AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
REGISTRATION STATEMENT NO. 333-67129
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RECKSON ASSOCIATES REALTY CORP. AND
RECKSON OPERATING PARTNERSHIP, L.P.
(Exact name of each registrant as specified in its charter)
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<S> <C>
RECKSON ASSOCIATES REALTY CORP. - MARYLAND RECKSON ASSOCIATES REALTY CORP. - 11-3233650
RECKSON OPERATING PARTNERSHIP, L.P. - DELAWARE RECKSON OPERATING PARTNERSHIP, L.P. -11-3233647
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
</TABLE>
225 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
(516) 694-6900
(Address, including zip code, and telephone number, including
area code, of each registrant's principal executive office)
DONALD J. RECHLER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RECKSON ASSOCIATES REALTY CORP.
225 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
(516) 694-6900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
EDWARD F. PETROSKY, ESQ.
J. GERARD CUMMINS, ESQ.
BROWN & WOOD LLP
ONE WORLD TRADE CENTER, 58TH FLOOR
NEW YORK, N.Y. 10048
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after this Registration Statement becomes effective.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
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CALCULATION OF REGISTRATION FEE
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Title of Class of Proposed Maximum Amount of
Securities to be Registered(1) Aggregate Offering Registration Fee
Price(1)
- -------------------------------------------------------------------------- --------------------------- -----------------------------
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Common Stock, $.01 par value per share(2) ............................ } }
Common Stock Warrants of Reckson Associates Realty Corp............... } }
Preferred Stock(3).................................................... } $744,739,654(5) } $220,867(5)
Depositary Shares representing Preferred Stock (4) ................... } }
Preferred Stock Warrants of Reckson Associates Realty Corp............ } }
Debt Securities(6)(7)................................................. $500,000,000 $139,000(9)(10)
Guarantees(8)......................................................... --- ---
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Such indeterminate number of shares of common stock of Reckson Associates
Realty Corp. as may from time to time be issued at indeterminate prices,
upon exercise of common stock warrants of Reckson Associates Realty Corp.
or upon conversion of preferred stock of Reckson Associates Realty Corp. or
exchange for debt securities of Reckson Operating Partnership, L.P., as the
case may be.
(3) Such indeterminate number of shares of preferred stock of Reckson
Associates Realty Corp. as may from time to time be issued in series at
indeterminate prices, upon exercise of preferred stock warrants of Reckson
Associates Realty Corp. or upon exchange for debt securities of Reckson
Operating Partnership, L.P., as the case may be.
(4) To be represented by depositary receipts of Reckson Associates Realty Corp.
representing an interest in all or a specified portion of a share of
preferred stock of Reckson Associates Realty Corp.
(5) Under registration statements nos. 333-28015 and 333-46883, an aggregate
amount of securities equal to $145,506,908 and $599,232,746 were registered
thereunder and remain available for issuance by Reckson Associates Realty
Corp., and registration fees of approximately $44,093 and $176,774 were
previously paid in respect of the remaining capacity thereunder.
(6) Such indeterminate principal amount of debt securities of Reckson Operating
Partnership, L.P. as may from time to time be issued in series at
indeterminate prices or upon exchange for preferred stock of Reckson
Associates Realty Corp., as the case may be.
(7) Or, in the event of the issuance of original issue discount securities, a
higher principal amount as may be sold for an aggregate initial offering
price not to exceed $500,000,000.
(8) Debt securities not rated investment grade at the time of issuance by at
least one nationally recognized statistical rating organization will be
accompanied by guarantees to be issued by Reckson Associates Realty Corp.
None of the proceeds from the sale of these debt securities will be
received by Reckson Associates Realty Corp. for the issuance of the
guarantees. Pursuant to Rule 457(n) under the Securities Act, no separate
filing fee for the guarantees is required.
(9) Calculated pursuant to Rule 457(o) under the Securities Act.
(10) $72,280 was previously paid.
Pursuant to Rule 429 under the Securities Act, the prospectus included in
this Registration Statement is a combined prospectus and relates to registration
statement no. 333-28015 and registration statement no. 333-46883 previously
filed by Reckson Associates Realty Corp. on Form S-3 in respect of its common
stock, common stock warrants, preferred stock, depositary shares and preferred
stock warrants and declared effective on September 29, 1997 and March 25, 1998,
respectively. This registration statement, which is a new registration
statement, also constitutes post-effective amendment no. 1 to registration
statement no. 333-28015 and registration statement no. 333-46883 and such
post-effective amendment no. 1 shall hereafter become effective concurrently
with the effectiveness of this registration statement in accordance with Section
8(c) of the Securities Act.
EACH REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THE
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 1, 1999
PROSPECTUS
- ----------
$744,739,654
RECKSON ASSOCIATES REALTY CORP.
COMMON STOCK, COMMON STOCK WARRANTS,
PREFERRED STOCK, DEPOSITARY SHARES AND PREFERRED STOCK WARRANTS
$500,000,000
RECKSON OPERATING PARTNERSHIP, L.P.
DEBT SECURITIES
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Reckson Associates Realty Corp. may offer up to $744,739,654 of shares of
its common stock, shares of its preferred stock, depositary shares representing
interests in its preferred stock, and warrants to purchase shares of its common
stock or preferred stock. Reckson Associates' common stock is listed on the New
York Stock Exchange under the symbol "RA."
Reckson Operating Partnership, L.P. may offer up to $500,000,000 of its
debt securities in one or more series. If any of the Operating Partnership's
debt securities are not rated investment grade by at least one nationally
recognized statistical rating organization at the time of issuance, these
non-investment grade debt securities will be fully and unconditionally
guaranteed by Reckson Associates as to payment of principal, premium, if any,
and interest.
We may offer the securities at prices and on terms to be set forth in one
or more supplements to this prospectus. The securities may be offered directly,
through agents on our behalf or through underwriters or dealers.
The terms of the securities may include limitations on ownership and
restrictions on transfer thereof as may be appropriate to preserve the status of
Reckson Associates as a real estate investment trust for United States federal
income tax purposes.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS FOR A DESCRIPTION
OF RISKS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ___________ __, 1999.
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RISK FACTORS
This prospectus contains forward-looking statements which involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause a
difference include, but are not limited to, those discussed below. An investment
in the securities involves various risks. Prospective investors should carefully
consider the following information in conjunction with the other information
contained in this prospectus and the related prospectus supplement before
purchasing the securities offered by the related prospectus supplement.
- - WE ARE DEPENDENT ON THE NEW YORK TRI-STATE AREA MARKET DUE TO LIMITED
GEOGRAPHIC DIVERSIFICATION AND OUR FINANCIAL RESULTS MAY SUFFER AS A RESULT
OF A DECLINE IN ECONOMIC CONDITIONS IN SUCH AREA
A decline in the economic conditions in the New York Tri-State area and for
commercial real estate could adversely affect our business, financial condition
and results of operations. All of our properties are located in the New York
Tri-State area, although our organizational documents do not restrict us from
owning properties outside of this area. Each of our four markets are located in
the suburbs of New York City and may be similarly affected by economic changes
in this area. A significant downturn in the financial services industry and
related industries would likely have a negative effect on these markets and on
the performance of our properties.
The following is a breakdown of our office and industrial properties for
each of our four markets at December 31, 1998:
Annual Base
Number of Properties Square Footage Rent(1)
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Long Island
- Office 23 3,671,413 $71,152,658
- Industrial 94 5,638,435 29,268,258
Westchester
- Office 25 3,298,623 56,521,355
- Industrial 4 256,948 2,130,019
New Jersey
- Office 17 1,993,999 34,946,506
- Industrial 30 4,497,662 18,391,236
Connecticut
- Office 8 1,123,188 22,020,613
- Industrial 1 452,414 2,900,684
(1) Represents base rents from leases in place as of December 31, 1998, for the
period January 1, 1999 through December 31, 1999 excluding the
reimbursement by tenants of electrical costs.
- - DEBT SERVICING AND REFINANCING, INCREASES IN INTEREST RATES AND FINANCIAL
COVENANTS COULD ADVERSELY AFFECT OUR ECONOMIC PERFORMANCE
DEPENDENCE UPON DEBT FINANCING; RISK OF INABILITY TO SERVICE OR REFINANCE
DEBT. In order to qualify as a real estate investment trust, or REIT, for
federal income tax purposes, Reckson Associates is required to distribute at
least 95% of its taxable income. As a result, we are more reliant on debt or
equity financings than many other companies that are not REITs and, therefore,
are able to retain more of their income.
We are subject to the risks associated with debt financing. Our cash flow
could be insufficient to meet required payments of principal and interest. We
may not be able to refinance existing indebtedness, which in virtually all cases
requires substantial principal payments at maturity, or the terms of such
refinancing might not be as favorable as the terms of the existing indebtedness.
As noted above, as of December 31, 1998, the weighted average maturity of our
existing indebtedness was 4.4 years and our total existing indebtedness was
approximately $867 million. We also may not be able to refinance any
indebtedness we incur in the future. Finally, we may not be able to obtain funds
by selling assets or raising equity to make required payments on maturing
indebtedness.
RISING INTEREST RATES COULD ADVERSELY AFFECT CASH FLOW. Increases in
interest rates could increase the Operating Partnership's interest expense,
which could adversely affect the ability to service its indebtedness or to pay
distributions to Reckson Associates' stockholders. As noted above, as of
December 31, 1998, approximately 56% of our debt was variable rate debt and our
total debt was approximately $867 million. Outstanding advances under the credit
facilities of the Operating Partnership bear interest at variable rates. In
addition, we may incur indebtedness in the future that also bears interest at a
variable rate.
REQUIREMENTS OF CREDIT FACILITIES COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND OUR ABILITY TO MAKE DISTRIBUTIONS. The ability of the Operating
Partnership to borrow under our credit facilities is subject to 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. The Operating
Partnership relies on borrowings under its credit facilities to finance
acquisition and development activities and for working capital purposes and, if
the Operating Partnership is unable to borrow under its credit facilities, it
could adversely affect our financial condition. The Operating Partnership has
obtained a three-year unsecured credit facility from The Chase Manhattan Bank,
Union Bank of Switzerland and PNC Bank, National Association, which provides for
a maximum borrowing amount of up to $500 million. The Operating Partnership has
also obtained a separate $75 million one-year unsecured credit facility from
Chase. The credit facilities also contain a financial covenant limiting the
amount of distributions that Reckson Associates may make to holders of its
common stock during any fiscal quarter if they exceed, when added to all
distributions made during the three immediately preceding quarters, the greater
of:
- 90% of its funds from operations or 100% of its funds available for
distribution; and
- the amounts required in order for Reckson Associates to continue to
qualify as a REIT.
Although the Operating Partnership presently is in compliance with the
covenants under its credit facilities, there is no assurance that the Operating
Partnership will continue to be in compliance or that it will be able to service
its indebtedness or pay distributions to Reckson Associates so that Reckson
Associates may make distributions to its stockholders.
No limitation on debt. Currently, we have a policy of incurring debt only
if our Debt Ratio is then 50% or less. As of December 31, 1998, our Debt Ratio
was 39.4%. For these purposes, Debt Ratio is defined as the total debt of the
Operating Partnership as a percentage of the market value of outstanding shares
of common stock and preferred stock of Reckson Associates, including the
conversion of outstanding partnership units in the Operating Partnership, plus
total debt. Under this policy, we could incur additional debt if our stock price
increases, even if we may not have a corresponding increase in our ability to
repay the debt. In addition, as of December 31, 1998, our debt-to-equity ratio
was 1:1.54. We calculated our debt-to-equity ratio by comparing the total debt
of the Operating Partnership to the value of the outstanding common stock of
Reckson Associates and the common units of limited partnership interest of the
Operating Partnership, each based upon the market value of the common stock, and
the liquidation preference of the preferred stock of Reckson Associates and the
preferred units of limited partnership interest in the Operating Partnership,
excluding all units of general partnership interest owned by Reckson Associates.
As described above, our credit facilities contain financial covenants which
limit the ability of the Operating Partnership to incur additional indebtedness.
However, our organizational documents do not contain any limitation on the
amount of indebtedness we may incur. Accordingly, the Board of Directors could
alter or eliminate this policy and would do so, for example, if it were
necessary in order for Reckson Associates to continue to qualify as a REIT. If
this policy were changed, we could become more highly leveraged, resulting in
higher interest payments that could adversely affect the ability to pay
distributions to Reckson Associates' stockholders and could increase the risk of
default on the Operating Partnership's existing indebtedness.
- - OUR ACQUISITION, DEVELOPMENT AND CONSTRUCTION ACTIVITIES COULD RESULT IN
LOSSES
We intend to acquire existing office and industrial properties to the
extent that the suitable acquisitions can be on made advantageous terms.
Acquisitions of commercial properties entail risks, such as the risks that we
may not be in a position or have the opportunity in the future to make suitable
property acquisitions on advantageous terms and that our investments will fail
to perform as expected. Many of the properties that we acquire require
significant additional investment and upgrades and are subject to the risk that
estimates of the cost of improvements to bring such properties up to standards
established for the intended market position may prove inaccurate. Since the IPO
of Reckson Associates in June 1995, we have acquired 63 office properties with
aggregate square footage of approximately 8.5 million and 44 industrial
properties with aggregate square footage of approximately 4.3 million (excluding
our investment in the Morris Companies).
We also intend to continue the selective development and construction of
office and industrial properties in accordance with our development and
underwriting policies as opportunities arise. Since the IPO of Reckson
Associates, we have developed or re-developed eight properties comprising
approximately 930,000 square feet. Our development and construction activities
include the risks that:
o we may abandon development opportunities after expending resources to
determine feasibility
o construction costs of a project may exceed our original estimates
o occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable
o financing may not be available to us on favorable terms for
development of a property
o we may not complete construction and lease-up on schedule, resulting
in increased debt service expense and construction costs
Our development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
If any of the above events occur, the ability to pay distributions to Reckson
Associates' stockholders and service the Operating Partnership's indebtedness
could be adversely affected. In addition, new development activities, regardless
of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention.
- - ADVERSE REAL ESTATE MARKET CONDITIONS, INCREASES IN OPERATING EXPENSES OR
CAPITAL EXPENDITURES, TENANT DEFAULTS AND UNINSURED LOSSES COULD ADVERSELY
AFFECT OUR FINANCIAL RESULTS
Our properties' revenues and value may be adversely affected by a number of
factors, including:
o the national, state and local economic climate and real estate
conditions, such as oversupply of or reduced demand for space and
changes in market rental rates
o the need to periodically renovate, repair and relet our space
o increasing operating costs, including real estate taxes and utilities,
which may not be passed through to tenants
o defaults by our tenants or their failure to pay rent on a timely basis
o uninsured losses
A significant portion of our expenses of real estate investments, such as
mortgage payments, real estate taxes, insurance and maintenance costs, are
generally not reduced when circumstances cause a decrease in income from our
properties. In addition, our real estate values and income from properties are
also affected by our compliance with laws, including tax laws, interest rate
levels and the availability of financing.
BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO SELL
PROPERTIES WHEN APPROPRIATE. Real estate investments generally cannot be sold
quickly. We may not be able to vary our portfolio promptly in response to
economic or other conditions. In addition, provisions of the Internal Revenue
Code limit a REIT's ability to sell properties in some situations when it may be
economically advantageous to do so, thereby adversely affecting returns to
Reckson Associates' stockholders.
COMPETITION IN OUR MARKETS IS SIGNIFICANT. The competition for tenants in
the office and industrial markets in the New York Tri-State area is significant
and includes properties owned by other REITs, local privately-held companies,
institutional investors and other owners. There is also significant competition
for acquisitions in our markets from the same types of competitors. In addition,
many users of industrial space in our markets own the buildings that they
occupy.
INCREASING OPERATING COSTS COULD ADVERSELY AFFECT CASH FLOW. Our properties
are subject to operating risks common to commercial real estate, any and all of
which may adversely affect occupancy or rental rates. Our properties are subject
to increases in our operating expenses such as cleaning, electricity, heating,
ventilation and air conditioning; elevator repair and maintenance; insurance and
administrative costs; and other costs associated with security, landscaping,
repairs and maintenance of our properties. While our tenants generally are
currently obligated to pay a portion of these costs, there is no assurance that
tenants will agree to pay these costs upon renewal or that new tenants will
agree to pay these costs initially. If operating expenses increase, the local
rental market may limit the extent to which rents may be increased to meet
increased expenses without at the same time decreasing occupancy rates. While we
have cost saving measures at each of our properties, if any of the above occurs,
our ability to pay distributions to our stockholders and service our
indebtedness could be adversely affected.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE. We carry comprehensive
liability, fire, extended coverage and rental loss insurance on all of our
properties. However, losses arising from acts of war or relating to pollution
are not generally insured because they are either uninsurable or not
economically insurable. If an uninsured loss or a loss in excess of insured
limits should occur, we could lose our capital invested in a property, as well
as any future revenue from the property. We would remain obligated on any
mortgage indebtedness or other obligations related to the property.
INVESTMENTS IN MORTGAGE DEBT COULD LEAD TO LOSSES. We may invest in
mortgages secured by office or industrial properties. We may acquire the
mortgaged properties through foreclosure proceedings or negotiated settlements.
In addition to the risks associated with investments in commercial properties,
investments in mortgage indebtedness present additional risks, including the
risk that the fee owners of such properties may not make payments of interest on
a current basis and we may not realize our anticipated return or sustain losses
relating to the investments. Although we currently have no intention to
originate mortgage loans as a significant part of our business, we may make
loans to a seller in connection with our purchase of real estate. The
underwriting criteria we would use for these loans would be based upon the
credit and value of the underlying real estate.
- - PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT VENTURES COULD LIMIT OUR
CONTROL OF THOSE INVESTMENTS
Partnership or joint venture investments may involve risks not otherwise
present for investments made solely by us, including the possibility that our
partners or co-venturer might become bankrupt, that our partners or co-venturer
might at any time have different interests or goals than we do, and that our
partners or co-venturer may take action contrary to our instructions, requests,
policies or objectives, including our policy with respect to maintaining the
qualification of Reckson Associates as a REIT. Other risks of joint venture
investments include impasse on decisions, such as a sale, because neither our
partner or co-venturer nor us would have full control over the partnership or
joint venture. There is no limitation under our organizational documents as to
the amount of funds that may be invested in partnerships or joint ventures.
The following is a description of the significant joint ventures in which
we are involved:
OUR INVESTMENT IN THE OMNI, OUR LARGEST PROPERTY, INCLUDES THE RISKS THAT
WE CANNOT REFINANCE OR DISPOSE OF THE PROPERTY IN OUR SOLE DISCRETION AND WE
COULD HAVE OUR GENERAL PARTNERSHIP INTEREST CONVERTED INTO A LIMITED PARTNERSHIP
INTEREST. The Operating Partnership owns a 60% general partner interest in Omni
Partners, L.P. (the "Omni Partnership"), the partnership that owns the Omni, a
575,000 square foot office building located in our Nassau West Corporate Center
office park. Odyssey Partners, L.P. and an affiliate of Odyssey own the
remaining 40% interest. Through our partnership interest, we act as managing
partner and have the sole authority to conduct the business and affairs of the
Omni Partnership subject to the limitations set forth in the amended and
restated agreement of limited partnership of Omni Partners, L.P. (the "Omni
Partnership Agreement"). These limitations include Odyssey's right to negotiate
under certain circumstances a refinancing of the mortgage debt encumbering the
Omni and the right to approve any sale of the Omni made on or before March 13,
2007 (the "Acquisition Date"). The Operating Partnership will continue to act as
the sole managing partner of the Omni Partnership unless certain conditions
specified in the Omni Partnership Agreement shall occur. Upon the occurrence of
any of these conditions the Operating Partnership's general partnership interest
shall convert to a limited partnership interest and an affiliate of Odyssey
shall be the sole managing partner, or at the option of Odyssey, the Operating
Partnership shall be a co-managing partner with an affiliate of Odyssey. In
addition, on the Acquisition Date, the Operating Partnership will have the right
to purchase Odyssey's interest in the Omni Partnership at a price (the "Option
Price") based on 90% of its fair market value. If the Operating Partnership
fails to exercise this option, Odyssey has the right to require the Operating
Partnership to purchase Odyssey's interest in the Omni Partnership on the
Acquisition Date at the Option Price. The Operating Partnership has the right to
extend the Acquisition Date until March 13, 2012. The Option Price shall apply
to the payment of all sums due under a loan made by the Operating Partnership in
March 1997 to Odyssey in the amount of approximately $17 million. The Odyssey
loan matures on the Acquisition Date, subject to the Operating Partnership's
right to extend the Acquisition Date as set forth above, and is secured by a
pledge of Odyssey's interest in the Omni Partnership.
OUR JOINT VENTURE IN AN OFFICE BUILDING IN TARRYTOWN, NEW YORK INCLUDES THE
RISKS THAT WE CANNOT ENTER INTO LARGE LEASES OR REFINANCE OR DISPOSE OF THE
BUILDING IN OUR DISCRETION. The Operating Partnership owns a 60% managing member
interest in a limited liability company that owns 520 White Plains Road, a
171,761 square foot office building located in Tarrytown, New York. The
remaining 40% member interest is held by Tarrytown Corporate Center III, L.P.
("TCC"), a partnership affiliated with the Halpern organization, the
organization from which we acquired eight Class A office properties for
approximately $86 million in February 1996. The member agreement governing the
joint venture arrangement requires us to obtain the consent of TCC prior to
engaging in activities such as entering into or modifying a lease for more than
25,000 rentable square feet, financing or refinancing indebtedness encumbering
the property and selling or otherwise transferring the property.
ALTHOUGH WE CONTROL RECKSON MORRIS OPERATING PARTNERSHIP OUR JOINT VENTURE
PARTNER HAS APPROVAL RIGHTS OVER A NUMBER OF MATTERS, SUCH AS THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE RECKSON MORRIS PROPERTIES. In October 1997, we 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 December 31, 1998, we had invested approximately
$93.8 million for an approximate 71.8% controlling interest in Reckson Morris
Operating Partnership, L.P. In connection with the transaction, the Morris
Companies contributed 100% of their interest in certain industrial properties to
Reckson Morris Operating Partnership in exchange for operating partnership units
in Reckson Morris Operating Partnership. Although we control Reckson Morris
Operating Partnership, the former owners of the Morris Companies have approval
rights over a number of matters, such as the sale of all or substantially all of
the properties of Reckson Morris Operating Partnership
OUR INTEREST IN JOINT VENTURES WITH MATRIX IS GENERALLY SUBJECT TO A RIGHT
OF FIRST OFFER OF MATRIX AND MATRIX CAN ALSO PUT ITS INTEREST TO US IF LEASING
CONDITIONS HAVE BEEN SATISFIED. As of December 31, 1998, the Operating
Partnership had invested $15.3 million in joint ventures with Matrix Development
Group for the development of industrial and flex properties located in a New
Jersey submarket. Although the terms of each of the joint ventures vary, Matrix
generally identifies and develops projects for which we provide the capital. We
control the joint ventures and receive a priority return on our invested
capital. We also receive a return of our capital upon any sale or refinancing of
a project, and, generally, three-quarters of the proceeds in excess thereof.
Matrix typically has a right of first offer in the event we seek to dispose of a
project and has the right to put its interest in a project to us once specified
leasing parameters have been satisfied.
OUR PRIVATIZATION OF GOVERNMENT OFFICE BUILDINGS AND CORRECTIONAL
FACILITIES IS DEPENDENT UPON CONTINUED OUTSOURCING BY GOVERNMENTS AND
COMPETITIVE BIDDING. From time to time, the Operating Partnership may make joint
venture investments in real estate assets with Reckson Strategic Venture
Partners, LLC. Reckson Service Industries, Inc., an entity that Reckson
Associates spun-off to its shareholders in 1998, owns 100% of the common
ownership interests of Reckson Strategic Venture Partners and, accordingly,
controls Reckson Strategic Venture Partners. The strategy of Reckson Strategic
Venture Partners is to 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 circumstances for attractive
investments as well as opportunities for future growth. Joint venture
investments with Reckson Strategic Venture Partners may involve various types of
real estate assets and involve different risks than those in our office and
industrial sectors, as to which we have no prior experience or expertise. No
assurance can be given as to the success of these investments. As of December
31, 1998, the Operating Partnership had made a joint venture investment with
Reckson Strategic Venture Partners of $10.1 million in the area of privatization
of government occupied office buildings and correctional facilities. In addition
to the joint venture risks discussed above, this investment includes the
following specific risks:
o dependence upon the continued outsourcing of real estate functions by
governmental entities;
o the ability to compete effectively in bidding on specific projects;
and
o significant government regulation and/or oversight
- - ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND MAY BE COSTLY
Federal, state and local laws and regulations relating to the protection of
the environment may require a current or previous owner or operator of real
estate to investigate and clean up hazardous or toxic substances or petroleum
product releases at a property. An owner of real estate is liable for the costs
of removal or remediation of certain hazardous or toxic substances on or in the
property. These laws often impose such liability without regard to whether the
owner knew of, or caused, the presence of the contaminants. Clean-up costs and
the owner's liability generally are not limited under the enactments and could
exceed the value of the property and/or the aggregate assets of the owner. The
presence of or the failure to properly remediate the substances may adversely
affect the owner's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the clean-up costs of the
substances at a disposal or treatment facility, whether or not such facility is
owned or operated by the person. Even if more than one person was responsible
for the contamination, each person covered by the environmental laws may be held
responsible for the clean-up costs incurred. In addition, third parties may sue
the owner or operator of a site for damages and costs resulting from
environmental contamination emanating from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos-containing materials ("ACMs"). These laws impose liability for release
of ACMs into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with ACMs. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, we may be considered an owner or operator of
properties containing ACMs. Having arranged for the disposal or treatment of
contaminants we may be potentially liable for removal, remediation and other
costs, including governmental fines and injuries to persons and property.
All of our office properties and all of our industrial properties have been
subjected to a Phase I or similar environmental site assessment after April 1,
1994 that were completed by independent environmental consultant companies,
except for the property located at 35 Pinelawn Road which was originally
developed by us and subjected to a Phase I in April 1992. These Phase I or
similar environmental site assessments involved general inspections without soil
sampling, ground water analysis or radon testing and, for our properties
constructed in 1978 or earlier, survey inspections to ascertain the existence of
ACMs. These environmental site assessments have not revealed any environmental
liability that would have a material adverse effect on our business.
- - FAILURE TO QUALIFY AS A REIT WOULD BE COSTLY
Reckson Associates has operated (and intends to operate) so as to qualify
as a REIT under the Internal Revenue Code beginning with our taxable year ended
December 31, 1995. Although our management believes that Reckson Associates is
organized and operated in a manner to so qualify, no assurance can be given that
Reckson Associates will qualify or remain qualified as a REIT.
If Reckson Associates fails to qualify as a REIT in any taxable year,
Reckson Associates will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Moreover, unless entitled to relief under certain statutory provisions,
Reckson Associates also will be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification was lost. This
treatment would significantly reduce net earnings available to service
indebtedness, make investments or pay distributions to shareholders because of
the additional tax liability to Reckson Associates for the years involved. Also,
Reckson Associates would not then be required to pay distributions to its
shareholders.
- - TAX CONSEQUENCES UPON A SALE OR REFINANCING OF PROPERTIES MAY RESULT IN
CONFLICTS OF INTEREST FOR DIRECTORS AND OFFICERS OF RECKSON ASSOCIATES
Holders of units of limited partnership of the Operating Partnership or
co-owners of properties not owned entirely by us may suffer different and more
adverse tax consequences than we will upon the sale or refinancing of our
properties. We may have different objectives from these co-owners and holders of
limited partnership units regarding the appropriate pricing and timing of any
sale or refinancing of these properties. While Reckson Associates, as the sole
general partner of the Operating Partnership, has the exclusive authority as to
whether and on what terms to sell or refinance each property owned solely by the
Operating Partnership, the directors and officers of Reckson Associates who hold
limited partnership units may seek to influence us not to sell or refinance the
properties, even though such a sale might otherwise be financially advantageous
to us, or may seek to influence us to refinance a property with a higher level
of debt.
- - WE MAY HAVE CONFLICTS OF INTERESTS WITH RECKSON SERVICE INDUSTRIES
CONFLICTS AS A RESULT OF OVERLAPPING MANAGEMENT. Donald J. Rechler serves
as our Chairman of the Board and our Chief Executive Officer and Chairman of the
Board of Reckson Service Industries. Scott H. Rechler serves as our President
and our Chief Operating Officer and President and Chief Executive Officer of
Reckson Service Industries and is a director of Reckson Associates and Reckson
Service Industries. Michael Maturo serves as Executive Vice President, Treasurer
and Chief Financial Officer of Reckson Associates and Reckson Service Industries
and is a director of Reckson Service Industries. Furthermore, Roger Rechler,
Gregg Rechler and Mitchell Rechler are executive officers of Reckson Associates
and Roger Rechler and Mitchell Rechler are directors of Reckson Associates,
while all three individuals are members of the management advisory committee and
directors of Reckson Service Industries. Although each of the individuals
referred to above is committed to the success of Reckson Associates, they are
also committed to the success of Reckson Service Industries. Our senior
management and directors beneficially owned approximately 12% of the outstanding
common stock of Reckson Associates, with a total market value, based on the New
York Stock Exchange closing price of $22.19 per share on December 31, 1998, of
approximately $132.3 million, and approximately 27% of the outstanding common
stock of Reckson Service Industries, with a total market value, at a stock price
of $4.125 per share on December 31, 1998, of approximately $27.3 million. In
calculating the ownership of common stock of Reckson Associates, we have assumed
the conversion of all limited partnership units in the Operating Partnership
into shares of common stock and the exercise of all vested stock options. There
is a risk that the common membership of management, members of the Boards of
Directors and ownership of Reckson Associates and Reckson Service Industries
will lead to conflicts of interest in the fiduciary duties owed to stockholders
by common directors and officers in connection with transactions between the two
companies, as well as a conflict in allocating management time.
CONFLICTS IN TRANSACTIONS WITH RECKSON SERVICE INDUSTRIES UNDER THE
INTERCOMPANY AGREEMENT. The Operating Partnership and Reckson Service Industries
have entered into an intercompany agreement to formalize their relationship at
the outset and to limit conflicts of interest. The intercompany agreement was
not negotiated at arms' length as it was negotiated while 95% of the common
stock of Reckson Service Industries was owned by the Operating Partnership.
Under the intercompany agreement, Reckson Service Industries granted the
Operating Partnership a right of first opportunity to make any REIT-qualified
investment that becomes available to Reckson Service Industries. In addition, if
a REIT-qualified investment opportunity becomes available to an affiliate of
Reckson Service Industries, including Reckson Strategic Venture Partners, 100%
of the common ownership interest of which is indirectly owned by Reckson Service
Industries, the intercompany agreement requires the Reckson Service Industries'
affiliate to allow the Operating Partnership to participate in the opportunity
to the extent of Reckson Service Industries' interest in the affiliate.
Under the intercompany agreement, the Operating Partnership granted Reckson
Service Industries a right of first opportunity to provide to the Operating
Partnership and its tenants any type of non-customary commercial services for
occupants of office, industrial and other property types, which we may not be
permitted to provide because they may generate REIT non-qualifying income under
Federal tax laws. Reckson Service Industries will provide services to the
Operating Partnership at rates and on terms as attractive as either the best
available for comparable services in the market or those offered by Reckson
Service Industries to third parties. In addition, the Operating Partnership will
give Reckson Service Industries access to its tenants with respect to commercial
services that may be provided to tenants.
Under the intercompany agreement, subject to certain conditions, the
Operating Partnership granted Reckson Service Industries a right of first
refusal to become the lessee of any real property acquired by the Operating
Partnership if the Operating Partnership determines that, because the operation
of the property may involve the performance of non-customary services that under
the Internal Revenue Code a REIT may not generally provide, it is required to
enter into a "master" lease arrangement. Pursuant to a "master" lease
arrangement, the Operating Partnership would own the property, but lease it
entirely to a single lessee that would operate the property.
With respect to services that Reckson Service Industries will provide to
the Operating Partnership, management will have a conflict of interest in
determining the market rates to charge the Operating Partnership for these
services. In addition, management will have a conflict of interest in
determining whether the Operating Partnership or Reckson Service Industries
would pursue a REIT-qualified investment opportunity outside of our core
business strategy of investing in office and industrial properties in the New
York Tri-State area. Furthermore, the Operating Partnership and Reckson Service
Industries may structure investments so that joint ventures between the
Operating Partnership and Reckson Strategic Venture Partners may pursue the
portion of investments generating REIT-qualified income and Reckson Strategic
Venture Partners will pursue directly the other portion of these investments.
Accordingly, Reckson Strategic Venture Partners and Reckson Strategic Venture
Partners-Reckson Operating Partnership joint ventures may have conflicts of
interest in the structuring, valuation, management and disposition of these
investments.
