<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 333-57103
Mack-Cali Realty, L.P.
................................................................................
(Exact name of registrant as specified in its charter)
Delaware 22-3315804
....................................... ..............................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11 Commerce Drive, Cranford, New Jersey 07016-3501
................................................................................
(Address of principal executive office)
(Zip Code)
(908) 272-8000
................................................................................
(Registrant's telephone number, including area code)
Not Applicable
................................................................................
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such report) YES X NO and (2) has been subject
to such filing requirements for the past ninety (90) days YES X NO
<PAGE>
MACK-CALI REALTY, L.P.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998................................................. 4
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998......................................... 5
Consolidated Statement of Changes in Partners' Capital
for the three months ended March 31, 1999............................. 6
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998......................................... 7
Notes to Consolidated Financial Statements................................ 8-27
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 28-39
Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 40
PART II OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings......................................................... 41
Item 2. Changes in Securities and Use of Proceeds................................. 41
Item 3. Defaults Upon Senior Securities........................................... 41
Item 4. Submission of Matters to a Vote of Security Holders....................... 41
Item 5. Other Information......................................................... 41
Item 6. Exhibits.................................................................. 42
Signatures................................................................ 44
</TABLE>
Page 2 of 44
<PAGE>
MACK-CALI REALTY, L.P.
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
The accompanying unaudited consolidated balance sheets, statements
of operations, of changes in partners' capital, and of cash flows
and related notes, have been prepared in accordance with generally
accepted accounting principles ("GAAP") for interim financial
information and in conjunction with the rules and regulations of
the Securities and Exchange Commission ("SEC"). Accordingly, they
do not include all of the disclosures required by GAAP for
complete financial statements. The financial statements reflect
all adjustments consisting only of normal, recurring adjustments,
which are, in the opinion of management, necessary for a fair
presentation for the interim periods.
The aforementioned financial statements should be read in
conjunction with the notes to the aforementioned financial
statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations and the financial statements
and notes thereto included in the Operating Partnership's Annual
Report on Form 10-K and Form 10-K/A for the fiscal year ended
December 31, 1998.
The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected
for the entire fiscal year or any other period.
Page 3 of 44
<PAGE>
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
================================================================================
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rental property
Land and leasehold interests $ 515,000 $ 510,534
Buildings and improvements 2,899,495 2,887,115
Tenant improvements 74,659 64,464
Furniture, fixtures and equipment 6,021 5,686
- -------------------------------------------------------------------------------------------------------------
3,495,175 3,467,799
Less - accumulated depreciation and amortization (198,945) (177,934)
- -------------------------------------------------------------------------------------------------------------
Total rental property 3,296,230 3,289,865
Cash and cash equivalents 12,406 5,809
Investments in unconsolidated joint ventures 87,736 66,508
Unbilled rents receivable 44,576 41,038
Deferred charges and other assets, net 44,842 39,020
Restricted cash 6,378 6,026
Accounts receivable, net of allowance for doubtful accounts
of $757 and $670 6,774 3,928
- -------------------------------------------------------------------------------------------------------------
Total assets $ 3,498,942 $ 3,452,194
=============================================================================================================
LIABILITIES AND PARTNERS' CAPITAL
- -------------------------------------------------------------------------------------------------------------
Senior Unsecured Notes $ 597,265 $ --
Revolving credit facilities 110,600 671,600
Mortgages and loans payable 749,914 749,331
Distributions payable 40,757 40,564
Accounts payable and accrued expenses 33,401 33,253
Rents received in advance and security deposits 32,555 29,980
Accrued interest payable 3,838 2,246
- -------------------------------------------------------------------------------------------------------------
Total liabilities 1,568,330 1,526,974
- -------------------------------------------------------------------------------------------------------------
Commitments and contingencies
PARTNERS' CAPITAL:
Preferred units, 229,304 and 250,256 units outstanding 235,200 223,330
General partner, 58,268,701 and 57,266,137 common units outstanding 1,455,686 1,387,674
Limited partners, 8,870,608 and 9,086,585 common units outstanding 231,202 305,692
Unit warrants, 2,000,000 and 2,000,000 outstanding 8,524 8,524
- -------------------------------------------------------------------------------------------------------------
Total partners' capital 1,930,612 1,925,220
- -------------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $ 3,498,942 $ 3,452,194
=============================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
Page 4 of 44
<PAGE>
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended March 31,
REVENUES 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Base rents $ 116,080 $ 92,916
Escalations and recoveries from tenants 14,860 10,357
Parking and other 3,900 1,981
Interest income 255 544
Equity in (loss) earnings of unconsolidated joint ventures (206) 25
- ---------------------------------------------------------------------------------------------------------------
Total revenues 134,889 105,823
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
- ---------------------------------------------------------------------------------------------------------------
Real estate taxes 13,843 10,073
Utilities 9,592 8,301
Operating services 16,916 12,693
General and administrative 8,134 6,196
Depreciation and amortization 21,969 16,231
Interest expense 23,622 18,480
- ---------------------------------------------------------------------------------------------------------------
Total expenses 94,076 71,974
- ---------------------------------------------------------------------------------------------------------------
Net income 40,813 33,849
Preferred unit distributions (3,869) (3,911)
- ---------------------------------------------------------------------------------------------------------------
Net income available to common unitholders $ 36,944 $ 29,938
===============================================================================================================
Basic earnings per unit $ 0.55 $ 0.52
Diluted earnings per unit $ 0.55 $ 0.51
- ---------------------------------------------------------------------------------------------------------------
Distributions declared per common unit $ 0.55 $ 0.50
- ---------------------------------------------------------------------------------------------------------------
Basic weighted average units outstanding 67,011 57,933
Diluted weighted average units outstanding 67,283 58,682
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
Page 5 of 44
<PAGE>
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
General Limited
Preferred Partner Partner Preferred General Limited Unit
Units Units Units Unitholders Partner Partners Warrants Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 250 57,266 9,087 $223,330 $1,387,674 $305,692 $8,524 $1,925,220
Net income -- -- -- 3,869 32,064 4,880 -- 40,813
Distributions -- -- -- (3,869) (32,049) (4,839) -- (40,757)
Conversion of preferred units
to limited partner units (21) -- 605 (21,491) -- 21,491 -- --
Redemption of limited partner
units for shares of common stock -- 1,010 (1,010) -- 32,027 (32,027) -- --
Issuance of limited partner units -- -- 189 -- -- 5,599 --- 5,599
Contributions - proceeds from
stock options exercised -- 19 -- -- 433 -- -- 433
Repurchase of general partner units -- (26) -- -- (713) -- -- (713)
Deferred compensation plan
for directors -- -- -- -- 17 -- -- 17
Allocation of net equity -- -- -- 33,361 36,233 (69,594) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 229 58,269 8,871 $235,200 $1,455,686 $231,202 $8,524 $1,930,612
==============================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
Page 6 of 44
<PAGE>
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 40,813 $ 33,849
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,969 16,231
Amortization of deferred financing costs 557 254
Equity in loss (earnings) of unconsolidated joint ventures 206 (25)
Changes in operating assets and liabilities:
Increase in unbilled rents receivable (3,538) (3,203)
Increase in deferred charges and other assets, net (1,822) (3,790)
Increase in accounts receivable, net (2,846) (34)
Increase in accounts payable and
accrued expenses 148 374
Increase in rents received in advance and
security deposits 2,575 8,256
Increase (decrease) in accrued interest payable 1,592 (1,554)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 59,654 $ 50,358
===============================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------------
Additions to rental property $ (21,673) $ (406,659)
Issuance of mortgage note receivable -- (20,000)
Investments in unconsolidated joint ventures (22,474) (18,009)
Distributions from unconsolidated joint ventures 1,040 --
(Increase) decrease in restricted cash (352) 53
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ (43,459) $ (444,615)
===============================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
- ---------------------------------------------------------------------------------------------------------------
Proceeds from Senior Unsecured Notes $ 597,252 $ --
Proceeds from revolving credit facilities 40,900 419,851
Proceeds from mortgages and loans payable 45,500 --
Repayments of revolving credit facilities (601,900) (185,200)
Repayments of mortgages and loans payable (44,932) (20,314)
Redemption of common units -- (766)
Payment of financing costs (5,574) --
Repurchase of general partner units (713) --
Net proceeds from common stock offerings -- 215,784
Proceeds from stock options exercised 433 2,004
Payment of distributions (40,564) (28,089)
- ---------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities $ (9,598) $ 403,270
===============================================================================================================
Net increase in cash and cash equivalents $ 6,597 $ 9,013
Cash and cash equivalents, beginning of period $ 5,809 $ 2,704
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 12,406 $ 11,717
===============================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
Page 7 of 44
<PAGE>
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
================================================================================
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Mack-Cali Realty, L.P., a Delaware limited partnership, and its subsidiaries
(the "Operating Partnership") was formed on August 31, 1994 to conduct the
business of leasing, management, acquisition, development, construction, and
tenant-related services for its sole general partner, Mack-Cali Realty
Corporation and its subsidiaries (the "Corporation" or "General Partner"). The
Operating Partnership, through its operating divisions and subsidiaries,
including the Mack-Cali property-owning partnerships and limited liability
companies (collectively, the "Property Partnerships"), as described below, is
the entity through which all of the General Partner's operations are conducted.
The Property Partnerships, not a legal entity, consist of partnerships and
limited liability companies which are engaged in the ownership and operation of
the Properties (as hereinafter defined) of the Operating Partnership, excluding
certain Properties which are wholly-owned by the Operating Partnership. Prior to
January 1, 1998 the Property Partnerships were owned 99 percent by the Operating
Partnership as a non-controlling limited partner, and one percent by the General
Partner, as a controlling general partner. During 1998, the Operating
Partnership obtained control of the Property Partnerships pursuant to agreements
with the General Partner.
The General Partner is a fully-integrated, self-administered, self-managed real
estate investment trust ("REIT"). The General Partner controls the Operating
Partnership as its sole general partner, and owned an 86.8 percent and 86.3
percent common unit interest in the Operating Partnership as of March 31, 1999
and December 31, 1998, respectively.
The General Partner's business is the ownership of interests in and operation of
the Operating Partnership, and all of the General Partner's expenses are
incurred for the benefit of the Operating Partnership. The General Partner is
reimbursed by the Operating Partnership for all expenses it incurs relating to
the ownership and operation of the Operating Partnership. The Operating
Partnership earns a management fee of between three percent and five percent of
revenues, as defined, for its management of the Property Partnerships.
As of March 31, 1999, the Operating Partnership owned or had interests in 253
properties plus developable land (collectively, the "Properties"). The
Properties aggregate approximately 28.0 million square feet, and are comprised
of 159 office buildings and 81 office/flex buildings totaling approximately 27.6
million square feet (which included four office buildings and one office/flex
building, aggregating 1.0 million square feet, owned by unconsolidated joint
ventures in which the Operating Partnership has investment interests), six
industrial/warehouse buildings totaling approximately 387,400 square feet, two
multi-family residential complexes consisting of 453 units, two stand-alone
retail properties and three land leases. The Properties are located in 12
states, primarily in the Northeast, plus the District of Columbia.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include all accounts of the
Operating Partnership and its subsidiaries, including the Property Partnerships.
During 1998, the Operating Partnership obtained control of the Property
Partnerships pursuant to agreements with the General Partner, as discussed
above. Accordingly, the accounts of the Property Partnerships are consolidated
with the financial statements of the Operating Partnership effective January 1,
1998. Prior to January 1, 1998, the Operating Partnership accounted for the
Property Partnerships under the equity method of accounting. All significant
intercompany accounts and transactions have been eliminated. See Investments in
Unconsolidated Joint Ventures in Note 2 for the Operating Partnership's
accounting treatment of unconsolidated joint venture interests.
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") 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
Page 8 of 44
<PAGE>
expenses during the reporting period. Actual results could differ from those
estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
RENTAL
PROPERTY Rental properties are stated at cost less accumulated
depreciation and amortization. Costs directly related to
the acquisition and development of rental properties are
capitalized. Capitalized development costs include
interest, property taxes, insurance and other project
costs incurred during the period of construction.
Ordinary repairs and maintenance are expensed as
incurred; major replacements and betterments, which
improve or extend the life of the asset, are capitalized
and depreciated over their estimated useful lives.
Fully-depreciated assets are removed from the accounts.
Properties are depreciated using the straight-line
method over the estimated useful lives of the assets.
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Leasehold interests Remaining lease term
-------------------------------------------------------------------------
Buildings and improvements 5 to 40 years
-------------------------------------------------------------------------
Tenant improvements The shorter of the term of
the related lease or useful life
-------------------------------------------------------------------------
Furniture, fixtures and equipment 5 to 10 years
-------------------------------------------------------------------------
</TABLE>
On a periodic basis, management assesses whether there
are any indicators that the value of the real estate
properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate
future cash flows (undiscounted and without interest
charges) to be generated by the property are less than
the carrying value of the property. To the extent an
impairment has occurred, the loss shall be measured as
the excess of the carrying amount of the property over
the fair value of the property. Management does not
believe that the value of any of its rental properties
is impaired.
INVESTMENTS IN
UNCONSOLIDATED
JOINT VENTURES The Operating Partnership accounts for its investments
in unconsolidated joint ventures under the equity method
of accounting as the Operating Partnership exercises
significant influence, but does not control these
entities. These investments are recorded initially at
cost, as Investments in Unconsolidated Joint Ventures,
and subsequently adjusted for equity in net earnings
(loss) and cash contributions and distributions. Any
difference between the carrying amount of these
investments on the balance sheet of the Operating
Partnership and the under-lying equity in net assets is
amortized as an adjustment to equity in earnings (loss)
over 40 years. See Note 4.
CASH AND CASH
EQUIVALENTS All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash
equivalents.
DEFERRED
FINANCING COSTS Costs incurred in obtaining financing are capitalized
and amortized on a straight-line basis, which
approximates the effective interest method, over the
term of the related indebtedness. Amortization of such
costs is included in interest expense and was $557 and
$254 for the three months ended March 31, 1999 and 1998,
respectively.
Page 9 of 44
<PAGE>
DEFERRED
LEASING COSTS Costs incurred in connection with leases are capitalized
and amortized on a straight-line basis over the terms of
the related leases and included in depreciation and
amortization. Unamortized deferred leasing costs are
charged to amortization expense upon early termination
of the lease. Certain employees provide leasing services
to the Properties. The portion of such compensation,
which is capitalized and amortized, approximated $658
and $577, for the three months ended March 31, 1999 and
1998, respectively.
REVENUE
RECOGNITION Base rental revenue is recognized on a straight-line
basis over the terms of the respective leases. Unbilled
rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently
billed in accordance with the lease agreements. Parking
revenue includes income from parking spaces leased to
tenants. Rental income on residential property under
operating leases having terms generally of one year or
less is recognized when earned.
