THIRD QUARTER INVESTOR CALL
Tuesday, November 7th 2000
FrontLine
FrontLine Capital Group
<PAGE>
Certain matters discussed in these materials are forward-looking statements
within the meaning of the federal securities laws. Although we believe that the
expectations reflected in such forward-looking statements, including the future
operating performance of HQ Global Workplaces, are based upon reasonable
assumptions, we can give no assurance that these expectations will be achieved.
Factors that could cause actual results to differ materially from our
expectations include negative changes in the executive office suites industry,
changes in the market valuation or growth rate of comparable companies in the
office suites industry, a downturn in general economic conditions, increases in
interest rates, a lack of capital availability, competition, reduced demand or
decreases in rental rates for executive office suites and other real
estate-related risks such as the timely completion of projects under
development, our dependence upon our key personnel and the key personnel of our
partner companies and other risks detailed in our reports and other filings made
with the Securities and Exchange Commission.
2
FrontLine
FrontLine Capital Group
<PAGE>
OVERVIEW OF REPORTING PERIOD
--------------------------------------------------------------------------------
FRONTLINE CAPITAL GROUP
FRONTLINE HAS SHIFTED ITS STRATEGY
TO UNLEASH THE VALUE OF HQ GLOBAL
WORKPLACES AND ITS NON-HQ ASSETS
o Reported 3rd quarter EBITDA for HQ Global Workplaces of approximately $35mm
o Announced intention to separate company into two distinct operating units
to maximize value of HQ Global Workplace and other holdings
o Ceased new investment activities to allocate resources towards maximizing
the value of existing holdings
o Retained Salomon Smith Barney to explore potential structures for spin-off
of non-HQ holdings
o Scaled down organization to significantly reduce operating overhead
o Positioning company with sufficient capital to execute on strategy
o Adopted Shareholders Rights Plan to protect shareholders from various
takeover actions, which could deprive shareholders of the full value of
their investment
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES QUARTERLY RESULTS
--------------------------------------------------------------------------------
HQ Global Workplaces
HQ Global Workplaces is
exceeding internal
expectations
<TABLE>
<CAPTION>
PRO FORMA
(Dollars in 000's) 3RD QUARTER ENDED 9 MONTHS ENDED
9/30/00 9/30/00
------------------ --------------
<S> <C> <C>
Workstation Revenue 94,669 265,528
Technology Revenue 33,937 95,103
Business Services 30,477 85,485
Other 1,183 3,298
------ ------
TOTAL REVENUE 160,266 449,414
Workstation Expenses 53,981 156,297
Technology Expenses 12,138 36,216
Business Services Expenses 13,082 37,761
------ ------
GROSS PROFIT 81,065 219,140
Center SG&A 27,410 84,065
------ ------
Business Center Op. Inc. 53,655 135,075
EBITDA(1) 34,845 80,624
CASH-ADJUSTED EBITDA(2) 38,433 88,881
</TABLE>
(1) Excludes merger and integration charges of $1.7mm and $26.3mm for the
quarter ending 9/30/00 and the nine months ending 9/30/00, respectively
(2) Excludes merger and integration costs and GAAP rent adjustment of $5.3mm
and $35.0mm for the quarter ending 9/30/00 and the nine months ending
9/30/00, respectively
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES VALUATION METRICS
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ANALYSIS OF FRONTLINE'S
HQ OWNERSHIP
<TABLE>
<CAPTION>
BASIC
HQ SHARES(1) OWNERSHIP(1)
------------ ------------
<S> <C> <C>
FrontLine Direct Ownership 8,156,440 56.7%
Call Option for $4.3mm 450,636 3.1%
------- ---
TOTAL FLCG CONTROL 8,607,076 59.8%
Other (Includes HQ
employee shares/options) 3,528,303 24.5%
A Warrants 2,260,557 15.7%
--------- ----
TOTAL FOR BASIC
COMPUTATION(2) 14,395,936 100.0%
==========
</TABLE>
HQ CAPITALIZATION
(as of 9/30/00)
<TABLE>
<CAPTION>
<S> <C>
Senior Debt $216mm
Mezzanine Debt $125mm
Preferred (redemption value) $230mm
------
TOTAL DEBT & PREFERRED $571mm
FRONTLINE CAPITALIZATION
(as of 9/30/00)
Bank Debt $ 25mm
Debt to Reckson (3) $106mm
Preferred (redemption value) $ 26mm
------
TOTAL DEBT $157mm
</TABLE>
(1) Calculated using Treasury Method @ $36.57/share; total shares outstanding
without Treasury Method is 15,073,142
(2) Assumes preferred redeemed upon IPO or converted at IPO pricing; excludes
potential dilution from B warrants which become exercisable if no IPO
occurs before 3/1/02
(3) Excludes $40mm of debt associated with Reckson Strategic Venture Partners
and includes accrued interest.
