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 March 31, 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 34,288,866 shares outstanding as of April 25, 1997.
<PAGE>
RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
TABLE OF CONTENTS
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets of Reckson Associates Realty Corp.
as of March 31, 1997 and December 31, 1996 ..............
Consolidated Statement of Operations of Reckson Associates
Realty Corp. for the three months ended March 31, 1997
and March 31, 1996 ......................................
Consolidated Statement of Cash Flows of Reckson Associates
Realty Corp. for the three months ended March 31, 1997
and March 31, 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>
March 31, December 31,
1997 1996
_________ _________
(Unaudited)
<S> <C> <C>
ASSETS
Commercial real estate properties, at cost:
Land $ 50,196 $ 45,259
Building and improvements 492,536 457,403
Land held for future development 5,711 5,637
Development in progress 9,499 8,469
Furniture, fixtures and equipment 2,975 2,736
_________ _________
560,917 519,504
Less accumulated depreciation (91,497) (88,602)
_________ _________
469,420 430,902
Investment in real estate joint ventures 6,336 5,437
Investment in mortgage notes and notes
receivables 69,435 51,837
Cash and cash equivalents 111,822 12,688
Tenants receivables 2,434 1,732
Affiliate receivables 4,737 3,826
Deferred rent receivable 12,708 12,573
Prepaid expenses and other assets 7,836 6,225
Contract and land deposits and pre-acquistion
costs 11,540 7,100
Deferred leasing and loan costs 12,451 11,438
_________ _________
Total Assets $ 708,719 $ 543,758
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $ 165,852 $ 161,513
Credit facility 55,000 108,500
Accrued expenses and other liabilities 13,723 15,868
Affiliate payables 732 502
Dividends and distributions payable 9,555 9,442
_________ _________
Total Liabilities 244,862 295,825
_________ _________
Minority interest in consolidated partnership 9,419 9,187
Limited partners' minority interest in
operating partnership 76,846 51,879
_________ _________
86,265 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, 17,136,502 and
12,178,177 shares issued and outstanding,
respectively 172 122
Additional paid in capital 377,420 186,745
_________ _________
Total Stockholders' Equity 377,592 186,867
_________ _________
Total Liabilities and Stockholders' Equity $ 708,719 $ 543,758
========= =========
<FN>
See Accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
_________ _________
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES:
Base rents $ 26,590 $ 16,144
Tenants escalation and reimbursements 3,245 2,318
Equity in earnings of real estate
joint ventures 97 ---
Equity in earnings of service companies 142 513
Interest income on mortgage notes and
note receivable 959 ---
Other 659 90
_________ _________
Total Revenues 31,692 19,065
_________ _________
EXPENSES:
Operating Expenses:
Property operating expenses 5,664 3,544
Real Estate Taxes 4,564 2,866
Ground Rents 303 257
Marketing, general and administrative 1,980 966
_________ _________
Total Operating Expenses 12,511 7,633
_________ _________
Interest 4,736 2,896
Depreciation and amortization 5,640 3,633
_________ _________
Total Expenses 22,887 14,162
_________ _________
Income before minority interest and
extraordinary item 8,805 4,903
Minority Partners' Interest in consolidated
partnership (income) loss (243) (235)
Limited Partners' interest in the Operating
partnership (income) loss (1,778) (1,350)
_________ _________
Income (Loss) before extraordinary item 6,784 3,318
Extraordinary item-write-off of costs on a
restatement of credit facility, net of
limited partners share of $364 --- (895)
_________ _________
Net income $ 6,784 $ 2,423
========= =========
Net income (loss) per common share $ 0.51 $ 0.33
========= =========
Weighted average common shares outstanding 13,284,581 7,444,733
========= =========
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<TABLE>
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands)
<CAPTION>
Reckson Reckson
Associates Associates
Realty Corp. Realty Corp.