Reimbursements are received from tenants for certain
costs as provided in the lease agreements. These costs
generally include real estate taxes, utilities,
insurance, common area maintenance and other recoverable
costs. See Note 14.
INCOME AND
OTHER TAXES The Operating Partnership is a partnership and, as a
result, all income and losses of the partnership are
allocated to the partners for inclusion in their
respective income tax returns. Accordingly, no provision
or benefit for income taxes has been made in the
accompanying financial statements.
INTEREST RATE
CONTRACTS Interest rate contracts are utilized by the Operating
Partnership to reduce interest rate risks. The Operating
Partnership does not hold or issue derivative financial
instruments for trading purposes. The differentials to
be received or paid under contracts designated as hedges
are recognized over the life of the contracts as
adjustments to interest expense.
In certain situations, the Operating Partnership uses
forward treasury lock agreements to mitigate the
potential effects of changes in interest rates for
prospective transactions. Gains and losses are deferred
and amortized as adjustments to interest expense over
the remaining life of the associated debt to the extent
that such debt remains outstanding.
EARNINGS
PER UNIT In accordance with the Statement of Financial
Accounting Standards No. 128 ("FASB No. 128"), the
Operating Partnership presents both basic and diluted
earnings per unit ("EPU"). Basic EPU excludes dilution
and is computed by dividing net income available to
common unitholders by the weighted average number of
units outstanding for the period. Diluted EPU reflects
the potential dilution that could occur if securities or
other contracts to issue common units were exercised or
converted into common units, where such exercise or
conversion would result in a lower EPU amount.
DISTRIBUTIONS
PAYABLE The distributions payable at March 31, 1999 represents
distributions payable to common unitholders of record on
April 6, 1999 (67,140,809 units), and preferred
distributions to preferred unitholders (229,304
preferred units) for the first quarter 1999. The first
quarter 1999 common unit distribution of $0.55 per
common unit (pro-rated for units issued during the
quarter), as well as the first quarter preferred unit
distribution of $16.875 per preferred unit, were
approved by the General Partner on March 25, 1999 and
paid on April 23, 1999.
Page 10 of 44
<PAGE>
UNDERWRITING
COMMISSIONS
AND COSTS Underwriting commissions and costs incurred in
connection with the Corporation's stock offerings are
reflected as a reduction of additional paid-in-capital.
STOCK OPTIONS The Operating Partnership accounts for stock-based
compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
Interpretations ("APB No. 25"). Under APB No. 25,
compensation cost is measured as the excess, if any, of
the quoted market price of the Corporation's stock at
the date of grant over the exercise price of the option
granted. Compensation cost for stock options, if any, is
recognized ratably over the vesting period. The
Corporation's policy is to grant options with an
exercise price equal to the quoted closing market price
of the Corporation's stock on the business day preceding
the grant date. Accordingly, no compensation cost has
been recognized for the Corporation's stock option
plans. See Note 10.
3. ACQUISITIONS/TRANSACTIONS
OPERATING PROPERTY ACQUISITIONS
The Operating Partnership acquired the following operating properties during the
three months ended March 31, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Investment by
Acquisition # of Rentable Operating
Date Property/Portfolio Name Location Bldgs. Square Feet Partnership(a)
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICE
<S> <C> <C> <C> <C> <C>
3/05/99 Pacifica Portfolio - Phase III (b) Colorado Springs, El Paso County, CO 2 94,737 $ 5,709
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE PROPERTY ACQUISITIONS: 2 94,737 $ 5,709
====================================================================================================================================
The Operating Partnership acquired the following operating properties during the
year ended December 31, 1998:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Acquisition # of Rentable Investment by
Date Property/Portfolio Name Location Bldgs. Square Feet Company(a)
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICE
<S> <C> <C> <C> <C> <C>
2/05/98 500 West Putnam Avenue (c) Greenwich, Fairfield County, CT 1 121,250 $ 20,125
2/25/98 10 Mountainview Road Upper Saddle River, Bergen County, NJ 1 192,000 24,754
3/12/98 1250 Capital of Texas Highway South Austin, Travis County, TX 1 270,703 37,266
3/27/98 Prudential Business Campus (d) Parsippany, Morris County, NJ 5 703,451 130,437
3/27/98 Pacifica Portfolio- Phase I (b) (e) Denver & Colorado Springs, CO 10 620,017 74,966
3/30/98 Morris County Financial Center Parsippany, Morris County, NJ 2 301,940 52,763
5/13/98 3600 South Yosemite Denver, Denver County, CO 1 133,743 13,555
5/22/98 500 College Road East (f) Princeton, Mercer County, NJ 1 158,235 21,334
6/01/98 1709 New York Ave./1400 L Street N.W. Washington, D.C. 2 325,000 90,385
6/03/98 400 South Colorado Boulevard Denver, Denver County, CO 1 125,415 12,147
6/08/98 Pacifica Portfolio - Phase II (b) (e) (g) Denver & Colorado Springs, CO 6 514,427 85,910
7/16/98 4200 Parliament Drive (h) Lanham, Prince George's County, MD 1 122,000 15,807
9/10/98 40 Richards Avenue (e) Norwalk, Fairfield County, CT 1 145,487 19,587
9/15/98 Seven Skyline Drive (i) Hawthorne, Westchester County, NY 1 109,000 13,379
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE PROPERTY ACQUISITIONS: 34 3,842,668 $612,415
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICE/FLEX
1/30/98 McGarvey Portfolio (j) Moorestown, Burlington County, NJ 17 748,660 $ 47,526
7/14/98 1510 Lancer Road (k) Moorestown, Burlington County, NJ 1 88,000 3,700
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE/FLEX PROPERTY ACQUISITIONS: 18 836,660 $ 51,226
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING PROPERTY ACQUISITIONS: 52 4,679,328 $663,641
====================================================================================================================================
</TABLE>
SEE FOOTNOTES TO THESE SCHEDULES ON SUBSEQUENT PAGE.
Page 11 of 44
<PAGE>
PROPERTIES PLACED IN SERVICE
The Operating Partnership placed in service the following properties through the
completion of development during the three months ended March 31, 1999:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Investment by
Date Placed # of Rentable Operating
in Service Property Name Location Bldgs. Square Feet Partnership (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OFFICE/FLEX
3/01/99 One Center Court Totowa, Passaic County, NJ 1 38,961 $ 2,140
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE/FLEX PROPERTIES PLACED IN SERVICE: 1 38,961 $ 2,140
- ------------------------------------------------------------------------------------------------------------------------------------
LAND LEASE
2/01/99 Horizon Center Business Park(l) Hamilton Township, Mercer County, NJ n/a 27.7 acres $ 1,007
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LAND LEASE TRANSACTIONS: 27.7 acres $ 1,007
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES PLACED IN SERVICE: 1 38,961 $ 3,147
====================================================================================================================================
The Operating Partnership placed in service the following properties through the
completion of development or redevelopment during the year ended December 31,
1998:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Investment by
Date Placed # of Rentable Operating
in Service Property Name Location Bldgs. Square Feet Partnership (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OFFICE
1/15/98 224 Strawbridge Drive Moorestown, Burlington County, NJ 1 74,000 $ 7,796
8/01/98 228 Strawbridge Drive Moorestown, Burlington County, NJ 1 74,000 7,986
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE PROPERTIES PLACED IN SERVICE: 2 148,000 $ 15,782
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICE/FLEX
6/08/98 Two Center Court Totowa, Passaic County, NJ 1 30,600 $ 2,231
10/23/98 650 West Avenue Stamford, Fairfield County, CT 1 40,000 4,952
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE/FLEX PROPERTIES PLACED IN SERVICE: 2 70,600 $ 7,183
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES PLACED IN SERVICE: 4 218,600 $ 22,965
====================================================================================================================================
</TABLE>
(a) Unless otherwise noted, transactions were funded by the Operating
Partnership primarily with funds made available through draws on
the Operating Partnership's credit facilities.
(b) The Operating Partnership may be required to pay additional
consideration due to earn-out provisions in the agreement. William
L. Mack, a director and equity holder of the Operating Partnership,
was an indirect owner of an interest in certain of the buildings
contained in the Pacifica portfolio.
(c) The acquisition was funded with cash as well as the assumption of
mortgage debt (estimated fair value of approximately $12,104, with
annual effective interest rate of 6.52 percent).
(d) The acquisition was funded primarily from proceeds received from
the sale of 2,705,628 shares of common stock (see Note 10). Also
included in the acquisition, but excluded from this schedule, is
(i) Nine Campus Drive, in which the Operating Partnership has a 50
percent interest through an unconsolidated joint venture (see Note
4), and (ii) developable land adjacent to the acquired portfolio
(see "1998 Redevelopment Properties/Developable Land
Acquisitions").
(e) The acquisition was funded with cash and the issuance of common
units to the seller (see Note 11).
(f) The property was acquired subject to a ground lease, which is
prepaid through 2031, and has two 10-year renewal options, at
rent levels as defined in the lease agreement.
(g) Also included in the acquisition, but excluded from this schedule,
is developable land adjacent to the acquired portfolio (see "1998
Redevelopment Properties/Developable Land Acquisitions").
(h) Includes land adjacent to the operating property, which may be
sub-divided for future development.
(i) The property was acquired through the exercise of a purchase option
obtained in connection with the Operating Partnership's acquisition
of 65 properties from Robert Martin Company, LLC in January 1997.
The acquisition was funded with cash, net of the repayment by the
seller of the remaining balance of a note receivable.
(j) The acquisition was funded with cash as well as the assumption of
mortgage debt (aggregate estimated fair value of approximately
$8,354, with a weighted average annual effective interest rate of
6.24 percent). The Operating Partnership is under contract to
acquire an additional four office/flex properties and has a right
of first refusal to acquire six additional office/flex properties.
(k) The property was acquired through the exercise of a purchase option
obtained in the acquisition of the McGarvey portfolio in January
1998.
(l) On February 1, 1999, the Operating Partnership entered into a
ground lease agreement to lease 27.7 acres of developable land
located at the Operating Partnership's Horizon Center Business
Park, located in Hamilton Township, Mercer County, New Jersey on
which Home Depot will develop a 134,000 square-foot retail store.
Page 12 of 44
<PAGE>
FIRST QUARTER 1999 DEVELOPABLE LAND TRANSACTIONS
On February 26, 1999, the Operating Partnership acquired approximately 2.3 acres
of vacant land adjacent to one of the Operating Partnership's operating
properties located in San Antonio, Bexar County, Texas for approximately $1,457,
which was made available from the Operating Partnership's cash reserves.
On March 2, 1999, the Operating Partnership entered into a joint venture with
SJP Allen Road to form MC-SJP Pinson Development, LLC, which acquired vacant
land located in Bernards Township, Somerset County, New Jersey for approximately
$3,197. The venture has plans to develop a 135,000 square-foot office building
on this site. The Operating Partnership accounts for its investment in the joint
venture on a consolidated basis.
1998 REDEVELOPMENT PROPERTIES/DEVELOPABLE LAND ACQUISITIONS
On January 23, 1998, the Operating Partnership acquired, from an entity whose
principals include Timothy M. Jones, Martin S. Berger and Robert F. Weinberg,
each of whom are affiliated with the Operating Partnership as either senior
management, a former or current member of the Board of Directors of the
Corporation and/or an equity holder in the Operating Partnership, approximately
10 acres of vacant land in the Stamford Executive Park, located in Stamford,
Fairfield County, Connecticut for approximately $1,341 funded from the Operating
Partnership's cash reserves. In October 1998, the Operating Partnership
completed and placed in service a 40,000 square-foot office/flex property on the
acquired land (see "Properties Placed in Service").
On February 2, 1998, the Operating Partnership acquired 2115 Linwood Avenue, a
68,000 square-foot vacant office building located in Fort Lee, Bergen County,
New Jersey. The building was acquired for approximately $5,164, which was made
available from drawing on one of the Operating Partnership's credit facilities.
The Operating Partnership is currently redeveloping the property for future
lease-up and operation.
On March 27, 1998, as part of the purchase of the Prudential Business Campus
(see "Operating Property Acquisitions"), the Operating Partnership acquired
approximately 95 acres of vacant land adjacent to the operating properties for
approximately $27,500.
On June 8, 1998, as part of the Pacifica portfolio-phase II acquisition (see
"Operating Property Acquisitions"), the Operating Partnership acquired vacant
land adjacent to the operating properties for approximately $2,006.
On September 4, 1998, the Operating Partnership acquired approximately 128 acres
of vacant land located at the Operating Partnership's Horizon Center Business
Park, Hamilton Township, Mercer County, New Jersey, through the exercise of a
purchase option obtained in the Operating Partnership's acquisition of the
Horizon Center Business Park in November 1995. The land was acquired for
approximately $1,698, which was funded from the Operating Partnership's cash
reserves. Subsequently in 1999, the Operating Partnership leased 27.7 acres of
the acquired land to Home Depot (see "Properties Placed in Service").
On November 10, 1998, the Operating Partnership acquired approximately 10.1
acres of land located at Three Vaughn Drive, Princeton, Mercer County, New
Jersey. The Operating Partnership acquired the land for approximately $2,146,
which was funded from the Operating Partnership's cash reserves.
On December 3, 1998, the Operating Partnership acquired, from an entity whose
principals include Timothy M. Jones, Martin S. Berger and Robert F. Weinberg,
each of whom are affiliated with the Operating Partnership as either senior
management, a former or current member of the Board of Directors of the
Corporation and/or an equity holder in the Operating Partnership, approximately
2.7 acres of land located at 12 Skyline Drive, Hawthorne, Westchester County,
New York. The Operating Partnership acquired the land for approximately, $1,540,
which was funded from the Operating Partnership's cash reserves.
PENDING ACQUISITIONS
In May 1999, the Operating Partnership entered into a contract to acquire 795
Folsom Street, a 184,000 square-foot office property, located in San Francisco,
San Francisco County, California from AT&T Corporation ("AT&T") for
approximately $34,000. Concurrently, the Operating Partnership signed a lease
with AT&T for 63,278 square feet of the property.
Page 13 of 44
<PAGE>
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
PRU-BETA 3 (NINE CAMPUS DRIVE)
On March 27, 1998, the Operating Partnership acquired a 50 percent interest in
an existing joint venture with The Prudential Insurance Company of America
("Prudential"), known as Pru-Beta 3, which owns and operates Nine Campus Drive,
a 156,495 square-foot office building, located in the Prudential Business Campus
office complex in Parsippany, Morris County, New Jersey (see Note 3). The
Operating Partnership performs management and leasing services for the property
owned by the joint venture and received $38 and none in fees for such services
in the three months ended March 31, 1999 and 1998, respectively.
