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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER: 1-13762
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RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 11-3233650
(State other jurisdiction of incorporation (IRS. Employer Identification Number)
of organization)
225 BROADHOLLOW ROAD, MELVILLE, NY 11747
(Address of principal executive office) (zip code)
</TABLE>
(631) 694-6900
(Registrant's telephone number including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes X No__, and (2) has been
subject to such filing requirements for the past 90 days. Yes X No__.
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The company has two classes of common stock, issued at $.01 par value per
share with 40,841,821 and 10,283,513 shares Class A of common stock and Class B
common stock outstanding, respectively as of May 10, 2000
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<PAGE>
RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 2000
TABLE OF CONTENTS
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<CAPTION>
INDEX PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999 ........................................................ 3
Consolidated Statements of Income for the three months ended
March 31, 2000 and 1999 (unaudited) ...................................... 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 (unaudited) ...................................... 5
Notes to the Consolidated Financial Statements (unaudited) ............... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk ............... 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................................ 24
Item 2. Changes in Securities and Use of Proceeds ................................ 24
Item 3. Defaults Upon Senior Securities .......................................... 24
Item 4. Submission of Matters to a Vote of Securities Holders .................... 24
Item 5. Other Information ........................................................ 24
Item 6. Exhibits and Reports on Form 8-K ......................................... 24
SIGNATURES ....................................................................... 24
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31,
(UNAUDITED) 1999
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ASSETS:
Commercial real estate properties, at cost:
Land ............................................................................. $ 296,058 $ 276,204
Building and improvements ........................................................ 1,938,600 1,802,611
Developments in progress:
Land ............................................................................. 61,904 60,894
Development costs ................................................................ 75,588 68,690
Furniture, fixtures and equipment ................................................. 6,803 6,473
---------- ----------
2,378,953 2,214,872
Less accumulated depreciation ..................................................... (237,028) (218,385)
---------- ----------
2,141,925 1,996,487
Investment in real estate joint ventures .......................................... 32,219 31,531
Investment in mortgage notes and notes receivable ................................. 352,863 352,466
Cash and cash equivalents ......................................................... 31,142 21,368
Tenants receivables ............................................................... 3,998 5,117
Investments in and advances to affiliates ......................................... 197,071 178,695
Deferred rent receivable .......................................................... 36,597 32,132
Prepaid expenses and other assets ................................................. 60,309 66,977
Contract and land deposits and pre-acquisition costs .............................. 4,752 9,585
Deferred leasing and loan costs ................................................... 43,457 39,520
---------- ----------
TOTAL ASSETS ...................................................................... $2,904,333 $2,733,878
========== ==========
LIABILITIES:
Mortgage notes payable ............................................................ $ 527,508 $ 459,174
Unsecured credit facility ......................................................... 407,600 297,600
Unsecured term loan ............................................................... 75,000 75,000
Senior unsecured notes ............................................................ 449,330 449,313
Accrued expenses and other liabilities ............................................ 79,374 82,079
Dividends and distributions payable ............................................... 27,169 27,166
---------- ----------
TOTAL LIABILITIES ................................................................. 1,565,981 1,390,332
---------- ----------
Commitments and other comments .................................................... -- --
Minority interests' in consolidated partnerships .................................. 93,001 93,086
Preferred unit interest in the operating partnership .............................. 42,518 42,518
Limited partners' minority interest in the operating partnership .................. 90,332 90,986
---------- ----------
225,851 226,590
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STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 25,000,000 shares authorized
Series A preferred stock, 9,192,000 shares issued and outstanding ................ 92 92
Series B preferred stock, 6,000,000 shares issued and outstanding ................ 60 60
Common Stock, $01 par value, 100,000,000 shares authorized
Class A Common Stock, 40,386,721 and 40,375,506 shares issued and outstanding,
respectively ................................................................... 404 401
Class B Common Stock, 10,283,513 and 10,283,763 shares issued and outstanding,
respectively ................................................................... 103 103
Additional paid in capital ........................................................ 1,111,842 1,116,300
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Total Stockholders' Equity ........................................................ 1,112,501 1,116,956
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................ $2,904,333 $2,733,878
========== ==========
</TABLE>
(see accompanying notes to financial statements)
3
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RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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2000 1999
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<S> <C> <C>
REVENUES:
Base rents ...................................................................... $ 94,400 $ 62,093
Tenant escalations and reimbursements ........................................... 12,847 8,542
Equity in earnings of real estate joint ventures and service companies .......... 1,413 377
Interest income on mortgage notes and notes receivable .......................... 2,285 2,808
Other ........................................................................... 6,714 2,288
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Total Revenues ................................................................. 117,659 76,108
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EXPENSES:
Property operating expenses ..................................................... 38,156 22,908
Marketing, general and administrative ........................................... 6,571 4,392
Interest ........................................................................ 23,840 13,943
Depreciation and amortization ................................................... 21,012 15,091
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Total Expenses ................................................................. 89,579 56,334
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Income before preferred dividends and distributions and minority interests . 28,080 19,774
Minority partners' interests in consolidated partnerships ....................... (1,975) (1,168)
Distributions to preferred unit holders ......................................... (660) (660)
Limited partners' minority interest in the operating partnership ................ (2,278) (2,241)
----------- -----------
Income before dividends to preferred shareholders ............................... 23,167 15,705
Dividends to preferred shareholders ............................................. (7,325) (4,381)
----------- -----------
Net income available to common shareholders ..................................... $ 15,842 $ 11,324
=========== ===========
Net Income available to:
Class A common shareholders .................................................... $ 11,446 $ 11,324
Class B common shareholders .................................................... 4,396 --
----------- -----------
Total ........................................................................... $ 15,842 $ 11,324
=========== ===========
Basic net income per weighted average common share:
Class A common shareholders .................................................... $ .28 $ .28
=========== ===========
Class B common shareholders .................................................... $ .43 $ --
=========== ===========
Basic weighted average common shares outstanding:
Class A common shareholders .................................................... 40,382,182 40,049,079
Class B common shareholders .................................................... 10,283,598 --
Diluted net income per weighted average common share:
Class A common shareholders .................................................... $ .28 $ .28
=========== ===========
Class B common shareholders .................................................... $ .31 $ --
=========== ===========
Diluted weighted average common shares outstanding:
Class A common shareholders .................................................... 40,709,045 40,450,296
Class B common shareholders .................................................... 10,283,598 --
</TABLE>
(see accompanying notes to financial statements)
4
<PAGE>
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before dividends to preferred shareholders ............................ $ 23,167 $ 15,705
Adjustments to reconcile income before dividends to preferred shareholders
to net cash provided by operating activities:
Depreciation and amortization ............................................... 21,012 15,091
Minority partners' interests in consolidated partnerships ................... 1,975 1,168
Limited partners' minority interest in the operating partnership ............ 2,278 2,241
Equity in earnings of real estate joint ventures and service companies ...... (1,413) (377)
Changes in operating assets and liabilities:
Tenant receivables .......................................................... 1,120 2,905
Real estate tax escrow ...................................................... 926 (901)
Prepaid expenses and other assets ........................................... 5,714 (8,556)
Deferred rents receivable ................................................... (4,465) (1,369)
Accrued expenses and other liabilities ...................................... (5,122) (13,073)
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Net cash provided by operating activities ................................... 45,192 12,834
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in deposits and pre-acquisition costs .............................. (928) (6,472)
Increase in developments in progress ........................................ (9,642) (6,098)
Purchase of commercial real estate properties ............................... (139,426) (6,610)
Proceeds from repayment of mortgage note receivable ......................... 685 --
Investment in mortgage notes and notes receivable ........................... -- (6,170)
Investments in real estate joint ventures ................................... (83) (3,263)
Distribution from a real estate joint venture ............................... 140 86
Additions to commercial real estate properties .............................. (8,655) (4,520)
Purchase of furniture, fixtures and equipment ............................... (359) (85)
Payment of leasing costs .................................................... (2,642) (4,226)
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Net cash used in investing activities ....................................... (160,910) (37,358)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock net of issuance costs ................ 195 471
Principal payments on secured borrowings .................................... (1,666) (867)
Payment of loan and equity issuance costs ................................... (1,617) (2,606)
Investments in and advances to affiliates ................................... (17,768) (7,828)
Proceeds from issuance of senior unsecured notes net of issuance costs ...... -- 299,262
Proceeds from secured borrowings ............................................ 70,000 --
Proceeds from unsecured term loan ........................................... -- 55,000
Proceeds from unsecured credit facility ..................................... 110,000 --
Repayment of unsecured credit facility ...................................... -- (285,750)
Distributions to minority partners' in consolidated partnerships ............ (2,060) (684)
Distributions to limited partners' in the operating partnership ............. (2,859) (2,620)
Distributions to preferred unit holders ..................................... (660) (660)
Dividends to common shareholders ............................................ (20,748) (13,512)
Dividends to preferred shareholders ......................................... (7,325) (4,381)
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Net cash provided by financing activities .................................... 125,492 35,825
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Net increase in cash and cash equivalents .................................... 9,774 11,301
Cash and cash equivalents at beginning of period ............................. 21,368 2,349
---------- ----------
Cash and cash equivalents at end of period ................................... $ 31,142 $ 13,650
========== ==========
</TABLE>
(see accompanying notes to financial statements)
5
<PAGE>
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. ORGANIZATION AND FORMATION OF THE COMPANY
Reckson Associates Realty Corp. (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") which was incorporated in
Maryland in September 1994. In June, 1995 the Company completed an initial
public offering (the "IPO") and commenced operations. The aggregate proceeds to
the Company, net of underwriting discount, advisory fee and other offering
expenses, were approximately $162 million.
