<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1998
REGISTRATION NO. 333-57103
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
<TABLE>
<S> <C>
MACK-CALI REALTY CORPORATION MACK-CALI
REALTY, L.P.
(Exact names of registrants as specified in their
respective governing documents)
MARYLAND DELAWARE
</TABLE>
<TABLE>
<S> <C>
(State or other jurisdictions of incorporation or
organization of each registrant)
22-3305147 22-3315804
(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification
No.)
</TABLE>
------------------------------
<TABLE>
<S> <C>
11 COMMERCE DRIVE MR. THOMAS A. RIZK
CRANFORD, NEW JERSEY 07016 CHIEF EXECUTIVE OFFICER
(908) 272-8000 MACK-CALI REALTY CORPORATION
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE 11 COMMERCE DRIVE
NUMBER, INCLUDING AREA CODE, CRANFORD, NEW JERSEY 07016
OF PRINCIPAL EXECUTIVE OFFICES) (908) 272-8000
(908) 272-6755 (FACSIMILE)
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
------------------------------
COPIES TO:
JONATHAN A. BERNSTEIN, ESQ.
BLAKE HORNICK, ESQ.
PRYOR CASHMAN SHERMAN & FLYNN LLP
410 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 421-4100
(212) 326-0806 (FACSIMILE)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
/ /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF SHARES TO BE REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING PRICE(1)
<S> <C>
Mack-Cali Realty Corporation:
Preferred Stock(2)............................... (8)
Depositary Shares(3)............................. (8)
Guarantees(4).................................... (8)
Mack-Cali Realty, L.P.
Debt Securities(5)............................... (8)
Total.............................................. $2,000,000,000(6)
<CAPTION>
TITLE OF SHARES TO BE REGISTERED AMOUNT OF REGISTRATION FEE
<S> <C>
Mack-Cali Realty Corporation:
Preferred Stock(2)............................... N/A
Depositary Shares(3)............................. N/A
Guarantees(4).................................... N/A
Mack-Cali Realty, L.P.
Debt Securities(5)............................... N/A
Total.............................................. $590,000(7)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
exclusive of accrued interest, if any.
(2) There are being registered an indeterminate number of shares of Preferred
Stock, as may be sold, from time to time, by Mack-Cali Realty Corporation
(the "Company").
(3) To be represented by Depositary Receipts representing an interest in all or
a specified portion of a share of Preferred Stock.
(4) Debt Securities issued by Mack-Cali Realty, L.P. (the "Operating
Partnership") may be accompanied by a Guarantee to be issued by the Company.
No separate consideration will be received for any Guarantee.
(5) There are being registered hereunder an indeterminate amount of
non-convertible debt securities to be issued by the Operating Partnership as
may be sold, from time to time, by the Operating Partnership.
(6) In no event will the aggregate maximum offering price of all securities
registered under this Registration Statement exceed $2,000,000,000 or an
equivalent amount in another currency or currencies or as determined by
reference to an index or, if the securities are to be offered at a discount,
the approximate proceeds to the Registrants.
(7) Calculated in accordance with Rule 457(o) under the Securities Act of 1933.
The registration fee has been previously paid.
(8) Not specified as to each class of securities to be registered, pursuant to
General Instruction II.D of Form S-3 under the Securities Act of 1933.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement relates to securities which may be offered from
time to time by Mack-Cali Realty Corporation (the "Company") and Mack-Cali
Realty, L.P., a majority-owned subsidiary of the Company (the "Operating
Partnership"). This Registration Statement contains a form of basic prospectus
(the "Basic Prospectus") relating to both the Company and the Operating
Partnership which will be used in connection with an offering of securities by
the Company or the Operating Partnership. The specific terms of the securities
to be offered will be set forth in a Prospectus Supplement relating to such
securities. To the extent securities of the Operating Partnership, which are
limited to unsecured nonconvertible debt securities, are offered pursuant to the
enclosed Basic Prospectus, the Basic Prospectus will include the financial
statements, together with notes and schedules of the Operating Partnership set
forth on pages F-1 through F-43 hereof.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
$2,000,000,000
MACK-CALI REALTY CORPORATION
PREFERRED STOCK AND DEPOSITARY SHARES
MACK-CALI REALTY, L.P.
DEBT SECURITIES
Mack-Cali Realty Corporation (the "Company") may from time to time offer in
one or more series (i) shares or fractional shares of its preferred stock, par
value $.01 per share (the "Preferred Stock") or (ii) shares of Preferred Stock
represented by depositary shares (the "Depositary Shares"). Mack-Cali Realty,
L.P. (the "Operating Partnership") may from time to time offer in one or more
series unsecured non-convertible debt securities (the "Debt Securities"). The
Preferred Stock, Depositary Shares and Debt Securities (collectively, the
"Offered Securities") have an aggregate initial public offering price of up to
$2,000,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale) in amounts, at prices and on terms to be determined at the
time of the offering and may be offered, separately or together, in separate
series in amounts, at prices and on terms to be set forth in a supplement to
this Prospectus (each a "Prospectus Supplement"). If any Debt Securities issued
by the Operating Partnership are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest (the
"Guarantees").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Preferred
Stock, the specific title and stated value, any dividend, liquidation,
redemption, conversion, voting and other rights and any initial public offering
price; (ii) in the case of Depositary Shares, the fractional share of Preferred
Stock represented by each such Depositary Share; and (iii) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the holder, terms for
sinking fund payments, covenants, applicability of any Guarantees and any
initial public offering price. In addition, such specific terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the Offered Securities, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust ("REIT") for United
States federal income tax purposes. See "Restrictions on Ownership of Capital
Stock."
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The date of this Prospectus is , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 3
EXPLANATORY NOTE.......................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 3
THE COMPANY AND THE OPERATING PARTNERSHIP................................. 5
RATIOS OF EARNINGS TO FIXED CHARGES....................................... 6
USE OF PROCEEDS........................................................... 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 8
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............................... 15
DESCRIPTION OF DEBT SECURITIES............................................ 17
DESCRIPTION OF PREFERRED STOCK............................................ 30
DESCRIPTION OF DEPOSITARY SHARES.......................................... 36
RESTRICTIONS ON OWNERSHIP OF OFFERED SECURITIES........................... 39
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO THE COMPANY OF
ITS REIT ELECTION....................................................... 41
PLAN OF DISTRIBUTION...................................................... 54
EXPERTS................................................................... 55
LEGAL MATTERS............................................................. 55
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND OTHER INFORMATION............ F-1
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
The Company is, and upon effectiveness of the registration statement of
which this Prospectus is a part (the "Registration Statement"), the Operating
Partnership will be, subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission") and the Operating
Partnership will file reports with the Commission. The Registration Statement,
the exhibits and schedules forming a part thereof and such reports, proxy
statements and other information can be inspected and copied at the Commission's
public reference section, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained at prescribed rates by writing to
the public reference section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Web site is: http://www.sec.gov. In addition, the Company's common
stock, par value $.01 per share (the "Common Stock") is listed on the New York
Stock Exchange (the "NYSE"), under the symbol "CLI," and the Pacific Exchange,
and similar information concerning the Company can be inspected and copied at
the offices of the NYSE, 20 Broad Street, New York, New York 10005, and the
Pacific Exchange, 301 Pine Street, San Francisco, California 94104.
The Company and the Operating Partnership have filed with the Commission the
Registration Statement (of which this Prospectus is a part) under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Offered
Securities. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Offered Securities, reference is hereby made to the Registration
Statement and such exhibits and schedules which may be obtained from the
Commission at its principal office in Washington, D.C. upon payment of the fees
prescribed by the Commission.
EXPLANATORY NOTE
The Company conducts substantially all of its operations through, and
substantially all of its properties are held directly or indirectly by, the
Operating Partnership. Accordingly, information incorporated by reference herein
from certain documents filed with the Commission by the Company is applicable to
the Operating Partnership. To the extent that information incorporated by
reference from such documents is inapplicable to the Operating Partnership,
appropriate disclosure is included herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company (File No. 1-13274)
under the Exchange Act with the Commission and are incorporated herein by
reference:
a. The Company's Annual Report on Form 10-K (File No. 1-13274) for the
fiscal year ended December 31, 1997, as amended by Form 10-K/A dated
August 5, 1998;
b. The Company's Quarterly Report on Form 10-Q (File No. 1-13274) for the
fiscal quarter ended March 31, 1998, as amended by Form 10-Q/A dated June
9, 1998;
3
<PAGE>
c. The Company's Current Reports on Form 8-K and Form 8-K/A (File No.
1-13274), dated September 18, 1997, September 19, 1997, December 11,
1997, January 16, 1998, June 12, 1998 and August 5, 1998;
d. The Company's Proxy Statements relating to the Special Meeting of
Shareholders held on December 11, 1997 and the Annual Meeting of
Shareholders on May 21, 1998; and
e. The description of the Common Stock and the description of certain
provisions of Maryland Law and the Company's Articles of Incorporation
and Bylaws, both contained in the Company's Registration Statement on
Form 8-A, dated August 9, 1994.
All documents filed by the Company or the Operating Partnership pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the Offered
Securities shall be deemed to be incorporated by reference in this Prospectus
and to be part hereof from the date of filing such documents (provided, however,
that the information referred to in Item 402(a)(8) of Regulation S-K of the
Commission shall not be deemed specifically incorporated by reference herein).
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner of the Offered
Securities, to whom this Prospectus is delivered, upon written or oral request.
Requests should be made to Barry Lefkowitz, Executive Vice President and Chief
Financial Officer of the Company, 11 Commerce Drive, Cranford, New Jersey
07016-3510 (telephone number: (908) 272-8000).
4
<PAGE>
THE COMPANY AND THE OPERATING PARTNERSHIP
Mack-Cali Realty Corporation (together with its subsidiaries, the "Company")
is a fully-integrated real estate investment trust ("REIT") that owns and
operates a portfolio comprised primarily of Class A office and office/flex
buildings, as well as commercial real estate leasing, management, acquisition,
development and construction businesses. As of June 1, 1998, the Company owned
and operated 234 properties, aggregating approximately 26.3 million square feet
(collectively, the "Properties"). The Properties are comprised of 222 office and
office/flex buildings totaling approximately 25.9 million square feet (the
"Office Properties" and "Office/Flex Properties," respectively), six
industrial/warehouse properties containing an aggregate of approximately 400,000
square feet (the "Industrial/Warehouse Properties"), two multi-family
residential properties, two stand-alone retail properties and two land leases.
The 222 Office and Office/Flex Properties are comprised of 145 office buildings
containing an aggregate of 21.9 million square feet (the "Office Properties")
and 77 office/flex buildings containing an aggregate of approximately 4.0
million square feet (the "Office/Flex Properties"). The Company believes that
its Properties have excellent locations and access and are well-maintained and
professionally managed. As a result, the Company believes that its Properties
attract high quality tenants and achieve among the highest rental, occupancy and
tenant retention rates within their markets.
The Properties are located primarily in the Northeast and Southwest,
including a predominant presence in New Jersey, New York, Pennsylvania, Texas
and Colorado. The Company believes that each of these markets has attractive
economic and demographic characteristics. As of June 1, 1998, the Operating
Partnership owned and operated 13.8 million square feet of office and
office/flex space in New Jersey, a state widely regarded as a major center for
corporate and international business and gaming/tourism. The Operating
Partnership owned and operated 1.5 million square feet of office space in
suburban Philadelphia, Pennsylvania as of June 1, 1998; and 4.4 million square
feet of office and office/flex space, 387,000 square feet of
industrial/warehouse space and residential and stand-alone retail properties and
land leases in New York. As of June 1, 1998, the Operating Partnership also
owned and operated 0.4 million square feet of office and office/flex space in
Connecticut, 3.0 million square feet of office space in Texas, 0.8 million
square feet of office space in Colorado and 0.5 million square feet of office
space in Arizona.
The Company's strategy has been to focus its development and ownership of
office properties in sub-markets where it is, or can become, a significant and
preferred owner and operator. The Company will continue this strategy by
expanding, primarily through acquisitions, initially into sub-markets where it
has, or can achieve, similar status. Management believes that the recent trend
towards increasing rental and occupancy rates in office buildings in the
Company's sub-markets continues to present significant opportunities for growth.
The Company may also develop properties in such sub-markets, particularly with a
view towards potential utilization of certain vacant land recently acquired or
on which the Company holds options. Management believes that its extensive
market knowledge provides the Company with a significant competitive advantage
which is further enhanced by its strong reputation for and emphasis on
delivering highly responsive management services, including direct and continued
access to the Company's senior management. The Company performs substantially
all construction, leasing, management and tenant improvements on an "in-house"
basis and is self-administered and self-managed. As of June 1, 1998, the Company
had over 300 employees.
Cali Associates, the entity to whose business the Company succeeded in 1994,
was founded by John J. Cali, Angelo R. Cali and Edward Leshowitz (the
"Founders") who have been involved in the development, leasing, management,
operation and disposition of commercial and residential properties in Northern
and Central New Jersey for over 40 years and have been primarily focusing on
office buildings for the past fifteen years. In addition to the Founders, the
Company's executive officers generally have been employed by the Company and its
predecessor for an average of approximately 10 years. The Company and its
predecessor have built approximately four million square feet of office space,
more than one million square feet of industrial facilities and over 5,500
residential units.
5
<PAGE>
The Company has elected to be taxed as a REIT for federal income tax
purposes and expects to continue to elect such status. Although the Company
believes that it was organized and has been operating in conformity with the
requirements for qualification under the Internal Revenue Code of 1986, as
amended (the "Code"), no assurance can be given that the Company will continue
to qualify as a REIT. Qualification as a REIT involves the application of highly
technical and complex Code provisions of which there are only limited judicial
or administrative interpretations. If in any taxable year the Company were to
fail to qualify as a REIT, the Company would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to federal taxation at regular corporate rates. As a result, such a failure
would adversely affect the Company's ability to make distributions to its
stockholders and could have an adverse affect on the market value and
marketability of the Common Stock.
To ensure that the Company qualifies as a REIT, the transfer of shares of
capital stock of the Company, including the Preferred Stock, is subject to
certain restrictions, and ownership of capital stock by any single person is
limited to 9.8% of the value of such capital stock, subject to certain
exceptions. The Company's Articles of Incorporation provide that any purported
transfer in violation of the above-described ownership limitations shall be void
AB INITIO.
Substantially all of the Company's interests in the Properties are held by,
and its operations are conducted through, the Operating Partnership, or by
entities controlled by the Operating Partnership. As of June 1, 1998, the
Company was the beneficial owner of approximately 89.3% of the Operating
Partnership and is its sole general partner. As used herein, the term "Units"
refers to limited partnership interests in the Operating Partnership.
The Company, a Maryland corporation, was incorporated in 1994. The Operating
Partnership is a Delaware limited partnership formed in 1994. The executive
offices of both the Operating Partnership and the Company are located at 11
Commerce Drive, Cranford, New Jersey 07016, and their telephone number is (908)
272-8000. The Company has an internet Web address at "http://www.mack-cali.com."
RATIOS OF EARNINGS TO FIXED CHARGES
The following tables set forth the Company's ratios of earnings to fixed
charges for the periods shown (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE FOR THE FOR THE FOR THE PERIOD
MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 1994 TO
MARCH 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
- ----------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
2.31x 1.08x 3.26x 2.69x 3.13x
</TABLE>
The following tables set forth the amounts by which the Company's
predecessor's earnings were inadequate to cover fixed charges:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1994 FOR THE YEAR ENDED
TO AUGUST 30, 1994 DECEMBER 31, 1993
- ------------------- --------------------
<S> <C>
$ (110) $ (1,064)
</TABLE>
The following tables set forth the Operating Partnership's ratios of
earnings to fixed charges for the periods shown (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE FOR THE FOR THE FOR THE PERIOD
MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 1994 TO
MARCH 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
- ----------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
2.80x 1.89x 3.26x 2.69x 3.13x
</TABLE>
6
<PAGE>
The following tables set forth the amounts by which the Operating
Partnership's predecessor's earnings were inadequate to cover fixed charges:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1994 FOR THE YEAR ENDED
TO AUGUST 30, 1994 DECEMBER 31, 1993
- ------------------- --------------------
<S> <C>
$ (110) $ (1,064)
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings
before fixed charges by fixed charges. For this purpose, earnings consist of
pre-tax income (loss) from continuing operations, before gain on sale of
property and minority interest plus fixed charges excluding capitalized
interest, preferred unit distributions and beneficial conversion feature. Fixed
charges consist of interest costs, both expensed and capitalized, debt issuance
costs and the interest portion of ground rents on land leases. Fixed charges for
the Company also include preferred unit distributions and beneficial conversion
feature. To date, the Company has not issued any Preferred Stock, therefore, the
ratios of earnings to combined fixed charges and preferred stock dividend
requirements are the same as the ratios of earnings to fixed charges presented
above. For the year ended December 31, 1996, the calculation of the ratio of
earnings to fixed charges excludes a gain on sale of rental property of $5,658.
The ratio of earnings to fixed charges, including gain on sale of rental
property, for the same period was 3.67x.
The following tables set forth the Operating Partnership's ratios of
earnings to combined fixed charges and preferred unit distribution requirement
for the periods shown (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE FOR THE FOR THE FOR THE PERIOD
MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 1994 TO
MARCH 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
- ----------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
2.31x 1.08x 3.26x 2.69x 3.13x
</TABLE>
The following tables set forth the amounts by which the Operating
Partnership's predecessor's earnings were inadequate to cover fixed charges:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1994 FOR THE YEAR ENDED
TO AUGUST 30, 1994 DECEMBER 31, 1993
- ------------------- --------------------
<S> <C>
$ (110) $ (1,064)
</TABLE>
The Operating Partnership's ratios of earnings to combined fixed charges and
preferred unit distribution requirement were computed by dividing earnings
before fixed charges and preferred unit distributions and beneficial conversion
feature by fixed charges and preferred unit distributions and beneficial
conversion feature. For this purpose, earnings consist of pre-tax income (loss)
from continuing operations before gain on sale of property and preferred unit
distributions and beneficial conversion feature plus fixed charges excluding
capitalized interest. Fixed charges consist of interest costs, both expensed and
capitalized, debt issuance costs and the interest portion of ground rents on
land leases. For the year ended December 31, 1996, the calculation of the ratio
of earnings to combined fixed charges and preferred unit distribution
requirement excludes a gain on sale of rental property of $5,658. The ratio of
earnings to combined fixed charges and preferred unit distribution requirement,
including gain on sale of rental property, for the same period was 3.67x.
7
<PAGE>
USE OF PROCEEDS
The Company is required by the terms of the Amended and Restated Agreement
of Limited Partnership of the Operating Partnership to invest the net proceeds
of any sale of Common Stock or Preferred Stock in the Operating Partnership in
exchange for additional Units. The specific amount and intended use of net
proceeds from the sale of any Offered Securities in a particular transaction
will be set forth in the Prospectus Supplement relating thereto. Unless
otherwise described in the applicable Prospectus Supplement, the Company and the
Operating Partnership intend to use the net proceeds from the sale of any
Offered Securities for general business purposes, including the leasing,
management, acquisition, development and construction of office, office/flex,
industrial/warehouse, multi-family residential or other properties as suitable
opportunities arise, the expansion and improvement of certain properties in the
Company's portfolio, and the repayment of indebtedness.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Mack-Cali Realty, L.P. and the notes thereto.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
The following comparisons for the three months ended March 31, 1998 ("1998
Q1"), as compared to the three months ended March 31, 1997 ("1997 Q1") make
reference to the following: (i) the effect of the "Same-Store Properties," which
represents all properties owned by the Operating Partnership at December 31,
1996, (ii) the effect of the acquisition (the "RM Transaction") of 65 properties
(the "RM Properties") from Robert Martin Company, LLC and affiliates ("RM") on
January 31, 1997, (iii) the effect of the acquisition (the "Mack Transaction")
of 54 office properties (the "Mack Properties") from The Mack Company and
Patriot American Office Group ("Mack") on December 11, 1997, and (iv) the effect
of the "Acquired Properties," which represents all properties acquired by the
Operating Partnership from January 1, 1997 through March 31, 1998, excluding the
RM Properties and the Mack Properties.
Total revenues increased $53.7 million, or 102.9 percent, for 1998 Q1 over
1997 Q1. Base rents increased $50.1 million, or 117.1 percent, of which an
increase of $8.5 million, or 19.9 percent, was attributable to the Acquired
Properties, an increase of $5.5 million, or 12.8 percent, due to the RM
Properties, an increase of $35.7 million, or 83.3 percent, due to the Mack
Properties and an increase of $0.4 million, or 1.1 percent, due to occupancy and
rental rate changes at the Same-Store Properties. Escalations and recoveries
increased $3.8 million, or 56.6 percent, of which an increase of $1.1 million,
or 16.5 percent, was attributable to the Acquired Properties, an increase of
$0.5 million, or 6.5 percent, due to the RM Properties, and an increase of $2.3
million, or 34.9 percent, due to the Mack Properties, offset by a decrease of
$0.1 million, or 1.3 percent, due to occupancy changes at the Same-Store
Properties. Parking and other income increased $0.5 million, or 29.9 percent, of
which $0.1 million, or 7.1 percent, was attributable to the RM Properties, $0.4
million, or 21.4 percent, due to the Mack Properties, and $0.1 million, or 8.7
percent, was attributable to the Acquired Properties, offset by a decrease of
$0.1 million, or 7.3 percent, due to the Same-Store Properties. Interest income
decreased $0.7 million, or 55.0 percent, due primarily to the use of the funds
previously invested to fund the RM Transaction.
Total expenses for 1998 Q1 increased $37.9 million, or 111.3 percent, as
compared to 1997 Q1. Real estate taxes increased $4.6 million, or 85.4 percent,
for 1998 Q1 over 1997 Q1, of which an increase of $0.8 million, or 14.8 percent,
was attributable to the Acquired Properties, an increase of $0.8 million, or
14.7 percent, due to the RM Properties, an increase of $2.9 million, or 53.2
percent, due to the Mack Properties, and an increase of $0.1 million, or 2.7
percent, attributable to the Same-Store Properties. Additionally, operating
services increased $6.3 million, or 97.8 percent, and utilities increased $4.6
million, or 122.8 percent, for 1998 Q1 over 1997 Q1. The aggregate increase in
operating services and utilities of $10.9 million, or 107.0 percent, consists of
$1.8 million, or 17.6 percent, attributable to the Acquired Properties, an
increase of $1.1 million, or 10.9 percent, due to the RM Properties, and an
increase of $8.4
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million, or 82.1 percent, due to the Mack Properties, offset by a decrease of
$0.4 million, or 3.6 percent, attributable to the Same-Store Properties. General
and administrative expense increased $3.0 million, or 95.3 percent, of which
$2.0 million, or 62.3 percent, is due primarily to an increase in payroll and
related costs as a result of the Operating Partnership's expansion, $0.8
million, or 23.8 percent, due to additional costs related to the Mack
Properties, and $0.2 million, or 7.2 percent, attributable to additional costs
related to the RM Properties. Depreciation and amortization increased $8.7
million, or 116.6 percent, for 1998 Q1 over 1997 Q1, of which $1.5 million, or
20.8 percent, relates to depreciation on the Acquired Properties, an increase of
$1.1 million, or 15.0 percent, attributable to the RM Properties, an increase of
$5.6 million, or 74.5 percent, due to the Mack Properties, and an increase of
$0.5 million, or 6.3 percent, due to the Same-Store Properties. Interest expense
increased $10.7 million, or 136.3 percent, for 1998 Q1 over 1997 Q1, of which
$1.1 million, or 14.2 percent, was attributable to the TIAA Mortgage, $0.2
million, or 2.6 percent, due to assumed mortgages on Acquired Properties, an
increase of $5.3 million, or 67.5 percent, due to assumed mortgages from the
Mack Properties, and an increase of $4.1 million, or 52.0 percent, due to net
additional drawings from the Operating Partnership's credit facilities as a
result of Operating Partnership acquisitions and the $200 million Prudential
Term Loan obtained in December 1997, as well as changes in LIBOR.
Net income available to common unitholders increased to $29.9 million in
1998 Q1 from $18.1 million in 1997 Q1. The increase of $11.8 million was due to
the factors discussed above partially offset by preferred unit distributions of
$3.9 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 AND YEAR
ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The following comparisons for the year ended December 31, 1997 ("1997"), as
compared to the year ended December 31, 1996 ("1996") and for 1996, as compared
to the year ended December 31, 1995 ("1995") make reference to the following:
(i) the effect of the "Same-Store Properties," which represent all properties
owned by the Operating Partnership at December 31, 1995 (for the 1997 versus
1996 comparison), and which represents all properties owned by the Operating
Partnership at December 31, 1994 (for the 1996 versus 1995 comparison), (ii) the
effect of the acquisition of the RM Properties on January 31, 1997, (iii) the
effect of the acquisition of the Mack Properties on December 11, 1997, (iv) the
effect of the "Acquired Properties," which represent all properties acquired by
the Operating Partnership from January 1, 1996 through December 31, 1997
excluding the RM Properties and the Mack Properties, (for the 1997 versus 1996
comparison), and which represent all properties acquired by the Operating
Partnership from January 1, 1995 through December 31, 1996 (for the 1996 versus
1995 comparison), and (v) the effect of the "Disposition," which refers to the
Operating Partnership's sale of its Essex Road property on March 20, 1996.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenues increased $154.3 million, or 161.6 percent, for 1997 over
1996. Base rents increased $129.3 million, or 168.1 percent, of which an
increase of $61.4 million, or 79.7 percent, was attributable to the Acquired
Properties, an increase of $58.4 million, or 75.9 percent, due to the RM
Properties, an increase of $8.0 million, or 10.4 percent, due to the Mack
Properties and an increase of $1.8 million, or 2.4 percent, due to occupancy and
rental rate changes at the Same-Store Properties, offset by a decrease of $0.3
million, or 0.3 percent, due to the Disposition. Escalations and recoveries
increased $16.7 million, or 115.7 percent, of which an increase of $11.2
million, or 77.4 percent, was attributable to the Acquired Properties, an
increase of $4.9 million, or 34.2 percent, due to the RM Properties, an increase
of $0.5 million, or 3.7 percent, due to the Mack Properties, and an increase of
$0.1 million, or 0.4 percent, due to occupancy changes at the Same-Store
Properties. Parking and other income increased $4.7 million, or 213.5 percent,
of which $4.0 million, or 182.1 percent, was attributable to the RM Properties
and $0.8 million, or 37.6 percent, was attributable to the RM Properties, offset
by a decrease of $0.1 million, or 6.2
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percent, due to the Same-Store Properties. Interest income increased $3.6
million, or 189.3 percent, due primarily to investment of the funds held from
the Company's October 1997 common stock offering.
Total expenses for 1997 increased $149.4 million, or 233.7 percent, as
compared to 1996. Real estate taxes increased $16.6 million, or 176.7 percent,
for 1997 over 1996, of which an increase of $6.6 million, or 69.6 percent, was
attributable to the Acquired Properties, an increase of $9.0 million, or 95.9
percent, due to the RM Properties, an increase of $0.6 million, or 6.6 percent,
due to the Mack Properties, and an increase of $0.5 million, or 5.1 percent,
attributable to the Same-Store Properties, offset by a decrease of $0.1 million,
or 0.5 percent, due to the Disposition. Additionally, operating services
increased $18.7 million, or 154.9 percent, and utilities increased $10.1
million, or 124.2 percent, for 1997 over 1996. The aggregate increase in
operating services and utilities of $28.8 million, or 142.6 percent, consists of
$15.5 million, or 76.7 percent, attributable to the Acquired Properties, an
increase of $12.9 million, or 63.8 percent, due to the RM Properties, and an
increase of $1.7 million, or 8.2 percent, due to the Mack Properties, offset by
a decrease of $1.1 million, or 5.3 percent, attributable to the Same-Store
Properties and a decrease of $0.2 million, or 0.8 percent, due to the
Disposition. General and administrative expense increased $10.1 million, or
173.5 percent, of which $7.1 million, or 121.1 percent, is due primarily to an
increase in payroll and related costs as a result of the Operating Partnership's
expansion in late 1996 and 1997 and $3.0 million, or 52.4 percent, is
attributable to additional costs related to the RM Properties. Depreciation and
amortization increased $22.1 million, or 150.0 percent, for 1997 over 1996, of
which $10.4 million, or 70.4 percent, relates to depreciation on the Acquired
Properties, an increase of $10.0 million, or 67.7 percent, attributable to the
RM Properties, an increase of $1.0 million, or 6.6 percent, due to the Mack
Properties, and an increase of $0.8 million, or 5.8 percent, due to the
Same-Store properties, offset by a decrease of $0.1 million, or 0.5 percent, due
to the Disposition. Interest expense increased $25.3 million, or 184.0 percent,
for 1997 over 1996, of which $12.2 million, or 88.6 percent, was attributable to
the TIAA Mortgage, $9.1 million, or 66.5 percent, due to the Harborside
Mortgages, an increase of $1.4 million, or 9.9 percent, due to assumed mortgages
from the Mack Properties, and an increase of $8.3 million, or 60.1 percent, due
to net additional drawings from the credit facilities as a result of
acquisitions and the $200 million Prudential Term Loan obtained in December
1997, as well as changes in LIBOR, offset by a decrease of $5.7 million, or 41.1
percent, due to the August 1997 prepayment of the Mortgage Financing.
Non-recurring merger-related charges of $46.5 million were incurred in 1997, as
a result of the Mack Transaction.
Income before gain on sale of rental property, and extraordinary items
increased to $36.4 million in 1997 from $31.5 million in 1996. The increase of
$4.9 million was due to the factors discussed above.
Net income available to common unitholders decreased $34.5 million for 1997,
from $36.6 million in 1996 to $2.1 million in 1997, primarily as a result of
income allocable to preferred unitholders of $30.2 million, which is comprised
of the effect of the beneficial conversion feature and distributions (See Note 8
to Financial Statements). Net income available to common unitholders was also
effected by a gain on the sale of the Disposition property of $5.7 million in
1996 and the recognition in 1997 of an extraordinary loss of $4.0 million,
offset by an increase in income before gain on sale of rental property and
extraordinary item of $4.9 million, and the recognition in 1996 of an
extraordinary loss of $0.6 million.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues increased $33.1 million, or 53.2 percent, for 1996 over 1995.
Base rents increased $26.1 million, or 51.4 percent, of which an increase of
$26.4 million, or 52.0 percent, was attributable to the Acquired Properties, and
an increase of $0.9 million, or 1.8 percent, as a result of occupancy changes at
the Same-Store Properties, offset by a decrease of $1.2 million, or 2.4 percent,
as a result of the Disposition. Escalations and recoveries increased $4.9
million, or 51.8 percent, of which an increase of $4.6 million, or 49.0 percent,
was attributable to the Acquired Properties, and $0.4 million, or 4.0 percent,
as a result of occupancy changes at the Same-Store Properties, offset by a
decrease of $0.1 million, or 1.2 percent, due to the Disposition. Parking and
other income increased $0.5 million, or 29.5 percent, of which $0.3 million, or
17.9 percent, was attributable to the Same-Store Properties, and $0.3 million,
or 15.9 percent, due to the
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<PAGE>
Acquired Properties, offset by a decrease of $0.1 million, or 4.3 percent, due
to the Disposition. Interest income increased $1.6 million for 1996 over 1995,
due primarily to the funds held at December 31, 1996 from the Company's common
stock offering in November 1996.
Total expenses for 1996 increased $18.7 million, or 41.5 percent, as
compared to 1995. Real estate taxes increased $3.5 million, or 60.4 percent, for
1996 over 1995, of which $3.6 million, or 60.9 percent, was a result of the
Acquired Properties, and $0.1 million, or 2.6 percent, related to the Same-Store
Properties, offset by a decrease of $0.2 million, or 3.1 percent, due to the
Disposition. Additionally, operating services increased $3.6 million, or 42.4
percent, and utilities increased $1.8 million, or 28.6 percent. The aggregate
increase in operating services and utilities of $5.4 million, or 36.5 percent,
consists of $5.9 million, or 39.9 percent, attributable to the Acquired
Properties, offset by a decrease of $0.5 million, or 3.4 percent, as a result of
the Disposition. General and administrative expense increased $2.1 million, or
56.3 percent, of which $2.2 million, or 57.5 percent, is primarily attributable
to an increase in payroll and related costs as a result of the Company's
expansion in 1996, offset by a decrease of $0.1 million, or 1.2 percent, due to
the Disposition. Depreciation and amortization increased $4.1 million, or 38.3
percent, for 1996 over 1995, of which $4.4 million, or 41.8 percent, related to
depreciation on the Acquired Properties, offset by decreases of $0.1 million, or
1.3 percent, for the Same-Store Properties, and $0.2 million, or 2.2 percent, as
a result of the Disposition. Interest expense increased $3.6 million, or 36.0
percent, primarily due to an increase in the average outstanding borrowings on
the Operating Partnership's credit facilities during 1996 over 1995 in
connection with an increase in property acquisitions, as well as the increase in
mortgage indebtedness assumed in connection with the acquisition of Harborside.
Income before gain on sale of rental property, and extraordinary item
increased to $31.5 million in 1996 from $17.1 million in 1995. The increase of
$14.4 million was due to the factors discussed above.
Net income available to common unitholders increased $19.5 million for 1996,
from $17.1 million in 1995 to $36.6 million in 1996, as a result of an increase
in income before gain on sale of property, and extraordinary item of $14.4
million and a gain on sales of the Disposition property of $5.7 million, offset
by the recognition in 1996 of an extraordinary loss for the early retirement of
debt of $0.6 million.
LIQUIDITY AND CAPITAL RESOURCES
STATEMENT OF CASH FLOWS. During the three months ended March 31, 1998, the
Operating Partnership generated $50.4 million in cash flows from operating
activities, and together with $419.9 million in borrowings from the Operating
Partnership's credit facilities, $215.8 million in net proceeds from the
Company's common stock offerings during the period (which proceeds were
contributed to the Operating Partnership by the Company in exchange for common
units), $2.7 million from the Operating Partnership's cash reserves, and $2.0
million in proceeds from stock options exercised, used an aggregate of $690.8
million to acquire 39 properties and pay for other tenant improvements and
building improvements for $406.7 million, repay outstanding borrowings on its
credit facilities and other mortgage debt of $205.5 million, pay quarterly
distributions of $28.1 million, provide $20.0 million for a mortgage note
receivable, invest $18.0 million in a partially-owned entity, invest $11.7 of
cash reserves in overnight investments, and repurchase 20,000 common units for
$0.8 million.