CONFLICTS IN OUR LOANS TO RECKSON SERVICE INDUSTRIES. In June 1998, the
Operating Partnership established a credit facility with Reckson Service
Industries (the "Reckson Service Industries Facility") in the amount of $100
million for Reckson Service Industries' service sector operations and other
general corporate purposes. In addition, in June 1998, the Operating Partnership
also established a credit facility with Reckson Service Industries (the "Reckson
Strategic Venture Partners Facility", and together with the Reckson Service
Industries Facility, the "Reckson Service Industries Credit Facilities") for the
funding of investments of up to $100 million by Reckson Service Industries in
Reckson Strategic Venture Partners. Advances under the Reckson Strategic Venture
Partners Facility in excess of $25 million in respect of any single platform
will be subject to approval by the Board of Directors of Reckson Associates,
while advances under the Reckson Service Industries Facility in excess of $10
million in respect of any single investment in non-customary commercial
services, as well as advances for investments in opportunities in other
services, will be subject to approval by the Board of Directors of Reckson
Associates, or a committee thereof. Each Reckson Service Industries Credit
Facility has a term of five years and advances thereunder will be recourse
obligations of Reckson Service Industries. Interest will accrue on advances made
under the Reckson Service Industries Credit Facilities at a rate equal to the
greater of (1) the prime rate plus 2% and (2) 12% per annum, with the rate on
amounts that are outstanding for more than one year increasing annually at a
rate of 4% of the prior year's rate. Prior to maturity, interest will be payable
quarterly but only to the extent of net cash flow and on an interest-only basis
and will be prepayable without penalty at the option of Reckson Service
Industries. As long as there are outstanding advances under any Reckson Service
Industries Credit Facility, Reckson Service Industries will be prohibited from
paying dividends on any shares of its capital stock. The Reckson Service
Industries Credit Facilities are subject to certain other covenants and prohibit
advances thereunder to the extent the advances could, in our determination
endanger the status of Reckson Associates as a REIT. The terms of the Reckson
Service Industries Credit Facilities were not negotiated at arms' length and
thus may not reflect terms that could have been obtained from independent third
parties. Additional indebtedness may be incurred by subsidiaries of Reckson
Service Industries. As of December 31, 1998, borrowings under the Reckson
Service Industries Credit Facilities aggregated approximately $33.7 million.
POLICIES WITH RESPECT TO CONFLICTS OF INTEREST MAY NOT BE SUCCESSFUL. We
have adopted policies designed to eliminate or minimize conflicts of interest.
These policies include the approval by of all transactions in which directors or
officers of Reckson Associates have a conflicting interest by a majority of the
directors who are neither officers nor affiliated with us. These policies do not
prohibit sales of assets to or from affiliates, but would require the sales to
be approved by the independent directors of Reckson Associates. However, there
is no assurance that these policies will be successful and, if they are not
successful, decisions could be made that might fail to reflect fully the
interests of all of our stockholders.
- - THE TOWER TRANSACTION MAY CAUSE AN INCREASE IN OUR DEBT RATIOS AND
INVOLVES OUR ENTRY INTO A NEW MARKET; THE TOWER PROPERTIES MAY NOT PERFORM AS WE
ANTICIPATE
As further described below under the caption "Reckson Associates and the
Operating Partnership", on December 9, 1998, we agreed to purchase, through
Metropolitan Partners LLC, 100% of the outstanding common stock of Tower Realty
Trust, Inc. for a combination of cash and securities, including Reckson
Associates' Class B exchangeable common stock. We control Metropolitan and own
100% of the common member interests therein. The Tower transaction is subject to
the approval of Tower stockholders and, as a result, may not occur. If the Tower
stockholders approve the transaction and we acquire Tower, we will be subject to
the following risks:
o as a result of the Tower merger our debt ratios will increase due to
Tower's debt levels;
o if Reckson Associates' stockholders fail to approve the issuance of
the Class B exchangeable common stock as the entire non-cash portion
of the merger consideration, we will incur additional indebtedness,
thereby further increasing our debt ratios. The table below sets forth
historical and pro forma information about our debt as of September
30, 1998. Pro forma information gives effect to the Tower merger, both
with and without Reckson Associates' stockholders approving the
issuance of the Class B exchangeable common stock as the entire
non-cash portion of the merger consideration. In the event Reckson
Associates' stockholders do not approve of the issuance of the Class B
exchangeable common stock as the entire non-cash portion of the merger
consideration, the Operating Partnership will issue approximately
$95.7 million of its 7% Senior Notes due 2009 (par value $101.5
million) as part of the merger consideration.
<TABLE>
<CAPTION>
------------------ ------------------------- ---------------------------
PRO FORMA PRO FORMA
WITH WITHOUT
HISTORICAL APPROVAL APPROVAL
------------------ ------------------------- ---------------------------
<S> <C> <C> <C>
Total Debt (in millions and
including proportionate share
of joint debt and net of
minority interests) $814.4 $1,162.0 $1,257.7
------------------ ------------------------- ---------------------------
Weighted average maturity of
debt (in years) 4.8 years 4.9 years 5.4 years
------------------ ------------------------- ---------------------------
Debt Ratio 36.9% 40.8% 44.1%
------------------ ------------------------- ---------------------------
Debt-to-equity ratio 1:1.71 1:1.45 1:1.26
------------------ ------------------------- ---------------------------
Portion of debt that is
variable rate 54% 58% 54%
------------------ ------------------------- ---------------------------
</TABLE>
o the Tower portfolio may not perform as we anticipate
o we may not be able to effectively integrate Tower's operations, which
involve the operation and leasing of buildings in New York City, a
market in which we have not previously owned and operated properties
In addition, if the Tower merger does not occur and a court of competent
jurisdiction issues a final non-appealable judgment determining that we were
obligated to consummate the merger but we failed to do so, or that we failed to
use our reasonable best efforts to take all actions necessary to cause the
closing conditions to the merger to be satisfied, we will be obligated to return
to Tower for no consideration $30 million of Tower preferred stock that we
purchased at the time of the signing of the merger agreement.
- - LIMITS ON OWNERSHIP AND CHANGES IN CONTROL MAY DETER CHANGES IN MANAGEMENT AND
THIRD PARTY ACQUISITION PROPOSALS
OWNERSHIP LIMIT. To maintain the qualification of Reckson Associates as a
REIT, five or fewer individuals (as defined in the Internal Revenue Code of
1986, as amended, to include certain entities) may not own, directly or
indirectly, more than 50% in value of the outstanding capital stock of Reckson
Associates during the last half of a taxable year (other than the first year).
In order to protect against the risk of losing REIT status, Reckson Associates'
charter limits ownership of its issued and outstanding common stock by any
single stockholder to 9.0% of the lesser of the number or value of the
outstanding shares of common stock. It also will limit ownership of Reckson
Associates' Class B exchangeable common stock to be issued in the pending Tower
transaction by any single stockholder to 9% in value of the outstanding shares
of all of Reckson Associates' common stock and limits ownership of Reckson
Associates' issued and outstanding 7-5/8% Series A convertible cumulative
preferred stock to 9% in value of the outstanding shares of all of Reckson
Associates' capital stock. In addition, a stockholder may not acquire shares of
Reckson Associates' Series A preferred stock that would result in the
stockholder's owning in excess of 20% of the lesser of the number or value of
outstanding shares of the Series A preferred stock. See "Restrictions on
Ownership of Capital Stock," "Description of Common Stock - Restrictions on
Ownership" and "Description of Preferred Stock-Restrictions on Ownership." These
provisions may delay, defer or prevent a change of control in Reckson Associates
or other transaction by a third party without the consent of the Board of
Directors even if a change in control were in the best interests of the
stockholders of Reckson Associates.
STAGGERED BOARD. The Board of Directors of Reckson Associates is divided
into three classes. The terms of the Class I, Class II and Class III directors
expire in 1999, 2000 and 2001, respectively. Directors are chosen for a
three-year term. These provisions may deter changes in control because of the
increased time period necessary for a third party to acquire control of
management through positions on the Board of Directors of Reckson Associates.
REQUIRED CONSENT OF HOLDERS OF UNITS FOR CERTAIN TRANSACTIONS. Under the
terms of the Operating Partnership's partnership agreement, through June 2,
2000, the Operating Partnership may not sell, transfer or otherwise dispose of
all or substantially all of its assets (whether by way of sale or by merger,
sale or consolidation into another person) without the consent of the holders of
85% of the outstanding common limited partnership units. This voting requirement
could delay, defer or prevent a change in control of Reckson Associates.
FUTURE ISSUANCES OF COMMON STOCK. The charter of Reckson Associates
authorizes the Board of Directors to issue additional shares of common stock
without stockholder approval. Reckson Associates may also issue shares of common
stock in exchange for limited partnership units pursuant to the Operating
Partnership's partnership agreement. The Board of Directors has also authorized
the issuance of up to 11.7 million shares of Class B exchangeable common stock
in connection with the Tower transaction. These shares will be exchangeable on a
one-for-one basis for shares of Reckson common stock and will be entitled to an
initial annual dividend of $2.24 per share, subject to adjustment annually.
Issuance of common stock or Class B exchangeable common stock could have the
effect of diluting existing common stockholders' interests in Reckson
Associates.
THE CHARTER OF RECKSON ASSOCIATES PERMITS THE ISSUANCE OF PREFERRED STOCK
WHICH COULD DELAY, DEFER OR PREVENT A CHANGE IN CONTROL. The charter of Reckson
Associates authorizes the Board of Directors to issue up to 25 million shares of
preferred stock, of which 9,200,000 shares of its Series A preferred stock have
been issued (8,000 shares of which have been converted to shares of common
stock), to reclassify unissued shares of capital stock, and to establish the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications, and terms and conditions of redemption for each
class or series of any capital stock issued. Although the Board of Directors
does not intend to do so at the present time, it could establish a series of
preferred stock that could, depending on the terms of the preferred stock,
delay, defer or prevent a change in control of Reckson Associates that might
involve a premium price for the common stock or otherwise be in the best
interest of the stockholders of Reckson Associates.
LIMITATIONS ON ACQUISITION OF AND CHANGES IN CONTROL PURSUANT TO MARYLAND
LAW. The Maryland General Corporation Law contains provisions, referred to as
the "control share acquisition statute," which eliminate the voting rights of
shares acquired in a Maryland corporation in quantities so as to constitute
"control shares," as defined under the MGCL. The MGCL also contains provisions,
referred to as the "business combination statute," which generally limit
business combinations between a Maryland corporation and any 10% owners of the
corporation's stock or any affiliate thereof. These provisions may have the
effect of inhibiting a third party from making an acquisition proposal for
Reckson Associates or of delaying, deferring or preventing a change in control
of Reckson Associates under circumstances that otherwise could provide the
holders of shares of common stock with the opportunity to realize a premium over
the then-prevailing market price. However, as permitted by the MGCL, the bylaws
of Reckson Associates contain a provision exempting any and all acquisitions by
any person of shares of capital stock of Reckson Associates from the control
share acquisition statute. In addition, the Board of Directors adopted a
resolution exempting Reckson Associates from the provisions of the business
combination statute. Reckson Associates may amend or eliminate these provisions
at any time.
- - RISK OF IMPACT OF YEAR 2000 ISSUE ON OUR OPERATIONS AND FINANCIAL RESULTS
Some of our older computer programs were written using two digits rather
than four to define the applicable year. As a result, those computer programs
have time-sensitive software that recognizes a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or miscalculation
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, or engage in similar normal business
activities.
Our year 2000 project is estimated to be completed not later than July 31,
1999, which is prior to any anticipated impact on our operating systems.
Additionally, we have received assurances from our contractors that all of our
building management and mechanical systems are currently year 2000 compliant or
will be made compliant prior to any impact on those systems. However, we cannot
guarantee that all contractors will comply with their assurances and therefore
we may not be able to determine year 2000 compliance of those contractors. At
that time, we will determine the extent to which we will be able to replace non
compliant contractors. We believe that with modifications to existing software
and conversion to new software, the year 2000 issue will not pose significant
operational problems for our computer systems. However, if modifications and
conversions are not made, or are not completed timely, the year 2000 issue could
have a material impact on our operations.
To date, we have expended approximately $375,000 and expect to expend an
additional one million dollars in connection with upgrading building management,
mechanical and computer systems. The costs of the project and the date on which
we believe we will complete the year 2000 modifications are based on our
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause material differences include, but are not
limited to the availability and costs of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
- - THE MARKET VALUE OF SECURITIES COULD DECREASE BASED ON OUR PERFORMANCE AND
MARKET PERCEPTION AND CONDITIONS
EFFECT OF EARNINGS AND CASH DISTRIBUTIONS. The market value of the equity
securities of a REIT may be based primarily upon the market's perception of the
REIT's growth potential and its current and future cash distributions, and may
be secondarily based upon the real estate market value of the underlying assets.
For the year ended December 31, 1998, Reckson Associates distributed
approximately 75.7% of its cash available for distribution to its common
stockholders. Although we have retained operating cash flow for investment and
working capital purposes, which has increased the value of our underlying
assets, this has not proportionately increased the market price of the equity
securities of Reckson Associates. Our failure to meet the market's expectation
with regard to future earnings and cash distributions likely would adversely
affect the market price of the equity securities of Reckson Associates.
ADVERSE IMPACT OF RISING INTEREST RATES. One factor which influences the
price of securities is the dividend or interest rate on the securities relative
to market interest rates. Rising interest rates may lead potential buyers of
equity securities of Reckson Associates to expect a higher dividend rate, which
would adversely affect the market price of the securities. In addition, rising
interest rates would result in increased expense, thereby adversely affecting
cash flow and the ability of the Operating Partnership to service its
indebtedness.
- - TRANSACTIONS BY THE OPERATING PARTNERSHIP OR RECKSON ASSOCIATES COULD
ADVERSELY AFFECT DEBT HOLDERS
Except with respect to a covenant limiting the incurrence of indebtedness,
a covenant requiring the Operating Partnership to maintain a certain percentage
of unencumbered assets and a covenant requiring any successor in a business
combination with the Operating Partnership to assume all of the obligations of
the Operating Partnership under the indenture pursuant to which the debt
securities will be issued, the indenture does not contain any provisions that
would protect holders of debt securities in the event of (i) a highly leveraged
or similar transaction involving the Operating Partnership, the management of
the Operating Partnership or Reckson Associates, or any affiliate of any these
parties, (ii) a change of control, or (iii) certain reorganizations,
restructuring, mergers or similar transactions involving the Operating
Partnership or Reckson Associates. Although we anticipate that the pending Tower
transaction will increase our overall debt level, we do not anticipate that the
Tower transaction will cause a default under the indenture or otherwise affect
the rights of holders of debt securities issued under the indenture.
- - WE MAY NOT BE ABLE TO PAY ON GUARANTEES
A guarantee of the Operating Partnership's debt securities by Reckson
Associates effectively provides no benefit to investors and should not be viewed
by investors as enhancing the credit of the debt securities or as providing any
additional value to the debt securities. The Operating Partnership conducts all
of Reckson Associates' operations, and the only asset of Reckson Associates is
its interest in the Operating Partnership. As a result, if the Operating
Partnership is unable to meet its obligations on the debt securities, Reckson
Associates will not have any assets from which to pay on its guarantee of such
debt securities.
<PAGE>
[ORGANIZATIONAL CHART OF
RECKSON ASSOCIATES REALTY CORP.]
<PAGE>
AVAILABLE INFORMATION
Reckson Associates is, and as a result of filing the registration statement
of which this prospectus is a part, the Operating Partnership will be, subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith Reckson Associates
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission") and the Operating Partnership will file
reports with the Commission. These reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the regional offices of the Commission at 7 World Trade
Center (13th Floor), New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
information can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. These materials can also be inspected at the office of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, the exchange on which
Reckson Associates' common stock and Series A preferred stock is listed. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission.
We have filed with the Commission a registration statement on Form S-3
under the Securities Act, with respect to the securities. This prospectus does
not contain all of the information set forth in the registration statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information regarding us and the
securities, reference is made to the registration statement, including the
exhibits filed as a part thereof, and the documents incorporated by reference in
this prospectus. Statements made in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete;
with respect to each contract, agreement or other document filed as an exhibit
to the registration statement or to an Exchange Act report, reference is made to
the exhibit for a more complete description of the matter involved, and each
statement shall be deemed qualified in its entirety by reference. Copies of the
registration statement and the exhibits may be inspected, without charge, at the
offices of the Commission, or obtained at prescribed rates from the Public
Reference Section of the Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by Reckson Associates with the
Commission pursuant to the Exchange Act are incorporated by reference in this
prospectus:
<TABLE>
<CAPTION>
SEC FILINGS (FILE NO. 1-13762) PERIOD
- ------------------------------ ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarters ended March 31, 1998, June 30, 1998 and
September 30, 1998
Current Reports on Form 8-K Filed February 18, 1997, May 15, 1997, June 12, 1997,
(including Form 8-K/A) August 7, 1997, September 9, 1997, October 21, 1997,
January 6, 1998, January 26, 1998, February 10, 1998,
February 12, 1998, March 24, 1998, March 25, 1998,
April 6, 1998, July 22, 1998, August 14, 1998,
November 2, 1998, November 9, 1998 , December 22,
1998, February 5, 1999, February 5, 1999 and March 1,
1999
Registration Statement on Form 8-A Filed May 9, 1995 (as amended)
Registration Statement on Form 8-A Filed April 9, 1998
</TABLE>
We also incorporate by reference each of the following documents that we
will file with the Commission after the date of this prospectus until the
particular offering is completed or after the date of the initial registration
statement and prior to effectiveness of the registration statement:
o Reports filed under Section 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
Reckson Associates and the Operating Partnership will provide a copy of any
or all of these documents (exclusive of exhibits unless the exhibits are
specifically incorporated by reference therein), without charge, to each person
to whom this prospectus is delivered, upon written or oral request to Reckson
Associates Realty Corp., 225 Broadhollow Road, Melville, New York 11747, Attn:
Jason M. Barnett, Senior Vice President and General Counsel, telephone number
(516) 694-6900.
RECKSON ASSOCIATES AND THE OPERATING PARTNERSHIP
Reckson Associates was incorporated in September 1994 and commenced
operations effective with the completion of its initial public offering (the
"IPO") on June 2, 1995. Reckson Associates, together with the Operating
Partnership, was formed for the purpose of continuing the commercial real estate
business of the predecessors of Reckson Associates, its affiliated partnerships
and other entities. For more than 40 years, we have been engaged in the business
of owning, developing, acquiring, constructing, managing and leasing suburban
office and industrial properties in the New York metropolitan area. Based on
industry surveys, we believe that we are one of the largest owners and managers
of Class A suburban office and industrial properties in the New York City
Metropolitan Tri-State area of New York, New Jersey and Connecticut (the "New
York Tri-State area"). When we refer to Class A office buildings in this
prospectus, we mean well maintained, high quality buildings that achieve rental
rates that are at the higher end of the range of rental rates for office
properties in the particular market. We operate as a self-managed REIT with
in-house capabilities in property management, development, construction and
acquisitions. As of December 31, 1998, we owned and controlled, directly or
indirectly, 204 properties (the "Properties") encompassing approximately 21.0
million rentable square feet, all of which we manage. The Properties consist of
73 Class A suburban office properties encompassing approximately 10.1 million
rentable square feet, 129 industrial properties encompassing approximately 10.8
million rentable square feet and two 10,000 square foot retail properties. In
addition, as of December 31, 1998, we owned or had contracted to acquire
approximately 980 acres of land (including approximately 400 acres under option)
that may present future development opportunities. In addition, we have invested
$17 million in a note receivable secured by the interest of Odyssey Partners,
L.P. in Omni Partners, L.P.
The office properties are Class A suburban office buildings that are
well-located, well-maintained and professionally managed. In addition, these
properties are modern or have been modernized to compete with newer buildings in
their markets. We believe that these properties achieve among the highest rent
and occupancy rates within their markets. The majority of the office properties
are located in eleven planned office parks and are tenanted by, among others,
national service firms, such as telecommunications firms, "big five" accounting
firms, securities brokerage houses, insurance companies and health care
providers. The industrial properties are utilized for distribution, warehousing,
research and development and light manufacturing/assembly activities and are
located primarily in three planned industrial parks.
On December 8, 1998, Reckson Associates, the Operating Partnership,
Metropolitan and Tower, executed a merger agreement pursuant to which Tower will
be merged into Metropolitan, with Metropolitan surviving the merger.
Concurrently with the merger, the Tower operating partnership will be merged
with and into a subsidiary of Metropolitan. The consideration to be issued in
the mergers will be comprised of (1) 25% cash and (2) 75% of shares of Reckson
Associates' Class B exchangeable common stock, or in certain circumstances
described below, shares of Class B common stock and unsecured notes of the
Operating Partnership. We control Metropolitan and own 100% of the common equity
interests, while Crescent Real Estate Equities Company owns a preferred equity
interest in Metropolitan. The merger agreement replaces a previously existing
merger agreement among Reckson, Crescent, Metropolitan and Tower relating to the
acquisition by Metropolitan, which at that time was a 50/50 joint venture
between Reckson Associates and Crescent.
Pursuant to the terms of the merger agreement, holders of shares of
outstanding common stock of Tower, and outstanding units of limited partnership
interest of the Tower operating partnership will have the option to elect to
receive cash or shares of Class B common stock, subject to proration. Under the
terms of the transaction, Metropolitan will effectively pay for each share of
Tower common stock and each unit of limited partnership interest of the Tower
operating partnership: (1) $5.75 (in cash) and (2) 0.6273 of a share of Class B
common stock. The shares of Class B common stock are entitled to receive an
initial annual dividend of $2.24 per share, which is subject to adjustment
annually. We may redeem any or all of the Class B common stock in exchange for
an equal number of shares of Reckson Associates' common stock at any time
following the four year, six-month anniversary of the issuance of Class B common
stock. It is anticipated that Reckson Associates' Board of Directors will
recommend to Reckson Associates' stockholders the approval of a proposal to
issue a number of shares of Class B Common Stock equal to 75% of the sum of (1)
the number of outstanding shares of the Tower common stock and (2) the number of
units of limited partnership interest of the Tower operating partnership, in
each case, at the effective time of the mergers. If Reckson Associates'
stockholders do not approve the issuance of the Class B common stock as
proposed, the merger agreement provides that approximately one-third of the
consideration that was to be paid in the form of Class B common stock will be
replaced by senior unsecured notes of the Operating Partnership, which notes
will bear interest at the rate of 7% per annum and have a term of ten years. In
addition, if Reckson Associates' stockholders do not approve the issuance of
Class B common stock as proposed and Reckson Associates' Board of Directors does
not recommend, or withdraws or amends or modifies in any material respect its
recommendation for, approval of the proposal, then the total principal amount of
notes to be issued and distributed in the merger will be increased by $15
million.
Simultaneously with the execution of the merger agreement, Metropolitan
purchased from Tower approximately 2.2 million shares of Series A convertible
preferred stock of Tower, for an aggregate purchase price of $40 million. This
transaction provided Tower with funds to reduce its outstanding secured
indebtedness so that it could borrow additional amounts under its credit
facility without violating covenants thereunder limiting the amount of secured
indebtedness. If the merger agreement is not consummated and a court of
competent jurisdiction issues a final, non-appealable judgment determining that
Reckson Associates and Metropolitan are obligated to consummate the merger but
have failed to do so, or determining that Reckson Associates and Metropolitan
failed to use their reasonable best efforts to take all actions necessary to
cause certain closing conditions to be satisfied, Metropolitan is obligated to
return to Tower $30 million of the Tower Series A preferred stock. Tower
required that these provisions be included in the preferred stock transaction in
its efforts to attain greater certainty that the merger would occur.
We anticipate that we will dispose of the properties in the Tower portfolio
located outside of New York City. In addition, we are also considering the
disposition of certain of the Tower properties located in New York City.
In connection with the new merger agreement, Tower, Reckson Associates,
Crescent and Metropolitan have exchanged mutual releases for any claims relating
to the previous merger agreement.
In December 1998, New York State announced it had selected us to develop a
655 acre tract of land in western Suffolk County on Long Island. We estimate
that we will invest $250 million in the development of this project over a
number of years.
Our executive offices are located at 225 Broadhollow Road, Melville, New
York 11747 and our telephone number at that location is (516) 694-6900. At
October 20, 1998, we had approximately 240 employees.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, the net
proceeds to Reckson Associates or the Operating Partnership, as the case may be,
from the sale of the securities offered by the applicable prospectus supplement
will be used for the repayment of existing indebtedness, the development or
acquisition of additional properties as suitable opportunities arise and the
renovation, expansion and improvement of our existing properties, in each case,
as described in detail in the prospectus supplement depending on the
circumstances at the time of the related offering, and for other general
corporate purposes.
<PAGE>
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the consolidated ratios of earnings to fixed
charges and preferred stock dividends of Reckson Associates and the Operating
Partnership for the periods shown:
<TABLE>
<CAPTION>
June 3, 1995 January 1, 1995
To To
Year Ended December 31, December 31, June 2, Year Ended
December 31,
----------------------------- ------------ --------------- -------------------
1998 1997 1996 1995 1995 1994
---------- ------ ------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Reckson Associates:
- ------------------
Ratio of Earnings to 2.11x 2.77x 2.72x 2.71x 1.02x(1) ($493,000)(1)(3)
Fixed Charges
Ratio of Earnings to 1.89x(2) -- -- -- -- --
Combined Fixed
Charges and Preferred
Stock Dividends
Operating Partnership:
- ---------------------
Ratio of Earnings to 2.12x 2.78x 2.71x 2.71x 1.02x(1) ($493,000)(1)(3)
Fixed Charges
Ratio of Earnings to
Combined Fixed 1.90x(2)
Charges and Preferred
Stock Dividends
</TABLE>
(1) Prior to completion of the IPO on June 2, 1995, our predecessors operated
in a manner as to minimize net taxable income to the owners. The IPO and
the related formation transactions permitted us to deleverage our
properties significantly, resulting in a significantly improved ratio of
earnings to fixed charges.
(2) Neither Reckson Associates nor the Operating Partnership had preferred
stock outstanding prior to April 1998.
(3) Represents the excess of fixed charges over earnings for the year ended
December 31, 1994.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. The ratio of earnings to combined fixed charges and preferred
dividends were computed by dividing earnings by the aggregate of fixed charges
and preferred dividends. For this purpose, earnings consist of income from
continuing operations before minority interest, fixed charges and preferred
dividends. Fixed charges consist of interest expense (including interest costs
capitalized) and the amortization of debt issuance costs.
DESCRIPTION OF DEBT SECURITIES
The debt securities of the Operating Partnership covered by this prospectus
(the "Debt Securities") will be issued under an Indenture (the "Indenture")
among the Operating Partnership, Reckson Associates and the trustee named
therein (the "Trustee"). The Indenture has been filed as an exhibit to the
Registration Statement of which this prospectus is a part and is available for
inspection at the corporate trust office of the trustee or as described above
under "Available Information." The Indenture is subject to, and governed by, the
Trust Indenture Act of 1939, as amended (the "TIA"). The statements made
hereunder relating to the Indenture and the Debt Securities to be issued
thereunder are summaries of the material provisions thereof and do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all provisions of the Indenture and the Debt Securities. All
section references appearing herein are to sections of the Indenture, and
capitalized terms used but not defined herein shall have the respective meanings
set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. The Debt Securities may be issued
without limit as to aggregate principal amount, in one or more series, in each
case as established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of Reckson Associates as sole general
partner of the Operating Partnership, or as established in one or more
indentures supplemental to the Indenture. All Debt Securities of one series need
not be issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of the
series, for issuances of additional Debt Securities of the same series.
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
the series. In the event that two or more persons are acting as Trustee with
respect to different series of Debt Securities, each Trustee shall be a trustee
of a trust under the Indenture separate and apart from the trust administered by
any other Trustee, and, except as otherwise indicated herein, any action
described herein to be taken by a Trustee may be taken by each Trustee with
respect to, and only with respect to, the one or more series of Debt Securities
for which it is Trustee under the Indenture.
Reference is made to the prospectus supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of the Debt Securities;
(2) the aggregate principal amount of the Debt Securities and any limit on
the aggregate principal amount;
(3) the percentage of the principal amount at which the Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining the date or dates, on
which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which the rate or rates shall be determined, at which the Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining the date or dates,
from which any interest will accrue, the dates on which any interest
will be payable, the record dates for such interest payment dates, or
the method by which any date shall be determined, the person to whom
the interest shall be payable, and the basis upon which interest shall
be calculated if other than that of a 360-day year of twelve 30-day
months;
(7) the place or places where the principal of (and premium, if any) and
interest, if any, on the Debt Securities will be payable, the Debt
Securities may be surrendered for registration of transfer or exchange
and notices or demands to or upon the Operating Partnership in respect
of the Debt Securities and the Indenture may be served;
(8) the date or dates on which or the period or periods within which, the
price or prices at which and the terms and conditions upon which the
Debt Securities may be redeemed, as a whole or in part, at the option
of the Operating Partnership, if the Operating Partnership is to have
an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay
or purchase the Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the date
or dates on which or the period or periods within which, the price or
prices at which and the terms and conditions upon which the Debt
Securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to its obligation;
(10) if other than U.S. dollars, the currency or currencies in which the
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on the Debt Securities may be determined with
reference to an index, formula or other method (which index, formula
or method may, but need not be, based on a currency, currencies,
currency unit or units or composite currency or currencies) and the
manner in which the amounts shall be determined;
(12) any additional events of default or covenants of the Debt Securities;
(13) whether the Debt Securities will be issued in certificated and/or
book-entry form;
(14) whether the Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and terms and conditions
relating thereto;
(15) whether the Debt Securities will be fully and unconditionally
guaranteed by Reckson Associates pursuant to the Guarantees (the
"Guaranteed Securities");
(16) if the defeasance and covenant defeasance provisions described herein
are to be inapplicable or any modification of these provisions;
(17) if the Debt Securities are to be issued upon the exercise of debt
warrants, the time, manner and place for the Debt Securities to be
authenticated and delivered;
(18) whether and under what circumstances the Operating Partnership will
pay additional amounts on the Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem such Debt Securities in
lieu of making a payment;
(19) if other than the Trustee, the identity of each security registrar
and/or paying agent; and
(20) any other material terms of the Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable prospectus
supplement.
Except with respect to a covenant limiting the incurrence of indebtedness,
a covenant requiring a certain percentage of unencumbered assets and a covenant
requiring any successor in a business combination with the Operating Partnership
to assume all of the obligations of the Operating Partnership under the
Indenture, the Indenture does not contain any other provisions that would limit
the ability of the Operating Partnership or Reckson Associates to incur
indebtedness or that would afford Holders of the Debt Securities protection in
the case of any of the following events:
o a highly leveraged or similar transaction involving the Operating
Partnership, the management of the Operating Partnership or Reckson
Associates, or any affiliate of any these parties;
o a change of control; or
o a reorganization, restructuring, merger or similar transaction
involving the Operating Partnership or Reckson Associates that may
adversely affect the Holders of the Debt Securities.
In addition, subject to the covenants referred to above, the Operating
Partnership or Reckson Associates may, in the future, enter into certain
transactions, such as the sale of all or substantially all of its assets or the
merger or consolidation of the Operating Partnership or Reckson Associates, that
would increase the amount of the Operating Partnership's indebtedness or
substantially reduce or eliminate the Operating Partnership's assets, which may
have an adverse effect on the Operating Partnership's ability to service its
indebtedness, including the Debt Securities. In addition, restrictions on
ownership and transfers of Reckson Associates' common stock and preferred stock
which are designed to preserve its status as a REIT may act to prevent or hinder
a change of control. See "Description of Common Stock--Restrictions on
Ownership" and "Description of Preferred Stock--Restrictions on Ownership."
GUARANTEES
Reckson Associates will fully and unconditionally guarantee the due and
punctual payment of principal of, premium, if any, and interest on any Debt
Securities not rated investment grade by at least one nationally recognized
statistical rating organization at the time of issuance by the Operating
Partnership, whether at a maturity date, by declaration of acceleration, call
for redemption or otherwise.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, the
Debt Securities of any series which are registered securities, other than
registered securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities which are bearer securities, other than bearer
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000.
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to the Person at an
account maintained within the United States.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name the Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of the Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of the Debt Security not
less than 10 days prior to the Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of the
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable prospectus supplement
refers to any transfer agent (in addition to the Trustee) initially designated
by the Operating Partnership with respect to any series of Debt Securities, the
Operating Partnership may at any time rescind the designation of any transfer
agent or approve a change in the location through which any transfer agent acts,
except that the Operating Partnership will be required to maintain a transfer
agent in each place of payment for the series. The Operating Partnership may at
any time designate additional transfer agents with respect to any series of Debt
Securities.