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
_________ _________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 6,784 $ 2,423
Adjustments to reconcile net income loss to
net cash provided by operating activities
Depreciation and amortization 5,640 3,633
Write off of costs on restatement of credit
facility --- 895
Minority partners' interest in Consolidated
Partnership 243 235
Limited partners' interest in Operating
Partnership 1,778 1,350
Equity in earnings of service companies (142) (513)
Equity in earnings of real estate
partnerships (97) ---
Dividend from service companies --- 100
Distribution from real estate partnership 98 ---
Interest income on mortgage note receivable (479) ---
Tenant receivables (229) (513)
Prepaid expenses and other assets (1,344) (1,272)
Deferred rents receivable (1,134) (924)
Accrued expenses and other liabilities (1,904) (27)
Deferred ground rents payable 66 56
Advance rents received 1,000 501
_________ _________
Net cash provided by operating activities 10,280 5,944
_________ _________
CASH FLOW FROM INVESTING ACTIVITIES:
Increase in deferred acquisition costs
and other (4,314) (6,095)
Purchase of commercial real estate
property (28,046) (26,740)
Investment in mortgage note receivable (17,194) ---
Investment in real estate partnerships (900) ---
Investment in service company (100) (3,170)
Additions to land, buildings and
improvements (7,570) (3,158)
Purchase of furniture, fixtures and
equipment (224) (49)
Payment of leasing costs (1,230) (421)
Advance to equity investee --- (26)
_________ _________
Net cash used in investing activities (59,578) (39,659)
_________ _________
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments on borrowings (328) (22)
Payment of loan costs (787) (258)
Advances to affiliates (258) (172)
Proceeds from secured credit facility 13,500 36,000
Repayments of secured credit facility (67,000) ---
Proceeds from issuance of common stock
net of issuance costs 211,841 (226)
Distribution to minority partners in
Consolidated Partnership (11) (375)
Distribution to minority partners in
Operating Partnership (1,981) ---
Payments of dividends (7,314) ---
Increase (Decrease)
in security deposit liability 770 (18)
_________ _________
Net cash provided by (used in) financing
activities 148,432 34,929
_________ _________
Net increase (decrease) in cash and
cash equivalents 99,134 1,214
Cash and cash equivalents at beginning of
period 12,688 6,984
_________ _________
Cash and cash equivalents at end of period $ 111,822 $ 8,198
========= =========
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
Reckson Associates Realty Corp.
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
1. Organization and Formation of the Company
Reckson Associates Realty Corp. ("the Company") was incorporated in
Maryland 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 March 31, 1997, the Company owned and operated 32 office properties
comprising approximately 4.4 million square feet, 89 industrial properties
comprising approximately 5.2 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 145
acres of land in nine separate parcels for development.
2. Basis of Presentation
The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership at March 31,
1997 and the results of their operations for the three months ended March 31,
1997 and their cash flows for the three months ended March 31, 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 allocating. 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
As of March 31, 1997, the Company had approximately $133.3 million of fixed
rate mortgage loans which mature at various times between 1999 and 2012. The
loans are secured by thirteen properties and have a weighted average interest
rate of 8.01%. In addition, the Company has a $32.6 million floating rate
mortgage loan on the Omni with an interest rate equal to 150 basis points over
one-month LIBOR. The Company has received a $58 million mortgage loan
commitment from a financial institution to refinance the current mortgage
encumbering the Omni. The loan will have a 10-year term and will bear interest
at a fixed rate to be determined based on 10-year treasury rates plus 130 basis
points.
4. Credit Facility
On February 25, 1997, the Company obtained a commitment for a three-year
$175 million unsecured credit facility from Chase Manhattan Bank and Union Bank
of Switzerland (the "Unsecured Credit Facility") which upon syndication could
provide for a maximum borrowing of up to $225 million. The Company's ability to
borrow thereunder will be 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 will
replace the Company's existing $150 million secured credit facility.
