<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND
MAY BE CHANGED.
<PAGE>
AS FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-67129
SUBJECT TO COMPLETION. DATED MARCH 17, 1999.
Prospectus Supplement to Prospectus dated March 16, 1999.
$300,000,000
RECKSON OPERATING PARTNERSHIP, L.P.
$100,000,000 % Notes due , 2004
$200,000,000 % Notes due , 2009
-------------
Reckson Operating Partnership, L.P. is offering two series of notes that
will pay interest on and of each year. The first interest payment
will be made on , 1999. Unless redeemed earlier, the % notes will
mature on , 2004 and the % notes will mature on , 2009.
The notes will be unsecured obligations and will rank equally with each
other and with all of our other unsecured senior indebtedness.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE NOTES.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Per
% Note Total % Note Total
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Initial public offering price............................ % $ % $
Underwriting discount.................................... % $ % $
Proceeds, before expenses, to Operating Partnership...... % $ % $
</TABLE>
The initial public offering prices set forth above do not include accrued
interest, if any. Interest on the notes will accrue from , 1999
and must be paid by the purchaser if the notes are delivered after
, 1999.
------------------
The underwriters expect to deliver the notes in book-entry form only through
the facilities of The Depository Trust Company against payment in New York, New
York on , 1999.
------------------
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
WARBURG DILLON READ LLC
------------------
Prospectus Supplement dated March , 1999.
<PAGE>
[MAP, Pictures]
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THIS PROSPECTUS SUPPLEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
CERTAIN FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE ARE DISCUSSED IN THE SECTION
ENTITLED "RISK FACTORS" BEGINNING ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS.
RECKSON OPERATING PARTNERSHIP, L.P.
We are a limited partnership engaged in the business of owning, developing,
re-positioning, acquiring, constructing, managing and leasing office and
industrial properties in the New York Metropolitan Tri-State area of New York,
New Jersey and Connecticut. We are the entity through which our general partner,
Reckson Associates Realty Corp., a self-managed real estate investment trust,
conducts its business.
Based on industry surveys, we believe that we are one of the largest owners
and managers of Class A suburban office and industrial properties in the New
York Metropolitan Tri-State area. When we refer to Class A office buildings in
this prospectus supplement, we mean well maintained, high quality buildings that
achieve rental rates that are at the higher end of the range of rental rates for
office properties in the particular market.
As of December 31, 1998, we owned and controlled, directly or indirectly,
204 properties encompassing approximately 21.0 million rentable square feet, all
of which we manage. Our properties consist of:
- 73 Class A office properties encompassing approximately 10.1 million
rentable square feet;
- 129 industrial properties encompassing approximately 10.8 million rentable
square feet; and
- two 10,000 square foot retail properties.
In addition, as of December 31, 1998, we owned or had contracted to acquire
approximately 980 acres of land (including approximately 400 acres under option)
that may present future development opportunities.
The office properties are Class A suburban office buildings that are
well-located, well-maintained and professionally managed. The office properties
are located in targeted submarkets within the New York Metropolitan Tri-State
area. We seek to establish a dominant presence in each of our submarkets. A
majority of the office properties are located in twelve planned office parks and
are tenanted by a diverse group of industries, including national service firms,
such as telecommunications firms, "big five" accounting firms, securities
brokerage houses, insurance companies and health care providers, as well as
consumer product and technology companies. We believe that the high quality of
our buildings, the high level of tenant service we provide and our dominant
presence in these submarkets are responsible for these properties achieving
among the highest rent occupancy rates and retention rates within their markets.
The industrial properties are utilized for distribution, warehousing, research
and development and light manufacturing/assembly activities. Many of the
industrial properties have been constructed with high ceiling heights (I.E.,
above 18 feet), upscale office building facades, parking in excess of zoning
requirements, drive-in and/or loading dock facilities, and other features which
permit them to be leased for industrial and/or office purposes. As of December
31, 1998, our properties were approximately 95.4% leased to approximately 1,141
tenants.
We have been involved in the development, leasing, management, operation and
disposition of commercial properties in the New York Metropolitan Tri-State area
for over 40 years. Over this period, we have developed over 15 million square
feet of office and industrial properties. Our senior management has been
employed by us for an average of 22 years.
S-3
<PAGE>
STRATEGY
Our strategy has been, and continues to be, to develop a dominant presence
in each of our targeted submarkets with an entrepreneurial, local management
team. We emphasize a value creation philosophy whereby we acquire properties
that are underperforming or undermanaged and seek to create value by applying
our core real estate disciplines to develop and reposition such properties. We
also seek "strategic acquisitions," purchasing well-located, premier properties
in our submarkets in order to enhance our franchise in each particular
submarket, thereby creating operating and leasing efficiencies. In addition, we
are dedicated to maintaining (or, if necessary, upgrading) the quality of our
properties in order to successfully compete and achieve high rents, occupancy
and tenant retention rates in each of our submarkets.
STRUCTURE
[CHART OF RECKSON ASSOCIATES REALTY CORP. AND
RECKSON OPERATING PARTNERSHIP, L.P]
- ------------------------
* Assumes conversion of the preferred limited partnership units into common
limited partnership units.
S-4
<PAGE>
SUMMARY OF PROPERTY PORTFOLIO
(AS OF DECEMBER 31, 1998)
<TABLE>
<CAPTION>
% OF ANNUAL
NUMBER OF SQUARE SQUARE PERCENT BASE
PROPERTIES FEET FEET LEASED(1) RENT(2)
------------- -------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Long Island
- Office......................................... 23 3,671,413 16.3% 92.7% $ 71,152,658
- Industrial..................................... 94 5,638,435 25.1% 95.6% $ 29,268,258
- Retail......................................... 2 20,000 0.0% 100.0% $ 314,000
Westchester
- Office......................................... 25 3,298,623 14.7% 93.9% $ 56,521,355
- Industrial..................................... 4 256,948 1.2% 100.0% $ 2,130,019
New Jersey
- Office......................................... 17 1,993,999 8.9% 98.1% $ 34,946,506
- Industrial..................................... 30 4,497,662 20.0% 98.0% $ 18,391,236
Connecticut........................................
- Office......................................... 8 1,123,188 5.0% 90.1% $ 22,020,613
- Industrial..................................... 1 452,414 2.0% 100.0% $ 2,900,684
--- -------------- --- ----- -----------------
Sub Total...................................... 204 20,952,682 93.2% 95.4% $ 237,645,329
--- -------------- --- ----- -----------------
New York City(3)
- Office......................................... 3 1,522,378 6.8% 95.5% $ 45,077,397
--- -------------- --- ----- -----------------
Total.......................................... 207 22,475,060 100% 95.4% $ 282,722,726
--- -------------- --- ----- -----------------
--- -------------- --- ----- -----------------
<CAPTION>
% OF NUMBER
TOTAL OF
1998 TENANT
BASE RENT LEASES
----------- -----------
<S> <C> <C>
Long Island
- Office......................................... 25.2% 326
- Industrial..................................... 10.4% 228
- Retail......................................... 0.1% 2
Westchester
- Office......................................... 20.0% 261
- Industrial..................................... 0.7% 3
New Jersey
- Office......................................... 12.4% 143
- Industrial..................................... 6.5% 48
Connecticut........................................
- Office......................................... 7.8% 128
- Industrial..................................... 1.0% 2
----------- -----
Sub Total...................................... 84.1% 1,141
----------- -----
New York City(3)
- Office......................................... 15.9% 81
----------- -----
Total.......................................... 100% 1,222
----------- -----
----------- -----
</TABLE>
- ------------------------
(1) Percent leased excludes properties under development.
(2) Represents Base Rent of signed leases at December 31, 1998 adjusted for
scheduled contractual increases during the 12 months ending December 31,
1999. Base Rent for these purposes reflects the effect of any lease
expirations that occur during the 12-month period ending December 31, 1999.
(3) Represents the New York City office properties of Tower Realty Trust, Inc.
to be acquired in connection with the merger of Tower into Metropolitan
Partners LLC, a subsidiary of the Operating Partnership. See the "Recent
Developments--Tower Transaction" section of this summary. These amounts
exclude four Tower Class B New York City office properties, the Tower
non-New York City office properties we anticipate selling and the Tower Long
Island office property we anticipate retaining.
For more information on our properties, see the "Property/Market
Information" section of this prospectus supplement.
S-5
<PAGE>
RECENT DEVELOPMENTS
ACQUISITIONS
The following table summarizes our property acquisitions during the year
ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
PROPERTIES SQUARE FEET PURCHASE PRICE
--------------- ------------ ----------------
<S> <C> <C> <C>
Long Island
- Office........................................................... 3 673,581 $ 63,415,736
- Industrial....................................................... 2 200,000 $ 4,379,736
Westchester
- Office........................................................... 6 979,871 $ 173,000,000
- Industrial....................................................... -- -- --
New Jersey
- Office........................................................... 4 522,436 $ 90,905,370
- Industrial....................................................... 6 984,764 $ 41,586,320
Connecticut
- Office........................................................... 2 325,000 $ 61,300,000
- Industrial....................................................... -- -- --
--
------------ ----------------
Total .......................................................... 23 3,685,652 $ 434,587,162
--
--
------------ ----------------
------------ ----------------
</TABLE>
PROPERTIES UNDER DEVELOPMENT
The following table summarizes our properties under development,
re-development or expansion as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF ESTIMATED ESTIMATED TOTAL
ESTIMATED STABILIZATION DATE(1) PROPERTIES SQUARE FEET COST(2)
- -------------------------------------------------------------------- ----------------- ----------- ----------------
<S> <C> <C> <C>
1999................................................................ 5 1,552,400 $ 86,260,600
2000................................................................ 4 1,325,587 $ 62,966,700
2001................................................................ 1 365,000 $ 50,000,000
--
----------- ----------------
Total........................................................... 10 3,242,987 $ 199,227,300
--
--
----------- ----------------
----------- ----------------
</TABLE>
- ------------------------
(1) There can be no assurance that properties under development, re-development
or expansion will be completed or stabilized by their respective estimated
completion and stabilization dates.
(2) The estimated total cost information presented includes our estimate of the
cost of land used in development, re-development or expansion, and our
estimate of construction and other capitalized costs to be incurred through
the completion of construction. With respect to properties under
development, re-development or expansion, there can be no assurance that the
actual cost will not exceed these estimates.
S-6
<PAGE>
FINANCING ACTIVITIES
During August 1997, we issued $150 million of senior unsecured notes in a
private transaction. These notes mature in August 2007 and bear interest at 7.2%
per annum, representing a spread of 1.1% over the 10-year treasury rate at such
time.
On July 23, 1998, we entered into a three-year unsecured revolving credit
facility with The Chase Manhattan Bank, UBS AG and PNC Bank. This credit
facility currently provides for a maximum borrowing amount of $500 million at
LIBOR plus .90%. On January 12, 1999, we also entered into an unsecured term
credit facility with ING (U.S.) Capital LLC and The Chase Manhattan Bank. The
term facility matures on December 3, 1999 and is guaranteed by Reckson
Associates. The term facility provides for a maximum borrowing amount of $75
million at rates ranging from LIBOR plus 1.50% to 1.75%. Our ability to borrow
under these facilities is subject to certain financial covenants. As of December
31, 1998, the outstanding borrowings under our revolving credit facility was
$465.9 million and outstanding borrowings under our term facility was $20
million. For a discussion of borrowings under our credit facilities subsequent
to December 31, 1998, see the "Capitalization" section of this prospectus
supplement.
As of December 31, 1998, we had $253.5 million of mortgage indebtedness
encumbering 23 of our 204 properties, totaling approximately 3.8 million square
feet, and representing approximately 18% of our total portfolio on a square
footage basis.
During 1998, our general partner, Reckson Associates, issued approximately
1.9 million shares of common stock and 9.2 million shares of convertible
preferred stock, raising approximately $270 million. Additionally, during 1998,
in connection with the financing of several of our property acquisitions, we
issued approximately $42 million of preferred limited partnership units.
Currently, we have a policy of incurring debt only if our Debt Ratio is then
50% or less. As of December 31, 1998, our Debt Ratio was 39.4%. For these
purposes, Debt Ratio is defined as the total debt of the Operating Partnership
as a percentage of the market value of outstanding shares of common stock and
preferred stock of Reckson Associates, including the conversion of outstanding
partnership units in the Operating Partnership, plus total debt. The indenture
under which the notes will be issued and our credit facilities contain financial
covenants which limit the ability of the Operating Partnership to incur
additional debt. See "Description of Debt Securities--Certain Covenants" in the
accompanying prospectus. However, our organizational documents do not contain
any limitation on the amount of debt we may incur.
OPERATING PERFORMANCE
Since our formation, we have consistently reported increases in our funds
from operations. Funds from operations for the quarter ended December 31, 1998
grew to $26.5 million from $20.2 million for the quarter ended December 31,
1997. Funds from operations for the year ended December 31, 1998 grew to $98.5
million from $69.6 million for the year ended December 31, 1997. These increases
reflect our acquisition of additional properties, and internally generated
growth in net operating income attributed to renewing leases at higher rents
than expiring leases and the realization of operating efficiencies.
During the year ended December 31, 1998, we leased 1,519,166 square feet at
the office properties at an average effective rent (I.E., base rent adjusted on
a straight-line basis for free rent periods, tenant improvements and leasing
commissions) of $22.01 per square foot and 944,212 square feet at the industrial
properties at an average effective rent of $7.25 per square foot.
S-7
<PAGE>
TOWER TRANSACTION
On December 8, 1998, Reckson Associates, the Operating Partnership,
Metropolitan and Tower entered into a merger agreement under which Tower will be
merged into Metropolitan, with Metropolitan surviving the merger. Concurrently
with the merger, the Tower operating partnership will be merged with and into a
subsidiary of Metropolitan. The consideration to be issued in the mergers,
valued at approximately $700 million, will be comprised of approximately (1)
$100 million in cash, (2) $300 million of Reckson Associates' Class B common
stock or, in certain circumstances described in the accompanying prospectus,
Class B common stock and unsecured notes of the Operating Partnership, and (3)
$300 million of assumed debt. We control Metropolitan and own 100% of its common
equity interests, while Crescent Real Estate Equities Company will own an $85
million preferred equity interest in Metropolitan with limited voting rights.
The merger agreement replaces a previously existing merger agreement among
Reckson, Crescent, Metropolitan and Tower relating to the acquisition by
Metropolitan, which was previously structured as a joint venture between Reckson
and Crescent. We anticipate consummating the Tower merger prior to May 31, 1999,
subject to approval by Tower's stockholders.
We have engaged brokers to, and anticipate disposing of, the Tower
properties located outside of New York City. In addition, we have reached an
agreement with Tower and a third party for the third party to purchase four of
Tower's Class B New York City office properties for approximately $85 million
shortly prior to the completion of the merger.
S-8
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED........................... $100,000,000 % Notes due , 2004
$200,000,000 % Notes due , 2009
INTEREST PAYMENT DATES....................... Interest on the notes will be payable
semi-annually on and
of each year, beginning ,
1999.
MATURITY..................................... The % notes will mature on ,
2004 and the % notes will mature on
, 2009, unless, in either case,
we exercise our option to redeem the notes
prior to that date.
OPTIONAL REDEMPTION.......................... We may redeem the notes of either or both
series at any time, in whole or from time to
time in part, at our option at a redemption
price equal to the sum of (i) the principal
amount of the notes being redeemed plus
accrued interest to the redemption date and
(ii) the make-whole amount, if any, referred
to herein under "Description of Notes--
Optional Redemption."
RANKING...................................... The notes will be unsecured obligations and
will rank equally with each other and with
all of our other unsecured senior
indebtedness. However, the notes will be
effectively subordinated to all of our
secured debt and to all debt of our
subsidiaries.
USE OF PROCEEDS.............................. We will use the net proceeds from the sale of
the notes to repay borrowings under our
unsecured revolving credit facility.
LIMITATIONS ON INCURRENCE OF DEBT............ (1) We may not incur any debt if our
consolidated debt is greater than 60% of our
total assets.
(2) We may not incur any debt if our
consolidated income available for debt
service for the four most recent quarters
is less than 1.5 times the annual service
charge on our consolidated debt.
(3) We may not incur any secured debt if our
consolidated secured debt is greater than
40% of our total assets.
MAINTENANCE OF UNENCUMBERED
ASSETS RATIO............................... We must maintain unencumbered assets of at
least 150% of our consolidated unsecured
debt.
FORM......................................... Book-entry only through the facilities of The
Depository Trust Company.
</TABLE>
S-9
<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
GENERAL
We are a limited partnership engaged in the business of owning, developing,
re-positioning, acquiring, constructing, managing and leasing suburban office
and industrial properties in the New York Metropolitan Tri-State area. We are
the entity through which our general partner Reckson Associates Realty Corp., a
self-managed real estate investment trust, conducts its business.
Based on industry surveys, we believe that we are one of the largest owners
and managers of Class A suburban office and industrial properties in the New
York Metropolitan Tri-State area. As of December 31, 1998, we owned and
controlled, directly or indirectly, 204 properties encompassing approximately
21.0 million rentable square feet, all of which we manage. Our properties
consist of 73 Class A suburban office properties encompassing approximately 10.1
million rentable square feet, 129 industrial properties encompassing
approximately 10.8 million rentable square feet and two 10,000 square foot
retail properties. In addition, as of December 31, 1998, we owned or had
contracted to acquire approximately 980 acres of land (including approximately
400 acres under option) that may present future development opportunities.
Our executive offices are located at 225 Broadhollow Road, Melville, New
York 11747 and our telephone number is (516) 694-6900. At December 31, 1998,
Reckson had approximately 250 employees.
USE OF PROCEEDS
Our net cash proceeds from this offering, after deducting the estimated
underwriting discount and estimated expenses, are estimated to be $297.6
million. We intend to use the net proceeds from this offering to repay
borrowings under our revolving credit facility. As of December 31, 1998, such
borrowings had a weighted average interest rate of 7.0% per annum and will
mature in 2.5 years. For a discussion of relationships among certain lenders
and/or agents under the revolving credit facility and related underwriters, see
"Underwriting" in this prospectus supplement.
S-10
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998 on
a historical basis, on an as adjusted basis to give effect to the offering and
the application of the net proceeds therefrom and on an as adjusted pro forma
basis to give effect to the offering, the application of the net proceeds
therefrom and the Tower transaction. See "Use of Proceeds." The information set
forth in the table should be read in conjunction with our consolidated financial
statements and notes thereto included in the accompanying prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------------------------------------
<S> <C> <C> <C>
AS ADJUSTED PRO FORMA
ACTUAL AS ADJUSTED FOR TOWER TRANSACTION(3)
------------- ------------- -------------------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Debt
Mortgage notes payable.............................. $ 253,463 $ 233,099(1) $ 471,878(1)
Senior unsecured notes.............................. 150,000 150,000 150,000
Credit facilities................................... 485,850 241,357(2) 241,357(2)
% Notes due , 2004........................ -- 100,000 100,000
% Notes due , 2009........................ -- 200,000 200,000
------------- ------------- -----------
Total debt........................................ 889,313 924,456 1,163,235
------------- ------------- -----------
Partners' capital:
Preferred Capital, 9,234,518 Units outstanding...... 263,126 263,126 263,126
General Partners' Capital, 40,035,419 Units
outstanding and 51,730,253 Units outstanding on an
as adjusted pro forma basis....................... 485,341 485,341 738,297
Limited Partners' Capital, 7,764,630 Units
outstanding....................................... 94,125 94,125 143,948
------------- ------------- -----------
Total Partners' Capital........................... 842,592 842,592 1,145,371
------------- ------------- -----------
Total capitalization.................................. $ 1,731,905 $ 1,767,048 $ 2,308,606
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
- ------------------------
(1) Net of the minority partners' proportionate share of debt and including our
share of unconsolidated joint venture debt.
(2) Reflects the net effect of $55 million in borrowings incurred under our
credit facilities since December 31, 1998 and application of the net
proceeds hereof.
(3) Assumes that Reckson Associates' stockholders approve the issuance of Class
B common stock as the entire non-cash portion of the merger consideration in
the Tower transaction. In the event such approval is not obtained, the
portion of the consideration payable in Class B common stock will be reduced
and we will issue $101.5 million principal amount of our 7% Senior Notes due
2009.
S-11
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth our selected financial and operating
information. Our selected operating and balance sheet data at and for the years
ended December 31, 1998, 1997 and 1996 have been derived from our audited
financial statements.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------- -------------- --------------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT UNIT
AND PROPERTIES DATA)
<S> <C> <C> <C>
OPERATING DATA:
Revenues...................................................... $ 266,312 $ 153,348 $ 96,030
Expenses...................................................... 201,003 107,639 70,935
Income (loss) before distribution to preferred unit holders,
minority interest and extraordinary items................... 65,309 45,709 25,095
Minority interest............................................. 2,819 920 915
Extraordinary items--gain (loss).............................. (1,993) (2,808) (1,259)
Preferred distributions....................................... 14,244 -- --
Net income available to common unit holders................... 46,253 41,981 22,921
Per Unit Data(1):
Net income per common unit:
General Partner............................................... $ .98 $ 1.06 $ .87
Limited Partners.............................................. $ .98 $ 1.03 $ .86
Weighted average common units outstanding
General Partner............................................... 39,473,000 32,727,000 19,928,000
Limited Partners.............................................. 7,728,000 7,016,000 6,503,000
BALANCE SHEET DATA: (PERIOD END)
Real estate, before accumulated depreciation.................. $ 1,743,223 $ 1,015,282 $ 519,504
Total assets.................................................. 1,854,520 1,113,105 543,391
Mortgage notes payable........................................ 253,463 180,023 161,513
Unsecured credit facility..................................... 465,850 210,250 108,500
Unsecured term loan........................................... 20,000 -- --
Senior unsecured notes........................................ 150,000 150,000 --
Market value of equity(2)..................................... 1,332,882 1,141,592 653,606
Total market capitalization including debt (2) (3)............ 2,119,936 1,668,800 921,423
OTHER DATA:
Funds from operations......................................... $ 98,501 $ 69,619 $ 40,938
Total square feet (at end of period).......................... 21,000 13,645 8,800
Number of properties (at end of period)....................... 204 155 110
</TABLE>
- ------------------------
(1) Based on the weighted average units outstanding for the period then ended.
(2) Based on the value of our common units (assuming a value equivalent to a
share of Reckson Associates' common stock), the stated value of our
preferred units and the number of units outstanding at the end of the
period.
(3) Debt amount is net of minority partners' proportionate share of Omni debt
plus our share of joint venture debt.
S-12
<PAGE>
f
PROPERTY/MARKET INFORMATION
We operate in the New York Metropolitan Tri-State area, which encompasses
over 500 million square feet of office space. This area is home to a highly
educated workforce and generally a high per capita income population that is a
major user of services provided by our tenants. We believe that the economic
fundamentals for the New York Metropolitan Tri-State area provide an attractive
environment for owning and operating Class A office and industrial properties, a
history of low unemployment rates and growing employment in the service sectors,
particularly in those sectors that are the largest users of Class A office
space.
Our suburban office markets have continued to strengthen. In addition, there
has been limited new development in these markets. Set forth below is a table
indicating the new space under development in the top twenty-one Metropolitan
Statistical Areas ("MSAs") in the United States (measured by leasing square
footage) as a percentage of total leasing inventory, as of December 31, 1998.
MSAs in which any of our properties are located are italicized and highlighted
in bold.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NEW YORK CITY 0.9
<S> <C>
Westchester 1.8
Cleveland 1.9
LA County 2.2
Long Island 2.3
Stamford 2.3
San Francisco 2.7
Houston 3.4
Oakland 3.5
Chicago 3.8
Denver 3.8
Orange County 3.8
Atlanta 4.1
Philadelphia 4.2
San Diego 4.8
No. New Jersey 4.9
Boston 6.6
Washington, DC 6.6
Phoenix 7.3
Dallas 9.4
Seattle 12.4
</TABLE>
- ------------------------
Sources: CoStar, Jamison Research, Grubb & Ellis, Cushman & Wakefield, CB
Commercial/Torto Wheaton Research and Merrill Lynch.
As of December 31, 1998, we owned and controlled 204 properties (including
two joint venture properties) encompassing approximately 21.0 million rentable
square feet. These properties consist of 73 Class A office properties
encompassing approximately 10.1 million rentable square feet, 129 industrial
properties encompassing approximately 10.8 million rentable square feet and two
free-standing 10,000 square foot retail properties. The rentable square feet of
each property has been determined for these purposes based on the aggregate
leased square footage specified in currently effective leases and, with respect
to vacant space, management's estimate. We also owned or had contracted to
acquire approximately 980 acres of land (including approximately 400 acres under
option) in 18 separate parcels as of December 31, 1998.
S-13
<PAGE>
We have historically emphasized the development and acquisition of
properties located in large scale office and industrial parks or in close
proximity within the particular submarket, and, as of December 31, 1998,
approximately 70% of the office properties and 49% of the industrial properties
(excluding the RMI properties) were so located (measured by rentable square
footage). We believe that owning properties in such locations provides certain
strategic advantages, including the following: (i) certain tenants prefer being
located in or near a park with other high quality companies to enhance their
corporate image, (ii) a park area affords tenants certain aesthetic amenities
such as a common landscaping plan, standardization of signage and common dining
and recreational facilities, (iii) tenants may expand (or contract) their
business within a park area, enabling them to centralize business functions,
(iv) a park area provides tenants with access to other tenants and may
facilitate business relationships between tenants and (v) a critical mass of
properties in a park area promotes operating and leasing efficiencies for us.
Also, as of December 31, 1998, we had invested approximately $61.3 million
in certain mortgage indebtedness encumbering four Class A office properties on
Long Island encompassing approximately 577,000 square feet, a 400 acre parcel of
land and a 825,000 square foot industrial property in New Jersey.
MARKET DIVERSIFICATION
SUMMARY OF PROPERTY PORTFOLIO
(AS OF DECEMBER 31, 1998)
<TABLE>
<CAPTION>
% OF ANNUAL
NUMBER OF SQUARE SQUARE PERCENT BASE
PROPERTIES FEET FEET LEASED(1) RENT(2)
------------- -------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Long Island
- Office......................................... 23 3,671,413 16.3% 92.7% $ 71,152,658
- Industrial..................................... 94 5,638,435 25.1% 95.6% $ 29,268,258
- Retail......................................... 2 20,000 0.0% 100.0% $ 314,000
Westchester
- Office......................................... 25 3,298,623 14.7% 93.9% $ 56,521,355
- Industrial..................................... 4 256,948 1.2% 100.0% $ 2,130,019
New Jersey
- Office......................................... 17 1,993,999 8.9% 98.1% $ 34,946,506
- Industrial..................................... 30 4,497,662 20.0% 98.0% $ 18,391,236
Connecticut........................................
- Office......................................... 8 1,123,188 5.0% 90.1% $ 22,020,613
- Industrial..................................... 1 452,414 2.0% 100.0% $ 2,900,684
--- -------------- --- ----- -----------------
Sub-Total...................................... 204 20,952,682 93.2% 95.4% $ 237,645,329
New York City(3)
- Office......................................... 3 1,522,378 6.8% 95.5% $ 45,077,397
--- -------------- --- ----- -----------------
Total.......................................... 207 22,475,060 100% 95.4% $ 282,722,726
--- -------------- --- ----- -----------------
--- -------------- --- ----- -----------------
<CAPTION>
% OF NUMBER
TOTAL OF
1998 TENANT
BASE RENT LEASES
----------- -----------
<S> <C> <C>
Long Island
- Office......................................... 25.2% 326
- Industrial..................................... 10.4% 228
- Retail......................................... 0.1% 2
Westchester
- Office......................................... 20.0% 261
- Industrial..................................... 0.7% 3
New Jersey
- Office......................................... 12.4% 143
- Industrial..................................... 6.5% 48
Connecticut........................................
- Office......................................... 7.8% 128
- Industrial..................................... 1.0% 2
----- -----
Sub-Total...................................... 84.1% 1,141
New York City(3)
- Office......................................... 15.9% 81
----- -----
Total.......................................... 100% 1,222
----- -----
----- -----
</TABLE>
- ------------------------------
(1) Percent leased excludes properties under development.
(2) Represents Base Rent of signed leases at December 31, 1998 adjusted for
scheduled contractual increases during the 12 months ending December 31,
1999. Base Rent for these purposes reflects the effect of any lease
expirations that occur during the 12-month period ending December 31, 1999.
(3) Represents the New York City office properties of Tower to be acquired in
connection with the merger of Tower into Metropolitan, a subsidiary of the
Operating Partnership. See the "Prospectus Supplement Summary--Recent
Developments--Tower Transaction" section of this prospectus supplement.
These amounts exclude four Tower Class B New York City office properties,
the Tower non-New York City office properties we anticipate selling and the
Tower Long Island office property that we anticipate retaining.
TENANT DIVERSIFICATION
Our office and industrial properties are leased to approximately 1,141
tenants. Our office tenants engage in a wide variety of businesses, including
telecommunications firms, insurance companies, accounting firms, brokerage
firms, commercial banks and health care providers. Our industrial tenants
utilize the properties for distribution, warehouse, research and development and
light manufacturing/
S-14
<PAGE>
assembly activities. The following table sets forth the Annual Base Rent at
December 31, 1998 derived from our 45 largest office and industrial property
tenants.
<TABLE>
<CAPTION>
% OF
NUMBER SQUARE FEET ANNUAL BASE TOTAL ANNUAL
SIGNIFICANT TENANTS OF LEASES LEASED RENT(1)(2) BASE RENT
- -------------------------------------------------------- --------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
MCI Telecommunications.................................. 6 345,065 $ 6,444,170 2.7%
Prudential Ins. Co. .................................... 12 240,541 6,393,212 2.7%
Bell Atlantic .......................................... 1 208,660 5,633,820 2.4%
AT&T Corp. ............................................. 2 310,409 4,973,549 2.1%
Towers Perrin Forster & Crosby.......................... 1 148,000 3,685,500 1.6%
United Distillers N.A. Inc. ............................ 4 118,197 3,420,739 1.4%
Vytra Healthcare L.I. Inc. ............................. 2 145,530 3,344,475 1.4%
Citicorp................................................ 1 135,909 3,261,816 1.4%
Nestle Food Company..................................... 1 585,510 2,739,377 1.1%
State Farm Mutual Automobile ........................... 6 140,730 2,673,650 1.1%
Ciba Geigy.............................................. 3 206,951 2,572,266 1.1%
First Chicago NBD ...................................... 1 108,000 2,298,722 1.0%
Herrodd Distribution.................................... 1 610,949 2,291,059 1.0%
Neuman Distributors Inc................................. 1 332,352 2,193,523 0.9%
Lockheed Martin Corporation............................. 1 123,554 2,083,483 0.9%
National Health Lab. Inc. .............................. 1 108,000 2,064,081 0.9%
North American Philips Corp............................. 1 245,704 2,032,502 0.9%
Episcopal Health Services............................... 1 63,454 1,864,789 0.8%
Coca-Cola Bottling Co................................... 1 243,751 1,828,133 0.8%
First UNUM Life Ins. Companies.......................... 1 79,533 1,809,376 0.7%
Nortel--US Real Estate Trans. .......................... 1 67,055 1,726,666 0.7%
Liberty Mutual Insurance Co. ........................... 3 76,643 1,721,644 0.7%
Bank of America......................................... 1 59,544 1,712,259 0.7%
Associated Aviation Underwriters........................ 1 56,836 1,648,004 0.7%
Federal Insurance Company............................... 1 71,855 1,637,696 0.7%
Island-Peer Review Org. ................................ 1 72,904 1,425,273 0.6%
PaineWebber Incorporated................................ 1 35,795 1,391,683 0.6%
The Chase Manhattan Bank................................ 3 58,512 1,375,526 0.6%
New Breed Leasing Corporation........................... 1 297,000 1,348,072 0.6%
Symbol Technologies Inc................................. 3 223,023 1,318,932 0.5%
McKinsey & Company, Inc. ............................... 4 46,952 1,277,656 0.5%
Merrill Lynch........................................... 3 41,561 1,272,886 0.5%
North Fork Bank......................................... 2 58,833 1,267,376 0.5%
Swiss Bank Corporation ................................. 1 38,173 1,221,536 0.5%
Estee Lauder Realty Corp................................ 2 285,000 1,164,159 0.5%
Dannon Company Inc. .................................... 2 53,785 1,152,920 0.5%
LaSalle Partners Mgmt Srv Inc. ......................... 1 70,155 1,140,019 0.5%
Amscan Inc. ............................................ 1 53,575 1,061,876 0.4%
American Tissue Corporation............................. 2 229,000 1,025,621 0.4%
Guest Supply Inc........................................ 1 225,831 930,612 0.4%
Nippon Express USA Inc.................................. 1 202,000 909,000 0.4%
SETCO Inc............................................... 1 203,404 894,978 0.4%
Schein Pharmaceutical................................... 1 93,948 879,519 0.4%
Timex Corporation....................................... 1 206,710 868,182 0.4%
Starad Inc.............................................. 1 92,000 828,000 0.3%
--
------------ -------------- ------
Total 45 Largest Tenants.......................... 88 7,420,893 $ 94,808,337 39.9%
--
--
------------ -------------- ------
------------ -------------- ------
</TABLE>
- ------------------------
(1) Represents Base Rent of signed leases at December 31, 1998 adjusted for
scheduled contractual increases during the 12 months ending December 31,
1999. Base Rent for these purposes reflects the effect of any lease
expirations that occur during the 12-month period ending December 31, 1999.
(2) Includes our proportionate share of unconsolidated joint venture property.
S-15
<PAGE>
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF SQUARE FEET ANNUAL BASE ANNUAL BASE
INDUSTRY CLASSIFICATIONS LEASES LEASED RENT(1)(2) RENT
- -------------------------------------------------------- --------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Telecommunications 10 931,189 $ 18,778,209 7.9%
Insurance 24 666,138 $ 15,883,581 6.6%
Financial Services 17 583,279 $ 15,079,460 6.4%
Consumer Products 21 3,722,395 $ 23,516,835 9.9%
Healthcare 4 281,888 $ 6,634,537 2.8%
Pharmaceuticals 7 794,826 $ 8,771,265 3.7%
Legal 1 148,000 $ 3,685,500 1.6%
Technology 4 293,178 $ 2,458,950 1.0%
--
------------ -------------- -------------
88 7,420,893 $ 94,808,337 39.9%
--
--
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
- --------------------------
(1) Represents Base Rent of signed leases at December 31, 1998 adjusted for
scheduled contractual increases during the 12 months ending December 31,
1999. Base Rent for these purposes reflects the effect of any lease
expirations that occur during the 12-month period ending December 31, 1999.
(2) Includes our proportionate share of unconsolidated joint venture property.
OFFICE PROPERTIES
GENERAL. As of December 31, 1998, we owned or had an interest in 73 Class A
office properties that encompass approximately 10.1 million square feet. As of
December 31, 1998, these office properties were approximately 93.8% leased to
858 tenants.
The Office Properties are Class A office buildings and are well-located,
well-maintained and professionally managed. In addition, these properties are
modern with high finishes and achieve among the highest rent, occupancy and
tenant retention rates within their sub-markets. Of the 73 office properties, 49
are located in the following planned office parks: the 23 acre North Shore
Atrium, the 32 acre Huntington Melville Corporate Center, the 50 acre Nassau
West Corporate Center, the 29.2 acre Tarrytown Corporate Center, the seven acre
Landmark Square Office Complex, the 32 acre Executive Hill Office Park, the 76
acre Reckson Executive Park, the 11 acre University Square Office Complex, the
58 acre Summitt at Valhalla, the 5 acre Mt. Pleasant Corporate Center, the 3.7
acre Stamford Towers Office Complex, and the 26 acre Short Hills Office Complex.
The buildings in these office parks offer a full array of amenities including
health clubs, racquetball courts, sun decks, restaurants and computer controlled
HVAC access systems and conference centers. We believe that the location,
quality of construction and amenities as well as our reputation for providing a
high level of tenant service has enabled us to attract and retain a national
tenant base. Our office tenants include telecommunications firms, national
insurance companies, "big five" accounting firms, "money center" commercial
banks and health care firms.
LEASING ACTIVITY. For the twelve month period ended December 31, 1998, Base
Rent (defined as gross rent excluding payments by tenants on account of real
estate tax, operating expense calculations and base electrical charges, plus
non-recoverable operating expense pass-throughs) for re-leased or renewed office
space increased by 2.8% on a cash basis and by 12.8% on a straightline basis
over the related expiring Base Rent.
S-16
<PAGE>
LONG ISLAND. The following table sets forth a schedule of the lease
expirations for the Long Island office properties for existing leases as of
December 31, 1998, assuming that none of the tenants exercises renewal options
or termination rights, if any.
<TABLE>
<CAPTION>
CUMULATIVE
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
LEASED LEASED PER SQUARE
SQUARE FEET SQUARE FEET SQUARE FEET FOOT
NUMBER OF SUBJECT TO REPRESENTED REPRESENTED STRAIGHT PER SQUARE
LEASES EXPIRING BY EXPIRING BY EXPIRING LINE FOOT
YEAR OF LEASE EXPIRATION EXPIRING LEASES LEASES LEASES RENT(1) RENT(2)
- ----------------------------------------- --------------- ------------ --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1999..................................... 34 115,687 3.5% 3.5% $ 20.24 $ 21.28
2000..................................... 48 322,528 9.9% 13.4% $ 20.47 $ 22.08
2001..................................... 43 216,505 6.6% 20.0% $ 23.02 $ 25.30
2002..................................... 38 396,850 12.2% 32.2% $ 23.23 $ 25.06
2003..................................... 58 402,034 12.3% 44.5% $ 23.28 $ 24.10
2004..................................... 25 277,191 8.5% 53.0% $ 24.71 $ 28.75
2005 and thereafter...................... 77 1,536,825 47.0% 100.0% -- --
--- ------------ ------
Total.............................. 323 3,267,620 100.0%
--- ------------ ------
--- ------------ ------
</TABLE>
- ------------------------
(1) Represents annualized straightline rent as of the lease expiration date.
(2) Represents annualized Base Rent plus non-recoverable operating expense
pass-throughs attributable to leases that expire during such period divided
by total square footage under such leases.
[Charts for each area office showing the decline of direct vacancy rates and the
increase of average asking rental rates]
LONG ISLAND
<TABLE>
<CAPTION>
AVERAGE ASKING DIRECT
RENTAL RATES VACANCY
---------------- -----------
<S> <C> <C>
1994 $ 22.95 11.8
1995 24.54 14.0
1996 23.83 12.7
1997 26.14 8.7
</TABLE>
- ------------------------
The foregoing statistical data has been derived from the Long Island Office
Market Class A Statistical Summary (Fourth Quarter 1998) of Cushman & Wakefield.
Direct vacancy rate is defined for purposes of these reports as landlord
available space divided by inventory. Average asking rental rate is defined as
gross annual asking rates of existing buildings per square foot. The average
asking rental rate represents an average rental rate which is weighted by the
amount of square footage available at each respective rental rate.
S-17
<PAGE>
The following table sets forth a schedule of new leases signed and the
average annual Base Rent per leased square foot for the Long Island office
properties for the years 1991 to 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL BASE RENT PER
YEAR NUMBER OF LEASES LEASED SQUARE FOOT(1)
- ------------------------------------------------------------- ----------------------- -------------------------------
<S> <C> <C>
1998......................................................... 97 $ 25.52
1997......................................................... 36 $ 25.14
1996......................................................... 44 $ 22.83
1995......................................................... 34 $ 24.96
1994......................................................... 55 $ 22.28
1993......................................................... 40 $ 21.77
1992......................................................... 35 $ 23.60
1991......................................................... 29 $ 24.12
</TABLE>
- ------------------------
(1) Represents average annual Base Rent from signed leases over the term of such
leases divided by leased square feet.
WESTCHESTER. The following table sets forth a schedule of the lease
expirations for the Westchester properties for existing leases as of December
31, 1998, assuming that none of the tenants exercise renewal options or
termination rights, if any.
<TABLE>
<CAPTION>
CUMULATIVE
PERCENTAGE OF PERCENTAGE OF
TOTAL LEASED TOTAL LEASED PER SQUARE
SQUARE FEET SQUARE FEET SQUARE FEET FOOT
NUMBER OF SUBJECT TO REPRESENTED BY REPRESENTED BY STRAIGHT PER SQUARE
LEASES EXPIRING EXPIRING EXPIRING LINE FOOT
YEAR OF LEASE EXPIRATION EXPIRING LEASES LEASES LEASES RENT(1) RENT(2)
- -------------------------------- --------------- ------------ ----------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1999............................ 38 168,395 6.1% 6.1% $ 19.57 $ 19.86
2000............................ 47 481,865 17.6% 23.7% $ 22.98 $ 22.84
2001............................ 46 335,723 12.2% 35.9% $ 21.72 $ 22.49
2002............................ 45 444,151 16.2% 52.1% $ 20.18 $ 20.60
2003............................ 39 252,728 9.2% 61.3% $ 21.75 $ 22.48
2004............................ 12 78,035 2.8% 64.1% $ 19.93 $ 20.45
2005 and thereafter............. 33 984,352 35.9% 100.0% -- --
--- ------------ -----
Total..................... 260 2,745,249 100.0%
--- ------------ -----
--- ------------ -----
</TABLE>
- ------------------------
(1) Represents annualized straightline rent as of the lease expiration date.
(2) Represents annualized Base Rent plus non-recoverable operating expense
pass-throughs attributable to leases that expire during such period divided
by total square footage under such leases.
S-18
<PAGE>
WESTCHESTER
<TABLE>
<CAPTION>
AVERAGE ASKING DIRECT
RENTAL RATES VACANCY
---------------- -----------
<S> <C> <C>
1994 $ 23.38 16.5
1995 23.87 16.2
1996 23.67 16.0
1997 25.14 13.3
</TABLE>
- ------------------------
The foregoing statistical data has been derived from the Westchester County
Office Market Report (Fourth Quarter 1998) of Cushman & Wakefield. Direct
vacancy rate is defined for purposes of these reports as landlord available
space divided by inventory. Average asking rental rate is defined as gross
annual asking rates of existing buildings per square foot. The average asking
rental rate represents an average rental rate which is weighted by the amount of
square footage available at each respective rental rate.
The following table sets forth a schedule of new leases signed and the
average annual Base Rent per leased square foot for the Westchester properties
for the years 1996 through 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL BASE RENT PER
YEAR NUMBER OF LEASES LEASED SQUARE FOOT(1)
- --------------------- ----------------------- -------------------------------
<S> <C> <C>
1998................. 60 $ 21.19
1997................. 57 $ 20.00
1996................. 34 $ 20.05(2)
</TABLE>
- ------------------------
(1) Represents average annual Base Rent from signed leases over the term of such
leases divided by leased square feet.
(2) Excludes the property located at 555 White Plains Road, Tarrytown, New York.
This property was acquired for $39 per square foot in April 1996 and was 37%
leased at the time of acquisition. We renovated and repositioned this
property and, at December 31, 1996, it was 100% leased. Average annual Base
Rent per leased square foot for the Westchester office properties for 1996
including this property was $19.39.
CONNECTICUT. The following table sets forth a schedule of the lease
expirations for the Connecticut office properties for existing leases as of
December 31, 1998, assuming that none of the tenants exercise renewal options or
termination rights, if any.
S-19
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE
PERCENTAGE OF PERCENTAGE OF
TOTAL LEASED TOTAL LEASED PER SQUARE
SQUARE FEET SQUARE FEET SQUARE FEET FOOT
NUMBER OF SUBJECT TO REPRESENTED BY REPRESENTED BY STRAIGHT PER SQUARE
LEASES EXPIRING EXPIRING EXPIRING LINE FOOT
YEAR OF LEASE EXPIRATION EXPIRING LEASES LEASES LEASES RENT(1) RENT(2)
- -------------------------------- --------------- ------------ ----------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1999............................ 15 33,351 3.3% 3.3% $ 22.58 $ 22.97
2000............................ 26 114,054 11.3% 14.6% $ 22.18 $ 22.54
2001............................ 20 100,612 9.9% 24.5% $ 24.03 $ 25.02
2002............................ 16 93,788 9.3% 33.8% $ 26.96 $ 27.70
2003............................ 16 101,406 10.0% 43.8% $ 30.94 $ 31.79
2004............................ 14 198,175 19.6% 63.4% $ 20.65 $ 21.14
2005 and thereafter............. 21 370,698 36.6% 100.0% -- --
--- ------------ -----
Total..................... 128 1,012,084 100.0%
--- ------------ -----
--- ------------ -----
</TABLE>
- ------------------------
(1) Represents annualized straightline rent as of the lease expiration date.
(2) Represents annualized Base Rent plus non-recoverable operating expense
pass-throughs attributable to leases that expire during such period divided
by total square footage under such leases.
SOUTHERN CONNECTICUT
<TABLE>
<CAPTION>
AVERAGE ASKING DIRECT
RENTAL RATES VACANCY
---------------- -----------
<S> <C> <C>
1994 $ 24.09 15.7
1995 24.91 12.7
1996 26.19 6.1
1997 28.96 4.2
</TABLE>
- ------------------------
The foregoing statistical data has been derived from the Fairfield County
(Connecticut) Office Market Report (Fourth Quarter 1998) of Cushman & Wakefield
and represents the average asking rental rates for the central business district
in Stamford, Connecticut. Direct vacancy rate is defined for purposes of these
reports as landlord available space divided by inventory. Average asking rental
rate is defined as gross annual asking rates of existing buildings per square
foot. The average asking rental rate represents an average rental rate which is
weighted by the amount of square footage available at each respective rental
rate.
S-20
<PAGE>
The following table sets forth a schedule of new leases signed and the
average annual Base Rent per leased square foot for the Connecticut office
properties for the years 1996 through 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL BASE RENT PER
YEAR NUMBER OF LEASES LEASED SQUARE FOOT(1)
- --------------------- ----------------------- -------------------------------
<S> <C> <C>
1998................. 17 $ 26.62
1997................. 30 $ 24.06
1996................. 9 $ 21.25
</TABLE>
- ------------------------
(1) Represents average annual Base Rent from signed leases over the term of such
leases divided by leased square feet.
NEW JERSEY. The following table sets forth a schedule of the lease
expirations for the New Jersey office properties for existing leases as of
December 31, 1998, assuming that none of the tenants exercise renewal options or
termination rights, if any.
<TABLE>
<CAPTION>
CUMULATIVE
PERCENTAGE OF PERCENTAGE OF
TOTAL LEASED TOTAL LEASED
SQUARE FEET SQUARE FEET SQUARE FEET
SUBJECT TO REPRESENTED BY REPRESENTED BY PER SQUARE
NUMBER OF EXPIRING EXPIRING EXPIRING FOOT STRAIGHT PER SQUARE
YEAR OF LEASE EXPIRATION LEASES EXPIRING LEASES LEASES LEASES LINE RENT(1) FOOT RENT(2)
- ------------------------- ------------------- ------------ ----------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999..................... 23 280,233 15.8% 15.8% $ 19.81 $ 20.02
2000..................... 38 338,855 19.0% 34.8% $ 22.51 $ 22.41
2001..................... 24 272,182 15.3% 50.1% $ 18.02 $ 18.06
2002..................... 18 151,461 8.5% 58.6% $ 19.81 $ 19.91
2003..................... 17 308,379 17.3% 75.9% $ 18.31 $ 17.96
2004..................... 6 99,678 5.6% 81.5% $ 21.60 $ 19.93
2005 and thereafter...... 15 328,133 18.5% 100.0% -- --
--- ------------ -----
Total.............. 141 1,778,921 100.0%
--- ------------ -----
--- ------------ -----
</TABLE>
- ------------------------
(1) Represents annualized straightline rent as of the lease expiration date.
(2) Represents annualized Base Rent plus non-recoverable operating expense
pass-throughs attributable to leases that expire during such period divided
by total square footage under such leases.
S-21
<PAGE>
NORTHERN NEW JERSEY
<TABLE>
<CAPTION>
AVERAGE ASKING DIRECT
RENTAL RATES VACANCY
---------------- -----------
<S> <C> <C>
1994 $ 23.23 14.1
1995 23.46 11.8
1996 24.55 9.1
1997 25.38 4.7
</TABLE>
- ------------------------
The foregoing statistical data has been derived from the New Jersey Office
Market Class A Statistical Summary (Year End 1998) of Cushman & Wakefield.
Direct vacancy rate is defined for purposes of these reports as landlord
available space divided by inventory. Average asking rental rate is defined as
gross annual asking rates of existing buildings per square foot. The average
asking rental rate represents an average rental rate which is weighted by the
amount of square footage available at each respective rental rate.
The following table sets forth a schedule of new leases signed and the
average annual Base Rent per leased square foot for the New Jersey office
properties for the years 1997 and 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL BASE RENT PER
YEAR NUMBER OF LEASES LEASED SQUARE FOOT(1)
- --------------------- ----------------------- -------------------------------
<S> <C> <C>
1998................. 42 $ 23.65
1997................. 5 $ 19.88
</TABLE>
- ------------------------
(1) Represents average annual Base Rent for signed leases over the term of such
leases divided by leased square feet.
S-22
<PAGE>
DISTRIBUTION OF LEASES BY LEASED SPACE. The following table sets forth
information relating to the diversity of the tenants at our office properties
based upon square feet under lease at December 31, 1998.
