<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . . . . to. . . . . . . . . . . . .
Commission file number 1-13274
Mack-Cali Realty Corporation
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 22-3305147
. . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11 Commerce Drive, Cranford, New Jersey 07016-3501
- --------------------------------------------------------------------------------
(Address of principal executive office)
(Zip Code)
(908) 272-8000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such report) YES X NO and (2) has been
--- ---
subject to such filing requirements for the past ninety (90) days YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 30, 1999, there were 58,416,148 shares of $0.01 par value common
stock outstanding.
<PAGE>
MACK-CALI REALTY CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998................................................. 4
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998......................................... 5
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended March 31, 1999............................. 6
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998......................................... 7
Notes to Consolidated Financial Statements................................ 8-27
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 28-39
Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 40
PART II OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings......................................................... 41
Item 2. Changes in Securities and Use of Proceeds................................. 41
Item 3. Defaults Upon Senior Securities........................................... 41
Item 4. Submission of Matters to a Vote of Security Holders....................... 41
Item 5. Other Information......................................................... 41
Item 6. Exhibits.................................................................. 42
Signatures................................................................ 43
</TABLE>
2
<PAGE>
MACK-CALI REALTY CORPORATION
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
The accompanying unaudited consolidated balance sheets, statements
of operations, of changes in stockholders' equity, and of cash
flows and related notes, have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim
financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the disclosures required
by GAAP for complete financial statements. The financial
statements reflect all adjustments consisting only of normal,
recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation for the interim periods.
The aforementioned financial statements should be read in
conjunction with the notes to the aforementioned financial
statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations and the financial statements
and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected
for the entire fiscal year or any other period.
3
<PAGE>
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
March 31, December 31,
ASSETS 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rental property
Land and leasehold interests $ 515,000 $ 510,534
Buildings and improvements 2,899,495 2,887,115
Tenant improvements 74,659 64,464
Furniture, fixtures and equipment 6,021 5,686
- -------------------------------------------------------------------------------------------------------------------
3,495,175 3,467,799
Less - accumulated depreciation and amortization (198,945) (177,934)
- -------------------------------------------------------------------------------------------------------------------
Total rental property 3,296,230 3,289,865
Cash and cash equivalents 12,406 5,809
Investments in unconsolidated joint ventures 87,736 66,508
Unbilled rents receivable 44,576 41,038
Deferred charges and other assets, net 44,842 39,020
Restricted cash 6,378 6,026
Accounts receivable, net of allowance for doubtful accounts
of $757 and $670 6,774 3,928
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 3,498,942 $ 3,452,194
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
Senior Unsecured Notes $ 597,265 $ --
Revolving credit facilities 110,600 671,600
Mortgages and loans payable 749,914 749,331
Dividends and distributions payable 40,757 40,564
Accounts payable and accrued expenses 33,401 33,253
Rents received in advance and security deposits 32,555 29,980
Accrued interest payable 3,838 2,246
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 1,568,330 1,526,974
- -------------------------------------------------------------------------------------------------------------------
Minority interest of unitholders in Operating Partnership 474,926 501,313
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized, none issued -- --
Common stock, $0.01 par value, 190,000,000 shares authorized,
58,268,701 and 57,266,137 shares outstanding 583 573
Additional paid-in capital 1,546,402 1,514,648
Dividends in excess of net earnings (91,299) (91,314)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,455,686 1,423,907
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,498,942 $ 3,452,194
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
REVENUES 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Base rents $ 116,080 $ 92,916
Escalations and recoveries from tenants 14,860 10,357
Parking and other 3,900 1,981
Interest income 255 544
Equity in (loss) earnings of unconsolidated joint ventures (206) 25
- -------------------------------------------------------------------------------------------------------------------------
Total revenues 134,889 105,823
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
- -------------------------------------------------------------------------------------------------------------------------
Real estate taxes 13,843 10,073
Utilities 9,592 8,301
Operating services 16,916 12,693
General and administrative 8,134 6,196
Depreciation and amortization 21,969 16,231
Interest expense 23,622 18,480
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 94,076 71,974
- -------------------------------------------------------------------------------------------------------------------------
Income before minority interest 40,813 33,849
Minority interest 8,749 7,306
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 32,064 $ 26,543
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.55 $ 0.52
Diluted earnings per share $ 0.55 $ 0.51
- -------------------------------------------------------------------------------------------------------------------------
Dividends declared per common share $ 0.55 $ 0.50
- -------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 58,162 51,363
Diluted weighted average shares outstanding 67,283 58,682
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Additional Dividends in Total
Common Stock Paid-In Excess of Stockholders'
Shares Par Value Capital Net Earnings Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 57,266 $ 573 $ 1,514,648 $ (91,314) $ 1,423,907
Net income -- -- -- 32,064 32,064
Dividends -- -- -- (32,049) (32,049)
Redemption of common units for
shares of common stock 1,010 10 32,017 -- 32,027
Proceeds from stock options
exercised 19 -- 433 -- 433
Repurchase of common stock (26) -- (713) -- (713)
Deferred compensation plan
for directors -- -- 17 -- 17
- -------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 58,269 $ 583 $ 1,546,402 $ (91,299) $ 1,455,686
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 32,064 $ 26,543
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,969 16,231
Amortization of deferred financing costs 557 254
Equity in loss (earnings) of unconsolidated joint ventures 206 (25)
Minority interest 8,749 7,306
Changes in operating assets and liabilities:
Increase in unbilled rents receivable (3,538) (3,203)
Increase in deferred charges and other assets, net (1,822) (3,790)
Increase in accounts receivable, net (2,846) (34)
Increase in accounts payable and
accrued expenses 148 374
Increase in rents received in advance and
security deposits 2,575 8,256
Increase (decrease) in accrued interest payable 1,592 (1,554)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 59,654 $ 50,358
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- -------------------------------------------------------------------------------------------------------------------------
Additions to rental property $ (21,673) $ (406,659)
Issuance of mortgage note receivable -- (20,000)
Investments in unconsolidated joint ventures (22,474) (18,009)
Distributions from unconsolidated joint ventures 1,040 --
(Increase) decrease in restricted cash (352) 53
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ (43,459) $ (444,615)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from Senior Unsecured Notes $ 597,252 $ --
Proceeds from revolving credit facilities 40,900 419,851
Proceeds from mortgages and loans payable 45,500 --
Repayments of revolving credit facilities (601,900) (185,200)
Repayments of mortgages and loans payable (44,932) (20,314)
Repurchase of common stock (713) --
Redemption of common units -- (766)
Payment of financing costs (5,574) --
Net proceeds from common stock offerings -- 215,784
Proceeds from stock options exercised 433 2,004
Payment of dividends and distributions (40,564) (28,089)
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities $ (9,598) $ 403,270
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents $ 6,597 $ 9,013
Cash and cash equivalents, beginning of period $ 5,809 $ 2,704
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 12,406 $ 11,717
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
7
<PAGE>
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE/UNIT AMOUNTS)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Mack-Cali Realty Corporation, a Maryland corporation, and subsidiaries (the
"Company"), is a fully-integrated, self- administered, self-managed real estate
investment trust ("REIT") providing leasing, management, acquisition,
development, construction and tenant-related services for its properties. As of
March 31, 1999, the Company owned or had interests in 253 properties plus
developable land (collectively, the "Properties"). The Properties aggregate
approximately 28.0 million square feet, and are comprised of 159 office
buildings and 81 office/flex buildings totaling approximately 27.6 million
square feet (which included four office buildings and one office/flex building,
aggregating 1.0 million square feet, owned by unconsolidated joint ventures in
which the Company has investment interests), six industrial/warehouse buildings
totaling approximately 387,400 square feet, two multi-family residential
complexes consisting of 453 units, two stand-alone retail properties and three
land leases. The Properties are located in 12 states, primarily in the
Northeast, plus the District of Columbia.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include all accounts of the
Company and its majority-owned subsidiaries, which consist principally of
Mack-Cali Realty, L.P. (the "Operating Partnership"). See Investments in
Unconsolidated Joint Ventures in Note 2 for the Company's treatment of
unconsolidated joint venture interests. All significant intercompany accounts
and transactions have been eliminated.
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
<TABLE>
<S> <C>
RENTAL
PROPERTY Rental properties are stated at cost less accumulated depreciation and amortization. Costs
directly related to the acquisition and development of rental properties are capitalized.
Capitalized development costs include interest, property taxes, insurance and other project costs
incurred during the period of construction. Ordinary repairs and maintenance are expensed as
incurred; major replacements and betterments, which improve or extend the life of the asset, are
capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are
removed from the accounts.
Properties are depreciated using the straight-line method over the estimated useful lives of the assets.
The estimated useful lives are as follows:
</TABLE>
<TABLE>
<CAPTION>
Leasehold interests Remaining lease term
--------------------------------------------------------------------------------------------
<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>
8
<PAGE>
<TABLE>
<S> <C>
On a periodic basis, management assesses whether there are any indicators that the value of the
real estate properties may be impaired. A property's value is impaired only if management's
estimate of the aggregate future cash flows (undiscounted and without interest charges) to be
generated by the property are less than the carrying value of the property. To the extent an
impairment has occurred, the loss shall be measured as the excess of the carrying amount of the
property over the fair value of the property. Management does not believe that the value of any
of its rental properties is impaired.
INVESTMENTS IN
UNCONSOLIDATED
JOINT VENTURES The Company accounts for its investments in unconsolidated joint ventures under the equity
method of accounting as the Company exercises significant influence, but does not control these
entities. These investments are recorded initially at cost, as Investments in Unconsolidated Joint
Ventures, and subsequently adjusted for equity in earnings (loss) and cash contributions and
distributions. Any difference between the carrying amount of these investments on the balance
sheet of the Company and the underlying equity in net assets is amortized as an adjustment to
equity in earnings (loss) of unconsolidated joint ventures over 40 years. See Note 4.
CASH AND CASH
EQUIVALENTS All highly liquid investments with a maturity of three months or less when purchased are
considered to be cash equivalents.
DEFERRED
FINANCING COSTS Costs incurred in obtaining financing are capitalized and amortized on a straight-line
basis, which approximates the effective interest method, over the term of the related
indebtedness. Amortization of such costs is included in interest expense and was $557 and $254
for the three months ended March 31, 1999 and 1998, respectively.
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. The
portion of such compensation which is capitalized and amortized, approximated $658 and $577,
for the three months ended March 31, 1999 and 1998, respectively.
REVENUE
RECOGNITION Base rental revenue is recognized on a straight-line basis over the terms of the respective
leases. Unbilled rents receivable represents the amount by which straight-line rental revenue
exceeds rents currently billed in accordance with the lease agreements. Parking revenue includes
income from parking spaces leased to tenants. Rental income on residential property under
operating leases having terms generally of one year or less is recognized when earned.
Reimbursements are received from tenants for certain costs as provided in the lease agreements.
These costs generally include real estate taxes, utilities, insurance, common area maintenance
and other recoverable costs. See Note 13.
INCOME AND
OTHER TAXES The Company has elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company generally will
not be subject to federal income tax to the extent it distributes at least 95 percent of its
REIT taxable income to its shareholders and satisfies certain other requirements. REITs are
subject to a number of organizational and operational requirements. If the Company fails to
qualify as a
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
REIT in any taxable year, the Company will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate tax rates. The
Company is subject to certain state and local taxes.
INTEREST RATE
CONTRACTS Interest rate contracts are utilized by the Company to reduce interest rate risks. The Company
does not hold or issue derivative financial instruments for trading purposes. The differentials
to be received or paid under contracts designated as hedges are recognized over the life of the
contracts as adjustments to interest expense.
In certain situations, the Company uses forward treasury lock agreements to mitigate the
potential effects of changes in interest rates for prospective transactions. Gains and losses
are deferred and amortized as adjustments to interest expense over the remaining life of the
associated debt to the extent that such debt remains outstanding.
EARNINGS
PER SHARE In accordance with the Statement of Financial Accounting Standards No. 128 ("FASB No.
128"), the Company presents both basic and diluted earnings per share ("EPS"). Basic EPS
excludes dilution and is computed by dividing net income available to common stockholders by
the weighted average number of shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock, where such exercise or conversion would result in
a lower EPS amount.
DIVIDENDS AND
DISTRIBUTIONS
PAYABLE The dividends and distributions payable at March 31, 1999 represents dividends payable to
shareholders of record on April 6, 1999 (58,270,201 shares), distributions payable to minority
interest common unitholders (8,870,608 common units) on that same date and preferred
distributions to preferred unitholders (229,304 preferred units) for the first quarter 1999. The
first quarter 1999 dividends and common unit distributions of $0.55 per share and per common
unit (pro-rated for units issued during the quarter), as well as the first quarter preferred unit
distribution of $16.875 per preferred unit, were approved by the Board of Directors on March
25, 1999 and paid on April 23,1999.
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 The Company accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations ("APB No. 25"). Under APB No. 25, compensation
cost is measured as the excess, if any, of the quoted market price of the 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. See Note 14.