HPMC (CONTINENTAL GRAND II/SUMMIT RIDGE/LAVA RIDGE)
On April 23, 1998, the Operating Partnership entered into a joint venture
agreement with HCG Development, L.L.C. and Summit Partners I, L.L.C. to form
HPMC Development Partners, L.P. and, on July 21, 1998, entered into a second
joint venture, HPMC Lava Ridge Partners, L.P., with these same parties. HPMC
Development Partners, L.P.'s efforts have focused on two development
projects, commonly referred to as Continental Grand II and Summit Ridge.
Continental Grand II is a 4.2 acre site located in El Segundo, Los Angeles
County, California, acquired by the venture upon which it has commenced
construction of a 237,000 square-foot office property. Summit Ridge is a 7.3
acre site located in San Diego, San Diego County, California, acquired by the
venture upon which it has commenced construction of a 132,000 square-foot
office/flex property. HPMC Lava Ridge Partners, L.P. has commenced
construction of three two-story buildings aggregating 183,200 square-feet of
office space on a 12.1 acre site located in Roseville, Placer County,
California. The Operating Partnership is required to make capital
contributions to the ventures totaling up to $26,566, pursuant to the
partnership agreements. Among other things, the partnership agreements
provide for a preferred return on the Operating Partnership's invested
capital in each venture, in addition to 50 percent of such venture's profit
above the preferred returns, as defined in each agreement.
G&G MARTCO (CONVENTION PLAZA)
On April 30, 1998, the Operating Partnership acquired a 49.9 percent interest in
an existing joint venture, known as G&G Martco, which owns Convention Plaza, a
305,618 square-foot office building, located in San Francisco, San Francisco
County, California. A portion of its initial investment was financed through the
issuance of common units (see Note 11) as well as funds drawn from the Operating
Partnership's credit facilities. The Operating Partnership performs management
and leasing services for the property owned by the joint venture and received
$12 and none in fees for such services in the three months ended March 31, 1999
and 1998, respectively.
AMERICAN FINANCIAL EXCHANGE L.L.C.
On May 20, 1998, the Operating Partnership entered into a joint venture
agreement with Columbia Development Corp. to form American Financial Exchange
L.L.C. The venture was initially formed to acquire land for future development,
located on the Hudson River waterfront in Jersey City, Hudson County, New
Jersey, adjacent to the Operating Partnership's Harborside Financial Center
office complex. The Operating Partnership holds a 50 percent interest in the
joint venture. Among other things, the partnership agreement provides for a
preferred return on the Operating Partnership's invested capital in the venture,
in addition to the Operating Partnership's proportionate share of the venture's
profit, as defined in the agreement. The joint venture acquired land on which it
constructed a parking facility, which is currently leased to a parking operator
under a 10-year agreement. Such parking facility serves a ferry service between
the Operating Partnership's Harborside property and Manhattan.
RAMLAND REALTY ASSOCIATES, L.L.C. (ONE RAMLAND ROAD)
On August 20, 1998, the Operating Partnership entered into a joint venture
agreement with S.B. New York Realty Corp. to form Ramland Realty Associates
L.L.C. The venture was formed to own, manage and operate One Ramland Road, a
232,000 square-foot office/flex building plus adjacent developable land, located
in Orangeburg, Rockland County, New York. The office/flex building is being
redeveloped for future lease-up and operation. The Operating Partnership holds a
50 percent interest in the joint venture.
ASHFORD LOOP ASSOCIATES L.P. (1001 SOUTH DAIRY ASHFORD/2100 WEST LOOP SOUTH)
On September 18, 1998, the Operating Partnership entered into a joint venture
agreement with Prudential to form Ashford Loop Associates L.P. The venture was
formed to own, manage and operate 1001 South Dairy Ashford, a 130,000
square-foot office building acquired on September 18, 1998 and 2100 West Loop
South, a 168,000 square-foot office building acquired on November 25, 1998, both
located in Houston, Harris County, Texas. The Operating Partnership holds a 20
percent interest in the joint venture. The joint venture may be required to pay
additional consideration due to earn-out provisions in the acquisition
contracts. The Operating Partnership performs management and leasing services
for the properties owned by the joint venture and received $30 and none in fees
for such services in the three months ended March 31, 1999 and 1998,
respectively.
Page 14 of 44
<PAGE>
ARCAP INVESTORS, L.L.C.
On March 18, 1999, the Operating Partnership invested $16,274 in ARCap
Investors, L.L.C., a joint venture with several participants, which was formed
to invest in sub-investment grade tranches of commercial mortgage-backed
securities ("CMBS"). The Operating Partnership has agreed to invest an
additional $3,726 in the venture. William L. Mack, a director and equity holder
of the Operating Partnership, is a principal of the managing member of the
venture. During the three months ended March 31, 1999, the venture purchased
approximately $141,800 face value of CMBS bonds for an aggregate cost of
$71,669.
SUMMARIES OF UNCONSOLIDATED JOINT VENTURES
The following is a summary of the financial position of the unconsolidated joint
ventures in which the Operating Partnership has investment interests as of March
31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford Combined
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Rental property, net $ 22,465 $ 37,518 $ 11,406 $ 10,675 $ 9,529 $ 19,058 $ -- $110,651
Other assets 3,715 784 3,709 352 714 851 73,771 83,896
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 26,180 $ 38,302 $ 15,115 $ 11,027 $ 10,243 $ 19,909 $ 73,771 $194,547
==================================================================================================================================
LIABILITIES AND PARTNERS'/
MEMBERS' CAPITAL:
Mortgages and loans payable $ -- $ 8,351 $ 40,469 $ -- $ -- $ -- $ 25,919 $ 74,739
Other liabilities 500 959 1,491 -- 156 294 420 3,820
Partners'/members'
capital 25,680 28,992 (26,845) 11,027 10,087 19,615 47,432 115,988
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
partners'/members'
capital $ 26,180 $ 38,302 $ 15,115 $ 11,027 $ 10,243 $ 19,909 $ 73,771 $194,547
==================================================================================================================================
Operating Partnership's net
investment in unconsolidated
joint ventures $ 17,553 $ 23,301 $ 10,098 $ 11,076 $ 5,222 $ 4,267 $ 16,219 $ 87,736
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford Combined
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Rental property, net $ 22,711 $ 30,278 $ 11,099 $ 10,621 $ 8,467 $ 19,166 -- $102,342
Other assets 3,995 1,097 4,058 389 1,101 378 -- 11,018
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 26,706 $ 31,375 $ 15,157 $ 11,010 $ 9,568 $ 19,544 -- $113,360
==================================================================================================================================
LIABILITIES AND PARTNERS'/
MEMBERS' CAPITAL:
Mortgages and loans payable $ -- $ 632 $ 39,762 $ -- $ -- $ -- -- $ 40,394
Other liabilities 484 3,522 2,096 79 6 509 -- 6,696
Partners'/members'
capital 26,222 27,221 (26,701) 10,931 9,562 19,035 -- 66,270
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
partners'/members'
capital $ 26,706 $ 31,375 $ 15,157 $ 11,010 $ 9,568 $ 19,544 -- $113,360
==================================================================================================================================
Operating Partnership's net
investment in unconsolidated
joint ventures $ 17,980 $ 17,578 $ 10,964 $ 10,983 $ 4,851 $ 4,152 -- $ 66,508
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 15 of 44
<PAGE>
The following is a summary of the results of operations of the unconsolidated
joint ventures for the period in which the Operating Partnership had investment
interests during the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-----------------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford Combined
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 1,231 -- $ 1,990 $ 188 -- $ 917 $ 247 $ 4,573
Operating and other
expenses (374) -- (691) (69) -- (473) (390) (1,997)
Depreciation and
amortization (318) -- (233) (23) -- (108) -- (682)
Interest expense -- -- (710) -- -- -- (25) (735)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 539 -- $ 356 $ 96 -- $ 336 $ (168) $ 1,159
==================================================================================================================================
Operating Partnership's equity
in earnings (loss) of
unconsolidated joint
ventures $ 114 -- $ (366) $ 46 -- $ 56 $ (56) $ (206)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended March 31, 1998
-----------------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford Combined
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 30 -- -- -- -- -- -- $ 30
Operating and other
expenses (5) -- -- -- -- -- -- (5)
Depreciation and
amortization -- -- -- -- -- -- -- --
Interest expense -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 25 -- -- -- -- -- -- $ 25
==================================================================================================================================
Operating Partnership's equity
in earnings of unconsolidated
joint ventures $ 25 -- -- -- -- -- -- $ 25
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred leasing costs $ 37,174 $ 35,151
Deferred financing costs 16,579 9,962
- ----------------------------------------------------------------------------------------------------------------
53,753 45,113
Accumulated amortization (15,229) (13,527)
- ----------------------------------------------------------------------------------------------------------------
Deferred charges, net 38,524 31,586
Prepaid expenses and other assets 6,318 7,434
- ----------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets, net $ 44,842 $ 39,020
================================================================================================================
</TABLE>
6. RESTRICTED CASH
Restricted cash includes security deposits for the Operating Partnership's
residential properties and certain commercial properties, and escrow and reserve
funds for debt service, real estate taxes, property insurance, capital
improvements, tenant improvements, and leasing costs established pursuant to
certain mortgage financing arrangements, and is comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Security deposits $ 6,085 $ 5,696
Escrow and other reserve funds 293 330
- ----------------------------------------------------------------------------------------------------------------
Total restricted cash $ 6,378 $ 6,026
================================================================================================================
</TABLE>
Page 16 of 44
<PAGE>
7. SENIOR UNSECURED NOTES
On March 16, 1999, the Operating Partnership issued $600,000 of senior unsecured
notes ("Senior Unsecured Notes") under a shelf registration statement which was
declared effective by the SEC in September 1998. Interest on the Senior
Unsecured Notes is payable semi-annually in arrears. The Senior Unsecured Notes
are redeemable at any time at the option of the Operating Partnership, subject
to certain conditions including yield maintenance. The total proceeds from the
issuance (net of selling commissions and discount) of approximately $593,500
were used to pay down outstanding borrowings under the 1998 Unsecured Facility,
as defined below, and to pay off certain mortgage loans. The Senior Unsecured
Notes were issued at a discount of approximately $2,748, which is being
amortized over the terms of the respective tranches as an adjustment to interest
expense. Including amortization of offering costs, the weighted average
effective annual interest rate for the Senior Unsecured Notes is approximately
7.38 percent.
A summary of the terms of the Senior Unsecured Notes outstanding as of March 31,
1999 is presented below:
<TABLE>
<CAPTION>
EFFECTIVE
AMOUNT RATE (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
7.00% Senior Unsecured Notes, due March 15, 2004 $299,604 7.27%
7.25% Senior Unsecured Notes, due March 15, 2009 $297,661 7.49%
- --------------------------------------------------------------------------------------------------
Total Senior Unsecured Notes $597,265 7.38%
==================================================================================================
</TABLE>
(1) Includes the cost of terminated treasury lock agreements, offering and
transaction costs and the discount on the notes.
8. REVOLVING CREDIT FACILITIES
ORIGINAL UNSECURED FACILITY
The Original Unsecured Facility ("Original Unsecured Facility") was repaid in
full and retired in connection with the Operating Partnership obtaining the 1998
Unsecured Facility in April 1998, as defined below. On account of prepayment
fees, loan origination fees, legal fees, and other costs incurred in the
retirement of the Original Unsecured Facility, an extraordinary loss of $2,478
was recorded for the year ended December 31, 1998.
1998 UNSECURED FACILITY
In April 1998, the Operating Partnership repaid in full and terminated the
Original Unsecured Facility and obtained a new unsecured revolving credit
facility ("1998 Unsecured Facility") with a current borrowing capacity of
$1,000,000 from a group of 28 lenders. The interest rate is based on the
Operating Partnership's achievement of investment grade unsecured debt ratings
and is currently 90 basis points over London Inter-Bank Offered Rate ("LIBOR")
(5.06 percent at March 31, 1999). The 1998 Unsecured Facility matures in April
2001.
The terms of the 1998 Unsecured Facility include certain restrictions and
covenants which limit, among other things, the payment of dividends (as
discussed below), the incurrence of additional indebtedness, the incurrence of
liens and the disposition of assets, and which require compliance with financial
ratios relating to the maximum leverage ratio, the maximum amount of secured
indebtedness, the minimum amount of tangible net worth, the minimum amount of
debt service coverage, the minimum amount of fixed charge coverage, the maximum
amount of unsecured indebtedness, the minimum amount of unencumbered property
debt service coverage and certain investment limitations. The dividend
restriction referred to above provides that, except to enable the Corporation to
continue to qualify as a REIT under the Code, the Corporation will not during
any four consecutive fiscal quarters make distributions with respect to common
stock or other equity interests in an aggregate amount in excess of 90 percent
of funds from operations for such period, subject to certain other adjustments.
The 1998 Unsecured Facility also requires a 17.5 basis point fee on the unused
balance payable quarterly in arrears.
PRUDENTIAL FACILITY
The Operating Partnership has a revolving credit facility ("Prudential
Facility") from Prudential Securities Corp. ("PSC") in the amount of $100,000,
which currently bears interest at 110 basis points over one-month LIBOR, with a
maturity date of March 31, 2000. The Prudential Facility is a recourse liability
of the Operating Partnership and is secured by the Operating Partnership's
equity interest in Harborside. The Prudential Facility limits the ability of the
Operating Partnership to make any distributions during any fiscal quarter in an
amount in excess of 100 percent of the Operating Partnership's available funds
from operations for the immediately preceding fiscal quarter (except to the
extent such excess distributions or dividends are attributable to gains from the
sale of the Operating Partnership's assets or are required for the Corporation
to maintain its status as a REIT under the Code); provided, however, that the
Operating Partnership may make distributions and pay dividends in excess of 100
percent of available funds from operations for the preceding fiscal quarter for
not more
Page 17 of 44
<PAGE>
than three consecutive quarters. In addition to the foregoing, the Prudential
Facility limits the liens placed upon the subject property and certain
collateral, the use of proceeds from the Prudential Facility, and the
maintenance of ownership of the subject property and assets derived from said
ownership.
SUMMARY
As of March 31, 1999, the Operating Partnership had outstanding borrowings of
$110,600 under its revolving credit facilities (with aggregate borrowing
capacity of $1,100,000). The outstanding borrowings were comprised of $110,600
from the 1998 Unsecured Facility, with no outstanding borrowings on its
Prudential Facility.
9. MORTGAGES AND LOANS PAYABLE
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Portfolio Mortgages $335,283 $335,283
Property Mortgages 414,631 414,048
- --------------------------------------------------------------------------------
Total Mortgages and Loans Payable $749,914 $749,331
================================================================================
</TABLE>
PORTFOLIO MORTGAGES
TIAA MORTGAGE
Several of the Property Partnerships have an aggregate $185,283 non-recourse
mortgage loan with Teachers Insurance and Annuity Association of America, with
interest only payable monthly at a fixed annual rate of 7.18 percent ("TIAA
Mortgage"). The TIAA Mortgage is secured and cross-collateralized by 43
properties and matures in December 2003. The Property Partnerships have the
option to convert, without any yield maintenance obligation or prepayment
premium, the TIAA Mortgage to unsecured public debt as a result of the
achievement of an investment grade credit rating. The TIAA Mortgage is
prepayable in whole or in part subject to certain provisions, including yield
maintenance.