The Company became the sole general partner of Reckson Operating
Partnership L.P. (the "Operating Partnership") by contributing substantially all
of the net proceeds of the IPO, in exchange for an approximate 73% interest in
the Operating Partnership. All properties acquired by the Company are held by or
through the Operating Partnership. In conjunction with the IPO, the Operating
Partnership executed various option and purchase agreements whereby it issued
common units of limited partnership interest in the Operating Partnership ("OP
Units") to certain continuing investors in exchange for (i) interests in certain
property partnerships, (ii) fee simple and leasehold interests in properties and
development land, (iii) certain business assets of executive center entities and
(iv) 100% of the non-voting preferred stock of the management and construction
companies.
As of March 31, 2000, the Company owned and operated 78 office properties
comprising approximately 13.7 million square feet, 110 industrial properties
comprising approximately 8.3 million square feet and two retail properties
comprising approximately 20,000 square feet, located in the New York tri-state
area (the "Tri-State Area"). The Company also owns a 357,000 square foot office
building located in Orlando, Florida and approximately 346 acres of land in 16
separate parcels of which the Company can develop approximately 1.9 million
square feet of office space and approximately 300,000 square feet of industrial
space. The Company also has invested approximately $314.8 million in mortgage
notes encumbering two Class A office properties encompassing approximately 1.6
million square feet, approximately 472 acres of land located in New Jersey and
in a note receivable secured by a partnership interest in Omni Partner's, L.P.,
owner of the Omni, a 575,000 square foot Class A office property located in
Uniondale, New York. In addition, the Company also holds $41.5 million of
preferred and common stock of Keystone Property Trust ("KTR") (see note 6).
On January 6, 1998, the Company made an investment in the Morris Companies,
a New Jersey developer and owner of "Big Box" warehouse facilities. 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.
On September 27, 1999, the Company sold its interest in RMI to KTR.
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Tower Realty Trust, Inc.
("Tower"). On May 24, 1999 the Company completed the merger with Tower and
acquired three Class A office properties located in New York City totaling 1.6
million square feet and one office property located on Long Island totaling
approximately 101,000 square feet. In addition, pursuant to the merger, the
Company also acquired certain office properties, a property under development
and land located outside of the Tri-State Area. All of the assets acquired in
the merger located outside of the Tri-State Area, other than a 357,000 square
foot office property located in Orlando, Florida, have been sold (see note 6).
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
consolidated financial position of the Company and the Operating Partnership at
March 31, 2000 and December 31, 1999 and the results of their operations for
the three months ended March 31, 2000 and 1999 respectively, and, their cash
flows for the three months ended March 31, 2000 and 1999, respectively. The
Operating Partnership's
6
<PAGE>
investments in Metropolitan and Omni Partner's, L. P. ("Omni") are reflected in
the accompanying financial statements on a consolidated basis with a reduction
for minority partners' interest. The Operating Partnership's investment in RMI
was reflected in the accompanying financial statements on a consolidated basis
with a reduction for minority partner's interest through September 26, 1999. On
September 27, 1999, the Operating Partnership sold its interest in RMI to KTR.
The operating results of the service businesses currently conducted by Reckson
Management Group, Inc., and Reckson Construction Group, Inc., are reflected in
the accompanying financial statements on the equity method of accounting. The
Operating Partnership also invests in real estate joint ventures where it may
own less than a controlling interest, such investments are also reflected in the
accompanying financial statements on the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
The merger with Tower was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16. Accordingly, the fair value of the
consideration given by the Company, in accordance with generally accepted
accounting principles ("GAAP"), was used as the valuation basis for the merger.
The assets acquired and liabilities assumed by the Company were recorded at the
fair value as of the closing date of the merger and the excess of the purchase
price over the historical basis of the net assets acquired was allocated
primarily to operating real estate properties and real estate properties which
have been sold.
The minority interests at March 31, 2000 represent an approximate 13%
limited partnership interest in the Operating Partnership, an approximate 28%
interest in certain industrial joint venture properties formerly owned by RMI, a
convertible preferred interest in Metropolitan and a 40% interest in Omni.
The accompanying interim unaudited financial statements have been prepared
by the Company's management pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosure
normally included in the financial statements prepared in accordance with GAAP
may have been condensed or omitted pursuant to such rules and regulations,
although management believes that the disclosures are adequate to make the
information presented not misleading. The unaudited financial statements as of
March 31, 2000 and for the three month periods ended March 31, 2000 and 1999
include, in the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial information set
forth herein. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. These financial statements should be read in conjunction with
the Company's audited financial statements and the notes thereto included in the
Company's Form 10K for the year ended December 31, 1999.
The Company intends to qualify as a REIT under Section 856 through 869 of
the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the
Company will not generally be subject to corporate Federal income taxes as long
as it satisfies certain technical requirements of the Code relating to
composition of its income and assets and requirements relating to distributions
of taxable income to shareholders.
In June 1999, the Financial Accounting Standards Board issued Statement No.
137, amending Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which extended the required date of adoption to the years
beginning after June 15, 2000. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company expects to adopt
the new Statement effective January 1, 2001. The Company does not anticipate
that the adoption of this Statement will have any effect on its results of
operations or financial position.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
3. MORTGAGE NOTES PAYABLE
As of March 31, 2000, the Company had approximately $527.5 million of fixed
rate mortgage notes which mature at various times between June 2000 and November
2027. The notes are secured by 23 properties and have a weighted average
interest rate of approximately 7.57%.
7
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4. SENIOR UNSECURED NOTES
As of March 31, 2000, the Operating Partnership had outstanding
approximately $449.3 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures
(dollars in thousands):
<TABLE>
<CAPTION>
FACE
ISSUANCE AMOUNT COUPON RATE TERM MATURITY
- ------------------- ----------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
August 27, 1997 $150,000 7.20% 10 years August 28, 2007
March 26, 1999 $100,000 7.40% 5 years March 15, 2004
March 26, 1999 $200,000 7.75% 10 years March 15, 2009
</TABLE>
Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 were issued at an aggregate
discount of $738,000.
Net proceeds of approximately $297.4 million received from the issuance of
the March 26, 1999 Senior Unsecured Notes were used to repay outstanding
borrowings under the Company's unsecured credit facility.
5. UNSECURED CREDIT FACILITY AND UNSECURED TERM LOAN
As of March 31, 2000, the Company had 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 which matures in July, 2001. Interest rates on borrowings under the
Credit Facility are priced off of LIBOR plus a sliding scale ranging from 65
basis points to 90 basis points based on the Company's investment grade rating
on its senior unsecured debt. On March 16, 1999, the Company received its
investment grade rating on its senior unsecured debt. As a result, the pricing
under the Credit Facility was adjusted to LIBOR plus 90 basis points.
The Company 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 March 31, 2000, the
Company had availability under the Credit Facility to borrow an additional $51.3
million (net of $41.1 million of outstanding undrawn letters of credit).
As of March 31, 2000, the Company had outstanding an 18 month, $75 million
unsecured term loan (the "Term Loan") from Chase Manhattan Bank which matures in
June, 2001. Interest rates on borrowings under the Term Loan are priced off of
LIBOR plus 150 basis points. The Term Loan replaced the Company's previous term
loan, which matured on December 17, 1999.
6. COMMERCIAL REAL ESTATE INVESTMENTS
On January 13, 2000, the Company acquired 1350 Avenue of the Americas, a
540,000 square foot, 35 story, Class A office property, located in New York
City, for a purchase price of approximately $126.5 million. This acquisition was
financed through a $70 million secured debt financing and a draw under the
Credit Facility.