During the year ended December 31, 1997, the Operating Partnership generated
$98.1 million in cash flows for operating activities, and together with $489.1
million in net proceeds from the Company's 13 million share offering in October
1997, $469.2 million in borrowings for the Operating Partnership's credit
facilities, $202.1 million from the Operating Partnership's cash reserves,
$200.0 million in proceeds from a short-term mortgage loan, $7.2 million of
proceeds from stock options exercised, and $1.1 million from restricted cash,
used an aggregate of $1.47 billion to purchase 132 properties and pay for other
tenant improvements and building improvements for $929.0 million, repay
outstanding borrowings on its credit facilities and other mortgage debt of
$441.8 million, pay quarterly dividends and distributions of $74.5 million,
provide $11.6 million for a Mortgage Note Receivable, repurchase 152,000
treasury units for
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$4.7 million, pay financing costs of $3.1 million, pay debt prepayment and other
costs of $1.8 million and pay the amortization on mortgage principal of $0.4
million.
CAPITALIZATION. On February 25, 1998, the Company completed an underwritten
public offer and sale of 2,500,000 shares of its common stock and used the net
proceeds, which totaled approximately $92.2 million (after offering costs) to
pay down a portion of its outstanding borrowings under the Operating
Partnership's credit facilities and fund the acquisition of Moutainview (see
Note 3 to the Financial Statements).
On March 18, 1998, in connection with the acquisition of Prudential Business
Campus, the Company completed an offer and sale of 2,705,628 shares of its
common stock using the net proceeds of approximately $99.9 million (after
offering costs) in the funding of such acquisition (see Note 3 to the Financial
Statements).
On March 26, 1998, in connection with the acquisition of certain properties
from the Pacifica Holding Company, the Company issued 100,175 common units,
valued at approximately $3.8 million.
On March 27, 1998, the Company completed an underwritten public offer and
sale of 650,407 shares of its common stock and used the net proceeds, which
totaled approximately $23.7 million (after offering costs) to pay down a portion
of its outstanding borrowings under the Operating Partnership's credit
facilities.
During the three months ended March 31, 1998, the Company also issued
634,000 common units and 1,839 preferred units, valued at approximately $23.3
million, in connection with the achievement of certain performance goals at the
Mack Properties, with an equivalent number of contingent common units being
redeemed.
On April 29, 1998, the Company completed an underwritten offer and sale of
994,228 shares of its common stock and used the net proceeds, which totaled
approximately $34.7 million (after offering costs) primarily to pay down a
portion of its outstanding borrowings under the Operating Partnership's credit
facilities.
On May 29, 1998, the Company completed an underwritten public offer and sale
of 984,615 shares of its common stock and used the net proceeds, which totaled
approximately $34.2 million (after offering costs) primarily to pay down a
portion of its outstanding borrowings under the Operating Partnership's credit
facilities.
The proceeds of the above offerings of common stock were contributed to the
Operating Partnership in exchange for units.
On April 17, 1998, the Operating Partnership repaid in full and terminated
its $400 million unsecured revolving credit facility, led by Fleet National
Bank, and obtained a new unsecured revolving credit facility (the "1998
Unsecured Facility") in the amount of $870.0 million from a group of 25 lender
banks, led by The Chase Manhattan Bank and Fleet National Bank. The 1998
Unsecured Facility has a three-year term and currently bears interest at 110
basis points over one-month LIBOR, a reduction of 15 basis points from the
retired Original Unsecured Facility. Based upon the Operating Partnership's
achievement of an investment grade long-term unsecured debt rating, the interest
rate will be reduced, on a sliding scale, and a competitive bid option will
become available.
The terms of the 1998 Unsecured 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 1998 Unsecured Facility also requires a 17.5
basis point fee on the unused balance payable quarterly in arrears.
The lending group for the 1998 Unsecured Facility consists of: The Chase
Manhattan Bank, as administrative agent; Fleet National Bank, as syndication
agent; PNC Bank, N.A., as documentation agent; Bankers Trust, Commerzbank, AG,
The First National Bank of Chicago, First Union National Bank and NationsBank,
as managing agents; Creditanstalt Corporate Finance, Inc., Dresdner Bank, AG,
European
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<PAGE>
American Bank (EAB), Hypo Bank, Societe Generale and Summit Bank, as co-agents;
and Kredietbank, N.V., Key Bank, Mellon Bank, N.A., The Bank of New York,
Citizens Bank, Crestar, DG Bank, Tokai Bank, US Trust, Bayerische Landesbank and
Erste Bank.
The new unsecured facility, together with the Operating Partnership's
previously-existing $100.0 million revolving credit facility with Prudential
Securities Corp., provides the Operating Partnership with a total credit line
borrowing capacity of $970.0 million.
On April 30, 1998, the Operating Partnership obtained a $150.0 million,
interest-only mortgage loan from The Prudential Insurance Company of America
with a seven-year term. The mortgage loan, which is secured by 12 of the
Operating Partnership's Properties, has an effective annual interest rate of 7.1
percent, and includes a conversion feature whereby the Operating Partnership,
upon receiving an investment-grade credit rating, will have the option to
convert the loan into senior unsecured debt.
The proceeds of the new loan were used, along with funds drawn from one of
the Operating Partnership's credit facilities, to pay off and retire a $200.0
million term loan with Prudential, as well as approximately $48.2 million in
property mortgage loans assumed in the December 1997 Mack/Patriot transaction.
Following the completion of the $150.0 million secured loan with Prudential,
the Operating Partnership has 151 unencumbered properties, totaling 14.8 million
square feet, representing 59.0 percent of the Operating Partnership's total
portfolio on a square footage basis.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. Management believes that the Operating
Partnership will have access to the capital resources necessary to expand and
develop its business. To the extent that the Operating Partnership's cash flow
from operating activities is insufficient to finance its non-recurring capital
expenditures such as property acquisition costs and other capital expenditures,
the Operating Partnership expects to finance such activities through borrowings
under its credit facilities and other debt and equity financing.
The Operating Partnership expects to meet its short-term liquidity
requirements generally through its working capital and net cash provided by
operating activities, along with the Second Prudential Facility and the 1998
Unsecured Facility. The Operating Partnership is frequently examining potential
property acquisitions and, at any one given time, one or more of such
acquisitions may be under consideration. Accordingly, the ability to fund
property acquisitions is a major part of the Operating Partnership's financing
requirements. The Operating Partnership expects to meet its financing
requirements through funds generated from operating activities, long-term or
short term borrowings (including draws on the Operating Partnership's credit
facilities) and the issuance of debt securities or additional equity securities
by the Operating Partnership or the Company. In addition, the Operating
Partnership anticipates utilizing the Second Prudential Facility and the 1998
Unsecured Facility primarily to fund property acquisition activities.
The Operating Partnership does not intend to reserve funds to retire the
existing TIAA mortgage, Harborside mortgages, $150.0 million Prudential mortgage
loan, its various other property mortgages, and borrowings under the revolving
credit facilities or other long-term mortgages and loans payable upon maturity.
Instead, the Operating Partnership will seek to refinance such debt at maturity
or retire such debt through the issuance of additional equity or debt securities
by the Operating Partnership or the Company. The Operating Partnership
anticipates that its available cash and cash equivalents and cash flows from
operating activities, together with cash available from borrowings and other
sources, will be adequate to meet the Operating Partnership's capital and
liquidity needs both in the short and long-term. However, if these sources of
funds are insufficient or unavailable, the Operating Partnership's ability to
make the expected distribution discussed below may be adversely affected.
In order for Mack-Cali Realty Corporation 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, determined
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without regard to the dividends paid deduction and by excluding net capital
gains. The Company currently relies on the distributions it receives from the
Operating Partnership to make its distributions to its stockholders. The
Operating Partnership intends to continue to make regular quarterly
distributions to its unitholders which, based upon current policy, in the
aggregate would equal approximately $148.0 million on an annualized basis.
However, any such distribution would only be paid out of available cash after
meeting both operating requirements, scheduled debt service on mortgages and
loans payable and preferred unit distributions.
FUNDS FROM OPERATIONS
The Operating Partnership considers funds from operations ("FFO"), after
adjustment for straight-lining of rents, one measure of REIT performance. Funds
from operations is defined as net income (loss) before distribution to preferred
unitholders, computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains (or losses) from debt restructuring, other
extraordinary and significant non-recurring items, and sales of property, plus
real estate-related depreciation and amortization. Funds from operations should
not be considered as an alternative to net income as an indication of the
Operating Partnership's performance or to cash flows as a measure of liquidity.
Funds from operations presented herein is not necessarily comparable to
funds from operations presented by other real estate companies due to the fact
that not all real estate companies use the same definition. However, the
Operating Partnership's funds from operations is comparable to the Funds from
operations of real estate companies that use the current definition of the
National Association of Real Estate Investment Trusts ("NAREIT"), after the
adjustment for straight-lining of rents.
NAREIT's definition of FFO indicates that the calculation should be made
before any extraordinary item (determined in accordance with GAAP), and before
any deduction of significant non-recurring events that materially distort the
comparative measurement of the Operating Partnership's performance.
Funds from operations for the three months ended March 31, 1998 and 1997 and
the years ended December 31, 1997, 1996 and 1995 as calculated in accordance
with the NAREIT'S definition published in March 1995, are summarized in the
following table (IN THOUSANDS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income before non-recurring merger-related charges, gain
on sale of rental property, distribution to preferred
unitholders, and extraordinary item..................... $ 33,849 $ 18,095 $ 82,886 $ 31,521 $ 17,146
Add: Real estate-related depreciation and amortization... 16,120 7,479 36,599 14,677 10,563
Deduct: Rental income adjustment for straight-lining of
rents................................................... (3,203) (1,607) (7,733) (978) (312)
--------- --------- --------- --------- ---------
Funds from operations after adjustment for straight-
lining of rents, before distribution to preferred
unitholders............................................. $ 46,766 $ 23,967 $ 111,752 $ 45,220 $ 27,397
Deduct: Distribution to preferred unitholders............ (3,911) -- (888) -- --
--------- --------- --------- --------- ---------
Funds from operations after adjustment for straight-
lining of rents......................................... $ 42,855 $ 23,967 $ 110,864 $ 45,220 $ 27,397
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fully-converted weighted average units outstanding (1)... 64,621 40,085 43,739 21,171 13,986
--------- --------- --------- --------- ---------
Weighted average units outstanding....................... 57,932 40,085 43,356 21,171 13,986
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Assumes conversion of all outstanding preferred units, calculated on a
weighted average basis, for common units in the Operating Partnership.
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<PAGE>
INFLATION
The Operating Partnership's leases with the majority of its tenants provide
for recoveries and escalation charges based upon the tenant's proportionate
share of, and/or increases in, real estate taxes and certain operating costs,
which reduce the Operating Partnership's exposure to increases in operating
costs resulting from inflation.
YEAR 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Operating Partnership
is assessing both the internal readiness of its systems as well as the
compliance of its vendors for the handling of the year 2000. The Operating
Partnership expects to implement successfully the systems and programming
changes necessary to address year 2000 issues, and does not believe that the
cost of such actions will have a material effect on the Operating Partnership's
results of operations or financial condition. There can be no assurance,
however, that there will not be a delay in, or increased costs associated with,
the implementation of such changes, and the Operating Partnership's inability to
implement such changes could have an adverse effect on future results of
operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The Operating Partnership considers portions of this information to be
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of The Securities Exchange Act of 1934. Although the
Operating Partnership believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The policies of the Company and the Operating Partnership with respect to
the following activities have been determined by the Board of Directors of the
Company and may be amended or revised from time to time at the discretion of the
Board of Directors, if it determines in the future that such a change is the
best interests of the Company and its stockholders. All references to "the
Company" in this section of the Prospectus are deemed to include both the
Company and the Operating Partnership.
INVESTMENT POLICIES
INVESTMENT IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The investment
objectives of the Company are to achieve stable cash flow available for
distributions and, over time, to increase cash flow and portfolio value by
actively managing the Properties, developing properties and acquiring additional
properties that, either as acquired or after value-added activities by the
Company (such as improved management and leasing services and renovations), will
produce additional cash flows. The policies of the Company are to develop and
acquire properties primarily for generation of current income and appreciation
of long term value.
The Company expects to pursue its investment objectives primarily through
the direct or indirect ownership of office and office/flex properties. The
Company currently contemplates acquiring and developing additional properties in
the Northeastern and Southwestern United States, although future investments
could be made outside of these areas. The Company does not have any limit on the
amount or percentage of its assets invested in any single property or group of
related properties.
The Company may purchase or lease income-producing properties or land for
long-term investment and expand, improve or sell the properties, in whole or in
part, when circumstances warrant. The Company may also participate with other
entities in property ownership through joint ventures or other types of co-
ownership. Equity investments by the Company may be subject to existing or
future mortgage financing and other indebtedness which may have priority over
the equity interests of the Company.
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INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company emphasizes equity
real estate investments, the Company may invest in mortgages and other real
estate interests consistent with the Company's qualification as a REIT. The
Company does not currently intend to invest in mortgages or deeds of trust, but
may invest in participating or convertible mortgages in connection with other
property acquisitions if the Company concludes that it may benefit from the cash
flow or any appreciation in the value of the property. Investments in real
estate mortgages run the risk that one or more borrowers may default under such
mortgages and that the collateral securing such mortgages may not be sufficient
to enable the Company to recoup its full investment.
SECURITIES OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUES. Subject to the percentage of ownership limitations
and gross income tests necessary for the Company to qualify and maintain its
status as a REIT, the Company may invest in securities of other entities engaged
in real estate activities or securities of other issuers. See "Material United
States Federal Income Tax Considerations to the Company of its REIT Election."
The Company does not currently intend to invest in the securities of other
issuers except in connection with acquisitions of indirect interests in
properties (normally general or limited partnership interests in special purpose
partnerships owning properties) and in connection with the acquisition of
substantially all of the economic interest in a real estate-related operating
business.
DISPOSITIONS
The Company does not have a current intention to cause the disposition of
any of the Properties, although it reserves the right to do so if, after taking
into account the tax consequences of any disposition, including the Company's
continued ability to qualify as a REIT, it is determined that such action would
be in its best interests.
FINANCING POLICIES
The Company and the Operating Partnership will utilize the most appropriate
sources of capital for future acquisitions, development and capital
improvements, which may include funds from operating activities, short-term and
long-term borrowings (including draws on the Company's revolving credit
facilities), and issuances of debt securities or additional equity securities.
The Company currently intends to maintain a ratio of debt to total market
capitalization (total debt of the Company as a percentage of the market value of
issued and outstanding shares of Common Stock, including interests redeemable
therefor, plus total debt) of approximately 50 percent or less, although the
organizational documents of the Company do not limit the amount of indebtedness
that the Company may incur.
In the future, the Company may seek to extend, expand, reduce or renew its
existing credit facilities or obtain new credit facilities or lines of credit or
may seek to issue unsecured public indebtedness. Future loans, credit
facilities, and lines of credit may be used for the purpose of making
acquisitions or capital improvements, providing working capital or meeting the
distribution requirements for REITs under the Code if the Company has taxable
income without receipt of cash sufficient to enable the Company to meet such
distributions requirements.
WORKING CAPITAL RESERVES
The Company maintains working capital reserves (and when not sufficient,
access to borrowings) in amounts that the Board of Directors determines from
time to time to be adequate to meet normal contingencies in connection with the
operation of the business and investments of the Company.
CONFLICT OF INTEREST POLICIES
Directors and officers of the Company may be subject to certain conflicts of
interests in fulfilling their responsibilities to the Company. The Company has
adopted certain policies designed to minimize potential conflicts of interest.
Under the Company's Articles of Incorporation and Maryland law, a contract or
transaction between the Company and any of its directors or officers or between
the Company and any other corporation, firm or other entity in which any of its
directors or officers is a director, officer,
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stockholder, member or partner or has a material financial interest is not void
or voidable solely because of such interest if the contract or transaction is
approved after disclosure of the interest by the affirmative vote of a majority
of the disinterested directors.
OTHER POLICIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company has authority
to offer shares of Common Stock or other securities and to repurchase or
otherwise reacquire shares of Common Stock or any other securities in the open
market or otherwise and may engage in such activities in the future. The Company
expects to issue shares of Common Stock to holders of Units in the Operating
Partnership upon exercise of their redemption rights. The Company may, under
certain circumstances, purchase shares of Common Stock in the open market, if
such purchases are approved by the Board of Directors. The Board of Directors
has no present intention of causing the Company to repurchase any of the shares
of Common Stock, and any such action would be taken only in conformity with
applicable federal and state laws and the requirements for qualifying as a REIT
under the Code and the regulations of the U.S. Department of Treasury under the
Code. The Company has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers, nor has the Company
invested in the securities of other issuers for the purposes of exercising
control, and does not intend to do so.
At all times, the Company intends to make investments in such a manner as to
be consistent with the requirements of the Code for the Company to qualify as a
REIT, unless, because of changing circumstances or changes in the Code (or in
the Treasury Regulations), the Board of Directors of the Company determines that
it is no longer in the best interests of the Company to qualify as a REIT and
such determination is approved by the affirmative vote of holders owning at
least a majority of the shares of the Company's capital stock outstanding and
entitled to vote thereon.
DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general terms and provisions of the
Indenture under which the Debt Securities are to be issued by the Operating
Partnership. The following terms of the Debt Securities constitute all material
terms of the Debt Securities that may be determined prior to the initiation of a
specific offering of Debt Securities. The particular terms of the Debt
Securities with respect to a specific offering of Debt Securities will be set
forth in a Prospectus Supplement relating thereto.
The Debt Securities are to be issued by the Operating Partnership under an
Indenture, as amended or supplemented from time to time (the "Indenture"),
between the Operating Partnership and a Trustee chosen by the Operating
Partnership and qualified to act as such under the Trust Indenture Act of 1939
as amended (the "TIA") (together with any other trustee(s) appointed in a
supplemental indenture with respect to a particular series, the "Trustee"). The
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part and will be available for inspection at the corporate
trust office of the Trustee, or as described above under "Available
Information." The Indenture is subject to, and governed by, the TIA. The
Operating Partnership will execute the Indenture if and when the Operating
Partnership issues the Debt Securities. The statements made hereunder relating
to the Indenture and the Debt Securities to be issued hereunder are summaries of
certain provisions thereof and do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indenture and such Debt Securities. The following terms of the Debt Securities
constitute all material terms of the Debt Securities that may be determined
prior to the initiation of a specific offering of Debt Securities. More specific
terms will be set forth in a Prospectus Supplement filed in connection with the
issuance of Debt Securities. All section references appearing herein are to
sections of the Indenture, and capitalized terms used but not defined herein
shall have the respective meanings set forth in the Indenture.
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GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership. Except for any series of Debt Securities which is specifically
subordinated to other indebtedness of the Operating Partnership, the Debt
Securities will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. Under the Indenture, the Debt
Securities may be issued without limit as to aggregate principal amount, in one
or more series, in each case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Directors of the Company as
sole general partner of the Operating Partnership or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series may
be reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
If any Debt Securities are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest.
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 608). In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
shall be a trustee of a trust under the Indenture separate and apart from the
trust administered by any other Trustee (Section 609), and, except as otherwise
indicated herein, any action described herein to be taken by the Trustee may be
taken by each such Trustee with respect to, and only with respect to, the one or
more series of Debt Securities for which it is Trustee under the Indenture.
TERMS
Reference is made is to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof the
portion of the principal amount thereof, payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the Interest Payment Dates on
which any such interest will be payable, the Regular Record Dates for
such Interest Payment Dates, or the method by which such Dates shall be
determined, the Person to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(7) the place or places where (i) the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable and (ii)
notices or demands to or upon the Operating Partnership in respect of
such Debt Securities and the Indenture may be served;
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(8) the period or periods within which, or the date or dates on which, the
price or prices at which and the terms and conditions upon which such
Debt Securities may be redeemed, as a whole or in part, at the option of
the Operating Partnership, if the Operating Partnership is to have such
an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay or
repurchase such Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof, and the
period or periods within which, or the date or dates on which, the price
or prices at which and the terms and conditions upon which such Debt
Securities are required to be redeemed, repaid or purchased, in whole or
in part, pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and/or payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency
unit or units or composite currency or currencies) and the manner in
which such amounts shall be determined;
(12) any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to the Events of Default or covenants or
other provisions set forth in the Indenture;
(13) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(14) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(15) with respect to any series of Debt Securities rated below investment
grade at the time of issuance, the Guarantees (the "Guaranteed
Securities");
(16) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article XIV of the Indenture, or any modification thereof;
(17) if such Debt Securities are to be issued upon the exercise of debt
warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(18) the terms and conditions, if any, upon which such Debt Securities may be
subordinated to other indebtedness of the Operating Partnership;
(19) whether and under what circumstances the Operating Partnership will pay
Additional Amounts as contemplated in the Indenture on such Debt
Securities in respect of any tax, assessment or governmental charge and,
if so, whether the Operating Partnership will have the option to redeem
such Debt Securities in lieu of making such payment; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to the Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
The Indenture does not contain any provisions that would limit the ability
of either the Operating Partnership to incur indebtedness or that would afford
Holders of Debt Securities protection in the event of a highly leveraged or
similar transaction involving the Operating Partnership. However, restrictions
on
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ownership and transfers of the Company's common stock and preferred stock,
designed to preserve the Company's status as a REIT, may prevent or hinder a
change of control. Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or covenants of the Operating Partnership that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
GUARANTEES
The Company will fully, unconditionally and irrevocably guarantee the due
and punctual payment of principal of, premium, if any, and interest on any Debt
Securities rated below investment grade at the time of issuance by the Operating
Partnership, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series, which are registered securities, other than registered
securities in global form (which may be of any denomination), shall be issuable
in denominations of $1,000 and integral multiples thereof and the Debt
Securities which are bearer securities, other than bearer securities issued in
global form (which may be of any denomination), shall be issuable in
denominations of $5,000 and integral multiples of $1,000 thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
Security Register or by wire transfer of funds to such Person at an account
maintained within the United States (Sections 301, 305, 307 and 1002).
All amounts paid by the Operating Partnership to a paying agent or a Trustee
for the payment of the principal of or any premium or interest on any Debt
Security which remain unclaimed at the end of two years after the principal,
premium or interest has become due and payable will be repaid to the Operating
Partnership, and the holder of the Debt Security thereafter may look only to the
Operating Partnership for payment thereof.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Sections 101 and 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series, of a like aggregate principal amount
and tenor, of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject to
certain limitations imposed upon Debt Securities issued in book-entry form, the
Debt Securities of any series may be surrendered for conversion or registration
of transfer thereof at the corporate trust office of the Trustee referred to
above. Every Debt Security surrendered for conversion, registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Operating Partnership may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith
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(Section 305). If the applicable Prospectus Supplement refers to any transfer
agent (in addition to the Trustee) initially designated by the Operating
Partnership with respect to any series of Debt Securities, the Operating
Partnership may at any time rescind the designation of any such transfer agent
or approve a change in the location through which any such transfer agent acts,
except that the Operating Partnership will be required to maintain a transfer
agent in each Place of Payment for such series. The Operating Partnership may at
any time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Operating Partnership nor the Trustee shall be required to (i)
issue, register the transfer of or exchange Debt Securities of any series during
a period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business of the day of mailing of the relevant notice of redemption; (ii)
register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security being
redeemed in part; or (iii) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the Holder,
except that portion, if any, of such Debt Security which is not to be so repaid
(Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership may consolidate with, or sell, lease or convey all
or substantially all of its assets to, or merge with or into, any other entity,
provided (a) either the Operating Partnership shall be the continuing entity, or
the successor (if other than the Operating Partnership) formed by or resulting
from any such consolidation or merger or which shall have received the transfer
of such assets shall expressly assume payment of the principal of (and premium,
if any) and interest on all of the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
the Indenture; (b) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Operating
Partnership or such Subsidiary at the time of such transaction, no Event of
Default under the Indenture, and no event which, after notice or the lapse of
time, or both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an officer's certificate of the Company as general partner
of the Operating Partnership and legal opinion covering such conditions shall be
delivered to the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "Merger, Consolidation or Sale," the
Indenture requires the Operating Partnership to do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (declaration and statutory) and franchises; PROVIDED, HOWEVER, that the
Operating Partnership shall not be required to preserve any right or franchise
if it determines that the preservation thereof is no longer desirable in the
conduct of its business and that the loss thereof is not disadvantageous in any
material respect to the Holders of the Debt Securities (Section 1004).
MAINTENANCE OF PROPERTIES. The Indenture requires the Operating Partnership
to cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order, all as in the judgment of the Operating
Partnership may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; PROVIDED,
HOWEVER, that the Operating Partnership and its subsidiaries shall not he
prevented from selling or otherwise disposing of their properties for value in
the ordinary course of business. (Section 1006).
INSURANCE. The Indenture requires each of the Operating Partnership to
cause each of its and its subsidiaries' insurable properties to be insured in a
commercially reasonable amount against loss of
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damage with insurers of recognized responsibility and, if described in the
applicable Prospectus Supplement, in specified amounts and with insurers having
a specified rating from a recognized insurance rating service. (Section 1007).
PAYMENT OF TAXES AND OTHER CLAIMS. The Indenture requires the Operating
Partnership to pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all taxes, assessments and governmental
charges levied or imposed upon it or any subsidiary or upon its income, profits
or property or that of any subsidiary and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Operating Partnership or any subsidiary; PROVIDED, HOWEVER, that
the Operating Partnership shall not be required to pay or discharge or cause to
be paid or discharged any tax, assessment, charge or claim whose amount or
applicability is being contested in good faith. (Section 1008).
ADDITIONAL COVENANTS. Reference is made to the applicable Prospectus
Supplement for information with respect to any additional covenants specific to
a particular series of Debt Securities.
EVENT OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the Prospectus Supplement, the Indenture
provides that the following events are "Events of Default" with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the
payment of any interest on any Debt Security of such series; (b) default in the
payment of any principal of (or premium, if any on) any Debt Security of such
series when due; (c) default in making any sinking fund payment as required for
any Debt Security of such series; (d) default in the performance of any other
covenant or warranty of the Operating Partnership contained in the Indenture
with respect to any Debt Security of such series, continued for 60 days after
written notice as provided in the Indenture; (e) default in the payment of an
aggregate principal amount exceeding $10,000,000 of any evidence of indebtedness
of the Operating Partnership or any mortgage, indenture, note, bond, capitalized
lease or other instrument under which such indebtedness is issued or by which
such indebtedness is secured, such default having continued after the expiration
of any applicable grace period and having resulted in the acceleration of the
maturity of such indebtedness, but only if such indebtedness is not discharged
or such acceleration is not rescinded or annulled; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Operating Partnership, or any Significant
Subsidiary or any of their respective property; and (g) any other Event of
Default provided with respect to a particular series of Debt Securities (Section
501). The term "Significant Subsidiary" means each significant subsidiary (as
defined in Regulation S-X promulgated under the Securities Act) of the Operating
Partnership, as the case may be. (Section 101).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms thereof) of all of the Debt Securities of that
series to be due and payable immediately by written notice thereof to the
Operating Partnership (and to the Trustee if given by the Holders). However, any
time after such a declaration of acceleration with respect to Debt Securities of
such series has been made, but before a judgment or decree for payment of the
money due has been obtained by the Trustee, the Holders of not less then a
majority in principal amount of Outstanding Debt Securities of such series may
rescind and annul such declaration and its consequences if (a) the Operating
Partnership shall have paid or deposited with the Trustee all required payments
of the principal of (and premium, if any) and interest on the Debt Securities of
such series plus certain fees, expenses, disbursements and advances of the
Trustee and (b) all Events of Default, other than the nonpayment of accelerated
principal or interest with respect to Debt Securities of such series have been
cured or waived as provided in the Indenture (Section 502). The Indenture also
provides that the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any
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series may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; PROVIDED, HOWEVER, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if the Responsible Officers of the Trustee consider
such withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than a majority
in principal amount of the Outstanding Debt Securities of that series, as well
as an offer of reasonable indemnity (Section 507). This provision will not
prevent, however, any Holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest on
such Debt Securities at the respective due date thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of Debt
Securities of any series then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership must deliver to the Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the Indenture and, if so, specifying each such
default and the nature and status thereof (Section 1005).
MODIFICATION OF THE INDENTURE
Modifications and amendments of provisions of the Indenture applicable to
any series may be made only with consent of the Holders of not less than a
majority in principal amount of all Outstanding Debt Securities which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (a) change the Stated Maturity of the principal
of, or any installment of interest (or premium, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the Place of Payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security on or after the Stated
Maturity thereof; (e) reduce the above stated percentage of Outstanding Debt
Securities of any series necessary to modify or amend the Indenture, to waive
compliance certain provisions thereof or certain
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defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; (f) modify or affect in any manner
adverse to the Holders the terms and conditions of the obligations of the
Company in respect of the payment of principal (and premium, if any) and
interest on any Guaranteed Securities; or (g) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of a particular series have the right to waive compliance by the
Operating Partnership with certain covenants in the Indenture relating to such
series (Section 1010).
Modifications and amendments of the Indenture may be made by the Operating
Partnership and the Trustee without the consent of any Holder of Debt Securities
for any of the following purposes: (i) to evidence the succession of another
Person to the Operating Partnership as obligor under the Indenture; (ii) to add
to the covenants of the Operating Partnership for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Operating Partnership in the Indenture; (iii) to add Events
of Default for the benefit of the Holders of all or any series of Debt
Securities; (iv) to add or change any provisions of the Indenture to facilitate
the issuance of Debt Securities in bearer form, or to permit or facilitate the
issuance of Debt Securities in uncertificated form, provided that such action
shall not adversely affect the Interests of the Holders of the Debt Securities
of any series in any material respect; (v) to change or eliminate any provisions
of the Indenture, provided that any such change or elimination shall become
effective only when there are not Debt Securities Outstanding of any series
created prior thereto which are entitled to the benefit of such provision; (vi)
to secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series; (viii) to provide for the acceptance of appointment by
a successor Trustee or facilitate the administration of the trust under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any material
respect; (x) to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of such
Debt Securities, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect (Section 901).
In addition, with respect to Guaranteed Securities, without the consent of
any Holder of Debt Securities the Company, or a subsidiary thereof, may directly
assume the due and punctual payment of the principal of, any premium and
interest on all the Guaranteed Securities and the performance of every covenant
of the Indenture on the part of the Operating Partnership to be performed or
observed. Upon any such assumption, the Company or such subsidiary shall succeed
to, and be substituted for and may exercise every right and power of, the
Operating Partnership under the Indenture with the same effect as if the Company
or such subsidiary had been the issuer of the Guaranteed Securities and the
Operating Partnership shall be released from all obligations and covenants with
respect to the Guaranteed Securities. No such assumption shall be permitted
unless the Company has delivered to the Trustee (i) an officer's certificate and
an opinion of counsel, stating, among other things, that the Guarantee and all
other covenants of the Company in the Indenture remain in full force and effect
and (ii) an opinion of independent counsel that the Holders of Guaranteed
Securities shall have no United States Federal tax consequences as a result of
such assumption, and that, if any Debt Securities are then listed on the New
York Stock Exchange, that such Debt Securities shall not be delisted as a result
of such assumption (Section 805).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding
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shall be the amount of the principal thereof that would be due and payable as of
the date of such determination upon declaration of acceleration of the maturity
thereof, (ii) the principal amount of a Debt Security denominated in a Foreign
Currency that shall be deemed outstanding shall be the U.S. dollar equivalent,
determined on the issue date for such Debt Security, of the principal amount
(or, in the case of an Original Issue Discount Security, the U.S. dollar
equivalent on the issue date of such Debt Security of the amount determined as
provided in (i) above), (iii) the principal amount of an Indexed Security that
shall be deemed outstanding shall be the principal face amount of such Indexed
Security at original issuance, unless otherwise provided with respect to such
Indexed Security pursuant to Section 301 of the Indenture, and (iv) Debt
Securities owned by the Operating Partnership or any other obligor upon the Debt
Securities or any Affiliate of the Operating Partnership or of such other
obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any time
by the Trustee, and also, upon request, by the Operating Partnership, the
Company (in respect of a series of Guaranteed Securities) or the Holders of at
least 25% in principal amount of the Outstanding Debt Securities of such series,
in any such case upon notice given as provided In the Indenture (Section 1502).
Except for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the Indenture any resolution
presented at a meeting or adjourned meeting duly reconvened at which a quorum is
present may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series; provided,
however, that, except as referred to above, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the Holders of a specified
percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the Holders of such Debt Securities of that series. Any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons, holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such series
will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the Prospectus Supplement, the Operating
Partnership may discharge certain obligations to Holders of any series of Debt
Securities that have not already been delivered to the Trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or are scheduled for redemption within one year) by irrevocably
depositing with the Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or
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currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have became due and payable) or to the Stated Maturity or Redemption
Date, as the case may be (Section 401).
The Indenture provides that, unless otherwise provided in the Prospectus
Supplement, if the provisions of Article Fourteen are made applicable to the
Debt Securities of any series pursuant to Section 301 of the Indenture, the
Operating Partnership may elect either (a) to defease and discharge itself and
the Company (if such Debt Securities are Guaranteed Securities) from any and all
obligations with respect to such Debt Securities (except for the obligation to
pay Additional Amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) ("defeasance") (Section 1402) or (b) to
release itself and the Company (if such Debt Securities are Guaranteed
Securities) from its obligations with respect to such Debt Securities under
Sections 1004 and 1005, inclusive, of the Indenture (being the restrictions
described tinder "Certain Covenants") or, if provided pursuant to Section 301 of
the Indenture, its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(Section 1403), in either case upon the irrevocable deposit by the Operating
Partnership or the Company (if the Debt Securities are Guaranteed Securities)
with the Trustee, in trust, of any amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at Stated Maturity, or Government Obligations (as defined
below), or both applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Operating
Partnership or the Company (if the Debt Securities are Guaranteed Securities)
has delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for U.S. Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States Federal income tax law occurring after the date of the
Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the Foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a Depositary receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a Depositary receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such Depositary receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
Depositary receipt (Section 101).
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Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or the Company (if the Debt Securities are Guaranteed
Securities) has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate (Section 1405).
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country which issued such
currency and for the settlement of transactions by a central bank or other
public institutions or within the international banking community, (ii) the ECU
both within the European Monetary System and for the settlement of transactions
by public institutions of or within the European Communities or (iii) any
currency unit or composite currency other than the ECU for the purposes for
which it was established. (Section 101). Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a Foreign Currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Events of Default, Notice and Waiver"
with respect to Section 1004 of the Indenture (which Sections would no longer be
applicable to such Debt Securities) or described in clause (h) under "Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the Trustee, will be sufficient to pay amounts due
on such Debt Securities at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Operating
Partnership and the Company (if such Debt Securities are Guaranteed Securities)
would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of a particular series.
