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 June 30, 1998
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 40,011,104 shares outstanding as of August 10, 1998.
<PAGE>
RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED JUNE 30, 1998
TABLE OF CONTENTS
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets of Reckson Associates Realty Corp.
as of June 30, 1998 and December 31, 1997 ....................
Consolidated Statements of Income of Reckson Associates Realty
Corp. for the three and six months ended June 30, 1998 and
1997 .........................................................
Consolidated Statements of Cash Flows of Reckson Associates
Realty Corp. for the six months ended June 30, 1998 and 1997..
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>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Reckson Associates Realty Corp.
Consolidated Balance Sheets
(Dollar in thousands, except for share amounts)
<CAPTION>
June 30, December 31,
1998 1997
------------------ ------------------
(Unaudited)
<S> <C> <C>
Assets:
Commercial real estate properties, at cost:
Land $ 191,847 $ 138,526
Building and improvements 1,245,715 818,229
Developments in progress:
Land 16,503 29,309
Development costs 81,299 25,164
Furniture, fixtures and equipment 4,831 4,054
------------------- -------------------
1,540,195 1,015,282
Less accumulated depreciation (132,399) (111,068)
------------------- -------------------
1,407,796 904,214
Investment in real estate joint ventures 11,628 7,223
Investment in mortgage notes and notes receivable 84,674 104,509
Cash and cash equivalents 3,446 21,828
Tenants receivables 4,062 4,975
Investments in and advances to affiliates 56,171 26,547
Deferred rent receivable 19,098 14,973
Prepaid expenses and other assets 15,467 5,248
Contract and land deposits and pre-acquisition costs 3,088 7,559
Deferred leasing and loan costs 19,537 16,181
------------------- -------------------
Total Assets $ 1,624,967 $ 1,113,257
=================== ===================
Liabilities:
Mortgage notes payable $ 236,776 $ 180,023
Credit facilities 298,250 210,250
Senior unsecured notes 150,000 150,000
Accrued expenses and other liabilities 36,629 30,987
Affiliate payables 1,877 807
Dividends and distributions payable 20,461 120
------------------- -------------------
Total Liabilities 743,993 572,187
------------------- -------------------
Minority interests in consolidated partnerships 35,685 6,655
Limited partners' minority interest in the operating
partnership 132,165 85,750
------------------- -------------------
167,850 92,405
------------------- -------------------
Stockholders' Equity:
Preferred Stock, $.01 par value, 25,000,000 shares
authorized, 9,200,000 issued and outstanding 92 ---
Common Stock, $.01 par value, 100,000,000 shares
authorized, 39,991,745 and 37,770,158 shares issued
and outstanding, respectively 400 378
Additional paid in capital 712,632 448,287
------------------- -------------------
Total Stockholders' Equity 713,124 448,665
------------------- -------------------
Total Liabilities and Stockholders' Equity $ 1,624,967 $ 1,113,257
=================== ===================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
Reckson Associates Realty Corp.
Consolidated Statements of Income
(Unaudited and in thousands, except per share and share amounts)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Base rents $ 55,536 $ 31,160 $ 102,571 $ 57,751
Tenant escalations and reimbursements 7,061 3,340 13,113 6,585
Equity in earnings of real estate joint ventures 173 105 273 201
Equity in earnings of service companies 651 --- 392 142
Interest income on mortgage notes and notes receivable 1,773 931 3,453 1,889
Other 1,125 658 1,581 1,318
------------- ------------- ------------- -------------
Total Revenues 66,319 36,194 121,383 67,886
------------- ------------- ------------- -------------
Expenses:
Property operating expenses 12,265 7,069 22,018 12,733
Real estate taxes 9,032 4,806 17,036 9,370
Ground rents 432 306 845 609
Marketing, general and administrative 3,639 1,858 7,102 3,838
Interest 10,970 3,848 21,497 8,583
Depreciation and amortization 12,457 6,317 23,264 11,957
------------- ------------- ------------- -------------
Total Expenses 48,795 24,204 91,762 47,090
------------- ------------- ------------- -------------
Income before minority interests and extraordinary
items 17,524 11,990 29,621 20,796
------------- ------------- ------------- -------------
Minority partners' interests in consolidated
partnerships (683) (201) (1,216) (444)
------------- ------------- ------------- -------------
Distributions to preferred unitholders (435) ---- (435) ---
------------- ------------- ------------- -------------
Limited partners' interest in the operating
partnership (2,762) (1,993) (4,753) (3,771)
------------- ------------- ------------- -------------
Income before extraordinary item and dividends to
preferred shareholders 13,644 9,796 23,217 16,581
Extraordinary items - (loss) on restatement or
extinguishment of debt, net of limited partners' share
of $0, $400, $0 and $400, respectively ---- (1,962) ---- (1,962)
Dividends to preferred shareholders 3,733 ---- 3,733 ---
------------- ------------- ------------- -------------
Net income available to common shareholders $ 9,911 $ 7,834 $ 19,484 $ 14,619
============= ============= ============= =============
Basic net income per weighted average common
share before extraordinary items $ 0.25 $ 0.29 $ 0.50 $ 0.54
Extraordinary items (loss) per common share ---- (0.06) ---- (0.06)
------------- ------------- ------------- -------------
Basic net income per weighted average common share $ 0.25 $ 0.23 $ 0.50 $ 0.48
============= ============= ============= =============
Weighted average common shares outstanding 39,636,815 34,298,137 38,913,713 30,455,000
============= ============= ============= =============
Diluted net income per weighted average common share $ 0.25 $ 0.22 $ 0.49 $ 0.47
============= ============= ============= =============
Diluted weighted average common shares outstanding 40,178,083 34,801,582 39,476,786 30,950,151
============= ============= ============= =============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
Reckson Associates Realty Corp.
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from Operating Activities:
Net Income available to common shareholders $ 19,484 $ 14,619
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 23,264 11,957
Minority partners' interests in consolidated
partnerships 1,216 444
Limited partners' interest in the operating partnership 4,753 3,771
Extraordinary loss on extinguishment of debt --- 1,962
Gain on sale of interest in Reckson Executive
Centers, LLC (9) ---
Gain on sale of securities (43) ---
Equity in earnings of service companies (392) (142)
Equity in earnings of real estate joint ventures (273) (201)
Distributions from real estate joint venture 217 191
Interest income on mortgage notes and notes
receivable (316) (374)
Changes in operating assets and liabilities:
Tenant receivables 913 (561)
Escrow reserves 115 34
Prepaid expenses and other assets (9,832) (4,301)
Deferred rents receivable (3,614) (2,371)
Accrued expenses and other liabilities 8,961 3,081
------------ ------------
Net cash provided by operating activities 44,444 28,109
------------ ------------
Cash Flows from Investing Activities:
Increase in escrow reserves (580) ---
Purchase of commercial real estate properties (422,509) (171,195)
Investment in mortgage notes and notes receivable 20,097 (29,124)
Investment in real estate joint ventures (2,970) (1,385)
Investment in service companies 15 15
Additions to commercial real estate properties (9,754) (7,608)
Purchase of furniture, fixtures and equipment (776) (481)
Payment of leasing costs (3,768) (3,194)
Investment in securities 809 ---
------------ ------------
Net cash used in investing activities (419,436) (212,972)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock net of
issuance costs 93,515 212,117
Proceeds from issuance of preferred stock net
of issuance costs 220,800 ---
Principal payments on secured borrowings (3,118) (653)
Payment of loan costs (69) (2,807)
Advances to affiliates (25,727) (1,358)
Proceeds from unsecured credit facilities 180,996 126,500
Repayment of unsecured credit facilities (94,000) (122,000)
Distribution to minority partners in consolidated
partnerships (1,289) (543)
Distribution to limited partners in the operating
partnerships (2,352) (4,036)
Dividends to common shareholders (12,146) (14,621)
------------ ------------
Net cash provided by financing activities 356,610 192,599
------------ ------------
Net (decrease) increase in cash and cash
equivalents (18,382) 7,736
Cash and cash equivalents at beginning of period 21,828 12,688
------------ ------------
Cash and cash equivalents at end of period $ 3,446 20,424
============ ============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Reckson Associates Realty Corp.