<TABLE>
<CAPTION>
ANNUAL
NUMBER PERCENT TOTAL PERCENT BASE RENT PERCENT
SQUARE FEET UNDER LEASE OF LEASES OF TOTAL SQUARE FEET OF TOTAL (THOUSANDS)(1) OF TOTAL
- --------------------------------------- ------------- --------- ------------ --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Less than 2,501........................ 291 33.92% 432,251 4.83% $ 8,343 4.52%
2,501-5,000............................ 189 22.03% 676,621 7.56% $ 13,683 7.41%
5,001-10,000........................... 162 18.88% 1,160,329 12.97% $ 23,644 12.81%
10,001-20,000.......................... 109 12.70% 1,530,436 17.11% $ 32,720 17.72%
20,001-40,000.......................... 67 7.81% 1,903,233 21.28% $ 41,035 22.22%
40,001+................................ 40 4.66% 3,242,768 36.25% $ 65,217 35.32%
--- --------- ------------ --------- --------------- ---------
Total.............................. 858 100.00% 8,945,638 100.00% $ 184,642 100.00%
--- --------- ------------ --------- --------------- ---------
--- --------- ------------ --------- --------------- ---------
</TABLE>
- ------------------------
(1) Represents Base Rent of signed leases at December 31, 1998 adjusted for
scheduled contractual increases during the 12 months ending December 31,
1999. Base Rent for these purposes reflects the effect of any lease
expirations that occur during the 12-month period ending December 31, 1999.
OFFICE PROPERTY CHART. The following table sets forth certain information
as of December 31, 1998 for each of our office properties owned at such time.
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST
(GROUND LEASE LAND NUMBER
PERCENTAGE EXPIRATION YEAR AREA OF SQUARE
PROPERTY OWNERSHIP DATE)(1) CONSTRUCTED (ACRES) FLOORS FEET
- ---------------------------------- --------------- --------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Huntington Melville
Corporate Center
Melville, NY
395 North Service Rd............ 100% Leasehold
(2081) 1988 7.5 4 187,393
200 Broadhollow Rd.............. 100% Fee 1981 4.6 4 67,432
48 South Service Rd............. 100% Fee 1986 7.3 4 125,372
35 Pinelawn Rd.................. 100% Fee 1980 6.0 2 105,241
275 Broadhollow Rd.............. 100% Fee 1970 5.8 4 124,441
1305 Old Walt Whitman Rd (3).... 100% Fee 1998(5) 18.1 3 167,400
----- -----------
Total-Huntington Melville
Corporate Center (4)............ 49.3 777,279
----- -----------
North Shore Atrium,
Syosset, NY
6800 Jericho Turnpike
(North Shore Atrium I).......... 100% Fee 1977 13.0 2 209,028
6900 Jericho Turnpike
(North Shore Atrium II)......... 100% Fee 1982 5.0 4 101,036
----- -----------
Total-North Shore Atrium.......... 18.0 310,064
----- -----------
<CAPTION>
ANNUAL
BASE NUMBER
ANNUAL RENT PER OF
PERCENT BASE LEASED TENANT
PROPERTY LEASED RENT(2) SQ. FT. LEASES
- ---------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Huntington Melville
Corporate Center
Melville, NY
395 North Service Rd............
100.0% $ 4,473,934 $ 23.87 6
200 Broadhollow Rd.............. 80.9% $ 1,171,091 $ 21.48 10
48 South Service Rd............. 95.1% $ 2,774,294 $ 23.26 7
35 Pinelawn Rd.................. 96.4% $ 2,087,240 $ 20.58 25
275 Broadhollow Rd.............. 97.9% $ 2,527,812 $ 20.74 20
1305 Old Walt Whitman Rd (3).... 54.0% $ 1,057,370 $ 11.69 2
------------- ---
Total-Huntington Melville
Corporate Center (4)............ 95.8% $ 14,091,741 $ 20.88 70
------------- ---
North Shore Atrium,
Syosset, NY
6800 Jericho Turnpike
(North Shore Atrium I).......... 78.1% $ 2,931,343 $ 17.96 37
6900 Jericho Turnpike
(North Shore Atrium II)......... 81.5% $ 1,518,383 $ 18.44 12
------------- ---
Total-North Shore Atrium.......... 79.2% $ 4,449,726 $ 18.12 49
------------- ---
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST
(GROUND LEASE LAND NUMBER
PERCENTAGE EXPIRATION YEAR AREA OF SQUARE
PROPERTY OWNERSHIP DATE)(1) CONSTRUCTED (ACRES) FLOORS FEET
- ---------------------------------- --------------- --------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Nassau West Corporate Center,
Mitchel Field, NY
50 Charles Lindbergh Blvd.
(Nassau West Corporate Center
II)............................. 100% Leasehold
(2082) 1984 9.1 6 211,845
60 Charles Lindbergh Blvd.
(Nassau West Corporate Center
I).............................. 100% Leasehold
(2082) 1989 7.8 2 186,889
51 Charles Lindbergh Blvd....... 100% Leasehold
(2084) 1989 6.6 1 108,000
55 Charles Lindbergh Blvd....... 100% Leasehold
(2082) 1982 10.0 2 214,581
333 Earl Ovington Blvd.
(The Omni)...................... 60% Leasehold
(2088) 1991 30.6 10 575,000
90 Merrick Rd................... 100% Leasehold
(2084) 1985 13.2 9 221,839
----- -----------
Total-Nassau West Corporate
Center.......................... 77.3 1,518,154
----- -----------
Tarrytown Corporate Center
Tarrytown, NY
505 White Plains Road........... 100% Fee 1974 1.4 2 26,468
520 White Plains Road........... 60% Fee(6) 1981 6.8 6 171,761
555 White Plains Road........... 100% Fee 1972 4.2 5 121,585
560 White Plains Road........... 100% Fee 1980 4.0 6 126,471
580 White Plains Road........... 100% Fee 1977 6.1 6 170,726
660 White Plains Road........... 100% Fee 1983 10.9 6 258,715
----- -----------
Total-Tarrytown Corporate
Center.......................... 33.4 875,726
----- -----------
Reckson Executive Park
Rye Brook, NY
1 International Dr.............. 100% Fee 1983 N/A 3 90,000
2 International Dr.............. 100% Fee 1983 N/A 3 90,000
3 International Dr.............. 100% Fee 1983 N/A 3 91,174
4 International Dr.............. 100% Fee 1986 N/A 3 86,694
5 International Dr.............. 100% Fee 1986 N/A 3 90,000
6 International Dr.............. 100% Fee 1986 N/A 3 94,016
----- -----------
Total-Reckson Executive Park...... 44.4 541,884
----- -----------
Summit at Valhalla
Valhalla, NY
100 Summit Dr................... 100% Fee 1988 11.3 4 249,551
200 Summit Dr................... 100% Fee 1990 18.0 4 240,834
500 Summit Dr................... 100% Fee 1986 29.1 4 208,660
----- -----------
Total--Summit at Valhalla......... 58.4 699,045
----- -----------
Mt. Pleasant Corporate Center
115/117 Stevens Ave............. 100% Fee 1984 5.0 3 162,004
----- -----------
Total--Mt Pleasant Corporate
Center 5.0 162,004
----- -----------
<CAPTION>
ANNUAL
BASE NUMBER
ANNUAL RENT PER OF
PERCENT BASE LEASED TENANT
PROPERTY LEASED RENT(2) SQ. FT. LEASES
- ---------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Nassau West Corporate Center,
Mitchel Field, NY
50 Charles Lindbergh Blvd.
(Nassau West Corporate Center
II).............................
100.0% $ 4,939,446 $ 23.15 22
60 Charles Lindbergh Blvd.
(Nassau West Corporate Center
I)..............................
100.0% $ 3,892,949 $ 20.79 7
51 Charles Lindbergh Blvd.......
100.0% $ 2,064,081 $ 19.11 1
55 Charles Lindbergh Blvd.......
100.0% $ 2,483,483 $ 11.57 2
333 Earl Ovington Blvd.
(The Omni)......................
96.8% $ 15,623,699 $ 28.07 27
90 Merrick Rd...................
100.0% $ 5,083,788 $ 22.54 22
------------- ---
Total-Nassau West Corporate
Center.......................... 99.2% $ 34,087,446 $ 22.64 81
------------- ---
Tarrytown Corporate Center
Tarrytown, NY
505 White Plains Road........... 96.3% $ 434,549 $ 17.05 20
520 White Plains Road........... 100.0% $ 3,192,362 $ 18.59 1
555 White Plains Road........... 56.7% $ 1,035,561 $ 15.01 6
560 White Plains Road........... 99.0% $ 2,304,411 $ 18.40 15
580 White Plains Road........... 78.6% $ 2,533,944 $ 18.89 19
660 White Plains Road........... 92.9% $ 4,878,054 $ 20.30 46
------------- ---
Total-Tarrytown Corporate
Center.......................... 87.5% $ 14,378,881 $ 18.77 107
------------- ---
Reckson Executive Park
Rye Brook, NY
1 International Dr.............. 100.0% $ 1,170,000 $ 13.00 1
2 International Dr.............. 100.0% $ 1,170,000 $ 13.00 1
3 International Dr.............. 100.0% $ 1,822,063 $ 19.98 5
4 International Dr.............. 100.0% $ 1,578,818 $ 18.20 10
5 International Dr.............. 100.0% $ 2,416,482 $ 26.85 1
6 International Dr.............. 100.0% $ 1,567,129 $ 16.67 8
------------- ---
Total-Reckson Executive Park...... 100.0% $ 9,724,492 $ 17.94 26
------------- ---
Summit at Valhalla
Valhalla, NY
100 Summit Dr................... 99.0% $ 5,975,322 $ 24.19 7
200 Summit Dr................... 85.9% $ 4,975,008 $ 24.05 12
500 Summit Dr................... 100.0% $ 5,633,820 $ 27.00 1
------------- ---
Total--Summit at Valhalla......... 94.8% $ 16,584,150 $ 25.03 20
------------- ---
Mt. Pleasant Corporate Center
115/117 Stevens Ave............. 96.5% $ 3,028,227 $ 19.36 17
------------- ---
Total--Mt Pleasant Corporate
Center 96.5% $ 3,028,227 $ 19.36 17
------------- ---
</TABLE>
S-24
<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST
(GROUND LEASE LAND NUMBER
PERCENTAGE EXPIRATION YEAR AREA OF SQUARE
PROPERTY OWNERSHIP DATE)(1) CONSTRUCTED (ACRES) FLOORS FEET
- ---------------------------------- --------------- --------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Landmark Square
Stamford, CT
One Landmark Square............. 100% Fee 1973 N/A 22 296,716
Two Landmark Square............. 100% Fee 1976 N/A 3 39,701
Three Landmark Square........... 100% Fee 1978 N/A 6 128,286
Four Landmark Square............ 100% Fee 1977 N/A 5 104,446
Five Landmark Square............ 100% Fee 1976 N/A 3 57,273
Six Landmark Square............. 100% Fee 1984 N/A 10 171,899
----- -----------
Total--Landmark Square............ 7.2 798,321
----- -----------
Stamford Towers
Stamford, CT
680 Washington Blvd............. 100% Fee 1989 1.3 11 132,759
750 Washington Blvd............. 100% Fee 1989 2.4 11 192,108
----- -----------
Total-Stamford Towers............. 3.7 324,867
----- -----------
Stand-alone Long Island
Properties
400 Garden City Plaza
Garden City, NY................. 100% Fee 1989 5.7 5 176,073
88 Duryea Rd.
Melville, NY.................... 100% Fee 1986 1.5 2 25,061
310 East Shore Rd.
Great Neck, NY.................. 100% Fee 1981 1.5 4 50,000
333 East Shore Rd.
Great Neck, NY.................. 100% Leasehold
(2030) 1976 1.5 2 17,715
520 Broadhollow Rd
Melville, NY.................... 100% Fee 1978 7.0 1 83,176
1660 Walt Whitman Rd.
Melville, NY.................... 100% Fee 1980 6.5 1 73,115
125 Baylis Rd.
Melville, NY.................... 100% Fee 1980 8.2 2 98,329
150 Motor Parkway
Hauppauge, NY................... 100% Fee 1984 11.3 4 191,447
1979 Marcus Ave.
Lake Success, NY................ 100% Fee 1987 8.6 4 351,000
----- -----------
Total-Stand-alone Long
Island Properties............... 51.8 1,065,916
----- -----------
<CAPTION>
ANNUAL
BASE NUMBER
ANNUAL RENT PER OF
PERCENT BASE LEASED TENANT
PROPERTY LEASED RENT(2) SQ. FT. LEASES
- ---------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Landmark Square
Stamford, CT
One Landmark Square............. 86.6% $ 5,720,613 $ 22.26 59
Two Landmark Square............. 81.8% $ 692,342 $ 21.31 9
Three Landmark Square........... 89.5% $ 2,630,895 $ 22.91 21
Four Landmark Square............ 89.9% $ 2,141,460 $ 22.81 16
Five Landmark Square............ 87.7% $ 175,000 $ 3.48 1
Six Landmark Square............. 96.5% $ 3,819,304 $ 23.03 7
------------- ---
Total--Landmark Square............ 89.5% $ 15,179,614 $ 21.25 113
------------- ---
Stamford Towers
Stamford, CT
680 Washington Blvd............. 85.7% $ 2,477,251 $ 21.78 5
750 Washington Blvd............. 95.8% $ 4,363,747 $ 23.70 10
------------- ---
Total-Stamford Towers............. 91.7% $ 6,840,998 $ 22.97 15
------------- ---
Stand-alone Long Island
Properties
400 Garden City Plaza
Garden City, NY................. 87.4% $ 3,557,257 $ 23.10 23
88 Duryea Rd.
Melville, NY.................... 79.6% $ 354,022 $ 17.75 3
310 East Shore Rd.
Great Neck, NY.................. 100.0% $ 1,207,228 $ 24.09 21
333 East Shore Rd.
Great Neck, NY..................
99.6% $ 483,726 $ 27.41 9
520 Broadhollow Rd
Melville, NY.................... 100.0% $ 1,520,471 $ 18.28 5
1660 Walt Whitman Rd.
Melville, NY.................... 91.2% $ 1,234,445 $ 18.52 4
125 Baylis Rd.
Melville, NY.................... 64.4% $ 1,106,006 $ 17.48 12
150 Motor Parkway
Hauppauge, NY................... 94.2% $ 3,730,513 $ 20.69 24
1979 Marcus Ave.
Lake Success, NY................ 78.8% $ 5,330,079 $ 19.26 25
------------- ---
Total-Stand-alone Long
Island Properties............... 85.5% $ 18,523,747 $ 20.32 126
------------- ---
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST
(GROUND LEASE LAND NUMBER
PERCENTAGE EXPIRATION YEAR AREA OF SQUARE
PROPERTY OWNERSHIP DATE)(1) CONSTRUCTED (ACRES) FLOORS FEET
- ---------------------------------- --------------- --------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stand-alone Westchester
Properties
155 White Plains Road,
Tarrytown, NY................... 100% Fee 1963 13.2 2 60,909
235 Main Street,
White Plains, NY................ 100% Fee 1974(5) .4 6 83,237
245 Main Street
White Plains, NY................ 100% Fee 1983 .4 6 73,543
2 Church Street
Ossining, NY.................... 100% Fee 1979 1.1 2 24,250
120 White Plains Rd.
Tarrytown, NY................... 100% Fee 1984 9.7 6 203,000
80 Grasslands
Elmsford, NY.................... 100% Fee 1989 4.9 3 85,104
360 Hamilton Avenue
White Plains, NY (3)............ 100% Fee 1977 1.5 12 365,000
140 Grand Street
White Plains, NY................ 100% Fee 1991 2.2 9 130,136
----- -----------
Total Stand-alone
Westchester Properties(4) 33.4 1,025,179
----- -----------
Executive Hill Office Park
West Orange, NJ
100 Executive Dr................ 100% Fee 1978 10.1 3 92,872
200 Executive Dr................ 100% Fee 1980 8.2 4 102,630
300 Executive Dr................ 100% Fee 1984 8.7 4 126,196
10 Rooney Circle................ 100% Fee 1971 5.2 3 69,684
----- -----------
Total-Executive Hill Office
Park............................ 32.2 391,382
----- -----------
University Square
Princeton, NJ
100 Campus Dr................... 100% Fee 1987 N/A 1 27,350
104 Campus Dr................... 100% Fee 1987 N/A 1 70,155
115 Campus Dr................... 100% Fee 1987 N/A 1 33,600
----- -----------
Total University Square........... 11.0 131,105
----- -----------
Short Hills Office Complex
Short Hills, NJ
101 West John F. Kennedy
Parkway......................... 100% Fee 1981 9.0 6 185,233
101 East John F. Kennedy
Parkway......................... 100% Fee 1981 6.0 4 122,841
51 John F Kennedy Parkway....... 100% Fee 1988 11.0 5 248,962
----- -----------
Total--Short Hills Office
Complex......................... 26.0 557,036
----- -----------
<CAPTION>
ANNUAL
BASE NUMBER
ANNUAL RENT PER OF
PERCENT BASE LEASED TENANT
PROPERTY LEASED RENT(2) SQ. FT. LEASES
- ---------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stand-alone Westchester
Properties
155 White Plains Road,
Tarrytown, NY................... 95.6% $ 1,114,080 $ 19.13 6
235 Main Street,
White Plains, NY................ 94.4% $ 1,404,396 $ 17.87 29
245 Main Street
White Plains, NY................ 92.0% $ 1,340,432 $ 19.81 17
2 Church Street
Ossining, NY.................... 60.6% $ 218,745 $ 14.89 4
120 White Plains Rd.
Tarrytown, NY................... 100.0% $ 4,445,022 $ 21.86 12
80 Grasslands
Elmsford, NY.................... 99.3% $ 1,609,730 $ 19.04 6
360 Hamilton Avenue
White Plains, NY (3)............ 0.0% $ 0 $ 0.00 0
140 Grand Street
White Plains, NY................ 93.0% $ 2,673,200 $ 22.10 17
------------- ---
Total Stand-alone
Westchester Properties(4) 95.9% $ 12,805,605 $ 20.39 91
------------- ---
Executive Hill Office Park
West Orange, NJ
100 Executive Dr................ 100.0% $ 1,778,542 $ 19.15 12
200 Executive Dr................ 96.5% $ 2,029,480 $ 20.50 18
300 Executive Dr................ 100.0% $ 2,568,559 $ 20.32 11
10 Rooney Circle................ 100.0% $ 1,406,904 $ 20.19 2
------------- ---
Total-Executive Hill Office
Park............................ 99.1% $ 7,783,485 $ 20.06 43
------------- ---
University Square
Princeton, NJ
100 Campus Dr................... 99.7% $ 428,715 $ 15.73 2
104 Campus Dr................... 100.0% $ 1,140,019 $ 16.25 1
115 Campus Dr................... 100.0% $ 602,144 $ 17.92 2
------------- ---
Total University Square........... 99.9% $ 2,170,878 $ 16.57 5
------------- ---
Short Hills Office Complex
Short Hills, NJ
101 West John F. Kennedy
Parkway......................... 100.0% $ 2,963,728 $ 16.00 1
101 East John F. Kennedy
Parkway......................... 100.0% $ 1,965,456 $ 16.00 1
51 John F Kennedy Parkway....... 97.1% $ 7,911,179 $ 32.72 15
------------- ---
Total--Short Hills Office
Complex......................... 98.7% $ 12,840,363 $ 23.35 17
------------- ---
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST
(GROUND LEASE LAND NUMBER
PERCENTAGE EXPIRATION YEAR AREA OF SQUARE
PROPERTY OWNERSHIP DATE)(1) CONSTRUCTED (ACRES) FLOORS FEET
- ---------------------------------- --------------- --------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stand-alone New Jersey
Properties
1 Paragon Drive
Montvale, NJ.................... 100% Fee 1980 11.0 2 104,599
99 Cherry Hill Road
Parsippany, NJ.................. 100% Fee 1982 8.8 3 93,250
119 Cherry Hill Road
Parsippany, NJ.................. 100% Fee 1982 9.3 3 95,724
One Eagle Rock
Hanover, NJ..................... 100% Fee 1986 10.4 3 140,000
155 Passaic Ave.
Fairfield, NJ................... 100% Fee 1984 3.6 4 84,500
3 University Plaza
Hackensack, NJ.................. 100% Fee 1985 10.6 6 216,403
1255 Broad Street
Clifton, NJ (3)................. 100% Fee 1968 11.1 2 180,000
----- -----------
Total Stand-alone New Jersey
Properties (4) 64.8 914,476
----- -----------
Total-Office Properties (4)....... 515.9 10,092,438
----- -----------
----- -----------
<CAPTION>
ANNUAL
BASE NUMBER
ANNUAL RENT PER OF
PERCENT BASE LEASED TENANT
PROPERTY LEASED RENT(2) SQ. FT. LEASES
- ---------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stand-alone New Jersey
Properties
1 Paragon Drive
Montvale, NJ.................... 88.3% $ 1,963,502 $ 21.25 14
99 Cherry Hill Road
Parsippany, NJ.................. 97.5% $ 1,202,632 $ 13.23 16
119 Cherry Hill Road
Parsippany, NJ.................. 97.1% $ 1,393,181 $ 14.99 16
One Eagle Rock
Hanover, NJ..................... 98.1% $ 1,879,371 $ 13.68 6
155 Passaic Ave.
Fairfield, NJ................... 99.0% $ 872,602 $ 10.43 3
3 University Plaza
Hackensack, NJ.................. 98.3% $ 3,889,398 $ 18.28 22
1255 Broad Street
Clifton, NJ (3)................. 34.5% $ 951,096 $ 15.33 1
------------- ---
Total Stand-alone New Jersey
Properties (4) 96.7% $ 12,151,782 $ 15.74 78
------------- ---
Total-Office Properties (4)....... 93.8% $ 184,641,135 $ 20.64 858
------------- ---
------------- ---
</TABLE>
- ------------------------
(1) Ground lease expirations assume exercise of renewal options by the lessee.
(2) Represents Base Rent of signed leases at December 31, 1998 adjusted for
scheduled contractual increases during the 12 months ending December 31,
1999. Total Base Rent for these purposes reflects the effect of any lease
expirations that occur during the 12-month period ending December 31, 1999.
Amounts included in rental revenue for financial reporting purposes have
been determined on a straight-line basis rather than on the basis of
contractual rent as set forth in the foregoing table.
(3) Property is currently under redevelopment.
(4) Percent leases excludes properties under development.
(5) Year renovated.
(6) The actual fee interest in 520 White Plains Road is held by the County of
Westchester Industrial Development Agency. The fee interest in 520 White
Plains Road may be acquired if the outstanding principal under certain loan
agreements and annual basic installments are prepaid in full.
S-27
<PAGE>
INDUSTRIAL PROPERTIES
GENERAL. As of December 31, 1998, we owned or had an interest in 129
industrial properties that encompass approximately 10.8 million rentable square
feet. As of December 31, 1998, the industrial properties were 96.9% leased to
281 tenants. Many of the industrial properties have been constructed with high
ceiling heights (I.E., above 18 feet), upscale office building facades, parking
in excess of zoning requirements, drive-in and/or loading dock facilities, and
other features which permit them to be leased for industrial and/or office
purposes.
The industrial properties are leased to national tenants as well as to local
companies. These tenants utilize the industrial properties for distribution,
warehousing, research and development and light manufacturing/assembly
activities. Leases on the industrial properties are typically written for terms
ranging from three to seven years and require (i) payment of a Base Rent, (ii)
payments of real estate tax escalations over a base year, (iii) payments of
compounded annual increases to Base Rent and (iv) reimbursement of all operating
expenses. Electric costs are borne and paid directly by the tenant. Certain
leases are "triple net" (i.e., the tenant is required to pay in addition to
annual Base Rent all operating expenses and real estate taxes). In virtually all
leases, the landlord is responsible for structural repairs. Renewal provisions
typically provide for renewal rents at market rates, provided that such rates
are not less than the most recent rental rates.
As of December 31, 1998, approximately 49% of the industrial properties,
excluding the RMI properties, measured by rentable square footage, were located
in three large scale planned industrial parks that were developed by us.
In addition to its industrial parks, as of December 31, 1998, we owned 36
stand alone industrial properties (excludes the RMI properties). As of December
31, 1998, these properties were approximately 98% leased (excluding properties
under development) to 68 tenants. Included in the 36 stand alone industrial
properties are 24 properties located on Long Island encompassing approximately
2.0 million square feet.
LEASING ACTIVITY. For the twelve months ended December 31, 1998, Base Rent
for re-leased or renewed industrial space was generally equivalent on a cash
basis and increased by 17.0% on a straightline basis over the related expiring
Base Rent.
The following table sets forth a schedule of the lease expirations for the
industrial properties for leases in place as of December 31, 1998, assuming that
none of the tenants exercises renewal options or termination rights, if any.
<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE
TOTAL LEASED PERCENTAGE OF
SQUARE FEET SQUARE FEET TOTAL LEASED PER SQUARE
NUMBER OF SUBJECT TO REPRESENTED SQUARE FEET FOOT
LEASES EXPIRING BY EXPIRING REPRESENTED BY STRAIGHTLINE PER SQUARE
YEAR OF LEASE EXPIRATION EXPIRING LEASES LEASES EXPIRING LEASES RENT(1) FOOT RENT(2)
- --------------------------------- --------------- ------------ --------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999............................. 57 1,436,056 14.7% 14.7% $ 5.26 $ 5.70
2000............................. 43 1,390,748 14.3% 29.0% $ 5.15 $ 5.49
2001............................. 41 1,256,669 12.9% 41.9% $ 6.62 $ 7.40
2002............................. 29 830,312 8.5% 50.4% $ 4.84 $ 5.41
2003............................. 37 1,173,517 12.0% 62.4% $ 5.13 $ 5.79
2004............................. 26 610,887 6.3% 68.7% $ 6.92 $ 7.53
2005 and thereafter.............. 48 3,042,388 31.3% 100.0% -- --
--- ------------ -----
Total...................... 281 9,740,577 100.0%
--- ------------ -----
--- ------------ -----
</TABLE>
- ------------------------
(1) Represents annualized straightline rent as of the lease expiration date
period.
S-28
<PAGE>
(2) Represents annualized Base Rent plus non-recoverable operating expense
pass-throughs attributable to leases that expire during such period divided
by total square footage under such leases.
The following table sets forth a schedule of new leases signed and the
average annual Base Rent per leased square foot for the industrial properties
for the years 1991 to 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL BASE
NUMBER OF RENT PER LEASEDSQUARE
YEAR LEASES FOOT(1)
- ------------------------------------------------------ --------------- -------------------------
<S> <C> <C>
1998.................................................. 59 $ 7.93
1997.................................................. 48 $ 6.70
1996.................................................. 41 $ 6.39
1995.................................................. 35 $ 5.99
1994.................................................. 59 $ 5.43
1993.................................................. 41 $ 5.28
1992.................................................. 46 $ 4.87
1991.................................................. 36 $ 4.21
</TABLE>
- ------------------------
(1) Represents average annual Base Rent from signed leases over the term of such
leases divided by leased square feet.
DISTRIBUTION OF LEASES BY LEASED SPACE. The following table sets forth
information relating to the diversity of the tenants at our industrial
properties under lease at December 31, 1998.
<TABLE>
<CAPTION>
ANNUAL BASE
NUMBER OF PERCENT OF TOTAL PERCENT OF RENT PERCENT OF
SQUARE FEET UNDER LEASE LEASES TOTAL SQUARE FEET TOTAL (THOUSANDS)(1) TOTAL
- ------------------------------- --------------- ----------- ------------ ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Less than 2,501................ 18 6.4% 36,938 .4% $ 280 .5%
2,501-5,000.................... 50 17.8% 202,544 2.1% $ 1,336 2.5%
5,001-10,000................... 62 22.1% 471,853 4.8% $ 3,516 6.7%
10,001-20,000.................. 46 16.4% 680,318 7.0% $ 4,225 8.0%
20,001-40,000.................. 42 14.9% 1,188,266 12.2% $ 7,674 14.6%
40,001+........................ 63 22.4% 7,160,658 73.5% $ 35,660 67.7%
--- ----- ------------ ----- --------------- -----
281 100.0% 9,740,577 100.0% $ 52,690 100.0%
--- ----- ------------ ----- --------------- -----
--- ----- ------------ ----- --------------- -----
</TABLE>
- ------------------------
(1) Represents Base Rent of signed leases at December 31, 1998 adjusted for
scheduled contractual increases during the 12 months ending December 31,
1999. Base Rent for these purposes reflects the effect of any lease
expirations that occur during the 12-month period ending December 31, 1999.
S-29
<PAGE>
INDUSTRIAL PROPERTY CHART. The following table sets forth certain
information as of December 31, 1998 for each of our industrial properties owned
at such time.
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST PERCENTAGE
(GROUND OFFICE/
LEASE LAND CLEARANCE RESEARCH AND
PERCENTAGE EXPIRATION YEAR AREA HEIGHT DEVELOPMENT
PROPERTY OWNERSHIP DATE) CONSTRUCTED (ACRES) (FEET)(1) FINISH
- ---------------------------- ------------- ------------ --------------- ----------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Industrial Properties:
Vanderbilt Industrial Park
Hauppauge, NY
360 Vanderbilt Motor
Parkway................. 100% Fee 1967 4.2 16 62%
410 Vanderbilt Motor
Parkway................. 100% Fee 1965 3.0 15 7%
595 Old Willets Path...... 100% Fee 1968 3.5 14 14%
611 Old Willets Path...... 100% Fee 1963 3.0 14 11%
631/641 Old Willets
Path.................... 100% Fee 1965 1.9 14 31%
651/661 Old Willets
Path.................... 100% Fee 1966 2.0 14 45%
681 Old Willets Path...... 100% Fee 1961 1.3 14 10%
740 Old Willets Path...... 100% Fee 1965 3.5 14 5%
325 Rabro Dr.............. 100% Fee 1967 2.7 14 10%
250 Kennedy Dr............ 100% Fee 1979 7.0 16 9%
90 Plant Ave.............. 100% Fee 1972 4.3 16 13%
110 Plant Ave............. 100% Fee 1974 6.8 18 8%
55 Engineers Rd........... 100% Fee 1968 3.0 18 8%
65 Engineers Rd........... 100% Fee 1969 1.8 22 10%
85 Engineers Rd........... 100% Fee 1968 2.3 18 5%
100 Engineers Rd.......... 100% Fee 1968 5.0 14 11%
150 Engineers Rd.......... 100% Fee 1969 6.8 22 11%
20 Oser Ave............... 100% Fee 1979 5.0 16 18%
30 Oser Ave............... 100% Fee 1978 4.4 16 21%
40 Oser Ave............... 100% Fee 1974 3.1 16 33%
50 Oser Ave............... 100% Fee 1975 4.1 21 15%
60 Oser Ave............... 100% Fee 1975 3.3 21 19%
63 Oser Ave............... 100% Fee 1974 1.2 20 9%
65 Oser Ave............... 100% Fee 1975 1.2 18 10%
73 Oser Ave............... 100% Fee 1974 1.2 20 15%
80 Oser Ave............... 100% Fee 1974 1.1 18 25%
85 Nicon Ct............... 100% Fee 1978 6.1 30 10%
90 Oser Ave............... 100% Fee 1973 1.1 16 26%
104 Parkway Dr............ 100% Fee 1985 1.8 15 50%
110 Ricefield Ln.......... 100% Fee 1980 2.0 15 25%
120 Ricefield Ln.......... 100% Fee 1983 2.0 15 24%
125 Ricefield Ln.......... 100% Fee 1973 2.0 14 20%
135 Ricefield Ln.......... 100% Fee 1981 2.1 15 10%
85 Adams Dr............... 100% Fee 1980 1.8 15 90%
395 Oser Ave.............. 100% Fee 1980 6.1 14 100%
185 Oser Ave.............. 100% Fee 1974 2.0 18 40%
25 Davids Dr.............. 100% Fee 1975 3.2 20 90%
45 Adams Ave.............. 100% Fee 1979 2.1 18 90%
225 Oser Ave.............. 100% Fee 1977 1.2 14 80%
180 Oser Ave.............. 100% Fee 1978 3.4 16 35%
360 Oser Ave.............. 100% Fee 1981 1.3 18 35%
400 Oser Ave.............. 100% Fee 1982 9.5 16 30%
375 Oser Ave.............. 100% Fee 1981 1.2 18 40%
425 Rabro Drive........... 100% Fee 1980 4.0 16 25%
390 Motor Parkway......... 100% Fee 1980 10.0 14 4%
600 Old Willets Path...... 100% Fee 1965 4.5 14 25%
400 Moreland Road(3)...... 100% Fee 1967 6.3 17 10%
-----
Total--Vanderbilt
Industrial Park (4)..... 160.4
-----
Airport International Plaza
Islip, NY
20 Orville Dr............. 100% Fee 1978 1.0 16 50%
25 Orville Dr............. 100% Fee 1970 2.2 16 100%
50 Orville Dr............. 100% Fee 1976 1.6 15 20%
65 Orville Dr............. 100% Fee 1971 2.2 14 13%
70 Orville Dr............. 100% Fee 1975 2.3 22 7%
80 Orville Dr............. 100% Fee 1988 6.5 16 21%
85 Orville Dr............. 100% Fee 1974 1.9 14 20%
95 Orville Dr............. 100% Fee 1974 1.8 14 10%
110 Orville Dr............ 100% Fee 1979 6.4 24 15%
180 Orville Dr............ 100% Fee 1982 2.3 16 18%
1101 Lakeland Ave......... 100% Fee 1983 4.9 20 8%
1385 Lakeland Ave......... 100% Fee 1973 2.4 16 18%
125 Wilbur Place.......... 100% Fee 1977 4.0 16 31%
140 Wilbur Place.......... 100% Fee 1973 3.1 20 37%
160 Wilbur Place.......... 100% Fee 1978 3.9 16 30%
170 Wilbur Place.......... 100% Fee 1979 4.9 16 28%
4040 Veterans Highway..... 100% Fee 1972 1.0 14 100%
120 Wilbur Place.......... 100% Fee 1972 2.8 16 15%
2004 Orville Dr........... 100% Fee 1998 7.4 24 20%
-----
Total--Airport
International Plaza..... 62.6
-----
<CAPTION>
ANNUAL
BASE
RENT NUMBER
ANNUAL PER OF
SQUARE PERCENT BASE LEASED SQ. TENANT
PROPERTY FEET LEASED RENT(2) FT. LEASES
- ---------------------------- ---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Industrial Properties:
Vanderbilt Industrial Park
Hauppauge, NY
360 Vanderbilt Motor
Parkway................. 54,000 100.0% $ 232,200 $ 4.30 1
410 Vanderbilt Motor
Parkway................. 41,784 100.0% $ 203,113 $ 4.86 4
595 Old Willets Path...... 31,670 84.5% $ 121,355 $ 4.53 3
611 Old Willets Path...... 20,000 100.0% $ 142,809 $ 7.14 2
631/641 Old Willets
Path.................... 25,000 100.0% $ 157,143 $ 6.29 4
651/661 Old Willets
Path.................... 25,000 100.0% $ 165,278 $ 6.61 7
681 Old Willets Path...... 15,000 100.0% $ 94,688 $ 6.31 1
740 Old Willets Path...... 30,000 100.0% $ 29,670 $ .99 1
325 Rabro Dr.............. 35,000 100.0% $ 206,909 $ 5.83 2
250 Kennedy Dr............ 127,980 100.0% $ 455,298 $ 3.56 1
90 Plant Ave.............. 75,000 100.0% $ 384,836 $ 5.14 3
110 Plant Ave............. 125,000 100.0% $ 540,000 $ 4.32 1
55 Engineers Rd........... 36,000 100.0% $ 193,945 $ 5.39 1
65 Engineers Rd........... 23,000 100.0% $ 131,474 $ 5.72 1
85 Engineers Rd........... 40,800 100.0% $ 91,176 $ 2.23 2
100 Engineers Rd.......... 88,000 100.0% $ 366,279 $ 4.16 1
150 Engineers Rd.......... 135,000 100.0% $ 398,580 $ 2.95 1
20 Oser Ave............... 42,000 98.7% $ 334,151 $ 8.06 2
30 Oser Ave............... 42,000 100.0% $ 249,676 $ 5.94 5
40 Oser Ave............... 59,800 100.0% $ 357,683 $ 5.96 13
50 Oser Ave............... 60,000 100.0% $ 240,000 $ 4.00 1
60 Oser Ave............... 48,000 100.0% $ 192,000 $ 4.00 1
63 Oser Ave............... 22,000 100.0% $ 108,506 $ 4.93 1
65 Oser Ave............... 20,000 100.0% $ 97,284 $ 4.86 1
73 Oser Ave............... 20,000 100.0% $ 122,720 $ 6.14 1
80 Oser Ave............... 19,500 100.0% $ 64,356 $ 3.30 1
85 Nicon Ct............... 104,000 100.0% $ 485,621 $ 4.67 1
90 Oser Ave............... 37,500 100.0% $ 123,756 $ 3.30 1
104 Parkway Dr............ 27,600 100.0% $ 191,434 $ 6.94 1
110 Ricefield Ln.......... 32,264 100.0% $ 155,168 $ 4.81 1
120 Ricefield Ln.......... 33,060 100.0% $ 168,000 $ 5.08 1
125 Ricefield Ln.......... 30,495 100.0% $ 193,539 $ 6.35 1
135 Ricefield Ln.......... 32,340 100.0% $ 198,507 $ 6.14 1
85 Adams Dr............... 20,000 100.0% $ 260,000 $ 13.00 1
395 Oser Ave.............. 50,000 100.0% $ 417,285 $ 8.43 1
185 Oser Ave.............. 30,000 100.0% $ 208,430 $ 6.95 1
25 Davids Dr.............. 40,000 100.0% $ 313,978 $ 7.85 1
45 Adams Ave.............. 28,000 100.0% $ 136,461 $ 4.87 1
225 Oser Ave.............. 10,000 100.0% $ 33,125 $ 3.31 2
180 Oser Ave.............. 61,868 88.0% $ 341,070 $ 6.26 8
360 Oser Ave.............. 23,000 100.0% $ 128,800 $ 5.60 1
400 Oser Ave.............. 164,936 76.4% $ 746,201 $ 5.92 22
375 Oser Ave.............. 20,000 100.0% $ 142,740 $ 7.14 1
425 Rabro Drive........... 65,641 100.0% $ 586,080 $ 9.00 1
390 Motor Parkway......... 181,155 45.5% $ 300,947 $ 3.65 2
600 Old Willets Path...... 69,627 100.0% $ 255,398 $ 3.67 1
400 Moreland Road(3)...... 56,875 0.0% $ 0 $ 0 0
---------- ----------- ---
Total--Vanderbilt
Industrial Park (4)..... 2,379,895 93.5% $11,067,669 $ 5.10 112
---------- ----------- ---
Airport International Plaza
Islip, NY
20 Orville Dr............. 12,852 100.0% $ 20,785 $ 1.62 1
25 Orville Dr............. 32,300 100.0% $ 460,067 $ 13.67 2
50 Orville Dr............. 28,000 73.5% $ 192,290 $ 9.35 2
65 Orville Dr............. 32,000 100.0% $ 165,894 $ 5.18 2
70 Orville Dr............. 41,508 100.0% $ 315,242 $ 7.59 2
80 Orville Dr............. 92,544 100.0% $ 611,454 $ 6.61 9
85 Orville Dr............. 25,000 100.0% $ 0 $ 0 0
95 Orville Dr............. 25,000 100.0% $ 131,750 $ 5.27 1
110 Orville Dr............ 110,000 100.0% $ 649,733 $ 5.91 1
180 Orville Dr............ 37,612 100.0% $ 222,733 $ 5.92 2
1101 Lakeland Ave......... 90,411 100.0% $ 534,205 $ 5.91 1
1385 Lakeland Ave......... 35,000 100.0% $ 153,484 $ 4.39 3
125 Wilbur Place.......... 62,686 87.1% $ 285,546 $ 5.23 12
140 Wilbur Place.......... 48,500 100.0% $ 231,821 $ 4.78 2
160 Wilbur Place.......... 62,710 100.0% $ 397,941 $ 6.35 6
170 Wilbur Place.......... 72,062 93.1% $ 306,255 $ 4.57 7
4040 Veterans Highway..... 2,800 100.0% $ 54,061 $ 19.31 1
120 Wilbur Place.......... 35,000 78.6% $ 212,999 $ 7.75 3
2004 Orville Dr........... 106,515 100.0% $ 676,814 $ 6.35 1
---------- ----------- ---
Total--Airport
International Plaza..... 952,500 93.2% $ 5,623,074 $ 6.24 58
---------- ----------- ---
</TABLE>
S-30
<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST PERCENTAGE
(GROUND OFFICE/
LEASE LAND CLEARANCE RESEARCH AND
PERCENTAGE EXPIRATION YEAR AREA HEIGHT DEVELOPMENT
PROPERTY OWNERSHIP DATE) CONSTRUCTED (ACRES) (FEET)(1) FINISH
- ---------------------------- ------------- ------------ --------------- ----------- --------------- -----------------
County Line Industrial
Center Melville, NY
<S> <C> <C> <C> <C> <C> <C>
5 Hub Dr.................. 100% Fee 1979 6.9 20 20%
10 Hub Dr................. 100% Fee 1975 6.6 20 15%
30 Hub Drive.............. 100% Fee 1976 5.1 20 18%
265 Spagnoli Rd........... 100% Fee 1978 6.0 20 28%
-----
Total--County Line
Industrial Center....... 24.6
-----
Standalone Long Island
Properties................
32 Windsor Pl. Islip,
NY...................... 100% Fee 1971 2.5 18 10%
42 Windsor Pl. Islip,
NY...................... 100% Fee 1972 2.4 18 8%
208 Blydenburgh Rd.
Islandia, NY............ 100% Fee 1969 2.4 14 17%
210 Blydenburgh Rd.
Islandia, NY............ 100% Fee 1969 1.2 14 16%
71 Hoffman Ln. Islandia,
NY...................... 100% Fee 1970 5.8 16 10%
135 Fell Ct. Islip, NY.... 100% Fee 1965 3.2 16 20%
-----
Subtotal
Islip/Islandia........ 17.5
-----
70 Schmitt Boulevard,
Farmingdale, NY......... 100% Fee 1975 4.4 18 10%
105 Price Parkway,
Farmingdale, NY......... 100% Fee 1969 12.0 26 8.5%
110 Bi County Blvd.
Farmingdale, L.I,....... 100% Fee 1984 9.5 19 45%
-----
Subtotal Farmingdale.... 25.9
-----
70 Maxess Rd, Melville,
NY...................... 100% Fee 1969 9.3 15 38%
20 Melville Park Rd,
Melville, NY............ 100% Fee 1965 4.0 23 66%
45 Melville Park Drive,
Melville, NY............ 100% Fee 1998 4.2 24 22%
65 Marcus Drive. Melville,
L.I.,................... 100% Fee 1968 5.0 16 50%
333 Smith St (3) Melville,
NY...................... 100% Fee 1967 7.1 22 95%
-----
Subtotal Melville(4).... 29.6
-----
300 Motor Parkway,
Hauppauge, NY........... 100% Fee 1979 4.2 14 100%
1516 Motor Parkway,
Hauppauge, NY........... 100% Fee 1981 7.9 24 5%
-----
Subtotal Hauppauge...... 12.1
-----
933 Motor Parkway
Smithtown, NY........... 100% Fee 1973 5.6 20 26%
65 S. Service Rd.,
Plainview, NY(5)........ 100% Fee 1961 1.6 14 10%
85 S. Service Rd.
Plainview, NY........... 100% Fee 1961 1.6 14 60%
19 Nicholas Dr., Yaphank,
NY (6).................. 100% Fee 1989 29.6 24 5%
48 Harbor Park Dr., Port
Washington, NY.......... 100% Fee 1976 2.7 16 100%
110 Marcus Dr.,
Huntington, NY.......... 100% Fee 1980 6.1 20 39%
35 Engle St., (3)
Hicksville, NY.......... 100% Leasehold(7) 1966 4.0 24 8%
100 Andrews Rd.,
Hicksville, L.I.,....... 100% Fee 1954 11.7 25 12%
-----
Total Standalone Long
Island Properties
(4)................... 62.9
-----
Standalone Westchester
Properties................
100 Grasslands Rd., (3)
Elmsford, NY............ 100% Fee 1964 3.6 16 100%
2 Macy Rd., Harrison, NY.. 100% Fee 1962 5.7 16 100%
500 Saw Mill Rd.,
Elmsford, NY............ 100% Fee 1968 7.3 22 17%
-----
Total--Standalone
Westchester Industrial
Properties (4)............ 16.6
-----
Standalone New Jersey
Industrial Properties.....
40 Cragwood Rd, South
Plainfield, NJ.......... 100% Fee 1965 13.5 16 49%
400 Cabot Dr., Hamilton
Township, NJ............ 100% Fee 1989 44.8 30 10%
<CAPTION>
ANNUAL
BASE
RENT NUMBER
ANNUAL PER OF
SQUARE PERCENT BASE LEASED SQ. TENANT
PROPERTY FEET LEASED RENT(2) FT. LEASES
- ---------------------------- ---------- ----------- ----------- ----------- -------------
County Line Industrial
Center Melville, NY
<S> <C> <C> <C> <C> <C>
5 Hub Dr.................. 88,001 100.0% $ 495,704 $ 5.63 2
10 Hub Dr................. 95,546 68.8% $ 348,394 $ 5.30 3
30 Hub Drive.............. 73,127 100.0% $ 388,913 $ 5.32 2
265 Spagnoli Rd........... 85,500 100.0% $ 608,774 $ 7.12 3
---------- ----------- ---
Total--County Line
Industrial Center....... 342,174 100.0% $ 1,841,785 $ 5.89 10
---------- ----------- ---
Standalone Long Island
Properties................
32 Windsor Pl. Islip,
NY...................... 43,000 100.0% $ 133,253 $ 3.10 1
42 Windsor Pl. Islip,
NY...................... 65,000 100.0% $ 226,057 $ 3.48 1
208 Blydenburgh Rd.
Islandia, NY............ 24,000 100.0% $ 117,970 $ 4.92 4
210 Blydenburgh Rd.
Islandia, NY............ 20,000 100.0% $ 106,480 $ 5.32 2
71 Hoffman Ln. Islandia,
NY...................... 30,400 100.0% $ 173,134 $ 5.70 1
135 Fell Ct. Islip, NY.... 30,000 100.0% $ 222,750 $ 7.43 1
---------- ----------- ---
Subtotal
Islip/Islandia........ 212,400 100.0% $ 979,644 $ 4.61 10
---------- ----------- ---
70 Schmitt Boulevard,
Farmingdale, NY......... 76,312 100.0% $ 188,113 $ 2.47 1
105 Price Parkway,
Farmingdale, NY......... 297,000 100.0% $ 1,348,072 $ 4.54 1
110 Bi County Blvd.
Farmingdale, L.I,....... 147,303 100.0% $ 1,314,179 $ 8.93 12
---------- ----------- ---
Subtotal Farmingdale.... 520,615 100.0% $ 2,850,364 $ 5.48 14
---------- ----------- ---
70 Maxess Rd, Melville,
NY...................... 78,000 100.0% $ 640,590 $ 8.15 1
20 Melville Park Rd,
Melville, NY............ 67,922 100.0% $ 378,063 $ 5.57 1
45 Melville Park Drive,
Melville, NY............ 40,247 100.0% $ 519,656 $ 12.91 1
65 Marcus Drive. Melville,
L.I.,................... 60,000 100.0% $ 570,648 $ 9.51 1
333 Smith St (3) Melville,
NY...................... 165,000 0.0% $ 0 $ 0 0
---------- ----------- ---
Subtotal Melville(4).... 411,169 100.0% $ 2,108,957 $ 8.55 4
---------- ----------- ---
300 Motor Parkway,
Hauppauge, NY........... 55,942 97.0% $ 870,808 $ 16.05 10
1516 Motor Parkway,
Hauppauge, NY........... 140,000 100.0% $ 861,583 $ 6.15 1
---------- ----------- ---
Subtotal Hauppauge...... 195,942 95.0% $ 1,732,391 $ 8.92 11
---------- ----------- ---
933 Motor Parkway
Smithtown, NY........... 48,000 100.0% $ 334,760 $ 6.97 1
65 S. Service Rd.,
Plainview, NY(5)........ 10,000 100.0% $ 67,875 $ 6.79 1
85 S. Service Rd.
Plainview, NY........... 20,000 100.0% $ 132,547 $ 6.63 2
19 Nicholas Dr., Yaphank,
NY (6).................. 145,000 100.0% $ 302,575 $ 2.09 1
48 Harbor Park Dr., Port
Washington, NY.......... 35,000 100.0% $ 680,146 $ 19.43 1
110 Marcus Dr.,
Huntington, NY.......... 78,240 100.0% $ 480,062 $ 6.14 1
35 Engle St., (3)
Hicksville, NY.......... 120,000 0.0% $ 0 $ 0 0
100 Andrews Rd.,
Hicksville, L.I.,....... 167,500 66.1% $ 1,066,412 $ 6.36 2
---------- ----------- ---
Total Standalone Long
Island Properties
(4)................... 623,740 100.0% $ 3,064,377 $ 6.08 9
---------- ----------- ---
Standalone Westchester
Properties................
100 Grasslands Rd., (3)
Elmsford, NY............ 45,000 0.0% $ 0 $ 0 0
2 Macy Rd., Harrison, NY.. 26,000 100.0% $ 422,500 $ 16.25 1
500 Saw Mill Rd.,
Elmsford, NY............ 92,000 100.0% $ 828,000 $ 9.00 1
---------- ----------- ---
Total--Standalone
Westchester Industrial
Properties (4)............ 163,000 100.0% $ 1,250,500 $ 10.60 2
---------- ----------- ---
Standalone New Jersey
Industrial Properties.....