SUBORDINATION
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Operating Partnership will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include a description of the indebtedness ranking senior to the Debt Securities,
the restrictions on payments to the Holders of such Debt Securities while a
default with respect to such senior indebtedness in continuing, the
restrictions, if any, on payments to the Holders of such Debt Securities
following an Event of Default, and provisions requiring Holders of such Debt
Securities to remit certain payments to holders of senior indebtedness.
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BOOK-ENTRY SYSTEM AND GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Securities in global form ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
issued in the United States are expected to be deposited with The Depository
Trust Company ("DTC"), as Depository. Global Securities may be issued in either
fully registered or bearer form and in either temporary or permanent form.
Unless the Prospectus Supplement states otherwise, and until it is exchanged in
whole or in part for the individual Debt Securities represented thereby, a
Global Security may not be transferred except as a whole by the Depository for
such Global Security to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any nominee of such Depositor to a successor Depository or any
nominee of such successor.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to such
series and/or the Global Security. The Company expects that unless otherwise
indicated in the applicable Prospectus Supplement and/or the Global Security,
the following provisions will apply to depository arrangements.
The Prospectus Supplement and/or the Global Security will state whether such
Global Securities will be issued in certificated or book-entry form. If such
Global Securities are to be issued in book-entry form, the Company expects that
upon the issuance of a Global Security, the Depository for such Global Security
or its nominee will credit on its book-entry registration and transfer system
the respective principal amounts of the individual Debt Securities represented
by such Global Security to the accounts of persons that have accounts with such
Depository ("Participants"). Such accounts shall be designated by the
underwriters, dealers or agents with respect to such Debt Securities or by the
Company if such Debt Securities are offered directly by the Company. Ownership
of beneficial interests in such Global Security will be limited to Participants
or persons that may hold interests through Participants.
The Company expects that, for the Global Securities deposited with DTC,
pursuant to procedures established by DTC, ownership of beneficial interests in
any Global Security with respect to which DTC is the Depository will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to beneficial interests of
Participants) and records of Participants (with respect to beneficial interests
of persons who hold through Participants). Neither the Company, any Paying
Agent, the Security Registrar nor the Trustee will have any responsibility or
liability for any aspect of the records of DTC or for maintaining, supervising
or reviewing any records of DTC or any of its Participants relating to
beneficial ownership interests in the Debt Securities. The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
own, pledge or transfer beneficial interest in a Global Security.
Unless otherwise specified in the Prospectus Supplement or the actual Global
Security, so long as the Depository for a Global Security or its nominee is the
registered owner of such book-entry Global Security, such Depository or such
nominee, as the case may be, will be considered the sole owner or holder of the
Debt Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as described below or in the applicable Prospectus
Supplement or such Global Security, owners of beneficial interest in a Global
Security will not be entitled to have any of the individual Debt Securities
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of any such Debt Securities in
definitive form and will not be considered the owners or holders thereof under
the applicable Indenture. Beneficial owners of Debt Securities evidenced by a
Global Security will not be considered the owners or holders thereof under the
applicable Indenture for any purpose, including with respect to the giving of
any direction, instructions or approvals to the Trustee thereunder. Accordingly,
each person owning a beneficial interest in a Global Security with respect to
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which DTC is the Depository must rely on the procedures of DTC and, if such
person is not a Participant, on the procedures of the Participant through which
such person owns its interests, to exercise any rights of a holder under the
applicable Indenture. The Company understands that, under existing industry
practice, if it requests any action of holders or if an owner of a beneficial
interest in a Global Security desires to give or take any action which a holder
is entitled to give or take under the applicable Indenture, DTC would authorize
the Participants holding the relevant beneficial interest to give or take such
action, and such Participants would authorize beneficial owners through such
Participants to give or take such actions or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments of principal of (and applicable premium, if any) and interest on
individual Debt Securities represented by a Global Security registered in the
name of a Depository or its nominee will be made to or at the direction of the
Depository or its nominee, as the case may be, as the registered owner of the
Global Security under the applicable Indenture. Under the terms of the
applicable Indenture, the Company, any Paying Agent, the Security Registrar and
the Trustee may treat the persons in whose name Debt Securities, including a
Global Security, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company, any Paying Agent,
the Security Registrar nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Debt
Securities (including principal, premium, if any, and interest). The Company
believes, however, that it is currently the policy of DTC to immediately credit
the accounts of relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant Global Security as shown on the records of DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
street name, and will be the responsibility of such Participants. Redemption
notices with respect to any Debt Securities represented by a Global Security
will be sent to the Depository or its nominee. If less than all of the Debt
Securities of any series are to be redeemed, the Company expects the Depository
to determine the amount of the interest of each Participant in such Debt
Securities to be redeemed to be determined by lot. None of the Company, the
Trustee, any Paying Agent or the Security Registrar for such Debt Securities
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Security for such Debt Securities or for maintaining any records with respect
thereto.
Neither the Company, any Paying Agent, the Security Registrar nor the
Trustee will be liable for any delay by the holders of a Global Security or the
Depository in identifying the beneficial owners of Debt Securities and the
Company and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the holder of a Global Security or the Depository
for all purposes. The rules applicable to DTC and its Participants are on file
with the Commission.
If a Depository for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Debt Securities
in exchange for the Global Security representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement or the Global Security
relating to such Debt Securities, determine not to have any of such Debt
Securities represented by one or more Global Securities and in such event will
issue individual Debt Securities in exchange for the Global Security or
Securities representing such Debt Securities. Individual Debt Securities so
issued will be issued in denominations of $5,000 and integral multiples of
$1,000.
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited outside of the United States with a depository, or with a
nominee for such depository, identified in the applicable Prospectus Supplement
and/or Global Security. Any such Bearer Global Securities may be issued in
temporary or
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permanent form. The specific terms and procedures, including the specific terms
of the depository arrangement, with respect to any portion of a series of Debt
Securities to be represented by one or more Bearer Global Securities will be
described in the applicable Prospectus Supplement and/or Global Security.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). No shares of Preferred
Stock are outstanding as of the date hereof.
Under the Company's Articles of Incorporation, shares of Preferred Stock may
be issued by the Company from time to time, in one or more series, as authorized
by the Board of Directors. Prior to the issuance of shares of each series, the
Board of Directors is required by the Maryland General Corporation Law (the
"MGCL") and the Company's Articles of Incorporation to adopt resolutions and
file Articles Supplementary (the "Articles Supplementary") with the State
Department of Assessments and Taxation of Maryland, setting for each such series
the designations, powers, preferences and rights of the shares of such series
and the qualifications, limitations or restrictions thereon, including, but not
limited to, dividend rights, dividend rate or rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences as are permitted by
Maryland law. Because the Board of Directors has the power to establish the
terms and conditions of each series of Preferred Stock, it may afford the
holders of any series of Preferred Stock power, preferences and rights, voting
or otherwise, senior to the rights of holders of shares of Common Stock. The
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of the Company.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate and constitute all material terms of the Preferred Stock that may be
determined prior to the initiation of a specific offering of Preferred Stock.
The particular terms of the Preferred Stock with respect to a specific offering
of Preferred Stock will be set forth in a Prospectus Supplement relating
thereto. The statements below describing the Preferred Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Company's Articles of Incorporation (including the applicable
Articles Supplementary) and bylaws.
GENERAL
Subject to limitations prescribed by Maryland law and the Company's Articles
of Incorporation and bylaws, the Board of Directors is authorized to fix the
number of shares constituting each series of Preferred Stock and the
designations, powers, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereon,
including such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution of the Board of
Directors or a duly authorized committee thereof. The Preferred Stock will, when
issued, be fully paid and nonassessable.
Reference is made to the Prospectus Supplement relating to the series of
Preferred Stock offered thereby for specific terms, including:
(1) the title and stated value of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
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(4) whether dividends shall be cumulative or non-cumulative and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate;
(5) the procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) the provisions for a sinking fund, if any, for such Preferred Stock;
(7) any voting rights of such Preferred Stock;
(8) the provisions for redemption, if applicable, of such Preferred Stock;
(9) any listing of such Preferred Stock on any securities exchange;
(10) the terms and conditions, if applicable, upon which such Preferred Stock
will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof) and conversion
period;
(11) if appropriate, a discussion of United States federal income tax
considerations applicable to such Preferred Stock;
(12) any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT;
(13) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(14) any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company; and
(15) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; (ii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company; and (iii) junior to all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank senior to
the Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company. As used in the Company's Articles of
Incorporation for these purposes, the term "equity securities" does not include
convertible debt securities.
DIVIDENDS
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will have the rights with respect to payment of dividends set forth below.
Holders of shares of the Preferred Stock of each series shall be entitled to
receive, when, as and if declared and authorized by the Board of Directors of
the Company, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the applicable
Prospectus Supplement. Each such dividend shall be payable to holders of record
as they appear on the stock transfer books of the Company on such record dates
as shall be fixed by the Board of Directors of the Company.
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Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will accumulate from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are noncumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If any shares of the Preferred Stock of any series are outstanding, no full
dividends shall be declared or paid or set apart for payment on the Preferred
Stock of the Company of any other series ranking, as to dividends, on a parity
with or junior to the Preferred Stock of such series for any period unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof irrevocably set apart for such payment on
the Preferred Stock of such series for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for such payment on the Preferred
Stock of such series. When dividends are not paid in full (or a sum sufficient
for such full payment is not so irrevocably set apart) upon the shares of
Preferred Stock of any series and the shares of any other series of preferred
stock ranking on a parity as to dividends with the Preferred Stock of such
series, all dividends declared upon shares of Preferred Stock of such series and
any other series of preferred stock ranking on a parity as to dividends with
such Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share on the Preferred Stock of such series and such other series
of preferred stock shall in all cases bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of Preferred Stock of such
series (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other series of preferred stock bear to each other. Except as
may otherwise be set forth in the applicable Prospectus Supplement, no interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for payment for the then current
dividend period, no dividends (other than in Common Stock or other capital stock
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or winding up of the Company) shall be declared or paid
or set aside for payment or other distribution shall be declared or made upon
the Common Stock or any other capital stock of the Company ranking junior to or
on a parity with the Preferred Stock of such series as to dividends or upon
liquidation, dissolution or winding up of the Company, nor shall any Common
Stock or any other capital stock of the Company ranking junior to or on a parity
with the Preferred Stock of such series as to dividends or upon liquidation,
dissolution or winding up of the Company be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the Company
(except by conversion into or exchange for other capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or, winding up of the Company).
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Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in such year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof irrevocably set apart for
payment for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for the then current dividend period, no
shares of any series of Preferred Stock shall be redeemed unless all outstanding
shares of Preferred Stock of such series are simultaneously redeemed; provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Preferred Stock of such series pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Stock of such series. In addition, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all outstanding shares
of any series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof irrevocably set
apart for payment for all past dividend periods and the then current dividend
period and (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof irrevocably set apart for payment for the then current dividend
period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Preferred Stock of such series (except by conversion
into or exchange for capital stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation, dissolution
or winding up of the Company); provided, however, that the foregoing shall not
prevent the purchase or acquisition of shares of Preferred Stock of such series
to preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by the Company that will not result in violation of
the ownership limitations set forth in the Articles of Incorporation.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of a share of Preferred
Stock of any series to be redeemed at the address shown on the stock transfer
books of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the
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place or places where certificates for such Preferred Stock are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any shares of Preferred Stock has been given and if the
funds necessary for such redemption have been irrevocably set apart by the
Company in trust for the benefit of the holders of any shares of Preferred Stock
so called for redemption, then from and after the redemption date dividends will
cease to accrue on such shares of Preferred Stock, such shares of Preferred
Stock shall no longer be deemed outstanding and all rights of the holders of
such shares will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
stock of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement and Articles Supplementary),
plus an amount equal to all dividends accrued and unpaid thereon (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend). Except as
may otherwise be set forth in the applicable Prospectus Supplement, after
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of the Company. In the event that, upon any such voluntary
or involuntary liquidation, dissolution or winding up, the legally available
assets of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of the
Company ranking on a parity with the Preferred Stock in the distribution of
assets upon liquidation, dissolution or winding up of the Company, then the
holders of the Preferred Stock and all other such classes or series of capital
stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
shares of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up of the Company, according to their respective rights and preferences and in
each case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, or
the sale, lease, transfer or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Except as may otherwise be set forth in the applicable Prospectus
Supplement, whenever dividends on any shares of Preferred Stock shall be in
arrears for the equivalent of six or more quarterly periods, the holders of such
shares of Preferred Stock (voting separately as a class with all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors of the Company at the next annual meeting of stockholders, and at
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each subsequent annual meeting, until (i) if such series of Preferred Stock has
a cumulative dividend, all dividends accumulated on such shares of Preferred
Stock for the past dividend periods and the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment or (ii) if such series of Preferred Stock does
not have a cumulative dividend, four consecutive quarterly dividends shall have
been fully paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment. In such case, the entire Board of Directors
of the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least 66% of the shares of each
series of Preferred Stock outstanding at the time, given in person or by proxy,
either in writing or at a meeting (each such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking senior to such series of Preferred
Stock with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the Company or reclassify any
authorized capital stock of the Company into any such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Articles of Incorporation (including the Articles Supplementary
for such series of Preferred Stock), whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; provided, however, that any increase in the amount of the authorized
preferred stock or the creation or issuance of any other series of preferred
stock, or any increase in the amount of authorized shares of such series or any
other series of Preferred Stock, in each case ranking on a parity with or junior
to the Preferred Stock of such series with respect to payment of dividends and
the distribution of assets upon liquidation, dissolution or winding up of the
Company, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been irrevocably deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Articles of Incorporation provide
that no person may own, or be deemed to own by virtue of the attribution rules
of the Code, more than 9.8% of the value of the Company's issued and outstanding
shares of capital stock. See "Restrictions on Ownership of Offered Securities."
These ownership limitations could have the effect of discouraging a takeover or
other transaction in which holders of some of shares of capital stock of the
Company might receive a premium for their shares over the then prevailing market
price or which such holders might believe to be otherwise in their best
interest.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular class or series of Preferred Stock, as specified in the applicable
Prospectus Supplement. Shares of a class or series of Preferred Stock
represented by Depositary Shares will be deposited under a separate Deposit
Agreement (each, a "Deposit Agreement") among the Company and the depositary
named therein (the "Preferred Stock Depositary"). Subject to the terms of the
Deposit Agreement, each owner of a Depositary Receipt will be entitled, in
proportion to the fractional interest of a share of a particular class or series
of Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, to all the rights and preferences of the class or series of
the Preferred Stock represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to the Deposit Agreement and
the Depositary Receipt to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of Preferred Stock
to the record holders of Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of the such Depositary Receipts owned by such
holders, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to such Preferred
Stock Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless such Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any class or series of Preferred Stock that has been
converted or exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted), the holders thereof will be
entitled to delivery at such office, to or upon each such holder's order, of the
number of whole or fractional shares of the class or series of Preferred Stock
and any money or other property represented by the Depositary Shares evidenced
by such Depositary Receipts. Holders of Depositary Receipts will be entitled to
receive whole or fractional shares of the related class or series of Preferred
Stock on the basis of the proportion of Preferred Stock represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such shares of Preferred Stock will not thereafter be entitled to
receive Depositary shares therefor. If the Depositary Receipts delivered by the
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holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the Preferred Stock Depositary will deliver to such holder at the
same time a new Depositary Receipt evidencing such excess number of Depositary
Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the Preferred
Stock Depositary, the Preferred Stock Depositary will redeem as of the same
redemption date the number of the Depositary Shares representing shares of such
class or series of Preferred Stock so redeemed, provided the Company shall have
paid in full to the Preferred Stock Depositary the redemption price of the
Preferred Stock to be redeemed plus an amount equal to any accrued and unpaid
dividends thereon to the date fixed for redemption. The redemption price per
Depositary Share will be equal to the corresponding proportion of the redemption
price and any other amounts per share payable with respect to such class or
series of Preferred Stock. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Depositary.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class or series of Preferred Stock so called for redemption will
cease to accrue, the Depositary Shares so called for redemption will no longer
be deemed to be outstanding and all rights of the holders of the Depositary
Receipts evidencing the Depositary Shares so called for redemption will cease,
except the right to receive any moneys payable upon such redemption and any
money or other property to which the holders of such Depositary Receipts were
entitled upon such redemption upon surrender thereof to the Preferred Stock
Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock deposited with the Preferred Stock Depositary are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such class or series
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for such class or series of Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. The Preferred Stock Depositary will vote the amount of such
class or series of Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of Preferred
Stock represented by such Depositary Shares to the extent it does not receive
specific instructions from the holder of Depositary Receipts evidencing such
Depositary Shares.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt as set forth in the applicable Prospectus Supplement.
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CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock or
any other securities or property of the Company, except in connection with
certain conversions in connection with the preservation of the Company's status
as a REIT. See "Restrictions on Ownership of Offered Securities." Nevertheless,
if so specified in the applicable Prospectus Supplement relating to an offering
of Depositary Shares, the Depositary Receipts may be surrendered by holders
thereof to the applicable Preferred Stock Depositary with written instructions
to the Preferred Stock Depositary to instruct the Company to cause conversion of
a class or series of Preferred Stock represented by the Depositary Shares
evidenced by such Depositary Receipts into whole shares of Common Stock, other
shares of a class or series of Preferred Stock of the Company or other shares of
stock, and the Company has agreed that upon receipt of such instructions and any
amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of Preferred Stock
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, a Depositary Receipt or Receipts will
be issued for any Depositary Shares not to be converted. No fractional shares of
Common Stock will be issued upon conversion, and if such conversion will result
in a fractional share being issued, an amount will be paid in cash by the
Company equal to the value of the fractional Interest based upon the closing
price of the Common Stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of Depositary Receipt evidenced in Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any tine be amended by agreement between the Company and the Preferred Stock
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of the related
Preferred Stock will not be effective unless such amendment has been approved by
the existing holders of at least two-thirds of the applicable Depositary Shares
evidenced by the applicable Depositary Receipts then outstanding. No amendment
shall impair the right, subject to certain anticipated exceptions in the Deposit
Agreements, of any holder of Depositary Receipts to surrender any Depositary
Receipt with instructions to deliver to the holder the related class or series
of Preferred Stock and all money and other property, if any, represented
thereby, except in order to comply with law. Every holder of an outstanding
Depositary Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold such Depositary Receipt, to consent and agree to
such amendment and to be bound by the applicable Deposit Agreement as amended
thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Stock Depositary if such termination
is necessary to preserve the Company's status as a REIT. The Company has agreed
that if the Deposit Agreement is terminated to preserve the Company's status as
a REIT, then the Company will use its best efforts to list each class or series
of Preferred Stock issued upon surrender of the related Depositary Shares. In
addition, the Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares shall have been redeemed, (ii) there shall have
been a final distribution in respect of each class or series of Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of the Depositary
Receipts evidencing the Depositary Shares representing such class or series of
Preferred Stock or (iii) each share of the related Preferred Stock shall have
been converted into Common Stock or other Preferred Stock of the Company not so
represented by Depositary Shares or has been exchanged for Debt Securities.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. In addition,
the Company will pay the fees and expenses of the
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Preferred Stock Depositary in connection with the performance of its duties
under the Deposit Agreement. However, holders of Depositary Receipts will pay
the fees and expenses of the Preferred Stock Depositary for any duties requested
by such holders to be performed which are outside of those expressly provided
for in the Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least the amount set forth in the Deposit Agreement.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of a class or
series of Preferred Stock represented by the Depositary Shares), gross
negligence or willful misconduct, and the Company and the Preferred Stock
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of a class or
series of Preferred Stock represented thereby unless satisfactory indemnity is
furnished. The Company and the Preferred Stock Depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
RESTRICTIONS ON OWNERSHIP OF OFFERED SECURITIES
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year, and its capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year.
The Company's Articles of Incorporation provide, subject to certain
exceptions specified therein, that no holder may own, or be deemed to own by
virtue of the attribution rules of the Code, more than 9.8% by value (the
"Ownership Limit") of the outstanding capital stock of the Company. Any transfer
of Offered Securities that would create a direct or indirect ownership of shares
of Common Stock and/or Preferred Stock (collectively the "Stock") in excess of
the Ownership Limit or result in the Company being "closely held" within the
meaning of Code Section 856(h) shall be null and void, and the intended
transferee will acquire no rights to the Offered Securities. Any transfer of
Stock that would result in the capital stock of the Company being beneficially
owned by fewer than 100 persons shall be null and void, and the interested
transferee will acquire no rights to such shares of Stock.
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The constructive ownership rules are complex and may cause Common Stock or
Preferred Stock owned directly or constructively by a group of related
individuals and/or entities to be deemed constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8% of the value of the
capital stock of the Company (or the acquisition of an interest in an entity
which owns such capital stock) by an individual or entity could cause that
individual or entity (or another individual or entity) to own constructively in
excess of 9.8% of the value of the capital stock, and thus subject such capital
stock to the Ownership Limit. Moreover, an individual or an entity which owns
warrants to acquire Common Stock or Preferred Stock ("Warrants") will be deemed
to own such Stock for purposes of applying the Ownership Limit.
The Board of Directors may, upon receipt of either a certified copy of a
ruling from the Internal Revenue Service or an opinion of counsel satisfactory
to the Board of Directors, but shall in no case be required to, exempt a person
(the "Exempted Holder") from the Ownership Limit if the ruling or opinion
concludes that no person who is an individual as defined in Section 542(a)(2) of
the Code will, as the result of the ownership of shares by the Exempted Holder,
be considered to have Beneficial Ownership of an amount of capital stock that
will violate the Ownership Limit.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT.
All certificates representing shares of Common Stock and Preferred Stock
will bear a legend referring to the restrictions described above.
All stockholders of record who own more than a specified percentage of the
outstanding capital stock of the Company must file a written statement with the
Company containing certain information specified in Treasury Regulations,
pertaining to the actual ownership of capital stock of the Company, within 30
days after December 31 of each year. In addition, each holder of capital stock
of the Company and/or Warrants shall, upon demand, be required to disclose to
the Company in writing such information with respect to the direct, indirect and
constructive ownership of capital stock of the Company as the Board of Directors
deems necessary to comply with the provisions of the Code applicable to a REIT
or to comply with the requirements of any taxing authority or governmental
agency.
In addition to preserving the Company's status as a REIT, the Ownership
Limit may have the effect of precluding an acquisition of control of the REIT
without the approval of the Board of Directors. These ownership limitations
could have the effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of shares of capital stock of the Company might
receive a premium for their shares over the then prevailing market price or
which such holders might believe to be otherwise in their best interest.
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MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION
Pryor Cashman Sherman & Flynn LLP, which has acted as tax counsel to the
Company in connection with the formation of the Company and the Company's
election to be taxed as a REIT, has reviewed the following discussion and is of
the opinion that it fairly summarizes the material federal income tax
considerations relevant to the Company's status as a REIT. The following summary
of certain federal income tax considerations is based on current law, is for
general information only, and is not tax advice. The tax treatment of a holder
of any of the Offered Securities will vary depending upon the terms of the
specific securities acquired by such holder, as well as his particular situation
and this discussion does not purport to deal with all aspects of taxation that
may be relevant to particular holders of Offered Securities in light of their
personal investment or tax circumstances or to certain types of stockholders
(including insurance companies, financial institutions, or broker-dealers,
tax-exempt organizations, foreign corporations, and persons who are not citizens
or residents of the United States) subject to special treatment under the United
States federal income tax laws.
The REIT provisions of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change (which change may apply retroactively).
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS TAX ADVISOR, REGARDING THE TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND
SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
GENERAL. The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ended December 31,
1994. The Company believes that it has been organized and operated in such a
manner as to qualify for taxation as a REIT under the Code for such taxable year
and for all subsequent taxable years ending prior to the date of this Prospectus
and the Company intends to continue to operate in such a manner in the future,
but no assurance can be given that it will operate in a manner so as to qualify
or remain qualified.
In the opinion of Pryor Cashman Sherman & Flynn LLP, the Company has been
organized in conformity with the requirements for qualification and taxation as
a REIT, commencing with its initial taxable year ended December 31, 1994, and
for all subsequent taxable years to date, and its method of operation will
enable it to continue to meet the requirements for qualification and taxation as
a REIT under the Code. It must be emphasized that this opinion is based on
various assumptions relating to the authenticity, validity and enforceability of
documents delivered by the Company and is conditioned upon such assumptions and
certain representations made by the Company as to factual matters. Pryor Cashman
Sherman & Flynn LLP is not aware of any facts or circumstances that are
inconsistent with these representations and assumptions. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code and
discussed below, the results of which will not be reviewed by Pryor Cashman
Sherman & Flynn LLP. Accordingly, no assurance can be given that the actual
results of the Company's operation for any particular taxable year will satisfy
such requirements. See "--Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially
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eliminates the "double taxation" (at both the corporate and stockholder levels)
that generally results from investment in a regular corporation. However, the
Company will be subject to federal income tax as follows: First, the Company
will be taxed at regular corporate rates on any undistributed REIT taxable
income, including undistributed net capital gains (although stockholders will
receive an offsetting credit against their own federal income liability for
federal income taxes paid by the Company with respect to any such undistributed
net capital gain). Second, under certain circumstances, the Company may be
subject to the "corporate alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying net
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business, other than certain involuntary conversions or foreclosure
property), such income will be subject to a 100% tax. Fifth, if the Company
should fail to satisfy the 75% gross income test or the 95% gross income test
(as discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which the Company fails the 75% or 95% test, multiplied by (b) a
fraction intended to reflect the Company's profitability. Sixth, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, with
respect to an asset (a "Built-In Gain Asset") acquired by the Company from a
corporation which is or has been a C corporation (i.e., generally, a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
Built-In Gain Asset in the hands of the Company is determined by reference to
the basis of the asset in the hands of the C corporation, if the Company
recognizes gain on the disposition of such asset during the ten-year period (the
"Recognition Period") beginning on the date on which such asset was acquired by
the Company, then, to the extent of the Built-In Gain (i.e., the excess of (a)
the fair market value of such asset over (b) the Company's adjusted basis in
such asset, determined as of the beginning of the Recognition Period), such gain
will be subject to tax at the highest corporate tax rate pursuant to Internal
Revenue Service ("IRS") regulations that have not yet been promulgated. The
results described above with respect to the recognition of Built-In Gain assume
that the Company will make an election pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) which would be taxable as
a domestic corporation, but for Code Sections 856 through 859, (4) which is
neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) the beneficial ownership of which is held by 100 or
more persons (determined without reference to any rules of attribution), (6)
during the last half of each taxable year, not more than 50% in value of the
outstanding stock of which is owned, directly or constructively, by five or
fewer individuals (as defined in the Code to include certain entities) and (7)
which meets certain other tests, described below, regarding the matter of its
income and assets. The Code provides that conditions (1) to (4), inclusive, must
be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months.
The Company has previously issued sufficient shares to allow it to satisfy
conditions (5) and (6). In addition, the Company's Articles of Incorporation
provide for restrictions regarding ownership and transfer of the Company's
capital stock, which restrictions are intended to assist the Company in
continuing to satisfy the share ownership requirements described in (5) and (6)
above. The ownership and transfer restrictions are described in "Restrictions on
Ownership of Offered Securities." Prior to 1998, the Company's failure to comply
with the Treasury regulations requiring a REIT to maintain permanent
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records showing the actual ownership of its stock (the "Stock Ownership
Regulations") could have resulted in the Company's disqualification as a REIT
for the taxable year of the failure. Pursuant to the Taxpayer Relief Act of 1997
(the "Act"), effective for the Company's taxable years beginning on or after
January 1, 1998, so long as the Company complies with the Stock Ownership
Regulations, the Company will not lose its qualifications as a REIT as a result
of a violation of the foregoing requirement if it neither knows nor upon
exercising reasonable diligence would have known of such violation. Effective
for the Company's taxable years beginning on or after January 1, 1998, instead
of being disqualified as a REIT, the Company would be subject to a financial
penalty of $25,000 ($50,000 for intentional violations) for any year in which
the Company fails to comply with the Stock Ownership Regulations. Furthermore,
if the Company can establish that its failure to comply was due to reasonable
cause and not to willful neglect, no penalty would be imposed.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. From its inception, the Company's taxable has been
the calendar year.
The Company currently owns and operates the majority of the Properties
through partnerships in which the Operating Partnership and direct, wholly-owned
subsidiaries (the "Company Subs") are partners. Code Section 856(i), as amended
by the Act, provides that a corporation, 100% of whose stock is held by a REIT,
is a "qualified REIT subsidiary." A "qualified REIT subsidiary" is not treated
as a separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" are treated as assets,
liabilities and such items (as the case may be) of the REIT. Thus, in applying
the requirements described herein, the Company's "qualified REIT subsidiaries"
will be ignored, and all assets, liabilities and items of income, deduction, and
credit of such subsidiaries will be treated as assets, liabilities and items of
the Company. The Company has not, however, sought or received a ruling from the
IRS that any of the Company Subs is a "qualified REIT subsidiary."
In the case of a REIT that is a partner in a partnership, either directly,
or indirectly through a "qualified REIT subsidiary," Treasury regulations
provide that the REIT will be deemed to own its proportionate share of the
assets of the partnership and will be deemed to be entitled to the income of the
partnership attributable to such share. In addition, the character of the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of Code Section 856, including satisfying the gross
income tests and the asset tests. Thus, the Company's proportionate share of the
assets, liabilities and items of income of the partnerships in which the Company
is a partner, directly or indirectly, will be treated as the assets, liabilities
and items of income of the Company for purposes of applying the requirements
described herein.
INCOME TESTS. In order to maintain qualification as a REIT, the Company,
for taxable years beginning on or after January 1, 1998, must satisfy two gross
income requirements annually. First, at least 75% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments (the
"75% Test"). Second, at least 95% of the Company's gross income (excluding gross
income from "prohibited transactions") for each taxable year must be derived
from such real property investments, dividends, interest and gain from the sale
or disposition of stock or securities, or from any combination of the foregoing
(the "95% Test" and, together with the 75% Test, the "Gross Income Tests"). For
taxable years beginning on or after January 1, 1998, "qualifying income" for
purposes of the 95% test, except to the extent provided by regulations, includes
payments to the Company under any interest rate swap, cap agreement, option,
futures contract, forward rate agreement, or any similar financial instrument
entered into by the Company to hedge its indebtedness as well as any gain from
the disposition of any of the foregoing instruments.
Rents received by the Company will qualify as "rents from real property" in
satisfying the Gross Income Tests only if several conditions are met. First, the
amount of rent must not be based in whole or in
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part on the income or profits derived by any person from the property. However,
an amount received or accrued generally will not be excluded from the term
"rents from real property" solely by reason of being based on a fixed percentage
or percentages of receipts or sales. Second, the Code provides that, for taxable
years beginning before August 5, 1997, rents received from a tenant will not
qualify as "rents from real property" in satisfying the Gross Income Tests if
the REIT, or a direct or constructive owner of 10% or more of the REIT, directly
or constructively owns 10% or more of such tenant (a "Related Tenant").
Effective for the Company's taxable years beginning on or after January 1, 1998,
the constructive ownership rules for determining whether a tenant is a Related
Tenant are modified with respect to partners and partnerships to provide that
attribution between partners and partnerships only occurs when a partner owns,
directly and/or indirectly, a 25%-or-greater interest in the partnership. Thus,
a tenant will not be treated as a Related Tenant with respect to the Company if
shares of the Company are owned by a partnership and a partner that owns,
directly and indirectly, a less-than-25% interest in such partnership also owns
an interest in the tenant. A tenant will also not be a Related Tenant with
respect to the Company if shareholders of the Company and owners of such tenant
are partners in a partnership in which neither own, directly and/or indirectly,
a 25%-or-greater interest in such partnership. Third, if rent attributable to
personal property leased in connection with a lease of real property is greater
than 15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." The Company has not and will not (i) charge rent for any property
that is based in whole or in part on the income or profits of any person (except
by reason of being based on a fixed percentage of receipts or sales, as
described above), (ii) rent any property to a Related Party Tenant, or (iii)
derive rental income attributable to personal property (other than personal
property leased in connection with the lease of real property, the amount of
which is less than 15% of the total rent received under the lease). Finally, for
rents received to qualify as "rents from real property," the Company generally
must not operate or manage the property or furnish or render services to
tenants, other than through an "independent contractor" from whom the Company
derives no revenue. The "independent contractor" requirement, however, does not
apply to the extent the services provided by the Company are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant." The Operating
Partnership will provide certain services with respect to the Properties that
are intended to comply with the "usually or customarily rendered" requirement.
In the case of any services that are not "usual and customary" under the
foregoing rules ("Impermissible Services"), the Company intends to employ
independent contractors to perform such services.
Pursuant to the Act, the Company for its taxable years beginning on or after
January 1, 1998, may render a DE MINIMIS amount of Impermissible Services to
tenants, or in connection with the management of a property, without having
otherwise qualifying rents from the property being disqualified as "rents from
real property." In order to qualify for this DE MINIMIS exception, the value of
such Impermissible Services may not exceed 1% of the Company's gross income from
the property, and such Impermissible Services may not be valued at less than
150% of the Company's direct cost of such services. Notwithstanding the
foregoing, the amount of any income that the Company receives in respect of its
performance of impermissible services ("Impermissible Services Income") will not
be treated as "rents from real property" for purposes of the Gross Income Tests
and, accordingly, must be considered together with other nonqualifying income
for purposes of satisfying the Gross Income Tests.
The Operating Partnership may receive fees in consideration of the
performance of management and administrative services with respect to Properties
that are not owned entirely by the Operating Partnership. Although a portion of
such management and administrative fees generally will not qualify under the
Gross Income Tests, the Company believes that the aggregate amount of such fees
(and any other nonqualifying income) in any taxable year will not cause the
Company to exceed the limits on non-qualifying income under the Gross Income
Tests.
If the Company fails to satisfy one or both of the Gross Income Tests for
any taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code.
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These relief provisions will generally be available if the Company's failure to
meet such tests is due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its federal income
tax return, and any incorrect information on the schedule is not due to fraud
with intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. As discussed above under "--General," even if these relief
provisions were to apply, a tax would be imposed with respect to the excess net
income.
SALES OR DISPOSITIONS OF CERTAIN ASSETS. The Company, as a REIT, is
generally subject to restrictions that limit its ability to sell real property.
The Company is subject to a tax of 100% on its gain (i.e., the excess, if any,
of the amount realized over the Company's adjusted basis in the property) from
each sale of property (excluding certain property obtained through foreclosure
and property that is involuntarily converted in a transaction that is subject to
Code Section 1033) in which it is a dealer. In calculating its gains subject to
the 100% tax, the Company is not allowed to offset gains on sales of property
against losses on other sales of property in which it is a dealer.