Notes to the Consolidated Financial Statements
JUNE 30, 1998
(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 (pre-split) of $.01 par value common stock
("the IPO"). The IPO price of $24.25 per common share (pre-split)
resulted in gross offering proceeds of approximately $170,671,500. The
Company also issued 400,000 shares (pre-split) 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, advisory
fee and other offering expenses, were approximately $162,000,000.
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 (pre-split) 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.
As of June 30, 1998, the Company owned and operated 69 office properties
comprising approximately 9.6 million square feet, 120 industrial
properties comprising approximately 9.8 million square feet and two 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 acquire approximately 914 acres of land (including 400 acres under
option) in 19 separate parcels of which the Company can develop 1.9
million square feet of industrial space and 6.8 million square feet of
office space. The Company also has invested approximately $47.3 million
in certain mortgage notes encumbering four Class A office properties
encompassing approximately 577,000 square feet and a 400 acre parcel
of land and in a note receivable secured by a partnership interest in Omni
Partners, L.P., owner of the Omni, a 575,000 Class A office property
located in Uniondale, New York.
During 1997, the Company formed Reckson Service Industries, Inc. ("RSI")
and Reckson Strategic Venture Partners, LLC ("RSVP"). The Operating
Partnership owned a 95% non voting common stock interest in RSI through
June 10, 1998. RSI serves as the managing member of RSVP. RSI invests
in operating companies that generally will provide commercial services
to properties owned by the Company and its tenants and third parties.
RSVP was formed to provide the Company with a research and development
vehicle to invest in alternative real estate sectors. RSVP invests
primarily in real estate and real estate related operating companies
generally outside of the Company's core office and industrial focus.
RSVP's strategy is to identify and acquire interests in established
entrepreneurial enterprises with experienced management teams in market
sectors which are in the early stages of their growth cycle or offer
unique circumstances for attractive investments as well as a platform
for future growth. On June 11, 1998, the Operating Partnership
distributed its 95% net non voting common stock interest in RSI of
approximately $3 million to its partners, including the Company which,
in turn, distributed the common stock of RSI received from the Operating
Partnership to its stockholders. At June 30, 1998, the Operating
Partnership had made loans to RSI and RSVP aggregating approximately
$21.8 million and $7.6 million, respectively in connection with start up
costs and certain initial investments. Such amounts have been included
in investments in and advances to affiliates on the accompanying balance
sheet. Subsequent to June 30, 1998, RSI and RSVP repaid approximately
$13 million and $6.8 million, respectively of loans to the Operating
Partnership.
In October 1997, the Company entered into an agreement to invest $150
million in the Morris Companies, a New Jersey developer and owner of "Big
Box" warehouse facilities. The Morris Companies' properties include 23
industrial buildings encompassing approximately 4.0 million square feet.
The Company has invested approximately $72 million for an approximate 73%
controlling interest in Reckson Morris Operating Partnership, L.P. ("RMI").
In connection with the transaction the Morris Companies contributed 100%
of their interests in certain industrial properties to RMI in exchange for
operating partnership units in RMI.
On July 9, 1998, the Company announced the formation of Metropolitan
Partners ("Metropolitan"), a strategic joint venture controlled equally by
the Company and Crescent Real Estate Equities Company ("Crescent") for
the purpose of creating a platform to invest in the New York City real
estate market. Metropolitan has executed a definitive merger agreement in
which Metropolitan has agreed to purchase Tower Realty Trust, Inc.,
("Tower") a New York City based real estate investment trust that owns and
operates approximately 4.3 million square feet of office space in 25
buildings, including 2.3 million square feet in New York City, for a total
transaction value of approximately $733 million, which includes $286
million of outstanding Tower indebtedness. Tower stockholders will have
the right to elect to receive for each share of Tower (i) $24.00 in cash or
(ii) .4615 shares of the Company's common stock and .3523 shares of Crescent
common stock (based on the closing price of the Company's and Crescent's
common stock on July 7, 1998 of $26.00 and $34.0625, per share,
respectively), for up to an aggregate of 40% of the total consideration
payable in the transaction. If the average closing price of the Company's
or Crescent's shares appreciates by more than 7% from the July 7 closing
prices Tower shareholders will be entitled to benefit only up to 7% of such
appreciation, and no more. The transaction will be accounted for as an
equity investment by the Company and is anticipated to close in the 4th
quarter of 1998.
2. Basis of Presentation
The accompanying consolidated financial statements include the
consolidated financial position of the Company and the Operating
Partnership at June 30, 1998 and the results of their operations for the
three and six months ended June 30, 1998 and 1997 respectively, and, their
cash flows for the six months ended June 30, 1998 and 1997 respectively.
The Operating Partnership's investment in RMI is reflected in the
accompanying financial statements on a consolidated basis with a reduction
for minority partner interest. The operating results of the service
businesses currently conducted by Reckson Management Group, Inc., and
Reckson Construction Group, Inc., are reflected in the accompanying
financial statements on the equity method of accounting. The operating
results of Reckson Executive Centers, L.L.C., ("REC"), a service business
of the Operating Partnership were reflected in the accompanying financial
statements on the equity method of accounting through March 31, 1998. On
April 1, 1998, the Operating Partnership sold its 9.9% interest in REC to
RSI for $200,000. Additionally, the operating results of RSI a service
business of the Operating Partnership, were reflected in the accompanying
financial statements on the equity method of accounting through June 10,
1998. On June 11, 1998 the Operating Partnership distributed its 95% net
non voting common stock interest in RSI to its partners, including the
Company which, in turn, distributed the common stock of RSI received from
the Operating Partnership to its stockholders. 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, 1998. 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, 1997.
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.
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share". Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirements. The conversion of
Units into common stock would not have a significant effect on per share
amounts as the Units share proportionately with the common stock in the
results of the Operating Partnership's operations. Additionally, during
1997, the Financial Accounting Standards Board also issued statement No.
130 "Reporting Comprehensive Income" ("SFAS 130") which is effective for
fiscal years beginning after December 15, 1997. SFAS 130 establishes
standards for reporting comprehensive income and its components in a full
set of general-purpose financial statements. SFAS 130 requires that all
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
The adoption of this standard will not have an impact on the Company's
financial position or results of operations.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
3. Mortgage Notes Payable
As of June 30, 1998, the Company had approximately $237 million of fixed
rate mortgage notes which mature at various times between 1999 and 2012.
The notes are secured by 21 properties and have a weighted average
interest rate of 7.91%.
On May 21, 1998, the Company satisfied the mortgage note encumbering one
property in the amount of approximately $1.9 million.
4. Senior Unsecured Notes
As of June 30, 1998, the Company had outstanding $150 million of 10-year
senior unsecured notes(the "Senior Unsecured Notes"). The Senior
unsecured Notes were priced at par with interest at 110 basis points over
the 10-year treasury note for an all in coupon of 7.2%. Interest is
payable semiannually with principal and unpaid interest due on August 28,
2007.