40 Cragwood Rd, South
Plainfield, NJ.......... 135,000 57.5% $ 944,590 $ 12.16 3
400 Cabot Dr., Hamilton
Township, NJ............ 585,510 100.0% $ 2,739,377 $ 4.68 1
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST PERCENTAGE
(GROUND OFFICE/
LEASE LAND CLEARANCE RESEARCH AND
PERCENTAGE EXPIRATION YEAR AREA HEIGHT DEVELOPMENT
PROPERTY OWNERSHIP DATE) CONSTRUCTED (ACRES) (FEET)(1) FINISH
- ---------------------------- ------------- ------------ --------------- ----------- --------------- -----------------
100 Forge Way, Rockaway,
NJ...................... 100% Fee 1986 3.5 24 12%
<S> <C> <C> <C> <C> <C> <C>
200 Forge Way, Rockaway,
NJ...................... 100% Fee 1989 12.7 28 23%
300 Forge Way, Rockaway,
NJ...................... 100% Fee 1989 4.2 24 37%
400 Forge Way, Rockaway,
NJ...................... 100% Fee 1989 12.8 28 20%
5 Henderson Dr., West
Caldwell, NJ............ 100% Fee 1967 15.2 14 10%
492 River Rd, Nutley, NJ
(3)..................... 100% Fee 1952 17.3 13 100%
-----
Total New Jersey Standalone
Industrial Properties
(4)....................... 124.0
-----
Standalone Connecticut
Industrial Property.......
710 Bridgeport Shelton,
CT...................... 100% Fee 1971-1979 36.1 22 30%
-----
Total Connecticut Standalone
Industrial Property....... 36.1
-----
Reckson Morris Industrial
Trust
200 Carter Dr., Edison,
NJ...................... 71.8% Fee 1988 7.7 24 11%
118 Moonachie Ave,
Carlstadt, NJ........... 71.8% Fee 1989 11.0 24 8%
24 Abeel Rd, Cranbury,
NJ...................... 71.8% Fee 1979 3.2 24 8%
275 / 285 Pierce St,
Franklin, NJ............ 71.8% Fee 1988 6.9 24 7%
301 / 321 Herrod Blvd. So.
Brunswick, NJ........... 71.8% Fee 1991 39.5 26 1%
1 Nixon Ln, Edison, NJ.... 71.8% Fee 1988 10.8 24 9%
18 Madison Rd. Fairfield,
NJ...................... 71.8% Fee 1979 1.2 22 28%
200 / 250 Kennedy Dr.,
Sayerville, NJ.......... 71.8% Fee 1988 7.9 24 9%
24 Madison Rd. Fairfield,
NJ...................... 71.8% Fee 1980 2.5 24 18%
243 St. Nicholas Ave, So.
Plainfield, NJ.......... 71.8% Fee 1974 1.0 20 8%
26 Madison Rd., Fairfield,
NJ...................... 71.8% Fee 1980 2.1 24 11%
300 / 350 Kennedy Dr.,
Sayerville, NJ.......... 71.8% Fee 1988 9.7 24 3%
309 Kennedy Dr.,
Sayerville, NJ.......... 71.8% Fee 1996 11.6 30 20%
34 Englehard Dr.,
Cranbury, NJ............ 71.8% Fee 1982 12.0 24 6%
409 Kennedy Dr.,
Sayerville, NJ.......... 71.8% Fee 1996 14.9 30 20%
535 Secaucus Rd.,
Secaucus, NJ............ 71.8% Fee 1979 4.4 24 27%
55 Carter Dr., Edison,
NJ...................... 71.8% Fee 1987 5.0 24 20%
22 Madison Rd., Fairfield,
NJ...................... 71.8% Fee 1980 3.5 24 23%
135 Fieldcrest Dr.,
Edison, NJ.............. 71.8% Fee 1980 3.7 24 5%
Mount Ebo Corporate Park
Brewster, NY............ 71.8% Fee 1978 11.4 18 10%
30 Stultz Rd.,(3) So.
Brunswick, NJ........... 71.8% Fee 1978 12.6 18 10%
Industrial Ave.,
Teterboro, NJ........... 71.8% Fee 1998 15.3 32 10%
6 Johanna Ct.,(3) East
Brunswick, NJ........... 71.8% Fee 1978 18.4 18 10%
-----
Total Reckson Morris
Industrial Trust(4)....... 216.3
-----
Total--Industrial Properties
(4)....................... 788.6
-----
-----
<CAPTION>
ANNUAL
BASE
RENT NUMBER
ANNUAL PER OF
SQUARE PERCENT BASE LEASED SQ. TENANT
PROPERTY FEET LEASED RENT(2) FT. LEASES
- ---------------------------- ---------- ----------- ----------- ----------- -------------
100 Forge Way, Rockaway,
NJ...................... 20,136 100.0% $ 149,907 $ 7.44 6
<S> <C> <C> <C> <C> <C>
200 Forge Way, Rockaway,
NJ...................... 72,118 100.0% $ 450,738 $ 6.25 2
300 Forge Way, Rockaway,
NJ...................... 24,000 100.0% $ 149,367 $ 6.17 2
400 Forge Way, Rockaway,
NJ...................... 73,000 100.0% $ 407,666 $ 5.58 2
5 Henderson Dr., West
Caldwell, NJ............ 210,000 100.0% $ 453,750 $ 2.16 1
492 River Rd, Nutley, NJ
(3)..................... 128,000 0.00% $ 0 $ 0 0
---------- ----------- ---
Total New Jersey Standalone
Industrial Properties
(4)....................... 1,247,764 94.9% $ 5,295,395 $ 4.98 17
---------- ----------- ---
Standalone Connecticut
Industrial Property.......
710 Bridgeport Shelton,
CT...................... 452,414 100.0% $ 2,900,684 $ 6.41 2
---------- ----------- ---
Total Connecticut Standalone
Industrial Property....... 452,414 100.0% $ 2,900,684 $ 6.41 2
---------- ----------- ---
Reckson Morris Industrial
Trust
200 Carter Dr., Edison,
NJ...................... 105,790 100.0% $ 407,261 $ 3.85 2
118 Moonachie Ave,
Carlstadt, NJ........... 243,751 100.0% $ 1,828,133 $ 7.50 1
24 Abeel Rd, Cranbury,
NJ...................... 40,022 100.0% $ 185,000 $ 4.62 1
275 / 285 Pierce St,
Franklin, NJ............ 103,075 99.7% $ 258,492 $ 2.52 3
301 / 321 Herrod Blvd. So.
Brunswick, NJ........... 610,949 100.0% $ 2,291,059 $ 3.75 1
1 Nixon Ln, Edison, NJ.... 192,829 100.0% $ 376,820 $ 1.95 1
18 Madison Rd. Fairfield,
NJ...................... 14,000 100.0% $ 95,492 $ 6.82 1
200 / 250 Kennedy Dr.,
Sayerville, NJ.......... 161,751 98.4% $ 534,565 $ 3.36 2
24 Madison Rd. Fairfield,
NJ...................... 35,505 100.0% $ 226,323 $ 6.38 2
243 St. Nicholas Ave, So.
Plainfield, NJ.......... 15,000 100.0% $ 78,750 $ 5.25 1
26 Madison Rd., Fairfield,
NJ...................... 30,300 100.0% $ 169,842 $ 5.60 2
300 / 350 Kennedy Dr.,
Sayerville, NJ.......... 164,267 98.4% $ 467,337 $ 2.89 3
309 Kennedy Dr.,
Sayerville, NJ.......... 202,000 100.0% $ 909,000 $ 4.50 1
34 Englehard Dr.,
Cranbury, NJ............ 203,404 100.0% $ 894,978 $ 4.40 1
409 Kennedy Dr.,
Sayerville, NJ.......... 225,831 100.0% $ 930,612 $ 4.12 1
535 Secaucus Rd.,
Secaucus, NJ............ 62,093 91.7% $ 313,164 $ 5.50 1
55 Carter Dr., Edison,
NJ...................... 114,512 88.3% $ 388,692 $ 3.84 3
22 Madison Rd., Fairfield,
NJ...................... 39,875 100.0% $ 215,724 $ 5.41 1
135 Fieldcrest Dr.,
Edison, NJ.............. 78,000 98.7% $ 331,075 $ 4.30 2
Mount Ebo Corporate Park
Brewster, NY............ 93,948 100.0% $ 879,519 $ 9.36 1
30 Stultz Rd.,(3) So.
Brunswick, NJ........... 60,617 0% $ 0 $ 0 0
Industrial Ave.,
Teterboro, NJ........... 332,352 100.0% $ 2,193,523 $ 6.60 1
6 Johanna Ct.,(3) East
Brunswick, NJ........... 214,000 0% 0 0 0
---------- ----------- ---
Total Reckson Morris
Industrial Trust(4)....... 3,343,871 99.2% $13,975,361 $ 4.59 32
---------- ----------- ---
Total--Industrial Properties
(4)....................... 10,845,484 96.9% $52,690,201 $ 5.41 281
---------- ----------- ---
---------- ----------- ---
</TABLE>
- ------------------------
(1) Calculated as the difference from the lowest beam to floor.
(2) Represents Base Rent of signed leases at December 31, 1998 adjusted for
scheduled contractual increases during the 12 months ending December 31,
1999. Total Base Rent for these purposes reflects the effect of any lease
expirations that occur during the 12 month period ending December 31, 1999.
Amounts included in rental revenue for financial reporting purposes have
been determined on a straight-line basis rather than on the basis of
contractual rent as set forth in the foregoing table.
(3) Property under redevelopment.
(4) Percent leased excludes properties under redevelopment.
(5) A tenant has been granted an option exercisable after April 30, 1997 and
prior to October 31, 2002 to purchase this property for $600,000.
(6) The actual fee interest in 19 Nicholas Drive is currently held by the Town
of Brookhaven Industrial Development Agency. We may acquire such fee
interest by making a nominal payment to the Town of Brookhaven Industrial
Development Agency.
(7) We have entered into a 20 year lease agreement in which we have the right to
sublease the premises.
S-32
<PAGE>
LAND HOLDINGS
As of December 31, 1998, we owned or had under contract approximately 980
acres of land in 18 separate parcels, 10 of which are located on Long Island,
two of which are located in Westchester, and six of which are located in New
Jersey. The parcels have been zoned for potential commercial and retail
development. We plan to seek development opportunities as market conditions
permit. We had invested approximately $48.0 million in land costs and
approximately $13.5 million in additional development costs at December 31,
1998.
RETAIL PROPERTIES
As of December 31, 1998, we owned two free-standing 10,000 square foot
retail properties. These properties were 100% leased to single tenants as of
December 31, 1998. The retail properties are located in Great Neck, New York and
Huntington, New York.
MORTGAGE INDEBTEDNESS
As of December 31, 1998, we had $253.5 million of mortgage indebtedness
encumbering 23 of our 204 properties, totalling approximately 3.8 million square
feet and representing approximately 18 percent of our total portfolio on a
square footage basis. The following table sets forth certain information
regarding our mortgage debt as of December 31, 1998.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AMORTIZATION
PROPERTY OUTSTANDING(4) INTEREST RATE MATURITY DATE SCHEDULE
- ------------------------------------------------- ----------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
6800 Jericho Turnpike
(North Shore Atrium I).......................... $ 15,001 7.25 % 6/10/00 --
6900 Jericho Turnpike
(North Shore Atrium II)......................... $ 5,279 7.25 % 6/10/00 --
200 Broadhollow Rd............................... $ 6,621 7.75 % 6/02/02 30 year
395 North Service Road........................... $ 21,375 6.45 % 10/26/05 (6)
50 Charles Lindbergh Blvd........................ $ 15,479 7.25 % 7/10/01 --
333 Earl Ovington Blvd.
(The Omni)(1)................................... $ 57,162 7.72 % 08/14/07 25 year
310 East Shore Rd................................ $ 2,322 8.00 % 7/01/02 --
80 Orville Dr.................................... $ 2,616 7.50 % (5) 2/01/04 --
70 Schmitt Boulevard............................. $ 150 9.25 % 8/01/99 (7)
580 White Plains Road............................ $ 8,503 7.375% 9/01/00 25 year
Landmark Square(2)............................... $ 48,579 8.02 % 10/07/06 25 year
110 Bi-County Blvd............................... $ 4,383 9.125% 11/30/12 20 year
100 Summit Lake Drive............................ $ 23,600 8.50 % 4/1/07 14 year
200 Summit Lake Drive............................ $ 20,764 9.25 % 1/1/06 25 year
6 Johana Court(3)................................ $ 6,850 7.00 % 11/1/99 --
309/409 Kennedy Drive(3)......................... $ 14,779 7.50 % 3/15/02 --
-----------------
TOTAL............................................ $ 253,463
-----------------
-----------------
</TABLE>
- ------------------------
(1) We have a 60% general partnership interest in the Omni Partnership. Our
proportionate share of the aggregate principal amount of the mortgage debt
on the Omni is $34.3 million.
(2) Landmark Square consists of a six building office park.
(3) We have an approximate 71.8% general partnership interest in RMI. Our
proportionate share of the aggregate principal amount of the mortgage debt
of RMI is approximately $15.5 million.
(4) Excludes a $14.3 million mortgage on 520 White Plains Road, in which we own
a 60% non-controlling interest.
(5) Interest rate increases to 10.1% after the first five years of the loan.
(6) Principal payments of $34,000 per month for the period November 1998 to
October 2005.
(7) Principal payments of $18,750 per month for the period September 1998 to
August 1999.
S-33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Reckson Associates, and their
respective positions and ages, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
- ----------------------------- --- ----------------------------------------------------
<S> <C> <C>
Donald J. Rechler 64 Chairman of the Board, Chief Executive Officer and
Director (term as director expires in 2000)
Roger M. Rechler 57 Vice-Chairman of the Board, Executive Vice President
of Development and Director (term as director
expires in 2001)
Scott H. Rechler 31 President, Chief Operating Officer, and Director
(term as director expires in 1999)
Michael Maturo 37 Executive Vice President, Chief Financial Officer
and Treasurer
Mitchell D. Rechler 39 Executive Vice President and Director and President
of the Management Company (term as director expires
in 2000)
Gregg M. Rechler 32 Executive Vice President and Secretary and President
of the Construction Company
Jason M. Barnett 30 Senior Vice President and General Counsel
F.D. Rich III 43 Senior Vice President, Chief Administrative Officer
and Managing Director of the Southern Connecticut
Division
Salvatore Campofranco 41 Senior Vice President and Managing Director of the
Westchester Division
Mark Schaevitz 44 Senior Vice President and Managing Director of the
Northern New Jersey Division
Philip M. Waterman III 33 Senior Vice President and Managing Director of the
New York City Division
Richard Conniff 33 Senior Vice President of Acquisitions
Christopher George 31 Senior Vice President of Strategic Investments
Edward J. D'Orazio 44 Senior Vice President of Architectural Services and
Vice President of the Construction Company
Kathleen M. Giamo 49 Senior Vice President of Office Leasing and Director
of Marketing
Donald E. Miller 42 Senior Vice President of Development
Mark V. Rechler 33 Senior Vice President of Development and Design and
Vice President of the Construction Company
Harvey R. Blau 63 Independent Director (term as director expires in
2001)
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
- ----------------------------- --- ----------------------------------------------------
<S> <C> <C>
Leonard Feinstein 61 Independent Director (term as director expires in
2000)
Herve A. Kevenides 60 Independent Director (term as director expires in
1999)
John V. N. Klein 67 Independent Director (term as director expires in
2001)
Lewis S. Ranieri 52 Independent Director (term as director expires in
1999)
Conrad D. Stephenson 71 Independent Director (term as director expires in
1999)
</TABLE>
S-35
<PAGE>
DESCRIPTION OF NOTES
The following description sets forth certain terms and provisions of two
series of notes and the indenture and is qualified in its entirety by reference
to the terms and provisions of each series of notes and the indenture, which are
incorporated herein by reference. Capitalized terms not otherwise defined herein
shall have the meanings given to them in the notes or the indenture, as
applicable. The following description of the particular terms of each series of
notes does not purport to be complete and is subject to, and, to the extent
inconsistent therewith, replaces the description of the general terms and
provisions of the Debt Securities set forth in the accompanying prospectus.
GENERAL
The notes will be issued pursuant to an indenture, dated as of ,
1999, between the Operating Partnership and The Bank of New York, as Trustee.
The terms of the notes include those provisions contained in the notes and the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939. The notes are subject to all such terms, and Holders of
Notes are referred to the notes, the indenture and the Trust Indenture Act for a
statement thereof. Copies of the indenture and the form of the notes are
available for inspection at the corporate trust office of the Trustee located at
1 Wall Street, New York, New York 10286.
The notes will be direct, unsecured senior obligations of the Operating
Partnership and will rank equally with each other and with all other unsecured
senior indebtedness of the Operating Partnership. However, the notes will be
effectively subordinated to mortgages and other secured indebtedness of the
Operating Partnership and to all indebtedness, whether secured or unsecured, of
its subsidiaries. As of December 31, 1998, the Operating Partnership and its
subsidiaries had outstanding $635.9 million of unsecured senior indebtedness and
$253.5 million of secured indebtedness.
The % notes and the % notes will be limited to the aggregate principal
amount of $100,000,000 and $200,000,000, respectively, and will mature on
, 2004 and , 2009, respectively, unless, in either case, the
Operating Partnership exercises its option to redeem the notes prior to that
date. The notes will be issued only in fully registered, book-entry form, in
denominations of $1,000 and integral multiples thereof, except under the limited
circumstances described below under "--Book Entry System."
The notes will be entitled to the benefits of the covenants described under
"Description of Debt Securities--Certain Covenants" in the accompanying
prospectus. In addition, the notes will be subject to the defeasance and
covenant defeasance provisions described under "Description of Debt
Securities--Defeasance and Covenant Defeasance" in the accompanying Prospectus.
The notes will not be guaranteed by Reckson Associates Realty Corp.
PAYMENT OF INTEREST
Interest on the notes will accrue at their respective per annum rates set
forth on the cover page of this prospectus supplement from , 1999, or
the most recent interest payment date to which interest has been paid or
provided for, and will be payable in U.S. dollars semi-annually in arrears on
and of each year, commencing , 1999. The interest
so payable will be paid to the Holder in whose name the applicable note is
registered at the close of business on the or , as the case
may be (whether or not a business day in The City of New York), immediately
preceding the applicable interest payment date. Interest on the notes will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
S-36
<PAGE>
MATURITY
The % notes and the % notes will mature on , 2004 and ,
2009, respectively, and will be paid in U.S. dollars against presentation and
surrender thereof at the corporate trust office of the Trustee. However, the
Operating Partnership may redeem either or both series of notes at its option
prior to that date. See "--Optional Redemption." The notes will not be entitled
to the benefit of any sinking fund.
OPTIONAL REDEMPTION
The Operating Partnership may redeem either or both series of notes at any
time, in whole or in part from time to time, at its option at a redemption price
equal to the sum of (i) the principal amount of the notes (or portion thereof)
being redeemed plus accrued interest thereon to the redemption date and (ii) the
Make-Whole Amount, if any, with respect to such notes (or portion thereof). The
Operating Partnership will, however, pay any interest installment due on an
interest payment date which occurs on or prior to a redemption date to Holders
as of the close of business on the record date immediately preceding such
interest payment date.
If notice has been given as provided in the indenture and funds for the
redemption of any notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice, such
notes (or any portion thereof) will cease to bear interest on the date fixed for
such redemption specified in such notice and the only right of the Holders of
such notes will be to receive payment of the redemption price.
Notice of any optional redemption of notes (or any portion thereof) will be
given to Holders at their addresses, as shown in the security register for such
notes, not more than 60 nor less than 30 days prior to the date fixed for
redemption. The notice of redemption will specify, among other items, the
redemption price and the principal amount of the notes held by such Holder to be
redeemed. If less than all of the notes of a series are to be redeemed at the
option of the Operating Partnership, the Trustee shall select, in such manner as
it shall deem fair and appropriate, notes of such series to be redeemed.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption, the
excess, if any, of (i) the aggregate present value as of the date of such
optional redemption of each dollar of principal being redeemed and the amount of
interest (exclusive of interest accrued to the date of redemption) that would
have been payable in respect of each such dollar if such redemption had not been
made, determined by discounting, on a semi-annual basis, such principal and
interest at the Reinvestment Rate (determined on the third business day in The
City of New York preceding the date such notice of redemption is given) from the
respective dates on which such principal and interest would have been payable if
such redemption had not been made, over (ii) the aggregate principal amount of
the notes being redeemed.
"Reinvestment Rate" means 0.25% plus the arithmetic mean of the yields under
the heading "Week Ending" published in the most recent Statistical Release under
the caption "Treasury Constant Maturities" for the maturity (rounded to the
nearest month) corresponding to the remaining life to maturity, as of the
redemption date, of the principal being redeemed. If no maturity exactly
corresponds to such maturity, yields for the two published maturities most
closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding each of such
relevant periods to the nearest month. For the purpose of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15 (519)"
or any successor publication which is published weekly by the Board of Governors
of the Federal Reserve System and which establishes yields on actively traded
United States government securities adjusted to constant
S-37
<PAGE>
maturities or, if such statistical release is not published at the time of any
determination under the indenture, then such other reasonably comparable index
designated by the Operating Partnership.
BOOK-ENTRY SYSTEM
The notes of each series will be issued in the form of one or more
fully-registered global notes in book-entry form, which will be deposited with,
or on behalf of, The Depository Trust Company and registered in the name of
DTC's nominee, Cede & Co. Except as set forth below, the global notes may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC
to DTC or another nominee of DTC or by DTC or any such nominee to a successor of
DTC or a nominee of such successor.
So long as DTC or its nominee is the registered owner of a global note, DTC
or its nominee, as the case may be, will be considered the sole Holder of the
notes represented by such global note for all purposes under the indenture and
the beneficial owners of such notes will be entitled only to those rights and
benefits afforded to them in accordance with DTC's regular operating procedures.
Upon specified written instructions of a Participant in DTC, DTC will have its
nominee assist Participants in the exercise of certain Holders' rights, such as
demand for acceleration of maturity or an instruction to the Trustee. Except as
provided below, owners of beneficial interests in a global note will not be
entitled to have notes registered in their names, will not receive or be
entitled to receive physical delivery of notes in certificated form and will not
be considered the registered owners or Holders thereof under the indenture.
If with respect to a particular series of notes (i) DTC is at any time
unwilling or unable to continue as depository or if at any time DTC ceases to be
a clearing agency registered under the Securities Exchange Act of 1934, and a
successor depository is not appointed by the Operating Partnership within 90
days, (ii) an event of default under the indenture relating to such notes has
occurred and is continuing or (iii) the Operating Partnership, in its sole
discretion, determines at any time that such notes shall no longer be
represented by a global note, the Operating Partnership will issue individual
notes in certificated form of the same series and like tenor and in the
applicable principal amount in exchange for the notes represented by the global
note. In any such instance, an owner of a beneficial interest in a global note
will be entitled to physical delivery of individual notes in certificated form
of the same series and like tenor, equal in principal amount to such beneficial
interest and to have such notes in certificated form registered in its name.
Notes so issued in certificated form will be issued in denominations of $1,000
or any integral multiple thereof and will be issued in registered form only,
without coupons.
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, bank, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its Direct Participants,
including the Underwriters, and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly. The rules applicable to DTC and its Participants are on file with
the Securities and Exchange Commission.
Purchases of notes under the DTC system must be made by or through Direct
Participants, which will receive a credit for the notes on DTC's records. The
ownership interest of each actual purchaser of
S-38
<PAGE>
each note is in turn recorded on the Direct and Indirect Participant's records.
Beneficial owners will not receive written confirmation from DTC of their
purchase, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct or Indirect Participant through which such beneficial
owner entered into the transaction. Transfers of ownership interests in notes
are accomplished by entries made on the books of Participants acting on behalf
of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interests in the notes, except as provided in the
third paragraph under "-Book-Entry System" above. The laws of some states
require that certain persons take physical delivery in definitive form of
securities which they own. Such limits and such laws may impair the ability of
such persons to own, transfer or pledge beneficial interests in a global note.
To facilitate subsequent transfers, each global note is registered in the
name of DTC's partnership nominee, Cede & Co. The deposit of each global note
with DTC and its registration in the name of Cede & Co. effects no change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the notes; DTC's records reflect only the identity of the Direct Participants to
whose accounts the notes are credited, which may or may not be the beneficial
owners. The Participants remain responsible for keeping account of their
holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants and by Direct and Indirect
Participants to beneficial owners are governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices shall be sent to DTC. If less than all of the notes of a
particular series are being redeemed, DTC's practice is to determine by lot the
amount of the notes of each Direct Participant in such series to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the notes.
Under its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
notes are credited on the record date (identified on a list attached to the
omnibus proxy).
Principal, premium, if any, and interest payments in respect of the notes
will be made by the Operating Partnership to the Trustee and from the Trustee to
DTC. DTC's practice is to credit Direct Participants' accounts on the payable
date in accordance with their respective holdings as shown on DTC's records
unless DTC has reason to believe that it will not receive payment on the payable
date. Payments by Participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Trustee or
the Operating Partnership, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal, premium, if any,
and interest to DTC is the responsibility of the Operating Partnership or the
Trustee, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the beneficial
owners is the responsibility of Direct and Indirect Participants.
Management of the Depositary is aware that some computer applications,
systems and the like for processing data ("Systems") that are dependent upon
calendar dates, including dates before, on and after January 1, 2000, may
encounter "Year 2000 problems." DTC has informed Direct and Indirect
Participants and other members of the financial community (the "Industry") that
it has developed and is implementing a program so that its Systems, as the same
relate to the timely payment of distributions (including principal and interest
payments) to securityholders, book-entry deliveries and settlement of trades
within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
S-39
<PAGE>
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's Direct and Indirect Participants, third-party vendors from whom
DTC licenses software and hardware, and third-party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third-party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty or contract
modification of any kind.
DTC may discontinue providing its services as securities depository with
respect to the notes at any time by giving reasonable notice to the Operating
Partnership or the Trustee. Under such circumstances, in the event that a
successor securities depository is not appointed, note certificates are required
to be printed and delivered.
The Operating Partnership may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depository). In that
event, note certificates will be printed and delivered.
None of the Operating Partnership, the underwriters or the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a global note, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Operating Partnership believes to be
reliable, but the Operating Partnership takes no responsibility for the accuracy
thereof.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the notes will be made in immediately available funds. The
Operating Partnership will make all payments of principal, premium, if any, and
interest in respect of the notes in immediately available funds while the notes
are held in book-entry only form.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes,
but does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based on laws, regulations,
rulings and decisions now in effect (or, in the case of certain United States
Treasury Regulations ("Treasury Regulations"), now in proposed form), all of
which are subject to change, possibly on a retroactive basis. This summary deals
only with Notes held as "capital assets" (within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code")) by initial
purchasers (unless otherwise specified) and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as banks,
tax-exempt organizations, insurance companies, dealers in securities or
currencies, persons subject to the mark-to-market rules of the Code, persons
that will hold Notes as a position in a hedging transaction, "straddle" or
"conversion transaction" for tax purposes, or persons that have a "functional
currency" other than the United States dollar.
This prospectus supplement does not address the taxation of Reckson or the
Operating Partnership, nor does it address the impact on Reckson or the
Operating Partnership of Reckson's election to
S-40
<PAGE>
be taxed as a REIT. Such matters are addressed in the accompanying prospectus
under "Federal Income Tax Considerations--Taxation of the Company."
The Operating Partnership has not sought any ruling from the Internal
Revenue Service ("IRS") with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the IRS
will agree with such statements and conclusions. INVESTORS CONSIDERING THE
PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
U.S. HOLDERS OF THE NOTES
As used herein, the term "U.S. Holder" means any beneficial owner of a Note
that is, for United States federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States, any state thereof or the
District of Columbia (unless, in the case of a partnership, Treasury regulations
provide otherwise), (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, or (iv) a trust if (A)
a court within the United States is able to exercise primary supervision over
the administration of the trust and (B) one or more United States persons have
the authority to control all substantial decisions of the trust. As used herein,
the term "Non-U.S. Holder" means a beneficial owner of a Note that is not a U.S.
Holder.
PAYMENT OF INTEREST. The Notes currently are not expected to be issued with
original issue discount ("OID") for federal income tax purposes. Interest on a
Note without OID generally will be included in the income of a U.S. Holder as
ordinary income at the time such interest is received or accrued, in accordance
with the U.S. Holder's regular method of tax accounting.
MARKET DISCOUNT. If a U.S. Holder purchases a Note at original issue for an
amount that is less than its issue price (or, in the case of a subsequent
purchaser, its stated redemption price at maturity), such U.S. Holder will be
treated as having purchased such Note at a "market discount," unless such market
discount is less than a DE MINIMIS amount (generally 1/4 of 1 percent of the
stated redemption price of the Note at maturity times the number of complete
years to maturity after the U.S. Holder acquires the Note).
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment on a Note, or any gain realized on the sale, exchange,
retirement or other disposition of a Note, as ordinary income to the extent of
the lesser of (i) the amount of such payment or realized gain or (ii) the market
discount which has not previously been included in income and is treated as
having accrued on such Note at the time of such payment or disposition. Market
discount will be considered to accrue ratably during the period from the date of
acquisition to the maturity date of the Note, unless the U.S. Holder elects to
accrue market discount on a constant yield basis. Once made, such an election
may be revoked only with the consent of the IRS.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to the
extent that the interest expense exceeds the portion of market discount
allocable to the days during the taxable year in which the Note was held by the
taxpayer. A U.S. Holder may elect to include market discount in income currently
as it accrues (on either a ratable or constant yield basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary
S-41
<PAGE>
interest for federal income tax purposes. Such an election will apply to all
debt instruments with market discount acquired by the U.S. Holder on or after
the first day of the taxable year to which such election applies and may be
revoked only with the consent of the IRS.
AMORTIZABLE BOND PREMIUM. If a U.S. Holder purchases a debt instrument for
an amount that is greater than the sum of all amounts payable on the debt
instrument after the purchase date, other than payments of qualified stated
interest, such U.S. Holder will be considered to have purchased the debt
instrument with "amortizable bond premium," generally equal in amount to such
excess. However, in the case of a debt instrument that may be optionally
redeemed prior to maturity (such as the Notes), recently issued Treasury
Regulations (the "Bond Premium Regulations") provide that the amount of
amortizable bond premium is determined by substituting the first date on which
the debt instrument may be redeemed (the "redemption date") for the maturity
date and the applicable redemption price on the redemption date for the amount
payable at maturity, if the result would increase the holder's yield to maturity
(I.E., result in a smaller amount of amortizable bond premium properly allocable
to the period before the redemption date). If the issuer does not in fact
exercise its right to redeem the debt instrument on the applicable redemption
date, the debt instrument will be treated (solely for purposes of the
amortizable bond premium rules) as having matured and then as having been
reissued for the holder's "adjusted acquisition price," which is an amount equal
to the holder's basis in the debt instrument (as determined under the Bond
Premium Regulations), less the sum of (i) any amortizable bond premium allocable
to prior accrual periods and (ii) any payments previously made on the debt
instrument (other than payments of qualified stated interest). The debt
instrument deemed to have been reissued will again be subject to the amortizable
bond premium rules with respect to the remaining dates on which the debt
instrument is redeemable.
A U.S. Holder may elect to amortize bond premium on a debt instrument. Once
made, the election applies to all taxable debt instruments then owned and
thereafter acquired by the U.S. Holder on or after the first day of the taxable
year to which such election applies, and may be revoked only with the consent of
the IRS. In general, a holder amortizes bond premium by offsetting the qualified
stated interest allocable to an accrual period with the bond premium allocable
to the accrual period, which is determined under a constant yield method
pursuant to the Bond Premium Regulations. If the bond premium allocable to an
accrual period exceeds the qualified stated interest allocable to such period,
the excess is treated by the holder as a bond premium deduction. The bond
premium deduction for each accrual period is limited to the amount by which the
holder's total interest inclusions on the debt instrument in prior accrual
periods exceed the total amount treated by such holder as a bond premium
deduction on the debt instrument in prior accrual periods. Any amounts not
deductible in an accrual period may be carried forward to the next accrual
period and treated as bond premium allocable to that period.
DISPOSITION OF THE NOTES. Upon the sale, exchange, redemption, retirement
or other disposition of a Note, a U.S. Holder generally will recognize capital
gain or loss equal to the difference between (i) the amount of cash proceeds and
the fair market value of any property received on the disposition (except to the
extent such amount is attributable to accrued but unpaid stated interest, which
is taxable as ordinary income) and (ii) such U.S. Holder's adjusted tax basis in
the Note. For purposes of determining gain or loss, a U.S. Holder's adjusted tax
basis in a Note generally will equal the cost of the Note to such Holder
increased by accrued market discount, if any, if the U.S. Holder has included
such market discount in income and decreased by the amount of any payments,
other than qualified stated interest payments, received, and amortizable bond
premium taken, with respect to such Note. Capital gain or loss recognized upon
the disposition of a Note will be a long-term capital gain or loss if the Note
was held for more than one year.
NON-U.S. HOLDERS OF THE NOTES
The rules governing the United States federal income taxation of a Non-U.S.
Holder are complex and no attempt will be made herein to provide more than a
summary of such rules. NON-U.S. HOLDERS
S-42
<PAGE>
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS, AS WELL AS TAX TREATIES, WITH REGARD TO AN
INVESTMENT IN THE NOTES.
PAYMENT OF INTEREST. Generally, payments of principal and interest on a
Note to a Non-U.S. Holder will qualify for the "portfolio interest exemption"
and, therefore, will not be subject to United States federal income tax or
withholding, unless the Non-U.S. Holder is (i) a direct or indirect 10% or
greater partner (as defined in Section 871 (h)(3) of the Code) in the Operating
Partnership, (ii) a controlled foreign corporation related to the Operating
Partnership, or (iii) a bank receiving interest described in Section 881
(c)(3)(A) of the Code. To qualify for the portfolio interest exemption, the last
United States payor in the chain of payment prior to payment to a Non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is a non-U.S.
Holder, and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. In such case, the signed statement must be accompanied by
a copy of the IRS Form W-8 or the substitute form provided by the beneficial
owner to the organization or institution.
Except to the extent that an applicable treaty otherwise provides, a
Non-U.S. Holder generally will be taxed in the same manner as a U.S. Holder with
respect to interest if the interest income is effectively connected with a
United States trade or business of the Non-U.S. Holder. Under certain
circumstances, effectively connected interest received by a corporate Non-U.S.
Holder may be subject to an additional "branch profits tax" at a 30% rate (or,
if applicable, a lower tax rate specified by a treaty). Even though such
effectively connected interest is subject to income tax, and may be subject to
the branch profits tax, it is not subject to withholding if the Holder delivers
a properly executed IRS Form 4224 to the Withholding Agent.
Interest income of a Non-U.S. Holder that is not effectively connected with
a United States trade or business and that does not qualify for the portfolio
interest exemption described above generally will be subject to a withholding
tax at a 30% rate (or, if applicable, a lower tax rate specified by a treaty).
DISPOSITION OF THE NOTES. A Non-U.S. Holder of a Note generally will not be
subject to United States federal income tax or withholding on any gain realized
on the sale, exchange, redemption, retirement or other disposition of a Note
unless (i) the gain is effectively connected with a United States trade or
business of the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an
individual, such Non-U.S. Holder is present in the United States for a period or
periods aggregating 183 days or more during the taxable year of the disposition,
and either such Holder has a "tax home" in the United States or the disposition
is attributable to an office or other fixed place of business maintained by such
Holder in the United States, or (iii) the Holder is subject to tax pursuant to
the provisions of the Code applicable to certain United States expatriates.
CERTAIN UNITED STATES FEDERAL ESTATE TAX CONSIDERATIONS APPLICABLE TO A
NON-U.S. HOLDER. A Note beneficially owned by an individual who is not a
citizen or resident of the United States at the time of death will not be
included in the decedent's gross estate for United States federal estate tax
purposes, unless the individual is a direct or indirect 10% or greater partner
of the Operating Partnership, or, at the time of death, payments with respect to
such Note would have been effectively connected with the conduct by such
Non-U.S. Holder of a trade or business within the United States.
S-43
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements and back-up witholding at a
31% rate will apply to payments on a Note (including stated interest payments
and payments of the proceeds from the sale, exchange, redemption, retirement or
other disposition of a Note), unless the holder of the Note (i) is a corporation
or comes within certain exempt categories and, when required, demonstrates that
fact or (ii) provides a correct taxpayer identification number, certifies as to
its exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. Certain penalties may be imposed
by the IRS on a holder that is required to supply information but does not do so
in the proper manner.
Information reporting requirements and backup withholding will not apply to
payments on a Note to a Non-U.S. Holder if the statement described in "Non-U.S.
Holders--Payment of Interest" is duly provided by such Holder, provided that the
Withholding Agent does not have actual knowledge that the Holder is a United
States person. Information reporting requirements and backup withholding will
not apply to any payment of the proceeds of the sale of a Note effected outside
the United States by a foreign office of a "broker" (as defined in applicable
Treasury Regulations), unless such broker (i) is a United States person, (ii)
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States or (iii) is a controlled foreign
corporation as to the United States. Payment of the proceeds of any such sale
effected outside the United States by a foreign office of any broker that is
described in (i), (ii) or (iii) of the preceding sentence will not be subject to
backup withholding, but will be subject to the information reporting
requirements unless such broker has documentary evidence in its records that the
beneficial owner is a Non-U.S. Holder and certain other conditions are met, or
the beneficial owner otherwise establishes an exemption. Payment of the proceeds
of any such sale to or through the United States office of a broker is subject
to information reporting and backup withholding requirements, unless the
beneficial owner of the Note provides the statement described in "Non-U.S.
Holders--Payment of Interest" or otherwise establishes an exemption.
Any amount withheld from a payment to a holder of a Note under the backup
withholding rules is allowable as a credit against such holder's United States
federal income tax liability (which might entitle such holder to a refund),
provided that such holder furnishes the required information to the IRS.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
S-44
<PAGE>
UNDERWRITING
We and the underwriters for this offering (the "Underwriters") named below
have entered into an underwriting agreement and a terms agreement with respect
to two series of notes. Subject to certain conditions, each underwriter has
severally agreed to purchase the principal amount of notes of each series
indicated in the following table:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITERS OF % NOTES OF % NOTES
- -------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Goldman, Sachs & Co. ................................... $ $
Chase Securities Inc. ..................................
Donaldson, Lufkin & Jenrette Securities Corporation.....
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
Salomon Smith Barney Inc. ..............................
Warburg Dillon Read LLC.................................
----------------- -----------------
Total......................................... $ 100,000,000 $ 200,000,000
----------------- -----------------
----------------- -----------------
</TABLE>
Notes sold by the underwriters to the public will initially be offered at
the initial public offering prices set forth on the cover of this prospectus
supplement. Any notes sold by the underwriters to securities dealers may be sold
at a discount from the initial public offering prices of up to % and % of
the principal amount of the % notes and the % notes, respectively. Any
such securities dealers may resell any notes purchased from the underwriters to
certain other brokers or dealers at a discount from the initial public offering
prices of up to % and % of the principal amount of the % notes and the
% notes, respectively. If all the % notes and the % notes are not sold
at the public offering prices, the underwriters may change the offering price
and the other selling terms.
The notes are new issues of securities with no established trading market.
We have been advised by the underwriters that the underwriters intend to make a
market in the notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of or any trading market for the % notes or the % notes.
In connection with this offering, the underwriters may purchase and sell
notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater aggregate
principal amount of notes than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the %
notes or the % notes, while the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the underwriters have repurchased notes sold by
or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the notes. As a result, the price of the notes may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
We estimate that our share of the total expenses of this offering, excluding
underwriting discounts, will be approximately $500,000.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, the underwriters and
their affiliates have engaged, and may in the future engage, in investment
banking or general financing and banking
S-45
<PAGE>
transactions with us or our affiliates. Affiliates of Chase Securities Inc., and
Warburg Dillon Read LLC are lead and/or administrative agents and lenders under
our revolving credit facility and will receive a portion of the proceeds of this
offering in repayment of amounts outstanding under our revolving credit
facility. Because more than 10% of the net proceeds of this offering will be
used to repay amounts outstanding under our revolving credit facility, this
offering will be made pursuant to the requirements of Rule 2710(c)(8) of the
Conduct Rules of the National Association of Securities Dealers, Inc.
LEGAL MATTERS
The legality of the notes offered hereby and certain federal tax matters
will be passed upon for the Operating Partnership by Brown & Wood LLP, New York,
New York. In addition, certain legal matters will be passed upon for the
underwriters by Rogers & Wells LLP, New York, New York.
S-46
<PAGE>
PROSPECTUS
$744,739,654
RECKSON ASSOCIATES REALTY CORP.
COMMON STOCK, COMMON STOCK WARRANTS,
PREFERRED STOCK, DEPOSITARY SHARES AND PREFERRED STOCK WARRANTS
$500,000,000
RECKSON OPERATING PARTNERSHIP, L.P.
DEBT SECURITIES
---------------------
Reckson Associates Realty Corp. may offer up to $744,739,654 of shares of
its common stock, shares of its preferred stock, depositary shares representing
interests in its preferred stock, and warrants to purchase shares of its common
stock or preferred stock. Reckson Associates' common stock is listed on the New
York Stock Exchange under the symbol "RA."
Reckson Operating Partnership, L.P. may offer up to $500,000,000 of its debt
securities in one or more series. If any of the Operating Partnership's debt
securities are not rated investment grade by at least one nationally recognized
statistical rating organization at the time of issuance, these non-investment
grade debt securities will be fully and unconditionally guaranteed by Reckson
Associates as to payment of principal, premium, if any, and interest.
We may offer the securities at prices and on terms to be set forth in one or
more supplements to this prospectus. The securities may be offered directly,
through agents on our behalf or through underwriters or dealers.
The terms of the securities may include limitations on ownership and
restrictions on transfer thereof as may be appropriate to preserve the status of
Reckson Associates as a real estate investment trust for United States federal
income tax purposes.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS FOR A DESCRIPTION
OF RISKS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is March 16, 1999.
<PAGE>
RISK FACTORS
This prospectus contains forward-looking statements which involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause a
difference include, but are not limited to, those discussed below. An investment
in the securities involves various risks. Prospective investors should carefully
consider the following information in conjunction with the other information
contained in this prospectus and the related prospectus supplement before
purchasing the securities offered by the related prospectus supplement.
- - WE ARE DEPENDENT ON THE NEW YORK TRI-STATE AREA MARKET DUE TO LIMITED
GEOGRAPHIC DIVERSIFICATION AND OUR FINANCIAL RESULTS MAY SUFFER AS A RESULT OF
A DECLINE IN ECONOMIC CONDITIONS IN SUCH AREA
A decline in the economic conditions in the New York Tri-State area and for
commercial real estate could adversely affect our business, financial condition
and results of operations. All of the properties owned by the Operating
Partnership are located in the New York Tri-State area, although our
organizational documents do not restrict us from owning properties outside of
this area. Each of our four markets are located in the suburbs of New York City
and may be similarly affected by economic changes in this area. A significant
downturn in the financial services industry and related industries would likely
have a negative effect on these markets and on the performance of our
properties.
The following is a breakdown of our office and industrial properties for
each of our four markets at December 31, 1998:
<TABLE>
<CAPTION>
ANNUAL
NUMBER OF SQUARE BASE
PROPERTIES FOOTAGE RENT(1)
--------------- ---------- -------------
<S> <C> <C> <C>
Long Island
- Office............................................ 23 3,671,413 $ 71,152,658
- Industrial........................................ 94 5,638,435 29,268,258
Westchester
- Office............................................ 25 3,298,623 56,521,355
- Industrial........................................ 4 256,948 2,130,019
New Jersey
- Office............................................ 17 1,993,999 34,946,506
- Industrial........................................ 30 4,497,662 18,391,236
Connecticut
- Office............................................ 8 1,123,188 22,020,613
- Industrial........................................ 1 452,414 2,900,684
</TABLE>
- ------------------------
(1) Represents base rents from leases in place as of December 31, 1998, for the
period January 1, 1999 through December 31, 1999 excluding the reimbursement
by tenants of electrical costs.
- - DEBT SERVICING AND REFINANCING, INCREASES IN INTEREST RATES AND FINANCIAL
COVENANTS COULD ADVERSELY AFFECT OUR ECONOMIC PERFORMANCE
DEPENDENCE UPON DEBT FINANCING; RISK OF INABILITY TO SERVICE OR REFINANCE
DEBT. In order to qualify as a real estate investment trust, or REIT, for
federal income tax purposes, Reckson Associates is required to distribute at
least 95% of its taxable income. As a result, we are more reliant on debt or
equity financings than many other companies that are not REITs and, therefore,
are able to retain more of their income.
2
<PAGE>
We are subject to the risks associated with debt financing. Our cash flow
could be insufficient to meet required payments of principal and interest. We
may not be able to refinance existing indebtedness, which in virtually all cases
requires substantial principal payments at maturity, or the terms of such
refinancing might not be as favorable as the terms of the existing indebtedness.
As of December 31, 1998, the weighted average maturity of our existing
indebtedness was 4.4 years and our total existing indebtedness was approximately
$867 million. We also may not be able to refinance any indebtedness we incur in
the future. Finally, we may not be able to obtain funds by selling assets or
raising equity to make required payments on maturing indebtedness.
RISING INTEREST RATES COULD ADVERSELY AFFECT CASH FLOW. Increases in
interest rates could increase the Operating Partnership's interest expense,
which could adversely affect the ability to service its indebtedness or to pay
distributions to Reckson Associates' stockholders. As noted above, as of
December 31, 1998, approximately 56% of our debt was variable rate debt and our
total debt was approximately $867 million. Outstanding advances under the credit
facilities of the Operating Partnership bear interest at variable rates. In
addition, we may incur indebtedness in the future that also bears interest at a
variable rate.
REQUIREMENTS OF CREDIT FACILITIES COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND OUR ABILITY TO MAKE DISTRIBUTIONS. The ability of the Operating
Partnership to borrow under our credit facilities is subject to certain
financial covenants, including covenants relating to limitations on unsecured
and secured borrowings, minimum interest and fixed charge coverage ratios, a
minimum equity value and a maximum dividend payout ratio. The Operating
Partnership relies on borrowings under its credit facilities to finance
acquisition and development activities and for working capital purposes and, if
the Operating Partnership is unable to borrow under its credit facilities, it
could adversely affect our financial condition. The Operating Partnership has
obtained a three-year unsecured credit facility from The Chase Manhattan Bank,
Union Bank of Switzerland and PNC Bank, National Association, which provides for
a maximum borrowing amount of up to $500 million. The Operating Partnership has
also obtained a separate $75 million one-year unsecured credit facility from
Chase. The credit facilities also contain a financial covenant limiting the
amount of distributions that Reckson Associates may make to holders of its
common stock during any fiscal quarter if they exceed, when added to all
distributions made during the three immediately preceding quarters, the greater
of:
- 90% of its funds from operations or 100% of its funds available for
distribution; and
- the amounts required in order for Reckson Associates to continue to
qualify as a REIT.
Although the Operating Partnership presently is in compliance with the
covenants under its credit facilities, there is no assurance that the Operating
Partnership will continue to be in compliance or that it will be able to service
its indebtedness or pay distributions to Reckson Associates so that Reckson
Associates may make distributions to its stockholders.
NO LIMITATION ON DEBT. Currently, we have a policy of incurring debt only
if our Debt Ratio is then 50% or less. As of December 31, 1998, our Debt Ratio
was 39.4%. For these purposes, Debt Ratio is defined as the total debt of the
Operating Partnership as a percentage of the market value of outstanding shares
of common stock and preferred stock of Reckson Associates, including the
conversion of outstanding partnership units in the Operating Partnership, plus
total debt. Under this policy, we could incur additional debt if our stock price
increases, even if we may not have a corresponding increase in our ability to
repay the debt. In addition, as of December 31, 1998, our debt-to-equity ratio
was 1:1.54. We calculated our debt-to-equity ratio by comparing the total debt
of the Operating Partnership to the value of the outstanding common stock of
Reckson Associates and the common units of limited partnership interest of the
Operating Partnership, each based upon the market value of the common stock, and
the liquidation preference of the preferred stock of Reckson Associates and the
preferred units of limited partnership interest in the Operating Partnership,
excluding all units of general partnership interest owned by Reckson Associates.
As described above,
3
<PAGE>
our credit facilities contain financial covenants which limit the ability of the
Operating Partnership to incur additional indebtedness. However, our
organizational documents do not contain any limitation on the amount of
indebtedness we may incur. Accordingly, the Board of Directors could alter or
eliminate this policy and would do so, for example, if it were necessary in
order for Reckson Associates to continue to qualify as a REIT. If this policy
were changed, we could become more highly leveraged, resulting in higher
interest payments that could adversely affect the ability to pay distributions
to Reckson Associates' stockholders and could increase the risk of default on
the Operating Partnership's existing indebtedness.
- - OUR ACQUISITION, DEVELOPMENT AND CONSTRUCTION ACTIVITIES COULD RESULT IN
LOSSES
We intend to acquire existing office and industrial properties to the extent
that the suitable acquisitions can be on made advantageous terms. Acquisitions
of commercial properties entail risks, such as the risks that we may not be in a
position or have the opportunity in the future to make suitable property
acquisitions on advantageous terms and that our investments will fail to perform
as expected. Some of the properties that we acquire require significant
additional investment and upgrades and are subject to the risk that estimates of
the cost of improvements to bring such properties up to standards established
for the intended market position may prove inaccurate. Since the IPO of Reckson
Associates in June 1995, we have acquired 63 office properties with aggregate
square footage of approximately 8.5 million and 44 industrial properties with
aggregate square footage of approximately 4.3 million (excluding our investment
in the Morris Companies).