</TABLE>
10
<PAGE>
3. ACQUISITIONS/TRANSACTIONS
OPERATING PROPERTY ACQUISITIONS
The Company acquired the following operating properties during the three months
ended March 31, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Acquisition # of Rentable Investment by
Date Property/Portfolio Name Location Bldgs. Square Feet Company(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OFFICE
3/05/99 Pacifica Portfolio - Phase III (b) Colorado Springs, El Paso County, CO 2 94,737 $ 5,709
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE PROPERTY ACQUISITIONS: 2 94,737 $ 5,709
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company acquired the following operating properties during the year ended
December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Acquisition # of Rentable Investment by
Date Property/Portfolio Name Location Bldgs. Square Feet Company(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OFFICE
2/05/98 500 West Putnam Avenue (c) Greenwich, Fairfield County, CT 1 121,250 $ 20,125
2/25/98 10 Mountainview Road Upper Saddle River, Bergen County, NJ 1 192,000 24,754
3/12/98 1250 Capital of Texas Highway South Austin, Travis County, TX 1 270,703 37,266
3/27/98 Prudential Business Campus (d) Parsippany, Morris County, NJ 5 703,451 130,437
3/27/98 Pacifica Portfolio- Phase I (b) (e) Denver & Colorado Springs, CO 10 620,017 74,966
3/30/98 Morris County Financial Center Parsippany, Morris County, NJ 2 301,940 52,763
5/13/98 3600 South Yosemite Denver, Denver County, CO 1 133,743 13,555
5/22/98 500 College Road East (f) Princeton, Mercer County, NJ 1 158,235 21,334
6/01/98 1709 New York Ave./1400 L Street N.W. Washington, D.C. 2 325,000 90,385
6/03/98 400 South Colorado Boulevard Denver, Denver County, CO 1 125,415 12,147
6/08/98 Pacifica Portfolio - Phase II (b) (e) (g) Denver & Colorado Springs, CO 6 514,427 85,910
7/16/98 4200 Parliament Drive (h) Lanham, Prince George's County, MD 1 122,000 15,807
9/10/98 40 Richards Avenue (e) Norwalk, Fairfield County, CT 1 145,487 19,587
9/15/98 Seven Skyline Drive (i) Hawthorne, Westchester County, NY 1 109,000 13,379
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE PROPERTY ACQUISITIONS: 34 3,842,668 $ 612,415
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICE/FLEX
1/30/98 McGarvey Portfolio (j) Moorestown, Burlington County, NJ 17 748,660 $ 47,526
7/14/98 1510 Lancer Road (k) Moorestown, Burlington County, NJ 1 88,000 3,700
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE/FLEX PROPERTY ACQUISITIONS: 18 836,660 $ 51,226
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING PROPERTY ACQUISITIONS: 52 4,679,328 $ 663,641
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROPERTIES PLACED IN SERVICE
The Company placed in service the following properties through the completion of
development during the three months ended March 31, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Date Placed # of Rentable Investment by
in Service Property Name Location Bldgs. Square Feet Company (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OFFICE/FLEX
3/01/99 One Center Court Totowa, Passaic County, NJ 1 38,961 $ 2,140
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE/FLEX PROPERTIES PLACED IN SERVICE: 1 38,961 $ 2,140
- ------------------------------------------------------------------------------------------------------------------------------------
LAND LEASE
2/01/99 Horizon Center Business Park(l) Hamilton Township, Mercer County, NJ n/a 27.7 acres $ 1,007
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LAND LEASE TRANSACTIONS: 27.7 acres $ 1,007
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES PLACED IN SERVICE: 1 38,961 $ 3,147
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE FOOTNOTES TO THESE SCHEDULES ON SUBSEQUENT PAGE.
11
<PAGE>
The Company placed in service the following properties through the completion of
development or redevelopment during the year ended December 31, 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Date Placed # of Rentable Investment by
in Service Property Name Location Bldgs. Square Feet Company (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OFFICE
1/15/98 224 Strawbridge Drive Moorestown, Burlington County, NJ 1 74,000 $ 7,796
8/01/98 228 Strawbridge Drive Moorestown, Burlington County, NJ 1 74,000 7,986
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE PROPERTIES PLACED IN SERVICE: 2 148,000 $ 15,782
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICE/FLEX
6/08/98 Two Center Court Totowa, Passaic County, NJ 1 30,600 $ 2,231
10/23/98 650 West Avenue Stamford, Fairfield County, CT 1 40,000 4,952
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OFFICE/FLEX PROPERTIES PLACED IN SERVICE: 2 70,600 $ 7,183
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES PLACED IN SERVICE: 4 218,600 $ 22,965
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Unless otherwise noted, transactions were funded by the Company
primarily with funds made available through draws on the Company's
credit facilities.
(b) The Company may be required to pay additional consideration due to
earn-out provisions in the agreement. William L. Mack, a director
and equity holder of the Company, was an indirect owner of an
interest in certain of the buildings contained in the Pacifica
portfolio.
(c) The acquisition was funded with cash as well as the assumption of
mortgage debt (estimated fair value of approximately $12,104, with
annual effective interest rate of 6.52 percent).
(d) The acquisition was funded primarily from proceeds received from
the sale of 2,705,628 shares of common stock (see Note 14). Also
included in the acquisition, but excluded from this schedule, is
(i) Nine Campus Drive, which the Company has a 50 percent interest
through an unconsolidated joint venture (see Note 4), and (ii)
developable land adjacent to the acquired portfolio (see "1998
Redevelopment Properties/Developable Land Acquisitions").
(e) The acquisition was funded with cash and the issuance of common
units to the seller (see Note 10).
(f) The property was acquired subject to a ground lease, which is
prepaid through 2031, and has two 10-year renewal options, at rent
levels as defined in the lease agreement.
(g) Also included in the acquisition, but excluded from this schedule,
is developable land adjacent to the acquired portfolio (see "1998
Redevelopment Properties/Developable Land Acquisitions").
(h) Includes land adjacent to the operating property, which may be
sub-divided for future development.
(i) The property was acquired through the exercise of a purchase option
obtained in connection with the Company's acquisition of 65
properties from Robert Martin Company, LLC in January 1997. The
acquisition was funded with cash, net of the repayment by the
seller of the remaining balance of a note receivable.
(j) The acquisition was funded with cash as well as the assumption of
mortgage debt (aggregate estimated fair value of approximately
$8,354, with a weighted average annual effective interest rate of
6.24 percent). The Company is under contract to acquire an
additional four office/flex properties and has a right of first
refusal to acquire six additional office/flex properties.
(k) The property was acquired through the exercise of a purchase option
obtained in the acquisition of the McGarvey portfolio in January
1998.
(l) On February 1, 1999, the Company entered into a ground lease
agreement to lease 27.7 acres of developable land located at the
Company's Horizon Center Business Park, located in Hamilton
Township, Mercer County, New Jersey on which Home Depot will
develop a 134,000 square-foot retail store.
- ---------------------------------------------
FIRST QUARTER 1999 DEVELOPABLE LAND TRANSACTIONS
On February 26, 1999, the Company acquired approximately 2.3 acres of vacant
land adjacent to one of the Company's operating properties located in San
Antonio, Bexar County, Texas for approximately $1,457, which was made available
from the Company's cash reserves.
On March 2, 1999, the Company entered into a joint venture with SJP Allen Road
to form MC-SJP Pinson Development, LLC, which acquired vacant land located in
Bernards Township, Somerset County, New Jersey for approximately $3,197. The
venture has plans to develop a 135,000 square-foot office building on this site.
The Company accounts for its investment in the joint venture on a consolidated
basis.
12
<PAGE>
1998 REDEVELOPMENT PROPERTIES/DEVELOPABLE LAND TRANSACTIONS
On January 23, 1998, the Company acquired, from an entity whose principals
include Timothy M. Jones, Martin S. Berger and Robert F. Weinberg, each of whom
are affiliated with the Company as either senior management, a former or current
member of the Board of Directors and/or an equity holder in the Company,
approximately 10 acres of vacant land in the Stamford Executive Park, located in
Stamford, Fairfield County, Connecticut for approximately $1,341, funded from
the Company's cash reserves. In October 1998, the Company completed and placed
in service a 40,000 square-foot office/flex property on the acquired land (see
"Properties Placed in Service").
On February 2, 1998, the Company acquired 2115 Linwood Avenue, a 68,000
square-foot vacant office building located in Fort Lee, Bergen County, New
Jersey. The building was acquired for approximately $5,164, which was made
available from drawing on one of the Company's credit facilities. The Company is
currently redeveloping the property for future lease-up and operation.
On March 27, 1998, as part of the purchase of the Prudential Business Campus
(see "Operating Property Acquisitions"), the Company acquired approximately 95
acres of vacant land adjacent to the operating properties for approximately
$27,500.
On June 8, 1998, as part of the Pacifica portfolio-phase II acquisition (see
"Operating Property Acquisitions"), the Company acquired vacant land adjacent to
the operating properties for approximately $2,006.
On September 4, 1998, the Company acquired approximately 128 acres of vacant
land located at the Company's Horizon Center Business Park, Hamilton Township,
Mercer County, New Jersey, through the exercise of a purchase option obtained in
the Company's acquisition of the Horizon Center Business Park in November 1995.
The land was acquired for approximately $1,698, which was funded from the
Company's cash reserves. Subsequently in 1999, the Company leased 27.7 acres of
the acquired land to Home Depot (see "Properties Placed in Service").
On November 10, 1998, the Company acquired approximately 10.1 acres of land
located at Three Vaughn Drive, Princeton, Mercer County, New Jersey. The Company
acquired the land for approximately $2,146, which was funded from the Company's
cash reserves.
On December 3, 1998, the Company acquired, from an entity whose principals
include Timothy M. Jones, Martin S. Berger and Robert F. Weinberg, each of whom
are affiliated with the Company as either senior management, a former or current
member of the Board of Directors and/or an equity holder in the Company,
approximately 2.7 acres of land located at 12 Skyline Drive, Hawthorne,
Westchester County, New York. The Company acquired the land for approximately
$1,540, which was funded from the Company's cash reserves.
PENDING ACQUISITIONS
In May 1999, the Company entered into a contract to acquire 795 Folsom Street, a
184,000 square-foot office property, located in San Francisco, San Francisco
County, California from AT&T Corporation ("AT&T") for approximately $34,000.
Concurrently, the Company signed a lease with AT&T for 63,278 square feet of the
property.
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
PRU-BETA 3 (NINE CAMPUS DRIVE)
On March 27, 1998, the Company acquired a 50 percent interest in an existing
joint venture with The Prudential Insurance Company of America ("Prudential"),
known as Pru-Beta 3, which owns and operates Nine Campus Drive, a 156,495
square- foot office building, located in the Prudential Business Campus office
complex in Parsippany, Morris County, New Jersey (see Note 3). The Company
performs management and leasing services for the property owned by the joint
venture and received $38 and none in fees for such services in the three months
ended March 31, 1999 and 1998, respectively.
13
<PAGE>
HPMC (CONTINENTAL GRAND II/SUMMIT RIDGE/LAVA RIDGE)
On April 23, 1998, the Company entered into a joint venture agreement with HCG
Development, L.L.C. and Summit Partners I, L.L.C. to form HPMC Development
Partners, L.P. and, on July 21, 1998, entered into a second joint venture, HPMC
Lava Ridge Partners, L.P., with these same parties. HPMC Development Partners,
L.P.'s efforts have focused on two development projects, commonly referred to as
Continental Grand II and Summit Ridge. Continental Grand II is a 4.2 acre site
located in El Segundo, Los Angeles County, California, acquired by the venture
upon which it has commenced construction of a 237,000 square-foot office
property. Summit Ridge is a 7.3 acre site located in San Diego, San Diego
County, California, acquired by the venture which it has commenced construction
of a 132,000 square-foot office/flex property. HPMC Lava Ridge Partners, L.P.
has commenced construction of three two-story buildings aggregating 183,200
square-feet of office space on a 12.1 acre site located in Roseville, Placer
County, California. The Company is required to make capital contributions to the
ventures totaling up to $26,566, pursuant to the partnership agreements. Among
other things, the partnership agreements provide for a preferred return on the
Company's invested capital in each venture, in addition to 50 percent of such
venture's profit above the preferred returns, as defined in each agreement.
G&G MARTCO (CONVENTION PLAZA)
On April 30, 1998, the Company acquired a 49.9 percent interest in an existing
joint venture, known as G&G Martco, which owns Convention Plaza, a 305,618
square-foot office building, located in San Francisco, San Francisco County,
California. A portion of its initial investment was financed through the
issuance of common units (see Note 10), as well as funds drawn from the
Company's credit facilities. The Company performs management and leasing
services for the property owned by the joint venture and received $12 and none
in fees for such services in the three months ended March 31, 1999 and 1998,
respectively.
AMERICAN FINANCIAL EXCHANGE L.L.C.
On May 20, 1998, the Company entered into a joint venture agreement with
Columbia Development Corp. to form American Financial Exchange L.L.C. The
venture was initially formed to acquire land for future development, located on
the Hudson River waterfront in Jersey City, Hudson County, New Jersey, adjacent
to the Company's Harborside Financial Center office complex. The Company holds a
50 percent interest in the joint venture. Among other things, the partnership
agreement provides for a preferred return on the Company's invested capital in
the venture, in addition to the Company's proportionate share of the venture's
profit, as defined in the agreement. The joint venture acquired land on which it
constructed a parking facility, which is currently leased to a parking operator
under a 10-year agreement. Such parking facility serves a ferry service between
the Company's Harborside property and Manhattan.
