UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 1-13274
Cali Realty Corporation
(Exact name of registrant as specified in its charter)
Maryland 22-3305147
(State or other jurisdiction (I.R.S. Employer
of 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
There were 36,645,985 shares of $.01 par value common stock outstanding
at April 30, 1997.
<PAGE>
CALI REALTY CORPORATION
Form 10-Q
INDEX
Part I - Financial Information
Item 1. Financial Statements........................................
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 ...................................
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 ...........................
Consolidated Statement of Stockholders' Equity for the three
months ended March 31, 1997 .............................
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 ...........................
Notes to Consolidated Financial Statements .................
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...............................
Part II -Other Information and Signatures
Item 1. Signatures .................................................
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<PAGE>
CALI REALTY CORPORATION
Part I - Financial Information
Item 1: Financial Statements
The information furnished in the accompanying consolidated balance
sheets, statements of operations, of stockholders' equity, and of
cash flows reflect all adjustments consisting only of normal,
recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the aforementioned financial
statements 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 Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results to be expected for the
entire fiscal year or any other period.
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<PAGE>
<TABLE>
<CAPTION>
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Rental property
Land ...................................................................... $ 134,624 $ 98,127
Buildings and improvements ................................................ 1,139,875 718,466
Tenant improvements ....................................................... 37,073 35,626
Furniture, fixtures and equipment ......................................... 1,451 1,133
----------- -----------
1,313,023 853,352
Less - accumulated depreciation and amortization ............................... (75,589) (68,610)
----------- -----------
Total rental property ..................................................... 1,237,434 784,742
Cash and cash equivalents (includes $201,269 in Overnight Investments
at December 31, 1996) ..................................................... 6,785 204,807
Unbilled rents receivable ...................................................... 21,311 19,705
Deferred charges and other assets, net of accumulated amortization ............. 13,182 11,840
Restricted cash ................................................................ 8,087 3,160
Accounts receivable, net of allowance for doubtful accounts of $278 and $189 ... 3,582 2,074
Mortgage note receivable ....................................................... 11,600 --
----------- -----------
Total assets .............................................................. $ 1,301,981 $ 1,026,328
=========== ===========
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<PAGE>
<CAPTION>
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and loans payable .................................................... $ 481,359 $ 268,010
Dividends and distributions payable ............................................ 18,189 17,554
Accounts payable and accrued expenses .......................................... 11,653 5,068
Rents received in advance and security deposits ................................ 15,609 6,025
Accrued interest payable ....................................................... 374 1,328
----------- -----------
Total liabilities ......................................................... 527,184 297,985
----------- -----------
Minority interest of unitholders in Operating Partnership ...................... 70,757 26,964
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, none issued
Common stock, $.01 par value, 95,000,000 shares authorized,
36,792,685 and 36,318,937 shares outstanding .............................. 368 363
Additional paid-in capital ..................................................... 714,328 701,016
Unamortized stock compensation ................................................. (10,656) --
Retained earnings .............................................................. -- --
----------- -----------
Total stockholders' equity ................................................ 704,040 701,379
----------- -----------
Total liabilities and stockholders' equity ................................ $ 1,301,981 $ 1,026,328
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
<TABLE>
<CAPTION>
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
- -------------------------------------------------------------------------------------
Three Months Ended March 31,
1997 1996
-------- --------
<S> <C> <C>
REVENUES
Base rents ............................................ $ 42,791 $ 16,012
Escalations and recoveries from tenants ............... 6,612 3,081
Parking and other ..................................... 1,544 404
Interest income ....................................... 1,208 74
-------- --------
Total revenues ........................................ 52,155 19,571
-------- --------
EXPENSES
Real estate taxes ..................................... 5,433 1,959
Utilities ............................................. 3,725 1,882
Operating services .................................... 6,416 2,803
General and administrative ............................ 3,173 936
Depreciation and amortization ......................... 7,764 3,294
Interest expense ...................................... 7,549 2,569
-------- --------
Total expenses .................................... 34,060 13,443
-------- --------
Income before gain on sale of rental property,
minority interest and extraordinary item .......... 18,095 6,128
Gain on sale of rental property ....................... -- 5,658
-------- --------
Income before minority interest
and extraordinary item ............................ 18,095 11,786
Minority interest ..................................... 1,636 1,812
-------- --------
Income before extraordinary item ...................... 16,459 9,974
Extraordinary item-loss on early retirement of debt
(net of minority interest's share of $86 in 1996) .. -- 475
-------- --------
Net income ............................................ $ 16,459 $ 9,499
======== ========
Net income per common share:
Income before extraordinary item-
loss on early retirement of debt .................. $ 0.45 $ 0.66
Extraordinary item-loss on early retirement of debt ... -- (.03)
-------- --------
Net income ............................................ $ 0.45 $ 0.63
======== ========
Dividends declared per common share ................... $ 0.45 $ 0.43
-------- --------
Weighted average common shares outstanding ............ 36,461 15,146
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
<TABLE>
<CAPTION>
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Unamortized Total
Common Stock Paid-in Stock Retained Stockholders'
Shares Par Value Capital Compensation Earnings Equity
------ ---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 36,319 $ 363 $701,016 -- -- $701,379
Net income -- -- -- -- $ 16,459 16,459
Dividends -- -- (100) -- (16,459) (16,559)
Issuance of Stock Award Rights
and Stock Purchase Rights 351 4 11,116 $(11,120) -- --
Amortization of Stock Compensation -- -- -- 464 -- 464
Stock options exercised 123 1 2,296 -- -- 2,297
------ ---------- -------- -------- -------- --------
Balance at March 31, 1997 36,793 $ 368 $714,328 $(10,656) -- $704,040
====== ========== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
<TABLE>
<CAPTION>
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
- --------------------------------------------------------------------------------------