We also intend to continue the selective development and construction of
office and industrial properties in accordance with our development and
underwriting policies as opportunities arise. Since the IPO of Reckson
Associates, we have developed or re-developed eight properties comprising
approximately 930,000 square feet. Our development and construction activities
include the risks that:
- we may abandon development opportunities after expending resources to
determine feasibility
- construction costs of a project may exceed our original estimates
- occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable
- financing may not be available to us on favorable terms for development of
a property
- we may not complete construction and lease-up on schedule, resulting in
increased carrying costs to complete construction, construction costs and,
in some instances, penalties owed to tenants with executed leases
Our development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
If any of the above events occur, the ability to pay distributions to Reckson
Associates' stockholders and service the Operating Partnership's indebtedness
could be adversely affected. In addition, new development activities, regardless
of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention.
- - ADVERSE REAL ESTATE MARKET CONDITIONS, INCREASES IN OPERATING EXPENSES OR
CAPITAL EXPENDITURES, TENANT DEFAULTS AND UNINSURED LOSSES COULD ADVERSELY
AFFECT OUR FINANCIAL RESULTS
Our properties' revenues and value may be adversely affected by a number of
factors, including:
- the national, state and local economic climate and real estate conditions,
such as oversupply of or reduced demand for space and changes in market
rental rates
4
<PAGE>
- the need to periodically renovate, repair and relet our space
- increasing operating costs, including real estate taxes and utilities,
which may not be passed through to tenants
- defaults by our tenants or their failure to pay rent on a timely basis
- uninsured losses
A significant portion of our expenses of real estate investments, such as
mortgage payments, real estate taxes, insurance and maintenance costs, are
generally not reduced when circumstances cause a decrease in income from our
properties. In addition, our real estate values and income from properties are
also affected by our compliance with laws, including tax laws, interest rate
levels and the availability of financing.
BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO SELL
PROPERTIES WHEN APPROPRIATE. Real estate investments generally cannot be sold
quickly. We may not be able to vary our portfolio promptly in response to
economic or other conditions. In addition, provisions of the Internal Revenue
Code limit a REIT's ability to sell properties in some situations when it may be
economically advantageous to do so, thereby adversely affecting returns to
Reckson Associates' stockholders.
COMPETITION IN OUR MARKETS IS SIGNIFICANT. The competition for tenants in
the office and industrial markets in the New York Tri-State area is significant
and includes properties owned by other REITs, local privately-held companies,
institutional investors and other owners. There is also significant competition
for acquisitions in our markets from the same types of competitors. In addition,
many users of industrial space in our markets own the buildings that they
occupy.
INCREASING OPERATING COSTS COULD ADVERSELY AFFECT CASH FLOW. Our properties
are subject to operating risks common to commercial real estate, any and all of
which may adversely affect occupancy or rental rates. Our properties are subject
to increases in our operating expenses such as cleaning, electricity, heating,
ventilation and air conditioning; elevator repair and maintenance; insurance and
administrative costs; and other costs associated with security, landscaping,
repairs and maintenance of our properties. While our tenants generally are
currently obligated to pay a portion of these costs, there is no assurance that
tenants will agree to pay these costs upon renewal or that new tenants will
agree to pay these costs initially. If operating expenses increase, the local
rental market may limit the extent to which rents may be increased to meet
increased expenses without at the same time decreasing occupancy rates. While we
have cost saving measures at each of our properties, if any of the above occurs,
our ability to pay distributions to our stockholders and service our
indebtedness could be adversely affected.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE. We carry comprehensive
liability, fire, extended coverage and rental loss insurance on all of our
properties. However, losses arising from acts of war or relating to pollution
are not generally insured because they are either uninsurable or not
economically insurable. If an uninsured loss or a loss in excess of insured
limits should occur, we could lose our capital invested in a property, as well
as any future revenue from the property. We would remain obligated on any
mortgage indebtedness or other obligations related to the property.
INVESTMENTS IN MORTGAGE DEBT COULD LEAD TO LOSSES. We may invest in
mortgages secured by office or industrial properties. We may acquire the
mortgaged properties through foreclosure proceedings or negotiated settlements.
In addition to the risks associated with investments in commercial properties,
investments in mortgage indebtedness present additional risks, including the
risk that the fee owners of such properties may not make payments of interest on
a current basis and we may not realize our anticipated return or sustain losses
relating to the investments. Although we currently have no intention to
originate mortgage loans as a significant part of our business, we may make
loans to a seller in
5
<PAGE>
connection with our purchase of real estate. The underwriting criteria we would
use for these loans would be based upon the credit and value of the underlying
real estate.
- - PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT VENTURES COULD LIMIT OUR
CONTROL OF THOSE INVESTMENTS
Partnership or joint venture investments may involve risks not otherwise
present for investments made solely by us, including the possibility that our
partners or co-venturer might become bankrupt, that our partners or co-venturer
might at any time have different interests or goals than we do, and that our
partners or co-venturer may take action contrary to our instructions, requests,
policies or objectives, including our policy with respect to maintaining the
qualification of Reckson Associates as a REIT. Other risks of joint venture
investments include impasse on decisions, such as a sale, because neither our
partner or co-venturer nor us would have full control over the partnership or
joint venture. There is no limitation under our organizational documents as to
the amount of funds that may be invested in partnerships or joint ventures.
The following is a description of the significant joint ventures in which we
are involved:
OUR INVESTMENT IN THE OMNI, OUR SINGLE LARGEST PROPERTY, INCLUDES THE RISKS
THAT WE CANNOT REFINANCE OR DISPOSE OF THE PROPERTY IN OUR SOLE DISCRETION AND
WE COULD HAVE OUR GENERAL PARTNERSHIP INTEREST CONVERTED INTO A LIMITED
PARTNERSHIP INTEREST. The Operating Partnership owns a 60% general partner
interest in Omni Partners, L.P. (the "Omni Partnership"), the partnership that
owns the Omni, a 575,000 square foot office building located in our Nassau West
Corporate Center office park. Odyssey Partners, L.P. and an affiliate of Odyssey
own the remaining 40% interest. Through our partnership interest, we act as
managing partner and have the sole authority to conduct the business and affairs
of the Omni Partnership subject to the limitations set forth in the amended and
restated agreement of limited partnership of Omni Partners, L.P. (the "Omni
Partnership Agreement"). These limitations include Odyssey's right to negotiate
under certain circumstances a refinancing of the mortgage debt encumbering the
Omni and the right to approve any sale of the Omni made on or before March 13,
2007 (the "Acquisition Date"). The Operating Partnership will continue to act as
the sole managing partner of the Omni Partnership unless certain conditions
specified in the Omni Partnership Agreement shall occur. Upon the occurrence of
any of these conditions the Operating Partnership's general partnership interest
shall convert to a limited partnership interest and an affiliate of Odyssey
shall be the sole managing partner, or at the option of Odyssey, the Operating
Partnership shall be a co-managing partner with an affiliate of Odyssey. In
addition, on the Acquisition Date, the Operating Partnership will have the right
to purchase Odyssey's interest in the Omni Partnership at a price (the "Option
Price") based on 90% of its fair market value. If the Operating Partnership
fails to exercise this option, Odyssey has the right to require the Operating
Partnership to purchase Odyssey's interest in the Omni Partnership on the
Acquisition Date at the Option Price. The Operating Partnership has the right to
extend the Acquisition Date until March 13, 2012. The Option Price shall apply
to the payment of all sums due under a loan made by the Operating Partnership in
March 1997 to Odyssey in the amount of approximately $17 million. The Odyssey
loan matures on the Acquisition Date, subject to the Operating Partnership's
right to extend the Acquisition Date as set forth above, and is secured by a
pledge of Odyssey's interest in the Omni Partnership.
OUR JOINT VENTURE IN AN OFFICE BUILDING IN TARRYTOWN, NEW YORK INCLUDES THE
RISKS THAT WE CANNOT ENTER INTO LARGE LEASES OR REFINANCE OR DISPOSE OF THE
BUILDING IN OUR DISCRETION. The Operating Partnership owns a 60% managing member
interest in a limited liability company that owns 520 White Plains Road, a
171,761 square foot office building located in Tarrytown, New York. The
remaining 40% member interest is held by Tarrytown Corporate Center III, L.P.
("TCC"), a partnership affiliated with the Halpern organization, the
organization from which we acquired eight Class A office properties for
approximately $86 million in February 1996. The member agreement governing the
joint venture
6
<PAGE>
arrangement requires us to obtain the consent of TCC prior to engaging in
activities such as entering into or modifying a lease for more than 25,000
rentable square feet, financing or refinancing indebtedness encumbering the
property and selling or otherwise transferring the property.
ALTHOUGH WE CONTROL RECKSON MORRIS OPERATING PARTNERSHIP OUR JOINT VENTURE
PARTNER HAS APPROVAL RIGHTS OVER A NUMBER OF MATTERS, SUCH AS THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE RECKSON MORRIS PROPERTIES. In October 1997, we entered
into an agreement to invest up to $150 million in the Morris Companies, a New
Jersey developer and owner of "big box" warehouse facilities. The Morris
Companies properties include 23 industrial buildings encompassing approximately
4.0 million square feet. As of December 31, 1998, we had invested approximately
$93.8 million for an approximate 71.8% controlling interest in Reckson Morris
Operating Partnership, L.P. In connection with the transaction, the Morris
Companies contributed 100% of their interest in certain industrial properties to
Reckson Morris Operating Partnership in exchange for operating partnership units
in Reckson Morris Operating Partnership. Although we control Reckson Morris
Operating Partnership, the former owners of the Morris Companies have approval
rights over a number of matters, such as the sale of all or substantially all of
the properties of Reckson Morris Operating Partnership.
OUR INTEREST IN JOINT VENTURES WITH MATRIX IS GENERALLY SUBJECT TO A RIGHT
OF FIRST OFFER OF MATRIX AND MATRIX CAN ALSO PUT ITS INTEREST TO US IF LEASING
CONDITIONS HAVE BEEN SATISFIED. As of December 31, 1998, the Operating
Partnership had invested $15.3 million in joint ventures with Matrix Development
Group for the development of industrial and flex properties located in a New
Jersey submarket. Although the terms of each of the joint ventures vary, Matrix
generally identifies and develops projects for which we provide the capital. We
control the joint ventures and receive a priority return on our invested
capital. We also receive a return of our capital upon any sale or refinancing of
a project, and, generally, three-quarters of the proceeds in excess thereof.
Matrix typically has a right of first offer in the event we seek to dispose of a
project and has the right to put its interest in a project to us once specified
leasing parameters have been satisfied.
OUR PRIVATIZATION OF GOVERNMENT OFFICE BUILDINGS AND CORRECTIONAL FACILITIES
IS DEPENDENT UPON CONTINUED OUTSOURCING BY GOVERNMENTS AND COMPETITIVE BIDDING.
From time to time, the Operating Partnership may make joint venture investments
in real estate assets with Reckson Strategic Venture Partners, LLC. Reckson
Service Industries, Inc., an entity that Reckson Associates spun-off to its
shareholders in 1998, owns 100% of the common ownership interests of Reckson
Strategic Venture Partners and, accordingly, controls Reckson Strategic Venture
Partners. The strategy of Reckson Strategic Venture Partners is to acquire
interests in established entrepreneurial enterprises with experienced management
teams in market sectors which are in the early stages of their growth cycle or
offer circumstances for attractive investments as well as opportunities for
future growth. Joint venture investments with Reckson Strategic Venture Partners
may involve various types of real estate assets and involve different risks than
those in our office and industrial sectors, as to which we have no prior
experience or expertise. No assurance can be given as to the success of these
investments. As of December 31, 1998, the Operating Partnership had made a joint
venture investment with Reckson Strategic Venture Partners of $10.1 million in
the area of privatization of government occupied office buildings and
correctional facilities. In addition to the joint venture risks discussed above,
this investment includes the following specific risks:
- dependence upon the continued outsourcing of real estate functions by
governmental entities;
- the ability to compete effectively in bidding on specific projects; and
- significant government regulation and/or oversight
7
<PAGE>
- - ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND MAY BE COSTLY
Federal, state and local laws and regulations relating to the protection of
the environment may require a current or previous owner or operator of real
estate to investigate and clean up hazardous or toxic substances or petroleum
product releases at a property. An owner of real estate is liable for the costs
of removal or remediation of certain hazardous or toxic substances on or in the
property. These laws often impose such liability without regard to whether the
owner knew of, or caused, the presence of the contaminants. Clean-up costs and
the owner's liability generally are not limited under the enactments and could
exceed the value of the property and/or the aggregate assets of the owner. The
presence of or the failure to properly remediate the substances may adversely
affect the owner's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the clean-up costs of the
substances at a disposal or treatment facility, whether or not such facility is
owned or operated by the person. Even if more than one person was responsible
for the contamination, each person covered by the environmental laws may be held
responsible for the clean-up costs incurred. In addition, third parties may sue
the owner or operator of a site for damages and costs resulting from
environmental contamination emanating from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos-containing materials ("ACMs"). These laws impose liability for release
of ACMs into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with ACMs. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, we may be considered an owner or operator of
properties containing ACMs. Having arranged for the disposal or treatment of
contaminants we may be potentially liable for removal, remediation and other
costs, including governmental fines and injuries to persons and property.
All of our office properties and all of our industrial properties have been
subjected to a Phase I or similar environmental site assessment after April 1,
1994 that were completed by independent environmental consultant companies,
except for the property located at 35 Pinelawn Road which was originally
developed by us and subjected to a Phase I in April 1992. These Phase I or
similar environmental site assessments involved general inspections without soil
sampling, ground water analysis or radon testing and, for our properties
constructed in 1978 or earlier, survey inspections to ascertain the existence of
ACMs. These environmental site assessments have not revealed any environmental
liability that would have a material adverse effect on our business.
- - FAILURE TO QUALIFY AS A REIT WOULD BE COSTLY
Reckson Associates has operated (and intends to operate) so as to qualify as
a REIT under the Internal Revenue Code beginning with our taxable year ended
December 31, 1995. Although our management believes that Reckson Associates is
organized and operated in a manner to so qualify, no assurance can be given that
Reckson Associates will qualify or remain qualified as a REIT.
If Reckson Associates fails to qualify as a REIT in any taxable year,
Reckson Associates will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Moreover, unless entitled to relief under certain statutory provisions,
Reckson Associates also will be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification was lost. This
treatment would significantly reduce net earnings available to service
indebtedness, make investments or pay distributions to shareholders because of
the additional tax liability to Reckson Associates for the years involved. Also,
Reckson Associates would not then be required to pay distributions to its
shareholders.
8
<PAGE>
- - TAX CONSEQUENCES UPON A SALE OR REFINANCING OF PROPERTIES MAY RESULT IN
CONFLICTS OF INTEREST FOR DIRECTORS AND OFFICERS OF RECKSON ASSOCIATES
Holders of units of limited partnership of the Operating Partnership or
co-owners of properties not owned entirely by us may suffer different and more
adverse tax consequences than we will upon the sale or refinancing of our
properties. We may have different objectives from these co-owners and holders of
limited partnership units regarding the appropriate pricing and timing of any
sale or refinancing of these properties. While Reckson Associates, as the sole
general partner of the Operating Partnership, has the exclusive authority as to
whether and on what terms to sell or refinance each property owned solely by the
Operating Partnership, the directors and officers of Reckson Associates who hold
limited partnership units may seek to influence us not to sell or refinance the
properties, even though such a sale might otherwise be financially advantageous
to us, or may seek to influence us to refinance a property with a higher level
of debt.
- WE MAY HAVE CONFLICTS OF INTERESTS WITH RECKSON SERVICE INDUSTRIES
CONFLICTS AS A RESULT OF OVERLAPPING MANAGEMENT. Donald J. Rechler serves
as our Chairman of the Board and our Chief Executive Officer and Chairman of the
Board of Reckson Service Industries. Scott H. Rechler serves as our President
and our Chief Operating Officer and President and Chief Executive Officer of
Reckson Service Industries and is a director of Reckson Associates and Reckson
Service Industries. Michael Maturo serves as Executive Vice President, Treasurer
and Chief Financial Officer of Reckson Associates and Reckson Service Industries
and is a director of Reckson Service Industries. Furthermore, Roger Rechler,
Gregg Rechler and Mitchell Rechler are executive officers of Reckson Associates
and Roger Rechler and Mitchell Rechler are directors of Reckson Associates,
while all three individuals are members of the management advisory committee and
directors of Reckson Service Industries. Although each of the individuals
referred to above is committed to the success of Reckson Associates, they are
also committed to the success of Reckson Service Industries. Our senior
management and directors beneficially owned approximately 12% of the outstanding
common stock of Reckson Associates, with a total market value, based on the New
York Stock Exchange closing price of $22.19 per share on December 31, 1998, of
approximately $132.3 million, and approximately 27% of the outstanding common
stock of Reckson Service Industries, with a total market value, at a stock price
of $4.125 per share on December 31, 1998, of approximately $27.3 million. In
calculating the ownership of common stock of Reckson Associates, we have assumed
the conversion of all limited partnership units in the Operating Partnership
into shares of common stock and the exercise of all vested stock options. There
is a risk that the common membership of management, members of the Boards of
Directors and ownership of Reckson Associates and Reckson Service Industries
will lead to conflicts of interest in the fiduciary duties owed to stockholders
by common directors and officers in connection with transactions between the two
companies, as well as a conflict in allocating management time.
CONFLICTS IN TRANSACTIONS WITH RECKSON SERVICE INDUSTRIES UNDER THE
INTERCOMPANY AGREEMENT. The Operating Partnership and Reckson Service Industries
have entered into an intercompany agreement to formalize their relationship at
the outset and to limit conflicts of interest. The intercompany agreement was
not negotiated at arms' length as it was negotiated while 95% of the common
stock of Reckson Service Industries was owned by the Operating Partnership.
Under the intercompany agreement, Reckson Service Industries granted the
Operating Partnership a right of first opportunity to make any REIT-qualified
investment that becomes available to Reckson Service Industries. In addition, if
a REIT-qualified investment opportunity becomes available to an affiliate of
Reckson Service Industries, including Reckson Strategic Venture Partners, 100%
of the common ownership interest of which is indirectly owned by Reckson Service
Industries, the intercompany agreement requires the Reckson Service Industries'
affiliate to allow the Operating Partnership to participate in the opportunity
to the extent of Reckson Service Industries' interest in the affiliate.
9
<PAGE>
Under the intercompany agreement, the Operating Partnership granted Reckson
Service Industries a right of first opportunity to provide to the Operating
Partnership and its tenants any type of non-customary commercial services for
occupants of office, industrial and other property types, which we may not be
permitted to provide because they may generate REIT non-qualifying income under
Federal tax laws. Reckson Service Industries will provide services to the
Operating Partnership at rates and on terms as attractive as either the best
available for comparable services in the market or those offered by Reckson
Service Industries to third parties. In addition, the Operating Partnership will
give Reckson Service Industries access to its tenants with respect to commercial
services that may be provided to tenants.
Under the intercompany agreement, subject to certain conditions, the
Operating Partnership granted Reckson Service Industries a right of first
refusal to become the lessee of any real property acquired by the Operating
Partnership if the Operating Partnership determines that, because the operation
of the property may involve the performance of non-customary services that under
the Internal Revenue Code a REIT may not generally provide, it is required to
enter into a "master" lease arrangement. Pursuant to a "master" lease
arrangement, the Operating Partnership would own the property, but lease it
entirely to a single lessee that would operate the property.
With respect to services that Reckson Service Industries will provide to the
Operating Partnership, management will have a conflict of interest in
determining the market rates to charge the Operating Partnership for these
services. In addition, management will have a conflict of interest in
determining whether the Operating Partnership or Reckson Service Industries
would pursue a REIT-qualified investment opportunity outside of our core
business strategy of investing in office and industrial properties in the New
York Tri-State area. Furthermore, the Operating Partnership and Reckson Service
Industries may structure investments so that joint ventures between the
Operating Partnership and Reckson Strategic Venture Partners may pursue the
portion of investments generating REIT-qualified income and Reckson Strategic
Venture Partners will pursue directly the other portion of these investments.
Accordingly, Reckson Strategic Venture Partners and Reckson Strategic Venture
Partners-Reckson Operating Partnership joint ventures may have conflicts of
interest in the structuring, valuation, management and disposition of these
investments.
CONFLICTS IN OUR LOANS TO RECKSON SERVICE INDUSTRIES. In June 1998, the
Operating Partnership established a credit facility with Reckson Service
Industries (the "Reckson Service Industries Facility") in the amount of $100
million for Reckson Service Industries' service sector operations and other
general corporate purposes. In addition, in June 1998, the Operating Partnership
also established a credit facility with Reckson Service Industries (the "Reckson
Strategic Venture Partners Facility", and together with the Reckson Service
Industries Facility, the "Reckson Service Industries Credit Facilities") for the
funding of investments of up to $100 million by Reckson Service Industries in
Reckson Strategic Venture Partners. Amounts available under the Reckson
Strategic Venture Partners Facility are reduced by the amount of any joint
investment by the Operating Partnership into a joint venture with Reckson
Strategic Venture Partners. Advances under the Reckson Strategic Venture
Partners Facility in excess of $25 million in respect of any single platform
will be subject to approval by the Board of Directors of Reckson Associates,
while advances under the Reckson Service Industries Facility in excess of $10
million in respect of any single investment in non-customary commercial
services, as well as advances for investments in opportunities in other
services, will be subject to approval by the Board of Directors of Reckson
Associates, or a committee thereof. Each Reckson Service Industries Credit
Facility has a term of five years and advances thereunder are recourse
obligations of Reckson Service Industries. Interest will accrue on advances made
under the Reckson Service Industries Credit Facilities at a rate equal to the
greater of (1) the prime rate plus 2% and (2) 12% per annum, with the rate on
amounts that are outstanding for more than one year increasing annually at a
rate of 4% of the prior year's rate. Prior to maturity, interest will be payable
quarterly but only to the extent of net cash flow and on an interest-only basis
and will be prepayable without penalty at the option of Reckson Service
10
<PAGE>
Industries. As long as there are outstanding advances under any Reckson Service
Industries Credit Facility, Reckson Service Industries will be prohibited from
paying dividends on any shares of its capital stock. The Reckson Service
Industries Credit Facilities are subject to certain other covenants and prohibit
advances thereunder to the extent the advances could, in our determination
endanger the status of Reckson Associates as a REIT. The terms of the Reckson
Service Industries Credit Facilities were not negotiated at arms' length and
thus may not reflect terms that could have been obtained from independent third
parties. Additional indebtedness may be incurred by subsidiaries of Reckson
Service Industries. As of December 31, 1998, borrowings under the Reckson
Service Industries Credit Facilities aggregated approximately $33.7 million.
POLICIES WITH RESPECT TO CONFLICTS OF INTEREST MAY NOT BE SUCCESSFUL. We
have adopted policies designed to eliminate or minimize conflicts of interest.
These policies include the approval by of all transactions in which directors or
officers of Reckson Associates have a conflicting interest by a majority of the
directors who are neither officers nor affiliated with us. These policies do not
prohibit sales of assets to or from affiliates, but would require the sales to
be approved by the independent directors of Reckson Associates. However, there
is no assurance that these policies will be successful and, if they are not
successful, decisions could be made that might fail to reflect fully the
interests of all of our stockholders.
- - THE TOWER TRANSACTION MAY CAUSE AN INCREASE IN OUR DEBT RATIOS AND INVOLVES
OUR ENTRY INTO A NEW MARKET; THE TOWER PROPERTIES MAY NOT PERFORM AS WE
ANTICIPATE
As further described below under the caption "Reckson Associates and the
Operating Partnership", on December 9, 1998, we agreed to purchase, through
Metropolitan Partners LLC, 100% of the outstanding common stock of Tower Realty
Trust, Inc. for a combination of cash and securities, including Reckson
Associates' Class B exchangeable common stock. We control Metropolitan and own
100% of the common member interests therein. The Tower transaction is subject to
the approval of Tower stockholders and, as a result, may not occur. If the Tower
stockholders approve the transaction and we acquire Tower, we will be subject to
the following risks:
- as a result of the Tower merger our debt ratios will increase due to
Tower's debt levels;
- if Reckson Associates' stockholders fail to approve the issuance of the
Class B exchangeable common stock as the entire non-cash portion of the
merger consideration, we will incur additional indebtedness, thereby
further increasing our debt ratios. The table below sets forth historical
and pro forma information about our debt as of September 30, 1998. Pro
forma information gives effect to the Tower merger, both with and without
Reckson Associates' stockholders approving the issuance of the Class B
exchangeable common stock as the entire non-cash portion of the merger
consideration. In the event Reckson Associates' stockholders do not
approve of the issuance of the Class B exchangeable common stock as the
entire non-cash portion of the merger consideration, the Operating
Partnership will issue approximately $95.7 million of its 7% Senior Notes
due 2009 (par value $101.5 million) as part of the merger consideration.
11
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA WITHOUT
HISTORICAL WITH APPROVAL APPROVAL
---------- ------------- ---------------
<S> <C> <C> <C>
Total Debt (in millions and including proportionate share of joint
debt and net of minority interests)................................ $814.4 $1,162.0 $1,257.7
Weighted average maturity of debt (in years)......................... 4.8 years 4.9 years 5.4 years
Debt Ratio........................................................... 36.9% 40.8% 44.1%
Debt-to-equity ratio................................................. 1:1.71 1:1.45 1:1.26
Portion of debt that is variable rate................................ 54% 58% 54%
</TABLE>
- ------------------------
- the Tower portfolio may not perform as we anticipate
- we may not be able to effectively integrate Tower's operations, which
involve the operation and leasing of buildings in New York City, a market
in which we have not previously owned and operated properties
In addition, if the Tower merger does not occur and a court of competent
jurisdiction issues a final non-appealable judgment determining that we were
obligated to consummate the merger but we failed to do so, or that we failed to
use our reasonable best efforts to take all actions necessary to cause the
closing conditions to the merger to be satisfied, we will be obligated to return
to Tower for no consideration $30 million of Tower preferred stock that we
purchased at the time of the signing of the merger agreement.
- - LIMITS ON OWNERSHIP AND CHANGES IN CONTROL MAY DETER CHANGES IN MANAGEMENT AND
THIRD PARTY ACQUISITION PROPOSALS
OWNERSHIP LIMIT. To maintain the qualification of Reckson Associates as a
REIT, five or fewer individuals (as defined in the Internal Revenue Code of
1986, as amended, to include certain entities) may not own, directly or
indirectly, more than 50% in value of the outstanding capital stock of Reckson
Associates during the last half of a taxable year (other than the first year).
In order to protect against the risk of losing REIT status, Reckson Associates'
charter limits ownership of its issued and outstanding common stock by any
single stockholder to 9.0% of the lesser of the number or value of the
outstanding shares of common stock. It also will limit ownership of Reckson
Associates' Class B exchangeable common stock to be issued in the pending Tower
transaction by any single stockholder to 9% in value of the outstanding shares
of all of Reckson Associates' common stock and limits ownership of Reckson
Associates' issued and outstanding 7 5/8% Series A convertible cumulative
preferred stock to 9% in value of the outstanding shares of all of Reckson
Associates' capital stock. In addition, a stockholder may not acquire shares of
Reckson Associates' Series A preferred stock that would result in the
stockholder's owning in excess of 20% of the lesser of the number or value of
outstanding shares of the Series A preferred stock. See "Restrictions on
Ownership of Capital Stock," "Description of Common Stock--Restrictions on
Ownership" and "Description of Preferred Stock-Restrictions on Ownership." These
provisions may delay, defer or prevent a change of control in Reckson Associates
or other transaction by a third party without the consent of the Board of
Directors even if a change in control were in the best interests of the
stockholders of Reckson Associates.
STAGGERED BOARD. The Board of Directors of Reckson Associates is divided
into three classes. The terms of the Class I, Class II and Class III directors
expire in 1999, 2000 and 2001, respectively. Directors are chosen for a
three-year term. These provisions may deter changes in control because of the
increased time period necessary for a third party to acquire control of
management through positions on the Board of Directors of Reckson Associates.
REQUIRED CONSENT OF HOLDERS OF UNITS FOR CERTAIN TRANSACTIONS. Under the
terms of the Operating Partnership's partnership agreement, through June 2,
2000, the Operating Partnership may not sell, transfer or otherwise dispose of
all or substantially all of its assets (whether by way of sale or by
12
<PAGE>
merger, sale or consolidation into another person) without the consent of the
holders of 85% of the outstanding common limited partnership units. This voting
requirement could delay, defer or prevent a change in control of Reckson
Associates.
FUTURE ISSUANCES OF COMMON STOCK. The charter of Reckson Associates
authorizes the Board of Directors to issue additional shares of common stock
without stockholder approval. Reckson Associates may also issue shares of common
stock in exchange for limited partnership units pursuant to the Operating
Partnership's partnership agreement. The Board of Directors has also authorized
the issuance of up to 11.7 million shares of Class B exchangeable common stock
in connection with the Tower transaction. These shares will be exchangeable on a
one-for-one basis for shares of Reckson common stock and will be entitled to an
initial annual dividend of $2.24 per share, subject to adjustment annually.
Issuance of common stock or Class B exchangeable common stock could have the
effect of diluting existing common stockholders' interests in Reckson
Associates.
THE CHARTER OF RECKSON ASSOCIATES PERMITS THE ISSUANCE OF PREFERRED STOCK
WHICH COULD DELAY, DEFER OR PREVENT A CHANGE IN CONTROL. The charter of Reckson
Associates authorizes the Board of Directors to issue up to 25 million shares of
preferred stock, of which 9,200,000 shares of its Series A preferred stock have
been issued (8,000 shares of which have been converted to shares of common
stock), to reclassify unissued shares of capital stock, and to establish the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications, and terms and conditions of redemption for each
class or series of any capital stock issued. Although the Board of Directors
does not intend to do so at the present time, it could establish a series of
preferred stock that could, depending on the terms of the preferred stock,
delay, defer or prevent a change in control of Reckson Associates that might
involve a premium price for the common stock or otherwise be in the best
interest of the stockholders of Reckson Associates.
LIMITATIONS ON ACQUISITION OF AND CHANGES IN CONTROL PURSUANT TO MARYLAND
LAW. The Maryland General Corporation Law contains provisions, referred to as
the "control share acquisition statute," which eliminate the voting rights of
shares acquired in a Maryland corporation in quantities so as to constitute
"control shares," as defined under the MGCL. The MGCL also contains provisions,
referred to as the "business combination statute," which generally limit
business combinations between a Maryland corporation and any 10% owners of the
corporation's stock or any affiliate thereof. These provisions may have the
effect of inhibiting a third party from making an acquisition proposal for
Reckson Associates or of delaying, deferring or preventing a change in control
of Reckson Associates under circumstances that otherwise could provide the
holders of shares of common stock with the opportunity to realize a premium over
the then-prevailing market price. However, as permitted by the MGCL, the bylaws
of Reckson Associates contain a provision exempting any and all acquisitions by
any person of shares of capital stock of Reckson Associates from the control
share acquisition statute. In addition, the Board of Directors adopted a
resolution exempting Reckson Associates from the provisions of the business
combination statute. Reckson Associates may amend or eliminate these provisions
at any time.
- - RISK OF IMPACT OF YEAR 2000 ISSUE ON OUR OPERATIONS AND FINANCIAL RESULTS
Some of our older computer programs were written using two digits rather
than four to define the applicable year. As a result, those computer programs
have time-sensitive software that recognizes a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or miscalculation
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, or engage in similar normal business
activities.
Our year 2000 project is estimated to be completed not later than July 31,
1999, which is prior to any anticipated impact on our operating systems.
Additionally, we have received assurances from our contractors that all of our
building management and mechanical systems are currently year 2000
13
<PAGE>
compliant or will be made compliant prior to any impact on those systems.
However, we cannot guarantee that all contractors will comply with their
assurances and therefore we may not be able to determine year 2000 compliance of
those contractors. At that time, we will determine the extent to which we will
be able to replace non compliant contractors. We believe that with modifications
to existing software and conversion to new software, the year 2000 issue will
not pose significant operational problems for our computer systems. However, if
modifications and conversions are not made, or are not completed timely, the
year 2000 issue could have a material impact on our operations.
To date, we have expended approximately $375,000 and expect to expend an
additional one million dollars in connection with upgrading building management,
mechanical and computer systems. The costs of the project and the date on which
we believe we will complete the year 2000 modifications are based on our
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause material differences include, but are not
limited to the availability and costs of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
- - THE MARKET VALUE OF SECURITIES COULD DECREASE BASED ON OUR PERFORMANCE AND
MARKET PERCEPTION AND CONDITIONS
EFFECT OF EARNINGS AND CASH DISTRIBUTIONS. The market value of the equity
securities of a REIT may be based primarily upon the market's perception of the
REIT's growth potential and its current and future cash distributions, and may
be secondarily based upon the real estate market value of the underlying assets.
For the year ended December 31, 1998, Reckson Associates distributed
approximately 75.7% of its cash available for distribution to its common
stockholders. Although we have retained operating cash flow for investment and
working capital purposes, which has increased the value of our underlying
assets, this has not proportionately increased the market price of the equity
securities of Reckson Associates. Our failure to meet the market's expectation
with regard to future earnings and cash distributions likely would adversely
affect the market price of the equity securities of Reckson Associates.
ADVERSE IMPACT OF RISING INTEREST RATES. One factor which influences the
price of securities is the dividend or interest rate on the securities relative
to market interest rates. Rising interest rates may lead potential buyers of
equity securities of Reckson Associates to expect a higher dividend rate, which
would adversely affect the market price of the securities. In addition, rising
interest rates would result in increased expense, thereby adversely affecting
cash flow and the ability of the Operating Partnership to service its
indebtedness.
- - TRANSACTIONS BY THE OPERATING PARTNERSHIP OR RECKSON ASSOCIATES COULD
ADVERSELY AFFECT DEBT HOLDERS
Except with respect to a covenant limiting the incurrence of indebtedness, a
covenant requiring the Operating Partnership to maintain a certain percentage of
unencumbered assets and a covenant requiring any successor in a business
combination with the Operating Partnership to assume all of the obligations of
the Operating Partnership under the indenture pursuant to which the debt
securities will be issued, the indenture does not contain any provisions that
would protect holders of debt securities in the event of (i) a highly leveraged
or similar transaction involving the Operating Partnership, the management of
the Operating Partnership or Reckson Associates, or any affiliate of any these
parties, (ii) a change of control, or (iii) certain reorganizations,
restructuring, mergers or similar transactions involving the Operating
Partnership or Reckson Associates. Although we anticipate that the pending Tower
transaction will increase our overall debt level, we do not anticipate that the
Tower transaction
14
<PAGE>
will cause a default under the indenture or otherwise affect the rights of
holders of debt securities issued under the indenture.
- - WE MAY NOT BE ABLE TO PAY ON GUARANTEES
A guarantee of the Operating Partnership's debt securities by Reckson
Associates effectively provides no benefit to investors and should not be viewed
by investors as enhancing the credit of the debt securities or as providing any
additional value to the debt securities. The Operating Partnership conducts all
of Reckson Associates' operations, and the only asset of Reckson Associates is
its interest in the Operating Partnership. As a result, if the Operating
Partnership is unable to meet its obligations on the debt securities, Reckson
Associates will not have any assets from which to pay on its guarantee of such
debt securities.
15
<PAGE>
[ORGANIZATIONAL CHART OF RECKSON ASSOCIATES REALTY CORP. AND ITS SUBSIDIARIES]
16
<PAGE>
AVAILABLE INFORMATION
Reckson Associates is, and as a result of filing the registration statement
of which this prospectus is a part, the Operating Partnership will be, subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith Reckson Associates
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission") and the Operating Partnership will file
reports with the Commission. These reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the regional offices of the Commission at 7 World Trade
Center (13th Floor), New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
information can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. These materials can also be inspected at the office of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, the exchange on which
Reckson Associates' common stock and Series A preferred stock is listed. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission.
We have filed with the Commission a registration statement on Form S-3 under
the Securities Act, with respect to the securities. This prospectus does not
contain all of the information set forth in the registration statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information regarding us and the securities,
reference is made to the registration statement, including the exhibits filed as
a part thereof, and the documents incorporated by reference in this prospectus.
Statements made in this prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete; with respect to each
contract, agreement or other document filed as an exhibit to the registration
statement or to an Exchange Act report, reference is made to the exhibit for a
more complete description of the matter involved, and each statement shall be
deemed qualified in its entirety by reference. Copies of the registration
statement and the exhibits may be inspected, without charge, at the offices of
the Commission, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by Reckson Associates with the
Commission pursuant to the Exchange Act are incorporated by reference in this
prospectus:
<TABLE>
<CAPTION>
SEC FILINGS (FILE NO. 1-13762) PERIOD
- ------------------------------------------------ ---------------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarters ended March 31, 1998, June 30, 1998 and September 30,
1998
Current Reports on Form 8-K Filed February 18, 1997, May 15, 1997, June 12, 1997, August 7,
(including Form 8-K/A) 1997, September 9, 1997, October 21, 1997, January 6, 1998,
January 26, 1998, February 10, 1998, February 12, 1998, March
24, 1998, March 25, 1998, April 6, 1998, July 22, 1998, August
14, 1998, November 2, 1998, November 9, 1998, December 22,
1998, February 5, 1999, February 5, 1999 and March 1, 1999
Registration Statement on Form 8-A Filed May 9, 1995 (as amended)
Registration Statement on Form 8-A Filed April 9, 1998
</TABLE>
17
<PAGE>
We also incorporate by reference each of the following documents that we
will file with the Commission after the date of this prospectus until the
particular offering is completed or after the date of the initial registration
statement and prior to effectiveness of the registration statement:
- Reports filed under Section 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
Reckson Associates and the Operating Partnership will provide a copy of any
or all of these documents (exclusive of exhibits unless the exhibits are
specifically incorporated by reference therein), without charge, to each person
to whom this prospectus is delivered, upon written or oral request to Reckson
Associates Realty Corp., 225 Broadhollow Road, Melville, New York 11747, Attn:
Jason M. Barnett, Senior Vice President and General Counsel, telephone number
(516) 694-6900.
RECKSON ASSOCIATES AND THE OPERATING PARTNERSHIP
Reckson Associates was incorporated in September 1994 and commenced
operations effective with the completion of its initial public offering (the
"IPO") on June 2, 1995. Reckson Associates, together with the Operating
Partnership, was formed for the purpose of continuing the commercial real estate
business of the predecessors of Reckson Associates, its affiliated partnerships
and other entities. For more than 40 years, we have been engaged in the business
of owning, developing, acquiring, constructing, managing and leasing suburban
office and industrial properties in the New York metropolitan area. Based on
industry surveys, we believe that we are one of the largest owners and managers
of Class A suburban office and industrial properties in the New York City
Metropolitan Tri-State area of New York, New Jersey and Connecticut (the "New
York Tri-State area"). When we refer to Class A office buildings in this
prospectus, we mean well maintained, high quality buildings that achieve rental
rates that are at the higher end of the range of rental rates for office
properties in the particular market. We operate as a self-managed REIT with
in-house capabilities in property management, development, construction and
acquisitions. As of December 31, 1998, we owned and controlled, directly or
indirectly, 204 properties (the "Properties") encompassing approximately 21.0
million rentable square feet, all of which we manage. The Properties consist of
73 Class A suburban office properties encompassing approximately 10.1 million
rentable square feet, 129 industrial properties encompassing approximately 10.8
million rentable square feet and two 10,000 square foot retail properties. In
addition, as of December 31, 1998, we owned or had contracted to acquire
approximately 980 acres of land (including approximately 400 acres under option)
that may present future development opportunities. In addition, we have invested
$17 million in a note receivable secured by the interest of Odyssey Partners,
L.P. in Omni Partners, L.P.
The office properties are Class A suburban office buildings that are
well-located, well-maintained and professionally managed. In addition, these
properties are modern or have been modernized to compete with newer buildings in
their markets. We believe that these properties achieve among the highest rent
and occupancy rates within their markets. The majority of the office properties
are located in eleven planned office parks and are tenanted by, among others,
national service firms, such as telecommunications firms, "big five" accounting
firms, securities brokerage houses, insurance companies and health care
providers. The industrial properties are utilized for distribution, warehousing,
research and development and light manufacturing/assembly activities and are
located primarily in three planned industrial parks.
On December 8, 1998, Reckson Associates, the Operating Partnership,
Metropolitan and Tower, executed a merger agreement pursuant to which Tower will
be merged into Metropolitan, with Metropolitan surviving the merger.
Concurrently with the merger, the Tower operating partnership will
18
<PAGE>
be merged with and into a subsidiary of Metropolitan. The consideration to be
issued in the mergers will be comprised of (1) 25% cash and (2) 75% of shares of
Reckson Associates' Class B exchangeable common stock, or in certain
circumstances described below, shares of Class B common stock and unsecured
notes of the Operating Partnership. We control Metropolitan and own 100% of the
common equity interests, while Crescent Real Estate Equities Company owns a
preferred equity interest in Metropolitan. The merger agreement replaces a
previously existing merger agreement among Reckson, Crescent, Metropolitan and
Tower relating to the acquisition by Metropolitan, which at that time was a
50/50 joint venture between Reckson Associates and Crescent.
Pursuant to the terms of the merger agreement, holders of shares of
outstanding common stock of Tower, and outstanding units of limited partnership
interest of the Tower operating partnership will have the option to elect to
receive cash or shares of Class B common stock, subject to proration. Under the
terms of the transaction, Metropolitan will effectively pay for each share of
Tower common stock and each unit of limited partnership interest of the Tower
operating partnership: (1) $5.75 (in cash) and (2) 0.6273 of a share of Class B
common stock. The shares of Class B common stock are entitled to receive an
initial annual dividend of $2.24 per share, which is subject to adjustment
annually. We may redeem any or all of the Class B common stock in exchange for
an equal number of shares of Reckson Associates' common stock at any time
following the four year, six-month anniversary of the issuance of Class B common
stock. It is anticipated that Reckson Associates' Board of Directors will
recommend to Reckson Associates' stockholders the approval of a proposal to
issue a number of shares of Class B Common Stock equal to 75% of the sum of (1)
the number of outstanding shares of the Tower common stock and (2) the number of
units of limited partnership interest of the Tower operating partnership, in
each case, at the effective time of the mergers. If Reckson Associates'
stockholders do not approve the issuance of the Class B common stock as
proposed, the merger agreement provides that approximately one-third of the
consideration that was to be paid in the form of Class B common stock will be
replaced by senior unsecured notes of the Operating Partnership, which notes
will bear interest at the rate of 7% per annum and have a term of ten years. In
addition, if Reckson Associates' stockholders do not approve the issuance of
Class B common stock as proposed and Reckson Associates' Board of Directors does
not recommend, or withdraws or amends or modifies in any material respect its
recommendation for, approval of the proposal, then the total principal amount of
notes to be issued and distributed in the merger will be increased by $15
million.
Simultaneously with the execution of the merger agreement, Metropolitan
purchased from Tower approximately 2.2 million shares of Series A convertible
preferred stock of Tower, for an aggregate purchase price of $40 million. This
transaction provided Tower with funds to reduce its outstanding secured
indebtedness so that it could borrow additional amounts under its credit
facility without violating covenants thereunder limiting the amount of secured
indebtedness. If the merger agreement is not consummated and a court of
competent jurisdiction issues a final, non-appealable judgment determining that
Reckson Associates and Metropolitan are obligated to consummate the merger but
have failed to do so, or determining that Reckson Associates and Metropolitan
failed to use their reasonable best efforts to take all actions necessary to
cause certain closing conditions to be satisfied, Metropolitan is obligated to
return to Tower $30 million of the Tower Series A preferred stock. Tower
required that these provisions be included in the preferred stock transaction in
its efforts to attain greater certainty that the merger would occur.
We have engaged brokers to, and anticipate that we will, dispose of the
Tower properties located outside of the New York City metropolitan area. In
addition, we have reached an agreement with Tower and a third party for the
third party to purchase four of Tower's New York City properties for
approximately $85 million shortly prior to the completion of the merger.
In connection with the new merger agreement, Tower, Reckson Associates,
Crescent and Metropolitan have exchanged mutual releases for any claims relating
to the previous merger agreement.
19
<PAGE>
In December 1998, New York State announced it had selected us to develop a
655 acre tract of land in western Suffolk County on Long Island. We estimate
that we will invest $250 million in the development of this project over a
number of years.
Our executive offices are located at 225 Broadhollow Road, Melville, New
York 11747 and our telephone number at that location is (516) 694-6900. At
October 20, 1998, we had approximately 240 employees.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, the net
proceeds to Reckson Associates or the Operating Partnership, as the case may be,
from the sale of the securities offered by the applicable prospectus supplement
will be used for the repayment of existing indebtedness, the development or
acquisition of additional properties as suitable opportunities arise and the
renovation, expansion and improvement of our existing properties, in each case,
as described in detail in the prospectus supplement depending on the
circumstances at the time of the related offering, and for other general
corporate purposes.
20
<PAGE>
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the consolidated ratios of earnings to fixed
charges and preferred stock dividends of Reckson Associates and the Operating
Partnership for the periods shown:
<TABLE>
<CAPTION>
JUNE 3, 1995 JANUARY 1, 1995
TO TO ENDED YEAR
YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 2, DECEMBER 31,
------------------------------- --------------- ----------------- ------------
1998 1997 1996 1995 1995 1994
--------- --------- --------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
RECKSON ASSOCIATES:
Ratio of Earnings to Fixed
Charges...................... 2.11x 2.77x 2.72x 2.71x 1.02x(1) ($ 493,000)(1)(3)
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends.............. 1.89x(2) -- -- -- -- --
OPERATING PARTNERSHIP:
Ratio of Earnings to Fixed
Charges...................... 2.12x 2.78x 2.71x 2.71x 1.02x(1) ($ 493,000)(1)(3)
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends.............. 1.90x(2)
</TABLE>
- ------------------------
(1) Prior to completion of the IPO on June 2, 1995, our predecessors operated in
a manner as to minimize net taxable income to the owners. The IPO and the
related formation transactions permitted us to deleverage our properties
significantly, resulting in a significantly improved ratio of earnings to
fixed charges.
(2) Neither Reckson Associates nor the Operating Partnership had preferred stock
outstanding prior to April 1998.
(3) Represents the excess of fixed charges over earnings for the year ended
December 31, 1994.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. The ratio of earnings to combined fixed charges and preferred
dividends were computed by dividing earnings by the aggregate of fixed charges
and preferred dividends. For this purpose, earnings consist of income from
continuing operations before minority interest, fixed charges and preferred
dividends. Fixed charges consist of interest expense (including interest costs
capitalized) and the amortization of debt issuance costs.
21
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The debt securities of the Operating Partnership covered by this prospectus
(the "Debt Securities") will be issued under an Indenture (the "Indenture")
among the Operating Partnership, Reckson Associates and The Bank of New York
(the "Trustee"). The Indenture has been filed as an exhibit to the Registration
Statement of which this prospectus is a part and is available for inspection at
the corporate trust office of the trustee at One Wall Street, New York, NY
10286. The Indenture is subject to, and governed by, the Trust Indenture Act of
1939, as amended (the "TIA"). The statements made hereunder relating to the
Indenture and the Debt Securities to be issued thereunder are summaries of the
material provisions thereof and do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all provisions of the
Indenture and the Debt Securities. All section references appearing herein are
to sections of the Indenture, and capitalized terms used but not defined herein
shall have the respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. The Debt Securities may be issued
without limit as to aggregate principal amount, in one or more series, in each
case as established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of Reckson Associates as sole general
partner of the Operating Partnership, or as established in one or more
indentures supplemental to the Indenture. All Debt Securities of one series need
not be issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of the
series, for issuances of additional Debt Securities of the same series.
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
the series. In the event that two or more persons are acting as Trustee with
respect to different series of Debt Securities, each Trustee shall be a trustee
of a trust under the Indenture separate and apart from the trust administered by
any other Trustee, and, except as otherwise indicated herein, any action
described herein to be taken by a Trustee may be taken by each Trustee with
respect to, and only with respect to, the one or more series of Debt Securities
for which it is Trustee under the Indenture.
Reference is made to the prospectus supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of the Debt Securities;
(2) the aggregate principal amount of the Debt Securities and any limit on
the aggregate principal amount;
(3) the percentage of the principal amount at which the Debt Securities will
be issued and, if other than the principal amount thereof, the portion
of the principal amount thereof payable upon declaration of acceleration
of the maturity thereof;
(4) the date or dates, or the method for determining the date or dates, on
which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which the rate or rates shall be determined, at which the Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining the date or dates, from
which any interest will accrue, the dates on which any interest will be
payable, the record dates for such interest
22
<PAGE>
payment dates, or the method by which any date shall be determined, the
person to whom the interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of
twelve 30-day months;
(7) the place or places where the principal of (and premium, if any) and
interest, if any, on the Debt Securities will be payable, the Debt
Securities may be surrendered for registration of transfer or exchange
and notices or demands to or upon the Operating Partnership in respect
of the Debt Securities and the Indenture may be served;
(8) the date or dates on which or the period or periods within which, the
price or prices at which and the terms and conditions upon which the
Debt Securities may be redeemed, as a whole or in part, at the option of
the Operating Partnership, if the Operating Partnership is to have an
option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay or
purchase the Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the date or dates on
which or the period or periods within which, the price or prices at
which and the terms and conditions upon which the Debt Securities will
be redeemed, repaid or purchased, as a whole or in part, pursuant to its
obligation;
(10) if other than U.S. dollars, the currency or currencies in which the Debt
Securities are denominated and payable, which may be a foreign currency
or units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any) or
interest, if any, on the Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency
unit or units or composite currency or currencies) and the manner in
which the amounts shall be determined;
(12) any additional events of default or covenants of the Debt Securities;
(13) whether the Debt Securities will be issued in certificated and/or
book-entry form;
(14) whether the Debt Securities will be in registered or bearer form and, if
in registered form, the denominations thereof if other than $1,000 and
any integral multiple thereof and, if in bearer form, the denominations
thereof if other than $5,000 and terms and conditions relating thereto;
(15) whether the Debt Securities will be fully and unconditionally guaranteed
by Reckson Associates pursuant to the Guarantees (the "Guaranteed
Securities");
(16) if the defeasance and covenant defeasance provisions described herein
are to be inapplicable or any modification of these provisions;
(17) if the Debt Securities are to be issued upon the exercise of debt
warrants, the time, manner and place for the Debt Securities to be
authenticated and delivered;
(18) whether and under what circumstances the Operating Partnership will pay
additional amounts on the Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem such Debt Securities in lieu
of making a payment;
(19) if other than the Trustee, the identity of each security registrar
and/or paying agent; and
(20) any other material terms of the Debt Securities.