The Company currently has a $150 million credit facility (the "Credit
Facility"). Borrowings under the Credit Facility are guaranteed by Reckson FS
Limited Partnership and such guarantee is secured by a first mortgage lien and
an unsecured second mortgage lien on certain properties. The Company pays a
financing fee equal to 1.5% on each draw. The loan agreement also provides for
unused commitment fees over the term of the facility. The Credit Facility has
a two year term which the Company has the option to extend one year subject to
an extension fee of 1.0% of the principal indebtedness outstanding on the
extension date. Maximum advance availability is determined under a borrowing
base formula. At March 31, 1997, the maximum advance availability was $150
million. The maximum advance availability can be increased by adding income
producing properties to the borrowing base. The balance outstanding on the
Credit Facility at March 31, 1997 was $55 million. On February 22, 1996, the
Operating Partnership amended and restated the Credit Facility, pursuant to
which the interest rate was reduced to 175 basis points over one-month LIBOR and
the minimum debt service coverage ratio was reduced to 1.6.
5. 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 6).
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 6).
During April 1997, the Company acquired two Class A office buildings
located in Melville, New York encompassing approximately 301,000 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 $63.3 million and was financed
with proceeds from the most recent equity offering (see Note 6).
6. Stockholders Equity
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 January 7, 1997, the Operating Partnership issued 101,902 OP Units in
connection with the acquisition of 110 Bi-County Boulevard.
Net income per share was calculated using the weighted average number of
shares outstanding of 13,284,581 for three months ended March 31, 1997 and
7,444,733 for the three months ended March 31, 1996.
On February 12, 1997, the Board of Directors declared a dividend of $.60
per share of common stock payable on April 15, 1997, to shareholders of record
as of February 24, 1997. The dividend declared, which related to the three
months ended March 31, 1997 is based upon an annual distribution of $2.40 per
share.
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.
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
first quarter ended March 31, 1997 and March 31, 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
Reckson Reckson
Associates Associates
Realty Corp. Realty Corp.
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
__________ __________
Cash paid during the
period for interest $ 5,486 $ 2,628
(in thousands)
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 arranged 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 $500 million of
properties comprising approximately 7.1 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 overallotment
option). Net proceeds from the offering were approximately $212 million.
At March 31, 1997, the Company's portfolio of real estate properties
included 32 office buildings containing approximately 4.4 million square feet,
89 industrial buildings containing approximately 5.2 million square feet and 2
retail properties containing approximately 20,000 square feet.
During the three months ended March 31, 1997, the Company acquired thirteen
industrial buildings encompassing approximately 845,000 square feet of space for
an aggregate purchase price amounting to approximately $37.4 million. These
acquisitions were financed with a combination of proceeds from a draw on the
Credit Facility, the issuance of Operating Partnership units and proceeds from
the Offering.
In addition, during April 1997, the Company acquired two Class A office
buildings encompassing an aggregate of approximately 301,000 square feet and one
research and development facility encompassing approximately 452,000 square feet
for an aggregate purchase price of $63.3 million which was financed with
proceeds from the Offering.
The market capitalization of the Company, based on the market value (at a
stock price of $46.125 at March 31, 1997 on 17,136,502 issued and outstanding
shares of Company common stock and 3,487,407 OP Units (assuming conversion to
common stock) and the $214.8 million (including share of joint venture debt and
net of minority partners' 40% interest in Omni's debt) of debt outstanding at
March 31, 1997 was $1.2 billion. As a result, the Company's total debt to total
market capitalization ratio at March 31, 1997 equaled approximately 18.4%.
Results of Operations
Three months ended March 31, 1997 vs. the three months ended March 31,
1996.
