UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number: 1-13762
RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)
Maryland 11-3233650
(State other jurisdiction of incorporation (IRS. Employer
of organization) Identification Number)
225 Broadhollow Road, Melville, NY 11747
(Address of principal executive office) (zip code)
(516) 694-6900
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The company has only one class of common stock, issued at $.01 par value
per share with 34,494,697 shares outstanding as of November 4, 1997.
<PAGE>
RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets of Reckson Associates Realty Corp.
as of September 30, 1997 and December 31, 1996 .........
Consolidated Statement of Operations of Reckson Associates
Realty Corp. for the three months and nine months ended
September 30, 1997 and 1996 ............................
Consolidated Statement of Cash Flows of Reckson Associates
Realty Corp. for the nine months ended September 30, 1997
and 1996 ...............................................
Notes to the Consolidated Financial Statements of Reckson
Associates Realty Corp .................................
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................
PART II OTHER INFORMATION ......................................
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share amounts)
<CAPTION>
September 30, December 31,
1997 1996
_________ _________
(Unaudited)
<S> <C> <C>
ASSETS
Commercial real estate properties, at cost:
Land $ 103,687 $ 45,259
Building and improvements 662,284 457,403
Land held for future development 15,534 5,637
Development in progress 8,646 8,469
Furniture, fixtures and equipment 3,611 2,736
_________ _________
793,762 519,504
Less accumulated depreciation (103,709) (88,602)
_________ _________
690,053 430,902
Investment in real estate joint ventures 7,048 5,437
Investment in mortgage notes and notes
receivable 85,853 51,837
Cash and cash equivalents 10,211 12,688
Tenants receivables 2,371 1,732
Affiliate receivables 5,686 3,826
Deferred rent receivable 15,358 12,573
Prepaid expenses and other assets 14,565 6,225
Contract and land deposits and pre-acquisition
costs 7,172 7,100
Deferred leasing and loan costs 15,440 11,438
_________ _________
Total Assets $ 853,757 $ 543,758
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Mortgage notes payable $ 180,593 $ 161,513
Senior unsecured notes 150,000 ---
Credit facility 33,000 108,500
Accrued expenses and other liabilities 20,124 15,868
Affiliate payables 718 502
Dividends and distributions payable 13,046 9,442
_________ _________
Total Liabilities 397,481 295,825
_________ _________
Minority interest in consolidated partnership 6,765 9,187
Limited partners' minority interest in
operating partnership 75,608 51,879
_________ _________
82,373 61,066
_________ _________
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 25,000,000
shares authorized, none issued or
outstanding --- ---
Common Stock, $.01 par value, 100,000,000
shares authorized, 34,493,530 and
24,356,354 shares issued and outstanding,
respectively 345 244
Additional paid in capital 373,558 186,623
_________ _________
Total Stockholders' Equity 373,903 186,867
_________ _________
Total Liabilities and Stockholders' Equity $ 853,757 $ 543,758
========= =========
<FN>
See Accompanying Notes to Financial Statements.
</FN>
</TABLE>
<TABLE>
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
_________ _________ _________ _________
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Base rents $ 33,427 $ 21,098 $ 91,179 $ 56,815
Tenants escalation and reimbursements 4,152 2,794 10,737 7,492
Equity in earnings of real estate
joint ventures 124 95 326 166
Equity in earnings of service companies 66 175 208 934
Interest income on mortgage notes and
notes receivable 1,786 367 3,675 367
Other 787 189 2,104 706
_________ _________ _________ _________
Total Revenues 40,342 24,718 108,229 66,480
_________ _________ _________ _________
EXPENSES:
Operating Expenses:
Property operating expenses 8,123 5,278 20,857 13,519
Real Estate Taxes 5,199 3,613 14,569 9,595
Ground Rents 309 284 918 803
Marketing, general and administrative 2,320 1,329 6,158 3,720
_________ _________ _________ _________
Total Operating Expenses 15,951 10,504 42,502 27,637
_________ _________ _________ _________
Interest 5,887 3,254 14,471 8,765
Depreciation and amortization 7,034 4,565 18,991 12,359
_________ _________ _________ _________
Total Expenses 28,872 18,323 75,964 48,761
_________ _________ _________ _________
Income before minority interest and
extraordinary item 11,470 6,395 32,265 17,719
Minority Partners' Interest in consolidated
partnership (income) (201) (166) (645) (638)
Limited Partners' interest in the Operating
partnership (income) (1,861) (1,516) (5,632) (4,357)
_________ _________ _________ _________
Income before extraordinary item 9,408 4,713 25,988 12,724
Extraordinary items:(loss) on a restatement
or extinguishment of debt, net of limited
partners share of $178, $0, $578 and $364
respectively (267) --- (2,230) (895)
_________ _________ _________ _________
Net income $ 9,141 $ 4,713 $ 23,758 $ 11,829
========= ========= ========= =========
Net income per common share before
extraordinary item $ 0.27 $ 0.23 $ .82 $ .68
========= ========= ========= =========
Extraordinary item:(loss) per common share (.01) $ --- $ (.07) (.05)
========= ========= ========= =========
Net income per common share $ 0.26 $ 0.23 $ .75 $ .63
========= ========= ========= =========
Weighted average common shares outstanding 34,477 20,880 31,810 18,714
========= ========= ========= =========
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
<TABLE>
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands)
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1997 1996
_________ _________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 23,758 $ 11,829
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 18,991 12,359
Minority partners' interest in
Consolidated Partnership 645 638
Limited partners' interest in Operating
Partnership 5,632 4,357
Extraordinary loss on extinguishment of