On June 15, 1999, the Company acquired the first mortgage note secured by a
47 story, 1.4 million square foot Class A office property located at 919 Third
Avenue in New York City for approximately $277.5 million. The first mortgage
note entitles the Company to all the net cash flow of the property and to
substantial rights regarding the operations of the property, with the Company
anticipating to ultimately obtain title to the property. This acquisition was
financed with proceeds from the issuance of six million shares of Series B
Convertible Cumulative Preferred Stock and through draws under the Credit
Facility. Current financial accounting guidelines provide that where a lender
has virtually the same risks and potential rewards as those of a real estate
owner it should recognize the full economics associated with the operations of
the property. As such, the Company has recognized the real estate operations of
the 919 Third Avenue in the accompanying consolidated statements of income from
the date of acquisition.
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On August 9, 1999, the Company executed a contract for the sale, which will
take place in three stages, of its interest in RMI, which consisted of 28
properties, comprising approximately 6.1 million square feet and three other big
box industrial properties to KTR. In addition, the Company also entered into a
sale agreement with Matrix relating to a first mortgage note and certain
industrial land holdings (the "Matrix Sale"). The combined total sale price is
$310 million (approximately $42 million of which is payable to the Morris
Companies and its affiliates) and consists of a combination of (i) cash, (ii)
convertible preferred and common stock of KTR, (iii) preferred units of KTR's
operating partnership, (iv) relief of debt and (v) a purchase money mortgage
note secured by certain land that is being sold to Matrix.
During September 1999, the Matrix Sale and the first stage of the RMI
closing occurred whereby the Company sold its interest in RMI to KTR for a
combined sales price of approximately $164.7 million (net of minority partner's
interest). The combined consideration consisted of approximately (i) $86.3
million in cash, (ii) $40 million of preferred stock of KTR, (iii) $1.5 million
in common stock of KTR, (iv) approximately $26.7 million of debt relief and (v)
approximately $10.2 million in purchase money mortgages. As a result, the
Company incurred a gain of approximately $10.1 million. The $41.5 million of
common and preferred stock of KTR has been included in prepaid expenses and
other assets on the accompanying consolidated balance sheet. Cash proceeds from
the sales were used primarily to repay borrowings under the Credit Facility.
During April and May 2000, the second and third stages of the RMI closing
occurred whereby the Company sold six industrial buildings. The total
consideration received in connection with stages two and three totaled
approximately $98 million (approximately $6 million of which is payable to the
Morris Companies and its affiliates) and consisted of approximately $26 million
of preferred operating partnership units of KTR and approximately $72 million in
cash. Cash proceeds from the sales were used primarily to repay borrowings under
the Credit Facility.
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").
On December 8, 1998, the Company, Metropolitan and Tower Realty Trust, Inc.
("Tower") executed a merger agreement and on May 24, 1999 Tower was merged (the
"Merger") into Metropolitan, with Metropolitan surviving the Merger.
Concurrently with the Merger, Tower Realty Operating Partnership, L.P. was
merged with and into a subsidiary of Metropolitan. The consideration issued in
the mergers was comprised of (i) 25% cash (approximately $107.2 million) and
(ii) 75% of shares of Class B Exchangeable Common Stock, par value $.01 per
share, of the Company (the "Class B common stock") (valued for GAAP purposes at
approximately $304.1 million).
The Company controls Metropolitan and owns 100% of the common equity;
Crescent owns a $85 million preferred equity investment in Metropolitan.
Crescent's investment accrues distributions at a rate of 7.5% per annum for a
two-year period (May 24, 1999 through May 24, 2001) 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 $85 million preferred interest into either (i) a
common membership interest in Metropolitan or (ii) shares of the Company's Class
A common stock at a conversion price of $24.61 per share.
The Tower portfolio acquired in the Merger consists of three office
properties comprising approximately 1.6 million square feet located in New York
City, one office property located on Long Island and certain office properties
and other real estate assets located outside the Tri-State Area. All of the
assets acquired in the Merger, located outside of the Tri-State Area, other than
an office property located in Orlando, Florida, have been sold.
7. STOCKHOLDERS' EQUITY
On May 24, 1999, in conjunction with the Merger, the Company issued
11,694,567 shares of Class B common stock, which were valued for GAAP purposes
at $26 per share for total consideration of approximately $304.1 million. The
shares of Class B common stock are entitled to receive an initial
9
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annual dividend of $2.24 per share, which dividend 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 Class A 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 Class A common stock at any time following the four year, six-month
anniversary of the issuance of the Class B common stock.
On March 8, 2000, the Board of Directors of the Company declared the
following dividends on the Company's securities:
<TABLE>
<CAPTION>
ANNUALIZED
DIVIDEND / RECORD PAYMENT THREE MONTHS DIVIDEND /
SECURITY DISTRIBUTION DATE DATE ENDED DISTRIBUTION
- -------------------------- -------------- ---------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Class A common stock $ 0.37125 April 3, 2000 April 14, 2000 March 31, 2000 $ 1.485
Class B common stock $ 0.56000 April 14, 2000 May 1, 2000 April 30, 2000 $ 2.240
Series A preferred stock $ 0.47660 April 14, 2000 May 1, 2000 April 30, 2000 $ 1.906
Series B preferred stock $ 0.49063 April 14, 2000 May 1, 2000 April 30, 2000 $ 1.963
</TABLE>
The Board of Directors of the Company has authorized the purchase of up to three
million shares of the Company's Class B common stock. In addition, the Board of
Directors has also authorized the purchase of up to an additional three million
shares of the Company's Class B common stock and/or its Class A common stock.
The buy-back program will be effected in accordance with the safe harbor
provisions of the Securities Exchange Act of 1934 and may be terminated by the
Company at any time. As of March 31, 2000, the Company had purchased and retired
1,410,804 shares of Class B common stock for approximately $30.3 million.
Basic net income per share on the Company's Class A common stock was
calculated using the weighted average number of shares outstanding of 40,382,182
and 40,049,079 for the three months ended March 31, 2000 and 1999, respectively.
Basic net income per share on the Company's Class B common stock was
calculated using the weighted average number of shares outstanding of 10,283,598
for the three months ended March 31, 2000.
The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted earnings per weighted average common
share and the computation of basic and diluted earnings per share for the
Company's Class A common stock (in thousands except for earnings per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Numerator:
Income before dividends to preferred shareholders and income
allocated to Class B shareholders ......................... $ 23,167 $ 15,705
Dividends to preferred shareholders ........................ (7,325) (4,381)
Income allocated to Class B shareholders ................... (4,396) --
-------- --------
Numerator for basic and diluted earnings per Class A common
share ..................................................... $ 11,446 $ 11,324
======== ========
Denominator:
Denominator for basic earnings per share- weighted-average
Class A common shares ..................................... 40,382 40,049
Effect of dilutive securities:
Employee stock options .................................... 327 402
-------- --------
Denominator for diluted earnings per Class A common
share-adjusted weighted-average shares and assumed
conversions ............................................... 40,709 40,451
======== ========
Basic earnings per Class A common share:
Net income per Class A common share ........................ $ .28 $ .28
======== ========
Diluted earnings per Class A common share:
Diluted net income per Class A common share ................ $ .28 $ .28
======== ========
</TABLE>
10
<PAGE>
The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted earnings per weighted average common
share and the computation of basic and diluted earnings per share for the
Company's Class B common stock (in thousands except for earnings per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
-------------------
<S> <C>
Numerator:
Income before dividends to preferred shareholders and income allocated to
Class A common shareholders ............................................... $ 23,167
Dividends to preferred shareholders ......................................... (7,325)
Income allocated to Class A common shareholders ............................. (11,446)
---------
Numerator for basic earnings per Class B common share ....................... 4,396
Add back:
Income allocated to Class A common shareholders ............................. 11,446
Limited partners' minority interest in the operating partnership ............ 2,278
---------
Numerator for diluted earnings per Class B common share ..................... $ 18,120
=========
Denominator:
Denominator for basic earnings per share-weighted-average Class B
common Shares ............................................................. 10,284
Effect of dilutive securities:
Weighted average Class A common shares outstanding ........................ 40,382
Weighted average OP Units outstanding ..................................... 7,700
Employee stock options .................................................... 327
---------
Denominator for diluted earnings per Class B common share-adjusted
weighted- average shares and assumed conversions ............................ 58,693
=========
Basic earnings per Class B common share:
Net income per Class B common share ......................................... $ .43
=========
Diluted earnings per Class B common share:
Diluted net income per Class B common share ................................. $ .31
=========
</TABLE>
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash paid during the period for interest ......... $33,306 $18,729
======= =======
Interest capitalized during the period ........... $ 2,362 $ 2,311
======= =======
</TABLE>
9. SEGMENT DISCLOSURE
The Company owns all of the interests in its real estate properties by or
through the Operating Partnership. The Company's portfolio consists of Class A
office properties located within the New York City metropolitan area and Class A
suburban office and industrial properties located and operated within the
Tri-State Area (the "Core Portfolio"). The Company's portfolio also includes one
office property located in Orlando, Florida, certain industrial joint venture
properties formerly owned by RMI and for the period commencing January 6, 1998
and ending September 26, 1999, industrial properties which were owned by RMI and
subsequently sold to KTR. The Company has managing directors who report directly
to the Chief Operating Officer and Chief Financial Officer who have been
identified as the Chief Operating Decision Makers because of their final
authority over resource allocation, decisions and performance assessment.