Three Months Ended March 31,
(as adjusted)
1997 1996
_________ _________
Base rental revenue $ 26,590 $ 16,144
Tenant escalations and reimbursements 3,245 2,318
Equity in earnings of service companies 142 513
Equity in real estate joint ventures 97 ---
Interest income on mortgage notes and
note receivable 959 ---
Other --- 90
_________ _________
Total Operating Revenues 31,692 19,065
_________ _________
Operating Expenses 5,664 3,544
Real estate taxes 4,564 2,866
Ground rents 303 257
Interest 4,736 2,896
Depreciation and amortization 5,640 3,633
Marketing General and Administration 1,980 966
_________ ________
Total expenses 22,887 14,162
_________ ________
Income from operations $ 8,805 $ 4,903
========= ========
Income of $8,805 for the three months ended March 31, 1997 increased
by $3,902 as compared to income of $4,903 for the 1996 period. The increase in
base rental revenue of $10,446 and $927 escalations is primarily attributable to
additional square footage leased, particularly at the Omni and the acquisition
of properties during 1996. Other income of $659 primarily consists of interest
income on cash balances including net proceeds from the March 12, 1997 equity
offering.
Operating expenses and real estate taxes increased by $3,818 for the three
months ended March 31, 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. Interest expense
increased $1,840 for the three months ended March 31, 1997, compared to the
prior period, principally due to an increase in the amount of outstanding debt
incurred in connection with the acquisition of properties. Marketing, general
and administrative expenses increased by $1,014 primarily as a result of overall
growth of the Company including payroll and related costs related to the opening
of the Westchester 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 March 31, 1997 was 64.7% as compared to
63.9% for the three months ended March 31, 1996. The increase reflects the
Company's ability to realize certain operating efficiencies as a result of
operating a larger portfolio of properties in its established markets and the
impact of milder weather conditions in 1997.
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 overallotment 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 February 25, 1997, the Company obtained a commitment for a three-year
$175 million unsecured credit facility from Chase Manhattan Bank and Union
Bank of Switzerland (the "Unsecured Credit Facility") which upon syndication
could provide for a maximum borrowing of up to $225 million. The Company's
ability to borrow thereunder will be 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
will replace the Company's existing $150 million secured credit facility.
The Company has a $150 million credit facility (the "Credit Facility") with
a two-year term, with a one-year extension and requires monthly payments of
interest only, with the balance of all principal and accrued but unpaid interest
due on June 2, 1997. The loan agreement provides for a financing fee equal to
1.5% of each draw. The loan agreement also provides for unused commitment fees,
over the term of the facility. Borrowings under the Credit Facility are
guaranteed by Reckson FS Limited Partnership and such guarantee is secured by a
first mortgage lien and an unsecured second mortgage lien on certain properties.
In February 1996, the Operating Partnership amended and restated the
Credit Facility agreement, pursuant to which the interest rate was reduced to
175 basis points over one-month LIBOR (at March 31, 1997, the one month LIBOR
approximated 5.47%) and the minimum debt service coverage ratio was reduced
to 1.6. In addition, the Operating Partnership was given the right to convert
outstanding borrowings at maturity to a five-year term loan at a fixed rate
equal to the then prevailing interest rate on five-year U.S. Treasury
instruments plus a spread, provided certain specified conditions are satisfied
and no event of default exists. The Credit Facility contains a number of
customary financial covenants.
The Company's indebtedness at March 31, 1997 totaled $214.8 million
(including its share of joint venture debt and net of the minority partners' 40%
interest in Omni's debt) and was comprised of $55 million outstanding under the
Credit Facility and approximately $159.8 million of mortgage indebtedness.
