<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 1-8971
RCPI Trust
(Exact name of registrant as specified in its charter)
Delaware 13-7087445
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Tishman Speyer Properties, L.P.
45 Rockefeller Plaza, New York, N.Y. 10011
(Address of principal executive offices) (Zip Code)
(212) 332-6500
(Registrant's telephone number, including area code)
________________________________________________________________________________
(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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
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RCPI TRUST
INDEX
PAGE
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited, interim financial statements have been
prepared in accordance with the instructions to Form 10-Q. In the opinion
of management, all adjustments necessary for a fair presentation have been
included.
RCPI Trust, Balance Sheets as of March 31, 1998 (unaudited) and
December 31, 1997 1
RCPI Trust, Statements of Operations for the quarters ended March
31, 1998 and 1997 (unaudited) 2
RCPI Trust, Statements of Cash Flows for the quarters ended March
31, 1998 and 1997 (unaudited) 3
Notes to Financial Statements (unaudited) 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 5
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
RCPI TRUST
(A Delaware business trust)
BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
March 31, 1998
(Unaudited) December 31, 1997
--------- ---------
<S> <C> <C>
ASSETS:
Real Estate:
Land $ 158,149 $ 158,149
Buildings and improvements 615,604 611,711
Tenant improvements 40,187 36,170
Furniture, fixtures and equipment 4,355 4,192
--------- ---------
818,295 810,222
Less: Accumulated depreciation and amortization (29,118) (24,393)
--------- ---------
789,177 785,829
Cash and cash equivalents 37,565 27,517
Restricted cash 14,000 9,369
Accounts receivable 5,254 11,946
Prepaid expenses 8,849 495
Deferred costs, net of accumulated
amortization of $2,927 and $2,192, respectively 28,595 22,521
Accrued rent 39,393 29,969
--------- ---------
Total Assets $ 922,833 $ 887,646
========= =========
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Zero coupon convertible debentures, net of unamortized
discount of $165,214 and $177,696, respectively $ 420,971 $ 408,489
14% debentures (includes premium of $24,333 and $24,710, respectively) 99,333 99,710
NationsBank Loans 75,000 55,000
Accrued interest payable 2,720 7,152
Accounts payable and accrued expenses 19,684 21,227
Tenant security deposits payable 13,523 8,940
--------- ---------
Total Liabilities 631,230 600,518
Commitments and Contingencies
Owners' Equity 291,603 287,128
--------- ---------
Total Liabilities and Owners' Equity $ 922,833 $ 887,646
========= =========
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
1
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RCPI TRUST
(A Delaware business trust)
STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1997
($ in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
------- -------
<S> <C> <C>
Revenues:
Base rental $47,461 $43,066
Operating escalations and percentage rents 1,915 2,774
Interest and other income 1,465 1,810
------- -------
Total revenues 50,841 47,650
------- -------
Expenses:
Interest 15,423 13,606
Real estate taxes 8,415 8,234
Payroll and benefits 4,391 4,421
Repairs, maintenance and supplies 2,838 1,865
Utilities 3,872 4,453
Cleaning 3,375 3,640
Professional fees 545 2,725
Insurance 314 289
Management and accounting fees 902 854
General and administration 826 374
Depreciation and amortization 5,465 4,523
------- -------
Total expenses 46,366 44,984
------- -------
Net income $ 4,475 $ 2,666
======= =======
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
2
<PAGE> 5
RCPI TRUST
(A Delaware business trust)
STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1997
($ in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 4,475 $ 2,666
Adjustment to reconcile net income to net cash
provided by operating activities
Amortization of original issue discount and premium 12,105 10,722
Depreciation and amortization 5,465 4,523
(Increase) decrease in restricted cash (4,631) 2,354
Decrease in accounts receivable 6,692 6,900
Increase in prepaid expenses (8,354) (8,411)
Increase in accrued rent (9,424) (4,451)
Increase (decrease) in accounts payable and accrued expenses 1,824 (5,486)
Decrease (increase) in accrued interest payable (4,432) 1,650
-------- --------
Net cash provided by operating activities 3,720 10,467
-------- --------
Cash Flows from Investing Activities:
Additions to building and improvements (3,857) (1,780)
Additions to tenant improvements (5,827) (2,882)
Additions to furniture, fixtures and equipment (163) (28)
Additions to deferred costs (3,825) (6,018)
-------- --------
Net cash used in investing activities (13,672) (10,708)
-------- --------
Cash Flows from Financing Activities:
Additions to NationsBank loans 20,000 --
-------- --------
Net cash provided by financing activities 20,000 --
-------- --------
Increase (decrease) in cash and cash equivalents 10,048 (241)
Cash and cash equivalents at beginning of period 27,517 28,765
-------- --------
Cash and cash equivalents at end of period $ 37,565 $ 28,524
======== ========
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
3
<PAGE> 6
RCPI TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL STATEMENTS
The balance sheet as of March 31, 1998 and the statements of operations and
cash flows for the three months ended March 31, 1998 and 1997 are
unaudited, but in the opinion of the Company's management reflect all
adjustments, consisting only of normal recurring adjustments, which are
necessary to present fairly the financial condition and results of
operations at those dates and for those periods. The results of operations
for the interim periods are not necessarily indicative of results for a
full year. It is suggested that these financial statements be read in
conjunction with the audited financial statements and notes thereto
included in the Company's latest Form 10-K dated December 31, 1997.