In addition, as the Company 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. Further, the Company does not
consider the property operating performance of the office property located in
Orlando, Florida as a part of its Core Portfolio. Additionally, commencing
January 1, 2000, the Company does not consider the operating performance of the
industrial joint venture properties formerly owned by RMI a reportable segment.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
11
<PAGE>
The following tables set forth the components of the Company's revenues and
expenses and other related disclosures for the three months ended March 31, 2000
and 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MARCH 31, 2000
--------------------------------------------
CONSOLIDATED
CORE PORTFOLIO OTHER TOTALS
---------------- ------------ --------------
<S> <C> <C> <C>
REVENUES:
Base rents, tenant escalations and
reimbursements ...................... $ 104,821 $ 2,426 $ 107,247
Equity in earnings of real estate
joint ventures and service
companies ........................... -- 1,413 1,413
Interest and other income ............ 406 8,593 8,999
---------- -------- ----------
Total Revenues ....................... 105,227 12,432 117,659
---------- -------- ----------
EXPENSES:
Property operating expenses .......... 37,488 668 38,156
Marketing, general and
administrative ...................... 5,100 1,471 6,571
Interest ............................. 9,192 14,648 23,840
Depreciation and amortization ........ 19,334 1,678 21,012
---------- -------- ----------
Total Expenses ....................... 71,114 18,465 89,579
---------- -------- ----------
Income (loss) before preferred
Dividends and distributions and
minority interests .................. $ 34,113 $ (6,033) $ 28,080
========== ======== ==========
Total assets ......................... $2,069,161 $835,172 $2,904,333
========== ======== ==========
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31, 1999
-------------------------------------------------------
CONSOLIDATED
CORE PORTFOLIO RMI OTHER TOTALS
---------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Base rents, tenant escalations and
reimbursements ...................... $ 66,022 $ 4,613 $ -- $ 70,635
Equity in earnings of real estate
joint ventures and service
companies ........................... -- -- 377 377
Interest and other income ............ 69 2 5,025 5,096
---------- -------- -------- ----------
Total Revenues ....................... 66,091 4,615 5,402 76,108
---------- -------- -------- ----------
EXPENSES:
Property operating expenses .......... 22,157 751 -- 22,908
Marketing, general and
administrative ...................... 3,942 131 319 4,392
Interest ............................. 4,559 277 9,107 13,943
Depreciation and amortization ........ 12,781 1,080 1,230 15,091
---------- -------- -------- ----------
Total Expenses ....................... 43,439 2,239 10,656 56,334
---------- -------- -------- ----------
Income (loss) before preferred
Dividends and distributions and
minority interests .................. $ 22,652 $ 2,376 $ (5,254) $ 19,774
========== ======== ======== ==========
Total assets ......................... $1,435,086 $159,873 $316,065 $1,911,024
========== ======== ======== ==========
</TABLE>
10. OTHER INVESTMENTS AND ADVANCES
During 1997, the Company formed FrontLine Capital Group ("FrontLine")
(formerly Reckson Service Industries, Inc.) and Reckson Strategic Venture
Partners, LLC ("RSVP"). In connection with the formation of FrontLine, the
Operating Partnership established a credit facility with FrontLine (the
"FrontLine Facility") in the amount of $100 million for FrontLine's e-commerce
and e-services operations and other general corporate purposes. As of March 31,
2000, the Company had advanced approximately $92.7 million under the FrontLine
Facility. In addition, the Operating Partnership has 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 FrontLine under terms similar to the FrontLine Facility. As of March 31,
2000, approximately $60.9 million had been invested through the RSVP Commitment,
of which $24.8 million represents RSVP-controlled joint venture REIT-qualified
investments and $36.1 million represents advances to FrontLine under the RSVP
Commitment.
During November 1999, the Board of Directors of the Company approved an
amendment to the FrontLine Facility and the RSVP Commitment to permit FrontLine
to incur secured debt and to pay interest thereon. In consideration of the
amendments, FrontLine paid the Operating Partnership a fee of approximately $3.6
million in the form of shares of FrontLine common stock. Such fee is being
recognized in income over an estimated nine month benefit period.
FrontLine identifies, acquires interests in and develops a network of
e-commerce and e-services companies that service small to medium sized
enterprises, independent professionals and entrepreneurs and the mobile
workforce of larger companies. FrontLine serves as the managing member of RSVP.
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.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements of Reckson Associates Realty
Corp. (the "Company") and related notes thereto.
The Company considers certain statements set forth herein to be
forward-looking statements within the meaning of Section 27A or the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, with respect to the Company'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
Company's operations, the ability to lease vacant space and the ability to renew
or relet space under expiring leases, involve certain risks and uncertainties.
Although the Company 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 Company can give no assurance that its expectation will be
achieved. Certain factors that might cause the results of the Company 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 Company's real estate
markets. Consequently, such forward-looking statements should be regarded solely
as reflections of the Company'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 Company is a self-administered and self-managed real estate investment
trust ("REIT") specializing in the acquisition, leasing, financing, management
and development of office and industrial properties. The Company's growth
strategy is focused on the real estate markets in and around the New York
tri-state area (the "Tri-State Area").
The Company owns all of the interests in its real properties through
Reckson Operating Partnership, L.P. (the "Operating Partnership"). As of March
31, 2000, the Company owned and operated 78 office properties comprising
approximately 13.7 million square feet, 110 industrial properties comprising
approximately 8.3 million square feet and two retail properties comprising
approximately 20,000 square feet, located in the Tri-State Area. The Company
also owns a 357,000 square foot office building located in Orlando, Florida and
approximately 346 acres of land in 16 separate parcels of which the Company can
develop approximately 1.9 million square feet of office space and approximately
300,000 square feet of industrial space. The Company also has invested
approximately $314.8 million in mortgage notes encumbering two Class A office
properties encompassing approximately 1.6 million square feet, approximately 472
acres of land located in New Jersey and in a note receivable secured by a
partnership interest in Omni Partner's, L.P., owner of the Omni, a 575,000
square foot Class A office property located in Uniondale, New York. In addition,
the Company also holds $41.5 million of preferred and common stock of Keystone
Property Trust ("KTR"), as discussed below.
During 1997, the Company formed FrontLine Capital Group ("FrontLine")
(formerly Reckson Service Industries, Inc.) and Reckson Strategic Venture
Partners, LLC ("RSVP"). In connection with the formation of FrontLine, the
Operating Partnership established a credit facility with FrontLine (the
"FrontLine Facility") in the amount of $100 million for FrontLine's e-commerce
and e-services operations and other general corporate purposes. As of March 31,
2000, the Company had advanced approximately $92.7 million under the FrontLine
Facility. In addition, the Operating Partnership has 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 FrontLine under terms similar to the FrontLine Facility. As of March 31,
2000, approximately $60.9 million had been invested through the RSVP Commitment,
of which $24.8 million represents RSVP-controlled joint venture REIT-qualified
investments and $36.1 million represents advances to FrontLine under the RSVP
Commitment.
During November 1999, the Board of Directors of the Company approved an
amendment to the FrontLine Facility and the RSVP Commitment to permit FrontLine
to incur secured debt and to pay
13
<PAGE>
interest thereon. In consideration of the amendments, FrontLine paid the
Operating Partnership a fee of approximately $3.6 million in the form of shares
of FrontLine common stock. Such fee is being recognized in income over an
estimated nine month benefit period.
FrontLine identifies, acquires interests in and develops a network of
e-commerce and e-services companies that service small to medium sized
enterprises, independent professionals and entrepreneurs and the mobile
workforce of larger companies. FrontLine serves as the managing member of RSVP.
RSVP was formed to provide the Company with a research and development vehicle
to invest in alternative real estate sectors. RSVP invests primarily in real
estate and real estate related operating companies generally outside of the
Company's core office and industrial focus. RSVP's strategy is to identify and
acquire interests in established entrepreneurial enterprises with experienced
management teams in market sectors which are in the early stages of their growth
cycle or offer unique circumstances for attractive investments as well as a
platform for future growth.
On January 6, 1998, the Company made an investment in the Morris Companies,
a New Jersey developer and owner of "Big Box" warehouse facilities. 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.