5. Credit Facilities
As of June 30, 1998, the Company had 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's leverage ratio. In addition, the Company
obtained a $200 million unsecured credit facility (the "Bridge Facility")
which matures on July 15, 1998. The Bridge Facility was provided by the
two lead members of the Unsecured Credit Facility bank group and serves as
interim financing while the Company seeks to expand the availability under
the Unsecured Credit Facility.
On July 23, 1998, the Company obtained a $500 million unsecured
revolving credit facility (the "Credit Facility") with Chase Manhattan
Bank, Union Bank of Switzerland and PNC Bank as co-managers of the credit
facility bank group. This Credit Facility replaces both the Unsecured
Credit and Bridge Facilities. Interest rates on borrowings under the
Credit Facility will be priced off of LIBOR plus a sliding scale ranging
from 112.5 basis points to 137.5 basis points based on the leverage ratio
of the Company. Upon the Company receiving an investment grade rating on
its senior unsecured debt by two rating agencies, the pricing is adjusted
based off of LIBOR plus a scale ranging from 65 basis points to 90 basis
points depending upon the rating.
6. Commercial Real Estate Investments
In October 1997, the Company entered into an agreement to invest $150
million in the Morris Companies, a New Jersey developer and owner of "Big
Box" warehouse facilities. The Morris Companies' properties include 23
industrial buildings encompassing approximately 4.0 million square feet.
The Company's investment will be used to acquire a controlling interest in
Reckson Morris Operating Partnership, L.P. ("RMI"). In connection with
the transaction the Morris Companies contributed 100% of their interests
in certain industrial properties to RMI in exchange for operating
partnership units in RMI. At June 30, 1998 the Company had acquired an
approximate 73% interest in RMI for approximately $72 million. In
addition, at June 30, 1998, the Company had advanced approximately
$17.7 million to the Morris Companies primarily to fund certain
construction costs related to development properties to be contributed
to RMI.
During January, 1998, the Company acquired two office properties and
five industrial properties encompassing 325,000 and 775,000 square feet,
respectively for aggregate purchase prices of approximately $27.6 million
and $32.1 million, respectively. In addition, the Company acquired
approximately 99 acres of land for approximately $3.39 million which
allows for approximately 730,000 square feet of development opportunities.
These acquisitions were financed with proceeds from the credit facilities
and the issuance of 513,259 OP Units.
During February 1998, the Company acquired approximately 25 acres of
land and a vacant 165,000 square foot building for approximately $3.43
million. The Company is currently repositioning these properties which
will allow for approximately 483,000 square feet of future development
opportunities.
Additionally, on February 6, 1998 the Company completed its acquisition
of a 351,000 square foot office building located in Lake Success, New York
for approximately $9.3 million. The Company had previously acquired an
approximate 68% first mortgage interest in the property for approximately
$25.7 million for a total acquisition of $35 million. The acquisition was
financed with proceeds from a draw under the credit facilities. On
February 25, 1998, the Company made an additional investment in RMI of
approximately $6.6 million for the acquisition of 300-350 Kennedy Drive,
Sayerville, New Jersey increasing its interest in RMI to approximately
73%.
On March 20, 1998, the Company acquired a 250,000 square foot office
building located in Short Hills, New Jersey for approximately $67 million.
The acquisition was financed with proceeds from a draw under the credit
facilities.
On April 3, 1998, the Company completed its acquisition of approximately
33.6 acres of vacant land located in Huntington Township, New York, which
allows for approximately 495,000 square feet of future development
opportunities for approximately $8.5 million (of which $6.4 million had
been previously paid).
On April 21, 1998, the Company acquired a portfolio of six office
properties encompassing approximately 980,000 square feet in Westchester
County, New York from Cappelli Enterprises and affiliated entities
("Cappelli") for a purchase price of approximately $173 million. The
Cappelli acquisition includes a five building, 850,000 square foot Class A
office park in Valhalla and Court House Square, a 130,000 square foot
Class A office building located in White Plains. The Company also
obtained an option from Cappelli to acquire the remaining 50% interest in
360 Hamilton Avenue, a 365,000 square foot vacant office tower in downtown
White Plains for $10 million of which $4 million was paid at closing of
the portfolio acquisition. In addition, the Company received an option
from Cappelli to acquire the remaining development parcels within the
Valhalla office park on which up to 875,000 square feet of office space
can be developed. During April 1998, the Company made mortgage loans to
Cappelli totaling $18 million which are secured by the development
parcels. The loans bear interest at 10% per annum and mature on April 14,
1999. Such amounts have been included in investments in mortgage
notes and notes receivable on the accompanying balance sheet. This
acquisition was financed in part through proceeds from a draw under the
credit facilities, the issuance of 36,518 preferred units (Note 7), and
the assumption of approximately $45.1 million of mortgage debt. On July
2, 1998, Cappelli exercised his option to sell the remaining 50% interest
in 360 Hamilton Avenue located in downtown White Plains, New York to the
Company for $10 million (of which $4 million had been previously paid)
plus the return of his capital contributions of approximately $1.5
million. As a result, the Company now owns 100% of the property. The
acquisition was financed in part through proceeds from a draw under the
credit facilities, the issuance of 6,000 preferred units (Note 7), and the
assumption of approximately $2 million of additional mortgage debt.
Additionally, on April 21, 1998, the Company acquired a 84,500 square
foot office building located in Fairfield, New Jersey for $3.4 million.
The acquisition was financed in part with proceeds from a draw under the
credit facilities and the issuance of 1,979 OP Units (Note 7).
On May 1, 1998, the Company leased a 120,000 square foot office building
located in Hicksville, New York. The lease which expires in the year 2018
requires fixed monthly rental payments subject to annual increases and for
the pass through to the Company of all operating expenses and real estate
taxes relating to the property.
On June 19, 1998, the Company acquired a 210,000 square foot industrial
property located in West Caldwell, New Jersey for $9.4 million. The
acquisition was financed with proceeds from a draw under the credit
facilities.
On June 24, 1998, the Company acquired approximately 19.3 acres of land
located in Melville, New York for approximately $5.5 million. The Company
has entered into contract negotiations to sell this parcel during the
third calendar quarter of 1998. The acquisition was financed with
proceeds from a draw under the credit facilities.
On July 1, 1998, the Company acquired Stamford Towers located in
Stamford, Connecticut for approximately $61.3 million. Stamford Towers is
a Class A office complex consisting of two eleven story towers totaling
approximately 325,000 square feet.
During July, 1998, RMI purchased two industrial properties encompassing
approximately 426,000 square feet for approximately $24.75 million. These
acquisitions were financed through draws under the credit facilities.
7. Stockholders' Equity
On January 6, 1998, the Operating Partnership issued 513,259 OP Units in
connection with the acquisition of an office building located in
Uniondale, New York.
On February 18, 1998, the Company completed a common stock offering and
sold 791,152 common shares at a price of $25.44 per share. Net proceeds
from the offering of approximately $19.1 million were used to repay
borrowings under the credit facilities.
On March 23, 1998, the Company sold approximately $5.9 million of common
stock to RSI at the market closing price of $25 per share. The Operating
Partnership loaned RSI the $5.9 million to execute this transaction. Such
amount was repaid to the Operating Partnership by RSI subsequent to June
30, 1998.
During April 1998, the Company completed a preferred stock offering and
sold 9,200,000 shares (including 1,200,000 shares related to the exercise
of the underwriters over allotment option) of 7.625% Series A Convertible
Cumulative Preferred Stock at a price of $25.00 per share. The preferred
stock is convertible to the Company's common stock at a conversion rate of
.8738 shares of common stock for each share of preferred stock. Net
proceeds from the offering of approximately $221 million were used to
repay borrowings under the credit facilities.