Three Months Ended March 31,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................ $ 16,459 $ 9,499
Adjustments to reconcile net income to net cash
flows provided by operating activities
Depreciation and amortization ..................... 7,764 3,294
Minority interest ................................. 1,636 1,812
Gain on sale of rental property ................... -- (5,658)
Extraordinary item-loss on early retirement of debt -- 475
Changes in operating assets and liabilities
Increase in unbilled rents receivable ............. (1,606) (69)
Increase in deferred charges and other assets, net (1,665) (993)
Increase in accounts receivable, net .............. (1,508) (599)
Increase in accounts payable and
accrued expenses ............................... 6,585 264
Increase in rents received in advance and
security deposits .............................. 4,827 1,661
Decrease in accrued interest payable .............. (954) (145)
--------- ---------
Net cash provided by operating activities ........... $ 31,538 $ 9,541
========= =========
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental property .......................... $(230,429) $ (12,400)
Issuance of mortgage note receivable .................. (11,600) --
Proceeds from sale of rental property ................. -- 10,147
Increase in restricted cash ........................... (170) (1,224)
--------- ---------
Net cash used in investing activities .............. $(242,199) $ (3,477)
========= =========
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<PAGE>
<CAPTION>
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
- --------------------------------------------------------------------------------------
Three Months Ended March 31,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages and loans payable ............. $ 47,195 $ 36,300
Repayments of mortgages and loans payable ............. (19,299) (34,023)
Debt prepayment premiums and other costs .............. -- (312)
Proceeds from stock options exercised ................. 2,297 106
Payment of dividends and distributions ................ (17,554) (7,608)
--------- ---------
Net cash provided by (used in) financing activities $ 12,639 $ (5,537)
========= =========
Net (decrease) increase in cash and cash equivalents .. $(198,022) $ 527
Cash and cash equivalents, beginning of period ........ 204,807 967
--------- ---------
Cash and cash equivalents, end of period .............. $ 6,785 $ 1,494
========= =========
Supplemental Cash Flow Information:
Cash paid for interest ................................ $ 8,503 $ 2,796
--------- ---------
Interest capitalized .................................. $ -- $ 82
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- 10 -
<PAGE>
CALI REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Cali Realty Corporation and subsidiaries (the "Company"), a Maryland
corporation, is a fully-integrated, self-administered, self-managed real estate
investment trust ("REIT") providing leasing, management, acquisition,
development, construction and tenant-related services for its properties. As of
March 31, 1997, the Company owned and operated 123 properties (the
"Properties"), consisting of 111 office and office/flex buildings totaling
approximately 11 million square feet, six industrial/warehouse buildings
totaling approximately 400,000 square feet, two multi-family residential
complexes consisting of 453 units, two stand-alone retail properties and two
land leases. The Properties are located in New Jersey, New York, Pennsylvania,
and Connecticut.
The Company was incorporated on May 24, 1994 and commenced operations on August
31, 1994. On August 31, 1994, the Company completed an initial public offering
("IPO") and effected a business combination with the Cali Group (not a legal
entity). The Company raised its initial capital through the IPO issuing
10,500,000 shares of common stock, and used the proceeds to acquire a majority
interest in Cali Realty, L.P. (the "Operating Partnership") and related
entities, which are the successors to the operations of the Cali Group.
Acquisitions
From 1994 through 1996, following the Company's IPO, the Company acquired 44
office and office/flex properties totaling 4.9 million square feet for
approximately $610,000. These properties are all located in New Jersey, New
York, and Pennsylvania.
On January 28, 1997, the Company acquired 1345 Campus Parkway, a 76,300 square
foot office/flex property, located in Wall Township, Monmouth County, New
Jersey, for approximately $6,800 in cash, made available from the Company's cash
reserves. The property is located in the same office park in which the Company
previously acquired two office properties and four office/flex properties in
November 1995.
On January 31, 1997, the Company acquired 65 properties ("RM Properties") of
Robert Martin Company LLC and affiliates ("RM") for a total cost of
approximately $450,000. The cost of the transaction was financed through the
assumption of $185,283 of mortgage indebtedness ("TIAA Mortgage"), approximately
$220,000 in cash, substantially all of which was obtained from the Company's
cash reserves, and the issuance of 1,401,225 Units in the Operating Partnership.
- 11 -
<PAGE>
The RM Properties consist primarily of 54 office and office/flex properties
aggregating approximately 3.7 million square feet and six industrial/warehouse
properties aggregating approximately 400,000 square feet. The RM Properties are
located primarily in established business parks in Westchester County, New York
and Fairfield County, Connecticut. The Company has agreed not to sell certain of
the RM Properties for a period of seven years without the consent of the RM
principals, except for sales made under certain circumstances and/or conditions.
In connection with this transaction, the Company was granted a three-year option
to acquire a 115,000 square foot office property and an 84,000 square foot
office/flex property (the "Option Properties") for an aggregate minimum price of
$19,000 and has granted RM the right to put such properties to the Company
between a range of an aggregate purchase price of $11,600 to $21,300, under
certain conditions. The purchase prices, under the agreement, are subject to
adjustment based on different formulas and are payable in cash or Units.
In connection with the RM transaction, the Company provided an $11,600 mortgage
loan ("Mortgage Note Receivable") secured by the Option Properties (see Note 4).
As part of the RM transaction, Brad W. Berger, President and Chief Executive
Officer of RM, and Timothy M. Jones, Chief Operating Officer of RM, joined the
Company as Executive Vice Presidents under three-year employment agreements. The
agreements provide for, among other things, both Berger and Jones to be issued
warrants to purchase 170,000 shares of the Company's common stock at a price of
$33 per share, which vest equally over a three-year period and expire on January
31, 2007.
On May 8, 1997, the Company acquired four buildings in the Westlakes Office
Park, a suburban office complex located in Berwyn, Chester County, Pennsylvania,
totaling approximately 444,000 square feet. The properties were acquired for
approximately $72,500, which was made available primarily from drawing on one of
the Company's credit facilities.
As of May 8, 1997, the Company's portfolio consists of 127 properties,
aggregating approximately 11.8 million square feet, consisting primarily of
office, office/flex and industrial/warehouse properties, located in New Jersey,
New York, Pennsylvania and Connecticut.
Basis of Presentation
The accompanying consolidated financial statements include all accounts of the
Company and its majority-owned subsidiaries, which consist principally of the
Operating Partnership. All significant intercompany accounts and transactions
have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles 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 expenses during the reporting period.
Actual results could differ from those estimates.
