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, 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 39,969,659 shares outstanding as of May 6, 1998.
<PAGE>
RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 1998
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, 1998 and December 31, 1997 ...................
Consolidated Statement of Income of Reckson Associates Realty
Corp. for the three months ended March 31, 1998 and 1997 .....
Consolidated Statement of Cash Flows of Reckson Associates
Realty Corp. for the three months ended March 31, 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
(in thousands, except share amounts)
<CAPTION>
March 31 December 31,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Commercial real estate properties, at cost
Land $ 172,002 $ 138,526
Buildings and improvements 1,066,949 818,229
Developments in progress:
Land 19,274 29,309
Development costs 51,207 25,164
Furniture, fixtures and equipment 4,270 4,054
------------- -------------
1,313,702 1,015,282
Less accumulated depreciation (120,973) (111,068)
------------- -------------
1,192,729 904,214
Investments in real estate joint ventures 7,399 7,223
Investment in mortgage notes and notes
receivable 65,311 104,509
Cash and cash equivalents 2,191 21,828
Tenant receivables 3,982 4,975
Investments in and advances to affiliates 51,302 26,547
Deferred rent receivable 16,446 14,973
Prepaid expenses and other assets 10,091 5,248
Contract and land deposits and pre-acquisition costs 10,133 7,559
Deferred leasing and loan costs 17,490 16,181
------------- -------------
Total Assets $ 1,377,074 $ 1,113,257
============= =============
Liabilities
Mortgage notes payable $ 194,236 $ 180,023
Credit facilities 384,750 210,250
Senior unsecured notes 150,000 150,000
Accrued expenses and other liabilities 27,502 30,987
Affiliates payables 1,115 807
Dividends and distributions payable 14,635 120
------------- -------------
Total Liabilities 772,238 572,187
------------- -------------
Minority interests in consolidated partnerships 35,841 6,655
Limited Partners' minority interest in Operating
Partnership 96,390 85,750
------------- -------------
132,231 92,405
------------- -------------
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, 38,867,815 and 37,770,158
shares issued and outstanding, respectively 389 378
Additional paid in capital 472,216 448,287
------------- -------------
Total Stockholders' Equity 472,605 448,665
------------- -------------
Total Liabilities and Stockholders' Equity $ 1,377,074 $ 1,113,257
============= =============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
Reckson Associates Realty Corp.
Consolidated Statement of Income
(Unaudited and in thousands, except share amounts)
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------------- --------------
<S> <C> <C>
Revenues:
Base rents $ 47,034 $ 26,590
Tenant escalations and reimbursements 6,052 3,245
Equity in earnings of real estate joint ventures 100 97
Equity (loss) in earnings of service companies (259) 142
Interest income on mortgage notes and notes
receivable 1,681 959
Other 455 659
-------------- --------------
Total Revenues 55,063 31,692
-------------- --------------
Expenses:
Property operating expenses 9,753 5,664
Real estate taxes 8,003 4,564
Ground rents 413 303
Marketing, general and administrative 3,464 1,980
Interest 10,527 4,736
Depreciation and amortization 10,806 5,640
-------------- --------------
Total Expenses 42,966 22,887
-------------- --------------
Income before minority interests 12,097 8,805
Minority partners' interests in consolidated partnerships (533) (243)
Limited partners' interest in Operating Partnership (1,991) (1,778)
-------------- --------------
Net income $ 9,573 $ 6,784
-------------- --------------
Basic net income per weighted average common share $ 0.25 $ 0.26
-------------- --------------
Weighted average common shares outstanding 38,182,577 26,569,162
-------------- --------------
Diluted net income per weighted average common share $ 0.25 $ 0.25
============== ==============
Diluted weighted average common share outstanding 38,767,454 27,056,018
============== ==============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
Reckson Associates Realty Corp.