RAMLAND REALTY ASSOCIATES L.L.C. (ONE RAMLAND ROAD)
On August 20, 1998, the Company entered into a joint venture agreement with S.B.
New York Realty Corp. to form Ramland Realty Associates L.L.C. The venture was
formed to own, manage and operate One Ramland Road, a 232,000 square-foot
office/flex building plus adjacent developable land, located in Orangeburg,
Rockland County, New York. The office/flex building is being redeveloped for
future lease-up and operation. The Company holds a 50 percent interest in the
joint venture.
ASHFORD LOOP ASSOCIATES L.P. (1001 SOUTH DAIRY ASHFORD/2100 WEST LOOP SOUTH)
On September 18, 1998, the Company entered into a joint venture agreement with
Prudential to form Ashford Loop Associates L.P. The venture was formed to own,
manage and operate 1001 South Dairy Ashford, a 130,000 square-foot office
building acquired on September 18, 1998 and 2100 West Loop South, a 168,000
square-foot office building acquired on November 25, 1998, both located in
Houston, Harris County, Texas. The Company holds a 20 percent interest in the
joint venture. The joint venture may be required to pay additional consideration
due to earn-out provisions in the acquisition contracts. The Company performs
management and leasing services for the properties owned by the joint venture
and received $30 and none in fees for such services in the three months ended
March 31, 1999 and 1998, respectively.
ARCAP INVESTORS, L.L.C.
On March 18, 1999, the Company invested $16,274 in ARCap Investors, L.L.C., a
joint venture with several participants, which was formed to invest in
sub-investment grade tranches of commercial mortgage-backed securities
("CMBS"). The Company has agreed to invest an additional $3,726 in the
venture. William L. Mack, a director and equity holder of the Company, is a
principal of the managing member of the venture. During the three months
ended March 31, 1999, the venture purchased approximately $141,800 face value
of CMBS bonds for an aggregate cost of $71,669.
14
<PAGE>
SUMMARIES OF UNCONSOLIDATED JOINT VENTURES
The following is a summary of the financial position of the unconsolidated joint
ventures in which the Company had investment interests as of March 31, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford Combined
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Rental property, net $22,465 $37,518 $11,406 $10,675 $9,529 $19,058 $ -- $110,651
Other assets 3,715 784 3,709 352 714 851 73,771 83,896
- ----------------------------------------------------------------------------------------------------------------------
Total assets $26,180 $38,302 $15,115 $11,027 $10,243 $19,909 $73,771 $194,547
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS'/
MEMBERS' CAPITAL:
Mortgages and loans payable $ -- $ 8,351 $40,469 $ -- $ -- $ -- $25,919 $ 74,739
Other liabilities 500 959 1,491 -- 156 294 420 3,820
Partners'/members'
capital 25,680 28,992 (26,845) 11,027 10,087 19,615 47,432 115,988
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and
partners'/members' capital $26,180 $38,302 $15,115 $11,027 $10,243 $19,909 $73,771 $194,547
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Company's net investment
in unconsolidated
joint ventures $17,553 $23,301 $10,098 $11,076 $5,222 $4,267 $16,219 $87,736
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford Combined
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Rental property, net $22,711 $30,278 $11,099 $10,621 $8,467 $19,166 -- $ 102,342
Other assets 3,995 1,097 4,058 389 1,101 378 -- 11,018
- ----------------------------------------------------------------------------------------------------------------------
Total assets $26,706 $31,375 $15,157 $11,010 $9,568 $19,544 -- $ 113,360
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS'/
MEMBERS' CAPITAL:
Mortgages and loans payable $ -- $ 632 $39,762 $ -- $ -- $ -- -- $ 40,394
Other liabilities 484 3,522 2,096 79 6 509 -- 6,696
Partners'/members'
capital 26,222 27,221 (26,701) 10,931 9,562 19,035 -- 66,270
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and
partners'/members' capital $26,706 $31,375 $15,157 $11,010 $9,568 $19,544 -- $113,360
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Company's net investment
in unconsolidated
joint ventures $17,980 $17,578 $10,964 $10,983 $4,851 $ 4,152 -- $ 66,508
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
The following is a summary of the results of operations of the unconsolidated
joint ventures for the period in which the Company had investment interests
during the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-------------------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford Combined
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $1,231 -- $1,990 $188 -- $ 917 $ 247 $4,573
Operating and other
expenses (374) -- (691) (69) -- (473) (390) (1,997)
Depreciation and
amortization (318) -- (233) (23) -- (108) -- (682)
Interest expense -- -- (710) -- -- -- (25) (735)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 539 -- $ 356 $ 96 -- $336 $ (168) $1,159
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Company's equity in
earnings (loss) of
unconsolidated joint
ventures $ 114 -- $ (366) $ 46 -- $ 56 $ (56) $ (206)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
------------------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford Combined
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $30 -- -- -- -- -- -- $30
Operating and other
expenses (5) -- -- -- -- -- -- (5)
Depreciation and
amortization -- -- -- -- -- -- -- --
Interest expense -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income $25 -- -- -- -- -- -- $25
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Company's equity in
earnings of unconsolidated
joint ventures $25 -- -- -- -- -- -- $25
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
5. DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred leasing costs $ 37,174 $ 35,151
Deferred financing costs 16,579 9,962
- ----------------------------------------------------------------------------------------
53,753 45,113
Accumulated amortization (15,229) (13,527)
- ----------------------------------------------------------------------------------------
Deferred charges, net 38,524 31,586
Prepaid expenses and other assets 6,318 7,434
- ----------------------------------------------------------------------------------------
Total deferred charges and other assets, net $ 44,842 $ 39,020
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
6. RESTRICTED CASH
Restricted cash includes security deposits for the Company's residential
properties and certain commercial properties, and escrow and reserve funds for
debt service, real estate taxes, property insurance, capital improvements,
tenant improvements, and leasing costs established pursuant to certain mortgage
financing arrangements, and is comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Security deposits $ 6,085 $ 5,696
Escrow and other reserve funds 293 330
- ----------------------------------------------------------------------------------------
Total restricted cash $ 6,378 $ 6,026
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
7. SENIOR UNSECURED NOTES
On March 16, 1999, the Operating Partnership issued $600,000 of senior unsecured
notes ("Senior Unsecured Notes") under a shelf registration statement which was
declared effective by the SEC in September 1998. Interest on the Senior
Unsecured Notes is payable semi-annually in arrears. The Senior Unsecured Notes
are redeemable at any time at the option of the Company, subject to certain
conditions including yield maintenance. The total proceeds from the issuance
(net of selling commissions and discount) of approximately $593,500 were used to
pay down outstanding borrowings under the 1998 Unsecured Facility, as defined
below, and to pay off certain mortgage loans. The Senior Unsecured Notes were
issued at a discount of approximately $2,748, which is being amortized over the
terms of the respective tranches as an adjustment to interest expense. Including
amortization of offering costs, the weighted average effective annual interest
rate for the Senior Unsecured Notes is approximately 7.38 percent.
A summary of the terms of the Senior Unsecured Notes outstanding as of March 31,
1999 is presented below:
<TABLE>
<CAPTION>
EFFECTIVE
AMOUNT RATE (1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
7.00% Senior Unsecured Notes, due March 15, 2004 $299,604 7.27%
7.25% Senior Unsecured Notes, due March 15, 2009 $297,661 7.49%
- ----------------------------------------------------------------------------------------------------------------------
Total Senior Unsecured Notes $597,265 7.38%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the cost of terminated treasury lock agreements, offering and
transaction costs and the discount on the notes.
8. REVOLVING CREDIT FACILITIES
ORIGINAL UNSECURED FACILITY
The Original Unsecured Facility ("Original Unsecured Facility") was repaid in
full and retired in connection with the Company obtaining the 1998 Unsecured
Facility in April 1998, as defined below. On account of prepayment fees, loan
origination fees, legal fees, and other costs incurred in the retirement of the
Original Unsecured Facility, an extraordinary loss of $2,203, net of minority
interest's share of the loss ($275), was recorded for the year ended December
31, 1998.
1998 UNSECURED FACILITY
In April 1998, the Company repaid in full and terminated the Original Unsecured
Facility and obtained a new unsecured revolving credit facility ("1998 Unsecured
Facility") with a current borrowing capacity of $1,000,000 from a group of 28
lenders. The interest rate is based on the Company's achievement of investment
grade unsecured debt ratings and is currently 90 basis points over London
Inter-Bank Offered Rate ("LIBOR") (5.06 percent at March 31, 1999). The 1998
Unsecured Facility matures in April 2001.
The terms of the 1998 Unsecured Facility include certain restrictions and
covenants which limit, among other things, the payment of dividends (as
discussed below), the incurrence of additional indebtedness, the incurrence of
liens and the disposition of assets, and which require compliance with financial
ratios relating to the maximum leverage ratio, the maximum amount of secured
indebtedness, the minimum amount of tangible net worth, the minimum amount of
debt service coverage, the minimum amount of fixed charge coverage, the maximum
amount of unsecured indebtedness, the minimum amount of unencumbered property
debt service coverage and certain investment limitations. The dividend
restriction referred to above provides that, except to enable the Company to
continue to qualify as a REIT under the Code, the Company will not during any
four consecutive fiscal quarters make distributions with respect to common stock
or other equity interests in an aggregate amount in excess of 90 percent of
funds from operations for such period, subject to certain other adjustments. The
1998 Unsecured Facility also requires a 17.5 basis point fee on the unused
balance payable quarterly in arrears.
PRUDENTIAL FACILITY
The Company has a revolving credit facility ("Prudential Facility") from
Prudential Securities Corp. ("PSC") in the amount of $100,000, which currently
bears interest at 110 basis points over one-month LIBOR, with a maturity date of
March 31, 2000. The Prudential Facility is a recourse liability of the Operating
Partnership and is secured by the Company's equity interest in Harborside. The
Prudential Facility limits the ability of the Operating Partnership to make any
distributions during any fiscal quarter in an amount in excess of 100 percent of
the Operating Partnership's available funds from operations for the immediately
preceding fiscal quarter (except to the extent such excess distributions or
dividends are attributable to gains from the sale of the Operating Partnership's
assets or are required for the Company to maintain its status as a REIT under
the Code); provided, however, that the Operating Partnership may make
distributions and pay dividends in excess of 100 percent of available funds from
operations for the preceding fiscal quarter for not more than three
17
<PAGE>
consecutive quarters. In addition to the foregoing, the Prudential Facility
limits the liens placed upon the subject property and certain collateral, the
use of proceeds from the Prudential Facility, and the maintenance of ownership
of the subject property and assets derived from said ownership.
SUMMARY
As of March 31, 1999, the Company had outstanding borrowings of $110,600 under
its revolving credit facilities (with aggregate borrowing capacity of
$1,100,000). The outstanding borrowings were comprised of $110,600 from the 1998
Unsecured Facility, with no outstanding borrowings on its Prudential Facility.
9. MORTGAGES AND LOANS PAYABLE
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Portfolio Mortgages $335,283 $335,283
Property Mortgages 414,631 414,048
- -------------------------------------------------------------------------------------------------
Total Mortgages and Loans Payable $749,914 $749,331
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO MORTGAGES
TIAA MORTGAGE
The Company has a $185,283 non-recourse mortgage loan with Teachers Insurance
and Annuity Association of America, with interest only payable monthly at a
fixed annual rate of 7.18 percent ("TIAA Mortgage"). The TIAA Mortgage is
secured and cross-collateralized by 43 properties and matures in December 2003.
The Company has the option to convert, without any yield maintenance obligation
or prepayment premium, the TIAA Mortgage to unsecured public debt as a result of
the achievement of an investment grade credit rating. The TIAA Mortgage is
prepayable in whole or in part subject to certain provisions, including yield
maintenance.
$150,000 PRUDENTIAL MORTGAGE LOAN
On April 30, 1998, the Company obtained a $150,000, interest-only, non-recourse
mortgage loan from Prudential ("$150,000 Prudential Mortgage Loan"). The loan,
which is secured by 12 properties, has an effective annual interest rate of 7.10
percent and a seven-year term. The Company has the option to convert the
mortgage loan to unsecured debt as a result of the achievement of an investment
grade credit rating. The mortgage loan is prepayable in whole or in part subject
to certain provisions, including yield maintenance.
PROPERTY MORTGAGES
Property mortgages are comprised of various non-recourse loans which are
collateralized by certain of the Company's rental properties. Payments on
property mortgages are generally due in monthly installments of principal and
interest, or interest only.