Neither the Operating Partnership nor the Trustee shall be required to:
o issue, register the transfer of or exchange any Debt Security if the
Debt Security may be among those selected for redemption during a
period beginning at the opening of business 15 days before selection
of the Debt Securities to be redeemed and ending at the close of
business on the day of selection;
o register the transfer of or exchange any Registered Security so
selected for redemption in whole or in part, except, in the case of
any Registered Security to be redeemed in part, the portion thereof
not to be redeemed;
o exchange any Bearer Security so selected for redemption except that
the Bearer Security may be exchanged for a Registered Security of that
series and like tenor, provided that the Registered Security shall be
simultaneously surrendered for redemption; or
o issue, register the transfer of or exchange any Security which has
been surrendered for repayment at the option of the Holder, except the
portion, if any, of the Debt Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE
The Operating Partnership or, with respect to the Guaranteed Securities,
Reckson Associates may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other entity,
provided that the following conditions are met:
o the Operating Partnership or Reckson Associates, as the case may be,
shall be the continuing entity, or the successor entity (if other than
the Operating Partnership or Reckson Associates, as the case may be)
formed by or resulting from any consolidation or merger or which shall
have received the transfer of assets shall expressly assume payment of
the principal of (and premium, if any) and interest on all the Debt
Securities and the due and punctual performance and observance of all
of the covenants and conditions contained in the Indenture and, if
applicable, the Guarantees;
o immediately after giving effect to the transaction, no Event of
Default under the Indenture, and no event which, after notice or the
lapse of time, or both, would become an Event of Default, shall have
occurred and be continuing; and
o an officer's certificate and legal opinion covering these conditions
shall be delivered to the Trustee.
CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Operating Partnership will not, and
will not permit any Subsidiary (as defined below) to, incur any Indebtedness (as
defined below), other than Permitted Debt (as defined below), if, immediately
after giving effect to the incurrence of additional Indebtedness, the aggregate
principal amount of all outstanding Indebtedness of the Operating Partnership,
and of its Subsidiaries determined at the applicable proportionate interest of
the Operating Partnership in each Subsidiary, determined in accordance with GAAP
(as defined below), is greater than 60% of the sum of:
(1) the Total Assets (as defined below) as of the end of the calendar
quarter covered in the Operating Partnership's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
Commission prior to the incurrence of such additional Indebtedness or, if the
Operating Partnership is not then subject to the reporting requirements of the
Exchange Act, as of its most recent calendar quarter and
(2) any increase in the Total Assets since the end of the quarter,
including, without limitation, any increase in Total Assets resulting from the
incurrence of additional Indebtedness (the Total Assets adjusted by this
increase are referred to as the "Adjusted Total Assets").
The Operating Partnership will not, and will not permit any Subsidiary to,
incur any Indebtedness, other than Permitted Debt, if, for the period consisting
of the four consecutive fiscal quarters most recently ended prior to the date on
which additional Indebtedness is to be incurred, the ratio of Consolidated
Income Available for Debt Service (as defined below) to the Annual Service
Charge (as defined below) shall have been less than 1.5 to 1, on a pro forma
basis after giving effect to the incurrence of Indebtedness and to the
application of the proceeds therefrom, and calculated on the assumption that:
o the Indebtedness and any other Indebtedness incurred by the Operating
Partnership or its Subsidiaries since the first day of the
four-quarter period and the application of the proceeds therefrom,
including to refinance other Indebtedness, had occurred at the
beginning of the period,
o the repayment or retirement of any other Indebtedness by the Operating
Partnership or its Subsidiaries since the first day of the
four-quarter period had been incurred, repaid or retained at the
beginning of the period (except that, in making the computation, the
amount of Indebtedness under any revolving credit facility shall be
computed based upon the average daily balance of borrowings under the
credit facility during the period),
o any income earned as a result of any increase in Adjusted Total Assets
since the end of the four-quarter period had been earned, on an
annualized basis, for the period, and
o in the case of an acquisition or disposition by the Operating
Partnership or any of its Subsidiaries of any asset or group of assets
since the first day of the four-quarter period, including, without
limitation, by merger, stock purchase or sale, or asset purchase or
sale, the acquisition or disposition or any related repayment of
Indebtedness had occurred as of the first day of the period with the
appropriate adjustments with respect to the acquisition or disposition
being included in the pro forma calculation of Consolidated Income
Available for Debt Service to the Annual Service Charge.
The Operating Partnership will not, and will not permit any Subsidiary to,
incur any Indebtedness secured by any Lien (as defined below) of any kind upon
any of the property of the Operating Partnership or any of its Subsidiaries (the
"Secured Debt") if, immediately after giving effect to the incurrence of the
additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt of the Operating Partnership, and of its Subsidiaries determined at
the applicable proportionate interest of the Operating Partnership in each
Subsidiary, is greater than 40% of the Adjusted Total Assets.
Maintenance of Total Unencumbered Assets. The Operating Partnership will
maintain Total Unencumbered Assets (as defined below) of not less than 150% of
the aggregate principal amount of all outstanding Unsecured Debt.
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Operating Partnership is required to do or cause to be done all things necessary
to preserve and keep in full force and effect their existence, rights and
franchises; provided, however, that the Operating Partnership shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities.
Maintenance of Properties. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Operating Partnership and its Subsidiaries shall not be prevented from selling
or otherwise disposing for value their respective properties in the ordinary
course of business.
Insurance. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies.
Payment of Taxes and Other Claims. The Operating Partnership is required to
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon them or any Subsidiary or upon their income, profits or property or
that of any Subsidiary, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Operating Partnership or any Subsidiary; provided, however, that the Operating
Partnership shall not be required to pay or discharge or cause to be paid or
discharged any tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
Provision of Financial Information. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, the
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Operating Partnership would have been
required so to file the documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event:
o within 15 days of each Required Filing Date (1) transmit by mail to
all Holders of Debt Securities, as their names and addresses appear in
the Security Register, without cost to the Holders, copies of the
annual reports and quarterly reports which the Operating Partnership
would have been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if the Operating Partnership
were subject to these Sections and (2) file with the Trustee copies of
the annual reports, quarterly reports and other documents which the
Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Operating Partnership were subject to these Sections and
o if filing these documents by the Operating Partnership with the
Commission is not permitted under the Exchange Act, promptly upon
written request and payment of the reasonable cost of duplication and
delivery, supply copies of the documents to any prospective Holder.
As used herein and in the prospectus supplement:
"Annual Service Charge" as of any date means the amount which is expensed
or capitalized in any 12-month period for interest on Indebtedness.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Operating Partnership and its Subsidiaries (1)
plus amounts which have been deducted for (a) interest on Indebtedness of the
Operating Partnership and its Subsidiaries, (b) provision for taxes of the
Operating Partnership and its Subsidiaries based on income, (c) amortization of
debt discount, (d) depreciation and amortization, (e) the effect of any noncash
charge resulting from a change in accounting principles in determining
Consolidated Net Income for the period, (f) amortization of deferred charges,
and (g) provisions for or realized losses on properties and (2) less amounts
which have been included for gains on properties.
"GAAP" means accounting principles as are generally accepted in the United
States of America as of the date or time of any required computation.
"Indebtedness" means any indebtedness, whether or not contingent, in
respect of (1) borrowed money evidenced by bonds, notes, debentures or similar
instruments, (2) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property, (3) the reimbursement
obligations, contingent or otherwise, in connection with any letters of credit
actually issued or amounts representing the balance deferred and unpaid of the
purchase price of any property except any balance that constitutes an accrued
expense or trade payable or (4) any lease of property as lessee which would be
reflected on a balance sheet as a capitalized lease in accordance with GAAP, in
the case of items of indebtedness under (1) through (3) above to the extent that
any items (other than letters of credit) would appear as a liability on a
balance sheet in accordance with GAAP, and also includes, to the extent not
otherwise included, any obligation to be liable for, or to pay, as obligor,
guarantor or otherwise (other than for purposes of collection in the ordinary
course of business), indebtedness of another Person.
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of the Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of the Person. A Capital Lease is a lease
to which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"Permitted Debt" means Indebtedness of the Operating Partnership or any
Subsidiary owing to any Subsidiary or the Operating Partnership; provided that
any Indebtedness is made pursuant to an intercompany note and is subordinated in
right of payment to the Securities; provided further that any disposition,
pledge or transfer of any Indebtedness to a Person (other than the Operating
Partnership or another Subsidiary) shall be deemed to be an incurrence of
Indebtedness by the Operating Partnership or a Subsidiary, as the case may be,
and not Permitted Debt.
"Significant Subsidiary" means each significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) of the Operating
Partnership.
"Subsidiary" means any entity of which the Operating Partnership or one or
more other Subsidiaries owns or controls, directly or indirectly, more than 50%
of the shares of Voting Stock.
"Total Assets" as of any date means the sum of (1) the Undepreciated Real
Estate Assets, (2) all other assets of the Operating Partnership, and of its
Subsidiaries determined at the applicable proportionate interest of the
Operating Partnership in each Subsidiary, determined in accordance with GAAP
(but excluding intangibles and accounts receivable) and (3) the cost of any
property of the Operating Partnership, or any Subsidiary thereof, in which the
Operating Partnership, or Subsidiary, as the case may be, has a firm,
non-contingent purchase obligation.
"Total Unencumbered Assets" means the sum of (1) those Undepreciated Real
Estate Assets not subject to a Lien on a consolidated basis, (2) all other
assets of the Operating Partnership, and of its Subsidiaries determined at the
applicable proportionate interest of the Operating Partnership in each such
Subsidiary, which are not subject to a Lien determined in accordance with GAAP
(but excluding intangibles and accounts receivable) and (3) the cost of any
property of the Operating Partnership, or any Subsidiary thereof, in which the
Operating Partnership, or Subsidiary, as the case may be, has a firm,
non-contingent purchase obligation and which is not subject to a Lien.
"Undepreciated Real Estate Assets" means as of any date the cost (original
cost plus capital improvements) of real estate assets of the Issuer and its
Subsidiaries on the date, before depreciating and amortization, determined on a
consolidated basis in accordance with GAAP.
"Unsecured Debt" means Indebtedness of the Operating Partnership or any
Subsidiary which is not secured by any mortgage, lien, charge, pledge or
security interest of any kind upon any of the properties owned by the Operating
Partnership or any of its Subsidiaries.
"Voting Stock" means stock having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees, provided that stock that carries only the right to vote
conditionally on the happening of an event shall not be considered Voting Stock.
Additional Covenants. Any additional or different covenants of the
Operating Partnership or Reckson Associates with respect to any series of Debt
Securities will be set forth in the prospectus supplement relating thereto.
Events of Default, Notice and Waiver
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder:
a. default for 30 days in the payment of any installment of interest on
any Debt Security of the series;
b. default in the payment of the principal of (or premium, if any, on)
any Debt Security of the series at its maturity;
c. default in making any sinking fund payment as required for any Debt
Security of the series;
d. default in the performance of any other covenant of the Operating
Partnership or Reckson Associates contained in the Indenture (other
than a covenant added to the Indenture solely for the benefit of a
series of Debt Securities issued thereunder other than the series),
the default having continued for 60 days after written notice as
provided in the Indenture;
e. the Operating Partnership, Reckson Associates (if the Debt Securities
of the series are Guaranteed Securities), any Subsidiary in which the
Operating Partnership has invested, or is committed or otherwise
obligated to invest, at least $20,000,000 in capital or any entity in
which the Operating Partnership is the general partner shall fail to
pay any principal of, premium or interest on or any other amount
payable in respect of, any recourse Indebtedness that is outstanding
in a principal or notional amount of at least $20,000,000 (or the
equivalent thereof in one or more other currencies), either
individually or in the aggregate (but excluding Indebtedness
outstanding hereunder), of the Operating Partnership and its
consolidated Subsidiaries, taken as a whole, when the same becomes due
and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and the failure shall continue
after the applicable grace period, if any, specified in any agreement
or instrument relating to the Indebtedness, or any other event shall
occur or condition shall exist under any agreement or instrument
evidencing, securing or otherwise relating to any the Indebtedness and
shall continue after the applicable grace period, if any, specified in
the agreement or instrument, if the effect of the event or condition
is to accelerate, or to permit the acceleration of, the maturity of
the Indebtedness or otherwise to cause, or to permit the holder or
holders thereof (or a trustee or agent on behalf of the holders) to
cause the Indebtedness to mature prior to its stated maturity;
f. one or more final, non-appealable judgments or orders for the payment
of money aggregating $20,000,000 (or the equivalent thereof in one or
more other currencies) or more are rendered against one or more of the
Operating Partnership, Reckson Associates (if the Debt Securities of
the series are Guaranteed Securities), any Subsidiary in which the
Operating Partnership has invested, or is committed or otherwise
obligated to invest, at least $20,000,000 in capital and any entity in
which the Operating Partnership is the general partner and remain
unsatisfied and either (1) enforcement proceedings shall have been
commenced by any creditor upon any judgment or order or (2) there
shall be a period of at least 60 days after entry thereof during which
a stay of enforcement of any judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; provided, however, that
any judgment or order shall not give rise to an Event of Default under
this clause if and for so long as (A) the amount of the judgment or
order is covered by a valid and binding policy of insurance between
the defendant and the insurer covering full payment thereof and (B)
the insurer has been notified, and has not disputed the claim made for
payment, of the amount of the judgment or order; or
g. certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Operating
Partnership, Reckson Associates or any Significant Subsidiary or any
of their respective property;
h. any other Event of Default provided with respect to a particular
series of Debt Securities.
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of that series may declare the principal amount (or,
if the Debt Securities of that series are Original Issue Discount Securities or
Indexed Securities, the portion of the principal amount as may be specified in
the terms thereof) of all of the Debt Securities of that series to be due and
payable immediately by written notice thereof to the Operating Partnership and
Reckson Associates (and to the Trustee if given by the Holders). However, at any
time after the declaration of acceleration with respect to Debt Securities of
the series (or of all Debt Securities then Outstanding under the Indenture, as
the case may be) has been made, but before a judgment or decree for payment of
the money due has been obtained by the Trustee, the Holders of not less than a
majority in principal amount of Outstanding Debt Securities of the series (or of
all Debt Securities then Outstanding under the Indenture, as the case may be)
may rescind and annul the declaration and its consequences if
(a) the Operating Partnership or Reckson Associates shall have deposited
with the Trustee all required payments of the principal of (and premium, if any)
and interest on the Debt Securities of the series (or of all Debt Securities
then outstanding under the Indenture, as the case may be), plus certain fees,
expenses, disbursements and advances of the Trustee and
(b) all Events of Default, other than the non-payment of accelerated
principal of (or specified portion thereof), or premium (if any) or interest on
the Debt Securities of the series (or of all Debt Securities then Outstanding
under the Indenture, as the case may be) have been cured or waived as provided
in the Indenture.
The Indenture also provides that the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be) may
waive any past default with respect to the series and its consequences, except a
default
o in the payment of the principal of (or premium, if any) or interest on
any Debt Security of the series or
o in respect of a covenant or provision contained in the Indenture that
cannot be modified or amended without the consent of the Holder of
each Outstanding Debt Security affected thereby.
The Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless the default
has been cured or waived; provided, however, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to the series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of the series or in the
payment of any sinking fund installment in respect of any Debt Security of the
series) if specified Responsible Officers of the Trustee consider the
withholding to be in the interest of the Holders.
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of the series, as well as an
offer of reasonable indemnity. This provision will not prevent, however, any
holder of Debt Securities from instituting suit for the enforcement of payment
of the principal of (and premium, if any) and interest on the Debt Securities at
the respective due dates thereof.
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless the
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity. The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred upon the
Trustee. However, the Trustee may refuse to follow any direction which is in
conflict with any law or the Indenture, or which may be unduly prejudicial to
the Holders of Debt Securities of the series not joining therein.
Within 120 days after the close of each fiscal year, the Operating
Partnership and Reckson Associates must deliver a certificate of an officer
certifying to the Trustee whether or not the officer has knowledge of any
default under the Indenture and, if so, specifying each default and the nature
and status thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities or series of Outstanding Debt
Securities which are affected by the modification or amendment; provided,
however, that no modification or amendment may, without the consent of the
Holder of each Debt Security affected thereby:
o change the Stated Maturity of the principal of, or premium (if any) or
any installment of interest on, any Debt Security, reduce the
principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any Debt Security, or reduce the
amount of principal of an Original Issue Discount Security that would
be due and payable upon declaration of acceleration of the maturity
thereof or would be provable in bankruptcy, or adversely affect any
right of repayment of the holder of any Debt Security, change the
place of payment, or the coin or currency, for payment of principal
of, premium, if any, or interest on any Debt Security or impair the
right to institute suit for the enforcement of any payment on or with
respect to any Debt Security;
o reduce the above-stated percentage of outstanding Debt Securities of
any series necessary to modify or amend the Indenture, to waive
compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements
set forth in the Indenture;
o modify or affect in any manner adverse to the Holders the terms and
conditions of the obligations of Reckson Associates in respect of the
payment of principal (and premium, if any) and interest on any
Guaranteed Securities; or
o modify any of the foregoing provisions or any of the provisions
relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect the action or to
provide that certain other provisions may not be modified or waived
without the consent of the Holder of the Debt Security.
In addition to the Operating Partnership's obligation to pay the principal
of, and premium (if any) and interest on, the Debt Securities, the Indenture
contains several other affirmative and negative covenants as described under
"--Certain Covenants." None of the Operating Partnership, Reckson Associates and
the Trustee may waive compliance with the other covenants unless the Holders of
not less than a majority in principal amount of a series of Outstanding Debt
Securities consent to the waiver.
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership, Reckson Associates and the Trustee without the
consent of any Holder of Debt Securities for any of the following purposes:
1. to evidence the succession of another Person to the Operating
Partnership as obligor or Reckson Associates as guarantor under the
Indenture;
2. to add to the covenants of the Operating Partnership or Reckson
Associates for the benefit of the Holders of all or any series of Debt
Securities or to surrender any right or power conferred upon the
Operating Partnership or Reckson Associates in the Indenture;
3. to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities;
4. to add or change any provisions of the Indenture to facilitate the
issuance of, or to liberalize certain terms of, Debt Securities in
bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided that this action shall not
adversely affect the interests of the Holders of the Debt Securities
of any series in any material respect;
5. to amend or supplement any provisions of the Indenture, provided that
no amendment or supplement shall materially adversely affect the
interests of the Holders of any Debt Securities then Outstanding;
6. to secure the Debt Securities;
7. to establish the form or terms of Debt Securities of any series;
8. to provide for the acceptance of appointment by a successor Trustee or
facilitate the administration of the trusts under the Indenture by
more than one Trustee;
9. to cure any ambiguity, defect or inconsistency in the Indenture,
provided that this action shall not adversely affect the interests of
Holders of Debt Securities of any series in any material respect; or
10. to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any
series of the Debt Securities, provided that the action shall not
adversely affect the interests of the Holders of the Debt Securities
of any series in any material respect.
In addition, with respect to Guaranteed Securities, without the consent of
any Holder of Debt Securities, Reckson Associates, or a subsidiary thereof, may
directly assume the due and punctual payment of the principal of, any premium
and interest on all the Guaranteed Securities and the performance of every
covenant of the Indenture on the part of the Operating Partnership to be
performed or observed. Upon any assumption, Reckson Associates or the subsidiary
shall succeed to, and be substituted for and may exercise every right and power
of, the Operating Partnership under the Indenture with the same effect as if
Reckson Associates or the subsidiary had been the issuer of the Guaranteed
Securities and the Operating Partnership shall be released from all obligations
and covenants with respect to the Guaranteed Securities. No assumption shall be
permitted unless Reckson Associates has delivered to the Trustee (1) an
officers' certificate and an opinion of counsel, stating, among other things,
that the Guarantee and all other covenants of Reckson Associates in the
Indenture remain in full force and effect and (2) an opinion of independent
counsel that the Holders of Guaranteed Securities shall have no materially
adverse United States federal tax consequences as a result of the assumption,
and that, if any Debt Securities are then listed on the New York Stock Exchange,
that the Debt Securities shall not be delisted as a result of the assumption.
In determining whether the Holders of the requisite principal amount of
Outstanding Debt Securities of a series have given any request, demand,
authorization, direction, notice, consent or waiver thereunder or whether a
quorum is present at a meeting of Holders of Debt Securities, the Indenture
provides that:
1. the principal amount of an Original Issue Discount Security that shall
be deemed to be Outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of the
determination upon declaration of acceleration of the maturity
thereof;
2. the principal amount of a Debt Security denominated in a foreign
currency that shall be deemed Outstanding shall be the U.S. dollar
equivalent, determined on the issue date for the Debt Security, of the
principal amount (or, in the case of an Original Issue Discount
Security, the U.S. dollar equivalent on the issue date of the Debt
Security of the amount determined as provided in (1) above);
3. the principal amount of an Indexed Security that shall be deemed
Outstanding shall be the principal face amount of the Indexed Security
at original issuance, unless otherwise provided with respect to the
Indexed Security pursuant to the Indenture; and
4. Debt Securities owned by the Operating Partnership or any other
obligor upon the Debt Securities or any affiliate of the Operating
Partnership or of the other obligor shall be disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series. A meeting will be permitted to be called at any
time by the Trustee, and also, upon request, by the Operating Partnership,
Reckson Associates (in respect of a series of Guaranteed Securities) or the
Holders of at least 10% in principal amount of the Outstanding Debt Securities
of the series, in any case upon notice given as provided in the Indenture.
Except for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present will be permitted to be adopted by the affirmative vote of
the Holders of a majority in principal amount of the Outstanding Debt Securities
of that series; provided, however, that, except as referred to above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of the specified percentage in principal amount
of the Outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at the meeting
with respect to a consent or waiver which may be given by the Holders of not
less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing the specified
percentage in principal amount of the Outstanding Debt Securities of the series
will constitute a quorum.
Notwithstanding the foregoing provisions, any action to be taken at a
meeting of Holders of Debt Securities of any series with respect to any action
that the Indenture expressly provides may be taken by the Holders of a specified
percentage which is less than a majority in principal amount of the Outstanding
Debt Securities of a series may be taken at a meeting at which a quorum is
present by the affirmative vote of Holders of the specified percentage in
principal amount of the Outstanding Debt Securities of the series.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in the
currency or currencies, currency unit or units or composite currency or
currencies in which the Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on the Debt Securities in respect of principal (and
premium, if any) and interest to the date of the deposit (if the Debt Securities
have become due and payable) or to the Stated Maturity or Redemption Date, as
the case may be.
The Indenture provides that, unless these provisions are made inapplicable
to the Debt Securities of or within any series pursuant to the Indenture, the
Operating Partnership may elect either (a) to defease and discharge itself and
Reckson Associates (if the Debt Securities are Guaranteed Securities) from any
and all obligations with respect to the Debt Securities (except for the
obligation to pay additional amounts, if any, upon the occurrence of certain
events of tax, assessment or governmental charge with respect to payments on the
Debt Securities and the obligations to register the transfer or exchange of Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of the Debt Securities
and to hold moneys for payment in trust) ("defeasance") or (b) to release itself
and Reckson Associates (if the Debt Securities are Guaranteed Securities) from
their obligations with respect to the Debt Securities under certain sections of
the Indenture (including the restrictions described under "Certain Covenants")
and, if provided pursuant to the Indenture, their obligations with respect to
any other covenant, and any omission to comply with the obligations shall not
constitute a default or an Event of Default with respect to the Debt Securities
("covenant defeasance"), in either case upon the irrevocable deposit by the
Operating Partnership or Reckson Associates with the Trustee, in trust, of an
amount, in the currency or currencies, currency unit or units or composite
currency or currencies in which the Debt Securities are payable at Stated
Maturity, or Government Obligations (as defined below), or both, applicable to
the Debt Securities which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on the
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
A trust will only be permitted to be established if, among other things,
the Operating Partnership or Reckson Associates has delivered to the Trustee an
Opinion of Counsel (as specified in the Indenture) to the effect that the
Holders of the Debt Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of the defeasance or covenant defeasance
and will be subject to U.S. federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if the defeasance or
covenant defeasance had not occurred, and the Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States federal income tax law.
"Government Obligations" means securities which are (1) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (2) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of the series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any Government Obligation or a specific payment of interest on or
principal of any Government Obligation held by the custodian for the account of
the holder of a depository receipt, provided that (except as required by law)
the custodian is not authorized to make any deduction from the amount payable to
the holder of the depository receipt from any amount received by the custodian
in respect of the Government Obligation or the specific payment of interest on
or principal of the Government Obligation evidenced by the depository receipt.
Unless otherwise provided in the applicable prospectus supplement, if after
the Operating Partnership or Reckson Associates has deposited funds and/or
Government Obligations to effect defeasance or covenant defeasance with respect
to Debt Securities of any series:
(a) the Holder of a Debt Security of the series is entitled to, and does,
elect pursuant to the Indenture or the terms of the Debt Security to receive
payment in a currency, currency unit or composite currency other than that in
which the deposit has been made in respect of the Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which the deposit has been
made, the indebtedness represented by the Debt Security shall be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on the Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of the Debt Security into the currency, currency unit or composite
currency in which the Debt Security becomes payable as a result of the election
or the Conversion Event based on the applicable market exchange rate.
"Conversion Event" means the cessation of use of:
o a currency, currency unit or composite currency both by the government
of the country which issued the currency and for the settlement of
transactions by a central bank or other public institutions of or
within the international banking community or
o the euro both within the European Monetary System and for the
settlement of transactions by public institutions of or within the
European Community.
Unless otherwise provided in the applicable prospectus supplement, all
payments of principal of (and premium, if any) and interest on any Debt Security
that is payable in a foreign currency that ceases to be used by its government
of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and the Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Event of Default, Notice and Waiver"
with respect to sections no longer applicable to the Debt Securities or
described in clause (h) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in the currency, currency unit or composite currency in which the
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on the Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
the Debt Securities at the time of the acceleration resulting from the Event of
Default. However, the Operating Partnership and Reckson Associates (if the Debt
Securities are Guaranteed Securities) would remain liable to make payment of the
amounts due at the time of acceleration.
GOVERNING LAW
The Indenture and the Notes shall be governed by the laws of the State of
New York.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any Debt Securities are
convertible into debt securities of the Operating Partnership or exchangeable
for equity securities of Reckson Associates will be set forth in the applicable
prospectus supplement. The terms will include the number or principal amount of
securities into which the debt securities are convertible or for which the debt
securities are exchangeable, the conversion or exchange price (or manner of
calculation thereof), the conversion or exchange period, provisions as to
whether conversion or exchange will be at the option of the holders of the debt
securities, Reckson Associates or the Operating Partnership, the events
requiring an adjustment of the conversion or exchange price (or the manner of
calculation thereof) and any provisions affecting conversion or exchange in the
event of the redemption of the debt securities.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable prospectus supplement relating to the series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable prospectus
supplement relating to the series.
DESCRIPTION OF COMMON STOCK
GENERAL
The charter of Reckson Associates (the "Charter") provides that Reckson
Associates may issue up to 100 million shares of common stock, $.01 par value
per share. In addition, units of limited partnership interest in the Operating
Partnership may be redeemed for cash or, at the option of Reckson Associates,
common stock of Reckson Associates on a one-for-one basis. See also "Description
of Preferred Stock" for a discussion of the 7-5/8% Series A Convertible
Cumulative preferred stock and related units, as well as the convertible units
issued by the Operating Partnership in connection with the acquisition of the
Cappelli portfolio. On February 26, 1999, there were 40,053,358 shares of common
stock outstanding.
The Board of Directors of Reckson Associates has authorized the issuance of
Class B exchangeable common stock in connection with the Tower transaction. See
"Reckson Associates and The Operating Partnership." The shares of Class B common
stock will be entitled to receive an annual dividend of $2.24 per share, payable
quarterly, for the first four full quarters immediately following their
issuance. The cash dividend on the Class B common stock will be subject to
adjustment annually, beginning on the first anniversary of the end of the
quarter following the issuance of the Class B common stock, by a percentage
equal to 70% of the cumulative percentage change in Reckson Associates' FFO per
share above the FFO per share during the year prior to issuance. The shares of
Class B common stock will be convertible at any time, at the option of the
holder, into an equal number of shares of common stock of Reckson Associates,
subject to customary antidilution adjustments. Reckson Associates, at its
option, may redeem any or all of the Class B common stock in exchange for an
equal number of shares of its common stock at any time following the four year,
six-month anniversary of the issuance of the Class B common stock. The Class B
common stock will rank pari passu with Reckson Associates' existing common
stock, including the common stock offered hereby.
All shares of common stock offered hereby have been duly authorized and
will be fully paid and nonassessable. Subject to the preferential rights of any
other shares or series of stock and to the provisions of the Charter regarding
Excess Stock (as defined under "Restrictions on Ownership of Capital Stock"),
holders of shares of common stock offered hereby will be entitled to receive
dividends on the stock if, as and when authorized and declared by the Board of
Directors of Reckson Associates out of assets legally available therefor and to
share ratably in the assets of Reckson Associates legally available for
distribution to its common stockholders in the event of its liquidation,
dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of Reckson Associates.
Subject to the provisions of the Charter regarding Excess Stock, each
outstanding share of Reckson Associates' existing common stock and, if and when
issued, the Class B common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as provided with respect to any other class or series of stock, the
holders of these shares will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of Reckson Associates' existing common
stock and, if and when issued, the Class B common stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of shares of common stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any other securities. Subject to the provisions of the Charter
regarding Excess Stock, shares of common stock will have equal dividend,
liquidation and other rights.
CERTAIN PROVISIONS OF THE CHARTER
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Charter does not
provide for a lesser percentage in these situations. In addition, the Operating
Partnership's partnership agreement provides that for the five-year period
following the completion of the IPO (i.e. through June 2, 2000), the Operating
Partnership may not sell, transfer or otherwise dispose of all or substantially
all of its assets or engage in any other similar transaction (regardless of the
form of the transaction) without the consent of the holders of 85% of all
outstanding limited partnership units.
The Charter authorizes the Board of Directors of Reckson Associates to
reclassify any unissued shares of common stock into other classes or series of
classes of capital stock and to establish the number of shares in each class or
series and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each class or series.
The Board of Directors is divided into three classes of directors, each
class constituting approximately one-third of the total number of directors,
with the classes serving staggered terms. At each annual meeting of
stockholders, the class of directors to be elected at the meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. We believe that classified directors will help to assure the
continuity and stability of the Board of Directors and our business strategies
and policies as determined by the Board. The use of a staggered board may delay
or defer a change in control of Reckson Associates or removal of incumbent
management.
RESTRICTIONS ON OWNERSHIP
In order to qualify as a REIT under the Code, not more than 50% in value of
the outstanding common stock of Reckson Associates may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code) during the
last half of a taxable year and the common stock must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months (or
during a proportionate part of a shorter taxable year). To satisfy the above
ownership requirements and certain other requirements for qualification as a
REIT, the Board of Directors has adopted, and the stockholders prior to the IPO
approved, a provision in the Charter restricting the ownership or acquisition of
shares of common stock. See "Restrictions on Ownership of Capital Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Charter of Reckson Associates provides that Reckson Associates may
issue up to 25 million shares of preferred stock, $.01 par value per share. On
February 26, 1999 there were 9,192,000 shares of 7-5/8% Series A Convertible
Cumulative preferred stock outstanding. Dividends on the Series A Preferred
Stock are payable quarterly in arrears at an annual rate of 7-5/8% of the
liquidation preference of $25 per share. The Series A Preferred Stock is
convertible at any time at the option of the holder at a conversion price of
$28.51 per share of common stock, subject to adjustment in certain
circumstances. On or after April 13, 2003, the shares of Series A Preferred
Stock will be redeemable, in whole or in part, at the option of Reckson
Associates.
In connection with the acquisition of the Cappelli portfolio, the Amended
and Restated Agreement of Limited Partnership of the Operating Partnership was
supplemented (the "Supplements") to establish a series of 25,000 preferred units
of limited partnership interest of the Operating Partnership designated as
Series B preferred units, a series of 11,518 preferred units designated as
Series C preferred units and a series of 6,000 preferred units designated as
Series D preferred units. Each of the Series B, C and D preferred units have a
liquidation preference of $1,000 per unit. Distributions on each Series B, C and
D preferred unit are payable in arrears quarterly in an amount equal to the
greater of: (1) $17.50 or (2) the quarterly distribution attributable to each
Series B, C and D preferred unit if the unit was converted into common stock,
subject to a maximum increase of 5% of the distributions on the Series B, C or D
preferred units over the immediately preceding year. The distribution amount due
on all Series B, C or D preferred units may be reduced during any period which
certain Cappelli indebtedness remains subject to a prepayment premium or
prepayment penalty. Commencing two years after the issuance of each of the
Series B, C or D preferred units, the distribution amount may be adjusted to
reflect increases or decreases in the dividends on the common stock of Reckson
Associates.
The holders of Series B, C or D preferred units have the right to convert
their preferred units into common stock of Reckson Associates at a price per
share of $32.51, $29.39 or $29.12, respectively. The holders of Series B
preferred units also have the right to convert their units into Series C
preferred units, at any time through April 21, 2000. Each Series B, C or D
preferred unit is exchangeable, at the option of its holder, for shares of the
preferred stock of Reckson Associates with a liquidation preference equal to the
liquidation preference of the Series B, C or D preferred units and otherwise
with the same terms as the Series B, C or D preferred units other than the
conversion and exchange rights referred to above. The Operating Partnership,
with regard to any notice of an exchange, may elect to redeem all of the Series
B, C or D preferred units that are the subject of the exchange for cash in an
amount equal to the stated value of Series B, C or D preferred units plus any
accrued distributions thereon.
The statements made hereunder relating to the preferred stock are summaries
of the material terms thereof and do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, the applicable
provisions of the Charter and Bylaws and any applicable articles supplementary
to the Charter designating terms of a series of preferred stock (a "Designating
Amendment").