Consolidated Statement of Cash Flows
(Unaudited and in thousands)
<CAPTION>
Three Months Ended
March 31
1998 1997
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 9,573 $ 6,784
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,806 5,640
Minority partners' interests in consolidated partnerships 533 243
Limited Partners' minority interest in Operating Partnership 1,991 1,778
Gain on sale of securities (43) ---
Equity in earnings of service companies 259 (142)
Equity in earnings of real estate partnerships (100) (97)
Distribution from real estate partnerships 126 98
Interest income on mortgage notes and notes receivable 1,246 (479)
Changes in operating assets and liabilities:
Tenant receivables 993 (229)
Prepaid expenses and other assets (3,141) (1,344)
Deferred rents receivable (1,526) (1,134)
Accrued expenses and other liabilities 11,550 (1,904)
Deferred ground rents payable 169 66
Advance rents received 55 1,000
------------- -------------
Net cash provided by operating activities 32,491 10,280
------------- -------------
Cash Flows from Investing Activities:
Increase in deferred acquisition costs and other (7,950) (4,314)
Purchases of commercial real estate properties (280,130) (28,046)
Investment in mortgage notes and notes receivable 7,495 (17,194)
Investments in real estate partnerships (201) (900)
Investment in service companies 565 (100)
Additions to land, buildings and improvements (5,743) (7,570)
Purchase of furniture, fixtures and equipment (328) (224)
Payment of leasing costs (948) (1,230)
Investment in securities 809 ---
------------- -------------
Net cash used in investing activities (286,071) (59,578)
------------- -------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock
net of issuance costs 31,585 211,841
Principal payments on secured borrowings (566) (328)
Payment of loan costs (10) (787)
Advances to affiliates 7,106 (258)
Proceeds from bridge facility net of deferred costs 143,774 ---
Proceeds from credit facility 29,750 13,500
Stock grants 5,887 ---
Repayment of secured credit facility --- (67,000)
Contribution of minority partners in consolidated partnership 29,102 ---
Distribution to minority partners in consolidated partnership (449) (11)
Distribution to minority partners in operating partnership (2,368) (1,981)
Payment of dividends (12,147) (7,314)
Increase in security deposits payable 2,279 770
------------- -------------
Net cash provided by financing activities 233,943 148,432
------------- -------------
Net increase (decrease) in cash and cash equivalents (19,637) 99,134
Cash and cash equivalents at beginning of period 21,828 12,688
------------- -------------
Cash and cash equivalents at end of period $ 2,191 $ 111,822
============= =============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Reckson Associates Realty Corp.
Notes to the Consolidated Financial Statements
March 31, 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 was $24.25 per common share (pre-split) resulting 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 following transactions occurred simultaneously with the completion of the
IPO:
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. In addition, the Operating Partnership paid
approximately $2,623,000 for costs associated with the transfer of the
properties and other interests.
As of March 31, 1998, the Company owned and operated 62 office properties
comprising approximately 8.5 million square feet, 118 industrial properties
comprising approximately 9.5 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 own
approximately 847 acres of land (including 400 acres under option) in 17
separate parcels for development. The Company also has invested approximately
$30.3 million in certain mortgage notes encumbering four Class A office
properties encompassing approximately 577,000 square feet and a 400 acre
parcel of land. In addition, the Company has invested $17 million 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 owns a 95% nonvoting interest in RSI. RSI will serve as the
managing member of RSVP. RSI will invest 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 will invest 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. At March 31, 1998, the Operating Partnership had made
investments in or loans to RSI and RSVP aggregating approximately $13.6
million and $7.5 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.
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
initially 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.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
consolidated financial position of the Company and the Operating Partnership
at March 31, 1998 and the results of their operations and cash flows for the
three months ended March 31, 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 limited partner
minority interest. The operating results of the service businesses currently
conducted by Reckson Management Group, Inc., Reckson Construction Group, Inc.,
Reckson Service Industries, Inc. and Reckson Executive Centers, L.L.C. are
reflected in the accompanying financial statements on the equity method of
accounting. The Operating Partnership also invests in real estate joint
ventures where it may own less than a controlling interest, such investments
are also reflected in the accompanying financial statements on the equity
method of accounting. All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
The accompanying interim financial statements have been prepared by the
Company's management in accordance with generally accepted accounting
principles for interim financial information and in conjunction with the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, the interim financial statements presented herein reflect all
adjustments of a normal and recurring nature which are necessary to fairly
state the interim financial statements. The results of operations for the
interim period are not necessarily indicative of the results that may be
expected for the year ending December 31, 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.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
3. MORTGAGE NOTES PAYABLE
As of March 31, 1998, the Company had approximately $194 million of fixed
rate mortgage notes which mature at various times between 1999 and 2012. The
notes are secured by 20 properties and have a weighted average interest rate
of 7.7%.