23
<PAGE>
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable prospectus
supplement.
Except with respect to a covenant limiting the incurrence of indebtedness, a
covenant requiring a certain percentage of unencumbered assets and a covenant
requiring any successor in a business combination with the Operating Partnership
to assume all of the obligations of the Operating Partnership under the
Indenture, the Indenture does not contain any other provisions that would limit
the ability of the Operating Partnership or Reckson Associates to incur
indebtedness or that would afford Holders of the Debt Securities protection in
the case of any of the following events:
- a highly leveraged or similar transaction involving the Operating
Partnership, the management of the Operating Partnership or Reckson
Associates, or any affiliate of any these parties;
- a change of control; or
- a reorganization, restructuring, merger or similar transaction involving
the Operating Partnership or Reckson Associates that may adversely affect
the Holders of the Debt Securities.
In addition, subject to the covenants referred to above, the Operating
Partnership or Reckson Associates may, in the future, enter into certain
transactions, such as the sale of all or substantially all of its assets or the
merger or consolidation of the Operating Partnership or Reckson Associates, that
would increase the amount of the Operating Partnership's indebtedness or
substantially reduce or eliminate the Operating Partnership's assets, which may
have an adverse effect on the Operating Partnership's ability to service its
indebtedness, including the Debt Securities. In addition, restrictions on
ownership and transfers of Reckson Associates' common stock and preferred stock
which are designed to preserve its status as a REIT may act to prevent or hinder
a change of control. See "Description of Common Stock--Restrictions on
Ownership" and "Description of Preferred Stock-- Restrictions on Ownership."
GUARANTEES
Reckson Associates will fully and unconditionally guarantee the due and
punctual payment of principal of, premium, if any, and interest on any Debt
Securities not rated investment grade by at least one nationally recognized
statistical rating organization at the time of issuance by the Operating
Partnership, whether at a maturity date, by declaration of acceleration, call
for redemption or otherwise.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, the Debt
Securities of any series which are registered securities, other than registered
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $1,000 and any integral multiple thereof and the
Debt Securities which are bearer securities, other than bearer securities issued
in global form (which may be of any denomination), shall be issuable in
denominations of $5,000.
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to the Person at an
account maintained within the United States.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the
24
<PAGE>
applicable Regular Record Date and may either be paid to the Person in whose
name the Debt Security is registered at the close of business on a special
record date (the "Special Record Date") for the payment of the Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to the Holder
of the Debt Security not less than 10 days prior to the Special Record Date, or
may be paid at any time in any other lawful manner, all as more completely
described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of the
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable prospectus supplement
refers to any transfer agent (in addition to the Trustee) initially designated
by the Operating Partnership with respect to any series of Debt Securities, the
Operating Partnership may at any time rescind the designation of any transfer
agent or approve a change in the location through which any transfer agent acts,
except that the Operating Partnership will be required to maintain a transfer
agent in each place of payment for the series. The Operating Partnership may at
any time designate additional transfer agents with respect to any series of Debt
Securities.
Neither the Operating Partnership nor the Trustee shall be required to:
- issue, register the transfer of or exchange any Debt Security if the Debt
Security may be among those selected for redemption during a period
beginning at the opening of business 15 days before selection of the Debt
Securities to be redeemed and ending at the close of business on the day
of selection;
- register the transfer of or exchange any Registered Security so selected
for redemption in whole or in part, except, in the case of any Registered
Security to be redeemed in part, the portion thereof not to be redeemed;
- exchange any Bearer Security so selected for redemption except that the
Bearer Security may be exchanged for a Registered Security of that series
and like tenor, PROVIDED that the Registered Security shall be
simultaneously surrendered for redemption; or
- issue, register the transfer of or exchange any Security which has been
surrendered for repayment at the option of the Holder, except the portion,
if any, of the Debt Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE
The Operating Partnership or, with respect to the Guaranteed Securities,
Reckson Associates may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other entity,
provided that the following conditions are met:
- the Operating Partnership or Reckson Associates, as the case may be, shall
be the continuing entity, or the successor entity (if other than the
Operating Partnership or Reckson Associates, as the case may be) formed by
or resulting from any consolidation or merger or which shall have received
the transfer of assets shall expressly assume payment of the principal of
(and premium, if any) and interest on all the Debt Securities and the due
and punctual performance and
25
<PAGE>
observance of all of the covenants and conditions contained in the
Indenture and, if applicable, the Guarantees;
- immediately after giving effect to the transaction, no Event of Default
under the Indenture, and no event which, after notice or the lapse of
time, or both, would become an Event of Default, shall have occurred and
be continuing; and
- an officer's certificate and legal opinion covering these conditions shall
be delivered to the Trustee.
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any Subsidiary (as defined below) to, incur any Indebtedness (as
defined below), other than Permitted Debt (as defined below), if, immediately
after giving effect to the incurrence of additional Indebtedness, the aggregate
principal amount of all outstanding Indebtedness of the Operating Partnership,
and of its Subsidiaries determined at the applicable proportionate interest of
the Operating Partnership in each Subsidiary, determined in accordance with GAAP
(as defined below), is greater than 60% of the sum of:
(1) the Total Assets (as defined below) as of the end of the calendar
quarter covered in the Operating Partnership's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
Commission prior to the incurrence of such additional Indebtedness or, if the
Operating Partnership is not then subject to the reporting requirements of the
Exchange Act, as of its most recent calendar quarter and
(2) any increase in the Total Assets since the end of the quarter,
including, without limitation, any increase in Total Assets resulting from the
incurrence of additional Indebtedness (the Total Assets adjusted by this
increase are referred to as the "Adjusted Total Assets").
The Operating Partnership will not, and will not permit any Subsidiary to,
incur any Indebtedness, other than Permitted Debt, if, for the period consisting
of the four consecutive fiscal quarters most recently ended prior to the date on
which additional Indebtedness is to be incurred, the ratio of Consolidated
Income Available for Debt Service (as defined below) to the Annual Service
Charge (as defined below) shall have been less than 1.5 to 1, on a pro forma
basis after giving effect to the incurrence of Indebtedness and to the
application of the proceeds therefrom, and calculated on the assumption that:
- the Indebtedness and any other Indebtedness incurred by the Operating
Partnership or its Subsidiaries since the first day of the four-quarter
period and the application of the proceeds therefrom, including to
refinance other Indebtedness, had occurred at the beginning of the period,
- the repayment or retirement of any other Indebtedness by the Operating
Partnership or its Subsidiaries since the first day of the four-quarter
period had been incurred, repaid or retained at the beginning of the
period (except that, in making the computation, the amount of Indebtedness
under any revolving credit facility shall be computed based upon the
average daily balance of borrowings under the credit facility during the
period),
- any income earned as a result of any increase in Adjusted Total Assets
since the end of the four-quarter period had been earned, on an annualized
basis, for the period, and
- in the case of an acquisition or disposition by the Operating Partnership
or any of its Subsidiaries of any asset or group of assets since the first
day of the four-quarter period, including, without limitation, by merger,
stock purchase or sale, or asset purchase or sale, the acquisition or
disposition or any related repayment of Indebtedness had occurred as of
the first
26
<PAGE>
day of the period with the appropriate adjustments with respect to the
acquisition or disposition being included in the pro forma calculation of
Consolidated Income Available for Debt Service to the Annual Service
Charge.
The Operating Partnership will not, and will not permit any Subsidiary to,
incur any Indebtedness secured by any Lien (as defined below) of any kind upon
any of the property of the Operating Partnership or any of its Subsidiaries (the
"Secured Debt") if, immediately after giving effect to the incurrence of the
additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt of the Operating Partnership, and of its Subsidiaries determined at
the applicable proportionate interest of the Operating Partnership in each
Subsidiary, is greater than 40% of the Adjusted Total Assets.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Operating Partnership will
maintain Total Unencumbered Assets (as defined below) of not less than 150% of
the aggregate principal amount of all outstanding Unsecured Debt.
EXISTENCE. Except as permitted under "Merger, Consolidation or Sale," the
Operating Partnership is required to do or cause to be done all things necessary
to preserve and keep in full force and effect its existence and that of each
Subsidiary and their respective rights and franchises; PROVIDED, HOWEVER, that
the Operating Partnership shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities.
MAINTENANCE OF PROPERTIES. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER,that the
Operating Partnership and its Subsidiaries shall not be prevented from selling
or otherwise disposing for value their respective properties in the ordinary
course of business.
INSURANCE. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies.
PAYMENT OF TAXES AND OTHER CLAIMS. The Operating Partnership is required to
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon them or any Subsidiary or upon their income, profits or property or
that of any Subsidiary, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Operating Partnership or any Subsidiary; PROVIDED, HOWEVER, that the Operating
Partnership shall not be required to pay or discharge or cause to be paid or
discharged any tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
PROVISION OF FINANCIAL INFORMATION. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, the
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing
27
<PAGE>
Dates") by which the Operating Partnership would have been required so to file
the documents if the Operating Partnership were so subject. If the Operating
Partnership is no longer required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act the Operating Partnership will also in
any event:
- within 15 days of each Required Filing Date (1) transmit by mail to all
Holders of Debt Securities, as their names and addresses appear in the
Security Register, without cost to the Holders, copies of the annual
reports and quarterly reports which the Operating Partnership would have
been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if the Operating Partnership were subject to these
Sections and (2) file with the Trustee copies of the annual reports,
quarterly reports and other documents which the Operating Partnership
would have been required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act if the Operating Partnership were subject
to these Sections and
- if filing these documents by the Operating Partnership with the Commission
is not permitted under the Exchange Act, promptly upon written request and
payment of the reasonable cost of duplication and delivery, supply copies
of the documents to any prospective Holder.
As used herein and in the prospectus supplement:
"ANNUAL SERVICE CHARGE" as of any date means the amount which is expensed in
any 12-month period for interest on Indebtedness.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income of the Operating Partnership and its Subsidiaries (1)
plus amounts which have been deducted for (a) interest on Indebtedness of the
Operating Partnership and its Subsidiaries, (b) provision for taxes of the
Operating Partnership and its Subsidiaries based on income, (c) amortization of
debt discount, (d) depreciation and amortization, (e) the effect of any noncash
charge resulting from a change in accounting principles in determining
Consolidated Net Income for the period, (f) amortization of deferred charges,
and (g) provisions for or realized losses on properties and (2) less amounts
which have been included for gains on properties.
"GAAP" means accounting principles as are generally accepted in the United
States of America as of the date or time of any required computation.
"INDEBTEDNESS" means any indebtedness, whether or not contingent, in respect
of (1) borrowed money evidenced by bonds, notes, debentures or similar
instruments, (2) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property, (3) the reimbursement
obligations, contingent or otherwise, in connection with any letters of credit
actually issued or amounts representing the balance deferred and unpaid of the
purchase price of any property except any balance that constitutes an accrued
expense or trade payable or (4) any lease of property as lessee which would be
reflected on a balance sheet as a capitalized lease in accordance with GAAP, in
the case of items of indebtedness under (1) through (3) above to the extent that
any items (other than letters of credit) would appear as a liability on a
balance sheet in accordance with GAAP, and also includes, to the extent not
otherwise included, any obligation to be liable for, or to pay, as obligor,
guarantor or otherwise (other than for purposes of collection in the ordinary
course of business), indebtedness of another Person.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of the Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of the Person. A Capital Lease is a lease
to which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
28
<PAGE>
"PERMITTED DEBT" means Indebtedness of the Operating Partnership or any
Subsidiary owing to any Subsidiary or the Operating Partnership; PROVIDED that
any Indebtedness is made pursuant to an intercompany note and is subordinated in
right of payment to the Securities; PROVIDED FURTHER that any disposition,
pledge or transfer of any Indebtedness to a Person (other than the Operating
Partnership or another Subsidiary) shall be deemed to be an incurrence of
Indebtedness by the Operating Partnership or a Subsidiary, as the case may be,
and not Permitted Debt.
"SIGNIFICANT SUBSIDIARY" means each significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) of the Operating
Partnership or Reckson Associates.
"SUBSIDIARY" means any entity of which the Operating Partnership or one or
more other Subsidiaries owns or controls, directly or indirectly, more than 50%
of the shares of Voting Stock.
"TOTAL ASSETS" as of any date means the sum of (1) the Undepreciated Real
Estate Assets, (2) all other assets of the Operating Partnership, and of its
Subsidiaries determined at the applicable proportionate interest of the
Operating Partnership in each Subsidiary, determined in accordance with GAAP
(but excluding intangibles and accounts receivable) and (3) the cost of any
property of the Operating Partnership, or any Subsidiary thereof, in which the
Operating Partnership, or Subsidiary, as the case may be, has a firm,
non-contingent purchase obligation.
"TOTAL UNENCUMBERED ASSETS" means the sum of (1) those Undepreciated Real
Estate Assets not subject to a Lien on a consolidated basis, (2) all other
assets of the Operating Partnership, and of its Subsidiaries determined at the
applicable proportionate interest of the Operating Partnership in each such
Subsidiary, which are not subject to a Lien determined in accordance with GAAP
(but excluding intangibles and accounts receivable) and (3) the cost of any
property of the Operating Partnership, or any Subsidiary thereof, in which the
Operating Partnership, or Subsidiary, as the case may be, has a firm,
non-contingent purchase obligation and which is not subject to a Lien.
"UNDEPRECIATED REAL ESTATE ASSETS" means as of any date the cost (original
cost plus capital improvements) of real estate assets of the Issuer and its
Subsidiaries on the date, before depreciating and amortization, determined on a
consolidated basis in accordance with GAAP.
"UNSECURED DEBT" means Indebtedness of the Operating Partnership or any
Subsidiary which is not secured by any mortgage, lien, charge, pledge or
security interest of any kind upon any of the properties owned by the Operating
Partnership or any of its Subsidiaries.
"VOTING STOCK" means stock having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees, provided that stock that carries only the right to vote
conditionally on the happening of an event shall not be considered Voting Stock.
ADDITIONAL COVENANTS. Any additional or different covenants of the
Operating Partnership or Reckson Associates with respect to any series of Debt
Securities will be set forth in the prospectus supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder:
a. default for 30 days in the payment of any installment of interest on any
Debt Security of the series;
b. default in the payment of the principal of (or premium, if any, on) any
Debt Security of the series at its maturity;
c. default in making any sinking fund payment as required for any Debt
Security of the series;
29
<PAGE>
d. default in the performance of any other covenant of the Operating
Partnership or Reckson Associates (if the Debt Securities of the series
are Guaranteed Securities) contained in the Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of
Debt Securities issued thereunder other than the series), the default
having continued for 60 days after written notice as provided in the
Indenture;
e. the Operating Partnership, Reckson Associates (if the Debt Securities of
the series are Guaranteed Securities), any Subsidiary in which the
Operating Partnership has invested at least $20,000,000 in capital or any
entity in which the Operating Partnership is the general partner shall
fail to pay any principal of, premium or interest on or any other amount
payable in respect of, any recourse Indebtedness that is outstanding in a
principal or notional amount of at least $20,000,000 (or the equivalent
thereof in one or more other currencies), either individually or in the
aggregate (but excluding Indebtedness outstanding hereunder), of the
Operating Partnership and its consolidated Subsidiaries, taken as a
whole, when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and
the failure shall continue after the applicable grace period, if any,
specified in any agreement or instrument relating to the Indebtedness, or
any other event shall occur or condition shall exist under any agreement
or instrument evidencing, securing or otherwise relating to the
Indebtedness and shall continue after the applicable grace period, if
any, specified in the agreement or instrument, if the effect of the event
or condition is to accelerate, or to permit the acceleration of, the
maturity of the Indebtedness or otherwise to cause, or to permit the
holder or holders thereof (or a trustee or agent on behalf of the
holders) to cause the Indebtedness to mature prior to its stated
maturity;
f. one or more final, non-appealable judgments or orders for the payment of
money aggregating $20,000,000 (or the equivalent thereof in one or more
other currencies) or more are rendered against one or more of the
Operating Partnership, Reckson Associates (if the Debt Securities of the
series are Guaranteed Securities), any Subsidiary in which the Operating
Partnership has invested at least $20,000,000 in capital and remain
unsatisfied and either (1) enforcement proceedings shall have been
commenced by any creditor upon any judgment or order or (2) there shall
be a period of at least 60 days after entry thereof during which a stay
of enforcement of any judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; PROVIDED, HOWEVER, that any judgment
or order shall not give rise to an Event of Default under this clause if
and for so long as (A) the amount of the judgment or order is covered by
a valid and binding policy of insurance between the defendant and the
insurer covering full payment thereof and (B) the insurer has been
notified, and has not disputed the claim made for payment, of the amount
of the judgment or order; or
g. certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Operating
Partnership, Reckson Associates (if the Debt Securities of the series are
Guaranteed Securities) or any Significant Subsidiary or any substantial
part of their respective property;
h. any other Event of Default provided with respect to a particular series
of Debt Securities.
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing (other than an
Event of Default specified in subsection (g) above, which shall result in an
automatic acceleration), then in every case the Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of that
series may declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or Indexed Securities, the portion
of the principal amount as may be specified in the terms thereof) of all of the
Debt Securities of that series, or such lesser amount as may be provided for in
the Debt Securities of that series, to be due and payable immediately by written
notice thereof to the Operating
30
<PAGE>
Partnership and Reckson Associates (and to the Trustee if given by the Holders).
However, at any time after the declaration of acceleration with respect to Debt
Securities of the series has been made, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the Holders of not
less than a majority in principal amount of Outstanding Debt Securities of the
series may rescind and annul the declaration and its consequences if
(a) the Operating Partnership or Reckson Associates shall have deposited
with the Trustee all required payments of the principal of (and premium, if any)
and interest on the Debt Securities of the series, plus certain fees, expenses,
disbursements and advances of the Trustee and
(b) all Events of Default, other than the non-payment of accelerated
principal of (or specified portion thereof), or premium (if any) or interest on
the Debt Securities of the series have been cured or waived as provided in the
Indenture.
The Indenture also provides that the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series may waive any
past default with respect to the series and its consequences, except a default
- in the payment of the principal of (or premium, if any) or interest on any
Debt Security of the series or
- in respect of a covenant or provision contained in the Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security of the series affected thereby.
The Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless the default
has been cured or waived; PROVIDED, HOWEVER, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to the series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of the series or in the
payment of any sinking fund installment in respect of any Debt Security of the
series) if specified Responsible Officers of the Trustee consider the
withholding to be in the interest of the Holders.
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of the series, as well as an
offer of reasonable indemnity. This provision will not prevent, however, any
holder of Debt Securities from instituting suit for the enforcement of payment
of the principal of (and premium, if any) and interest on the Debt Securities at
the respective due dates thereof.
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless the
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity. The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred upon the
Trustee. However, the Trustee may refuse to follow any direction which is in
conflict with any law or the Indenture, or which may be unduly prejudicial to
the Holders of Debt Securities of the series not joining therein.
Within 120 days after the close of each fiscal year, the Operating
Partnership and Reckson Associates must deliver a certificate of an officer
certifying to the Trustee whether or not the officer
31
<PAGE>
has knowledge of any default under the Indenture and, if so, specifying each
default and the nature and status thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of Outstanding Debt Securities of each series which are affected by the
modification or amendment; PROVIDED, HOWEVER, that no modification or amendment
may, without the consent of the Holder of each Debt Security affected thereby:
- change the Stated Maturity of the principal of, or premium (if any) or any
installment of interest on, any Debt Security, reduce the principal amount
of, or the rate or amount of interest on, or any premium payable on
redemption of, any Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon
declaration of acceleration of the maturity thereof or would be provable
in bankruptcy, or adversely affect any right of repayment of the holder of
any Debt Security, change the place of payment, or the coin or currency,
for payment of principal of, premium, if any, or interest on any Debt
Security or impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security;
- reduce the above-stated percentage of outstanding Debt Securities of any
series necessary to modify or amend the Indenture, to waive compliance
with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
Indenture;
- modify or affect in any manner adverse to the Holders the terms and
conditions of the obligations of Reckson Associates in respect of the
payment of principal (and premium, if any) and interest on any Guaranteed
Securities; or
- modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect the action or to provide that
certain other provisions may not be modified or waived without the consent
of the Holder of the Debt Security.
In addition to the Operating Partnership's obligation to pay the principal
of, and premium (if any) and interest on, the Debt Securities, the Indenture
contains several other affirmative and negative covenants as described under
"--Certain Covenants." None of the Operating Partnership, Reckson Associates and
the Trustee may waive compliance with the other covenants unless the Holders of
not less than a majority in principal amount of a series of Outstanding Debt
Securities consent to the waiver.
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership, Reckson Associates and the Trustee without the
consent of any Holder of Debt Securities for any of the following purposes:
1. to evidence the succession of another Person to the Operating
Partnership as obligor or Reckson Associates as guarantor under the
Indenture;
2. to add to the covenants of the Operating Partnership or Reckson
Associates for the benefit of the Holders of all or any series of Debt
Securities or to surrender any right or power conferred upon the
Operating Partnership or Reckson Associates in the Indenture;
3. to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities;
32
<PAGE>
4. to add or change any provisions of the Indenture to facilitate the
issuance of, or to liberalize certain terms of, Debt Securities in bearer
form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, PROVIDED that this action shall not adversely affect
the interests of the Holders of the Debt Securities of any series in any
material respect;
5. to amend or supplement any provisions of the Indenture, PROVIDED that no
amendment or supplement shall materially adversely affect the interests
of the Holders of any Debt Securities then Outstanding;
6. to secure the Debt Securities;
7. to establish the form or terms of Debt Securities of any series;
8. to provide for the acceptance of appointment by a successor Trustee or
facilitate the administration of the trusts under the Indenture by more
than one Trustee;
9. to cure any ambiguity, defect or inconsistency in the Indenture,
PROVIDED that this action shall not adversely affect the interests of
Holders of Debt Securities of any series in any material respect; or
10. to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series
of the Debt Securities, PROVIDED that the action shall not adversely
affect the interests of the Holders of the Debt Securities of any series
in any material respect.
In addition, with respect to Guaranteed Securities, without the consent of
any Holder of Debt Securities, Reckson Associates, or a subsidiary thereof, may
directly assume the due and punctual payment of the principal of, any premium
and interest on all the Guaranteed Securities and the performance of every
covenant of the Indenture on the part of the Operating Partnership to be
performed or observed. Upon any assumption, Reckson Associates or the subsidiary
shall succeed to, and be substituted for and may exercise every right and power
of, the Operating Partnership under the Indenture with the same effect as if
Reckson Associates or the subsidiary had been the issuer of the Guaranteed
Securities and the Operating Partnership shall be released from all obligations
and covenants with respect to the Guaranteed Securities. No assumption shall be
permitted unless Reckson Associates has delivered to the Trustee (1) an
officers' certificate and an opinion of counsel, stating, among other things,
that the Guarantee and all other covenants of Reckson Associates in the
Indenture remain in full force and effect and (2) an opinion of independent
counsel that the Holders of Guaranteed Securities shall have no materially
adverse United States federal tax consequences as a result of the assumption,
and that, if any Debt Securities are then listed on the New York Stock Exchange,
that the Debt Securities shall not be delisted as a result of the assumption.
In determining whether the Holders of the requisite principal amount of
Outstanding Debt Securities of a series have given any request, demand,
authorization, direction, notice, consent or waiver thereunder or whether a
quorum is present at a meeting of Holders of Debt Securities, the Indenture
provides that:
1. the principal amount of an Original Issue Discount Security that shall
be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of the determination upon
declaration of acceleration of the maturity thereof;
2. the principal amount of a Debt Security denominated in a foreign
currency that shall be deemed Outstanding shall be the U.S. dollar
equivalent, determined on the issue date for the Debt Security, of the
principal amount (or, in the case of an Original Issue Discount Security,
the U.S. dollar equivalent on the issue date of the Debt Security of the
amount determined as provided in (1) above);
33
<PAGE>
3. the principal amount of an Indexed Security that shall be deemed
Outstanding shall be the principal face amount of the Indexed Security at
original issuance, unless otherwise provided with respect to the Indexed
Security pursuant to the Indenture; and
4. Debt Securities owned by the Operating Partnership or any other obligor
upon the Debt Securities or any affiliate of the Operating Partnership or
of the other obligor shall be disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series. A meeting will be permitted to be called at any
time by the Trustee, and also, upon request, by the Operating Partnership,
Reckson Associates (in respect of a series of Guaranteed Securities) or the
Holders of at least 10% in principal amount of the Outstanding Debt Securities
of the series, in any case upon notice given as provided in the Indenture.
Except for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present will be permitted to be adopted by the affirmative vote of
the Holders of a majority in principal amount of the Outstanding Debt Securities
of that series; PROVIDED, HOWEVER, that, except as referred to above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of the specified percentage in principal amount
of the Outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; PROVIDED, HOWEVER, that if any action is to be taken at the meeting
with respect to a consent or waiver which may be given by the Holders of not
less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing the specified
percentage in principal amount of the Outstanding Debt Securities of the series
will constitute a quorum.
Notwithstanding the foregoing provisions, any action to be taken at a
meeting of Holders of Debt Securities of any series with respect to any action
that the Indenture expressly provides may be taken by the Holders of a specified
percentage which is less than a majority in principal amount of the Outstanding
Debt Securities of a series may be taken at a meeting at which a quorum is
present by the affirmative vote of Holders of the specified percentage in
principal amount of the Outstanding Debt Securities of the series.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in the
currency or currencies, currency unit or units or composite currency or
currencies in which the Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on the Debt Securities in respect of principal (and
premium, if any) and interest to the date of the deposit (if the Debt Securities
have become due and payable) or to the Stated Maturity or Redemption Date, as
the case may be.
The Indenture provides that, unless these provisions are made inapplicable
to the Debt Securities of or within any series pursuant to the Indenture, the
Operating Partnership may elect either (a) to defease and discharge itself and
Reckson Associates (if the Debt Securities are Guaranteed Securities)
34
<PAGE>
from any and all obligations with respect to the Debt Securities (except for the
obligation to pay additional amounts, if any, upon the occurrence of certain
events of tax, assessment or governmental charge with respect to payments on the
Debt Securities and the obligations to register the transfer or exchange of Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of the Debt Securities
and to hold moneys for payment in trust) ("defeasance") or (b) to release itself
and Reckson Associates (if the Debt Securities are Guaranteed Securities) from
their obligations with respect to the Debt Securities under certain sections of
the Indenture (including the restrictions described under "Certain Covenants")
and, if provided pursuant to the Indenture, their obligations with respect to
any other covenant, and any omission to comply with the obligations shall not
constitute a default or an Event of Default with respect to the Debt Securities
("covenant defeasance"), in either case upon the irrevocable deposit by the
Operating Partnership or Reckson Associates with the Trustee, in trust, of an
amount, in the currency or currencies, currency unit or units or composite
currency or currencies in which the Debt Securities are payable at Stated
Maturity, or Government Obligations (as defined below), or both, applicable to
the Debt Securities which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on the
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
A trust will only be permitted to be established if, among other things, the
Operating Partnership or Reckson Associates has delivered to the Trustee an
Opinion of Counsel (as specified in the Indenture) to the effect that the
Holders of the Debt Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of the defeasance or covenant defeasance
and will be subject to U.S. federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if the defeasance or
covenant defeasance had not occurred, and the Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States federal income tax law.
"Government Obligations" means securities which are (1) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (2) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of the series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any Government Obligation or a specific payment of interest on or
principal of any Government Obligation held by the custodian for the account of
the holder of a depository receipt, PROVIDED that (except as required by law)
the custodian is not authorized to make any deduction from the amount payable to
the holder of the depository receipt from any amount received by the custodian
in respect of the Government Obligation or the specific payment of interest on
or principal of the Government Obligation evidenced by the depository receipt.
Unless otherwise provided in the applicable prospectus supplement, if after
the Operating Partnership or Reckson Associates has deposited funds and/or
Government Obligations to effect defeasance or covenant defeasance with respect
to Debt Securities of any series:
(a) the Holder of a Debt Security of the series is entitled to, and does,
elect pursuant to the Indenture or the terms of the Debt Security to receive
payment in a currency, currency unit or composite currency other than that in
which the deposit has been made in respect of the Debt Security, or
35
<PAGE>
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which the deposit has been made, the
indebtedness represented by the Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on the Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of the
Debt Security into the currency, currency unit or composite currency in which
the Debt Security becomes payable as a result of the election or the Conversion
Event based on the applicable market exchange rate.
"Conversion Event" means the cessation of use of:
- a currency, currency unit or composite currency both by the government of
the country which issued the currency and for the settlement of
transactions by a central bank or other public institutions of or within
the international banking community or
- the euro both within the European Monetary System and for the settlement
of transactions by public institutions of or within the European
Community.
Unless otherwise provided in the applicable prospectus supplement, all
payments of principal of (and premium, if any) and interest on any Debt Security
that is payable in a foreign currency that ceases to be used by its government
of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and the Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Event of Default, Notice and Waiver"
with respect to sections no longer applicable to the Debt Securities or
described in clause (h) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in the currency, currency unit or composite currency in which the
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on the Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
the Debt Securities at the time of the acceleration resulting from the Event of
Default. However, the Operating Partnership and Reckson Associates (if the Debt
Securities are Guaranteed Securities) would remain liable to make payment of the
amounts due at the time of acceleration.
GOVERNING LAW
The Indenture and the Debt Securities shall be governed by the laws of the
State of New York.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any Debt Securities are
convertible into debt securities of the Operating Partnership or exchangeable
for equity securities of Reckson Associates will be set forth in the applicable
prospectus supplement. The terms will include the number or principal amount of
securities into which the debt securities are convertible or for which the debt
securities are exchangeable, the conversion or exchange price (or manner of
calculation thereof), the conversion or exchange period, provisions as to
whether conversion or exchange will be at the option of the holders of the debt
securities, Reckson Associates or the Operating Partnership, the events
requiring an adjustment of the conversion or exchange price (or the manner of
calculation thereof) and any provisions affecting conversion or exchange in the
event of the redemption of the debt securities.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable prospectus supplement relating to the series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable prospectus
supplement relating to the series.
36
<PAGE>
DESCRIPTION OF COMMON STOCK
GENERAL
The charter of Reckson Associates (the "Charter") provides that Reckson
Associates may issue up to 100 million shares of common stock, $.01 par value
per share. In addition, units of limited partnership interest in the Operating
Partnership may be redeemed for cash or, at the option of Reckson Associates,
common stock of Reckson Associates on a one-for-one basis. See also "Description
of Preferred Stock" for a discussion of the 7 5/8% Series A Convertible
Cumulative preferred stock and related units, as well as the convertible units
issued by the Operating Partnership in connection with the acquisition of the
Cappelli portfolio. On February 26, 1999, there were 40,053,358 shares of common
stock outstanding.
The Board of Directors of Reckson Associates has authorized the issuance of
Class B exchangeable common stock in connection with the Tower transaction. See
"Reckson Associates and The Operating Partnership." The shares of Class B common
stock will be entitled to receive an annual dividend of $2.24 per share, payable
quarterly, for the first four full quarters immediately following their
issuance. The cash dividend on the Class B common stock will be subject to
adjustment annually, beginning on the first anniversary of the end of the
quarter following the issuance of the Class B common stock, by a percentage
equal to 70% of the cumulative percentage change in Reckson Associates' FFO per
share above the FFO per share during the year prior to issuance. The shares of
Class B common stock will be convertible at any time, at the option of the
holder, into an equal number of shares of common stock of Reckson Associates,
subject to customary antidilution adjustments. Reckson Associates, at its
option, may redeem any or all of the Class B common stock in exchange for an
equal number of shares of its common stock at any time following the four year,
six-month anniversary of the issuance of the Class B common stock. The Class B
common stock will rank PARI PASSU with Reckson Associates' existing common
stock, including the common stock offered hereby.
All shares of common stock offered hereby have been duly authorized and will
be fully paid and nonassessable. Subject to the preferential rights of any other
shares or series of stock and to the provisions of the Charter regarding Excess
Stock (as defined under "Restrictions on Ownership of Capital Stock"), holders
of shares of common stock offered hereby will be entitled to receive dividends
on the stock if, as and when authorized and declared by the Board of Directors
of Reckson Associates out of assets legally available therefor and to share
ratably in the assets of Reckson Associates legally available for distribution
to its common stockholders in the event of its liquidation, dissolution or
winding up after payment of or adequate provision for all known debts and
liabilities of Reckson Associates.
Subject to the provisions of the Charter regarding Excess Stock, each
outstanding share of Reckson Associates' existing common stock and, if and when
issued, the Class B common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as provided with respect to any other class or series of stock, the
holders of these shares will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of Reckson Associates' existing common
stock and, if and when issued, the Class B common stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of shares of common stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any other securities. Subject to the provisions of the Charter
regarding Excess Stock, shares of common stock will have equal dividend,
liquidation and other rights.
37
<PAGE>
CERTAIN PROVISIONS OF THE CHARTER
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Charter does not
provide for a lesser percentage in these situations. In addition, the Operating
Partnership's partnership agreement provides that for the five-year period
following the completion of the IPO (I.E.through June 2, 2000), the Operating
Partnership may not sell, transfer or otherwise dispose of all or substantially
all of its assets or engage in any other similar transaction (regardless of the
form of the transaction) without the consent of the holders of 85% of all
outstanding limited partnership units.
The Charter authorizes the Board of Directors of Reckson Associates to
reclassify any unissued shares of common stock into other classes or series of
classes of capital stock and to establish the number of shares in each class or
series and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each class or series.
The Board of Directors is divided into three classes of directors, each
class constituting approximately one-third of the total number of directors,
with the classes serving staggered terms. At each annual meeting of
stockholders, the class of directors to be elected at the meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. We believe that classified directors will help to assure the
continuity and stability of the Board of Directors and our business strategies
and policies as determined by the Board. The use of a staggered board may delay
or defer a change in control of Reckson Associates or removal of incumbent
management.
RESTRICTIONS ON OWNERSHIP
In order to qualify as a REIT under the Code, not more than 50% in value of
the outstanding common stock of Reckson Associates may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code) during the
last half of a taxable year and the common stock must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months (or
during a proportionate part of a shorter taxable year). To satisfy the above
ownership requirements and certain other requirements for qualification as a
REIT, the Board of Directors has adopted, and the stockholders prior to the IPO
approved, a provision in the Charter restricting the ownership or acquisition of
shares of common stock. See "Restrictions on Ownership of Capital Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Charter of Reckson Associates provides that Reckson Associates may issue
up to 25 million shares of preferred stock, $.01 par value per share. On
February 26, 1999 there were 9,192,000 shares of 7 5/8% Series A Convertible
Cumulative preferred stock outstanding. Dividends on the Series A Preferred
Stock are payable quarterly in arrears at an annual rate of 7 5/8% of the
liquidation preference of $25 per share. The Series A Preferred Stock is
convertible at any time at the option of the holder at a conversion price of
$28.51 per share of common stock, subject to adjustment in certain
circumstances.
38
<PAGE>
On or after April 13, 2003, the shares of Series A Preferred Stock will be
redeemable, in whole or in part, at the option of Reckson Associates.
In connection with the acquisition of the Cappelli portfolio, the Amended
and Restated Agreement of Limited Partnership of the Operating Partnership was
supplemented (the "Supplements") to establish a series of 25,000 preferred units
of limited partnership interest of the Operating Partnership designated as
Series B preferred units, a series of 11,518 preferred units designated as
Series C preferred units and a series of 6,000 preferred units designated as
Series D preferred units. Each of the Series B, C and D preferred units have a
liquidation preference of $1,000 per unit. Distributions on each Series B, C and
D preferred unit are payable in arrears quarterly in an amount equal to the
greater of: (1) $17.50 or (2) the quarterly distribution attributable to each
Series B, C and D preferred unit if the unit was converted into common stock,
subject to a maximum increase of 5% of the distributions on the Series B, C or D
preferred units over the immediately preceding year. The distribution amount due
on all Series B, C or D preferred units may be reduced during any period which
certain Cappelli indebtedness remains subject to a prepayment premium or
prepayment penalty. Commencing two years after the issuance of each of the
Series B, C or D preferred units, the distribution amount may be adjusted to
reflect increases or decreases in the dividends on the common stock of Reckson
Associates.
The holders of Series B, C or D preferred units have the right to convert
their preferred units into common stock of Reckson Associates at a price per
share of $32.51, $29.39 or $29.12, respectively. The holders of Series B
preferred units also have the right to convert their units into Series C
preferred units, at any time through April 21, 2000. Each Series B, C or D
preferred unit is exchangeable, at the option of its holder, for shares of the
preferred stock of Reckson Associates with a liquidation preference equal to the
liquidation preference of the Series B, C or D preferred units and otherwise
with the same terms as the Series B, C or D preferred units other than the
conversion and exchange rights referred to above. The Operating Partnership,
with regard to any notice of an exchange, may elect to redeem all of the Series
B, C or D preferred units that are the subject of the exchange for cash in an
amount equal to the stated value of Series B, C or D preferred units plus any
accrued distributions thereon.
The statements made hereunder relating to the preferred stock are summaries
of the material terms thereof and do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, the applicable
provisions of the Charter and Bylaws and any applicable articles supplementary
to the Charter designating terms of a series of preferred stock (a "Designating
Amendment").
The issuance of preferred stock could adversely affect the voting power,
dividend rights and other rights of holders of common stock. Although the Board
of Directors has no intention at the present time, it could establish a series
of preferred stock that could, depending on the terms of the series, delay,
defer or prevent a transaction or a change in control of Reckson Associates that
might involve a premium price for the common stock or otherwise be in the best
interest of the holders thereof. Management believes that the availability of
preferred stock will provide us with increased flexibility in structuring
possible future financing and acquisitions and in meeting other needs that might
arise.
TERMS
Subject to the limitations prescribed by the Charter, the Board of Directors
is authorized to fix the number of shares constituting each series of preferred
stock and the designations and powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof, including the provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and other subjects or
39
<PAGE>
matters as may be fixed by resolution of the Board of Directors. The preferred
stock will, when issued, be fully paid and nonassessable and will have no
preemptive rights.
Reference is made to the prospectus supplement relating to the series of
preferred stock offered thereby for the specific terms thereof, including:
- The title and stated value of the preferred stock;
- The number of shares of the preferred stock, the liquidation preference
per share of the preferred stock and the offering price of the preferred
stock;
- The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred stock;
- The date from which dividends on the preferred stock shall accumulate, if
applicable;
- The procedures for any auction and remarketing, if any, for the preferred
stock;
- The provision for a sinking fund, if any, for the preferred stock;
- The provisions for redemption, if applicable, of the preferred stock;
- Any listing of the preferred stock on any securities exchange;
- The terms and conditions, if applicable, upon which the preferred stock
may or will be convertible into our common stock, including the conversion
price or manner of calculation thereof;
- The relative ranking and preferences of the preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the
affairs of Reckson Associates;
- Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
Reckson Associates as a REIT;
- A discussion of material federal income tax considerations applicable to
the preferred stock; and
- Any other specific terms, preferences, rights, limitations or restrictions
of the preferred stock.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of Reckson Associates, rank:
i. senior to the common stock and to all classes or series of equity
securities issued by Reckson Associates the terms of which provide that
the equity securities shall rank junior to the preferred stock;
ii. on a parity with all classes or series of equity securities issued by
Reckson Associates, including the Series A preferred stock, other than
those referred to in clauses (i) and (iii); and
iii. junior to all classes or series of equity securities issued by Reckson
Associates which the terms of the preferred stock provide will rank
senior to it. The term "equity securities" does not include convertible
debt securities.
DIVIDENDS
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will have the rights with respect to payment of dividends set
forth below.
40
<PAGE>
Holders of the preferred stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of Reckson Associates, out of
assets of Reckson Associates legally available for payment, cash dividends in
the amounts and on the dates as will be set forth in, or pursuant to, the
applicable prospectus supplement. Each dividend shall be payable to holders of
record as they appear on the stock transfer books of Reckson Associates on the
record dates as shall be fixed by the Board of Directors of Reckson Associates.
Dividends on any series of preferred stock may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable prospectus supplement. If the Board of Directors of Reckson
Associates fails to declare a dividend payable on a dividend payment date on any
series of preferred stock for which dividends are non-cumulative, then the
holders of the series of preferred stock will have no right to receive a
dividend in respect of the related dividend period and Reckson Associates will
have no obligation to pay the dividend accrued for the period, whether or not
dividends on the series of preferred stock are declared payable on any future
dividend payment date.
If preferred stock of any series is outstanding, no full dividends will be
declared or paid or set apart for payment on any of the capital stock of Reckson
Associates of any other series ranking, as to dividends, on a parity with or
junior to the preferred stock of the series for any period unless:
- if the series of preferred stock has a cumulative dividend, full
cumulative dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for the
payment for all past dividend periods and the then current dividend period
or
- if the series of preferred stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for the payment on the preferred stock
of the series.
When dividends are not paid in full (or a sum sufficient for the full
payment is not so set apart) upon preferred stock of any series and the shares
of any other series of preferred stock ranking on a parity as to dividends with
the preferred stock of the series, all dividends declared upon preferred stock
of the series and any other series of preferred stock ranking on a parity as to
dividends with the preferred stock shall be declared pro rata so that the amount
of dividends declared per share of preferred stock of the series and the other
series of preferred stock shall in all cases bear to each other the same ratio
that accrued dividends per share on the preferred stock of the series and the
other series of preferred stock (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if the preferred stock
does not have a cumulative dividend) bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on preferred stock of the series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (1) if the
series of preferred stock has a cumulative dividend, full cumulative dividends
on the preferred stock of the series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(2) if the series of preferred stock does not have a cumulative dividend, full
dividends on the preferred stock of the series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no dividends (other
than in shares of common stock or other capital stock ranking junior to the
preferred stock of the series as to dividends and upon liquidation) shall be
declared or paid or set aside for payment or other distribution shall be
declared or made upon the common stock, or any other of the capital stock of
Reckson Associates ranking junior to or on a parity with the preferred stock of
the series as to dividends or upon liquidation, nor shall any shares of common
stock, or any other capital
41
<PAGE>
stock of Reckson Associates ranking junior to or on a parity with the preferred
stock of the series as to dividends or upon liquidation, be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares) by Reckson
Associates except:
(1) by conversion into or exchange for other capital stock of Reckson
Associates ranking junior to the preferred stock of the series as to dividends
and upon liquidation or
(2) redemption's for the purpose of preserving the status of Reckson
Associates as a REIT.
REDEMPTION
If so provided in the applicable prospectus supplement, the preferred stock
will be subject to mandatory redemption or redemption at the option of Reckson
Associates, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in the prospectus supplement.
The prospectus supplement relating to a series of preferred stock that is
subject to mandatory redemption will specify the number of shares of the
preferred stock that Reckson Associates will redeem in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accumulated and unpaid dividends thereon
(which shall not, if the preferred stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable prospectus supplement. If the
redemption price for preferred stock of any series is payable only from the net
proceeds of the issuance of capital stock of Reckson Associates, the terms of
the preferred stock may provide that, if no capital stock shall have been issued
or to the extent the net proceeds from any issuance are insufficient to pay in
full the aggregate redemption price then due, the preferred stock shall
automatically and mandatorily be converted into the applicable capital stock of
Reckson Associates pursuant to conversion provisions specified in the applicable
prospectus supplement.
Notwithstanding the foregoing, unless (1) if the series of preferred stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of preferred stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (2) if the
series of preferred stock does not have a cumulative dividend, full dividends on
the preferred stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
preferred stock shall be redeemed unless all outstanding preferred stock of the
series is simultaneously redeemed; PROVIDED, HOWEVER,that the foregoing shall
not prevent the purchase or acquisition of preferred stock of the series to
preserve the status of Reckson Associates as a REIT or pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding preferred
stock of the series. In addition, unless (1) if the series of preferred stock
has a cumulative dividend, full cumulative dividends on all outstanding shares
of any series of preferred stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(2) if the series of preferred stock does not have a cumulative dividend, full
dividends on the preferred stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, Reckson Associates
shall not purchase or otherwise acquire, directly or indirectly, any shares of
preferred stock of the series (except by conversion into or exchange for capital
stock of Reckson Associates ranking junior to the preferred stock of the series
as to dividends and upon liquidation); PROVIDED, HOWEVER, that the foregoing
shall not prevent the purchase or acquisition of preferred stock of the series
to preserve the
42
<PAGE>
status of Reckson Associates as a REIT or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding preferred stock of
the series.
If fewer than all of the outstanding shares of preferred stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
Reckson Associates and the shares may be redeemed pro rata from the holders of
record of the shares in proportion to the number of the shares held or for which
redemption is requested by the holder (with adjustments to avoid redemption of
fractional shares) or by lot or in any other reasonable manner.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of preferred stock of
any series to be redeemed at the address shown on the stock transfer books. Each
notice shall state:
- the redemption date;
- the number of shares and series of the preferred stock to be redeemed;
- the redemption price;
- the place or places where certificates for the preferred stock are to be
surrendered for payment of the redemption price;
- that dividends on the shares to be redeemed will cease to accumulate on
the redemption date; and
- the date upon which the holder's conversion rights, if any, as to the
shares shall terminate.
If fewer than all the shares of preferred stock of any series are to be
redeemed, the notice mailed to each holder thereof shall also specify the number
of shares of preferred stock to be redeemed from each holder. If notice of
redemption of any preferred stock has been given and if the funds necessary for
redemption have been set aside by Reckson Associates in trust for the benefit of
the holders of any preferred stock so called for redemption, then from and after
the redemption date dividends will cease to accumulate on the preferred stock,
and all rights of the holders of the preferred stock will terminate, except the
right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Reckson Associates (referred to herein as a "liquidation"), then,
before any distribution or payment shall be made to the holders of any common
stock or any other class or series of capital stock of Reckson Associates
ranking junior to the preferred stock of the series in the distribution of
assets upon any liquidation, dissolution or winding up of Reckson Associates,
the holders of the preferred stock shall be entitled to receive out of assets of
Reckson Associates legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable prospectus supplement), plus an amount equal to all
dividends accumulated and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if the
preferred stock does not have a cumulative dividend). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of preferred stock will have no rights or claim to any remaining assets. In the
event that, upon any voluntary or involuntary liquidation, dissolution or
winding up, the available assets of Reckson Associates are insufficient to pay
the amount of the liquidating distributions on all outstanding preferred stock
of the series and the corresponding amounts payable on all shares of other
classes or series of capital stock of Reckson Associates ranking on a parity
with the preferred stock in the distribution of assets, then the holders of the
preferred stock and all other classes or series of capital stock shall share
ratably in any distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
43
<PAGE>
The consolidation or merger of Reckson Associates with or into any other
entity, or the merger of another entity with or into Reckson Associates, or a
statutory share exchange by Reckson Associates, or the sale, lease or conveyance
of all or substantially all of the property or business of Reckson Associates,
shall not be deemed to constitute a liquidation, dissolution or winding up of
Reckson Associates.
VOTING RIGHTS
Holders of the preferred stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable prospectus supplement.
Whenever dividends on any series of preferred stock shall be in arrears for
six or more quarterly periods, the holders of the preferred stock (voting
separately as a class with all other series of preferred stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of Reckson Associates at a special
meeting called by the holders of record of at least ten percent (10%) of any
series of preferred stock so in arrears, unless the request is received less
than 90 days before the date fixed for the next annual or special meeting of the
stockholders, or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if the series of preferred stock has a
cumulative dividend, all dividends accumulated on the shares of preferred stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if the series of preferred stock does not have a
cumulative dividend, four quarterly dividends shall have been fully paid or
declared and a sum sufficient for the payment thereof set aside for payment. In
these cases, the entire Board of Directors of Reckson Associates will be
increased by two directors.