Debts 2,230 895
Equity in earnings of service companies (208) (934)
Equity in earnings of real estate
partnerships (326) (166)
Dividend from service companies --- 100
Distribution from real estate partnership 290 95
(Increase) decrease in operating assets
and liabilities
Interest income on mortgage notes receivable (1,304) (367)
Tenant receivables (639) (238)
Prepaid expenses and other assets (8,568) (2,253)
Deferred rents receivable (3,478) (2,222)
Accrued expenses and other liabilities 1,310 486
Deferred ground rents payable 196 169
Advance rents received 651 ---
_________ _________
Net cash provided by operating activities 39,180 24,748
_________ _________
CASH FLOW FROM INVESTING ACTIVITIES:
Increase in deferred acquisition costs
and other (28) (9,490)
Purchase of commercial real estate
property (239,826) (103,732)
Investment in mortgage note receivable (32,381) (22,417)
Investment in real estate partnerships (1,575) (5,231)
Investment in service companies 15 (3,170)
Additions to land, buildings and
improvements (10,275) (11,088)
Purchase of furniture, fixtures and
equipment (856) (106)
Payment of leasing costs (2,977) (4,531)
Advance to equity investee --- (470)
_________ _________
Net cash used in investing activities (287,903) (160,235)
_________ _________
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
net of issuance costs 215,185 85,248
Proceeds from secured borrowings --- 3,481
Principal payments on secured borrowings (1,054) (216)
Payment of loan costs (6,116) (1,349)
Advances to affiliates (3,413) (874)
Proceeds from of issuance of senior
unsecured notes 150,000 ---
Proceeds from credit facility 208,500 105,000
Repayments of credit facility (284,000) (36,000)
Distribution to minority partners in
Consolidated Partnership (2,889) (1,210)
Distribution to minority partners in
Operating Partnership (6,452) (3,744)
Payments of common dividends (25,259) (10,564)
Increase in security deposit liability 1,744 497
_________ _________
Net cash provided by financing
activities 246,246 140,269
_________ _________
Net (decrease) increase in cash and
cash equivalents (2,477) 4,782
Cash and cash equivalents at beginning of
period 12,688 6,984
_________ _________
Cash and cash equivalents at end of period $ 10,211 $ 11,766
========= =========
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
1. ORGANIZATION AND FORMATION OF THE COMPANY
Reckson Associates Realty Corp. ("the Company") was incorporated in Mary-
LAND in September 1994 and is the successor to the operations of the Reckson
Group. In June, 1995 the Company completed an initial public offering of
7,038,000 shares of common stock ("the IPO"). The IPO price was $24.25 per
common share resulting in gross offering proceeds of approximately $170,671,500.
The Company also issued 400,000 shares in a concurrent offering to the Rechler
family resulting in $9,700,000 in additional proceeds. The aggregate proceeds
to the Company, net of underwriting discount and advisory fee and other offering
expenses, were approximately $162,000,000.
The following transactions occurred simultaneously with the completion of the
IPO:
The Company consummated various purchase agreements to
acquire certain properties and interests in partnerships which own
properties from certain non- continuing investors. Pursuant to such
agreements the Company paid approximately $6,952,000, in cash
to certain holders of the interests.
The Company became the sole general partner of Reckson
Operating Partnership L.P. ("the Operating Partnership") by
contributing substantially all of the net proceeds of the IPO, in
exchange for an approximately 73% interest in the Operating
Partnership. All properties acquired by the Company are held by or
through the Operating Partnership.
The Operating Partnership executed various option and purchase
agreements whereby it issued 2,758,960 units in the Operating
Partnership ("OP Units") to certain continuing investors and
assumed approximately $163,438,000 (net of Omni mortgages) of
indebtedness in exchange for interests in certain property
partnerships, fee simple and leasehold interests in properties and
development land, certain business assets of the executive center
entities and 100% of the non-voting preferred stock of the
management and construction companies. In addition, the
Operating Partnership paid approximately $2,623,000 for costs
associated with the transfer of the properties and other interests.
The Operating Partnership contributed $17,500,000 to Omni
Partners, L.P. ("Omni"). Omni used $10,000,000 of the cash
contribution to repay mortgage indebtedness encumbering Omni's
property and $1,000,000 of cash contribution to repay a loan from
its existing partners. In addition, the remaining $27,214,000
balance of the first mortgage was refinanced. In July 1995, the
Omni paid $6,500,000 to the minority partners in Omni to redeem a
portion of their limited partnership interest therein. In addition,
the Operating Partnership paid approximately $805,000 of financing
costs, on behalf of Omni, in connection with the refinancing of
Omni's debt. As a result of these transactions the Operating
Partnership has a 60% managing general partner interest in Omni.
In addition, the Operating Partnership will receive a priority interest
in the Omni's annual cash flow equal to 12% of $11.0 million of the
Operating Partnership's aggregate capital contributions.
The Operating Partnership used a portion of the IPO proceeds and
the proceeds of certain new mortgage borrowings to repay
approximately $114,016,000 of indebtedness (excluding the Omni
indebtedness and including $1,500,000 of a line of credit). In
conjunction with such repayment, the Operating Partnership
incurred an extraordinary loss of $6,022,000 (before minority
interest) consisting of approximately $6,356,000 in prepayment
costs and other fees, $1,742,000 of unamortized deferred financing
fees written off and a gain on partial forgiveness of a mortgage
obligation of approximately $2,075,000. In addition, the Operating
Partnership used $5,000,000 of the IPO proceeds to repay notes to
a Reckson Group partnership.
