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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER: 1-13762
RECKSON OPERATING PARTNERSHIP, L. P.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C>
DELAWARE 11-3233647
(State other jurisdiction of incorporation (IRS. Employer Identification Number)
of organization)
225 BROADHOLLOW ROAD, MELVILLE, NY 11747
(Address of principal executive office) (zip code)
</TABLE>
(631) 694-6900
(Registrant's telephone number including area code)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes _X_ No__, and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No__.
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<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
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INDEX PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31,
1999 ............................................................................ 2
Consolidated Statements of Income for the three and nine months ended
September 30, 2000 and 1999 (unaudited). ........................................ 3
Consolidated Statements of Cash Flows for the nine months ended September 30,
2000 and 1999 (unaudited). ...................................................... 4
Notes to the Consolidated Financial Statements (unaudited). ..................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ...................................................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk ...................... 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................................... 24
Item 2. Changes in Securities and Use of Proceeds ....................................... 24
Item 3. Defaults Upon Senior Securities ................................................. 24
Item 4. Submission of Matters to a Vote of Securities Holders ........................... 24
Item 5. Other Information ............................................................... 24
Item 6. Exhibits and Reports on Form 8-K ................................................ 24
SIGNATURES .............................................................................. 24
</TABLE>
1
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT UNIT AMOUNTS)
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SEPTEMBER 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
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ASSETS
Commercial real estate properties, at cost
Land ....................................................................... $ 290,873 $ 276,204
Buildings and improvements ................................................. 1,986,104 1,802,611
Developments in progress:
Land ....................................................................... 61,022 60,894
Development costs .......................................................... 96,634 68,690
Furniture, fixtures and equipment ........................................... 7,109 6,473
----------- ----------
2,441,742 2,214,872
Less accumulated depreciation ............................................... (266,788) (218,385)
----------- ----------
2,174,954 1,996,487
Investments in real estate joint ventures ................................... 40,236 31,531
Investment in mortgage notes and notes receivable ........................... 352,809 352,466
Cash and cash equivalents ................................................... 30,682 21,122
Tenant receivables .......................................................... 4,679 5,117
Investments in and advances to affiliates ................................... 172,656 179,762
Deferred rent receivable .................................................... 53,910 32,132
Prepaid expenses and other assets ........................................... 57,271 66,855
Contract and land deposits and pre-acquisition costs ........................ 7,794 9,585
Deferred lease and loan costs ............................................... 50,233 39,520
----------- ----------
TOTAL ASSETS ................................................................ $ 2,945,224 $2,734,577
=========== ==========
LIABILITIES
Mortgage notes payable ...................................................... $ 530,819 $ 459,174
Unsecured credit facility ................................................... 362,600 297,600
Unsecured term loan ......................................................... -- 75,000
Senior unsecured notes ...................................................... 449,367 449,313
Accrued expenses and other liabilities ...................................... 83,636 81,265
Distributions payable ....................................................... 28,498 27,166
----------- ----------
TOTAL LIABILITIES ........................................................... 1,454,920 1,389,518
----------- ----------
Commitments and other comments .............................................. -- --
Minority interests' in consolidated partnerships ............................ 228,742 93,086
----------- ----------
PARTNERS' CAPITAL
Preferred Capital, 11,234,518 and 15,234,518 units outstanding, respectively 313,126 413,126
General Partner's Capital:
Class A common units, 45,290,722 and 40,375,506 units outstanding,
respectively ............................................................. 578,545 477,172
Class B common units, 10,283,513 and 10,283,763 units outstanding,
respectively ............................................................. 271,812 270,689
Limited Partners' Capital, 7,695,142 and 7,701,142 units outstanding,
respectively ............................................................... 98,079 90,986
----------- ----------
Total Partners' Capital ..................................................... 1,261,562 1,251,973
----------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ..................................... $ 2,945,224 $2,734,577
=========== ==========
</TABLE>
(see accompanying notes to financial statements)
2
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT UNIT DATA)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Base rents ..................................................... $ 100,854 $ 95,474 $ 291,353 $ 234,759
Tenant escalations and reimbursements .......................... 14,900 15,395 40,730 32,524
Equity in earnings of real estate joint ventures and service
companies ..................................................... 706 483 3,893 1,372
Interest income on mortgage notes and notes receivable ......... 1,901 909 6,377 5,627
Gain on sales of real estate ................................... 15,206 10,052 21,868 10,052
Other .......................................................... 6,727 3,418 19,178 8,350
----------- ----------- ----------- -----------
Total Revenues ................................................ 140,294 125,731 383,399 292,684
----------- ----------- ----------- -----------
EXPENSES:
Property operating expenses .................................... 41,255 40,679 115,778 91,125
Marketing, general and administrative .......................... 6,097 6,312 18,746 14,936
Interest ....................................................... 24,651 21,163 72,667 54,009
Depreciation and amortization .................................. 24,083 21,868 67,520 56,086
----------- ----------- ----------- -----------
Total Expenses ................................................ 96,086 90,022 274,711 216,156
----------- ----------- ----------- -----------
Income before distributions to preferred unit holders,
minority interests and extraordinary loss ..................... 44,208 35,709 108,688 76,528
Minority partners' interests in consolidated partnerships ...... (1,874) (2,150) (5,773) (4,933)
----------- ----------- ----------- -----------
Income before distributions to preferred unitholders and
extraordinary loss ............................................ 42,334 33,559 102,915 71,595
Preferred unit distributions ................................... (6,085) (7,985) (21,927) (19,016)
----------- ----------- ----------- -----------
Income before extraordinary loss ............................... 36,249 25,574 80,988 52,579
Extraordinary loss on extinguishment of debts .................. (1,571) (629) (1,571) (629)
----------- ----------- ----------- -----------
Net income available to common unit holders .................... $ 34,678 $ 24,945 $ 79,417 $ 51,950
=========== =========== =========== ===========
Net Income available to:
General Partner - Class A common units ........................ $ 22,753 $ 15,409 $ 51,261 $ 36,599
General Partner -- Class B common units ....................... 8,050 6,596 18,920 8,343
Limited Partners' ............................................. 3,875 2,940 9,236 7,008
----------- ----------- ----------- -----------
Total .......................................................... $ 34,678 $ 24,945 $ 79,417 $ 51,950
=========== =========== =========== ===========
Net income per weighted average units:
General Partner -- per Class A common unit before
extraordinary loss .......................................... $ .52 $ .39 $ 1.23 $ .92
Extraordinary loss per Class A general partnership unit ....... (.02) (.01) (.02) (.01)
----------- ----------- ----------- -----------
Net income per weighted average Class A general
partnership unit ............................................ $ .50 $ .38 $ 1.21 $ .91
=========== =========== =========== ===========
General Partner -- per Class B common unit before
extraordinary loss .......................................... $ .82 $ .59 $ 1.88 $ 1.55
Extraordinary loss per Class B general partnership unit ....... (.04) (.01) (.04) (.03)
----------- ----------- ----------- -----------
Net income per weighted average Class B general partnership
unit ........................................................ $ .78 $ .58 $ 1.84 $ 1.52
=========== =========== =========== ===========
Limited Partners' -- per common unit before extraordinary
loss ........................................................ $ .52 $ .39 $ 1.22 $ .92
Extraordinary loss per limited partnership unit ............... (.02) (.01) (.02) (.01)
----------- ----------- ----------- -----------
Net income per weighted average limited partnership unit ...... $ .50 $ .38 $ 1.20 $ .91
=========== =========== =========== ===========
Weighted average common units outstanding:
General Partner -- Class A common units ....................... 45,178,000 40,367,000 42,312,000 40,235,000
General Partner -- Class B common units ....................... 10,284,000 11,457,000 10,284,000 5,489,000
Limited Partners .............................................. 7,695,000 7,702,000 7,697,000 7,706,000
</TABLE>
(see accompanying notes to financial statements)
3
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RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
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NINE MONTHS ENDED
SEPTEMBER 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Income before distributions to preferred unitholders ................................... $ 101,344 $ 70,966
Adjustments to reconcile income before distributions to preferred unitholders to net
cash provided by operating activities:
Depreciation and amortization ......................................................... 67,520 56,086
Extraordinary loss on extinguishment of debts ......................................... 1,571 629
Gain on sales of real estate .......................................................... (21,868) (10,052)
Minority partners' interests in consolidated partnerships ............................. 5,773 4,933
Equity in earnings of real estate joint ventures and service companies ................ (3,893) (1,372)
Changes in operating assets and liabilities:
Prepaid expenses and other assets ..................................................... (7,455) (13,453)
Tenant receivables .................................................................... 438 1,899
Deferred rents receivable ............................................................. (21,778) (3,473)
Real estate tax escrows ............................................................... 2,112 (2,405)
Accrued expenses and other liabilities ................................................ (2,350) 2,083
---------- ----------
Net cash provided by operating activities ............................................. 121,414 105,841
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of commercial real estate properties ........................................ (184,613) (265,400)
Increase in deposits and pre-acquisition costs ........................................ (11,893) (3,485)
Investment in mortgage notes and notes receivable ..................................... -- (295,048)
Proceeds from mortgage note repayments ................................................ 5,213 ---
Proceeds from sales of real estate .................................................... 42,594 269,324
Additions to commercial real estate properties ........................................ (32,772) (21,612)
Increase in developments in progress .................................................. (11,668) (8,198)
Payment of leasing costs .............................................................. (15,465) (11,851)
Purchase of furniture, fixtures and equipment ......................................... (707) (396)
Distribution from a real estate joint venture ......................................... 312 337
Investments in real estate joint ventures ............................................. (7,450) (11,875)
---------- ----------
Net cash used in investing activities ................................................. (216,449) (348,204)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on secured borrowings .............................................. (25,518) (3,163)
Proceeds from issuance of senior unsecured notes net of issuance costs ................ -- 299,262
Proceeds from redemption of KTR preferred stock ....................................... 19,903 --
Payment of loan costs ................................................................. (7,643) (7,113)
Investments in and advances to affiliates ............................................. (6,729) (108,476)
Proceeds from secured borrowings ...................................................... 97,163 125,547
Proceeds from unsecured credit facilities ............................................. 659,600 353,500
Principal payments on unsecured credit facilities and term loan ....................... (669,600) (510,750)
Repurchases of Class B common units ................................................... -- (17,389)
Contributions of minority partners in consolidated partnerships ....................... 135,975 75,000
Contributions ......................................................................... 3,999 149,397
Distributions ......................................................................... (95,662) (72,179)
Distributions to minority partners in consolidated partnerships ....................... (6,893) (4,573)
---------- ----------
Net cash provided by financing activities .............................................. 104,595 279,063
---------- ----------
Net increase in cash and cash equivalents .............................................. 9,560 36,700
Cash and cash equivalents at beginning of period ....................................... 21,122 2,228
---------- ----------
Cash and cash equivalents at end of period ............................................. $ 30,682 $ 38,928
========== ==========
</TABLE>
(see accompanying notes to financial statements)
4
<PAGE>
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
Reckson Operating Partnership, L. P. (the "Operating Partnership")
commenced operations on June 2, 1995. 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 units in the Operating Partnership
("Units") to the continuing investors and assumed certain indebtedness in
exchange for interests in certain property partnerships, fee simple and
leasehold interests in properties and development land, certain business assets
of the executive center entities and 100% of the non-voting preferred stock of
the management and construction companies.