$150,000 PRUDENTIAL MORTGAGE LOAN
On April 30, 1998, the Operating Partnership obtained a $150,000, interest-only,
non-recourse mortgage loan from Prudential ("$150,000 Prudential Mortgage
Loan"). The loan, which is secured by 12 properties, has an effective annual
interest rate of 7.10 percent and a seven-year term. The Operating Partnership
has the option to convert the mortgage loan to unsecured debt as a result of the
achievement of an investment grade credit rating. The mortgage loan is
prepayable in whole or in part subject to certain provisions, including yield
maintenance.
PROPERTY MORTGAGES
Property mortgages are comprised of various non-recourse loans which are
collateralized by certain of the Operating Partnership's and Property
Partnerships' rental properties. Payments on property mortgages are generally
due in monthly installments of principal and interest, or interest only.
Page 18 of 44
<PAGE>
A summary of the Operating Partnership's and Property Partnerships' property
mortgages as of March 31, 1999 and December 31, 1998 is as follows:
<TABLE>
<CAPTION>
PRINCIPAL BALANCE AT
------------------------
INTEREST MARCH 31, DECEMBER 31, DATE OF
PROPERTY NAME LENDER RATE 1999 1998 MATURITY
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mack-Cali Centre VI CIGNA 7.600% $ -- $29,223 03/31/99
Mack-Cali Airport CIGNA 7.600% -- 6,849 03/31/99
Mack-Cali Murray Hill Horace Mann 7.850% -- 8,027 05/01/99
Mack-Cali Manhasset IDA Financing TENR 8,000 8,000 12/01/99
201 Commerce Drive Sun Life Assurance Co. 6.240% 1,106 1,121 09/01/00
3 & 5 Terri Lane First Union National Bank 6.220% 4,466 4,476 10/31/00
101 & 225 Executive Drive Sun Life Assurance Co. 6.270% 2,510 2,553 06/01/01
Mack-Cali Morris Plains Corestates Bank 7.510% 2,276 2,292 12/31/01
Harborside Financial Center(1) Contingent Obligation(1) 6.764% 6,254 6,150 11/04/02
Mack-Cali Willowbrook CIGNA 8.670% 10,741 10,918 10/01/03
1717 Route 208, Fairlawn Prudential Insurance Co. 8.250% 17,468 17,586 10/01/03
400 Chestnut Ridge Prudential Insurance Co. 9.440% 14,901 14,983 07/01/04
Mack-Cali Centre VI Principal Life Insurance Co. 6.865% 35,000 -- 04/01/05
Mack-Cali Bridgewater I New York Life Ins. Co. 7.000% 23,000 23,000 09/10/05
Mack-Cali Woodbridge II New York Life Ins. Co. 7.500% 17,500 17,500 09/10/05
Mack-Cali Short Hills Prudential Insurance Co. 7.740% 27,406 27,696 10/01/05
500 West Putnam Avenue New York Life Ins. Co. 6.520% 11,300 11,471 10/10/05
Harborside - Plaza I U.S. West Pension Trust 6.990% 48,911 48,148 01/01/06
Harborside - Plaza II and III Northwestern Mutual Life Ins. 7.320% 101,089 101,852 01/01/06
Mack-Cali Airport Allstate Life Insurance Co. 7.050% 10,500 -- 04/01/07
Kemble Plaza II Mitsubishi Tr & Bk Co. LIBOR+0.65% 40,025 40,025 01/31/08
Kemble Plaza I Mitsubishi Tr & Bk Co. LIBOR+0.65% 32,178 32,178 01/31/09
- --------------------------------------------------------------------------------------------------------------------
Total Property Mortgages $414,631 $414,048
====================================================================================================================
</TABLE>
(1) As part of the Harborside acquisition in November 1996, a Property
Partnership agreed to make payments (with an estimated net present value of
approximately $5,252 at acquisition date) to the seller for development
rights ("Contingent Obligation") if and when such Property Partnership
commences construction on the acquired site during the next several years.
However, the agreement provides, among other things, that even if the
Property Partnership does not commence construction, the seller may
nevertheless require the Property Partnership to acquire these rights
during the six-month period after the end of the sixth year. After such
period, the seller's option lapses, but any development in years 7 through
30 will require a payment, on an increasing scale, for the development
rights. The Property Partnership is currently in the pre-development phase
of a long-range plan to develop the Harborside site on a multi-property,
multi-use basis.
INTEREST RATE CONTRACTS
On May 24, 1995, the Operating Partnership entered into an interest rate swap
agreement with a commercial bank. The swap agreement fixes the Operating
Partnership's one-month LIBOR base to 6.285 percent per annum on a notional
amount of $24,000 through August 1999.
On January 23, 1996, the Operating Partnership entered into an interest rate
swap agreement with a commercial bank. The swap agreement fixed the Operating
Partnership's one-month LIBOR base to 5.265 percent per annum on a notional
amount of $26,000. The swap agreement expired in January 1999.
On October 1, 1998, the Operating Partnership entered into a forward treasury
rate lock agreement with a commercial bank. The agreement locked an interest
rate of 4.089 percent per annum for the three-year U.S. Treasury Note effective
November 4, 1999, on a notional amount of $50,000. The agreement will be used to
fix the Index Rate on $50,000 of the Harborside- Plaza I mortgage, for which the
Operating Partnership's interest rate re-sets for three years beginning November
4, 1999 to the three-year U.S. Treasury Note plus 110 basis points (see
"Property Mortgages: Harborside-Plaza I").
In connection with the issuance of the Senior Unsecured Notes, the Operating
Partnership entered into and settled forward treasury rate lock agreements in
March 1999. These agreements were settled at a cost of approximately $517, which
is being amortized to interest expense over the terms of the respective
tranches.
The Operating Partnership is exposed to credit loss in the event of
non-performance by the other parties to the interest rate contracts. However,
the Operating Partnership does not anticipate non-performance by any of the
counterparties. The
Page 19 of 44
<PAGE>
Operating Partnership is also exposed to market risk from the movement in
interest rates pertaining to the forward treasury rate lock agreement.
SCHEDULED PRINCIPAL PAYMENTS
Scheduled principal payments and related weighted average annual interest rates
for the Senior Unsecured Notes, revolving credit facilities and mortgages and
loans payable as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVG.
SCHEDULED PRINCIPAL INTEREST RATE OF
YEAR AMORTIZATION MATURITIES TOTAL FUTURE REPAYMENTS(A)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
April through December 1999 $ 2,296 $ 8,000 $ 10,296 6.26%
2000 3,336 5,419 8,755 6.77%
2001 3,583 114,811 118,394 6.05%
2002 3,823 7,814 11,637 7.09%
2003 4,180 206,971 211,151 7.31%
Thereafter 4,721 1,092,825 1,097,546 7.19%
- -----------------------------------------------------------------------------------------------------------------
Totals/Weighted Average $ 21,939 $ 1,435,840 $ 1,457,779 7.12%
=================================================================================================================
</TABLE>
(a) Assumes LIBOR rate at March 31, 1999 of 5.06 percent in calculating
revolving credit facility and other variable rate debt interest rates.
CASH PAID FOR INTEREST & INTEREST CAPITALIZED
Cash paid for interest for the three months ended March 31, 1999 and 1998, was
$22,646 and $20,302, respectively. Interest capitalized by the Operating
Partnership for the three months ended March 31, 1999 and 1998 was $1,245 and
$201, respectively.
SUMMARY OF INDEBTEDNESS
As of March 31, 1999, the Operating Partnership's total indebtedness of
$1,457,779 (weighted average interest rate of 7.12 percent) was comprised of
$190,804 of credit facility borrowings and other variable rate mortgage debt
(average rate of 5.82 percent), fixed rate debt of $1,260,721 (average rate of
7.30 percent), and a Contingent Obligation of $6,254.
10. PARTNERS' CAPITAL
Partners' capital in the accompanying financial statements of the Operating
Partnership, prior to August 21, 1998, relates to common units held by the
Corporation in the Operating Partnership, in addition to warrants to purchase
common units ("Unit Warrants") in the Operating Partnership issued in connection
with the Operating Partnership's December 1997 acquisition of 54 office
properties ("Mack Properties") from the Mack Company and Patriot American Office
Group ("Mack Transaction"). Subsequent to August 21, 1998, partners' capital
also includes common units held by the limited partners and preferred units
("Preferred Units") held by the preferred unitholders of the Operating
Partnership.
Net income allocated to the preferred unitholders and limited partners reflects
their pro-rata share of net income and distributions subsequent to August 21,
1998. Net income and distributions for the period prior to August 21, 1998 is
included in the changes in redeemable partnership units (see Note 11).
COMMON STOCK
On February 25, 1998, the Corporation completed an underwritten public offer and
sale of 2,500,000 shares of its common stock and used the net proceeds, which
totaled approximately $92,194 (after offering costs) to pay down a portion of
the outstanding borrowings under the Operating Partnership's credit facilities
and fund the acquisition of 10 Mountainview Road (see Note 3).
On March 18, 1998, in connection with the acquisition of Prudential Business
Campus, the Corporation completed an offer and sale of 2,705,628 shares of its
common stock using the net proceeds of approximately $99,899 (after offering
costs) in the funding of such acquisition (see Note 3).
On March 27, 1998, the Corporation completed an underwritten public offer and
sale of 650,407 shares of its common stock and used the net proceeds, which
totaled approximately $23,690 (after offering costs) to pay down a portion of
the outstanding borrowings under the Operating Partnership's credit facilities.
On April 29, 1998, the Corporation completed an underwritten offer and sale of
994,228 shares of its common stock and used the net proceeds, which totaled
approximately $34,570 (after offering costs), primarily to pay down a portion of
the outstanding borrowings under the Operating Partnership's credit facilities.
Page 20 of 44
<PAGE>
On May 29, 1998, the Corporation completed an underwritten offer and sale of
984,615 shares of its common stock and used the net proceeds, which totaled
approximately $34,100 (after offering costs), primarily to pay down a portion of
the outstanding borrowings under the Operating Partnership's credit facilities.
On December 31, 1998, the Corporation completed an offer and sale of 132,710
shares of its common stock, using the net proceeds of approximately $3,940 for
general corporate purposes.
The proceeds of the above offerings were contributed by the Corporation to the
Operating Partnership in exchange for units.
On August 6, 1998, the Board of Directors of the Corporation authorized a share
repurchase program ("Repurchase Program") under which the Corporation was
permitted to purchase up to $100,000 of the Corporation's outstanding common
stock. Purchases could be made from time to time in open market transactions at
prevailing prices or through privately negotiated transactions.
For the year ended December 31, 1998, the Corporation purchased, for
constructive retirement, 854,700 shares of its outstanding common stock for an
aggregate cost of approximately $25,058. Concurrent with these purchases, the
Corporation sold to the Operating Partnership 854,700 common units for
approximately $25,058.
For the three months ended March 31, 1999, the Corporation purchased, for
constructive retirement, 26,000 shares of its outstanding common stock for an
aggregate cost of approximaely $713. Concurrent with these purchases, the
Corporation sold to the Operating Partnership 26,000 common units for
approximately $713.
REGISTRATION STATEMENT
The Operating Partnership and Corporation jointly filed a registration statement
with the SEC for an aggregate of $2.0 billion in debt securities, preferred
stock and preferred stock represented by depositary shares, which was declared
effective in September 1998. In March 1999, the Operating Partnership issued
$600,000 of Senior Unsecured Notes under this shelf registration statement (see
Note 7).
STOCK OPTION PLANS
In 1994, and as subsequently amended, the Corporation established the Mack-Cali
Employee Stock Option Plan ("Employee Plan") and the Mack-Cali Director Stock
Option Plan ("Director Plan") under which a total of 5,380,188 shares (subject
to adjustment) of the Corporation's common stock have been reserved for issuance
(4,980,188 shares under the Employee Plan and 400,000 shares under the Director
Plan). Stock options granted under the Employee Plan in 1994 and 1995 become
exercisable over a three-year period and those options granted under the
Employee Plan in 1996, 1997 and 1998 become exercisable over a five-year period.
All stock options granted under the Director Plan become exercisable in one
year. All options were granted at the fair market value at the dates of grant
and have terms of ten years. As of March 31, 1999 and December 31, 1998, the
stock options outstanding had a weighted average remaining contractual life of
approximately 8.2 and 8.5 years, respectively.
Information regarding the Corporation's stock option plans is summarized below:
<TABLE>
<CAPTION>
Weighted
Shares Average
Under Exercise
Options Price
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1998 3,287,290 $31.47
Granted 1,048,620 $35.90
Exercised (267,660) $20.47
Lapsed or canceled (128,268) $36.61
- ----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 3,939,982 $33.22
Exercised (18,360) $23.89
Lapsed or canceled (31,886) $31.83
- ----------------------------------------------------------------------------------------------------
Outstanding at March 31, 1999 3,889,736 $33.28
====================================================================================================
Options exercisable at December 31, 1998 1,334,137 $27.84
Options exercisable at March 31, 1999 1,931,873 $30.40
- ----------------------------------------------------------------------------------------------------
Available for grant at December 31, 1998 709,223
Available for grant at March 31, 1999 741,109
- ----------------------------------------------------------------------------------------------------
</TABLE>
STOCK WARRANTS
The Corporation has outstanding a total of 400,000 warrants to purchase an equal
number of shares of common stock ("Stock Warrants") at $33 per share (the market
price at date of grant). Such warrants generally vest equally over a three-year
period through January 31, 2000 and expire on January 31, 2007.
Page 21 of 44
<PAGE>
The Corporation also has outstanding a total of 514,976 Stock Warrants to
purchase an equal number of shares of common stock at $38.75 per share (the
market price at date of grant). Such warrants vest equally over a five-year
period through December 12, 2002 and expire on December 12, 2007.
As of March 31, 1999 and December 31, 1998, there were 914,976 Stock Warrants
outstanding. As of March 31, 1999 and December 31, 1998, there were 585,989 and
565,991 Stock Warrants exercisable, respectively. No vested Stock Warrants were
exercised or canceled.
DEFERRED STOCK COMPENSATION PLAN FOR DIRECTORS
The Deferred Compensation Plan for Directors ("Deferred Compensation Plan")
commenced January 1, 1999 and is a plan which allows non-employee directors of
the Corporation to elect to defer up to 100 percent of their annual retainer fee
into deferred stock units. The deferred stock units are convertible into an
equal number of shares of common stock upon the directors' termination of
service from the Board of Directors or a change in control of the Corporation,
as defined in the plan. Deferred stock units are credited to each director
quarterly using the closing price of the Corporation's common stock on the
applicable dividend record date for the respective quarter. Each participating
director's account is also credited for an equivalent amount of deferred stock
units based on the dividend rate for each quarter.