- 12 -
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES
Rental
Property Rental properties are stated at cost less accumulated
depreciation. 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 are capitalized and depreciated over their
estimated useful lives. Fully-depreciated assets are
removed from the accounts. Depreciation is computed on a
straight-line basis over the estimated useful lives of
the assets as follows:
Buildings and improvements 39 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
--------------------------------------------------------
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. Management does not
believe that the value of any of its real estate
properties are impaired.
Cash and Cash
Equivalents All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash
equivalents. At December 31, 1996, cash and cash
equivalents included investments in overnight reverse
repurchase agreements ("Overnight Investments") totaling
$201,269. Investments in Overnight Investments are
subject to the risks that the counter-party will default
and the collateral will decline in market value. The
Overnight Investments matured on January 2, 1997. The
entire balance, including interest income earned, was
realized by the Company and ultimately used in the
funding of the RM transaction on January 31, 1997.
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 were $271 and $261 for the three month periods
ended March 31, 1997 and 1996, respectively.
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<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. Unamortized deferred leasing costs
are charged to amortization expense upon early
termination of the lease.
Revenue
Recognition The Company recognizes base rental revenue 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.
Income and
Other Taxes
The Company has elected to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code
(the "Code"). As a REIT, the Company will not be subject
to federal income tax to the extent it distributes at
least 95 percent of its REIT taxable income to its
shareholders. REITs are subject to a number of
organizational and operational requirements. If the
Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax
(including any applicable alternative minimum tax) on
its taxable income at regular corporate tax rates. The
Company may be subject to certain state and local taxes.
Earnings
Per Share Net income per common share is computed in accrodance
with APB Opinion No. 15, "Earnings per Share," and uses
the weighted average common shares outstanding during
the period. Common share equivalents were excluded from
the calculation since they were not dilutive. The
weighted average shares outstanding during the three
month periods ended March 31, 1997 and 1996 were
36,461,210 and 15,146,089, respectively. In February
1997, the Financial Accounting Standards Board ("FASB")
issued statement No. 128, "Earnings per Share," ("FASB
No. 128") which will be effective for periods ending
after December 15, 1997. Earlier application is not
permitted. FASB No. 128 requires a dual presentation of
basic and diluted earnings per share ("EPS") on the face
of the income statement for all companies with complex
capital structures even where the effect of such
dilution is not material.
Dividends and
Distributions
Payable The dividends and distributions payable at March 31,
1997 represents dividends payable to shareholders of
record on April 3, 1997 (36,792,685 shares) and
distributions payable to minority interest unitholders
(4,091,170 Units) on that same date. The first quarter
dividends and distributions of $0.45 per share and per
Unit were approved by the Board of Directors on March
14, 1997 and were paid on April 18, 1997.
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<PAGE>
Extraordinary
Item The extraordinary item represents the net effects
resulting from the early settlement of certain mortgage
obligations, including accrued interest, net of
write-off's of related deferred financing costs and
prepayment penalties.
Underwriting
Commissions
and Offering
Costs Underwriting commissions and offering costs incurred in
connection with the Company's stock offerings are
reflected as a reduction of additional paid-in-capital.
Stock Options The Company accounts for stock-based compensation using
the intrinsic value method prescribed in Accounting
Principles Board Opinion (APB) No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations.
Under APB No. 25, compensation cost is measured as the
excess, if any, of the quoted market price of the
Company'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 Company's policy is to grant options with an
exercise price equal to the quoted market price of the
Company's stock on the grant date. Accordingly, no
compensation cost has been recognized for the Company's
stock option plans. See Note 11 for discussion of stock
compensation.
3. RESTRICTED CASH
Restricted cash includes security deposits for all of the Company'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,
1997 1996
--------- ------------
<S> <C> <C>
Escrow and other reserve funds $ 2,984 $ 2,814
Security deposits 5,103 346
- --------------------------------------------------------------------------------
Total restricted cash $ 8,087 $ 3,160
================================================================================
</TABLE>
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<PAGE>
4. MORTGAGE NOTE RECEIVABLE
In connection with the RM transaction on January 31, 1997, the Company provided
an $11,600 non-recourse mortgage loan to entities controlled by the RM
principals, bearing interest at an annual rate of 450 basis points over the
one-month London Inter-Bank Offered Rate (LIBOR). The Mortgage Note Receivable,
which is secured by the Option Properties and guaranteed by certain of the RM
principals, matures on February 1, 2000. In addition, the Company received a
three percent origination fee with the Mortgage Note Receivable.
5. DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Deferred leasing costs $ 14,604 $ 14,031
Deferred financing costs 5,390 5,390
- --------------------------------------------------------------------------------
19,994 19,421
Accumulated amortization (9,766) (8,994)
- --------------------------------------------------------------------------------
Deferred charges, net 10,228 10,427
Prepaid expenses and other assets 2,954 1,413
- --------------------------------------------------------------------------------
Total deferred charges and other assets $ 13,182 $ 11,840
================================================================================
</TABLE>
6. MORTGAGES AND LOANS PAYABLE
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ------------
<S> <C> <C>
TIAA Mortgage $ 185,283 --
Harborside Mortgages 150,000 $ 150,000
Mortgage Financing 64,508 64,508
Fair Lawn Mortgage 18,346 18,445
First Prudential Facility 6,000 6,000
Bank Facility 51,800 23,805
Contingent Obligation 5,422 5,252
- -----------------------------------------------------------------------
Total mortgages and loans payable $ 481,359 $ 268,010
=======================================================================
</TABLE>
TIAA Mortgage
In connection with the RM transaction on January 31, 1997, the Company assumed a
$185,283 non-recourse mortgage loan with Teachers Insurance and Annuity
Association of America ("TIAA"), with interest only payable monthly at a fixed
annual rate of 7.18 percent (the "TIAA Mortgage"). The TIAA Mortgage is secured
and cross-collateralized by 43 of the RM Properties and matures on December 31,
2003. The Company, at its option, may convert the TIAA Mortgage to unsecured
debt upon achievement by the Company of an investment credit rating of Baa3/BBB-
or better. The TIAA Mortgage is prepayable in whole or in part subject to
certain provisions, including yield maintenance.