The issuance of preferred stock could adversely affect the voting power,
dividend rights and other rights of holders of common stock. Although the Board
of Directors has no intention at the present time, it could establish a series
of preferred stock that could, depending on the terms of the series, delay,
defer or prevent a transaction or a change in control of Reckson Associates that
might involve a premium price for the common stock or otherwise be in the best
interest of the holders thereof. Management believes that the availability of
preferred stock will provide us with increased flexibility in structuring
possible future financing and acquisitions and in meeting other needs that might
arise.
TERMS
Subject to the limitations prescribed by the Charter, the Board of
Directors is authorized to fix the number of shares constituting each series of
preferred stock and the designations and powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof, including the provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and other subjects or matters as may be fixed by
resolution of the Board of Directors. The preferred stock will, when issued, be
fully paid and nonassessable and will have no preemptive rights.
Reference is made to the prospectus supplement relating to the series of
preferred stock offered thereby for the specific terms thereof, including:
o The title and stated value of the preferred stock;
o The number of shares of the preferred stock, the liquidation
preference per share of the preferred stock and the offering price of
the preferred stock;
o The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred stock;
o The date from which dividends on the preferred stock shall accumulate,
if applicable;
o The procedures for any auction and remarketing, if any, for the
preferred stock;
o The provision for a sinking fund, if any, for the preferred stock;
o The provisions for redemption, if applicable, of the preferred stock;
o Any listing of the preferred stock on any securities exchange;
o The terms and conditions, if applicable, upon which the preferred
stock may or will be convertible into our common stock, including the
conversion price or manner of calculation thereof;
o The relative ranking and preferences of the preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of Reckson Associates;
o Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
Reckson Associates as a REIT;
o A discussion of material federal income tax considerations applicable
to the preferred stock; and
o Any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of Reckson Associates, rank:
i. senior to the common stock and to all classes or series of equity
securities issued by Reckson Associates the terms of which provide
that the equity securities shall rank junior to the preferred stock;
ii. on a parity with all classes or series of equity securities issued by
Reckson Associates, including the Series A preferred stock, other than
those referred to in clauses (i) and (iii); and
iii. junior to all classes or series of equity securities issued by Reckson
Associates which the terms of the preferred stock provide will rank
senior to it. The term "equity securities" does not include
convertible debt securities.
DIVIDENDS
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will have the rights with respect to payment of dividends set
forth below.
Holders of the preferred stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of Reckson Associates, out of
assets of Reckson Associates legally available for payment, cash dividends in
the amounts and on the dates as will be set forth in, or pursuant to, the
applicable prospectus supplement. Each dividend shall be payable to holders of
record as they appear on the stock transfer books of Reckson Associates on the
record dates as shall be fixed by the Board of Directors of Reckson Associates.
Dividends on any series of preferred stock may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable prospectus supplement. If the Board of Directors of Reckson
Associates fails to declare a dividend payable on a dividend payment date on any
series of preferred stock for which dividends are non-cumulative, then the
holders of the series of preferred stock will have no right to receive a
dividend in respect of the related dividend period and Reckson Associates will
have no obligation to pay the dividend accrued for the period, whether or not
dividends on the series of preferred stock are declared payable on any future
dividend payment date.
If preferred stock of any series is outstanding, no full dividends will be
declared or paid or set apart for payment on any of the capital stock of Reckson
Associates of any other series ranking, as to dividends, on a parity with or
junior to the preferred stock of the series for any period unless:
o if the series of preferred stock has a cumulative dividend, full
cumulative dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set
apart for the payment for all past dividend periods and the then
current dividend period or
o if the series of preferred stock does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for the payment on the
preferred stock of the series.
When dividends are not paid in full (or a sum sufficient for the full
payment is not so set apart) upon preferred stock of any series and the shares
of any other series of preferred stock ranking on a parity as to dividends with
the preferred stock of the series, all dividends declared upon preferred stock
of the series and any other series of preferred stock ranking on a parity as to
dividends with the preferred stock shall be declared pro rata so that the amount
of dividends declared per share of preferred stock of the series and the other
series of preferred stock shall in all cases bear to each other the same ratio
that accrued dividends per share on the preferred stock of the series and the
other series of preferred stock (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if the preferred stock
does not have a cumulative dividend) bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on preferred stock of the series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (1) if
the series of preferred stock has a cumulative dividend, full cumulative
dividends on the preferred stock of the series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (2) if the series of preferred stock does not have a
cumulative dividend, full dividends on the preferred stock of the series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of common stock or other capital
stock ranking junior to the preferred stock of the series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the common stock, or any other of
the capital stock of Reckson Associates ranking junior to or on a parity with
the preferred stock of the series as to dividends or upon liquidation, nor shall
any shares of common stock, or any other capital stock of Reckson Associates
ranking junior to or on a parity with the preferred stock of the series as to
dividends or upon liquidation, be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares) by Reckson Associates except:
(1) by conversion into or exchange for other capital stock of Reckson
Associates ranking junior to the preferred stock of the series as to dividends
and upon liquidation or
(2) redemption's for the purpose of preserving the status of Reckson
Associates as a REIT.
REDEMPTION
If so provided in the applicable prospectus supplement, the preferred stock
will be subject to mandatory redemption or redemption at the option of Reckson
Associates, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in the prospectus supplement.
The prospectus supplement relating to a series of preferred stock that is
subject to mandatory redemption will specify the number of shares of the
preferred stock that Reckson Associates will redeem in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accumulated and unpaid dividends thereon
(which shall not, if the preferred stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable prospectus supplement. If the
redemption price for preferred stock of any series is payable only from the net
proceeds of the issuance of capital stock of Reckson Associates, the terms of
the preferred stock may provide that, if no capital stock shall have been issued
or to the extent the net proceeds from any issuance are insufficient to pay in
full the aggregate redemption price then due, the preferred stock shall
automatically and mandatorily be converted into the applicable capital stock of
Reckson Associates pursuant to conversion provisions specified in the applicable
prospectus supplement.
Notwithstanding the foregoing, unless (1) if the series of preferred stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of preferred stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (2) if the
series of preferred stock does not have a cumulative dividend, full dividends on
the preferred stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
preferred stock shall be redeemed unless all outstanding preferred stock of the
series is simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of preferred stock of the series to
preserve the status of Reckson Associates as a REIT or pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding preferred
stock of the series. In addition, unless (1) if the series of preferred stock
has a cumulative dividend, full cumulative dividends on all outstanding shares
of any series of preferred stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(2) if the series of preferred stock does not have a cumulative dividend, full
dividends on the preferred stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, Reckson Associates
shall not purchase or otherwise acquire, directly or indirectly, any shares of
preferred stock of the series (except by conversion into or exchange for capital
stock of Reckson Associates ranking junior to the preferred stock of the series
as to dividends and upon liquidation); provided, however, that the foregoing
shall not prevent the purchase or acquisition of preferred stock of the series
to preserve the status of Reckson Associates as a REIT or pursuant to a purchase
or exchange offer made on the same terms to holders of all outstanding preferred
stock of the series.
If fewer than all of the outstanding shares of preferred stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by Reckson Associates and the shares may be redeemed pro rata from
the holders of record of the shares in proportion to the number of the shares
held or for which redemption is requested by the holder (with adjustments to
avoid redemption of fractional shares) or by lot or in any other reasonable
manner.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of preferred stock of
any series to be redeemed at the address shown on the stock transfer books. Each
notice shall state:
o the redemption date;
o the number of shares and series of the preferred stock to be redeemed;
o the redemption price;
o the place or places where certificates for the preferred stock are to
be surrendered for payment of the redemption price;
o that dividends on the shares to be redeemed will cease to accumulate
on the redemption date; and
o the date upon which the holder's conversion rights, if any, as to the
shares shall terminate.
If fewer than all the shares of preferred stock of any series are to be
redeemed, the notice mailed to each holder thereof shall also specify the number
of shares of preferred stock to be redeemed from each holder. If notice of
redemption of any preferred stock has been given and if the funds necessary for
redemption have been set aside by Reckson Associates in trust for the benefit of
the holders of any preferred stock so called for redemption, then from and after
the redemption date dividends will cease to accumulate on the preferred stock,
and all rights of the holders of the preferred stock will terminate, except the
right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Reckson Associates (referred to herein as a "liquidation"), then,
before any distribution or payment shall be made to the holders of any common
stock or any other class or series of capital stock of Reckson Associates
ranking junior to the preferred stock of the series in the distribution of
assets upon any liquidation, dissolution or winding up of Reckson Associates,
the holders of the preferred stock shall be entitled to receive out of assets of
Reckson Associates legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable prospectus supplement), plus an amount equal to all
dividends accumulated and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if the
preferred stock does not have a cumulative dividend). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of preferred stock will have no rights or claim to any remaining assets. In the
event that, upon any voluntary or involuntary liquidation, dissolution or
winding up, the available assets of Reckson Associates are insufficient to pay
the amount of the liquidating distributions on all outstanding preferred stock
of the series and the corresponding amounts payable on all shares of other
classes or series of capital stock of Reckson Associates ranking on a parity
with the preferred stock in the distribution of assets, then the holders of the
preferred stock and all other classes or series of capital stock shall share
ratably in any distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
The consolidation or merger of Reckson Associates with or into any other
entity, or the merger of another entity with or into Reckson Associates, or a
statutory share exchange by Reckson Associates, or the sale, lease or conveyance
of all or substantially all of the property or business of Reckson Associates,
shall not be deemed to constitute a liquidation, dissolution or winding up of
Reckson Associates.
VOTING RIGHTS
Holders of the preferred stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable prospectus supplement.
Whenever dividends on any series of preferred stock shall be in arrears for
six or more quarterly periods, the holders of the preferred stock (voting
separately as a class with all other series of preferred stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of Reckson Associates at a special
meeting called by the holders of record of at least ten percent (10%) of any
series of preferred stock so in arrears, unless the request is received less
than 90 days before the date fixed for the next annual or special meeting of the
stockholders, or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if the series of preferred stock has a
cumulative dividend, all dividends accumulated on the shares of preferred stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if the series of preferred stock does not have a
cumulative dividend, four quarterly dividends shall have been fully paid or
declared and a sum sufficient for the payment thereof set aside for payment. In
these cases, the entire Board of Directors of Reckson Associates will be
increased by two directors.
Unless provided otherwise for any series of preferred stock, so long as any
shares of the preferred stock remain outstanding, Reckson Associates will not,
without the affirmative vote or consent of the holders of at least two-thirds of
the shares of the series of preferred stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (the series voting
separately as a class):
(1) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking senior to the preferred stock with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up of Reckson Associates, or reclassify any authorized
capital stock of Reckson Associates into preferred stock, or create, authorize
or issue any obligation or security convertible into or evidencing the right to
purchase any stock; or
(2) amend, alter or repeal the provisions of the Charter or the Designating
Amendment for the series of preferred stock, whether by merger, consolidation or
otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of the series of preferred stock or the
holders thereof;
provided, however, with respect to the occurrence of any of the Events set
forth in (2) above, so long as the series of preferred stock remains outstanding
with the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event Reckson Associates may not be the surviving entity, the
occurrence of any Event shall not be deemed to materially and adversely affect
the rights, preferences, privileges or voting powers of holders of the series of
preferred stock; and provided, further, that (x) any increase in the amount of
the authorized preferred stock or the creation or issuance of any other series
of preferred stock, or (y) any increase in the amount of authorized shares of
the series of preferred stock or any other series of preferred stock, in each
case ranking on a parity with or junior to the preferred stock of the series
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of Reckson Associates, shall not be
deemed to materially and adversely affect the rights, preferences, privileges or
voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which the vote or consent would otherwise be
required shall be effected, all outstanding shares of the series of preferred
stock shall have been converted, redeemed or called for redemption and
sufficient funds shall have been deposited in trust to effect the redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of preferred stock
is convertible into shares of common stock will be set forth in the applicable
prospectus supplement. The terms will include the number of shares of common
stock into which the shares of preferred stock are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the preferred
stock of Reckson Associates, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of the preferred stock.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Stock-- General,"
applicable Maryland law provides that no shareholder, including holders of
preferred stock, shall be personally liable for the acts and obligations of
Reckson Associates and that the funds and property of Reckson Associates shall
be the only recourse for these acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Restrictions on Ownership of Capital Stock," for
Reckson Associates to qualify as a REIT under the Code, not more than 50% in
value of the outstanding capital stock of Reckson Associates may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. Therefore, the
Designating Amendment for each series of preferred stock may contain provisions
restricting the ownership and transfer of the preferred stock. The applicable
prospectus supplement will specify any additional ownership limitation relating
to a series of preferred stock.
Registrar and Transfer Agent
Unless otherwise specified in the applicable prospectus supplement, the
Registrar and Transfer Agent for the preferred stock will be American Stock
Transfer & Trust Company.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
Reckson Associates may issue receipts ("Depositary Receipts") for
Depositary Shares, each of which will represent a fractional interest or a share
of a particular series of a class of preferred stock, as specified in the
applicable prospectus supplement. Preferred stock of each series of each class
represented by Depositary Shares will be deposited under a separate Deposit
Agreement (each, a "Deposit Agreement") among Reckson Associates, the depositary
named therein (the depositary or its successor, the "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the Deposit Agreement, each owner of a Depositary
Receipt will be entitled, in proportion to the fractional interest of a share of
the particular series of a class of preferred stock represented by the
Depositary Shares evidenced by the Depositary Receipt, to all the rights and
preferences of the preferred stock represented by the Depositary Shares,
including dividend, voting, conversion, redemption and liquidation rights.
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the preferred stock by Reckson Associates to the Preferred Stock
Depositary, Reckson Associates will cause the Preferred Stock Depositary to
issue, on our behalf, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from Reckson Associates
upon request.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the preferred stock to the record
holders of the Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of the Depositary Receipts owned by the holder, subject
to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Stock
Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make the distribution, in which
case the Preferred Stock Depositary may, with the approval of Reckson
Associates, sell the property and distribute the net proceeds from the sale to
holders.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption), the holders thereof will be entitled to
delivery at the office, to or upon the holder's order, of the number of whole or
fractional shares of preferred stock and any money or other property represented
by the Depositary Shares evidenced by the Depositary Receipts. Holders of
Depositary Receipts will be entitled to receive whole or fractional shares of
the related preferred stock on the basis of the proportion of preferred stock
represented by each Depositary Share as specified in the applicable prospectus
supplement, but holders of the preferred stock will not thereafter be entitled
to receive Depositary Shares therefor. If the Depositary Receipts delivered by
the holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of preferred stock to be
withdrawn, the Preferred Stock Depositary will deliver to the holder at the same
time a new Depositary Receipt evidencing the excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever Reckson Associates redeems preferred stock held by the Preferred
Stock Depositary, the Preferred Stock Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the preferred stock
so redeemed, provided Reckson Associates shall have paid in full to the
Preferred Stock Depositary the redemption price of the preferred stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the preferred stock. If less than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by the Preferred
Stock Depositary by lot.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable upon
redemption and any money or other property to which the holders of the
Depositary Receipts were entitled upon redemption upon surrender thereof to the
Preferred Stock Depositary.
VOTING OF THE UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the preferred
stock are entitled to vote, the Preferred Stock Depositary will mail the
information contained in the notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent the
preferred stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the preferred stock) will be entitled to instruct the Preferred Stock Depositary
as to the exercise of the voting rights pertaining to the amount of preferred
stock represented by the holder's Depositary Shares. The Preferred Stock
Depositary will vote the amount of preferred stock represented by the Depositary
Shares in accordance with the instructions, and we will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of preferred
stock represented by the Depositary Shares to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing the
Depositary Shares.
LIQUIDATION PREFERENCE
In the event of liquidation, dissolution or winding up of Reckson
Associates, whether voluntary or involuntary, each holder of a Depositary
Receipt will be entitled to the fraction of the liquidation preference accorded
each share of preferred stock represented by the Depositary Share evidenced by
the Depositary Receipt, as set forth in the applicable prospectus supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into common stock or
any other securities or property of Reckson Associates. Nevertheless, if so
specified in the applicable prospectus supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the Preferred Stock Depositary with written instructions to the Preferred
Stock Depositary to instruct Reckson Associates to cause conversion of the
preferred stock represented by the Depositary Shares evidenced by Depositary
Receipts into whole shares of common stock, other preferred stock of Reckson
Associates or other shares of capital stock of Reckson Associates, and Reckson
Associates has agreed that upon receipt of instructions and any amounts payable
in respect thereof, it will cause the conversion thereof utilizing the same
procedures as those provided for delivery of preferred stock to effect the
conversion. If the Depositary Shares evidenced by a Depositary Receipt are to be
converted in part only, one or more new Depositary Receipts will be issued for
any Depositary Shares not to be converted. No fractional shares of common stock
will be issued upon conversion, and if the conversion will result in a
fractional share being issued, an amount will be paid in cash by Reckson
Associates equal to the value of the fractional interest based upon the closing
price of the common stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the preferred stock and any provision of the Deposit Agreement may at
any time be amended by agreement between Reckson Associates and the Preferred
Stock Depositary. However, any amendment that materially and adversely alters
the rights of the holders of Depositary Receipts will not be effective unless
the amendment has been approved by the existing holders of at least a majority
of the Depositary Shares evidenced by the Depositary Receipts then outstanding.
The Deposit Agreement may be terminated by Reckson Associates upon not less
than 30 days' prior written notice to the Preferred Stock Depositary if (1) the
termination is to preserve the status of Reckson Associates as a REIT or (2) a
majority of each class of preferred stock affected by the termination consents
to the termination, whereupon the Preferred Stock Depositary shall deliver or
make available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by the holder, the number of whole or fractional shares
of preferred stock as are represented by the Depositary Shares evidenced by
Depositary Receipts. In addition, the Deposit Agreement will automatically
terminate if (1) all outstanding Depositary Shares shall have been redeemed, (2)
there shall have been a final distribution in respect of the related preferred
stock in connection with any liquidation, dissolution or winding up of Reckson
Associates and the distribution shall have been distributed to the holders of
Depositary Receipts evidencing the Depositary Shares representing the preferred
stock or (iii) each related share of preferred stock shall have been converted
into capital stock of Reckson Associates not so represented by Depositary
Shares.
CHARGES OF PREFERRED SHARES DEPOSITARY
Reckson Associates will pay all transfer and other taxes and governmental
charges arising solely from the existence of the Deposit Agreement. In addition,
Reckson Associates will pay the fees and expenses of the Preferred Stock
Depositary in connection with the performance of its duties under the Deposit
Agreement. However, holders of Depositary Receipts will pay the fees and
expenses of the Preferred Stock Depositary for any duties requested by the
holders to be performed which are outside of those expressly provided for in the
Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to
Reckson Associates notice of its election to do so, and Reckson Associates may
at any time remove the Preferred Stock Depositary, any resignation or removal to
take effect upon the appointment of a successor Preferred Stock Depositary. A
successor Preferred Shares Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from Reckson Associates which are
received by the Preferred Stock Depositary with respect to the related preferred
stock.
Neither Reckson Associates nor the Preferred Stock Depositary will be
liable if the Preferred Stock Depositary is prevented from or delayed in, by law
or any circumstances beyond its control, performing its obligations under the
Deposit Agreement. The obligations of Reckson Associates and the Preferred Stock
Depositary under the Deposit Agreement will be limited to performing specified
duties thereunder in good faith and without negligence, gross negligence or
willful misconduct, and Reckson Associates and the Preferred Stock Depositary
will not be obligated to prosecute or defend any legal proceeding in respect of
any Depositary Receipts, Depositary Shares or preferred stock represented
thereby unless satisfactory indemnity is furnished. Reckson Associates and the
Preferred Stock Depositary may rely on written advice of counsel or accountants,
or information provided by persons presenting the preferred stock represented
thereby for deposit, holders of Depositary Receipts or other persons believed to
be competent to give information, and on documents believed to be genuine and
signed by a proper party.
If the Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and from Reckson Associates, on the other hand, the Preferred Stock
Depositary shall be entitled to act on claims, requests or instructions received
from Reckson Associates.
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
EXCESS STOCK
The Charter provides that Reckson Associates may issue up to 75 million
shares of excess stock, par value $.01 per share ("Excess Stock"). For a
description of Excess Stock, see "--Restrictions on Ownership" below.
RESTRICTIONS ON OWNERSHIP
In order for Reckson Associates to qualify as a REIT under the Code, among
other things, not more than 50% in value of the outstanding capital stock of
Reckson Associates may be owned, directly or indirectly, by five or fewer
individuals (defined in the Code to include certain entities) during the last
half of a taxable year (other than the first year) (the "Five or Fewer
Requirement"), and the shares of capital stock must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months (other
than the first year) or during a proportionate part of a shorter taxable year.
Pursuant to the Code, common stock held by certain types of entities, the as
pension trusts qualifying under Section 401(a) of the Code, United States
investment companies registered under the Investment Company Act of 1940,
partnerships, trusts and corporations, will be attributed to the beneficial
owners of the entities for purposes of the Five or Fewer Requirement (i.e., the
beneficial owners of the entities will be counted as shareholders of Reckson
Associates).
In order to protect Reckson Associates against the risk of losing its
status as a REIT due to a concentration of ownership among stockholders, the
Charter, subject to certain exceptions, provides that no stockholder may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
9.0% (the "Ownership Limit") of the aggregate number or value of the outstanding
shares of common stock. Reckson Associates may also impose limitations on the
ownership of preferred stock. See "Description of Preferred Stock - Restrictions
on Ownership." Any transfer of shares of stock that would result in a violation
of the Ownership Limit or that would result in disqualification as a REIT,
including any transfer that results in shares of capital stock being owned by
fewer than 100 persons or results in Reckson Associates being "closely held"
within the meaning of Section 856(h) of the Code, shall be null and void, and
the intended transferee will acquire no rights to the shares of capital stock.
The foregoing restrictions on transferability and ownership will not apply if
the Board of Directors determines that it is no longer in the best interests of
Reckson Associates to attempt to qualify, or to continue to qualify, as a REIT.
The Board of Directors may, in its sole discretion, waive the Ownership Limit if
evidence satisfactory to the Board of Directors and tax counsel is presented
that the changes in ownership will not then or in the future jeopardize REIT
status and the Board of Directors otherwise decides that waiving the Ownership
Limit is in the best interests of Reckson Associates.
Shares of capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be converted
into shares of Excess Stock that will be transferred, by operation of law, to
the trustee of a trust for the exclusive benefit of one or more charitable
organizations described in Section 170(b)(1)(A) and 170(c) of the Code (the
"Charitable Beneficiary"). The trustee of the trust will be deemed to own the
Excess Stock for the benefit of the Charitable Beneficiary on the date of the
violative transfer to the original transferee-stockholder. Any dividend or
distribution paid to the original transferee-stockholder of Excess Stock prior
to our discovery that capital stock has been transferred in violation of the
provisions of the Charter shall be repaid to the trustee upon demand. Any
dividend or distribution authorized and declared but unpaid shall be rescinded
as void ab initio with respect to the original transferee-stockholder and shall
instead be paid to the trustee of the trust for the benefit of the Charitable
Beneficiary. Any vote cast by an original transferee-stockholder of shares of
capital stock constituting Excess Stock prior to the discovery by us that shares
of capital stock have been transferred in violation of the provisions of the
Charter shall be rescinded as void ab initio. While the Excess Stock is held in
trust, the original transferee-stockholder will be deemed to have given an
irrevocable proxy to the trustee to vote the capital stock for the benefit of
the Charitable Beneficiary. The trustee of the trust may transfer the interest
in the trust representing the Excess Stock to any person whose ownership of the
shares of capital stock converted into Excess Stock would be permitted under the
Ownership Limit. If the transfer is made, the interest of the Charitable
Beneficiary shall terminate and the proceeds of the sale shall be payable to the
original transferee-stockholder and to the Charitable Beneficiary as described
herein. The original transferee-stockholder shall receive the lesser of (1) the
price paid by the original transferee-stockholder for the shares of capital
stock that were converted into Excess Stock or, if the original
transferee-stockholder did not give value for the shares (e.g., the stock was
received through a gift, devise or other transaction), the average closing price
for the class of shares from which the shares of capital stock were converted
for the ten trading days immediately preceding the sale or gift, and (2) the
price received by the trustee from the sale or other disposition of the Excess
Stock held in trust. The trustee may reduce the amount payable to the original
transferee-stockholder by the amount of dividends and distributions relating to
the shares of Excess Stock which have been paid to the original
transferee-stockholder and are owed by the original transferee-stockholder to
the trustee. Any proceeds in excess of the amount payable to the original
transferee-stockholder shall be paid by the trustee to the Charitable
Beneficiary. Any liquidation distributions relating to Excess Stock shall be
distributed in the same manner as proceeds of a sale of Excess Stock. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulations, then the original
transferee-stockholder of any shares of Excess Stock may be deemed, at the
option of Reckson Associates, to have acted as an agent for Reckson Associates
in acquiring the shares of Excess Stock and to hold the shares of Excess Stock
for Reckson Associates.
In addition, Reckson Associates will have the right, for a period of 90
days during the time any shares of Excess Stock are held in trust, to purchase
all or any portion of the shares of Excess Stock at the lesser of (i) the price
initially paid for the shares by the original transferee-stockholder, or if the
original transferee-stockholder did not give value for the shares (e.g., the
shares were received through a gift, devise or other transaction), the average
closing price for the class of stock from which the shares of Excess Stock were
converted for the ten trading days immediately preceding the sale or gift, and
(ii) the average closing price for the class of stock from which the shares of
Excess Stock were converted for the ten trading days immediately preceding the
date Reckson Associates elects to purchase the shares. Reckson Associates may
reduce the amount payable to the original transferee-stockholder by the amount
of dividends and distributions relating to the shares of Excess Stock which have
been paid to the original transferee-stockholder and are owed by the original
transferee-stockholder to the trustee. Reckson Associates may pay the amount of
the reductions to the trustee for the benefit of the Charitable Beneficiary. The
90-day period begins on the later date of which notice is received of the
violative transfer if the original transferee-stockholder gives notice to
Reckson Associates of the transfer or, if no notice is given, the date the Board
of Directors determines that a violative transfer has been made.
These restrictions will not preclude settlement of transactions through the
New York Stock Exchange.
All certificates representing shares of stock will bear a legend referring
to the restrictions described above.
Each stockholder shall upon demand be required to disclose to Reckson
Associates in writing any information with respect to the direct, indirect and
constructive ownership of the capital stock of Reckson Associates as the Board
of Directors deems necessary to comply with the provisions of the Code
applicable to REITs, to comply with the requirements of any taxing authority or
governmental agency or to determine any compliance.
The Ownership Limit may have the effect of delaying, deferring or
preventing a change in control of Reckson Associates unless the Board of
Directors determines that maintenance of REIT status is no longer in the best
interests of Reckson Associates.
DESCRIPTION OF WARRANTS
Reckson Associates may issue Warrants for the purchase of common stock or
preferred stock. Warrants may be issued independently or together with any
securities and may be attached to or separate from the securities. Each series
of Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between Reckson Associates and a warrant agent
specified therein ("Warrant Agent"). The Warrant Agent will act solely for
Reckson Associates in connection with the Warrants of the series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Warrants.
The applicable prospectus supplement will describe the following terms,
where applicable, of the Warrants in respect of which this prospectus is being
delivered:
o the title of the Warrants;
o the aggregate number of the Warrants;
o the price or prices at which the Warrants will be issued;
o the currencies in which the price or prices of the Warrants may be
payable;
o the designation, amount and terms of the Securities purchasable upon
exercise of the Warrants;
o the designation and terms of the other Securities, if any, with which
the Warrants are issued and the number of the Warrants issued with
each security;
o if applicable, the date on and after which the Warrants and the
Securities purchasable upon exercise of the Warrants will be
separately transferable;
o the price or prices at which and currency or currencies in which the
Securities purchasable upon exercise of the Warrants may be purchased;
o the date on which the right to exercise the Warrants shall commence
and the date on which the right shall expire;
o the minimum or maximum amount of the Warrants which may be exercised
at any one time;
o information with respect to book-entry procedures, if any;
o a discussion of material federal income tax considerations; and
o any other material terms of the Warrants, including terms, procedures
and limitations relating to the exchange and exercise of the Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
Based on various assumptions and factual representations made by us
regarding our operations, in the opinion of Brown & Wood LLP, our counsel,
commencing with our taxable year ended December 31, 1995, Reckson Associates has
been organized in conformity with the requirements for qualification as a REIT
under the Code, and the proposed method of operating Reckson Associates will
enable it to meet the requirements for qualification and taxation as a REIT. The
qualification of Reckson Associates depends upon our ability to meet the various
requirements imposed under the Code through actual operations, as discussed
below. Brown & Wood LLP will not review our operations, and no assurance can be
given that actual operations will meet these requirements. The opinion of Brown
& Wood LLP is not binding on the IRS or any court. The opinion of Brown & Wood
LLP is based upon existing law, IRS regulations and currently published
administrative positions of the IRS and judicial decisions, which are subject to
change either prospectively or retroactively.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern Reckson Associates and its stockholders' federal income tax
treatment. For the particular provisions that govern Reckson Associates and its
stockholders' federal income tax treatment, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by reference.
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income that
it distributes to its stockholders. If Reckson Associates fails to qualify
during any taxable year as a REIT, unless certain relief provisions are
available, it will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, which could have
a material adverse effect upon its stockholders. See "Risk Factors-Risks of
Failure to Qualify as a REIT."
In any year in which Reckson Associates qualifies to be taxed as a REIT,
distributions made to its stockholders out of current or accumulated earnings
and profits will be taxed to stockholders as ordinary income except that
distributions of net capital gains designated by Reckson Associates as capital
gain dividends will be taxed as long-term capital gain income to the
stockholders. To the extent that distributions exceed current or accumulated
earnings and profits, they will constitute a return of capital, rather than
dividend or capital gain income, and will reduce the basis for the stockholder's
common stock or preferred stock with respect to which the distribution is paid
or, to the extent that they exceed the basis, will be taxed in the same manner
as gain from the sale of that common stock or preferred stock. Beginning in
1998, Reckson Associates may elect to retain long-term capital gains and pay
corporate-level income tax on them and treat the retained gains as if they had
been distributed to stockholders. In this case, each stockholder would include
in income, as long-term capital gain, its proportionate share of the
undistributed gains and would be deemed to have paid its proportionate share of
the tax paid by Reckson Associates with respect thereto. In addition, the basis
for a stockholder's common stock or preferred stock would be increased by the
amount of the undistributed long-term capital gain included in its income, less
the amount of the tax it is deemed to have paid with respect thereto.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the securities offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from the investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in Reckson Associates, including the possibility of United
States income tax withholding on our distributions.
PLAN OF DISTRIBUTION
Reckson Associates and the Operating Partnership may sell the securities to
one or more underwriters for public offering and sale by them or may sell the
securities to investors directly or through agents. Any underwriter or agent
involved in the offer and sale of the securities will be named in the applicable
prospectus supplement.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. Reckson Associates and the Operating
Partnership also may, from time to time, authorize underwriters acting as their
agents to offer and sell the securities upon the terms and conditions as are set
forth in the applicable prospectus supplement. In connection with the sale of
securities, underwriters may be deemed to have received compensation from
Reckson Associates or the Operating Partnership in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
securities for whom they may act as agent. Underwriters may sell securities to
or through dealers, and dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by Reckson Associates or the Operating
Partnership to underwriters or agents in connection with the offering of
securities, and any discounts, concessions for commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
prospectus supplement. Underwriters, dealers and agents participating in the
distribution of the securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with Reckson Associates and the
Operating Partnership, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with, and perform services for, Reckson Associates and
the Operating Partnership and its subsidiaries in the ordinary course of
business.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby and certain
legal matters described under "Federal Income Tax Considerations" will be passed
upon for Reckson Associates and the Operating Partnership by Brown & Wood LLP,
New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule as of December 31, 1998 and December 31, 1997
and for each of the years in the three year period ended December 31, 1998
appearing in our Form 8-K, dated March 1, 1999; and the combined statement of
revenues and certain expenses of the New Jersey Portfolio (as defined therein)
for the year ended December 31, 1996, the combined statement of revenues and
certain expenses for the Hauppauge Portfolio (as defined therein) for the year
ended December 31, 1996 and the statement of revenues and certain expenses of
the Uniondale Office Property (as defined therein), for the year ended December
31, 1996, appearing in Reckson Associates' Form 8-K, dated February 18, 1997;
and the statement of revenues and certain expenses of 710 Bridgeport Avenue (as
defined therein), for the year ended December 31, 1996 and the statement of
revenues and certain expenses of the Shorthills Office Center (as defined
therein), for the year ended December 31, 1996 appearing in Reckson Associates'
Form 8-K dated June 12, 1997; and the statement of revenues and certain expenses
of Garden City Plaza for the year ended December 31, 1996, appearing in Reckson
Associates' Form 8-K dated September 9, 1997, and the statement of revenues and
certain expenses of the Christiana Office Property (as defined therein) for the
year ended June 30, 1997, appearing in Reckson Associates' Form 8-K dated
February 10, 1998, and the statement of revenues and certain expenses of the
Stamford Office Property (as defined therein) for the year ended December 31,
1997, appearing in Reckson Associates' Form 8-K dated March 24, 1998; and the
statement of revenues and certain expenses of the Cappelli Portfolio for the
year ended December 31, 1997, appearing in Reckson Associates' Form 8-K dated
April 6, 1998, incorporated in this Registration Statement by reference. These
consolidated and combined financial statements are incorporated by reference in
reliance on their reports, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of Reckson Operating Partnership, L.P. as of
December 31, 1998 and December 31, 1997 and for each of the years in the three
year period ended December 31, 1998 as set forth in their report, which is
included in this Registration Statement. These financial statements are included
in reliance on their report, given on their authority as experts in accounting
and auditing.
