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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER: 1-13762
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RECKSON OPERATING PARTNERSHIP, L. P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 11-3233647
(State other jurisdiction of incorporation of (IRS. Employer Identification Number)
organization)
225 BROADHOLLOW ROAD, MELVILLE, NY 11747
(Address of principal executive office) (zip code)
</TABLE>
(631) 694-6900
(Registrant's telephone number including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes X No__, and (2) has been
subject to such filing requirements for the past 90 days. Yes X No__.
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RECKSON OPERATING PARTNERSHIP, L.P.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 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 March 31, 2000 (unaudited) and December 31, 1999. 3
Consolidated Statements of Income for the three months ended
March 31, 2000 and 1999 (unaudited) ............................................... 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 (unaudited) ............................................... 5
Notes to the Consolidated Financial Statements (unaudited) ........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................ 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........................ 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................................. 23
Item 2. Changes in Securities and Use of Proceeds ......................................... 23
Item 3. Defaults Upon Senior Securities ................................................... 23
Item 4. Submission of Matters to a Vote of Securities Holders ............................. 23
Item 5. Other Information ................................................................. 23
Item 6. Exhibits and Reports on Form 8-K .................................................. 23
SIGNATURES .................................................................................. 23
</TABLE>
2
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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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<CAPTION>
MARCH 31, 2000 DECEMBER 31,
(UNAUDITED) 1999
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ASSETS
Commercial real estate properties, at cost
Land .............................................................................. $ 296,058 $ 276,204
Buildings and improvements ........................................................ 1,938,600 1,802,611
Developments in progress:
Land .............................................................................. 61,904 60,894
Development costs ................................................................. 75,588 68,690
Furniture, fixtures and equipment .................................................. 6,803 6,473
---------- ----------
2,378,953 2,214,872
Less accumulated depreciation ..................................................... (237,028) (218,385)
---------- ----------
2,141,925 1,996,487
Investments in real estate joint ventures .......................................... 32,219 31,531
Investment in mortgage notes and notes receivable .................................. 352,863 352,466
Cash and cash equivalents .......................................................... 31,042 21,122
Tenant receivables ................................................................. 3,998 5,117
Investments in and advances to affiliates .......................................... 198,580 179,762
Deferred rent receivable ........................................................... 36,597 32,132
Prepaid expenses and other assets .................................................. 60,138 66,855
Contract and land deposits and pre-acquisition costs ............................... 4,752 9,585
Deferred lease and loan costs ...................................................... 43,457 39,520
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TOTAL ASSETS ...................................................................... $2,905,571 $2,734,577
========== ==========
LIABILITIES
Mortgage notes payable ............................................................. $ 527,508 $ 459,174
Unsecured credit facility .......................................................... 407,600 297,600
Unsecured term loan ................................................................ 75,000 75,000
Senior unsecured notes ............................................................. 449,330 449,313
Accrued expenses and other liabilities ............................................. 78,408 81,265
Distributions payable .............................................................. 27,169 27,166
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Total Liabilities ................................................................. 1,565,015 1,389,518
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Commitments and other comments ..................................................... -- --
Minority interests' in consolidated partnerships ................................... 93,001 93,086
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PARTNERS' CAPITAL
Preferred Capital, 15,234,518 units outstanding .................................... 413,126 413,126
General Partner's Capital:
Class A common units, 40,386,721 and 40,375,506 units outstanding, respectively ... 474,600 477,172
Class B common units, 10,283,513 and 10,283,763 units outstanding, respectively ... 269,497 270,689
Limited Partners' Capital, 7,696,642 and 7,701,142 units outstanding, respectively . 90,332 90,986
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Total Partners' Capital ........................................................... 1,247,555 1,251,973
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TOTAL LIABILITIES AND PARTNERS' CAPITAL ......................................... $2,905,571 $2,734,577