As of September 30, 2000, the Operating Partnership owned and operated 81
office properties comprising approximately 14.2 million square feet, 103
industrial properties comprising approximately 6.6 million square feet and two
retail properties comprising approximately 20,000 square feet, located in the
New York tri-state area (the "Tri-State Area"). During the quarter ended
September 30, 2000, the Operating Partnership completed the repositioning of
two former industrial properties into Class A office properties. The Operating
Partnership is in the process of developing one office property encompassing
approximately 277,500 square feet and one industrial property encompassing
approximately 206,000 square feet. The Operating Partnership also owns a
357,000 square foot office building located in Orlando, Florida and
approximately 315 acres of land in 14 separate parcels of which the Operating
Partnership can develop approximately 1.9 million square feet of office space
and approximately 224,000 square feet of industrial space. The Operating
Partnership also has invested approximately $297.7 million in mortgage notes
encumbering one Class A office property encompassing approximately 1.4 million
square feet, approximately 403 acres of land located in New Jersey and
approximately $17.1 million in a note receivable secured by a partnership
interest in Omni Partner's, L.P., owner of the Omni, a 575,000 square foot
Class A office property located in Uniondale, New York. On November 2, 2000, a
mortgage note investment and related acquisition costs of approximately $292.5
million were exchanged, through a pre-packaged consensual bankruptcy, for title
to the property which was secured by such mortgage note investment (see Note
6).
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Tower Realty Trust, Inc.
("Tower"). On May 24, 1999 the Company completed the merger with Tower and
acquired three Class A office properties located in New York City totaling 1.6
million square feet and one office property located on Long Island totaling
approximately 101,000 square feet. In addition, pursuant to the merger, the
Company also acquired certain office properties, a property under development
and land located outside of the Tri-State Area. All of the assets acquired in
the merger located outside of the Tri-State Area, other than a 357,000 square
foot office property located in Orlando, Florida, have been sold.
On September 28, 2000, the Operating Partnership formed a joint venture
(the "Tri-State JV") with Teachers Insurance and Annuity Association ("TIAA")
and contributed eight Class A suburban office properties to the Tri-State JV in
exchange for approximately $136 million and a 51% majority ownership interest
in the Tri-State JV.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
consolidated financial position of the Operating Partnership and its
subsidiaries at September 30, 2000 and December 31, 1999 and the results of
their operations for the three and nine months ended September 30, 2000 and
1999,
5
<PAGE>
respectively, and, their cash flows for the nine months ended September 30,
2000 and 1999, respectively. The Operating Partnership's investments in
Metropolitan, Omni Partners, L. P. ("Omni"), the Tri-State JV and certain
industrial joint venture properties formerly owned by Reckson Morris Operating
Partnership, L. P. ("RMI") are reflected in the accompanying financial
statements on a consolidated basis with a reduction for minority partners'
interest. The Operating Partnership's investment in RMI was reflected in the
accompanying financial statements on a consolidated basis with a reduction for
minority partner's interest through September 26, 1999. On September 27, 1999,
the Operating Partnership sold its interest in RMI to Keystone Property Trust
("KTR"). The operating results of the service businesses currently conducted by
Reckson Management Group, Inc., and Reckson Construction Group, Inc., are
reflected in the accompanying financial statements on the equity method of
accounting. The Operating Partnership also invests in real estate joint
ventures where it may own less than a controlling interest, such investments
are also reflected in the accompanying financial statements on the equity
method of accounting. All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
The minority interests at September 30, 2000 represent a convertible
preferred interest in Metropolitan, a 49% interest in the Tri-State JV and a
40% interest in Omni.
The accompanying interim unaudited financial statements have been prepared
by the Operating Partnership's management pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosure normally included in the financial statements prepared in
accordance with generally accepted accounting principles ("GAAP") may have been
condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. The unaudited financial statements as of September
30, 2000 and for the three and nine month periods ended September 30, 2000 and
1999 include, in the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the financial
information set forth herein. The results of operations for the interim periods
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. These financial statements should be read in
conjunction with the Operating Partnership's audited financial statements and
notes thereto included in the Operating Partnership's Form 10-K for the year
ended December 31, 1999.
In June 1999, the Financial Accounting Standards Board issued Statement
No. 137, amending Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which extended the required date of adoption to the years
beginning after June 15, 2000. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Operating Partnership
expects to adopt the new Statement effective January 1, 2001. The Operating
Partnership does not anticipate that the adoption of this Statement will have
any effect on its results of operations or financial position.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. MORTGAGE NOTES PAYABLE
As of September 30, 2000, the Operating Partnership had approximately
$460.8 million of fixed rate mortgage notes which mature at various times
between 2001 and 2027. The notes are secured by 22 properties and have a
weighted average interest rate of approximately 7.6%. In addition, the
Operating Partnership had a $70 million variable rate mortgage note which
matures in August 2001. The note is secured by one property and bears interest
at LIBOR plus 165 basis points.
On November 2, 2000, the Operating Partnership obtained a three year
secured $250 million first mortgage commitment on the property located at 919
Third Avenue, New York N. Y. Interest rates on borrowings under the commitment
are based on LIBOR plus a spread ranging from 110 basis points to 140 basis
points based upon the outstanding balance. At closing, $200 million was funded
under the commitment at an interest rate of LIBOR plus 120 basis points. In
addition, in connection with the $200 million initial funding, the Operating
Partnership purchased a LIBOR interest rate hedge that provides for a maximum
LIBOR rate of 9.25%. The initial funding was used primarily to repay
outstanding borrowings under the Operating Partnership's unsecured credit
facility.
6
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4. SENIOR UNSECURED NOTES
As of September 30, 2000, the Operating Partnership had outstanding
approximately $449.4 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures
(dollars in thousands):
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FACE
ISSUANCE AMOUNT COUPON RATE TERM MATURITY
---------------------- ----------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
August 27, 1997 $150,000 7.20% 10 years August 28, 2007
March 26, 1999 $100,000 7.40% 5 years March 15, 2004
March 26, 1999 $200,000 7.75% 10 years March 15, 2009
</TABLE>
Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 were issued at an aggregate
discount of $738,000.
5. UNSECURED CREDIT FACILITY
On September 7, 2000, the Operating Partnership obtained a three year $575
million unsecured revolving credit facility (the "Credit Facility") from The
Chase Manhattan Bank, as administrative agent, UBS Warburg LLC as syndication
agent and Deutsche Bank as documentation agent. The Credit Facility matures in
September, 2003 and borrowings under the Credit Facility are currently priced
off of LIBOR plus 105 basis points.
The Credit Facility replaced the Operating Partnership's existing $500
million unsecured credit facility (together with the Credit Facility, the
"Credit Facility") and $75 million term loan. As a result, certain deferred
loan costs incurred in connection with the existing unsecured credit facility
and term loan were written off. Such amount is reflected as an extraordinary
loss in the accompanying consolidated statements of income.