The Operating Partnership borrowed $15,000,000 under a credit
facility to repay certain mortgage indebtedness and to fund an
acquisition of a commercial real estate investment.
As of September 30, 1997, the Company owned and operated 44 office
properties comprising approximately 6.1 million square feet, 90 industrial
properties comprising approximately 5.5 million square feet and 2 retail
properties comprising approximately 20,000 square feet, located in the New York
"Tri-State" area. In addition, the Company owned or had contracted to own
approximately 698 acres of land (including 400 acres under option) in eleven
separate parcels for development. The Company also has invested
approximately $52.6 million in certain mortgage notes encumbering five Class A
office properties encompassing approximately 928,000 square feet and a 400
acre parcel of land. In addition, the Company has invested $17 million in a
note receivable secured by Odyssey's interest in the Omni (see note 6).
During July 1997, the Company announced the formation of Reckson
Strategic, Inc. ("RSI") and Reckson Opportunity Partners, L.P. ("ROPARTNERS").
RSI is a 95% owned subsidiary of the Operating Partnership and will serve as the
majority managing member of the general partner of ROPARTNERS. RSI will invest
in operating companies that generally will provide tenant and building services
to properties owned by the Company and its tenants and to third parties.
ROPARTNERS will invest primarily in real estate operating companies that present
the potential for significant growth opportunities. At September 30, 1997, the
Operating Partnership had made investments in or loans to RSI and ROPARTNERS
of approximately $17.7 million in connection with start up costs and certain
initial investments.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership at September
30, 1997 and the results of their operations for the three and nine months ended
September 30, 1997 and their cash flows for the nine month period ended
September 30, 1997. The operating results of the service businesses currently
conducted by Reckson Management Group, Inc., Reckson Construction Group,
Inc. and Reckson Executive Centers, L.L.C. are reflected in the accompanying
financial statements on the equity method of accounting. The Operating
Partnership also invests in real estate joint ventures where it may own less
than a controlling interest, such investments are also reflected in the
accompanying financial statements on the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
The accompanying interim financial statements have been prepared by the
Company's management in accordance with generally accepted accounting
principles for interim financial information and in conjunction with the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, the interim financial statements presented herein reflect all
adjustments of a normal and recurring nature which are necessary to fairly state
the interim financial statements. The results of operations for the interim
period are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. These financial statements should be read in
conjunction with the Company's audited financial statements and the notes
thereto included in the Company's Form 10K for the year ended December 31,
1996.
The Company intends to qualify as a real estate investment trust ("REIT")
under Section 856 through 869 of the Internal Revenue Code of 1986, as amended
(the "Code"). As a REIT, the Company will not generally be subject to corporate
Federal income taxes as long as it satisfies certain technical requirements of
the Code relating to composition of its income and assets and requirements
relating to distributions of taxable income to shareholders.
3. MORTGAGE NOTES PAYABLE
During August 1997, the Company refinanced approximately $43 million of
mortgage debt on its Omni building with a $58 million fixed rate mortgage loan.
The loan which matures on September 1, 2007 has a fixed rate of interest of
7.72%.
As of September 30, 1997, the Company had approximately $180.6 million of
fixed rate mortgage loans which mature at various times between 1999 and
2012. The loans are secured by eighteen properties and have a weighted
average interest rate of 7.72%.
4. SENIOR UNSECURED NOTES
On August 28, 1997, the Company sold $150 million of 7.2% Senior Unsecured
Notes due August 28, 2007 (the "Unsecured Notes"). The net proceeds of the
Unsecured Notes were used to repay borrowings under the Unsecured Credit
Facility and for property acquisitions.
5. UNSECURED CREDIT FACILITY
On April 30, 1997, the Company obtained a three-year $250 million unsecured
credit facility from Chase Manhattan Bank and Union Bank of Switzerland (the
"Unsecured Credit Facility"). The Company's ability to borrow thereunder is
subject to the satisfaction of certain customary financial covenants. In
addition, borrowings under the Unsecured Credit Facility bear interest at a
floating rate equal to one, two, three or six month LIBOR (at the Company's
election) plus a spread ranging from 1.125% to 1.5% based on the Company
leverage ratio. The Unsecured Credit Facility replaced the Company's existing
$150 million secured credit facility (the "Credit Facility"). As a result,
certain deferred loan costs incurred in connection with the original credit
facility were written off. Such amount is reflected as an extraordinary loss in
the accompanying consolidated statement of operations.
6. COMMERCIAL REAL ESTATE INVESTMENTS
On January 7, 1997, the Company exercised its option to acquire 110
Bi-County Blvd. in Farmingdale, New York. The 147,281 square foot industrial
property was acquired for approximately $9.0 million. The acquisition was
financed with the issuance of OP units and the assumption of a first mortgage
loan in the amount of approximately $4.67 million. This property was acquired
in connection with an option agreement, entered into by the Company at the time
of the IPO, which provided for a purchase price equal to the lesser of (I) a
fixed price established at the time of the IPO and (ii) the net operating income
divided by a capitalization rate of 11.5%. The properties were purchased from a
partnership owned by Donald Rechler and Roger Rechler.
On March 5, 1997, the Company acquired a single story industrial building
located in Hauppauge, New York, encompassing approximately 70,000 square feet
for approximately $2.35 million. The acquisition was financed with proceeds
from a draw on the Credit Facility.
On March 12, 1997, the Company acquired a portfolio of ten industrial
buildings located within the Company's Vanderbilt Industrial Park in Hauppauge,
New York. Eight of the buildings are multi-tenanted and two of the buildings
are 100% leased to single tenants. The ten buildings encompass approximately
447,800 square feet and were purchased for approximately $21.6 million. The
acquisition was financed with proceeds from the Company's most recent equity
offering (see Note 7).