Under the Code, the Company would be deemed to be a dealer in any property
that the Company holds primarily for sale to customers in the ordinary course of
its business. Such determination is a factual inquiry, and absolute legal
certainty of the Company's status generally cannot be provided. However, the
Company will not be treated as a dealer in real property if (i) it has held the
property for at least four years for the production of rental income, (ii)
capitalized expenditures on the property in the four years preceding sale do not
exceed 30% of the net selling price of the property, and (iii) the Company
either (a) has seven or fewer sales of property (excluding involuntarily
converted property subject to Code Section 1033 or certain property obtained
through foreclosure) for the year or (b) the aggregate tax bases (as determined
for purposes of computing earnings and profits) of property sold during the
taxable year is 10% or less of the aggregate tax basis of all assets (as so
determined) of the Company as of the beginning of the taxable year and (iv) if
the requirement in clause (iii)(a) is not satisfied, substantially all of the
marketing and development expenditures with respect to the property sold are
made through an independent contractor from whom the Company derives no income.
The sale of more than one property to one buyer as part of one transaction
constitutes one sale. However, the failure of the Company to meet these "safe
harbor" requirements does not necessarily mean that it is a dealer in real
property for purposes of the 100% tax.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) assets held by the Company or the Company's
qualified REIT subsidiaries, and the Company's allocable share of real estate
assets held by partnerships in which the Company owns an interest directly
and/or indirectly and (ii) stock or debt instruments held for not more than one
year purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company), cash, cash items and government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed (at the end of the quarter in
which such securities are acquired) 5% of the value of the Company's total
assets and the Company may not own more than 10% of any one issuer's outstanding
voting securities.
A REIT which meets the foregoing asset tests at the close of any quarter
will not lose its status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter (including as a result of the REIT increasing
its interest in any partnership in which the REIT is a partner), the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. The Company intends to maintain adequate records of
the value of its assets to ensure compliance with the asset tests and to take
such other actions within 30 days after the close of
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any quarter as may be required to cure any noncompliance. If the Company failed
to cure noncompliance within such time period, the Company would cease to
qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of non-cash income. In addition, if the Company disposes of any Built-In
Gain Asset during its Recognition Period, the Company will be required, pursuant
to Treasury regulations which have not yet been promulgated, to distribute at
least 95% of the Built-in Gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such prior year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gain corporate
tax rates. As discussed below, shareholders of the Company for taxable years of
the Company beginning on or after January 1, 1998, would receive a tax credit
for the corporate level taxes paid by the Company on any undistributed capital
gains. See "Taxation of Domestic Shareholders" below. Furthermore, if the
Company should fail to distribute during each calendar year at least the sum of
(i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital
gain income for such year, and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
As discussed more completely below under "Taxation of Domestic
Shareholders," the Company may elect for its taxable years beginning on or after
January 1, 1998, to retain any long-term capital gain recognized during a
taxable year ("Retained Gains") and pay a corporate level tax on such Retained
Gains. The Retained Gains are then considered to have been distributed to
holders of Common Stock.
In the opinion of Pryor Cashman Sherman & Flynn LLP, the Company has
satisfied the annual distribution requirements for taxable years ended prior to
the date of this Prospectus. The Company intends to continue to make timely
distributions sufficient to satisfy this annual distribution requirement in the
future. In this regard, the partnership agreement of the Operating Partnership
authorizes the Company, as general partner, to take such steps as may be
necessary to cause the Operating Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution requirements.
It is possible, however, that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution requirement
due to timing differences between the actual receipt of income and actual
payment of deductible expenses and the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or if the amount of
nondeductible expenses such as principal amortization or capital expenditures
exceed the amount of non-cash deductions. In the event that such timing
differences occur, in order to meet the 95% distribution requirement, the
Company may, or may cause the Operating Partnership to, arrange for short-term,
or possibly long-term, borrowing to permit the payment of required dividends. If
the amount of nondeductible expenses exceeds non-cash deductions, the Operating
Partnership may refinance its indebtedness to reduce principal payments and
borrow funds for capital expenditures.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying to stockholders in a
later year "deficiency dividends," which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest to the IRS based upon the amount of
any deduction taken for deficiency dividends.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year, and the relief provisions do not apply, the Company will be
subject to tax (including any applicable corporate
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alternative minimum tax) on its taxable income at regular corporate rates. Such
a failure could have an adverse effect on the market value and marketability of
the Offered Securities. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic stockholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held its stock. Pursuant to the Act, the portion of any such
capital gain dividends attributable to gain recognized after July 28, 1997 with
respect to capital assets held by the Company for more than 18 months on the
date of sale will be treated as long-term capital gain taxable to the
stockholders at a maximum rate of 20% (or 25% to the extent any such gain arises
from the recapture of straight-line depreciation deductions reflected in the
basis of real property that has been held by the Company for more than 18 months
as of the date of sale), and the portion of such capital gain dividends
attributable to gain recognized with respect to property that has been held for
more than one year but not more than 18 months will be treated as long-term
capital gain taxable to the stockholders at a maximum rate of 28%. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income.
As indicated above, pursuant to the Act, effective for its taxable years
beginning on or after January 1, 1998, the Company may elect to retain its net
long term capital gains recognized during a taxable year ("Retained Gains") and
pay a corporate-level tax on such Retained Gains. Corporations are currently
subject to a maximum 35% tax rate on recognized capital gains. A stockholder
owning shares of the Company's stock on December 31st of a taxable year in which
the Company has Retained Gains would be required to include in gross income such
stockholder's proportionate share of the Retained Gains (as designated by the
Company in a notice mailed to stockholders within the first 60 days of the next
year). Each stockholder would be deemed to have paid a proportional share of the
amount of tax paid by the Company with respect to the Retained Gains and would
be allowed a credit or refund for the tax deemed to be paid by him. Stockholders
receiving any such Retained Gains would increase their adjusted basis in their
shares of Company stock by an amount equal to the Retained Gains included in
their income reduced by the amount of Company tax deemed to have been paid by
them.
Distributions (not designated as capital gain dividends) in excess of
current and accumulated earnings and profits will not be taxable to a domestic
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a domestic
stockholder's shares, they will be included in income as capital gains (provided
that the shares have been held as a capital asset). Any such distribution in
excess of a stockholder's adjusted basis in his shares of Company stock will be
included in income as long-term capital gain subject to a maximum tax rate of
20% if the gain is recognized after July 28, 1997, and the shares have been held
for more than 18 months at the time of distribution, long-term capital gain
subject to a maximum tax rate of 28% if the shares have been held for more than
one year but not more than 18 months as of the time of distribution and
short-term capital gain subject to a maximum rate of up to 39.6% if the shares
were held for only one year or less. In addition, any dividend declared by the
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Company in October, November or December of any year payable to a stockholder of
record on a specific date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Stockholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.
Distributions made by the Company and gain arising from the sale or exchange
by a shareholder of shares of stock will not be treated as passive activity
income, and, as a result, shareholders generally will not be able to apply any
"passive losses" against such income or gain. Distributions made by the Company
(to the extent they do not constitute a return of capital) generally will be
treated as investment income for purposes of computing the investment interest
limitation. Gain arising from the sale or other disposition of stock, however,
will not be treated as investment income unless the stockholder elects to reduce
the amount of his total net capital gain eligible for the 28% maximum rate by
the amount of the gain with respect to the stock.
Upon any sale or other disposition of stock, a stockholder will recognize
gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of stock for tax purposes. Such gain or loss will
be long-term capital gain or loss if the shares have been held for more than one
year. In general, any loss upon a sale or exchange of shares of stock by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated a long-term capital loss to the
extent that distributions from the Company were treated by such stockholder as
long-term capital gain.
BACKUP WITHHOLDING. The Company will report to its domestic stockholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding generally will be creditable against the
stockholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to the Company. See "--Taxation of
Foreign Stockholders" below.
TAXATION OF TAX-EXEMPT STOCKHOLDERS. Based upon published rulings by the
IRS, distributions by the Company to a stockholder that is a tax exempt entity
will not constitute "unrelated business taxable income" (UBTI"), provided that
the tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code and the shares are not
otherwise used in an unrelated trade or business of the tax-exempt entity.
Similarly, income from the sale of shares of stock will not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
shares with "acquisition indebtedness" within the meaning of the Code and the
shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans, exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their own tax advisors concerning these
"set-aside" and reserve requirements.
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Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" shall be treated as UBTI as to any trust which (i) is
described in Code Section 4011(a), (ii) is tax-exempt under Code Section 501(a)
and (iii) holds more than 10% (by value) of the interests in the REIT.
Tax-exempt pension funds that are described in Code section 401(a) and exempt
from tax under Code section 501(a) are referred to below as "qualified trusts."
A REIT is a "pension-held REIT" if (i) it would not have qualified as a REIT
but for the fact that Code Section 856(h)(3) provides that stock owned by
qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust (rather than by the
trust itself), and (ii) either (a) at least one such qualified trust holds more
than 25% (by value) of the interests in the REIT or (b) one or more such
qualified trusts, each of whom owns more than 10% (by value) of the interests in
the REIT, hold in the aggregate more than 50% (by value) of the interests in the
REIT. The percentage of any REIT dividend treated as UBTI is equal to the ration
of (i) the UBTI earned by the REIT (treating the REIT as if it were a qualified
trust and therefore subject to tax on UBTI) to (ii) the total gross income of
the REIT. A DE MINIMIS exception applies where the percentage is less than 5%
for any year. The provisions requiring qualified trusts to treat a portion of
REIT distributions as UBTI will not apply if the REIT is able to satisfy the
"not closely held" requirement without relying upon the "look-through" exception
with respect to qualified trusts. The Company does not expect to be classified
as a "pension-held REIT."
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing U.S. federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-US. Stockholders should
consult with their tax advisors to determine the impact of U.S. federal, state
and local income tax laws with regard to an investment in stock of the Company,
including any reporting requirements.
Distributions by the Company to a Non-U.S. Stockholder that are neither
attributable to gain from sales or exchanges by the Company of U.S. real
property interests and not designated by the Company as capital gain dividends
will be treated as dividends of ordinary income to the extent that they are made
out of current or accumulated earnings and profits of the Company. Such
distributions will ordinarily be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces
that tax. Under certain treaties, lower withholding rates generally applicable
to dividends do not apply to dividends from a REIT. However, if income from the
investment in the stock is treated as effectively connected with the Non-U.S.
Stockholder's conduct of a U.S. trade or business, the Non-U.S. Stockholder
generally will be subject to a tax at graduated rates, in the same manner as
U.S. stockholders are taxed with respect to such and are generally not subject
to withholding. Any such effectively connected distributions received by a
Non-U.S. Stockholder that is a corporation may also be subject to an additional
branch profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. The Company expects to withhold U.S. income tax at
the rate of 30% on the gross amount of any dividends paid to a Non-U.S.
Stockholder unless (i) a lower treaty rate applies and the required form
evidencing eligibility for that reduced rate is filed with the Company or (ii)
the Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that
the distribution is "effectively connected" income.
Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's shares, but rather will reduce
the adjusted basis of such shares. For FIRPTA withholding purposes (discussed
below) such distribution will be treated as consideration for the sale or
exchange shares of stock. To the extent that such distributions exceed the
adjusted basis of a Non-U.S. Stockholder's shares, they will give rise to tax
liability if the Non-U.S. Stockholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares, as described below. If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S.
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Stockholder may seek a refund of such amounts from the IRS if it is subsequently
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company.
Distributions to a Non-U.S. stockholder that are designed by the Company at
the time of distribution as capital gain dividends (other than those arising
from the dispositions a U.S. real property interest) generally will not be
subject to U.S. federal income taxation unless (i) investment in the stock is
effectively connected with the Non-U.S. stockholder's U.S. trade or business, in
which case the Non-U.S. stockholder will be subject to the same treatment as
U.S. stockholder with respect to such gain (except that a stockholder that is a
foreign corporation may also be subject to the 30% branch profits tax, as
discussed above), or (ii) the Non-U.S. stockholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, in which case the
non-resident alien individual will be subject to a 30% tax on the individual's
capital gains.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, these distributions are taxed to a Non-U.S. Stockholder as if such gain
were effectively connected with a U.S. business. Thus, Non-U.S. Stockholders
would be taxed at the normal capital gain rates applicable to U.S. stockholders
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals). Also, distributions subject
to FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate
Non-U.S. Stockholder not entitled to treaty relief or exemption. The Company is
required by applicable Treasury regulations to withhold 35% of any distribution
to a Non-U.S. Stockholder that could be designated by the Company as a capital
gain dividend. This amount is creditable against the Non-U.S. Stockholder's
United States federal income tax liability. The Company or any nominee (e.g.,
broker holding shares in street name) may rely on a certificate of Non-U.S.
Stockholder status on Form W-8 to determine whether withholding is required on
gains realized from the disposition of U.S. real property interests. A U.S.
stockholder who holds shares of stock on behalf of a Non-U.S. Stockholder will
bear the burden of withholding, provided that the Company has properly
designated the appropriate portion of a distribution as a capital gain dividend.
Gain recognized by a Non-U.S. Stockholder upon a sale of stock of a REIT
generally will not be taxed under FIRPTA if the REIT is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. It is currently anticipated that the Company
will be a "domestically controlled REIT," and therefore the sale of stock of the
Company will not be subject to taxation under FIRPTA. However, because the
Common Stock is publicly traded, no assurance can be given that the Company will
continue to be a domestically-controlled REIT. Notwithstanding the foregoing,
gain not subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i)
investment in the Stock is "effectively connected" with the Non-U.S.
Stockholder's U.S. trade or business, in which case the Non-U.S. Stockholder
will be subject to the same treatment as U.S. stockholders with respect to such
gain (a Non-U.S. Stockholder that is a foreign corporation may also be subject
to a 30% branch profits tax, as discussed above), or (ii) the Non-U.S.
Stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, in which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains. If the gain on the sale of stock
were to be subject to taxation under FIRPTA, the Non-U.S. Stockholder would be
subject to the same treatment as U.S. stockholders with respect to such gain
(subject to applicable alternative minimum tax, possible withholding tax and a
special alternative minimum tax in the case of nonresident alien individuals).
If the Company is not or ceases to be, a "domestically-controlled REIT,"
whether gain arising from the sale or exchange of shares of stock by a Non-U.S.
Stockholder would be subject to United States taxation under FIRPTA as a sale of
a "United States real property interest" will depend on whether any class of
stock of the Company is "regularly traded" (as defined by applicable Treasury
regulations) on an established securities market (e.g., the New York Stock
Exchange), as is the case with the Common Stock,
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and on the size of the selling Non-U.S. Stockholder's interest in the Company.
In the case where the Company is not or ceases to be a "domestically-controlled
REIT" and any class of stock of the stockholder the Company is "regularly
traded" on an established securities market at any time during the calendar
year, a sale of shares of that class of stock of the Company by a Non-U.S.
Stockholder will only be treated as a sale of a "United States real property
interest" (and thus subject to taxation under FIRPTA) if such selling
stockholder beneficially owns (including by attribution) more than 5% of the
total fair market value of all of the shares of such "regularly traded" class of
stock at any time during the five-year period ending either on the date of such
sale or other applicable determination date. To the extent the Company had one
or more classes of stock outstanding that were "regularly traded," but the
Non-U.S. Stockholder sold shares of a class of stock of the Company that was not
"regularly traded," the sale of shares of such letter class would be treated as
a sale of a "United States real property interest under the foregoing rule only
if the shares of such latter class acquired by the Non-U.S. Stockholder had a
total net market value on the date they were acquired that was greater than 5%
of the total fair market value of the "regularly traded" class of Company stock
having the lowest fair market value (or with respect to a nontraded class of
Company stock convertible into a "regularly traded" market value on the date of
acquisition of the total fair market value of the "regularly traded' class into
which it is convertible. If gain on the sale or exchange of shares of stock were
subject to taxation under FIRPTA, the Non U.S. Stockholder would be subject to
regular United States income tax with respect to such gain in the same manner as
a U.S. Stockholder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals);
provided, however, that deductions otherwise allowable will be allowed as
deductions only if the tax returns were filed within the time prescribed by law.
In general, the purchaser of the stock would be required to withhold and remit
to the IRS, 10% of the amount realized by the seller on the sale of such stock.
NEW WITHHOLDING REGULATIONS. Final regulations pertaining to withholding
tax on income paid to foreign persons and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997 and
published in the Federal Register on October 14, 1997. In general, the New
Withholding Regulations do not significantly alter the substantive withholding
and information reporting requirements, but unify current certification
procedures and forms and clarify reliance standards. For example, the New
Withholding Regulations adopt a certification rule which was in the proposed
regulations, under which a foreign shareholder who wishes to claim the benefit
of an applicable treaty rate with respect to dividends received from a United
States corporation will be required to satisfy certain certification and other
requirements. In addition, the New Withholding Regulations require a corporation
that is a REIT to treat as a dividend the portion of a distribution that is not
designated as a capital gain dividend or return of basis and apply the 30%
withholding tax (subject to any applicable deduction or exemption) to such
portion, and to apply the FIRPTA withholding rules (discussed above) with
respect to the portion of the distribution deemed to have been designated by the
REIT as capital gain dividend. The New Withholding Regulations will generally be
effective for payments made after December 31, 1999, subject to certain
transition rules. EXCEPT AS NOTED, THE DISCUSSION SET FORTH ABOVE IN "TAXATION
OF FOREIGN SHAREHOLDERS" DOES NOT TAKE THE NEW WITHHOLDING REGULATIONS INTO
ACCOUNT. PROSPECTIVE FOREIGN SHAREHOLDERS ARE STRONGLY URGED TO CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE NEW WITHHOLDING REGULATIONS.
OTHER TAX MATTERS
EFFECT ON REIT QUALIFICATION OF TAX STATUS OF OPERATING PARTNERSHIP AND
OTHER PARTNERSHIPS. Substantially, all of the Company's investments will be
made through the Operating Partnership, which in turn will hold interests in
other property partnerships. In general, partnerships are "pass-through"
entities which are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will
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include in its income its proportionate share of the foregoing partnership items
for purposes of the Gross income Tests in the computation of its REIT taxable
income. Moreover, for purposes of the REIT asset tests, the Company will include
its proportionate share of assets held by the Operating Partnership. See
"--Taxation of the Company as a REIT."
The ownership of an interest in a partnership may involve special tax risks.
Such risks include possible challenge by the IRS of (a) allocations of income
and expense items, which could affect the computation of income of the Company
and (b) the status of the partnerships as partnerships (as opposed to
associations taxable as corporations) for income tax purposes. This partnership
status risk should be substantially diminished by Treasury regulations issued on
December 17, 1996, permitting election of partnership status effective January
1, 1997 by the filing of Form 8823 or in certain other ways specified in the new
regulations. With respect to the Company's existing partnership investments, the
new regulations provide that (1) previously claimed partnership status, if
supported by a reasonable basis for classification, will generally be respected
for all periods prior to January 1, 1997; and (2) previously claimed partnership
status will generally be retained after January 1, 1997, unless an entity elects
to change its status by filing formal election. The Company believes that it has
a reasonable basis for the classification of the Operating Partnership and the
property partnerships as partnerships for federal income tax purposes and has
neither filed does the Company intend to file an election to be treated
otherwise. If any of the partnerships, elected to be treated as an association,
they would be taxable as a corporations. In such a situation, if the Company's
ownership in any of the partnerships exceeded 10% of the partnership's voting
interests or the value of such interest exceeded 5% of the value of the
Company's assets, the Company would cease to qualify as a REIT. Furthermore, in
such a situation, distributions from any of the partnerships to the Company
would be treated as dividends, which are not taken into account in satisfying
the 75% Gross Income Test described above and which could make it more difficult
for the Company to meet the 75% asset test described above. Finally, in such a
situation, the Company would not be able to deduct its share of losses generated
by the partnerships in computing its taxable income. See "Taxation of the
Company as a REIT--"Failure to Qualify" above for a discussion of the effect of
the Company's failure to meet such tests for a taxable year. The Company
believes that each of the partnerships have been and will continue to be treated
for tax purposes as a partnership (and not as an association taxable as a
corporation). No assurance can be given that the IRS may not successfully
challenge the tax status of any of the partnerships.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Code Section 704(b) and the Treasury regulations promulgated thereunder.
Generally, Code Section 704(b) and the Treasury regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of Code
Section 704b) and the Treasury regulations promulgated thereunder.
The Partnership Agreement provides that net income or net loss of the
Operating Partnership will generally be allocated to the Company and the limited
partners in accordance with their respective percentage interests in the
Operating Partnership. In addition, allocations of net income or net loss will
be subject to compliance with provisions of Code Sections 704(b) and 704(c) and
the Treasury regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to Section
704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for federal income tax purposes in
a
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manner ensuring that the contributor is charged with the unrealized gain
associated with the property at the time of the contribution. The amount of such
unrealized gain is generally equal to the difference between the fair market
values of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (the "Book-Tax
Difference"). In general, the fair market value of certain Properties (or
interests in partnerships holding certain Properties) contributed to the
Operating Partnership are substantially in excess of their adjusted tax bases.
The partnership agreements of the Operating Partnership and other partnerships
controlled by the Operating Partnership and/or the Company require that
allocations attributable to each item of contributed property be made so as to
allocate the tax depreciation available with respect to such property first to
the partners other than the partner that contributed the property, to the extent
of, and in proportion to, their book depreciation, and then, if any tax
depreciation remains, to the partner that contributed the property. Upon the
disposition of any item of contributed property, any gain attributable to an
excess, at such time, of basis for book purposes over basis for tax purposes
would be allocated for tax purposes to the contributing partner. These
allocations are intended to be consistent with the Treasury regulations under
Section 704(c) of the Code.
In general, certain persons who acquired interests in the Operating
Partnership in connection with the contribution of property (including interests
in other partnerships) to the Operating Partnership are allocated
disproportionately lower amounts of depreciation deductions for tax purposes
relative to their percentage interests in the Operating Partnership, and
disproportionately greater shares relative to their percentage interests in the
Operating Partnership of the taxable income and gain on the sale by the
Partnerships of one or more of the contributed properties. These tax allocations
will tend to reduce or eliminate the Book-Tax Difference over the life of the
partnerships. The partnership agreements of the Operating Partnership and other
partnerships that it controls adopt the "traditional method" of making
allocations under Section 704(c) of the Code, unless otherwise agreed to between
the Company and the contributing partner. Under the traditional method the
amounts of the special allocations of depreciation and gain under the special
rules of Section 704(c) of the Code have been and will continue to be limited by
the so-called "ceiling rule" which will not always eliminate the Book-Tax
Difference on an annual basis or with respect to a specific transaction such as
a sale. Thus, the carryover basis of the contributed assets in the hands of the
partnerships will cause the Company to be allocated less depreciation than would
be available for newly purchased properties. As a result, the Company will be
required to distribute more dividends in order to satisfy a 95% distribution
requirement than it would have had the Company purchased the assets for cash in
a taxable transaction. See "Annual Distribution Requirements" above for a
discussion of distributions requirements. In addition, the amount of tax-free
return of capital to each domestic stockholder will be less than the amount such
Stockholder would have realized had the Company purchased assets for cash in a
taxable transaction.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has adjusted tax
basis in its interest in the Operating Partnership. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the indebtedness of the Operating partnership (such decreases being considered a
constructive cash distribution to the partners), exceeds the Company's adjusted
tax basis, such excess distributions (including such constructive distributions)
will constitute taxable income to
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the Company. Such taxable income will normally be characterized as a capital
gain, and if the Company's interest in the Operating Partnership has been held
for longer than the long-term capital gain holding period (currently one year),
such distributions and constructive distributions) will constitute taxable
income to the Company.
STATE AND LOCAL TAXES. The Company and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective investors
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Offered Securities.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from any entity for whom they may act as agent. Underwriters
may sell Offered Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts, concessions and commissions
received by them and any profit realized by them on resale of the Offered
Securities may be deemed to be underwriting discounts and commissions, under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject, and
(ii) if the Offered Securities are being sold to underwriters, the Company shall
have sold to
54
<PAGE>
such underwriters the total principal amount of the Offered Securities less the
principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its subsidiaries
in the ordinary course of business.
EXPERTS
The financial statements of the Operating Partnership as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting. The financial statements
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
of the Company for the year ended December 31, 1997, have been so incorporated
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The financial statements incorporated in this Prospectus by
reference to the Current Reports on Form 8-K of the Company, dated September 18,
1997 and January 16, 1998, respectively, have been so incorporated in reliance
on the reports of Schonbraun Safris McCann Bekritsky & Co., L.L.C., independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The financial statements of The Mack Group incorporated in this
Prospectus by reference to the Company's Proxy Statement, dated November 10,
1997, except as they relate to the unaudited nine-month periods ended September
30, 1997 and 1996 and except as they relate to Patriot American Office Group,
have been audited by PricewaterhouseCoopers LLP, independent accountants, and,
insofar as they relate to Patriot American Office Group, by Ernst & Young LLP,
independent auditors. Such financial statements have been so incorporated in
reliance on the reports of such independent accountants given on the authority
of such firms as experts in auditing and accounting. The financial statements
for Prudential Business Campus and for Morris County Financial Center
incorporated in this Prospectus by reference to the Current Report on Form 8-K
of the Company, dated June 12, 1998 have been so incorporated in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting. The financial
statements, except for Prudential Business Campus and Morris County Financial
Center, incorporated in this Prospectus by reference to the Current Reports on
Form 8-K of the Company, dated June 12, 1998 have been so incorporated in
reliance on the reports of Schonbraun Safris McCann Bekritsky & Co., L.L.C.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
Certain legal matters in connection with the Offered Securities as well as
certain legal matters described under "Certain United States Federal Income Tax
Considerations to the Company of its REIT Election" will be passed upon for the
Company by Pryor Cashman Sherman & Flynn LLP, New York, New York. Certain legal
matters relating to Maryland law, including the validity of the issuance of
certain of the securities registered hereby, will be passed upon for the Company
by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
55
<PAGE>
MACK-CALI REALTY, L.P.
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND OTHER INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of March 31, 1998 (unaudited), December 31, 1997 and 1996................... F-3
Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited) and
the three years in the period ended December 31, 1997.................................................... F-4
Consolidated Statement of Changes in Partners' Capital for the three months ended March 31, 1998
(unaudited) and the three years in the period ended December 31, 1997.................................... F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited) and
the three years in the period ended December 31, 1997.................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
FINANCIAL STATEMENT SCHEDULE:
Schedule III--Real Estate Investments and Accumulated Depreciation as of December 31, 1997................. F-37
OTHER INFORMATION:
Selected Financial Data.................................................................................... F-43
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Mack-Cali Realty, L.P.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in partners' capital and of cash
flows, including financial statement Schedule III, present fairly, in all
material respects, the financial position of Mack-Cali Realty, L.P. and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements and schedules are the responsibility of the Operating
Partnership's management; our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We conducted our audits
of these statements and schedule in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and schedule are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 26, 1998
F-2
<PAGE>
MACK-CALI REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER
MARCH 31, 31, DECEMBER 31,
1998 1997 1996
----------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Rental property
Land.................................. $ 461,368 $ 374,242 $ 98,127
Buildings and improvements............ 2,567,225 2,206,462 718,466
Tenant improvements................... 50,708 44,596 35,626
Furniture, fixtures and equipment..... 4,650 4,316 1,133
----------- ---------- ------------
3,083,951 2,629,616 853,352
Less--accumulated depreciation and
amortization.......................... (118,567) (103,133 ) (68,610)
----------- ---------- ------------
Total rental property................. 2,965,384 2,526,483 784,742
Cash and cash equivalents (includes
$201,269 in overnight investments at
December 31, 1996).................... 11,717 2,704 204,807
Investment in partially-owned entity.... 18,034 -- --
Unbilled rents receivable............... 30,641 27,438 19,705
Deferred charges and other assets,
net................................... 21,672 18,989 11,840
Restricted cash......................... 6,791 6,844 3,160
Accounts receivable, net of allowance
for doubtful accounts of $493, $327
and $189.............................. 3,826 3,736 2,074
Mortgage notes receivable............... 27,250 7,250 --
----------- ---------- ------------
Total assets............................ $ 3,085,315 $2,593,444 $1,026,328
----------- ---------- ------------
----------- ---------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Mortgages and loans payable............. $ 1,207,592 $ 972,650 $ 268,010
Distributions payable................... 35,139 28,089 17,554
Accounts payable and accrued expenses... 31,510 31,136 5,068
Rents received in advance and security
deposits.............................. 29,651 21,395 6,025
Accrued interest payable................ 1,935 3,489 1,328
----------- ---------- ------------
Total liabilities..................... 1,305,827 1,056,759 297,985
----------- ---------- ------------
Commitments and contingencies
Partners' Capital:
Preferred units, 232,401, 230,562 and
0 units outstanding................. 238,377 236,491 --
Common Units:
General partner, 55,835,686,
49,856,289 and 36,318,937 units
outstanding....................... 1,374,658 1,157,440 701,379
Limited partners, 6,789,352,
6,097,477 and 2,689,945 units
outstanding....................... 157,929 134,230 26,964
Unit warrants, 2,000,000, 2,000,000
and 0 outstanding................. 8,524 8,524 --
----------- ---------- ------------
Total partners' capital................. 1,779,488 1,536,685 728,343
----------- ---------- ------------
Total liabilities and partners'
capital............................... $ 3,085,315 $2,593,444 $1,026,328
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MACK-CALI REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Base rents................................... $ 92,916 $ 42,791 $ 206,215 $ 76,922 $ 50,808
Escalations and recoveries from tenants...... 10,357 6,612 31,130 14,429 9,504
Parking and other............................ 2,006 1,544 6,910 2,204 1,702
Interest income.............................. 544 1,208 5,546 1,917 321
--------- --------- --------- --------- ---------
Total revenues............................. 105,823 52,155 249,801 95,472 62,335
--------- --------- --------- --------- ---------
EXPENSES
Real estate taxes............................ 10,073 5,433 25,992 9,395 5,856
Utilities.................................... 8,301 3,725 18,246 8,138 6,330
Operating services........................... 12,693 6,416 30,912 12,129 8,519
General and administrative................... 6,196 3,173 15,862 5,800 3,712
Depreciation and amortization................ 16,231 7,493 36,825 14,731 10,655
Interest expense............................. 18,480 7,820 39,078 13,758 10,117
Non-recurring merger--related charges........ -- -- 46,519 -- --
--------- --------- --------- --------- ---------
Total expenses............................. 71,974 34,060 213,434 63,951 45,189
--------- --------- --------- --------- ---------
Income before gain on sale of rental property
and extraordinary item..................... 33,849 18,095 36,367 31,521 17,146
Gain on sale of rental property.............. -- -- -- 5,658 --
--------- --------- --------- --------- ---------
Income before extraordinary item............. 33,849 18,095 36,367 37,179 17,146
Extraordinary item--loss on early retirement
of debt.................................... -- -- (3,985) (561) --
--------- --------- --------- --------- ---------
Net income................................... 33,849 18,095 32,382 36,618 17,146
Preferred unit distributions................. (3,911) -- (888) -- --
Beneficial conversion feature................ -- -- (29,361) -- --
--------- --------- --------- --------- ---------
Net income available to common unitholders... $ 29,938 $ 18,095 $ 2,133 $ 36,618 $ 17,146
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BASIC EARNINGS PER UNIT:
Income before extraordinary item........... $ 0.52 $ 0.45 $ 0.14 $ 1.76 $ 1.23
Extraordinary item......................... -- -- (0.09) (0.03) --
--------- --------- --------- --------- ---------
Net income................................... $ 0.52 $ 0.45 $ 0.05 $ 1.73 $ 1.23
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
DILUTED EARNINGS PER UNIT:
Income before extraordinary item........... $ 0.51 $ 0.44 $ 0.14 $ 1.74 $ 1.22
Extraordinary item......................... -- -- (0.09) (0.03) --
--------- --------- --------- --------- ---------
Net income................................... $ 0.51 $ 0.44 $ 0.05 $ 1.71 $ 1.22
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Distributions declared per common unit....... $ 0.50 $ 0.45 $ 1.90 $ 1.75 $ 1.66
Basic weighted average units outstanding..... 57,933 40,085 43,356 21,172 13,986
Diluted weighted average units outstanding... 58,682 40,817 44,156 21,436 14,041
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MACK-CALI REALTY, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PREFERRED PARTNER PARTNER PREFERRED GENERAL LIMITED UNIT
UNITS UNITS UNITS UNITHOLDER PARTNER PARTNER WARRANTS TOTAL
--------- ------- ------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995.... -- 10,500 2,802 $ -- $ 108,311 $ 28,903 $ -- $ 137,214
Net income.................. -- -- -- -- 13,638 3,508 -- 17,146
Distributions............... -- -- -- -- (19,238) (4,730) -- (23,968)
Contributions--Net proceeds
from common stock
offering.................. -- 4,600 -- -- 83,594 -- -- 83,594
Issuance of units in
connection with
acquisitions.............. -- -- 94 -- -- 1,500 -- 1,500
Purchase of treasury
units..................... -- (100) -- -- (1,595) -- -- (1,595)
Conversion of units to
shares of common stock.... -- 105 (105 ) -- 1,098 (1,098) -- --
--- ------- ------- ---------- ---------- -------- -------- ----------
Balance at December 31,
1995........................ -- 15,105 2,791 -- 185,808 28,083 -- 213,891
Net income.................. -- -- -- -- 31,944 4,674 -- 36,618
Distributions............... -- -- -- -- (37,666) (4,720) -- (42,386)
Contributions -Net proceeds
from common stock
offerings................. -- 20,987 -- -- 518,219 -- -- 518,219
Conversion of units to
shares of common stock.... -- 101 (101 ) -- 1,073 (1,073) -- --
Contributions--Proceeds from
stock options exercised... -- 126 -- -- 2,001 -- -- 2,001
--- ------- ------- ---------- ---------- -------- -------- ----------
Balance at December 31,
1996........................ -- 36,319 2,690 -- 701,379 26,964 -- 728,343
Net income.................. -- -- -- 30,249 1,405 728 -- 32,382
Distributions............... -- -- -- (888) (76,311) (7,790) -- (84,989)
Contributions -Net proceeds
from common stock
offering.................. -- 13,000 -- -- 489,116 -- -- 489,116
Issuance of Stock Award
Rights and Stock Purchase
Rights.................... -- 351 -- -- 12,526 -- -- 12,526
Issuance of Preferred
Units..................... 231 -- -- 236,491 -- -- -- 236,491
Beneficial conversion
feature................... -- -- -- (29,361) 26,801 2,560 -- --
Issuance of units in
connection with
acquisitions.............. -- -- 3,408 -- -- 111,785 -- 111,785
Issuance of 2,000,000 unit
warrants.................. -- -- -- -- -- -- 8,524 8,524
Purchase of treasury
units..................... -- (152) -- -- (4,680) -- -- (4,680)
Conversion of units to
shares of common stock.... -- 1 (1 ) -- 17 (17) -- --
Contributions--Proceeds from
stock options exercised... -- 337 -- -- 7,187 -- -- 7,187
--- ------- ------- ---------- ---------- -------- -------- ----------
Balance at December 31,
1997........................ 231 49,856 6,097 236,491 1,157,440 134,230 8,524 1,536,685
Net Income.................. -- -- -- 3,911 26,543 3,395 -- 33,849
Distributions............... -- -- -- (3,911) (27,961) (3,267) -- (35,139)
Contributions--Net proceeds
from common stock
offerings................. -- 5,856 -- -- 215,784 -- -- 215,784
Issuance of units in
connection with
acquisitions.............. -- -- 734 -- -- 25,185 -- 25,185
Conversion of units to
shares of common stock.... -- 22 (22 ) -- 848 (848) -- --
Purchase of treasury
units..................... -- -- (20 ) -- -- (766) -- (766)
Contributions--Proceeds from
stock options
excercised................ -- 102 -- -- 2,004 -- -- 2,004
Issuance of Preferred
Units..................... 2 -- -- 1,886 -- -- -- 1,886
--- ------- ------- ---------- ---------- -------- -------- ----------
Balance at March 31, 1998
(Unaudited)................. 233 55,836 6,789 $238,377 $1,374,658 $157,929 $ 8,524 $1,779,488
--- ------- ------- ---------- ---------- -------- -------- ----------
--- ------- ------- ---------- ---------- -------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MACK-CALI REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 33,849 $ 18,095 $ 32,382 $ 36,618 $ 17,146
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 16,231 7,493 36,825 14,731 10,655
Amortization of deferred financing costs............. 254 271 983 1,081 1,456
Amortization of stock compensation................... -- -- 12,526 -- --
Gain on sale of rental property...................... -- -- -- (5,658) --
Extraordinary item-loss on early retirement of
debt............................................... -- -- 3,985 561 --
Changes in operating assets and liabilities:
Increase in unbilled rents receivable................ (3,203) (1,606) (7,733) (979) (312)
Increase in deferred charges and other assets, net... (3,790) (1,665) (9,507) (4,335) (1,678)
Increase in accounts receivable, net................. (34) (1,508) (1,663) (629) (99)
Increase in accounts payable and accrued expenses.... 374 6,585 17,569 1,823 35
Increase in rents received in advance and security
deposits........................................... 8,256 4,827 10,614 2,911 878
(Decrease) increase in accrued interest payable...... (1,554) (954) 2,161 699 365
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities.......... $ 50,383 $ 31,538 $ 98,142 $ 46,823 $ 28,446
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental property........................... $ (406,659) $ (230,429) $ (928,974) $ (318,145) $ (133,489)
Issuance of mortgage note receivable................... (20,000) (11,600) (11,600) -- --
Proceeds from sale of rental property.................. -- -- -- 10,324 --
Investment in partially-owned entity................... (18,034) -- -- -- --
Decrease (increase) in restricted cash................. 53 (170) 1,073 69 (247)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities.............. $ (444,640) $ (242,199) $ (939,501) $ (307,752) $ (133,736)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages and loans payable.............. $ 419,851 $ 47,195 $ 669,180 $ 272,113 $ 60,402
Repayments of mortgages and loans payable.............. (205,514) (19,299) (442,185) (294,819) (20,702)
Payment of financing costs............................. -- -- (3,095) -- (102)
Debt prepayment premiums and other costs............... -- -- (1,812) (312) --
Purchase of treasury units............................. (766) -- (4,680) -- (1,595)
Contributions--net proceeds from common stock
offerings............................................ 215,784 -- 489,116 518,219 83,594
Contributions--proceeds from stock options exercised... 2,004 2,297 7,187 2,001 --
Payment of distributions............................... (28,089) (17,554) (74,455) (32,433) (21,734)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities.......... $ 403,270 $ 12,639 $ 639,256 $ 464,769 $ 99,863
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents... $ 9,013 $ (198,022) $ (202,103) $ 203,840 $ (5,427)
Cash and cash equivalents, beginning of period......... 2,704 204,807 204,807 967 6,394
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period............... $ 11,717 $ 6,785 $ 2,704 $ 204,807 $ 967
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Mack-Cali Realty, L.P. (formerly Cali Realty, L.P.), a Delaware limited
partnership, and subsidiaries (the "Operating Partnership"), was formed on
August 31, 1994 to conduct the business of leasing, management, acquisition,
development, construction, and tenant-related services for its sole general
partner, Mack-Cali Realty Corporation (the "Company" or "General Partner") and
subsidiaries. The Operating Partnership, through its operating divisions and
subsidiaries, is the entity through which all of the Company's operations are
conducted.