- 16 -
<PAGE>
Harborside Mortgages
In connection with the acquisition of Harborside, on November 4, 1996, the
Company assumed existing mortgage debt and was provided seller-mortgage debt
aggregating $150,000. The existing financing of approximately $107,480 bears
interest at a fixed rate of 7.32 percent for a term of approximately nine years.
The seller-provided financing of approximately $42,520 also has a term of nine
years and initially bears interest at a rate of 6.99 percent. The interest rate
on the seller-provided financing will be reset at the end of the third and sixth
loan years based on the yield of the three-year treasury obligation at that
time, with spreads of 110 basis points in years four through six and 130 basis
points in years seven through maturity.
Mortgage Financing
Concurrent with the IPO, the Company's initial operating subsidiaries, which own
the Company's remaining initial 11 office properties and the initial
multi-family residential property (the "Initial Properties"), issued five-year
mortgage notes with an aggregate principal balance of $144,500 secured and
cross-collateralized by the Initial Properties to an affiliate ("PSI") of
Prudential Securities Inc. PSI then issued commercial mortgage pay-through bonds
("Bonds") collateralized by the mortgage notes. Bonds with an aggregate
principal balance of $70,000 were purchased by unrelated third parties. Bonds
with an aggregate principal balance of $74,500 were purchased by the Company. As
a result, the Company's initial mortgage financing was $70,000 (the "Mortgage
Financing"). Approximately $38,000 of the $70,000 is guaranteed under certain
conditions by certain partners of the Cali Group partnerships which owned the
Initial Properties. The Mortgage Financing requires monthly payments of interest
only, with all principal and any accrued but unpaid interest due in August 1999.
$46,000 of the $70,000 Mortgage Financing bears interest at a net cost to the
Company equal to a fixed rate of 8.02 percent per annum and the remaining
$24,000 bears interest at a net cost to the Company equal to a floating rate of
100 basis points over one-month LIBOR (5.6875 percent at March 31, 1997) with a
lifetime interest rate cap of 11.6 percent. Pursuant to the terms of the
Mortgage Financing, the Company is required to escrow $143 per month for tenant
improvements and leasing commissions and $53 per month for capital improvements.
On March 12, 1996, the Company prepaid $5,492 ($1,687 -- fixed rate debt, $3,805
- -- floating rate debt) of the Mortgage Financing, resulting in outstanding
balances of $44,313 for the 8.02 percent fixed rate debt and $20,195 for the
floating rate debt.
Fair Lawn Mortgage
In connection with the acquisition of an office building in Fair Lawn, New
Jersey on March 3, 1995, the Company assumed an $18,764 non-recourse mortgage
loan ("Fair Lawn Mortgage") collateralized by the property, bearing interest at
a fixed rate of 8.25 percent per annum. The loan required payment of interest
only through March 15, 1996 and payment of principal and interest thereafter, on
a 20-year amortization schedule, with the remaining principal balance due
October 1, 2003. For the three months ended March 31, 1997, the Company paid $99
for amortization of principal on the Fair Lawn Mortgage.
- 17 -
<PAGE>
First Prudential Facility
The Company has a $70,000 revolving credit facility (the "First Prudential
Facility") with Prudential Securities Credit Corp. ("PSC"), which may be used to
fund acquisitions and new development projects and for general working capital
purposes, including capital expenditures and tenant improvements. In connection
with the Mortgage Financing, the Company obtained a $6,005 letter of credit,
secured by the First Prudential Facility, to meet certain tenant improvement and
capital expenditure reserve requirements. The First Prudential Facility bore
interest at a floating rate equal to 150 basis points over one-month LIBOR for
January 1, 1996 through August 31, 1996. Effective September 1, 1996, the
interest rate was reduced to a floating rate equal to 125 basis points over
one-month LIBOR. The First Prudential Facility is a recourse liability of the
Operating Partnership and is secured by a pledge of the $74,500 Bonds held by
the Company. The First Prudential Facility requires monthly payments of interest
only, with outstanding advances and any accrued but unpaid interest due November
30, 1997 and is subject to renewal at the lender's sole discretion. Subsequent
to March 31, 1997 and through May 8, 1997, the Company drew an additional
$15,680 on the First Prudential Facility.
Bank Facility
On February 1, 1996, the Company obtained a credit facility (the "Bank
Facility") secured by certain of its properties in the amount of $75,000 from
two participating banks. The Bank Facility has a three-year term and bears
interest at 150 basis points over one-month LIBOR. The terms of the Bank
Facility include certain restrictions and covenants which limit, among other
things, dividend payments and additional indebtedness and which require
compliance with specified financial ratios and other financial measurements. The
Bank Facility also requires a fee equal to one quarter of one percent of the
unused balance payable quarterly in arrears. Subsequent to March 31, 1997 and
through May 8, 1997, the Company had no additional borrowings or paydowns on the
Bank Facility.
Contingent Obligation
As part of the Harborside acquisition, the Company 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 the
Company commences construction on the acquired site during the next several
years. However, the agreement provides, among other things, that even if the
Company does not commence construction, the seller may nevertheless require the
Company 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. For the three months ended March 31, 1997, interest imputed
on the Contingent Obligation was capitalized, thereby increasing the balance of
the Contingent Obligation to $5,422 as of March 31, 1997.
- 18 -
<PAGE>
Second Prudential Facility
On November 4, 1996, the Company obtained a revolving credit facility ("Second
Prudential Facility") from PSC totaling $80,000 which bears interest at 125
basis points over one-month LIBOR, and matures on January 15, 1998, unless the
Company or PSC elects to extend the maturity date to not earlier than June 30,
1998, or the facility is refinanced prior to such date at the election of either
the Company or PSC. The Second Prudential Facility is a recourse liability of
the Operating Partnership and is secured by the Company's equity interest in
Harborside. The terms of the Second Prudential Facility include certain
restrictions and covenants that limit, among other things, dividend payments and
additional indebtedness and that require compliance with specified financial
ratios and other financial measurements. On May 8, 1997, the Company drew
$70,000 on the Second Prudential Facility in connection with the Westlakes
acquisition.
Interest Rate Swap Agreements
On May 24, 1995, the Company entered into an interest rate swap agreement with a
commercial bank. The swap agreement fixes the Company's one-month LIBOR base to
a fixed 6.285 percent per annum on a notional amount of $24,000 through August
1999.