On April 21, 1998, the Operating Partnership issued 25,000 Series B
preferred units at a stated value of $1,000 per unit and 11,518 Series C
preferred units at a stated valued of $1,000 per unit in connection with
the acquisition of the Cappelli portfolio. The Series B preferred units
have a current coupon rate of 6.25% and are convertible to common units at
a conversion price of approximately $32.51 for each preferred unit. The
Series C preferred units have a current coupon rate of 6.25% and are
convertible to common units at a conversion price of approximately $29.39
for each preferred unit.
On April 29, 1998, the Company completed a common stock offering and
sold 1,093,744 common shares at a price of $24.38 per share. Net proceeds
from the offering were approximately $25.3 million and were used to repay
borrowings under the credit facilities.
On May 27, 1998, the Board of Directors declared a dividend of $.3375
per share of common stock payable on July 21, 1998 to its shareholders of
record as of July 10, 1998. The dividend declared, which related to the
three months ended June 30, 1998, is based upon an annual distribution of
$1.35 per share.
On May 29, 1998, the Board of Directors declared a dividend on its
Series A Convertible Cumulative Preferred Stock of $.5719 per share
payable on July 31, 1998 to stockholders of record on July 15, 1998. The
dividend declared, which relates to the period from April 13, 1998 through
July 31, 1998 is based on an annual distribution of $1.906 per share.
On July 2, 1998, the Operating Partnership issued 6,000 Series D
preferred units at a stated value of $1,000 per unit in connection with
the acquisition of the remaining 50% interest in 360 Hamilton Avenue
located in White Plains, New York. The Series D preferred units have a
current coupon of 6.25% and are convertible to common units at a
conversion price of approximately $29.12 for each preferred unit.
Basic net income per share was calculated using the weighted average
number of shares outstanding of 39,636,815 and 34,298,137 for the three
months ended June 30, 1998 and 1997, respectively and 38,913,713 and
30,455,000 for the six months ended June 30, 1998 and 1997, respectively.
The following is the Company's reconciliation of the numerators and
denominators of the basic and diluted net income per weighted average
common share computations and other related disclosures required by FAS
Statement 128 (in thousands except share amounts).
The following table set forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item and dividends to
preferred shareholders $ 13,644 $ 9,796 $ 23,217 $ 16,581
Preferred stock dividends (3,733) ---- (3,733) ----
------------- ------------- ------------- -------------
Numerator for basic earnings per share 9,911 9,796 19,484 16,581
Effect of dilutive securities:
Preferred stock dividends --- --- --- ---
------------- ------------- ------------- -------------
Numerator for diluted earnings per share $ 9,911 $ 9,796 $ 19,484 $ 16,581
============= ============= ============= =============
Denominator:
Denominator for basic earnings per share-
weighted-average shares 39,637 34,298 38,914 30,455
------------- ------------- ------------- -------------
Effect of dilutive securities:
Employee stock options 541 504 563 495
Convertible preferred stock --- --- --- ---
------------- ------------- ------------- -------------
Dilutive potential common shares 541 504 563 495
------------- ------------- ------------- -------------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions 40,178 34,802 39,477 30,950
============= ============= ============= =============
Basic earnings per common share:
Income before extraordinary item $ 0.25 $ 0.29 $ 0.50 $ 0.54
Extraordinary item --- (0.06) --- (0.06)
------------- ------------- ------------- -------------
Net income per common share $ 0.25 $ 0.23 $ 0.50 $ 0.48
============= ============= ============= =============
Diluted earnings per common share:
Income before extraordinary item $ 0.25 $ 0.28 $ 0.49 $ 0.54
Extraordinary item --- (0.06) --- (0.07)
------------- ------------- ------------- -------------
Diluted net income per common share $ 0.25 $ 0.22 $ 0.49 $ 0.47
============= ============= ============= =============
</TABLE>
8. Supplemental Disclosure of Cash Flow Information (in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash paid during the period for interest $ 17,869 $ 9,956
========= =========
Interest capitalized during the period $ 1,739 $ 869
========= =========
</TABLE>
On January 2, 1998, the Company issued an additional 18,752 OP Units
in connection with the acquisition of a 92,000 square foot industrial
building located in Elmsford, New York for an additional non cash
investment of approximately $.48 million.
On January 6, 1998, the Company acquired 51 Charles Lindbergh
Boulevard in Uniondale, New York which included the issuance of 513,259 OP
Units for a total non cash investment of $12 million. Additionally, in
connection with the Company's investment in the Morris Companies, the
Company assumed approximately $10.8 million of indebtedness net of
minority partners interest.
On March 23, 1998, the Company sold 235,480 shares of its common
stock to RSI for approximately $5.9 million which is payable to the
Company at June 30, 1998.
On April 21, 1998, in connection with the acquisition of the Cappelli
portfolio, the Company assumed approximately $45.1 million of
indebtedness. Additionally, in connection with the acquisition of 155
Passaic Avenue in Fairfield, New Jersey, the Company issued 1,979 OP Units
for a total non cash investment of approximately $50,000.
On June 11, 1998, the Operating Partnership distributed its 95% net
non voting common stock interest in RSI of approximately $3 million to its
partners, including the Company which, in turn, distributed the common stock
of RSI received from the Operating Partnership to its stockholders.
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
surrounding New York City. Since completion of its initial public
offering in May 1995, the Company has acquired or contracted to acquire
approximately $1.3 billion of properties comprising approximately 15.7
million square feet of space.
On February 18, 1998, the Company completed a common stock offering and
sold 791,152 common shares at a price of $25.44 per share. Net proceeds
from the offering of approximately $19.1 million were used to repay
borrowings under the credit facilities.
During April 1998, the Company completed a preferred stock offering and
sold 9,200,000 shares (including 1,200,000 shares related to the exercise
of the underwriters over allotment option) of 75/8% Series A Convertible
Cumulative Preferred Stock at a price of $25.00 per share. The preferred
stock is convertible to the Company's common stock at a conversion rate of
.8738 shares of common stock for each share of preferred stock. Net
proceeds from the offering were approximately $221 million and were used
to repay borrowings under the credit facilities.
On April 29, 1998, the Company completed a common stock offering and
sold 1,093,744 common shares at a price of $24.38 per share. Net proceeds
from the offering were approximately $25.3 million and were used to repay
borrowings under the credit facilities.
At June 30, 1998, the Company's portfolio of real estate properties
included 69 office buildings containing approximately 9.6 million square
feet, 120 industrial buildings containing approximately 9.8 million square
feet and two retail properties containing approximately 20,000 square
feet.
During the six months ended June 30,1998, the Company acquired seven
industrial properties encompassing approximately 1.1 million square feet
of space for an aggregate purchase price of approximately $45 million and
11 office properties encompassing approximately 1.9 million square feet of
space for an aggregate purchase price of approximately $308 million.
In October 1997, the Company entered into an agreement to invest $150
million in the Morris Companies, a New Jersey developer and owner of "Big
Box" warehouse facilities. The Morris Companies properties include 23
industrial buildings encompassing approximately 4.0 million square feet.
As of June 30, 1998, the Company has invested approximately $72 million
for an approximate 73% controlling interest in Reckson Morris Operating
Partnership, L.P. ("RMI"). In connection with the transaction the Morris
Companies contributed 100% of their interests in certain industrial
properties to RMI in exchange for operating partnership units in RMI.