The Company is a fully-integrated, self-administered, self-managed real
estate investment trust ("REIT"). The Company controls the Operating Partnership
as the sole general partner, and at December 31, 1997 owned an 89.1% common unit
interest in the Operating Partnership.
The Company's business is the ownership of interests in and operation of the
Operating Partnership and all of the Company's expenses are incurred for the
benefit of the Operating Partnership. The Company is reimbursed by the Operating
Partnership for all expenses it incurs relating to the ownership and operation
of the Operating Partnership.
The Operating Partnership owns a 99 percent to 100 percent interest (either
directly or as a limited partner with control pursuant to an agreement with the
general partners of the property partnerships) in the Properties. At March 31,
1998, the Operating Partnership owned 227 properties and had a significant
equity interest in another property (collectively, the "Properties"). The
Properties aggregate approximately 25.2 million square feet, and are comprised
of 216 office and office/flex buildings totaling approximately 24.8 million
square feet, six industrial/warehouse buildings totaling approximately 387,000
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
11 states, primarily in the Northeast and Southwest.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include all accounts of
the Operating Partnership and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. See investment in Partially-
owned Entity in Note 2 for the Operating Partnership's treatment of
unconsolidated partnership interests.
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
RENTAL PROPERTY
Rental properties are stated at cost less accumulated depreciation and
amortization. Costs directly related to the acquisition and development of
rental properties are capitalized. Capitalized development costs include
interest, property taxes, insurance and other project costs incurred during the
period of construction. Ordinary repairs and maintenance are expensed as
incurred; major replacements and
F-7
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
betterments, which improve or extend the life of the asset, are capitalized and
depreciated over their estimated useful lives. Fully- depreciated assets are
removed from the accounts.
Depreciation and amortization is computed on a straight-line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements........... 5 to 40 years
Tenant improvements.................. The shorter of the term of the
related lease or useful life
Furniture, fixtures and equipment.... 5 to 10 years
</TABLE>
On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A property's value
is impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property are
less than the carrying value of the property. To the extent an impairment has
occurred, the loss shall be measured as the excess of the carrying amount of the
property over the fair value of the property. Management does not believe that
the value of any of its rental properties is impaired.
INVESTMENT IN PARTIALLY-OWNED ENTITY
The Operating Partnership acquired a 50 percent interest in an office
property in March 1998. The Operating Partnership accounts for its investment in
a partially-owned entity under the equity method of accounting as the Operating
Partnership exercises significant influence. This investment is recorded
initially at cost, as Investment in Partially-owned Entity, and subsequently
adjusted for net equity in income (loss) and cash contributions and
distributions.
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 held by the
Operating Partnership at December 31, 1996 matured on January 2, 1997. The
entire balance, including interest income earned, was realized by the Operating
Partnership and ultimately used in the funding of the RM Transaction on January
31, 1997 (see Note 3).
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 are included in
interest expense and was $254, $271, $983, $1,081 and $1,456 for the three
months ended March 31, 1998 and 1997, and for the years ended December 31, 1997,
1996 and 1995, respectively.
F-8
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED LEASING COSTS
Costs incurred in connection with leases are capitalized and amortized on a
straight-line basis over the terms of the related leases and included in
depreciation and amortization. Unamortized deferred leasing costs are charged to
amortization expense upon early termination of the lease. Certain employees of
the Operating Partnership provide leasing services to the Properties and receive
fees as compensation ranging from 0.667 percent to 2.667 percent of adjusted
rents. For the three months ended March 31, 1998 and 1997, and for the years
ended December 31, 1997, 1996 and 1995, such fees, which are capitalized and
amortized, approximated $577, $206, $761, $490 and $575, respectively.
REVENUE RECOGNITION
The Operating Partnership 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
multi-family residential property under operating leases having terms generally
of one year or less is recognized when earned.
The Operating Partnership receives reimbursements from tenants for certain
costs as provided in the lease agreements. These costs generally include real
estate taxes, utilities, insurance, common area maintenance and other
recoverable costs (see Note 12).
INCOME AND OTHER TAXES
The Operating Partnership is a partnership and, as a result, all income and
losses of the Operating Partnership are allocated to the partners for inclusion
in their respective income tax returns. Accordingly, no provision or benefit for
income taxes has been made in the accompanying financial statements.
As of December 31, 1997, the net basis of the rental property for Federal
income tax purposes, was lower than the net assets as reported in the Operating
Partnership's consolidated financial statements by approximately $851,000. The
Operating Partnership's taxable income for the years ended December 31, 1997,
1996 and 1995 was approximately $68,800, $34,558, and $20,639, respectively. The
differences between book income and taxable income primarily result from
differences in depreciation expense, the recording of rental income, the
nondeductibility of certain expenses for tax purposes, differences in revenue
recognition and the rules for tax purposes of a property exchange and issuance
of preferred convertible partnership units.
INTEREST RATE CONTRACTS
Interest rate contracts are utilized by the Operating Partnership to reduce
interest rate risks. The Operating Partnership does not hold or issue derivative
financial instruments for trading purposes.
The differentials to be received or paid under contracts designated as
hedges are recognized in income over the life of the contracts as adjustments to
interest expense. Gains and losses are deferred and amortized to interest
expense over the remaining life of the associated debt to the extent that such
debt remains outstanding.
F-9
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER UNIT
In accordance with Statement of Financial Accounting Standards No. 128
("FASB No. 128") the Operating Partnership presents both basic and diluted
earnings per unit ("EPU"). Basic EPU excludes dilution and is computed by
dividing net income available to common unitholders by the weighted average
number of units outstanding for the period. Diluted EPU reflects the potential
dilution that could occur if securities or other contracts to issue common units
were exercised or converted into common units, where such exercise or conversion
would result in a lower EPU amount.
DISTRIBUTIONS PAYABLE
The distributions payable at March 31, 1998 represents distributions payable
to common unitholders of record on April 3, 1998 (62,711,377 common units) and
preferred distributions payable to preferred unitholders (232,401 preferred
units) for the first quarter 1998. The first quarter 1998 common unit
distributions of $0.50 per common unit, as well as the first quarter preferred
unit distribution of $16.875 per preferred unit, were approved by the General
Partner on March 18, 1998 and were paid on April 21, 1998.
The distributions payable at December 31, 1997 represent distributions
payable to common unitholders of record on January 5, 1998 (55,953,766 common
units) and preferred distributions to preferred unitholders (230,562 preferred
units) for the fourth quarter 1997. The fourth quarter 1997 common unit
distribution of $0.50 per common unit (pro-rated for units issued during the
quarter), as well as the pro-rated fourth quarter preferred unit distribution
aggregating $888, were approved by the General Partner on December 17, 1997 and
were paid on January 16, 1998.
EXTRAORDINARY ITEM
Extraordinary item represents the effect of the early settlement of certain
debt obligations, net of write-offs of related deferred financing costs,
prepayment penalties, yield maintenance payments and other related items.
UNDERWRITING COMMISSIONS AND COSTS
Underwriting commissions and costs incurred in connection with the Company's
stock offerings are reflected as a reduction of additional paid-in-capital.
STOCK OPTIONS
Stock-based compensation is accounted for using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations ("APB No. 25"). Under APB No.
25, compensation cost is measured as the excess, if any, of the quoted market
price of the 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 closing market price of the Company's
stock on the business day preceding the grant date. Accordingly, no compensation
cost has been recognized for the Company's stock option plans. The Operating
Partnership provides additional pro
F-10
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
forma disclosures as required under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FASB No. 123"). See Note 8
for discussion of Stock Compensation.
NON-RECURRING CHARGES
The Operating Partnership considers non-recurring charges as costs incurred
specific to significant non-recurring events that would materially distort the
comparative measurement of the Operating Partnership's performance.
UNAUDITED FINANCIAL STATEMENTS
The consolidated financial statements including the note disclosures
included herein as of March 31, 1998 and for the three months ended March 31,
1998 and 1997 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements for these interim
periods have been included. The results for the interim periods are not
necessarily indicative of the results to be obtained for the full fiscal year.
3. ACQUISITIONS/TRANSACTIONS
In 1995, the Operating Partnership acquired 27 office and office/flex
properties totaling approximately 1.6 million square feet for a total cost of
approximately $150,630. The acquired properties are all located in New Jersey
and New York.
In 1996, the Operating Partnership acquired 15 office properties and
completed construction on two office/flex properties totaling approximately 3.4
million square feet for a total cost of approximately $451,623. The acquired and
constructed properties are all located in New Jersey and Pennsylvania.
Concurrently with the acquisition of 103 Carnegie Center in Princeton, Mercer
County, New Jersey, the Operating Partnership sold its office building at 15
Essex Road in Paramus, Bergen County, New Jersey ("Essex Road"). The concurrent
transactions with unrelated parties qualified as a tax-free exchange, as the
Operating Partnership used subsequently all of the proceeds from the sale of
Essex Road to acquire 103 Carnegie Center.
On January 28, 1997, the Operating Partnership acquired 1345 Campus Parkway
("1345 Campus"), a 76,300 square foot office/flex property, located in Wall
Township, Monmouth County, New Jersey, for approximately $6,729 in cash, made
available from the Operating Partnership's cash reserves. The property is
located in the same office park in which the Operating Partnership previously
acquired two office properties and four office/flex properties in November 1995.
On January 31, 1997, the Operating Partnership acquired 65 properties ("RM
Properties") from Robert Martin Company, LLC and affiliates ("RM") for a total
cost of approximately $450,000. The cost of the transaction (the "RM
Transaction") was financed through the assumption of $185,283 of mortgage
indebtedness ("TIAA Mortgage"), the payment of approximately $220,000 in cash,
substantially all of which was obtained from the Operating Partnership's cash
reserves, and the issuance of 1,401,225 common units, valued at $43,788.
F-11
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
3. ACQUISITIONS/TRANSACTIONS (CONTINUED)
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 387,000 square feet. The RM Properties are
located primarily in established business parks in Westchester County, New York
and Fairfield County, Connecticut. The Operating Partnership 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 the RM Transaction, the Operating Partnership was granted
a three-year option to acquire two properties (the "Option Properties"), under
certain conditions, one of which was acquired in 1997 (see below). The purchase
price for the remaining Option Property, under the agreement, is subject to
adjustment based on different formulas and is payable in cash or common units.
In connection with the RM Transaction, the Operating Partnership holds a
$7,250 mortgage loan ("Mortgage Note Receivable") secured by the remaining
Option Property (see Note 6).
On May 8, 1997, the Operating Partnership acquired four buildings in the
Westlakes Office Park ("Westlakes"), a suburban office complex located in
Berwyn, Chester County, Pennsylvania, totaling approximately 444,350 square
feet. The properties were acquired for a total cost of approximately $74,700,
which was made available primarily from drawing on one of the Operating
Partnership's credit facilities.
On July 21, 1997, the Operating Partnership acquired two vacant office
buildings in the Moorestown Corporate Center, a suburban office complex located
in Moorestown, Burlington County, New Jersey. The properties, each consisting of
74,000 square feet, were acquired for a total cost of approximately $10,200,
which was made available from drawing on one of the Operating Partnership's
credit facilities.
On August 1, 1997, the Operating Partnership acquired 1000 Bridgeport Avenue
("Shelton Place"), a 133,000 square-foot office building located in Shelton,
Fairfield County, Connecticut. The property was acquired for approximately
$15,787, which was made available from drawing on one of the Operating
Partnership's credit facilities.
On August 15, 1997, the Operating Partnership acquired one of the Option
Properties, 200 Corporate Boulevard South ("200 Corporate"), an 84,000
square-foot office/flex building located in Yonkers, Westchester County, New
York. The property was acquired for approximately $8,078 through the exercise of
a purchase option obtained in connection with the RM Transaction. The
acquisition cost, net of the mortgage prepayment described below, was financed
from the Operating Partnership's cash reserves.
In conjunction with the acquisition of 200 Corporate, the sellers of the
property, certain RM principals, prepaid $4,350 of the $11,600 Mortgage Note
Receivable between the Operating Partnership and such RM principals (See Note
6).
On September 3, 1997, the Operating Partnership acquired Three Independence
Way ("Three Independence"), a 111,300 square-foot office property located in
South Brunswick, Middlesex County, New Jersey. The property was acquired for
approximately $13,388, which was made available from drawing on one of the
Operating Partnership's credit facilities.
On November 19, 1997, the Operating Partnership acquired 1000 Madison Avenue
("The Trooper Building"), a 100,655 square-foot office building located in Lower
Providence Township, Montgomery
F-12
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
3. ACQUISITIONS/TRANSACTIONS (CONTINUED)
County, Pennsylvania. The property was acquired for approximately $14,271, which
was made available from the Operating Partnership's cash reserves.
On December 11, 1997, the Operating Partnership acquired 54 office
properties (the "Mack Properties") from The Mack Company and Patriot American
Office Group (the "Mack Transaction"), pursuant to a Contribution and Exchange
Agreement (the "Agreement"), for a total cost of approximately $1,102,024.
The Mack Properties consist of 54 office properties comprising a total of
approximately 9.2 million net rentable square feet, ranging from approximately
40,000 to 475,100 square feet. The Mack Properties are located primarily in the
Northeast and Southwest, with a concentration of properties located in Northern
New Jersey (25 properties compromising approximately 4.8 million square feet),
Texas (17 properties comprising approximately 2.5 million square feet) and
Arizona (four properties comprising 485,000 square feet).
The total cost of the Mack Transaction was financed as follows: (i) $498,757
in cash made available from the Operating Partnership's cash reserves and from
the $200,000 Prudential Term Loan (See Note 7), (ii) $291,879 in debt assumed by
the Operating Partnership (the "Mack Mortgages"), (iii) the issuance of
1,965,886 common units valued at $66,373, (iv) the issuance of 15,237 Series A
preferred units and 215,325 Series B preferred units, valued at
$236,491(collectively, the "Preferred Units"), (v) warrants to purchase
2,000,000 common units (the "Unit Warrants"), valued at $8,524 and (vi) issuance
of contingent units, as described below.
In addition, 2,006,432 contingent common units, 11,895 Series A contingent
Preferred Units and 7,799 Series B contingent Preferred Units (collectively, the
"Contingent Units") were issued as contingent non-participating units. Such
Contingent Units have no voting, distribution or other rights until such time as
they are redeemed into common units, Series A Preferred Units, and Series B
Preferred Units, respectively. Redemption of such Contingent Units shall occur
upon the achievement of certain performance goals relating to certain of the
Mack Properties, specifically the achievement of certain leasing activity.
With the Mack Transaction, the Operating Partnership assumed an aggregate of
approximately $291,879 of mortgage indebtedness with eight separate lenders,
encumbering 17 of the Mack Properties. Such debt matures at various dates from
March 1998 through January 2009. The Mack Mortgages are comprised of an
aggregate of approximately $199,931 of fixed rate debt bearing interest at a
weighted average rate of approximately 7.66 percent per annum, certain of which
require monthly principal amortization payments, and an aggregate of
approximately $91,948 in variable rate debt bearing interest at a weighted
average floating rate of approximately 76 basis points over the London
Inter-Bank Offered Rate (LIBOR), (see Note 7).
With the completion of the Mack Transaction, the Cali Realty Corporation
name was changed to Mack-Cali Realty Corporation, and the name of the Operating
Partnership was changed from Cali Realty, L.P. to Mack-Cali Realty, L.P.
In connection with the Mack Transaction, Brant Cali, Brad W. Berger, Angelo
R. Cali, Kenneth A. DeGhetto, James W. Hughes and Alan Turtletaub resigned from
the Board of Directors of the Company. Mitchell E. Hersh, William L. Mack and
Earle I. Mack were added to the Board as "inside" members, and Martin D. Gruss,
Jeffrey B. Lane, Vincent Tese and Paul A. Nussbaum were added as independent
members.
F-13
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
3. ACQUISITIONS/TRANSACTIONS (CONTINUED)
In accordance with the Agreement, Thomas A. Rizk remained Chief Executive
Officer and resigned as President of the Company, with Mitchell E. Hersh
appointed as President and Chief Operating Officer. The Company's other officers
retained their existing positions and responsibilities, except that Brant Cali
resigned as Chief Operating Officer and John R. Cali resigned as Chief
Administrative Officer. Brant Cali and John R. Cali remained as officers of the
Company as Executive Vice Presidents.
Entering into new employment agreements with the Company after the Mack
Transaction were Thomas A. Rizk, Mitchell E. Hersh, Brant Cali, and John R.
Cali. Entering into amended and restated employment agreements were Roger W.
Thomas, as Executive Vice President, General Counsel and Assistant Secretary,
Barry Lefkowitz, as Executive Vice President and Chief Financial Officer and
Timothy M. Jones, as Executive Vice President.
Additionally, the Company entered into non-competition agreements with each
of William, Earle, David and Frederic Mack, which restricted the business
dealings of such individuals relative to their involvement in commercial real
estate activities to those specified in the Agreement. The non-competition
agreements have a term of the later of (a) three years from the completion of
the Mack Transaction, or (b) the occurrence of specified circumstances
including, but not limited to, the removal of William, Earle, David or Frederic
Mack, respectively, from the Company's Board of Directors or Advisory Board, as
applicable, and a decrease in certain ownership levels.
In connection with the Mack Transaction, under each of the Company's
executive officer's then existing employment agreements, due to a change of
control of the Company (as defined in each employment agreement), each of the
aforementioned officers received the benefit of the acceleration of (i) the
immediate vesting and issuance of his restricted stock, including tax gross-up
payments associated therewith, (ii) the forgiveness of his Stock Purchase Rights
loan, including tax gross-up payments associated therewith, and (iii) the
vesting of his unvested employee stock options and warrants. Additionally, under
each of Thomas Rizk's, Brant Cali's and John R. Cali's employment agreements
with the Company, each of these officers became entitled to receive certain
severance-type payments, as a result of certain provisions in each of their
agreements, triggered as result of the Mack Transaction. Finally, certain
officers and employees of the Company were given transaction-based payments as a
reward for their efforts and performance in connection with the Mack
Transaction. The total expense associated with the acceleration of vesting of
restricted stock, the forgiveness of Stock Purchase Rights loans, and the
payment of certain severance-type payments, as well as performance payments and
related tax-obligation payments, which were approved by the Company's Board of
Directors and which took place simultaneous with completion of the Mack
Transaction, totaled $45,769. Such expenses are included in non-recurring
merger-related charges for the year ended December 31, 1997 ( see Note 8).
On December 19, 1997 the Operating Partnership acquired 100 Overlook Center
("Princeton Overlook") a 149,600 square-foot office building located in
Princeton, Mercer County, New Jersey. The property was acquired for
approximately $27,218, which was funded through the issuance of 41,421 common
units valued at $1,624, with the remaining cash portion made available from
drawing on one of the Operating Partnership's credit facilities.
Additionally, on December 19, 1997, the Operating Partnership acquired 200
Concord Plaza Drive ("Concord Plaza"), a 248,700 square-foot office building
located in San Antonio, Bexar County, Texas. The
F-14
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
3. ACQUISITIONS/TRANSACTIONS (CONTINUED)
property was acquired for approximately $34,075, which was made available from
drawing on one of the Operating Partnership's credit facilities.
On January 23, 1998, the Operating Partnership acquired 10 acres of vacant
land in the Stamford Executive Park, located in Stamford, Fairfield County,
Connecticut for approximately $1,300, which was funded from the Operating
Partnership's cash reserves. The vacant land, on which the Operating Partnership
plans to develop a 40,000 square-foot office/flex property, was acquired from
RMC Development Co., LLC. In conjunction with the acquisition of the developable
land, the Operating Partnership signed a 15-year lease, on a triple-net basis,
with a single tenant to occupy the entire property being developed.
On January 30, 1998, the Operating Partnership acquired a 17-building
office/flex portfolio, aggregating approximately 748,660 square feet located in
the Moorestown West Corporate Center in Moorestown, Burlington County, New
Jersey and in Bromley Commons in Burlington, Burlington County, New Jersey. The
17 properties were acquired for a total cost of approximately $46,993. The
Operating Partnership is under contract to acquire an additional four
office/flex properties in the same locations. The Operating Partnership also has
an option to purchase a property following completion of construction and
required lease-up for approximately $3,700. The purchase contract also provides
the Operating Partnership a right of first refusal to acquire up to six
additional office/flex properties totaling 202,000 square feet upon their
development and lease-up. The initial transaction was funded primarily from
drawing on one of the Operating Partnership's credit facilities as well as the
assumption of mortgage debt with an estimated value of $8,419 (the "McGarvey
Mortgages"). The McGarvey Mortgages currently have a weighted average annual
effective interest rate of 6.24 percent and are secured by five of the
office/flex properties acquired.
On February 2, 1998, the Operating Partnership acquired 2115 Linwood Avenue,
a 68,000 square-foot vacant office building located in Fort Lee, Bergen County,
New Jersey. The building was acquired for approximately $5,100, which was made
available from drawing on one of the Operating Partnership's credit facilities.
On February 5, 1998, the Operating Partnership acquired 500 West Putnam
Avenue ("500 West Putnam"), a 121,250 square-foot office building located in
Greenwich, Fairfield County, Connecticut. The property was acquired for a total
cost of approximately $20,125, funded from drawing on one of the Operating
Partnership's credit facilities as well as the assumption of mortgage debt with
an estimated value of $12,104 which bears interest at an annual effective
interest rate of 6.52 percent.
On February 25, 1998, the Operating Partnership acquired 10 Mountainview
Road ("Mountainview"), a 192,000 square-foot office property located in Upper
Saddle River, Bergen County, New Jersey. The property was acquired for
approximately $24,500, which was made available from proceeds received from the
Company's February 1998 offering of common stock (see Note 8).
On March 12, 1998, the Operating Partnership acquired 1250 Capital of Texas
Highway South, a 270,703 square foot Class A office property located in Austin,
Travis County, Texas. The property was acquired for a total cost of
approximately $37,062, which was made available from drawing on one of the
Operating Partnership's credit facilities.
On March 27, 1998, the Operating Partnership acquired four office buildings,
a daycare center, plus land parcels, and a 50 percent interest in another office
building, all of such properties aggregating 875,000
F-15
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
3. ACQUISITIONS/TRANSACTIONS (CONTINUED)
square feet and located in the Prudential Business Campus office complex in
Parsippany and East Hanover, Morris County, New Jersey. The properties were
acquired for a total cost of approximately $175,856, which funds were made
available from the Operating Partnership's cash reserves (provided in part from
the proceeds received in the sale of 2,705,628 shares of the Company's common
stock pursuant to a Stock Purchase Agreement with The Prudential Insurance
Company of America, Strategic Value Investors, LLC and Strategic Value Investors
International, LLC) and from drawing on one of the Operating Partnership's
credit facilities.
Also, on March 27, 1998, the Operating Partnership acquired ten office
properties ( the "Pacifica I Acquisition"), located in suburban Denver and
Colorado Springs, Colorado, from Pacifica Holding Company ("Pacifica"), a
private real estate owner and operator in Denver, Colorado, for a total cost of
approximately $74,712. The acquisition cost was funded by drawing approximately
$68,200 from the Operating Partnership's credit facilities, from the issuance of
approximately $3,779 in common operating partnership units and $2,700 from the
Operating Partnership's cash reserve. (see Note 8). The Pacifica I Acquisition
was comprised of approximately 620,017 square feet of Pacifica's entire 1.2
million square-foot office portfolio, which consists of 18 office buildings and
related operations. On June 8, 1998 the Operating Partnership acquired six of
the remaining eight office building, encompassing 514,427 square feet, and 2.5
acres of vacant land, located in the Denver Tech Center, from Pacifica for an
aggregate purchase price of approximately $80,700, funded by drawing
approximately $59,900 from one of the Operating Partnership's credit facilities,
cash reserves and the issuance of approximately $20,800 in common operating
partnership units. The Operating Partnership currently is a party to a contract
to acquire the remaining two office buildings, encompassing 95,360 square feet,
from Pacifica for an aggregate purchase price of approximately $11,900. William
L. Mack, a director and equity holder of the Operating Partnership, was an
indirect owner of an interest in certain of the buildings contained in the
Pacifica Portfolio.
On March 30, 1998, the Operating Partnership acquired two office buildings,
aggregating 308,215 square feet, in the Morris County Financial Center located
in Parsippany, Morris County, New Jersey. The properties were acquired for a
total cost of approximately $52,753, which was made available from drawing on
one of the Operating Partnership's credit facilities.
On May 13, 1998, the Operating Partnership acquired 3600 South Yosemite
("3600 S. Yosemite"), a 133,743 square-foot office building located in Denver,
Denver County, Colorado for approximately $13,500, which was made available from
drawing on one of the Operating Partnership's credit facilities.
On May 14, 1998, the Operating Partnership acquired One Ramland Road
("Ramland Road"), a 232,000 square-foot vacant office/flex building located in
Orangeburg, Rockland County, New York, for approximately $6,700, which was made
available from the Operating Partnership's cash reserves. The Operating
Partnership intends to redevelop the property.
On May 22, 1998, the Operating Partnership acquired 500 College Road East
("500 College Road"), a 158,235 square-foot office building located in
Plainsboro, Middlesex County, New Jersey, for approximately $21,200, which was
made available from drawing on one of the Operating Partnership's credit
facilities.
On June 1, 1998, the Operating Partnership acquired 1709 New York Avenue
Northwest and 1400 L Street Northwest, two individual office buildings
aggregating approximately 335,600 square feet located in Washington, D.C. The
properties were acquired for approximately $90,000, which was made available
from
F-16
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
3. ACQUISITIONS/TRANSACTIONS (CONTINUED)
drawing on one of the Operating Partnership's credit facilities. Additionally,
the Operating Partnership also entered into contract with the same seller to
acquire a third office building located at 4200 Parliament Drive and vacant land
in Lanham, Prince Georges County, Maryland. The 120,600 square-foot office
building, in addition to adjacent developable land, is expected to be acquired
for approximately $15,500. The completed building acquisitions, and pending
building and land acquisitions are to be collectively referred to as the "D.C.
Portfolio".
On June 3, 1998, the Operating Partnership acquired 400 South Colorado
Boulevard ("400 South Colorado"), a 125,415 square-foot office building located
in Denver, Denver County, Colorado, for approximately $12,000, which was made
available from drawing on one of the Operating Partnership's credit facilities.
4. DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER DECEMBER
MARCH 31, 31, 31,
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred leasing costs................... $ 22,662 $ 20,297 $ 14,031
Deferred financing costs................. 3,669 3,640 5,390
----------- ----------- -----------
26,331 23,937 19,421
Accumulated amortization................. (10,428) (9,535) (8,994)
----------- ----------- -----------
Deferred charges, net.................... 15,903 14,402 10,427
Prepaid expenses and other assets........ 5,769 4,587 1,413
----------- ----------- -----------
Total deferred charges and other assets,
net.................................... $ 21,672 $ 18,989 $ 11,840
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
5. RESTRICTED CASH
Restricted cash includes security deposits for the Operating Partnership's
residential properties and certain commercial properties, and escrow and reserve
funds for debt service, real estate taxes, property insurance, capital
improvements, tenant improvements, and leasing costs established pursuant to
certain mortgage financing arrangements, and is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
MARCH 31, 31, 31,
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Escrow and other reserve funds........... $ 1,552 $ 1,278 $ 2,814
Security deposits........................ 5,239 5,566 346
----------- ----------- -----------
Total restricted cash.................... $ 6,791 $ 6,844 $ 3,160
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
6. MORTGAGE NOTES RECEIVABLE
In connection with the RM Transaction on January 31, 1997, the Operating
Partnership provided an $11,600 non-recourse, non-amortizing mortgage loan to
entities controlled by the RM principals, bearing interest at an annual rate of
450 basis points over one-month LIBOR. The Mortgage Notes Receivable,
F-17
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
6. MORTGAGE NOTES RECEIVABLE (CONTINUED)
which is secured by the Option Properties and guaranteed by certain of the RM
principals, matures on February 1, 2000. In addition, the Operating Partnership
received a three percent origination fee in connection with providing the
Mortgage Notes Receivable.
In conjunction with the acquisition of 200 Corporate, one of the Option
Properties, on August 15, 1997, the sellers of the property, certain RM
principals, prepaid $4,350 of the Mortgage Notes Receivable, leaving a remaining
principal balance of $7,250 secured by the remaining Option Property. The
Operating Partnership also received a prepayment fee of $163.
On March 6, 1998, prior to the completion of the Pacifica I Acquisition, the
Operating Partnership provided a $20,000 mortgage loan to an entity controlled
by certain principals of Pacifica. Such mortgage loan is secured by an office
property in California. The mortgage note receivable which bore interest at an
annual rate of 9.25 percent and had a two-year term was repaid in full on June
9, 1998.
7. MORTGAGES AND LOANS PAYABLE
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
TIAA Mortgage........................... $ 185,283 $185,283 --
Harborside Mortgages.................... 150,000 150,000 $150,000
Mortgage Financing...................... -- -- 64,508
CIGNA Mortgages......................... 75,910 86,650 --
Mitsubishi Mortgages.................... 72,204 72,204 --
Prudential Mortgages.................... 61,669 62,205 18,445
Other Mortgages......................... 99,937 88,474 --
Prudential Term Loan.................... 200,000 200,000 --
Revolving Credit Facilities............. 356,751 122,100 29,805
Contingent Obligation................... 5,838 5,734 5,252
----------- ------------ ------------
Total mortgages and loans payable....... $ 1,207,592 $972,650 $268,010
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
TIAA MORTGAGE
In connection with the RM Transaction, on January 31, 1997, the Operating
Partnership 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 is
secured and cross-collateralized by 43 of the RM Properties and matures on
December 31, 2003. The Operating Partnership, at its option, may convert the
TIAA Mortgage to unsecured debt upon achievement by the Operating Partnership of
an investment grade credit rating of Baa3/BBB- or better. The TIAA Mortgage is
prepayable in whole or in part subject to certain provisions, including yield
maintenance.