5
FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES STRATEGY TO UNLEASH VALUE
--------------------------------------------------------------------------------
STEP 1 - PRIOR FRONTLINE STRUCTURE
FRONTLINE
CAPITAL
GROUP
STEP 2 - SEPARATED INTO 2 OPERATING UNITS
FRONTLINE
CAPITAL
GROUP
FRONTLINE'S
HQ INTEREST
60%
FRONTLINE'S
OTHER
HOLDINGS
STEP 3 - POTENTIAL SPIN OFF OF NON-HQ HOLDINGS
FRONTLINE
CAPITAL
GROUP
FRONTLINE'S
HQ INTEREST
60%
FRONTLINE'S
OTHER
HOLDINGS (SPUN OFF)
This information is based on management expectations. Actual results may differ
materially.
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES MAXIMIZING VALUE
--------------------------------------------------------------------------------
CASH MANAGEMENT
FRONTLINE ANTICIPATES REDUCING
MONTHLY OVERHEAD BY OVER 80%
WITH PROPORTIONATE DECREASES IN ALL MONTHLY G&A COST CATEGORIES:
__
/_/ Corporate costs
__
/_/ Other G&A
__
/_/ Professional fees
__
/_/ Rent
__
/_/ Office expense
__
/_/ Payroll & benefits
Current $1.54MM
Stabilized $257K
Note: Current and stabilized burn rate exclude interest expense of $1.175mm per
month. This information is based on management expectations. Actual results may
differ materially.
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES INVESTED CAPITAL
--------------------------------------------------------------------------------
TOTAL INVESTED CAPITAL
__
/_/ HQ - 59%
__
/_/ OnSite - 12%
__
/_/ Realty IQ - 9%
__
/_/ Employee Matters - 7%
__
/_/ Others - 13%
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES FRONTLINE CORE HOLDINGS
--------------------------------------------------------------------------------
ONSITE ACCESS
CONTINUED TO GROW CUSTOMER BASE AND EXECUTED PROGRESS AS ONE OF THE FASTEST
GROWING BUILDING-CENTRIC INTEGRATED COMMUNICATIONS PROVIDER.
o 128 million s.f. lit and in service within 25 markets across the U.S. and
Canada
o Signed a commercial agreement with AT&T to deliver communications
technology throughout commercial office buildings and offer a full suite of
competitive products to OnSite's extensive small and medium-sized business
customer base in the U.S.
o OnSite secured $50 million in additional financing from AT&T
EMPLOYEEMATTERS
CONTINUED TO ATTRACT STRONG ALLIANCES AND AGREEMENTS WITH PREMIER COMPANIES AND
EXPANDED ITS PRODUCT OFFERINGS, LEADING TO RAPIDLY GROWING CUSTOMER BASE
o Signed distribution deal with Prudential Insurance Company of America
o Signed an agreement with MasterCard International to serve as a preferred
provider of human resource and administration services for their Small
Business Connections website
o Entered into a strategic partnership with HotOffice.com, Bizfinity and
UpShot.com
REALTYIQ.COM
DEMONSTRATED SUCCESS AS ONE OF THE NATION'S LEADING SOURCE OF COMMERCIAL REAL
ESTATE INFORMATION, EDITORIAL COMMENTARY AND PRODUCTIVITY TOOLS FOR INDUSTRY
PROFESSIONALS ON THE INTERNET.