The Operating Partnership utilizes the Credit Facility primarily to
finance real estate investments, fund its real estate development activities
and for working capital purposes. At September 30, 2000, the Operating
Partnership had availability under the Credit Facility to borrow an additional
$212.4 million (of which, $62.3 million has been allocated for outstanding
undrawn letters of credit).
6. COMMERCIAL REAL ESTATE INVESTMENTS
On January 13, 2000, the Operating Partnership acquired 1350 Avenue of the
Americas, a 540,000 square foot, 35 story, Class A office property, located in
New York City, for a purchase price of approximately $126.5 million. This
acquisition was financed through a $70 million secured debt financing and a
draw under the Credit Facility.
On August 15, 2000, the Operating Partnership acquired 538 Broadhollow
Road, a 180,000 square foot Class A office property located in Melville, New
York for a purchase price of approximately $25.6 million. This acquisition was
financed, in part, through a borrowing under the Credit Facility.
On June 15, 1999, the Operating Partnership acquired the first mortgage
note secured by a 47 story, 1.4 million square foot Class A office property
located at 919 Third Avenue in New York City for approximately $277.5 million.
The first mortgage note entitles the Operating Partnership to all the net cash
flow of the property and to substantial rights regarding the operations of the
property, with the Operating Partnership anticipating to ultimately obtain
title to the property. This acquisition was financed with proceeds from the
issuance of six million Series E preferred units of general partnership
interest and through draws under the Credit Facility. Current financial
accounting guidelines provide that where a lender has virtually the same risks
and potential rewards as those of a real estate owner it should recognize the
full economics associated with the operations of the property. As such, the
Operating Partnership has recognized the real estate operations of the 919
Third Avenue in the accompanying
7
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consolidated statement of income for the period from the date of acquisition.
On July 28, 2000, the Operating Partnership consented to the filing of a
consensual, pre-packaged bankruptcy plan with the current fee owner and on
November 2, 2000 the Operating Partnership obtained title to the property.
On August 9, 1999, the Operating Partnership executed a contract for the
sale of its interest in RMI, which consisted of 28 properties, comprising
approximately 6.1 million square feet and three other big box industrial
properties to KTR. In addition, the Operating Partnership also entered into a
sale agreement with Matrix relating to a first mortgage note and certain
industrial land holdings (the "Matrix Sale"). The combined total sale price is
$310 million ($52 million of which is attributable to the Morris Companies and
its affiliates in the form of $41.6 million of preferred units of KTR's
operating partnership and $10.4 million of debt relief) and will consist of a
combination of (i) cash, (ii) convertible preferred and common stock of KTR,
(iii) preferred units of KTR's operating partnership, (iv) relief of debt and
(v) a purchase money mortgage note secured by certain land that is being sold
to Matrix.
As of September 30, 2000, the Matrix Sale and the sale of the Operating
Partnership's interest in RMI was completed for a combined sales price of
approximately $258 million (net of minority partner's interest). The combined
consideration consisted of approximately (i) $159.7million in cash, (ii) $60
million of preferred stock and operating partnership units of KTR, (iii) $1.5
million in common stock of KTR, (iv) approximately $26.7 million of debt relief
and (v) approximately $10.1 million in purchase money mortgages. As a result,
the Operating Partnership incurred a gain of approximately $16.7 million of
which approximately $6.7 million was recognized during the current fiscal year.
Cash proceeds from the sales were used primarily to repay borrowings under the
Credit Facility. During July 2000, the Operating Partnership redeemed
approximately $20 million of the preferred stock of KTR which was used
primarily for general business purposes.
In July 1998, the Company formed a joint venture, Metropolitan Partners
LLC ("Metropolitan"), with Crescent Real Estate Equities Company, a Texas REIT
("Crescent") for the purpose of acquiring Tower Realty Trust, Inc. ("Tower").
On May 24, 1999 the Company completed the merger with Tower and acquired three
Class A office properties located in New York City totaling 1.6 million square
feet and one office property located on Long Island totaling approximately
101,000 square feet. In addition, pursuant to the merger, the Company also
acquired certain office properties, a property under development and land
located outside of the Tri-State Area. All of the assets acquired in the merger
located outside of the Tri-State Area, other than a 357,000 square foot office
property located in Orlando, Florida, have been sold.
The Company controls Metropolitan and owns 100% of the common equity;
Crescent owns a $85 million preferred equity investment in Metropolitan.
Crescent's investment accrues distributions at a rate of 7.5% per annum for a
two-year period (May 24, 1999 through May 24, 2001) and may be redeemed by
Metropolitan at any time during that period for $85 million, plus an amount
sufficient to provide a 9.5% internal rate of return. If Metropolitan does not
redeem the preferred interest, upon the expiration of the two-year period,
Crescent must convert its $85 million preferred interest into either (i) a
common membership interest in Metropolitan or (ii) shares of the Company's
Class A common stock at a conversion price of $24.61 per share.
On September 28, 2000, the Operating Partnership formed the Tri-State JV
with TIAA and contributed eight Class A suburban office properties aggregating
approximately 1.5 million square feet to the Tri-State JV in exchange for
approximately $136 million and a 51% majority ownership interest in the
Tri-State JV. As a result, the Operating Partnership realized a gain of
approximately $15.2 million. Cash proceeds received were used primarily to
repay borrowings under the Operating Partnership's Credit Facility.
7. PARTNERS' CAPITAL
On May 24, 1999, the Operating Partnership issued 11,694,567 Class B
common units of general partnership interest to the Company which were valued
for GAAP purposes at $26 per unit for total consideration of approximately
$304.1 million. The Class B common units were entitled to receive an initial
annual distribution of $2.24 per unit which distribution is subject to
adjustment annually. On July 1, 2000, the annual distribution on the Class B
common units was increased to $2.40 per unit.
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The Class B common units are exchangeable at any time, at the option of
the holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The Operating Partnership, at its option, may redeem
any or all of the Class B common units in exchange for an equal number of Class
A common units at any time following November 23, 2003.
On September 14, 2000, the Operating Partnership declared the following
distributions:
<TABLE>
<CAPTION>
RECORD PAYMENT THREE MONTHS ANNUALIZED
SECURITY DISTRIBUTION DATE DATE ENDED DISTRIBUTION
------------------------- -------------- ------------------ ------------------ -------------------- -------------
<S> <C> <C> <C> <C> <C>
Class A common unit $ .386 October 6, 2000 October 17, 2000 September 30, 2000 $ 1.544
Class B common unit $ .60 October 13, 2000 October 31, 2000 October 31, 2000 $ 2.40
Series A preferred unit $ .4766 October 13, 2000 October 31, 2000 October 31, 2000 $ 1.906
Series E preferred unit $ .52188 October 13, 2000 October 31, 2000 October 31, 2000 $ 2.088
</TABLE>
On June 20, 2000, the Operating Partnership issued 4,181,818 Class A
common units in exchange for four million Series E preferred units of general
partnership interest with a liquidation preference value of $100 million.
As of September 30, 2000, in conjunction with the Company's Class B common
stock buy back program, the Operating Partnership had purchased and retired
1,410,804 Class B common units for approximately $30.3 million.
Net income per common partnership unit is determined by allocating net
income after preferred distributions and minority partners' interest in
consolidated partnerships income to the general and limited partners' based on
their weighted average distribution per common partnership units outstanding
during the respective periods presented.
Holders of preferred units of limited and general partnership interest are
entitled to distributions based on the stated rates of return (subject to
adjustment) for those units.
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash paid during the period for interest ......... $88,290 $61,892
======= =======
Interest capitalized during the period ........... $ 8,447 $ 7,281
======= =======
</TABLE>
On June 20, 2000, the Operating Partnership issued 4,181,818 Class A
common units in exchange for four million Series E preferred units of general
partnership interest with a liquidation preference value of $100 million.
9. SEGMENT DISCLOSURE
The Operating Partnership's portfolio consists of Class A office
properties located within the New York City metropolitan area and Class A
suburban office and industrial properties located and operated within the
Tri-State Area (the "Core Portfolio"). In addition the Operating Partnership's
portfolio also includes one office property located in Orlando, Florida, and
certain industrial joint venture properties formerly owned by RMI and for the
period commencing January 6, 1998 and ending September 26, 1999, industrial
properties which were owned by RMI and subsequently sold to KTR. The Operating
Partnership has managing directors who report directly to the Chief Operating
Officer and Chief Financial Officer who have been identified as the Chief
Operating Decision Makers because of their final authority over resource
allocation decisions and performance assessment.
In addition, the Operating Partnership does not consider (i) interest
incurred on its Credit Facility, term loan and Senior Unsecured Notes, (ii) the
operating performance of the office property located in Orlando, Florida and
(iii) commencing January 1, 2000, the operating performance of the industrial
joint venture properties formerly owned by RMI as part of its Core Portfolio's
property operating performance.