4. SENIOR UNSECURED NOTES
As of March 31, 1998, the Company had $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 March 31, 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 June 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.
6. COMMERCIAL REAL ESTATE INVESTMENTS
On January 2, 1998 the Company acquired a 586,000 square foot industrial
building located in Hamilton Township, New Jersey for approximately $20.6
million. The property is net leased to one tenant through December 31, 2000.
In addition, the Company had previously acquired 97 acres of adjacent land for
approximately $2.8 million which allows for approximately 700,000 square feet
of future development opportunities. The acquisition was financed with
proceeds from a draw under the credit facilities.
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 will contribute 100% of their interests in certain industrial
properties to RMI in exchange for operating partnership units in RMI. On
January 6, 1998 the Company acquired an approximate 70% interest in RMI for
approximately $65 million. In addition, at March 31, 1998, the Company had
advanced approximately $16.7 million to the Morris Companies primarily to fund
certain construction costs related to development properties to be contributed
to RMI. The acquisition was financed with proceeds from a draw under the
credit facilities.
On January 6, 1998, the Company acquired two single story office buildings
located in Uniondale, New York encompassing approximately 325,000 square feet
for approximately $27.6 million. One of these properties is net leased to a
single tenant through May 31, 2007 and both properties are subject to ground
leases with the County of Nassau. The acquisition was financed in part
through proceeds from a draw under the credit facilities and the issuance of
513,259 OP Units.
On January 13, 1998, the Company acquired approximately two acres of
vacant land in Hauppauge, New York which allows for approximately 30,000
square feet of future development opportunities for approximately $.59
million.
On January 16, 1998, the Company acquired four industrial flex buildings
located in Rockaway, New Jersey encompassing approximately 189,000 square feet
for approximately $11.5 million. The acquisition was financed with proceeds
from a draw under the credit facilities.
On February 2, 1998, the Company acquired approximately 20 acres of vacant
land located in Washington Township, New Jersey for approximately $.53
million. The Company is currently in the process of developing a 265,000
square foot warehouse for use by a single tenant who will take occupancy upon
completion of the facility. As of March 31, 1998, the Company has incurred
approximately $.78 million in development costs.
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 18, 1998, the Company acquired a 165,000 square foot vacant
building located on the border of Melville and Farmingdale, New York and
approximately five acres of adjacent land for approximately $2.9 million. The
Company is currently repositioning these properties which will allow for
approximately an additional 53,000 square feet of future development
opportunities.
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. 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 $45 million of mortgage
debt.
7. STOCKHOLDERS EQUITY
On January 6, 1998, the Operating Partnership issued 513,259 OP Units in
connection with the acquisition of 51 Charles Lindbergh Boulevard.
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.
On March 25, 1998, the Board of Directors declared a dividend of $.3125
per share of common stock payable on April 17, 1998 to its shareholders of
record as of April 7, 1998. The dividend declared, which related to the three
months ended March 31, 1998 is based upon an annual distribution of $1.25 per
share.
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 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 premium of 30% 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 premium of 17.5% 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.
Net income per share was calculated using the weighted average number of
shares outstanding of 38,182,577 for the three months ended March 31, 1998 and
26,569,162 (split adjusted) for the three months ended March 31, 1997.