On January 23, 1996, the Company entered into an interest rate swap agreement
with one of the participating banks in the Bank Facility. The swap agreement has
a three-year term and a notional amount of $26,000, which fixes the Company's
one-month LIBOR base to 5.265 percent.
The Company is exposed to credit loss in the event of non-performance by the
other parties to the interest rate swap agreements. However, the Company does
not anticipate non-performance by either counterparty.
7. MINORITY INTEREST
Certain individuals and entities own Units in the Operating Partnership. A Unit
and a share of common stock of the Company have substantially the same economic
characteristics in as much as they effectively share equally in the net income
or loss of the Operating Partnership. Minority interest in the accompanying
consolidated financial statements relates to Units held by parties other than
the Company.
Units are able to be redeemed by the unitholders at their option, subject to
certain restrictions, on the basis of one 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 Company 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 Unit, minority interest is reduced and the Company's investment in the
Operating Partnership is increased.
On January 31, 1997, 1,401,225 Units were issued in connection with the RM
transaction. No Units were redeemed for common stock of the Company for the
three months ended March 31, 1997. As of March 31, 1997 and December 31, 1996,
the minority interest unitholders owned 10.0 and 6.9 percent of the Operating
Partnership, respectively.
- 19 -
<PAGE>
8. EMPLOYEE BENEFIT PLAN
All employees of the Company who meet certain minimum age and period of service
requirements are eligible to participate in a Section 401(k) plan (the "Plan")
as defined by the Code. The 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 Company, at management's discretion,
may match employee contributions. No employer contributions have been made to
date.
9. 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, the Company is required to make payments in lieu of property
taxes ("PILOT") on its property at 95 Christopher Columbus Drive, Jersey City.
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 a separate agreement with the City of Jersey City, New Jersey
obtained by the former owner of the Harborside property in 1988 and assumed by
the Company as part of the acquisition of the property on November 4, 1996, the
Company is required to make PILOT payments on its Harborside property. The
abatements, which commenced in 1990, are for a term of 15 years. Such PILOT is
equal to two percent of Total Project Costs, as defined, in year one and
increase by $75 per annum through year fifteen. Total Project Costs, as defined,
are $148,712.
10. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2012. 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.
11. STOCKHOLDERS' EQUITY
To maintain its qualification as a REIT, not more than 50 percent in value of
the outstanding shares of the Company may be owned, directly or indirectly, by
five or fewer individuals (defined to include certain entities), applying
certain constructive ownership rules. To help ensure that the Company will not
fail this test, the Company's Articles of Incorporation provide for, among other
things, certain restrictions on the transfer of the common stock to prevent
further concentration of stock ownership. Moreover, to evidence compliance with
these requirements, the Company must maintain records that disclose the actual
ownership of its outstanding common stock and will demand written statements
each year from the holders of record of designated percentages of its common
stock requesting the disclosure of the beneficial owners of such common stock.
- 20 -
<PAGE>
During 1995, the Company completed a public offering of 4,600,000 shares of
common stock, which included an exercise of the underwriters' overallotment
option of 600,000 shares, and received net proceeds of $83,594. Additionally in
1995, the Company purchased, for constructive retirement, 100,000 shares of its
outstanding common stock for $1,595. The excess of the purchase price over par
value was recorded as a reduction to additional paid-in capital. Concurrent with
this purchase, the Company sold to the Operating Partnership 100,000 Units for
$1,595.
On May 13, 1996, the stockholders approved an increase in the authorized shares
of common stock in the Company from 25,000,000 to 95,000,000.
On July 29, 1996, the Company filed a shelf registration statement (File No.
333-09081) with the Securities and Exchanges Commission ("SEC") for an aggregate
amount of $500,000 in equity securities of the Company. The registration
statement was declared effective by the SEC on August 2, 1996.
On August 13, 1996, the Company sold 3,450,000 shares of its common stock
through a public stock offering (the "August 1996 Offering"), which included an
exercise of the underwriters over-allotment option of 450,000 shares. Net
proceeds from the August 1996 Offering (after offering costs) were approximately
$76,830. The offering was conducted using one underwriter and the shares were
issued from the Company's $250,000 shelf registration statement (File No.
33-96538).
Pursuant to the Company's Registration Statement on Form S-3 (File No.
333-09081), on November 22, 1996, the Company completed an underwritten public
offer and sale of 17,537,500 shares of its common stock using several different
underwriters to underwrite such public offer and sale (which included an
exercise of the underwriters' over-allotment option of 2,287,500 shares). The
Company received approximately $441,215 in net proceeds (after offering costs)
from the November 1996 Offering, and used such funds to acquire certain of the
Company's property acquisitions in November and December, pay down outstanding
borrowings on its revolving credit facilities, and invested the excess funds in
Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement (File No.
333-19101) with the SEC for an aggregate amount of $1,000,000 in equity
securities of the Company. The registration statement was declared effective by
the SEC on January 7, 1997.
Stock Option Plans
In 1994, and as amended on May 13, 1996, the Company established the Cali
Employee Stock Option Plan ("Employee Plan") and the Cali Director Stock Option
Plan ("Director Plan") under which a total of 1,880,188 (subject to adjustment)
of the Company's shares of common stock have been reserved for issuance
(1,780,188 shares under the Employee Plan and 100,000 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 become exercisable over a five-year period. All stock
options 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.