EARNINGS PER UNIT
FASB No. 128 requires a dual presentation of basic and diluted EPU on the face
of the income statement for all companies with complex capital structures even
where the effect of such dilution is not material. Basic EPU excludes dilution
and is computed by dividing net income available to common unitholders by the
weighted average number of units outstanding for the period. Diluted EPU
reflects the potential dilution that could occur if securities or other
contracts to issue common units were exercised or converted into common units.
The following information presents the Operating Partnership's results for the
three months ended March 31, 1999 and 1998 in accordance with FASB No. 128.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---- ----
Basic EPU Diluted EPU Basic EPU Diluted EPU
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 36,944 $ 36,944 $ 29,938 $ 29,938
Weighted average units 67,011 67,283 57,933 58,682
- -------------------------------------------------------------------------------------
Per Unit $ 0.55 $ 0.55 $ 0.52 $ 0.51
=====================================================================================
</TABLE>
The following schedule reconciles the units used in the basic EPU calculation to
the units used in the diluted EPU calculation.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Basic EPU Units: 67,011 57,933
Add: Stock options 272 612
Stock Warrants -- 137
- --------------------------------------------------------------------------------
Diluted EPU Units: 67,283 58,682
================================================================================
</TABLE>
Preferred Units and Contingent Units outstanding in 1999 and 1998 were not
included in the computation of diluted EPU as such units were anti-dilutive
during the period.
Pursuant to the Repurchase Program, during 1998, the Corporation purchased for
constructive retirement, 854,700 shares of its outstanding common stock for
approximately $25,058.
During the three months ended March 31, 1999, the Corporation purchased for
constructive retirement, 26,000 shares of its outstanding common stock for
approximately $713.
11. REDEEMABLE PARTNERSHIP UNITS
The outstanding preferred and common units, excluding those common units held by
the Corporation, have been classified as redeemable partnership units outside of
permanent partners' capital prior to August 21, 1998. These units were initially
recorded at fair value and subsequently adjusted based on the fair value at the
balance sheet date as measured by the closing price of the Corporation's common
stock on that date multiplied by the total number of units outstanding.
Effective August 21, 1998, pursuant to an amendment to the Operating Partnership
agreement, in which the Operating Partnership obtained the control over the
redemption rights of the units, these units were reclassified as a component of
Page 22 of 44
<PAGE>
permanent partners' capital. The fair value of the reclassified units was
measured by the closing price of the Corporation's common stock on that date
multiplied by the total number of units outstanding.
PREFERRED UNITS
In connection with the Mack Transaction in December 1997, the Operating
Partnership issued 15,237 Series A Preferred Units and 215,325 Series B
Preferred Units, with an aggregate value of $236,491. The Preferred Units have a
stated value of $1,000 per unit and are preferred as to assets over any class of
common units or other class of preferred units of the Operating Partnership,
based on circumstances per the applicable unit certificates.
The quarterly distribution on each Preferred Unit (representing 6.75 percent of
the Preferred Unit stated value of $1,000 on an annualized basis) is an amount
equal to the greater of (i) $16.875 or (ii) the quarterly distribution
attributable to a Preferred Unit determined as if such unit had been converted
into common units, subject to adjustment for customary anti-dilution rights.
Each of the Series A Preferred Units may be converted at any time into common
units at a conversion price of $34.65 per unit, and, after the one year
anniversary of the date of the Series A Preferred Units' initial issuance,
common units received pursuant to such conversion may be redeemed into common
stock. Each of the Series B Preferred Units may be converted at any time into
common units at a conversion price of $34.65 per unit, and, after the three year
anniversary of the date of the Series B Preferred Units' initial issuance,
common units received pursuant to such conversion may be redeemed into common
stock. Each of the common units are redeemable for an equal number of shares of
common stock.
During 1998, the Operating Partnership issued 19,694 additional Preferred Units
(11,895 of Series A and 7,799 of Series B), convertible into 568,369 common
units and valued at approximately $20,200, in connection with the achievement of
certain performance goals at the Mack Properties in redemption of an equivalent
number of contingent Preferred Units.
During the three months ended March 31, 1999, 20,952 Series A Preferred Units
were converted into 604,675 common units.
As of March 31, 1999, there were 229,304 Preferred Units outstanding
(convertible into 6,617,721 common units).
COMMON UNITS
Certain individuals and entities own common units in the Operating Partnership.
A common unit and a share of common stock of the General Partner have
substantially the same economic characteristics in as much as they effectively
share equally in the net income or loss of the Operating Partnership.
Common units are redeemable by the common unitholders (other than the General
Partner) at their option, subject to certain restrictions, on the basis of one
common unit for either one share of common stock or cash equal to the fair
market value of a share at the time of the redemption. The General Partner has
the option to deliver shares of common stock in exchange for all or any portion
of the cash requested. When a unitholder redeems a common unit for common stock
of the Corporation, limited partner's capital is reduced and the General
Partner's capital is increased. Effective August 21, 1998, the partnership
agreement was amended to vest this right in the Operating Partnership, rather
than in the General Partnership (see Note 2). Common units held by the General
Partner are not redeemable.
During 1998, the Operating Partnership redeemed a total of 82,880 common units
in exchange for an aggregate of $3,163 in cash. Additionally, the Operating
Partnership redeemed an aggregate of 29,300 common units for an equivalent
number of shares of common stock in the General Partner.
On March 26, 1998, in connection with the Pacifica portfolio-phase I
acquisition, the Operating Partnership issued 100,175 common units, valued at
approximately $3,779.
On April 30, 1998, in connection with the acquisition of a 49.9 percent interest
in the G&G Martco joint venture (see Note 4), the Operating Partnership issued
218,105 common units, valued at approximately $8,334.
On June 8, 1998, in connection with the Pacifica portfolio-phase II acquisition,
the Operating Partnership issued 585,263 common units, valued at approximately
$20,753.
On July 20, 1998, in connection with the expansion of one of the Mack
Properties, the Operating Partnership issued 52,245 common units, valued at
approximately $1,632.
On September 10, 1998, in connection with the acquisition of 40 Richards Avenue,
the Operating Partnership issued 414,114 common units, valued at approximately
$12,615.
During 1998, the Operating Partnership also issued 1,731,386 common units,
valued at approximately $58,936, in connection with the achievement of certain
performance goals at the Mack Properties in redemption of an equivalent
Page 23 of 44
<PAGE>
number of contingent common units.
During the three months ended March 31, 1999, the Operating Partnership redeemed
an aggregate of 1,010,204 common units for an equivalent number of shares of
common stock in the Corporation.
During the three months ended March 31, 1999, the Operating Partnership also
issued 189,552 common units, valued at approximately $5,599, in connection with
the achievement of certain performance goals at the Mack Properties in
redemption of an equivalent number of contingent common units.
As of March 31, 1999, there were 8,870,608 common units outstanding.
CONTINGENT COMMON & PREFERRED UNITS
In conjunction with the Mack Transaction in December 1997, 2,006,432 contingent
common units, 11,895 Series A contingent Preferred Units and 7,799 Series B
contingent Preferred Units were issued as contingent non-participating units
("Contingent Units"). Such Contingent Units have no voting, distribution or
other rights until such time as they are redeemed into common units, Series A
Preferred Units, and Series B Preferred Units, respectively. Redemption of such
Contingent Units shall occur upon the achievement of certain performance goals
relating to certain of the Mack Properties, specifically the achievement of
certain leasing activity. When Contingent Units are redeemed for common and
Preferred Units, an adjustment to the purchase price of certain of the Mack
Properties is recorded, based on the value of the units issued.
On account of certain of the performance goals at the Mack Properties having
been achieved during 1998, the Operating Partnership redeemed 1,731,386
contingent common units and 19,694 contingent Preferred Units and issued an
equivalent number of common and Preferred Units, as indicated above.
On account of certain of the performance goals at the Mack Properties having
been achieved during the three months ended March 31, 1999, the Company redeemed
189,552 contingent common units and issued an equivalent number of common units,
as indicated above. There were no contingent Preferred Units outstanding and
85,494 contingent common units outstanding as of March 31, 1999.
UNIT WARRANTS
The Operating Partnership has 2,000,000 Unit Warrants outstanding. The Unit
Warrants are exercisable at $37.80 per common unit and expire on December 11,
2002.
CHANGES IN REDEEMABLE PARTNERSHIP UNITS
The following table sets forth the changes in redeemable partnership units for
the year ended December 31, 1998:
<TABLE>
<CAPTION>
Limited
Preferred Partner Preferred Limited
Units Units Unitholders Partners Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 231 6,097 $ 272,815 $ 249,997 $ 522,812
Net income -- -- 10,267 9,260 19,527
Distributions -- -- (7,896) (6,827) (14,723)
Issuance of units in connection with acquisitions -- 1,735 -- 64,628 64,628
Redemption of units for shares of common stock -- (22) -- (848) (848)
Redemption of units -- (83) -- (3,163) (3,163)
Issuance of Preferred Units 17 -- 17,943 -- 17,943
Adjustment to reflect preferred unitholders'
and limited partners' capital at redemption value -- -- (69,686) (46,172) (115,858)
Reclassification of redeemable partnership units
as permanent partners' capital (248) (7,727) (223,443) (266,875) (490,318)
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 -- -- $ -- $ -- $ --
===================================================================================================================
</TABLE>
12. EMPLOYEE BENEFIT PLAN
All employees of the Corporation who meet certain minimum age and period of
service requirements are eligible to participate in a 401(k) defined
contribution plan (the "401(k) Plan"). The 401(k) Plan allows eligible employees
to defer up to 15 percent of their annual compensation. The amounts contributed
by employees are immediately vested and non-forfeitable. The Corporation, at
management's discretion, may match employee contributions, although no employer
contributions have been made to date.
Page 24 of 44
<PAGE>
13. COMMITMENTS AND CONTINGENCIES
TAX ABATEMENT AGREEMENTS
GROVE STREET PROPERTY
Pursuant to an agreement with the City of Jersey City, New Jersey, as
amended, expiring in 2004, one of the Property Partnerships is required to
make payments in lieu of property taxes ("PILOT") on its property at 95
Christopher Columbus Drive, Jersey City, Hudson County, New Jersey. Such
PILOT, as defined, is $1,267 per annum through May 31, 1999 and $1,584 per
annum through May 31, 2004.
HARBORSIDE FINANCIAL CENTER PROPERTY
Pursuant to an agreement with the City of Jersey City, New Jersey obtained by
the former owner of the Harborside property in 1988 and assumed by one of the
Property Partnerships as part of the acquisition of the property in November
1996, the Property Partnerships are required to make PILOT payments on its
Harborside property. The agreement, which commenced in 1990, is for a term of
15 years. Such PILOT is equal to two percent of Total Project Costs, as
defined, in year one and increases by $75 per annum through year fifteen.
Total Project Costs, as defined, are $145,644. Such PILOT totaled $651 and
$625 for the three months ended March 31, 1999 and 1998, respectively.
GROUND LEASE AGREEMENTS
Future minimum rental payments under the terms of all non-cancelable ground
leases, under which the Operating Partnership or Property Partnerships are the
lessees as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------------------------------------
<S> <C>
April 1, 1999 to December 31, 1999 $ 319
2000 425
2001 427
2002 427
2003 427
Thereafter 21,934
- --------------------------------------------------------------------------------
Total $23,959
================================================================================
</TABLE>
OTHER CONTINGENCIES
On April 19, 1999, the Corporation announced the following changes in the
membership of its Board of Directors and the identities, titles and
responsibilities of its executive officers: (i) Thomas A. Rizk resigned from the
Board of Directors, the Executive Committee of the Board of Directors, his
position as Chief Executive Officer and as an employee of the Corporation; (ii)
Mitchell E. Hersh was appointed Chief Executive Officer of the Corporation
simultaneous with his resignation from his positions as President and Chief
Operating Officer of the Corporation; (iii) Timothy M. Jones was appointed
President of the Corporation simultaneous with his resignation from his
positions as Executive Vice President and Chief Investment Officer of the
Corporation; and (iv) Brant Cali was appointed to the Board of Directors of the
Corporation to fill the remainder of Thomas A. Rizk's term as a Class III
Director and was appointed Chief Operating Officer of the Corporation, also
remaining as an Executive Vice President and Assistant Secretary of the
Corporation.
Pursuant to the terms of Mr. Rizk's employment agreement entered into with the
Corporation in December 1997 and an agreement entered into simultaneous with his
resigning from the Corporation, Mr. Rizk received a payment of approximately
$14,490 in April 1999 and will receive $500 annually over the next three years.
The Operating Partnership is a defendant in certain litigation arising in the
normal course of business activities. Management does not believe that the
resolution of these matters will have a materially adverse effect upon the
Operating Partnership and the Property Partnerships.
14. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2016. Substantially all of the leases provide for
annual base rents plus recoveries and escalation charges based upon the tenant's
proportionate share of and/or increases in real estate taxes and certain
operating costs, as defined, and the pass through of charges for electrical
usage.
Page 25 of 44
<PAGE>
15. SEGMENT REPORTING
The Operating Partnership operates in one business segment - real estate. The
Operating Partnership provides leasing, management, acquisition, development,
construction and tenant-related services for its portfolio. The Operating
Partnership does not have any foreign operations. The accounting policies of the
segment are the same as those described in Note 2, excluding straight-line rent
adjustments and depreciation and amortization.
The Operating Partnership evaluates performance based upon net operating income
from the combined properties in the segment.
Selected results of operations for the three months ended March 31, 1999 and
1998 and selected asset information as of March 31, 1999 and December 31, 1998
regarding the Operating Partnership's operating segment are as follows:
<TABLE>
<CAPTION>
Total Corporate & Total
Segment Other (e) Operating Partnership
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL CONTRACT REVENUES (A):
Three months ended:
March 31, 1999 $ 131,769 $ (425) $ 131,344 (f)
March 31, 1998 101,600 1,019 102,619 (g)
TOTAL OPERATING AND INTEREST EXPENSES (B):
Three months ended:
March 31, 1999 $ 43,155 $ 28,952 $ 72,107
March 31, 1998 32,946 22,796 55,742
NET OPERATING INCOME (C):
Three months ended:
March 31, 1999 $ 88,614 $ (29,377) $ 59,237 (f)
March 31, 1998 68,654 (21,777) 46,877 (g)
TOTAL ASSETS:
March 31, 1999 $ 3,468,422 $ 30,520 $ 3,498,942
December 31, 1998 3,430,865 21,329 3,452,194
TOTAL LONG-LIVED ASSETS (D):
March 31, 1999 $ 3,424,193 $ 4,349 $ 3,428,542
December 31, 1998 3,393,313 4,098 3,397,411
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) Total contract revenues represents all revenues during the period
(including the Operating Partnership's share of net income from
unconsolidated joint ventures), excluding adjustments for straight-lining
of rents and the Operating Partnership's share of straight-line rent
adjustments from unconsolidated joint ventures. All interest income is
excluded from the segment amounts and is classified in Corporate and Other
for all periods.