o Developed extensive proprietary database
o Acquired Rainmaker Publications Group, publisher of Realty Stock Review and
Property magazine, edited by well-known real estate journalist Barry
Vinocur. He joined as RealtyIQ's SVP of Editorial Content
o Formed alliances with: National Network of Commercial Real Estate Women,
Tri-State Commercial & Industrial Association of Realtors, and Detroit Area
Commercial Board of Realtors
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WOKPLACES MARKET PERCEPTION
--------------------------------------------------------------------------------
MARKET RECOGNIZES PROGRESS
October 4, 2000 through November 1, 2000
o Segregation of assets and strategy shift has distinguished FrontLine from
the rest of the sector
Over the period from October 4, 2000 (a) through November 1, 2000,
Frontline's stock price has significantly outperfomed its sector index (1)
(a) On 10/18/2000; Frontline announced separation of HQ and other businesses
(1) Sector Index includes ICGE, SFE, CMGI, and DVIN
10
FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES INTRODUCTION TO HQ GLOBAL WORKPLACES
--------------------------------------------------------------------------------
HQ GLOBAL WORKPLACES
GARY KUSIN
CEO
BILL MCCALMONT
CFO
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES AGENDA
--------------------------------------------------------------------------------
o WHO WE ARE
o Market Overview
o Business Economics
o Financial Metrics
o Summary
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES WHO WE ARE
--------------------------------------------------------------------------------
SUMMARY
o HQ Global Workplaces is the worldwide market leader in the officing
solutions market
o Approximately $160mm of revenues for the 3rd Quarter
o Approximately $35mm of EBITDA(1) for the 3rd Quarter
o We have 469 locations in 17 countries
o Over 150 more than our nearest competitor
o We serve over 65,000 customers with over 2,800 dedicted, professional
employees
HQ PROVIDES PEOPLE, INFRASTRUCTURE AND TECHNOLOGY TO ENABLE OUR CLIENTS TO WORK
HOWEVER, WHENEVER AND WHEREVER THEY WANT
(1) Excludes merger and integration charges of $1.7mm for the quarter ending
9/30/00
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES WHO WE ARE
--------------------------------------------------------------------------------
WORLDWIDE LOCATIONS
UNITED STATES
We operate in every major city in the United States.
INTERNATIONAL LOCATIONS
Argentina(2)
Austria(2)
Brazil(10)
Canada(1)
Chile(2)
Colombia(1)
England(21)
France(8)
Germany(5)
Mexico(11)
Philippines(1)
Puerto Rico(1)
Scotland(1)
South Africa(1)
Spain(1)
Switzerland(3)
Venezuela(1)
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES WHO WE ARE
--------------------------------------------------------------------------------
OUR TEAM
WE HAVE BUILT A WORLD CLASS MANAGEMENT TEAM AND HAVE TOP TIER INVESTORS
MANAGEMENT Our senior leadership team, led by Gary Kusin (CEO) and
David Rupert (President and COO) has a wealth of experience
both in and outside this industry
o Members of our team have worked for Bain & Co., Booz,