Based on the Company's total market capitalization of $1.2 billion at March 31,
1997, (calculated at a $46.125 per share stock price and assuming the conversion
of the 3,487,407 OP Units outstanding on such date, the Company's debt
represented approximately 18.4% 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 Credit
Facility provides for working capital advances. The Company intends to finance
its on-going construction and acquisition activities through borrowings under
the Credit Facility and mortgage indebtedness. At March 31, 1997, the Company
had maximum capacity under the Credit Facility of approximately $150 million
subject to the sufficiency of the borrowings base, as defined in the loan
agreement (see note 4 to the Financial Statements). 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 three month period ended March 31, 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-Mar
1994 1995 1996 Average 1997
________ ________ ________ ________ __________
Office Properties:
Total $158,340 $364,545 $375,026 $299,304 $ 216,017
Per Square Foot .10 .19 .13 .14 .05
Industrial Properties:
Total $524,369 $290,457 $670,751 $495,192 $ 148,348
Per Square Foot .18 .08 .18 .15 .04
Non-Incremental Revenue - Generating Tenant Improvement and Leasing Commissions
1994 1995 1996 1997
________ ________ ________ ________
Long Island Office Properties:
Tenant Improvement Costs $902,312 $452,057 $523,574 $ 84,946
Per Square Foot Improved 5.13 4.44 4.28 7.59
Leasing Commissions $341,253 $144,925 $119,047 $ 83,740
Per Square Foot Leased 1.94 1.42 0.97 7.48
________ ________ ________ ________
Total Per Square Foot $ 7.07 $ 5.86 $ 5.25 $ 15.07
======== ======== ======== ========
Westchester Office Properties:
Tenant Improvement Costs $ N/A $ N/A $834,764 $258,781
Per Square Foot Improved N/A N/A 6.33 5.46
Leasing Commissions $ N/A $ N/A $264,388 $154,951
Per Square Foot Leased N/A N/A 2.00 3.27
________ ________ ________ ________
Total Per Square Foot $ N/A $ N/A $ 8.33 $ 8.73
======== ======== ======== ========
Connecticut Office Properties:
Tenant Improvement Costs $ N/A $ N/A $ 58,000 $143,420
Per Square Foot Improved N/A N/A 12.45 6.15
Leasing Commissions $ N/A $ N/A $ 0 $ 11,736
Per Square Foot Leased N/A N/A 0 .60
________ ________ ________ ________
Total Per Square Foot $ N/A $ N/A $ 12.45 $ 7.99
======== ======== ======== ========
Industrial Properties:
Tenant Improvement Costs $585,981 $210,496 $380,334 $ 90,524
Per Square Foot Improved .88 .90 .72 2.82
Leasing Commissions $176,040 $107,351 $436,213 $ 35,948
Per Square Foot Improved .27 .46 .82 1.12
________ ________ ________ ________
Total Per Square Foot $ 1.15 $ 1.36 $ 1.54 $ 3.94
======== ======== ======== ========
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for executed
leases as of March 31, 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 18 137,798 9.4% $ 21.42 $ 24.81
1998 27 197,843 13.6% $ 22.03 $ 23.65
1999 26 118,803 8.1% $ 19.53 $ 21.16
2000 25 166,299 11.4% $ 21.79 $ 22.76
2001 26 135,288 9.3% $ 21.43 $ 24.85
2002 21 223,676 15.3% $ 21.37 $ 22.88
2003and thereafter 46 478,602 32.8% ---
______ _________ ________
Totals 189 1,458,309 100.0%
====== ========= ========
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 2 27,729 5.1% $ 31.89 $ 36.28
1998 --- --- ---% $ --- $ ---
1999 --- --- ---% $ --- $ ---
2000 5 66,131 12.2% $ 31.58 $ 33.77
2001 5 59,693 11.0% $ 19.75 $ 24.01
2002 4 105,703 19.4% $ 28.96 $ 30.09
2003and thereafter 13 284,310 52.3% --- ---
______ _________ ________
Totals 29 543,566 100.0%
====== ========= ========
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 26 174,831 4.6% $ 5.33 $ 5.35
1998 40 536,436 13.2% $ 5.06 $ 5.71
1999 34 545,511 14.0% $ 5.73 $ 5.97