On September 27, 1999, the Company sold its interest in RMI to KTR.
On August 9, 1999, the Company executed a contract for the sale, which will
take place in three stages, of its interest in RMI, which consisted of 28
properties, comprising approximately 6.1 million square feet and three other big
box industrial properties to KTR. In addition, the Company also entered into a
sale agreement with Matrix relating to a first mortgage note and certain
industrial land holdings (the "Matrix Sale"). The combined total sale price is
$310 million (approximately $42 million of which is payable to the Morris
Companies and its affiliates) and consists of a combination of (i) cash, (ii)
convertible preferred and common stock of KTR, (iii) preferred units of KTR's
operating partnership, (iv) relief of debt and (v) a purchase money mortgage
note secured by certain land that is being sold to Matrix.
During September 1999, the Matrix Sale and the first stage of the RMI
closing occurred whereby the Company sold its interest in RMI to KTR for a
combined sales price of approximately $164.7 million (net of minority partner's
interest). The combined consideration consisted of approximately (i) $86.3
million in cash, (ii) $40 million of preferred stock of KTR, (iii) $1.5 million
in common stock of KTR, (iv) approximately $26.7 million of debt relief and (v)
approximately $10.2 million in purchase money mortgages. As a result, the
Company incurred a gain of approximately $10.1 million. The $41.5 million of
common and preferred stock of KTR has been included in prepaid expenses and
other assets on the Company's consolidated balance sheet. Cash proceeds from the
sales were used primarily to repay borrowings under the Credit Facility.
During April and May 2000, the second and third stages of the RMI closing
occurred whereby the Company sold six industrial buildings. The total
consideration received in connection with stages two and three totaled
approximately $98 million (approximately $6 million of which is payable to the
Morris Companies and its affiliates) and consisted of approximately $26 million
of preferred operating partnership units of KTR and approximately $72 million in
cash. Cash proceeds from the sales were used primarily to repay borrowings under
the Company's unsecured credit facility.
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").
On December 8, 1998, the Company, Metropolitan and Tower Realty Trust, Inc.
("Tower") executed a merger agreement and on May 24, 1999 Tower was merged (the
"Merger") into Metropolitan, with Metropolitan surviving the Merger.
Concurrently with the Merger, Tower Realty Operating Partnership, L.P. was
merged with and into a subsidiary of Metropolitan. The consideration issued in
the mergers was comprised of (i) 25% cash (approximately $107.2 million) and
(ii) 75% of shares of Class B Exchangeable Common Stock, par value $.01 per
share, of the Company (the "Class B common stock") (valued for general accepted
accounting principles ("GAAP") purposes at approximately $304.1 million).
The Company controls Metropolitan and owns 100% of the common equity;
Crescent owns a $85 million preferred equity investment in Metropolitan.
Crescent's investment accrues distributions at a rate of 7.5% per annum for a
two-year period (May 24, 1999 through May 24, 2001) and may be redeemed
14
<PAGE>
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 $85 million preferred interest into either (i) a
common membership interest in Metropolitan or (ii) shares of the Company's Class
A common stock at a conversion price of $24.61 per share.
The Tower portfolio acquired in the Merger consisted of three office
properties comprising approximately 1.6 million square feet located in New York
City, one office property located on Long Island and certain office properties
and other real estate assets located outside the Tri-State Area. All of the
assets acquired in the Merger located outside of the Tri-State Area, other than
an office property located in Orlando, Florida, have been sold.
The market capitalization of the Company at March 31, 2000 was
approximately $3.06 billion. The Company's market capitalization is based on the
sum of (i) the market value of the Company's Class A common stock and common
units of limited partnership interest in the Operating Partnership ("OP Units")
(assuming conversion) of $18.75 per share/unit (based on the closing price of
the Company's Class A common stock on March 31, 2000), (ii) the market value of
the Company's Class B common stock of $20.50 per share (based on the closing
price of the Company's Class B common stock on March 31, 2000), (iii) the
liquidation preference value of the Company's Series A preferred and Series B
preferred stock of $25 per share, (iv) the liquidation preference value of the
Operating Partnership's preferred units of $1,000 per unit, (v) the contributed
value of Metropolitan's preferred interest of $85 million and (vi) the
approximately $1.45 billion (including its share of joint venture debt and net
of minority partners' interests) of debt outstanding at March 31, 2000. As a
result, the Company's total debt to total market capitalization ratio at March
31, 2000 equaled approximately 47.2%
RESULTS OF OPERATIONS
The Company's total revenues increased by $41.6 million or 54.6% for the
three months ended March 31, 2000 as compared to the 1999 period. Property
operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $36.6 million or
51.8% for the three months ended March 31, 2000 as compared to the 1999 period.
The increase in Property Operating Revenues is substantially attributable to the
Tower portfolio acquisition in May 1999, the acquisition of the first mortgage
note secured by 919 Third Avenue (which revenue was reflected in Property
Operating Revenues) in June 1999 and the acquisition of 1350 Avenue of the
Americas in January 2000. In addition, Property Operating Revenues were also
positively impacted by approximately $3.1 million from increases in occupancies
and rental rates in our "same store" properties. The Company's base rent
reflects the positive impact of the straight-line rent adjustment of $4.5
million for the three months ended March 31, 2000 as compared to $1.4 million
for the 1999 period. The remaining balance of the increase in total revenues is
primarily attributable to interest income and fees relating to the FrontLine
Facility and the RSVP Commitment.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $15.2 million or 66.6% for the three months ended March
31, 2000 as compared to the 1999 period. These increases are primarily due to
the acquisition of the Tower portfolio in May 1999, the acquisition of the first
mortgage note secured by 919 Third Avenue in June 1999, (which operations were
reflected in Property Expenses) and the acquisition of 1350 Avenue of the
Americas in January 2000. Gross operating margins (defined as Property Operating
Revenues less Property Expenses, taken as a percentage of Property Operating
Revenues) for the three months ended March 31, 2000 and 1999 were 64.4% and
67.6% respectively. The decrease in gross operating margins is primarily
attributable to a larger proportionate share of gross operating margin derived
from office properties, which has a lower gross margin percentage, in 2000
compared to 1999. The higher proportionate share of the gross operating margins
is attributable to the office properties acquired during the period May 1999
through January 2000 and the disposition of net leased industrial properties in
September 1999. This shift in the composition of the portfolio was offset by
increases in rental rates and operating efficiencies realized.
Marketing, general and administrative expenses increased by $2.2 million
for the three months ended March 31, 2000 as compared to the 1999 period. The
increase is due to the increased costs of managing the acquisition properties
and the increase in corporate management and administrative costs associated
15
<PAGE>
with the growth of the Company including the opening of its New York City
division. Marketing, general and administrative expenses as a percentage of
total revenues were 5.6% for the three months ended March 31, 2000 as compared
to 5.8% for the 1999 period.
Interest expense increased by $9.9 million for the three months ended March
31, 2000 as compared to the 1999 period. The increase is primarily due to
secured borrowings assumed in the Tower acquisition as well as new debt incurred
with the Tower and 1350 Avenue of the Americas acquisitions. Additionally, the
increase is also due to $300 million of Senior Unsecured Notes issued on March
26, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000 the Company had a three year $500 million unsecured
revolving credit facility (the "Credit Facility") with Chase Manhattan Bank,
Union Bank of Switzerland and PNC Bank as co-managers of the Credit Facility
bank group which matures in July, 2001. Interest rates on borrowings under the
Credit Facility are priced off of LIBOR plus a sliding scale ranging from 65
basis points to 90 basis points based on the Company's investment grade rating
on its senior unsecured debt. On March 16, 1999, the Company received its
investment grade rating on its senior unsecured debt. As a result, the pricing
under the Credit Facility was adjusted to LIBOR plus 90 basis points.
The Company 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 March 31, 2000, the
Company had availability under the Credit Facility to borrow an additional $51.3
million (net of $41.1 million of outstanding undrawn letters of credit).
As of March 31, 2000, the Company had an 18 month, $75 million unsecured
term loan (the "Term Loan") from Chase Manhattan Bank which matures in June,
2001. Interest rates on borrowings under the Term Loan are priced off of LIBOR
plus 150 basis points. The Term Loan replaced the Company's previous term loan
which matured on December 17, 1999.
On May 24, 1999, in conjunction with the Merger, the Company issued
11,694,567 shares of Class B common stock, which were valued for GAAP purposes
at $26 per share for total consideration of approximately $304.1 million. The
shares of Class B common stock are entitled to receive an initial annual
dividend of $2.24 per share, which dividend 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 Class A 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 Class A common stock at
any time following the four year, six-month anniversary of the issuance of the
Class B common stock.