Unless provided otherwise for any series of preferred stock, so long as any
shares of the preferred stock remain outstanding, Reckson Associates will not,
without the affirmative vote or consent of the holders of at least two-thirds of
the shares of the series of preferred stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (the series voting
separately as a class):
(1) authorize or create, or increase the authorized or issued amount of, any
class or series of capital stock ranking senior to the preferred stock with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up of Reckson Associates, or reclassify any authorized
capital stock of Reckson Associates into preferred stock, or create, authorize
or issue any obligation or security convertible into or evidencing the right to
purchase any stock; or
(2) amend, alter or repeal the provisions of the Charter or the Designating
Amendment for the series of preferred stock, whether by merger, consolidation or
otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of the series of preferred stock or the
holders thereof;
PROVIDED, HOWEVER, with respect to the occurrence of any of the Events set
forth in (2) above, so long as the series of preferred stock remains outstanding
with the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event Reckson Associates may not be the surviving entity, the
occurrence of any Event shall not be deemed to materially and adversely affect
the rights, preferences, privileges or voting powers of holders of the series of
preferred stock; and provided, further, that (x) any increase in the amount of
the authorized preferred stock or the creation or issuance of any other series
of preferred stock, or (y) any increase in the amount of authorized shares of
the series of preferred stock or any other series of preferred stock, in each
case ranking on a parity with or junior to the preferred stock of the series
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of Reckson Associates, shall not be
deemed to materially and adversely affect the rights, preferences, privileges or
voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which the vote or consent would otherwise be
required shall be effected, all outstanding shares of
44
<PAGE>
the series of preferred stock shall have been converted, redeemed or called for
redemption and sufficient funds shall have been deposited in trust to effect the
redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of preferred stock
is convertible into shares of common stock will be set forth in the applicable
prospectus supplement. The terms will include the number of shares of common
stock into which the shares of preferred stock are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the preferred
stock of Reckson Associates, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of the preferred stock.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Stock--General," applicable
Maryland law provides that no shareholder, including holders of preferred stock,
shall be personally liable for the acts and obligations of Reckson Associates
and that the funds and property of Reckson Associates shall be the only recourse
for these acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Restrictions on Ownership of Capital Stock," for
Reckson Associates to qualify as a REIT under the Code, not more than 50% in
value of the outstanding capital stock of Reckson Associates may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. Therefore, the
Designating Amendment for each series of preferred stock may contain provisions
restricting the ownership and transfer of the preferred stock. The applicable
prospectus supplement will specify any additional ownership limitation relating
to a series of preferred stock.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable prospectus supplement, the
Registrar and Transfer Agent for the preferred stock will be American Stock
Transfer & Trust Company.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
Reckson Associates may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest or a share of a
particular series of a class of preferred stock, as specified in the applicable
prospectus supplement. Preferred stock of each series of each class represented
by Depositary Shares will be deposited under a separate Deposit Agreement (each,
a "Deposit Agreement") among Reckson Associates, the depositary named therein
(the depositary or its successor, the "Preferred Stock Depositary") and the
holders from time to time of the Depositary Receipts. Subject to the terms of
the Deposit Agreement, each owner of a Depositary Receipt will be entitled, in
proportion to the fractional interest of a share of the particular series of a
class of preferred stock represented by the Depositary Shares evidenced by the
Depositary Receipt, to all the rights and preferences of the preferred stock
represented by the Depositary Shares, including dividend, voting, conversion,
redemption and liquidation rights.
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the preferred stock by Reckson Associates to the Preferred Stock
Depositary, Reckson Associates will cause the Preferred Stock
45
<PAGE>
Depositary to issue, on our behalf, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt may be obtained from
Reckson Associates upon request.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the preferred stock to the record
holders of the Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of the Depositary Receipts owned by the holder, subject
to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Stock
Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make the distribution, in which
case the Preferred Stock Depositary may, with the approval of Reckson
Associates, sell the property and distribute the net proceeds from the sale to
holders.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption), the holders thereof will be entitled to
delivery at the office, to or upon the holder's order, of the number of whole or
fractional shares of preferred stock and any money or other property represented
by the Depositary Shares evidenced by the Depositary Receipts. Holders of
Depositary Receipts will be entitled to receive whole or fractional shares of
the related preferred stock on the basis of the proportion of preferred stock
represented by each Depositary Share as specified in the applicable prospectus
supplement, but holders of the preferred stock will not thereafter be entitled
to receive Depositary Shares therefor. If the Depositary Receipts delivered by
the holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of preferred stock to be
withdrawn, the Preferred Stock Depositary will deliver to the holder at the same
time a new Depositary Receipt evidencing the excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever Reckson Associates redeems preferred stock held by the Preferred
Stock Depositary, the Preferred Stock Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the preferred stock
so redeemed, provided Reckson Associates shall have paid in full to the
Preferred Stock Depositary the redemption price of the preferred stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the preferred stock. If less than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by the Preferred
Stock Depositary by lot.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable upon
redemption and any money or other property to which the holders of the
Depositary Receipts were entitled upon redemption upon surrender thereof to the
Preferred Stock Depositary.
46
<PAGE>
VOTING OF THE UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the preferred
stock are entitled to vote, the Preferred Stock Depositary will mail the
information contained in the notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent the
preferred stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the preferred stock) will be entitled to instruct the Preferred Stock Depositary
as to the exercise of the voting rights pertaining to the amount of preferred
stock represented by the holder's Depositary Shares. The Preferred Stock
Depositary will vote the amount of preferred stock represented by the Depositary
Shares in accordance with the instructions, and we will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of preferred
stock represented by the Depositary Shares to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing the
Depositary Shares.
LIQUIDATION PREFERENCE
In the event of liquidation, dissolution or winding up of Reckson
Associates, whether voluntary or involuntary, each holder of a Depositary
Receipt will be entitled to the fraction of the liquidation preference accorded
each share of preferred stock represented by the Depositary Share evidenced by
the Depositary Receipt, as set forth in the applicable prospectus supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into common stock or any
other securities or property of Reckson Associates. Nevertheless, if so
specified in the applicable prospectus supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the Preferred Stock Depositary with written instructions to the Preferred
Stock Depositary to instruct Reckson Associates to cause conversion of the
preferred stock represented by the Depositary Shares evidenced by Depositary
Receipts into whole shares of common stock, other preferred stock of Reckson
Associates or other shares of capital stock of Reckson Associates, and Reckson
Associates has agreed that upon receipt of instructions and any amounts payable
in respect thereof, it will cause the conversion thereof utilizing the same
procedures as those provided for delivery of preferred stock to effect the
conversion. If the Depositary Shares evidenced by a Depositary Receipt are to be
converted in part only, one or more new Depositary Receipts will be issued for
any Depositary Shares not to be converted. No fractional shares of common stock
will be issued upon conversion, and if the conversion will result in a
fractional share being issued, an amount will be paid in cash by Reckson
Associates equal to the value of the fractional interest based upon the closing
price of the common stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the preferred stock and any provision of the Deposit Agreement may at
any time be amended by agreement between Reckson Associates and the Preferred
Stock Depositary. However, any amendment that materially and adversely alters
the rights of the holders of Depositary Receipts will not be effective unless
the amendment has been approved by the existing holders of at least a majority
of the Depositary Shares evidenced by the Depositary Receipts then outstanding.
The Deposit Agreement may be terminated by Reckson Associates upon not less
than 30 days' prior written notice to the Preferred Stock Depositary if (1) the
termination is to preserve the status of Reckson Associates as a REIT or (2) a
majority of each class of preferred stock affected by the termination consents
to the termination, whereupon the Preferred Stock Depositary shall deliver or
47
<PAGE>
make available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by the holder, the number of whole or fractional shares
of preferred stock as are represented by the Depositary Shares evidenced by
Depositary Receipts. In addition, the Deposit Agreement will automatically
terminate if (1) all outstanding Depositary Shares shall have been redeemed, (2)
there shall have been a final distribution in respect of the related preferred
stock in connection with any liquidation, dissolution or winding up of Reckson
Associates and the distribution shall have been distributed to the holders of
Depositary Receipts evidencing the Depositary Shares representing the preferred
stock or (iii) each related share of preferred stock shall have been converted
into capital stock of Reckson Associates not so represented by Depositary
Shares.
CHARGES OF PREFERRED SHARES DEPOSITARY
Reckson Associates will pay all transfer and other taxes and governmental
charges arising solely from the existence of the Deposit Agreement. In addition,
Reckson Associates will pay the fees and expenses of the Preferred Stock
Depositary in connection with the performance of its duties under the Deposit
Agreement. However, holders of Depositary Receipts will pay the fees and
expenses of the Preferred Stock Depositary for any duties requested by the
holders to be performed which are outside of those expressly provided for in the
Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to
Reckson Associates notice of its election to do so, and Reckson Associates may
at any time remove the Preferred Stock Depositary, any resignation or removal to
take effect upon the appointment of a successor Preferred Stock Depositary. A
successor Preferred Shares Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from Reckson Associates which are
received by the Preferred Stock Depositary with respect to the related preferred
stock.
Neither Reckson Associates nor the Preferred Stock Depositary will be liable
if the Preferred Stock Depositary is prevented from or delayed in, by law or any
circumstances beyond its control, performing its obligations under the Deposit
Agreement. The obligations of Reckson Associates and the Preferred Stock
Depositary under the Deposit Agreement will be limited to performing specified
duties thereunder in good faith and without negligence, gross negligence or
willful misconduct, and Reckson Associates and the Preferred Stock Depositary
will not be obligated to prosecute or defend any legal proceeding in respect of
any Depositary Receipts, Depositary Shares or preferred stock represented
thereby unless satisfactory indemnity is furnished. Reckson Associates and the
Preferred Stock Depositary may rely on written advice of counsel or accountants,
or information provided by persons presenting the preferred stock represented
thereby for deposit, holders of Depositary Receipts or other persons believed to
be competent to give information, and on documents believed to be genuine and
signed by a proper party.
If the Preferred Stock Depositary shall receive conflicting claims, requests
or instructions from any holders of Depositary Receipts, on the one hand, and
from Reckson Associates, on the other hand, the Preferred Stock Depositary shall
be entitled to act on claims, requests or instructions received from Reckson
Associates.
48
<PAGE>
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
EXCESS STOCK
The Charter provides that Reckson Associates may issue up to 75 million
shares of excess stock, par value $.01 per share ("Excess Stock"). For a
description of Excess Stock, see "--Restrictions on Ownership" below.
RESTRICTIONS ON OWNERSHIP
In order for Reckson Associates to qualify as a REIT under the Code, among
other things, not more than 50% in value of the outstanding capital stock of
Reckson Associates may be owned, directly or indirectly, by five or fewer
individuals (defined in the Code to include certain entities) during the last
half of a taxable year (other than the first year) (the "Five or Fewer
Requirement"), and the shares of capital stock must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months (other
than the first year) or during a proportionate part of a shorter taxable year.
Pursuant to the Code, common stock held by certain types of entities, the as
pension trusts qualifying under Section 401(a) of the Code, United States
investment companies registered under the Investment Company Act of 1940,
partnerships, trusts and corporations, will be attributed to the beneficial
owners of the entities for purposes of the Five or Fewer Requirement (I.E., the
beneficial owners of the entities will be counted as shareholders of Reckson
Associates).
In order to protect Reckson Associates against the risk of losing its status
as a REIT due to a concentration of ownership among stockholders, the Charter,
subject to certain exceptions, provides that no stockholder may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than
9.0% (the "Ownership Limit") of the aggregate number or value of the outstanding
shares of common stock. Reckson Associates may also impose limitations on the
ownership of preferred stock. See "Description of Preferred Stock--Restrictions
on Ownership." Any transfer of shares of stock that would result in a violation
of the Ownership Limit or that would result in disqualification as a REIT,
including any transfer that results in shares of capital stock being owned by
fewer than 100 persons or results in Reckson Associates being "closely held"
within the meaning of Section 856(h) of the Code, shall be null and void, and
the intended transferee will acquire no rights to the shares of capital stock.
The foregoing restrictions on transferability and ownership will not apply if
the Board of Directors determines that it is no longer in the best interests of
Reckson Associates to attempt to qualify, or to continue to qualify, as a REIT.
The Board of Directors may, in its sole discretion, waive the Ownership Limit if
evidence satisfactory to the Board of Directors and tax counsel is presented
that the changes in ownership will not then or in the future jeopardize REIT
status and the Board of Directors otherwise decides that waiving the Ownership
Limit is in the best interests of Reckson Associates.
Shares of capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be converted
into shares of Excess Stock that will be transferred, by operation of law, to
the trustee of a trust for the exclusive benefit of one or more charitable
organizations described in Section 170(b)(1)(A) and 170(c) of the Code (the
"Charitable Beneficiary"). The trustee of the trust will be deemed to own the
Excess Stock for the benefit of the Charitable Beneficiary on the date of the
violative transfer to the original transferee-stockholder. Any dividend or
distribution paid to the original transferee-stockholder of Excess Stock prior
to our discovery that capital stock has been transferred in violation of the
provisions of the Charter shall be repaid to the trustee upon demand. Any
dividend or distribution authorized and declared but unpaid shall be rescinded
as void AB INITIO with respect to the original transferee-stockholder and shall
instead be paid to the trustee of the trust for the benefit of the Charitable
Beneficiary. Any vote cast by an original transferee-stockholder of shares of
capital stock constituting Excess Stock prior to the discovery by us that shares
of capital stock have been transferred in violation of the provisions of the
Charter shall be rescinded as void AB INITIO. While the Excess Stock is held in
trust, the original transferee-stockholder will be deemed to have given an
irrevocable proxy to the trustee to vote the capital stock
49
<PAGE>
for the benefit of the Charitable Beneficiary. The trustee of the trust may
transfer the interest in the trust representing the Excess Stock to any person
whose ownership of the shares of capital stock converted into Excess Stock would
be permitted under the Ownership Limit. If the transfer is made, the interest of
the Charitable Beneficiary shall terminate and the proceeds of the sale shall be
payable to the original transferee-stockholder and to the Charitable Beneficiary
as described herein. The original transferee-stockholder shall receive the
lesser of (1) the price paid by the original transferee-stockholder for the
shares of capital stock that were converted into Excess Stock or, if the
original transferee-stockholder did not give value for the shares (E.G., the
stock was received through a gift, devise or other transaction), the average
closing price for the class of shares from which the shares of capital stock
were converted for the ten trading days immediately preceding the sale or gift,
and (2) the price received by the trustee from the sale or other disposition of
the Excess Stock held in trust. The trustee may reduce the amount payable to the
original transferee-stockholder by the amount of dividends and distributions
relating to the shares of Excess Stock which have been paid to the original
transferee-stockholder and are owed by the original transferee-stockholder to
the trustee. Any proceeds in excess of the amount payable to the original
transferee-stockholder shall be paid by the trustee to the Charitable
Beneficiary. Any liquidation distributions relating to Excess Stock shall be
distributed in the same manner as proceeds of a sale of Excess Stock. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulations, then the original
transferee-stockholder of any shares of Excess Stock may be deemed, at the
option of Reckson Associates, to have acted as an agent for Reckson Associates
in acquiring the shares of Excess Stock and to hold the shares of Excess Stock
for Reckson Associates.
In addition, Reckson Associates will have the right, for a period of 90 days
during the time any shares of Excess Stock are held in trust, to purchase all or
any portion of the shares of Excess Stock at the lesser of (i) the price
initially paid for the shares by the original transferee-stockholder, or if the
original transferee-stockholder did not give value for the shares (E.G., the
shares were received through a gift, devise or other transaction), the average
closing price for the class of stock from which the shares of Excess Stock were
converted for the ten trading days immediately preceding the sale or gift, and
(ii) the average closing price for the class of stock from which the shares of
Excess Stock were converted for the ten trading days immediately preceding the
date Reckson Associates elects to purchase the shares. Reckson Associates may
reduce the amount payable to the original transferee-stockholder by the amount
of dividends and distributions relating to the shares of Excess Stock which have
been paid to the original transferee-stockholder and are owed by the original
transferee-stockholder to the trustee. Reckson Associates may pay the amount of
the reductions to the trustee for the benefit of the Charitable Beneficiary. The
90-day period begins on the later date of which notice is received of the
violative transfer if the original transferee-stockholder gives notice to
Reckson Associates of the transfer or, if no notice is given, the date the Board
of Directors determines that a violative transfer has been made.
These restrictions will not preclude settlement of transactions through the
New York Stock Exchange.
All certificates representing shares of stock will bear a legend referring
to the restrictions described above.
Each stockholder shall upon demand be required to disclose to Reckson
Associates in writing any information with respect to the direct, indirect and
constructive ownership of the capital stock of Reckson Associates as the Board
of Directors deems necessary to comply with the provisions of the Code
applicable to REITs, to comply with the requirements of any taxing authority or
governmental agency or to determine any compliance.
The Ownership Limit may have the effect of delaying, deferring or preventing
a change in control of Reckson Associates unless the Board of Directors
determines that maintenance of REIT status is no longer in the best interests of
Reckson Associates.
50
<PAGE>
DESCRIPTION OF WARRANTS
Reckson Associates may issue Warrants for the purchase of common stock or
preferred stock. Warrants may be issued independently or together with any
securities and may be attached to or separate from the securities. Each series
of Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between Reckson Associates and a warrant agent
specified therein ("Warrant Agent"). The Warrant Agent will act solely for
Reckson Associates in connection with the Warrants of the series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Warrants.
The applicable prospectus supplement will describe the following terms,
where applicable, of the Warrants in respect of which this prospectus is being
delivered:
- the title of the Warrants;
- the aggregate number of the Warrants;
- the price or prices at which the Warrants will be issued;
- the currencies in which the price or prices of the Warrants may be
payable;
- the designation, amount and terms of the Securities purchasable upon
exercise of the Warrants;
- the designation and terms of the other Securities, if any, with which the
Warrants are issued and the number of the Warrants issued with each
security;
- if applicable, the date on and after which the Warrants and the Securities
purchasable upon exercise of the Warrants will be separately transferable;
- the price or prices at which and currency or currencies in which the
Securities purchasable upon exercise of the Warrants may be purchased;
- the date on which the right to exercise the Warrants shall commence and
the date on which the right shall expire;
- the minimum or maximum amount of the Warrants which may be exercised at
any one time;
- information with respect to book-entry procedures, if any;
- a discussion of material federal income tax considerations; and
- any other material terms of the Warrants, including terms, procedures and
limitations relating to the exchange and exercise of the Warrants.
51
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
Based on various assumptions and factual representations made by us
regarding our operations, in the opinion of Brown & Wood LLP, our counsel,
commencing with our taxable year ended December 31, 1995, Reckson Associates has
been organized in conformity with the requirements for qualification as a REIT
under the Code, and the proposed method of operating Reckson Associates will
enable it to meet the requirements for qualification and taxation as a REIT. The
qualification of Reckson Associates depends upon our ability to meet the various
requirements imposed under the Code through actual operations, as discussed
below. Brown & Wood LLP will not review our operations, and no assurance can be
given that actual operations will meet these requirements. The opinion of Brown
& Wood LLP is not binding on the IRS or any court. The opinion of Brown & Wood
LLP is based upon existing law, IRS regulations and currently published
administrative positions of the IRS and judicial decisions, which are subject to
change either prospectively or retroactively.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern Reckson Associates and its stockholders' federal income tax
treatment. For the particular provisions that govern Reckson Associates and its
stockholders' federal income tax treatment, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by reference.
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income that
it distributes to its stockholders. If Reckson Associates fails to qualify
during any taxable year as a REIT, unless certain relief provisions are
available, it will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, which could have
a material adverse effect upon its stockholders. See "Risk Factors-Risks of
Failure to Qualify as a REIT."
In any year in which Reckson Associates qualifies to be taxed as a REIT,
distributions made to its stockholders out of current or accumulated earnings
and profits will be taxed to stockholders as ordinary income except that
distributions of net capital gains designated by Reckson Associates as capital
gain dividends will be taxed as long-term capital gain income to the
stockholders. To the extent that distributions exceed current or accumulated
earnings and profits, they will constitute a return of capital, rather than
dividend or capital gain income, and will reduce the basis for the stockholder's
common stock or preferred stock with respect to which the distribution is paid
or, to the extent that they exceed the basis, will be taxed in the same manner
as gain from the sale of that common stock or preferred stock. Beginning in
1998, Reckson Associates may elect to retain long-term capital gains and pay
corporate-level income tax on them and treat the retained gains as if they had
been distributed to stockholders. In this case, each stockholder would include
in income, as long-term capital gain, its proportionate share of the
undistributed gains and would be deemed to have paid its proportionate share of
the tax paid by Reckson Associates with respect thereto. In addition, the basis
for a stockholder's common stock or preferred stock would be increased by the
amount of the undistributed long-term capital gain included in its income, less
the amount of the tax it is deemed to have paid with respect thereto.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the securities offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from the investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in Reckson Associates, including the possibility of United
States income tax withholding on our distributions.
52
<PAGE>
PLAN OF DISTRIBUTION
Reckson Associates and the Operating Partnership may sell the securities to
one or more underwriters for public offering and sale by them or may sell the
securities to investors directly or through agents. Any underwriter or agent
involved in the offer and sale of the securities will be named in the applicable
prospectus supplement.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. Reckson Associates and the Operating
Partnership also may, from time to time, authorize underwriters acting as their
agents to offer and sell the securities upon the terms and conditions as are set
forth in the applicable prospectus supplement. In connection with the sale of
securities, underwriters may be deemed to have received compensation from
Reckson Associates or the Operating Partnership in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
securities for whom they may act as agent. Underwriters may sell securities to
or through dealers, and dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by Reckson Associates or the Operating
Partnership to underwriters or agents in connection with the offering of
securities, and any discounts, concessions for commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
prospectus supplement. Underwriters, dealers and agents participating in the
distribution of the securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with Reckson Associates and the
Operating Partnership, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with, and perform services for, Reckson Associates and the
Operating Partnership and its subsidiaries in the ordinary course of business.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby and certain
legal matters described under "Federal Income Tax Considerations" will be passed
upon for Reckson Associates and the Operating Partnership by Brown & Wood LLP,
New York, New York.
53
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule as of December 31, 1998 and December 31, 1997
and for each of the years in the three year period ended December 31, 1998
appearing in our Form 8-K, dated March 1, 1999; and the combined statement of
revenues and certain expenses of the New Jersey Portfolio (as defined therein)
for the year ended December 31, 1996, the combined statement of revenues and
certain expenses for the Hauppauge Portfolio (as defined therein) for the year
ended December 31, 1996 and the statement of revenues and certain expenses of
the Uniondale Office Property (as defined therein), for the year ended December
31, 1996, appearing in Reckson Associates' Form 8-K, dated February 18, 1997;
and the statement of revenues and certain expenses of 710 Bridgeport Avenue (as
defined therein), for the year ended December 31, 1996 and the statement of
revenues and certain expenses of the Shorthills Office Center (as defined
therein), for the year ended December 31, 1996 appearing in Reckson Associates'
Form 8-K dated June 12, 1997; and the statement of revenues and certain expenses
of Garden City Plaza for the year ended December 31, 1996, appearing in Reckson
Associates' Form 8-K dated September 9, 1997, and the statement of revenues and
certain expenses of the Christiana Office Property (as defined therein) for the
year ended June 30, 1997, appearing in Reckson Associates' Form 8-K dated
February 10, 1998, and the statement of revenues and certain expenses of the
Stamford Office Property (as defined therein) for the year ended December 31,
1997, appearing in Reckson Associates' Form 8-K dated March 24, 1998; and the
statement of revenues and certain expenses of the Cappelli Portfolio for the
year ended December 31, 1997, appearing in Reckson Associates' Form 8-K dated
April 6, 1998, incorporated in this Registration Statement by reference. These
consolidated and combined financial statements are incorporated by reference in
reliance on their reports, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of Reckson Operating Partnership, L.P. as of
December 31, 1998 and December 31, 1997 and for each of the years in the three
year period ended December 31, 1998 as set forth in their report, which is
included in this Registration Statement. These financial statements are included
in reliance on their report, given on their authority as experts in accounting
and auditing.
PricewaterhouseCoopers LLP, independent auditors, have audited the
consolidated financial statements of Tower Realty Trust, Inc. as of December 31,
1997 and for the period from March 27, 1997 through December 31, 1997 and the
combined financial statements of Tower Predecessor for the period form January
1, 1997 through October 15, 1997 and as of and for the years ended December 31,
1996 and 1995, which report is included in Form 8-K dated February 5, 1999.
These consolidated and combined financial statements are incorporated by
reference in reliance on their reports, given on their authority as experts in
accounting and auditing.
54
<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
<TABLE>
<CAPTION>
PAGE
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Selected Financial Data.................................................................................... F-2
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... F-3
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................. F-14
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997.................................. F-15
Consolidated Statements of Income for the years ended December 31, 1998, 1997, and 1996.................... F-16
Consolidated Statements of Partners' Capital for the years ended December 31, 1998, 1997, and 1996......... F-17
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996................ F-18
Notes to Consolidated Financial Statements................................................................. F-19
Schedule III--Real Estate and Accumulated Depreciation..................................................... F-36
</TABLE>
F-1
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT UNIT AND PROPERTIES DATA)
<TABLE>
<CAPTION>
RECKSON OPERATING PARTNERSHIP RECKSON GROUP
------------------------------- ----------------------------
FOR THE PERIOD
FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD JUNE JANUARY 1, 1995 FOR THE
------------------------------- 3, 1995 TO DECEMBER TO JUNE 2, YEAR ENDED
1998 1997 1996 31, 1995(1) 1995(1) 1994
--------- --------- --------- -------------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............................ $ 266,312 $ 153,348 $ 96,030 $ 38,455 $ 20,889 $ 56,931
Total expenses...................... 201,003 107,639 70,935 27,892 20,695 55,685
Income (loss) before distribution to
preferred unit holders, minority
interests and extraordinary
items............................. 65,309 45,709 25,095 10,563 194 1,246
Minority interests.................. 2,819 920 915 246 -- --
Extraordinary items--gain (loss).... (1,993) (2,808) (1,259) (6,022) -- 4,434
Preferred distributions............. 14,244 -- -- -- -- --
Net income available to common unit
holders........................... 46,253 41,981 22,921 4,295 194 5,680
PER UNIT DATA:(2)
Net income per common unit:
General Partner................... $ .98 $ 1.06 $ .87 $ .22 -- --
Limited Partners'................. $ .98 $ 1.03 $ .86 $ .19 -- --
Weighted average common units
outstanding
General Partner................... 39,473,000 32,727,000 19,928,000 14,678,000 -- --
Limited Partners.................. 7,728,000 7,016,000 6,503,000 5,648,000 -- --
BALANCE SHEET DATA:
(PERIOD END)
Real estate, before accumulated
depreciation...................... $1,743,223 $1,015,282 $ 519,504 $ 290,712 -- $ 162,192
Total assets........................ 1,854,520 1,113,105 543,391 242,540 -- 132,035
Mortgage notes payable.............. 253,463 180,023 161,513 98,126 -- 180,286
Unsecured credit facility........... 465,850 210,250 108,500 40,000 -- --
Unsecured term loan................. 20,000 -- -- -- -- --
Senior unsecured notes.............. 150,000 150,000 -- -- -- --
Market value of equity (3).......... 1,332,882 1,141,592 653,606 303,943 -- --
Total market capitalization
including debt (3 and 4).......... 2,119,936 1,668,800 921,423 426,798 -- --
OTHER DATA:
Funds from operations(5)............ $ 99,702 $ 69,619 $ 40,938 $ 17,190 -- --
Total square feet (at end of
period)........................... 21,000 13,645 8,800 5,430 4,529 4,529
Number of properties (at end of
period)........................... 204 155 110 81 72 72
</TABLE>
- ------------------------------
(1) Represents certain financial information on a consolidated historical basis
for Reckson Operating Partnership, L.. P., and on a combined historical
basis for the Reckson Group.
(2) Based on the weighted average units outstanding for the period then ended.
(3) Based on the value of the Operating Partnership's common units (assuming a
value equivalent to a share of the Company's common stock), the stated value
of the Operating Partnership's preferred units and the number of units
outstanding at the end of the period.
(4) Debt amount is net of minority partners' proportionate share of Omni debt
plus the Company's share of joint venture debt.
(5) See "Management's Discussion and Analysis" for a discussion of funds from
operations.
F-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of Reckson Operating Partnership, L.P. (the "Operating
Partnership") and related notes.
The Operating Partnership considers certain statements set forth herein to
be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, with respect to the Operating Partnership's
expectations for future periods. Certain forward-looking statements, including,
without limitation, statements relating to the timing and success of
acquisitions, the financing of the Operating Partnership's operations, the
ability to lease vacant space and the ability to renew of relet space under
expiring leases, involve certain risks and uncertainties. Although the Operating
Partnership believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, the actual results may differ
materially from those set forth in the forward-looking statements and the
Operating Partnership can give no assurance that its expectation will be
achieved. Certain factors that might cause the results of the Operating
Partnership to differ materially from those indicated by such forward-looking
statements include, among other factors, general economic conditions, general
real estate industry risks, tenant default and bankruptcies, loss of major
tenants, the impact of competition and acquisition, redevelopment and
development risks, the ability to finance business opportunities and local real
estate risks such as an oversupply of space or a reduction in demand for real
estate in the Operating Partnership's real estate markets. Consequently, such
forward-looking statements should be regarded solely as reflections of the
Operating Partnership's current operating and development plans and estimates.
These plans and estimates are subject to revisions from time to time as
additional information becomes available, and actual results may differ from
those indicated in the referenced statements.
OVERVIEW AND BACKGROUND
The Reckson Group, the predecessor to Reckson Associates Realty Corp. (the
"Company"), was engaged in the ownership, management, operation, leasing and
development of commercial real estate properties, principally office and
industrial buildings, and also owned certain undeveloped land located primarily
on Long Island, New York. The Operating Partnership commenced operations on June
2, 1995 and is the successor to the operations of the Reckson Group. The sole
general partner in the Operating Partnership, the Company is a self administered
and self managed Real Estate Investment Trust ("REIT"). During June 1995 the
Company contributed approximately $162 million in cash to the Operating
Partnership in exchange for an approximate 73% general partnership interest. As
a result, the Operating Partnership owned or had an interest in 72 properties
(including one joint venture property).
The Operating Partnership owns all of the interests in its real estate
properties either directly or through Reckson FS Limited Partnership. At
December 31, 1998, the Operating Partnership owned 204 properties (the
"Properties"), (including two joint venture properties) encompassing
approximately 21.0 million square feet. The Properties include 73 suburban
office properties containing approximately 10.1 million square feet, 129
industrial properties containing approximately 10.8 million square feet and two
retail properties containing 20,000 square feet.
Since the IPO, the Operating Partnership has acquired or contracted to
acquire approximately $1.14 billion of Class A suburban office and industrial
properties encompassing approximately 12.8 million square feet located in the
New York Tri-State Area of Long Island, Westchester, Southern Connecticut and
New Jersey. In that regard, the Operating Partnership has acquired 13 Office
Properties and 33 Industrial Properties encompassing approximately 2.1 and 2.6
million square feet, respectively, located on Long Island for an aggregate
purchase price of approximately $302 million.
F-3
<PAGE>
Since its initial investment in Westchester the Operating Partnership has
acquired 17 Office Properties encompassing approximately 2.4 million square feet
and three Industrial Properties encompassing approximately 163,000 square feet
for an aggregate purchase price of approximately $304 million. Since its initial
investment in Southern Connecticut the Operating Partnership has acquired two
Office Properties encompassing approximately 325,000 square feet for an
aggregate purchase price of approximately $61.3 million. In May 1997, the
Operating Partnership acquired five Office Properties encompassing approximately
496,000 square feet located in New Jersey for an aggregate purchase price of
approximately $56.9 million and, in connection with this acquisition,
established its New Jersey Division. Since its initial investment in New Jersey
the Operating Partnership has acquired 12 Office Properties encompassing
approximately 1.5 million square feet and seven Industrial Properties
encompassing approximately 1.1 million square feet for an aggregate purchase
price of approximately $231.6 million. Additionally, the Operating Partnership
has invested approximately $52.1 million for approximately 154 acres of land
located in Long Island, 32 acres of land located in Westchester and 380 acres of
land located in New Jersey which allows for approximately 4.3 million square
feet of future development opportunities. In addition, the Operating Partnership
has invested approximately $61.3 million in certain mortgage indebtedness
encumbering four Class A office properties on Long Island encompassing
approximately 577,000 square feet, a 825,000 square foot industrial building
located in New Jersey and a 400 acre parcel of land located New Jersey. On
January 6, 1998, the Operating Partnership made its initial investment in the
Morris Companies, a New Jersey developer and owner of "Big Box" warehouse
facilities. The Morris Companies' properties include 23 industrial buildings
encompassing approximately 4.0 million square feet. In connection with the
transaction the Morris Companies contributed 100% of their interests in certain
industrial properties to Reckson Morris Operating Partnership, L. P., ("RMI") in
exchange for operating partnership units in RMI. The Operating Partnership has
agreed to invest up to $150 million in the Morris Companies. As of December 31,
1998, the Operating Partnership has invested approximately $93.8 million for an
approximate 71.8% controlling interest. In addition, at December 31, 1998, the
Operating Partnership had advanced approximately $31 million to the Morris
Companies primarily to fund certain construction costs related to development
properties to be contributed to RMI.
During 1997, the Company formed Reckson Service Industries, Inc. ("RSI") and
Reckson Strategic Venture Partners, LLC ("RSVP"). The Operating Partnership
owned a 95% non voting common stock interest in RSI through June 10, 1998. On
June 11, 1998, the Operating Partnership distributed its 95% common stock
interest in RSI of approximately $3 million to its partners. Additionally,
during June 1998, the Operating Partnership established a credit facility with
RSI (the"RSI Facility") in the amount of $100 million for RSI's service sector
operations and other general corporate purposes. As of December 31, 1998, the
Operating Partnership had advanced $33.7 million under the RSI facility all of
which is outstanding. In addition, the Operating Partnership approved the
funding of investments of up to $100 million with or in RSVP (the "RSVP
Commitment"), through RSVP-controlled joint venture REIT-qualified investments
or advances made to RSI under terms similar to the RSI Facility. As of December
31, 1998, approximately $17.3 million had been invested through the RSVP
Commitment, of which $10.1 million represents RSVP controlled joint venture
investments and $7.2 million represents advances to RSI under the RSVP
Commitment. Such amounts have been included in investment in real estate joint
ventures and investments in and advances to affiliates, respectively, on the
Operating Partnership's balance sheet. RSI serves as the managing member of
RSVP. RSI invests in operating companies that generally provide commercial
services to the RSI customer base which includes the tenants of RSI's executive
suite business and to properties owned by the Operating Partnership and its
tenants and third parties. RSVP was formed to provide the Operating Partnership
with a research and development vehicle to invest in alternative real estate
sectors. RSVP invests primarily in real estate and real estate related operating
companies generally outside of the Operating Partnership's core office and
industrial focus. RSVP's strategy is to identify and acquire interests in
established entrepreneurial enterprises with experienced management teams in
market sectors which are in the early stages of their
F-4
<PAGE>
growth cycle or offer unique circumstances for attractive investments as well as
a platform for future growth.
The Operating Partnership and RSI have entered into an intercompany
agreement (the "Reckson Intercompany Agreement") to formalize their relationship
and to limit conflicts of interest. Under the Reckson Intercompany Agreement,
RSI granted the Operating Partnership a right of first opportunity to make any
REIT -qualified investment that becomes available to RSI. In addition, if a
REIT-qualified investment opportunity becomes available to an affiliate of RSI,
including RSVP, the Reckson Intercompany Agreement requires such affiliate to
allow the Operating Partnership to participate in such opportunity to the extent
of RSI's interest.
Under the Reckson Intercompany Agreement, the Operating Partnership granted
RSI a right of first opportunity to provide commercial services to the Operating
Partnership and its tenants. RSI will provide services to the Operating
Partnership at rates and on terms as attractive as either the best available for
comparable services in the market or those offered by RSI to third parties. In
addition, the Operating Partnership will give RSI access to its tenants with
respect to commercial services that may be provided to such tenants and,under
the Reckson Intercompany Agreement, subject to certain conditions, the Operating
Partnership granted RSI a right of first refusal to become the lessee of any
real property acquired by the Operating Partnership if the Operating Partnership
determines that, consistent with Reckson's status as a REIT, it is required to
enter into a "master" lease agreement.
On August 27, 1998 the Operating Partnership announced the formation of a
joint venture with RSVP and the Dominion Group, an Oklahoma-based,
privately-owned group of companies that focuses on the development, acquisition
and ownership of government occupied office buildings and correctional
facilities. The new venture, Dominion Properties LLC (the "Dominion Venture"),
is owned by Dominion Venture Group LLC, and by a subsidiary of the Operating
Partnership. The Dominion Venture will engage primarily in acquiring, developing
and/or owning government-occupied office buildings and privately operated
correctional facilities. Under the Dominion Venture's operating agreement, RSVP
is to invest up to $100 million, some of which may be invested by the Operating
Partnership (the "RSVP Capital"). The initial contribution of RSVP Capital was
approximately $39 million of which approximately $10.1 million was invested by a
subsidiary of the Operating Partnership. The Operating Partnership's subsidiary
funded its capital contribution through the RSVP Commitment. In addition, the
Operating Partnership advanced approximately $2.9 million to RSI through the
RSVP Commitment for an investment in RSVP which was then invested on a joint
venture basis with the Dominion Group in certain service business activities
related to the real estate activities. As of December 31, 1998, the Dominion
Venture had investments in 11 government office buildings and two correctional
facilities.
In July 1998, the Company formed a joint venture, Metropolitan Partners LLC,
a Delaware limited liability company ("Metropolitan"), with Crescent Real Estate
Equities Company, a Texas real estate investment trust ("Crescent"). Pursuant to
a merger agreement executed on July 9, 1998 and amended and restated on August
11, 1998 (the "Initial Merger Agreement") between Metropolitan, the Company,
Crescent and Tower Realty Trust Inc., a Maryland corporation ("Tower"),
Metropolitan agreed, subject to the terms and conditions of the Merger
Agreement, to purchase the common stock of Tower.
Prior to the execution of the Initial Merger Agreement, Metropolitan
identified certain potential tax issues regarding Tower's operations.
Metropolitan entered into the Initial Merger Agreement only after Tower made
detailed representations and warranties purporting to address these issues. In
the course of due diligence, however, Metropolitan, the Company and Crescent
discovered that these representations and warranties may not be correct and
discussed these concerns with Tower, specifically advising Tower that they were
not terminating the Initial Merger Agreement at that time. Metropolitan, the
Company and Crescent invited Tower to respond to these concerns. However, on
November 2,
F-5
<PAGE>
1998, Tower filed a complaint in the Supreme Court of the State of New York
alleging Metropolitan, the Company and Crescent willfully breached the Initial
Merger Agreement. Tower, in the complaint, was seeking declaratory and other
relief, including damages of not less than $75 million and specific performance
by Metropolitan, the Company and Crescent of their obligations under the Initial
Merger Agreement.
On December 8, 1998,the Company, Metropolitan and Tower executed a revised
merger agreement (the "Revised Merger Agreement"), pursuant to which Tower will
be merged (the "Merger") into Metropolitan, with Metropolitan surviving the
Merger. Concurrently with the Merger, Tower Realty Operating Partnership, L.P.
("Tower OP") will be merged with and into a subsidiary of Metropolitan. The
consideration to be issued in the mergers will be comprised of (i) 25% cash and
(ii) 75% of shares of Class B Exchangeable Common Stock, par value $.01 per
share, of the Company (the "Class B Common Stock"), or in certain circumstances
described below, shares of Class B Common Stock and unsecured notes of the
Operating Partnership. The Company controls Metropolitan and owns 100% of the
common equity; Crescent owns a preferred equity investment in Metropolitan. The
Revised Merger Agreement replaces the Initial Merger Agreement (which at that
time was a 50/50 joint venture between the Company and Crescent) relating to the
acquisition by Metropolitan of Tower for $24 per share.
Pursuant to the terms of the Revised Merger Agreement, holders of shares of
outstanding common stock of Tower ("Tower Common Stock"), and outstanding units
of limited partnership interest of Tower OP will have the option to elect to
receive cash or shares of Class B Common Stock, subject to proration. Under the
terms of the transaction, Metropolitan will effectively pay for each share of
Tower Common Stock and each unit of limited partnership interest of Tower OP the
sum of (i) $5.75 in cash, and (ii) 0.6273 of a share of Class B Common Stock.
The shares of Class B Common Stock are entitled to receive an initial annual
dividend of $2.24 per share and is subject to adjustment annually. The shares of
Class B Common Stock are exchangeable at any time, at the option of the holder,
into an equal number of shares of common stock, par value $.01 per share, of the
Company subject to customary antidilution adjustments. The Company, at its
option, may redeem any or all of the Class B Common Stock in exchange for an
equal number of shares of the Company's common stock at any time following the
four year, six-month anniversary of the issuance of the Class B Common Stock.
The Company's Board of Directors have recommended to the Company's stockholders
the approval of a proposal to issue a number of shares of Class B Common Stock
equal to 75% of the sum of (i) the number of outstanding shares of the Tower
Common Stock and (ii) the number of Tower OP limited partnership units, in each
case, at the effective time of the mergers. If the stockholders of the Company
do not approve the issuance of the Class B Common Stock as proposed, the Revised
Merger Agreement provides that approximately one-third of the consideration that
was to be paid in the form of Class B Common Stock will be replaced by senior
unsecured notes of the Operating Partnership, which notes will bear interest at
the rate of 7% per annum and have a term of ten years. In addition, if the
stockholders of the Company do not approve the issuance of Class B Common Stock
as proposed and the Board of Directors of the Company withdraws or amends or
modifies in any material respect its recommendation for, approval of such
proposal, then the total principal amount of notes to be issued and distributed
in the Merger will be increased by $15 million.
Simultaneously with the execution of the Revised Merger Agreement,
Metropolitan and Tower executed and consummated a stock purchase agreement (the
"Series A Stock Purchase Agreement") pursuant to which Metropolitan purchased
from Tower approximately 2.2 million shares of Series A Convertible Preferred
Stock, par value $.01 per share, of Tower (the "Tower Preferred Stock"), for an
aggregate purchase price of $40 million, $30 million of which was funded through
a capital contribution by the Company to Metropolitan and which is included in
prepaid expenses and other assets on the Company's balance sheet. The Tower
Preferred Stock has a stated value of $18.44 per share and is convertible by
Metropolitan into an equal number of shares of Tower Common Stock at anytime
after the termination, if any, of the Revised Merger Agreement, subject to
customary antidilution
F-6
<PAGE>
adjustments. The Tower Preferred Stock is entitled to receive dividends
equivalent to those paid on the Tower Common Stock. If the Revised Merger
Agreement is not consummated and a court of competent jurisdiction issues a
final, non-appealable judgment determining that the Company and Metropolitan are
obligated to consummate the Merger but have failed to do so, or determining that
the Company and Metropolitan failed to use their reasonable best efforts to take
all actions necessary to cause certain closing conditions to be satisfied,
Metropolitan is obligated to return to Tower $30 million of the Series A
Preferred Stock.
Immediately prior to the execution of the Revised Merger Agreement and
consummation of the Series A Stock Purchase Agreement, the Company and Crescent
executed the amended and restated operating agreement of Metropolitan (the
"Metropolitan Operating Agreement") pursuant to which Crescent agreed to
purchase a convertible preferred membership interest (the "Preferred Interest")
in Metropolitan for an aggregate purchase price of $85 million. Ten million
dollars of the purchase price was paid by Crescent to Metropolitan upon
execution of the Metropolitan Operating Agreement to acquire the Tower Preferred
Stock and the remaining portion is payable prior to the closing of the Merger
and is expected to be used to fund a portion of the cash merger consideration.
Upon closing of the Merger, Crescent's investment will accrue distributions at a
rate of 7.5% per annum for a two-year period and may be redeemed by Metropolitan
at any time during that period for $85 million, plus an amount sufficient to
provide a 9.5% internal rate of return. If Metropolitan does not redeem the
preferred interest, upon the expiration of the two-year period, Crescent must
convert its interest into either (i) a common membership interest in
Metropolitan or (ii) shares of the Company's common stock at a conversion price
of $24.61.
In connection with the revised transaction, Tower, the Company and Crescent
have exchanged mutual releases for any claims relating to the Initial Merger
Agreement.
The Company anticipates that it will dispose of the assets in the Tower
portfolio located outside of New York. In addition, the Company is also
considering the disposition of certain of the Tower properties located in New
York.
The market capitalization of the Operating Partnership at December 31, 1998
was approximately $2.2 billion. The Operating Partnership's market
capitalization is calculated based on the value of the Operating Partnership's
common units (which, for this purpose, is assumed to be the same per unit as the
value of a share of the Company's common stock) and the stated values of the
Operating Partnership's preferred units and the $867 million (including its
share of joint venture debt and net of minority partners' interest) of debt
outstanding at December 31, 1998. As a result, the Operating Partnership's total
debt to total market capitalization ratio at December 31, 1998 equaled
approximately 39.4%.
RESULTS OF OPERATIONS
The Operating Partnership's total revenues increased by $113 million or
73.7% from 1997 to 1998 and $57.3 million or 60% from 1996 to 1997. The growth
in total revenues is substantially attributable to the Operating Partnership's
acquisition of 47 properties and the development of two properties which
aggregate approximately 7.4 million square feet in 1998, the acquisition of 45
properties comprising approximately 4.8 million square feet in 1997 and the
acquisition of 29 properties comprising approximately 3.3 million square feet in
1996. Total revenues were also positively effected by increases in occupancies
in our properties and to increases in rental rates throughout our markets.
Property operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $108.7 million or
75.6% from 1997 to 1998 and $51 million or 55% from 1996 to 1997. The 1998
increase in Property Operating Revenues is comprised of $2.1 million
attributable to increases in rental rates and changes in occupancies and $106.6
million attributable to acquisitions of properties. The remaining balance of the
increase in total revenues in
F-7
<PAGE>
1998 is primarily attributable to increases in interest income on the Operating
Partnership's investments in mortgage notes and notes receivable and income
related to the Operating Partnership's interest in its service companies
primarily attributable to the executive center business. The 1997 increase in
Property Operating Revenues is comprised of $2.1 million attributable to
increases in rental rates and changes in occupancies and $48.9 million
attributable to acquisitions of properties. The remaining balance of the
increase in total revenues in 1997 is substantially attributable to interest
income on the Operating Partnership's investments in mortgage notes and notes
receivables. The increase from 1996 to 1997 was offset by a decrease in the
equity in earnings of service companies as a result of the management and
construction companies focusing most of their resources on the Operating
Partnership's core portfolio and redevelopment opportunities rather than third
party services. The Operating Partnership's base rent was increased by the
impact of the straight-line rent adjustment by $7.7 million in 1998, $4.5
million in 1997 and $3.8 million in 1996.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $34.4 million from 1997 to 1998 and by $16.8 million
from 1996 to 1997. These increases are primarily due to the acquisition of
properties. Gross operating margins (defined as Property Operating Revenues less
Property Expenses, taken as a percentage of Property Operating Revenues) for
1998, 1997and 1996 were 66.2%, 64.7% and 63.4%, respectively. The year to year
increases in gross operating margins results from increases realized in rental
rates, the Operating Partnership's ability to realize certain operating
efficiencies as a result of operating a larger portfolio of properties with
concentrations of properties in office and industrial parks or in its
established sub-markets, a stable operating cost environment and the increased
ownership of net leased properties.
Marketing, general and administrative expenses were $15.0 million in 1998,
$8.0 million in 1997 and $5.9 million in 1996. The increase in marketing,
general and administrative expenses is due to the increased costs of managing
the acquisition properties, the cost of opening and maintaining the Operating
Partnership's Westchester, Southern Connecticut and New Jersey divisions and the
increase in corporate management and administrative costs associated with the
growth of the Operating Partnership. The Operating Partnership's business
strategy has been to expand into the other Tri-State Area suburban markets by
applying its standards for high quality office and industrial space and premier
tenant service to its New Jersey, Westchester and Southern Connecticut
divisions. In doing this, the Operating Partnership seeks to create a superior
franchise value that it enjoys in its home base of Long Island. Over the past
three years the Operating Partnership has supported this effort by increasing
the marketing programs in the other divisions and strengthening the resources
and operating systems in these divisions. The cost of these efforts are
reflected in both the marketing, general and administrative expense as well as
the revenue growth of the Operating Partnership. Marketing, general and
administrative expenses as a percentage of total revenues were 5.64% in 1998,
5.23% in 1997 and 6.18% in 1996.
Interest expense was $47.8 million in 1998, $21.6 million in 1997 and $13.3
million in 1996. The increase of $26.2 million from 1997 to 1998 is attributable
to (i) an increase in mortgage debt including approximately $14.8 million
resulting from the Morris acquisition in January 1998, approximately $45.1
resulting from the Cappelli acquisition in April 1998 and the refinancing of 395
North Service Road in the amount $21.4 million in October 1998; (ii) a full year
of interest on the Operating Partnership's senior unsecured notes (the "Senior
Unsecured Notes") and (iii) an increased average balance on the Operating
Partnership's credit facilities. The increase of $8.3 million from 1996 to 1997
is attributable to an increase in mortgage debt including a $50 million mortgage
note incurred in connection with the acquisition of Landmark Square in October
1996, the refinancing of Omni in the amount of $58 million in August 1997,
increased interest cost attributable to an increased average balance on the
Operating Partnership's credit facilities and interest on the Operating
Partnership's $150 million of Senior Unsecured Notes. The weighted average
balance outstanding on the Operating Partnership's credit facilities was $377.9
million for 1998, $103.2 million for 1997and $71.2 million for 1996.
F-8
<PAGE>
Included in amortization expense is amortized finance costs of $1.6 million
in 1998, $.80 million in 1997 and $.53 million in 1996. The increase of $.80
million from 1997 to 1998 is primarily attributable to loan costs incurred in
connection with the Operating Partnership's $500 million credit facility and $50
million term loan. The increase of $.27 million from 1996 to 1997 was the result
of the amortization of financing costs associated with the credit facilities,
the Landmark Square mortgage, the Omni refinanced mortgage and the Senior
Unsecured Notes.
Extraordinary items, net of minority interest resulted in a $1.7 million
loss in 1998, a $2.2 million loss in 1997and a $.9 million loss in 1996. The
extraordinary items were all attributed to the write-offs of certain deferred
loan costs incurred in connection with the Operating Partnership's restructuring
of its credit facilities.
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY OF CASH FLOWS
Net cash provided by operating activities totaled $119.2 million in 1998,
$75.8 million in 1997 and $41.8 million in 1996. Increases for each year were
primarily attributable to the growth in cash flow provided by the acquisition of
properties and to a lesser extent from interest income from mortgage notes and
notes receivable.
Net cash used by investing activities totaled $613.3 million in 1998, $549.3
million in 1997 and $274.6 million in 1996. Cash used in investing activities
related primarily to investments in real estate properties including development
costs and investments in mortgage notes and notes receivable. In addition, in
December 1998, the Operating Partnership purchased $40 million of preferred
stock of Tower Realty Trust, Inc. in connection with the Merger transaction.