F-18
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
7. MORTGAGES AND LOANS PAYABLE (CONTINUED)
HARBORSIDE MORTGAGES
In connection with the acquisition of Harborside Financial Center
("Harborside"), on November 4, 1996, the Operating Partnership assumed existing
mortgage debt and was provided seller-financed mortgage debt aggregating
$150,000. The existing financing, with a principal balance of $104,059 and
$104,768 as of March 31, 1998, and December 31, 1997, respectively, bears
interest at a fixed rate of 7.32 percent per annum for a term of approximately
nine years. The seller-provided financing, with a principal balance of $45,941
and $45,232 as of March 31, 1998 and December 31, 1997, respectively, also has a
term of approximately nine years and initially bears interest at a rate of 6.99
percent per annum. 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
The $64,508 in mortgage financing (the "Mortgage Financing") consisted of
$43,313, which bore interest at a net cost to the Operating Partnership equal to
a fixed rate of 8.02 percent per annum and $20,195 which bore interest at a net
cost to the Operating Partnership equal to a floating rate of 100 basis points
over one-month LIBOR with a lifetime interest rate cap of 11.6 percent. On
August 12, 1997, the Operating Partnership retired the Mortgage Financing with
funds made available primarily from drawing on the Original Unsecured Facility
(see below). On account of prepayment fees, loan origination fees, legal fees
and other costs incurred in the retirement of the Mortgage Financing, an
extraordinary loss of $3,985, was recorded for the year ended December 31, 1997.
CIGNA MORTGAGES
In connection with the Mack Transaction, the Operating Partnership assumed
non-recourse mortgage debt (the "CIGNA Mortgages") aggregating $75,910 and
$86,650 in principal as of March 31, 1998 and December 31, 1997, respectively,
with Connecticut General Life Insurance Company ("CIGNA"). Such mortgages, which
are secured by five of the Mack Properties, bear interest at a weighted average
annual fixed rate of 7.68 percent and require monthly payments of interest and
principal on various term amortization schedules. The CIGNA mortgages mature
between October 1998 and October 2003.
In April 1998, simultaneous with the Operating Partnership obtaining the
$150,000 Prudential Mortgage Loan, as described below, the Operating Partnership
retired one of the CIGNA Mortgages with a principal balance of $27,835.
MITSUBISHI MORTGAGES
In connection with the Mack Transaction, the Operating Partnership assumed
non-recourse variable-rate mortgage debt (the "Mitsubishi Mortgages")
aggregating $72,204 in principal as of March 31, 1998 and December 31, 1997 with
Mitsubishi Trust and Banking Corporation. Such mortgages, which are secured by
two of the Mack Properties, bear interest payable monthly at a variable rate of
65 basis points over LIBOR (5.6875 percent at March 31, 1998 and 5.72 percent at
December 31, 1997) and mature between January 2008 and January 2009.
F-19
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
7. MORTGAGES AND LOANS PAYABLE (CONTINUED)
PRUDENTIAL MORTGAGES
The Operating Partnership has mortgage debt (the "Prudential Mortgages")
aggregating $61,669 and $62,205 in principal as of March 31, 1998 and December
31, 1997, respectively, with The Prudential Insurance Company of America,
substantially all of which was assumed in the Mack Transaction. Such mortgages,
which are secured by three properties, bear interest at a weighted average
annual fixed rate of 8.43 percent, all of which require monthly payments of
interest. In addition, certain of the Prudential Mortgages require monthly
payments of principal, in addition to interest, on various term amortization
schedules. The Prudential Mortgages mature between October 2003 and July 2004.
OTHER MORTGAGES
The Operating Partnership has mortgage debt ("Other Mortgages") aggregating
$99,937 and $88,474 in principal as of March 31, 1998 and December 31, 1997,
respectively, with six different lenders, all of which was assumed in the Mack
Transaction, and are secured by eight of the Mack Properties. The Other
Mortgages are comprised of: (i) fixed rate debt aggregating $80,723 at March 31,
1998 ($69,110 at December 31, 1997), which bears interest at a weighted average
fixed rate of 6.89 percent, and require monthly payments of principal and
interest on various term amortization schedules, and (ii) variable rate debt
aggregating $19,214 at March 31, 1998 ($19,364, at December 31, 1997) which
bears interest at 115 basis points over LIBOR. The Other Mortgages mature
between February 1999 and September 2005.
In April 1998, simultaneous with the Operating Partnership obtaining the
$150,000 Prudential Mortgage Loan, as described below, the Operating Partnership
retired $20,338 of the Other Mortgages.
PRUDENTIAL TERM LOAN
On December 10, 1997, the Operating Partnership obtained a $200,000 term
loan ( the "Prudential Term Loan") from Prudential Securities Corp. ("PSC"). The
proceeds of the loan were used to fund a portion of the cash consideration in
completion of the Mack Transaction. The loan has a one-year term and interest
payments are required monthly at an interest rate of 110 basis points over
one-month LIBOR. The loan is a recourse loan secured by 11 properties owned by
the Operating Partnership and located in New Jersey. The Prudential Term Loan
was subsequently retired in April 1998, simultaneous with the Operating
Partnership obtaining the $150,000 Prudential Mortgage Loan, as described below.
REVOLVING CREDIT FACILITIES
PRUDENTIAL FACILITY
The Operating Partnership has a revolving credit facility (the "Prudential
Facility") from PSC in the amount of $100,000, which currently bears interest at
110 basis points over one-month LIBOR, and matures on March 31, 1999. The
Prudential Facility is a recourse liability of the Operating Partnership and is
secured by the Operating Partnership's equity interest in Harborside. The terms
of the 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. The Operating Partnership had no outstanding borrowings at either
March 31, 1998 or December 31, 1997 under the Prudential Facility.
F-20
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
7. MORTGAGES AND LOANS PAYABLE (CONTINUED)
FIRST PRUDENTIAL FACILITY
The Operating Partnership had a $70,000 revolving credit facility (the
"First Prudential Facility") with PSC. 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. In conjunction with obtaining the Original Unsecured Facility
(see below), the Operating Partnership repaid in full and terminated the First
Prudential Facility on August 7, 1997. The Operating Partnership had outstanding
borrowings of $6,000 at December 31, 1996 under the First Prudential Facility.
BANK FACILITY
The Operating Partnership had a revolving credit facility (the "Bank
Facility"), secured by certain of its properties, in the amount of $75,000 from
two participating banks. The Bank Facility had a three-year term and bore
interest at 150 basis points over one-month LIBOR. In conjunction with obtaining
the Original Unsecured Facility (see below), the Operating Partnership repaid in
full and terminated the Bank Facility on August 7, 1997. The Operating
Partnership had outstanding borrowings of $23,805 at December 31, 1996 under the
Bank Facility.
SECOND PRUDENTIAL FACILITY
The Operating Partnership has a revolving credit facility ("Second
Prudential Facility") from PSC in the amount of $100,000 which currently bears
interest at 110 basis points over one-month LIBOR, and matures on March 31,
1999. The Second Prudential Facility is a recourse liability of the Operating
Partnership and is secured by the Operating Partnership'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. The Operating Partnership had no
outstanding borrowings at December 31, 1997 and 1996 under the Second Prudential
Facility.
ORIGINAL UNSECURED FACILITY
On August 6, 1997, the Operating Partnership obtained an unsecured revolving
credit facility (the "Original Unsecured Facility") in the amount of $400,000
from a group of 13 lender banks. The Original Unsecured Facility has a
three-year term and currently bears interest at 125 basis points over one-month
LIBOR.
The terms of the Original Unsecured 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 Original Unsecured Facility also requires a
fee on the unused balance payable quarterly in arrears, at a rate ranging from
one-eighth of one percent to one-quarter of one percent of such balance,
depending on the level of borrowings outstanding in relation to the total
facility commitment.
The Operating Partnership had outstanding borrowings of $356,751 and
$122,100 at March 31, 1998 and December 31, 1997, respectively, under the
Original Unsecured Facility. The Original Unsecured
F-21
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
7. MORTGAGES AND LOANS PAYABLE (CONTINUED)
Facility was subsequently repaid and retired in connection with the Operating
Partnership obtaining the 1998 Unsecured Facility in April 1998, as described
below.
1998 UNSECURED FACILITY
On April 17, 1998, the Operating Partnership repaid in full and terminated
the Original Unsecured Facility and obtained a new unsecured revolving credit
facility (the "1998 Unsecured Facility") in the amount of $870,000 from a group
of 25 lender banks, led by The Chase Manhattan Bank and Fleet National Bank. The
1998 Unsecured Facility has a three year term and currently bears interest at
110 basis points over LIBOR, a reduction of 15 basis points from the retired
Original Unsecured Facility. Based upon the Operating Partnership's achievement
of an investment grade long-term unsecured debt rating, the interest rate will
be reduced, on a sliding scale, and a competitive bid option will become
available.
The terms of the 1998 Unsecured 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 1998 Unsecured Facility also requires a 17.5
basis point fee on the unused balance payable quarterly in arrears.
The lending group for the 1998 Unsecured Facility consists of: The Chase
Manhattan Bank, as administrative agent; Fleet National Bank, as syndication
agent; PNC Bank, N.A., as documentation agent; Bankers Trust, Commerzbank, AG,
The First National Bank of Chicago, First Union National Bank and NationsBank,
as managing agents; Creditanstalt Corporate Finance, Inc., Dresdner Bank, AG,
European American Bank (EAB), Hypo Bank, Societe Generale and Summit Bank, as
co-agents; and Kredietbank, N.V., Key Bank, Mellon Bank, N.A., The Bank of New
York, Citizens Bank, Crestar, DG Bank, Tokai Bank, US Trust, Bayerische
Landesbank and Erste Bank.
$150,000 PRUDENTIAL MORTGAGE LOAN
On April 30, 1998, the Operating Partnership obtained a $150,000,
interest-only mortgage loan from The Prudential Insurance Company of America
with a seven-year term. The mortgage loan, which is secured by 12 of the
Operating Partnership's properties, has an effective annual interest rate of 7.1
percent, and includes a conversion feature whereby the Operating Partnership,
upon receiving an investment-grade credit rating, will have the option to
convert the loan into senior unsecured debt.
The proceeds of the new loan were used, along with funds drawn from one of
the Operating Partnership's credit facilities, to retire the Prudential Term
Loan, as well as approximately $48,200 of the Mack Mortgages.
CONTINGENT OBLIGATION
As part of the Harborside acquisition, the Operating Partnership agreed to
make payments (with an estimated net present value of approximately $5,252 at
acquisition date) to the seller for development rights ("Contingent Obligation")
if and when the Operating Partnership commences construction on the acquired
site during the next several years. However, the agreement provides, among other
things, that even if the Operating Partnership does not commence construction,
the seller may nevertheless require the Operating Partnership to acquire these
rights during the six-month period after the end of the sixth year. After such
period, the seller's option lapses, but any development in years 7 through 30
will require a
F-22
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
7. MORTGAGES AND LOANS PAYABLE (CONTINUED)
payment, on an increasing scale, for the development rights. For the three
months ended March 31, 1998 and the year ended December 31, 1997, interest was
imputed on the Contingent Obligation, thereby increasing the balance of the
Contingent Obligation to $5,838 as of March 31, 1998 ($5,734 as of December 31,
1997).
INTEREST RATE CONTRACTS
The Operating Partnership has an interest rate swap agreement with a
commercial bank. The swap agreement fixes the Operating Partnership's one-month
LIBOR base to a fixed 6.285 percent per annum on a notional amount of $24,000
through August 1999.
The Operating Partnership also has another interest rate swap agreement with
a commercial bank. This swap agreement has a three-year term and a notional
amount of $26,000, which fixes the Operating Partnership's one-month LIBOR base
to 5.265 percent per annum through January 1999.
On November 20, 1997, the Operating Partnership entered into a seven-year,
interpolated U.S. Treasury interest rate lock agreement with a commercial bank.
The agreement fixes the Operating Partnership's base Treasury rate of 5.88
percent per annum on a notional amount of $150,000.
The Operating Partnership is exposed to credit loss in the event of
non-performance by the other parties to the interest rate contracts. However,
the Operating Partnership does not anticipate non-performance by any of its
counterparties.
SCHEDULED PRINCIPAL PAYMENTS, INTEREST PAID AND CAPITALIZED INTEREST
Scheduled principal payments on the mortgages and loans payable, as of
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 278,788
1999.............................................................................. 61,848
2000.............................................................................. 125,265
2001.............................................................................. 5,538
2002.............................................................................. 10,406
Thereafter........................................................................ 490,805
----------
Total............................................................................. $ 972,650
----------
----------
</TABLE>
Cash paid for interest for the three months ended March 31, 1998 and 1997
and the years ended December 31, 1997, 1996, and 1995 was $20,302 and $8,503,
$36,917, $12,096, and $8,322, respectively. Interest capitalized by the
Operating Partnership for the three months ended March 31, 1998 and 1997, and
the years ended December 31, 1997, 1996 and 1995 was $201, none, $820, $118 and
$27, respectively.
F-23
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
8. PARTNERS' CAPITAL
Partners' capital in the accompanying consolidated financial statements
relates to common units in the Operating Partnership, in addition to certain
preferred units and unit warrants in the Operating Partnership issued in
conjunction with the Mack Transaction. Preferred and common units and unit
warrants issued during 1997 and the first three months of 1998 are described in
Note 3.
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.
On November 22, 1996, the Company completed an underwritten public offer and
sale of 17,537,500 shares of its common stock. The Company received
approximately $441,215 in net proceeds (after offering costs) from the offering,
and used such funds to complete certain of the Company's property acquisitions
in November and December 1996, pay down outstanding borrowings on its revolving
credit facilities, and invest in Overnight Investments.
On May 15, 1997, the stockholders approved an increase in the authorized
shares of common stock in the Company to 190,000,000.
On October 15, 1997, the Company completed an underwritten public offer and
sale of 13,000,000 shares (the "1997 Offering") of its common stock The Company
received approximately $489,116 in net proceeds (after offering costs) from the
1997 Offering. The Company used $160,000 of such proceeds to repay outstanding
borrowings on its Unsecured Facility and the remainder of the proceeds to fund a
portion of the purchase price of the Mack Transaction, for other acquisitions,
and for general corporate purposes.
On February 25, 1998, the Company completed an underwritten public offer and
sale of 2,500,000 shares of its common stock (the "1998 Offering") and used the
net proceeds of approximately $92,000 (after offering costs) to pay down a
portion of its outstanding borrowings under the Unsecured Facility and to fund
the acquisition of Moutainview (see Note 3).
On March 18, 1998, in connection with the acquisition of several properties
and land within the Prudential Business Campus, the Company completed an offer
and sale of 2,705,628 shares of its common stock using the net proceeds of
approximately $99,899 (after offering costs) in the funding of such acquisition
(see Note 3).
On March 27, 1998, the Company completed an underwritten public offer and
sale of 650,407 shares of its common stock and used the net proceeds, which
totaled approximately $23,690 (after offering costs) to pay down a portion of
its outstanding borrowings under the Operating Partnership's credit facilities.
On April 29, 1998, the Company completed an underwritten offer and sale of
994,228 shares of its common stock and used the proceeds, which totaled
approximately $34,650 (after offering costs) primarily to pay down a portion of
its outstanding borrowings under the Operating Partnership's credit facilities.
On May 29, 1998, the Company completed an underwritten public offer and sale
of 984,615 shares of its common stock and used the net proceeds, which totaled
approximately $34.2 million (after offering costs) primarily to pay down a
portion of its outstanding borrowings under the Operating Partnership's credit
facilities.
F-24
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
8. PARTNERS' CAPITAL (CONTINUED)
The proceeds of the above offerings were contributed to the Operating
Partnership in exchange for units.
PREFERRED UNITS
As described in Note 3, in connection with the funding of the Mack
Transaction, the Operating Partnership issued 15,237 Series A Preferred Units
and 215,325 Series B Preferred Units, with an aggregate value of $236,490. The
Preferred Units have a stated value of $1,000 per unit and are preferred as to
assets over any class of common units or other class of preferred units of the
Operating Partnership, based on circumstances per the applicable unit
certificates.
The quarterly distribution on each Preferred Unit is an amount equal to the
greater of (i) $16.875 (representing 6.75 percent of the Preferred Unit stated
value of $1,000 on an annualized basis) or (ii) the quarterly distribution
attributable to a Preferred Unit determined as if such unit had been converted
into common units, subject to adjustment for customary anti-dilution rights.
Each of the Series A Preferred Units may be converted at any time into common
units at a conversion price of $34.65 per common unit, and, after the one year
anniversary of the date of the Series A Preferred Units' initial issuance,
common units received pursuant to such conversion may be redeemed into common
stock. Each of the Series B Preferred Units may be converted at any time into
common units at a conversion price of $34.65 per unit, and, after the three year
anniversary of the date of the Series B Preferred Units' initial issuance,
common units received pursuant to such conversion may be redeemed into common
stock. Each of the common units are redeemable after one year for an equal
number of shares of common stock.
The Preferred Unit to common unit conversion rate of $34.65 per common unit,
was an amount less than the $39.0625 closing stock price on the date of closing
of the Mack Transaction. Accordingly, the Operating Partnership recorded, on
December 11, 1997, the financial value ascribed to this beneficial conversion
feature inherent in the Preferred Units upon issuance, totaling $29,361 and was
recorded as beneficial conversion feature in Partners' Capital. The beneficial
conversion feature was amortized in full as the Preferred Units were immediately
convertible upon issuance; such amortization was included in the Statement of
Operations for the year ended December 31, 1997.
During the three months ended March 31, 1998, the Operating Partnership
issued 1,839 additional Preferred Units (1,111 of Series A and 728 of Series B),
valued at approximately $1,886, in connection with the achievement of certain
performance goals at the Mack Properties in redemption of an equivalent number
of Contingent Units. Such Preferred Units carry the identical terms as those
issued in the Mack Transaction.
COMMON UNITS
Certain individuals and entities own common units in the Operating
Partnership. A common 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.
Common units are redeemable by the common unitholders (other than the
General Partner) at their option, subject to certain restrictions, on the basis
of one common unit for either one share of common stock or cash equal to the
fair market value of a share at the time of the redemption. The Company has the
option to deliver shares of common stock in exchange for all or any portion of
the cash requested. When a
F-25
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
8. PARTNERS' CAPITAL (CONTINUED)
Unitholder redeems a common unit, limited partner's capital is reduced and the
general partner's capital is increased. Common units held by the Company are not
redeemable.
As described in Note 3, the Operating Partnership issued an aggregate of
3,408,532 common units in 1997 in connection with the completion of the RM
Transaction, the Mack Transaction and Princeton Overlook.
During the three months ended March 31, 1998, a common unitholder redeemed
20,000 common units and received $766 in cash from the Operating Partnership.
Additionally, certain other common unitholders redeemed an aggregate of 22,300
common units for an equivalent number of shares of common stock in the Company.
On March 26, 1998, in connection with the Pacifica I Acquisition, the
Operating Partnership issued 100,175 common units, valued at approximately
$3,779.
During the three months ended March 31, 1998, the Company also issued
634,000 common units, valued at approximately $21,405, in connection with the
achievement of certain performance goals at the Mack Properties in redemption
for an equivalent number of contingent common units.
CONTINGENT COMMON & PREFERRED UNITS
In conjunction with the completion of the Mack Transaction, 2,006,432
contingent Common units, 11,895 Series A contingent Preferred Units and 7,799
Series B contingent Preferred Units (collectively, the "Contingent Units") were
issued as contingent non-participating units. Such Contingent Units have no
voting, distribution or other rights until such time as they are redeemed into
common units, Series A Preferred Units, and Series B Preferred Units,
respectively. Redemption of such Contingent Units shall occur upon the
achievement of certain performance goals relating to certain of the Mack
Properties, specifically the achievement of certain leasing activity. When
Contingent Units are redeemed for Common and Preferred Units, an adjustment to
the purchase price of the Mack Properties is recorded, based on the value of the
units issued. On account of certain of the performance goals having been
achieved during the three months ended March 31, 1998, the Operating Partnership
redeemed 634,000 contingent common units and 1,839 contingent Preferred Units
and issued an equivalent number of common and Preferred Units, as indicated
above.
UNIT WARRANTS
As described in Note 3, in connection with the funding of the Mack
Transaction, the Operating Partnership granted warrants to purchase 2,000,000
common units. The Unit Warrants are exercisable at any time after one year from
the date of their issuance and prior to the fifth anniversary thereof at an
exercise price of $37.80 per common unit.
STOCK OPTION PLANS
In 1994, and as subsequently amended, 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 5,380,188 shares (subject to
adjustment) of the Company's common stock have been reserved for issuance
(4,980,188 shares under the Employee Plan and 400,000 shares under the Director
Plan). Stock options
F-26
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
8. PARTNERS' CAPITAL (CONTINUED)
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 and
1997 become exercisable over a five-year period. All stock options granted under
the Director Plan become exercisable in one year. All options were granted at
the fair market value at the dates of grant and have terms of ten years. As of
March 31, 1998 and December 31, 1997, the stock options outstanding had a
weighted average remaining contractual life of approximately 9.0 years.
As a result of certain provisions contained in certain of the Company's
executive officers' employment agreements, on December 11, 1997, the Mack
Transaction triggered the accelerated vesting of unvested stock options held by
such officers on that date.
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
EMPLOYEE DIRECTOR
SHARES UNDER OPTION: PLAN PLAN
- ---------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
Outstanding at January 1, 1995 $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-$38.75 per share.................................... 1,956,538 170,000
Less-Lapsed or canceled............................................... (30,073) --
Exercised at $17.25-$26.25 per share.................................. (335,282) (2,000)
---------- ---------
Outstanding at December 31, 1997 $15.25-$38.75 per share.............. 3,080,290 207,000
Granted at $37.3125 per share......................................... 901,150 --
Less--Lapsed or canceled.............................................. (344) --
Exercised at $17.25-$30.75............................................ (99,062) (2,000)
---------- ---------
Outstanding at March 31, 1998 $15.25-$38.75 per share................. 3,882,034 205,000
---------- ---------
---------- ---------
Exercisable at December 31, 1997...................................... 967,618 37,000
Exercisable at March 31, 1998......................................... 1,295,965 45,000
---------- ---------
Available for grant at December 31, 1996.............................. 175,040 51,000
Available for grant at December 31, 1997.............................. 1,448,575 181,000
Available for grant at March 31, 1998................................. 547,769 181,000
---------- ---------
</TABLE>
The weighted-average fair value of options granted during 1997, 1996, and
1995 were $6.66, $2.41, and $1.28 per option, respectively. The fair value of
each significant option grant is estimated on the date of
F-27
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
8. PARTNERS' CAPITAL (CONTINUED)
grant using the Black-Scholes model. The following weighted average assumptions
are included in the Company's fair value calculations of stock options:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Expected life (years)............................................. 6 6 6
Risk-free interest rate........................................... 5.84% 6.11% 6.58%
Volatility........................................................ 23.76% 19.14% 1.41%
Dividend yield.................................................... 5.29% 7.58% 10.20%
</TABLE>
WARRANTS
On January 31, 1997, in conjunction with the completion of the RM
Transaction, the Company granted a total of 400,000 warrants to purchase an
equal number of shares of common stock at $33 per share (the market price at
date of grant) to Timothy Jones, Brad Berger and certain other Company employees
formerly with RM. Such warrants vest equally over a three-year period and have a
term of ten years. The unvested warrants held by Timothy Jones and Brad Berger
became immediately exercisable on December 11, 1997 as a result of provisions
contained in their employment agreements, which were triggered by the Mack
Transaction.
On December 12, 1997, in conjunction with the completion of the Mack
Transaction, the Company granted a total of 491,756 warrants to purchase an
equal number of shares of common stock at $38.75 per share (the market price at
date of grant) to Mitchell Hersh, and certain other Company executives formerly
with Patriot American Office Group. Such warrants vest equally over a five-year
period and have a term of ten years.
The weighted-average fair value of warrants granted during 1997 were $6.27
per warrant. No warrants were outstanding in 1995 or 1996. The fair value of
each warrant grant is estimated on the date of grant using the Black-Scholes
model. The following weighted average assumptions are included in the Company's
fair value calculations of warrants granted during 1997:
<TABLE>
<S> <C>
Expected life (years)................................................ 6
Risk-free interest rate.............................................. 5.96%
Volatility........................................................... 22.77%
Dividend yield....................................................... 5.29%
</TABLE>
FASB NO. 123
Under the above models, the value of stock options and warrants granted
during 1997, 1996 and 1995 totaled approximately $22,998, $1,955, and $294,
respectively, which would be amortized ratably on a pro forma basis over the
appropriate vesting period. Had the Operating Partnership determined
compensation cost for these granted securities in accordance with FASB No. 123,
the Operating Partnership's pro forma net (loss) income and basic (loss)
earnings per share and diluted (loss) earnings per share would have been
($2,425), ($0.06) and ($0.05) in 1997, $36,115, $1.71 and $1.68 in 1996 and
$17,043, $1.22 and $1.21 in 1995. The FASB No. 123 method of accounting does not
apply to options granted prior to January 1, 1995 and accordingly, the resulting
pro forma compensation cost may not be representative of that to be expected in
the future.
F-28
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
8. PARTNERS' CAPITAL (CONTINUED)
STOCK COMPENSATION
In January 1997, the Company entered into employment contracts with seven of
its key executives which provided for, among other things, compensation in the
form of stock awards (the "Restricted Stock Awards") and Company-financed stock
purchase rights (the "Stock Purchase Rights"), and associated tax obligation
payments. In connection with the Restricted Stock Awards, the executives were to
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-recourse loans, aggregating $4,750, to such executives
to finance their purchase of 152,000 shares of the Company's common stock, which
the Company agreed to forgive ratably over five years, subject to continued
employment. 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. 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 152,000 Units for $4,680.
The value of the Restricted Stock Awards and the balance of the loans
related to the Stock Purchase Rights at the grant date, were recorded as
unamortized stock compensation in stockholders' equity. As a result of certain
provisions contained in certain of the Company's executive officers' employment
agreements, which were triggered by the Mack Transaction on December 11, 1997,
the loans provided by the Company under the Stock Purchase Rights were forgiven
by the Company, and the vesting and issuance of the restricted stock issued
under the Restricted Stock Awards was accelerated, and related tax obligation
payments were made. As a result, the accelerated cost of $16,788 affecting the
stock compensation described above was included in non-recurring merger-related
charges for the year ended December 31, 1997. With such accelerated vestings
there was no remaining balance in unamortized stock compensation as of December
31, 1997.
Included in general and administrative expense for the year ended December
31, 1997 is $2,257 relating to the normal cost of Restricted Stock Awards and
Stock Purchase Rights.
EARNINGS PER UNIT
FASB No. 128 requires a dual presentation of basic and diluted earnings per
unit ("EPU") on the face of the income statement for all companies with complex
capital structures even where the effect of such dilution is not material. Basic
EPU excludes dilution and is computed by dividing net income available to common
unitholders by the weighted average number of units outstanding for the period.
Diluted EPU reflects the potential dilution that could occur if securities or
other contracts to issue common units were exercised or converted into common
units.
F-29
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
8. PARTNERS' CAPITAL (CONTINUED)
The following information presents the Operating Partnership's results for
the three months ended March 31, 1998 and 1997, and the years ended December 31,
1997, 1996 and 1995 in accordance with FASB No. 128.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1997
------------------------ ------------------------
BASIC EPU DILUTED EPU BASIC EPU DILUTED EPU
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income....................................... $ 29,938 $ 29,938 $ 18,095 $ 18,095
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average units........................... 57,933 58,682 40,085 40,817
----------- ----------- ----------- -----------
Per Unit......................................... $ 0.52 $ 0.51 $ 0.45 $ 0.44
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
-------------------------- ------------------------- -------------------------
BASIC EPU DILUTED EPU BASIC EPU DILUTED EPU BASIC EPU DILUTED EPU
----------- ------------- ----------- ------------ ----------- ------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net income.................................. $ 2,133 $ 2,133 $ 36,618 $ 36,618 $ 17,146 $ 17,146
----------- ------ ----------- ------------ ----------- ------------
----------- ------ ----------- ------------ ----------- ------------
Weighted average units...................... 43,356 44,156 21,172 21,436 13,986 14,041
----------- ------ ----------- ------------ ----------- ------------
Per Unit.................................... $ 0.05 $ 0.05 $ 1.73 $ 1.71 $ 1.23 $ 1.22
----------- ------ ----------- ------------ ----------- ------------
----------- ------ ----------- ------------ ----------- ------------
</TABLE>
The following schedule reconciles the units used in the basic EPU
calculation to the units used in the diluted EPU calculation (units in
thousands).
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
(UNAUDITED)
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
Basic EPU Units:................................................. 57,933 40,085 43,356 21,172 13,986
Add: Stock Options............................................... 612 533 579 264 55
Restricted Stock Awards...................................... -- 199 188 -- --
Stock Warrants............................................... 137 -- 33 -- --
--------- --------- --------- --------- ---------
Diluted EPU Units:............................................... 58,682 40,817 44,156 21,436 14,041
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
9. EMPLOYEE BENEFIT PLAN
All employees of the Company who meet certain minimum age and period of
service requirements are eligible to participate in a 401(k) defined
contribution plan (the "Plan"). 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.
F-30
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
10. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined by
management using available market information and appropriate valuation
methodologies. However, considerable judgement is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Operating Partnership
could realize on disposition of the financial instruments at December 31, 1997
and 1996. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
Cash equivalents, receivables, accounts payable, and accrued expenses and
other liabilities are carried at amounts which reasonably approximate their fair
values.
Mortgages and loans payable had an aggregate carrying value of $972,650 and
$268,010 as of December 31, 1997 and 1996, respectively, which approximates
their estimated aggregate fair value (excluding prepayment penalties) based upon
then current interest rates for debt with similar terms and remaining
maturities.
The estimated cost to settle the Operating Partnership's interest rate
contracts, at December 31, 1997 and 1996, based on quoted market prices of
comparable contracts was $1,404 and $140, respectively.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1997 and 1996. Although
management is not aware of any factors that would significantly affect the fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since December 31, 1997 and current estimates of
fair value may differ significantly from the amounts presented herein.
11. 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 Operating Partnership is required to make
payments in lieu of property taxes ("PILOT") on its property at 95 Christopher
Columbus Drive, Jersey City, Hudson County, New Jersey. Such PILOT, as defined,
is $1,267 per annum through May 31, 1999 and $1,584 per annum through May 31,
2004.
HARBORSIDE FINANCIAL CENTER PROPERTY
Pursuant to an agreement with the City of Jersey City, New Jersey obtained
by the former owner of the Harborside property in 1988 and assumed by the
Operating Partnership as part of the acquisition of
the property in November 1996, the Operating Partnership is required to make
PILOT payments on its Harborside property. The agreement, which commenced in
1990, is for a term of 15 years. Such PILOT is equal to two percent of Total
Project Costs, as defined, in year one and increases by $75 per annum through
year fifteen. Total Project Costs, as defined, are $148,712.
F-31
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
GROUND LEASE AGREEMENTS
Future minimum rental payments under the terms of all non-cancelable ground
leases, under which the Operating Partnership is the lessee,as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1998............................................................................... $ 320
1999............................................................................... 320
2000............................................................................... 320
2001............................................................................... 320
2002............................................................................... 320
Thereafter......................................................................... 17,851
---------
Total.............................................................................. $ 19,451
---------
---------
</TABLE>
OTHER CONTINGENCIES
On December 10, 1997, a Shareholder's Derivative Action was filed in
Maryland Court on behalf of one individual shareholder. The complaint questioned
certain executive compensation decisions made by the Company's Board of
Directors in connection with the Mack Transaction. The Board's compensation
decisions were discussed in the proxy materials distributed in connection with
the Mack Transaction and were approved by in excess of 99 percent of the voting
shareholders. Although the Company believes that this lawsuit was factually and
legally baseless, the Company on May 4, 1998 agreed to a settlement pursuant to
which it incurred a cost of approximately $554, and agreed to certain changes to
employment agreements of certain of its executive officers. The Company expects
to incur an additional $196 in costs associated with defending this action. The
Company provided for $750 at December 31, 1997 for this matter which is included
in non-recurring merger-related charges.
The Operating Partnership is a defendant in other certain litigation arising
in the normal course of business activities. Management does not believe that
the resolution of these matters will have a materially adverse effect upon the
Operating Partnership.
12. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2020. 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.
F-32
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
12. TENANT LEASES (CONTINUED)
Future minimum rentals to be received under non-cancelable operating leases
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 335,286
1999............................................................................ 304,157
2000............................................................................ 259,715
2001............................................................................ 207,136
2002............................................................................ 168,239
Thereafter...................................................................... 690,884
------------
Total........................................................................... $ 1,965,417
------------
------------
</TABLE>
13. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("FASB No. 130"), which establishes standards for the reporting and
display of comprehensive income and its components. This statement requires a
separate statement to report the components of comprehensive income for each
period reported. The provisions of this statement are effective for fiscal years
beginning after December 15, 1997. Management believes that they currently do
not have items that would require presentation in a separate statement of
comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, ("FASB No. 131"), which establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and require that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for financial statements for periods
beginning after December 15, 1997, and requires that comparative information
from earlier years be restated to conform to the requirements of this standard.
14. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma financial information for the years ended December
31, 1997 and 1996 are presented as if the acquisitions, disposition and common
stock offerings in 1996, the RM Transaction, the Mack Transaction and 1997 stock
offering and the 1997 acquisitions of 1345 Campus, Westlakes, Shelton Place, 200
Corporate, Three Independence, The Trooper Building, Concord Plaza and Princeton
Overlook had all occurred on January 1, 1996. The pro forma information for the
three month periods ended March 31, 1998 and 1997 are presented as if the RM
Transaction, the Mack Transaction and all other acquisitions and common stock
offering completed in 1997, and during the three months ended March 31, 1998 had
all occurred on January 1, 1997. The pro forma financial information excludes
any deduction for the non-recurring merger-related charges and beneficial
conversion feature charge included in the Operating Partnership's historical
information for the year ended December 31, 1997. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.
