ 24,000,000 $ - $ 26,195,230
Restricted cash - 1,253,371 - - 1,253,371
Investment in RSVP Holdings LLC 28,112,162 - - - 28,112,162
Investment in Onsite Ventures, LLC 12,278,500 - - - 12,278,500
Investment in VANTAS 29,982,096 - 142,769,572(1),(2) (172,751,668) -
Advances to VANTAS 6,000,000 - (6,000,000)(1) - -
Affiliate receivables 1,951,182 - 973,000 - 2,924,182
Accounts receivables - 7,730,706 - - 7,730,706
Intangible assets, net - 179,681,076 - 70,783,982 250,465,058
Property and equipment, net 203,986 49,138,215 - - 49,342,201
Other assets, net 2,060,217 17,972,536 - - 20,032,753
------------- ------------- ------------- --------------- -------------
TOTAL ASSETS $ 80,780,857 $257,778,420 $161,742,572 $(101,967,686) $398,334,163
============= ============= ============= =============== =============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Accounts payable and accrued
expenses $ 5,839,029 $ 16,096,590 $ - $ - $ 21,935,619
Credit facilities 67,006,239 - 100,016,134(1),(2) - 167,022,373
Capital lease obligation - 2,598,965 - - 2,598,965
Deferred rent payable - 14,949,131 - - 14,949,131
Notes payable - other - 6,000,000 (6,000,000)(1) - -
Notes payable - bank - 91,675,000 - - 91,675,000
Tenant's security deposits - 17,627,847 - - 17,627,847
Other liabilities - 11,652,398 - - 11,652,398
------------- ------------- ------------- --------------- -------------
TOTAL LIABILITIES 72,845,268 160,599,931 94,016,134 - 327,461,333
------------- ------------- -------------- --------------- -------------
MINORITY INTEREST - - - 25,210,803 (8) 25,210,803
TOTAL REDEEMABLE PREFERRED STOCK - 97,244,271 30,000,000(1) (127,244,271) -
------------- ------------- ------------- --------------- -------------
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value 248,118 49,019 19,856 (49,019) 267,974
Additional paid in capital 27,883,897 3,133,608 37,706,582 (3,133,608) 65,590,479
Retained earnings (deficit) (20,196,426) (2,298,409) - 2,298,409 (20,196,426)
Note receivable from issuance of stock - (950,000) - 950,000 -
------------- ------------- ------------- --------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 80,780,857 $257,778,420 $161,742,572 $ (101,967,686) $398,334,163
============= ============= ============= =============== =============
</TABLE>
RECKSON SERVICE INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RSI HISTORICAL PRO FORMA PRO FORMA
UNAUDITED VANTAS(3) ADJUSTMENTS PRO FORMA
-------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Interest income $ 1,187,620 $ - $ (67,500)(5) $ 1,120,120
Management fee income 166,667 - - 166,667
Office rentals - 64,963,251 - 64,963,251
Support services - 45,943,771 - 45,943,771
------------- ------------- -------------- -------------
TOTAL REVENUES 1,354,287 110,907,022 (67,500) 112,193,809
------------- ------------- -------------- -------------
Equity in loss of RSVP Holdings,
LLC (1,953,705) - - (1,953,705)
Equity in loss of On-Site
Ventures, LLC (69,907) - - (69,907)
Equity in earning of VANTAS 488,310 - (488,310)(3) -
------------- ------------- -------------- -------------
TOTAL EQUITY IN EARNINGS (LOSS)
ON INVESTMENTS (1,535,302) - (488,310) (2,023,612)
------------- ------------- -------------- -------------
EXPENSES
Rent - 41,757,546 - 41,757,546
Support services - 16,040,330 - 16,040,330
Center general and administrative - 30,528,345 - 30,528,345
Professional fees 457,543 - - 457,543
Terminated transaction costs 413,908 - - 413,908
General and administrative
expenses 7,776,904 5,808,387 - 13,585,291
Interest expense, net 2,961,366 5,294,286 6,000,968(4) 14,256,620
Depreciation and amortization - 6,884,852 1,179,733(7) 8,064,585
Other expense, net - 866,802 - 866,802
------------- ------------- -------------- -------------
TOTAL EXPENSES 11,609,721 107,180,548 7,180,701 125,970,970
------------- ------------- -------------- -------------
Minority Interest - - (443,997)(8) (443,997)
Provisions for Income taxes - (1,787,622) - (1,787,622)
------------- ------------- -------------- -------------
NET (LOSS) INCOME $(11,790,736) $ 1,938,852 $ (8,180,508) $(18,032,392)
============= ============= ============== =============
Basic and diluted net loss per
weighted average common share ($0.48) ($0.73)
Basic and diluted weighted ============= =============
average common shares outstanding 24,699,285 24,699,285
============= =============
</TABLE>
RECKSON SERVICE INDUSTRIES, INC.