(b) Total operating and interest expenses represents the sum of real estate
taxes, utilities, operating services, general and administrative and
interest expense. All interest expense (including for property-level
mortgages) is excluded from the segment amounts and is classified in
Corporate and Other for all periods.
(c) Net operating income represents total contract revenues [as defined in Note
(a)] less total operating and interest expenses [as defined in Note (b)]
for the period.
(d) Long-lived assets is comprised of total rental property, unbilled rents
receivable and investments in unconsolidated joint ventures.
(e) Corporate & Other represents all corporate-level items (including interest
income, interest expense and non-property general and administrative
expense) as well as intercompany eliminations necessary to reconcile to
consolidated Operating Partnership totals.
(f) Excludes $3,563 of adjustments for straight-lining of rents and ($18) for
the Operating Partnership's share of straight-line rent adjustments from
unconsolidated joint ventures.
(g) Excludes $3,203 of adjustments for straight-lining of rents.
Page 26 of 44
<PAGE>
16. IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Cost of Start-Up Activities" ("SOP 98-5"), which is effective
for fiscal years beginning after December 15, 1998. SOP 98-5 requires costs of
start-up and organizational activities be expensed as incurred. The adoption of
SOP 98-5 did not have a material effect on the Operating Partnership's financial
statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("FASB No.
133"). FASB No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999 (January 1, 2000 for the Operating Partnership).
FASB No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. Management of the Operating Partnership
anticipates that, due to its limited use of derivative instruments, the adoption
of FASB No. 133 will not have a significant effect on the Operating
Partnership's results of operations or its financial position.
17. PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information for the three months ended March
31, 1999 and 1998 are presented as if all acquisitions and common stock
offerings completed during the three months ended March 31, 1999 and the year
ended December 31, 1998 had all occurred on January 1, 1998. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.
This pro forma financial information is not necessarily indicative of what the
actual results of operations of the Operating Partnership would have been
assuming such transactions had been completed as of January 1, 1998, nor do they
represent the results of operations of future periods.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Total revenues $ 134,889 $ 128,882
Operating and other expenses 40,351 37,084
General and administrative 8,134 7,297
Depreciation and amortization 21,969 19,846
Interest expense 23,622 24,689
- -----------------------------------------------------------------------------------------------
Income before preferred unit distributions 40,813 39,966
Preferred units distributions (3,869) (3,911)
- -----------------------------------------------------------------------------------------------
Income available to common unitholders $ 36,944 $ 36,055
===============================================================================================
Basic earnings per common unit $ 0.55 $ 0.55
Diluted earnings per common unit $ 0.55 $ 0.54
- -----------------------------------------------------------------------------------------------
Basic weighted average units outstanding 67,011 65,649
Diluted weighted average units outstanding 67,283 66,399
- -----------------------------------------------------------------------------------------------
</TABLE>
Page 27 of 44
<PAGE>
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Mack-Cali Realty, L.P. and subsidiaries and the notes
thereto. Certain defined terms used herein have the meaning ascribed to them in
the Consolidated Financial Statements.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
The following comparisons for the three months ended March 31, 1999 ("1999"), as
compared to the three months ended March 31, 1998 ("1998") make reference to the
following: (i) the effect of the "Same-Store Properties," which represents all
in-service properties owned by the Operating Partnership at December 31, 1997
and (ii) the effect of the "Acquired Properties," which represents all
properties acquired or placed in service by the Operating Partnership from
January 1, 1998 through March 31, 1999.
<TABLE>
<CAPTION>
Quarter Ended
March 31, Dollar Percent
(IN THOUSANDS) 1999 1998 Change Change
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE FROM RENTAL OPERATIONS:
Base rents $116,080 $ 92,916 $23,164 24.9%
Escalations and recoveries from tenants 14,860 10,357 4,503 43.5
Parking and other 3,900 1,981 1,919 96.9
- ------------------------------------------------------------------------------------------------------------
Sub-total 134,840 105,254 29,586 28.1
Interest income 255 544 (289) (53.1)
Equity in (loss) earnings of
unconsolidated joint ventures (206) 25 (231) (924.0)
- ------------------------------------------------------------------------------------------------------------
Total revenues 134,889 105,823 29,066 27.5
- ------------------------------------------------------------------------------------------------------------
PROPERTY EXPENSES:
Real estate taxes 13,843 10,073 3,770 37.4
Utilities 9,592 8,301 1,291 15.6
Operating services 16,916 12,693 4,223 33.3
- ------------------------------------------------------------------------------------------------------------
Sub-total 40,351 31,067 9,284 29.9
General and administrative 8,134 6,196 1,938 31.3
Depreciation and amortization 21,969 16,231 5,738 35.4
Interest expense 23,622 18,480 5,142 27.8
- ------------------------------------------------------------------------------------------------------------
Total expenses 94,076 71,974 22,102 30.7
- ------------------------------------------------------------------------------------------------------------
Net income 40,813 33,849 6,964 20.6
Preferred unit distribution (3,869) (3,911) 42 1.1
- ------------------------------------------------------------------------------------------------------------
Net income available to
common unitholders $ 36,944 $ 29,938 $ 7,006 23.4%
============================================================================================================
</TABLE>
Page 28 of 44
<PAGE>
The following is a summary of the changes in revenue from rental operations and
property expenses divided into Acquired Properties and Same-Store Properties (in
thousands).
<TABLE>
<CAPTION>
Total Acquired Same-Store
Operating Partnership Properties Properties
--------------------- ---------- ----------
Dollar Percent Dollar Percent Dollar Percent
Change Change Change Change Change Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE FROM RENTAL OPERATIONS:
Base rents $23,164 24.9% $19,094 20.5% $4,070 4.4%
Escalations and recoveries from tenants 4,503 43.5 2,048 19.8 2,455 23.7
Parking and other 1,919 96.9 753 38.0 1,166 58.9
- -------------------------------------------------------------------------------------------------------------------
Total $29,586 28.1% $21,895 20.8% $7,691 7.3%
===================================================================================================================
PROPERTY EXPENSES:
Real estate taxes $3,770 37.4% $3,063 30.4% $ 707 7.0%
Utilities 1,291 15.6 1,577 19.0 (286) (3.4)
Operating services 4,223 33.3 3,363 26.5 860 6.8
- -------------------------------------------------------------------------------------------------------------------
Total $ 9,284 29.9% $ 8,003 25.8% $1,281 4.1%
===================================================================================================================
OTHER DATA:
Number of wholly-owned properties 248 59 189
Square feet (in thousands) 26,968 5,003 21,965
</TABLE>
Base rents for the Same-Store Properties increased $4.1 million, or 4.4 percent,
for 1999 as compared to 1998, due primarily to occupancy and rental rate
increases in 1999. Escalations and recoveries from tenants for the Same-Store
Properties increased $2.5 million, or 23.7 percent, for 1999 over 1998, due to
the recovery of an increased amount of total property expenses, as well as
additional settle-up billings in 1999. Parking and other income for the
Same-Store Properties increased $1.2 million, or 58.9 percent, which is
primarily attributable to $1.1 million of lease termination fees in 1999.
Real estate taxes on the Same-Store Properties increased $0.7 million, or 7.0
percent, for 1999 as compared to 1998, due primarily to property tax rate
increases in certain municipalities in 1999. Utilities for the Same-Store
Properties decreased $0.3 million, or 3.4 percent, for 1999 as compared to 1998,
due primarily to decreased electric rates and usage in 1999. Operating services
for the Same-Store Properties increased $0.9 million, or 6.8 percent, due
primarily to increased snow removal costs incurred at the Same-Store Properties
in 1999.
Equity in (loss) earnings of unconsolidated joint ventures decreased $0.2
million in 1999 as compared to 1998. This is due to additional organizational
and depreciation expense at certain of the joint ventures in which the Operating
Partnership has an interest (see Note 4 to the Financial Statements).
Interest income decreased by approximately $0.3 million, or 53.1 percent, for
1999 as compared to 1998. This decrease was due primarily to repayment by a
borrower of a mortgage note receivable in 1998 with no interest income from
mortgage note receivables in 1999.
General and administrative increased by $1.9 million, or 31.3 percent for 1999
as compared to 1998. This increase is due primarily to an increase in payroll
and related costs as a result of the Operating Partnership's expansion in 1998.
Depreciation and amortization increased by $5.7 million, or 35.4 percent, for
1999 over 1998. Of this increase, $4.5 million, or 28.1 percent, is attributable
to the Acquired Properties, and $1.2 million, or 7.3 percent, is due to the
Same-Store Properties.
Interest expense increased $5.1 million, or 27.8 percent, for 1999 as compared
to 1998. This increase is due primarily to net additional drawings from the
Operating Partnership's revolving credit facilities generally as a result of
Operating Partnership acquisitions in 1998, offset by a reduction in LIBOR in
1999 and the reduction in spread over LIBOR due to the 1998 Unsecured Facility
signed in April 1998.
Net income available to common unitholders increased to $36.9 million in 1999
from $29.9 million in 1998. The increase of $7.0 million is due to the factors
discussed above. Additionally, there were preferred dividends of $3.9 million in
1999 and 1998.
Page 29 of 44
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
STATEMENT OF CASH FLOWS
During the three months ended March 31, 1999, the Operating Partnership
generated $59.7 million in cash flows from operating activities, and together
with $683.7 million in borrowings from the Operating Partnership's revolving
credit facilities, issuance of unsecured notes and funds from additional
mortgage debt, $0.4 million in proceeds from stock options exercised, $1.0
million in distributions received from unconsolidated joint ventures, used an
aggregate of approximately $744.9 million to acquire properties and land parcels
and pay for other tenant and building improvements totaling $21.7 million, repay
outstanding borrowings on its revolving credit facilities and other mortgage
debt of $646.8 million, pay quarterly distributions of $40.6 million, invest
$22.5 million in unconsolidated joint ventures, repurchase 26,000 shares of the
Corporation's outstanding common stock for $0.7 million, pay deferred financing
costs of $5.6 million, $0.4 million to restricted cash and increase the
Operating Partnership's cash and cash equivalents balance by $6.6 million.
CAPITALIZATION
During the three months ended March 31, 1999, in conjunction with the redemption
of certain of the contingent units issued in the Mack Transaction, the Operating
Partnership issued a total of 189,552 common units with a total value of
approximately $5.6 million at time of issuance.
In August 1998, the Board of Directors of the Corporation authorized a share
repurchase program under which the Corporation was permitted to purchase up to
$100.0 million of the Corporation's outstanding common stock. Purchases could be
made from time to time in open market transactions at prevailing prices or
through privately negotiated transactions. Subsequently, through March 31, 1999,
the Corporation purchased, for constructive retirement, 880,700 shares of its
outstanding common stock for an aggregate cost of approximately $25.8 million.
Concurrent with these purchases, the Corporation sold to the Operating
Partnership 880,700 common units for approximately $25.8 million.
As of March 31, 1999, the Operating Partnership's total indebtedness of $1.5
billion (weighted average interest rate of 7.12 percent) was comprised of $190.8
million of revolving credit facility borrowings and other variable rate mortgage
debt (average rate of 5.82 percent), fixed rate debt of $1.3 billion (average
rate of 7.30 percent), and a Contingent Obligation of $6.3 million.
As of March 31, 1999, the Operating Partnership had outstanding borrowings of
$110.6 million under its revolving credit facilities (with aggregate borrowing
capacity of $1.1 billion). The outstanding borrowings were comprised of $110.6
million from the 1998 Unsecured Facility, with no outstanding borrowings on the
Prudential Facility. The 1998 Unsecured Facility, with 28 lender banks, carries
an interest rate of 90 basis points over LIBOR and matures in April 2001. The
Prudential Facility carries an interest rate of 110 basis points over LIBOR and
matures in March 31, 2000.
The terms of the 1998 Unsecured Facility include certain restrictions and
covenants which limit, among other things, the payment of dividends (as
discussed below), the incurrence of additional indebtedness, the incurrence of
liens and the disposition of assets, and which require compliance with financial
ratios relating to the maximum leverage ratio, the maximum amount of secured
indebtedness, the minimum amount of tangible net worth, the minimum amount of
debt service coverage, the minimum amount of fixed charge coverage, the maximum
amount of unsecured indebtedness, the minimum amount of unencumbered property
debt service coverage and certain investment limitations. The dividend
restriction referred to above provides that, except to enable the Corporation to
continue to qualify as a REIT under the Code, the Corporation will not during
any four consecutive fiscal quarters make distributions with respect to common
stock or other equity interests in an aggregate amount in excess of 90 percent
of funds from operations for such period, subject to certain other adjustments.
The 1998 Unsecured Facility also requires a 17.5 basis point fee on the unused
balance payable quarterly in arrears.
The terms of the Senior Unsecured Notes include certain restrictions and
covenants which require compliance with financial ratios relating to the maximum
amount of debt leverage, the maximum amount of secured indebtedness, the minimum
amount of debt service coverage and the maximum amount of unsecured debt as a
percent of unsecured assets.
The Operating Partnership has three investment grade credit ratings. Duff &
Phelps Credit Rating Co. ("DCR") and Standard & Poors Rating Services ("S&P")
have each assigned their BBB rating to the recently-issued $600.0 million of
Senior Unsecured Notes of the Operating Partnership. DCR and S&P have also
assigned their BBB- rating to prospective preferred stock offerings of the
Corporation. Moody's Investors Service has assigned its Baa3 rating to the
Senior Unsecured Notes of the Operating Partnership and its Ba1 rating to
prospective preferred stock offerings of the Corporation.
In May 1995, the Operating Partnership entered into an interest rate swap
agreement with a commercial bank. The swap agreement fixes the Operating
Partnership's one-month LIBOR base to 6.285 percent per annum on a notional
amount of $24.0 million through August 1999.
Page 30 of 44
<PAGE>
In October 1998, the Operating Partnership entered into a forward treasury rate
lock agreement with a commercial bank. The agreement locked an interest rate of
4.089 percent per annum for the three-year U.S. Treasury Note effective November
4, 1999, on a notional amount of $50.0 million. The agreement will be used to
fix the Index Rate on $50.0 million of the Harborside-Plaza I mortgage, for
which the Operating Partnership's interest rate re-sets for three years
beginning November 4, 1999 to the interpolated three-year U.S. Treasury Note
plus 110 basis points (see Note 9 to the Financial Statements - "Property
Mortgages - Harborside-Plaza I").
As of March 31, 1999, the Operating Partnership had 172 unencumbered properties,
totaling 16.7 million square feet, representing 61.9 percent of the Operating
Partnership's total portfolio on a square footage basis. An additional 55
properties, aggregating 5.4 million square feet (20.2 percent of Operating
Partnership's portfolio) are currently encumbered by $335.3 million of mortgage
debt, which may be converted to unsecured debt at the Operating Partnership's
option. The Operating Partnership is currently reviewing its options to convert
any of the mortgage debt to unsecured debt.