2. DEBT
NationsBank Credit Facility
The Company entered into a Credit Agreement (the "NationsBank Credit
Agreement") dated as of May 16, 1997, with NationsBank of Texas, N.A.
("NationsBank"), pursuant to which NationsBank agreed to make term loans
(the "NationsBank Loans") to the Company in an aggregate principal amount
of up to $100 million. As of December 31, 1997, the Company had a term loan
outstanding in the principal amount of $55 million. On January 16, 1998,
the Company entered into a second NationsBank loan in the principal amount
of $20 million bringing the aggregate loans due to NationsBank to $75
million.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Prior Year Reclassifications
Certain prior year balances have been reclassified to conform with the
current year financial statement presentation.
4
<PAGE> 7
RCPI TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES - RCPI TRUST
Land and Building
At March 31, 1998, the Property, exclusive of 1.5 million square feet owned
directly by the National Broadcasting Company, Inc. and NBC Trust No.
1996A, was approximately 88.1% occupied. Occupancy rates for the Property
at various dates are presented in the following table:
December 31, 1997 86.7% March 31, 1997 83.3%
September 30, 1997 86.3% December 31, 1996 83.6%
June 30, 1997 86.4% September 30, 1996 82.8%
The following table shows selected lease expirations and vacancy of the
Property as of March 31, 1998. Area, as presented below and discussed
above, is measured based on standards promulgated by the New York Real
Estate Board in 1987. Lease turnover could offer an opportunity to increase
the revenue of the Property or might have a negative impact on the
Property's revenue. Actual renewal and rental income will be affected
significantly by market conditions at the time and by the terms at which
the Company can then lease space.
<TABLE>
<CAPTION>
Square Feet Percent
Year Expiring Expiring
---- -------- --------
<S> <C> <C>
Vacant 706,376 11.9%
1998 317,324 5.4%
1999 192,310 3.3%
2000 471,219 7.9%
2001 122,638 2.1%
2002 210,091 3.6%
Thereafter 3,879,739 65.8%
--------- -----
Total 5,899,697 100.0%
========= ======
</TABLE>
Debt
The Zero Coupons due December 31, 2000 accrete to a face value of
approximately $586.2 million at an effective annual interest rate of
12.10%. At March 31, 1998 and December 31, 1997, the carrying value of the
Debentures, net of unamortized discount, was approximately $420.9 million
and $408.5 million, respectively.
The Floating Rate Notes matured on May 31, 1997 and bore interest at the
London Interbank Offered Rate ("LIBOR") plus 4%. Interest is paid quarterly
on March 1, June 1, September 1, and December 1. At March 31, 1997 interest
was accruing at 9.50%. On July 17, 1996, outstanding principal in the
amount of $106.3 million plus accrued interest of $1.2 million was prepaid.
On May 16, 1997 the remaining principal balance of $10 million was repaid.
The 14% Debentures have a principal balance of $75 million and mature on
December 31, 2007. At the time the Property was acquired by the Company,
the carrying value of the 14% Debentures was adjusted to reflect their
estimated fair value at that date, resulting in a premium. The effective
interest rate, which is net of the
5
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RCPI TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
amortization of this premium, is approximately 9.03%. Interest payments are
made semi-annually on July 31 and January 31. As of March 31, 1998 and
December 31, 1997, the carrying value of the 14% Debentures was
approximately $99.3 million and $99.7 million, respectively.
As of March 31, 1998, the NationsBank credit facility has an aggregate
principal balance of $75 million and matures on May 16, 2000. The Company
may elect interest periods based on one, two, three or six month LIBOR
rates. Interest accrues at LIBOR plus 1.75% and is payable monthly in
arrears.
Cash Flow
During the quarter ended March 31, 1998, the Company received cash flows of
approximately $3.7 million from operations of the Property. The Company
used this cash flow from operations to fund in part tenant improvements and
other leasing costs. The remaining tenant improvement costs, which totaled
$5.8 million, deferred costs, which totaled $3.8 million, and building and
improvements of $3.9 million were funded through an additional draw on the
NationsBank credit facility of $20 million.