9
<PAGE>
The following table sets forth the components of the Operating
Partnership's revenues and expenses and other related disclosures for the three
months ended September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, 2000
------------------------------------------
CORE CONSOLIDATED
PORTFOLIO OTHER TOTALS
-------------- ------------ --------------
<S> <C> <C> <C>
REVENUES:
Base rents, tenant escalations and
reimbursements ........................... $ 113,546 $ 2,208 $ 115,754
Equity in earnings of real estate joint
ventures and service companies ........... -- 706 706
Interest and other income ................. 191 23,643 23,834
----------- --------- -----------
Total Revenues ............................ 113,737 26,557 140,294
----------- --------- -----------
EXPENSES:
Property operating expenses ............... 40,666 589 41,255
Marketing, general and administrative ..... 5,405 692 6,097
Interest .................................. 9,623 15,028 24,651
Depreciation and amortization ............. 21,282 2,801 24,083
----------- --------- -----------
Total Expenses ............................ 76,976 19,110 96,086
----------- --------- -----------
Income before distributions to preferred
unitholders, minority interests' and
extraordinary loss ....................... $ 36,761 $ 7,447 $ 44,208
=========== ========= ===========
Total Assets .............................. $ 2,115,236 $ 829,988 $ 2,945,224
=========== ========= ===========
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
SEPTEMBER 30, 1999
----------------------------------------------------
CORE CONSOLIDATED
PORTFOLIO RMI OTHER TOTALS
-------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Base rents, tenant escalations and
reimbursements ........................... $ 97,787 $ 5,480 $ 7,602 $ 110,869
Equity in earnings of real estate joint
ventures and service companies ........... -- -- 483 483
Interest and other income ................. 209 -- 14,170 14,379
----------- ------- --------- -----------
Total Revenues ............................ 97,996 5,480 22,255 125,731
----------- ------- --------- -----------
EXPENSES:
Property operating expenses ............... 37,202 823 2,654 40,679
Marketing, general and administrative ..... 4,384 158 1,770 6,312
Interest .................................. 7,817 128 13,218 21,163
Depreciation and amortization ............. 18,684 1,343 1,841 21,868
----------- ------- --------- -----------
Total Expenses ............................ 68,087 2,452 19,483 90,022
----------- ------- --------- -----------
Income before distributions to preferred
unitholders, minority interests' and
extraordinary loss ....................... $ 29,909 $ 3,028 $ 2,772 $ 35,709
=========== ======= ========= ===========
Total Assets .............................. $ 2,104,169 $ -- $ 576,855 $ 2,681,024
=========== ======= ========= ===========
</TABLE>
<PAGE>
The following table sets forth the components of the Operating
Partnership's revenues and expenses and other related disclosures for the nine
months ended September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, 2000
-------------------------------------
CORE CONSOLIDATED
PORTFOLIO OTHER TOTALS
----------- ---------- --------------
<S> <C> <C> <C>
REVENUES:
Base rents, tenant escalations and
reimbursements .......................... $ 325,218 $ 6,865 $ 332,083
Equity in earnings of real estate joint
ventures and service companies .......... -- 3,893 3,893
Interest and other income ................ 855 46,568 47,423
--------- ------- ---------
Total Revenues ........................... 326,073 57,326 383,399
--------- ------- ---------
EXPENSES:
Property operating expenses .............. 113,963 1,815 115,778
Marketing, general and administrative .... 15,434 3,312 18,746
Interest ................................. 28,218 44,449 72,667
Depreciation and amortization ............ 60,670 6,850 67,520
--------- ------- ---------
Total Expenses ........................... 218,285 56,426 274,711
--------- ------- ---------
Income (loss) before distributions to
preferred unitholders, minority
interests' and extraordinary loss ....... $ 107,788 $ 900 $ 108,688
========= ======= =========
<CAPTION>
NINE MONTHS ENDED
----------------------------------------------------
SEPTEMBER 30, 1999
----------------------------------------------------
CORE CONSOLIDATED
PORTFOLIO RMI OTHER TOTALS
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Base rents, tenant escalations and
reimbursements .......................... $ 240,753 $ 15,380 $ 11,150 $ 267,283
Equity in earnings of real estate joint
ventures and service companies .......... -- -- 1,372 1,372
Interest and other income ................ 422 2 23,605 24,029
--------- -------- ---------- ---------
Total Revenues ........................... 241,175 15,382 36,127 292,684
--------- -------- ---------- ---------
EXPENSES:
Property operating expenses .............. 84,912 2,390 3,823 91,125
Marketing, general and administrative .... 12,184 456 2,296 14,936
Interest ................................. 17,179 671 36,159 54,009
Depreciation and amortization ............ 47,677 3,710 4,699 56,086
--------- -------- ---------- ---------
Total Expenses ........................... 161,952 7,227 46,977 216,156
--------- -------- ---------- ---------
Income (loss) before distributions to
preferred unitholders, minority
interests' and extraordinary loss ....... $ 79,223 $ 8,155 $ (10,850) $ 76,528
========= ======== ========== =========
</TABLE>
10. OTHER INVESTMENTS AND ADVANCES
During 1997, the Company formed FrontLine Capital Group ("FrontLine")
(formerly Reckson Service Industries, Inc.) and Reckson Strategic Venture
Partners, LLC ("RSVP"). In connection with the formation of FrontLine, the
Operating Partnership established a credit facility with FrontLine (the
"FrontLine Facility") in the amount of $100 million for FrontLine's e-commerce
and e-services operations and other general corporate purposes. As of September
30, 2000, the Company had advanced approximately $92.5 million under the
FrontLine Facility. In addition, the Operating Partnership has approved the
funding of investments of up to $100 million with or in RSVP (the "RSVP
Commitment"),
10
<PAGE>
through RSVP-controlled joint venture REIT-qualified investments or advances
made to FrontLine under terms similar to the FrontLine Facility. As of
September 30, 2000, approximately $77.5 million had been invested through the
RSVP Commitment, of which $37.6 million represents RSVP-controlled joint
venture REIT-qualified investments and $39.9 million represents advances to
FrontLine under the RSVP Commitment. In addition, as of September 30, 2000, the
Operating Partnership, through its Credit Facility, has allocated approximately
$3.2 million in outstanding undrawn letters of credit for the benefit of
FrontLine. Both the FrontLine Facility and the RSVP Commitment have a term of
five years and advances under each are recourse obligations of FrontLine.
Interest accrues on advances made under the credit facilities at a rate equal
to the greater of (a) the prime rate plus two percent and (b) 12% per annum,
with the rate on amounts that are outstanding for more than one year increasing
annually at a rate of four percent of the prior year's rate. Prior to maturity,
interest is payable quarterly but only to the extent of net cash flow and on an
interest-only basis. As of September 30, 2000, interest accrued under the
FrontLine Facility and RSVP Commitment was approximately $13.3 million of which
approximately $3.2 million was received subsequent to September 30, 2000.
During November 1999, the Board of Directors of the Company approved an
amendment to the FrontLine Facility and the RSVP Commitment to permit FrontLine
to incur secured debt and to pay interest thereon and to issue preferred stock
and to pay dividends thereon. In consideration of the amendments, FrontLine
paid the Operating Partnership a fee of approximately $3.6 million in the form
of shares of FrontLine common stock. Such fee has been recognized in income
over an estimated nine month benefit period.
FrontLine currently has two distinct operating units: one of which
represents its interest in HQ Global Holdings, Inc., the largest provider of
flexible officing solutions in the world, and the other which represents
interests in its e-commerce and e-services partner companies. RSVP invests
primarily in real estate and real estate related operating companies generally
outside of the Company's core office and industrial focus.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the 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 or 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 Operating Partnership, which commenced operations on June 2 1995, is
engaged in the ownership, management, operation, leasing and development of
commercial real estate properties, principally office and industrial buildings,
and also owns certain undeveloped land located in the New York tri-state area
(the "Tri-State Area"). Reckson Associates Realty Corp. (the "Company"), is a
self-administered and self-managed Real Estate Investment Trust ("REIT"), and
serves as the sole general partner in the Operating Partnership.
As of September 30, 2000, the Operating Partnership owned and operated 81
office properties comprising approximately 14.2 million square feet, 103
industrial properties comprising approximately 6.6 million square feet and two
retail properties comprising approximately 20,000 square feet, located in the
Tri-State Area. During the quarter ended September 30, 2000, the Operating
Partnership completed the repositioning of two former industrial properties
into Class A office properties. The Operating Partnership is in the process of
developing one office property encompassing approximately 277,500 square feet
and one industrial property encompassing approximately 206,000 square feet. The
Operating Partnership also owns a 357,000 square foot office building located
in Orlando, Florida and approximately 315 acres of land in 14 separate parcels
of which the Operating Partnership can develop approximately 1.9 million square
feet of office space and approximately 224,000 square feet of industrial space.
The Operating Partnership also has invested approximately $297.7 million in
mortgage notes encumbering one Class A office property encompassing
approximately 1.4 million square feet, approximately 403 acres of land located
in New Jersey and approximately $17.1 million in a note receivable secured by a
partnership interest in Omni Partner's, L.P., owner of the Omni, a 575,000
square foot Class A office property located in Uniondale, New York. On November
2, 2000, a mortgage note investment and related acquisition costs of
approximately $292.5 million were exchanged, through a pre-packaged consensual
bankruptcy, for title to the property which was secured by such mortgage note
investment.