18
<PAGE>
A summary of the Company's property mortgages as of March 31, 1999 and December
31, 1998 is as follows:
<TABLE>
<CAPTION>
PRINCIPAL BALANCE AT
INTEREST MARCH 31, DECEMBER 31, DATE OF
PROPERTY NAME LENDER RATE 1999 1998 MATURITY
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mack-Cali Centre VI CIGNA 7.600% $ -- $29,223 03/31/99
Mack-Cali Airport CIGNA 7.600% -- 6,849 03/31/99
Mack-Cali Murray Hill Horace Mann 7.850% -- 8,027 05/01/99
Mack-Cali Manhasset IDA Financing TENR 8,000 8,000 12/01/99
201 Commerce Drive Sun Life Assurance Co. 6.240% 1,106 1,121 09/01/00
3 & 5 Terri Lane First Union National Bank 6.220% 4,466 4,476 10/31/00
101 & 225 Executive Drive Sun Life Assurance Co. 6.270% 2,510 2,553 06/01/01
Mack-Cali Morris Plains Corestates Bank 7.510% 2,276 2,292 12/31/01
Harborside Financial Center(1) Contingent Obligation(1) 6.764% 6,254 6,150 11/04/02
Mack-Cali Willowbrook CIGNA 8.670% 10,741 10,918 10/01/03
1717 Route 208, Fairlawn Prudential Insurance Co. 8.250% 17,468 17,586 10/01/03
400 Chestnut Ridge Prudential Insurance Co. 9.440% 14,901 14,983 07/01/04
Mack-Cali Centre VI Principal Life Insurance Co. 6.865% 35,000 -- 04/01/05
Mack-Cali Bridgewater I New York Life Ins. Co. 7.000% 23,000 23,000 09/10/05
Mack-Cali Woodbridge II New York Life Ins. Co. 7.500% 17,500 17,500 09/10/05
Mack-Cali Short Hills Prudential Insurance Co. 7.740% 27,406 27,696 10/01/05
500 West Putnam Avenue New York Life Ins. Co. 6.520% 11,300 11,471 10/10/05
Harborside - Plaza I U.S. West Pension Trust 6.990% 48,911 48,148 01/01/06
Harborside - Plaza II and III Northwestern Mutual Life Ins. 7.320% 101,089 101,852 01/01/06
Mack-Cali Airport Allstate Life Insurance Co. 7.050% 10,500 -- 04/01/07
Kemble Plaza II Mitsubishi Tr & Bk Co. LIBOR+0.65% 40,025 40,025 01/31/08
Kemble Plaza I Mitsubishi Tr & Bk Co. LIBOR+0.65% 32,178 32,178 01/31/09
- -------------------------------------------------------------------------------------------------------------------
Total Property Mortgages $414,631 $414,048
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As part of the Harborside acquisition in November 1996, the Company agreed
to make payments (with an estimated net present value of approximately
$5,252 at acquisition date) to the seller for development rights
("Contingent Obligation") if and when the Company commences construction on
the acquired site during the next several years. However, the agreement
provides, among other things, that even if the Company does not commence
construction, the seller may nevertheless require the Company to acquire
these rights during the six-month period after the end of the sixth year.
After such period, the seller's option lapses, but any development in years
7 through 30 will require a payment, on an increasing scale, for the
development rights. The Company is currently in the pre- development phase
of a long-range plan to develop the Harborside site on a multi-property,
multi-use basis.
INTEREST RATE CONTRACTS
On May 24, 1995, the Company entered into an interest rate swap agreement with a
commercial bank. The swap agreement fixes the Company's one-month LIBOR base to
6.285 percent per annum on a notional amount of $24,000 through August 1999.
On January 23, 1996, the Company entered into an interest rate swap agreement
with a commercial bank. The swap agreement fixed the Company's one-month LIBOR
base to 5.265 percent per annum on a notional amount of $26,000. The swap
agreement expired in January 1999.
On October 1, 1998, the Company entered into a forward treasury rate lock
agreement with a commercial bank. The agreement locked an interest rate of 4.089
percent per annum for the three-year U.S. Treasury Note effective November 4,
1999, on a notional amount of $50,000. The agreement will be used to fix the
Index Rate on $50,000 of the Harborside- Plaza I mortgage, for which the
Company's interest rate re-sets for three years beginning November 4, 1999 to
the three-year U.S. Treasury Note plus 110 basis points (see "Property
Mortgages: Harborside-Plaza I").
In connection with the issuance of the Senior Unsecured Notes, the Company
entered into and settled forward treasury rate lock agreements in March 1999.
These agreements were settled at a cost of approximately $517, which is being
amortized to interest expense over the terms of the respective tranches.
The Company is exposed to credit loss in the event of non-performance by the
other parties to the interest rate contracts. However, the Company does not
anticipate non-performance by any of the counterparties. The Company is also
exposed to market risk from the movement in interest rates pertaining to the
forward treasury rate lock agreement.
19
<PAGE>
SCHEDULED PRINCIPAL PAYMENTS
Scheduled principal payments and related weighted average annual interest rates
for the Company's Senior Unsecured Notes, revolving credit facilities and
mortgages and loans payable as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVG.
SCHEDULED PRINCIPAL INTEREST RATE OF
YEAR AMORTIZATION MATURITIES TOTAL FUTURE REPAYMENTS(A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
April through December 1999 $ 2,296 $ 8,000 $ 10,296 6.26%
2000 3,336 5,419 8,755 6.77%
2001 3,583 114,811 118,394 6.05%
2002 3,823 7,814 11,637 7.09%
2003 4,180 206,971 211,151 7.31%
Thereafter 4,721 1,092,825 1,097,546 7.19%
- -------------------------------------------------------------------------------------------------------------------
Totals/Weighted Average $ 21,939 $ 1,435,840 $1,457,779 7.12%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes LIBOR rate at March 31, 1999 of 5.06 percent in calculating
revolving credit facility and other variable rate debt interest rates.
CASH PAID FOR INTEREST & INTEREST CAPITALIZED
Cash paid for interest for the three months ended March 31, 1999 and 1998, was
$22,646 and $20,302, respectively. Interest capitalized by the Company for the
three months ended March 31, 1999 and 1998 was $1,245 and $201, respectively.
SUMMARY OF INDEBTEDNESS
As of March 31, 1999, the Company's total indebtedness of $1,457,779 (weighted
average interest rate of 7.12 percent) was comprised of $190,804 of credit
facility borrowings and other variable rate mortgage debt (average rate of 5.82
percent), fixed rate debt of $1,260,721 (average rate of 7.30 percent), and a
Contingent Obligation of $6,254.
10. MINORITY INTEREST
Minority interest in the accompanying consolidated financial statements relates
to common units in the Operating Partnership, in addition to preferred units
("Preferred Units") and warrants to purchase common units ("Unit Warrants")
issued in connection with the Company's December 1997 acquisition of 54 office
properties ("Mack Properties") from the Mack Company and Patriot American Office
Group ("Mack Transaction"), held by parties other than the Company.
PREFERRED UNITS
In connection with the Mack Transaction in December 1997, the Company issued
15,237 Series A Preferred Units and 215,325 Series B Preferred Units, with an
aggregate value of $236,491. The Preferred Units have a stated value of $1,000
per unit and are preferred as to assets over any class of common units or other
class of preferred units of the Company, based on circumstances per the
applicable unit certificates.
The quarterly distribution on each Preferred Unit (representing 6.75 percent of
the Preferred Unit stated value of $1,000 on an annualized basis) is an amount
equal to the greater of (i) $16.875 or (ii) the quarterly distribution
attributable to a Preferred Unit determined as if such unit had been converted
into common units, subject to adjustment for customary anti-dilution rights.
Each of the Series A Preferred Units may be converted at any time into common
units at a conversion price of $34.65 per unit, and, after the one year
anniversary of the date of the Series A Preferred Units' initial issuance,
common units received pursuant to such conversion may be redeemed into common
stock. Each of the Series B Preferred Units may be converted at any time into
common units at a conversion price of $34.65 per unit, and, after the three year
anniversary of the date of the Series B Preferred Units' initial issuance,
common units received pursuant to such conversion may be redeemed into common
stock. Each of the common units are redeemable for an equal number of shares of
common stock.
During 1998, the Company issued 19,694 additional Preferred Units (11,895 of
Series A and 7,799 of Series B), convertible into 568,369 common units and
valued at approximately $20,200, in connection with the achievement of certain
performance goals at the Mack Properties in redemption of an equivalent number
of contingent Preferred Units.
During the three months ended March 31, 1999, 20,952 Series A Preferred Units
were converted into 604,675 common units.
20
<PAGE>
As of March 31, 1999, there were 229,304 Preferred Units outstanding
(convertible into 6,617,721 common units).
COMMON UNITS
Certain individuals and entities own common units in the Operating Partnership.
A common unit and a share of common stock of the 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 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 unitholder redeems
a common unit, minority interest is reduced and the Company's investment in the
Operating Partnership is increased.
During 1998, the Operating Partnership redeemed a total of 82,880 common units
in exchange for an aggregate of $3,163 in cash. Additionally, the Operating
Partnership redeemed an aggregate of 29,300 common units for an equivalent
number of shares of common stock in the Company.
On March 26, 1998, in connection with the Pacifica portfolio-phase I
acquisition, the Company issued 100,175 common units, valued at approximately
$3,779.
On April 30, 1998, in connection with the acquisition of a 49.9 percent interest
in the G&G Martco joint venture (see Note 4), the Company issued 218,105 common
units, valued at approximately $8,334.
On June 8, 1998, in connection with the Pacifica portfolio-phase II acquisition,
the Company issued 585,263 common units, valued at approximately $20,753.
On July 20, 1998, in connection with the expansion of one of the Mack
Properties, the Company issued 52,245 common units, valued at approximately
$1,632.
On September 10, 1998, in connection with the acquisition of 40 Richards Avenue,
the Company issued 414,114 common units, valued at approximately $12,615.
During 1998, the Company also issued 1,731,386 common units, valued at
approximately $58,936, in connection with the achievement of certain performance
goals at the Mack Properties in redemption of an equivalent number of contingent
common units.
During the three months ended March 31, 1999, the Operating Partnership redeemed
an aggregate of 1,010,204 common units for an equivalent number of shares of
common stock in the Company.
During the three months ended March 31, 1999, the Company also issued 189,552
common units, valued at approximately $5,599, in connection with the achievement
of certain performance goals at the Mack Properties in redemption of an
equivalent number of contingent common units.
As of March 31, 1999, there were 8,870,608 common units outstanding.
CONTINGENT COMMON & PREFERRED UNITS
In connection with the Mack Transaction in December 1997, 2,006,432 contingent
common units, 11,895 Series A contingent Preferred Units and 7,799 Series B
contingent Preferred Units were issued as contingent non-participating units
("Contingent Units"). Such Contingent Units have no voting, distribution or
other rights until such time as they are redeemed into common units, Series A
Preferred Units, and Series B Preferred Units, respectively. Redemption of such
Contingent Units shall occur upon the achievement of certain performance goals
relating to certain of the Mack Properties, specifically the achievement of
certain leasing activity. When Contingent Units are redeemed for common and
Preferred Units, an adjustment to the purchase price of certain of the Mack
Properties is recorded, based on the value of the units issued.
On account of certain of the performance goals at the Mack Properties having
been achieved during 1998, the Company redeemed 1,731,386 contingent common
units and 19,694 contingent Preferred Units and issued an equivalent number of
common and Preferred Units, as indicated above.
On account of certain of the performance goals at the Mack Properties having
been achieved during the three months ended March 31, 1999, the Company redeemed
189,552 contingent common units and issued an equivalent number of common
21
<PAGE>
units, as indicated above. There were no contingent Preferred Units outstanding
and 85,494 contingent common units outstanding as of March 31, 1999.
UNIT WARRANTS
The Company has 2,000,000 Unit Warrants outstanding. The Unit Warrants are
exercisable at $37.80 per common unit and expire on December 11, 2002.
MINORITY INTEREST OWNERSHIP
As of March 31, 1999 and December 31, 1998, the minority interest common
unitholders owned 13.2 percent (21.0 percent, including the effect of the
conversion of Preferred Units into common units) and 13.7 percent (22.2 percent
including the effect of the conversion of Preferred Units into common units) of
the Operating Partnership, respectively (excluding any effect for the exercise
of Unit Warrants).
11. 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 "401(k) Plan"). The 401(k) Plan allows eligible employees to defer up to 15
percent of their annual compensation. The amounts contributed by employees are
immediately vested and non-forfeitable. The Company, at management's discretion,
may match employee contributions, although no employer contributions have been
made to date.
12. COMMITMENTS AND CONTINGENCIES
TAX ABATEMENT AGREEMENTS
GROVE STREET PROPERTY
Pursuant to an agreement with the City of Jersey City, New Jersey, as
amended, expiring in 2004, the Company is required to make payments in lieu
of property taxes ("PILOT") on its property at 95 Christopher Columbus Drive,
Jersey City, 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
Company as part of the acquisition of the property in November 1996, the
Company 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 $145,644. Such PILOT totaled $651 and $625 for the three months
ended March 31, 1999 and 1998, respectively.
GROUND LEASE AGREEMENTS
Future minimum rental payments under the terms of all non-cancelable ground
leases, under which the Company is the lessee as of March 31, 1999 are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
April 1, 1999 to December 31, 1999 $ 319
2000 425
2001 427
2002 427
2003 427
Thereafter 21,934
- -------------------------------------------------------------------------------------------------------------------
Total $23,959
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
OTHER CONTINGENCIES
On April 19, 1999, the Company announced the following changes in the membership
of its Board of Directors and the identities, titles and responsibilities of its
executive officers: (i) Thomas A. Rizk resigned from the Board of Directors, the
Executive Committee of the Board of Directors, his position as Chief Executive
Officer and as an employee of the Company; (ii) Mitchell E. Hersh was appointed
Chief Executive Officer of the Company simultaneous with his resignation from
his positions as President and Chief Operating Officer of the Company; (iii)
Timothy M. Jones was appointed President of the Company simultaneous with his
resignation from his positions as Executive Vice President and Chief
22
<PAGE>
Investment Officer of the Company; and (iv) Brant Cali was appointed to the
Board of Directors of the Company to fill the remainder of Thomas A. Rizk's term
as a Class III Director and was appointed Chief Operating Officer of the
Company, also remaining as an Executive Vice President and Assistant Secretary
of the Company.