The Company believes that its current cash balance and future cash flows
from operations, together with its expected borrowings in an amount
currently believed not to exceed $100 million, will be sufficient to fund
its requirements for the foreseeable future.
Inflation
Inflation and changing prices during the current period did not
significantly affect the markets in which the Company conducts its
business. In view of the moderate rate of inflation, its impact on the
Company's business has not been significant.
RESULTS OF OPERATIONS - RCPI TRUST
Base rent for the quarter ended March 31, 1998 increased approximately $4.4
million from the quarter ended March 31, 1997 partially due to higher
rental rates on new leases than existed in the prior year. Additionally,
the occupancy level increased to 88.1% as of March 31, 1998 as compared to
83.3% as of March 31, 1997.
Operating escalations have decreased due to a general reduction in overall
operating expenses from 1996 to 1997. The effect of this reduction was not
recognized until the second quarter of 1997. As such, operating escalations
during the first quarter of 1997 are higher than the same period in 1998.
Interest expense has increased by approximately $1.8 million for the
quarter ended March 31, 1998 as compared to the quarter ended March 31,
1997 primarily due to the increase in the outstanding debt balance. Total
outstanding debt as of March 31, 1997 was approximately $484 million as
compared to $595 million as of March 31, 1998. The increase is due
primarily to accretion of the Zero Coupon Debentures and the new
6
<PAGE> 9
RCPI TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NationsBank credit facility which was not established until May 1997 and
has increased to $75 million outstanding as of March 31, 1998.
The increase in repairs and maintenance of approximately $1 million in the
quarter ended March 31, 1998, as compared to the quarter ended March 31,
1997, is primarily due to the accelerated timing of certain repairs and
maintenance projects in 1998.
Utilities expense has decreased by approximately $582,000 in the first
quarter of 1998, as compared to the first quarter of 1997, primarily due to
the unseasonable warm weather in the New York area.
The decrease in professional fees in 1998 is due primarily to legal and
professional fees expended during the quarter ended March 31, 1997 in the
amount of approximately $2 million related to the settlement of the Bear
Stearns & Co., Inc. and Donaldson, Lufkin & Jenrette Securities Corporation
lawsuit.
General and administrative costs have increased in the first quarter of
1998, as compared to the first quarter of 1997, by approximately $454,000.
The increase is primarily due to the write off of bad debts in 1998.
Additionally, there was an increase in certain advertising costs in 1998 to
promote leasing activity.
The increase in depreciation and amortization expense of approximately
$941,000 from the first quarter of 1997 to the first quarter of 1998 is
primarily due to additional capital expenditures at the property between
the first quarter of 1997 and the first quarter of 1998. Additionally,
depreciation has increased due to additional tenant improvements
expenditures caused by leasing activity.
7
<PAGE> 10
RCPI TRUST
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as disclosed below, there has been no material change to the status
of existing litigation as reported in the Company's Form 10-K filed as of
December 31, 1997.
On January 21, 1997, an action entitled Flashman v. Goldman, Sachs & Co.,
97 Civ. 0403 (MGC) (S.D.N.Y.), was filed in New York Federal court
containing allegations substantially similar to those in the original
complaint in In re RCPI. Subsequently, the plaintiff in Flashman joined as
a plaintiff in the amended complaint filed in In re RCPI, and voluntarily
dismissed the action in Federal Court in New York.
On February 25, 1997, an action entitled Debora v. Rockefeller, et. al., 97
Civ. 01312 (LLS) ("Debora"), was filed in the United States District Court
for the Southern District of New York. The complaint in Debora was
substantially similar to the original complaint in In re RCPI. The
defendants are the same in both actions. The Debora complaint alleged
common law fraud and deceit in addition to the two federal securities law
violations alleged in In re RCPI. Subsequently, the plaintiff in Debora
joined as a plaintiff in In re RCPI and voluntarily dismissed the action in
Federal Court in New York.
8
<PAGE> 11
ITEM 6. (a) EXHIBITS
(3.1) Certificate of Trust of RCPI Trust, dated March 22, 1996 is
incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1996.
(4.1) Amended and Restated Debenture Purchase Agreement dated as of
July 17, 1996 between the Company and WHRC Real Estate Limited
Partnership is incorporated by reference to exhibit 4.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 10-K").
(4.2) Indenture dated as of September 15, 1985 between the
Predecessor and Manufacturers Hanover Trust Company, as
Trustee, including the forms of Current Coupon Convertible
Debenture, Zero Coupon Convertible Debenture and Floating Rate
Note, is incorporated by reference to Exhibit 4 to the
Predecessor's Quarterly Report on Form 10-Q for the period
ended September 30, 1985.