During 1997, the Company formed FrontLine Capital Group ("FrontLine")
(formerly Reckson Service Industries, Inc.) and Reckson Strategic Venture
Partners, LLC ("RSVP"). In connection with the formation of FrontLine, the
Operating Partnership established a credit facility with FrontLine (the
"FrontLine Facility") in the amount of $100 million for FrontLine's e-commerce
and e-services
12
<PAGE>
operations and other general corporate purposes. As of September 30, 2000, the
Company had advanced approximately $92.5 million under the FrontLine Facility.
In addition, the Operating Partnership has approved the funding of investments
of up to $100 million with or in RSVP (the "RSVP Commitment"), through
RSVP-controlled joint venture REIT-qualified investments or advances made to
FrontLine under terms similar to the FrontLine Facility. As of September 30,
2000, approximately $77.5 million had been invested through the RSVP
Commitment, of which $37.6 million represents RSVP-controlled joint venture
REIT-qualified investments and $39.9 million represents advances to FrontLine
under the RSVP Commitment. In addition, as of September 30, 2000, the Operating
Partnership, through its unsecured credit facility, has allocated approximately
$3.2 million in outstanding undrawn letters of credit for the benefit of
FrontLine. Both the FrontLine Facility and the RSVP Commitment have a term of
five years and advances under each are recourse obligations of FrontLine.
Interest accrues on advances made under the credit facilities at a rate equal
to the greater of (a) the prime rate plus two percent and (b) 12% per annum,
with the rate on amounts that are outstanding for more than one year increasing
annually at a rate of four percent of the prior year's rate. Prior to maturity,
interest is payable quarterly but only to the extent of net cash flow and on an
interest-only basis. As of September 30, 2000, interest accrued under the
FrontLine Facility and RSVP Commitment was approximately $13.3 million of which
approximately $3.2 million was received subsequent to September 30, 2000.
During November 1999, the Board of Directors of the Company approved an
amendment to the FrontLine Facility and the RSVP Commitment to permit FrontLine
to incur secured debt and to pay interest thereon and to issue preferred stock
and to pay dividends thereon. In consideration of the amendments, FrontLine
paid the Operating Partnership a fee of approximately $3.6 million in the form
of shares of FrontLine common stock. Such fee has been recognized in income
over an estimated nine month benefit period.
FrontLine currently has two distinct operating units: one of which
represents its interest in HQ Global Holdings, Inc., the largest provider of
flexible officing solutions in the world, and the other which represents
interests in its e-commerce and e-services partner companies. RSVP invests
primarily in real estate and real estate related operating companies generally
outside of the Company's core office and industrial focus.
On August 9, 1999, the Operating Partnership executed a contract for the
sale of its interest in Reckson Morris Operating Partnership, L. P., ("RMI")
which consisted of 28 properties, comprising approximately 6.1 million square
feet and three other big box industrial properties to Keystone Property Trust
("KTR"). In addition, the Operating Partnership also entered into a sale
agreement with Matrix relating to a first mortgage note and certain industrial
land holdings (the "Matrix Sale"). The combined total sale price is $310
million ($52 million of which is attributable to the Morris Companies and its
affiliates in the form of $41.6 million of preferred units of KTR's operating
partnership and $10.4 million of debt relief) and will consist of a combination
of (i) cash, (ii) convertible preferred and common stock of KTR, (iii)
preferred units of KTR's operating partnership, (iv) relief of debt and (v) a
purchase money mortgage note secured by certain land that is being sold to
Matrix.
As of September 30, 2000, the Matrix Sale and the sale of the Operating
Partnership's interest in RMI was completed for a combined sales price of
approximately $258 million (net of minority partner's interest). The combined
consideration consisted of approximately (i) $159.7million in cash, (ii) $60
million of preferred stock and operating partnership units of KTR, (iii) $1.5
million in common stock of KTR, (iv) approximately $26.7 million of debt relief
and (v) approximately $10.1 million in purchase money mortgages. As a result,
the Operating Partnership incurred a gain of approximately $16.7 million of
which approximately $6.7 million was recognized during the current fiscal year.
Cash proceeds from the sales were used primarily to repay borrowings under the
Credit Facility. During July 2000, the Operating Partnership redeemed
approximately $20 million of the preferred stock of KTR which was used
primarily for general business purposes.
In July 1998, the Company formed a joint venture, Metropolitan Partners
LLC ("Metropolitan"), with Crescent Real Estate Equities Company, a Texas REIT
("Crescent") for the purpose of acquiring Tower Realty Trust, Inc. ("Tower").
On May 24, 1999 the Company completed the merger with Tower
13
<PAGE>
and acquired three Class A office properties located in New York City totaling
1.6 million square feet and one office property located on Long Island totaling
approximately 101,000 square feet. In addition, pursuant to the merger, the
Company also acquired certain office properties, a property under development
and land located outside of the Tri-State Area. All of the assets acquired in
the merger located outside of the Tri-State Area, other than a 357,000 square
foot office property located in Orlando, Florida, have been sold.
The Company controls Metropolitan and owns 100% of the common equity;
Crescent owns a $85 million preferred equity investment in Metropolitan.
Crescent's investment accrues distributions at a rate of 7.5% per annum for a
two-year period (May 24, 1999 - May 24, 2001) and may be redeemed by
Metropolitan at any time during that period for $85 million, plus an amount
sufficient to provide a 9.5% internal rate of return. If Metropolitan does not
redeem the preferred interest, upon the expiration of the two-year period,
Crescent must convert its $85 million preferred interest into either (i) a
common membership interest in Metropolitan or (ii) shares of the Company's
Class A common stock at a conversion price of $24.61 per share.
On September 28, 2000, the Operating Partnership formed a joint venture
(the "Tri-State JV") with Teachers Insurance and Annuity Association and
contributed eight Class A suburban office properties aggregating approximately
1.5 million square feet to the Tri-State JV in exchange for approximately $136
million and a 51% majority ownership interest in the Tri-State JV. As a result,
the Operating Partnership realized a gain of approximately $15.2 million. Cash
proceeds received were used primarily to repay borrowings under the Operating
Partnership's unsecured credit facility.
The market capitalization of the Operating Partnership at September 30,
2000 was approximately $3.4 billion. The Operating Partnership's market
capitalization is calculated based on the sum of (i) the value of the Operating
Partnership's Class A common units and Class B common units (which, for this
purpose, is assumed to be the same per unit as the market value of a share of
the Company's Class A common stock and Class B common stock), (ii) the
liquidation preference values of the Operating Partnership's preferred units,
(iii) the contributed value of Metropolitan's preferred interest and (iv) the
approximately $1.3 billion (including its share of joint venture debt and net
of minority partners' interest) of debt outstanding at September 30, 2000. As a
result, the Operating Partnership's total debt to total market capitalization
ratio at September 30, 2000 equaled approximately 39.5%.
RESULTS OF OPERATIONS
The Operating Partnership's total revenues increased by $14.6 million or
11.6% for the three months ended September 30, 2000 as compared to the 1999
period. Property operating revenues, which include base rents and tenant
escalations and reimbursements ("Property Operating Revenues") increased by
$4.9 million or 4.4% for the three months ended September 30, 2000 as compared
to the 1999 period. The increase in Property Operating Revenues is attributable
to the acquisition of 1350 Avenue of the Americas and the development and/or
redevelopment of several properties. In addition, Property Operating Revenues
were also positively impacted by approximately $5.2 million from increases in
occupancies and rental rates in our "same store" properties. Offsetting the
increases in Property Operating Revenues was the negative impact of
approximately $8.0 million of expired rent attributable to a major tenant
vacating at 919 Third Avenue. Furthermore, Property Operating Revenues were
negatively impacted by approximately $5.2 million of rent attributable to the
industrial joint venture properties formerly owned by RMI, which properties
were sold on September 27, 1999 as well as $4.6 million of rent attributable to
certain Tower properties disposed of subsequent to the Tower transaction. The
Operating Partnership's base rent reflects the positive impact of the
straight-line rent adjustment of $12.2 million for the three months ended
September 30, 2000 as compared to $2.1 million for the 1999 period. Included in
the $12.2 million straight-line rent adjustment is $8.2 million attributable to
919 Third Avenue. This amount is attributable to the free rent periods
contained in the three tenants' leases which replaced the major tenant vacating
as described above. The remaining balance of the increase in total revenues is
attributable to the gain on sales of real estate, interest income and fees
relating to the FrontLine Facility and the RSVP Commitment and earnings
generated by RSVP-controlled joint venture REIT-qualified investments.
14
<PAGE>
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $.6 million or 1.4% for the three months ended
September 30, 2000 as compared to the 1999 period. This increase is primarily
due to the acquisition of 1350 Avenue of the Americas in January 2000.
Offsetting the increase in Property Expenses is a reduction of approximately
$.8 million and $2.2 million, respectively, relating to the RMI and Tower
dispositions.
