<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 September 30, 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
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PAGE
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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 September 30, 1998 (unaudited)
and December 31, 1997 1
RCPI Trust, Statements of Operations for the quarters ended September 30,
1998 and 1997 (unaudited) and for the nine months ended September 30,
1998 and 1997 (unaudited) 2
RCPI Trust, Statements of Cash Flows for the nine months ended
September 30, 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
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
RCPI TRUST
(A Delaware business trust)
BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
As of As of
Sept. 30, 1998 December 31,
(Unaudited) 1997
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ASSETS:
Real Estate:
Land $ 158,149 $ 158,149
Buildings and improvements 626,930 611,711
Tenant improvements 46,957 36,170
Furniture, fixtures and equipment 4,564 4,192
--------- ---------
836,600 810,222
Less: Accumulated depreciation and amortization (38,964) (24,393)
--------- ---------
797,636 785,829
Cash and cash equivalents 35,585 27,517
Restricted cash 9,656 9,369
Accounts receivable 5,815 11,946
Prepaid expenses 9,576 495
Deferred costs, net of accumulated
amortization of $4,735 and $2,192, respectively 36,524 22,521
Accrued rent 58,829 29,969
--------- ---------
Total Assets $ 953,621 $ 887,646
========= =========
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Zero coupon convertible debentures, net of unamortized
discount of $139,095 and $177,696, respectively $ 447,090 $ 408,489
14% debentures (includes premium of $23,540 and $24,710, respectively) 98,540 99,710
NationsBank loans 85,000 55,000
Accrued interest payable 2,037 7,152
Accounts payable and accrued expenses 16,365 21,227
Tenant security deposits payable 9,731 8,940
--------- ---------
Total Liabilities 658,763 600,518
Commitments and Contingencies
Owners' Equity 294,858 287,128
--------- ---------
Total Liabilities and Owners' Equity $ 953,621 $ 887,646
========= =========
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
1
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RCPI TRUST
(A Delaware business trust)
STATEMENTS OF OPERATIONS
($ in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Quarters Ended For the Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenues:
Base rental $ 48,243 $ 42,321 $143,052 $125,783
Operating escalations and percentage rents 1,815 1,995 5,159 5,376
Interest and other income 2,105 1,865 5,382 7,077
-------- -------- -------- --------
Total revenues 52,163 46,181 153,593 138,236
-------- -------- -------- --------
Expenses:
Interest 17,173 15,494 49,265 43,578
Real estate taxes 8,657 8,562 25,486 25,030
Payroll and benefits 4,972 4,240 15,052 13,302
Repairs, maintenance and supplies 3,543 3,068 10,448 8,460
Utilities 4,211 4,753 10,248 12,593
Cleaning 3,267 3,435 10,134 10,291
Professional fees 196 641 1,003 4,883
Insurance 235 315 812 914
Management and accounting fees 888 812 2,646 2,516
General and administration 1,094 1,212 3,251 2,101
Depreciation and amortization 6,194 5,124 17,518 14,330
-------- -------- -------- --------
Total expenses 50,430 47,656 145,863 137,998
-------- -------- -------- --------
Net income (loss) $ 1,733 ($ 1,475) $ 7,730 $ 238
======== ======== ======== ========
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
2
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RCPI TRUST
(A Delaware business trust)
STATEMENTS OF CASH FLOWS
($ in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1998 1997
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Cash Flows from Operating Activities:
Net income $ 7,730 $ 238
Adjustment to reconcile net income to net cash
provided by operating activities:
Amortization of original issue discount and premium 37,431 33,154
Depreciation and amortization 17,518 14,330
(Increase) decrease in restricted cash (287) 924
Decrease in accounts receivable 6,131 9,778
Increase in prepaid expenses (9,081) (8,908)
Increase in accrued rent (28,860) (12,157)
Decrease in accounts payable and accrued expenses
and tenant security deposits payable (1,209) (5,031)
Decrease in accrued interest payable (5,114) (1,667)
-------- --------
Net cash provided by operating activities 24,259 30,661
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Cash Flows from Investing Activities:
Additions to building and improvements (15,416) (9,398)
Additions to tenant improvements (15,274) (10,443)
Additions to furniture, fixtures and equipment (372) (86)
Additions to deferred costs (15,129) (12,868)
-------- --------
Net cash used in investing activities (46,191) (32,795)
-------- --------
Cash Flows from Financing Activities:
Additions to NationsBank loans 30,000 55,000
Capital contributions -- 10
Distributions to owners -- (44,128)
Payment of floating rate notes -- (10,000)
-------- --------
Net cash provided by financing activities 30,000 882
-------- --------
Increase (decrease) in cash and cash equivalents 8,068 (1,252)
Cash and cash equivalents at beginning of period 27,517 28,765
-------- --------
Cash and cash equivalents at end of period $ 35,585 $ 27,513
======== ========
</TABLE>
SEE NOTES TO THE FINANCIAL STATEMENTS
3
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RCPI TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL STATEMENTS
The balance sheet as of September 30, 1998, the statements of operations
for the quarters ended and the nine months ended September 30, 1998 and
1997 and the statements of cash flows for the nine months ended September
30, 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 for the year ended 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. On June 29, 1998, the Company entered into a third
NationsBank loan in the principal amount of $10 million. As of September
30, 1998 the total loans due to NationsBank were $85 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
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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 September 30, 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 89.6% occupied. Occupancy rates for the Property
at various dates are presented in the following table:
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June 30, 1998 88.1% September 30, 1997 86.3%
March 31, 1998 88.1% June 30, 1997 86.4%
December 31, 1997 86.7% March 31, 1997 83.3%
</TABLE>
The following table shows selected lease expirations and vacancy of the
Property as of September 30, 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> <C>
Vacant 611,864 10.4%
1998 175,022 3.0%
1999 207,662 3.5%
2000 467,798 7.9%
2001 132,037 2.2%
2002 218,162 3.7%
Thereafter 4,087,152 69.3%
--------- -----
Total 5,899,697 100.0%
========= ======
</TABLE>
Debt
The Zero Coupon Debentures due December 31, 2000 accrete to a face value of
approximately $586.2 million at an effective annual interest rate of
12.10%. At September 30, 1998 and December 31, 1997, the carrying value of
the Zero Coupon Debentures, net of unamortized discount, was approximately
$447.1 million and $408.5 million, respectively.