Allen & Hamilton, IBM, Marriott, Philip Morris, Pitney
Bowes, and Travelocity
o Our Field Operations Team members AVERAGE 12.5 years
experience in our industry
INVESTORS FrontLine Capital Group, Equity Office Properties,
CarrAmerica, Fortress, AEW, ABP, Blackstone, Chase Capital
Partners
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FrontLine
FrontLine Capital Group
<PAGE>
o Who We Are
o MARKET OVERVIEW
o Business Economics
o Financial Metrics
o Summary
16
FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES MARKET OVERVIEW
--------------------------------------------------------------------------------
THREE MEGATRENDS ARE CHANGING EVOLUTION OF THE MARKET
THE WAY PEOPLE WORK
o INCREASED OUTSOURCING
o INCREASED GLOBALIZATION
o INCREASED BUSINESS USE OF TECHNOLOGY
IS DRIVING A REQUIREMENT FOR GREATER WORKFORCE MOBILITY AND FLEXIBILITY
WHICH RESULTS IN THE NEED FOR A SOLUTION THAT ENABLES PEOPLE TO WORK VIRTUALLY
ANYWHERE
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES MARKET OVERVIEW
--------------------------------------------------------------------------------
THESE TRENDS HAVE EXPANDED THE MARKETPLACE... EVOLUTION OF THE MARKET
<TABLE>
<CAPTION>
Pre-1995 1995-1999 2000-Future
Executive Suites Office Outsourcing Officing Solutions
---------------- ------------------ ------------------
SPACE SUPPORT TECNHOLOGY
SERVICES
<S> <C> <C>
Office Space Office Space Office Space
Conference Rooms Conference Rooms Conference Rooms
Day Offices Day Offices Day Offices
Training Rooms Training Rooms Training Rooms
Admin Support Admin Support
Copiers, Fax Copier, Fax
Telephone Answering Telephone Answering
Mail Services, Catering Mail Serivces, Catering
Concierge Services Concierge Services
Desktop Publishing Desktop Publishing
Teleconferencing
Broadband Access
Subscription Computing
Web Conferencing
Video Conferencing
Unified Messaging
Virtual Assistant
</TABLE>
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES MARKET OVERVIEW
--------------------------------------------------------------------------------
GROWTH DRIVERS
...AND DEMAND FOR
BUSINESS SERVICES IS
ACCELERATING
CHANGING DEMOGRAPHICS
THE U.S. MOBILE WORKFORCE IS RAPIDLY EXPANDING
OUR EXPANDING MARKET
FORRESTER RESEARCH PREDICTS THAT SALES OF ONLINE BUSINESS SERVICES WILL GROW AT
A 78% CAGR OVER THE NEXT FEW YEARS INCLUDING FINANCIAL, PROFESSIONAL, ADMIN AND
SUPPORT, BUSINESS TRAVEL AND TELECOM SERVICES.
FrontLine
FrontLine Capital Group
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<PAGE>
HQ GLOBAL
WORKPLACES MARKET OVERVIEW
--------------------------------------------------------------------------------
INDUSTRY FRAGMENTATION
INDUSTRY IS FRAGMENTED WITH A LARGE NUMBER OF SMALL
COMPETITORS, MANY OF WHOM ARE STILL IN THE "EXECUTIVE
SUITES WORLD"
<TABLE>
<CAPTION>
Total U.S. Office Space Total U.S. Centers
------------------------- ------------------------------
<S> <C>
Only a small percentage Of the 4000 total U.S. centers,
the total U.S. office HQ is the largest operator, with
space is serviced workspace; approximately 10% of the total.
the vast majority is
traditional workspace.