On March 13, 1997, the Company loaned approximately $17 million to its
minority partners in Omni, its flagship office building, and effectively
increased its economic interest in the property owning partnership.
On March 31, 1997, the Company acquired a vacant industrial building
located in Clifton, New Jersey encompassing approximately 180,000 square feet
for approximately $4.4 million. The Company plans to redevelop the property
into a Class A office building. The acquisition was financed with proceeds from
the most recent equity offering (see Note 7).
During April 1997, the Company acquired one Class A office building located
in Melville, New York encompassing approximately 124,000 square feet and one
research and development facility located in Shelton, Connecticut encompassing
approximately 452,000 square feet. The aggregate purchase prices for these
properties amounted to approximately $44 million. In addition, the Company
acquired two Class A office buildings encompassing approximately 308,000
square feet in Short Hills, New Jersey for approximately $51.5 million. These
acquisitions were financed with proceeds from the most recent equity offering
(see Note 7).
During May 1997, the Company acquired one office property located in
Melville, New York encompassing 167,400 square feet for approximately $4.7
million and two office buildings in West Orange, New Jersey encompassing a total
of 162,556 square feet for aggregate purchase prices of approximately $15.7
million. These acquisitions were financed with proceeds from the Company's
most recent equity offering (see Note 7) and through draws on the Unsecured
Credit Facility.
During June 1997, the Company acquired 187 acres of land for development
located in Madison/Chatham, New Jersey for $8.7 million. Approximately 1
million square feet of office space can be developed on this property.
During July 1997, the Company acquired three office properties in New
Jersey encompassing approximately 445,229 square feet for an aggregate purchase
price of approximately $48 million. These acquisitions were financed through a
draw on the Unsecured Credit Facility.
During August 1997, the Company acquired one office property located in
Garden City, New York encompassing approximately 176,000 square feet for
approximately $24 million and one industrial building located in Hauppauge, New
York encompassing approximately 65,421 square feet for approximately $4.1
million. These acquisitions were financed through a draw on the Unsecured
Credit Facility.
During October 1997, the Company acquired one office property located in
Montvale, New Jersey encompassing approximately 104,941 square feet for
approximately $12.5 million and one industrial property located in Elmsford, New
York encompassing approximately 92,000 square feet for approximately $4.7
million.
7. STOCKHOLDERS EQUITY
On January 7, 1997, the Operating Partnership issued 101,902 OP Units in
connection with the acquisition of 110 Bi-County Boulevard.
On February 12,1997, the Board of Directors of the Company declared a
two-for-one stock split, effective as a stock dividend distributable on April
15, 1997 to stockholders of record on April 4, 1997.
On March 12, 1997 the Company completed a public stock offering (the
"Offering") and sold 4,945,000 common shares at a price of $45.25 per share
(including 645,000 related to the exercise of the underwriters over allotment
option). Net proceeds from the Offering were approximately $212 million.
On September 26, 1997, the Board of Directors declared a dividend of $.3125
per share of common stock payable on October 23, 1997, to shareholders of
record as of October 9, 1997. The dividend declared, which related to the three
months ended September 30, 1997 is based upon an annual distribution of
$1.25 per share.
Net income per share was calculated using the weighted average number of
shares outstanding of 34,477,050 for the three months ended September 30,
1997 and 31,810,416 for the nine months ended September 30, 1997. The
weighted average number of shares at September 30, 1996 reflect the impact of
the April 15, 1997 stock split.
In February 1997, the Financial Accounting Standards Board, FASB, issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share",
which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new requirements
for calculating primary earnings per share, the dilutive effect of stock options
will be excluded. This will not have any impact on primary earnings per share
for the three and nine month periods ended September 30, 1997 and September 30,
1996. The Company has not yet determined what the impact of Statement 128
will be on the calculation of fully diluted earnings per share.
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in thousands)
Nine Months Ended
September 30,
1997 1996
__________ __________
Cash paid during the
period for interest $ 15,620 $ 9,260
========== ==========
Interest capitalized
during the period $ 1,494 $ 585
========== ==========
On January 7, 1997, the Company purchased 110 Bi-County Boulevard in
Farmingdale, New York, which included the issuance of 101,902 units for a total
non-cash investment of $4,279,884.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements of Reckson Associates Realty
Corp. (the "Company") and related notes thereto.
OVERVIEW AND BACKGROUND
The Company is a self-administered and self managed real estate investment
trust (REIT) specializing in the acquisition, leasing, financing, management and
development of office and industrial properties. The Company's growth strategy
is focused on the suburban markets within the 50 mile radius surrounding New
York City. Since completion of its initial public offering in May 1995, the
Company has acquired or contracted to acquire approximately $625 million of
properties comprising approximately 8.7 million square feet of space.
On March 12, 1997, the Company completed a public stock offering and sold
4,945,000 common shares at a price of $45.25 per share (including 645,000
common shares sold in connection with the underwriters exercise of the
over allotment option). Net proceeds from the offering were approximately $212
million.
At September 30, 1997, the Company's portfolio of real estate properties
included 44 office buildings containing approximately 6.1 million square feet,
90 industrial buildings containing approximately 5.5 million square feet and 2
retail properties containing approximately 20,000 square feet.
During the three months ended September 30, 1997, the Company acquired one
industrial property encompassing approximately 66,000 square feet of space for
an aggregate purchase price of approximately $4.1 million and four office
properties encompassing approximately 621,000 square feet of space for an
aggregate purchase price of approximately $71.9 million.