(4.3) First Supplemental Indenture dated as of December 15, 1985
between the Predecessor and the Trustee, is incorporated by
reference to the Predecessor's Annual Report on Form 10-K for
the year ended December 31, 1985.
(4.4) Second Supplemental Indenture dated as of July 10, 1996
between the Company and the United States Trust Company of New
York, as Trustee is incorporated by reference to exhibit 4.4
to the 1996 10-K.
(4.5) Instrument of Resignation, Appointment and Acceptance dated as
of December 1, 1993 among the Predecessor, Chemical Bank,
successor by merger to Manufacturers Hanover Trust Company,
and United States Trust Company of New York is incorporated by
reference to Exhibit 4.21 to the Predecessor's Annual Report
on Form 10-K for the year ended December 31, 1993.
(10.1) Amended and Restated Loan Agreement dated as of July 17, 1996
among the Company, the lenders parties thereto and GSMC, as
agent, is incorporated by reference to Exhibit 10.1 to the
1996 10-K.
(10.2) Guarantee dated July 17, 1996 by Whitehall Street Real Estate
Limited Partnership V, Exor Group S.A., Tishman Speyer Crown
Equities, David Rockefeller, Troutlet Investments Corporation,
Gribble Investments (Tortola) BVI, Inc. and Weevil Investments
(Tortola) BVI, Inc., as guarantors in favor of GSMC, as agent
and lender, is incorporated by reference to Exhibit 10.2 to
the 1996 10-K.
(10.3) Agreement and Plan of Merger dated as of November 7, 1995
among the Predecessor, RCPI Holdings Inc., RCPI Merger Inc.,
Whitehall Street Real Estate Limited Partnership V, Rockprop,
L.L.C., David Rockefeller, Exor Group S.A. and Troutlet
Investments Corporation is incorporated by reference to
Exhibit 10.28 to the Predecessor's Current Report on Form 8-K
dated November 13, 1995.
(10.4) Amendment No. 1 dated as of February 12, 1996 to the Agreement
and Plan of Merger dated as of November 7, 1995 among the
Predecessor, RCPI Holdings Inc., RCPI Merger Inc.,
9
<PAGE> 12
ITEM 6. (a) EXHIBITS (Cont'd)
Whitehall Street Real Estate Limited Partnership V, Rockprop,
L.L.C., David Rockefeller, Exor Group S.A. and Troutlet
Investments Corporation is incorporated by reference to
Exhibit 10.31 to the Predecessor's Current Report on Form 8-K
dated February 22, 1996.
(10.5) Amendment No. 2 to the Agreement and Plan of Merger, dated as
of April 25, 1996 is incorporated herein by reference to the
Predecessor's Current Report on Form 8-K, filed on April 25,
1996.
(10.6) Amendment No. 3 to the Agreement and Plan of Merger, dated as
of May 29, 1996 is incorporated herein by reference to the
Predecessor's Current Report on Form 8-K, filed on May 29,
1996.
(10.7) Amendment No. 4 to the Agreement and Plan of Merger, dated as
of June 30, 1996 is incorporated herein by reference to the
Predecessor's Current Report on Form 8-K, filed on July 1,
1996.
(10.8) Credit Agreement, dated as of May 16, 1997, between the
Company and NationsBank of Texas, N.A. is incorporated by
reference to Exhibit 4.6 to the Company's Quarterly Report on
Form 10- Q for the period ended June 30, 1997.
(10.9) Intercreditor and Subordination Agreement, dated as of May 16,
1997, between the Company and Whitehall is incorporated by
reference to Exhibit 4.7 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1997.
(10.10) Limited Resource Agreement, dated as of May 16, 1997, is
incorporated by reference to Exhibit 4.8 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1997.
(27.1) Company's Financial Data Schedule.
(b) REPORTS ON FORM 8-K
No Current Reports on Form 8-K have been filed during the last fiscal
quarter.
10
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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.
RCPI TRUST
Date: May 15, 1998 By: /s/ David Augarten
-----------------------
David Augarten
Vice President
(Principal Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RCPI TRUST'S
BALANCE SHEET AS OF MARCH 31, 1997 AND RCPI TRUST'S STATEMENT OF OPERATIONS FOR
THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-30-1998
<CASH> 37,565
<SECURITIES> 0
<RECEIVABLES> 5,254
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 90,837
<PP&E> 818,295
<DEPRECIATION> 29,118
<TOTAL-ASSETS> 922,833
<CURRENT-LIABILITIES> 35,927
<BONDS> 595,304
0
0
<COMMON> 0
<OTHER-SE> 291,603
<TOTAL-LIABILITY-AND-EQUITY> 922,833
<SALES> 0
<TOTAL-REVENUES> 50,841
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,942
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,423
<INCOME-PRETAX> 4,476
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,476
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