On July 17, 1996, outstanding principal on the Floating Rate Notes 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.
5
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RCPI TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 amortization of this premium, is
approximately 9.03%. Interest payments are made semi-annually on July 31
and January 31. As of September 30, 1998 and December 31, 1997, the
carrying value of the 14% Debentures was approximately $98.5 million and
$99.7 million, respectively.
As of September 30, 1998, the NationsBank credit facility has an aggregate
principal balance of $85 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 nine months ended September 30, 1998, the Company received cash
flows of approximately $24 million from operations of the Property. The
Company used part of this cash flow from operations and an additional draw
on the NationsBank credit facility of $30 million to fund building
improvements, tenant improvements, leasing commissions and other deferred
costs totaling approximately $46 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 the current NationsBank Facility balance
as of September 30, 1998 of $85 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 and the nine months ended September 30, 1998
increased approximately $5.9 million and $17.3 million, respectively, from
the quarter and the nine months ended September 30, 1997, due mainly to
higher rental rates on new leases than existed in the prior year.
Additionally, the occupancy level increased to 89.6% as of September 30,
1998, as compared to 86.3% as of September 30, 1997.
Interest expense has increased by approximately $1.7 million and $5.7
million for the quarter and the nine months ended September 30, 1998,
respectively, as compared to the quarter and the nine months ended
September 30, 1997, primarily due to the increase in the outstanding debt
balance. Total outstanding debt as of September 30, 1997 was approximately
$551 million, as compared to $631 million as of September 30, 1998. The
increase is due primarily to accretion of the Zero Coupon Debentures and
additional draws under the NationsBank credit facility which has increased
by $30 million since September 30, 1997.
6
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RCPI TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The increase in payroll and benefits of approximately $732,000 and $1.8
million during the quarter and the nine months ended September 30, 1998,
respectively, as compared to the quarter and the nine months ended
September 30, 1997, is a result of additional salaries related to retail
leasing and redevelopment.
The increase in repairs, maintenance and supplies of approximately $475,000
and $2.0 million during the quarter and the nine months ended September 30,
1998, respectively, as compared to the quarter and the nine months ended
September 30, 1997, is primarily due to additional asbestos costs incurred
related to office and retail tenant construction and base building upgrades
and construction which increased in 1998.
Utilities expense for the quarter and the nine months ended September 30,
1998 decreased by approximately $542,000 and $2.3 million, respectively, as
compared to the quarter and nine months ended September 30, 1997, primarily
due to a warm winter in the New York area, as well as operating
efficiencies achieved through preventive maintenance.
The decrease in professional fees in 1998 is due primarily to legal and
settlement costs incurred during the first quarter of 1997 associated with
the Bear Stearns & Co., Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation lawsuit, totaling approximately $2.6 million.
General and administrative costs have increased during the quarter and the
nine months ended September 30, 1998, as compared to the quarter and the
nine months ended September 30, 1997, by approximately $118,000 and $1.2
million, respectively. The increase is primarily due to a retroactive
payment of city franchise and license fees based on a renegotiated contract
and an increase in administrative costs related to the retail leasing and
redevelopment.
The increase in depreciation and amortization expense of approximately $1.1
million and $3.2 million for the quarter and the nine months ended
September 30, 1998, respectively, as compared to the quarter and the nine
months ended September 30, 1997, was primarily due to additional capital
projects at the property being placed into service since September 30, 1997
and due to additional tenant improvements and leasing commissions expended
as a result of increased office and retail leasing activity.
7
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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 and Form 10-Q filed as of June 30, 1998.
8
<PAGE> 11
ITEM 6. (a) EXHIBITS
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(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.,
</TABLE>
9
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ITEM 6. (a) EXHIBITS (Cont'd)
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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 September 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.
</TABLE>
(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: November 13, 1998 By:/s/ David Augarten
---------------------------
David Augarten
Vice President
(Principal Financial
Officer)
11
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RCPI TRUST'S
BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND RCPI TRUST'S STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 1998 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> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 35,585
<SECURITIES> 0
<RECEIVABLES> 5,815
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 114,585
<PP&E> 836,600
<DEPRECIATION> (38,964)
<TOTAL-ASSETS> 953,621
<CURRENT-LIABILITIES> 28,133
<BONDS> 630,630
0
0
<COMMON> 0
<OTHER-SE> 294,858
<TOTAL-LIABILITY-AND-EQUITY> 953,621
<SALES> 0
<TOTAL-REVENUES> 52,163
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,173
<INCOME-PRETAX> 1,733
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,733
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