For the nine months ended September 30, 1997, the Company acquired fifteen
industrial buildings encompassing approximately 1.4 million square feet for
aggregate purchase prices of approximately $68.6 million and ten office
buildings encompassing approximately 1.4 million square feet for aggregate
purchase prices of approximately $160.7 million. These acquisitions were
financed with a combination of proceeds from draws on the Company's credit
facilities, the issuance of Operating Partnership units and proceeds from the
Offering.
During October 1997, the Company acquired one office property in New Jersey
encompassing approximately 104,941 square feet for an aggregate purchase
price of approximately $12.5 million and one industrial property in Westchester
encompassing approximately 92,000 square feet for an aggregate purchase price
of approximately $4.7 million. These acquisitions were financed through a draw
on the Unsecured Credit Facility.
The market capitalization of the Company, based on the market value at a
stock price of $26.63 at September 30, 1997 on 34,493,530 issued and outstanding
shares of Company common stock and 6,973,814 OP Units (assuming
conversion to common stock) and the $350.5 million (including its share of joint
venture debt and net of minority partner's 40% interest in Omni's debt) of debt
outstanding at September 30, 1997 was approximately $1.5 billion. As a result,
the Company's total debt to total market capitalization ratio at September 30,
1997 equaled approximately 24.1%.
RESULTS OF OPERATIONS
Three months ended September 30, 1997 vs. the three months ended
September 30, 1996 (in thousands).
Three Months Ended
September 30,
(unaudited)
1997 1996
_________ _________
Base rental revenue $ 33,427 $ 21,098
Tenant escalations and reimbursements 4,152 2,794
Equity in earnings of service
companies 66 175
Equity in real estate joint ventures 124 95
Interest income on mortgage notes and
note receivable 1,786 367
Other 787 189
_________ _________
Total operating revenues 40,342 24,718
_________ _________
Operating expenses 8,123 5,278
Real estate taxes 5,199 3,613
Ground rents 309 284
Interest 5,887 3,254
Depreciation and amortization 7,034 4,565
Marketing general and administration 2,320 1,329
_________ ________
Total expenses 28,872 18,323
_________ ________
Income from operations $ 11,470 $ 6,395
========= ========
Income of $11,470 for the three months ended September 30, 1997 increased
by $5,075 as compared to income of $6,395 for the 1996 period. The increase
in base rental revenue of $12,329 and $1,358 in escalations is primarily
attributable to the acquisition of properties during 1996 and 1997.
Operating expenses and real estate taxes increased by $4,431 for the three
months ended September 30, 1997 as compared to the 1996 period. The
increase in operating expenses and real estate taxes during the 1997 period are
primarily attributable to operating an increased number of properties during the
1997 period. Interest expense increased $2,633 for the three months ended
September 30, 1997, compared to the prior period, principally due to an increase
in the average of outstanding debt incurred in connection with the acquisition
of properties. Marketing, general and administrative expenses increased by $991
primarily as a result of overall growth of the Company including payroll and
related costs related to the opening of the Northern New Jersey and Southern
Connecticut divisions.
Gross operating margin (defined as operating revenues, consisting of base
rental revenue and tenant escalations and reimbursements less total operating
expenses, real estate taxes and ground rents, as a percentage of operating
revenues) for the three months ended September 30, 1997 was 63.7% as
compared to 61.6% for the three months ended September 30, 1996. The increase
reflects the Company's ability to realize certain operating efficiencies as
a result of operating a larger portfolio of properties in each of its
established markets and an increase in the number of net leased properties.
Nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996(in thousands):
Nine Months Ended
September 30,
(unaudited)
1997 1996
_________ _________
Base rental revenue $ 91,179 $ 56,815
Tenant escalations and reimbursements 10,737 7,492
Equity in earnings of service
companies 208 934
Equity in real estate joint ventures 326 166
Interest income on mortgage notes and
note receivable 3,675 367
Other 2,104 706
_________ _________
Total operating revenues 108,229 66,480
_________ _________
Operating expenses 20,857 13,519
Real estate taxes 14,569 9,595
Ground rents 918 803
Interest 14,471 8,765
Depreciation and amortization 18,991 12,359
Marketing, general and administration 6,158 3,720
_________ ________
Total expenses 75,964 48,761
_________ ________
Income from operations $ 32,265 $ 17,719
========= ========
Income of $32,265 for the nine months ended September 30, 1997 increased
by $14,546 as compared to income of $17,719 for the nine months ended
September 30, 1996. The increase in base rental revenue of $34,364 and
$3,245 in escalations is primarily attributable to the acquisition of properties
during 1996 and 1997.
Operating expenses and real estate taxes increased by an aggregate amount
of $12,312 for the nine months ended September 30, 1997 as compared to the
1996 period. The increase in operating expenses during the 1997 period is
primarily attributable to operating an increased number of properties during the
1997 period.
Interest expense increased by $5,706 for the nine months ended September
30, 1997, compared to the prior year, principally due to an increase in the
average outstanding debt incurred in connection with the acquisition of
properties. Marketing, general and administration expenses increased by $2,438
primarily as a result of overall growth of the Company including payroll and
related costs related to the opening of the Westchester, Northern New Jersey and
Southern Connecticut divisions.
Gross operating margin (defined as operating revenues, consisting of base
rental revenue and tenant escalations and reimbursements less total operating
expenses, real estate taxes and ground rents, as a percentage of operating
revenues) for the nine months ended September 30, 1997 was 64.3% as
compared to 62.8% for the nine months ended September 30, 1996. The increase
reflects the Company's ability to realize certain operating efficiencies as
a result of operating a larger portfolio of properties in each of its
established markets and an increase in the number of net leased properties.