<PAGE>
<TABLE>
RECKSON OPERATING PARTNERSHIP, L.P.
<CAPTION>
PAGE
- ----
<S> <C>
Selected Financial Data...........................................................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations.............................
CONSOLIDATED FINANCIAL STATEMENTS.................................................................................
Report of Independent Auditors....................................................................................
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997 ........................................
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996...........................
Consolidated Statements of Partners' Capital for the years ended December 31, 1998, 1997 and 1996.................
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 .....................
Notes to Consolidated Financial Statements........................................................................
Schedule III - Real Estate and Accumulated Depreciation...........................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in thousands except unit and properties data)
Reckson Group
--------------------------------
Reckson Operating Partnership, L.P.
For the year ended December 31, For the Period For the Period For the year
-------------------------------------------- June 3, 1995 January 1, 1995 Ended
to December 31 to June 2, 1995 ------------
1998 1997 1996 1995 (1) (1) 1994
-------------------------------------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues............................ $266,312 $153,348 $ 96,030 $ 38,$55 $ 20,889 $ 56,931
Total expenses...................... 201,003 107,639 70,935 27,892 20,695 55,685
Income (loss) before distribution to
preferred unit holders, minority
interests and extraordinary items. 65,309 45,709 25,095 10,563 194 1,246
Minority interests.................. 2,819 920 915 246 --- ---
Extraordinary items - gain (loss)... (1,993) (2,808) (1,259) (6,022) --- 4,434
Preferred distributions............. 14,244 --- --- --- --- ---
Net income available to common unit
holders........................... 46,253 41,981 22,921 4,295 194 5,680
Per Unit Data: (2)
Net income per common unit:
General Partner................... $ .98 $ 1.06 $ .87 $ .22 --- ---
Limited Partners.................. $ .98 $ 1.03 $ .86 $ .19 --- ---
Weighted average common units
outstanding
General Partner................... 39,473,000 32,727,000 19,928,000 14,678,000 --- ---
Limited Partners.................. 7,728,000 7,016,000 6,503,000 5,648,000 --- ---
Balance Sheet Data:
(period end)
Real estate, before accumulated
depreciation........................ $1,743,223 $1,015,282 $ 519,504 $ 290,712 --- $ 162,192
Total assets........................ 1,854,520 1,113,105 543,391 242,540 --- 132,035
Mortgage notes payable.............. 253,463 180,023 161,513 98,126 --- 180,286
Unsecured credit facility........... 465,850 210,250 108,500 40,000 --- ---
Unsecured term loan................. 20,000 --- --- --- --- ---
Senior unsecured notes.............. 150,000 150,000 --- --- --- ---
Market value of equity (3).......... 1,332,882 1,141,592 653,606 303,943 --- ---
Total market capitalization
including debt(3 and 4)........... 2,119,936 1,668,800 921,423 426,798 --- ---
Other Data:
Funds from operations (5)........... $ 98,501 $ 69,619 $ 40,938 $ 17,190 --- ---
Total square feet (at end of period) 21,000 13,645 8,800 5,430 4,529 4,529
Number of properties (at end of
period)........................... 204 155 110 81 72 72
(1) Represents certain financial information on a consolidated historical basis for Reckson Operating Partnership, L. P., and
on a combined historical basis for the Reckson Group.
(2) Based on the weighted average units outstanding for the period then ended.
(3) Based on the market value of the Operating Partnership's common units, the stated value of the Operating Partnership's
preferred units and the number of units outstanding at the end of the period.
(4) Debt amount is net of minority partners' proportionate share of Omni debt plus the Company's share of joint venture debt.
(5) See "Management's Discussion and Analysis" for a discussion of funds from operations.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of Reckson Operating Partnership, L. P. (the "Operating
Partnership") and related notes.
The Operating Partnership considers certain statements set forth herein to
be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, with respect to the Operating Partnership's
expectations for future periods. Certain forward-looking statements, including,
without limitation, statements relating to the timing and success of
acquisitions, the financing of the Operating Partnership's operations, the
ability to lease vacant space and the ability to renew of relet space under
expiring leases, involve certain risks and uncertainties. Although the Operating
Partnership believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, the actual results may differ
materially from those set forth in the forward-looking statements and the
Operating Partnership can give no assurance that its expectation will be
achieved. Certain factors that might cause the results of the Operating
Partnership to differ materially from those indicated by such forward-looking
statements include, among other factors, general economic conditions, general
real estate industry risks, tenant default and bankruptcies, loss of major
tenants, the impact of competition and acquisition, redevelopment and
development risks, the ability to finance business opportunities and local real
estate risks such as an oversupply of space or a reduction in demand for real
estate in the Operating Partnership's real estate markets. Consequently, such
forward-looking statements should be regarded solely as reflections of the
Operating Partnership's current operating and development plans and estimates.
These plans and estimates are subject to revisions from time to time as
additional information becomes available, and actual results may differ from
those indicated in the referenced statements.
Overview and Background
The Reckson Group, the predecessor to Reckson Associates Realty Corp. (the
"Company"), was engaged in the ownership, management, operation, leasing and
development of commercial real estate properties, principally office and
industrial buildings, and also owned certain undeveloped land located primarily
on Long Island, New York. The Operating Partnership commenced operations on June
2, 1995 and is the successor to the operations of the Reckson Group. The sole
general partner in the Operating Partnership, the Company is a self administered
and self managed Real Estate Investment Trust ("REIT"). During June 1995 the
Company contributed approximately $162 million in cash to the Operating
Partnership in exchange for an approximate 73% general partnership interest. As
a result, the Operating Partnership owned or had an interest in 72 properties
(including one joint venture property).
The Operating Partnership owns all of the interests in its real estate
properties either directly or through Reckson FS Limited Partnership. At
December 31, 1998, the Operating Partnership owned 204 properties (the
"Properties"), (including two joint venture properties) encompassing
approximately 21.0 million square feet. The Properties include 73 suburban
office properties containing approximately 10.1 million square feet, 129
industrial properties containing approximately 10.8 million square feet and two
retail properties containing 20,000 square feet.
<PAGE>
Since the IPO, the Operating Partnership has acquired or contracted to
acquire approximately $1.14 billion of Class A suburban office and industrial
properties encompassing approximately 12.8 million square feet located in the
New York Tri-State Area of Long Island, Westchester, Southern Connecticut and
New Jersey. In that regard, the Operating Partnership has acquired 13 Office
Properties and 33 Industrial Properties encompassing approximately 2.1 and 2.6
million square feet, respectively, located on Long Island for an aggregate
purchase price of approximately $302 million. Since its initial investment in
Westchester the Operating Partnership has acquired 17 Office Properties
encompassing approximately 2.4 million square feet and three Industrial
Properties encompassing approximately 163,000 square feet for an aggregate
purchase price of approximately $304 million. Since its initial investment in
Southern Connecticut the Operating Partnership has acquired two Office
Properties encompassing approximately 325,000 square feet for an aggregate
purchase price of approximately $61.3 million. In May 1997, the Operating
Partnership acquired five Office Properties encompassing approximately 496,000
square feet located in New Jersey for an aggregate purchase price of
approximately $56.9 million and, in connection with this acquisition,
established its New Jersey Division. Since its initial investment in New Jersey
the Operating Partnership has acquired 12 Office Properties encompassing
approximately 1.5 million square feet and seven Industrial Properties
encompassing approximately 1.1 million square feet for an aggregate purchase
price of approximately $231.6 million. Additionally, the Operating Partnership
has invested approximately $52.1 million for approximately 154 acres of land
located in Long Island, 32 acres of land located in Westchester and 380 acres of
land located in New Jersey which allows for approximately 4.3 million square
feet of future development opportunities. In addition, the Operating Partnership
has invested approximately $61.3 million in certain mortgage indebtedness
encumbering four Class A office properties on Long Island encompassing
approximately 577,000 square feet, a 825,000 square foot industrial building
located in New Jersey and a 400 acre parcel of land located New Jersey. On
January 6, 1998, the Operating Partnership made its initial investment 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. In connection with the
transaction the Morris Companies contributed 100% of their interests in certain
industrial properties to Reckson Morris Operating Partnership, L. P., ("RMI") in
exchange for operating partnership units in RMI. The Operating Partnership has
agreed to invest up to $150 million in the Morris Companies. As of December 31,
1998, the Operating Partnership has invested approximately $93.8 million for an
approximate 71.8% controlling interest. In addition, at December 31, 1998, the
Operating Partnership had advanced approximately $31 million to the Morris
Companies primarily to fund certain construction costs related to development
properties to be contributed to RMI.
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. On
June 11, 1998, the Operating Partnership distributed its 95% common stock
interest in RSI of approximately $3 million to its partners. Additionally,
during June 1998, the Operating Partnership established a credit facility with
RSI (the"RSI Facility") in the amount of $100 million for RSI's service sector
operations and other general corporate purposes. As of December 31, 1998, the
Operating Partnership had advanced $33.7 million under the RSI facility all of
which is outstanding. In addition, the Operating Partnership approved the
funding of investments of up to $100 million with or in RSVP (the "RSVP
Commitment"), through RSVP-controlled joint venture REIT-qualified investments
or advances made to RSI under terms similar to the RSI Facility. As of December
31, 1998, approximately $17.3 million had been invested through the RSVP
Commitment, of which $10.1 million represents RSVP controlled joint venture
investments and $7.2 million represents advances to RSI under the RSVP
Commitment. Such amounts have been included in investment in real estate joint
ventures and investments in and advances to affiliates, respectively, on the
Operating Partnership's balance sheet. RSI serves as the managing member of
RSVP. RSI invests in operating companies that generally provide commercial
services to the RSI customer base which includes the tenants of RSI's executive
suite business and to properties owned by the Operating Partnership and its
tenants and third parties. RSVP was formed to provide the Operating Partnership
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 Operating Partnership'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.
<PAGE>
The Operating Partnership and RSI have entered into an intercompany
agreement (the "Reckson Intercompany Agreement") to formalize their relationship
and to limit conflicts of interest. Under the Reckson Intercompany Agreement,
RSI granted the Operating Partnership a right of first opportunity to make any
REIT -qualified investment that becomes available to RSI. In addition, if a
REIT-qualified investment opportunity becomes available to an affiliate of RSI,
including RSVP, the Reckson Intercompany Agreement requires such affiliate to
allow the Operating Partnership to participate in such opportunity to the extent
of RSI's interest.
Under the Reckson Intercompany Agreement, the Operating Partnership granted
RSI a right of first opportunity to provide commercial services to the Operating
Partnership and its tenants. RSI will provide services to the Operating
Partnership at rates and on terms as attractive as either the best available for
comparable services in the market or those offered by RSI to third parties. In
addition, the Operating Partnership will give RSI access to its tenants with
respect to commercial services that may be provided to such tenants and,under
the Reckson Intercompany Agreement, subject to certain conditions, the Operating
Partnership granted RSI a right of first refusal to become the lessee of any
real property acquired by the Operating Partnership if the Operating Partnership
determines that, consistent with Reckson's status as a REIT, it is required to
enter into a "master" lease agreement.
On August 27, 1998 the Operating Partnership announced the formation of a
joint venture with RSVP and the Dominion Group, an Oklahoma-based,
privately-owned group of companies that focuses on the development, acquisition
and ownership of government occupied office buildings and correctional
facilities. The new venture, Dominion Properties LLC (the "Dominion Venture"),
is owned by Dominion Venture Group LLC, and by a subsidiary of the Operating
Partnership. The Dominion Venture will engage primarily in acquiring, developing
and/or owning government-occupied office buildings and privately operated
correctional facilities. Under the Dominion Venture's operating agreement, RSVP
is to invest up to $100 million, some of which may be invested by the Operating
Partnership ( the "RSVP Capital"). The initial contribution of RSVP Capital was
approximately $39 million of which approximately $10.1 million was invested by a
subsidiary of the Operating Partnership. The Operating Partnership's subsidiary
funded its capital contribution through the RSVP Commitment. In addition, the
Operating Partnership advanced approximately $2.9 million to RSI through the
RSVP Commitment for an investment in RSVP which was then invested on a joint
venture basis with the Dominion Group in certain service business activities
related to the real estate activities. As of December 31, 1998, the Dominion
Venture had investments in 11 government office buildings and two correctional
facilities.
In July 1998, the Company formed a joint venture, Metropolitan Partners
LLC, a Delaware limited liability company ("Metropolitan"), with Crescent Real
Estate Equities Company, a Texas real estate investment trust ("Crescent").
Pursuant to a merger agreement executed on July 9, 1998 and amended and restated
on August 11, 1998 (the "Initial Merger Agreement") between Metropolitan, the
Company, Crescent and Tower Realty Trust Inc., a Maryland corporation ("Tower"),
Metropolitan agreed, subject to the terms and conditions of the Merger
Agreement, to purchase the common stock of Tower.
Prior to the execution of the Initial Merger Agreement, Metropolitan
identified certain potential tax issues regarding Tower's operations.
Metropolitan entered into the Initial Merger Agreement only after Tower made
detailed representations and warranties purporting to address these issues. In
the course of due diligence, however, Metropolitan, the Company and Crescent
discovered that these representations and warranties may not be correct and
discussed these concerns with Tower, specifically advising Tower that they were
not terminating the Initial Merger Agreement at that time. Metropolitan, the
Company and Crescent invited Tower to respond to these concerns. However, on
November 2, 1998, Tower filed a complaint in the Supreme Court of the State of
New York alleging Metropolitan, the Company and Crescent willfully breached the
Initial Merger Agreement. Tower, in the complaint, was seeking declaratory and
other relief, including damages of not less than $75 million and specific
performance by Metropolitan, the Company and Crescent of their obligations under
the Initial Merger Agreement.
<PAGE>
On December 8, 1998,the Company, Metropolitan and Tower executed a revised
merger agreement (the "Revised Merger Agreement"), pursuant to which Tower will
be merged (the "Merger") into Metropolitan, with Metropolitan surviving the
Merger. Concurrently with the Merger, Tower Realty Operating Partnership, L.P.
("Tower OP") will be merged with and into a subsidiary of Metropolitan. The
consideration to be issued in the mergers will be comprised of (i) 25% cash and
(ii) 75% of shares of Class B Exchangeable Common Stock, par value $.01 per
share, of the Company (the "Class B Common Stock"), or in certain circumstances
described below, shares of Class B Common Stock and unsecured notes of the
Operating Partnership. The Company controls Metropolitan and owns 100% of the
common equity; Crescent owns a preferred equity investment in Metropolitan. The
Revised Merger Agreement replaces the Initial Merger Agreement (which at that
time was a 50/50 joint venture between the Company and Crescent) relating to the
acquisition by Metropolitan of Tower for $24 per share.
Pursuant to the terms of the Revised Merger Agreement, holders of shares of
outstanding common stock of Tower ("Tower Common Stock"), and outstanding units
of limited partnership interest of Tower OP will have the option to elect to
receive cash or shares of Class B Common Stock, subject to proration. Under the
terms of the transaction, Metropolitan will effectively pay for each share of
Tower Common Stock and each unit of limited partnership interest of Tower OP the
sum of (i) $5.75 in cash, and (ii) 0.6273 of a share of Class B Common Stock.
The shares of Class B Common Stock are entitled to receive an initial annual
dividend of $2.24 per share and is subject to adjustment annually. The shares of
Class B Common Stock are exchangeable at any time, at the option of the holder,
into an equal number of shares of common stock, par value $.01 per share, of the
Company subject to customary antidilution adjustments. The Company, at its
option, may redeem any or all of the Class B Common Stock in exchange for an
equal number of shares of the Company's common stock at any time following the
four year, six-month anniversary of the issuance of the Class B Common Stock.
The Company's Board of Directors have recommended to the Company's stockholders
the approval of a proposal to issue a number of shares of Class B Common Stock
equal to 75% of the sum of (i) the number of outstanding shares of the Tower
Common Stock and (ii) the number of Tower OP limited partnership units, in each
case, at the effective time of the mergers. If the stockholders of the Company
do not approve the issuance of the Class B Common Stock as proposed, the Revised
Merger Agreement provides that approximately one-third of the consideration that
was to be paid in the form of Class B Common Stock will be replaced by senior
unsecured notes of the Operating Partnership, which notes will bear interest at
the rate of 7% per annum and have a term of ten years. In addition, if the
stockholders of the Company do not approve the issuance of Class B Common Stock
as proposed and the Board of Directors of the Company withdraws or amends or
modifies in any material respect its recommendation for, approval of such
proposal, then the total principal amount of notes to be issued and distributed
in the Merger will be increased by $15 million.
Simultaneously with the execution of the Revised Merger Agreement,
Metropolitan and Tower executed and consummated a stock purchase agreement (the
"Series A Stock Purchase Agreement") pursuant to which Metropolitan purchased
from Tower approximately 2.2 million shares of Series A Convertible Preferred
Stock, par value $.01 per share, of Tower (the "Tower Preferred Stock"), for an
aggregate purchase price of $40 million, $30 million of which was funded through
a capital contribution by the Company to Metropolitan and which is included in
prepaid expenses and other assets on the Company's balance sheet. The Tower
Preferred Stock has a stated value of $18.44 per share and is convertible by
Metropolitan into an equal number of shares of Tower Common Stock at anytime
after the termination, if any, of the Revised Merger Agreement, subject to
customary antidilution adjustments. The Tower Preferred Stock is entitled to
receive dividends equivalent to those paid on the Tower Common Stock. If the
Revised Merger Agreement is not consummated and a court of competent
jurisdiction issues a final, non-appealable judgment determining that the
Company and Metropolitan are obligated to consummate the Merger but have failed
to do so, or determining that the Company and Metropolitan failed to use their
reasonable best efforts to take all actions necessary to cause certain closing
conditions to be satisfied, Metropolitan is obligated to return to Tower $30
million of the Series A Preferred Stock.
<PAGE>
Immediately prior to the execution of the Revised Merger Agreement and
consummation of the Series A Stock Purchase Agreement, the Company and Crescent
executed the amended and restated operating agreement of Metropolitan (the
"Metropolitan Operating Agreement") pursuant to which Crescent agreed to
purchase a convertible preferred membership interest (the "Preferred Interest")
in Metropolitan for an aggregate purchase price of $85 million. Ten million
dollars of the purchase price was paid by Crescent to Metropolitan upon
execution of the Metropolitan Operating Agreement to acquire the Tower Preferred
Stock and the remaining portion is payable prior to the closing of the Merger
and is expected to be used to fund a portion of the cash merger consideration.
Upon closing of the Merger, Crescent's investment will accrue distributions at a
rate of 7.5% per annum for a two-year period and may be redeemed by Metropolitan
at any time during that period for $85 million, plus an amount sufficient to
provide a 9.5% internal rate of return. If Metropolitan does not redeem the
preferred interest, upon the expiration of the two-year period, Crescent must
convert its interest into either (i) a common membership interest in
Metropolitan or (ii) shares of the Company's common stock at a conversion price
of $24.61.
In connection with the revised transaction, Tower, the Company and Crescent
have exchanged mutual releases for any claims relating to the Initial Merger
Agreement.
The Company anticipates that it will dispose of the assets in the Tower
portfolio located outside of New York. In addition, the Company is also
considering the disposition of certain of the Tower properties located in New
York.
The market capitalization of the Operating Partnership at December 31, 1998
was approximately $2.2 billion. The Operating Partnership's market
capitalization is calculated based on the value of the Operating Partnership's
common units (which, for this purpose, is assumed to be the same per unit as the
value of a share of the Company's common stock) and the stated values of the
Operating Partnership's preferred units and the $867 million (including its
share of joint venture debt and net of minority partners' interest) of debt
outstanding at December 31, 1998. As a result, the Operating Partnership's total
debt to total market capitalization ratio at December 31, 1998 equaled
approximately 39.4%.
Results of Operations
The Operating Partnership's total revenues increased by $113 million or
73.7% from 1997 to 1998 and $57.3 million or 60% from 1996 to 1997. The growth
in total revenues is substantially attributable to the Operating Partnership's
acquisition of 47 properties and the development of two properties which
aggregate approximately 7.4 million square feet in 1998, the acquisition of 45
properties comprising approximately 4.8 million square feet in 1997 and the
acquisition of 29 properties comprising approximately 3.3 million square feet in
1996. Total revenues were also positively effected by increases in occupancies
in our properties and to increases in rental rates throughout our markets.
Property operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $108.7 million or
75.6% from 1997 to 1998 and $51 million or 55% from 1996 to 1997. The 1998
increase in Property Operating Revenues is comprised of $2.1 million
attributable to increases in rental rates and changes in occupancies and $106.6
million attributable to acquisitions of properties. The remaining balance of the
increase in total revenues in 1998 is primarily attributable to increases in
interest income on the Operating Partnership's investments in mortgage notes and
notes receivable and income related to the Operating Partnership's interest in
its service companies primarily attributable to the executive center business.
The 1997 increase in Property Operating Revenues is comprised of $2.1 million
attributable to increases in rental rates and changes in occupancies and $48.9
million attributable to acquisitions of properties. The remaining balance of the
increase in total revenues in 1997 is substantially attributable to interest
income on the Operating Partnership's investments in mortgage notes and notes
receivables. The increase from 1996 to 1997 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 Operating
Partnership's core portfolio and redevelopment opportunities rather than third
party services. The Operating Partnership's base rent was increased by the
impact of the straight-line rent adjustment by $7.7 million in 1998, $4.5
million in 1997 and $3.8 million in 1996.
<PAGE>
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $34.4 million from 1997 to 1998 and by $16.8 million
from 1996 to 1997. 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, 1997and 1996 were 66.2%, 64.7% and 63.4%, respectively. The year to year
increases in gross operating margins results from increases realized in rental
rates, the Operating Partnership'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, a stable operating cost environment and the increased
ownership of net leased properties.
Marketing, general and administrative expenses were $15.0 million in 1998,
$8.0 million in 1997 and $5.9 million in 1996. The increase in marketing,
general and administrative expenses is due to the increased costs of managing
the acquisition properties, the cost of opening and maintaining the Operating
Partnership's Westchester, Southern Connecticut and New Jersey divisions and the
increase in corporate management and administrative costs associated with the
growth of the Operating Partnership. The Operating Partnership's business
strategy has been to expand into the other Tri-State Area suburban markets by
applying its standards for high quality office and industrial space and premier
tenant service to its New Jersey, Westchester and Southern Connecticut
divisions. In doing this, the Operating Partnership seeks to create a superior
franchise value that it enjoys in its home base of Long Island. Over the past
three years the Operating Partnership has supported this effort by increasing
the marketing programs in the other divisions and strengthening the resources
and operating systems in these divisions. The cost of these efforts are
reflected in both the marketing, general and administrative expense as well as
the revenue growth of the Operating Partnership. Marketing, general and
administrative expenses as a percentage of total revenues were 5.64% in 1998,
5.23% in 1997 and 6.18% in 1996.
Interest expense was $47.8 million in 1998, $21.6 million in 1997 and $13.3
million in 1996. The increase of $26.2 million from 1997 to 1998 is attributable
to (i) an increase in mortgage debt including approximately $14.8 million
resulting from the Morris acquisition in January 1998, approximately $45.1
resulting from the Cappelli acquisition in April 1998 and the refinancing of 395
North Service Road in the amount $21.4 million in October 1998; (ii) a full year
of interest on the Operating Partnership's senior unsecured notes (the "Senior
Unsecured Notes") and (iii) an increased average balance on the Operating
Partnership's credit facilities. The increase of $8.3 million from 1996 to 1997
is attributable to an increase in mortgage debt including a $50 million mortgage
note incurred in connection with the acquisition of Landmark Square in October
1996, the refinancing of Omni in the amount of $58 million in August 1997,
increased interest cost attributable to an increased average balance on the
Operating Partnership's credit facilities and interest on the Operating
Partnership's $150 million of Senior Unsecured Notes. The weighted average
balance outstanding on the Operating Partnership's credit facilities was $377.9
million for 1998, $103.2 million for 1997and $71.2 million for 1996.
Included in amortization expense is amortized finance costs of $1.6 million
in 1998, $.80 million in 1997 and $.53 million in 1996. The increase of $.80
million from 1997 to 1998 is primarily attributable to loan costs incurred in
connection with the Operating Partnership's $500 million credit facility and $50
million term loan. The increase of $.27 million from 1996 to 1997 was the result
of the amortization of financing costs associated with the credit facilities,
the Landmark Square mortgage, the Omni refinanced mortgage and the Senior
Unsecured Notes.
Extraordinary items, net of minority interest resulted in a $1.7 million
loss in 1998, a $2.2 million loss in 1997and a $.9 million loss in 1996. The
extraordinary items were all attributed to the write-offs of certain deferred
loan costs incurred in connection with the Operating Partnership's restructuring
of its credit facilities.
<PAGE>
Liquidity and Capital Resources
Summary of Cash Flows
Net cash provided by operating activities totaled $119.2 million in 1998,
$75.8 million in 1997 and $41.8 million in 1996. Increases for each year were
primarily attributable to the growth in cash flow provided by the acquisition of
properties and to a lesser extent from interest income from mortgage notes and
notes receivable.
Net cash used by investing activities totaled $613.3 million in 1998,
$549.3 million in 1997 and $274.6 million in 1996. Cash used in investing
activities related primarily to investments in real estate properties including
development costs and investments in mortgage notes and notes receivable. In
addition, in December 1998, the Operating Partnership purchased $40 million of
preferred stock of Tower Realty Trust, Inc. in connection with the Merger
transaction.
Net cash provided by financing activities totaled $474.6 million in 1998,
$482.9 million in 1997 and $238.3 million in 1996. Cash provided by financing
activities during 1998, 1997 and 1996 was primarily attributable to proceeds
from partner contributions and draws on the Operating Partnership's credit
facilities and additionally, in 1998 the issuance of preferred units and in
1997 proceeds from the issuance of Senior Unsecured Notes.
Investing Activities
During 1998, the Operating Partnership acquired (i) on Long Island, three
office properties encompassing an aggregate of approximately 674,000 square feet
for approximately $63.4 million and two industrial properties encompassing
approximately 200,000 square feet for approximately $4.4 million; (ii) in
Westchester, six office properties encompassing approximately 980,000 square
feet for approximately $173 million; (iii) in Connecticut, two office properties
encompassing an aggregate of approximately 325,000 square feet for approximately
$61.3 million and (iv) in New Jersey, four Class A office properties
encompassing approximately 522,000 square feet for approximately $90.9 million
and six industrial properties encompassing approximately 985,000 square feet for
approximately $41.6 million. In addition, on January 6, 1998, the Operating
Partnership invested approximately $72 million and acquired a controlling
interest in the Morris Companies, an owner and operator of "Big Box" industrial
properties located in Secaucus, New Jersey.
In June 1998, the Operating Partnership established the RSI credit facility
in the amount of $100 million for RSI's service sector operations and for other
general corporate purposes. As of December 31, 1998, approximately $33.7 million
had been advanced to RSI under this facility. In addition, the Operating
Partnership approved a commitment to fund investments of up to $100 million with
or in RSVP. As of December 31, 1998, the Operating Partnership has invested
approximately $17.3 million under this commitment.
Financing Activities
In connection with the $173 million acquisition of the Cappelli Portfolio
and the $10 million purchase of the Cappelli interest in 360 Hamilton Avenue,
the Operating Partnership issued series B, C and D preferred operating units
in the amount of approximately $42.5 million. The series B, C and D preferred
units have a current distribution rate of 6.25% and are convertible to common
units at conversion prices of approximately $32.51, $29.39 and $29.12,
respectively for each preferred unit.
<PAGE>
During the year ended Decemeber 31,1998, the Company contributed
approximately $53 million in cash to the Operating Partnership in exchange for
2,265,261 common units. Proceeds from the contributions were used to repay
borrowings under the credit facilities.
Additionally, during April 1998, the Company contributed approximately $221
million to the Operating Partnership in exchange for 9,200,000 Series A
preferred units. The Series A preferred units have a liquidation preference of
$25 per unit, a distribution rate of 7.625 % and are convertible to the
Operating Partnership's common units at a conversion rate of .8769 common units
for each preferred unit. Net proceeds from the contribution were used to repay
borrowings under credit facilities.
On July 23, 1998, the Operating Partnership obtained a three year $500
million unsecured revolving credit facility (the "Credit Facility") from Chase
Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the
credit facility bank group. Interest rates on borrowings under the Credit
Facility are 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 Operating
Partnership. Upon the Operating Partnership 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 Credit Facility replaced and
restructured the Operating Partnership `s existing $250 million unsecured credit
facility and $200 million unsecured bridge facility. As a result, certain
deferred loan costs incurred in connection with those facilities were written
off. Such amount has been reflected as an extraordinary loss on the Operating
Partnership `s statement of operations. The Operating Partnership utilizes the
Credit Facility primarily to finance the acquisitions of properties and other
real estate investments, fund its development activities and for working capital
purposes. At December 31, 1998, the Operating Partnership had availability under
the Credit Facility to borrow an additional $8.1 million (net of $26.1million of
outstanding undrawn letters of credit).
On December 4, 1998, the Operating Partnership obtained a one year $50
million unsecured term loan (the "Term Loan") from Chase Manhattan Bank. On
January 13, 1999, the Operating Partnership and Chase Manhattan Bank increased
the total availability under the Term Loan to $75 million. Interest rates on
borrowings under the Term Loan are priced off LIBOR plus 150 basis points for
the first nine months and 175 basis points for the remaining three months. At
December 31, 1998, the Operating Partnership had availability under the Term
Loan to borrow an additional $30 million which was increased to $55 million on
January 13, 1999.
Capitalization
The Operating Partnership's indebtedness at December 31, 1998 totaled $867
million (including its share of joint venture debt and net of the minority
partners' interests) and was comprised of $464 million outstanding under the
Credit Facility, $20 million outstanding under the Term Loan, $150 million of
Senior Unsecured Notes and approximately $233 million of mortgage indebtedness.
Based on the Operating Partnership's total market capitalization of
approximately $2.2 billion at December 31, 1998, (calculated based on the value
of the Operating Partnership's common units(which, for this purpose, is assumed
to be the same per unit as the value of a share of the Company's common stock),
the stated value of the Operating Partnership's preferred units), the Operating
partnership's debt represented approximately 39.4% of its total market
capitalization.
<PAGE>
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 Operating Partnership. The Operating
Partnership's investments in mortgage notes, RSVP and advances under the RSI
facility are expected to produce cash flows. The Operating Partnership expects
to meet its short term liquidity requirements generally through its net cash
provided by operating activities along with the Credit Facility and Term Loan
previously discussed. The Operating Partnership 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
Operating Partnership. The Operating Partnership also expects certain strategic
dispositions of assets or interests in assets to generate cash flows. The
Operating Partnership will refinance existing mortgage indebtedness or
indebtedness under the Credit Facility at maturity or retire such debt through
the issuance of additional debt securities or additional equity securities. The
Operating Partnership anticipates that the current balance of cash and cash
equivalents and cash flows from operating activities, together with cash
available from borrowings and debt and equity offerings, will be adequate to
meet the capital and liquidity requirements of the Operating Partnership in both
the short and long-term.
Inflation
Certain office leases provide for fixed base rent increases or indexed
escalations. In addition, certain office leases provide for separate escalations
of real estate taxes and electric costs over a base amount. The industrial
leases also generally provide for fixed base rent increases, direct pass through
of certain operating expenses and separate real estate tax escalation over a
base amount. The Operating Partnership believes that inflationary increases in
expenses will generally be offset by contractual rent increases and expense
escalations described above.
The Credit Facility and the Term Loan bear interest at a variable rate,
which will be influenced by changes in short-term interest rates, and are
sensitive to inflation.
Impact of Year 2000
Some of the Operating Partnership's older computer programs were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognizes a date
using "00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, or engage in
similar normal business activities.
The Operating Partnership has completed an assessment to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. Currently, the entire
property management system is year 2000 compliant and has been thoroughly
tested. Since the Operating Partnership's accounting software is maintained and
supported by an unaffiliated third party, the total year 2000 project cost as it
relates to the accounting software is estimated to be minimal.
The year 2000 project is estimated to be completed not later than July 31,
1999, which is prior to any anticipated impact on its operating systems.
Additionally, the Operating Partnership has received assurances from its
contractors that all of the Operating Partnership's building management and
mechanical systems are currently year 2000 compliant or will be made compliant
prior to any impact on those systems. However, the Operating Partnership cannot
guarantee that all contractors will comply with their assurances and therefore,
the Operating Partnership may not be able to determine year 2000 compliance of
those contractors. At that time, the Operating Partnership will determine the
extent to which the Operating Partnership will be able to replace non compliant
contractors. The Operating Partnership believes that with modifications to
existing software and conversions to new software, the year 2000 issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
year 2000 issue could have a material impact on the operations of the Operating
Partnership.