Pursuant to the terms of Mr. Rizk's employment agreement entered into with the
Company in December 1997 and an agreement entered into simultaneous with his
resigning from the Company, Mr. Rizk received a payment of approximately $14,490
in April 1999 and will receive $500 annually over the next three years.
The Company is a defendant in certain litigation arising in the normal course of
business activities. Management does not believe that the resolution of these
matters will have a materially adverse effect upon the Company.
13. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2016. Substantially all of the leases provide for
annual base rents plus recoveries and escalation charges based upon the tenant's
proportionate share of and/or increases in real estate taxes and certain
operating costs, as defined, and the pass through of charges for electrical
usage.
14. STOCKHOLDERS' EQUITY
To maintain its qualification as a REIT, not more than 50 percent in value of
the outstanding shares of the Company may be owned, directly or indirectly, by
five or fewer individuals at any time during the last half of any taxable year
of the Company, other than its initial taxable year (defined to include certain
entities), applying certain constructive ownership rules. To help ensure that
the Company will not fail this test, the Company's Articles of Incorporation
provide for, among other things, certain restrictions on the transfer of the
common stock to prevent further concentration of stock ownership. Moreover, to
evidence compliance with these requirements, the Company must maintain records
that disclose the actual ownership of its outstanding common stock and will
demand written statements each year from the holders of record of designated
percentages of its common stock requesting the disclosure of the beneficial
owners of such common stock.
COMMON STOCK
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 $92,194 (after offering costs) to pay down a portion of
its outstanding borrowings under the Company's credit facilities and fund the
acquisition of 10 Mountainview Road (see Note 3).
On March 18, 1998, in connection with the acquisition of Prudential Business
Campus, the 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 Company'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 net proceeds, which totaled
approximately $34,570 (after offering costs), primarily to pay down a portion of
its outstanding borrowings under the Company's credit facilities.
On May 29, 1998, the Company completed an underwritten offer and sale of 984,615
shares of its common stock and used the net proceeds, which totaled
approximately $34,100 (after offering costs), primarily to pay down a portion of
its outstanding borrowings under the Company's credit facilities.
On December 31, 1998, the Company completed an offer and sale of 132,710 shares
of its common stock, using the net proceeds of approximately $3,940 for general
corporate purposes.
On August 6, 1998, the Board of Directors of the Company authorized a share
repurchase program ("Repurchase Program") under which the Company was permitted
to purchase up to $100,000 of the Company's outstanding common stock. Purchases
could be made from time to time in open market transactions at prevailing prices
or through privately negotiated transactions.
23
<PAGE>
For the year ended December 31, 1998, the Company purchased, for constructive
retirement, 854,700 shares of its outstanding common stock for an aggregate cost
of approximately $25,058. Concurrent with these purchases, the Company sold to
the Operating Partnership 854,700 common units for approximately $25,058.
For the three months ended March 31, 1999, the Company purchased, for
constructive retirement, 26,000 shares of its outstanding common stock for an
aggregate cost of approximately $713. Concurrent with these purchases, the
Company sold to the Operating Partnership 26,000 common units for approximately
$713.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company filed a registration statement with the SEC for the Company's
dividend reinvestment and stock purchase plan ("Plan") which was declared
effective in February 1999. The Plan commenced on March 1, 1999.
STOCK OPTION PLANS
In 1994, and as subsequently amended, the Company established the Mack-Cali
Employee Stock Option Plan ("Employee Plan") and the Mack-Cali Director Stock
Option Plan ("Director Plan") under which a total of 5,380,188 shares (subject
to adjustment) of the 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 granted under the Employee Plan in 1994 and 1995 become
exercisable over a three-year period and those options granted under the
Employee Plan in 1996, 1997 and 1998 become exercisable over a five-year period.
All stock options granted under the Director Plan become exercisable in one
year. All options were granted at the fair market value at the dates of grant
and have terms of ten years. As of March 31, 1999 and December 31, 1998, the
stock options outstanding had a weighted average remaining contractual life of
approximately 8.2 and 8.5 years, respectively.
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
Weighted
Shares Average
Under Exercise
Options Price
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1998 3,287,290 $31.47
Granted 1,048,620 $35.90
Exercised (267,660) $20.47
Lapsed or canceled (128,268) $36.61
----------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 3,939,982 $33.22
Exercised (18,360) $23.89
Lapsed or canceled (31,886) $31.83
----------------------------------------------------------------------------------------------------------
Outstanding at March 31, 1999 3,889,736 $33.28
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1998 1,334,137 $27.84
Options exercisable at March 31, 1999 1,931,873 $30.40
----------------------------------------------------------------------------------------------------------
Available for grant at December 31, 1998 709,223
Available for grant at March 31, 1999 741,109
----------------------------------------------------------------------------------------------------------
</TABLE>
STOCK WARRANTS
The Company has outstanding a total of 400,000 warrants to purchase an equal
number of shares of common stock ("Stock Warrants") at $33 per share (the market
price at date of grant). Such warrants generally vest equally over a three-year
period through January 31, 2000 and expire on January 31, 2007.
The Company also has outstanding a total of 514,976 Stock Warrants to purchase
an equal number of shares of common stock at $38.75 per share (the market price
at date of grant). Such warrants vest equally over a five-year period through
December 12, 2002 and expire on December 12, 2007.
As of March 31, 1999 and December 31, 1998, there were 914,976 Stock Warrants
outstanding. As of March 31, 1999 and December 31, 1998, there were 585,989 and
565,991 Stock Warrants exercisable, respectively. No vested Stock Warrants have
been exercised or canceled.
DEFERRED STOCK COMPENSATION PLAN FOR DIRECTORS
The Deferred Compensation Plan for Directors ("Deferred Compensation Plan")
commenced January 1, 1999 and is a plan which allows non-employee directors of
the Company to elect to defer up to 100 percent of their annual retainer fee
into deferred stock units. The deferred stock units are convertible into an
equal number of shares of common stock upon the directors' termination of
service from the Board of Directors or a change in control of the Company, as
defined in the plan. Deferred stock units are credited to each director
quarterly using the closing price of the Company's common stock on the
24
<PAGE>
applicable dividend record date for the respective quarter. Each participating
director's account is also credited for an equivalent amount of deferred stock
units based on the dividend rate for each quarter.
EARNINGS PER SHARE
FASB No. 128 requires a dual presentation of basic and diluted EPS on the face
of the income statement for all companies with complex capital structures even
where the effect of such dilution is not material. Basic EPS excludes dilution
and is computed by dividing net income available to common stockholders by the
weighted average number of shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The following information presents the Company's results for the three months
ended March 31, 1999 and 1998 in accordance with FASB No. 128.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
Basic EPS Diluted EPS Basic EPS Diluted EPS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 32,064 $ 32,064 $ 26,543 $ 26,543
Add: Net income attributable
to potentially dilutive
securities -- 4,880 -- 3,395
- -------------------------------------------------------------------------------------------------
Adjusted net income $ 32,064 $ 36,944 $ 26,543 $ 29,938
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Weighted average shares 58,162 67,283 51,363 58,682
- -------------------------------------------------------------------------------------------------
Per Share $ 0.55 $ 0.55 $ 0.52 $ 0.51
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The following schedule reconciles the shares used in the basic EPS calculation
to the shares used in the diluted EPS calculation.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Basic EPS Shares: 58,162 51,363
Add: Operating Partnership units 8,849 6,570
Stock options 272 612
Stock Warrants -- 137
- ----------------------------------------------------------------------------------------
Diluted EPS Shares: 67,283 58,682
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
Preferred Units and Contingent Units outstanding in 1999 and 1998 were not
included in the computation of diluted EPS as such units were anti-dilutive
during the period.
Pursuant to the Repurchase Program, during 1998, the Company purchased for
constructive retirement, 854,700 shares of its outstanding common stock for
approximately $25,058. Additionally, during the three months ended March 31,
1999, the Company purchased for constructive retirement, 26,000 shares of its
outstanding common stock for approximately $713.
15. SEGMENT REPORTING
The Company operates in one business segment - real estate. The Company provides
leasing, management, acquisition, development, construction and tenant-related
services for its portfolio. The Company does not have any foreign operations.
The accounting policies of the segments are the same as those described in
Note 2, excluding straight-line rent adjustments and depreciation and
amortization.
The Company evaluates performance based upon net operating income from the
combined properties in the segment.
25
<PAGE>
Selected results of operations for the three months ended March 31, 1999 and
1998 and selected asset information as of March 31, 1999 and December 31, 1998
regarding the Company's operating segment are as follows:
<TABLE>
<CAPTION>
Total Corporate & Total
Segment Other (e) Company
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL CONTRACT REVENUES (a):
Three months ended:
March 31, 1999 $ 131,769 $ (425) $ 131,344 (f)
March 31, 1998 101,600 1,019 102,619 (g)
TOTAL OPERATING AND INTEREST EXPENSES (b):
Three months ended:
March 31, 1999 $ 43,155 $ 28,952 $ 72,107
March 31, 1998 32,946 22,796 55,742
NET OPERATING INCOME (c):
Three months ended:
March 31, 1999 $ 88,614 $ (29,377) $ 59,237 (f)
March 31, 1998 68,654 (21,777) 46,877 (g)
TOTAL ASSETS:
March 31, 1999 $ 3,468,422 $ 30,520 $ 3,498,942
December 31, 1998 3,430,865 21,329 3,452,194
TOTAL LONG-LIVED ASSETS (d):
March 31, 1999 $ 3,424,193 $ 4,349 $ 3,428,542
December 31, 1998 3,393,313 4,098 3,397,411
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total contract revenues represents all revenues during the period
(including the Company's share of net income from unconsolidated joint
ventures), excluding adjustments for straight-lining of rents and the
Company's share of straight-line rent adjustments from unconsolidated joint
ventures. All interest income is excluded from segment amounts and is
classified in Corporate and Other for all periods.
(b) Total operating and interest expenses represents the sum of real estate
taxes, utilities, operating services, general and administrative and
interest expense. All interest expense (including for property-level
mortgages) is excluded from segment amounts and is classified in Corporate
and Other for all periods.
(c) Net operating income represents total contract revenues [as defined in Note
(a)] less total operating and interest expenses [as defined in Note (b)]
for the period.
(d) Long-lived assets is comprised of total rental property, unbilled rents
receivable and investments in unconsolidated joint ventures.
(e) Corporate & Other represents all corporate-level items (including interest
income, interest expense and non-property general and administrative
expense) as well as intercompany eliminations necessary to reconcile to
consolidated Company totals.
(f) Excludes $3,563 of adjustments for straight-lining of rents and ($18) for
the Company's share of straight-line rent adjustments from unconsolidated
joint ventures.
(g) Excludes $3,203 of adjustments for straight-lining of rents.
16. IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Cost of Start-Up Activities" ("SOP 98-5"), which is effective
for fiscal years beginning after December 15, 1998. SOP 98-5 requires costs of
start-up and organizational activities be expensed as incurred. The adoption of
SOP 98-5 did not have a material effect on the Company's financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("FASB No.
133"). FASB No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999 (January 1, 2000 for the Company). FASB No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Management of the Company anticipates that, due to its
limited use of derivative instruments, the adoption of FASB No. 133 will not
have a significant effect on the Company's results of operations or its
financial position.
26
<PAGE>
17. PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information for the three months ended March
31, 1999 and 1998 are presented as if all acquisitions and common stock
offerings completed during the three months ended March 31, 1999 and the year
ended December 31, 1998 had all occurred on January 1, 1998. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.
This pro forma financial information is not necessarily indicative of what the
actual results of operations of the Company would have been assuming such
transactions had been completed as of January 1, 1998, nor do they represent the
results of operations of future periods.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total revenues $ 134,889 $ 128,882
Operating and other expenses 40,351 37,084
General and administrative 8,134 7,297
Depreciation and amortization 21,969 19,846
Interest expense 23,622 24,689
- -------------------------------------------------------------------------------------------------------------------
Income before minority interest 40,813 39,966
Minority interest 8,749 8,297
- -------------------------------------------------------------------------------------------------------------------
Net income $ 32,064 $ 31,669
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Basic earnings per common share $ 0.55 $ 0.55
Diluted earnings per common share $ 0.55 $ 0.54
- -------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 58,162 57,768
Diluted weighted average shares outstanding 67,283 66,399
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Mack-Cali Realty Corporation and the notes thereto.
Certain defined terms used herein have the meaning ascribed to them in the
Consolidated Financial Statements.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
The following comparisons for the three months ended March 31, 1999 ("1999"), as
compared to the three months ended March 31, 1998 ("1998") make reference to the
following: (i) the effect of the "Same-Store Properties," which represents all
in-service properties owned by the Company at December 31, 1997 and (ii) the
effect of the "Acquired Properties," which represents all properties acquired or
placed in service by the Company from January 1, 1998 through March 31, 1999.