</TABLE>
Source: Executive Suite Association
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES MARKET OVERVIEW
--------------------------------------------------------------------------------
SUCCESS FACTORS
THE INDUSTRY SHOULD CONSOLIDATE AS SCALE
BECOMES A BASIS OF COMPETITIVE ADVANTAGE
REQUIREMENTS FOR SUCCESS
<TABLE>
<S> <C>
NETWORK COVERAGE-
a global footprint and brand are
required to serve large
companies
BREADTH OF SERVICES SMALL PLAYERS WILL CONTINUE
...To meet the evolving needs TO BECOME LESS COMPETITIVE
of customers
PRIVILEGED RELATIONSHIPS NEW PLAYERS FACE
...with property owners to SIGNIFICANT BARRIERS TO ENTRY
access prime real estate globally
ACCESS TO CAPITAL
...to support center expansion
and investments in technology
services
</TABLE>
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES MARKET OVERVIEW
--------------------------------------------------------------------------------
HQ VISION FOR THE FUTURE
WE WILL EXPAND OUR SERVICES AND
DELIVERY CHANNELS TO MEET THE CHANGING
DEMANDS OF THE MARKETPLACE
<TABLE>
<CAPTION>
CUSTOMERS DELIVERY CHANNELS OFFERINGS
--------- ----------------- ---------
<S> <C> <C>
Members In Person Technologies
o In Office Call Center Services
o Virtual Virtual/On-line Space
Products
</TABLE>
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES AGENDA
--------------------------------------------------------------------------------
o Who We Are
o Market Overview
o BUSINESS ECONOMICS
o Financial Metrics
o Summary
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES BUSINESS ECONOMICS
--------------------------------------------------------------------------------
CLIENT BASE
THE MAJORITY OF OUR CLIENTS ARE
RELATIVELY LARGE CORPORATIONS
<TABLE>
<CAPTION>
REPRESENTATIVE CLIENTS:
-------------------------------
<S> <C>
APPROXIMATELY 70% OF AMERICA ONLINE
HQ'S CUSTOMER BASE ARIBA
IS COMPRISED OF LARGE CHARLES SCHWAB
CORPORATE CLIENTS. COMPUTER ADAPTIVE TECHNOLOGIES
JP MORGAN
MORGAN STANLEY DEAN WITTER
NOKIA
NORTEL
SIEBEL SYSTEMS
SUN MICROSYSTEMS
3COM
</TABLE>
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES BUSINESS ECONOMICS
--------------------------------------------------------------------------------
CLIENT ECONOMIC PROPOSITION
CLIENTS CAN QUICKLY SEE THE FAVORABLE
ECONOMICS WE OFFER THEM
<TABLE>
<S> <C>
TIME o Immediate availability vs. locating, securing,
building out conventional office space
UP-FRONT o Services Retainer: 1.5 months vs. 1 year
CAPITAL o Furniture, property taxes included in monthly
rent vs. upfront capitalized expenses
FLEXIBILITY o Short-term vs. long-term leases
o Pay only for services, space used, when used
MONTHLY o Very competitive with conventional space, but
EXPENSE with greater services, more flexibility, less
capital outlay upfront
</TABLE>
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FrontLine
FrontLine Capital Group
<PAGE>
HQ GLOBAL
WORKPLACES BUSINESS ECONOMICS
--------------------------------------------------------------------------------
GENERAL CHARACTERISTICS
o Our business model permits us to break even at a relatively low center
occupancy level
-- 55% to 65% center occupancy is breakeven
-- we are currently 90+% occupied in our core centers
o These economics permit us to capture relatively high levels of EBITDA
margins and cash flows
-- ~20% to 30% EBITDA margins
-- ~15% to 25% cash flow/sales levels
o Investments in new centers exhibit strong ROI characteristics
-- 50% to 60% stabilized EBITDA yields on new centers
o Stable cash flows
This information is based on management expectations. Actual results may differ
materially.
FrontLine
FrontLine Capital Group
26
<PAGE>
HQ GLOBAL
WORKPLACES BUSINESS ECONOMICS
--------------------------------------------------------------------------------
NEW CENTER PROTOTYPE ECONOMICS
NEW CENTER RETURN ON
INVESTED CAPITAL
o 40,000 square foot center with 250 workstations
o $2.2 million initial investment required
o 8 months to breakeven; 14 months to stabilization
o Revenues in excess of $4 million following stabilization
o EBITDA yields in excess of 60% following stabilization through Year 5
This information is based on management expectations.
Actual results may differ materially.