On July 9, 1998, the Company announced the formation of Metropolitan
Partners ("Metropolitan"), a strategic joint venture controlled equally by
the Company and Crescent Real Estate Equities Company ("Crescent") for
the purpose of creating a platform to invest in the New York City real
estate market. Metropolitan has executed a definitive merger agreement in
which Metropolitan has agreed to purchase Tower Realty Trust, Inc.,
("Tower") a New York City based real estate investment trust that owns and
operates approximately 4.3 million square feet of office space in 25
buildings, including 2.3 million square feet in New York City, for a total
transaction value of approximately $733 million, which includes $286
million of outstanding Tower indebtedness. Tower stockholders will have
the right to elect to receive for each share of Tower (i) $24.00 in cash or
(ii) .4615 shares of the Company's common stock and .3523 shares of Crescent
common stock (based on the closing price of the Company's and Crescent's
common stock on July 7, 1998 of $26.00 and $34.0625, per share,
respectively), for up to an aggregate of 40% of the total consideration
payable in the transaction. If the average closing price of the Company's
or Crescent's shares appreciates by more than 7% from the July 7 closing
prices Tower shareholders will be entitled to benefit only up to 7% of such
appreciation, and no more. The transaction will be accounted for as an
equity investment by the Company and is anticipated to close in the 4th
quarter of 1998.
The market capitalization of the Company at June 30, 1998 was
approximately $2.1 billion. The Company's market capitalization is based
on the market value of the Company's common stock and OP units (assuming
conversion) of $23.625 per share/unit, the Company's preferred stock of
$25 per share, the Company's preferred units of $1,000 per unit and, the
$668.7 million (including its share of joint venture debt and net of
minority partners' interests) of debt outstanding at June 30, 1998. As a
result, the Company's total debt to total market capitalization ratio at
June 30, 1998 equaled approximately 32.4%.
Results of Operations
The Company's total revenues increased by $30.1 million or 83% for the
three months ended June 30, 1998 as compared to the 1997 period. The
growth in total revenues is substantially attributable to the Company's
acquisition of 68 properties comprising approximately 9.8 million square
feet. Property operating revenues, which include base rents and tenant
escalations and reimbursements ("Property Operating Revenues") increased
by $28.1 million or 81% for the three months ended June 30, 1998 as
compared to the 1997 period. The 1998 increase in Property Operating
Revenues is comprised of $0.4 million attributable to increases in rental
rates and changes in occupancies and $27.7 million attributable to
acquisitions of properties. The remaining balance of the increase in total
revenues in 1998 is primarily attributable to interest income on the
Company's investments in mortgage notes and notes receivable. The
Company's base rent was increased by the impact of the straight-line rent
adjustment by $2.1 million for the three months ended June 30, 1998 as
compared to $1.2 million for the 1997 period.
Property operating expenses, real estate taxes and ground rents
("Property Expenses") increased by $9.5 million for the three months ended
June 30, 1998 as compared to the 1997 period. These increases are
primarily due to the acquisition of properties. Gross operating margins
(defined as Property Operating Revenues less Property Expenses, taken as a
percentage of Property Operating Revenues) for 1998 and 1997 were 65.3%
and 64.7%, respectively. The increase in gross operating margins reflects
increases realized in rental rates, the Company's ability to realize
certain operating efficiencies as a result of operating a larger portfolio
of properties with concentrations of properties in office and industrial
parks or in its established sub-markets, and increased ownership of net
leased properties including the impact of the RMI properties.
Marketing, general and administrative expenses increased by $1.8 million
for the three months ended June 30, 1998 as compared to the 1997 period.
The increase is due to the increased costs of managing the acquisition
properties, the costs of opening the Company's Northern New Jersey
division, costs associated with the management of the RMI assets, and the
increase in corporate management and administrative costs associated with
the growth of the Company. Marketing, general and administrative expenses
as a percentage of total revenues were 5.5% for the three months ended
June 30, 1998 as compared to 5.1% for the 1997 period.
Interest expense increased by $7.1 million for the three months ended
June 30, 1998 as compared to the 1997 period. The increase is attributable
to an increase in mortgage debt including the refinancing of the Omni in
the amount of $58 million in August 1997, the assumption of approximately
$14.8 million of mortgage indebtedness in connection with the Company's
investment in RMI, the assumption of approximately $45.1 million of mortgage
indebtedness in connection with the Cappelli acquisition, increased cost
attributable to an increased average balance on the Company's credit
facilities and interest on the Company's $150 million of senior unsecured
notes. The weighted average balance outstanding on the Company's credit
facilities was $307 million for the three months ended June 30, 1998 as
compared to $82.5 million for the 1997 period.
The Company's total revenues increased by $53.5 million or 79% for the
six months ended June 30, 1998 as compared to the 1997 period. The growth
in total revenues is substantially attributable to the Company's acquisition
of 81 properties comprising approximately 10.6 million square feet.
Property Operating Revenues increased by $51.3 million or 80% for the six
months ended June 30, 1998 as compared to the 1997 period. The 1998 increase
in Property Operating Revenues is comprised of $1.4 million attributable to
increases in rental rates and changes in occupancies and $49.9 million
attributable to acquisitions of properties. The remaining balance of the
increase in total revenues in 1998 is primarily attributable to interest
income on the Company's investments in mortgage notes and notes receivable.
The Company's base rent was increased by the impact of the straight-line rent
adjustment by $3.6 million for the six months ended June 30, 1998 as compared
to $2.3 million for the 1997 period.
Property Expenses increased by $17.2 million for the six months ended
June 30, 1998 as compared to the 1997 period. These increases are
primarily due to the acquisition of properties. Gross operating margins
for 1998 and 1997 were 65.5% and 64.7%, respectively. The increase in gross
operating margins reflects increases realized in rental rates, the Company's
ability to realize certain operating efficiencies as a result of operating a
larger portfolio of properties with concentration of properties in office
and industrial parks or in its established sub-markets and increased ownership
of net leased properties including the impact of the RMI properties.
Interest expense increased by $12.9 million for the six months ended June 30,
1998 as compared to the 1997 period. The increase is attributable to an
increase in mortgage debt including the refinancing of the Omni in the amount
of $58 million in August 1997, the assumption of approximately $14.8 million of
mortgage indebtedness in connection with the Company's investment in RMI, the
assumption of approximately $45.1 million of mortgage indebtedness in connection
with the Cappelli acquisition, increased cost attributable to an increased
average balance on the Company's credit facilities and interest on the Company's
$150 million of senior unsecured notes. The weighted average balance outstand-
ing on the Company's credit facilities was $311.5 million for the six months
ended June 30, 1998 as compared to $92.5 million for the 1997 period.
Liquidity and Capital Resources
In June 1995, the Company completed an initial public offering of 7,438,000
shares (pre-split) of its common stock at $24.25 per share (pre-split). Net
proceeds to the Company were approximately $162 million. During 1996 and 1997
the Company completed four add-on offerings aggregating 22,421,200 shares
(split-adjusted) of its common stock (the "Add-on Offerings") resulting in net
proceeds to the Company of approximately $437 million. Proceeds from the Add-On
Offerings were primarily used to repay borrowings under the credit facilities
and to fund the purchase of commercial real estate properties.
On January 6, 1998, the Operating Partnership issued 513,259 OP Units in
connection with the acquisition of one office property, located in
Uniondale, New York.
On February 18, 1998, the Company completed a common stock offering and
sold 791,152 common shares at a price of $25.44 per share. Net proceeds
from the offering of approximately $19.1 million were used to repay
borrowings under the credit facilities.