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
March 31,
1998 1997
------------- -------------
<S> <C> <C>
Numerator:
Net Income $ 9,573 $ 6,784
------------- -------------
Numerator for basic and diluted earnings per share $ 9,573 $ 6,784
============= =============
Denominator:
Denominator for basic earnings per share - weighted
average shares 38,183 26,569
Effect of dilutive securities:
Employee stock options 584 487
------------- -------------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 38,767 27,056
============= =============
Basic earnings per common share:
Net income per common share $ 0.25 $ 0.26
============= =============
Diluted earnings per common share:
Diluted net income per common share $ 0.25 $ 0.26
============= =============
</TABLE>
8. Supplemental Disclosure of Cash Information (in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------- -------------
<S> <C> <C>
Cash paid during the period for interest $ 7,957 $ 5,486
============= =============
Interest capitalized during the period $ 1,524 $ 333
============= =============
</TABLE>
On January 2, 1998, the Company issued an additional 18,752 OP Units in
connection with the December 1997 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.
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 17 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 March 31, 1998, the Company's portfolio of real estate properties
included 62 office buildings containing approximately 8.5 million square
feet, 118 industrial buildings containing approximately 9.5 million square
feet and two retail properties containing approximately 20,000 square feet.
During the three months ended March 31,1998, the Company acquired six
industrial properties encompassing approximately 940,000 square feet of
space for an aggregate purchase price of approximately $35.0 million and
four office properties encompassing approximately 926,000 square feet of
space for an aggregate purchase price of approximately $129.6 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 March 31, 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 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. 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 $45 million of mortgage
debt.
The market capitalization of the Company, based on the market value at a
stock price of $26.38 at March 31, 1998 on 38,867,815 issued and outstanding
shares of Company common stock and 7,693,331 OP Units (assuming conversion
to common stock) and the $712.5 million (including its share of joint
venture debt and net of minority partners' interests) of debt outstanding at
March 31, 1998 was approximately $1.94 billion. As a result, the Company's
total debt to total market capitalization ratio at March 31, 1998 equaled
approximately 36.7%.
RESULTS OF OPERATIONS
The Company's total revenues increased by $23.4 million or 74% for the
three months ended March 31, 1998 as compared to the 1997 period. The
growth in total revenues is substantially attributable to the Company's
acquisition of 72 properties comprising approximately 9.3 million square
feet. Property operating revenues, which include base rents and tenant
escalations and reimbursements ("Property Operating Revenues") increased by
$23.3 million or 78% for the three months ended March 31, 1998 as compared
to the 1997 period. The 1998 increase in Property Operating Revenues is
comprised of $0.6 million attributable to increases in rental rates and
changes in occupancies and $22.7 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 increase for the three months
ended March 31, 1998 as compared to the 1997 period was offset by a decrease
in the equity in earnings of service companies as a result of the management
and construction companies focusing most of their resources on the Company's
core portfolio and redevelopment opportunities rather than third party
services. The Company's base rent was increased by the impact of the
straight-line rent adjustment by $1.5 million for the three months ended
March 31, 1998 as compared to $1.1 million for the 1997 period.
Property operating expenses, real estate taxes and ground rents
("Property Expenses") increased by $7.6 million for the three months ended
March 31, 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 66.0% and
64.7%, respectively. The increases 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 $1.5 million
for the three months ended March 31, 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 6.29% for the three months ended March 31, 1998 as
compared to 6.25% for the 1997 period.
Interest expense increased by $5.8 million for the three months ended
March 31, 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, 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 $297.5 million for the three months ended
March 31, 1998 as compared to $81.75 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.
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 premium of 30% 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 premium of 17.5% for each preferred unit.
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.
As of March 31, 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 March 31, 1998, the Company had availability under the
Unsecured Credit Facility to borrow an additional $8.1 million (net of $1.9
million of outstanding undrawn letters of credit). In addition, the Company
obtained a $200 million unsecured credit facility (the "Bridge Facility")
which matures on June 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 March 31, 1998, the Company had
availability under the Bridge Facility to borrow an additional $55.25
million.
The Company's indebtedness at March 31, 1998 totaled $712.5 million
(including its share of joint venture debt and net of the minority partners'
interests) and was comprised of $240 million outstanding under the Unsecured
Credit Facility, $144.8 million outstanding under the Bridge Facility, $150
million of unsecured notes and approximately $177.7 million of mortgage
indebtedness. Based on the Company's total market capitalization of
approximately $1.94 billion at March 31, 1998, (calculated at a $26.38 per
share stock price) and assuming the conversion of the 7,693,331 OP Units
outstanding on such date, the Company's debt represented approximately 36.7%
of its total market capitalization.