FrontLine
FrontLine Capital Group
27
<PAGE>
HQ GLOBAL
WORKPLACES
BUSINESS ECONOMICS
--------------------------------------------------------------------------------
WE ARE PURSING TWO LEVERS TO GROWTH POTENTIAL
ACCELERATE REVENUE AND PROFIT GROWTH
LEVER ACTION
--------------------------------------- ------------------------------------
INCREASE REVENUE o Maintain high occupancy rates
PER CENTER through quality of customer
experience
o Re-pricing initiatives
o Expanded service offerings
o Increasing utilization of space
and services
o Video conferencing
o Virtual services (i.e., Business
Access)
EXPAND NUMBER OF o Increase workstations by 25% per
CENTERS year through
o HQ development
o Joint ventures
o Managed centers
IF SUCCESSFUL, THESE ACTIONS ARE EXPECTED TO RESULT
IN AVERAGE EBITDA GROWTH RATES OF 30% TO 40%
This information is based on management expectations.
Actual results may differ materially.
FrontLine
FrontLine Capital Group
28
<PAGE>
HQ GLOBAL
WORKPLACES
AGENDA
--------------------------------------------------------------------------------
o Who We Are
o Market Overview
o Business Economics
o FINANCIAL METRICS
o Summary
FrontLine
FrontLine Capital Group
29
<PAGE>
HQ GLOBAL
WORKPLACES
FINANCIAL METRICS
--------------------------------------------------------------------------------
PRO FORMA REVENUE AND BCOI
PRO FORMA REVENUE PRO FORMA BCOI
YEAR 2000, Q1 THROUGH Q3 YEAR 2000, Q1 THROUGH Q3
($millions) ($millions)
$165- $60-
$160- $160 $50 $53
$155- $153 $40- $48
$150- $34
$145
$140- $30-
$135- $136
$130- $20-
$125- $10-
$120 ----------------------------------- $0 ------------------------------------
1st QUARTER 2nd QUARTER 3rd QUARTER 1st QUARTER 2nd QUARTER 3rd QUARTER
FrontLine
FrontLine Capital Group
30
<PAGE>
HQ GLOBAL
WORKPLACES
FINANCIAL METRICS
--------------------------------------------------------------------------------
PRO FORMA EBITDA AND CASH-ADJUSTED EBITDA(1)
PRO FORMA EBITDA(1) PRO FORMA CASH-ADJUSTED EBITDA (2)
YEAR 2000, Q1 THROUGH Q3 YEAR 2000, Q1 THROUGH Q3
($millions) ($millions)
$40- $40-
$38
$35- $35 $35-
$33
$30- $30 $30-
$25- $25-
$20- $20-
$18
$15- $15 $15-
$10- $10-
$5- $5-
$0 ----------------------------------- $0 ------------------------------------
1st QUARTER 2nd QUARTER 3rd QUARTER 1st QUARTER 2nd QUARTER 3rd QUARTER
(1) Excludes merger and integration charges of $1.9mm, $22.6mm, and $1.7mm for
the 1st, 2nd and 3rd quarters, respectively.
(2) Excludes merger and integration costs and GAAP rent adjustment of $4.2mm,
$25.0mm, $5.3mm for the 1st, 2nd and 3rd quarters, respectively.
FrontLine
FrontLine Capital Group
31
<PAGE>
HQ GLOBAL
WORKPLACES AGENDA
--------------------------------------------------------------------------------
o Who We Are
o Market Overview
o Business Economics
o Financial Metrics
o SUMMARY
FrontLine
FrontLine Capital Group
32
<PAGE>
HQ GLOBAL
WORKPLACES SUMMARY
--------------------------------------------------------------------------------
o Market growth is strong and accelerating
o Well-positioned in key markets with clear leadership in the U.S.
o Rapid revenue growth with high levels of profitability
o Strong cash flow to fuel rapid growth
o Strong, experienced management and field operations team with a proven
ability to execute
o Leveraging relationships with investors
o Access to capital
o Access to prime locations
FrontLine
FrontLine Capital Group
33