The Operating Partnership and Corporation has an effective shelf registration
statement with the SEC for an aggregate of $2.0 billion in debt securities,
preferred stock and preferred stock represented by depositary shares, under
which the Operating Partnership has issued $600 million of Senior Unsecured
Notes.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. Management believes that the Operating
Partnership will have access to the capital resources necessary to expand and
develop its business. To the extent that the Operating Partnership's cash flow
from operating activities is insufficient to finance its non-recurring capital
expenditures such as property acquisition costs and other capital expenditures,
the Operating Partnership expects to finance such activities through borrowings
under its credit facilities and other debt and equity financing.
The Operating Partnership expects to meet its short-term liquidity requirements
generally through its working capital and net cash provided by operating
activities, along with the 1998 Unsecured Facility and the Prudential Facility.
The Operating Partnership is frequently examining potential property
acquisitions and, at any given time, one or more of such acquisitions may be
under consideration. Accordingly, the ability to fund property acquisitions is a
major part of the Operating Partnership's financing requirements. The Operating
Partnership expects to meet its financing requirements through funds generated
from operating activities, long-term or short-term borrowings (including draws
on the Operating Partnership's revolving credit facilities) and the issuance of
additional debt or equity securities. In addition, the Operating Partnership
anticipates utilizing the 1998 Unsecured Facility and the Prudential Facility
primarily to fund property acquisitions.
The Operating Partnership's first public debt issuance increased the weighted
average term to maturity for the Operating Partnership's indebtedness from 4.2
to 6.3 years. The Operating Partnership refinanced $35.9 million of its property
mortgages which matured in the first quarter of 1999 with $45.5 million of new
mortgage debt. The Operating Partnership does not intend to reserve funds to
retire its Senior Unsecured Notes, TIAA Mortgage, Harborside mortgages, $150.0
Million Prudential Mortgage Loan, its other property mortgages or other
long-term mortgages and loans payable upon maturity. Instead, the Operating
Partnership will seek to refinance such debt at maturity or retire such debt
through the issuance of additional debt or equity securities. The Operating
Partnership is reviewing various refinancing options, including the issuance of
additional unsecured public debt, preferred stock, and/or obtaining additional
mortgage debt, some or all of which may be completed during 1999. The Operating
Partnership anticipates that its available cash and cash equivalents and cash
flows from operating activities, together with cash available from borrowings
and other sources, will be adequate to meet the Operating Partnership's capital
and liquidity needs both in the short and long-term. However, if these sources
of funds are insufficient or unavailable, the Operating Partnership's ability to
make the expected distributions discussed below may be adversely affected.
To maintain its qualification as a REIT, the Corporation must make annual
distributions to its stockholders of at least 95 percent of its REIT taxable
income, determined without regard to the dividends paid deduction and by
excluding net capital gains. The Corporation currently relies on the
distributions it receives from the Operating Partnership to make its
distributions to its stockholders. Moreover, the Operating Partnership intends
to continue to make regular quarterly distributions to its unitholders which,
based upon current policy, in the aggregate would equal approximately $128.5
million on an annualized basis. However, any such distribution would only be
paid out of available cash after meeting operating requirements, scheduled debt
service on mortgages and loans payable, and preferred unit distributions.
Page 31 of 44
<PAGE>
SIGNIFICANT TENANTS
The following table sets out a schedule of the Operating Partnership's 20
largest tenants, for the the Operating Partnership's wholly-owned properties as
of March 31, 1999, based upon annualized base rents:
<TABLE>
<CAPTION>
Percentage of
Annualized Company Square Percentage of Year of
Number of Base Rental Annualized Base Feet Total Company Lease
Properties Revenue($)(1) Rental Revenue (%) Leased Leased Sq.Ft. (%) Expiration
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AT&T Corporation 5 13,408,239 3.1 971,501 3.8 2009 (2)
Donaldson, Lufkin &
Jenrette Securities Corp. 1 7,943,706 1.8 420,672 1.6 2009
AT&T Wireless Services 2 7,826,368 1.8 365,593 1.4 2007 (3)
International Business
Machines Corporation 6 7,639,928 1.7 396,912 1.6 2007 (4)
Nabisco Inc. 3 5,921,014 1.4 321,735 1.3 2000 (11)
Allstate Insurance Company 9 5,839,839 1.3 270,796 1.1 2009 (5)
Prentice-Hall Inc. 1 5,794,893 1.3 474,801 1.9 2014
Dow Jones Telerate Systems Inc. 1 5,610,924 1.3 291,762 1.1 2006 (6)
Toys 'R' US - NJ, Inc. 1 5,342,672 1.2 242,518 0.9 2012
American Institute of Certified
Public Accountants 1 4,981,357 1.1 249,768 1.0 2012
CMP Media Inc 1 4,826,107 1.1 206,274 0.8 2014
Board of Gov./Federal Reserve 1 4,593,946 1.0 117,008 0.5 2009 (7)
Winston & Strawn 1 4,214,885 1.0 108,100 0.4 2003
KPMG Peat Marwick, LLP 2 3,510,412 0.8 161,760 0.6 2007 (8)
Bankers Trust Harborside Inc. 1 3,272,500 0.7 385,000 1.5 2003
Morgan Stanley Dean Witter 1 3,188,532 0.7 179,131 0.7 2008
Dean Witter Reynolds Inc. 4 3,163,872 0.7 137,181 0.5 2008 (9)
Deloitte & Touche USA LLP 1 3,162,933 0.7 118,864 0.5 2000
PNC Bank N.A. 4 3,054,754 0.7 149,930 0.6 2004 (10)
NTT Data Corporation 1 3,047,364 0.7 136,960 0.5 2005
- -----------------------------------------------------------------------------------------------------------------------------------
Totals 47 106,344,245 24.1 5,706,266 22.3
===================================================================================================================================
</TABLE>
(1) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rental revenue is based on the first month's billing times 12. As
annualized base rental revenue is not derived from historical GAAP results,
historical results may differ from those set forth above.
(2) 39,183 square feet expire February 2000; 66,268 square feet expire December
2000; 3,950 square feet expire August 2002; 475,100 square feet expire
January 2008; 387,000 square feet expire January 2009.
(3) 341,512 square feet expire March 2007; 24,081 square feet expire June 2007.
(4) 6,542 square feet expired April 1999; 29,157 square feet expire October
2000; 85,000 square feet expire December 2000; 26,749 square feet expire
January 2002; 1,065 square feet expire November 2002; 248,399 square feet
expire December 2007.
(5) 22,444 square feet expire July 2001; 70,517 square feet expire June 2002;
71,030 square feet expire September 2002; 18,882 square feet expire April
2003; 2,867 square feet expire January 2004; 36,305 square feet expire
January 2005; 6,108 square feet expire August 2006; 31,143 square feet
expire April 2008; 11,500 square feet expire January 2009.
(6) 241,875 square feet expire June 2000; 4,700 square feet expire March 2001;
45,187 square feet expire June 2006.
(7) 94,719 square feet expire May 2005; 22,289 square feet expire June 2009.
(8) 104,556 square feet expire September 2002; 57,204 square feet expire July
2007.
(9) 19,390 square feet expire October 2002; 13,140 square feet expire April
2005; 85,151 square feet expire February 2008; 19,500 square feet expire
June 2008.
(10) 23,337 square feet expire October 1999; 107,320 square feet expire February
2000; 15,802 square feet expire August 2003; 3,471 square feet expire
October 2004.
(11) 21,357 square feet expired April 1999; 300,378 square feet expire December
2000.
Page 32 of 44
<PAGE>
SCHEDULE OF LEASE EXPIRATIONS
The following table sets forth a schedule of the lease expirations for the total
of the the Operating Partnership's wholly-owned office, office/flex,
industrial/warehouse and stand-alone retail properties beginning April 1, 1999,
assuming that none of the tenants exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) (2) Leases ($) (3) Leases ($) Leases (%)
- ---------- ------------ ------------ -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999.......... 448 1,884,975 7.4 33,276,342 17.65 7.6
2000.......... 493 4,017,431 15.7 68,359,287 17.02 15.6
2001.......... 494 2,907,231 11.4 47,555,276 16.36 10.9
2002.......... 415 3,313,258 13.0 57,608,796 17.39 13.2
2003.......... 371 3,797,112 14.9 64,595,040 17.01 14.8
2004.......... 142 1,678,964 6.6 27,884,297 16.61 6.4
2005.......... 82 1,349,712 5.3 27,029,713 20.03 6.2
2006.......... 41 783,333 3.1 14,637,476 18.69 3.3
2007.......... 33 1,166,028 4.6 22,334,897 19.15 5.1
2008.......... 31 1,432,805 5.6 22,389,008 15.63 5.1
2009.......... 22 1,177,992 4.6 20,700,599 17.57 4.7
2010 and thereafter 31 2,057,294 7.8 31,534,238 15.33 7.1
- -------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 2,603 25,566,135 100.0(4) 437,904,969 17.13 100.0
=========================================================================================================================
</TABLE>
(1) Includes office, office/flex, industrial/warehouse and stand-alone retail
property tenants only. Excludes leases for amenity, retail, parking and
month-to-month tenants. Some tenants have multiple leases.
(2) Excludes all space vacant as of March 31, 1999.
(3) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rental revenue is based on the first month's billing times 12. As
annualized base rental revenue is not derived from historical GAAP results,
historical results may differ from those set forth above.
(4) Reconciliation to the Operating Partnership's total net rentable square
footage is as follows:
<TABLE>
<CAPTION>
Square Feet Percentage of Total
----------- -------------------
<S> <C> <C>
Square footage leased to commercial tenants 25,566,135 95.0%
Square footage used for corporate offices, management offices,
building use, retail tenants, food services, other anciliary
service tenants and occupancy adjustments 445,142 1.7
Square footage vacant 889,404 3.3
----------- ------
Total net rentable square footage (does not include
residential, land lease, retail or not-in-service properties) 26,900,681 100.0%
=========== ======
</TABLE>
Page 33 of 44
<PAGE>
SCHEDULE OF LEASE EXPIRATIONS: OFFICE PROPERTIES
The following table sets forth a schedule of the lease expirations for the
office properties beginning April 1, 1999, assuming that none of the tenants
exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) (2) Leases ($) (3) Leases ($) Leases (%)
- ---------- ------------ ------------ -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999.......... 383 1,502,808 7.0 29,314,776 19.51 7.5
2000.......... 415 3,375,681 15.8 61,242,703 18.14 15.6
2001.......... 407 2,295,765 10.7 40,600,886 17.69 10.4
2002.......... 334 2,576,445 12.0 49,711,432 19.29 12.7
2003.......... 311 3,211,325 15.0 58,823,737 18.32 15.0
2004.......... 114 1,320,047 6.2 23,785,246 18.02 6.1
2005.......... 63 1,130,145 5.3 24,524,486 21.70 6.3
2006.......... 34 589,841 2.8 11,345,970 19.24 2.9
2007.......... 28 1,054,347 4.9 20,761,913 19.69 5.3
2008.......... 29 1,330,945 6.2 21,924,500 16.47 5.6
2009.......... 18 1,105,892 5.2 19,661,379 17.78 5.0
2010 and thereafter 26 1,925,598 8.9 29,963,689 15.56 7.6
- -------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 2,162 21,418,839 100.0 391,660,717 18.29 100.0
=========================================================================================================================
</TABLE>
(1) Includes office tenants only. Excludes leases for amenity, retail, parking
and month-to-month office tenants. Some tenants have multiple leases.
(2) Excludes all space vacant as of March 31, 1999.
(3) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rental revenue is based on the first month's billing times 12. As
annualized base rental revenue is not derived from historical GAAP results,
historical results may differ from those set forth above.
Page 34 of 44
<PAGE>
SCHEDULE OF LEASE EXPIRATIONS: OFFICE/FLEX PROPERTIES
The following table sets forth a schedule of the lease expirations for the
office/flex properties beginning April 1, 1999, assuming that none of the
tenants exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) (2) Leases ($) (3) Leases ($) Leases (%)
- ---------- ------------ ------------ -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999.......... 61 376,332 10.0 3,902,146 10.37 9.2
2000.......... 73 575,706 15.3 6,455,308 11.21 15.3
2001.......... 82 579,919 15.4 6,351,835 10.95 15.0
2002.......... 80 726,663 19.4 7,792,819 10.72 18.4
2003.......... 57 494,313 13.2 5,345,550 10.81 12.6
2004.......... 21 179,897 4.8 2,245,346 12.48 5.3
2005.......... 19 219,567 5.8 2,505,227 11.41 5.9
2006.......... 7 193,492 5.2 3,291,506 17.01 7.8
2007.......... 5 111,681 3.0 1,572,984 14.08 3.7
2008.......... 2 101,860 2.7 464,508 4.56 1.1
2009.......... 4 72,100 1.9 1,039,220 14.41 2.5
2010 and thereafter 4 123,696 3.3 1,305,549 10.55 3.2
- -------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 415 3,755,226 100.0 42,271,998 11.26 100.0
=========================================================================================================================
</TABLE>
(1) Includes office/flex tenants only. Excludes leases for amenity, retail,
parking and month-to-month office/flex tenants. Some tenants have multiple
leases.
(2) Excludes all space vacant as of March 31, 1999.
(3) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rental revenue is based on the first month's billing times 12. As
annualized base rental revenue is not derived from historical GAAP results,
historical results may differ from those set forth above.
Page 35 of 44
<PAGE>
SCHEDULE OF LEASE EXPIRATIONS: INDUSTRIAL/WAREHOUSE PROPERTIES
The following table sets forth a schedule of the lease expirations for the
industrial/warehouse properties beginning April 1, 1999, assuming that none of
the tenants exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) (2) Leases ($) (3) Leases ($) Leases (%)
- ---------- ------------ ------------ -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999.......... 4 5,835 1.6 59,420 10.18 1.7
2000.......... 5 66,044 17.6 661,276 10.01 18.8
2001.......... 5 31,547 8.4 602,555 19.10 17.2
2002.......... 1 10,150 2.7 104,545 10.30 3.0
2003.......... 3 91,474 24.4 425,753 4.65 12.1
2004.......... 6 169,720 45.3 1,658,705 9.77 47.2
- -------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 24 374,770 100.0 3,512,254 9.37 100.0
=========================================================================================================================
</TABLE>
(1) Includes industrial/warehouse tenants only. Excludes leases for amenity,
retail, parking and month-to-month industrial/warehouse. Some tenants have
multiple leases.
(2) Excludes all space vacant as of March 31, 1999.
(3) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rent revenue is based on the first month's billing times 12. As annualized
base rental revenue is not derived from historical GAAP results, the
historical results may differ from those set forth above.