Gross Operating Margins (defined as Property Operating Revenues less
Property Expenses, taken as a percentage of Property Operating Revenues) for
the three months ended September 30 , 2000 and 1999 were 64.4% and 63.3%
respectively. The increase in Gross Operating Margins is primarily attributable
to the increase in rental rates and occupancy levels.
Marketing, general and administrative expenses decreased by approximately
$215,000 for the three months ended September 30, 2000 as compared to the 1999
period. Marketing, general and administrative expenses as a percentage of total
revenues were 4.3% for the three months ended September 30, 2000 as compared to
5.0% for the 1999 period.
Interest expense increased by $3.5 million for the three months ended
September 30, 2000 as compared to the 1999 period. The increase is due to new
debt incurred with the 1350 Avenue of the Americas acquisition and is
attributable to an increase in interest expense on the Operating Partnership's
variable rate debt due to rising interest rates.
The Operating Partnership's total revenues increased by $90.7 million or
31.0% for the nine months ended September 30, 2000 as compared to the 1999
period. Property Operating Revenues, increased by $64.8 million or 24.2% for
the nine months ended September 30, 2000 as compared to the 1999 period. The
increase in Property Operating Revenues is substantially attributable to the
properties retained from the Tower portfolio acquisition in May 1999, the
acquisition of the first mortgage note secured by 919 Third Avenue (which
property and other revenue was reflected in Property Operating Revenues) in
June 1999 and the acquisition of 1350 Avenue of the Americas in January 2000.
In addition, Property Operating Revenues were also positively impacted by
approximately $8.9 million from increases in occupancies and rental rates in
our "same store" properties. Offsetting the increase in Property Operating
Revenues was the negative impact of approximately $14.8 million of rent
attributable to the RMI disposition and approximately $7.3 million of rent
attributable from Tower properties disposed of subsequent to the Tower
transaction. The Operating Partnership's base rent reflects the positive impact
of the straight-line rent adjustment of $25.0 million for the nine months ended
September 30, 2000 as compared to $6.8 million for the 1999 period. Included in
the $25.0 million is $13.6 million attributable to 919 Third Avenue. This
amount is attributable to the free rent periods contained in the three tenants'
leases which replaced the major tenant vacating as described above. The
remaining balance of the increase in total revenues is attributable to the gain
on sales of real estate, interest income and fees relating to the FrontLine
Facility and the RSVP Commitment and earnings generated by RSVP-controlled
joint venture REIT-qualified investments.
Property Expenses increased by $24.7 million or 27.1% for the nine months
ended September 30, 2000 as compared to the 1999 period. This increase is
primarily due to the acquisition of the Tower portfolio in May 1999, the
acquisition of the first mortgage note secured by 919 Third Avenue in June 1999
(which operations were reflected in Property Expenses) and the acquisition of
1350 Avenue of the Americas in January 2000. Offsetting the increases in
Property Expenses is a reduction of expenses of approximately $2.2 million and
$3.2 million, respectively, relating to the RMI and Tower dispositions.
Gross Operating Margins for the nine months ended September 30 , 2000 and
1999 were 65.1% and 65.9%, respectively. The decrease in Gross Operating
Margins is primarily attributable to a larger proportionate share of gross
operating margin derived from office properties, which has a lower gross margin
percentage, in 2000 compared to 1999. The higher proportionate share of the
gross operating margins is attributable to the office properties acquired
during the period May 1999 through January 2000 and the disposition of net
leased industrial properties in September 1999. This shift in the composition
of the portfolio was offset by increases in rental rates and occupancies and
operating efficiencies realized.
Marketing, general and administrative expenses increased by $3.8 million
for the nine months ended September 30, 2000 as compared to the 1999 period.
The increase is due to the increased costs of managing the acquisition
properties and the increase in corporate management and administrative costs
15
<PAGE>
associated with the growth of the Operating Partnership including the opening
of its New York City division in March 1999. Marketing, general and
administrative expenses as a percentage of total revenues were 4.9% for the
nine months ended September 30, 2000 as compared to 5.1% for the 1999 period.
Interest expense increased by $18.7 million for the nine months ended
September 30, 2000 as compared to the 1999 period. The increase is primarily
due to secured borrowings assumed in the Tower acquisition as well as new debt
incurred with the Tower and 1350 Avenue of the Americas acquisitions.
Additionally, the increase is also due to $300 million of Senior Unsecured
Notes issued on March 26, 1999 and an increased cost attributable to an
increased average balance on the Operating Partnership's unsecured credit
facility and term loan. The weighted average balance on the Operating
Partnership's unsecured credit facility and term loan was $465.6 million for
the nine months ended September 30, 2000 as compared to $446.1 million for the
nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
On September 7, 2000, the Operating Partnership obtained a three year $575
million unsecured revolving credit facility (the "Credit Facility") from The
Chase Manhattan Bank, as administrative agent, UBS Warburg LLC as syndication
agent and Deutsche Bank as documentation agent. The Credit Facility matures in
September, 2003 and borrowings under the Credit Facility are currently priced
off of LIBOR plus 105 basis points.
The Credit Facility replaced the Operating Partnership's existing $500
million unsecured credit facility (together with the Credit Facility, the
"Credit Facility") and $75 million term loan. As a result, certain deferred
loan costs incurred in connection with the existing unsecured credit facility
and term loan were written off. Such amount is reflected as an extraordinary
loss in the Operating Partnership's consolidated statements of income.
The Operating Partnership utilizes the Credit Facility primarily to
finance real estate investments, fund its real estate development activities
and for working capital purposes. At September 30, 2000, the Operating
Partnership had availability under the Credit Facility to borrow an additional
$212.4 million (of which, $62.3 million has been allocated for outstanding
undrawn letters of credit).
On November 2, 2000, the Operating Partnership obtained a three year
secured $250 million first mortgage commitment on the property located at 919
Third Avenue, New York N. Y. Interest rates on borrowings under the commitment
are based on LIBOR plus a spread ranging from 110 basis points to 140 basis
points based upon the outstanding balance. At closing, $200 million was funded
under the commitment at an interest rate of LIBOR plus 120 basis points. In
addition, in connection with the $200 million initial funding, the Operating
Partnership purchased a LIBOR interest rate hedge that provides for a maximum
LIBOR rate of 9.25%. The initial funding was used primarily to repay
outstanding borrowings under the Operating Partnership's Credit Facility.
On May 24, 1999, the Operating Partnership issued 11,694,567 Class B
common units of general partnership interest to the Company which were valued
for GAAP purposes at $26 per unit for total consideration of approximately
$304.1 million. The Class B common units were entitled to receive an initial
annual distribution of $2.24 per unit, which distribution is subject to
adjustment annually. On July 1, 2000, the annual distribution on the Class B
common units was increased to $2.40 per unit.
The Class B common units are exchangeable at any time, at the option of
the holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The Operating Partnership, at its option, may redeem
any or all of the Class B common units in exchange for an equal number of Class
A common units at any time following November 23, 2003.
On June 20, 2000, the Operating Partnership issued 4,181,818 Class A
common units in exchange for four million Series E preferred units of general
partnership interest with a liquidation preference value of $100 million.
As of September 30, 2000, in conjunction with the Company's Class B common
stock buy back program, the Operating Partnership had purchased and retired
1,410,804 Class B common units for approximately $30.3 million.
16
<PAGE>
The Operating Partnership's indebtedness at September 30, 2000 totaled
approximately $1.3 billion (including its share of joint venture debt and net
of the minority partners' interests) and was comprised of $362.6 million
outstanding under the Credit Facility, approximately $449.4 million of senior
unsecured notes and approximately $516.7 million of mortgage indebtedness.
Based on the Operating Partnership's total market capitalization of
approximately $3.4 billion at September 30, 2000 (calculated based on the sum
of (i) the value of the Operating Partnership's Class A common units and Class
B common units (which, for this purpose, is assumed to be the same per unit as
the market value of a share of the Company's Class A common stock and Class B
common stock), (ii) the liquidation preference value of the Operating
Partnership's preferred units, (iii) the contributed value of Metropolitan's
preferred interest and (iv) the $1.3 billion of debt), the Operating
Partnership's debt represented approximately 39.5% of its total market
capitalization.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Operating Partnership. 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 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 and equity securities of the Operating
Partnership. In addition, the Operating Partnership also believes that it will,
from time to time, generate funds from the sale of certain of its real estate
properties or interests therein. 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
The office leases generally provide for fixed base rent increases or
indexed escalations. In addition, the office leases provide for separate
escalations of real estate taxes and electric costs over a base amount. The
industrial leases also generally provide for fixed base rent increases, direct
pass through of certain operating expenses and separate real estate tax
escalations over a base amount. The 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 a certain mortgage note bear interest at a
variable rate, which will be influenced by changes in short-term interest
rates, and is sensitive to inflation.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an operating partnership which is a general partner
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. In November 1999, NAREIT issued a "White Paper" analysis to address
certain interpretive issues under its definition of FFO. The White Paper
provides that FFO should include both recurring and non-recurring operating
results, except those results defined as "extraordinary items" under GAAP. This
revised definition is effective for all periods beginning on or after January
1, 2000.