- 21 -
<PAGE>
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
Employee Director
Shares under option: Plan Plan
- -------------------- -------- --------
<S> <C> <C>
Granted on August 31, 1994 at
$15.25-$17.25 per share 600,000 25,000
- ------------------------------------------------------------------------------------------
Outstanding at December 31, 1994
$15.25 - $17.25 per share 600,000 25,000
Granted at $17.25-$19.875 per share 220,200 10,000
Less - Lapsed or canceled (3,588) --
- ------------------------------------------------------------------------------------------
Outstanding at December 31, 1995
$15.25 - $19.875 per share 816,612 35,000
Granted at $21.50-$26.25 per share 795,700 14,000
Less - Lapsed or canceled (7,164) --
Exercised at $17.25 per share (116,041) (10,000)
- ------------------------------------------------------------------------------------------
Outstanding at December 31, 1996
$15.25 - $26.25 per share 1,489,107 39,000
Granted at $33.00 per share -- 5,000
Granted at $33.875 per share -- 5,000
Less - Lapsed or canceled (12,380) --
Exercised at $17.25 - $25.25 per share (122,678) --
- ------------------------------------------------------------------------------------------
Outstanding at March 31, 1997
$15.25 - $33.875 per share 1,354,049 49,000
==========================================================================================
Exercisable at March 31, 1997 461,895 25,000
- ------------------------------------------------------------------------------------------
Available for grant at December 31, 1996 175,040 51,000
Available for grant at March 31, 1997 187,420 41,000
- ------------------------------------------------------------------------------------------
</TABLE>
- 22 -
<PAGE>
Stock Compensation
In January 1997, the Company entered into employment contracts with seven of its
key executives which provide for, among other things, compensation in the form
of stock awards (the "Stock Award Rights") and Company-financed stock purchase
rights (the "Stock Purchase Rights"), and associated tax obligation payments. In
connection with the Stock Award Rights, the executives will receive 199,070
shares of the Company's common stock vesting over a five-year period contingent
on the Company meeting certain performance objectives. Additionally, pursuant to
the terms of the Stock Purchase Rights, the Company provided fixed rate,
non-prepayable loans, aggregating $4,750, to such executives to finance their
purchase of 152,000 shares of the Company's common stock, which the Company has
agreed to forgive ratably over five years. Such loans were for amounts equal to
the fair market value of the associated shares at the date of grant.
Subsequently, from April 18, 1997 through April 24, 1997, the Company purchased,
for constructive retirement, 152,000 shares of its outstanding common stock for
$4,680. Included in general and administrative for the three months ended March
31, 1997 is $650 relating to the Stock Award Rights and Stock Purchase Rights.
The market value of the Stock Award Rights at March 31, 1997, net of amounts
recognized as compensation expense, is recorded as unamortized stock
compensation and shown as a separate component of stockholders' equity.
Unamortized stock compensation for the Stock Award Rights is amortized to
expense as certain performance objectives are reached.
Additionally, the balance of the loans related to the Stock Purchase Rights at
the grant date, net of amount recognized as compensation expense, is recorded as
unamortized stock compensation and shown as a separate component of
stockholders' equity. Unamortized stock compensation is amortized to expense
ratably over the five-year vesting period.
Earnings Per Share
<TABLE>
<CAPTION>
Net Per Share
Income Shares Amounts
------- ---------- -------
<S> <C> <C> <C>
Basic EPS .................. $16,459 36,461,210 $0.45
Diluted EPS ................ $16,459 36,993,641 $0.44
</TABLE>
The following schedule reconciles the shares used in the basic EPS calculation
to the shares used in the diluted EPS calculation, in accordance with FASB No.
128.
<TABLE>
<CAPTION>
<S> <C>
Basic EPS Shares: 36,461,210
Add: Stock Options: 532,431
----------
Diluted EPS Shares: 36,993,641
==========
</TABLE>
<PAGE>
12. PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information for the three months ended March
31, 1997 and 1996 are presented as if the acquisitions and common stock
offerings which occurred during 1996 and the January 1997 Robert Martin
transaction had occurred on January 1, 1996. 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 Company would have been assuming such
transactions had been completed as of January 1, 1996, nor do they represent the
results of operations of future periods.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------- --------
<S> <C> <C>
Revenues ..................................... $ 57,954 $ 54,978
Operating and other expenses ................. 17,522 17,182
General and administrative ................... 3,413 2,489
Depreciation and amortization ................ 8,628 8,199
Interest expense ............................. 8,600 8,566
-------- --------
Income before minority interest .............. 19,791 18,542
Minority interest ............................ 1,997 1,912
-------- --------
Net income ................................... $ 17,794 $ 16,630
======== ========
Net income per common share .................. $ 0.49 $ 0.46
-------- --------
</TABLE>
- 23 -
<PAGE>
CALI REALTY CORPORATION AND SUBSIDIARIES
Item 2:
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 Cali Realty Corporation and the notes thereto.
The following comparisons for the three months ended March 31, 1997 ("1997"), as
compared to the three months ended March 31, 1996 ("1996") make reference to the
following: (i) the effect of the "Pre-Acquisition Properties," which represents
all properties owned by the Company at December 31, 1995, (ii) the effect of the
"Acquired Properties," which represents all properties acquired by the Company
from January 1, 1996 through March 31, 1997 (excluding RM), (iii) the effect of
the "Disposition," which refers to the Company's sale of its Essex Road Property
on March 20, 1996, and (iv) the effect of the acquisition of the "RM Properties"
on January 31, 1997.
Three Months Ended March 31, 1997 Compared to Three Months Ended
March 31, 1996
Total revenues increased $32.6 million, or 166.5 percent, for the three months
ended March 31, 1997 over 1996. Base rents increased $26.8 million, or 167.2
percent, of which an increase of $16.0 million, or 100.0 percent, was
attributable to the Acquired Properties, an increase of $10.4 million, or 65.0
percent, due to the RM Properties, and an increase of $0.6 million, or 3.8
percent, and due to occupancy changes at the Pre-Acquisition Properties, offset
by a decrease of $0.2 million, or 1.6 percent, as a result of the Disposition.
Escalations and recoveries increased $3.5 million, or 114.6 percent, of which an
increase of $2.8 million, or 89.8 percent, was attributable to the Acquired
Properties, an increase of $0.7 million, or 22.7 percent, due to the RM
Properties, and an increase of $0.1 million, or 3.4 percent, due to occupancy
changes at the Pre-Acquisition Properties, offset by a decrease of $0.1 million,
or 1.3 percent, as a result of the Disposition.