<TABLE>
<CAPTION>
Quarter Ended
March 31, Dollar Percent
(IN THOUSANDS) 1999 1998 Change Change (%)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE FROM RENTAL OPERATIONS:
Base rents $116,080 $92,916 $23,164 24.9%
Escalations and recoveries from tenants 14,860 10,357 4,503 43.5
Parking and other 3,900 1,981 1,919 96.9
- -------------------------------------------------------------------------------------------------------------------
Sub-total 134,840 105,254 29,586 28.1
Interest income 255 544 (289) (53.1)
Equity in (loss) earnings of
unconsolidated joint ventures (206) 25 (231) (924.0)
- -------------------------------------------------------------------------------------------------------------------
Total revenues 134,889 105,823 29,066 27.5
- -------------------------------------------------------------------------------------------------------------------
PROPERTY EXPENSES:
Real estate taxes 13,843 10,073 3,770 37.4
Utilities 9,592 8,301 1,291 15.6
Operating services 16,916 12,693 4,223 33.3
- -------------------------------------------------------------------------------------------------------------------
Sub-total 40,351 31,067 9,284 29.9
General and administrative 8,134 6,196 1,938 31.3
Depreciation and amortization 21,969 16,231 5,738 35.4
Interest expense 23,622 18,480 5,142 27.8
- -------------------------------------------------------------------------------------------------------------------
Total expenses 94,076 71,974 22,102 30.7
- -------------------------------------------------------------------------------------------------------------------
Income before minority interest 40,813 33,849 6,964 20.6
Minority interest 8,749 7,306 1,443 19.8
- -------------------------------------------------------------------------------------------------------------------
Net income $ 32,064 $ 26,543 $ 5,521 20.8%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
The following is a summary of the changes in revenue from rental operations and
property expenses divided into Acquired Properties and Same-Store Properties (in
thousands).
<TABLE>
<CAPTION>
ACQUIRED SAME-STORE
TOTAL COMPANY PROPERTIES PROPERTIES
DOLLAR PERCENT DOLLAR PERCENT DOLLAR PERCENT
CHANGE CHANGE CHANGE CHANGE CHANGE CHANGE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE FROM RENTAL OPERATIONS:
Base rents $23,164 24.9% $19,094 20.5% $4,070 4.4%
Escalations and recoveries from tenants 4,503 43.5 2,048 19.8 2,455 23.7
Parking and other 1,919 96.9 753 38.0 1,166 58.9
- -------------------------------------------------------------------------------------------------------------------
Total $29,586 28.1% $21,895 20.8% $7,691 7.3%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
PROPERTY EXPENSES:
Real estate taxes $3,770 37.4% $3,063 30.4% $ 707 7.0%
Utilities 1,291 15.6 1,577 19.0 (286)(3.4)
Operating services 4,223 33.3 3,363 26.5 860 6.8
- -------------------------------------------------------------------------------------------------------------------
Total $ 9,284 29.9% $ 8,003 25.8% $1,281 4.1%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Number of wholly-owned properties 248 59 189
Square feet (in thousands) 26,968 5,003 21,965
</TABLE>
Base rents for the Same-Store Properties increased $4.1 million, or 4.4 percent,
for 1999 as compared to 1998, due primarily to occupancy and rental rate
increases in 1999. Escalations and recoveries from tenants for the Same-Store
Properties increased $2.5 million, or 23.7 percent, for 1999 over 1998, due to
the recovery of an increased amount of total property expenses, as well as
additional settle-up billings in 1999. Parking and other income for the
Same-Store Properties increased $1.2 million, or 58.9 percent, which is
primarily attributable to $1.1 million of lease termination fees in 1999.
Real estate taxes on the Same-Store Properties increased $0.7 million, or 7.0
percent, for 1999 as compared to 1998, due primarily to property tax rate
increases in certain municipalities in 1999. Utilities for the Same-Store
Properties decreased $0.3 million, or 3.4 percent, for 1999 as compared to 1998,
due primarily to decreased electric rates and usage in 1999. Operating services
for the Same-Store Properties increased $0.9 million, or 6.8 percent, due
primarily to increased snow removal costs incurred at the Same-Store Properties
in 1999.
Equity in (loss) earnings of unconsolidated joint ventures decreased $0.2
million in 1999 as compared to 1998. This is due to additional organizational
and depreciation expense at certain of the joint ventures in which the Company
has an interest (see Note 4 to the Financial Statements).
Interest income decreased by approximately $0.3 million, or 53.1 percent, for
1999 as compared to 1998. This decrease was due primarily to repayment by a
borrower of a mortgage note receivable in 1998 with no interest income from
mortgage note receivables in 1999.
General and administrative increased by $1.9 million, or 31.3 percent for 1999
as compared to 1998. This increase is due primarily to an increase in payroll
and related costs as a result of the Company's expansion in 1998.
Depreciation and amortization increased by $5.7 million, or 35.4 percent, for
1999 over 1998. Of this increase, $4.5 million or 28.1 percent, is attributable
to the Acquired Properties, and $1.2 million, or 7.3 percent, is due to the
Same-Store Properties.
Interest expense increased $5.1 million, or 27.8 percent, for 1999 as compared
to 1998. This increase is due primarily to net additional drawings from the
Company's revolving credit facilities generally as a result of Company
acquisitions in 1998, offset by a reduction in LIBOR in 1999 and the
reduction in spread over LIBOR due to the 1998 Unsecured Facility signed in
April 1998.
Income before minority interest increased to $40.8 million in 1999 from $33.8
million in 1998. The increase of $7.0 million is due to the factors discussed
above.
Net income increased by $5.5 million for 1999, from $26.5 million in 1998 to
$32.0 million in 1999. This increase is a result of an increase in income before
minority interest of $7.0 million (as discussed above), offset by an increase
of $1.4 million in minority interest.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
STATEMENT OF CASH FLOWS
During the three months ended March 31, 1999, the Company generated $59.7
million in cash flows from operating activities, and together with $683.7
million in borrowings from the Company's revolving credit facilities, issuance
of unsecured notes and funds from additional mortgage debt, $0.4 million in
proceeds from stock options exercised, $1.0 million in distributions received
from unconsolidated joint ventures, used an aggregate of approximately $744.9
million to acquire properties and land parcels and pay for other tenant and
building improvements totaling $21.7 million, repay outstanding borrowings on
its revolving credit facilities and other mortgage debt of $646.8 million,
pay quarterly dividends and distributions of $40.6 million, invest $22.5
million in unconsolidated joint ventures, repurchase 26,000 shares of its
outstanding common stock for $0.7 million, pay deferred financing costs of
$5.6 million, $0.4 million to restricted cash and increase the Company's cash
and cash equivalents balance by $6.6 million.
CAPITALIZATION
During the three months ended March 31, 1999, in conjunction with the redemption
of certain of the contingent units issued in the Mack Transaction, the Company
issued a total of 189,552 common units with a total value of approximately $5.6
million at time of issuance.
In August 1998, the Board of Directors of the Company authorized a share
repurchase program under which the Company was permitted to purchase up to
$100.0 million of the Company's outstanding common stock. Purchases could be
made from time to time in open market transactions at prevailing prices or
through privately negotiated transactions. Subsequently, through March 31, 1999,
the Company purchased, for constructive retirement, 880,700 shares of its
outstanding common stock for an aggregate cost of approximately $25.8 million.
Concurrent with these purchases, the Company sold to the Operating Partnership
880,700 common units for approximately $25.8 million.
As of March 31, 1999, the Company's total indebtedness of $1.5 billion (weighted
average interest rate of 7.12 percent) was comprised of $190.8 million of
revolving credit facility borrowings and other variable rate mortgage debt
(average rate of 5.82 percent), fixed rate debt of $1.3 billion (average rate
of 7.30 percent), and a Contingent Obligation of $6.3 million.
As of March 31, 1999, the Company had outstanding borrowings of $110.6 million
under its revolving credit facilities (with aggregate borrowing capacity of $1.1
billion). The outstanding borrowings were comprised of $110.6 million from the
1998 Unsecured Facility, with no outstanding borrowings on its Prudential
Facility. The 1998 Unsecured Facility, with 28 lender banks, carries an interest
rate of 90 basis points over LIBOR and matures in April 2001. The Prudential
Facility carries an interest rate of 110 basis points over LIBOR and matures in
March 31, 2000.
The terms of the 1998 Unsecured Facility include certain restrictions and
covenants which limit, among other things, the payment of dividends (as
discussed below), the incurrence of additional indebtedness, the incurrence of
liens and the disposition of assets, and which require compliance with financial
ratios relating to the maximum leverage ratio, the maximum amount of secured
indebtedness, the minimum amount of tangible net worth, the minimum amount of
debt service coverage, the minimum amount of fixed charge coverage, the maximum
amount of unsecured indebtedness, the minimum amount of unencumbered property
debt service coverage and certain investment limitations. The dividend
restriction referred to above provides that, except to enable the Company to
continue to qualify as a REIT under the Code, the Company will not during any
four consecutive fiscal quarters make distributions with respect to common stock
or other equity interests in an aggregate amount in excess of 90 percent of
funds from operations for such period, subject to certain other adjustments. The
1998 Unsecured Facility also requires a 17.5 basis point fee on the unused
balance payable quarterly in arrears.
The terms of the Senior Unsecured Notes include certain restrictions and
covenants which require compliance with financial ratios relating to the
maximum amount of debt leverage, the maximum amount of secured indebtedness,
the minimum amount of debt service coverage and the maximum amount of
unsecured debt as a percent of unsecured assets.
The Company has three investment grade credit ratings. Duff & Phelps Credit
Rating Co. ("DCR") and Standard & Poors Rating Services ("S&P") have each
assigned their BBB rating to the recently-issued $600.0 million of Senior
Unsecured Notes of the Operating Partnership. DCR and S&P have also assigned
their BBB- rating to prospective preferred stock offerings of the Company.
Moody's Investors Service has assigned its Baa3 rating to the Senior Unsecured
Notes and its Ba1 rating to prospective preferred stock offerings of the
Company.
In May 1995, the Company entered into an interest rate swap agreement with a
commercial bank. The swap agreement fixes the Company's one-month LIBOR base to
6.285 percent per annum on a notional amount of $24.0 million through
August 1999.
In October 1998, the Company entered into a forward treasury rate lock agreement
with a commercial bank. The agreement locked an interest rate of 4.089 percent
per annum for the three-year U.S. Treasury Note effective November 4, 1999, on
30
<PAGE>
a notional amount of $50.0 million. The agreement will be used to fix the Index
Rate on $50.0 million of the Harborside Mortgages, for which the Company's
interest rate re-sets for three years beginning November 4, 1999 to the
interpolated three-year U.S. Treasury Note plus 110 basis points (see Note 9 to
the Financial Statements - "Property Mortgages - Harborside-Plaza I").
As of March 31, 1999, the Company had 172 unencumbered properties, totaling 16.7
million square feet, representing 61.9 percent of the Company's total portfolio
on a square footage basis. $335.3 million of the Company's mortgage debt,
encumbering 55 properties, aggregating 5.4 million square feet (20.2 percent of
Company's portfolio), may be converted to unsecured debt at the Company's
option. The Company is currently reviewing its options to convert any of the
mortgage debt to unsecured debt.
The Company has an effective shelf registration statement with the SEC for an
aggregate amount of $2.0 billion in equity securities of the Company. The
Company and Operating Partnership also have an effective shelf registration
statement with the SEC for an aggregate of $2.0 billion in debt securities,
preferred stock and preferred stock represented by depositary shares, under
which the Operating Partnership has issued $600.0 million of Senior Unsecured
Notes. The Company also has an effective registration statement with the SEC for
a dividend reinvestment and stock purchase plan which commenced on March 1,
1999.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. Management believes that the Company will
have access to the capital resources necessary to expand and develop its
business. To the extent that the Company's cash flow from operating activities
is insufficient to finance its non-recurring capital expenditures such as
property acquisition costs and other capital expenditures, the Company expects
to finance such activities through borrowings under its revolving credit
facilities and other debt and equity financing.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operating activities, along
with the 1998 Unsecured Facility and the Prudential Facility. The Company is
frequently examining potential property acquisitions and, at any given time, one
or more of such acquisitions may be under consideration. Accordingly, the
ability to fund property acquisitions is a major part of the Company's financing
requirements. The Company expects to meet its financing requirements through
funds generated from operating activities, long-term or short-term borrowings
(including draws on the Company's revolving credit facilities) and the
issuance of additional debt or equity securities. In addition, the Company
anticipates utilizing the 1998 Unsecured Facility and the Prudential Facility
primarily to fund property acquisitions.
The Company's first public debt issuance increased the weighted average term
to maturity for the Company's indebtedness from 4.2 to 6.3 years. The Company
refinanced $35.9 million of its property mortgages which matured in the first
quarter of 1999 with $45.5 million of new mortgage debt. The Company does not
intend to reserve funds to retire its Senior Unsecured Notes, TIAA Mortgage,
Harborside mortgages, $150.0 Million Prudential Mortgage Loan, its other
property mortgages or other long-term mortgages and loans payable upon
maturity. Instead, the Company will seek to refinance such debt at maturity
or retire such debt through the issuance of additional equity or debt
securities. The Company is reviewing various refinancing options, including
the issuance of additional unsecured public debt, preferred stock, and/or
obtaining additional mortgage debt, some or all of which may be completed
during 1999. The Company anticipates that its available cash and cash
equivalents and cash flows from operating activities, together with cash
available from borrowings and other sources, will be adequate to meet the
ompany's capital and liquidity needs both in the short and long-term.