========== ==========
</TABLE>
(see accompanying notes to financial statements)
3
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RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
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THREE MONTHS ENDED
MARCH 31,
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2000 1999
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REVENUES:
Base rents ...................................................................... $ 94,400 $ 62,093
Tenant escalations and reimbursements ........................................... 12,847 8,542
Equity in earnings of real estate joint ventures and service companies .......... 1,413 377
Interest income on mortgage notes and notes receivable .......................... 2,285 2,808
Other ........................................................................... 6,713 2,287
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Total Revenues ................................................................. 117,658 76,107
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EXPENSES:
Property operating expenses ..................................................... 38,156 22,908
Marketing, general and administrative ........................................... 5,878 4,074
Interest ........................................................................ 23,840 13,943
Depreciation and amortization ................................................... 21,012 15,091
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Total Expenses ................................................................. 88,886 56,016
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Income before distributions to preferred unit holders and minority interests 28,772 20,091
Minority partners' interest in consolidated partnerships income ................. (1,975) (1,168)
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Income before distributions to preferred unitholders ............................ 26,797 18,923
Preferred unit distributions .................................................... (7,985) (5,041)
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Net income available to common unit holders ..................................... $ 18,812 $ 13,882
=========== ===========
Net Income available to:
General Partner -- Class A common units ........................................ $ 11,946 $ 11,641
General Partner -- Class B common units ........................................ 4,589 --
Limited Partners' .............................................................. 2,277 2,241
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Total ........................................................................... $ 18,812 $ 13,882
=========== ===========
Net income per weighted average units:
Net income per weighted average Class A general partnership unit ............... $ .30 $ .29
=========== ===========
Net income per weighted average Class B general partnership unit ............... $ .45 $ --
=========== ===========
Net income per weighted average limited partnership unit ....................... $ .30 $ .29
=========== ===========
Weighted average common units outstanding:
General Partner -- Class A common units ........................................ 40,382,182 40,049,079
General Partner -- Class B common units ........................................ 10,283,598 --
Limited Partners ............................................................... 7,699,593 7,710,399
</TABLE>
(see accompanying notes to financial statements)
4
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RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
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THREE MONTHS ENDED
MARCH 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Income before distributions to preferred unitholders ............................... $ 26,797 $ 18,923
Adjustments to reconcile income before distributions to preferred unitholders to net
cash provided by operating activities:
Depreciation and amortization ..................................................... 21,012 15,091
Minority partners' interests in consolidated partnerships ......................... 1,975 1,168
Equity in earnings of real estate joint ventures and service companies ............ (1,413) (377)
Changes in operating assets and liabilities:
Prepaid expenses and other assets ................................................. 5,763 (8,556)
Tenant receivables ................................................................ 1,120 2,905
Deferred rents receivable ......................................................... (4,465) (1,369)
Real estate tax escrow ............................................................ 926 (901)
Accrued expenses and other liabilities ............................................ (5,935) (13,930)
---------- ----------
Net cash provided by operating activities ......................................... 45,780 12,954
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of commercial real estate properties .................................... (139,426) (6,610)
Increase in deposits and pre-acquisition costs .................................... (928) (6,472)
Investment in mortgage notes and notes receivable ................................. -- (6,170)
Proceeds from repayment of mortgage note receivable ............................... 685 --
Additions to commercial real estate properties .................................... (8,655) (4,520)
Increase in developments in progress .............................................. (9,642) (6,098)
Payment of leasing costs .......................................................... (2,642) (4,226)
Additions to furniture, fixtures and equipment .................................... (359) (85)
Distribution from a real estate joint venture ..................................... 140 86