F-33
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
14. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
This pro forma financial information is not necessarily indicative of what
the actual results of operations of the Operating Partnership would have been
assuming such transactions had been completed as of January 1, 1996 or 1997, nor
do they represent the results of operations of future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
---------- ---------- ---------- ----------
Total revenues................................................... $ 116,530 $ 116,554 $ 429,796 $ 407,181
Operating and other expenses..................................... (34,470) (35,779) (129,293) (125,618)
General and administrative....................................... (6,600) (6,070) (24,112) (21,462)
Depreciation and amortization.................................... (17,982) (16,910) (61,197) (59,440)
Interest expense................................................. (22,753) (24,469) (66,496) (67,217)
---------- ---------- ---------- ----------
Income before extraordinary item and Preferred Unit distribution
requirement.................................................... 34,725 33,326 148,698 133,444
Preferred Unit distribution requirement.......................... (3,911) (3,891) (15,563) (15,563)
---------- ---------- ---------- ----------
Income before extraordinary item available for common
unitholders.................................................... $ 30,814 $ 29,435 $ 133,135 $ 117,881
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per common unit................................... $ 0.49 $ 0.48 $ 2.39 $ 2.12
Basic weighted average units outstanding......................... 62,453 61,233 55,773 55,521
Diluted earnings per common unit................................. $ 0.48 $ 0.48 $ 2.35 $ 2.11
Diluted weighted average units outstanding....................... 63,676 61,965 56,573 55,786
</TABLE>
F-34
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
15. CONDENSED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes the condensed quarterly financial information for
the Operating Partnership:
<TABLE>
<CAPTION>
QUARTER ENDED 1997
------------------------------------------------
SEPTEMBER
DECEMBER 31 30 JUNE 30 MARCH 31
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Total revenues.................................... $ 74,495 $ 62,609 $ 60,542 $ 52,155
Operating and other expenses...................... 22,580 18,928 18,068 15,574
General and administrative........................ 5,260 3,675 3,754 3,173
Depreciation and amortization..................... 11,194 9,339 8,799 7,493
Interest expense.................................. 10,680 10,694 9,884 7,820
Non-recurring merger-related charges.............. 46,519 -- -- --
----------- ----------- --------- -----------
Loss/Income before extraordinary item............. (21,738) 19,973 20,037 18,095
Extraordinary item--loss on early retirement
debt............................................ -- 3,985 -- --
----------- ----------- --------- -----------
Net (loss) income................................. $ (21,738) $ 15,988 $ 20,037 $ 18,095
----------- ----------- --------- -----------
----------- ----------- --------- -----------
BASIC EARNINGS PER UNIT:
(Loss) income before extraordinary item......... $ (1.00) $ 0.49 $ 0.49 $ 0.45
Extraordinary item.............................. -- (0.10) -- --
----------- ----------- --------- -----------
Net (loss) income................................. $ (1.00) $ 0.39 $ 0.49 $ 0.45
----------- ----------- --------- -----------
----------- ----------- --------- -----------
DILUTED EARNINGS PER UNIT:
(Loss) income before extraordinary item......... $ (1.00) $ 0.49 $ 0.49 $ 0.44
Extraordinary item.............................. -- (0.10) -- --
----------- ----------- --------- -----------
Net (loss) income................................. $ (1.00) $ 0.39 $ 0.49 $ 0.44
----------- ----------- --------- -----------
----------- ----------- --------- -----------
Distributions declared per common unit............ $ 0.50 $ 0.50 $ 0.45 $ 0.45
</TABLE>
F-35
<PAGE>
MACK-CALI REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (CONTINUED)
15. CONDENSED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED 1996
------------------------------------------------
SEPTEMBER
DECEMBER 31 30 JUNE 30 MARCH 31
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Total revenues.................................... $ 32,370 $ 22,518 $ 21,013 $ 19,571
Operating and other expenses...................... 9,404 7,035 6,579 6,644
General and administrative........................ 2,365 1,371 1,128 936
Depreciation and amortization..................... 4,880 3,469 3,348 3,034
Interest expense.................................. 4,665 2,999 3,265 2,829
----------- ----------- --------- -----------
Income before gain on sale of rental property
extraordinary item................................ 11,056 7,644 6,693 6,128
Gain on sale of rental property................... -- -- -- 5,658
----------- ----------- --------- -----------
Income before extraordinary item.................. 11,056 7,644 6,693 11,786
Extraordinary item--loss on early retirement
debt............................................ -- -- -- 561
----------- ----------- --------- -----------
Net income........................................ $ 11,056 $ 7,644 $ 6,693 $ 11,225
----------- ----------- --------- -----------
----------- ----------- --------- -----------
BASIC EARNINGS PER UNIT:
Income before extraordinary item................ $ 0.39 $ 0.39 $ 0.37 $ 0.66
Extraordinary item.............................. -- -- -- (0.03)
----------- ----------- --------- -----------
Net income........................................ $ 0.39 $ 0.39 $ 0.37 $ 0.63
----------- ----------- --------- -----------
----------- ----------- --------- -----------
DILUTED EARNINGS PER UNIT:
Income before extraordinary item................ $ 0.38 $ 0.38 $ 0.37 $ 0.65
Extraordinary item.............................. -- -- -- (0.03)
----------- ----------- --------- -----------
Net income........................................ $ 0.38 $ 0.38 $ 0.37 $ 0.62
----------- ----------- --------- -----------
----------- ----------- --------- -----------
Distributions declared per common unit............ $ 0.45 $ 0.45 $ 0.43 $ 0.43
</TABLE>
F-36
<PAGE>
SCHEDULE III
MACK-CALI REALTY, L.P.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COSTS COSTS
---------------------- CAPITALIZED
YEAR RELATED BUILDING AND SUBSEQUENT
PROPERTY LOCATION(2) BUILT ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION
- ----------------------------------- ------- -------- ------------ -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
ATLANTIC COUNTY, NEW JERSEY
EGG HARBOR
100 Decadon Drive(O)............... 1987 1995 -- $ 300 $ 3,282 $ 71
200 Decadon Drive(O)............... 1991 1995 -- 369 3,241 97
BERGEN COUNTY, NEW JERSEY
FAIR LAWN
17-17 Rte 208 N.(O)................ 1987 1995 $ 18,033 3,067 19,415 282
FORT LEE
One Bridge Plaza(O)................ 1981 1996 13,800 2,439 24,462 1,137
LITTLE FERRY
200 Riser Road(O).................. 1974 1997 7,006 3,888 15,551 --
MONTVALE
135 Chestnut Ridge Road(O)......... 1981 1997 -- 2,587 10,350 --
95 Chestnut Ridge Road(O).......... 1975 1997 1,183 1,227 4,907 --
PARAMUS
140 Ridgewood Avenue(O)............ 1981 1997 -- 7,932 31,729 --
15 East Midland Avenue(O).......... 1988 1997 28,022 10,375 41,497 --
461 From Road(O)................... 1988 1997 29,890 13,194 52,778 --
61 South Paramus Avenue(O)......... 1985 1997 -- 9,005 36,018 --
650 From Road(O)................... 1978 1997 -- 10,487 41,949 --
ROCHELLE PARK
120 Passaic Street(O).............. 1972 1997 -- 1,354 5,415 --
365 West Passaic Street(O)......... 1976 1997 -- 4,148 16,592 --
SADDLE RIVER
1 Lake Street(O)................... 1973/94 1997 -- 13,952 55,812 --
WOODCLIFF LAKE
400 Chestnut Ridge Road(O)......... 1982 1997 15,281 4,201 16,802 --
470 Chestnut Ridge Road(O)......... 1987 1997 -- 2,346 9,385 --
530 Chestnut Ridge Road(O)......... 1986 1997 -- 1,860 7,441 --
50 Tice Boulevard(O)............... 1984 1994 19,300 4,500 -- 25,325
300 Tice Boulevard(O).............. 1991 1996 17,400 5,424 29,688 162
BURLINGTON COUNTY, NEW JERSEY
DELRAN
Tenby Chase Apartments(M).......... 1970 1994 -- 396 -- 5,107
MOORESTOWN
224 Strawbridge Drive(O)........... 1984 1997 -- 766 4,334 1,381
228 Strawbridge Drive(O)........... 1984 1997 -- 767 4,333 383
ESSEX COUNTY, NEW JERSEY
MILLBURN
150 J.F. Kennedy Parkway(O)........ 1980 1997 28,890 12,606 50,425 --
ROSELAND
101 Eisenhower Parkway(O).......... 1980 1994 10,900 228 -- 13,930
103 Eisenhower Parkway(O).......... 1985 1994 11,200 -- -- 14,040
HUDSON COUNTY, NEW JERSEY
JERSEY CITY
95 Christopher Columbus Drive(O)... 1989 1994 74,600 6,205 -- 79,479
Harborside Financial Center Plaza
I(O)............................. 1983 1996 -- 3,923 51,013 5
Harborside Financial Center Plaza
II(O)............................ 1990 1996 48,099 17,655 101,546 1,343
Harborside Financial Center Plaza
III(O)........................... 1990 1996 107,635 17,655 101,878 367
MERCER COUNTY, NEW JERSEY
HAMILTON TOWNSHIP
100 Horizon Drive(F)............... 1989 1995 -- 205 1,676 --
200 Horizon Drive(F)............... 1991 1995 -- 205 3,027 1
300 Horizon Drive(F)............... 1989 1995 -- 379 4,355 8
500 Horizon Drive(F)............... 1990 1995 -- 379 3,395 86
PRINCETON
5 Vaughn Drive(O).................. 1987 1995 -- 657 9,800 148
400 Alexander Road(O).............. 1987 1995 -- 344 3,917 2,397
103 Carnegie Center(O)............. 1984 1996 -- 2,566 7,868 362
100 Overlook Center(O)............. 1988 1997 -- 4,068 23,150 --
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
PERIOD(1)
----------------------
BUILDING AND ACCUMULATED
PROPERTY LOCATION(2) LAND IMPROVEMENTS TOTAL DEPRECIATION
- ----------------------------------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
ATLANTIC COUNTY, NEW JERSEY
EGG HARBOR
100 Decadon Drive(O)............... $ 300 $ 3,353 $ 3,653 $ 180
200 Decadon Drive(O)............... 369 3,338 3,707 193
BERGEN COUNTY, NEW JERSEY
FAIR LAWN
17-17 Rte 208 N.(O)................ 3,067 19,697 22,764 1,420
FORT LEE
One Bridge Plaza(O)................ 2,439 25,599 28,038 644
LITTLE FERRY
200 Riser Road(O).................. 3,888 15,551 19,439 17
MONTVALE
135 Chestnut Ridge Road(O)......... 2,587 10,350 12,937 11
95 Chestnut Ridge Road(O).......... 1,227 4,907 6,134 5
PARAMUS
140 Ridgewood Avenue(O)............ 7,932 31,729 39,661 35
15 East Midland Avenue(O).......... 10,375 41,497 51,872 46
461 From Road(O)................... 13,194 52,778 65,972 58
61 South Paramus Avenue(O)......... 9,005 36,018 45,023 40
650 From Road(O)................... 10,487 41,949 52,436 46
ROCHELLE PARK
120 Passaic Street(O).............. 1,354 5,415 6,769 6
365 West Passaic Street(O)......... 4,148 16,592 20,740 18
SADDLE RIVER
1 Lake Street(O)................... 13,952 55,812 69,764 62
WOODCLIFF LAKE
400 Chestnut Ridge Road(O)......... 4,201 16,802 21,003 16
470 Chestnut Ridge Road(O)......... 2,346 9,385 11,731 10
530 Chestnut Ridge Road(O)......... 1,860 7,441 9,301 8
50 Tice Boulevard(O)............... 4,500 25,325 29,825 9,453
300 Tice Boulevard(O).............. 5,424 29,850 35,274 813
BURLINGTON COUNTY, NEW JERSEY
DELRAN
Tenby Chase Apartments(M).......... 396 5,107 5,503 3,138
MOORESTOWN
224 Strawbridge Drive(O)........... 766 5,715 6,481 --
228 Strawbridge Drive(O)........... 767 4,716 5,483 --
ESSEX COUNTY, NEW JERSEY
MILLBURN
150 J.F. Kennedy Parkway(O)........ 12,606 50,425 63,031 56
ROSELAND
101 Eisenhower Parkway(O).......... 228 13,930 14,158 6,849
103 Eisenhower Parkway(O).......... 2,300 11,740 14,040 4,643
HUDSON COUNTY, NEW JERSEY
JERSEY CITY
95 Christopher Columbus Drive(O)... 6,205 79,479 85,684 19,212
Harborside Financial Center Plaza
I(O)............................. 3,923 51,018 54,941 1,488
Harborside Financial Center Plaza
II(O)............................ 17,843 101,721 119,544 2,994
Harborside Financial Center Plaza
III(O)........................... 17,823 102,077 119,900 2,993
MERCER COUNTY, NEW JERSEY
HAMILTON TOWNSHIP
100 Horizon Drive(F)............... 205 1,676 1,881 99
200 Horizon Drive(F)............... 205 3,028 3,233 164
300 Horizon Drive(F)............... 379 4,363 4,742 237
500 Horizon Drive(F)............... 379 3,481 3,860 204
PRINCETON
5 Vaughn Drive(O).................. 657 9,948 10,605 620
400 Alexander Road(O).............. 344 6,314 6,658 415
103 Carnegie Center(O)............. 2,566 8,230 10,796 397
100 Overlook Center(O)............. 4,068 23,150 27,218 --
</TABLE>
F-37
<PAGE>
SCHEDULE III
MACK-CALI REALTY, L.P.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COSTS COSTS
---------------------- CAPITALIZED
YEAR RELATED BUILDING AND SUBSEQUENT
PROPERTY LOCATION(2) BUILT ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION
- ----------------------------------- ------- -------- ------------ -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
MIDDLESEX COUNTY, NEW JERSEY
EAST BRUNSWICK
377 Summerhill Road(O)............. 1977 1997 -- 649 2,594 --
SOUTH BRUNSWICK
3 Independence Way(O).............. 1983 1997 -- 1,997 11,391 --
WOODBRIDGE
581 Main Street(O)................. 1991 1997 24,707 3,237 12,949 --
MONMOUTH COUNTY, NEW JERSEY
NEPTUNE
3600 Route 66(O)................... 1989 1995 12,200 1,098 18,146 40
WALL TOWNSHIP
1305 Campus Parkway(O)............. 1988 1995 -- 335 2,560 39
1320 Wykoff Avenue(F).............. 1986 1995 -- 255 1,285 --
1324 Wykoff Avenue(F).............. 1987 1995 -- 230 1,439 88
1325 Campus Parkway(F)............. 1988 1995 -- 270 2,928 24
1340 Campus Parkway(F)............. 1992 1995 -- 489 4,621 100
1350 Campus Parkway(O)............. 1990 1995 -- 454 7,134 487
1433 Highway 34(F)................. 1985 1995 -- 889 4,321 241
1345 Campus Parkway(F)............. 1995 1997 -- 1,023 5,703 --
MORRIS COUNTY, NEW JERSEY
FLORHAM PARK
325 Columbia Parkway(O)............ 1987 1994 12,800 1,564 -- 15,116
PARSIPPANY
600 Parsippany Road(O)............. 1978 1994 -- 1,257 5,594 444
MORRIS PLAINS
201 Littleton Road(O).............. 1979 1997 -- 2,407 9,627 --
250 Johnston Road(O)............... 1977 1997 2,354 2,004 8,016 --
MORRIS TOWNSHIP
340 Mt. Kemble Avenue(O)........... 1985 1997 32,178 13,624 54,496 --
412 Mt. Kemble Avenue(O)........... 1986 1997 40,025 15,737 62,954 --
PASSAIC COUNTY, NEW JERSEY
CLIFTON
777 Passaic Avenue(O).............. 1983 1994 -- -- -- 6,932
TOTOWA
11 Commerce Way(F)................. 1989 1995 -- 586 2,986 65
120 Commerce Way(F)................ 1994 1995 -- 228 -- 1,187
140 Commerce Way(F)................ 1994 1995 -- 229 -- 1,187
20 Commerce Way(F)................. 1992 1995 -- 516 3,108 26
29 Commerce Way(F)................. 1990 1995 -- 586 3,092 225
40 Commerce Way(F)................. 1987 1995 -- 516 3,260 399
45 Commerce Way(F)................. 1992 1995 -- 536 3,379 103
60 Commerce Way(F)................. 1988 1995 -- 526 3,257 226
999 Riverview Drive(O)............. 1988 1995 -- 476 6,024 115
100 Commerce Way(F)................ 1996 1996 -- 226 -- 1,615
80 Commerce Way(F)................. 1996 1996 -- 227 -- 1,616
WAYNE
201 Willowbrook Boulevard(O)....... 1970 1997 11,637 3,103 12,410 --
SOMERSET COUNTY, NEW JERSEY
BASKING RIDGE
222 Mt. Airy Road(O)............... 1986 1996 -- 775 3,636 16
233 Mt. Airy Road(O)............... 1987 1996 -- 1,034 5,033 16
BRIDGEWATER
721 Route 202/206(O)............... 1989 1997 24,315 6,730 26,919 --
UNION COUNTY, NEW JERSEY
CLARK
100 Walnut Avenue(O)............... 1985 1994 13,900 -- -- 17,299
CRANFORD
11 Commerce Drive(O)............... 1981 1994 -- 470 -- 5,807
20 Commerce Drive(O)............... 1990 1994 11,000 2,346 -- 21,192
6 Commerce Drive(O)................ 1973 1994 2,900 250 -- 2,655
65 Jackson Drive(O)................ 1984 1994 -- 541 -- 6,944
12 Commerce Drive(O)............... 1967 1997 -- 887 3,549 --
NEW PROVIDENCE
890 Mountain Road(O)............... 1977 1997 8,551 2,796 11,185 --
DUTCHESS COUNTY, NEW YORK
FISHKILL
300 South Lake Drive(O)............ 1987 1997 -- 2,258 9,031 --
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
PERIOD(1)
----------------------
BUILDING AND ACCUMULATED
PROPERTY LOCATION(2) LAND IMPROVEMENTS TOTAL DEPRECIATION
- ----------------------------------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
MIDDLESEX COUNTY, NEW JERSEY
EAST BRUNSWICK
377 Summerhill Road(O)............. 649 2,594 3,243 3
SOUTH BRUNSWICK
3 Independence Way(O).............. 1,997 11,391 13,388 95
WOODBRIDGE
581 Main Street(O)................. 3,237 12,949 16,186 14
MONMOUTH COUNTY, NEW JERSEY
NEPTUNE
3600 Route 66(O)................... 1,098 18,186 19,284 987
WALL TOWNSHIP
1305 Campus Parkway(O)............. 335 2,599 2,934 166
1320 Wykoff Avenue(F).............. 255 1,285 1,540 70
1324 Wykoff Avenue(F).............. 230 1,527 1,757 78
1325 Campus Parkway(F)............. 270 2,952 3,222 166
1340 Campus Parkway(F)............. 489 4,721 5,210 250
1350 Campus Parkway(O)............. 454 7,621 8,075 427
1433 Highway 34(F)................. 889 4,562 5,451 282
1345 Campus Parkway(F)............. 1,023 5,703 6,726 133
MORRIS COUNTY, NEW JERSEY
FLORHAM PARK
325 Columbia Parkway(O)............ 1,564 15,116 16,680 5,024
PARSIPPANY
600 Parsippany Road(O)............. 1,257 6,038 7,295 493
MORRIS PLAINS
201 Littleton Road(O).............. 2,407 9,627 12,034 11
250 Johnston Road(O)............... 2,004 8,016 10,020 9
MORRIS TOWNSHIP
340 Mt. Kemble Avenue(O)........... 13,624 54,496 68,120 60
412 Mt. Kemble Avenue(O)........... 15,737 62,954 78,691 70
PASSAIC COUNTY, NEW JERSEY
CLIFTON
777 Passaic Avenue(O).............. 1,100 5,832 6,932 2,230
TOTOWA
11 Commerce Way(F)................. 586 3,051 3,637 167
120 Commerce Way(F)................ 228 1,187 1,415 --
140 Commerce Way(F)................ 229 1,187 1,416 128
20 Commerce Way(F)................. 516 3,134 3,650 169
29 Commerce Way(F)................. 586 3,317 3,903 214
40 Commerce Way(F)................. 516 3,659 4,175 209
45 Commerce Way(F)................. 536 3,482 4,018 221
60 Commerce Way(F)................. 526 3,483 4,009 222
999 Riverview Drive(O)............. 476 6,139 6,615 345
100 Commerce Way(F)................ 226 1,615 1,841 79
80 Commerce Way(F)................. 227 1,616 1,843 79
WAYNE
201 Willowbrook Boulevard(O)....... 3,103 12,410 15,513 14
SOMERSET COUNTY, NEW JERSEY
BASKING RIDGE
222 Mt. Airy Road(O)............... 775 3,652 4,427 129
233 Mt. Airy Road(O)............... 1,034 5,049 6,083 179
BRIDGEWATER
721 Route 202/206(O)............... 6,730 26,919 33,649 30
UNION COUNTY, NEW JERSEY
CLARK
100 Walnut Avenue(O)............... 1,822 15,477 17,299 5,750
CRANFORD
11 Commerce Drive(O)............... 470 5,807 6,277 2,824
20 Commerce Drive(O)............... 2,346 21,192 23,538 4,980
6 Commerce Drive(O)................ 250 2,655 2,905 1,458
65 Jackson Drive(O)................ 541 6,944 7,485 2,475
12 Commerce Drive(O)............... 887 3,549 4,436 4
NEW PROVIDENCE
890 Mountain Road(O)............... 2,796 11,185 13,981 12
DUTCHESS COUNTY, NEW YORK
FISHKILL
300 South Lake Drive(O)............ 2,258 9,031 11,289 10
</TABLE>
F-38
<PAGE>
SCHEDULE III
MACK-CALI REALTY, L.P.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COSTS COSTS
---------------------- CAPITALIZED
YEAR RELATED BUILDING AND SUBSEQUENT
PROPERTY LOCATION(2) BUILT ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION
- ----------------------------------- ------- -------- ------------ -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
NASSAU COUNTY, NEW YORK
NORTH HEMPSTEAD
111 East Shore Road(O)............. 1980 1997 8,000 2,093 8,370 --
600 Community Drive(O)............. 1983 1997 -- 11,018 44,070 --
ROCKLAND COUNTY, NEW YORK
SUFFERN
400 Rella Boulevard(O)............. 1988 1995 -- 1,090 13,412 457
WESTCHESTER COUNTY, NEW YORK
ELMSFORD
1 Warehouse Lane(I)................ 1957 1997 161 3 268 --
1 Westchester Plaza(F)............. 1967 1997 1,320 199 2,023 17
100 Clearbrook Road(O)............. 1975 1997 1,281 220 5,366 98
101 Executive Boulevard(O)......... 1971 1997 3,600 267 5,838 19
11 Clearbrook Road(F).............. 1974 1997 1,367 149 2,159 --
150 Clearbrook Road(F)............. 1975 1997 4,464 497 7,030 --
175 Clearbrook Road(F)............. 1973 1997 4,826 655 7,473 197
2 Warehouse Lane(I)................ 1957 1997 402 4 672 --
2 Westchester Plaza(F)............. 1968 1997 1,760 234 2,726 --
200 Clearbrook Road(F)............. 1974 1997 4,263 579 6,620 8
250 Clearbrook Road(F)............. 1973 1997 5,631 867 8,647 205
3 Warehouse Lane(I)................ 1957 1997 1,166 21 1,948 --
3 Westchester Plaza(F)............. 1969 1997 5,080 655 7,936 --
300 Executive Boulevard(F)......... 1970 1997 2,403 460 3,609 --
350 Executive Boulevard(F)......... 1970 1997 -- 100 1,793 --
399 Executive Boulevard(F)......... 1962 1997 4,560 531 7,191 --
4 Warehouse Lane(I)................ 1957 1997 8,043 84 13,393 8
4 Westchester Plaza(F)............. 1969 1997 2,400 320 3,729 12
400 Executive Boulevard(F)......... 1970 1997 2,403 2,202 1,846 --
5 Warehouse Lane(I)................ 1957 1997 2,855 19 4,804 3
5 Westchester Plaza(F)............. 1969 1997 1,200 118 1,949 --
50 Executive Boulevard(F).......... 1969 1997 1,680 237 2,617 --
500 Executive Boulevard(F)......... 1970 1997 2,643 258 4,183 --
525 Executive Boulevard(F)......... 1972 1997 -- 345 5,499 --
570 Taxter Road(O)................. 1972 1997 3,847 438 6,078 18
6 Warehouse Lane(I)................ 1982 1997 2,654 10 4,419 --
6 Westchester Plaza(F)............. 1968 1997 1,280 164 1,998 --
7 Westchester Plaza(F)............. 1972 1997 2,720 286 4,321 9
700 Executive Boulevard(L)......... N/A 1997 -- 970 -- --
75 Clearbrook Road(F).............. 1990 1997 -- 2,313 4,717 --
77 Executive Boulevard(F).......... 1977 1997 3,982 34 1,104 --
8 Westchester Plaza(F)............. 1971 1997 3,378 447 5,262 111
85 Executive Boulevard(F).......... 1968 1997 1,562 155 2,507 --
HAWTHORNE
1 Skyline Drive(O)................. 1980 1997 -- 66 1,711 --
10 Skyline Drive(F)................ 1985 1997 1,729 134 2,799 109
11 Skyline Drive(F)................ 1989 1997 -- -- 4,788 --
15 Skyline Drive(F)................ 1989 1997 -- -- 7,449 305
17 Skyline Drive(O)................ 1989 1997 -- -- 7,269 --
2 Skyline Drive(O)................. 1987 1997 -- 109 3,128 --
200 Saw Mill River Road(F)......... 1965 1997 2,172 353 3,353 4
30 Saw Mill River Road(O).......... 1982 1997 21,553 2,355 34,254 --
4 Skyline Drive(F)................. 1987 1997 -- 363 7,513 210
8 Skyline Drive(F)................. 1985 1997 2,734 212 4,410 --
TARRYTOWN
200 White Plains Road(O)........... 1982 1997 5,150 378 8,367 335
220 White Plains Road(O)........... 1984 1997 5,030 367 8,112 15
230 White Plains Road(R)........... 1984 1997 1,158 124 1,845 --
WHITE PLAINS
1 Barker Avenue(O)................. 1975 1997 -- 208 9,629 33
1 Water Street(O).................. 1979 1997 3,298 211 5,382 6
11 Martine Avenue(O)............... 1987 1997 15,465 127 26,833 --
25 Martine Avenue(M)............... 1987 1997 -- 120 11,366 --
3 Barker Avenue(O)................. 1983 1997 122 7,864 249 122
50 Main Street(O).................. 1985 1997 27,919 564 48,105 144
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
PERIOD(1)
----------------------
BUILDING AND ACCUMULATED
PROPERTY LOCATION(2) LAND IMPROVEMENTS TOTAL DEPRECIATION
- ----------------------------------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
NASSAU COUNTY, NEW YORK
NORTH HEMPSTEAD
111 East Shore Road(O)............. 2,093 8,370 10,463 9
600 Community Drive(O)............. 11,018 44,070 55,088 49
ROCKLAND COUNTY, NEW YORK
SUFFERN
400 Rella Boulevard(O)............. 1,090 13,869 14,959 982
WESTCHESTER COUNTY, NEW YORK
ELMSFORD
1 Warehouse Lane(I)................ 3 268 271 6
1 Westchester Plaza(F)............. 199 2,040 2,239 47
100 Clearbrook Road(O)............. 220 5,464 5,684 125
101 Executive Boulevard(O)......... 267 5,857 6,124 136
11 Clearbrook Road(F).............. 149 2,159 2,308 49
150 Clearbrook Road(F)............. 497 7,030 7,527 161
175 Clearbrook Road(F)............. 655 7,670 8,325 184
2 Warehouse Lane(I)................ 4 672 676 15
2 Westchester Plaza(F)............. 234 2,726 2,960 62
200 Clearbrook Road(F)............. 579 6,628 7,207 152
250 Clearbrook Road(F)............. 867 8,852 9,719 203
3 Warehouse Lane(I)................ 21 1,948 1,969 45
3 Westchester Plaza(F)............. 655 7,936 8,591 182
300 Executive Boulevard(F)......... 460 3,609 4,069 83
350 Executive Boulevard(F)......... 100 1,793 1,893 41
399 Executive Boulevard(F)......... 531 7,191 7,722 165
4 Warehouse Lane(I)................ 84 13,401 13,485 309
4 Westchester Plaza(F)............. 320 3,741 4,061 87
400 Executive Boulevard(F)......... 2,202 1,846 4,048 42
5 Warehouse Lane(I)................ 19 4,807 4,826 111
5 Westchester Plaza(F)............. 118 1,949 2,067 45
50 Executive Boulevard(F).......... 237 2,617 2,854 60
500 Executive Boulevard(F)......... 258 4,183 4,441 96
525 Executive Boulevard(F)......... 345 5,499 5,844 126
570 Taxter Road(O)................. 438 6,096 6,534 143
6 Warehouse Lane(I)................ 10 4,419 4,429 101
6 Westchester Plaza(F)............. 164 1,998 2,162 46
7 Westchester Plaza(F)............. 286 4,330 4,616 100
700 Executive Boulevard(L)......... 970 -- 970 --
75 Clearbrook Road(F).............. 2,313 4,717 7,030 108
77 Executive Boulevard(F).......... 34 1,104 1,138 25
8 Westchester Plaza(F)............. 447 5,373 5,820 128
85 Executive Boulevard(F).......... 155 2,507 2,662 57
HAWTHORNE
1 Skyline Drive(O)................. 66 1,711 1,777 39
10 Skyline Drive(F)................ 134 2,908 3,042 69
11 Skyline Drive(F)................ -- 4,788 4,788 110
15 Skyline Drive(F)................ -- 7,754 7,754 211
17 Skyline Drive(O)................ -- 7,269 7,269 167
2 Skyline Drive(O)................. 109 3,128 3,237 72
200 Saw Mill River Road(F)......... 353 3,357 3,710 77
30 Saw Mill River Road(O).......... 2,355 34,254 36,609 785
4 Skyline Drive(F)................. 363 7,723 8,086 187
8 Skyline Drive(F)................. 212 4,410 4,622 101
TARRYTOWN
200 White Plains Road(O)........... 378 8,702 9,080 250
220 White Plains Road(O)........... 367 8,127 8,494 193
230 White Plains Road(R)........... 124 1,845 1,969 42
WHITE PLAINS
1 Barker Avenue(O)................. 208 9,662 9,870 225
1 Water Street(O).................. 211 5,388 5,599 124
11 Martine Avenue(O)............... 127 26,833 26,960 615
25 Martine Avenue(M)............... 120 11,366 11,486 260
3 Barker Avenue(O)................. 8,113 8,235 191
50 Main Street(O).................. 564 48,249 48,813 1,111
</TABLE>
F-39
<PAGE>
SCHEDULE III
MACK-CALI REALTY, L.P.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COSTS COSTS
---------------------- CAPITALIZED
YEAR RELATED BUILDING AND SUBSEQUENT
PROPERTY LOCATION(2) BUILT ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION
- ----------------------------------- ------- -------- ------------ -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
YONKERS
1 Enterprise Boulevard(L).......... N/A 1997 -- 1,380 -- --
1 Executive Boulevard(O)........... 1982 1997 684 1,104 11,904 24
1 Odell Plaza(F)................... 1980 1997 -- 1,206 6,815 --
100 Corporate Boulevard(F)......... 1987 1997 6,211 602 9,910 --
2 Executive Plaza(R)............... 1986 1997 7,722 89 2,439 --
3 Executive Plaza(O)............... 1987 1997 -- 385 6,259 4
4 Executive Plaza(F)............... 1986 1997 1,528 584 6,134 162
5 Odell Plaza(F)................... 1983 1997 -- 331 2,988 --
6 Executive Plaza(F)............... 1987 1997 -- 546 7,246 --
7 Odell Plaza(F)................... 1984 1997 -- 419 4,418 53
200 Corporate Boulevard South(F)... 1990 1997 -- 502 7,575 --
CHESTER COUNTY, PENNSYLVANIA
BERWYN
1000 Westlakes Drive(O)............ 1989 1997 -- 619 9,016 60
1055 Westlakes Drive(O)............ 1990 1997 -- 1,951 19,046 116
1205 Westlakes Drive(O)............ 1988 1997 -- 1,323 20,098 127
1235 Westlakes Drive(O)............ 1986 1997 -- 1,417 21,215 136
DELAWARE COUNTY, PENNSYLVANIA
MEDIA
1400 Providence Rd--Center I(O).... 1986 1996 -- 1,042 9,054 532
1400 Providence Rd. - Center
II(O)............................ 1990 1996 -- 1,543 16,464 518
LESTER
100 Stevens Drive(O)............... 1986 1996 -- 1,349 10,018 109
200 Stevens Drive(O)............... 1987 1996 -- 1,644 20,186 133
300 Stevens Drive(O)............... 1992 1996 -- 491 9,490 74
MONTGOMERY COUNTY, PENNSYLVANIA
LOWER PROVIDENCE
1000 Madison Avenue(O)............. 1990 1997 -- 1,713 12,559 1
PLYMOUTH MEETING
Five Sentry East(O)................ 1984 1996 -- 642 8,168 255
Five Sentry West(O)................ 1984 1996 -- 268 3,406 34
1150 Plymouth Meeting Mall(O)...... 1970 1997 -- 125 499 --
FAIRFIELD COUNTY, CONNECTICUT
STAMFORD
419 West Avenue & Expans(F)........ 1986 1997 -- 4,538 9,246 --
500 West Avenue(F)................. 1988 1997 -- 415 1,679 --
550 West Avenue(F)................. 1990 1997 -- 1,975 3,856 --
SHELTON
1000 Bridgeport Avenue(O).......... 1986 1997 773 15,036 -- 773
BEXAR COUNTY, TEXAS
SAN ANTONIO
111 Soledad(O)..................... 1918 1997 -- 2,004 8,017 --
1777 N.E. Loop 410(O).............. 1986 1997 -- 3,119 12,477 --
84 N.E. Loop 410(O)................ 1971 1997 -- 2,596 10,382 --
200 Concord Plaza Drive(O)......... 1986 1997 -- 5,109 28,967 --
COLLIN COUNTY, TEXAS
PLANO
555 Republic Place(O).............. 1986 1997 -- 942 3,767 --
DALLAS COUNTY, TEXAS
DALLAS
3030 LBJ Freeway(O)................ 1984 1997 -- 6,098 24,366 --
3100 Monticello(O)................. 1984 1997 -- 1,940 7,762 --
8214 Westchester(O)................ 1983 1997 -- 1,705 6,819 --
IRVING
2300 Valley View(O)................ 1985 1997 -- 1,913 7,651 --
RICHARDSON
1122 Alma Road(O).................. 1977 1997 -- 754 3,015 --
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
PERIOD(1)
----------------------
BUILDING AND ACCUMULATED
PROPERTY LOCATION(2) LAND IMPROVEMENTS TOTAL DEPRECIATION
- ----------------------------------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
YONKERS
1 Enterprise Boulevard(L).......... 1,380 -- 1,380 --
1 Executive Boulevard(O)........... 1,104 11,928 13,032 284
1 Odell Plaza(F)................... 1,206 6,815 8,021 156
100 Corporate Boulevard(F)......... 602 9,910 10,512 227
2 Executive Plaza(R)............... 89 2,439 2,528 56
3 Executive Plaza(O)............... 385 6,263 6,648 143
4 Executive Plaza(F)............... 584 6,296 6,880 150
5 Odell Plaza(F)................... 331 2,988 3,319 68
6 Executive Plaza(F)............... 546 7,246 7,792 166
7 Odell Plaza(F)................... 419 4,471 4,890 108
200 Corporate Boulevard South(F)... 502 7,575 8,077 174
CHESTER COUNTY, PENNSYLVANIA
BERWYN
1000 Westlakes Drive(O)............ 619 9,076 9,695 167
1055 Westlakes Drive(O)............ 1,951 19,162 21,113 343
1205 Westlakes Drive(O)............ 1,323 20,225 21,548 359
1235 Westlakes Drive(O)............ 1,417 21,351 22,768 391
DELAWARE COUNTY, PENNSYLVANIA
MEDIA
1400 Providence Rd--Center I(O).... 1,042 9,586 10,628 395
1400 Providence Rd. - Center
II(O)............................ 1,543 16,982 18,525 711
LESTER
100 Stevens Drive(O)............... 1,349 10,127 11,476 253
200 Stevens Drive(O)............... 1,644 20,319 21,963 508
300 Stevens Drive(O)............... 491 9,564 10,055 239
MONTGOMERY COUNTY, PENNSYLVANIA
LOWER PROVIDENCE
1000 Madison Avenue(O)............. 1,713 12,559 14,272 32
PLYMOUTH MEETING
Five Sentry East(O)................ 642 8,423 9,065 239
Five Sentry West(O)................ 268 3,440 3,708 100
1150 Plymouth Meeting Mall(O)...... 125 499 624 1
FAIRFIELD COUNTY, CONNECTICUT
STAMFORD
419 West Avenue & Expans(F)........ 4,538 9,246 13,784 213
500 West Avenue(F)................. 415 1,679 2,094 38
550 West Avenue(F)................. 1,975 3,856 5,831 88
SHELTON
1000 Bridgeport Avenue(O).......... 15,036 15,809 148
BEXAR COUNTY, TEXAS
SAN ANTONIO
111 Soledad(O)..................... 2,004 8,017 10,021 9
1777 N.E. Loop 410(O).............. 3,119 12,477 15,596 14
84 N.E. Loop 410(O)................ 2,596 10,382 12,978 11
200 Concord Plaza Drive(O)......... 5,109 28,967 34,076 30
COLLIN COUNTY, TEXAS
PLANO
555 Republic Place(O).............. 942 3,767 4,709 4
DALLAS COUNTY, TEXAS
DALLAS
3030 LBJ Freeway(O)................ 6,098 24,366 30,464 27
3100 Monticello(O)................. 1,940 7,762 9,702 9
8214 Westchester(O)................ 1,705 6,819 8,524 8
IRVING
2300 Valley View(O)................ 1,913 7,651 9,564 8
RICHARDSON
1122 Alma Road(O).................. 754 3,015 3,769 3
</TABLE>
F-40
<PAGE>
SCHEDULE III
MACK-CALI REALTY, L.P.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COSTS COSTS
---------------------- CAPITALIZED
YEAR RELATED BUILDING AND SUBSEQUENT
PROPERTY LOCATION(2) BUILT ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION
- ----------------------------------- ------- -------- ------------ -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
HARRIS COUNTY, TEXAS
HOUSTON
10497 Town & Country Way(O)........ 1981 1997 -- 1,619 6,476 --
14511 Falling Creek(O)............. 1982 1997 -- 434 1,738 --
1717 St. James Place(O)............ 1975 1997 -- 909 3,636 --
1770 St. James Place(O)............ 1973 1997 -- 730 2,920 --
5225 Katy Freeway(O)............... 1983 1997 -- 1,403 5,610 --
5300 Memorial(O)................... 1982 1997 -- 1,283 7,269 --
POTTER COUNTY, TEXAS
AMARILLO
6900 IH--40 West(O)................ 1986 1997 -- 287 1,147 --
TARRANT COUNTY, TEXAS
EULESS
150 West Park Way(O)............... 1984 1997 -- 852 3,410 --
MARICOPA COUNTY, ARIZONA
GLENDALE
5551 West Talavi Boulevard(O)...... 1991 1997 7,847 2,732 10,927 --
PHOENIX
19640 North 31st Street(O)......... 1990 1997 11,518 3,437 13,747 --
20002 North 19th Avenue(O)......... 1986 1997 -- 1,843 7,371 --
SCOTTSDALE
9060 E. Via Linda Boulevard(O)..... 1984 1997 10,095 3,720 14,879 --
SAN FRANCISCO COUNTY, CALIFORNIA
SAN FRANCISCO
760 Market Street(O)............... 1908 1997 -- 5,588 22,352 --
HILLSBOROUGH COUNTY, FLORIDA
TAMPA
501 Kennedy Boulevard(O)........... 1982 1997 -- 3,959 15,837 --
POLK COUNTY, IOWA
WEST DES MOINES
2600 Westown Parkway(O)............ 1988 1997 -- 1,708 6,833 --
DOUGLAS COUNTY, NEBRASKA
OMAHA
210 South 16th Street(O)........... 1894 1997 -- 2,559 10,236 --
Projects Under Development......... 1,163 -- 1,073
Furniture, Fixtures & Equipment.... -- -- 4,316
------------ -------- ------------ --------------
TOTALS............................. $850,550 $368,684 $2,020,297 $240,635
------------ -------- ------------ --------------
------------ -------- ------------ --------------
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF
PERIOD(1)
----------------------
BUILDING AND ACCUMULATED
PROPERTY LOCATION(2) LAND IMPROVEMENTS TOTAL DEPRECIATION
- ----------------------------------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
HARRIS COUNTY, TEXAS
HOUSTON
10497 Town & Country Way(O)........ 1,619 6,476 8,095 7
14511 Falling Creek(O)............. 434 1,738 2,172 2
1717 St. James Place(O)............ 909 3,636 4,545 4
1770 St. James Place(O)............ 730 2,920 3,650 3
5225 Katy Freeway(O)............... 1,403 5,610 7,013 6
5300 Memorial(O)................... 1,710 6,841 8,551 8
POTTER COUNTY, TEXAS
AMARILLO
6900 IH--40 West(O)................ 287 1,147 1,434 1
TARRANT COUNTY, TEXAS
EULESS
150 West Park Way(O)............... 852 3,410 4,262 4
MARICOPA COUNTY, ARIZONA
GLENDALE
5551 West Talavi Boulevard(O)...... 2,732 10,927 13,659 12
PHOENIX
19640 North 31st Street(O)......... 3,437 13,747 17,184 15
20002 North 19th Avenue(O)......... 1,843 7,371 9,214 8
SCOTTSDALE
9060 E. Via Linda Boulevard(O)..... 3,720 14,879 18,599 16
SAN FRANCISCO COUNTY, CALIFORNIA
SAN FRANCISCO
760 Market Street(O)............... 5,588 22,352 27,940 25
HILLSBOROUGH COUNTY, FLORIDA
TAMPA
501 Kennedy Boulevard(O)........... 3,959 15,837 19,796 18
POLK COUNTY, IOWA
WEST DES MOINES
2600 Westown Parkway(O)............ 1,708 6,833 8,541 8
DOUGLAS COUNTY, NEBRASKA
OMAHA
210 South 16th Street(O)........... 2,559 10,236 12,795 11
Projects Under Development......... 1,163 1,073 2,236 --
Furniture, Fixtures & Equipment.... -- 4,316 4,316 1,140
-------- ------------ ---------- -----------
TOTALS............................. $374,242 $2,255,374 $2,629,616 $103,133
-------- ------------ ---------- -----------
-------- ------------ ---------- -----------
</TABLE>
- ----------------------------------------
(1) The aggregate cost for federal income tax purposes at December 31, 1997 was
approximately $1.68 billion.