In April 1997, the Company terminated its $150 million secured credit
facility (see Note 5). As a result, certain deferred loan costs incurred in
connection with the Credit Facility were written off. Such amount is reflected
as an extraordinary loss in the accompanying consolidated statement of
operations.
LIQUIDITY AND CAPITAL RESOURCES
In June 1995, the Company completed an initial public offering of 7,438,000
shares of its common stock at $24.25 per share. Net proceeds to the Company
were approximately $162 million. During 1996, the Company completed two
add-on offerings aggregating 4,725,000 shares of its common stock (the "Add-
On Offerings") resulting in net proceeds to the Company of approximately $145.3
million. Proceeds from the Add-On Offerings were primarily used to repay
borrowings under the Credit Facility and to fund the purchase of commercial real
estate properties.
In connection with the purchase of one industrial property the Company
issued 101,902 OP Units as partial consideration in the transaction.
On March 12, 1997, the Company completed a 4,945,000 common share
offering, including 645,000 sold in connection with the exercise of the
underwriters over allotment option. Net proceeds to the Company (after
underwriting discount of approximately $11.7 million and approximately
$300,000 of offering costs) were approximately $212 million. Net proceeds were
used to repay borrowings outstanding under the Credit Facility and to purchase
certain commercial real estate properties under contract and for future
acquisitions of properties and general working capital.
On April 30, 1997, the Company obtained a three-year $250 million unsecured
credit facility from Chase Manhattan Bank and Union Bank of Switzerland (the
"Unsecured Credit Facility"). The Company's ability to borrow thereunder is
subject to the satisfaction of certain customary financial covenants. In
addition, borrowings under the Unsecured Credit Facility will bear interest at a
floating rate equal to one, two, three or six month LIBOR (at the Company's
election) plus a spread ranging from 1.125% to 1.5% based on the Company's
leverage ratio. The Unsecured Credit Facility replaced the Company's $150
million secured credit facility.
On August 28, 1997, the Company sold $150 million of 7.2% Senior
Unsecured Notes due August 28, 2007. The net proceeds of the Unsecured Notes
were used to repay borrowing under the Unsecured Credit Facility and for
property acquisitions.
The Company's indebtedness at September 30, 1997 totaled $350.5 million
(including its share of joint venture debt and net of the minority partner's 40%
interest in Omni's debt) and was comprised of $33 million outstanding under the
Unsecured Credit Facility, $150 million of unsecured notes and approximately
$167.5 million of mortgage indebtedness. Based on the Company's total market
capitalization of $1.5 billion at September 30, 1997, (calculated at a $26.63
per share stock price) and assuming the conversion of the 6,973,814 OP Units
outstanding on such date, the Company's debt represented approximately
24.1% of its total market capitalization.
The Company expects to meet its short term liquidity requirements primarily
through cash flow from operating activities, which the Company believes will be
sufficient to fund non-incremental revenue generating capital expenditures and
payment of dividends. In addition to its operating cash flow, the Unsecured
Credit Facility provides for working capital advances. The Company intends to
finance its on-going construction and acquisition activities through borrowings
under the Unsecured Credit Facility. At September 30, 1997, the Company had
a maximum capacity under the Unsecured Credit Facility of $250 million of which
$33 million is drawn and outstanding. The Company expects to meet its long-
term liquidity requirements, consisting primarily of debt maturities, through
the refinancing of existing mortgage indebtedness or through the issuance of
additional equity and/or debt securities.
In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its stockholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to stockholders and for payment of recurring,
non-incremental revenue-generating expenditures. The Company intends to invest
amounts accumulated for distribution in short-term investments.
SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES AND TENANT
IMPROVEMENT AND LEASING COSTS
The following table summarizes the expenditures incurred for capital
expenditures, tenant improvements and leasing commissions for the Company's
office and industrial properties for the nine month period ended September 30,
1997 and the historical average of such capital expenditures, tenant
improvements and leasing commissions for the years 1994 through 1996.
Non-Incremental Revenue Generating Capital Expenditures
1994-1996 Jan-Sep
1994 1995 1996 Average 1997
________ ________ ________ ________ __________
Office Properties:
Total $158,340 $364,545 $375,026 $299,304 $ 768,474
Per Square Foot .10 .19 .13 .14 .17
Industrial Properties:
Total $524,369 $290,457 $670,751 $495,192 $ 342,744
Per Square Foot .18 .08 .18 .15 .07
Non-Incremental Revenue - Generating Tenant Improvement and Leasing Commissions
Jan-Sep
1994 1995 1996 1997
________ ________ ________ ________
Long Island Office Properties:
Tenant Improvement Costs $902,312 $452,057 $523,574 $279,239
Per Square Foot Improved 5.13 4.44 4.28 4.59
Leasing Commissions $341,253 $144,925 $119,047 $210,911
Per Square Foot Leased 1.94 1.42 0.97 3.54
________ ________ ________ ________
Total Per Square Foot $ 7.07 $ 5.86 $ 5.25 $ 8.13
======== ======== ======== ========
Westchester Office Properties:
Tenant Improvement Costs $ N/A $ N/A $834,764 $930,389
Per Square Foot Improved N/A N/A 6.33 8.79
Leasing Commissions $ N/A $ N/A $264,388 $258,973
Per Square Foot Leased N/A N/A 2.00 2.45
________ ________ ________ ________
Total Per Square Foot $ N/A $ N/A $ 8.33 $ 11.24
======== ======== ======== ========
Connecticut Office Properties:
Tenant Improvement Costs $ N/A $ N/A $ 58,000 $683,621
Per Square Foot Improved N/A N/A 12.45 13.38
Leasing Commissions $ N/A $ N/A $ 0 $157,207
Per Square Foot Leased N/A N/A 0 3.08
________ ________ ________ ________
Total Per Square Foot $ N/A $ N/A $ 12.45 $ 16.46
======== ======== ======== ========
Industrial Properties:
Tenant Improvement Costs $585,981 $210,496 $380,334 $177,053
Per Square Foot Improved .88 .90 .72 0.81
Leasing Commissions $176,040 $107,351 $436,213 $ 72,680
Per Square Foot Improved .27 .46 .82 0.33
________ ________ ________ ________
Total Per Square Foot $ 1.15 $ 1.36 $ 1.54 $ 1.14
======== ======== ======== ========
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for executed
leases as of September 30, 1997.