Net cash provided by financing activities totaled $474.6 million in 1998,
$482.9 million in 1997 and $238.3 million in 1996. Cash provided by financing
activities during 1998, 1997 and 1996 was primarily attributable to proceeds
from partner contributions and draws on the Operating Partnership's credit
facilities and additionally, in 1998 the issuance of preferred units and in 1997
proceeds from the issuance of Senior Unsecured Notes.
INVESTING ACTIVITIES
During 1998, the Operating Partnership acquired (i) on Long Island, three
office properties encompassing an aggregate of approximately 674,000 square feet
for approximately $63.4 million and two industrial properties encompassing
approximately 200,000 square feet for approximately $4.4 million; (ii) in
Westchester, six office properties encompassing approximately 980,000 square
feet for approximately $173 million; (iii) in Connecticut, two office properties
encompassing an aggregate of approximately 325,000 square feet for approximately
$61.3 million and (iv) in New Jersey, four Class A office properties
encompassing approximately 522,000 square feet for approximately $90.9 million
and six industrial properties encompassing approximately 985,000 square feet for
approximately $41.6 million. In addition, on January 6, 1998, the Operating
Partnership invested approximately $72 million and acquired a controlling
interest in the Morris Companies, an owner and operator of "Big Box" industrial
properties located in Secaucus, New Jersey.
In June 1998, the Operating Partnership established the RSI credit facility
in the amount of $100 million for RSI's service sector operations and for other
general corporate purposes. As of December 31, 1998, approximately $33.7 million
had been advanced to RSI under this facility. In addition, the Operating
Partnership approved a commitment to fund investments of up to $100 million with
or in RSVP. As of December 31, 1998, the Operating Partnership has invested
approximately $17.3 million under this commitment.
F-9
<PAGE>
FINANCING ACTIVITIES
In connection with the $173 million acquisition of the Cappelli Portfolio
and the $10 million purchase of the Cappelli interest in 360 Hamilton Avenue,
the Operating Partnership issued series B, C and D preferred operating units in
the amount of approximately $42.5 million. The series B, C and D preferred units
have a current distribution rate of 6.25% and are convertible to common units at
conversion prices of approximately $32.51, $29.39 and $29.12, respectively for
each preferred unit.
During the year ended Decemeber 31,1998, the Company contributed
approximately $53 million in cash to the Operating Partnership in exchange for
2,265,261 common units. Proceeds from the contributions were used to repay
borrowings under the credit facilities.
Additionally, during April 1998, the Company contributed approximately $221
million to the Operating Partnership in exchange for 9,200,000 Series A
preferred units. The Series A preferred units have a liquidation preference of
$25 per unit, a distribution rate of 7.625% and are convertible to the Operating
Partnership's common units at a conversion rate of .8769 common units for each
preferred unit. Net proceeds from the contribution were used to repay borrowings
under credit facilities.
On July 23, 1998, the Operating Partnership obtained a three year $500
million unsecured revolving credit facility (the "Credit Facility") from Chase
Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the
credit facility bank group. Interest rates on borrowings under the Credit
Facility are priced off of LIBOR plus a sliding scale ranging from 112.5 basis
points to 137.5 basis points based on the leverage ratio of the Operating
Partnership. Upon the Operating Partnership receiving an investment grade rating
on its senior unsecured debt by two rating agencies, the pricing is adjusted
based off of LIBOR plus a scale ranging from 65 basis points to 90 basis points
depending upon the rating. The Credit Facility replaced and restructured the
Operating Partnership "s existing $250 million unsecured credit facility and
$200 million unsecured bridge facility. As a result, certain deferred loan costs
incurred in connection with those facilities were written off. Such amount has
been reflected as an extraordinary loss on the Operating Partnership "s
statement of operations. The Operating Partnership utilizes the Credit Facility
primarily to finance the acquisitions of properties and other real estate
investments, fund its development activities and for working capital purposes.
At December 31, 1998, the Operating Partnership had availability under the
Credit Facility to borrow an additional $8.1 million (net of $26.1million of
outstanding undrawn letters of credit).
On December 4, 1998, the Operating Partnership obtained a one year $50
million unsecured term loan (the "Term Loan") from Chase Manhattan Bank. On
January 13, 1999, the Operating Partnership and Chase Manhattan Bank increased
the total availability under the Term Loan to $75 million. Interest rates on
borrowings under the Term Loan are priced off LIBOR plus 150 basis points for
the first nine months and 175 basis points for the remaining three months. At
December 31, 1998, the Operating Partnership had availability under the Term
Loan to borrow an additional $30 million which was increased to $55 million on
January 13, 1999.
CAPITALIZATION
The Operating Partnership's indebtedness at December 31, 1998 totaled $867
million (including its share of joint venture debt and net of the minority
partners' interests) and was comprised of $464 million outstanding under the
Credit Facility, $20 million outstanding under the Term Loan, $150 million of
Senior Unsecured Notes and approximately $233 million of mortgage indebtedness.
Based on the Operating Partnership's total market capitalization of
approximately $2.2 billion at December 31, 1998, (calculated based on the value
of the Operating Partnership's common units(which, for this purpose, is assumed
to be the same per unit as the value of a share of the Company's common stock),
the stated value of the Operating Partnership's preferred units), the Operating
partnership's debt represented approximately 39.4% of its total market
capitalization.
F-10
<PAGE>
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Operating Partnership. The Operating
Partnership's investments in mortgage notes, RSVP and advances under the RSI
facility are expected to produce cash flows. The Operating Partnership expects
to meet its short term liquidity requirements generally through its net cash
provided by operating activities along with the Credit Facility and Term Loan
previously discussed. The Operating Partnership expects to meet certain of its
financing requirements through long-term secured and unsecured borrowings and
the issuance of debt securities and additional equity securities of the
Operating Partnership. The Operating Partnership also expects certain strategic
dispositions of assets or interests in assets to generate cash flows. The
Operating Partnership will refinance existing mortgage indebtedness or
indebtedness under the Credit Facility at maturity or retire such debt through
the issuance of additional debt securities or additional equity securities. The
Operating Partnership anticipates that the current balance of cash and cash
equivalents and cash flows from operating activities, together with cash
available from borrowings and debt and equity offerings, will be adequate to
meet the capital and liquidity requirements of the Operating Partnership in both
the short and long-term.
INFLATION
Certain office leases provide for fixed base rent increases or indexed
escalations. In addition, certain office leases provide for separate escalations
of real estate taxes and electric costs over a base amount. The industrial
leases also generally provide for fixed base rent increases, direct pass through
of certain operating expenses and separate real estate tax escalation over a
base amount. The Operating Partnership believes that inflationary increases in
expenses will generally be offset by contractual rent increases and expense
escalations described above.
The Credit Facility and the Term Loan bear interest at a variable rate,
which will be influenced by changes in short-term interest rates, and are
sensitive to inflation.
IMPACT OF YEAR 2000
Some of the Operating Partnership's older computer programs were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognizes a date
using "00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, or engage in
similar normal business activities.
The Operating Partnership has completed an assessment to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. Currently, the entire
property management system is year 2000 compliant and has been thoroughly
tested. Since the Operating Partnership's accounting software is maintained and
supported by an unaffiliated third party, the total year 2000 project cost as it
relates to the accounting software is estimated to be minimal.
The year 2000 project is estimated to be completed not later than July 31,
1999, which is prior to any anticipated impact on its operating systems.
Additionally, the Operating Partnership has received assurances from its
contractors that all of the Operating Partnership's building management and
mechanical systems are currently year 2000 compliant or will be made compliant
prior to any impact on those systems. However, the Operating Partnership cannot
guarantee that all contractors will comply with their assurances and therefore,
the Operating Partnership may not be able to determine year 2000 compliance of
those contractors. At that time, the Operating Partnership will determine the
extent to which the Operating Partnership will be able to replace non compliant
contractors. The Operating Partnership believes that with modifications to
existing software and conversions to new software, the year 2000 issue will not
pose significant operational problems for its computer systems. However, if
F-11
<PAGE>
such modifications and conversions are not made, or are not completed timely,
the year 2000 issue could have a material impact on the operations of the
Operating Partnership.
To date, the Operating Partnership has expended approximately $375,000 and
expects to expend an additional one million dollars in connection with upgrading
building management, mechanical and computer systems. The costs of the project
and the date on which the Operating Partnership believes it will complete the
year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and costs
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
In a "worst case scenario", the Operating Partnership believes that failure
of the building management and mechanical systems to operate properly would
result in inconveniences to the building tenants which might include no elevator
service, lighting or entry and egress. In this case, the management of the
Operating Partnership would manually override such systems in order for normal
operations to resume. Additionally, in a "worst case scenario" of the failure of
the third party to deliver, on a timely basis, the necessary upgrades to the
accounting software, the Operating Partnership would be required to process
transactions, such as the issuance of disbursements, manually until an
alternative system was implemented.
If the Operating Partnership is not successful in implementing their year
2000 compliance plan, the Operating Partnership may suffer a material adverse
impact on their consolidated results of operations and financial condition.
Because of the importance of addressing the year 2000 issue, the Operating
Partnership expects to develop contingency plans if they determine that the
compliance plans will not be implemented by July 31, 1999.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. FFO is defined by the National
Association of Real Estate Investment Trusts (NAREIT) as net income or loss,
excluding gains or losses from debt restructurings and sales of properties, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting principles
and is not indicative of cash available to fund cash needs. FFO should not be
considered as an alternative to net income as an indicator of the Operating
Partnership's operating performance or as an alternative to cash flow as a
measure of liquidity. (See Selected Financial Data). In March 1995, NAREIT
issued a "White Paper" analysis to address certain interpretive issues under its
definition of FFO. The White Paper provides that amortization of deferred
financing costs and depreciation of non-rental real estate assets are no longer
to be added back to net income to arrive at FFO.
Since all companies and analysts do not calculate FFO in a similar fashion,
the Operating Partnership's calculation of FFO presented herein may not be
comparable to similarly titled measures as reported by other companies.
F-12
<PAGE>
The following table presents the Operating Partnership's FFO calculation (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECMEBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income before extraordinary items................................................ $ 48,246 $ 44,789 $ 24,180
Less:
Extraordinary loss............................................................. 1,993 2,808 1,259
--------- --------- ---------
Net Income....................................................................... 46,253 41,981 22,921
Adjustment for Funds From Operations:
Add:
Depreciation and Amortization.................................................. 51,424 26,834 17,429
Minority interests in consolidated partnerships................................ 2,819 920 915
Extraordinary loss............................................................. 1,993 2,808 1,259
Less:
Gain on sale of property....................................................... -- 672 --
Amount distributed to minority partners in consolidated partnerships........... 3,988 2,252 1,586
--------- --------- ---------
Funds From Operations (FFO)...................................................... $ 98,501 $ 69,619 $ 40,938
--------- --------- ---------
--------- --------- ---------
Weighted average units outstanding............................................... 47,201 39,743 26,431
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Reckson Operating Partnership, L. P.
We have audited the accompanying consolidated balance sheets of Reckson
Operating Partnership, L. P. (the "Operating Partnership") as of December 31,
1998 and 1997, and the related consolidated statements of income, partners'
capital, and cash flows for each of the three years in the period ended December
31 1998. We have also audited the financial statement schedule listed in the
Index. These financial statements and financial statement schedule are the
responsibility of the Operating Partnership's management. Our responsibility is
to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Reckson
Operating Partnership, L. P. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
ERNST & YOUNG LLP
New York, New York
February 11, 1999
F-14
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Commercial real estate properties, at cost (Notes 2, 3, 5, 7 and 8)
Land................................................................................ $ 212,540 $ 138,526
Buildings and improvements.......................................................... 1,372,549 818,229
Developments in progress:
Land................................................................................ 69,143 36,857
Development costs................................................................... 82,901 17,616
Furniture, fixtures and equipment..................................................... 6,090 4,054
1,743,223 1,015,282
Less accumulated depreciation..................................................... (159,049) (111,068)
------------ ------------
1,584,174 904,214
Investments in real estate joint ventures............................................. 15,104 7,223
Investment in mortgage notes and notes receivable(Note 8)............................. 99,268 104,509
Cash and cash equivalents (Note 12)................................................... 2,228 21,676
Tenant receivables.................................................................... 5,159 4,975
Investments in and advances to affiliates (Note 7).................................... 53,154 18,090
Deferred rent receivable.............................................................. 22,526 14,973
Prepaid expenses and other assets (Notes 7 and 8)..................................... 46,372 13,705
Contract and land deposits and pre-acquisition costs.................................. 2,253 7,559
Deferred lease and loan costs, less accumulated amortization of $18,170 and $14,844
respectively........................................................................ 24,282 16,181
------------ ------------
Total Assets........................................................................ $ 1,854,520 $ 1,113,105
------------ ------------
------------ ------------
LIABILITIES
Mortgage notes payable (Note 2)....................................................... $ 253,463 $ 180,023
Unsecured credit facility (Notes 3 and 12)............................................ 465,850 210,250
Unsecured term loan (Note 3).......................................................... 20,000 --
Senior unsecured notes (Note 4)....................................................... 150,000 150,000
Accrued expenses and other liabilities (Note 5)....................................... 48,384 30,799
Distributions payable................................................................. 19,663 120
Affiliate payables (Note 7)........................................................... 2,395 1,764
------------ ------------
Total Liabilities................................................................... 959,755 572,956
------------ ------------
------------ ------------
Commitments and other comments (Notes 9, 10, and 12).................................. -- --
Minority interests in consolidated partnerships....................................... 52,173 7,697
------------ ------------
PARTNERS' CAPITAL (NOTE 6)
Preferred Capital, 9,234,518 and 0 units outstanding, respectively................ 263,126 --
General Partner's Capital, 40,035,419 and 37,770,158 units outstanding,
respectively........................................................................ 485,341 446,702
Limited Partners' Capital, 7,764,630 and 7,218,688 units outstanding, respectively.... 94,125 85,750
------------ ------------
Total Partners' Capital............................................................. 842,592 532,452
------------ ------------
Total Liabilities and Partners' Capital........................................... $ 1,854,520 $ 1,113,105
------------ ------------
------------ ------------
</TABLE>
(see accompanying notes to financial statements)
F-15
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES (NOTE 10):
Base rents.............................................................. $ 224,703 $ 128,778 $ 82,150
Tenant escalations and reimbursements................................... 27,744 14,981 10,628
Equity in earnings of service companies................................. 1,233 55 1,031
Equity in earnings of real estate joint ventures........................ 603 459 266
Interest income on mortgage notes and notes receivable.................. 7,739 5,437 --
Investment and other income (Note 8).................................... 4,290 3,638 1,955
------------ ------------ ------------
Total Revenues........................................................ 266,312 153,348 96,030
------------ ------------ ------------
EXPENSES:
Property operating expenses............................................. 47,919 28,943 18,959
Real estate taxes....................................................... 35,541 20,579 13,935
Ground rents............................................................ 1,761 1,269 1,107
Marketing, general and administrative................................... 15,030 8,026 5,933
Interest................................................................ 47,795 21,585 13,331
Depreciation and amortization........................................... 52,957 27,237 17,670
------------ ------------ ------------
Total Expenses.......................................................... 201,003 107,639 70,935
------------ ------------ ------------
Income before distributions to preferred unit holders, minority
interests and extraordinary items..................................... 65,309 45,709 25,095
Preferred unit distributions............................................ (14,244) -- --
Minority partners' interest in consolidated partnerships income......... (2,819) (920) (915)
------------ ------------ ------------
Income before extraordinary items....................................... 48,246 44,789 24,180
Extraordinary items--(loss) on extinguishment of debts.
(Notes 1 and 3)....................................................... (1,993) (2,808) (1,259)
------------ ------------ ------------
Net income available to common unit holders............................. $ 46,253 $ 41,981 $ 22,921
------------ ------------ ------------
------------ ------------ ------------
Net Income:
General Partner....................................................... $ 38,667 $ 34,742 $ 17,325
Limited Partners'..................................................... 7,586 7,239 5,596
------------ ------------ ------------
Total................................................................... $ 46,253 $ 41,981 $ 22,921
------------ ------------ ------------
------------ ------------ ------------
Net income per common unit:
General Partner....................................................... $ .98 $ 1.06 $ .87
Limited Partners'..................................................... $ .98 $ 1.03 $ .86
Weighted average common units outstanding:
General Partner....................................................... 39,473,000 32,727,000 19,928,000
Limited Partners'..................................................... 7,728,000 7,016,000 6,503,000
</TABLE>
(see accompanying notes to financial statements)
F-16
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PREFERRED PARTNER'S PARTNERS' PARTNERS'
CAPITAL CAPITAL CAPITAL CAPITAL
---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995................................... $ -- $ 59,893 $ 26,148 $ 86,041
Net Income.................................................. -- 17,325 5,596 22,921
Contributions............................................... -- 131,716 27,881 159,597
Distributions............................................... -- (24,136) (7,746) (31,882)
---------- -------- ---------- ----------
BALANCE DECEMBER 31, 1996................................... -- 184,798 51,879 236,677
Net Income.................................................. -- 34,742 7,239 41,981
Contributions............................................... -- 267,827 35,339 303,166
Distributions............................................... -- (40,665) (8,707) (49,372)
---------- -------- ---------- ----------
BALANCE DECEMBER 31, 1997................................... -- 446,702 85,750 532,452
Net Income.................................................. -- 38,667 7,586 46,253
Contributions............................................... 263,126 54,089 11,484 328,699
Distributions............................................... -- (55,193) (10,695) (65,888)
Contribution of a 1% interest in Reckson FS Limited
Partnership............................................... -- 1,076 -- 1,076
---------- -------- ---------- ----------
BALANCE DECEMBER 31, 1998................................... $ 263,126 $ 485,341 $ 94,125 $ 842,592
---------- -------- ---------- ----------
---------- -------- ---------- ----------
</TABLE>
(see accompanying notes to financial statements)
F-17
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Net Income available to common unitholders....................................... $ 46,253 $ 41,981 $ 22,921
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 52,957 27,237 17,670
Extraordinary loss on extinguishment of debts.................................. 1,993 2,808 1,259
Minority partners' interests in consolidated partnerships...................... 2,819 920 915
Gain on sale of interest in Reckson Executive Centers, LLC..................... (9) -- --
Gain on sales of property and securities....................................... (43) (672) --
Distribution from and share of net loss (income) from investments in
partnerships................................................................. 470 408 191
Equity in earnings of service companies........................................ (1,233) (55) (931)
Equity in earnings of real estate joint ventures............................... (603) (459) (266)
Changes in operating assets and liabilities:
Prepaid expenses and other assets.............................................. (6,499) (1,931) (619)
Tenant and affiliate receivables............................................... (184) (1,183) (256)
Deferred rents receivable...................................................... (7,553) (4,500) (3,837)
Accrued expenses and other liabilities......................................... 30,849 11,240 4,716
--------- --------- ---------
Net cash provided by operating activities...................................... 119,217 75,794 41,763
--------- --------- ---------
Cash Flows from Investing Activities:
Increase in capital escrow reserves............................................ (700) -- --
Cash from contributed net assets............................................... -- -- --
Purchases of commercial real estate properties................................. (449,241) (429,379) (181,130)
Interest receivables........................................................... 2,602 (2,392) (870)
Investment in mortgage notes and notes receivable.............................. 4,072 (50,282) (50,892)
Contract deposits and preacquisition costs..................................... 8,839 (1,303) (6,668)
Additions to developments in progress.......................................... (97,570) (40,367) (8,427)
Additions to commercial real estate properties................................. (21,181) (12,038) (12,441)
Payment of leasing costs....................................................... (8,802) (5,417) (5,028)
Investments in securities...................................................... (42,299) (1,756) --
Additions to furniture, fixtures and equipment................................. (2,071) (1,159) (115)
Investments in real estate joint ventures...................................... (7,773) (1,734) (5,832)
Investment in service companies................................................ -- (4,241) (3,170)
Distribution from a service company............................................ 15 -- --
Proceeds from sales of property and securities................................. 809 725 --
--------- --------- ---------
Net cash (used in) investing activities........................................ (613,300) (549,343) (274,573)
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from borrowings....................................................... -- -- 54,402
Principal payments on borrowings............................................... (4,735) (1,624) (380)
Proceeds from issuance of senior unsecured notes............................... -- 150,000 --
Proceeds from mortgage refinancing's, net of refinancing costs................. 11,458 20,134 --
Payment of loan costs and prepayment penalties................................. (4,738) (4,983) (2,525)
Investments in and advances to affiliates...................................... (24,409) (20,182) (2,952)
Proceeds from credit facilities................................................ 393,100 421,000 144,500
Principal payments on credit facilities........................................ (137,500) (319,250) (76,000)
Proceeds from term loan........................................................ 20,000 -- --
Contributions.................................................................. 272,734 299,991 145,317
Distributions.................................................................. (57,683) (53,327) (22,546)
Contribution by a minority partner in a consolidated partnership............... 10,000 -- --
Distributions to minority partners in consolidated partnerships................ (3,592) (8,855) (1,492)
--------- --------- ---------
Net cash provided by financing activities...................................... 474,635 482,904 238,324
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................. (19,448) 9,355 5,514
Cash and cash equivalents at beginning of period................................. 21,676 12,321 6,807
--------- --------- ---------
Cash and cash equivalents at end of period....................................... $ 2,228 $ 21,676 $ 12,321
--------- --------- ---------
--------- --------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest......................................... $ 41,822 $ 20,246 $ 13,261
--------- --------- ---------
--------- --------- ---------
</TABLE>
(See accompanying notes to financial statements)
F-18
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Reckson Operating Partnership, L. P. (the "Operating Partnership") is
engaged in the ownership, management, operation, leasing and development of
commercial real estate properties, principally office and industrial buildings
and also own certain undeveloped land (collectively, the "Properties") located
in the New York tri-state area (the "Tri State Area").
ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
The Operating Partnership commenced operations on June 2, 1995 and is the
successor to the operations of the Reckson Group. The sole general partner in
the Operating Partnership, Reckson Associates Realty Corp. (the "Company") is a
self administered and self managed Real Estate Investment Trust ("REIT"). During
June, 1995, the Company contributed approximately $162 million in cash to the
Operating Partnership in exchange for an approximate 73% general partnership
interest.
The Operating Partnership executed various option and purchase agreements
whereby it issued 2,758,960 units in the Operating Partnership ("Units") to the
continuing investors and assumed approximately $163 million (net of the Omni
mortgages) of indebtedness in exchange for interests in certain property
partnerships, fee simple and leasehold interests in properties and development
land, certain business assets of the executive center entities and 100% of the
non-voting preferred stock of the management and construction companies.
During 1997, the Company formed Reckson Service Industries, Inc. ("RSI") and
Reckson Strategic Venture Partners, LLC ("RSVP"). The Operating Partnership
owned a 95% non voting common stock interest in RSI through June 10, 1998. On
June 11, 1998, the Operating Partnership distributed its 95% common stock
interest in RSI of approximately $3 million to its owners, including the Company
which, in turn, distributed the common stock of RSI to its stockholders.
Additionally, during June 1998, the Operating Partnership established a credit
facility with RSI (the "RSI Facility") in the amount of $100 million for RSI's
service sector operations and other general corporate purposes. As of December
31, 1998, the Company had advanced $33.7 million under the RSI facility all of
which is outstanding. In addition, the Operating Partnership approved the
funding of investments of up to $100 million with or in RSVP (the "RSVP
Commitment"), through RSVP-controlled joint venture REIT-qualified investments
or advances made to RSI under terms similar to the RSI Facility. As of December
31, 1998, approximately $17.3 million had been invested through the RSVP
Commitment, of which $10.1 million represents RSVP controlled joint venture
investments and $7.2 million represents advances to RSI under the RSVP
Commitment. Such amounts have been included in investment in real estate joint
ventures and investments in and advances to affiliates, respectively, on the
Company's balance sheet. RSI serves as the managing member of RSVP. RSI invests
in operating companies that generally provide commercial services to the RSI
customer base which includes the tenants of RSI's executive suite business and
to properties owned by the Company and its tenants and third parties. RSVP was
formed to provide the Company with a research and development vehicle to invest
in alternative real estate sectors. RSVP invests primarily in real estate and
real estate related operating companies generally outside of the Company's core
office and industrial focus. RSVP's strategy is to identify and acquire
interests in established entrepreneurial enterprises with experienced management
teams in market sectors which are in the early stages of their growth cycle or
offer unique circumstances for attractive investments as well as a platform for
future growth.
F-19
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On January 6, 1998, the Operating Partnership made an initial investment in
the Morris Companies, a New Jersey developer and owner of "Big Box" warehouse
facilities. The Morris Companies properties include 23 industrial buildings
encompassing approximately 4.0 million square feet. In connection with the
transaction the Morris Companies contributed 100% of their interests in certain
industrial properties to Reckson Morris Operating Partnership, L.P. ("RMI") in
exchange for operating partnership units in RMI. The Operating Partnership has
agreed to invest up to $150 million in the Morris Companies. As of December 31,
1998, the Operating Partnership has invested approximately $93.8 million for an
approximate 71.8% controlling interest in RMI.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the consolidated
financial position of the Operating Partnership and its subsidiaries as at
December 31, 1998 and 1997 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998. The
Operating Partnership's investments in Metropolitan Partners, LLC, RMI and Omni
Partners, L. P. ("Omni"), are reflected in the accompanying financial statements
on a consolidated basis with a reduction for minority partners' interest. The
operating results of the service businesses currently conducted by Reckson
Management Group, Inc., ("RMG"), and Reckson Construction Group, Inc., are
reflected in the accompanying financial statements on the equity method of
accounting. The operating results of Reckson Executive Centers, L.L.C., ("REC"),
a service business of the Operating Partnership were reflected in the
accompanying financial statements on the equity method of accounting through
March 31, 1998. On April 1, 1998, the Operating Partnership sold its 9.9%
interest in REC to RSI. Additionally, the operating results of RSI were
reflected in the accompanying financial statements on the equity method of
accounting through June 10, 1998. On June 11, 1998 the Operating Partnership
distributed its 95% common stock interest in RSI to its owners, including the
Company which, in turn, distributed the common stock of RSI to its stockholders.
The Operating Partnership also invests in real estate joint ventures where it
may own less than a controlling interest, such investments are also reflected in
the accompanying financial statements on the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements
During 1997 the Financial Accounting Standards Board ("FASB") issued
statement No. 130, "Reporting Comprehensive Income" ("SFAS 130") which is
effective for fiscal years beginning after December 15, 1997. SFAS 130
established standards for reporting comprehensive income and its components in a
full set of general-purpose financial statements. SFAS 130 requires that all
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The adoption
of this standard had no impact on the Operating Partnership's financial position
or results of operations. Additionally in June 1997, the FASB also issued SFAS
No. 131 "Disclosures about segments of an Enterprise and Related Information"
("SFAS 131") which is effective for fiscal years beginning after December 15,
1997. SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of this standard had no
impact on the Operating Partnership's financial position or results of
operations, but did affect the disclosure of segment information. See Note 11.
F-20
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the minority partners' interest in the
consolidated partnerships income:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Omni Partners, L. P................................................................ 40% 40% 40%
Metropolitan Partners, LLC......................................................... 25% -- --
Reckson Morris Operating Partnership, L. P. (1).................................... 28% -- --
Reckson FS Limited Partnership (2)................................................. -- 1% 1%
</TABLE>
- ------------------------
(1) Approximate
(2) On May 26, 1998, the general partner of Reckson FS Limited Partnership
transferred and assigned its 1% general partnership interest to the
Operating Partnership in exchange for 101,970 units of general partnership
interest.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REAL ESTATE
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to thirty years for buildings and improvements and
five to ten years for furniture, fixtures and equipment. Tenant improvements,
which are included in buildings and improvements, are amortized on a
straight-line basis over the term of the related leases.
CASH EQUIVALENTS
The Operating Partnership considers highly liquid investments with a
maturity of three months or less when purchased, to be cash equivalents.
DEFERRED COSTS
Lease fees and loan costs are capitalized and amortized over the life of the
related lease or loan.
INCOME TAXES
No provision has been made for income taxes in the accompanying consolidated
financial statements since such taxes, if any, are the responsibility of the
individual partners.
REVENUE RECOGNITION
Minimum rental income is recognized on a straight-line basis over the term
of the lease. The excess of rents recognized over amounts contractually due are
included in deferred rents receivable on
F-21
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the accompanying balance sheets. Contractually due but unpaid rents are included
in tenant receivables on the accompanying balance sheets. Certain lease
agreements provide for reimbursement of real estate taxes, insurance, common
area maintenance costs and indexed rental increases, which are recorded on an
accrual basis.
The Operating Partnership records interest income on investments in mortgage
notes and notes receivable on an accrual basis of accounting. The Operating
Partnership does not accrue interest on impaired loans where, in the judgment of
management, collection of interest according to the contractual terms is
considered doubtful. Among the factors the Operating Partnership considers in
making an evaluation of the collectibility of interest are, the status of the
loan, the value of the underlying collateral, the financial condition of the
borrower and anticipated future events. Loan discounts are amortized over the
life of the real estate using the constant interest method.
NET INCOME PER COMMON PARTNERSHIP UNIT
Net income per common partnership unit is determined by allocating net
income after preferred distributions to the general and limited partners' based
on their weighted average common partnership units outstanding during the
respective periods presented.
DISTRIBUTIONS TO PREFERRED UNIT HOLDERS
Holders of preferred units of limited partnership interest are entitled to
distributions based on the stated rates of return (subject to adjustment) for
those units.
Holders of preferred units of general partnership interest are entitled to
distributions based on an annual distribution rate of 7.625%.
CAPITALIZED INTEREST
Interest incurred on borrowings used to fund the property development and
construction are capitalized as developments in progress and allocated to the
individual property costs once construction is completed
CONSTRUCTION OPERATIONS
Construction operations are accounted for utilizing the completed contract
method. Under this method, costs and related billings are deferred until the
contract is substantially complete. Estimated losses on uncompleted contracts
are recorded in the period that management determines that a loss may be
incurred.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. MORTGAGE NOTES PAYABLE
At December 31, 1998, there were 17 mortgage notes payable with an aggregate
outstanding principal amount of approximately $253 million. Properties with an
aggregate carrying value at December 31, 1998 of approximately $330 million are
pledged as collateral against the mortgage notes
F-22
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MORTGAGE NOTES PAYABLE (CONTINUED)
payable. In addition, $48.6 million of the $253 million are recourse to the
Operating Partnership. The mortgage notes bear interest at rates ranging from
6.45% to 9.25%, and mature between 1999 and 2012. The weighted average interest
rate on the outstanding mortgage notes payable at December 31, 1998 is 7.8%.
Certain of the mortgage notes payable are guaranteed by certain minority
partners in the Operating Partnership.
Scheduled principal repayments during the next five years and thereafter are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1999.............................................................................. $ 10,752
2000.............................................................................. 32,131
2001.............................................................................. 19,440
2002.............................................................................. 12,937
2003.............................................................................. 19,295
Thereafter........................................................................ 158,908
----------
$ 253,463
----------
----------
</TABLE>
3. CREDIT FACILITIES
On July 23, 1998, the Operating Partnership obtained a three year $500
million unsecured revolving credit facility (the "Credit Facility") from Chase
Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the
credit facility bank group. Interest rates on borrowings under the Credit
Facility are priced off of LIBOR plus a sliding scale ranging from 112.5 basis
points to 137.5 basis points based on the leverage ratio of the Operating
Partnership. Upon the Operating Partnership receiving an investment grade rating
on its senior unsecured debt by two rating agencies, the pricing is adjusted
based off of LIBOR plus a scale ranging from 65 basis points to 90 basis points
depending upon the rating. The Credit Facility replaced and restructured the
Operating Partnership's existing $250 million unsecured credit facility and $200
million unsecured bridge facility. As a result, certain deferred loan costs
incurred in connection with those facilities were written off. Such amount has
been reflected as an extraordinary loss on the Operating Partnership's statement
of operations. The Operating Partnership utilizes the Credit Facility primarily
to finance the acquisitions of properties and other real estate investments,
fund its development activities and for working capital purposes. At December
31, 1998, the Operating Partnership had availability under the Credit Facility
to borrow an additional $8.1 million (net of $26.1 million of outstanding
undrawn letters of credit).
On December 4, 1998, the Operating Partnership obtained a one year $50
million unsecured term loan (the "Term Loan") from Chase Manhattan Bank. On
January 13, 1999, the Operating Partnership and Chase Manhattan Bank increased
the total availability under the Term Loan to $75 million. Interest rates on
borrowings under the Term Loan are priced off LIBOR plus 150 basis points for
the first nine months and 175 basis points for the remaining three months. At
December 31, 1998, the Operating Partnership had availability under the Term
Loan to borrow an additional $30 million which was increased to $55 million on
January 13, 1999.
The Operating Partnership capitalized interest incurred on borrowings to
fund certain development costs in the amount of $7,344,102, $2,351,201 and
$800,434 for the years ended December 31, 1998, 1997 and 1996, respectively.
F-23
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SENIOR UNSECURED NOTES
On August 28, 1997, the Operating Partnership sold $150 million of 10-year
senior unsecured notes in a privately placed transaction. The senior unsecured
notes were priced at par with interest at 110 basis points over the 10- year
treasury note for an all in coupon of 7.2%. Interest is payable semiannually
with principal and unpaid interest due on August 28, 2007.
5. LAND LEASES
The Operating Partnership leases, pursuant to noncancellable operating
leases, the land on which ten of its buildings were constructed. The leases,
which contain renewal options, expire between 2018 and 2080. The leases contain
provisions for scheduled increases in the minimum rent and one of the leases
additionally provides for adjustments to rent based upon the fair market value
of the underlying land at specified intervals. Minimum ground rent is recognized
on a straight-line basis over the terms of the leases. The excess of amounts
recognized over amounts contractually due is approximately $2,316,000 and
$1,948,000 at December 31, 1998 and 1997 respectively. These amounts are
included in accrued expenses and other liabilities on the accompanying balance
sheets. Future minimum lease commitments relating to the land leases as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................................... $ 1,781
2000............................................................... 1,783
2001............................................................... 1,800
2002............................................................... 1,819
2003............................................................... 1,818
Thereafter......................................................... 50,174
---------
$ 59,175
---------
---------
</TABLE>
6. PARTNERS' CAPITAL
The Operating Partnership made loans to certain senior officers to purchase
units at market prices ranging from $12.13 per unit to $21.94 per unit. The
loans bear interest at rates ranging between 8% to 8.5% and are secured by the
units purchased. Approximately $436 thousand of such loans will be forgiven
ratably at each anniversary of employment over a three to four year period and
approximately $176,000 of such loans is due and payable with accrued interest on
January 9, 2002. The loan balances of approximately $248,000 and $362,000 at
December 31, 1998 and 1997, respectively have been included as a reduction of
general partner's capital on the accompanying consolidated statement of
partners' capital.
On April 21, 1998, the Operating Partnership issued 25,000 Series B
preferred units of limited partnership interest at a stated value of $1,000 per
unit and 11,518 Series C preferred units of limited partnership interest at a
stated valued of $1,000 per unit in connection with the acquisition of the
Cappelli portfolio. The Series B preferred units have a current distribution
rate of 6.25% and are convertible to common units at a conversion price of
approximately $32.51 for each preferred unit. The Series C preferred units have
a current distribution rate of 6.25% and are convertible to common units at a
conversion price of approximately $29.39 for each preferred unit.
During the year ended December 31, 1998, the Operating Partnership issued
2,265,261 units of general partnership interest to the Company in exchange for
approximately $53 million. The proceeds were used to repay borrowings under the
credit facilities.
F-24
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PARTNERS' CAPITAL (CONTINUED)
Additionally, the Operating Partnership issued 9,200,000 Series A preferred
units of general partnership interest to the Company in exchange for
approximately $221 million. The Series A preferred units have a liquidation
preference of $25 per unit, a distribution rate of 7.625% and are convertible to
common units at a conversion rate of .8769 common units for each preferred unit.
On July 2, 1998, the Operating Partnership issued 6,000 Series D preferred
units of limited partnership interest at a stated value of $1,000 per unit in
connection wit the acquisition of the remaining 50% interest in 360 Hamilton
Avenue located in White Plains, New York. The Series D preferred units have a
current distribution rate of 6.25% and are convertible to common units at a
conversion price of approximately $29.12 for each preferred unit.
7. RELATED PARTY TRANSACTIONS
The Operating Partnership, through its subsidiaries and affiliates, provides
management, leasing and other tenant related services to the Properties. Certain
executive officers of the Company have continuing ownership interests in the
unconsolidated service companies.
The Operating Partnership in connection with its formation, was granted
options, exercisable over a 10 year period to acquire six properties owned by
the Reckson Group (the "Predecessor") (the "Reckson Option Properties") and four
properties in which the Predecessor owns a non-controlling minority interest
(the "Other Option Properties" and, together with the Reckson Option Properties,
the "Option Properties") at a purchase price equal to the lesser of (i) a fixed
purchase price and (ii) the Net Operating Income, as defined, attributable to
such Option Property during the 12 month period preceding the exercise of the
option divided by a capitalization rate of 11.5%, but the purchase price shall
in no case be less than the outstanding balance of the mortgage debt encumbering
the Option Property on the acquisition date.
As of December 31, 1998, the Operating Partnership acquired four of the
Reckson Option Properties for an aggregate purchase price of approximately $35
million. In connection with the purchase of such Option Properties the Operating
Partnership issued 475,032 common units at prices ranging from $16.38 per unit
to $21.00 per unit (split adjusted) as partial consideration in the
transactions. Such units were issued to certain members of management and
entities whose partners included members of management. Additionally, during
1998, one of the Other Option Properties was sold by the Predecessor to a third
party.
The Operating Partnership made construction loan advances to fund certain
redevelopment and leasing costs relating to one of the Other Option Properties.
At December 31, 1997 and 1996, advances due the Operating Partnership were
approximately $4,200,000 and $2,940,000, respectively. Such amounts bear
interest at the rate of 11% per annum and are due on demand. In January 1998,
the outstanding advances including accrued and unpaid interest was repaid in
full.
The Operating Partnership and RSI have entered into an intercompany
agreement (the "Reckson Intercompany Agreement") to formalize their relationship
and to limit conflicts of interest. Under the Reckson Intercompany Agreement,
RSI granted the Operating Partnership a right of first opportunity to make any
REIT -qualified investment that becomes available to RSI. In addition, if a
REIT-qualified investment opportunity becomes available to an affiliate of RSI,
including RSVP, the Reckson Intercompany Agreement requires such affiliate to
allow the Operating Partnership to participate in such opportunity to the extent
of RSI's interest.
F-25
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
Under the Reckson Intercompany Agreement, the Operating Partnership granted
RSI a right of first opportunity to provide commercial services to the Operating
Partnership and its tenants. RSI will provide services to the Operating
Partnership at rates and on terms as attractive as either the best available for
comparable services in the market or those offered by RSI to third parties. In
addition, the Operating Partnership will give RSI access to its tenants with
respect to commercial services that may be provided to such tenants and,under
the Reckson Intercompany Agreement, subject to certain conditions, the Operating
Partnership granted RSI a right of first refusal to become the lessee of any
real property acquired by the Operating Partnership if the Operating Partnership
determines that, consistent with Reckson's status as a REIT, it is required to
enter into a "master" lease agreement.
On March 23, 1998, the Company sold approximately $5.9 million of common
stock to RSI at the market closing price of $25 per share. The Operating
Partnership loaned RSI the $5.9 million to execute this transaction. Such amount
was repaid to the Operating Partnership by RSI during August 1998.
On June 11, 1998, the Operating Partnership distributed its 95% voting
common stock interest in RSI of approximately $3 million to its partners.
Additionally, during June 1998, the Operating Partnership established a credit
facility with RSI (the"RSI Facility") in the amount of $100 million for RSI's
service sector operations and other general corporate purposes. As of December
31, 1998, the Company had advanced $33.7 million under the RSI facility all of
which is outstanding. In addition, the Operating Partnership approved the
funding of investments of up to $100 million with or in RSVP (the "RSVP
Commitment"), through RSVP-controlled joint venture REIT-qualified investments
or advances made to RSI under terms similar to the RSI Facility. As of December
31, 1998, approximately $17.3 million had been invested through the RSVP
Commitment, of which $10.1 million represents RSVP controlled joint venture
investments and $7.2 million represents advances to RSI under the RSVP
Commitment. Such amounts have been included in investment in real estate joint
ventures and investments in and advances to affiliates, respectively, on the
Operating Partnership's balance sheet.
On August 27, 1998 the Operating Partnership announced the formation of a
joint venture with RSVP and the Dominion Group, an Oklahoma-based,
privately-owned group of companies that focuses on the development, acquisition
and ownership of government occupied office buildings and correctional
facilities. The new venture, Dominion Properties LLC (the "Dominion Venture"),
is owned by Dominion Venture Group LLC, and by a subsidiary of the Operating
Partnership. The Dominion Venture will engage primarily in acquiring, developing
and/or owning government-occupied office buildings and privately operated
correctional facilities. Under the Dominion Venture's operating agreement, RSVP
is to invest up to $100 million, some of which may be invested by the Operating
Partnership (the "RSVP Capital"). The initial contribution of RSVP Capital was
approximately $39 million of which approximately $10.1 million was invested by a
subsidiary of the Operating Partnership. The Operating Partnership's subsidiary
funded its capital contribution through the RSVP Commitment. In addition, the
Operating Partnership advanced approximately $2.9 million to RSI through the
RSVP Commitment for an investment in RSVP which was then invested on a joint
venture basis with the Dominion Group in certain service business activities
related to the real estate activities. As of December 31, 1998, the Dominion
Venture had investments in 11 government office buildings and two correctional
facilities.
During 1998, the Operating Partnership made investments in and advances to
RMG of approximately $29.5 million. Such investments and advances were used by
RMG in connection with RMG's acquisition of an approximate 64% ownership
interest in an executive office suite business.
F-26
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
Concurrently with RMG's investment, RSI received an option to purchase RMG's
interest at cost plus 8%. RMG is owned 97% by the Operating Partnership and 3%
by an entity owned by certain officers of the Company. On November 9, 1998, RSI
exercised its option and, as a result RMG earned income during the period of
ownership of approximately $707,000. In addition, RSI assumed the outstanding
debt plus accrued interest owing to the Operating Partnership.
8. COMMERCIAL REAL ESTATE INVESTMENTS
During 1997, the Operating Partnership acquired five office properties
encompassing approximately 881,000 square feet and 15 industrial properties
encompassing approximately 968,000 square feet on Long Island for an aggregate
purchase price of approximately $131 million.
During 1997, the Operating Partnership acquired eight office properties
encompassing approximately 830,000 square feet and three industrial properties
encompassing approximately 163,000 square feet in Westchester for an aggregate
purchase price of approximately $117 million. In addition, the Operating
Partnership acquired approximately 32 acres of land located in Westchester for a
purchase price of approximately $8 million.
During 1997, the Operating Partnership acquired one industrial property
encompassing approximately 452,000 square feet in Connecticut for a purchase
price of approximately $27 million.
During 1997, the Operating Partnership acquired 13 office properties
encompassing approximately 1.5 million square feet and one industrial property
encompassing approximately 128,000 square feet in New Jersey for an aggregate
purchase price of approximately $156 million. In addition, the Operating
Partnership acquired approximately 303 acres of land located in New Jersey for
an aggregate purchase price of approximately $16.2 million.
In October 1997, the Operating Partnership sold 671 Old Willets Path in
Hauppauge, New York for approximately $725,000 and recorded a gain on the sale
of approximately $672,000.
On January 6, 1998, the Operating Partnership made an initial investment in
the Morris Companies, a New Jersey developer and owner of "Big Box" warehouse
facilities. The Morris Companies properties include 23 industrial buildings
encompassing approximately 4.0 million square feet. In connection with the
transaction the Morris Companies contributed 100% of their interests in certain
industrial properties to RMI in exchange for operating partnership units in RMI.
The Operating Partnership has agreed to invest up to $150 million in the Morris
Companies. As of December 31, 1998, the Operating Partnership has invested
approximately $93.8 million for an approximate 71.8% controlling interest in
RMI.
During 1998, the Operating Partnership acquired three office properties
encompassing approximately 674,000 square feet, two industrial properties
encompassing approximately 200,000 square feet and approximately 79.9 acres of
vacant land which allows for approximately 816,000 square feet of future
development opportunities on Long Island for an aggregate purchase price of
approximately $82.8 million.
During 1998, the Operating Partnership acquired four office properties
encompassing approximately 522,000 square feet, six industrial properties
encompassing approximately 985,000 square feet and approximately 112.2 acres of
vacant land which allows for approximately 815,000 square feet of future
development opportunities in New Jersey for an aggregate purchase price of
approximately $138.1 million.
F-27
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMERCIAL REAL ESTATE INVESTMENTS (CONTINUED)
During 1998, the Operating Partnership acquired Stamford Towers located in
Stamford, Connecticut for approximately $61.3 million. Stamford Towers is a
Class A office complex consisting of two eleven story towers totaling
approximately 325,000 square feet.
During 1998, the Operating Partnership acquired a portfolio of six office
properties encompassing approximately 980,000 square feet in Westchester County,
New York from Cappelli Enterprises and affiliated entities ("Cappelli") for a
purchase price of approximately $173 million. The Cappelli acquisition includes
a five building, 850,000 square foot Class A office park in Valhalla and Court
House Square, a 130,000 square foot Class A office building located in White
Plains. The Operating Partnership also obtained from Cappelli the remaining 50%
interest in 360 Hamilton Avenue, a 365,000 square foot vacant office tower in
downtown White Plains for $10 million plus the return of his capital
contributions of approximately $1.5 million. In addition, the Operating
Partnership received an option from Cappelli to acquire the remaining
development parcels within the Valhalla office park on which up to 875,000
square feet of office space can be developed. These acquisitions were financed
in part through proceeds from a draw under the credit facilities, the issuance
of 42,518 (approximately $42.5 million) preferred operating partnership units
(the "Cappelli Preferred Units"), and the assumption of approximately $47.1
million of mortgage debt. Additionally, during 1998, the Operating Partnership
issued and advanced to Cappelli $19 million under two liquidity loans (the
"Cappelli Liquidity Loans"). The Cappelli Liquidity Loans bear interest at rates
ranging from 10% to 10.5% per annum and are secured by Cappelli's right, title
and interest in the Cappelli Preferred Units. Such amounts have been included in
investments in mortgage notes and notes receivable on the accompanying balance
sheet. On February 3, 1999, the Operating Partnership made an additional $5
million advance under the Cappelli Liquidity Loans.
In July 1998, the Company formed a joint venture, Metropolitan Partners LLC,
a Delaware limited liability company ("Metropolitan"), with Crescent Real Estate
Equities Company, a Texas real estate investment trust ("Crescent"). Pursuant to
a merger agreement executed on July 9, 1998 and amended and restated on August
11, 1998 (the "Initial Merger Agreement") between Metropolitan, the Company,
Crescent and Tower Realty Trust Inc., a Maryland corporation ("Tower"),
Metropolitan agreed, subject to the terms and conditions of the Merger
Agreement, to purchase the common stock of Tower.
Prior to the execution of the Initial Merger Agreement, Metropolitan
identified certain potential tax issues regarding Tower's operations.
Metropolitan entered into the Initial Merger Agreement only after Tower made
detailed representations and warranties purporting to address these issues. In
the course of due diligence, however, Metropolitan, the Company and Crescent
discovered that these representations and warranties may not be correct and
discussed these concerns with Tower, specifically advising Tower that they were
not terminating the Initial Merger Agreement at that time. Metropolitan, the
Company and Crescent invited Tower to respond to these concerns. However, on
November 2, 1998, Tower filed a complaint in the Supreme Court of the State of
New York alleging Metropolitan, the Company and Crescent willfully breached the
Initial Merger Agreement. Tower, in the complaint, was seeking declaratory and
other relief, including damages of not less than $75 million and specific
performance by Metropolitan, the Company and Crescent of their obligations under
the Initial Merger Agreement.
On December 8, 1998, the Company, Metropolitan and Tower executed a revised
merger agreement (the "Revised Merger Agreement"), pursuant to which Tower will
be merged (the "Merger") into Metropolitan, with Metropolitan surviving the
Merger. Concurrently with the Merger,
F-28
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMERCIAL REAL ESTATE INVESTMENTS (CONTINUED)
Tower Realty Operating Partnership, L.P. ("Tower OP") will be merged with and
into a subsidiary of Metropolitan. The consideration to be issued in the mergers
will be comprised of (i) 25% cash and (ii) 75% of shares of Class B Exchangeable
Common Stock, par value $.01 per share, of the Company (the "Class B Common
Stock"), or in certain circumstances described below, shares of Class B Common
Stock and unsecured notes of the Operating Partnership. The Company controls
Metropolitan and owns 100% of the common equity; Crescent owns a preferred
equity investment in Metropolitan. The Revised Merger Agreement replaces the
Initial Merger Agreement (which at that time was a 50/50 joint venture between
the Company and Crescent) relating to the acquisition by Metropolitan of Tower
for $24 per share.
Pursuant to the terms of the Revised Merger Agreement, holders of shares of
outstanding common stock of Tower ("Tower Common Stock"), and outstanding units
of limited partnership interest of Tower OP will have the option to elect to
receive cash or shares of Class B Common Stock, subject to proration. Under the
terms of the transaction, Metropolitan will effectively pay for each share of
Tower Common Stock and each unit of limited partnership interest of Tower OP the
sum of (i) $5.75 in cash, and (ii) 0.6273 of a share of Class B Common Stock.