(2) Legend of Property Codes:
(O)=Office Property
(F)=Office/Flex Property
(I)=Industrial/Warehouse Property
(M)=Multi-family Residential Property
(R)=Stand-alone Retail Property
(L)=Land Lease
F-41
<PAGE>
MACK-CALI REALTY, L.P.
NOTE TO SCHEDULE III
Changes in rental properties and accumulated depreciation for the periods
ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
RENTAL PROPERTIES 1997 1996 1995
- ------------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year........................... $ 853,352 $ 387,675 $ 234,470
Additions............................................ 1,776,264 473,371 153,753
Retirements/Disposals................................ -- (7,694) (548)
------------ ---------- ----------
Balance at end year.................................... $ 2,629,616 $ 853,352 $ 387,675
------------ ---------- ----------
------------ ---------- ----------
Accumulated Depreciation:
Balance at beginning of year........................... $ 68,610 $ 59,095 $ 50,800
Depreciation expense................................. 34,523 12,810 8,807
Retirements/Disposals................................ -- (3,295) (512)
------------ ---------- ----------
Balance at end of year................................. $ 103,133 $ 68,610 $ 59,095
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
F-42
<PAGE>
SELECTED FINANCIAL DATA
MACK-CALI REALTY, L.P.
The following table sets forth selected financial data on a consolidated
basis for the Operating Partnership and on a combined basis for the Cali Group.
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP
--------------------------------------------------------------- THE CALI GROUP
-------------------------
THREE MONTHS ENDED AUGUST 31, JANUARY 1,
OPERATING DATA MARCH 31, YEAR ENDED DECEMBER 31, 1994 TO 1994 TO YEAR ENDED
IN THOUSANDS, EXCEPT PER --------------------- -------------------------- DECEMBER 31, AUGUST 30, DECEMBER 31,
UNIT DATA 1998 1997 1997 1996 1995 1994 1994 1993
- ------------------------- ----------- ------- -------- ------- ------- ------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues........... $105,823 $52,155 $249,801 $95,472 $62,335 $16,841 $33,637 $47,900
Operating and other
expenses............... $ 31,067 $15,574 $ 75,150 $29,842 $20,705 $ 5,240 $11,155 $16,408
General and
administrative......... $ 6,196 $ 3,173 $ 15,862 $ 5,800 $ 3,712 $ 1,079 $ 2,288 $ 2,618
Depreciation and
amortization........... $ 16,231 $ 7,493 $ 36,825 $14,731 $10,655 $ 3,319 $ 5,093 $ 7,934
Interest expense......... $ 18,480 $ 7,820 $ 39,078 $13,758 $10,117 $ 2,213 $13,969 $22,004
Non-recurring
merger-related
charges................ $ -- $ -- $ 46,519 $ -- $ -- $-- $ -- $--
Income(loss) before
extraordinary item..... $ 33,849 $18,095 $ 36,367 $37,179 $17,146 $ 4,990 $ (110) $(1,064)
Basic earnings per common
unit-- before
extraordinary item
(1).................... $ 0.52 $ 0.45 $ 0.05 $ 1.73 $ 1.23 $ 0.38
Diluted earnings per
common unit-- before
extraordinary item
(1).................... $ 0.51 $ 0.44 $ 0.05 $ 1.71 $ 1.22 $ 0.38
Distributions declared
per common unit........ $ 0.50 $ 0.45 $ 1.90 $ 1.75 $ 1.66 $ 0.54
Basic weighted average
units outstanding...... 57,932 40,085 43,356 21,171 13,986 13,302
Diluted weighted average
units outstanding...... 58,682 40,817 44,156 21,436 14,041 13,302
</TABLE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP
----------------------------------------------------------- THE CALI GROUP
DECEMBER 31, --------------
BALANCE SHEET DATA IN ------------------------------------------ DECEMBER 31,
THOUSANDS MARCH 31, 1998 1997 1996 1995 1994 1993
- ------------------------- -------------- ---------- ---------- -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Rental property, before
accumulated
depreciation and
amortization........... $3,083,951 $2,629,616 $ 853,352 $387,675 $234,470 $213,675
Total assets............. $3,085,315 $2,593,444 $1,026,328 $363,949 $225,295 $208,828
Mortgages and loans
payable................ $1,207,592 $ 972,650 $ 268,010 $135,464 $ 77,000 $231,981
Total liabilities........ $1,305,827 $1,056,759 $ 297,985 $150,058 $ 88,081 $243,163
Partners' capital
(deficit).............. $1,799,488 $1,536,685 $ 728,343 $213,891 $137,214 $(34,355)
</TABLE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP
-------------------------------------------------------------------
THE CALI GROUP
THREE MONTHS ENDED -------------------------
MARCH 31, AUGUST 31, JANUARY 1,
(UNAUDITED) YEAR ENDED DECEMBER 31, 1994 TO 1994 TO YEAR ENDED
-------------------- ------------------------------- DECEMBER 31, AUGUST 30, DECEMBER 31,
OTHER DATA IN THOUSANDS 1998 1997 1997 1996 1995 1994 1994 1993
- ------------------------- --------- --------- --------- --------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows provided by
operating activities... $ 50,383 $ 31,538 $ 98,142 $ 46,823 $ 28,446 $ 6,367 $ 6,328 $ 2,735
Cash flows (used in)
provided by investing
activities............. $(444,640) $(242,199) $(939,501) $(307,752) $(133,736) $(8,947) $ 1,975 $(3,227)
Cash flows provided by
(used in) financing
activities............. $ 403,270 $ 12,639 $ 639,256 $ 464,769 $ 99,863 $ 8,974 $(1,038) $ (886)
Funds from operations
(2).................... $ 42,855 $ 23,967 $ 110,864 $ 45,220 $ 27,397
</TABLE>
- ------------------------
(1) Earnings per unit (EPU) amounts were not applicable for the Cali Group
periods, as the Cali Group consisted of a series of partnerships.
(2) The Operating Partnership considers funds from operations (after adjustment
for straight-lining of rents) one measure of REIT performance. Funds from
operations is defined as net income (loss) before distribution to preferred
unitholders computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains (or losses) from debt restructuring,
other extraordinary and significant non-recurring items and sales of
property, plus real estate-related depreciation and amortization. Funds from
operations should not be considered as an alternative for net income as an
indication of the Operating Partnership performance or to cash flows as a
measure of liquidity. Funds from operations presented herein is not
necessarily comparable to Funds from operations presented by other real
estate companies due to the fact that not all real estate companies use the
same definition. However, the Operating Partnership's funds from operations
is comparable to the funds from operations of real estate companies that use
the current definition of the National Association of Real Estate Investment
Trusts ("NAREIT"), after the adjustment for straight-lining of rents. Refer
to Management's Discussion and Analysis of Financial Condition and Results
of Operations, contained elsewhere in this Prospectus, for the calculation
of FFO for the periods presented.
F-43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses (except for Commission
fee) to be incurred in connection with the issuance and distribution of the
securities being registered.
<TABLE>
<S> <C>
Commission Registration Fee................................. $ 590,000.00
Printing and Engraving Expenses............................. 200,000.00
Legal Fees and Expenses (other than Blue Sky)............... 700,000.00
Accounting Fees and Expenses................................ 450,000.00
Blue Sky Fees and Expenses (including fees of counsel)...... 20,000.00
Rating Agency Costs......................................... 125,000.00
Indenture Trustee Fees...................................... 50,000.00
Miscellaneous............................................... 40,000.00
---------------
Total..................................................... $ 2,175,000.00
---------------
---------------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's officers and directors are indemnified under Maryland law, the
Articles of Incorporation and the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (the "Partnership Agreement of the
Operating Partnership"), against certain liabilities. The Articles of
Incorporation require the Company to indemnify its directors and officers to the
fullest extent permitted from time to time by the laws of the State of Maryland.
The bylaws contain provisions which implement the indemnification provisions of
the Articles of Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those capacities unless it is established that the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, or the director or officer actually received an improper
personal benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful, or the director or officer was adjudged to be liable
to the corporation for the act or omission. No amendment of the Articles of
Incorporation of the Company shall limit or eliminate the right to
indemnification provided with respect to acts or omissions occurring prior to
such amendment or repeal. Maryland law permits the Company to provide
indemnification to an officer to the same extent as a director, although
additional indemnification may be provided if such officer is not also a
director.
The MGCL permits the articles of incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, with specified exceptions.
The MGCL does not, however, permit the liability of directors and officers to
the corporation or its stockholders to be limited to the extent that (1) it is
proved that the person actually received an improper benefit or profit in money,
property or services (to the extent such benefit or profit was received) or (2)
a judgment or other final adjudication adverse to such person is entered in a
proceeding based on a finding that the person's action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. The Articles of Incorporation of the
Company contain a provision consistent with the MGCL. No amendment of the
II-1
<PAGE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. (CONTINUED)
Articles of Incorporation shall limit or eliminate the limitation of liability
with respect to acts or omissions occurring prior to such amendment or repeal.
The Partnership Agreement of the Operating Partnership also provides for
indemnification of the Company and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in its
Articles of Incorporation, and limits the liability of the Company and its
officers and directors to the Operating Partnership and its partners to the same
extent liability of officers and directors of the Company to its stockholders is
limited under the Company's Articles of Incorporation.
In addition, the Delaware Revised Uniform Limited Partnership Act provides
that a limited partnership has the power to indemnify and hold harmless any
partner or other person from and against any and all claims and demands
whatsoever, subject to such standards and restrictions, if any, as are set forth
in its partnership agreement.
The Company has entered into indemnification agreements with each of its
directors and officers. The indemnification agreements require, among other
things, that the Company indemnify its directors and officers to the fullest
extent permitted by law, and advance to the directors and officers all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company also must indemnify and advance
all expenses incurred by directors and officers seeking to enforce their rights
under the indemnification agreements, and cover directors and officers under the
Company's directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions of the Articles of Incorporation and the bylaws and the
Partnership Agreement of the Operating Partnership, it provides greater
assurance to directors and officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Directors or by the stockholders to eliminate the rights it provides.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement for equity securities (1)
4.1 Form of Indenture (2)
4.2 Form of Articles Supplementary for the Preferred Stock (1)
4.3 Form of Preferred Stock Certificate (1)
4.4 Form of Deposit Agreement (1)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding the validity of the Preferred Stock,
Depositary Shares and Guarantees being registered by the Company. (2)
5.2 Opinion of Pryor Cashman Sherman & Flynn LLP regarding the validity of Debt Securities being
registered by the Operating Partnership.
8.1 Opinion of Pryor Cashman Sherman & Flynn LLP regarding tax matters
12.1 Computation of Ratios of Earnings to Fixed Charges (2)
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as part of Exhibit 5.1) (2)
23.2 Consent of Pryor Cashman Sherman & Flynn LLP (included as part of Exhibits 5.2 and 8.1)
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Schonbraun Safris McCann Bekritsky & Co., L.L.C.
23.5 Consent of Ernst & Young LLP
25.1 Statement of Eligibility of Trustee on Form T-1 (1)
</TABLE>
- ------------------------
(1) To be filed by amendment or incorporated by reference in connection with the
offering of the applicable Offered Securities.
(2) Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
this registration statement or any material change to such information in this
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants hereby further undertake that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrants' annual reports pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrants hereby further undertake that:
(1) For the purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance under Rule 430A and contained in a form
of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Mack-Cali Realty, L.P., an undersigned Registrant, hereby further undertakes
to file an application for the purpose of determining the eligibility of the
Trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York on this
5th day of August, 1998.
MACK-CALI REALTY CORPORATION
By: /s/ THOMAS A. RIZK
-----------------------------------------
Thomas A. Rizk
CHIEF EXECUTIVE OFFICER
MACK-CALI REALTY, L.P.
By: Mack-Cali Realty Corporation as General
Partner
By: /s/ THOMAS A. RIZK
-----------------------------------------
Thomas A. Rizk
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Roger W. Thomas or Barry Lefkowitz or any
one of them, his or her attorneys-in-fact and agents, each with full power of
substitution and resubstitution for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or a Registration Statement prepared in accordance with Rule 462 of
the Securities Act, and to file the same, with exhibits thereto and other
documents in connection herewith or in connection with the Registration of the
Offered Securities under the Securities Exchange Act of 1934, as amended, with
the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his or her substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ THOMAS A. RIZK Chief Executive Officer and
- ------------------------------ Director August 5, 1998
Thomas A. Rizk
/s/ MITCHELL E. HERSH President, Chief Operating
- ------------------------------ Officer and Director August 5, 1998
Mitchell E. Hersh
/s/ BARRY LEFKOWITZ Executive Vice President
- ------------------------------ and Chief Financial August 5, 1998
Barry Lefkowitz Officer
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ JOHN J. CALI Chairman of the Board
- ------------------------------ August 5, 1998
John J. Cali
Director
- ------------------------------ August 5, 1998
William L. Mack
/s/ BRENDAN T. BYRNE Director
- ------------------------------ August 5, 1998
Brendan T. Byrne
Director
- ------------------------------ August 5, 1998
Martin D. Gruss
/s/ JEFFREY B. LANE Director
- ------------------------------ August 5, 1998
Jeffrey B. Lane
Director
- ------------------------------ August 5, 1998
Earle I. Mack
Director
- ------------------------------ August 5, 1998
Paul A. Nussbaum
/s/ ALAN G. PHILIBOSIAN Director
- ------------------------------ August 5, 1998
Alan G. Philibosian
Director
- ------------------------------ August 5, 1998
Irvin D. Reid
Director
- ------------------------------ August 5, 1998
Vincent Tese
/s/ ROBERT F. WEINBERG Director
- ------------------------------ August 5, 1998
Robert F. Weinberg
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ------------- ------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
4.1 Form of Indenture (2)
4.2 Form of Articles Supplementary for the Preferred Stock(1)
4.3 Form of Preferred Stock Certificate(1)
4.4 Form of Deposit Agreement(1)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding the validity of the
Preferred Stock, Depositary Shares and Guarantees being registered by the Company.
(2)
5.2 Opinion of Pryor Cashman Sherman & Flynn LLP regarding the validity of the Debt
Securities being registered by the Operating Partnership.
8.1 Opinion of Pryor Cashman Sherman & Flynn LLP regarding tax matters
12.1 Computation of Ratios of Earnings to Fixed Charges (2)
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as part of Exhibit 5.1)
(2)
23.2 Consent of Pryor Cashman Sherman & Flynn LLP (included as part of Exhibits 5.2 and
8.1)
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Schonbraun Safris McCann Bekritsky & Co., L.L.C.
23.5 Consent of Ernst & Young LLP
25.1 Statement of Eligibility of Trustee on Form T-1(1)
</TABLE>
- ------------------------
(1) To be filed by amendment or incorporated by reference in connection with the
offering of the applicable Offered Securities.
(2) Previously filed.
<PAGE>
Exhibit 5.2
[LETTERHEAD OF
PRYOR CASHMAN SHERMAN & FLYNN LLP]
June 17, 1998
Mack-Cali Realty Corporation
Mack-Cali Realty, L.P.
11 Commerce Drive
Cranford, New Jersey 07016
Ladies and Gentlemen:
We are acting as counsel to Mack-Cali Realty Corporation, a Maryland
corporation (the "Company") and Mack-Cali Realty, L.P., a Delaware limited
partnership (the "Operating Partnership") in connection with the Registration
Statement on Form S-3 of up to $2,000,000,000 in maximum aggregate offering
price of (i) shares or fractional shares of the Company's preferred stock,
par value $.01 per share ("Preferred Stock"), (ii) shares of the Company's
Preferred Stock represented by depositary shares ("Depositary Shares") and
(iii) unsecured non-convertible debt securities of the Operating Partnership
("Debt Securities"). The Preferred Stock, Depositary Shares and Debt
Securities are the subject of a Registration Statement (the "Registration
Statement") filed by the Company and the Operating Partnership on Form S-3
under the Securities Act of 1933, as amended (the "Act").
In our capacity as your counsel in connection with this Registration
Statement, we are familiar with the proceedings taken and proposed to be taken
by the Operating Partnership in connection with the authorization and issuance
of the Debt Securities and, for the purposes of this opinion, have assumed such
proceedings will be timely completed in the manner presently proposed. In
addition, we have made such legal and factual examinations and inquiries,
including examination of originals or copies of originals, certified or
otherwise identified to our satisfaction, of such documents, corporate records
and instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
Based upon and subject to the foregoing, it is our opinion that:
1. The Operating Partnership is a limited partnership duly organized and
validly existing under the laws of the state of Delaware.
2. Upon the adoption by the Board of Directors of the Company, as sole general
partner of the Operating Partnership, of a resolution in form and content
required under applicable law, the Operating Partnership shall have the
authority to issue the Debt Securities to be registered under the Registration
Statement and when (a) the applicable provisions of the Act and such state "blue
sky" or securities laws as may be applicable have been complied with and (b) the
Debt Securities have been issued and delivered for value as contemplated in the
Registration Statement, such Debt Securities shall be legally issued and shall
be binding obligations of the Operating Partnership.
To the extent that the obligations of the Operating Partnership as obligor
under an indenture may be dependent upon such matters, we have assumed for
purposes of this opinion that upon the Operating Partnership's selection of a
trustee, from time to time as may be necessary, (i) such trustee shall be duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and shall be duly qualified to engage in the
activities contemplated by the indenture, (ii) that upon the issuance of Debt
Securities, if at all, such indenture shall be duly authorized, executed and
delivered by and constitute the legal, valid and binding obligation of such
trustee enforceable in accordance with its terms, (iii) that such trustee shall
be in compliance, generally and with respect to acting as trustee under such
indenture, with all applicable laws and regulations and (iv) that such trustee
shall have the requisite organizational and legal power and authority to perform
its obligations under such indenture.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to us under the heading "Legal
Matters" in the Registration Statement, the Prospectus constituting a part
thereof and any amendments thereto.
<PAGE>
This opinion is furnished in connection with the transactions covered
hereby. This opinion may not be relied upon by you for any other purpose, or
furnished to, quoted to, or relied upon by any other person, firm or
corporation for any purpose, without our prior written consent.
Very truly yours,
/s/ Pryor Cashman Sherman & Flynn LLP
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF
PRYOR CASHMAN SHERMAN & FLYNN LLP]
June 12, 1998
Mack-Cali Realty Corporation
11 Commerce Drive
Cranford, NJ 07016
Re: CERTAIN FEDERAL INCOME TAX MATTERS
Ladies and Gentlemen:
We have acted as tax counsel to Mack-Cali Realty Corporation (the
"Company") in connection with the Prospectus included as part of that certain
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission and as amended through the date hereof (the "Registration
Statement"). In connection therewith, you have requested our opinion with
respect to the qualification of the Company as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") and
the accuracy of the discussion included in the Registration Statement under the
heading "Certain United States Federal Income Tax Considerations to the Company
of its REIT Election."
We hereby consent to the use of our opinions as an Exhibit to the
Registration Statement and to any and all references to our firm in the
Prospectus that is a part of the Registration Statement, which Prospectus will
be delivered to prospective purchasers of securities of the Company, and we
hereby consent to such use of our opinion. All defined terms used herein shall
have the same meaning as used in the Registration Statement.
FACTS AND ASSUMPTIONS RELIED UPON
In rendering the opinions expressed herein, we have examined the Articles
of Incorporation and Bylaws of the Company, and such other records, certificates
and documents as we have deemed necessary or appropriate for purposes of
rendering the opinions set forth herein.
In our examination of documents, we have assumed, with your consent, that
all documents submitted to us are authentic originals, or if submitted as
photocopies, that they faithfully reproduce the originals thereof, that all such
documents have been or will be duly executed to the extent required, that all
representations and statements set forth in such documents are true and correct,
and that all obligations imposed by any such on the parties thereto have been or
will be performed or satisfied in accordance with their terms. We have also
assumed, without investigation, that all documents, certificates, warranties and
covenants on which we have relied in rendering the opinions set forth below and
that were given or dated earlier than the date of this letter continue to remain
accurate, insofar as relevant to the opinions set forth herein, from such
earlier date through and including the date of this letter.
We have reviewed the Registration Statement and the descriptions set forth
therein of the Company and its investments and activities. We have relied
upon factual representations of the Company and its affiliates regarding the
manner in which the Company has been and will continue to be owned and
operated. We have also relied upon the representations of the accountants for
the Company regarding the type and amount of income received by the Company
during its taxable year ended December 31, 1997 and the character and amount
of distributions made with respect to its taxable year ended December 31, 1997,
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Mack-Cali Realty Corporation
June 12, 1998
Page 2
and the representations similarly made with respect to prior years of the
Company. We note that for its taxable years ending December 31, 1995 and
December 31, 1996, the Company elected to treat dividends declared in
January 1996 and January 1997, respectively, as having been paid during its
1995 and 1996 taxable years pursuant to Section 858 of the Code. We have
neither independently investigated nor verified such representations, and we
assume that such representations are true, correct and complete and that all
representations made "to the best of the knowledge and belief" of any
person(s) or party(ies) are and will be true, correct and complete as if made
without such qualification. We assume that the Company has been and will be
operated in accordance with applicable laws and the terms and conditions of
applicable documents, and the descriptions of the Company and its investments,
and the proposed investments, activities, operations and governance of the
Company set forth in the Registration Statement continue to be true. In
addition, we have relied on certain additional facts
and assumptions described below.
The foregoing representations are all contained in letters to us dated as
of the date hereof (the "Certificates"). No facts have come to our attention
that are inconsistent with the facts and representations set forth in the
Certificates.
OPINIONS
Based upon and subject to the foregoing, we are of the following opinions:
1. The Company has been organized in conformity with the requirements for
qualification as a REIT under the Code commencing with its initial taxable year
ended December 31, 1994, and for all subsequent taxable years to date, and its
method of operation as described in the representations referred to above, will
enable it to continue to meet the requirements for qualification and taxation as
a REIT under the Code.
2. The discussion contained in that portion of the Registration Statement
under the caption "Certain United States Federal Income Tax Considerations to
the Company of its REIT Election" fairly summarizes the material federal income
tax considerations relevant to the Company's status as a REIT.
The opinions expressed herein are based upon the Code, the Treasury
Regulations promulgated thereunder, current administrative positions of the
Internal Revenue Service, and existing judicial decisions, any of which could be
changed at any time, possibly on a retroactive basis. Any such changes could
adversely affect the opinions rendered herein and the tax consequences to the
Company and investors in the Preferred Stock or Debt Securities. In addition,
as noted above, our opinions are based solely on the documents that we have
examined, the additional information that we have obtained, and the
representations that are being made to us, and cannot be relied upon if any of
the facts contained in such documents or in such additional information are, or
later become, inaccurate or if any of the representations made to use are, or
later become, inaccurate.
We express no opinion with respect to the Registration Statement other than
those expressly set forth herein. Furthermore, the Company's qualification as a
REIT will depend on the Company meeting, in its actual operations, the
applicable asset composition, source of income, shareholder diversification,
distribution, recordkeeping and other requirements of the Code necessary for a
corporation to qualify as a REIT. We will not review these operations, and no
assurance can be given that the actual operations of the Company and its
affiliates will meet these requirements or the representations made to us with
respect thereto.
Finally, our opinion is limited to the tax matters specifically covered
hereby, and we have not been asked to address, nor have we addressed, any other
tax consequences of an investment in the Preferred Stock or Debt Securities.
Very truly yours,
/s/ Pryor Cashman Sherman & Flynn LLP
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EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Amendment No. 1 to Form
S-3 of our report dated February 26, 1998, appearing in Mack-Cali Realty
Corporation's Annual Report on Form 10-K for the year ended December 31,
1997. We also consent to the incorporation by reference in this Registration
Statement of our report dated September 15, 1997, except as to Note 12, which
is as of October 30, 1997, relating to the combined financial statements of
The Mack Group, for each of the three years in the period ended December 31,
1996, included in Cali Realty Corporation's Proxy Statement filed on November
10, 1997. We also consent to the incorporation by reference of our reports
dated April 2, 1998 and April 16, 1998, which appear on pages 45 and 39
respectively of the Current Report on Form 8-K dated June 12, 1998. We also
consent to the use in the Prospectus constituting part of this Registration
Statement on Amendment No. 1 to Form S-3 of our report dated February 26,
1998, relating to the financial statements of Mack-Cali Realty, L.P., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP
New York, New York
August 5, 1998
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EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Amendment
No. 1 to the Registration Statement on Form S-3 of our report dated May 20,
1997 on our audited Statement of Revenue and Certain Expenses for Westlakes
Offices Park of our report dated August 8, 1997 on our audited Statement of
Revenue and Certain Expenses for First Shelton Place, and of our report dated
September 3, 1997 on our audited Statement of Revenue and Certain Expenses
for Three Independence Way, appearing in Mack-Cali Realty Corporation's
current report on Form 8-K dated September 18, 1997.
We also consent to incorporation by reference in this Amendment No. 1 to
the Registration Statement of our report dated October 19, 1997 on our audit
of the Statement of Revenue and Certain Expenses for the McGarvey Portfolio,
of our report dated October 15, 1997 on our audit of the Statement of Revenue
and Certain Expenses for Princeton Overlook, of our report dated November 18,
1997 on our audit of the Statement of Revenue and Certain Expenses for The
Trooper Building, and of our report dated December 22, 1997 on our audit of
the Statement of Revenue and Certain Expenses for 500 West Putnam, appearing
in Mack-Cali Realty Corporation's current report on Form 8-K dated January
16, 1998.
We also consent to incorporation by reference in this Amendment No. 1 to
the Registration Statement of our report dated April 6, 1998 on our audit of
the Statement of Revenue and Certain Expenses for the McGarvey Portfolio, of
our report dated March 29, 1998 on our audit of the Statement of Revenue and
Certain Expenses for 500 West Putnam, of our report dated March 27, 1998 on
our audit of the Statement of Revenue and Certain Expenses for Mountainview,
of our report dated March 30, 1998 on our audit of the Statement of Revenue
and Certain Expenses for Cielo Center, of our report dated April 8, 1998 on
our audit of the Statement of Revenue and Certain Expenses for the Pacifica
Portfolio, of our report dated May 29, 1998 on our audit of the Statement of
Revenue and Certain Expenses for 500 College Road, of our report dated May
29, 1998 on our audit of the Statement of Revenue and Certain Expenses for
the D.C. Portfolio, of our report dated May 30, 1998 on our audit of the
Statement of Revenue and Certain Expenses for 400 South Colorado, and of our
report dated June 4, 1998 on our audit of the Statement of Revenue and
Certain Expenses for 3600 S. Yosemite, appearing in Mack-Cali Realty
Corporation's current report on Form 8-K dated June 12, 1998.
We also consent to the reference to us under the heading "Experts" in such
Amendment No. 1 to the Registration Statement.
/s/ Schonbraun Safris McCann Bekritsky & Co., L.L.C.
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Schonbraun Safris McCann Bekritsky & Co., L.L.C.
Roseland, New Jersey
August 5, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement on Form S-3 of Mack-Cali Realty
Corporation and Mack-Cali Realty, L.P. for the registration of $2,000,000,000
of Preferred Stock, Depositary Shares and Debt Securities and to the
incorporation by reference therein of our report dated March 19, 1997, except
for Note 9, for which the date is October 2, 1997, with respect to the
Combined Financial Statements of the Patriot American Office Group included
in the Proxy Statement of Cali Realty Corporation dated November 10, 1997,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
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ERNST & YOUNG LLP
Dallas, Texas
August 3, 1998