- 24 -
<PAGE>
Total expenses for the three months ended March 31, 1997 increased $20.6
million, or 153.4 percent, as compared to the same period in 1996. Real estate
taxes increased $3.5 million, or 177.3 percent, for 1997 over 1996, of which an
increase of $1.8 million, or 89.4 percent, was attributable to the Acquired
Properties, an increase of $1.7 million, or 84.2 percent, due to the RM
Properties, and an increase of $0.1 million, or 6.3 percent, attributable to the
Pre-Acquisition Properties, offset by a decrease of $0.1 million, or 2.6
percent, as a result of the Disposition. Additionally, operating services
increased $3.6 million, or 128.9 percent, and utilities increased $1.8 million,
or 97.9 percent, for 1997 over 1996. The aggregate increase in operating
services and utilities of $5.4 million, or 116.5 percent, consists of $3.8
million, or 81.5 percent, attributable to the Acquired Properties, and an
increase of $2.2 million, or 48.0 percent, due to the RM Properties, offset by a
decrease of $0.1 million, or 3.3 percent, as a result of the Disposition, and a
decrease of $0.5 million, or 9.7 percent, attributable to the Pre-Acquisition
Properties. General and administrative increased $2.2 million, or 239.0 percent,
of which $0.4 million, or 43.1 percent, is attributable to additional costs
related to the RM Properties and $1.8 million, or 195.9 percent, is due
primarily to an increase in payroll and related costs as a result of the
Company's expansion in 1996 and early 1997. Depreciation and amortization
increased $4.5 million, or 135.7 percent, for 1997 over 1996, of which $2.6
million, or 78.1 percent, relates to depreciation on the Acquired Properties, an
increase of $1.7 million, or 52.4 percent, attributable to the RM Properties,
and an increase of $0.3 million, or 7.7 percent, due to the Pre-Acquisition
Properties, offset by a decrease of $0.1 million, or 2.5 percent, related to the
Disposition. Interest expense increased $5.0 million, or 193.8 percent, for 1997
over 1996, of which $2.7 million, or 105.5 percent, was attributable to the
Harborside Mortgages, $2.2 million, or 86.3 percent, due to the TIAA Mortgage,
and an increase of $0.2 million, or 4.2 percent, due to changes in the Company's
credit facility borrowings and LIBOR, offset by a decrease of $0.1 million or
2.2 percent, related to the March 1996 partial prepayment of the Mortgage
Financing.
Income before gain on sale of rental property, minority interest, and
extraordinary item increased to $18.1 million in 1997 from $6.1 million in 1996.
The increase of $12.0 million was due to the factors discussed above.
Net income increased $7.0 million for the three months ended March 31, 1997 from
$9.5 million in 1996 to $16.5 million in 1997, as a result of the increase in
income before gain on sale of rental property, minority interest and
extraordinary item of $12.0 million, the recognition in 1996 of an extraordinary
loss for $0.5 million (net of minority interest), and the decrease in minority
interest of $0.2 million in 1997 from 1996, offset by the gain on sale of rental
property of $5.7 million recognized in 1996.
- 25 -
<PAGE>
Liquidity and Capital Resources
Statement of Cash Flows
During the three months ended March 31, 1997, the Company generated $31.5
million in cash flow from operating activities, and together with $47.2 million
in borrowings from the Company's credit facilities, $2.3 million of proceeds
from stock options exercised and $198.0 million from the Company's cash
reserves, used an aggregate $279.0 million to (i) purchase 66 rental properties
and other tenant improvements and building improvements for $225.6 million, (ii)
pay $11.6 million for a Mortgage Note Receivable, (iii) pay quarterly dividends
and distributions of $17.6 million, (iv) pay the amortization on mortgage
principal of $0.1 million, (v) pay down its outstanding borrowings on its credit
facilities by $19.2 million, and (vi) increase its restricted cash by $4.9
million.
Capitalization
On May 24, 1995, the Company entered into an interest rate swap agreement with a
commercial bank. The swap agreement fixes the Company's one-month LIBOR base to
a fixed 6.285 percent per annum on a notional amount of $24.0 million through
August 1999.
On November 6, 1995, the Company completed a secondary public offering of
4,000,000 shares of its common stock at $19.50 per share (the "Second
Offering"). Net proceeds to the Company after the underwriting discounts and
other offering costs were approximately $72.5 million, which was used along with
funds drawn on the Initial Credit Facility to acquire certain properties.
Additionally, on November 17, 1995, pursuant to an over-allotment option granted
to the underwriters of the Second Offering, the Company issued an additional
600,000 shares of its common stock at $19.50 per share. Net proceeds to the
Company after underwriting discounts totaled approximately $11.1 million, which
was used to repay an equal amount of indebtedness on the Initial Credit
Facility. The $89.7 million in total proceeds from the Second Offering and
over-allotment option were obtained off of the Company's $250.0 million shelf
registration statement (File No. 33-96538).
On January 23, 1996, the Company entered into an interest rate swap agreement
with one of the participating banks in the Bank Facility. The swap agreement has
a three-year term and a notional amount of $26.0 million, which fixes the
Company's one-month LIBOR base to 5.265 percent on its floating rate credit
facilities.
On February 1, 1996, the Company obtained a credit facility (the "Bank
Facility") secured by certain of its properties in the amount of $75.0 million
from two participating banks. The Bank Facility has a three-year term and bears
interest at 150 basis points over one-month LIBOR. The terms of the Bank
Facility include certain restrictions and covenants which limit, among other
things, dividend payments and additional indebtedness and which require
compliance with specified financial ratios and other financial measurements. The
Bank Facility also requires a fee equal to one quarter of one percent of the
unused balance payable quarterly in arrears. Subsequent to March 31, 1997 and
through May 8, 1997, the Company had no additional borrowings or paydowns on the
Bank Facility.
- 26 -
<PAGE>
On July 29, 1996, the Company filed a shelf registration statement (File No.
333-09081) with the Securities and Exchanges Commission ("SEC") for an aggregate
amount of $500.0 million in equity securities of the Company. The registration
statement was declared effective by the SEC on August 2, 1996.
On August 13, 1996, the Company sold 3,450,000 shares of its common stock
through a public stock offering (the "August 1996 Offering"), which included an
exercise of the underwriters over-allotment option of 450,000 shares. Net
proceeds from the August 1996 Offering (after offering costs) were approximately
$76.8 million. The offering was conducted using one underwriter and the shares
were issued from the Company's $250.0 million shelf registration statement (File
No. 33-96538).