Historically, rental revenue has been the principal source of fund 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 financings
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.
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,
1998 and the historical average of such capital expenditures, tenant
improvements and leasing commissions for the years 1994 through 1997.
Non-Incremental Revenue Generating Captial 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 $ 379,026 $ 1,108,675 $ 501,646 $ 474,344
Per square foot 0.10 0.19 0.13 0.22 0.16 0.06
Industrial Properties
Total $ 524,369 $ 290,457 $ 670,751 $ 733,233 $ 554,702 $ 150,946
Per square foot 0.18 0.08 0.18 0.15 0.15 0.02
Non-Incremental Revenue Generating Tenant Improvement and Leasing Commissions
Long Island Office Properties
Tenant Improvements $ 902,312 $ 452,057 $ 523,574 $ 784,044 $ 665,497 $ 376,538
Per square foot improved 5.13 4.44 4.28 7.00 5.21 14.96
Leasing Commissions $ 341,253 $ 144,925 $ 119,047 $ 415,822 $ 255,262 $ 142,255
Per square foot leased 1.94 1.42 0.97 4.83 2.29 5.65
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot $ 7.07 $ 5.86 $ 5.25 $ 11.83 $ 7.50 $ 20.61
========== ========== ========== ============ ============ ==========
Westchester Office Properties
Tenant Improvements $ N/A $ N/A $ 834,764 $ 1,211,665 $ 1,023,215 $ 124,314
Per square foot improved N/A N/A 6.33 8.90 7.61 15.90
Leasing Commissions $ N/A $ N/A $ 264,388 $ 366,257 $ 315,323 $ 23,442
Per square foot leased N/A N/A 2.00 2.69 2.35 3.00
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot $ N/A $ N/A $ 8.33 $ 11.59 $ 9.96 $ 18.90
========== ========== ========== ============ ============ ==========
Connecticut Office Properties <F1>
Tenant Improvements $ N/A $ N/A $ 58,000 $ 1,022,421 $ 864,337 $ 18,240
Per square foot improved N/A N/A 12.45 13.39 12.92 7.24
Leasing Commissions $ N/A $ N/A $ 0 $ 256,615 $ 205,292 $ 10,488
Per square foot leased N/A N/A 0.00 3.36 1.68 4.16
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot $ N/A $ N/A $ 12.45 $ 16.75 $ 14.60 $ 11.40
========== ========== ========== ============ ============ ==========
New Jersey Office Properties
Tenant Improvements $ N/A $ N/A $ N/A $ N/A $ N/A $ 266,145
Per square foot improved N/A N/A N/A N/A N/A 3.08
Leasing Commissions $ N/A $ N/A $ N/A $ N/A $ N/A $ 124,445
Per square foot leased N/A N/A N/A N/A N/A 1.44
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot $ N/A $ N/A $ N/A $ N/A $ N/A $ 4.52
========== ========== ========== ============ ============ ==========
Industrial Properties
Tenant Improvements $ 585,891 $ 210,496 $ 380,334 $ 230,466 $ 351,819 $ 85,368
Per square foot improved 0.88 0.90 0.72 0.55 0.76 0.53
Leasing Commissions $ 176,040 $ 107,351 $ 436,213 $ 81,013 $ 200,154 $ 51,772
Per square foot leased 0.27 0.46 0.82 0.19 0.44 0.32
---------- ---------- ---------- ------------ ------------ ----------
Total per square foot $ 1.15 $ 1.36 $ 1.54 $ 0.74 $ 1.20 $ 0.85
========== ========== ========== ============ ============ ==========
<FN>
<F1>
1994 - 1997 average weighted to reflect October 1996 acquistion date.