The Board of Directors of the Company has authorized the purchase of up to
three million shares of the Company's Class B common stock. In addition, the
Board of Directors has also authorized the purchase of up to an additional three
million shares of the Company's Class B common stock and/or its Class A common
stock. The buy-back program will be effected in accordance with the safe harbor
provisions of the Securities Exchange Act of 1934 and may be terminated by the
Company at any time. As of March 31, 2000, the Company had purchased and retired
1,410,804 shares of Class B Common Stock for approximately $30.3 million.
The Company's indebtedness at March 31, 2000 totaled approximately $1.45
billion (including its share of joint venture debt and net of minority partners'
interests) and was comprised of $407.6 million outstanding under the Credit
Facility, $75 million outstanding under the Term Loan, approximately $449.3
million of senior unsecured notes and approximately $527.5 million of mortgage
indebtedness. Based on the Company's total market capitalization of
approximately $3.06 billion at March 31, 2000 (calculated based on the sum of
(i) the market value of the Company's Class A common stock and OP Units,
assuming conversion, (ii) the market value of the Company's Class B common
stock, (iii) the liquidation preference value of the Company's preferred stock,
(iv) the liquidation preference value of the Operating Partnership's preferred
units, (v) the contributed value of Metropolitan's preferred interest and (vi)
the $1.45 billion of debt), the Company's debt represented approximately 47.2%
of its total market capitalization.
16
<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 Company. The Company expects to meet
its short-term liquidity requirements generally through its net cash provided by
operating activities along with the Credit Facility previously discussed. The
Company expects to meet certain of its financing requirements through long-term
secured and unsecured borrowings and the issuance of debt securities and
additional equity securities of the Company. The Company will refinance existing
mortgage indebtedness or indebtedness under the Credit Facility at maturity or
retire such debt through the issuance of additional debt securities or
additional equity securities. The Company anticipates that the current balance
of cash and cash equivalents and cash flows from operating activities, together
with cash available from borrowings and equity offerings, will be adequate to
meet the capital and liquidity requirements of the Company in both the short and
long-term.
In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its stockholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to stockholders and for payment of recurring,
non-incremental revenue-generating expenditures. The Company intends to invest
amounts accumulated for distribution in short-term investments.
INFLATION
The office leases generally provided for fixed base rent increases or
indexed escalations. In addition, the office leases provide for separate
escalations of real estate taxes and electric costs over a base amount. The
industrial leases generally provide for fixed base rent increases, direct pass
through of certain operating expenses and separate real estate tax escalations
over a base amount. The Company believes that inflationary increases in expenses
will be offset by contractual rent increases and expense escalations described
above.
The Credit Facility and Term Loan bear interest at a variable rate, which
will be influenced by changes in short-term interest rates, and is sensitive to
inflation.
IMPACT OF YEAR 2000
During 1999, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In that regard, the Company has completed its
assessment, remediation and testing of its systems in order for those systems to
function properly with respect to date occurring in the Year 2000 and
thereafter. As a result of those efforts, the Company experienced no significant
disruptions in connection with its building management, mechanical and computer
systems and believes that those systems successfully responded to the Year 2000
date change. The Company has expended approximately one million dollars with
upgrading, replacing or remediating its systems and is not aware of any material
problems resulting form Year 2000 issues. Further, the Company will continue to
monitor its critical building management, mechanical and computer systems
throughout the Year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. FFO is defined by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income or loss,
excluding gains or losses from debt restructuring and sales of properties plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting 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 Company's
operating performance or as an alternative to cash flow as a measure of
liquidity. In November 1999, NAREIT issued a "White Paper" analysis to address
certain interpretive issues under its definition of FFO. The White Paper
provides that FFO should include both recurring and non-recurring operating
results, except those results defined as "extraordinary items" under GAAP. This
revised definition is effective for all periods beginning on or after January 1,
2000.
Since all companies and analysts do not calculate FFO in a similar fashion,
the Company's calculation of FFO presented herein may not be comparable to
similarly titled measures as reported by other companies.
17
<PAGE>
The following table presents the Company's FFO calculation (unaudited and
in thousands, except per share/unit data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net income available to common shareholders ....................................... $ 15,842 $ 11,324
Add:
Real estate depreciation and amortization ....................................... 20,616 14,689
Minority partners' interests in consolidated partnerships ....................... 1,975 1,168
Limited partners' minority interest in the operating partnership ................ 2,278 2,241
Less:
Amounts distributable to minority partners' in consolidated partnerships ........ 2,381 1,444
-------- --------
Funds From Operations (FFO) -- basic .............................................. 38,330 27,978
Less:
Straight line rents ............................................................. 4,538 1,336
Non-Incremental capitalized tenant improvements and leasing commissions ......... 2,870 818
Non-Incremental capitalized improvements ........................................ 1,251 642
-------- --------
Cash available for distribution ("CAD") -- basic .................................. $ 29,671 $ 25,182
======== ========
Computation of diluted FFO and CAD:
Basic FFO ......................................................................... $ 38,330 $ 27,978
Add:
Dividends and distributions on dilutive shares and units ........................ 9,579 5,041
-------- --------
FFO -- diluted .................................................................... 47,909 33,019
Less:
Straight line rents, non incremental capitalized improvements, tenant
improvements and leasing commissions ........................................... 8,659 2,796
-------- --------
CAD -- diluted .................................................................... $ 39,250 $ 30,223
======== ========
Basic FFO and CAD calculations:
Weighted average shares outstanding ............................................. 50,666 40,049
Weighted average units of limited partnership interest outstanding .............. 7,700 7,710
-------- --------
Weighted average shares and units outstanding ................................... 58,366 47,759
======== ========
FFO per weighted average share or unit .......................................... $ .66 $ .59
======== ========
CAD per weighted average share or unit .......................................... $ .51 $ .53
======== ========
Weighted average dividends or distributions per share or unit ................... $ .40 $ .34
======== ========
FFO payout ratio ................................................................ 61.6 % 57.6 %
======== ========
CAD payout ratio ................................................................ 79.6 % 64.0 %
======== ========
Diluted FFO and CAD calculations:
Basic GAAP weighted average shares and units outstanding ........................ 58,366 47,759
Add GAAP weighted average dilutive securities ................................... 327 402
-------- --------
Dilutive GAAP weighted average shares and units ................................. 58,693 48,161
Adjustments for dilutive FFO and CAD weighted average shares and units:
Add:
Weighted average shares of Series A Preferred Stock ............................ 8,060 8,060
Weighted average shares of Series B Preferred Stock ............................ 5,758 --
Weighted average shares of minority partner's preferred interest ............... 3,454 --
Weighed average shares of preferred units of limited partnership interest ...... 1,367 1,367
-------- --------
Dilutive FFO and CAD weighted average shares and units outstanding ................ 77,332 57,588
======== ========
FFO per weighted average share or unit ............................................ $ .62 $ .57
======== ========
CAD per weighted average share or unit ............................................ $ .51 $ .52
======== ========
Weighted average dividends or distributions per share or unit ..................... $ .40 $ .34
======== ========
FFO payout ratio .................................................................. 64.0 % 58.9 %
======== ========
CAD payout ratio .................................................................. 78.1 % 64.3 %
======== ========
</TABLE>
18
<PAGE>
<PAGE>
SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES, TENANT IMPROVEMENTS AND
LEASING COMMISSIONS
The following table summarizes the expenditures incurred for
non-incremental capital expenditures, tenant improvements and leasing
commissions for the Company's office and industrial properties for the three
month period ended March 31, 2000 and the historical average of such
non-incremental capital expenditures, tenant improvements and leasing
commissions for the years 1996 through 1999.