During April 1998, the Company completed a preferred stock offering and
sold 9,200,000 shares (including 1,200,000 shares related to the exercise
of the underwriters over allotment option) of 75/8% Series A Convertible
Cumulative Preferred Stock at a price of $25.00 per share. The preferred
stock is convertible to the Company's common stock at a conversion rate of
.8738 shares of common stock for each share of preferred stock. Net
proceeds from the offering of approximately $221 million were used to
repay borrowings under the credit facilities.
On April 21, 1998, the Operating Partnership issued 25,000 Series B
preferred units at a stated value of $1,000 per unit and 11,518 Series C
preferred units at a stated value of $1,000 per unit in connection with
the acquisition of the Cappelli Portfolio. The Series B preferred units
have a current coupon rate of 6.25% and are convertible to common units at
a conversion price of approximately $32.51 for each preferred unit. The
Series C preferred units have a current coupon rate of 6.25% and are
convertible to common units at a conversion price of approximately $29.39
for each preferred unit.
Additionally, on April 21, 1998, in connection with the acquisition of
155 Passaic Avenue in Fairfield, New Jersey, the company issued 1,979 OP
Units.
On April 29, 1998, the Company completed a public stock offering and
sold 1,093,744 common shares at a price of $24.38 per share. Net proceeds
from the offering of approximately $25.3 million were used to repay
borrowings under the credit facilities.
On July 2, 1998, the Operating Partnership issued 6,000 Series D
preferred units at a stated value of $1,000 per unit in connection with
the acquisition of the remaining 50% interest in 360 Hamilton Avenue
located in White Plains, New York. The Series D preferred units have a
current coupon of 6.25% and are convertible to common units at a
conversion price of approximately $29.12 for each preferred unit.
As of June 30, 1998, the Company had a three-year $250 million unsecured
credit facility from a bank group led by 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
financial covenants, including covenants relating to limitations on
unsecured and secured borrowings, minimum interest and fixed charge
coverage ratios, a minimum equity value and a maximum dividend payout
ratio. In additional, 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
1.50%, based on the Company's leverage ratio. The Company utilizes the
Unsecured Credit Facility primarily to finance the acquisitions of
properties and other real estate investments, fund its development
activities and for working capital purposes. At June 30, 1998, the
Company had availability under the Unsecured Credit Facility to borrow an
additional $96.3 million (net of $7.7 million of outstanding undrawn
letters of credit). In addition, the Company obtained a $200 million
unsecured credit facility (the "Bridge Facility") which matures on July
15, 1998. The Bridge Facility was provided by the two lead members of the
Unsecured Credit Facility bank group and serves as interim financing
while the Company seeks to expand the availability under the Unsecured
Credit Facility. At June 30, 1998, the Company had availability under the
Bridge Facility to borrow an additional $47.75 million.
On July 23, 1998, the Company obtained a $500 million unsecured revolving
credit facility (the "Credit Facility") with Chase Manhattan Bank, Union
Bank of Switzerland and PNC Bank as co-managers of the credit facility
bank group. This Credit Facility replaces both the Unsecured Credit and
Bridge Facilities. Interest rates on borrowings under the Credit Facility
will be priced off of LIBOR plus a sliding scale ranging from 112.5 basis
points to 137.5 basis points based on the leverage ratio of the Company.
Upon the Company receiving an investment grade rating on its senior
unsecured debt by two rating agencies, the pricing is adjusted based off of
LIBOR plus a scale ranging from 65 basis points to 90 basis points
depending upon the rating.
The Company's indebtedness at June 30, 1998 totaled $668.7 million
(including its share of joint venture debt and net of the minority
partners' interests) and was comprised of $146 million outstanding under
the Unsecured Credit Facility, $152.25 million outstanding under the
Bridge Facility, $150 million of unsecured notes and approximately $220.45
million of mortgage indebtedness. Based on the Company's total market
capitalization of approximately $2.1 billion at June 30, 1998, (calculated
based on the market value of the Company's common stock and OP units,
assuming conversion, the stated value of the Company's preferred stock and
preferred units), the Company's debt represented approximately 32.4% of
its total market capitalization.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding non-
recurring capital expenditures of the Company. In addition, construction,
management, maintenance, leasing and property management fees have
provided sources of cash flow. The Company expects to meet its short term
liquidity requirements generally through its net cash provided by
operating activities along with the Unsecured Credit Facility previously
discussed. The Company expects to meet certain of its financing
requirements through long-term secured and unsecured borrowings and the
issuance of debt securities and additional equity securities of the
Company. The Company will refinance existing mortgage indebtedness or
indebtedness under the Unsecured Credit Facility at maturity or retire
such debt through the issuance of additional debt securities or additional
equity securities. The Company anticipates that the current balance of
cash and cash equivalents and cash flows from operating activities,
together with cash available from borrowings and equity offerings, will be
adequate to meet the capital and liquidity requirements of the Company in
both the short and long-term.
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.
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 six month period ended
June 30, 1998 and the historical average of such capital expenditures,
tenant improvements and leasing commissions for the years 1994 through
1997.
Non-Incremental Revenue Generating Capital Expenditures
<TABLE>
<CAPTION>
1994-1997
1994 1995 1996 1997 Average 1998
---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Capital Expenditures
Long Island Office Properties
Total $ 158,340 $ 364,545 $ 375,026 $ 1,108,675 $ 501,646 $ 962,709
Per square foot 0.10 0.19 0.13 0.22 0.16 0.12
Industrial Properties
Total $ 524,369 $ 290,457 $ 670,751 $ 733,233 $ 554,702 $ 461,474
Per square foot 0.18 0.08 0.18 0.15 0.15 0.05
</TABLE>
Non-Incremental Revenue Generating Tenant Improvement and Leasing Commissions
<TABLE>
<CAPTION>
1994-1997
1994 1995 1996 1997 Average 1998
---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Long Island Office Properties
Tenant Improvements $ 902,312 $ 452,057 $ 523,574 $ 784,044 $ 665,497 $ 666,305
Per square foot improved 5.13 4.44 4.28 7.00 5.21 8.41
Leasing Commissions $ 341,253 $ 144,925 $ 119,047 $ 415,822 $ 255,262 $ 224,269
Per square foot leased 1.94 1.42 0.97 4.83 2.29 2.83
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot $ 7.07 $ 5.86 $ 5.25 $ 11.83 $ 7.50 $ 11.24
========== ========== ========== ============ ============ ==========
Westchester Office Properties
Tenant Improvements N/A N/A $ 834,764 $ 1,211,665 $ 1,023,215 $ 593,809
Per square foot improved N/A N/A 6.33 9.00 7.61 8.09
Leasing Commissions N/A N/A $ 264,388 $ 266,257 $ 315,323 $ 192,515
Per square foot leased N/A N/A 2.00 2.69 2.35 2.63
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot N/A N/A $ 8.33 $ 11.59 $ 9.96 $ 10.72
========== ========== ========== ============ ============ ==========
Connecticut Office Properties <F1>
Tenant Improvements N/A N/A $ 58,000 $ 1,022,421 $ 864,337 $ 122,155
Per square foot improved N/A N/A 12.45 13.39 12.92 7.13
Leasing Commissions N/A N/A $ 0 $ 256,615 $ 205,292 $ 85,857
Per square foot leased N/A N/A 0.00 3.36 1.68 5.01
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot N/A N/A $ 12.45 $ 16.75 $ 14.60 $ 12.14
========== ========== ========== ============ ============ ==========
New Jersey Office Properties
Tenant Improvements N/A N/A N/A N/A N/A $ 430,155
Per square foot improved N/A N/A N/A N/A N/A 4.07
Leasing Commissions N/A N/A N/A N/A N/A $ 156,867
Per square foot leased N/A N/A N/A N/A N/A 1.30
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot N/A N/A N/A N/A N/A $ 5.37
========== ========== ========== ============ ============ ==========
Industrial Properties
Tenant Improvements $ 585,981 $ 210,496 $ 380,334 $ 230,466 $ 351,819 $ 207,996
Per square foot improved 0.88 0.90 0.72 0.55 0.76 0.60
Leasing Commissions $ 176,040 $ 107,351 $ 436,213 $ 81,013 $ 200,154 $ 130,285
Per square foot leased 0.27 0.46 0.82 0.19 0.44 0.37
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot $ 1.15 $ 1.36 $ 1.54 $ 0.74 $ 1.20 $ 0.97
========== ========== ========== ============ ============ ==========
<FN>
<F1>
1994 - 1997 average weighted to reflect October 1996 acquistion date.