Since all companies and analysts do not calculate FFO in a similar
fashion, the Operating Partnership's calculation of FFO presented herein may
not be comparable to similarly titled measures as reported by other companies.
17
<PAGE>
The following table presents the Operating Partnership's FFO calculation
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income before extraordinary loss .................... $ 36,249 $ 25,574 $ 80,988 $ 52,579
Less: extraordinary loss ............................ 1,571 629 1,571 629
-------- -------- --------- --------
Net income available to common unit holders ......... 34,678 24,945 79,417 51,950
Adjustment for Funds From Operations:
Add:
Real estate depreciation and amortization .......... 23,632 21,312 66,184 54,406
Minority partners' interests in consolidated
partnerships ..................................... 1,874 2,150 5,773 4,933
Extraordinary loss ................................. 1,571 629 1,571 629
Less:
Gain on sales of real estate ....................... 15,206 10,052 21,868 10,052
Amount distributed to minority partners in
consolidated partnerships ........................ 2,247 2,607 6,764 6,031
-------- -------- --------- --------
Funds From Operations .............................. $ 44,302 $ 36,377 $ 124,313 $ 95,835
======== ======== ========= ========
Weighted average units outstanding ................. 63,157 59,526 60,293 53,430
======== ======== ========= ========
</TABLE>
18
<PAGE>
SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES,
TENANT IMPROVEMENTS AND LEASING COMMISSIONS
The following table summarizes the expenditures incurred for
non-incremental capital expenditures, tenant improvements and leasing
commissions for the Operating Partnership's office and industrial properties
for the nine month period ended September 30, 2000 and the historical average
of such non-incremental capital expenditures, tenant improvements and leasing
commissions for the years 1996 through 1999.
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
NINE MONTHS
1996 -1999 ENDED
1996 1997 1998 1999 AVERAGE SEPT. 30, 2000
------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SUBURBAN OFFICE PROPERTIES
Total ................... $ 375,026 $ 1,108,675 $ 2,004,976 $ 2,298,899 $ 1,446,894 $ 2,376,738
Per Square Foot ......... 0.13 0.22 0.23 0.23 0.20 0.24
CBD OFFICE PROPERTIES
Total ................... N/A N/A N/A N/A N/A $ 916,657
Per Square Foot ......... N/A N/A N/A N/A N/A 0.43
INDUSTRIAL PROPERTIES
Total ................... $ 670,751 $ 733,233 $ 1,205,266 $ 1,048,688 $ 914,485 $ 658,848
Per Square Foot ......... 0.18 0.15 0.12 0.11 0.14 0.09
</TABLE>
NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS
<TABLE>
<CAPTION>
NINE MONTHS
1996-1999 ENDED
1996 1997 1998 1999 AVERAGE SEPT. 30, 2000
------------- -------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
LONG ISLAND OFFICE PROPERTIES
Tenant Improvements .............. $ 523,574 $ 784,044 $ 1,140,251 $ 1,009,357 $ 864,307 $ 2,373,409
Per Square Foot Improved ......... 4.28 7.00 3.98 4.73 5.00 6.37
Leasing Commissions .............. $ 119,047 $ 415,822 $ 418,191 $ 551,762 $ 376,206 $ 1,995,078
Per Square Foot Leased ........... 0.97 4.83 1.46 2.59 2.46 4.88
--------- ---------- ----------- ----------- ---------- -----------
Total Per Square Foot ............ $ 5.25 $ 11.83 $ 5.44 $ 7.32 $ 7.46 $ 11.25
========= ========== =========== =========== ========== ===========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements .............. $ 834,764 $1,211,665 $ 711,160 $ 1,316,611 $1,018,550 $ 992,895
Per Square Foot Improved ......... 6.33 8.90 4.45 5.62 6.33 4.39
Leasing Commissions .............. $ 264,388 $ 366,257 $ 286,150 $ 457,730 $ 343,631 $ 340,099
Per Square Foot Leased ........... 2.00 2.69 1.79 1.96 2.11 3.00
--------- ---------- ----------- ----------- ---------- -----------
Total Per Square Foot ............ $ 8.33 $ 11.59 $ 6.24 $ 7.58 $ 8.44 $ 7.39
========= ========== =========== =========== ========== ===========
CONNECTICUT OFFICE PROPERTIES (A)
Tenant Improvements .............. $ 58,000 $1,022,421 $ 202,880 $ 179,043 $ 449,952 $ 342,973
Per Square Foot Improved ......... 12.45 13.39 5.92 4.88 9.16 4.86
Leasing Commissions .............. $ 0 $ 256,615 $ 151,063 $ 110,252 $ 159,363 $ 277,483
Per Square Foot Leased ........... 0.00 3.36 4.41 3.00 2.69 3.93
--------- ---------- ----------- ----------- ---------- -----------
Total Per Square Foot ............ $ 12.45 $ 16.75 $ 10.33 $ 7.88 $ 11.85 $ 8.79
========= ========== =========== =========== ========== ===========
NEW JERSEY OFFICE PROPERTIES
Tenant Improvements .............. N/A N/A $ 654,877 $ 454,054 $ 554,466 $ 1,724,101
Per Square Foot Improved ......... N/A N/A 3.78 2.29 3.04 8.11
Leasing Commissions .............. N/A N/A $ 396,127 $ 787,065 $ 591,596 $ 1,205,706
Per Square Foot Leased ........... N/A N/A 2.08 3.96 3.02 5.76
--------- ---------- ----------- ----------- ---------- -----------
Total Per Square Foot ............ N/A N/A $ 5.86 $ 6.25 $ 6.06 $ 13.87
========= ========== =========== =========== ========== ===========
NEW YORK OFFICE PROPERTIES
Tenant Improvements .............. N/A N/A N/A N/A N/A $ 11,977
Per Square Foot Improved ......... N/A N/A N/A N/A N/A 0.51
Leasing Commissions .............. N/A N/A N/A N/A N/A $ 212,673
Per Square Foot Leased ........... N/A N/A N/A N/A N/A 9.01
--------- ---------- ----------- ----------- ---------- -----------
Total Per Square Foot ............ N/A N/A N/A N/A N/A $ 9.52
========= ========== =========== =========== ========== ===========
INDUSTRIAL PROPERTIES
Tenant Improvements .............. $ 380,334 $ 230,466 $ 283,842 $ 375,646 $ 317,572 $ 360,691
Per Square Foot Improved ......... 0.72 0.55 0.76 0.25 0.57 0.64
Leasing Commissions .............. $ 436,213 $ 81,013 $ 200,154 $ 835,108 $ 388,122 $ 137,184
Per Square Foot Leased ........... 0.82 0.19 0.44 0.56 0.50 0.24
--------- ---------- ----------- ----------- ---------- -----------
Total Per Square Foot ............ $ 1.54 $ 0.74 $ 1.20 $ 0.81 $ 1.07 $ 0.88
========= ========== =========== =========== ========== ===========
</TABLE>
----------
(A) 1996 -- 1999 average weighted to reflect October 1996 acquisition date
19
<PAGE>
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for executed
leases as of September 30, 2000:
LONG ISLAND OFFICE PROPERTIES (EXCLUDING OMNI):
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
------------------------- ----------- ---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 .................... 13 37,717 1.2% $ 21.01 $ 23.39
2001 .................... 40 179,285 5.8% $ 22.94 $ 24.62
2002 .................... 33 165,462 5.4% $ 22.24 $ 24.82
2003 .................... 49 291,296 9.4% $ 22.12 $ 25.09
2004 .................... 45 275,654 8.9% $ 23.04 $ 25.84
2005 .................... 67 603,218 19.5% $ 22.17 $ 24.66
2006 AND THEREAFTER ..... 85 1,543,154 49.8% -- --
-- --------- -----
TOTAL ................... 332 3,095,786 100.0%
=== ========= =====
</TABLE>
OMNI:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
------------------------- ----------- ---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 .................... -- -- -- -- --
2001 .................... 4 32,680 5.6% $ 27.39 $ 34.02
2002 .................... 4 80,060 13.8% $ 26.23 $ 30.60
2003 .................... 6 81,809 14.1% $ 29.60 $ 34.59
2004 .................... 4 112,414 19.4% $ 26.05 $ 33.44
2005 .................... 7 59,166 10.2% $ 27.99 $ 34.47
2006 AND THEREAFTER ..... 8 214,323 36.9% -- --
-- ------- -----
TOTAL ................... 33 580,452 100.0%
== ======= =====
</TABLE>
INDUSTRIAL PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
------------------------- ----------- ---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 .................... 10 213,450 4.3% $ 4.74 $ 5.43
2001 .................... 28 557,139 11.2% $ 5.42 $ 6.77
2002 .................... 26 240,344 4.8% $ 6.43 $ 7.19
2003 .................... 30 731,234 14.7% $ 5.30 $ 6.11
2004 .................... 34 634,085 12.8% $ 6.40 $ 7.10
2005 .................... 18 396,810 8.0% $ 5.81 $ 7.96
2006 AND THEREAFTER ..... 49 2,192,911 44.2% -- --
-- --------- -----
TOTAL ................... 195 4,965,973 100.0%
=== ========= =====
</TABLE>
20
<PAGE>
LEASE EXPIRATIONS -- (CONTINUED)
RESEARCH AND DEVELOPMENT PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
------------------------- ----------- ---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 .................... 2 13,204 1.1% $ 15.04 $ 11.60
2001 .................... 7 96,120 7.5% $ 11.61 $ 13.21
2002 .................... 3 118,620 9.3% $ 10.19 $ 11.80
2003 .................... 5 244,648 19.1% $ 5.01 $ 5.88
2004 .................... 10 129,218 10.1% $ 11.98 $ 13.43
2005 .................... 4 359,417 28.1% $ 8.33 $ 9.27
2006 AND THEREAFTER ..... 13 317,457 24.8% -- --