On November 4, 1996, the Company obtained a revolving credit facility ("Second
Prudential Facility") from PSC totaling $80.0 million which bears interest at
125 basis points over one-month LIBOR, and matures on January 15, 1998, unless
the Company or PSC elects to extend the maturity date to not earlier than June
30, 1998, or the facility is refinanced prior to such date at the election of
either the Company or PSC. The Second Prudential Facility is a recourse
liability of the Operating Partnership and is secured by the Company's equity
interest in Harborside. The terms of the Second Prudential Facility include
certain restrictions and covenants that limit, among other things, dividend
payments and additional indebtedness and that require compliance with specified
financial ratios and other financial measurements.
In addition, on November 4, 1996, the Company assumed existing debt and was
provided seller-mortgage debt aggregating $150.0 million (as more fully
described in Note 6).
Pursuant to the Company's Registration Statement on Form S-3 (File No.
333-09081), on November 22, 1996, the Company completed an underwritten public
offer and sale of 17,537,500 shares of its common stock using several different
underwriters to underwrite such public offer and sale (which included an
exercise of the underwriters' over-allotment option of 2,287,500 shares). The
Company received approximately $441.2 million in net proceeds (after offering
costs) from the November 1996 Offering, and used such funds to acquire certain
of the Company's property acquisitions in November and December, pay down
outstanding borrowings on its revolving credit facilities, and invested the
excess funds in Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement (File No.
333-19101) with the SEC for an aggregate amount of $1 billion in equity
securities of the Company. The registration statement was declared effective by
the SEC on January 7, 1997.
In connection with the RM transaction on January 31, 1997, the Company assumed a
$185.3 million non-recourse mortgage loan with TIAA (as more fully described in
Note 6).
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 Company will
have access to the capital resources necessary to expand and develop its
business. To the extent that the Company'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 Company expects
to finance such activities through the credit facilities and other debt and
equity financing.
- 27 -
<PAGE>
The Company presently has no plans for major capital improvements to its
existing properties, other than normal recurring expenditures.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operating activities, along
with the First Prudential Facility, Bank Facility and Second Prudential
Facility. The Company is frequently examining potential property acquisitions
and, at any one given time, one or more of such acquisitions may be under
consideration. Accordingly, being able to fund property acquisitions is a major
part of the Company's financing requirements. The Company expects to meet its
financing requirements through funds generated from operating activities,
long-term or short term borrowings (including draws on the Company's credit
facilities), and the issuance of debt securities or additional equity
securities. In addition, the Company anticipates utilizing the First Prudential
Facility, Bank Facility and Second Prudential Facility primarily to fund
property acquisition activities.
The Company does not intend to reserve funds to retire the existing TIAA
Mortgage, Harborside Mortgages, Mortgage Financing, indebtedness under the
credit facilities or other mortgages and loans payable upon maturity. Instead,
the Company will seek to refinance such debt at maturity or retire such debt
through the issuance of additional equity securities. The Company 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 Company's capital and liquidity needs both in the short
and long-term. However, if these sources of funds are insufficient or
unavailable, the Company's ability to make the expected distributions discussed
below may be adversely affected.
To maintain its qualification as a REIT, the Company must make annual
distributions to its stockholders of at least 95 percent of its REIT taxable
income, excluding the dividends paid deduction and net capital gains. Moreover,
the Company intends to continue to make regular quarterly distributions to its
stockholders which, based upon current policy, in the aggregate would equal
approximately $66.0 million on an annualized basis. However, any such
distribution, whether for federal income tax purposes or otherwise, would only
be paid out of available cash after meeting both operating requirements and
scheduled debt service on mortgages and loans payable and required annual
capital expenditure reserves pursuant to its mortgage indenture.
Funds from Operations
The Company considers Funds from Operations, after adjustment for the
straight-lining of rents, one measure of REIT performance. Funds from Operations
is defined as net income (loss) before minority interest of unitholders,
computed in accordance with Generally Accepted Accounting Principles, excluding
gains (or losses) from debt restructuring 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 Company's
performance or to cash flows as a measure of liquidity.
- 28 -
<PAGE>
Funds from Operations for the three months ended March 31, 1997 and 1996, as
calculated in accordance with the National Association of Real Estate Investment
Trusts definition published in March 1995, are summarized in the following table
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
-------- --------
<S> <C> <C>
Income before gain on sale of rental property,
minority interest, and extraordinary item ........ $ 18,095 $ 6,128
Add: Real estate-related depreciation and
amortization ..................................... 7,479 3,020
-------- --------
Funds from Operations ................................ 25,574 9,148
-------- --------
Deduct: Rental income adjustment for
straight-lining of rents ........................... (1,607) (69)
-------- --------
Funds from Operations after adjustment for
straight-lining of rents ........................... $ 23,967 $ 9,079
======== ========
Weighted average shares outstanding (1) .............. 40,085 17,897
-------- --------
</TABLE>
(1) Assumes redemption of all Units, calculated on a weighted average basis, for
shares of common stock in the Company.
Inflation
The Company'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
Company's exposure to increases in operating costs resulting from inflation.
- 29 -
<PAGE>
CALI REALTY CORPORATION
Part II, Item 1:
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.
Cali Realty Corporation
(Registrant)
Date: May 14, 1997 /s/ Thomas A. Rizk
------------------
Thomas A. Rizk
President and Chief Executive Officer
(signing on behalf of the Registrant)
Date: May 14, 1997 /s/ Barry Lefkowitz
------------------
Barry Lefkowitz
Chief Financial Officer
- 30 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 14,872
<SECURITIES> 0
<RECEIVABLES> 3,860
<ALLOWANCES> 278
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,313,023
<DEPRECIATION> 75,589
<TOTAL-ASSETS> 1,301,981
<CURRENT-LIABILITIES> 0
<BONDS> 481,359
0
0
<COMMON> 368
<OTHER-SE> 703,672
<TOTAL-LIABILITY-AND-EQUITY> 1,301,981
<SALES> 0
<TOTAL-REVENUES> 52,155
<CGS> 0
<TOTAL-COSTS> 23,338
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,549
<INCOME-PRETAX> 18,095
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,459
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,459
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
</TABLE>