However, if these sources of funds are insufficient or unavailable, the
Company's ability to make the expected distributions discussed below may be
adversely affected.
To maintain its qualification as a REIT, the Company must make annual
distributions to its stockholders of at least 95 percent of its REIT taxable
income, determined without regard to the dividends paid deduction and by
excluding net capital gains. Moreover, the Company intends to continue to make
regular quarterly distributions to its stockholders which, based upon current
policy, in the aggregate would equal approximately $128.5 million on an
annualized basis. However, any such distribution, whether for federal income tax
purposes or otherwise, would only be paid out of available cash after meeting
both operating requirements and scheduled debt service on mortgages and loans
payable.
31
<PAGE>
SIGNIFICANT TENANTS
The following table sets out a schedule of the Company's 20 largest tenants, for
the Company's wholly-owned properties as of March 31, 1999, based upon
annualized base rents:
<TABLE>
<CAPTION>
Percentage of
Annualized Company Square Percentage of Year of
Number of Base Rental Annualized Base Feet Total Company Lease
Properties Revenue($)(1) Rental Revenue (%) Leased Leased Sq.Ft. (%) Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AT&T Corporation 5 13,408,239 3.1 971,501 3.8 2009(2)
Donaldson, Lufkin &
Jenrette Securities Corp. 1 7,943,706 1.8 420,672 1.6 2009
AT&T Wireless Services 2 7,826,368 1.8 365,593 1.4 2007(3)
International Business
Machines Corporation 6 7,639,928 1.7 396,912 1.6 2007(4)
Nabisco Inc. 3 5,921,014 1.4 321,735 1.3 2000(11)
Allstate Insurance Company 9 5,839,839 1.3 270,796 1.1 2009(5)
Prentice-Hall Inc. 1 5,794,893 1.3 474,801 1.9 2014
Dow Jones Telerate Systems Inc. 1 5,610,924 1.3 291,762 1.1 2006(6)
Toys 'R' US - NJ, Inc. 1 5,342,672 1.2 242,518 0.9 2012
American Institute of Certified
Public Accountants 1 4,981,357 1.1 249,768 1.0 2012
CMP Media Inc 1 4,826,107 1.1 206,274 0.8 2014
Board of Gov./Federal Reserve 1 4,593,946 1.0 117,008 0.5 2009(7)
Winston & Strawn 1 4,214,885 1.0 108,100 0.4 2003
KPMG Peat Marwick, LLP 2 3,510,412 0.8 161,760 0.6 2007(8)
Bankers Trust Harborside Inc. 1 3,272,500 0.7 385,000 1.5 2003
Morgan Stanley Dean Witter 1 3,188,532 0.7 179,131 0.7 2008
Dean Witter Reynolds Inc. 4 3,163,872 0.7 137,181 0.5 2008(9)
Deloitte & Touche USA LLP 1 3,162,933 0.7 118,864 0.5 2000
PNC Bank N.A. 4 3,054,754 0.7 149,930 0.6 2004(10)
NTT Data Corporation 1 3,047,364 0.7 136,960 0.5 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Totals 47 106,344,245 24.1 5,706,266 22.3
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rental revenue is based on the first month's billing times 12. As
annualized base rental revenue is not derived from historical GAAP results,
historical results may differ from those set forth above.
(2) 39,183 square feet expire February 2000; 66,268 square feet expire December
2000; 3,950 square feet expire August 2002; 475,100 square feet expire
January 2008; 387,000 square feet expire January 2009.
(3) 341,512 square feet expire March 2007; 24,081 square feet expire June 2007.
(4) 6,542 square feet expired April 1999; 29,157 square feet expire October
2000; 85,000 square feet expire December 2000; 26,749 square feet expire
January 2002; 1,065 square feet expire November 2002; 248,399 square feet
expire December 2007.
(5) 22,444 square feet expire July 2001; 70,517 square feet expire June 2002;
71,030 square feet expire September 2002; 18,882 square feet expire April
2003; 2,867 square feet expire January 2004; 36,305 square feet expire
January 2005; 6,108 square feet expire August 2006; 31,143 square feet
expire April 2008; 11,500 square feet expire January 2009.
(6) 241,875 square feet expire June 2000; 4,700 square feet expire March 2001;
45,187 square feet expire June 2006.
(7) 94,719 square feet expire May 2005; 22,289 square feet expire June 2009.
(8) 104,556 square feet expire September 2002; 57,204 square feet expire July
2007.
(9) 19,390 square feet expire October 2002; 13,140 square feet expire April
2005; 85,151 square feet expire February 2008; 19,500 square feet expire
June 2008.
(10) 23,337 square feet expire October 1999; 107,320 square feet expire February
2000; 15,802 square feet expire August 2003; 3,471 square feet expire
October 2004.
(11) 21,357 square feet expired April 1999; 300,378 square feet expire December
2000.
32
<PAGE>
SCHEDULE OF LEASE EXPIRATIONS
The following table sets forth a schedule of the lease expirations for the
total of the Company's wholly-owned office, office/flex, industrial/warehouse
and stand-alone retail properties beginning April 1, 1999, assuming that none
of the tenants exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) (2) Leases ($) (3) Leases ($) Leases (%)
- ---------- ------------ ---------------- ----------------- ----------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999.......... 448 1,884,975 7.4 33,276,342 17.65 7.6
2000.......... 493 4,017,431 15.7 68,359,287 17.02 15.6
2001.......... 494 2,907,231 11.4 47,555,276 16.36 10.9
2002.......... 415 3,313,258 13.0 57,608,796 17.39 13.2
2003.......... 371 3,797,112 14.9 64,595,040 17.01 14.8
2004.......... 142 1,678,964 6.6 27,884,297 16.61 6.4
2005.......... 82 1,349,712 5.3 27,029,713 20.03 6.2
2006.......... 41 783,333 3.1 14,637,476 18.69 3.3
2007.......... 33 1,166,028 4.6 22,334,897 19.15 5.1
2008.......... 31 1,432,805 5.6 22,389,008 15.63 5.1
2009.......... 22 1,177,992 4.6 20,700,599 17.57 4.7
2010 and thereafter 31 2,057,294 7.8 31,534,238 15.33 7.1
- ---------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 2,603 25,566,135 100.0(4) 437,904,969 17.13 100.0
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes office, office/flex, industrial/warehouse and stand-alone retail
property tenants only. Excludes leases for amenity, retail, parking and
month-to-month tenants. Some tenants have multiple leases.
(2) Excludes all space vacant as of March 31, 1999.
(3) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rental revenue is based on the first month's billing times 12. As
annualized base rental revenue is not derived from historical GAAP results,
historical results may differ from those set forth above.
(4) Reconciliation to Company's total net rentable square footage is as
follows:
<TABLE>
<CAPTION>
SQUARE FEET PERCENTAGE OF TOTAL
----------- -------------------
<S> <C> <C>
Square footage leased to commercial tenants 25,566,135 95.0%
Square footage used for corporate offices, management offices,
building use, retail tenants, food services, other anciliary
service tenants and occupancy adjustments 445,142 1.7
Square footage vacant 889,404 3.3
------------ -------
Total net rentable square footage (does not include
residential, land lease, retail or not-in-service properties) 26,900,681 100.0%
------------ -------
------------ -------
</TABLE>
33
<PAGE>
SCHEDULE OF LEASE EXPIRATIONS: OFFICE PROPERTIES
The following table sets forth a schedule of the lease expirations for the
office properties beginning April 1, 1999, assuming that none of the tenants
exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) (2) Leases ($) (3) Leases ($) Leases (%)
- ---------- ------------ ---------------- ----------------- ----------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999.......... 383 1,502,808 7.0 29,314,776 19.51 7.5
2000.......... 415 3,375,681 15.8 61,242,703 18.14 15.6
2001.......... 407 2,295,765 10.7 40,600,886 17.69 10.4
2002.......... 334 2,576,445 12.0 49,711,432 19.29 12.7
2003.......... 311 3,211,325 15.0 58,823,737 18.32 15.0
2004.......... 114 1,320,047 6.2 23,785,246 18.02 6.1
2005.......... 63 1,130,145 5.3 24,524,486 21.70 6.3
2006.......... 34 589,841 2.8 11,345,970 19.24 2.9
2007.......... 28 1,054,347 4.9 20,761,913 19.69 5.3
2008.......... 29 1,330,945 6.2 21,924,500 16.47 5.6
2009.......... 18 1,105,892 5.2 19,661,379 17.78 5.0
2010 and thereafter 26 1,925,598 8.9 29,963,689 15.56 7.6
- ---------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 2,162 21,418,839 100.0 391,660,717 18.29 100.0
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes office tenants only. Excludes leases for amenity, retail, parking
and month-to-month office tenants. Some tenants have multiple leases.
(2) Excludes all space vacant as of March 31, 1999.
(3) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rental revenue is based on the first month's billing times 12. As
annualized base rental revenue is not derived from historical GAAP results,
historical results may differ from those set forth above.
34
<PAGE>
SCHEDULE OF LEASE EXPIRATIONS: OFFICE/FLEX PROPERTIES
The following table sets forth a schedule of the lease expirations for the
office/flex properties beginning April 1, 1999, assuming that none of the
tenants exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) (2) Leases ($) (3) Leases ($) Leases (%)
- ---------- ------------ ---------------- ----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1999.......... 61 376,332 10.0 3,902,146 10.37 9.2
2000.......... 73 575,706 15.3 6,455,308 11.21 15.3
2001.......... 82 579,919 15.4 6,351,835 10.95 15.0
2002.......... 80 726,663 19.4 7,792,819 10.72 18.4
2003.......... 57 494,313 13.2 5,345,550 10.81 12.6
2004.......... 21 179,897 4.8 2,245,346 12.48 5.3
2005.......... 19 219,567 5.8 2,505,227 11.41 5.9
2006.......... 7 193,492 5.2 3,291,506 17.01 7.8
2007.......... 5 111,681 3.0 1,572,984 14.08 3.7
2008.......... 2 101,860 2.7 464,508 4.56 1.1
2009.......... 4 72,100 1.9 1,039,220 14.41 2.5
2010 and thereafter 4 123,696 3.3 1,305,549 10.55 3.2
- ---------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 415 3,755,226 100.0 42,271,998 11.26 100.0
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes office/flex tenants only. Excludes leases for amenity, retail,
parking and month-to-month office/flex tenants. Some tenants have multiple
leases.
(2) Excludes all space vacant as of March 31, 1999.
(3) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rental revenue is based on the first month's billing times 12. As
annualized base rental revenue is not derived from historical GAAP results,
historical results may differ from those set forth above.
35
<PAGE>
SCHEDULE OF LEASE EXPIRATIONS: INDUSTRIAL/WAREHOUSE PROPERTIES
The following table sets forth a schedule of the lease expirations for the
industrial/warehouse properties beginning April 1, 1999, assuming that none of
the tenants exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) (2) Leases ($) (3) Leases ($) Leases (%)
- ---------- ------------ ---------------- ----------------- ----------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999.......... 4 5,835 1.6 59,420 10.18 1.7
2000.......... 5 66,044 17.6 661,276 10.01 18.8
2001.......... 5 31,547 8.4 602,555 19.10 17.2
2002.......... 1 10,150 2.7 104,545 10.30 3.0
2003.......... 3 91,474 24.4 425,753 4.65 12.1
2004.......... 6 169,720 45.3 1,658,705 9.77 47.2
- ---------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 24 374,770 100.0 3,512,254 9.37 100.0
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes industrial/warehouse tenants only. Excludes leases for amenity,
retail, parking and month-to-month industrial/warehouse. Some tenants have
multiple leases.
(2) Excludes all space vacant as of March 31, 1999.
(3) Annualized base rental revenue is based on actual March 1999 billings times
12. For leases whose rent commences after March 31, 1999, annualized base
rent revenue is based on the first month's billing times 12. As annualized
base rental revenue is not derived from historical GAAP results, the
historical results may differ from those set forth above.
SCHEDULE OF LEASE EXPIRATIONS: STAND-ALONE RETAIL PROPERTIES
The following table sets forth a schedule of the lease expirations for the
stand-alone retail properties beginning January 1, 1999, assuming that none
of the tenants exercises renewal options:
<TABLE>
<CAPTION>
Average Annual
Percentage Of Rent Per Net
Net Rentable Total Leased Annualized Rentable Percentage Of
Area Subject Square Feet Base Rental Square Foot Annual Base
Number Of To Expiring Represented By Revenue Under Represented Rent Under
Year Of Leases Leases Expiring Expiring By Expiring Expiring
Expiration Expiring (1) (Sq. Ft.) Leases (%) Leases ($) (2) Leases ($) Leases (%)
- ---------- ------------ --------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
2004.......... 1 9,300 53.8 195,000 20.97 42.4
2012 ......... 1 8,000 46.2 265,000 33.13 57.6
- ---------------------------------------------------------------------------------------------------------------------------
Totals/Weighted
Average 2 17,300 100.0 460,000 26.59 100.0
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes stand-alone retail property tenants only.