-- ------- -----
TOTAL ................... 44 1,278,684 100.0%
== ========= =====
</TABLE>
WESTCHESTER OFFICE PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
------------------------- ----------- ---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 .................... 12 39,684 1.3% $ 21.57 $ 21.50
2001 .................... 39 255,484 8.3% $ 20.73 $ 21.12
2002 .................... 47 459,105 14.8% $ 20.20 $ 20.47
2003 .................... 43 263,153 8.5% $ 21.94 $ 23.26
2004 .................... 26 158,602 5.1% $ 21.08 $ 22.04
2005 .................... 48 381,712 12.3% $ 24.97 $ 25.17
2006 AND THEREAFTER ..... 46 1,539,039 49.7% -- --
-- --------- -----
TOTAL ................... 261 3,096,779 100.0%
=== ========= =====
</TABLE>
STAMFORD OFFICE PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
------------------------- ----------- ---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 .................... 10 30,373 2.9% $ 21.22 $ 21.22
2001 .................... 22 136,087 12.9% $ 22.58 $ 25.11
2002 .................... 20 100,199 9.5% $ 27.39 $ 28.30
2003 .................... 14 95,298 9.1% $ 31.50 $ 32.26
2004 .................... 20 221,929 21.1% $ 22.85 $ 23.74
2005 .................... 23 109,943 10.4% $ 28.28 $ 30.27
2006 AND THEREAFTER ..... 20 359,099 34.1% -- --
-- ------- -----
TOTAL ................... 129 1,052,928 100.0%
=== ========= =====
</TABLE>
21
<PAGE>
LEASE EXPIRATIONS -- (CONTINUED)
NEW JERSEY OFFICE PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
------------------------- ----------- ---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 .................... 4 12,054 0.6% $ 20.54 $ 21.49
2001 .................... 21 239,999 12.3% $ 17.85 $ 18.08
2002 .................... 21 184,595 9.4% $ 19.80 $ 20.43
2003 .................... 20 335,298 17.2% $ 19.94 $ 20.04
2004 .................... 34 244,184 12.5% $ 22.44 $ 22.98
2005 .................... 34 382,221 19.6% $ 22.56 $ 23.61
2006 AND THEREAFTER ..... 18 555,154 28.4% -- --
-- ------- -----
TOTAL ................... 152 1,953,505 100.0%
=== ========= =====
</TABLE>
NEW YORK CITY OFFICE
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
------------------------- ----------- ---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
2000 .................... 5 55,468 1.6% $ 38.28 $ 38.32
2001 .................... 18 134,464 3.9% $ 33.07 $ 30.43
2002 .................... 18 184,130 5.4% $ 32.02 $ 32.87
2003 .................... 7 115,726 3.4% $ 31.89 $ 32.34
2004 .................... 20 223,686 6.6% $ 36.74 $ 37.72
2005 .................... 34 437,590 12.8% $ 35.58 $ 36.89
2006 AND THEREAFTER ..... 114 2,262,900 66.3% -- --
--- --------- -----
TOTAL ................... 216 3,413,964 100.0%
=== ========= =====
</TABLE>
(1) Per square foot rental rate represents annualized straight line rent as of
the lease expiration date.
(2) Per square foot rental rate represents annualized base rent as of the lease
expiration date plus non-recoverable operating expense pass-throughs.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary market risk facing the Operating Partnership is interest rate
risk on its long-term debt, mortgage notes and notes receivable. The Operating
Partnership will, when advantageous, hedge its interest rate risk using
financial instruments. The Operating Partnership is not subject to foreign
currency risk.
The Operating Partnership manages its exposure to interest rate risk on
its variable rate indebtedness by borrowing on a short-term basis under its
Credit Facility until such time as it is able to retire the short-term variable
rate debt with either a long-term fixed rate debt offering, long term mortgage
debt, general partner contributions or through sales or partial sales of
assets.
The fair market value ("FMV") of the Operating Partnership's long term
debt, mortgage notes and notes receivable is estimated based on discounting
future cash flows at interest rates that management believes reflects the risks
associated with long term debt, mortgage notes and notes receivable of similar
risk and duration.
The following table sets forth the Operating Partnership's long term debt
obligations by scheduled principal cash flow payments and maturity date,
weighted average interest rates and estimated FMV at September 30, 2000
(dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2000 2001 2002 2003 2004
----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Long term debt:
Fixed rate ............................. $ 1,872 $ 23,227 $ 17,014 $ 8,907 $ 112,372
Weighted average interest rate ......... 7.76% 7.59% 7.80% 7.79% 7.50%
Variable rate .......................... $ -- $ 70,000 $ -- $ 362,600 $ --
Weighted average interest rate ......... -- 8.28% -- 7.68% --
<CAPTION>
THEREAFTER TOTAL(1) FMV
------------ ------------- ------------
<S> <C> <C> <C>
Long term debt:
Fixed rate ............................. $ 747,427 $ 910,819 $ 910,819
Weighted average interest rate ......... 7.56% 7.56%
Variable rate .......................... $ -- $ 432,600 $ 432,600
Weighted average interest rate ......... -- 7.77%
</TABLE>
----------------
(1) Includes unamortized issuance discounts of $633,000 on the 5 and 10-year
senior unsecured notes issued on March 26, 1999, which are due at
maturity.
In addition, the Operating Partnership has assessed the market risk for
its variable rate debt, which is based upon LIBOR, and believes that a one
percent increase in the LIBOR rate would have an approximate $4.3 million
annual increase in interest expense based on approximately $432.6 million of
variable rate debt outstanding at September 30, 2000.
The following table sets forth the Operating Partnership's mortgage notes
and note receivables by scheduled maturity date, weighted average interest
rates and estimated FMV at September 30, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2000 2001 2002 2003 2004
-------------- ---------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C>
Mortgage notes and notes receivable:
Fixed rate ............................. $ 277,551 $ 15 $ 6,326 $ -- $ 36,500
Weighted average interest rate ......... 9.41% 9.00% 10.22% -- 10.23%
<CAPTION>
THEREAFTER TOTAL (2) FMV
------------ -------------- ------------
<S> <C> <C> <C>
Mortgage notes and notes receivable:
Fixed rate ............................. $ 16,990 $ 337,382 $ 337,382
Weighted average interest rate ......... 11.65% 9.63%
</TABLE>
----------------
(2) Excludes mortgage note receivable acquisition costs and interest
receivables aggregating approximately $15.4 million.
23
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities and use of proceeds
On October 13, 2000, the Company, in its capacity as general partner
of the Operating Partnership, authorized a distribution of one preferred
unit purchase right (a "Right") for each outstanding Class A common unit
of the Operating Partnership under a unitholder rights plan. This
distribution was made to all holders of record on October 27, 2000. Each
Right generally entitles the holder to purchase one one-thousandth of a
series of junior participating preferred units (the "Preferred Units") at
a price of $84.44 per one one-thousandth of a Preferred Unit (the
"Purchase Price"). The Rights expire on October 13, 2010, unless earlier
redeemed by the Operating Partnership.
The Rights are generally exercisable only if a person or group
becomes the beneficial owner of 15% or more of the outstanding Class A
common stock of the Company or announces a tender offer for 15% or more of
the Company's outstanding stock (an "Acquiring Person"). In the event that
a person or group becomes an Acquiring Person, each holder of a Right,
excluding the Acquiring Person, will have the right to receive, upon
exercise, Class A common units or one one-thousandth of a Preferred Unit
having a value equal to two times the Purchase Price of the Right.
The Company adopted a similar purchase rights plan with respect to
its common stock at the same time the unitholder rights plan was adopted.
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Securities Holders -- None
Item 5. Other information -- None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
<TABLE>
<CAPTION>
NUMBER
-----------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
b) During the three months ended September 30, 2000 the Registrant filed
the following reports on Form 8K:
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RECKSON OPERATING PARTNERSHIP, L. P.
BY: RECKSON ASSOCIATES REALTY CORP., ITS GENERAL PARTNER
<TABLE>
<S> <C>
By: \s\ Scott H. Rechler By: \s\ Michael Maturo
--------------------------------------------- ------------------------------------------
Scott H. Rechler, Co-Chief Executive Officer Michael Maturo, Executive Vice President,
and President Treasurer and Chief Financial Officer
</TABLE>
DATE: November 9, 2000
24