Long Island Office Properties (excluding Omni):
% of
Total Total Per Per
Rentable Rentable Square Square
Number Square Square Foot Foot
Year of Lease of Feet Feet S/L Base
Expiration Leases Expiring Expiring Rent(1) Rent(2)
__________________ ______ _________ ________ _______ _______
Remainder of 1997 6 50,977 3.1% $ 20.52 $ 24.37
1998 33 205,112 12.4% $ 22.13 $ 23.52
1999 28 119,169 7.1% $ 20.10 $ 21.03
2000 37 211,819 12.8% $ 22.15 $ 23.44
2001 33 160,080 9.6% $ 22.11 $ 23.12
2002 28 241,781 14.6% $ 22.34 $ 23.02
2003 and thereafter 56 671,067 40.4% --- ---
______ _________ ________
Totals 221 1,660,005 100.0%
====== ========= ========
Office Properties - Omni:
% of
Total Total Per Per
Rentable Rentable Square Square
Number Square Square Foot Foot
Year of Lease of Feet Feet S/L Base
Expiration Leases Expiring Expiring Rent(1) Rent(2)
__________________ ______ _________ ________ _______ _______
Remainder of 1997 1 4,295 0.8% $ 30.69 $ 34.25
1998 --- --- --- --- ---
1999 --- --- --- --- ---
2000 5 66,131 11.9% $ 31.58 $ 33.77
2001 4 32,680 5.9% $ 28.22 $ 32.58
2002 5 132,716 24.0% $ 25.54 $ 27.46
2003 and thereafter 14 317,624 57.4% --- ---
______ _________ ________
Totals 29 553,446 100.0%
====== ========= ========
Industrial Properties:
% of
Total Total Per Per
Rentable Rentable Square Square
Number Square Square Foot Foot
Year of Lease of Feet Feet S/L Base
Expiration Leases Expiring Expiring Rent(1) Rent(2)
__________________ ______ _________ ________ _______ _______
Remainder of 1997 3 9,200 .2% $ 5.54 $ 5.39
1998 38 472,518 11.8% $ 5.01 $ 4.78
1999 34 574,411 14.3% $ 5.68 $ 5.84
2000 26 406,851 10.2% $ 5.44 $ 5.65
2001 26 828,066 20.6% $ 5.72 $ 5.98
2002 20 181,216 4.5% $ 7.42 $ 7.91
2003 and thereafter 35 1,540,492 38.4% --- ---
______ _________ ________
Totals 182 4,012,754 100.0%
====== ========= ========
Research and Development:
% of
Total Total Per Per
Rentable Rentable Square Square
Number Square Square Foot Foot
Year of Lease of Feet Feet S/L Base
Expiration Leases Expiring Expiring Rent(1) Rent(2)
__________________ ______ _________ ________ _______ _______
Remainder of 1997 3 85,107 7.2% $ 7.84 $ 8.41
1998 6 190,918 16.2% $ 9.59 $ 11.10
1999 10 124,135 10.5% $ 8.19 $ 8.23
2000 9 144,569 12.2% $ 8.63 $ 8.52
2001 5 65,130 5.5% $ 9.17 $ 9.16
2002 2 7,967 0.7% $ 17.32 $ 17.25
2003 and thereafter 8 563,864 47.7% --- ---
______ _________ ________
Totals 43 1,181,690 100.0%
====== ========= ========
Westchester Properties:
% of
Total Total Per Per
Rentable Rentable Square Square
Number Square Square Foot Foot
Year of Lease of Feet Feet S/L Base
Expiration Leases Expiring Expiring Rent(1) Rent(2)
__________________ ______ _________ ________ _______ _______
Remainder of 1997 1 990 0.1% $ 16.00 $ 17.36
1998 28 139,069 13.4% $ 18.53 $ 19.31
1999 18 38,116 3.7% $ 17.93 $ 18.59
2000 26 174,501 16.8% $ 19.59 $ 20.39
2001 28 126,850 12.2% $ 19.24 $ 20.29
2002 28 183,886 17.7% $ 18.00 $ 20.36
2003 and thereafter 32 374,134 36.1% --- ---
______ _________ ________
Totals 161 1,037,546 100.0%
====== ========= ========
Stamford Properties:
% of
Total Total Per Per
Rentable Rentable Square Square
Number Square Square Foot Foot
Year of Lease of Feet Feet S/L Base
Expiration Leases Expiring Expiring Rent(1) Rent(2)
__________________ ______ _________ ________ _______ _______
Remainder of 1997 8 18,032 2.6% $ 16.98 $ 16.98
1998 10 33,214 4.7% $ 20.69 $ 21.03
1999 16 40,230 5.8% $ 20.76 $ 21.12
2000 24 104,894 15.0% $ 21.42 $ 22.11
2001 16 75,424 10.8% $ 23.98 $ 24.42
2002 12 41,644 5.9% $ 22.96 $ 24.72
2003 and thereafter 30 386,786 55.2% --- ---
______ _________ ________
Totals 116 700,224 100.0%
====== ========= ========
New Jersey Properties:
% of
Total Total Per Per
Rentable Rentable Square Square
Number Square Square Foot Foot
Year of Lease of Feet Feet S/L Base
Expiration Leases Expiring Expiring Rent(1) Rent(2)
__________________ ______ _________ ________ _______ _______
Remainder of 1997 2 8,326 0.8% $ 19.51 $ 20.42
1998 10 164,496 16.5% $ 20.43 $ 20.80
1999 11 81,922 8.2% $ 19.24 $ 20.01
2000 13 112,581 11.3% $ 18.31 $ 19.79
2001 13 211,966 21.3% $ 17.59 $ 17.82
2002 9 106,741 10.7% $ 19.38 $ 20.14
2003 and thereafter 9 311,304 31.2% --- ---
______ _________ ________
Totals 67 997,336 100.0%
====== ========= ========
(1) Per square foot rental rate represents annualized straight line rent as
of lease expiration date.