SCHEDULE OF LEASE EXPIRATIONS: STAND-ALONE RETAIL PROPERTIES
The following table sets forth a schedule of the lease expirations for the
stand-alone retail properties beginning April 1, 1999, assuming that none of
the tenants exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) Leases ($) (2) Leases ($) Leases (%)
- ---------- ------------ ------------ -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
2004.......... 1 9,300 53.8 195,000 20.97 42.4
2012 ......... 1 8,000 46.2 265,000 33.13 57.6
- -------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 2 17,300 100.0 460,000 26.59 100.0
=========================================================================================================================
</TABLE>
(1) Includes stand-alone retail property tenants only.
(2) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999 annualized base
rental revenue is based on the first month's billing times 12. As
annualized base rental revenue is not derived from historical GAAP results,
historical results may differ from those set forth above.
Page 36 of 44
<PAGE>
FUNDS FROM OPERATIONS
The Operating Partnership considers funds from operations ("FFO"), after
adjustment for straight-lining of rents, one measure of REIT performance. Funds
from operations is defined as net income (loss) before distribution to preferred
unitholders, computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains (or losses) from debt restructuring, other
extraordinary and significant non-recurring items, and sales of property, plus
real estate-related depreciation and amortization. Funds from operations should
not be considered as an alternative to net income as an indication of the
Operating Partnership's performance or to cash flows as a measure of liquidity.
Funds from operations presented herein is not necessarily comparable to funds
from operations presented by other real estate companies due to the fact that
not all real estate companies use the same definition. However, the Operating
Partnership's funds from operations is comparable to the funds from operations
of real estate companies that use the current definition of the National
Association of Real Estate Investment Trusts ("NAREIT"), after the adjustment
for straight-lining of rents.
NAREIT's definition of funds from operations indicates that the calculation
should be made before any extraordinary item (determined in accordance with
GAAP), and before any deduction of significant non-recurring events that
materially distort the comparative measurement of the Operating Partnership's
performance.
Funds from operations for the three months ended March 31, 1999 and 1998, as
calculated in accordance with NAREIT's definition as published in March 1995
after adjustment for straight-line of rents, are summarized in the following
table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Income before distributions to
preferred unitholders $ 40,813 $ 33,849
Add: Real estate-related depreciation and
amortization (1) 22,951 16,120
Deduct: Rental income adjustment for
straight-lining of rents (1) (3,545) (3,203)
- -------------------------------------------------------------------------------------------
Funds from operations, after adjustment
for straight-lining of rents, before distributions
to preferred unitholders $ 60,219 $ 46,766
Deduct: Distributions to preferred unitholders (3,869) (3,911)
- -------------------------------------------------------------------------------------------
Funds from operations, after adjustment for
straight-lining of rents, after distributions
to preferred unitholders $ 56,350 $ 42,855
===========================================================================================
Cash flows provided by operating activities $ 59,654 $ 50,358
Cash flows used in investing activities $ (43,459) $ (444,615)
Cash flows (used in) provided by financing activities $ (9,598) $ 403,270
- -------------------------------------------------------------------------------------------
Basic weighted average units outstanding (2) 67,011 57,933
- -------------------------------------------------------------------------------------------
Diluted weighted average units outstanding (2) 73,975 65,371
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Includes FFO adjustments related to the Operating Partnership's investments
in unconsolidated joint ventures.
(2) See calculations for the amounts presented in the following reconciliation.
Page 37 of 44
<PAGE>
The following schedule reconciles the Operating Partnership's basic weighted
average units to the diluted weighted average units presented above:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic weighted average units: 67,011 57,933
Add: Weighted average preferred units 6,692 6,689
(after conversion to common units)
Stock options 272 612
Stock warrants -- 137
- ----------------------------------------------------------------------------------------------------------
Diluted weighted average units: 73,975 65,371
==========================================================================================================
</TABLE>
INFLATION
The Operating Partnership's leases with the majority of its tenants provide for
recoveries and escalation charges based upon the tenant's proportionate share
of, and/or increases in, real estate taxes and certain operating costs, which
reduce the Operating Partnership's exposure to increases in operating costs
resulting from inflation.
DISRUPTION IN OPERATIONS DUE TO YEAR 2000 PROBLEMS.
GENERAL
The Year 2000 issue is the result of computer programs and embedded chips using
a two-digit format, as opposed to four digits, to indicate the year. Such
computer systems may be unable to interpret dates beyond the year 1999, which
could cause a system failure or other computer errors, leading to disruptions in
operations. We have developed a three-phase Year 2000 project (the "Project") to
determine our Year 2000 systems compliance. Phase I is to identify those systems
with which we have exposure to Year 2000 issues. Phase II is the development and
implementation of action plans to be Year 2000 compliant in all areas by early
1999. Phase III, to be completed by mid-1999, is the final testing of each major
area of exposure to assure compliance. We have identified three major areas
critical for successful Year 2000 compliance: (i) our central accounting and
operating computer system at our Cranford, New Jersey headquarters and local
networks and related systems in our regional offices, (ii) inquiries of our
tenants and key vendors as to their Year 2000 readiness and (iii) assessment of
our individual buildings as to the Year 2000 readiness of their operating
systems. We believe that progress in all such areas is proceeding on schedule
and that we will experience no material adverse effect as a result of the Year
2000 issue. There can, however, be no assurance that this will be the case. Set
forth below is a more detailed analysis of the Project and its anticipated
impact on us.
CENTRAL ACCOUNTING AND OPERATING SYSTEMS
We have completed a review of key computer hardware and software and other
equipment, and have modified, upgraded or replaced all identified hardware and
equipment in our corporate and regional offices that we believe may be affected
by problems associated with Year 2000. Such hardware includes desktop and laptop
computers, servers, printers, telecopier machines and telephones. We, as part of
our routine modernization efforts, have completed necessary upgrades to
identified secondary software systems, such as word processing, spreadsheet
applications, telephone voicemail systems and computer calendar programs. The
software supplier of our accounting system completed its Year 2000 upgrade and
supplied us with Year 2000 compliant software at no cost to us. We anticipate
internal testing of such software to be completed by July 1999.
TENANT COMPLIANCE
We believe that the completion of the Project as scheduled will minimize Year
2000 related issues in our internal operations. However, we may still be
adversely impacted by Year 2000 related issues as a result of problems outside
our control, such as the inability of tenants to pay rent when due. In order to
gauge such risk, we sent questionnaires to each of our then existing tenants in
August 1998 to assess their Year 2000 compliance status. The responses to these
questionnaires continue to be received, reviewed and evaluated. Based on the
responses received, we do not anticipate any material adverse impact on the
orderly payment of monthly rent. Therefore, while there can be no assurance that
Year 2000 problems of tenants will not have a material adverse effect on our
operating results or financial condition, the information available to us
indicates such an occurrence is not likely.
PROPERTY COMPLIANCE
Our property managers have completed Phase I of the Project, a building by
building survey of all of our properties to determine whether building support
systems such as heat, power, light, security, garages and elevators will be
affected by
Page 38 of 44
<PAGE>
the advent of the Year 2000. Most of such systems either are already Year 2000
compliant or contain no computerized parts. Our property managers are currently
completing Phase II of the Project, the development and implementation of action
plans to modify, upgrade or replace non-compliant building systems. Once
installed, these building systems will be tested for compliance pursuant to
Phase III of the Project.
We have communicated with vendors of building systems or other services to our
buildings regarding their Year 2000 compliance. In many instances, we will rely
on the written representations from these vendors regarding the Year 2000
compliance of their product or service. We are also relying on assurances
requested from utility providers of their Year 2000 compliance and their
continued ability to provide uninterrupted service to our buildings. We
anticipate incurring a total of approximately $1.0 million in costs to modify,
upgrade and/or replace identified building support systems for Year 2000
compliance.
WORST CASE EXPOSURE
We are aware that it is generally believed that the Year 2000 problem, if
uncorrected, may result in a worldwide economic crisis. We are unable to
determine whether such predictions are true or false. However, if such
predictions prove true, we assume that all companies (including ours) will
experience the effects in one way or another. The most reasonably likely worst
case scenario we anticipate in connection with the Year 2000 issue relates to
the failure of the upgrade to our accounting system to effectively become Year
2000 compliant. We believe that such an event is unlikely, but an occurrence of
the foregoing might have a material adverse impact on our operations. We cannot
currently assess the financial impact of such a worst case scenario.
CONTINGENCY PLANS
We are developing contingency plans to address the Year 2000 non-compliance of
(i) critical building support systems and (ii) our accounting system.
CRITICAL BUILDING SYSTEMS. We believe that the failure of any of the
following critical building support systems due to Year 2000 issues could have a
material adverse impact on the performance of an individual building: security
systems, elevator systems or fire/life safety systems. We believe that in the
event of a Year 2000 related failure in a building security system, we would be
able to maintain adequate security at the building through the use of security
guards. We believe that in the event of a Year 2000 related failure in a
building elevator system, adequate access would exist at most of our buildings
through existing stairways. We believe that in the event of a Year 2000 related
failure in a building fire/life safety system, our property management staff
would be able to manually operate such system.
ACCOUNTING SOFTWARE. We believe that failure of the Year 2000
compliance upgrade to our accounting software might have a material adverse
impact on our operations. However, we believe that financial data within any
given fiscal year will remain intact and retrievable. We believe that
alternative accounting software and/or manual bookkeeping would minimize the
impact of a Year 2000 related failure of our current accounting software.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party vendors and tenants, we are unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on our results of operations, liquidity or financial
condition. The Project is expected to significantly reduce our level of
uncertainty about the Year 2000 problem. We believe that, with the
implementation and completion of the Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
Page 39 of 44
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Approximately $1.3 billion of the Operating Partnership's long-term debt bears
interest at fixed rates, and therefore the fair value of these instruments is
affected by changes in the market interest rates. The following table presents
principal cash flows (in thousands) based upon maturity dates of the debt
obligations and the related weighted-average interest rates by expected maturity
dates for the fixed rate debt. The interest rate on the variable rate debt as of
March 31, 1999 ranged from LIBOR plus 0.65% to LIBOR plus 0.90%.
<TABLE>
<CAPTION>
MARCH 31, 1999
LONG-TERM DEBT, FAIR
INCLUDING CURRENT PORTION 1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
- ----------------------------- ---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate............ $2,296 $ 8,755 $ 7,794 $11,637 $211,151 $1,025,343 $1,266,976 $1,270,610
Average Interest Rate. 7.65% 6.77% 7.27% 7.09% 7.31% 7.27% 7.30%
Variable Rate......... $8,000 $110,600 $ 72,204 $ 190,804 $190,804
</TABLE>
Page 40 of 44
<PAGE>
MACK-CALI REALTY, L.P.
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Reference is made to "Other Contingencies" in Note 13
(Commitments and Contingencies) to the Consolidated Financial
Statements, which is specifically incorporated by reference
herein.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Item 5. OTHER INFORMATION
Not Applicable.
Page 41 of 44
<PAGE>
MACK-CALI REALTY, L.P.
PART II -- OTHER INFORMATION (CONTINUED)
ITEM 6 - EXHIBITS
(a) Exhibits.
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed:
Exhibit Number Exhibit Title
- -------------- -------------
4.1 Indenture dated as of March 16, 1999, by and among Mack-Cali
Realty , L.P., as issuer, Mack-Cali Realty Corporation, as
guarantor, and Wilmington Trust Company, as trustee (filed as
Exhibit 4.1 to the Operating Partnership's Form 8-K dated
March 16, 1999 and incorporated herein by reference).
4.2 Supplemental Indenture No. 1 dated as of March 16, 1999, by
and among Mack-Cali Realty, L.P., as issuer, and Wilmington
Trust Company, as trustee (filed as Exhibit 4.2 to the
Operating Partnership's Form 8-K dated March 16, 1999 and
incorporated herein by reference).
10.1 Credit Agreement, dated as of December 10, 1997, by and among
Cali Realty, L.P. and the other signatories thereto (filed as
Exhibit 10.122 to the General Partner's Form 8-K dated
December 11, 1997 and incorporated herein by reference).
10.2 Amendment No. 1 to Revolving Credit Agreement dated July 20,
1998, by and among Mack-Cali Realty, L.P. and The Chase
Manhattan Bank, Fleet National Bank and Other Lenders Which
May Become Parties Thereto (filed as Exhibit 10.5 to the
Operating Partnership's Form 10-K dated December 31, 1998 and
incorporated herein by reference).
10.3 Amendment No. 2 to Revolving Credit Agreement dated December
30, 1998, by and among Mack-Cali Realty, L.P. and The Chase
Manhattan Bank, Fleet National Bank and Other Lenders Which
May Become Parties Thereto (filed as Exhibit 10.6 to the
Operating Partnership's Form 10-K dated December 31, 1998 and
incorporated herein by reference).
10.4 Contribution and Exchange Agreement among The MK Contributors,
The MK Entities, The Patriot Contributors, The Patriot
Entities, Patriot American Management and Leasing Corp., Cali
Realty, L.P. and Cali Realty Corporation, dated September 18,
1997 (filed as Exhibit 10.98 to the General Partner's Form 8-K
dated September 19, 1997 and incorporated herein by
reference).
Page 42 of 44
<PAGE>
Exhibit Number Exhibit Title
- -------------- -------------
10.5 First Amendment to Contribution and Exchange Agreement, dated
as of December 11, 1997, by and among the Company and the Mack
Group (filed as Exhibit 10.99 to the General Partner's Form
8-K dated December 11, 1997 and incorporated herein by
reference).
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended March 31, 1999, the Operating Partnership filed
Current Reports on Form 8-K dated March 15, 1999 and March 16, 1999.
Page 43 of 44
<PAGE>
MACK-CALI REALTY, L.P.
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.
Mack-Cali Realty, L.P.
-----------------------------------
(Registrant)
By: Mack-Cali Realty Corporation,
as its General Partner
Date: May 13, 1999 /s/ Mitchell E. Hersh
-----------------------------------
Mitchell E. Hersh
Chief Executive Officer
Date: May 13, 1999 /s/ Barry Lefkowitz
-----------------------------------
Barry Lefkowitz
Executive Vice President &
Chief Financial Officer
Page 44 of 44
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 18,784
<SECURITIES> 0
<RECEIVABLES> 7,531
<ALLOWANCES> 757
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,495,175
<DEPRECIATION> 198,945
<TOTAL-ASSETS> 3,498,942
<CURRENT-LIABILITIES> 0
<BONDS> 1,457,779
0
0
<COMMON> 0
<OTHER-SE> 1,930,612
<TOTAL-LIABILITY-AND-EQUITY> 3,498,942
<SALES> 0
<TOTAL-REVENUES> 134,889
<CGS> 0
<TOTAL-COSTS> 62,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,622
<INCOME-PRETAX> 40,813
<INCOME-TAX> 0
<INCOME-CONTINUING> 36,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,944
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