</FN>
</TABLE>
LEASE EXPIRATIONS
<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 34 198,608 7.9% $ 22.81 $ 24.39
1999 33 122,788 4.9% $ 20.08 $ 21.15
2000 51 290,674 11.5% $ 21.72 $ 22.90
2001 40 229,999 9.1% $ 22.43 $ 23.94
2002 36 278,547 11.1% $ 21.95 $ 23.29
2003 37 264,786 10.5% $ 21.64 $ 19.86
2004 and thereafter 68 1,132,542 45.0% --- ---
--------- ----------- ----------
299 2,517,944 100.0%
========= =========== ==========
<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 5 66,131 12.0% $ 31.58 $ 33.88
2001 4 32,680 5.9% $ 28.22 $ 33.00
2002 5 136,804 24.7% $ 25.64 $ 27.83
2003 4 55,077 10.0% $ 30.14 $ 29.45
2004 and thereafter 10 261,842 47.4% --- ---
--------- ----------- ----------
28 552,534 100.0%
========= =========== ==========
<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 28 214,302 4.3% $ 6.27 $ 6.31
1999 36 582,561 11.7% $ 5.70 $ 6.01
2000 32 1,131,940 22.8% $ 4.96 $ 5.09
2001 31 872,019 17.5% $ 5.79 $ 6.22
2002 22 137,996 2.8% $ 6.30 $ 6.40
2003 19 566,491 11.4% $ 4.81 $ 4.99
2004 and thereafter 33 1,470,035 29.5% --- ---
--------- ----------- ----------
201 4,975,344 100.0%
========= =========== ==========
<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 6 177,179 14.2% $ 10.56 $ 12.10
1999 9 122,564 9.9% $ 8.08 $ 8.57
2000 8 118,169 9.5% $ 8.58 $ 8.27
2001 6 91,130 7.3% $ 11.27 $ 11.40
2002 3 67,967 5.5% $ 10.75 $ 12.66
2003 4 250,438 20.1% $ 5.08 $ 5.56
2004 and thereafter 9 417,436 33.5% --- ---
--------- ----------- ----------
45 1,244,883 100.0%
========= =========== ==========
<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 25 152,718 8.2% $ 18.83 $ 19.47
1999 27 89,254 4.8% $ 20.25 $ 20.70
2000 32 203,609 10.9% $ 20.10 $ 20.57
2001 34 264,706 14.2% $ 21.53 $ 22.64
2002 36 325,384 17.5% $ 18.33 $ 19.77
2003 18 110,162 5.9% $ 20.08 $ 19.48
2004 and thereafter 36 716,758 38.5% --- ---
--------- ----------- ----------
208 1,862,591 100.0%
========= =========== ==========
<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 8 17,735 2.5% $ 20.01 $ 20.21
1999 16 41,580 6.0% $ 20.45 $ 20.81
2000 24 100,604 14.4% $ 21.66 $ 22.42
2001 18 91,214 13.1% $ 24.11 $ 24.89
2002 12 41,249 5.9% $ 23.07 $ 24.64
2003 10 83,844 12.0% $ 31.25 $ 30.00
2004 and thereafter 26 321,825 46.1% --- ---
--------- ----------- ----------
114 698,051 100.0%
========= =========== ==========
<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 11 97,082 6.5% $ 22.58 $ 22.88
1999 18 162,010 10.8% $ 20.38 $ 20.69
2000 25 290,082 19.4% $ 22.99 $ 23.93
2001 16 232,680 15.5% $ 18.25 $ 18.60
2002 15 148,686 9.9% $ 19.61 $ 20.40
2003 7 231,661 15.5% $ 18.15 $ 18.49
2004 and thereafter 15 335,665 22.4% --- ---
--------- ----------- ----------
107 1,497,866 100.0%
========= =========== ==========
<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 2 122,155 5.0% $ 4.59 $ 4.97
1999 10 776,973 31.9% $ 5.29 $ 5.64
2000 4 93,871 3.9% $ 5.30 $ 7.15
2001 0 0 0.0% $ --- $ ---
2002 1 610,949 25.1% $ 3.75 $ 4.27
2003 0 0 0.0% $ --- $ ---
2004 and thereafter 7 829,885 34.1% --- ---
--------- ----------- ----------
24 2,433,833 100.0%
========= =========== ==========
<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 (in thousands,
except per share/unit data):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Income $ 9,573 $ 6,784
Adjustment for Funds From Operations
Add:
Depreciation and Amortization 10,606 5,574
Minority interests in consolidated partnership 533 243
Limited Partners' minority interest in
Operating Partnership 1,991 1,778
---------- ----------