The shares of Class B Common Stock are entitled to receive an initial annual
dividend of $2.24 per share and is subject to adjustment annually. The shares of
Class B Common Stock are exchangeable at any time, at the option of the holder,
into an equal number of shares of common stock, par value $.01 per share, of the
Company subject to customary antidilution adjustments. The Company, at its
option, may redeem any or all of the Class B Common Stock in exchange for an
equal number of shares of the Company's common stock at any time following the
four year, six-month anniversary of the issuance of the Class B Common Stock.
The Company's Board of Directors have recommended to the Company's stockholders
the approval of a proposal to issue a number of shares of Class B Common Stock
equal to 75% of the sum of (i) the number of outstanding shares of the Tower
Common Stock and (ii) the number of Tower OP limited partnership units, in each
case, at the effective time of the mergers. If the stockholders of the Company
do not approve the issuance of the Class B Common Stock as proposed, the Revised
Merger Agreement provides that approximately one-third of the consideration that
was to be paid in the form of Class B Common Stock will be replaced by senior
unsecured notes of the Operating Partnership, which notes will bear interest at
the rate of 7% per annum and have a term of ten years. In addition, if the
stockholders of the Company do not approve the issuance of Class B Common Stock
as proposed and the Board of Directors of the Company withdraws or amends or
modifies in any material respect its recommendation for, approval of such
proposal, then the total principal amount of notes to be issued and distributed
in the Merger will be increased by $15 million.
Simultaneously with the execution of the Revised Merger Agreement,
Metropolitan and Tower executed and consummated a stock purchase agreement (the
"Series A Stock Purchase Agreement") pursuant to which Metropolitan purchased
from Tower approximately 2.2 million shares of Series A Convertible Preferred
Stock, par value $.01 per share, of Tower (the "Tower Preferred Stock"), for an
aggregate purchase price of $40 million, $30 million of which was funded through
a capital contribution by the Company to Metropolitan and which is included in
prepaid expenses and other assets on the accompanying balance sheet. The Tower
Preferred Stock has a stated value of $18.44 per share and is convertible by
Metropolitan into an equal number of shares of Tower Common Stock at anytime
after the termination, if any, of the Revised Merger Agreement, subject to
customary antidilution adjustments. The Tower Preferred Stock is entitled to
receive dividends equivalent to those paid on the Tower Common Stock. If the
Revised Merger Agreement is not consummated and a court of competent
jurisdiction issues a final, non-appealable judgment determining that the
Company and
F-29
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMERCIAL REAL ESTATE INVESTMENTS (CONTINUED)
Metropolitan are obligated to consummate the Merger but have failed to do so, or
determining that the Company and Metropolitan failed to use their reasonable
best efforts to take all actions necessary to cause certain closing conditions
to be satisfied, Metropolitan is obligated to return to Tower $30 million of the
Series A Preferred Stock.
Immediately prior to the execution of the Revised Merger Agreement and
consummation of the Series A Stock Purchase Agreement, the Company and Crescent
executed the amended and restated operating agreement of Metropolitan (the
"Metropolitan Operating Agreement") pursuant to which Crescent agreed to
purchase a convertible preferred membership interest (the "Preferred Interest")
in Metropolitan for an aggregate purchase price of $85 million. Ten million
dollars of the purchase price was paid by Crescent to Metropolitan upon
execution of the Metropolitan Operating Agreement to acquire the Tower Preferred
Stock and the remaining portion is payable prior to the closing of the Merger
and is expected to be used to fund a portion of the cash merger consideration.
Upon closing of the Merger, Crescent's investment will accrue distributions at a
rate of 7.5% per annum for a two-year period and may be redeemed by Metropolitan
at any time during that period for $85 million, plus an amount sufficient to
provide a 9.5% internal rate of return. If Metropolitan does not redeem the
preferred interest, upon the expiration of the two-year period, Crescent must
convert its interest into either (i) a common membership interest in
Metropolitan or (ii) shares of the Company's common stock at a conversion price
of $24.61.
In connection with the revised transaction, Tower, the Company and Crescent
have exchanged mutual releases for any claims relating to the Initial Merger
Agreement.
The Company anticipates that it will dispose of the assets in the Tower
portfolio located outside of New York. In addition, the Company is also
considering the disposition of certain of the Tower properties located in New
York.
In addition, the Operating Partnership has invested approximately $61.3
million in certain mortgage indebtedness encumbering four Class A office
properties encompassing approximately 577,000 square feet, a 825,000 square foot
industrial building located in New Jersey and a 400 acre parcel of land located
in New Jersey. In addition, the Operating Partnership loaned approximately $17
million to its minority partner in Omni, its flagship Long Island office
property, and effectively increased its economic interest in the property owning
partnership.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value at December 31, 1998 were
determined by management, using available market information and appropriate
valuation methodologies. Considerable judgment is necessary to interpret market
data and develop estimated fair value. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1998. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
Cash equivalents and variable rate debt are carried at amounts which
reasonably approximate their fair values.
F-30
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Mortgage notes payable have an estimated aggregate fair value which
approximates its carrying value. Estimated fair value is based on interest rates
currently available to the Operating Partnership for issuance of debt with
similar terms and remaining maturities.
10. RENTAL INCOME
The Properties are being leased to tenants under operating leases. The
minimum rental amount due under certain leases are generally either subject to
scheduled fixed increases or indexed escalations. In addition, the leases
generally also require that the tenants reimburse the Operating Partnership for
increases in certain operating costs and real estate taxes above base year
costs.
Included in base rents and tenant escalations and reimbursements in the
accompanying statements of operations are amounts from Reckson Executive
Centers, LLC, a service business of the Operating Partnership through March 31,
1998 and, a related party as follows (in thousands):
<TABLE>
<CAPTION>
TENANT
ESCALATIONS AND
FOR THE PERIODS BASE RENTS REIMBURSEMENTS
- ---------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
January 1 through March 31, 1998................................ $ 597 $ 149
Year ended December 31, 1997.................................... $ 2,154 $ 441
Year ended December 31, 1996.................................... $ 1,898 $ 417
</TABLE>
Expected future minimum rents to be received over the next five years and
thereafter from leases in effect at December 31, 1998 are as follows (in
thousands):
<TABLE>
<S> <C>
1999............................................................. $ 241,071
2000............................................................. 222,112
2001............................................................. 187,503
2002............................................................. 165,730
2003............................................................. 135,441
Thereafter....................................................... 386,953
---------
1,338,810
---------
---------
</TABLE>
11. SEGMENT DISCLOSURE
The Operating Partnership's portfolio consists of Class A suburban office
and industrial properties located in the Tri-State Area of Long Island,
Westchester, Southern Connecticut and New Jersey. In addition, with the
acquisition and merger transaction with Tower, the Operating Partnership has
entered the Manhattan office market. Additionally the Operating Partnership's
portfolio includes 23 industrial properties owned by RMI. Each of the divisions
has a managing director who reports directly to the Chief Operating Officer and
Chief Financial Officer who have been identified as the Chief Operating Decision
Makers ("CODM") because of their final authority over resource allocation
decisions and performance assessment.
The CODM evaluates the operating performance of these divisions based on
geographic area. In addition, as the Operating Partnership expects to meet its
short term liquidity requirements in part through the Credit Facility and Term
Loan, interest incurred on borrowings under the Credit Facility and Term Loan is
not considered as part of property operating performance. The accounting
policies of
F-31
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT DISCLOSURE (CONTINUED)
the reportable segments are the same as those described in the summary of
significant accounting policies.
The following table sets forth the components of the Operating Partnership's
revenues and expenses and other related disclosures as required by FAS Statement
131 for the year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
SOUTHERN CONSOLIDATED
LONG ISLAND WESTCHESTER NEW JERSEY CONNECTICUT RMI OTHER TOTALS
----------- ----------- ----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Base rents..................... $ 102,421 $ 51,983 $ 35,425 $ 22,134 $ 12,740 $ -- $ 224,703
Tenant escalations and
reimbursements............... 10,721 7,433 3,746 3,242 2,397 205 27,744
Equity in earnings of service
companies.................... -- -- -- -- -- 1,233 1,233
Equity in earnings of real
estate joint ventures........ -- -- -- -- -- 603 603
Interest income on mortgage
notes and notes receivable... -- -- -- -- -- 7,739 7,739
Investment and other income.... 407 15 29 9 -- 3,830 4,290
----------- ----------- ----------- ----------- ---------- ---------- ------------
Total Revenues................... 113,549 59,431 39,200 25,385 15,137 13,610 266,312
----------- ----------- ----------- ----------- ---------- ---------- ------------
EXPENSES:
Property operating expenses.... 20,774 13,476 5,245 5,932 392 2,100 47,919
Real estate taxes.............. 20,400 7,379 4,442 1,125 2,195 -- 35,541
Ground rents................... 1,681 1 34 -- -- 45 1,761
Marketing, general and
administrative............... 6,835 1,530 1,820 1,514 456 2,875 15,030
Interest....................... 9,281 3,421 15 3,934 1,101 30,043 47,795
Depreciation and
amortization................. 20,930 10,810 7,536 4,425 3,491 5,765 52,957
----------- ----------- ----------- ----------- ---------- ---------- ------------
Total Expenses................... 79,901 36,617 19,092 16,930 7,635 40,828 201,003
----------- ----------- ----------- ----------- ---------- ---------- ------------
Income before distributions to
preferred unitholders, minority
interests' and extraordinary
items.......................... $ 33,648 $ 22,814 $ 20,108 $ 8,455 $ 7,502 $ (27,218) $ 65,309
----------- ----------- ----------- ----------- ---------- ---------- ------------
----------- ----------- ----------- ----------- ---------- ---------- ------------
Total Assets..................... $ 518,648 $ 405,836 $ 170,623 $ 329,365 $ 156,430 $ 273,618 $1,854,520
----------- ----------- ----------- ----------- ---------- ---------- ------------
----------- ----------- ----------- ----------- ---------- ---------- ------------
</TABLE>
F-32
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. NON-CASH INVESTING AND FINANCING ACTIVITIES
Additional supplemental disclosures of non-cash investing and financing
activities are as follows (in thousands):
(1) In January 1997, the Operating Partnership acquired one of the Reckson
Option Properties as follows:
<TABLE>
<S> <C>
Mortgage assumed.................................................... $ 4,667
Issuance of 203,804 common units.................................... 4,280
Cash paid........................................................... 61
---------
Total purchase price................................................ $ 9,008
---------
---------
</TABLE>
(2) In November 1997, the Operating Partnership purchased a 181,000 square
foot industrial building located in Hauppauge, New York as follows:
<TABLE>
<S> <C>
Mortgage assumed and repaid......................................... $ 3,037
Issuance of 62,905 common units..................................... 1,578
Cash paid........................................................... 10
---------
Total purchase price................................................ $ 4,625
---------
---------
</TABLE>
(3) In December 1997, the Operating Partnership purchased a 92,000 square
foot industrial building located in Elmsford, New York as follows:
<TABLE>
<S> <C>
Issuance of 183,469 common units.................................... $ 4,700
---------
---------
</TABLE>
On January 2, 1998, the Operating Partnership issued an additional 18,752
common units in connection with the acquisition of a 92,000 square foot
industrial building located in Elmsford, New York for an additional non cash
investment of approximately $.48 million.
On January 6, 1998, the Operating Partnership acquired an office property
located in Uniondale, New York which included the issuance of 513,259 common
units for a total non cash investment of $12 million. Additionally, in
connection with the Operating Partnership's investment in the Morris Companies,
the Operating Partnership assumed approximately $10.8 million of indebtedness
net of minority partners interest.
On April 21, 1998, in connection with the acquisition of the Cappelli
portfolio, the Operating Partnership assumed approximately $45.1 million of
indebtedness and issued 36,518 (approximately $36.6 million) units of limited
partnership interest for a total non cash investment of approximately $81.7
million. Additionally, in connection with the acquisition of 155 Passaic Avenue
in Fairfield, New Jersey, the Operating Partnership issued 1,979 common units
for a total non cash investment of approximately $50,000.
On June 11, 1998, the Operating Partnership distributed its 95% common stock
interest in RSI of approximately $3 million to its partners.
On July 2, 1998, in connection with the acquisition of 360 Hamilton Avenue
located in White Plains, New York, the Operating Partnership issued 6,000 Series
D preferred units for a total non cash
F-33
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED)
investment of $6.0 million and assumed approximately $2 million of indebtedness
for a total non cash investment of approximately $8 million.
On August 13, 1998, in connection with the acquisition of two office
properties located in Parsippany, New Jersey, the Operating Partnership issued
50,072 OP Units for a total non cash investment of approximately $1.2 million.
During 1998, in connection with the Operating Partnership's investment in
the Morris Companies, the Operating Partnership assumed approximately $23
million of indebtedness ($16.9 million net of minority partners interest). In
addition, the Morris Companies contributed net assets of approximately $36
million to the Operating Partnership in exchange for an approximate 28.2%
minority partners interest in RMI.
13. COMMITMENTS AND OTHER COMMENTS
The Operating Partnership had outstanding undrawn letters of credit against
its credit facilities of approximately $26.1 million and $4 million at December
31, 1998 and 1997, respectively
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summary represents the Operating Partnership's results of
operations for each quarter during 1998 and 1997 (in thousands, except unit
data):
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
FIRST
QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Total revenues..................................... $ 55,062 $ 66,267 $ 71,595 $ 73,388
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Income before distributions to preferred unit
holders, minority interests and extraordinary
items............................................ $ 12,387 $ 17,664 $ 17,348 $ 17,910
Preferred distributions............................ -- (4,168) (5,034) (5,042)
Minority partners' interest in consolidated
partnerships income.............................. (561) (712) (665) (881)
Extraordinary (loss)............................... -- -- (1,993) --
------------ -------------- ------------- --------------
Net income available to common unit holders........ $ 11,826 $ 12,784 $ 9,656 $ 11,987
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Net income:
General Partner.................................. $ 9,835 $ 10,022 $ 8,770 $ 10,040
Limited Partners'................................ 1,991 2,762 886 1,947
------------ -------------- ------------- --------------
Total.............................................. $ 11,826 $ 12,784 $ 9,656 $ 11,987
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Net income per common unit:
General Partner.................................. $ .26 $ .25 $ .22 $ .25
Limited Partners'................................ $ .26 $ .36 $ .11 $ .25
Weighted average common units outstanding:
General Partner.................................. 38,182,577 39,636,815 40,011,627 40,034,781
Limited Partners'................................ 7,709,228 7,694,349 7,741,227 7,764,630
</TABLE>
F-34
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
FIRST
QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Total revenues..................................... $ 31,670 $ 36,188 $ 40,328 $ 45,162
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Income before, minority interests and extraordinary
items............................................ $ 8,806 $ 12,006 $ 11,544 $ 13,353
Minority partners' interest in consolidated
partnerships income.............................. (268) (228) (228) (196)
Extraordinary (loss)............................... -- (2,362) (446) --
------------ -------------- ------------- --------------
Net income......................................... $ 8,538 $ 9,416 $ 10,870 $ 13,157
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Net Income:
General Partner.................................. $ 6,760 $ 7,823 $ 9,039 $ 11,120
Limited Partners'................................ 1,778 1,593 1,831 2,037
------------ -------------- ------------- --------------
Total.............................................. $ 8,538 $ 9,416 $ 10,870 $ 13,157
------------ -------------- ------------- --------------
------------ -------------- ------------- --------------
Net income per unit:
General Partner.................................. $ .25 $ .23 $ .26 $ .31
Limited Partners'................................ $ .26 $ .23 $ .26 $ .29
Weighted average common units outstanding:
General Partner.................................. 26,569,162 34,298,137 34,477,050 35,445,213
Limited Partners'................................ 6,960,428 6,974,814 6,974,031 7,153,848
</TABLE>
15. PRO FORMA RESULTS (UNAUDITED)
The following unaudited pro forma operating results of the Operating
Partnership for the year ended December 31, 1998 have been prepared as if the
property acquisitions made during 1998 had occurred on January 1, 1998.
Unaudited pro forma financial information is presented for informational
purposes only and may not be indicative of what the actual results of operations
of the Operating Partnership would have been had the events occurred as of
January 1, 1998, nor does it purport to represent the results of operations for
future periods (in thousands):
<TABLE>
<S> <C>
Revenues.......................................................... $ 284,643
---------
---------
Income before extraordinary items................................. $ 57,480
---------
---------
Net Income........................................................ $ 55,486
---------
---------
Net Income per common unit........................................ $ 1.18
---------
---------
</TABLE>
F-35
<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN E
---------
COLUMN D GROSS
-------------------------- AMOUNT AT
COLUMN C WHICH
------------------------ COST CAPITALIZED CARRIED
SUBSEQUENT TO AT CLOSE
INITIAL COST ACQUISITION OF PERIOD
COLUMN A COLUMN B ------------------------ -------------------------- ---------
- ---------------------------------------- ------------- BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------- --------- ------------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Vanderbilt Industrial Park,
Hauppauge, New York
(27 buildings in an industrial
park)................................. B $ 1,940 $ 9,955 -- $ 9,858 $ 1,940
Airport International Plaza,
Islip, New York
(17 buildings in an industrial
park)................................. 2,616(C) 1,263 13,608 -- 10,133 1,263
County Line Industrial Center,
Huntington, New York
(3 buildings in an industrial park)... B 628 3,686 -- 2,638 628
32 Windsor Place,
Islip, New York....................... B 32 321 -- 46 32
42 Windsor Place,
Islip, New York....................... B 48 327 -- 542 48
505 Walt Whitman Rd.,
Huntington, New York.................. B 140 42 -- 59 140
1170 Northern Blvd., N.
Great Neck, New York.................. B 30 99 -- 31 30
50 Charles Lindbergh Blvd.,
Mitchel Field, New York............... 15,479 A 12,089 -- 4,179 0
200 Broadhollow Road,
Melville, New York.................... 6,621 338 3,354 -- 2,994 338
48 South Service Road,
Melville, New York.................... B 1,652 10,245 -- 3,760 1,652
395 North Service Road,
Melville, New York.................... 21,375 A 15,551 -- 6,616 0
6800 Jericho Turnpike,
Syosset, New York..................... 15,001 582 6,566 -- 7,238 582
6900 Jericho Turnpike,
Syosset, New York..................... 5,279 385 4,228 -- 2,531 385
300 Motor Parkway,
Hauppauge, New York................... B 276 1,136 -- 1,489 276
88 Duryea Road,
Melville, New York.................... B 200 1,565 -- 669 200
210 Blydenburgh Road,
Islandia, New York.................... B 11 158 -- 155 11
208 Blydenburgh Road,
Islandia, New York.................... B 12 192 -- 145 12
71 Hoffman Lane,
Islandia, New York.................... B 19 260 -- 171 19
933 Motor Parkway,
Hauppauge, New York................... B 106 375 -- 356 106
<CAPTION>
COLUMN I
COLUMN F COLUMN G COLUMN H -------------
COLUMN A ------------ ------------ ----------- LIFE ON WHICH
- ---------------------------------------- BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------------------- ------------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vanderbilt Industrial Park,
Hauppauge, New York
(27 buildings in an industrial
park)................................. $ 19,813 $ 21,753 $ 12,431 1961-1979 1961-1979 10-30 Years
Airport International Plaza,
Islip, New York
(17 buildings in an industrial
park)................................. 23,741 25,004 13,555 1970-1988 1970-1988 10-30 Years
County Line Industrial Center,
Huntington, New York
(3 buildings in an industrial park)... 6,324 6,952 4,029 1975-1979 1975-1979 10-30 Years
32 Windsor Place,
Islip, New York....................... 367 399 315 1971 1971 10-30 Years
42 Windsor Place,
Islip, New York....................... 869 917 666 1972 1972 10-30 Years
505 Walt Whitman Rd.,
Huntington, New York.................. 101 241 70 1950 1968 10-30 Years
1170 Northern Blvd., N.
Great Neck, New York.................. 130 160 121 1947 1962 10-30 Years
50 Charles Lindbergh Blvd.,
Mitchel Field, New York............... 16,268 16,268 8,155 1984 1984 10-30 Years
200 Broadhollow Road,
Melville, New York.................... 6,348 6,686 3,454 1981 1981 10-30 Years
48 South Service Road,
Melville, New York.................... 14,005 15,657 6,566 1986 1986 10-30 Years
395 North Service Road,
Melville, New York.................... 22,167 22,167 10,014 1988 1988 10-30 Years
6800 Jericho Turnpike,
Syosset, New York..................... 13,804 14,386 7,918 1977 1978 10-30 Years
6900 Jericho Turnpike,
Syosset, New York..................... 6,759 7,144 3,261 1982 1982 10-30 Years
300 Motor Parkway,
Hauppauge, New York................... 2,625 2,901 1,236 1979 1979 10-30 Years
88 Duryea Road,
Melville, New York.................... 2,234 2,434 1,148 1980 1980 10-30 Years
210 Blydenburgh Road,
Islandia, New York.................... 313 324 277 1969 1969 10-30 Years
208 Blydenburgh Road,
Islandia, New York.................... 337 349 318 1969 1969 10-30 Years
71 Hoffman Lane,
Islandia, New York.................... 431 450 379 1970 1970 10-30 Years
933 Motor Parkway,
Hauppauge, New York................... 731 837 540 1973 1973 10-30 Years
</TABLE>
Continued-
F-36
<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998 (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN E
---------
COLUMN D GROSS
-------------------------- AMOUNT AT
COLUMN C WHICH
------------------------ COST CAPITALIZED CARRIED
SUBSEQUENT TO AT CLOSE
INITIAL COST ACQUISITION OF PERIOD
COLUMN A COLUMN B ------------------------ -------------------------- ---------
- ---------------------------------------- ------------- BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------- --------- ------------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
65 and 85 South Service Road
Plainview, New York................... B 40 218 -- 10 40
333 Earl Ovington Blvd.,
Mitchel Field, New York (Omni)........ 57,162 A 67,221 -- 16,548 0
135 Fell Court,
Islip, New York....................... B 462 1,265 -- 47 462
40 Cragwood Road,
South Plainfield, New Jersey.......... B 708 7,131 -- 4,772 708
110 Marcus Drive,
Huntington, New York.................. B 390 1,499 -- 97 390
333 East Shore Road,
Great Neck, New York.................. B A 564 -- 176 0
310 East Shore Road,
Great Neck, New York.................. 2,322 485 2,009 -- 304 485
70 Schmitt Blvd.,
Farmingdale, New York................. 150 727 3,408 -- 24 727
19 Nicholas Drive,
Yaphank, New York..................... B 160 7,399 -- 38 160
1516 Motor Parkway,
Hauppauge, New York................... B 603 6,722 -- 13 603
125 Baylis Road,
Melville, New York.................... B 1,601 8,626 -- 814 1,601
35 Pinelawn Road,
Melville, New York.................... B 999 7,073 -- 1,937 999
520 Broadhollow Road,
Melville, New York.................... B 457 5,572 -- 1,424 457
1660 Walt Whitman Road,
Melville, New York.................... B 370 5,072 -- 429 370
70 Maxess Road,
Melville, New York.................... B 367 1,859 95 2,753 462
85 Nicon Court,
Hauppauge, New York................... B 797 2,818 -- 54 797
104 Parkway Drive So.,
Hauppauge, New York................... B 54 804 -- 130 54
20 Melville Park Rd.,
Melville, New York.................... B 391 2,650 -- 96 391
105 Price Parkway,
Hauppauge, New York................... B 2,030 6,327 -- 453 2,030
48 Harbor Park Drive,
Hauppauge, New York................... B 1,304 2,247 -- 93 1,304
125 Ricefield Lane,
Hauppauge, New York................... B 13 852 -- 330 13
<CAPTION>
COLUMN I
COLUMN F COLUMN G COLUMN H -------------
COLUMN A ------------ ------------ ----------- LIFE ON WHICH
- ---------------------------------------- BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------------------- ------------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
65 and 85 South Service Road
Plainview, New York................... 228 268 223 1961 1961 10-30 Years
333 Earl Ovington Blvd.,
Mitchel Field, New York (Omni)........ 83,769 83,769 15,947 1990 1995 10-30 Years
135 Fell Court,
Islip, New York....................... 1,312 1,774 284 1965 1992 10-30 Years
40 Cragwood Road,
South Plainfield, New Jersey.......... 11,903 12,611 6,331 1970 1983 10--30 Years
110 Marcus Drive,
Huntington, New York.................. 1,596 1,986 1,149 1980 1980 10-30 Years
333 East Shore Road,
Great Neck, New York.................. 740 740 473 1976 1976 10-30 Years
310 East Shore Road,
Great Neck, New York.................. 2,313 2,798 1,349 1981 1981 10-30 Years
70 Schmitt Blvd.,
Farmingdale, New York................. 3,432 4,159 382 1965 1995 10-30 Years
19 Nicholas Drive,
Yaphank, New York..................... 7,437 7,597 845 1989 1995 10-30 Years
1516 Motor Parkway,
Hauppauge, New York................... 6,735 7,338 785 1981 1995 10-30 Years
125 Baylis Road,
Melville, New York.................... 9,440 11,041 980 1980 1995 10-30 Years
35 Pinelawn Road,
Melville, New York.................... 9,010 10,009 1,089 1980 1995 10-30 Years
520 Broadhollow Road,
Melville, New York.................... 6,996 7,453 1,097 1978 1995 10-30 Years
1660 Walt Whitman Road,
Melville, New York.................... 5,501 5,871 621 1980 1995 10-30 Years
70 Maxess Road,
Melville, New York.................... 4,612 5,074 385 1967 1995 10-30 Years
85 Nicon Court,
Hauppauge, New York................... 2,872 3,669 286 1984 1995 10-30 Years
104 Parkway Drive So.,
Hauppauge, New York................... 934 988 89 1985 1996 10-30 Years
20 Melville Park Rd.,
Melville, New York.................... 2,746 3,137 208 1965 1996 10-30 Years
105 Price Parkway,
Hauppauge, New York................... 6,780 8,810 603 1969 1996 10-30 Years
48 Harbor Park Drive,
Hauppauge, New York................... 2,340 3,644 208 1976 1996 10-30 Years
125 Ricefield Lane,
Hauppauge, New York................... 1,182 1,195 162 1973 1996 10-30 Years
</TABLE>
Continued-
F-37
<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998 (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN E
---------
COLUMN D GROSS
-------------------------- AMOUNT AT
COLUMN C WHICH
------------------------ COST CAPITALIZED CARRIED
SUBSEQUENT TO AT CLOSE
INITIAL COST ACQUISITION OF PERIOD
COLUMN A COLUMN B ------------------------ -------------------------- ---------
- ---------------------------------------- ------------- BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------- --------- ------------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
110 Ricefield Lane,
Hauppauge, New York................... B 33 1,043 -- 52 33
120 Ricefield Lane,
Hauppauge, New York................... B 16 1,051 -- 30 16
135 Ricefield Lane,
Hauppauge, New York................... B 24 906 -- 473 24
30 Hub Drive,
Huntington, New York.................. B 469 1,571 -- 295 469
60 Charles Lindbergh,
Mitchel Field, New York............... B A 20,800 -- 1,594 0
155 White Plains Rod.,
Tarrytown, New York................... B 1,613 2,542 -- 876 1,613
2 Church Street,
Tarrytown, New York................... B 232 1,307 -- 375 232
235 Main Street,
Tarrytown, New York................... B 955 5,375 -- 760 955
245 Main Street,
Tarrytown, New York................... B 1,294 7,284 -- 849 1,294
505 White Plains Road,
Tarrytown, New York................... B 236 1,332 -- 318 236
555 White Plains Road,
Tarrytown, New York................... B 712 4,133 51 2,668 763
560 White Plains Road,
Tarrytown, New York................... B 1,553 8,756 -- 1,795 1,553
580 White Plains Road,
Tarrytown, New York................... 8,503 2,591 14,595 -- 2,040 2,591
660 White Plains Road,
Tarrytown, New York................... B 3,929 22,640 45 2,505 3,974
Landmark Square,
Stamford, Connecticut................. 48,579 11,603 64,466 -- 12,176 11,603
110 Bi-County Blvd.,
Farmingdale, New York................. 4,383 2,342 6,665 -- 123 2,342
RREEF Portfolio,
Hauppauge, New York
(10 additional buildings in
Vanderbuilt Industrial Park).......... B 930 20,619 -- 1,880 930
275 Broadhollow Road,
Melville, New York.................... B 5,250 11,761 -- 514 5,250
One Eagle Rock, East
Hanover, New Jersey................... B 803 7,563 -- 1,580 803
710 Bridgeport Avenue,
Shelton, Connecticut.................. B 5,405 21,620 7 533 5,412
101 JFK Expressway,
Short Hills, New Jersey............... B 7,745 43,889 -- 1,019 7,745
<CAPTION>
COLUMN I
COLUMN F COLUMN G COLUMN H -------------
COLUMN A ------------ ------------ ----------- LIFE ON WHICH
- ---------------------------------------- BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------------------- ------------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
110 Ricefield Lane,
Hauppauge, New York................... 1,095 1,128 109 1980 1996 10-30 Years
120 Ricefield Lane,
Hauppauge, New York................... 1,081 1,097 84 1983 1996 10-30 Years
135 Ricefield Lane,
Hauppauge, New York................... 1,379 1,403 200 1981 1996 10-30 Years
30 Hub Drive,
Huntington, New York.................. 1,866 2,335 181 1976 1996 10-30 Years
60 Charles Lindbergh,
Mitchel Field, New York............... 22,394 22,394 2,143 1989 1996 10-30 Years
155 White Plains Rod.,
Tarrytown, New York................... 3,418 5,031 258 1963 1996 10-30 Years
2 Church Street,
Tarrytown, New York................... 1,682 1,914 166 1979 1996 10-30 Years
235 Main Street,
Tarrytown, New York................... 6,135 7,090 612 1974 1996 10-30 Years
245 Main Street,
Tarrytown, New York................... 8,133 9,427 836 1983 1996 10-30 Years
505 White Plains Road,
Tarrytown, New York................... 1,650 1,886 183 1974 1996 10-30 Years
555 White Plains Road,
Tarrytown, New York................... 6,801 7,564 1,043 1972 1996 10-30 Years
560 White Plains Road,
Tarrytown, New York................... 10,551 12,104 1,494 1980 1996 10-30 Years
580 White Plains Road,
Tarrytown, New York................... 16,635 19,226 1,786 1997 1996 10-30 Years
660 White Plains Road,
Tarrytown, New York................... 25,145 29,119 2,767 1983 1996 10-30 Years
Landmark Square,
Stamford, Connecticut................. 76,642 88,245 5,438 1973-1984 1996 10-30 Years
110 Bi-County Blvd.,
Farmingdale, New York................. 6,788 9,130 477 1984 1997 10-30 Years
RREEF Portfolio,
Hauppauge, New York
(10 additional buildings in
Vanderbuilt Industrial Park).......... 22,499 23,429 1,370 1974-1982 1997 10-30 Years
275 Broadhollow Road,
Melville, New York.................... 12,275 17,525 740 1970 1997 10-30 Years
One Eagle Rock, East
Hanover, New Jersey................... 9,143 9,946 566 1986 1997 10-30 Years
710 Bridgeport Avenue,
Shelton, Connecticut.................. 22,153 27,565 1,295 1971-1979 1997 10-30 Years
101 JFK Expressway,
Short Hills, New Jersey............... 44,908 52,653 2,462 1981 1997 10-30 Years
</TABLE>
Continued-
F-38
<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998 (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN E
---------
COLUMN D GROSS
-------------------------- AMOUNT AT
COLUMN C WHICH
------------------------ COST CAPITALIZED CARRIED
SUBSEQUENT TO AT CLOSE
INITIAL COST ACQUISITION OF PERIOD
COLUMN A COLUMN B ------------------------ -------------------------- ---------
- ---------------------------------------- ------------- BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------- --------- ------------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
10 Rooney Circle,
West Orange, New Jersey............... B 1,302 4,615 1 418 1,303
Executive Hill Office Park,
West Orange, New Jersey............... B 7,629 31,288 4 814 7,633
3 University Plaza,
Hackensack, New Jersey................ B 7,894 11,846 -- 595 7,894
400 Garden City Plaza,
Garden City, New York................. B 13,986 10,127 -- 389 13,986
425 Rabro Drive,
Hauppauge, New York................... B 665 3,489 -- 67 665
One Paragon Drive,
Montvale, New Jersey.................. B 2,773 9,901 -- 463 2,773
90 Merrick Avenue,
East Meadow, New York................. B A 19,193 -- 2,152 0
150 Motor Parkway,
Hauppauge, New York................... B 1,114 20,430 -- 2,365 1,114
390 Motor Parkway,
Hauppauge, New York................... B 240 4,459 -- 237 240
Royal Executive Park,
Ryebrook, New York.................... B 18,343 55,028 -- 1,191 18,343
120 White Plains Road,
Tarrytown, New York................... B 3,355 24,605 -- 89 3,355
University Square,
Princeton, New Jersey................. B 3,288 8,888 -- 70 3,288
100 Andrews Road,
Hicksville, New York.................. B 2,337 1,711 151 5,697 2,488
2 Macy Road,
Harrison, New York.................... B 642 2,131 -- 47 642
80 Grasslands,
Elmsford, New York.................... B 1,208 6,728 -- 175 1,208
65 Marcus Drive,
Melville, New York.................... B 295 1,966 57 885 352
200 Carter Drive,
Edison, New Jersey.................... B 240 2,745 -- -- 240
118 Moonachie Avenue,
Carlstadt, New Jersey................. B 6,270 12,727 -- -- 6,270
24 Abeel Road,
Monroe, New Jersey.................... B 138 1,195 -- -- 138
275 / 285 Pierce Street,
Franklin New Jersey................... B 277 1,414 -- 16 277
301 / 321 Herrod Blvd.,
S Brunswick, New Jersey............... B 3,833 19,342 -- -- 3,833
1 Nixon Lane,
Edison, New Jersey.................... B 1,113 4,918 -- -- 1,113
<CAPTION>
COLUMN I
COLUMN F COLUMN G COLUMN H -------------
COLUMN A ------------ ------------ ----------- LIFE ON WHICH
- ---------------------------------------- BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------------------- ------------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
10 Rooney Circle,
West Orange, New Jersey............... 5,033 6,336 312 1971 1997 10-30 Years
Executive Hill Office Park,
West Orange, New Jersey............... 32,102 39,735 1,619 1978-1984 1997 10-30 Years
3 University Plaza,
Hackensack, New Jersey................ 12,441 20,335 638 1985 1997 10-30 Years
400 Garden City Plaza,
Garden City, New York................. 10,516 24,502 512 1989 1997 10-30 Years
425 Rabro Drive,
Hauppauge, New York................... 3,556 4,221 176 1980 1997 10-30 Years
One Paragon Drive,
Montvale, New Jersey.................. 10,364 13,137 456 1980 1997 10-30 Years
90 Merrick Avenue,
East Meadow, New York................. 21,345 21,345 892 1985 1997 10-30 Years
150 Motor Parkway,
Hauppauge, New York................... 22,795 23,909 1,028 1984 1997 10-30 Years
390 Motor Parkway,
Hauppauge, New York................... 4,696 4,936 208 1980 1997 10-30 Years
Royal Executive Park,
Ryebrook, New York.................... 56,219 74,562 2,133 1983-1986 1997 10-30 Years
120 White Plains Road,
Tarrytown, New York................... 24,694 28,049 890 1984 1997 10-30 Years
University Square,
Princeton, New Jersey................. 8,958 12,246 322 1987 1997 10-30 Years
100 Andrews Road,
Hicksville, New York.................. 7,408 9,896 463 1954 1996 10-30 Years
2 Macy Road,
Harrison, New York.................... 2,178 2,820 83 1962 1997 10-30 Years
80 Grasslands,
Elmsford, New York.................... 6,903 8,111 268 1989/1964 1997 10-30 Years
65 Marcus Drive,
Melville, New York.................... 2,851 3,203 167 1968 1996 10-30 Years
200 Carter Drive,
Edison, New Jersey.................... 2,745 2,985 91 1985 1998 10-30 Years
118 Moonachie Avenue,
Carlstadt, New Jersey................. 12,727 18,997 423 1989 1998 10-30 Years
24 Abeel Road,
Monroe, New Jersey.................... 1,195 1,333 40 1979 1998 10-30 Years
275 / 285 Pierce Street,
Franklin New Jersey................... 1,430 1,707 48 1988 1998 10-30 Years
301 / 321 Herrod Blvd.,
S Brunswick, New Jersey............... 19,342 23,175 643 1991 1998 10-30 Years
1 Nixon Lane,
Edison, New Jersey.................... 4,918 6,031 164 1988 1998 10-30 Years
</TABLE>
Continued-
F-39
<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998 (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN E
---------
COLUMN D GROSS
-------------------------- AMOUNT AT
COLUMN C WHICH
------------------------ COST CAPITALIZED CARRIED
SUBSEQUENT TO AT CLOSE
INITIAL COST ACQUISITION OF PERIOD
COLUMN A COLUMN B ------------------------ -------------------------- ---------
- ---------------------------------------- ------------- BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------- --------- ------------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
18 Madison Road,
Fairfield, New Jersey................. B 76 871 -- -- 76
200 / 250 Kennedy Drive,
Sayreville, New Jersey................ B 1,018 6,851 -- -- 1,018
24 Madison Road,
Fairfield, New Jersey................. B 131 2,176 -- -- 131
243 St Nicholas Avenue,
So. Plainfield, New Jersey............ B 172 551 -- -- 172
26 Madison Road,
Fairfield, New Jersey................. B A 1,492 -- -- 0
300 / 350 Kennedy Drive,
Sayreville, New Jersey................ B 1,003 7,303 -- -- 1,003
309 Kennedy Drive,
Sayreville, New Jersey................ 10,345 297 9,102 -- -- 297
34 Englehard Drive,
Monroe, New Jersey.................... B 1,073 6,656 -- -- 1,073
409 Kennedy Drive,
Sayreville, New Jersey................ 4,434 126 9,650 -- -- 126
535 Secaucus Road,
Secaucus, New Jersey.................. B 798 2,713 -- -- 798
55 Carter Drive,
Edison, New Jersey.................... B 84 3,905 -- 30 84
Mount Ebo Corporate Park,
Brewster, New Jersey.................. B 1,031 7,204 -- 16 1,031
Teterboro-Industrial Avenue,
Teterboro, New jersey................. B 2,671 18,875 -- -- 2,671
22 Madison Road,
Fairfield, New Jersey................. B 655 1,445 -- 1 655
135 Fieldcrest Ave.,
Edison, New Jersey.................... B 370 3,774 -- -- 370
400 Cabot Drive,
Hamilton, New Jersey.................. B 2,068 18,614 -- 71 2,068
51 JFK Parkway,
Short Hills, New York................. B 8,732 58,437 -- 323 8,732
Triad V--1979 Marcus Ave.,
Lake Success, New York................ B 3,528 31,786 -- 2,966 3,528
100 Forge Way,
Rockaway, New Jersey.................. B 315 902 -- 53 315
200 Forge Way,
Rockaway, New Jersey.................. B 1,128 3,228 -- 168 1,128
300 Forge Way,
Rockaway, New Jersey.................. B 376 1,075 -- 63 376
400 Forge Way,
Rockaway, New Jersey.................. B 1,142 3,267 -- 168 1,142
51 -55 Charles Lindergh Blvd.,
Uniondale, New York................... B A 27,975 -- 4,119 0
155 Passaic Avenue,
Fairfield, New Jersey................. B 3 3,538 -- 174 3
100 Summit Drive,
Valhalla, New York.................... 23,600 3,007 41,351 -- 1,148 3,007
<CAPTION>
COLUMN I
COLUMN F COLUMN G COLUMN H -------------
COLUMN A ------------ ------------ ----------- LIFE ON WHICH
- ---------------------------------------- BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------------------- ------------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
18 Madison Road,
Fairfield, New Jersey................. 871 947 29 1979 1998 10-30 Years
200 / 250 Kennedy Drive,
Sayreville, New Jersey................ 6,851 7,869 228 1988 1998 10-30 Years
24 Madison Road,
Fairfield, New Jersey................. 2,176 2,307 72 1980 1998 10-30 Years
243 St Nicholas Avenue,
So. Plainfield, New Jersey............ 551 723 18 1974 1998 10-30 Years
26 Madison Road,
Fairfield, New Jersey................. 1,492 1,492 50 1980 1998 10-30Years
300 / 350 Kennedy Drive,
Sayreville, New Jersey................ 7,303 8,306 223 1988 1998 10-30 Years
309 Kennedy Drive,
Sayreville, New Jersey................ 9,102 9,399 303 1996 1998 10-30 Years
34 Englehard Drive,
Monroe, New Jersey.................... 6,656 7,729 221 1980 1998 10-30 Years
409 Kennedy Drive,
Sayreville, New Jersey................ 9,650 9,776 321 1996 1998 10-30 Years
535 Secaucus Road,
Secaucus, New Jersey.................. 2,713 3,511 90 1979 1998 10-30 Years
55 Carter Drive,
Edison, New Jersey.................... 3,935 4,019 131 1987 1998 10-30 Years
Mount Ebo Corporate Park,
Brewster, New Jersey.................. 7,220 8,251 120 1998 10-30 Years
Teterboro-Industrial Avenue,
Teterboro, New jersey................. 18,875 21,546 224 1998 1998 10-30 Years
22 Madison Road,
Fairfield, New Jersey................. 1,446 2,101 20 1980 1998 10-30 Years
135 Fieldcrest Ave.,
Edison, New Jersey.................... 3,774 4,144 10 1980 1998 10-30 Years
400 Cabot Drive,
Hamilton, New Jersey.................. 18,685 20,753 624 1989 1998 10-30 Years
51 JFK Parkway,
Short Hills, New York................. 58,760 67,492 1,636 1988 1998 10-30 Years
Triad V--1979 Marcus Ave.,
Lake Success, New York................ 34,752 38,280 1,089 1987 1998 10-30 Years
100 Forge Way,
Rockaway, New Jersey.................. 955 1,270 31 1986 1998 10-30 Years
200 Forge Way,
Rockaway, New Jersey.................. 3,396 4,524 112 1989 1998 10-30 Years
300 Forge Way,
Rockaway, New Jersey.................. 1,138 1,514 37 1989 1998 10-30 Years
400 Forge Way,
Rockaway, New Jersey.................. 3,435 4,577 113 1989 1998 10-30 Years
51 -55 Charles Lindergh Blvd.,
Uniondale, New York................... 32,094 32,094 1,469 1981 1998 10-30 Years
155 Passaic Avenue,
Fairfield, New Jersey................. 3,712 3,715 83 1984 1998 10-30 Years
100 Summit Drive,
Valhalla, New York.................... 42,499 45,506 986 1988 1998 10-30 Years
</TABLE>
Continued-
F-40
<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998 (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN E
---------
COLUMN D GROSS
-------------------------- AMOUNT AT
COLUMN C WHICH
------------------------ COST CAPITALIZED CARRIED
SUBSEQUENT TO AT CLOSE
INITIAL COST ACQUISITION OF PERIOD
COLUMN A COLUMN B ------------------------ -------------------------- ---------
- ---------------------------------------- ------------- BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- ---------------------------------------- ------------- --------- ------------- ----- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
115 / 117 Stevens Avenue,
Valhalla, New York.................... B 1,094 22,490 -- 407 1,094
200 Summit Lake Drive,
Valhalla, New York.................... 20,764 4,343 37,305 -- 349 4,343
140 Grand Street.,
Valhalla, New York.................... B 1,931 18,743 -- 149 1,931
500 Summit Lake Drive,
Valhalla, New York.................... B 7,052 37,309 -- 242 7,052
5 Henderson Drive,
West Caldwell, New Jersey............. B 2,450 6,984 -- 30 2,450
Stamford Towers,
Stamford, Connecticut................. B 13,556 47,915 -- 930 13,556
99 Cherry Hill Road,
Parsippany, New Jersey................ B 2,359 7,508 -- 42 2,359
119 Cherry Hill Road,
Parsipanny, New Jersey................ B 2,512 7,622 -- 196 2,512
120 Wilbur Place,
Bohemia, New York..................... B 202 1,154 -- 44 202
45 Melville Park Road,
Melville, New York.................... B 354 1,487 -- 1,581 354
500 Saw Mill River Road,
Elmsford, New York.................... B 1,542 3,796 -- 169 1,542
2004 Orville Drive, No.
Bohemia, New York..................... B 633 4,225 -- 1,208 633
Land held for development............... B 69,143 -- -- -- 69,143
Developments in progress................ 6,850 -- 82,901 -- -- --
Other property.......................... B -- -- -- 2,589 --
------------- --------- ------------- ----- ------------- ---------
Total................................... $ 253,463 $ 281,272 $ 1,305,937 $ 411 $ 149,513 $ 281,683
------------- --------- ------------- ----- ------------- ---------
------------- --------- ------------- ----- ------------- ---------
<CAPTION>
COLUMN I
COLUMN F COLUMN G COLUMN H -------------
COLUMN A ------------ ------------ ----------- LIFE ON WHICH
- ---------------------------------------- BUILDINGS AND ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------------------------------- ------------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
115 / 117 Stevens Avenue,
Valhalla, New York.................... 22,897 23,991 514 1984 1998 10-30 Years
200 Summit Lake Drive,
Valhalla, New York.................... 37,654 41,997 841 1990 1998 10-30 years
140 Grand Street.,
Valhalla, New York.................... 18,892 20,823 424 1991 1998 10-30 Years
500 Summit Lake Drive,
Valhalla, New York.................... 37,551 44,603 632 1986 1998 10-30 Years
5 Henderson Drive,
West Caldwell, New Jersey............. 7,014 9,464 118 1967 1998 10-30 Years
Stamford Towers,
Stamford, Connecticut................. 48,845 62,401 855 1989 1998 10-30 Years
99 Cherry Hill Road,
Parsippany, New Jersey................ 7,550 9,909 106 1982 1998 10-30 Years
119 Cherry Hill Road,
Parsipanny, New Jersey................ 7,818 10,330 108 1982 1998 10-30 Years
120 Wilbur Place,
Bohemia, New York..................... 1,198 1,400 16 1972 1998 10-30 Years
45 Melville Park Road,
Melville, New York.................... 3,068 3,422 57 1998 1998 10-30 Years
500 Saw Mill River Road,
Elmsford, New York.................... 3,965 5,507 132 1968 1998 10-30 Years
2004 Orville Drive, No.
Bohemia, New York..................... 5,433 6,066 128 1998 1998 10-30 Years
Land held for development............... 0 69,143 0 N/A Various N/A
Developments in progress................ 82,901 82,901 0
Other property.......................... 2,589 2,589 325
------------- --------- ------------
Total................................... $ 1,455,450 $1,737,133 $ 156,231
------------- --------- ------------
------------- --------- ------------
</TABLE>
A These land parcels are leased (see Note 4).
B There are no encumbrances on these properties.
C The Encumbrance of $2,616 is related to one property.
The aggregate cost for Federal Income Tax purposes was approximately $1,575
million at December 31, 1998.
F-41
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(IN THOUSANDS)
The changes in real estate for each of the periods in the three years ended
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
JANUARY 1, 1998 JANUARY 1, 1997 JANUARY 1, 1996
TO TO TO
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Real estate balance at beginning of period.............. $ 1,011,228 $ 516,768 $ 288,056
Improvements............................................ 134,582 37,778 15,174
Disposal, including write-off of fully depreciated
building improvements................................. -- (154) (936)
Acquisitions............................................ 591,323 456,836 214,474
----------------- ----------------- --------
Balance at end of period................................ $ 1,737,133 $ 1,011,228 $ 516,768
----------------- ----------------- --------
----------------- ----------------- --------
</TABLE>
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, furniture and fixtures, for each of the periods in the three
years ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
JANUARY 1, 1998 JANUARY 1, 1997 JANUARY 1, 1996
TO TO TO
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at beginning of period.......................... $ 108,652 $ 86,344 $ 72,499
Depreciation for period................................. 47,579 22,442 14,781
Disposal, including write-off of fully depreciated
building improvements................................. -- (134) (936)
-------- -------- -------
Balance at end of period................................ $ 156,231 $ 108,652 $ 86,344
-------- -------- -------
-------- -------- -------
</TABLE>
F-42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus supplement or the
accompanying prospectus. You must not rely on any unauthorized information or
representations. This prospectus supplement and the accompanying prospectus are
an offer to sell only the notes offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus supplement and the accompanying prospectus is current only as of the
date of this prospectus supplement.
------------------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement Summary............................................. S-3
Reckson Operating Partnership, L.P. ...................................... S-10
Use of Proceeds........................................................... S-10
Capitalization............................................................ S-11
Selected Financial Information............................................ S-12
Property/Market Information............................................... S-13
Management................................................................ S-34
Description of Notes...................................................... S-36
Certain Federal Income Tax Considerations................................. S-40
Underwriting.............................................................. S-45
Legal Matters............................................................. S-46
Prospectus
Risk Factors.............................................................. 2
Available Information..................................................... 17
Incorporation of Certain Documents by Reference........................... 17
Reckson Associates and The Operating Partnership.......................... 18
Use of Proceeds........................................................... 20
Ratios of Earnings to Combined Fixed Charges and Preferred Stock
Dividends............................................................... 21
Description of Debt Securities............................................ 22
Description of Common Stock............................................... 37
Description of Preferred Stock............................................ 38
Description of Depositary Shares.......................................... 45
Restrictions on Ownership of Capital Stock................................ 49
Description of Warrants................................................... 51
Federal Income Tax Considerations......................................... 52
Plan of Distribution...................................................... 53
Legal Matters............................................................. 53
Experts................................................................... 54
Selected Financial Data................................................... F-2
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. F-3
Financial Statements...................................................... F-14
</TABLE>
$300,000,000
RECKSON OPERATING PARTNERSHIP, L.P.
$100,000,000 % Notes
due , 2004 $200,000,000 % Notes
due , 2009
----------
PROSPECTUS SUPPLEMENT
----------
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
WARBURG DILLON READ LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