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
THREE MONTHS
1996-1999 ENDED
1996 1997 1998 1999 AVERAGE MARCH 31, 2000
------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SUBURBAN OFFICE PROPERTIES
Total ................... $ 375,026 $ 1,108,675 $ 2,004,976 $ 2,298,899 $ 1,446,894 $ 770,138
Per Square Foot ......... 0.13 0.22 0.23 0.23 0.20 0.08
CBD OFFICE PROPERTIES
Total ................... N/A N/A N/A N/A N/A $ 362,774
Per Square Foot ......... N/A N/A N/A N/A N/A 0.17
INDUSTRIAL PROPERTIES
Total ................... $ 670,751 $ 733,233 $ 1,205,266 $ 1,048,688 $ 914,485 $ 118,494
Per Square Foot ......... 0.18 0.15 0.12 0.11 0.14 0.01
</TABLE>
NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS
<TABLE>
<CAPTION>
THREE MONTHS
1996-1999 ENDED
1996 1997 1998 1999 AVERAGE MARCH 31, 2000
------------- -------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
LONG ISLAND OFFICE PROPERTIES
Tenant Improvements .............. $ 523,574 $ 784,044 $ 1,140,251 $ 1,009,357 $ 864,307 $ 587,337
Per Square Foot Improved ......... 4.28 7.00 3.98 4.73 5.00 5.02
Leasing Commissions .............. $ 119,047 $ 415,822 $ 418,191 $ 551,762 $ 376,206 $ 834,492
Per Square Foot Leased ........... 0.97 4.83 1.46 2.59 2.46 7.13
--------- ---------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 5.25 $ 11.83 $ 5.44 $ 7.32 $ 7.46 $ 12.15
========= ========== =========== =========== ========== =========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements .............. $ 834,764 $1,211,665 $ 711,160 $ 1,316,611 $1,018,550 $ 643,796
Per Square Foot Improved ......... 6.33 8.90 4.45 5.62 6.33 14.71
Leasing Commissions .............. $ 264,388 $ 366,257 $ 286,150 $ 457,730 $ 343,631 $ 131,402
Per Square Foot Leased ........... 2.00 2.69 1.79 1.96 2.11 3.00
--------- ---------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 8.33 $ 11.59 $ 6.24 $ 7.58 $ 8.44 $ 17.71
========= ========== =========== =========== ========== =========
CONNECTICUT OFFICE PROPERTIES (A)
Tenant Improvements .............. $ 58,000 $1,022,421 $ 202,880 $ 179,043 $ 449,952 $ 129,380
Per Square Foot Improved ......... 12.45 13.39 5.92 4.88 9.16 4.22
Leasing Commissions .............. $ 0 $ 256,615 $ 151,063 $ 110,252 $ 159,363 $ 96,388
Per Square Foot Leased ........... 0.00 3.36 4.41 3.00 2.69 3.14
--------- ---------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 12.45 $ 16.75 $ 10.33 $ 7.88 $ 11.85 $ 7.36
========= ========== =========== =========== ========== =========
NEW JERSEY OFFICE PROPERTIES
Tenant Improvements .............. N/A N/A $ 654,877 $ 454,054 $ 554,466 $ 316,187
Per Square Foot Improved ......... N/A N/A 3.78 2.29 3.04 6.81
Leasing Commissions .............. N/A N/A $ 396,127 $ 787,065 $ 591,596 $ 254,045
Per Square Foot Leased ........... N/A N/A 2.08 3.96 3.02 5.89
--------- ---------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ N/A N/A $ 5.86 $ 6.25 $ 6.06 $ 12.70
========= ========== =========== =========== ========== =========
NEW YORK OFFICE PROPERTIES
Tenant Improvements .............. N/A N/A N/A N/A N/A N/A
Per Square Foot Improved ......... N/A N/A N/A N/A N/A N/A
Leasing Commissions .............. N/A N/A N/A N/A N/A N/A
Per Square Foot Leased ........... N/A N/A N/A N/A N/A N/A
--------- ---------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ N/A N/A N/A N/A N/A N/A
========= ========== =========== =========== ========== =========
INDUSTRIAL PROPERTIES
Tenant Improvements .............. $ 380,334 $ 230,466 $ 283,842 $ 375,646 $ 317,572 $ 66,483
Per Square Foot Improved ......... 0.72 0.55 0.76 0.25 0.57 0.25
Leasing Commissions .............. $ 436,213 $ 81,013 $ 200,154 $ 835,108 $ 388,122 $ 86,439
Per Square Foot Leased ........... 0.82 0.19 0.44 0.56 0.50 0.33
--------- ---------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 1.54 $ 0.74 $ 1.20 $ 0.81 $ 1.07 $ 0.58
========= ========== =========== =========== ========== =========
</TABLE>
- ----------
(A) 1996 -- 1999 average weighted to reflect October 1996 acquisition date
19
<PAGE>
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for executed
leases as of March 31, 2000:
LONG ISLAND OFFICE PROPERTIES (EXCLUDING OMNI):
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTAL SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 ........................ 32 138,314 4.5% $ 21.24 $ 22.66
2001 ........................ 41 188,697 6.2% $ 22.29 $ 24.45
2002 ........................ 32 261,102 8.5% $ 22.29 $ 24.53
2003 ........................ 52 340,359 11.2% $ 21.90 $ 24.85
2004 ........................ 45 275,654 9.0% $ 23.04 $ 25.73
2005 ........................ 53 529,651 17.3% $ 22.74 $ 26.08
2006 AND THEREAFTER ......... 71 1,322,630 43.3% -- --
-- --------- -----
TOTAL ....................... 326 3,056,407 100.0%
=== ========= =====
</TABLE>
OMNI:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTAL SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 ........................ -- -- -- -- --
2001 ........................ 4 32,680 6.2% $ 27.39 $ 32.74
2002 ........................ 3 129,351 24.3% $ 30.00 $ 33.52
2003 ........................ 6 81,809 15.4% $ 29.60 $ 33.60
2004 ........................ 4 112,414 21.1% $ 26.04 $ 33.40
2005 ........................ 6 59,115 11.1% $ 27.91 $ 34.66
2006 AND THEREAFTER ......... 5 116,605 21.9% -- --
-- ------- -----
TOTAL ....................... 28 531,974 100.0%
== ======= =====
</TABLE>
INDUSTRIAL PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTAL SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 ........................ 27 402,203 8.4% $ 5.49 $ 6.19
2001 ........................ 31 652,359 13.7% $ 5.84 $ 7.06
2002 ........................ 25 212,744 4.5% $ 6.26 $ 6.97
2003 ........................ 30 724,434 15.2% $ 5.26 $ 6.08
2004 ........................ 34 622,185 13.1% $ 6.36 $ 7.16
2005 ........................ 12 351,234 7.4% $ 5.48 $ 7.79
2006 AND THEREAFTER ......... 40 1,794,543 37.7% -- --
-- --------- -----
TOTAL ....................... 199 4,759,702 100.0%
=== ========= =====
</TABLE>
20
<PAGE>
LEASE EXPIRATIONS -- (CONTINUED)
RESEARCH AND DEVELOPMENT PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTAL SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 ........................ 6 62,492 4.9% $ 9.43 $ 9.31
2001 ........................ 8 150,120 11.7% $ 10.75 $ 11.80
2002 ........................ 2 64,620 5.0% $ 10.10 $ 12.70
2003 ........................ 5 291,034 22.8% $ 5.62 $ 6.62
2004 ........................ 10 129,218 10.1% $ 12.17 $ 13.43
2005 ........................ 2 269,704 21.1% $ 8.24 $ 9.03
2006 AND THEREAFTER ......... 12 311,496 24.4% -- --
-- ------- -----
TOTAL ....................... 45 1,278,684 100.0%
== ========= =====
</TABLE>
WESTCHESTER OFFICE PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTAL SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 ........................ 38 280,179 9.6% $ 22.44 $ 22.44
2001 ........................ 43 228,679 7.8% $ 20.77 $ 21.16
2002 ........................ 51 461,797 15.8% $ 19.99 $ 20.24
2003 ........................ 39 252,385 8.7% $ 21.88 $ 23.13
2004 ........................ 27 164,609 5.6% $ 21.60 $ 22.01
2005 ........................ 21 279,077 9.6% $ 24.50 $ 24.99
2006 AND THEREAFTER ......... 35 1,246,721 42.9% -- --
-- --------- -----
TOTAL ....................... 254 2,913,447 100.0%
=== ========= =====
</TABLE>
STAMFORD OFFICE PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTAL SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 ........................ 25 101,334 9.6% $ 21.14 $ 21.90
2001 ........................ 24 110,180 10.4% $ 24.52 $ 25.56
2002 ........................ 18 95,920 9.1% $ 27.07 $ 28.29
2003 ........................ 15 94,448 9.0% $ 31.61 $ 32.39
2004 ........................ 22 225,924 21.4% $ 22.86 $ 23.74
2005 ........................ 10 71,830 6.8% $ 26.80 $ 28.51
2006 AND THEREAFTER ......... 19 355,295 33.7% -- --
-- ------- -----
TOTAL ....................... 133 1,054,931 100.0%
=== ========= =====
</TABLE>
21
<PAGE>
LEASE EXPIRATIONS -- (CONTINUED)
NEW JERSEY OFFICE PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTAL SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 ........................ 17 99,045 5.1% $ 17.49 $ 18.39
2001 ........................ 22 260,124 13.4% $ 17.89 $ 18.10
2002 ........................ 21 182,636 9.4% $ 19.83 $ 20.08
2003 ........................ 20 336,393 17.4% $ 19.83 $ 19.92
2004 ........................ 33 228,731 11.8% $ 22.60 $ 23.11
2005 ........................ 23 317,732 16.4% $ 22.50 $ 23.25
2006 AND THEREAFTER ......... 16 512,495 26.5% -- --
-- ------- -----
TOTAL ....................... 152 1,937,156 100.0%
=== ========= =====
</TABLE>
NEW YORK CITY OFFICE
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTAL SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 ........................ 15 153,333 4.6% $ 29.37 $ 30.09
2001 ........................ 23 176,179 5.3% $ 37.19 $ 34.55
2002 ........................ 17 183,333 5.5% $ 31.82 $ 31.86
2003 ........................ 7 115,726 3.5% $ 31.89 $ 32.22
2004 ........................ 17 178,012 5.3% $ 33.01 $ 31.65
2005 ........................ 27 431,088 12.9% $ 34.56 $ 34.62
2006 AND THEREAFTER ......... 105 2,098,488 62.9% -- --
--- --------- -----
TOTAL ....................... 211 3,336,159 100.0%
=== ========= =====
</TABLE>
(1) Per square foot rental rate represents annualized straight line rent as of
the lease expiration date.