</FN>
</TABLE>
LEASE EXPIRATIONS
The following tables sets forth scheduled lease expirations for executed
leases as of June 30, 1998.
<TABLE>
Long Island Office Properties (excluding Omni):
<CAPTION>
Total % of Per
Rentable Total Square Per
Square Rentable Foot Square
Number Feet Feet S/L Foot
Year of Lease Expiration of Leases Expiring Expiring Rent <F1> Rent <F2>
- -------------------------------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998 17 70,210 2.8% $ 21.25 $ 23.22
1999 37 128,715 5.1% $ 19.89 $ 20.94
2000 50 288,025 11.3% $ 21.71 $ 22.90
2001 39 237,226 9.3% $ 22.19 $ 23.99
2002 35 272,699 10.7% $ 21.99 $ 23.50
2003 51 318,142 12.5% $ 21.69 $ 20.80
2004 and thereafter 70 1,230,159 48.3% --- ---
--------- ----------- ----------
299 2,545,176 100.0%
========= =========== ==========
<FN>
<F1>
Per square foot rental rate represents annualized straight line rent as of the lease
expiration date.
<F2>
Per square foot rental rate represents annualized base rent as of the lease expiration
date plus non-recoverable expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Omni:
<CAPTION>
Total % of Per
Rentable Total Square Per
Square Rentable Foot Square
Number Feet Feet S/L Foot
Year of Lease Expiration of Leases Expiring Expiring Rent <F1> Rent <F2>
- -------------------------------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998 --- --- --- --- ---
1999 --- --- --- --- ---
2000 4 60,316 10.8% $ 32.49 $ 34.52
2001 4 32,680 5.8% $ 28.22 $ 33.00
2002 4 129,351 23.0% $ 25.55 $ 27.69
2003 5 72,530 12.9% $ 29.52 $ 29.88
2004 and thereafter 10 267,013 47.5% --- ---
--------- ----------- ----------
27 561,890 100.0%
========= =========== ==========
<FN>
<F1>
Per square foot rental rate represents annualized straight line rent as of the lease
expiration date.
<F2>
Per square foot rental rate represents annualized base rent as of the lease expiration
date plus non-recoverable expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Industrial Properties
<CAPTION>
Total % of Per
Rentable Total Square Per
Square Rentable Foot Square
Number Feet Feet S/L Foot
Year of Lease Expiration of Leases Expiring Expiring Rent <F1> Rent <F2>
- -------------------------------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998 22 148,244 2.9% $ 6.59 $ 6.58
1999 37 792,561 15.3% $ 5.61 $ 5.54
2000 32 1,131,940 21.8% $ 4.96 $ 5.09
2001 32 899,619 17.4% $ 5.82 $ 6.29
2002 24 145,046 2.8% $ 6.41 $ 6.45
2003 23 579,416 11.2% $ 4.85 $ 5.02
2004 and thereafter 34 1,485,035 28.6% --- ---
--------- ----------- ----------
204 5,181,861 100.0%
========= =========== ==========
<FN>
<F1>
Per square foot rental rate represents annualized straight line rent as of the lease
expiration date.
<F2>
Per square foot rental rate represents annualized base rent as of the lease expiration
date plus non-recoverable expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Research and Development Properties
<CAPTION>
Total % of Per
Rentable Total Square Per
Square Rentable Foot Square
Number Feet Feet S/L Foot
Year of Lease Expiration of Leases Expiring Expiring Rent <F1> Rent <F2>
- -------------------------------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998 4 170,839 13.5% $ 10.34 $ 11.96
1999 8 44,324 3.5% $ 8.89 $ 9.40
2000 8 118,169 9.4% $ 8.58 $ 8.27
2001 7 96,120 7.6% $ 11.62 $ 11.78
2002 3 67,967 5.4% $ 10.75 $ 12.66
2003 4 258,354 20.5% $ 5.38 $ 5.80
2004 and thereafter 11 505,394 40.1% --- ---
--------- ----------- ----------
45 1,261,167 100.0%
========= =========== ==========
<FN>
<F1>
Per square foot rental rate represents annualized straight line rent as of the lease
expiration date.
<F2>
Per square foot rental rate represents annualized base rent as of the lease expiration
date plus non-recoverable expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Westchester Office Properties:
<CAPTION>
Total % of Per
Rentable Total Square Per
Square Rentable Foot Square
Number Feet Feet S/L Foot
Year of Lease Expiration of Leases Expiring Expiring Rent <F1> Rent <F2>
- -------------------------------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998 17 121,781 4.3% $ 18.21 $ 18.82
1999 36 142,952 5.1% $ 19.58 $ 19.81
2000 45 511,409 18.2% $ 22.31 $ 22.98
2001 50 650,193 23.1% $ 23.86 $ 24.26
2002 44 385,133 13.7% $ 18.94 $ 20.05
2003 32 229,346 8.1% $ 21.15 $ 21.06
2004 and thereafter 39 775,970 27.5% --- ---
--------- ----------- ----------
263 2,816,784 100.0%
========= =========== ==========
<FN>
<F1>
Per square foot rental rate represents annualized straight line rent as of the lease
expiration date.
<F2>
Per square foot rental rate represents annualized base rent as of the lease expiration
date plus non-recoverable expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Stamford Office Properties
<CAPTION>
Total % of Per
Rentable Total Square Per
Square Rentable Foot Square
Number Feet Feet S/L Foot
Year of Lease Expiration of Leases Expiring Expiring Rent <F1> Rent <F2>
- -------------------------------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998 6 11,248 1.6% $ 15.75 $ 16.25
1999 15 39,980 5.7% $ 21.27 $ 21.65
2000 23 99,904 14.1% $ 21.68 $ 22.45
2001 19 96,633 13.7% $ 23.96 $ 24.85
2002 13 43,739 6.2% $ 22.82 $ 24.38
2003 12 89,975 12.7% $ 31.17 $ 30.33
2004 and thereafter 26 325,084 46.0% --- ---
--------- ----------- ----------
114 706,563 100.0%
========= =========== ==========
<FN>
<F1>
Per square foot rental rate represents annualized straight line rent as of the lease
expiration date.
<F2>
Per square foot rental rate represents annualized base rent as of the lease expiration
date plus non-recoverable expense pass-throughs.
</FN>
</TABLE>
<TABLE>
New Jersey Office Properties:
<CAPTION>
Total % of Per
Rentable Total Square Per
Square Rentable Foot Square
Number Feet Feet S/L Foot
Year of Lease Expiration of Leases Expiring Expiring Rent <F1> Rent <F2>
- -------------------------------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998 6 28,864 1.9% $ 23.01 $ 19.15
1999 19 206,163 13.5% $ 20.97 $ 21.25
2000 28 304,437 20.0% $ 22.89 $ 23.76
2001 17 234,193 15.4% $ 18.27 $ 18.66
2002 14 138,167 9.1% $ 19.80 $ 20.57
2003 10 275,642 18.1% $ 18.90 $ 19.03
2004 and thereafter 15 335,665 22.0% --- ---
--------- ----------- ----------
109 1,523,131 100.0%
========= =========== ==========
<FN>
<F1>
Per square foot rental rate represents annualized straight line rent as of the lease
expiration date.