<PAGE>
To date, the Operating Partnership has expended approximately $375,000 and
expects to expend an additional one million dollars in connection with upgrading
building management, mechanical and computer systems. The costs of the project
and the date on which the Operating Partnership believes it will complete the
year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and costs
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
In a "worst case scenario", the Operating Partnership believes that failure
of the building management and mechanical systems to operate properly would
result in inconveniences to the building tenants which might include no elevator
service, lighting or entry and egress. In this case, the management of the
Operating Partnership would manually override such systems in order for normal
operations to resume. Additionally, in a "worst case scenario" of the failure of
the third party to deliver, on a timely basis, the necessary upgrades to the
accounting software, the Operating Partnership would be required to process
transactions, such as the issuance of disbursements, manually until an
alternative system was implemented.
If the Operating Partnership is not successful in implementing their year
2000 compliance plan, the Operating Partnership may suffer a material adverse
impact on their consolidated results of operations and financial condition.
Because of the importance of addressing the year 2000 issue, the Operating
Partnership expects to develop contingency plans if they determine that the
compliance plans will not be implemented by July 31, 1999.
<PAGE>
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 restructurings 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 principles
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 Operating
Partnership's operating performance or as an alternative to cash flow as a
measure of liquidity. (See Selected Financial Data). 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 Operating Partnership's calculation of FFO presented herein may not be
comparable to similarly titled measures as reported by other companies.
The following table presents the Operating Partnership's FFO calculation (in
thousands):
<TABLE>
<CAPTION>
Year Ended Decmeber 31,
-----------------------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income before extraordinary items $ 48,246 $44,789 $24,180
Less:
Extraordinary loss ................ 1,993 2,808 1,259
-------- ------- -------
Net Income............................ 46,253 41,981 22,921
Adjustment for Funds From Operations:
Add:
Depreciation and Amortization...... 51,424 26,834 17,429
Minority interests in
consolidated partnerships.......... 2,819 920 915
Extraordinary loss................. 1,993 2,808 1,259
Less:
Gain on sale of property........... --- 672 ---
Amount distributed to minority
partners in consolidated
partnerships....................... 3,988 2,252 1,586
-------- ----- -------
Funds From Operations (FFO)........ $ 98,501 $69,619 $40,938
======== ======= =======
Weighted average units outstanding 47,201 39,743 26,431
======== ======= =======
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Reckson Operating Partnership, L. P.
We have audited the accompanying consolidated balance sheets of Reckson
Operating Partnership, L. P. (the "Operating Partnership") as of December 31,
1998 and 1997, and the related consolidated statements of income, partners'
capital, and cash flows for each of the three years in the period ended December
31 1998. We have also audited the financial statement schedule listed in the
Index. These financial statements and financial statement schedule are the
responsibility of the Operating Partnership's management. Our responsibility is
to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Reckson
Operating Partnership, L. P. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
ERNST & YOUNG LLP
New York, New York
February 11, 1999
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Commercial real estate properties, at cost (Notes 2, 3, 5, 7 and 8 )
Land....................................................................... $ 212,540 $ 138,526
Buildings and improvements................................................. 1,372,549 818,229
Developments in progress:
Land....................................................................... 69,143 36,857
Development costs.......................................................... 82,901 17,616
Furniture, fixtures and equipment............................................. 6,090 4,054
--------------- ---------------
1,743,223 1,015,282
Less accumulated depreciation........................................... (159,049) (111,068)
--------------- ---------------
1,584,174 904,214
Investments in real estate joint ventures..................................... 15,104 7,223
Investment in mortgage notes and notes receivable (Note 8).................... 99,268 104,509
Cash and cash equivalents (Note 12)........................................... 2,228 21,676
Tenant receivables............................................................ 5,159 4,975
Investments in and advances to affiliates (Note 7)............................ 53,154 18,090
Deferred rent receivable...................................................... 22,526 14,973
Prepaid expenses and other assets (Notes 7 and 8)............................. 46,372 13,705
Contract and land deposits and pre-acquisition costs.......................... 2,253 7,559
Deferred lease and loan costs, less accumulated amortization of $18,170
and $14,844 respectively.................................................. 24,282 16,181
--------------- ---------------
Total Assets............................................................... $ 1,854,520 $1,113,105
=============== ===============
LIABILITIES
Mortgage notes payable (Note 2)............................................... $ 253,463 $ 180,023
Unsecured credit facility (Notes 3 and 12).................................... 465,850 210,250
Unsecured term loan (Note 3).................................................. 20,000 ---
Senior unsecured notes ( Note 4).............................................. 150,000 150,000
Accrued expenses and other liabilities (Note 5)............................... 48,384 30,799
Distributions payable......................................................... 19,663 120
Affiliate payables (Note 7)................................................... 2,395 1,764
--------------- ---------------
Total Liabilities.......................................................... 959,755 572,956
--------------- ---------------
Commitments and other comments (Notes 9, 10, and 12).......................... --- ---
Minority interests in consolidated partnerships 52,173 7,697
--------------- ---------------
PARTNERS' CAPITAL (Note 6)
Preferred Capital, 9,234,518 and --- units outstanding, respectively.......... 263,126 ---
General Partner's Capital, 40,035,419 and 37,770,158 units
outstanding, respectively.................................................. 485,341 446,702
Limited Partners' Capital, 7,764,630 and 7,218,688 units
outstanding, respectively.................................................. 94,125 85,750
--------------- ---------------
Total Partners' Capital.................................................... 842,592 532,452
Total Liabilities and Partners' Capital................................. $ 1,854,520 $1,113,105
=============== ===============
</TABLE>
(see accompanying notes to financial statements)
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
For the year ended December 31,
-----------------------------------------------------------------
1998 1997 1996
----------------------- --------------------- -------------------
<S> <C> <C> <C>
REVENUES (Note 10):
Base rents....................................... $224,703 $128,778 $82,150
Tenant escalations and reimbursements............ 27,744 14,981 10,628
Equity in earnings of service companies.......... 1,233 55 1,031
Equity in earnings of real estate joint
ventures....................................... 603 459 266
Interest income on mortgage notes and
notes receivable............................... 7,739 5,437 ---
Investment and other income (Note 8)............. 4,290 3,638 1,955
----------------------- --------------------- -------------------
Total Revenues............................... 266,312 153,348 96,030
----------------------- --------------------- -------------------
EXPENSES:
Property operating expenses...................... 47,919 28,943 18,959
Real estate taxes................................ 35,541 20,579 13,935
Ground rents..................................... 1,761 1,269 1,107
Marketing, general and administrative............ 15,030 8,026 5,933
Interest......................................... 47,795 21,585 13,331
Depreciation and amortization.................... 52,957 27,237 17,670
----------------------- --------------------- -------------------
Total Expenses.................................. 201,003 107,639 70,935
----------------------- --------------------- -------------------
Income before distributions to preferred
unitholders, minority interests and
extraordinary items 65,309 45,709 25,095
Preferred unit distributions .................. (14,244) --- ---
Minority partners' interest in consolidated
partnerships income........................... (2,819) (920) (915)
----------------------- --------------------- -------------------
Income before extraordinary items............... 48,246 44,789 24,180
Extraordinary items - (loss) on
extinguishment of debts. (Notes 1 and 3)...... (1,993) (2,808) (1,259)
----------------------- --------------------- -------------------
Net income available to common unitholders....... $ 46,253 $41,981 $22,921
======================= ===================== ===================
Net Income:
General Partner................................ $38,667 $34,742 $17,325
Limited Partners'............................... 7,586 7,239 5,596
----------------------- --------------------- -------------------
Total............................................ $46,253 $41,981 $22,921
======================= ===================== ===================
Net income per common unit:
General Partner................................. $.98 $1.06 $.87
Limited Partners'............................... $.98 $1.03 $.86
Weighted average common units outstanding:
General Partner................................. 39,473,000 32,727,000 19,928,000
Limited Partners'............................... 7,728,000 7,016,000 6,503,000
</TABLE>
(see accompanying notes to financial statements)
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
<TABLE>
<CAPTION>
General Limited Total
Preferred Partner's Partners' Partners'
Capital Capital Capital Capital
----------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Balance December 31, 1995...................... $ --- $ 59,893 $ 26,148 $ 86,041
---
Net Income..................................... --- 17,325 5,596 22,921
Contributions.................................. --- 131,716 27,881 159,597
Distributions.................................. --- (24,136) (7,746) (31,882)
----------------- ------------------ ---------------- -----------------
Balance December 31, 1996...................... --- 184,798 51,879 236,677
---
Net Income..................................... --- 34,742 7,239 41,981
Contributions.................................. --- 267,827 35,339 303,166
Distributions.................................. --- (40,665) (8,707) (49,372)
----------------- ------------------ ---------------- -----------------
Balance December 31, 1997...................... --- 446,702 85,750 532,452
---
Net Income..................................... --- 38,667 7,586 46,253
Contributions.................................. 263,126 54,089 11,484 328,699
Distributions.................................. --- (55,193) (10,695) (65,888)
Contribution of a 1% interest in Reckson FS
Limited Partnership.......................... --- 1,076 --- 1,076
----------------- ------------------ ---------------- -----------------
Balance December 31, 1998 $ 263,126 $ 485,341 $ 94,125 $ 842,592
================= ================== ================ =================
</TABLE>
(see accompanying notes to financial statements)
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ------------------ -------------------------
<S> <C> <C> <C>
NET INCOME AVAILABLE TO COMMON UNITHOLDERS.... $ 46,253 $ 41,981 $ 22,921
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 52,957 27,237 17,670
Extraordinary loss on extinguishment of
debts..................................... 1,993 2,808 1,259
Minority partners' interests in consolidated
partnerships............................... 2,819 920 915
Gain on sale of interest in Reckson Executive
Centers, LLC (9) --- ---
Gain on sales of property and securities.... (43) (672) ---
Distribution from and share of net loss
(income) from investments in partnerships.. 470 408 191
Equity in earnings of service companies..... (1,233) (55) (931)
Equity in earnings of real estate joint
ventures................................... (603) (459) (266)
Changes in operating assets and liabilities:
Prepaid expenses and other assets........... (6,499) (1,931) (619)
Tenant and affiliate receivables............ (184) (1,183) (256)
Deferred rents receivable................... (7,553) (4,500) (3,837)
Accrued expenses and other liabilities...... 30,849 11,240 4,716
--------------------- ------------------- -----------------
Net cash provided by operating activities... 119,217 75,794 41,763
CASH FLOWS FROM INVESTING ACTIVITIES: --------------------- ------------------- -----------------
Increase in capital escrow reserves......... (700) --- ---
Cash from contributed net assets............ --- --- ---
Purchases of commercial real estate
properties................................. (449,241) (429,379) (181,130)
Interest receivables........................ 2,602 (2,392) (870)
Investment in mortgage notes and notes
receivable................................. 4,072 (50,282) (50,892)
Contract deposits and preacquisition costs.. 8,839 (1,303) (6,668)
Additions to developments in progress....... (97,570) (40,367) (8,427)
Additions to commercial real estate
properties................................. (21,181) (12,038) (12,441)
Payment of leasing costs.................... (8,802) (5,417) (5,028)
Investments in securities................... (42,299) (1,756) ---
Additions to furniture, fixtures and
equipment.................................. (2,071) (1,159) (115)
Investments in real estate joint ventures... (7,773) (1,734) (5,832)
Investment in service companies............. --- (4,241) (3,170)
Distribution from a service company......... 15 --- ---
Proceeds from sales of property and
securities................................. 809 725 ---
----------------------- ---------------------- ----------------------
Net cash (used in) investing activities..... (613,300) (549,343) (274,573)
----------------------- ---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................... --- --- 54,402
Principal payments on borrowings............ (4,735) (1,624) (380)
Proceeds from issuance of senior unsecured
notes...................................... --- 150,000 ---
Proceeds from mortgage refinancing's, net of
refinancing costs.......................... 11,458 20,134 ---
Payment of loan costs and prepayment
penalties.................................. (4,738) (4,983) (2,525)
Investments in and advances to affiliates... (24,409) (20,182) (2,952)
Proceeds from credit facilities............ 393,100 421,000 144,500
Principal payments on credit facilities..... (137,500) (319,250) (76,000)
Proceeds from term loan..................... 20,000 -- --
Contributions............................... 272,734 299,991 145,317
Distributions .............................. (57,683) (53,327) (22,546)
Contribution by a minority partner in a
consolidated partnership................... 10,000 -- --
Distributions to minority partners in
consolidated partnerships.................. (3,592) (8,855) (1,492)
--------------------- -------------------- ----------------
Net cash provided by financing
activities................................... 474,635 482,904 238,324
--------------------- -------------------- ----------------
Net increase (decrease) in cash and cash
equivalents................................... (19,448) 9,355 5,514
Cash and cash equivalents at beginning of
period........................................ 21,676 12,321 6,807
--------------------- -------------------- ----------------
Cash and cash equivalents at end of period..... $ 2,228 $ 21,676 $ 12,321
===================== ==================== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest.... $ 41,822 $ 20,246 $ 13,261
===================== ==================== =================
</TABLE>
(see accompanying notes to financial statements)
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Significant Accounting Policies
Description of Business
Reckson Operating Partnership, L. P. (the "Operating Partnership") is
engaged in the ownership, management, operation, leasing and development of
commercial real estate properties, principally office and industrial buildings
and also own certain undeveloped land (collectively, the "Properties") located
in the New York tri-state area (the "Tri State Area").
Organization and Formation of the Operating Partnership
The Operating Partnership commenced operations on June 2, 1995 and is the
successor to the operations of the Reckson Group. The sole general partner in
the Operating Partnership, Reckson Associates Realty Corp. (the "Company") is a
self administered and self managed Real Estate Investment Trust ("REIT"). During
June, 1995, the Company contributed approximately $162 million in cash to the
Operating Partnership in exchange for an approximate 73% general partnership
interest.
The Operating Partnership executed various option and purchase agreements
whereby it issued 2,758,960 units in the Operating Partnership ("Units") to the
continuing investors and assumed approximately $163 million (net of the 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.
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. On
June 11, 1998, the Operating Partnership distributed its 95% common stock
interest in RSI of approximately $3 million to its owners, including the Company
which, in turn, distributed the common stock of RSI to its stockholders.
Additionally, during June 1998, the Operating Partnership established a credit
facility with RSI (the "RSI Facility") in the amount of $100 million for RSI's
service sector operations and other general corporate purposes. As of December
31, 1998, the Company had advanced $ 33.7 million under the RSI facility all of
which is outstanding. In addition, the Operating Partnership approved the
funding of investments of up to $100 million with or in RSVP (the "RSVP
Commitment"), through RSVP- controlled joint venture REIT-qualified investments
or advances made to RSI under terms similar to the RSI Facility. As of December
31, 1998, approximately $17.3 million had been invested through the RSVP
Commitment, of which $10.1 million represents RSVP controlled joint venture
investments and $7.2 million represents advances to RSI under the RSVP
Commitment. Such amounts have been included in investment in real estate joint
ventures and investments in and advances to affiliates, respectively, on the
Company's balance sheet. RSI serves as the managing member of RSVP. RSI invests
in operating companies that generally provide commercial services to the RSI
customer base which includes the tenants of RSI's executive suite business and
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.
<PAGE>
On January 6, 1998, the Operating Partnership made an initial investment 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. In connection with the
transaction the Morris Companies contributed 100% of their interests in certain
industrial properties to Reckson Morris Operating Partnership, L.P. ("RMI") in
exchange for operating partnership units in RMI. The Operating Partnership has
agreed to invest up to $150 million in the Morris Companies. As of December 31,
1998, the Operating Partnership has invested approximately $93.8 million for an
approximate 71.8% controlling interest in RMI.
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the consolidated
financial position of the Operating Partnership and its subsidiaries as at
December 31, 1998 and 1997 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998. The
Operating Partnership's investments in Metropolitan Partners, LLC, RMI and Omni
Partners, L. P. ("Omni"), are reflected in the accompanying financial statements
on a consolidated basis with a reduction for minority partners' interest. The
operating results of the service businesses currently conducted by Reckson
Management Group, Inc., ("RMG"), 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. Additionally, the operating results of RSI 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% common stock interest in RSI to its owners, including the
Company which, in turn, distributed the common stock of RSI 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
During 1997 the Financial Accounting Standards Board ("FASB") issued
statement No. 130, "Reporting Comprehensive Income" ("SFAS 130") which is
effective for fiscal years beginning after December 15, 1997. SFAS 130
established 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 had no impact on the Operating Partnership's financial position
or results of operations. Additionally in June 1997, the FASB also issued SFAS
No. 131 "Disclosures about segments of an Enterprise and Related Information"
("SFAS 131") which is effective for fiscal years beginning after December 15,
1997. SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of this standard had no
impact on the Operating Partnership's financial position or results of
operations, but did affect the disclosure of segment information. See Note 11.
<PAGE>
The following table presents the minority partners' interest in the consolidated
partnerships income:
December 31,
----------------------------------------
1998 1997 1996
---------- ----------- -----------
Omni Partners, L. P............ 40% 40% 40%
Metropolitan Partners, LLC..... 25% --- ---
Reckson Morris Operating
Partnership, L.P. (1) ....... 28% --- ---
Reckson FS Limited
Partnership (2).............. --- 1% 1%
______________
(1) Approximate
(2) On May 26, 1998, the general partner of Reckson FS Limited
Partnership transferred and assigned its 1% general partnership interest to the
Operating Partnership in exchange for 101,970 units of general partnership
interest.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Real Estate
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to thirty years for buildings and improvements and
five to ten years for furniture, fixtures and equipment. Tenant improvements,
which are included in buildings and improvements, are amortized on a
straight-line basis over the term of the related leases.
Cash Equivalents
The Operating Partnership considers highly liquid investments with a
maturity of three months or less when purchased, to be cash equivalents.
Deferred Costs
Lease fees and loan costs are capitalized and amortized over the life of
the related lease or loan.
Income Taxes
No provision has been made for income taxes in the accompanying
consolidated financial statements since such taxes, if any, are the
responsibility of the individual partners.
<PAGE>
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease. The excess of rents recognized over amounts contractually due are
included in deferred rents receivable on the accompanying balance sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. Certain lease agreements provide for reimbursement
of real estate taxes, insurance, common area maintenance costs and indexed
rental increases, which are recorded on an accrual basis.
The Operating Partnership records interest income on investments in
mortgage notes and notes receivable on an accrual basis of accounting. The
Operating Partnership does not accrue interest on impaired loans where, in the
judgment of management, collection of interest according to the contractual
terms is considered doubtful. Among the factors the Operating Partnership
considers in making an evaluation of the collectibility of interest are, the
status of the loan, the value of the underlying collateral, the financial
condition of the borrower and anticipated future events. Loan discounts are
amortized over the life of the real estate using the constant interest method.
Net Income Per Common Partnership Unit
Net income per common partnership unit is determined by allocating net
income after preferred distributions to the general and limited partners' based
on their weighted average common partnership units outstanding during the
respective periods presented.
Distributions to Preferred Unit Holders
Holders of preferred units of limited partnership interest are entitled
to distributions based on the stated rates of return (subject to adjustment)
for those units.
Holders of preferred units of general partnership interest are entitled to
distributions based on an annual distribution rate of 7.625%.
Capitalized Interest
Interest incurred on borrowings used to fund the property development and
construction are capitalized as developments in progress and allocated to the
individual property costs once construction is completed
Construction Operations
Construction operations are accounted for utilizing the completed contract
method. Under this method, costs and related billings are deferred until the
contract is substantially complete. Estimated losses on uncompleted contracts
are recorded in the period that management determines that a loss may be
incurred.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Mortgage Notes Payable
At December 31, 1998, there were 17 mortgage notes payable with an
aggregate outstanding principal amount of approximately $253 million. Properties
with an aggregate carrying value at December 31, 1998 of approximately $330
million are pledged as collateral against the mortgage notes payable. In
addition, $48.6 million of the $253 million are recourse to the Operating
Partnership. The mortgage notes bear interest at rates ranging from 6.45% to
9.25%, and mature between 1999 and 2012. The weighted average interest rate on
the outstanding mortgage notes payable at December 31, 1998 is 7.8%. Certain of
the mortgage notes payable are guaranteed by certain minority partners in the
Operating Partnership.
<PAGE>
Scheduled principal repayments during the next five years and thereafter are as
follows (in thousands):
Year Ended December 31,
----------------------------
1999............................ $10,752
2000............................ 32,131
2001............................ 19,440
2002............................ 12,937
2003............................ 19,295
Thereafter...................... 158,908
------------------------
$253,463
========================
3. Credit Facilities
On July 23, 1998, the Operating Partnership obtained a three year $500
million unsecured revolving credit facility (the "Credit Facility") from Chase
Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the
credit facility bank group. Interest rates on borrowings under the Credit
Facility are 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 Operating
Partnership. Upon the Operating Partnership 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 Credit Facility replaced and
restructured the Operating Partnership's existing $250 million unsecured
credit facility and $200 million unsecured bridge facility. As a result,
certain deferred loan costs incurred in connection with those facilities were
written off. Such amount has been reflected as an extraordinary loss on the
Operating Partnership's statement of operations. The Operating Partnership
utilizes the Credit Facility primarily to finance the acquisitions of
properties and other real estate investments, fund its development activities
and for working capital purposes. At December 31, 1998, the Operating
Partnership had availability under the Credit Facility to borrow an additional
$8.1 million (net of $26.1 million of outstanding undrawn letters of credit).
On December 4, 1998, the Operating Partnership obtained a one year $50
million unsecured term loan (the "Term Loan") from Chase Manhattan Bank. On
January 13, 1999, the Operating Partnership and Chase Manhattan Bank increased
the total availability under the Term Loan to $75 million. Interest rates on
borrowings under the Term Loan are priced off LIBOR plus 150 basis points for
the first nine months and 175 basis points for the remaining three months. At
December 31, 1998, the Operating Partnership had availability under the Term
Loan to borrow an additional $30 million which was increased to $55 million on
January 13, 1999.
The Operating Partnership capitalized interest incurred on borrowings to
fund certain development costs in the amount of $7,344,102, $2,351,201 and
$800,434 for the years ended December 31, 1998, 1997 and 1996, respectively.
<PAGE>
4. Senior Unsecured Notes
On August 28, 1997, the Operating Partnership sold $150 million of 10-year
senior unsecured notes in a privately placed transaction. 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. Land Leases
The Operating Partnership leases, pursuant to noncancellable operating
leases, the land on which ten of its buildings were constructed. The leases,
which contain renewal options, expire between 2018 and 2080. The leases contain
provisions for scheduled increases in the minimum rent and one of the leases
additionally provides for adjustments to rent based upon the fair market value
of the underlying land at specified intervals. Minimum ground rent is recognized
on a straight-line basis over the terms of the leases. The excess of amounts
recognized over amounts contractually due is approximately $2,316,000 and
$1,948,000 at December 31, 1998 and 1997 respectively. These amounts are
included in accrued expenses and other liabilities on the accompanying balance
sheets. Future minimum lease commitments relating to the land leases as of
December 31, 1998 are as follows (in thousands):
1999................................. $1,781
2000................................. 1,783
2001................................. 1,800
2002................................. 1,819
2003................................. 1,818
Thereafter........................... 50,174
----------------------
$59,175
======================
6. Partners' Capital
The Operating Partnership made loans to certain senior officers to purchase
units at market prices ranging from $12.13 per unit to $21.94 per unit. The
loans bear interest at rates ranging between 8% to 8.5% and are secured by the
units purchased. Approximately $436 thousand of such loans will be forgiven
ratably at each anniversary of employment over a three to four year period and
approximately $176,000 of such loans is due and payable with accrued interest on
January 9, 2002. The loan balances of approximately $248,000 and $362,000 at
December 31, 1998 and 1997, respectively have been included as a reduction of
general partner's capital on the accompanying consolidated statement of
partners' capital.
On April 21, 1998, the Operating Partnership issued 25,000 Series B
preferred units of limited partnership interest at a stated value of $1,000 per
unit and 11,518 Series C preferred units of limited partnership interest 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 distribution
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 distribution rate of 6.25% and are convertible to common units at a
conversion price of approximately $29.39 for each preferred unit.
During the year ended December 31, 1998, the Operating Partnership issued
2,265,261 units of general partnership interest to the Company in exchange for
approximately $53 million. The proceeds were used to repay borrowings under the
credit facilities.
Additionally, the Operating Partnership issued 9,200,000 Series A preferred
units of general partnership interest to the Company in exchange for
approximately $221 million. The Series A preferred units have a liquidation
preference of $25 per unit, a distribution rate of 7.625% and are convertible to
common units at a conversion rate of .8769 common units for each preferred unit.
<PAGE>
On July 2, 1998, the Operating Partnership issued 6,000 Series D preferred
units of limited partnership interest at a stated value of $1,000 per unit in
connection wit 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 distribution rate of 6.25% and are convertible to common units at a
conversion price of approximately $29.12 for each preferred unit.
7. Related Party Transactions
The Operating Partnership, through its subsidiaries and affiliates,
provides management, leasing and other tenant related services to the
Properties. Certain executive officers of the Company have continuing ownership
interests in the unconsolidated service companies.
The Operating Partnership in connection with its formation, was granted
options, exercisable over a 10 year period to acquire six properties owned by
the Reckson Group (the "Predecessor") (the "Reckson Option Properties") and four
properties in which the Predecessor owns a non-controlling minority interest
(the "Other Option Properties" and, together with the Reckson Option Properties,
the "Option Properties") at a purchase price equal to the lesser of (i) a fixed
purchase price and (ii) the Net Operating Income, as defined, attributable to
such Option Property during the 12 month period preceding the exercise of the
option divided by a capitalization rate of 11.5%, but the purchase price shall
in no case be less than the outstanding balance of the mortgage debt encumbering
the Option Property on the acquisition date.
As of December 31, 1998, the Operating Partnership acquired four of the
Reckson Option Properties for an aggregate purchase price of approximately $35
million. In connection with the purchase of such Option Properties the Operating
Partnership issued 475,032 common units at prices ranging from $16.38 per unit
to $21.00 per unit (split adjusted) as partial consideration in the
transactions. Such units were issued to certain members of management and
entities whose partners included members of management. Additionally, during
1998, one of the Other Option Properties was sold by the Predecessor to a third
party.
The Operating Partnership made construction loan advances to fund certain
redevelopment and leasing costs relating to one of the Other Option Properties.
At December 31, 1997 and 1996, advances due the Operating Partnership were
approximately $4,200,000 and $2,940,000, respectively. Such amounts bear
interest at the rate of 11% per annum and are due on demand. In January 1998,
the outstanding advances including accrued and unpaid interest was repaid in
full.
The Operating Partnership and RSI have entered into an intercompany
agreement (the "Reckson Intercompany Agreement") to formalize their relationship
and to limit conflicts of interest. Under the Reckson Intercompany Agreement,
RSI granted the Operating Partnership a right of first opportunity to make any
REIT qualified investment that becomes available to RSI. In addition, if a
REIT-qualified investment opportunity becomes available to an affiliate of RSI,
including RSVP, the Reckson Intercompany Agreement requires such affiliate to
allow the Operating Partnership to participate in such opportunity to the extent
of RSI's interest.
Under the Reckson Intercompany Agreement, the Operating Partnership granted
RSI a right of first opportunity to provide commercial services to the Operating
Partnership and its tenants. RSI will provide services to the Operating
Partnership at rates and on terms as attractive as either the best available for
comparable services in the market or those offered by RSI to third parties. In
addition, the Operating Partnership will give RSI access to its tenants with
respect to commercial services that may be provided to such tenants and, under
the Reckson Intercompany Agreement, subject to certain conditions, the Operating
Partnership granted RSI a right of first refusal to become the lessee of any
real property acquired by the Operating Partnership if the Operating Partnership
determines that, consistent with Reckson's status as a REIT, it is required to
enter into a "master" lease agreement.
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 during August 1998.
On June 11, 1998, the Operating Partnership distributed its 95% voting
common stock interest in RSI of approximately $3 million to its partners.
Additionally, during June 1998, the Operating Partnership established a credit
facility with RSI (the "RSI Facility") in the amount of $100 million for RSI's
service sector operations and other general corporate purposes. As of December
31, 1998, the Company had advanced $33.7 million under the RSI facility all of
which is outstanding. In addition, the Operating Partnership approved the
funding of investments of up to $100 million with or in RSVP (the "RSVP
Commitment"), through RSVP-controlled joint venture REIT- qualified investments
or advances made to RSI under terms similar to the RSI Facility. As of December
31, 1998, approximately $17.3 million had been invested through the RSVP
Commitment, of which $10.1 million represents RSVP controlled joint venture
investments and $7.2 million represents advances to RSI under the RSVP
Commitment. Such amounts have been included in investment in real estate joint
ventures and investments in and advances to affiliates, respectively, on the
Operating Partnership's balance sheet.
On August 27, 1998 the Operating Partnership announced the formation of a
joint venture with RSVP and the Dominion Group, an Oklahoma-based,
privately-owned group of companies that focuses on the development, acquisition
and ownership of government occupied office buildings and correctional
facilities. The new venture, Dominion Properties LLC (the "Dominion Venture"),
is owned by Dominion Venture Group LLC, and by a subsidiary of the Operating
Partnership. The Dominion Venture will engage primarily in acquiring, developing
<PAGE>
and/or owning government-occupied office buildings and privately operated
correctional facilities. Under the Dominion Venture's operating agreement, RSVP
is to invest up to $100 million, some of which may be invested by the Operating
Partnership ( the "RSVP Capital"). The initial contribution of RSVP Capital was
approximately $39 million of which approximately $10.1 million was invested by a
subsidiary of the Operating Partnership. The Operating Partnership's subsidiary
funded its capital contribution through the RSVP Commitment. In addition, the
Operating Partnership advanced approximately $2.9 million to RSI through the
RSVP Commitment for an investment in RSVP which was then invested on a joint
venture basis with the Dominion Group in certain service business activities
related to the real estate activities. As of December 31, 1998, the Dominion
Venture had investments in 11 government office buildings and two correctional
facilities.
During 1998, the Operating Partnership made investments in and advances to
RMG of approximately $29.5 million. Such investments and advances were used by
RMG in connection with RMG's acquisition of an approximate 64% ownership
interest in an executive office suite business. Concurrently with RMG's
investment, RSI received an option to purchase RMG's interest at cost plus 8%.
RMG is owned 97% by the Operating Partnership and 3% by an entity owned by
certain officers of the Company. On November 9, 1998, RSI exercised its option
and, as a result RMG earned income during the period of ownership of
approximately $707,000. In addition, RSI assumed the outstanding debt plus
accrued interest owing to the Operating Partnership.
8. Commercial Real Estate Investments
During 1997, the Operating Partnership acquired five office properties
encompassing approximately 881,000 square feet and 15 industrial properties
encompassing approximately 968,000 square feet on Long Island for an aggregate
purchase price of approximately $131 million.
During 1997, the Operating Partnership acquired eight office properties
encompassing approximately 830,000 square feet and three industrial properties
encompassing approximately 163,000 square feet in Westchester for an aggregate
purchase price of approximately $117 million. In addition, the Operating
Partnership acquired approximately 32 acres of land located in Westchester for a
purchase price of approximately $8 million.
During 1997, the Operating Partnership acquired one industrial property
encompassing approximately 452,000 square feet in Connecticut for a purchase
price of approximately $27 million.
During 1997, the Operating Partnership acquired 13 office properties
encompassing approximately 1.5 million square feet and one industrial property
encompassing approximately 128,000 square feet in New Jersey for an aggregate
purchase price of approximately $156 million. In addition, the Operating
Partnership acquired approximately 303 acres of land located in New Jersey for
an aggregate purchase price of approximately $16.2 million.
In October 1997, the Operating Partnership sold 671 Old Willets Path in
Hauppauge, New York for approximately $725,000 and recorded a gain on the sale
of approximately $672,000.
On January 6, 1998, the Operating Partnership made an initial investment 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. 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.
The Operating Partnership has agreed to invest up to $150 million in the Morris
Companies. As of December 31, 1998, the Operating Partnership has invested
approximately $93.8 million for an approximate 71.8% controlling interest in
RMI.
During 1998, the Operating Partnership acquired three office properties
encompassing approximately 674,000 square feet, two industrial properties
encompassing approximately 200,000 square feet and approximately 79.9 acres of
vacant land which allows for approximately 816,000 square feet of future
development opportunities on Long Island for an aggregate purchase price of
approximately $82.8 million.
During 1998, the Operating Partnership acquired four office properties
encompassing approximately 522,000 square feet, six industrial properties
encompassing approximately 985,000 square feet and approximately 112.2 acres of
vacant land which allows for approximately 815,000 square feet of future
development opportunities in New Jersey for an aggregate purchase price of
approximately $138.1 million.