2000 23 410,701 10.7% $ 5.22 $ 4.98
2001 24 755,291 19.7% $ 5.43 $ 5.58
2002 8 47,926 1.2% $ 5.66 $ 5.66
2003and thereafter 34 1,404,043 36.6% --- ---
______ _________ ________
Totals 189 4,012,739 100.0%
====== ========= ========
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 11.7% $ 7.84 $ 8.41
1998 6 190,918 26.3% $ 9.59 $ 11.10
1999 11 134,487 18.5% $ 8.21 $ 8.09
2000 8 137,440 18.9% $ 8.13 $ 8.03
2001 6 72,259 10.0% $ 9.69 $ 5.04
2002 2 7,967 1.1% $ 17.32 $ 9.18
2003and thereafter 5 97,450 13.4% --- ---
______ _________ ________
Totals 41 725,628 100.0%
====== ========= ========
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 24 66,357 6.3% $ 17.47 $ 18.90
1998 28 140,585 13.4% $ 18.69 $ 19.47
1999 20 45,738 4.4% $ 18.18 $ 18.93
2000 21 163,985 15.6% $ 19.56 $ 20.67
2001 26 122,361 11.6% $ 19.24 $ 20.44
2002 22 166,830 15.9% $ 17.58 $ 20.38
2003and thereafter 26 344,679 32.8% ---
______ _________ ________
Totals 167 1,050,535 100.0%
====== ========= ========
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 14 32,592 5.0% $ 17.92 $ 18.19
1998 12 38,197 5.8% $ 20.35 $ 20.68
1999 17 42,841 6.5% $ 20.82 $ 21.13
2000 25 91,314 14.0% $ 21.02 $ 22.07
2001 16 85,986 13.1% $ 24.78 $ 25.54
2002 9 35,083 5.4% $ 20.67 $ 21.81
2003and thereafter 20 328,349 50.2% ---
______ _________ ________
Totals 113 654,362 100.0%
====== ========= ========
(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
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.
In March 1995, NAREIT issued a "White Paper" analysis to address certain
interpretive issues under its definition of FFO. The White Paper provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income to arrive at FFO.
The Company has adopted the new method, the following table presents
the Company's FFO calculation (in thousands, except per share/unit data):
Three Months Three Months
March 31, March 31,
1997 1996
(unaudited) (unaudited)
_________ __________
Net Income $ 6,784 $ 2,423
Adjustments for Funds from Operations
Add:
Depreciation and Amortization 5,574 3,459
Minority interest in consolidated partnership 243 235
Limited partners' minority interest in
Operating Partnership 1,778 1,350
Extraordinary loss, net of limited partners'
interest in Operating Partnership o $0 and
$364 respectively --- 895
_________ _________
14,379 8,362
Subtract:
Amount distributable to minority partners in
consolidated partnership 535 375
_________ _________
Funds From Operations (FFO) 13,844 7,987
_________ _________
Subtract:
Straight line rents 1,090 720
Non-Incremental Capitalized tenant
improvements and leasing commissions 864 88
Capitalized improvements 364 200
_________ _________
Cash available for distribution $ 11,526 $ 6,979
========= =========
Weighted average shares/units (1) 16,765 10,477
========= =========
FFO per weighted average share/unit $ .83 $ .76
========= =========
CAD per weighted average share/unit $ .69 $ .67
========= =========
Dividends per share/unit $ .60 $ .58
========= =========
FFO payout ratio 72.3% 76.3%
========= =========
CAD payout ratio 87.0% 86.6%
========= =========
(1) Assumes conversion of limited partnership units of the Operating
Partnership.
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 March 31, 1997, the registrant
filed a report 8-K, dated February 18, 1997 pertaining to
the acquisition of six class "A" office properties and ten
class "A" industrial properties.
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
May 1, 1997 Scott H. Rechler
Date Scott H. Rechler, Executive Vice President
and Chief Operating Officer
May 1, 1997 Michael Maturo
Date Michael Maturo, Executive Vice President
and Chief Financial Officer
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