(2) Per square foot rental rate represents annualized base rent as of the
lease expiration date plus non-recoverable operating expense pass-throughs.
INFLATION
The office leases generally provided for fixed base rent increases or
indexed escalations. In addition, the office leases provide for separate
escalations of real estate taxes and electric costs over a base amount. The
industrial leases generally provide for fixed base rent increases, direct pass
through of certain operating expenses and separate real estate tax escalations
over a base amount. The Company believes that inflationary increases in
expenses will be offset by contractual rent increases described above. The
Unsecured Credit Facility bears interest at a variable rate, which will be
influenced by changes in short-term interest rates, and is sensitive to
inflation.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. Funds from operations is defined by
the National Association of Real Estate Investment Trusts (NAREIT) as net
income or loss, excluding gains or losses from debt restructuring and sales of
properties plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Funds from operations does not
represent cash generated from operating activities in accordance with generally
accepted accounting principals and is not indicative of cash available to fund
cash needs. Funds from Operations should not be considered as an alternative
to net income as an indicator of the Company's operating performance or as an
alternative to cash flow as a measure of liquidity.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
_________ _________ _________ _________
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $ 9,141 $ 4,713 $ 23,758 $ 11,829
Adjustments for Funds from Operations
Add:
Depreciation and Amortization 6,919 4,569 18,755 12,176
Minority interest in consolidated partnership 201 166 645 638
Limited partners' minority interest in
Operating Partnership 1,861 1,516 5,632 4,357
Extraordinary items: loss on a restatement
or extinguishment of debt, net of limited
partners' share of $178, $0, $578 and $364
respectively 267 --- 2,230 895
_________ _________ _________ _________
18,389 10,964 51,020 29,895
Subtract:
Amount distributable to minority partners in
consolidated partnership 522 363 1,655 1,168
_________ _________ _________ _________
Funds From Operations (FFO) 17,867 10,601 49,365 28,727
_________ _________ _________ _________
Subtract:
Straight line rents 1,063 778 3,347 2,280
Non-Incremental Capitalized tenant
improvements and leasing commissions 978 1,203 2,732 1,946
Non-Incremental Capitalized improvements 317 277 1,107 896
_________ _________ _________ _________
Cash available for distribution (CAD) $ 15,509 $ 8,343 $ 42,179 $ 23,605
========= ========= ========= =========
Weighted average shares/units (1) 41,451 27,602 38,780 25,139
========= ========= ========= =========
FFO per weighted average share/unit $ .43 $ .38 $ 1.27 $ 1.14
========= ========= ========= =========
CAD per weighted average share/unit $ .37 $ .30 $ 1.09 $ .94
========= ========= ========= =========
Dividends per share/unit $ .31 $ .30 $ .93 $ .89
========= ========= ========= =========
FFO payout ratio 72.7% 78.9% 72.8% 78.4%
========= ========= ========= =========
CAD payout ratio 84.5% 100.0% 84.9% 95.1%
========= ========= ========= =========
<FN>
(1) Assumes conversion of limited partnership units of the Operating
Partnership and give effect to the April 15, 1997 two-for-one stock split.
</FN>
</TABLE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits 27 Financial Data Schedule
b) During the three months ended September 30, 1997, the
registrant filed a report 8-K, dated August 12, 1997
pertaining to the formation of Reckson Strategic Inc
and on September 9, 1997 pertaining to the acquisition
of a 176,000 square foot Class A office building.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RECKSON ASSOCIATES REALTY CORP.
Registrant
November 4, 1997 Scott H. Rechler
Date Scott H. Rechler, President
and Chief Operating Officer
November 4, 1997 Michael Maturo
Date Michael Maturo, Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000930548
<NAME> RECKSON ASSOCIATES REALTY CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,211
<SECURITIES> 0
<RECEIVABLES> 23,415
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,626
<PP&E> 793,762
<DEPRECIATION> 103,709
<TOTAL-ASSETS> 853,757
<CURRENT-LIABILITIES> 33,888
<BONDS> 363,593
0
0
<COMMON> 345
<OTHER-SE> 373,558
<TOTAL-LIABILITY-AND-EQUITY> 853,757
<SALES> 101,916
<TOTAL-REVENUES> 108,229
<CGS> 0
<TOTAL-COSTS> 42,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,471
<INCOME-PRETAX> 32,265
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,758
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