<PAGE>
During 1998, the Operating Partnership 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 1998, the Operating Partnership 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 Operating Partnership also obtained from Cappelli the remaining 50%
interest in 360 Hamilton Avenue, a 365,000 square foot vacant office tower in
downtown White Plains for $10 million plus the return of his capital
contributions of approximately $1.5 million. In addition, the Operating
Partnership 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. These acquisitions were financed
in part through proceeds from a draw under the credit facilities, the issuance
of 42,518 (approximately $42.5 million) preferred operating partnership units
(the "Cappelli Preferred Units"), and the assumption of approximately $47.1
million of mortgage debt. Additionally, during 1998, the Operating Partnership
issued and advanced to Cappelli $19 million under two liquidity loans (the
"Cappelli Liquidity Loans"). The Cappelli Liquidity Loans bear interest at rates
ranging from 10% to 10.5% per annum and are secured by Cappelli's right, title
and interest in the Cappelli Preferred Units. Such amounts have been included in
investments in mortgage notes and notes receivable on the accompanying balance
sheet. On February 3, 1999, the Operating Partnership made an additional $5
million advance under the Cappelli Liquidity Loans.
In July 1998, the Company formed a joint venture, Metropolitan Partners
LLC, a Delaware limited liability company ("Metropolitan"), with Crescent Real
Estate Equities Company, a Texas real estate investment trust ("Crescent").
Pursuant to a merger agreement executed on July 9, 1998 and amended and restated
on August 11, 1998 (the "Initial Merger Agreement") between Metropolitan, the
Company, Crescent and Tower Realty Trust Inc., a Maryland corporation ("Tower"),
Metropolitan agreed, subject to the terms and conditions of the Merger
Agreement, to purchase the common stock of Tower.
Prior to the execution of the Initial Merger Agreement, Metropolitan
identified certain potential tax issues regarding Tower's operations.
Metropolitan entered into the Initial Merger Agreement only after Tower made
detailed representations and warranties purporting to address these issues. In
the course of due diligence, however, Metropolitan, the Company and Crescent
discovered that these representations and warranties may not be correct and
discussed these concerns with Tower, specifically advising Tower that they were
not terminating the Initial Merger Agreement at that time. Metropolitan, the
Company and Crescent invited Tower to respond to these concerns. However, on
November 2, 1998, Tower filed a complaint in the Supreme Court of the State of
New York alleging Metropolitan, the Company and Crescent willfully breached the
Initial Merger Agreement. Tower, in the complaint, was seeking declaratory and
other relief, including damages of not less than $75 million and specific
performance by Metropolitan, the Company and Crescent of their obligations under
the Initial Merger Agreement.
On December 8, 1998,the Company, Metropolitan and Tower executed a revised
merger agreement (the "Revised Merger Agreement"), pursuant to which Tower will
be merged (the "Merger") into Metropolitan, with Metropolitan surviving the
Merger. Concurrently with the Merger, Tower Realty Operating Partnership, L.P.
("Tower OP") will be merged with and into a subsidiary of Metropolitan. The
consideration to be issued in the mergers will be comprised of (i) 25% cash and
(ii) 75% of shares of Class B Exchangeable Common Stock, par value $.01 per
share, of the Company (the "Class B Common Stock"), or in certain circumstances
described below, shares of Class B Common Stock and unsecured notes of the
Operating Partnership. The Company controls Metropolitan and owns 100% of the
common equity; Crescent owns a preferred equity investment in Metropolitan. The
Revised Merger Agreement replaces the Initial Merger Agreement (which at that
time was a 50/50 joint venture between the Company and Crescent) relating to the
acquisition by Metropolitan of Tower for $24 per share.
Pursuant to the terms of the Revised Merger Agreement, holders of shares of
outstanding common stock of Tower ("Tower Common Stock"), and outstanding units
of limited partnership interest of Tower OP will have the option to elect to
receive cash or shares of Class B Common Stock, subject to proration. Under the
terms of the transaction, Metropolitan will effectively pay for each share of
Tower Common Stock and each unit of limited partnership interest of Tower OP the
sum of (i) $5.75 in cash, and (ii) 0.6273 of a share of Class B Common Stock.
The shares of Class B Common Stock are entitled to receive an initial annual
dividend of $2.24 per share and is subject to adjustment annually. The shares of
Class B Common Stock are exchangeable at any time, at the option of the holder,
into an equal number of shares of common stock, par value $.01 per share, of the
Company subject to customary antidilution adjustments. The Company, at its
option, may
<PAGE>
redeem any or all of the Class B Common Stock in exchange for an equal number of
shares of the Company's common stock at any time following the four year,
six-month anniversary of the issuance of the Class B Common Stock. The Company's
Board of Directors have recommended to the Company's stockholders the approval
of a proposal to issue a number of shares of Class B Common Stock equal to 75%
of the sum of (i) the number of outstanding shares of the Tower Common Stock and
(ii) the number of Tower OP limited partnership units, in each case, at the
effective time of the mergers. If the stockholders of the Company do not approve
the issuance of the Class B Common Stock as proposed, the Revised Merger
Agreement provides that approximately one-third of the consideration that was to
be paid in the form of Class B Common Stock will be replaced by senior unsecured
notes of the Operating Partnership, which notes will bear interest at the rate
of 7% per annum and have a term of ten years. In addition, if the stockholders
of the Company do not approve the issuance of Class B Common Stock as proposed
and the Board of Directors of the Company withdraws or amends or modifies in any
material respect its recommendation for, approval of such proposal, then the
total principal amount of notes to be issued and distributed in the Merger will
be increased by $15 million.
Simultaneously with the execution of the Revised Merger Agreement,
Metropolitan and Tower executed and consummated a stock purchase agreement (the
"Series A Stock Purchase Agreement") pursuant to which Metropolitan purchased
from Tower approximately 2.2 million shares of Series A Convertible Preferred
Stock, par value $.01 per share, of Tower (the "Tower Preferred Stock"), for an
aggregate purchase price of $40 million, $30 million of which was funded through
a capital contribution by the Company to Metropolitan and which is included in
prepaid expenses and other assets on the accompanying balance sheet. The Tower
Preferred Stock has a stated value of $18.44 per share and is convertible by
Metropolitan into an equal number of shares of Tower Common Stock at anytime
after the termination, if any, of the Revised Merger Agreement, subject to
customary antidilution adjustments. The Tower Preferred Stock is entitled to
receive dividends equivalent to those paid on the Tower Common Stock. If the
Revised Merger Agreement is not consummated and a court of competent
jurisdiction issues a final, non-appealable judgment determining that the
Company and Metropolitan are obligated to consummate the Merger but have failed
to do so, or determining that the Company and Metropolitan failed to use their
reasonable best efforts to take all actions necessary to cause certain closing
conditions to be satisfied, Metropolitan is obligated to return to Tower $30
million of the Series A Preferred Stock.
Immediately prior to the execution of the Revised Merger Agreement and
consummation of the Series A Stock Purchase Agreement, the Company and Crescent
executed the amended and restated operating agreement of Metropolitan (the
"Metropolitan Operating Agreement") pursuant to which Crescent agreed to
purchase a convertible preferred membership interest (the "Preferred Interest")
in Metropolitan for an aggregate purchase price of $85 million. Ten million
dollars of the purchase price was paid by Crescent to Metropolitan upon
execution of the Metropolitan Operating Agreement to acquire the Tower Preferred
Stock and the remaining portion is payable prior to the closing of the Merger
and is expected to be used to fund a portion of the cash merger consideration.
Upon closing of the Merger, Crescent's investment will accrue distributions at a
rate of 7.5% per annum for a two-year period and may be redeemed by Metropolitan
at any time during that period for $85 million, plus an amount sufficient to
provide a 9.5% internal rate of return. If Metropolitan does not redeem the
preferred interest, upon the expiration of the two-year period, Crescent must
convert its interest into either (i) a common membership interest in
Metropolitan or (ii) shares of the Company's common stock at a conversion price
of $24.61.
In connection with the revised transaction, Tower, the Company and Crescent
have exchanged mutual releases for any claims relating to the Initial Merger
Agreement.
The Company anticipates that it will dispose of the assets in the Tower
portfolio located outside of New York. In addition, the Company is also
considering the disposition of certain of the Tower properties located in New
York.
<PAGE>
In addition, the Operating Partnership has invested approximately $61.3
million in certain mortgage indebtedness encumbering four Class A office
properties encompassing approximately 577,000 square feet, a 825,000 square foot
industrial building located in New Jersey and a 400 acre parcel of land located
in New Jersey. In addition, the Operating Partnership loaned approximately $17
million to its minority partner in Omni, its flagship Long Island office
property, and effectively increased its economic interest in the property owning
partnership.
9. Fair Value of Financial Instruments
The following disclosures of estimated fair value at December 31, 1998 were
determined by management, using available market information and appropriate
valuation methodologies. Considerable judgment is necessary to interpret market
data and develop estimated fair value. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1998. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
Cash equivalents and variable rate debt are carried at amounts which
reasonably approximate their fair values.
Mortgage notes payable have an estimated aggregate fair value which
approximates its carrying value. Estimated fair value is based on interest rates
currently available to the Operating Partnership for issuance of debt with
similar terms and remaining maturities.
10. Rental Income
The Properties are being leased to tenants under operating leases. The
minimum rental amount due under certain leases are generally either subject to
scheduled fixed increases or indexed escalations. In addition, the leases
generally also require that the tenants reimburse the Operating Partnership for
increases in certain operating costs and real estate taxes above base year
costs.
Included in base rents and tenant escalations and reimbursements in the
accompanying statements of operations are amounts from Reckson Executive
Centers, LLC, a service business of the Operating Partnership through March 31,
1998 and, a related party as follows (in thousands):
Tenant
Escalations and
For the Periods Base Rents Reimbursements
January 1 through March 31, 1998................... $597 $149
Year ended December 31, 1997....................... $2,154 $441
Year ended December 31, 1996....................... $1,898 $417
<PAGE>
Expected future minimum rents to be received over the next five years and
thereafter from leases in effect at December 31, 1998 are as follows (in
thousands):
1999.......................................................$241,071
2000....................................................... 222,112
2001....................................................... 187,503
2002....................................................... 165,730
2003....................................................... 135,441
Thereafter................................................. 386,953
---------
1,338,810
==========
11. Segment Disclosure
The Operating Partnership's portfolio consists of Class A suburban office
and industrial properties located in the Tri-State Area of Long Island,
Westchester, Southern Connecticut and New Jersey. In addition, with the
acquisition and merger transaction with Tower, the Operating Partnership has
entered the Manhattan office market. Additionally the Operating Partnership's
portfolio includes 23 industrial properties owned by RMI. Each of the divisions
has a managing director who reports directly to the Chief Operating Officer and
Chief Financial Officer who have been identified as the Chief Operating Decision
Makers ("CODM") because of their final authority over resource allocation
decisions and performance assessment.
The CODM evaluates the operating performance of these divisions based on
geographic area. In addition, as the Operating Partnership expects to meet its
short term liquidity requirements in part through the Credit Facility and Term
Loan, interest incurred on borrowings under the Credit Facility and Term Loan is
not considered as part of property operating performance. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.
The following table sets forth the components of the Operating
Partnership's revenues and expenses and other related disclosures as required by
FAS Statement 131 for the year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Southern Consolidated
Long Island Westchester New Jersey Connecticut RMI Other Totals
--------------- -------------- ------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Base rents............ $ 102,421 $ 51,983 $ 35,425 $ 22,134 $ 12,740 $ --- $ 224,703
Tenant escalations and
reimbursements...... 10,721 7,433 3,746 3,242 2,397 205 27,744
Equity in earnings of
service companies --- --- --- --- --- 1,233 1,233
Equity in earnings of
real estate joint
ventures............ --- --- --- --- --- 603 603
Interest income on
mortgage notes and
notes receivable.... --- --- --- --- --- 7,739 7,739
Investment and other
income.............. 407 15 29 9 --- 3,830 4,290
--------------- -------------- -------------- -------------- ------------- ------------- ---------
Total Revenues.......... 113,549 59,431 39,200 25,385 15,137 13,610 266,312
--------------- -------------- -------------- -------------- ------------- ------------- ---------
EXPENSES:
Property operating
expenses............ 20,774 13,476 5,245 5,932 392 2,100 47,919
Real estate taxes... 20,400 7,379 4,442 1,125 2,195 --- 35,541
Ground rents........ 1,681 1 34 --- --- 45 1,761
Marketing, general and
administrative..... 6,835 1,530 1,820 1,514 456 2,875 15,030
Interest............ 9,281 3,421 15 3,934 1,101 30,043 47,795
Depreciation and
amortization....... 20,930 10,810 7,536 4,425 3,491 5,765 52,957
--------------- -------------- -------------- -------------- ------------- ------------- --------
Total Expenses.......... 79,901 36,617 19,092 16,930 7,635 40,828 201,003
--------------- -------------- -------------- -------------- ------------- ------------- ---------
Income before distributions to
preferred unitholders,
minority interests' and
extraordinary items... $ 33,648 $ 22,814 $ 20,108 $ 8,455 $ 7,502 $(27,218) $65,309
=============== ============== ============== ============== ============= =========== ==========
Total Assets............ $ 518,648 $ 405,836 $ 170,623 $ 329,365 $156,430 $273,618 $1,854,520
=============== ============== ============== ============== ============= =========== ==========
</TABLE>
<PAGE>
12. Non-Cash Investing and Financing Activities
Additional supplemental disclosures of non-cash investing and financing
activities are as follows (in thousands):
(1) In January 1997, the Operating Partnership acquired one of the
Reckson Option Properties as follows:
Mortgage assumed........................... $4,667
Issuance of 203,804 common units........... 4,280
Cash paid.................................. 61
----------------
Total purchase price....................... $9,008
================
(2) In November 1997, the Operating Partnership purchased a 181,000
square foot industrial building located in Hauppauge, New York
as follows:
Mortgage assumed and repaid................ $3,037
Issuance of 62,905 common units............ 1,578
Cash paid.................................. 10
----------------
Total purchase price....................... $4,625
================
(3) In December 1997, the Operating Partnership purchased a 92,000
square foot industrial building located in Elmsford, New York
as follows:
Issuance of 183,469 common units........... $4,700
=================
On January 2, 1998, the Operating Partnership issued an additional 18,752
common 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 Operating Partnership acquired an office property
located in Uniondale, New York which included the issuance of 513,259 common
units for a total non cash investment of $12 million. Additionally, in
connection with the Operating Partnership's investment in the Morris Companies,
the Operating Partnership assumed approximately $10.8 million of indebtedness
net of minority partners interest.
On April 21, 1998, in connection with the acquisition of the Cappelli
portfolio, the Operating Partnership assumed approximately $45.1 million of
indebtedness and issued 36,518 (approximately $36.6 million) units of limited
partnership interest for a total non cash investment of approximately $81.6
million. Additionally, in connection with the acquisition of 155 Passaic Avenue
in Fairfield, New Jersey, the Operating Partnership issued 1,979 common units
for a total non cash investment of approximately $50,000.
On June 11, 1998, the Operating Partnership distributed its 95% common
stock interest in RSI of approximately $3 million to its partners.
On July 2, 1998, in connection with the acquisition of 360 Hamilton Avenue
located in White Plains, New York, the Operating Partnership issued 6,000 Series
D preferred units for a total non cash investment of $6.0 million and assumed
approximately $2.0 million of indebtedness for a total non cash investment of
approximately $8.0 million.
On August 13, 1998, in connection with the acquisition of two office
properties located in Parsippany, New Jersey, the Operating Partnership issued
50,072 OP Units for a total non cash investment of approximately $1.2 million.
<PAGE>
During 1998, in connection with the Operating Partnership's investment in
the Morris Companies, the Operating Partnership assumed approximately $23
million of indebtedness ($16.9 million net of minority partners interest). In
addition, the Morris Companies contributed net assets of approximately $36
million to the Operating Partnership in exchange for an approximate 28.2%
minority partners interest in RMI.
13. Commitments and Other Comments
The Operating Partnership had outstanding undrawn letters of credit against
its credit facilities of approximately $26.1 million and $4 million at December
31, 1998 and 1997, respectively
14. Quarterly Financial Data (Unaudited)
The following summary represents the Operating Partnership's results of
operations for each quarter during 1998 and 1997 (in thousands, except unit
data):
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------- ------------ ---------- ---------
Total revenues........................... $ 55,062 $ 66,267 $ 71,595 $ 73,388
================ ============ =========== ==========
<S> <C> <C> <C> <C>
Income before distributions to preferred
unitholders, minority interests and
extraordinary items ................... $ 12,387 $ 17,664 $ 17,348 $ 17,910
Preferred distributions.................. --- (4,168) (5,034) (5,042)
Minority partners' interest in consolidated
partnerships income................... (561) (712) (665) (881)
Extraordinary (loss)..................... --- --- (1,993) ---
---------------- ------------- ------------ -----------
Net income available to common
unitholders.............................. $ 11,826 $ 12,784 $ 9,656 $ 11,987
================ ============= ============ ===========
Net income:
General Partner....................... $ 9,835 $ 10,022 8,770 10,040
Limited Partners'..................... 1,991 2,762 886 1,947
---------------- -------------- ------------ -----------
Total.................................... $ 11,826 $ 12,784 9,656 11,987
================ ============= ============ ===========
Net income per common unit:
General Partner....................... $ .26 .25 .22 .25
Limited Partners'..................... $ .26 .36 .11 .25
Weighted average common units outstanding:
General Partner....................... 38,182,577 39,636,815 40,011,627 40,034,781
Limited Partners'..................... 7,709,228 7,694,349 7,741,227 7,764,630
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------- -------------- ------------- --------------------
<S> <C> <C> <C> <C>
Total revenues.............................. $31,670 $36,188 $40,328 $45,162
=============== ============== ============= ====================
Income before, minority interests and
extraordinary items....................... $ 8,806 $12,006 $11,544 $13,353
Minority partners' interest in consolidated
partnerships income....................... (268) (228) (228) (196)
Extraordinary (loss)........................ --- (2,362) (446) --
--------------- -------------- -------------- -----------------
Net income.................................. $ 8,538 $ 9,416 $10,870 $13,157
=============== ============== ============= ====================
Net Income:
General Partner.......................... $ 6,760 $ 7,823 $ 9,039 $11,120
Limited Partners'........................ 1,778 1,593 1,831 2,037
--------------- -------------- -------------- -----------------
Total....................................... $ 8,538 $ 9,416 $ 10,870 $13,157
--------------- ---------------- ---------------- -----------------
Net income per unit:
General Partner.......................... $ .25 $ .23 $ .26 $ .31
Limited Partners'........................ $ .26 $ .23 $ .26 $ .29
Weighted average common units outstanding:
General Partner..........................26,569,162 34,298,137 34,477,050 35,445,213
Limited Partners'........................ 6,960,428 6,974,814 6,974,031 7,153,848
</TABLE>
15. Pro Forma Results (unaudited)
The following unaudited pro forma operating results of the Operating
Partnership for the year ended December 31, 1998 have been prepared as if the
property acquisitions made during 1998 had occurred on January 1, 1998.
Unaudited pro forma financial information is presented for informational
purposes only and may not be indicative of what the actual results of operations
of the Operating Partnership would have been had the events occurred as of
January 1, 1998, nor does it purport to represent the results of operations for
future periods (in thousands):
Revenues................................. $ 284,643
=================
Income before extraordinary items ....... $ 57,480
=================
Net Income............................... $ 55,486
=================
Net Income per common unit............... $ 1.18
=================
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
-------- -------- -------- --------
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
------------ -----------
BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- ----------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
Vanderbilt Industrial
Park, Hauppauge,
New York 27 buildings in
an industrial park)...... B $1,940 $9,955 --_ $9,858
Airport International
Plaza, Islip, New York
(17 buildings in an
industrial park)......... 2,616(C) 1,263 13,608 --_ 10,133
County Line Industrial
Center, Huntington,
New York (3 buildings in
an industrial park)...... B 628 3,686 --_ 2,638
32 Windsor Place, Islip,
New York................. B 32 321 --_ 46
42 Windsor Place, Islip,
New York................. B 48 327 --_ 542
505 Walt Whitman Rd.,
Huntington, New York..... B 140 42 --_ 59
1170 Northern Blvd., N.
Great Neck, New York..... B 30 99 --_ 31
50 Charles Lindbergh
Blvd., Mitchel Field,
New York................. 15,479 A 12,089 --_ 4,179
200 Broadhollow Road,
Melville New York........ 6,621 338 3,354 --_ 2,994
48 South Service Road,
Melville, New York....... B 1,652 10,245 --_ 3,760
395 North Service Road,
Melville, New York....... 21,375 A 15,551 --_ 6,616
6800 Jericho Turnpike,
Syosset, New York........ 15,001 582 6,566 --_ 7,238
6900 Jericho Turnpike,
Syosset, New York........ 5,279 385 4,228 --_ 2,531
300 Motor Parkway,
Hauppauge, New c York.... B 276 1,136 --_ 1,489
88 Duryea Road, Melville,
New York................. B 200 1,565 --_ 669
210 Blydenburgh Road,
Islandia, New York....... B 11 158 --_ 155
208 Blydenburgh Road,
Islandia, New York....... B 12 192 --_ 145
71 Hoffman Lane, Islandia,
New York................. B 19 260 --_ 171
933 Motor Parkway,
Hauppauge, New York...... B 106 375 --_ 356
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- -------- --------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
LIFE ON WHICH
BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ---- ------------ ----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Vanderbilt Industrial
Park, Hauppauge,
New York (27 buildings 1961- 1961-
in an industrial park)... $1,940 $19,813 $21,753 $12,431 1979 1979 10-30 Years
Airport International
Plaza, Islip, New York
(17 buildings in an 1970- 1970-
industrial park)......... 1,263 23,741 25,004 13,555 1988 1988 10-30 Years
County Line Industrial
Center, Huntington,
New York (3 buildings in 1975- 1975-
an industrial park)...... 628 6,324 6,952 4,029 1979 1979 10-30 Years
32 Windsor Place, Islip,
New York................. 32 367 399 315 1971 1971 10-30 Years
42 Windsor Place, Islip,
New York................. 48 869 917 666 1972 1972 10-30 Years
505 Walt Whitman Rd.,
Huntington, New York..... 140 101 241 70 1950 1968 10-30 Years
1170 Northern Blvd., N.
Great Neck, New York..... 30 130 160 121 1947 1962 10-30 Years
50 Charles Lindbergh
Blvd., Mitchel Field,
New York................. 0 16,268 16,268 8,155 1984 1984 10-30 Years
200 Broadhollow Road,
Melville New York........ 338 6,348 6,686 3,454 1981 1981 10-30 Years
48 South Service Road,
Melville, New York....... 1,652 14,005 15,657 6,566 1986 1986 10-30 Years
395 North Service Road,
Melville, New York....... 0 22,167 22,167 10,014 1988 1988 10-30 Years
6800 Jericho Turnpike,
Syosset, New York........ 582 13,804 14,386 7,918 1977 1978 10-30 Years
6900 Jericho Turnpike,
Syosset, New York........ 385 6,759 7,144 3,261 1982 1982 10-30 Years
300 Motor Parkway,
Hauppauge, New c York.... 276 2,625 2,901 1,236 1979 1979 10-30 Years
88 Duryea Road, Melville,
New York................. 200 2,234 2,434 1,148 1980 1980 10-30 Years
210 Blydenburgh Road,
Islandia, New York....... 11 313 324 277 1969 1969 10-30 Years
208 Blydenburgh Road,
Islandia, New York....... 12 337 349 318 1969 1969 10-30 Years
71 Hoffman Lane, Islandia,
New York................. 19 431 450 379 1970 1970 10-30 Years
933 Motor Parkway,
Hauppauge, New York...... 106 731 837 540 1973 1973 10-30 Years
Continued-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
-------- -------- -------- --------
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
------------ -----------
BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- ----------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
65 and 85 South Service
Road Plainview, New York. B 40 218 --- 10
333 Earl Ovington Blvd.,
Mitchel Field, New York
(Omni)................... 57,162 A 67,221 --_ 16,548
135 Fell Court, Islip,
New York................. B 462 1,265 --- 47
40 Cragwood Road, South
Plainfield, New Jersey... B 708 7,131 --- 4,772
110 Marcus Drive,
Huntington, New York..... B 390 1,499 --_ 97
333 East Shore Road, Great
Neck, New York........... B A 564 --_ 176
310 East Shore Road, Great
Neck, New York........... 2,322 485 2,009 --_ 304
70 Schmitt Blvd.,
Farmingdale New York..... 150 727 3,408 --_ 24
19 Nicholas Drive,
Yaphank, New York........ B 160 7,399 --_ 38
1516 Motor Parkway,
Hauppauge, New York...... B 603 6,722 --_ 13
125 Baylis Road, Melville,
New York................. B 1,601 8,626 --_ 814
35 Pinelawn Road,
Melville, New York....... B 999 7,073 --_ 1,937
520 Broadhollow Road,
Melville, New York....... B 457 5,572 --_ 1,424
1660 Walt Whitman Road,
Melville,New York........ B 370 5,072 --_ 429
70 Maxess Road, Melville,
New York................. B 367 1,859 95 2,753
85 Nicon Court, Hauppauge,
New York................. B 797 2,818 --_ 54
104 Parkway Drive So.,
Hauppauge, New York...... B 54 804 --- 130
20 Melville Park Rd.,
Melville, New York....... B 391 2,650 --- 96
105 Price Parkway,
Hauppauge, New York...... B 2,030 6,327 --- 453
48 Harbor Park Drive,
Hauppauge, New York...... B 1,304 2,247 --- 93
125 Ricefield Lane,
Hauppauge, New York...... B 13 852 --- 330
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- -------- --------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
LIFE ON WHICH
BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ---- ------------ ----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
65 and 85 South Service
Road Plainview, New York. 40 228 268 223 1961 1961 10-30 Years
333 Earl Ovington Blvd.,
Mitchel Field, New York
(Omni)................... 0 83,769 83,769 15,947 1990 1995 10-30 Years
135 Fell Court, Islip,
New York................. 462 1,312 1,774 284 1965 1992 10-30 Years
40 Cragwood Road, South
Plainfield, New Jersey... 708 11,903 12,611 6,331 1970 1983 10-30 Years
110 Marcus Drive,
Huntington, New York..... 390 1,596 1,986 1,149 1980 1980 10-30 Years
333 East Shore Road, Great
Neck, New York........... 0 740 740 473 1976 1976 10-30 Years
310 East Shore Road, Great
Neck, New York........... 485 2,313 2,798 1,349 1981 1981 10-30 Years
70 Schmitt Blvd.,
Farmingdale New York..... 727 3,432 4,159 382 1965 1995 10-30 Years
19 Nicholas Drive,
Yaphank, New York........ 160 7,437 7,597 845 1989 1995 10-30 Years
1516 Motor Parkway,
Hauppauge, New York...... 603 6,735 7,338 785 1981 1995 10-30 Years
125 Baylis Road, Melville,
New York................. 1,601 9,440 11,041 980 1980 1995 10-30 Years
35 Pinelawn Road,
Melville, New York....... 999 9,010 10,009 1,089 1980 1995 10-30 Years
520 Broadhollow Road,
Melville, New York....... 457 6,996 7,453 1,097 1978 1995 10-30 Years
1660 Walt Whitman Road,
Melville,New York........ 370 5,501 5,871 621 1980 1995 10-30 Years
70 Maxess Road, Melville,
New York................. 462 4,612 5,074 385 1967 1995 10-30 Years
85 Nicon Court, Hauppauge,
New York................. 797 2,872 3,669 286 1984 1995 10-30 Years
104 Parkway Drive So.,
Hauppauge, New York...... 54 934 988 89 1985 1996 10-30 Years
20 Melville Park Rd.,
Melville, New York....... 391 2,746 3,137 208 1965 1996 10-30 Years
105 Price Parkway,
Hauppauge, New York...... 2,030 6,780 8,810 603 1969 1996 10-30 Years
48 Harbor Park Drive,
Hauppauge, New York...... 1,304 2,340 3,644 208 1976 1996 10-30 Years
125 Ricefield Lane,
Hauppauge, New York...... 13 1,182 1,195 162 1973 1996 10-30 Years
Continued-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Column A Column B COLUMN C COLUMN D
-------- -------- -------- --------
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
------------ -----------
BUILDINGS AND BUILDINGS AND
Description ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- ----------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
110 Ricefield Lane,
Hauppauge, New York...... B 33 1,043 --- 52
120 Ricefield Lane,
Hauppauge, New York...... B 16 1,051 --- 30
135 Ricefield Lane,
Hauppauge, New York...... B 24 906 --- 473
30 Hub Drive, Huntington,
New York................. B 469 1,571 --- 295
60 Charles Lindbergh,
Mitchel Field, New York.. B A 20,800 --- 1,594
155 White Plains Rod.,
Tarrytown, New York...... B 1,613 2,542 --- 876
2 Church Street,
Tarrytown, New York ..... B 232 1,307 --- 375
235 Main Street,
Tarrytown, New York...... B 955 5,375 --- 760
245 Main Street,
Tarrytown, New York...... B 1,294 7,284 --- 849
505 White Plains Road,
Tarrytown, New York...... B 236 1,332 --- 318
555 White Plains Road,
Tarrytown, New York...... B 712 4,133 51 2,668
560 White Plains Road,
Tarrytown, New York...... B 1,553 8,756 --- 1,795
580 White Plains Road,
Tarrytown, New York...... 8,503 2,591 14,595 --- 2,040
660 White Plains Road,
Tarrytown, New York...... B 3,929 22,640 45 2,505
Landmark Square, Stamford,
Connecticut.............. 48,579 11,603 64,466 --- 12,176
110 Bi-County Blvd.,
Farmingdale, New York.... 4,383 2,342 6,665 --- 123
RREEF Portfolio,
Hauppauge, New York (10
additional buildings in
Vanderbuilt Industrial
Park).................... B 930 20,619 --- 1,880
275 Broadhollow Road,
Melville, New York....... B 5,250 11,761 --- 514
One Eagle Rock, East
Hanover, New Jersey...... B 803 7,563 --- 1,580
710 Bridgeport Avenue,
Shelton, Connecticut..... B 5,405 21,620 7 533
101 JFK Expressway, Short
Hills, New Jersey........ B 7,745 43,889 --- 1,019
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- -------- --------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
LIFE ON WHICH
BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
Description LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
---- ------------ ----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
110 Ricefield Lane,
Hauppauge, New York...... 33 1,095 1,128 109 1980 1996 10-30 Years
120 Ricefield Lane,
Hauppauge, New York...... 16 1,081 1,097 84 1983 1996 10-30 Years
135 Ricefield Lane,
Hauppauge, New York...... 24 1,379 1,403 200 1981 1996 10-30 Years
30 Hub Drive, Huntington,
New York................. 469 1,866 2,335 181 1976 1996 10-30 Years
60 Charles Lindbergh,
Mitchel Field, New York.. 0 22,394 22,394 2,143 1989 1996 10-30 Years
155 White Plains Rod.,
Tarrytown, New York...... 1,613 3,418 5,031 258 1963 1996 10-30 Years
2 Church Street,
Tarrytown, New York ..... 232 1,682 1,914 166 1979 1996 10-30 Years
235 Main Street,
Tarrytown, New York...... 955 6,135 7,090 612 1974 1996 10-30 Years
245 Main Street,
Tarrytown, New York...... 1,294 8,133 9,427 836 1983 1996 10-30 Years
505 White Plains Road,
Tarrytown, New York...... 236 1,650 1,886 183 1974 1996 10-30 Years
555 White Plains Road,
Tarrytown, New York...... 763 6,801 7,564 1,043 1972 1996 10-30 Years
560 White Plains Road,
Tarrytown, New York...... 1,553 10,551 12,104 1,494 1980 1996 10-30 Years
580 White Plains Road,
Tarrytown, New York...... 2,591 16,635 19,226 1,786 1997 1996 10-30 Years
660 White Plains Road,
Tarrytown, New York...... 3,974 25,145 29,119 2,767 1983 1996 10-30 Years
Landmark Square, Stamford,
Connecticut.............. 11,603 76,642 88,245 5,438 1973-1984 1996 10-30 Years
110 Bi-County Blvd.,
Farmingdale, New York.... 2,342 6,788 9,130 477 1984 1997 10-30 Years
RREEF Portfolio, 930 22,499 23,429 1,370 1974-1982 1997 10-30 Years
Hauppauge, New York (10
additional buildings in
Vanderbuilt Industrial Park)
275 Broadhollow Road,
Melville, New York....... 5,250 12,275 17,525 740 1970 1997 10-30 Years
One Eagle Rock, East
Hanover, New Jersey...... 803 9,143 9,946 566 1986 1997 10-30 Years
710 Bridgeport Avenue,
Shelton, Connecticut..... 5,412 22,153 27,565 1,295 1971-1979 1997 10-30 Years
101 JFK Expressway, Short
Hills, New Jersey........ 7,745 44,908 52,653 2,462 1981 1997 10-30 Years
Continued-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
-------- -------- -------- --------
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
------------ -----------
<PAGE>
BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- ----------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
10 Rooney Circle, West
Orange, New Jersey....... B 1,302 4,615 1 418
Executive Hill Office
Park, West Orange,
New Jersey............... B 7,629 31,288 4 814
3 University Plaza,
Hackensack, New Jersey... B 7,894 11,846 --- 595
400 Garden City Plaza,
Garden City, New York.... B 13,986 10,127 --- 389
425 Rabro Drive,
Hauppauge, New York...... B 665 3,489 --- 67
One Paragon Drive,
Montvale, New Jersey..... B 2,773 9,901 --- 463
90 Merrick Avenue, East
Meadow, New York......... B A 19,193 --- 2,152
150 Motor Parkway,
Hauppauge, New York...... B 1,114 20,430 --- 2,365
390 Motor Parkway,
Hauppauge, New York...... B 240 4,459 --- 237
Royal Executive Park,
Ryebrook, New York....... B 18,343 55,028 -- 1,191
120 White Plains Road,
Tarrytown, New York...... B 3,355 24,605 --- 89
University Square,
Princeton, New Jersey.... B 3,288 8,888 --- 70
100 Andrews Road,
Hicksville, New York..... B 2,337 1,711 151 5,697
2 Macy Road, Harrison,
New York................. B 642 2,131 --- 47
80 Grasslands, Elmsford,
New York................. B 1,208 6,728 --- 175
65 Marcus Drive, Melville,
New York................. B 295 1,966 57 885
200 Carter Drive, Edison,
New Jersey............... B 240 2,745 --- ---
118 Moonachie Avenue,
Carlstadt, New Jersey.... B 6,270 12,727 --- ---
24 Abeel Road, Monroe,
New Jersey............... B 138 1,195 --- ---
275 / 285 Pierce Street,
Franklin New Jersey...... B 277 1,414 --- 16
301 / 321 Herrod Blvd.,
S Brunswick, New Jersey.. B 3,833 19,342 --- ---
1 Nixon Lane, Edison,
New Jersey............... B 1,113 4,918 --- ---
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- -------- --------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------
<PAGE>
LIFE ON WHICH
BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ---- ------------ ----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 Rooney Circle, West
Orange, New Jersey....... 1,303 5,033 6,336 312 1971 1997 10-30 Years
Executive Hill Office
Park, West Orange,
New Jersey............... 7,633 32,102 39,735 1,619 1978-1984 1997 10-30 Years
3 University Plaza,
Hackensack, New Jersey... 7,894 12,441 20,335 638 1985 1997 10-30 Years
400 Garden City Plaza,
Garden City, New York.... 13,986 10,516 24,502 512 1989 1997 10-30 Years
425 Rabro Drive,
Hauppauge, New York...... 665 3,556 4,221 176 1980 1997 10-30 Years
One Paragon Drive,
Montvale, New Jersey..... 2,773 10,364 13,137 456 1980 1997 10-30 Years
90 Merrick Avenue, East
Meadow, New York......... 0 21,345 21,345 892 1985 1997 10-30 Years
150 Motor Parkway,
Hauppauge, New York...... 1,114 22,795 23,909 1,028 1984 1997 10-30 Years
390 Motor Parkway,
Hauppauge, New York...... 240 4,696 4,936 208 1980 1997 10-30 Years
Royal Executive Park,
Ryebrook, New York....... 18,343 56,219 74,562 2,133 1983-1986 1997 10-30 Years
120 White Plains Road,
Tarrytown, New York...... 3,355 24,694 28,049 890 1984 1997 10-30 Years
University Square,
Princeton, New Jersey.... 3,288 8,958 12,246 322 1987 1997 10-30 Years
100 Andrews Road,
Hicksville, New York..... 2,488 7,408 9,896 463 1954 1996 10-30 Years
2 Macy Road, Harrison,
New York................. 642 2,178 2,820 83 1962 1997 10-30 Years
80 Grasslands, Elmsford,
New York................. 1,208 6,903 8,111 268 1989/1964 1997 10-30 Years
65 Marcus Drive, Melville,
New York................. 352 2,851 3,203 167 1968 1996 10-30 Years
200 Carter Drive, Edison,
New Jersey............... 240 2,745 2,985 91 1985 1998 10-30 Years
118 Moonachie Avenue,
Carlstadt, New Jersey.... 6,270 12,727 18,997 423 1989 1998 10-30 Years
24 Abeel Road, Monroe,
New Jersey............... 138 1,195 1,333 40 1979 1998 10-30 Years
275 / 285 Pierce Street,
Franklin New Jersey...... 277 1,430 1,707 48 1988 1998 10-30 Years
301 / 321 Herrod Blvd.,
S Brunswick, New Jersey.. 3,833 19,342 23,175 643 1991 1998 10-30 Years
1 Nixon Lane, Edison,
New Jersey............... 1,113 4,918 6,031 164 1988 1998 10-30 Years
Continued-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
-------- -------- -------- --------
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
------------ -----------
BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- ----------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
18 Madison Road,
Fairfield, New Jersey.... B 76 871 --- --
200 / 250 Kennedy Drive,
Sayreville, New Jersey... B 1,018 6,851 --- ---
24 Madison Road,
Fairfield, New Jersey.... B 131 2,176 --- ---
243 St Nicholas Avenue,
So. Plainfield,
New Jersey............... B 172 551 --- ---
26 Madison Road,
Fairfield, New Jersey.... B A 1,492 --- ---
300 / 350 Kennedy Drive,
Sayreville, New Jersey... B 1,003 7,303 --- ---
309 Kennedy Drive,
Sayreville, New Jersey... 10,345 297 9,102 --- ---
34 Englehard Drive,
Monroe, New Jersey....... B 1,073 6,656 --- ---
409 Kennedy Drive,
Sayreville, New Jersey... 4,434 126 9,650 --- ---
535 Secaucus Road,
Secaucus, New Jersey..... B 798 2,713 --- ---
55 Carter Drive, Edison,
New Jersey............... B 84 3,905 --- 30
Mount Ebo Corporate Park,
Brewster, New Jersey..... B 1,031 7,204 -- 16
Teterboro-Industrial
Avenue, Teterboro,
New jersey............... B 2,671 18,875 --- ---
22 Madison Road,
Fairfield, New Jersey.... B 655 1,445 --- 1
135 Fieldcrest Ave.,
Edison, New Jersey....... B 370 3,774 --- ---
400 Cabot Drive, Hamilton,
New Jersey............... B 2,068 18,614 --- 71
51 JFK Parkway, Short
Hills, New York.......... B 8,732 58,437 --- 323
Triad V - 1979 Marcus
Ave., Lake Success,
New York................. B 3,528 31,786 --- 2,966
100 Forge Way, Rockaway,
New Jersey............... B 315 902 --- 53
200 Forge Way, Rockaway,
New Jersey............... B 1,128 3,228 --- 168
300 Forge Way, Rockaway,
New Jersey............... B 376 1,075 --- 63
400 Forge Way, Rockaway,
New Jersey............... B 1,142 3,267 --- 168
51 -55 Charles Lindergh
Blvd., Uniondale,
New York................. B A 27,975 --- 4,119
155 Passaic Avenue,
Fairfield, New Jersey.... B 3 3,538 -- 174
100 Summit Drive,
Valhalla, New York....... 23,600 3,007 41,351 --- 1,148
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- -------- --------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
DESCRIPTION LAND BUILDINGS AND TOTAL ACCUMULATED DATE OF DATE LIFE ON WHICH
----------- ---- IMPROVEMENTS ----- DEPRECIATION CONSTRUCTION ACQUIRED DEPRECIATION
------------ ------------ ------------ -------- IS COMPUTED
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
18 Madison Road, 76 871 947 29 1979 1998 10-30 Years
Fairfield, New Jersey....