22,703 14,379
Subtract:
Amount distributed to minority partners in
consolidated partnership 788 535
---------- ----------
Funds From Operations (FFO) 21,915 13,844
Subtract:
Straight line rents 1,464 1,090
Non-Incremental Capitalized tenant improvements
and leasing commissions 1,223 864
Non-Incremental Capitalized improvements 625 364
---------- ----------
Cash available for distribution (CAD): $ 18,603 $ 11,526
========== ==========
Basic FFO and CAD calculations:
Weighted average shares/units 45,892 33,530 <F1>
========== ==========
FFO per weighted average share/unit $ 0.48 $ 0.41
========== ==========
CAD per weighted average share/unit $ 0.41 $ 0.34
========== ==========
Dividends per share/unit $ 0.31 $ 0.30
========== ==========
FFO payout ratio 65.1% 73.2%
========== ==========
CAD payout ratio 76.2% 88.2%
========== ==========
Fully diluted FFO and CAD calculations:
Diluted weighted average shares/units 46,477 34,016 <F1>
========== ==========
FFO per diluted weighted average share/unit 0.47 0.41
========== ==========
CAD per diluted weighted average share/unit 0.40 0.34
========== ==========
Dividends per share/unit 0.31 0.30
========== ==========
Diluted FFO payout ratio 66.5% 73.2%
========== ==========
Diluted CAD payout ratio 78.1% 88.2%
========== ==========
<FN>
<F1>
Assumes conversion of limited partnership units of the Operating Partnership
and give effect to the April 15, 1997 two-for-one stock split.
</FN>
</TABLE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits 27 Financial Data Schedule
b) During the three months ended March 31, 1998, the
registrant filed the following reports:
Form 8-K, dated January 7, 1998. Relating to the
acqusition of Royal Executive Park and a contiguous 32
acre development parcel located in Rye Brook, New York.
Form 8-K, dated January 26, 1998. Relating to the
Company's announcement that Reckson Service Industries,
Inc., a subsidiary of the Operating Partnership, had filed
a registration statement to register common stock in
connection with its upcoming spin-off.
Form 8-K, dated February 11, 1998. Relating to the
acqusition of Royal Executive Park located in Rye Brook
New York and 120 White Plains Road located in Tarrytown,
New York.
Form 8-K/A, dated February 12, 1998. Relating to the
Form 8-K filed on January 26, 1998 which outlined the
reasons Reckson Service Industries, Inc. had been formed
and its intended business objectives.
Form 8-K, dated March 24, 1998. Relating to the
acqusition of 51 John F. Kennedy Parkway located in Short
Hills, New Jersey and entering into a contract to acquire
Stamford Towers located in Stamford, Connecticut.
Form 8-K/A, dated March 25, 1998. Relating to the
Form 8-K filed March 24, 1998 to include the consent of
Kinsey, Beck & Company and Ernst & Young, LLP to use their
reports.
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 11, 1998 Scott H. Rechler
Date Scott H. Rechler, Chief Operating Officer
and Director
May 11, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,191
<SECURITIES> 0
<RECEIVABLES> 64,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 66,191
<PP&E> 1,313,702
<DEPRECIATION> (120,973)
<TOTAL-ASSETS> 1,377,074
<CURRENT-LIABILITIES> 43,252
<BONDS> 728,986
0
0
<COMMON> 389
<OTHER-SE> 472,216
<TOTAL-LIABILITY-AND-EQUITY> 1,377,074
<SALES> 53,086
<TOTAL-REVENUES> 55,063
<CGS> 0
<TOTAL-COSTS> 21,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,527
<INCOME-PRETAX> 12,097
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,573
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