<F2>
Per square foot rental rate represents annualized base rent as of the lease expiration
date plus non-recoverable expense pass-throughs
</FN>
</TABLE>
<TABLE>
Reckson/Morris Industrial:
<CAPTION>
Total % of Per
Rentable Total Square Per
Square Rentable Foot Square
Number Feet Feet S/L Foot
Year of Lease Expiration of Leases Expiring Expiring Rent <F1> Rent <F2>
- -------------------------------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998 --- --- --- $ --- $ ---
1999 10 776,973 31.5% $ 5.29 $ 5.64
2000 5 133,893 5.4% $ 5.06 $ 6.37
2001 --- --- --- $ --- $ ---
2002 1 610,949 24.8% $ 3.75 $ 4.27
2003 2 96,656 3.9% $ 4.64 $ 4.97
2004 and thereafter 8 850,084 34.4% --- ---
--------- ----------- ----------
26 2,468,555 100.0%
========= =========== ==========
<FN>
<F1>
Per square foot rental rate represents annualized straight line rent as of the lease
expiration date.
<F2>
Per square foot rental rate represents annualized base rent as of the lease expiration
date plus non-recoverable expense pass-throughs.
</FN>
</TABLE>
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 and the Bridge Facility
bear 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. FFO 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. FFO 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. FFO 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.
Since all companies and analysts do not calculate FFO in a similar
fashion, the Company's calculation of FFO presented herein may not be
comparable to similarly titled measures as reported by other companies.
The following table presents the Company's FFO calculation (unaudited
and in thousands, except per share/unit data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income available to common shareholders $ 9,911 $ 7,834 $ 19,484 $ 14,619
Adjustments for Funds from Operations
Add:
Depreciation and Amortization 12,181 6,262 22,787 11,836
Minority interests in consolidated partnerships 683 201 1,216 444
Limited partners' interest in the Operating
Partnership 2,762 1,993 4,753 3,771
Extraordinary items-loss on restatement or
extinguishment of debt, net of limited partners'
share of $0, $400, $0, and $400, respectively --- 1,962 --- 1,962
---------- ---------- ---------- ----------
25,537 18,252 48,240 32,632
Subtract:
Amount distributable to minority partners
in consolidated partnerships 987 597 1,775 1,132
---------- ---------- ---------- ----------
Funds from Operations (FFO) 24,550 17,655 46,465 31,500
Subtract:
Straight line rents 2,024 1,194 3,488 2,284
Non-Incremental Capitalized tenant
improvements and leasing commissions 1,592 890 2,815 1,753
Non-Incremental Capitalized improvements 848 426 1,473 791
---------- ---------- ---------- ----------
Cash available for distribution (CAD) $ 20,086 $ 15,145 $ 38,689 $ 26,672
========== ========== ========== ==========
Basic FFO and CAD calculations:
Weighted average shares/units 47,331 41,273 46,615 37,423
========== ========== ========== ==========
FFO per weighted average share/unit $ 0.52 $ 0.43 $ 1.00 $ 0.84
========== ========== ========== ==========
CAD per weighted average share/unit $ 0.42 $ 0.37 $ 0.83 $ 0.71
========== ========== ========== ==========
Dividends per share/unit $ 0.34 $ 0.31 $ 0.65 $ 0.61
========== ========== ========== ==========
FFO payout ratio 64.9% 72.7% 65.0% 72.9%
========== ========== ========== ==========
CAD payout ratio 80.4% 84.4% 78.3% 86.3%
========== ========== ========== ==========
Fully diluted FFO and CAD calculations:
Diluted weighted average shares/units 47,872 41,776 47,179 37,918
========== ========== ========== ==========
FFO per diluted weighted average share/unit $ 0.51 $ 0.42 $ 0.98 $ 0.83
========== ========== ========== ==========
CAD per diluted weighted average share/unit $ 0.42 $ 0.36 $ 0.82 $ 0.70
========== ========== ========== ==========
Dividends per share/unit $ 0.34 $ 0.31 $ 0.65 $ 0.61
========== ========== ========== ==========
Diluted FFO payout ratio 66.2% 74.4% 66.3% 73.8%
========== ========== ========== ==========
Diluted CAD payout ratio 80.4% 86.8% 79.3% 87.5%
========== ========== ========== ==========
</TABLE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities
On March 23, 1998, the Company sold 235,480 shares of its
common stock, par value $0.01, to RSI at a price of $25 per share
(representing the closing price on the date of issuance) for
aggregate sales proceeds of $5,887,000. Such transaction was
exempt from registration under the Securities Act of 1933 pursuant
to Section 4 (2) of such Act.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders
On May 21, 1998, the Company held its annual meeting of
stockholders. The matters on which the stockholders voted, in
person or by proxy, were (1) the election of three nominees as
class III directors to serve until the 2001 annual meeting of
stockholders, or until their respective successors are duly
elected and qualified, (2) to ratify the selection of the
independent auditors of the Company and (3) to approve the
Company's 1998 Stock Option Plan. The three nominees were
elected, the auditors were ratified and the 1998 Stock Option
Plan was approved. The results of the voting are set forth
below:
Election of Directors Votes Cast For
--------------------- --------------
Roger Rechler 33,300,492
Harvey R. Blau 33,300,914
John V.N. Klein 33,300,914
Ratification of Auditors
-----------------------------------------
Votes Cast For Votes Cast Against
-------------- ------------------
33,336,037 21,008
Approval of 1998 Stock Option Plan
-----------------------------------------
Votes Cast For Votes Cast Against
-------------- ------------------
20,648,321 12,574,506
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 June 30, 1998, the
registrant filed the following reports:
Form 8-K, dated April 6, 1998. Regarding the contract
to acquire the Cappelli Portfolio and the remaining 50%
interest in 360 Hamilton Avenue for approximately $177
million. Additionally, the Form 8-K disclosed that
Louis Cappelli would have the right to be nominated to
the Company's Board of Directors.
Form 8-K/A No. 2, dated April 6, 1998. Relating to Form
8-K filed on January 26, 1998 and Form 8-K/A filed on or
about February 12, 1998 relating to RSI entering into an
intercompany agreement and plans to enter into two $100
million credit facilities with Reckson Operating
Partnership, L.P..
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
August 10, 1998 /s/ Scott H. Rechler
Date Scott H. Rechler, Chief Operating Officer
and Director
August 10, 1998 /s/ Michael Maturo
Date Michael Maturo, Executive Vice President,
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000930548
<NAME> RECKSON ASSOCIATES REALTY CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,446
<SECURITIES> 0
<RECEIVABLES> 74,888
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,334
<PP&E> 1,540,195
<DEPRECIATION> (132,399)
<TOTAL-ASSETS> 1,624,967
<CURRENT-LIABILITIES> 58,967
<BONDS> 685,026
0
92
<COMMON> 400
<OTHER-SE> 712,632
<TOTAL-LIABILITY-AND-EQUITY> 1,624,967
<SALES> 115,684
<TOTAL-REVENUES> 121,383
<CGS> 0
<TOTAL-COSTS> 47,001
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,497
<INCOME-PRETAX> 29,621
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,484
<EPS-PRIMARY> .50
<EPS-DILUTED> .49
</TABLE>