200 / 250 Kennedy Drive, 1,018 6,851 7,869 228 1988 1998 10-30 Years
Sayreville, New Jersey...
24 Madison Road, 131 2,176 2,307 72 1980 1998 10-30 Years
Fairfield, New Jersey....
243 St Nicholas Avenue, 172 551 723 18 1974 1998 10-30 Years
So. Plainfield,
New Jersey...............
26 Madison Road, 0 1,492 1,492 50 1980 1998 10-30 Years
Fairfield, New Jersey....
300 / 350 Kennedy Drive, 1,003 7,303 8,306 223 1988 1998 10-30 Years
Sayreville, New Jersey...
309 Kennedy Drive, 297 9,102 9,399 303 1996 1998 10-30 Years
Sayreville, New Jersey...
34 Englehard Drive, 1,073 6,656 7,729 221 1980 1998 10-30 Years
Monroe, New Jersey.......
409 Kennedy Drive, 126 9,650 9,776 321 1996 1998 10-30 Years
Sayreville, New Jersey...
535 Secaucus Road, 798 2,713 3,511 90 1979 1998 10-30 Years
Secaucus, New Jersey.....
55 Carter Drive, Edison, 84 3,935 4,019 131 1987 1998 10-30 Years
New Jersey...............
Mount Ebo Corporate Park, 1,031 7,220 8,251 120 1998 10-30 Years
Brewster, New Jersey.....
Teterboro-Industrial 2,671 18,875 21,546 224 1998 1998 10-30 Years
Avenue, Teterboro,
New jersey...............
22 Madison Road, 655 1,446 2,101 20 1980 1998 10-30 Years
Fairfield, New Jersey....
135 Fieldcrest Ave., 370 3,774 4,144 10 1980 1998 10-30 Years
Edison, New Jersey.......
400 Cabot Drive, Hamilton, 2,068 18,685 20,753 624 1989 1998 10-30 Years
New Jersey...............
51 JFK Parkway, Short 8,732 58,760 67,492 1,636 1988 1998 10-30 Years
Hills, New York..........
Triad V - 1979 Marcus 3,528 34,752 38,280 1,089 1987 1998 10-30 Years
Ave., Lake Success,
New York.................
100 Forge Way, Rockaway, 315 955 1,270 31 1986 1989 10-30 Years
New Jersey...............
200 Forge Way, Rockaway, 1,128 3,396 4,524 112 1989 1998 10-30 Years
New Jersey...............
300 Forge Way, Rockaway, 376 1,138 1,514 37 1989 1998 10-30 Years
New Jersey...............
400 Forge Way, Rockaway, 1,142 3,435 4,577 113 1989 1998 10-30 Years
New Jersey...............
51 -55 Charles Lindergh 0 32,094 32,094 1,469 1981 1998 10-30 Years
Blvd., Uniondale,
New York.................
155 Passaic Avenue, 3 3,712 3,715 83 1984 1998 10-30 Years
Fairfield, New Jersey....
100 Summit Drive, 3,007 42,499 45,506 986 1988 1998 10-30 Years
Valhalla, New York.......
Continued-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
-------- -------- -------- --------
INITIAL COST COST CAPITALIZED
------------ SUBSEQUENT TO
ACQUISITION
-----------
DESCRIPTION ENCUMBRANCE LAND BUILDINGS AND LAND BUILDINGS AND
IMPROVEMENTS IMPROVEMENTS
------------ ----------- ---- ------------- ---- ------------
<S> <C> <C> <C> <C> <C>
115 / 117 Stevens Avenue, B 1,094 22,490 --- 407
Valhalla, New York.......
200 Summit Lake Drive, 20,764 4,343 37,305 --- 349
Valhalla, New York.......
140 Grand Street., B 1,931 18,743 --- 149
Valhalla, New York ......
500 Summit Lake Drive, B 7,052 37,309 --- 242
Valhalla, New York.......
5 Henderson Drive, West B 2,450 6,984 --- 30
Caldwell, New Jersey.....
Stamford Towers, Stamford, B 13,556 47,915 -- 930
Connecticut..............
99 Cherry Hill Road, B 2,359 7,508 -- 42
Parsippany, New Jersey...
119 Cherry Hill Road, B 2,512 7,622 --- 196
Parsipanny, New Jersey...
120 Wilbur Place, Bohemia, B 202 1,154 --- 44
New York ................
45 Melville Park Road, B 354 1,487 --- 1,581
Melville, New York ......
500 Saw Mill River Road, B 1,542 3,796 --- 169
Elmsford, New York.......
2004 Orville Drive, B 633 4,225 --- 1,208
No. Bohemia, New York....
Land held for development B 69,143 --- --- ---
Development in progress 6,850 --- 82,901 --- ---
Other property B --- --- --- 2,589
-------- -------- ---------- ---- --------
Total...................... $253,463 $281,272 $1,305,937 $411 $149,513
======== ========= ========== ==== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- -------- --------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
DESCRIPTION LAND BUILDINGS AND TOTAL ACCUMULATED DATE OF DATE LIFE ON WHICH
----------- ---- IMPROVEMENTS ----- DEPRECIATION CONSTRUCTION ACQUIRED DEPRECIATION
------------ ------------ ------------ -------- IS COMPUTED
-----------
<S> <C> <C> <C> <C> <C> <C>
115 / 117 Stevens Avenue, 1,094 22,897 23,991 514 1984 1998 10-30 Years
Valhalla, New York.......
200 Summit Lake Drive, 4,343 37,654 41,997 841 1990 1998 10-30 years
Valhalla, New York.......
140 Grand Street., 1,931 18,892 20,823 424 1991 1998 10-30 Years
Valhalla, New York ......
500 Summit Lake Drive, 7,052 37,551 44,603 632 1986 1998 10-30 Years
Valhalla, New York.......
5 Henderson Drive, 2,450 7,014 9,464 118 1967 1998 10-30 Years
West Caldwell, New Jersey
Stamford Towers, 13,556 48,845 62,401 855 1989 1998 10-30 Years
Stamford, Connecticut....
99 Cherry Hill Road, 2,359 7,550 9,909 106 1982 1998 10-30 Years
Parsippany, New Jersey...
119 Cherry Hill Road, 2,512 7,818 10,330 108 1982 1998 10-30 Years
Parsipanny, New Jersey...
120 Wilbur Place, 202 1,198 1,400 16 1972 1998 10-30 Years
Bohemia, New York .......
45 Melville Park Road, 354 3,068 3,422 57 1998 1998 10-30 Years
Melville, New York ......
500 Saw Mill River Road, 1,542 3,965 5,507 132 1968 1998 10-30 Years
Elmsford, New York.......
2004 Orville Drive, No. 633 5,433 6,066 128 1998 1998 10-30 Years
Bohemia, New York........
Land held for development 69,143 0 69,143 0 N/A Various N/A
Developments in progress --- 82,901 82,901 0
Other property --- 2,589 2,589 325
------- ---------- ---------- ---------
Total....................... $281,682 $1,455,450 $1,737,132 $156,231
======== ========== ========== ========
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
A These land parcels are leased (see Note 4). B There are no encumbrances on
these properties. C The Encumbrance of $2,616 is related to one property.
The aggregate cost for Federal Income Tax purposes was approximately $1,575
million at December 31, 1998.
<PAGE>
The changes in real estate for each of the periods in the three years
ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
JANUARY 1, 1998 JANUARY 1, 1997 JUNE 1, 1996
TO TO TO
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Real estate balance at beginning of $1,011,228 $516,768 $288,056
period
Improvements 134,582 37,778 15,174
Disposal, including write-off of fully --- (154) (936)
depreciated building improvements
Acquisitions 591,323 456,836 214,474
----------- ---------- --------
Balance at end of period $1,737,133 $1,011,228 $516,768
=========== ========== ========
</TABLE>
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, furniture and fixtures, for each of the periods in the three
years ended December 31, 1998 are as follows:
<TABLE>
JANUARY 1, 1998 JANUARY 1, 1997 JANUARY 1, 1996
TO TO TO
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at beginning of period $108,652 $86,344 $72,499
Depreciation for period 47,579 22,442 14,781
Disposal, including write-off of fully --- (134) (936)
depreciated building improvements
-------- --------- ---------
Balance at end of period $156,231 $108,652 $86,344
======== ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
========================================================= =================================================
Reckson
Associates
Realty Corp.
TABLE OF CONTENTS
Prospectus
Risk Factors........................................ 2
Available Information .............................. 18
Incorporation of Certain Documents by Reference..... 18
Reckson Associates and The Operating
Partnership....................................... 19
Use of Proceeds..................................... 21
Ratios of Earnings to Combined Fixed Charges
and Preferred Stock Dividends..................... 22
Description of Debt Securities...................... 23
Description of Common Stock......................... 41
Description of Preferred Stock...................... 43
Description of Depositary Shares.................... 51
Restrictions on Ownership of Capital Stock.......... 55
Description of Warrants............................. 58
Federal Income Tax Considerations................... 59
Plan of Distribution................................ 60
Legal Matters....................................... 60
Experts............................................. 61
Selected Financial Data............................. F-
Management's Discussion and Analysis of
Financial Condition and Results of Operations...... F-
Financial Statements................................ F-
========================================================= =================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses in connection with the
issuance and distribution of the Registrant's securities being registered
hereby, other than underwriting discounts and commissions, all of which will be
borne by the Registrant:
Securities and Exchange Commission registration fee................. $139,000
Printing and engraving expenses..................................... 200,000
Legal fees and expenses............................................. 150,000
Accounting fees and expenses........................................ 40,000
Blue Sky fees and expenses.......................................... 20,000
Trustee's fees...................................................... 10,000
Miscellaneous....................................................... 66,000
--------
Total $625,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Maryland General Corporation Law, as amended from time to time (the
"MGCL"), permits a Maryland corporation to include in its Charter a provision
limiting the liability of its directors and officers to the corporation and its
stockholders for money damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or services or (b)
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The Charter of the Company contains such a
provision which eliminates such liability to the maximum extent permitted by
Maryland law.
The Charter of the Company authorizes the Company, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former director or officer or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other enterprise and
who is made a party to the proceeding by reason of his or her service in that
capacity. The Bylaws of the Company obligate it, to the maximum extent permitted
by Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses, upon the corporation's receipt of (a) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the Company and (b) a
written statement by or on his behalf to repay the amount paid or reimbursed by
the Corporation if it shall ultimately be determined that the standard of
conduct was not met.
The Company has entered into indemnification agreements with each of its
executive officers and directors. The indemnification agreements require, among
other matters, that the Company indemnify its executive officers and directors
to the fullest extent permitted by law and advance to the executive officers and
directors all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. Under these agreements, the
Company must also indemnify and advance all expenses incurred by executive
officers and directors seeking to enforce their rights under the indemnification
agreements and may cover executive officers and directors under the Company's
directors' and officers' liability insurance. Although indemnification
agreements offer substantially the same scope of coverage afforded the Bylaws,
they provide greater assurance to directors and executive officers that
indemnification will be available, because, as contracts, they cannot be
modified unilaterally in the future by the Board of Directors or the
stockholders to eliminate the rights they provide.
The Partnership Agreement of the Operating Partnership contains provisions
indemnifying its partners and their officers and directors to the fullest extent
permitted by the Delaware Limited Partnership Act.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
1 -- Form of Underwriting Agreement.(1)
4.1 -- Form of Common Stock Certificate.(2)
4.2 -- Form of Designating Amendment for Preferred Stock.(1)
4.3 -- Form of Preferred Stock Certificate.(1)
4.4 -- Form of Warrant Agreement.(1)
4.5 -- Form of Warrant.(1)
4.6 -- Form of Indenture.(3)
5 -- Opinion of Brown & Wood LLP as to the legality of the Securities.(4)
8 -- Opinion of Brown & Wood LLP as to tax matters.(3)
12.1 -- Calculation of Reckson Associates Realty Corp. Ratios of Earnings to Combined Fixed Charges.
12.2 -- Calculation of Reckson Associates Realty Corp. Ratios of Earnings to Fixed Charges and Preferred
Dividends.
12.3 -- Calculation of Reckson Operating Partnership L.P. Ratios of Earnings to Combined Fixed Charges.
12.4 -- Calculation of Reckson Operating Partnership L.P. Ratios of Earnings to Fixed Charges and Preferred
Dividends.
23.1 -- Consent of Brown & Wood LLP (included in Exhibits 5 and 8).
23.2 -- Consent of Ernst & Young LLP.
24 -- Power of attorney (included on the signature page of this Registration Statement)
27 -- Financial Data Schedule
</TABLE>
______________
(1) To be filed by amendment or incorporated by reference in connection with
the offering of Securities.
(2) Previously filed as an exhibit to Registration Statement on Form S-11 (No.
33-84324) and incorporated herein by reference.
(3) Previously filed as an exhibit to Amendment No. 1 to this Registration
Statement.
(4) A revised opinion will be filed by amendment or incorporated by reference
in connection with the offering of Securities.
ITEM 17. UNDERTAKINGS.
(a) Each Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
Provided, however, that paragraphs (1)(i) and (1)(ii)
do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section
13 or 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) Each Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of such Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, partners and controlling persons of
a Registrant pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer, partner or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer, partner or controlling person in connection
with the securities being registered, the applicable Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(d) Each registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305 (b)(2) of the Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Reckson
Associates Realty Corp. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Township of Huntington, State of New York, on February
26, 1999.
RECKSON ASSOCIATES REALTY CORP.
By: /s/ Scott H. Rechler
---------------------------------------------
Scott H. Rechler
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board, Chief Executive
Donald J. Rechler* Officer and Director (Principal Executive
----------------------
Donald J. Rechler Officer)
/s/ Scott H. Rechler President, Chief Operating Officer and February 26, 1999
----------------------
Scott H. Rechler Director
Executive Vice President, Treasurer and
Michael Maturo* Chief Financial Officer (Principal
----------------------
Michael Maturo Financial Officer and Principal Accounting
Officer)
Roger M. Rechler* Vice-Chairman of the Board and Director
----------------------
Roger M. Rechler
Mitchell D. Rechler* Executive Vice President and Director
----------------------
Mitchell D. Rechler
Harvey R. Blau* Director
----------------------
Harvey R. Blau
Leonard Feinstein* Director
----------------------
Leonard Feinstein
Herve A. Kevenides* Director
----------------------
Herve A. Kevenides
John V.N. Klein* Director
----------------------
John V.N. Klein
Lewis S. Ranieri* Director
----------------------
Lewis S. Ranieri
Director
----------------------
Conrad D. Stephenson
*By: /s/ Scott H. Rechler February 26, 1999
-----------------------
Attorney-in-Fact
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibits Description Page
-------- ----------- ----
<S> <C> <C>
1 -- Form of Underwriting Agreement.(1)
4.1 -- Form of Common Stock Certificate.(2)
4.2 -- Form of Designating Amendment for Preferred Stock.(1)
4.3 -- Form of Preferred Stock Certificate.(1)
4.4 -- Form of Warrant Agreement.(1)
4.5 -- Form of Warrant.(1)
4.6 -- Form of Indenture.(3)
5 -- Opinion of Brown & Wood LLP as to the legality of the
Securities.(4)
8 -- Opinion of Brown & Wood LLP as to tax matters.(3)
12.1 -- Calculation of Reckson Associates Realty Corp. Ratios of
Earnings to Combined Fixed Charges.
12.2 -- Calculation of Reckson Associates Realty Corp. Ratios of
Earnings to Fixed Charges and Preferred Dividends.
12.3 -- Calculation of Reckson Operating Partnership L.P. Ratios of
Earnings to Combined Fixed Charges.
12.4 -- Calculation of Reckson Operating Partnership L.P. Ratios of
Earnings to Fixed Charges and Preferred Dividends.
23.1 -- Consent of Brown & Wood LLP (included in Exhibits 5 and 8).
23.2 -- Consent of Ernst & Young LLP.
24 -- Power of attorney (included on the signature page of this
Registration Statement)
27 -- Financial Data Schedule
</TABLE>
______________
(1) To be filed by amendment or incorporated by reference in connection with
the offering of Securities.
(2) Previously filed as an exhibit to Registration Statement on Form S-11 (No.
33-84324) and incorporated herein by reference.
(3) Previously filed as an exhibit to this Registration Statement.
(4) A revised opinion will be filed by amendment or incorporated by reference
in connection with the offering of Securities.
Exhibit 5
March 1, 1999
Reckson Associates Realty Corp.
Reckson Operating Partnership, L.P.
225 Broadhollow Road
Melville, New York 11747
Ladies and Gentlemen:
This opinion is furnished in connection with Amendment No. 3 to the
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the registration of Debt Securities of Reckson Operating
Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"),
in an aggregate initial public offering price not to exceed $500,000,000 (the
"Debt Securities"). The Debt Securities may be fully and unconditionally
guaranteed (the "Guarantees") under certain circumstances by Reckson Associates
Realty Corp., a Maryland corporation (the "Company"). The Registration Statement
provides that the Debt Securities may be issued in one or more series, in
amounts, at prices and on terms to be set forth in one or more prospectus
supplements to the prospectus contained in the Registration Statement
(collectively, the "Prospectus") and, if issued, will be issued under an
indenture in the form attached as an Exhibit to the Registration Statement (the
"Indenture").
In connection with rendering this opinion, we have examined the
Certificate of Limited Partnership and the Amended and Restated Agreement of
Limited Partnership, as amended, of the Operating Partnership and the Articles
of Incorporation and the Bylaws, as amended, of the Company; records of
corporate proceedings of the Company; the Registration Statement; and such other
certificates, receipts, records and documents as we considered necessary for the
purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Debt Securities
have been duly authorized by all necessary partnership action of the Operating
Partnership and the Guarantees have been duly authorized by all necessary
corporate action of the Company, and when (i) the applicable provisions of the
Securities Act and such state "blue sky" or securities laws as may be applicable
have been complied with, (ii) the Operating Partnership, the Company and the
trustee have duly executed and delivered the Indenture and (iii) the final terms
of the Debt Securities and, if applicable, the Guarantees have been duly
established and approved and have been duly executed, authenticated (in the case
of the Debt Securities) and delivered against consideration therefor as
contemplated in the Registration Statement, such Debt Securities and Guarantees
will constitute valid and legally binding obligations of the Operating
Partnership and the Company, respectively, and registered holders of such Debt
Securities will be entitled to the benefits of the Indenture; provided, however,
that the foregoing opinion is subject, as to enforcement, to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the enforcement of creditors' rights generally, (ii) general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law) and (iii) provisions of law that require a
judgment for money damages rendered by a court in the United States of America
be expressed only in U.S. dollars.
We are attorneys admitted to practice in the State of New York. We
express no opinion concerning the laws of any jurisdiction other than the
federal laws of the United States of America, the Revised Uniform Limited
Partnership Act of the State of Delaware, the laws of the State of Maryland and
the laws of the State of New York.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to our firm under the caption "Legal
Matters" in the Prospectus.
Very truly yours,
/s/ Brown & Wood LLP
Exhibit 12.1
Reckson Associates Realty Corp.
Ratios of Earnings to Combined Fixed Charges
The following table sets forth the calculation of the Company's
consolidated ratios of earnings to fixed charges for the periods shown (in
Thousands):
<TABLE>
<CAPTION>
=================== ========== ========== ========== ==================== ====================== =============
For the Period from For the Period from
June 3, 1995 January 1, 1995
To to
Description 1998 1997 1996 December 31, 1995 June 2, 1995 1994
- ------------------- ---------- ---------- ---------- -------------------- ---------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest $55,139 $23,936 $13,331 $5,331 $7,622 $17,426
- ------------------- ---------- ---------- ---------- -------------------- ---------------------- -------------
Rent Expense 1,321 952 830 434 176 375
- ------------------- ---------- ---------- ---------- -------------------- ---------------------- -------------
Amortization of
Debt Issuance
Costs 1,600 797 525 400 195 564
- ------------------- ---------- ---------- ---------- -------------------- ---------------------- -------------
58,060 25,685 14,686 6,165 7,993 18,365
- ------------------- ---------- ---------- ---------- -------------------- ---------------------- -------------
Income from
Continuing
Operations
before Minority
Interest and
Fixed Charges $122,541 $71,175 $39,876 $16,719 $8,187 $17,872
- ------------------- ---------- ---------- ---------- -------------------- ---------------------- -------------
Ratio of Earnings
to Fixed Charges 2.11 2.77 2.72 2.71 1.02 0.97
=================== ========== ========== ========== ==================== ====================== =============
</TABLE>
Exhibit 12.2
The following table sets forth the calculation of the Company's
consolidated Ratios of Earnings to fixed charges and preferred dividends for the
periods shown (in thousands)
Description 1998
- ----------- ----
Interest $55,139
Rent Expense 1,321
Amortization of debt issuance costs 1,600
Preferred dividends 14,244
$72,304
Income from continuing operations
before minority interests, fixed
charges & preferred dividends $136,785
Ratio of Earnings to fixed charges and
preferred dividends 1.89
Exhibit 12.3
Reckson Operating Partnership, L.P.
Ratios of Earnings to Combined Fixed Charges
The following table sets forth the calculation of the Operating
Partnership's consolidated ratios of earnings to fixed charges for the periods
shown (in Thousands):
<TABLE>
<CAPTION>
===================== =========== ========= ========== =================== ==================== =============
For the Period from For the Period from
June 3, 1995 January 1, 1995
To to
Description 1998 1997 1996 December 31, 1995 June 2, 1995 1994
- --------------------- ----------- --------- ---------- ------------------- -------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest $55,139 $23,936 $13,331 $5,331 $7,622 $17,426
- --------------------- ----------- --------- ---------- ------------------- -------------------- -------------
Rent Expense 1,321 952 830 434 176 375
- --------------------- ----------- --------- ---------- ------------------- -------------------- -------------
Amortization of
Debt
Issuance Costs 1,600 797 525 400 195 564
- --------------------- ----------- --------- ---------- ------------------- -------------------- -------------
58,060 25,685 14,686 6,165 7,993 18,365
- --------------------- ----------- --------- ---------- ------------------- -------------------- -------------
Income from
Continuing
Operations
before Minority
Interest and
Fixed Charges $123,369 $71,394 $39,781 $16,728 $8,187 $17,872
- --------------------- ----------- --------- ---------- ------------------- -------------------- -------------
Ratio of Earnings
to Fixed Charges 2.12 2.78 2.71 2.71 1.02 0.97
===================== =========== ========= ========== =================== ==================== =============
</TABLE>
Exhibit 12.4
The following table sets forth the calculation of the Operating
Partnership's consolidated Ratios of Earnings to fixed charges and preferred
dividends for the periods shown (in thousands)
Description 1998
Interest $55,139
Rent Expense 1,321
Amortization of debt issuance costs 1,600
Preferred dividends 14,244
$72,304
Income from continuing operations before minority
interests, fixed charges & preferred dividends $137,613
Ratio of Earnings to fixed charges and preferred
dividends 1.90
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) of Reckson Associates Realty Corp. (the
"Company") and Reckson Operating Partnership, L.P. (the "Operating Partnership")
for the registration of $744,739,654 of common stock, common stock warrants,
preferred stock, depositary shares and preferred stock warrants with respect to
the Company and $500,000,000 of debt securities with respect to the Operating
Partnership. We also consent to the inclusion of our report herein dated
February 11, 1999, with respect to the consolidated financial statements and
schedule of the Operating Partnership for each of the years in the three year
period ended December 31, 1998 and to the incorporation by reference of our
reports dated (i) February 11, 1999, with respect to the consolidated financial
statements and schedule of the Company for each of the years in the three year
period ended December 31, 1998 included in its Form 8-K filed with the
Securities and Exchange Commission on March 1, 1999, (ii) February 4, 1997, with
respect to the combined statement of revenues and certain expenses of the New
Jersey Portfolio for the year ended December 31, 1996, included in the Company's
Form 8-K filed with the Securities and Exchange Commission on February 19, 1997,
(iii) January 16, 1997, with respect to the statement of revenues and certain
expenses of the Uniondale Office Property for the year ended December 31, 1996,
included in the Company's Form 8-K filed with the Securities and Exchange
Commission on February 19, 1997, (iv) January 17, 1997, with respect to the
combined statement of revenues and certain expenses of the Hauppauge Portfolio
for the year ended December 31, 1996, included in the Company's Form 8-K filed
with the Securities and Exchange Commission on February 19, 1997, (v) May 23,
1997 with respect to the statement of revenues and certain expenses of 710
Bridgeport Avenue for the year ended December 31, 1996, included in the
Company's Form 8-K filed with the Securities and Exchange Commission on June 12,
1997, (vi) May 16, 1997 with respect to the statement of revenues and certain
expenses of the Shorthills Office Center for the year ended December 31, 1996,
included in the Company's Form 8-K filed with the Securities and Exchange
Commission on June 12, 1997, (vii) July 22, 1997 with respect to the statement
of revenues and certain expenses of Garden City Plaza for the year ended
December 31, 1996, included in the Company's Form 8-K filed with the Securities
and Exchange Commission on September 9, 1997, (viii) February 17, 1998 with
respect to the statement of revenues and certain expenses of the Stamford Office
Property for the year ended December 31, 1997, included in the Company's Form
8-K filed with the Securities and Exchange Commission on March 24, 1998, (ix)
December 17, 1997, with respect to the statement of revenues and certain
expenses of the Christiana Office Property, for the year ended June 30, 1997,
included in the Company's Form 8-K filed with the Securities and Exchange
Commission on February 10, 1998, and (x) March 27, 1998, with respect to the
combined statement of revenues and certain expenses of the Cappelli Portfolio,
for the year ended December 31, 1997, included in the Company's Form 8-K filed
with the Securities and Exchange Commission on April 6, 1998.
Ernst & Young LLP
New York, New York
March 1, 1999
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<CIK> 0000930810
<NAME> RECKSON OPERATING PARTNERSHIP, L.P.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
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<CURRENT-LIABILITIES> 70,442
<BONDS> 889,313
0
263,126
<COMMON> 579,466
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<TOTAL-LIABILITY-AND-EQUITY> 1,854,520
<SALES> 252,447
<TOTAL-REVENUES> 266,312
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<TOTAL-COSTS> 100,251
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<EXTRAORDINARY> (1,993)
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<NET-INCOME> 46,253
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