(2) Per square foot rental rate represents annualized base rent as of the lease
expiration date plus non-recoverable operating expense pass-throughs.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary market risk facing the Company is interest rate risk on its
long term debt, mortgage notes and notes receivable. The Company does not hedge
interest rate risk using financial instruments nor is the Company subject to
foreign currency risk.
The Company manages its exposure to interest rate risk on its variable rate
indebtedness by borrowing on a short-term basis under its Credit Facility or
Term Loan until such time as it is able to retire the short-term variable rate
debt with a long-term fixed rate debt offering or an equity offering through
accessing the capital markets on terms that are advantageous to the Company.
The following table sets forth the Company's long term debt obligations by
scheduled principal cash flow payments and maturity date, weighted average
interest rates and estimated fair market value ("FMV") at March 31, 2000
(dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2000 2001 2002 2003 2004
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Long term debt:
Fixed rate ..................... $ 33,479 $ 92,751 $ 16,499 $ 8,350 $ 11,769
Weighted average interest rate . 7.36% 7.50% 7.79% 7.77% 8.30%
Variable rate .................. $ -- $482,600 $ -- $ -- $ --
Weighted average interest rate . -- 7.01% -- -- --
<CAPTION>
THEREAFTER TOTAL(1) FMV
------------ ------------- -----------
<S> <C> <C> <C>
Long term debt:
Fixed rate ..................... $ 814,660 $ 977,508 $977,508
Weighted average interest rate . 7.53% 7.46%
Variable rate .................. $ -- $ 482,600 $482,600
Weighted average interest rate . -- 7.01%
</TABLE>
- ----------------
(1) Includes unamortized issuance discounts of $670,000 on the 5 and 10 year
senior unsecured notes issued on March 26, 1999 which are due at maturity.
In addition, the Company has assessed the market risk for its variable rate
debt, which is based upon LIBOR, and believes that a one percent increase in the
LIBOR rate would have an approximate $4.8 million annual increase in interest
expense based on approximately $482.6 million outstanding at March 31, 2000.
The following table sets forth the Company's mortgage notes and note
receivables by scheduled maturity date, weighted average interest rates and
estimated FMV at March 31, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
2000 2001 2002 2003 2004
------------- ---------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C>
Mortgage notes and Notes
receivable:
Fixed rate ..................... $ 282,983 $ 15 $ 11,055 $-- $ 36,500
Weighted average Interest rate . 9.42% 9.00% 10.34% -- 10.23%
<CAPTION>
THEREAFTER TOTAL (2) FMV
------------ ------------- -----------
<S> <C> <C> <C>
Mortgage notes and Notes
receivable:
Fixed rate ..................... $ 16,990 $ 347,543 $347,543
Weighted average Interest rate . 11.65% 9.64%
</TABLE>
The fair value of the Company's long term debt, mortgage notes and notes
receivable is estimated based on discounting future cash flows at interest rates
that management believes reflects the risks associated with long term debt,
mortgage notes and notes receivable of similar risk and duration.
- ----------------
(2) Excludes mortgage note receivable acquisition costs and interest
receivables aggregating approximately $5.3 million.
23
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities and use of proceeds -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Securities Holders -- None
Item 5. Other information -- None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
<TABLE>
<CAPTION>
NUMBER
- -----------
<S> <C>
10.1 Amended and Restated Letter Agreement, dated as of November 30, 1999, amending the
RSVP Credit Agreement and the FrontLine Facility
27.0 Financial Data Schedule
</TABLE>
b) During the three months ended March 31, 2000, the Registrant filed the
following reports:
On January 14, 2000, the Company filed a Form 8-K to refile certain
exhibits previously filed as exhibits to Forms 8-K which were filed on June
25, 1999 and October 25, 1999.
On February 8, 2000, the Company filed a Form 8-K relating to the $75
million Term Loan entered into with, among others, The Chase Manhattan Bank.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RECKSON ASSOCIATES REALTY CORP.
<TABLE>
<S> <C>
By: \s\ Scott H. Rechler \s\ Michael Maturo
---------------------------------- -----------------------------------
Scott H. Rechler, Co-Chief Executive Michael Maturo, Executive Vice President,
Officer and President Treasurer and Chief Financial Officer
</TABLE>
DATE: May 10, 2000
24
RECKSON ASSOCIATES REALTY CORP.
EXHIBIT 10.1
November 30, 1999
Reckson Service Industries Inc.
10 East 53rd Street
New York, New York 10022
Re: Second Amended and Restated Credit Agreements
Dear Sirs:
Reference is made to the Amended and Restated Credit Agreement, dated as of
August 4, 1999, between Reckson Service Industries, Inc., as Borrower (the
"Borrower") and Reckson Operating Partnership, L.P., as Lender (the "Lender")
relating to the operations of the Borrower (the "RSI Facility"), and the Amended
and Restated Credit greement, dated as of August 4, 1999, between the Borrower
and the Lender relating to Reckson Strategic Venture Parters LLC (together with
the RSI Facility, the "Credit Facilities"). Capitalized terms used herein and
not otherwise defined shall have the meaning ascribed to such terms in the
Credit Facilities.
You have advised us of your proposal to obtain (i) a $60 million secured
loan from Warburg Dillon Read and UBS AG (or other lenders) substantially on the
terms set forth on the term sheet attached hereto as Exhibit A (the "Secured $60
million Loan") and (ii) a $75 million secured loan from Reckson Strategic
Venture Partners LLC (or other lenders) substantially on the terms set forth in
the term sheet attached hereto as Exhibit B (the "Secured $75 million Loan" and,
together with the Secured $60 million Loan, the "Secured Loans"). You have also
advised us of your proposal to issue up to $200 million in preferred stock (the
"Preferred Stock").
1. Amendments. We hereby agree to the following amendments to the Credit
Facilities:
a.Section 1.1(b) is hereby amended to add the following definition:
"Adjusted EBITDA" shall mean, for any fiscal quarter, EBITDA less any
amounts payable (i) by any subsidiary in respect of the Indebtedness of
such Subsidiary (including, but not limited to, Indebtedness of VANTAS
Incorporated and the Secured $75 million Loan) and (ii) by the Borrower
in respect of the Secured $60 million Loan.
b.The third sentence of Section 3.1 of the Credit Facilities is hereby
amended by deleting the references to "EBITDA" and replacing such
references with the term "Adjusted EBITDA."
c. Section 7.2(c) of the Credit Facilities is hereby amended to add the
following:
(iv) Indebtedness of the Borrower payable to its subsidiaries, partner
companies or other companies into which the Borrower makes
investments to evidence the obligation of the Borrower to fund
future capital commitments into such entities.
2. Consents. We hereby consent to the following:
a. The Liens to be granted under the Secured Loans shall be deemed to be
Permitted Liens for purposes of the Credit Facilities.
b.In accordance with Section 7.2(c)(iii) of the Credit Facilities, the
incurrence of Indebtedness under the Secured Loans and the payment of
interest thereon is hereby approved.
c.In accordance with Sections 7.2(d) and 7.2(e) of the Credit
Facilities, the filing of one or more Certificates of Designation and
any amendments thereto in respect of the Preferred Stock, and the
payment by the Borrower of dividends to the holders of the Preferred
Stock, is hereby approved.
<PAGE>
3. Fees. It is understood that a fee equal to 176,186 shares of common
stock, par value $.01 per share, of the Borrower shall be paid to us upon
delivery of this letter in consideration of the matters covered in this letter.
Very truly yours,
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp.,
general partner
By: /s/ Michael Maturo
------------------------------------
Name: Michael Maturo
Title: Executive Vice President
Confirmed and Accepted:
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Michael Maturo
-----------------------------------
Name: Michael Maturo
Title: Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000930548
<NAME> RECKSON ASSOCIATES REALTY CORP.
<MULTIPLIER> 1000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
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