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
RSI
HISTORICAL PRO FORMA PRO FORMA
UNAUDITED VANTAS(3) ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Interest income $ 1,006,551 $ - $ - $ 1,006,551
Management fee income 277,778 - - 277,778
Other Income 58,175 1,295,560 - 1,353,735
Office rentals - 128,587,526 - 128,587,526
Support services - 83,230,588 - 83,230,588
-------------- -------------- ------------ -------------
TOTAL REVENUES 1,342,504 213,113,674 - 214,456,178
-------------- -------------- ------------ -------------
Equity in loss of RSVP Holdings,
LLC and other investments (3,840,926) - - (3,840,926)
Equity in loss of On-Site
Ventures, LLC (30,555) - - (30,555)
Equity in loss of Reckson
Executive Centers, Inc. (149,079) - 149,079 (6) -
Equity in earnings of
Interoffice Superholdings
Corporation 54,161 - (54,161) (6) -
-------------- -------------- ------------ -------------
TOTAL EQUITY IN EARNINGS (LOSS)
ON INVESTMENTS (3,966,399) - 94,918 (3,871,481)
-------------- -------------- ------------ -------------
EXPENSES
Rent - 79,196,289 - 79,196,289
Support services - 31,774,871 - 31,774,871
Center general and administrative - 48,333,163 - 48,333,163
Professional fees 457,901 - - 457,901
Terminated transaction costs 1,220,694 - - 1,220,694
General and administrative
expenses 2,086,989 17,090,348 - 19,177,337
Interest expense, net 1,651,200 10,857,373 12,001,936(4) 24,510,509
Depreciation and amortization 39,179 11,243,537 2,359,466(7) 13,642,182
-------------- -------------- ------------ -------------
TOTAL EXPENSES 5,455,963 198,495,581 14,361,402 218,312,946
-------------- -------------- ------------ -------------
Loss before minority interest,
cumulative effect of
change in accounting principle
and provisions for income taxes (8,079,858) 14,618,093 (14,266,484) (7,728,249)
-------------- -------------- ------------ -------------
Minority interest (1,813,631)(8) (1,813,631)
Cumulative effect of change in
accounting principle (67,945) - - (67,945)
Provisions for income taxes - (6,698,307) - (6,698,307)
-------------- -------------- ------------ -------------
NET (LOSS) INCOME $ (8,147,803) $ 7,919,786 $(16,080,115) $(16,308,132)
============== ============== ============= =============
Basic and diluted net loss per
weighted average common share ($0.56) ($1.12)
Basic and diluted weighted ============== =============
average common shares outstanding 14,522,513 14,522,513
============== =============
</TABLE>
Notes to Unaudited Pro Forma Consolidated Financial Statements:
(1) On July 29, 1999, RSI purchased approximately $17.5 million of Series
D Convertible Preferred Stock ("Series D") of VANTAS Incorporated
("VANTAS"), through a $11.5 million draw on its $100 million credit
facility ("RSI Facility") from Reckson Operating Partnership L.P. and
converted $6.0 million of notes receivables. Additionally, on August
4, 1999 and September 14, 1999 RSI purchased approximately $5.3
million and $973,000, respectively of Series D through draws under the
RSI Facility, as a result of these purchases RSI increased its basic
beneficial ownership in VANTAS from 26% to 35%.
(2) Subsequent to August 4, 1999, RSI signed certain agreements which in
conjunction with existing "tag along" rights appears likely to result
in RSI purchasing an additional 42% of VANTAS from third parties for
approximately $82 million in cash and the issuance of 1,985,602 shares
of RSI common stock valued at $19 per share. These pro forma
consolidated financial statements assume that RSI completed the $82
million purchase through the use of proceeds from a credit facility on
terms similar to its existing credit facility. As a result, RSI's pro
forma balance sheet and statements of operations have reflected and
accounted for its investment in VANTAS under the consolidated method of
accounting, all the necessary eliminations have been recorded.
(3) The RSI unaudited pro forma results of operations for the six months
ended June 30, 1999 and year ended December 31, 1998 assume that RSI
increased its beneficial ownership in VANTAS to 77% on January 1,
1998. The VANTAS unaudited pro forma results of operations for the
six months ended June 30, 1999 and the year ended December 31, 1998
were based on unaudited historical results of operations adjusted for
acquisitions. Refer to RSI's Form 8-K/A dated September 20, 1999 for
more detail.
(4) To record interest expense associated with the additional draws of
approximately $16.8 million and approximately $82 million under the
RSI Facility at an interest rate of 12%.
(5) Elimination of interest income recognized on the $6.0 million of notes
receivable that were converted into VANTAS Series D Shares.
(6) On January 8, 1999 Interoffice Superholdings Corporation
("Interoffice") and Reckson Executive Centers, Inc. ("REC") merged
with VANTAS. Prior to the merger, RSI held partial ownership of
Interoffice and REC. The unaudited pro forma statements of operations
assume that the merger occurred on January 1, 1998, as a result any
income or (loss) associated with REC and Interoffice for the period
prior to the merger were eliminated.
(7) Amortization expense on goodwill associated with the purchase of the
Series D and the remaining 42% interest in VANTAS by RSI as if the
purchase occurred on January 1, 1998. Goodwill is being amortized
over a 30 year period based on RSI's assessment of the significant
barriers to entry due to the rapid consolidation in the executive
suites business. The goodwill adjustment represents amortization for
six months and twelve months respectively, which were not included in
the historical results.
(8) Represents the minority interest of VANTAS at 23%, as a result of
RSI's consolidation of VANTAS.
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.
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Michael Maturo
--------------------
Michael Maturo
Executive Vice President,
Chief Financial Officer and Treasurer
Date: October 14, 1999
Exhibit 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Current Report of
Reckson Service Industries, Inc. on Form 8-K of our report dated February 26,
1999 relating to the consolidated financial statements of VANTAS Incorporated
and Subsidiaries (formerly ALLIANCE NATIONAL Incorporated and Subsidiaries),
which appears in Reckson Service Industries, Inc.'s Current Report on Form
8-K/A dated March 24, 1999.
/s/ PricewaterhouseCoopers LLP
New York, New York
October 13, 1999