(2) Annualized base rental revenue is based on actual March 1999 billings
times 12. For leases whose rent commences after March 31, 1999
annualized base rental revenue is based on the first month's billing
times 12. As annualized base rental revenue is not derived from
historical GAAP results, historical results may differ from those set
forth above.
36
<PAGE>
FUNDS FROM OPERATIONS
The Company 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 minority interest of 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 Company'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 Company's funds from operations is comparable to the
funds from operations of real estate companies that use the current definition
of the National Association of Real Estate Investment Trusts ("NAREIT"), after
the adjustment for straight-lining of rents.
NAREIT's definition of funds from operations indicates that the calculation
should be made before any extraordinary item (determined in accordance with
GAAP), and before any deduction of significant non-recurring events that
materially distort the comparative measurement of the Company's performance.
Funds from operations for the three months ended March 31, 1999 and 1998 as
calculated in accordance with NAREIT's definition as published in March 1995,
after adjustment for straight-lining of rents, are summarized in the following
table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income before distributions to
to preferred unitholders and minority interest $ 40,813 $ 33,849
Add: Real estate-related depreciation and
amortization (1) 22,951 16,120
Deduct: Rental income adjustment for
straight-lining of rents (1) (3,545) (3,203)
- -------------------------------------------------------------------------------------------------------------------
Funds from operations, after adjustment
for straight-lining of rents, before distributions
to preferred unitholders $ 60,219 $ 46,766
Deduct: Distributions to preferred unitholders (3,869) (3,911)
- -------------------------------------------------------------------------------------------------------------------
Funds from operations, after adjustment for
straight-lining of rents, after distributions
to preferred unitholders $ 56,350 $ 42,855
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Cash flows provided by operating activities $ 59,654 $ 50,358
Cash flows used in investing activities $ (43,459) $ (444,615)
Cash flows (used in) provided by financing activities $ (9,598) $ 403,270
- -------------------------------------------------------------------------------------------------------------------
Basic weighted average shares/units outstanding (2) 67,011 57,933
- -------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares/units outstanding (2) 73,975 65,371
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes FFO adjustments related to the Company's investments in
unconsolidated joint ventures.
(2) See calculations for the amounts presented in the following reconciliation.
37
<PAGE>
The following schedule reconciles the Company's basic weighted average shares to
the basic and diluted weighted average shares/units presented above:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic weighted average shares: 58,162 51,363
Add: Weighted average common units 8,849 6,570
- -------------------------------------------------------------------------------------------------------------------
Basic weighted average shares/units: 67,011 57,933
Add: Weighted average preferred units 6,692 6,689
(after conversion to common units)
Stock options 272 612
Stock warrants -- 137
- -------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares/units: 73,975 65,371
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
INFLATION
The Company's leases with the majority of its tenants provide for recoveries and
escalation charges based upon the tenant's proportionate share of, and/or
increases in, real estate taxes and certain operating costs, which reduce the
Company's exposure to increases in operating costs resulting from inflation.
DISRUPTION IN OPERATIONS DUE TO YEAR 2000 PROBLEMS.
GENERAL
The Year 2000 issue is the result of computer programs and embedded chips using
a two-digit format, as opposed to four digits, to indicate the year. Such
computer systems may be unable to interpret dates beyond the year 1999, which
could cause a system failure or other computer errors, leading to disruptions in
operations. We have developed a three-phase Year 2000 project (the "Project") to
determine our Year 2000 systems compliance. Phase I is to identify those systems
with which we have exposure to Year 2000 issues. Phase II is the development and
implementation of action plans to be Year 2000 compliant in all areas by early
1999. Phase III, to be completed by mid-1999, is the final testing of each major
area of exposure to assure compliance. We have identified three major areas
critical for successful Year 2000 compliance: (i) our central accounting and
operating computer system at our Cranford, New Jersey headquarters and local
networks and related systems in our regional offices, (ii) inquiries of our
tenants and key vendors as to their Year 2000 readiness and (iii) assessment of
our individual buildings as to the Year 2000 readiness of their operating
systems. We believe that progress in all such areas is proceeding on schedule
and that we will experience no material adverse effect as a result of the Year
2000 issue. There can, however, be no assurance that this will be the case. Set
forth below is a more detailed analysis of the Project and its anticipated
impact on us.
CENTRAL ACCOUNTING AND OPERATING SYSTEMS
We have completed a review of key computer hardware and software and other
equipment, and have modified, upgraded or replaced all identified hardware and
equipment in our corporate and regional offices that we believe may be affected
by problems associated with Year 2000. Such hardware includes desktop and laptop
computers, servers, printers, telecopier machines and telephones. We, as part of
our routine modernization efforts, have completed necessary upgrades to
identified secondary software systems, such as word processing, spreadsheet
applications, telephone voicemail systems and computer calendar programs. The
software supplier of our accounting system completed its Year 2000 upgrade
and supplied us with Year 2000 compliant software at no cost to us. We
anticipate internal testing of such software to be completed by July 1999.
TENANT COMPLIANCE
We believe that the completion of the Project as scheduled will minimize Year
2000 related issues in our internal operations. However, we may still be
adversely impacted by Year 2000 related issues as a result of problems outside
our control, such as the inability of tenants to pay rent when due. In order to
gauge such risk, we sent questionnaires to each of our then existing tenants in
August 1998 to assess their Year 2000 compliance status. The responses to these
questionnaires continue to be received, reviewed and evaluated. Based on the
responses received, we do not anticipate any material adverse impact on the
orderly payment of monthly rent. Therefore, while there can be no assurance that
Year 2000 problems of tenants will not have a material adverse effect on our
operating results or financial condition, the information available to us
indicates such an occurrence is not likely.
PROPERTY COMPLIANCE
Our property managers have completed Phase I of the Project, a building by
building survey of all of our properties to determine whether building support
systems such as heat, power, light, security, garages and elevators will be
affected by
38
<PAGE>
the advent of the Year 2000. Most of such systems either are already Year 2000
compliant or contain no computerized parts. Our property managers are currently
completing Phase II of the Project, the development and implementation of action
plans to modify, upgrade or replace non-compliant building systems. Once
installed, these building systems will be tested for compliance pursuant to
Phase III of the Project.
We have communicated with vendors of building systems or other services to our
buildings regarding their Year 2000 compliance. In many instances, we will rely
on the written representations from these vendors regarding the Year 2000
compliance of their product or service. We are also relying on assurances
requested from utility providers of their Year 2000 compliance and their
continued ability to provide uninterrupted service to our buildings. We
anticipate incurring a total cost of approximately $1.0 million in costs to
modify, upgrade and/or replace identified building support systems for Year 2000
compliance.
WORST CASE EXPOSURE
We are aware that it is generally believed that the Year 2000 problem, if
uncorrected, may result in a worldwide economic crisis. We are unable to
determine whether such predictions are true or false. However, if such
predictions prove true, we assume that all companies (including ours) will
experience the effects in one way or another. The most reasonably likely worst
case scenario we anticipate in connection with the Year 2000 issue relates to
the failure of the upgrade to our accounting system to effectively become Year
2000 compliant. We believe that such an event is unlikely, but an occurrence of
the foregoing might have a material adverse impact on our operations. We cannot
currently assess the financial impact of such a worst case scenario.
CONTINGENCY PLANS
We are developing contingency plans to address the Year 2000 non-compliance of
(i) critical building support systems and (ii) our accounting system.
CRITICAL BUILDING SYSTEMS. We believe that the failure of any of the
following critical building support systems due to Year 2000 issues could have a
material adverse impact on the performance of an individual building: security
systems, elevator systems or fire/life safety systems. We believe that in the
event of a Year 2000 related failure in a building security system, we would be
able to maintain adequate security at the building through the use of security
guards. We believe that in the event of a Year 2000 related failure in a
building elevator system, adequate access would exist at most of our buildings
through existing stairways. We believe that in the event of a Year 2000 related
failure in a building fire/life safety system, our property management staff
would be able to manually operate such system.
ACCOUNTING SOFTWARE. We believe that failure of the Year 2000
compliance upgrade to our accounting software might have a material adverse
impact on our operations. However, we believe that financial data within any
given fiscal year will remain intact and retrievable. We believe that
alternative accounting software and/or manual bookkeeping would minimize the
impact of a Year 2000 related failure of our current accounting software.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party vendors and tenants, we are unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on our results of operations, liquidity or financial
condition. The Project is expected to significantly reduce our level of
uncertainty about the Year 2000 problem. We believe that, with the
implementation and completion of the Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The Company 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 Company
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.
39
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Approximately $1.3 billion of the Company's long-term debt bears interest at
fixed rates, and therefore the fair value of these instruments is affected by
changes in the market interest rates. The following table presents principal
cash flows (in thousands) based upon maturity dates of the debt obligations and
the related weighted-average interest rates by expected maturity dates for the
fixed rate debt. The interest rate on the variable rate debt as of March 31,
1999 ranged from LIBOR plus 0.65% to LIBOR plus 0.90%.
MARCH 31, 1999
<TABLE>
<CAPTION>
LONG-TERM DEBT, FAIR
INCLUDING CURRENT PORTION 1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
- ----------------------------- ---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate..................... $2,296 $8,755 $ 7,794 $11,637 $211,151 $1,025,343 $1,266,976 $1,270,610
Average Interest Rate.......... 7.65% 6.77% 7.27% 7.09% 7.31% 7.27% 7.30%
Variable Rate.................. $8,000 $110,600 $ 72,204 $ 190,804 $ 190,804
</TABLE>
40
<PAGE>
MACK-CALI REALTY CORPORATION
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Reference is made to "Other Contingencies" in Note 12 (Commitments and
Contingencies) to the Consolidated Financial Statements, which is
specifically incorporated by reference herein.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Item 5. OTHER INFORMATION
Not Applicable.
41
<PAGE>
MACK-CALI REALTY CORPORATION
PART II -- OTHER INFORMATION (CONTINUED)
ITEM 6 - EXHIBITS
(a) Exhibits
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed:
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT TITLE
- -------------- -------------
<S> <C>
4.1 Indenture dated as of March 16, 1999, by and among
Mack-Cali Realty , L.P., as issuer, Mack-Cali Realty
Corporation, as guarantor, and Wilmington Trust
Company, as trustee (filed as Exhibit 4.1 to the
Company's Form 8-K dated March 16, 1999 and
incorporated herein by reference).
4.2 Supplemental Indenture No. 1 dated as of March 16,
1999, by and among Mack-Cali Realty, L.P., as issuer,
and Wilmington Trust Company, as trustee (filed as
Exhibit 4.2 to the Company's Form 8-K dated March 16,
1999 and incorporated herein by reference).
10.1 Credit Agreement, dated as of December 10, 1997, by
and among Cali Realty, L.P. and the other signatories
thereto (filed as Exhibit 10.122 to the Company's
Form 8-K dated December 11, 1997 and incorporated
herein by reference).
10.2 Amendment No. 1 to Revolving Credit Agreement dated
July 20, 1998, by and among Mack-Cali Realty, L.P.
and The Chase Manhattan Bank, Fleet National Bank and
Other Lenders Which May Become Parties Thereto (filed
as Exhibit 10.5 to the Company's Form 10-K dated
December 31, 1998 and incorporated herein by
reference).
10.3 Amendment No. 2 to Revolving Credit Agreement dated
December 30, 1998, by and among Mack-Cali Realty,
L.P. and The Chase Manhattan Bank, Fleet National
Bank and Other Lenders Which May Become Parties
Thereto (filed as Exhibit 10.6 to the Company's Form
10-K dated December 31, 1998 and incorporated herein
by reference).
10.4 Contribution and Exchange Agreement among The MK
Contributors, The MK Entities, The Patriot
Contributors, The Patriot Entities, Patriot American
Management and Leasing Corp., Cali Realty, L.P. and
Cali Realty Corporation, dated September 18, 1997
(filed as Exhibit 10.98 to the Company's Form 8-K
dated September 19, 1997 and incorporated herein by
reference).
10.5 First Amendment to Contribution and Exchange
Agreement, dated as of December 11, 1997, by and
among the Company and the Mack Group (filed as
Exhibit 10.99 to the Company's Form 8-K dated
December 11, 1997 and incorporated herein by
reference).
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
The Company did not file a Current Report on Form 8-K during the quarter ended
March 31, 1999.
42
<PAGE>
MACK-CALI REALTY CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACK-CALI REALTY CORPORATION
---------------------------------------
(Registrant)
Date: May 5, 1999 /s/ MITCHELL E. HERSH
---------------------------------------
Mitchell E. Hersh
Chief Executive Officer
Date: May 5, 1999 /s/ BARRY LEFKOWITZ
---------------------------------------
Barry Lefkowitz
Executive Vice President &
Chief Financial Officer
43
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 18,784
<SECURITIES> 0
<RECEIVABLES> 6,017
<ALLOWANCES> 757
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,495,175
<DEPRECIATION> 198,945
<TOTAL-ASSETS> 3,498,942
<CURRENT-LIABILITIES> 0
<BONDS> 1,457,779
0
0
<COMMON> 583
<OTHER-SE> 1,455,086
<TOTAL-LIABILITY-AND-EQUITY> 3,498,942
<SALES> 0
<TOTAL-REVENUES> 134,889
<CGS> 0
<TOTAL-COSTS> 62,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,622
<INCOME-PRETAX> 40,813
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,064
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