Investments in real estate joint ventures ......................................... (83) (3,263)
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Net cash used in investing activities ............................................. (160,910) (37,358)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on secured borrowings .......................................... (1,666) (867)
Proceeds from issuance of senior unsecured notes net of issuance costs ............ -- 299,262
Payment of loan costs ............................................................. (1,617) (2,606)
Investments in and advances to affiliates ......................................... (18,210) (8,299)
Proceeds from secured borrowings .................................................. 70,000 --
Proceeds from unsecured credit facility ........................................... 110,000 --
Proceeds from unsecured term loan ................................................. -- 55,000
Principal payments on unsecured credit facility ................................... -- (285,750)
Contributions ..................................................................... 195 471
Distributions ..................................................................... (31,592) (21,173)
Distributions to minority partners' in consolidated partnerships .................. (2,060) (684)
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Net cash provided by financing activities .......................................... 125,050 35,354
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Net increase in cash and cash equivalents .......................................... 9,920 10,950
Cash and cash equivalents at beginning of period ................................... 21,122 2,228
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Cash and cash equivalents at end of period ......................................... $ 31,042 $ 13,178
========== ==========
</TABLE>
(see accompanying notes to financial statements)
5
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RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 2000, the Operating Partnership owned and operated 78
office properties comprising approximately 13.7 million square feet, 110
industrial properties comprising approximately 8.3 million square feet and two
retail properties comprising approximately 20,000 square feet, located in the
New York tri-state area (the "Tri-State Area"). The Operating Partnership also
owns a 357,000 square foot office building located in Orlando, Florida and
approximately 346 acres of land in 16 separate parcels of which the Operating
Partnership can develop approximately 1.9 million square feet of office space
and approximately 300,000 square feet of industrial space. The Operating
Partnership also has invested approximately $314.8 million in mortgage notes
encumbering two Class A office properties encompassing approximately 1.6
million square feet, approximately 472 acres of land located in New Jersey and
in a note receivable secured by a partnership interest in Omni Partner's, L.P.,
owner of the Omni, a 575,000 square foot Class A office property located in
Uniondale, New York. In addition, the Operating Partnership also holds $41.5
million of preferred and common stock of Keystone Property Trust ("KTR") (see
note 6).
On January 6, 1998, the Operating Partnership made an investment in the
Morris Companies, a New Jersey developer and owner of "Big Box" warehouse
facilities. In connection with the transaction the Morris Companies contributed
100% of their interests in certain industrial properties to Reckson Morris
Operating Partnership, L. P. ("RMI") in exchange for operating partnership
units in RMI. On September 27, 1999, the Operating Partnership sold its
interest in RMI to KTR.
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Tower Realty Trust, Inc.
("Tower"). On May 24, 1999 the Company completed the merger with Tower and
acquired three Class A office properties located in New York City totaling 1.6
million square feet and one office property located on Long Island totaling
approximately 101,000 square feet. In addition, pursuant to the merger, the
Company also acquired certain office properties, a property under development
and land located outside of the Tri-State Area. All of the assets acquired in
the merger located outside of the Tri-State Area, other than a 357,000 square
foot office property located in Orlando, Florida, have been sold (see note 6).
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
consolidated financial position of the Operating Partnership and its
subsidiaries at March 31, 2000 and December 31, 1999 and the results of its
operations for the three months ended March 31, 2000 and 1999, respectively,
and, its cash flows for the three months ended March 31, 2000 and 1999,
respectively. The Operating Partnership's investments in Metropolitan and Omni
Partners, L. P. ("Omni"), are reflected in the accompanying financial
statements on a
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consolidated basis with a reduction for minority partners' interest. The
Operating Partnership's investment in RMI was reflected in the accompanying
financial statements on a consolidated basis with a reduction for minority
partner's interest through September 26, 1999. On September 27, 1999, the
Operating Partnership sold its interest in RMI to KTR. The operating results of
the service businesses currently conducted by Reckson Management Group, Inc.,
and Reckson Construction Group, Inc., are reflected in the accompanying
financial statements on the equity method of accounting. The Operating
Partnership also invests in real estate joint ventures where it may own less
than a controlling interest, such investments are also reflected in the
accompanying financial statements on the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
The merger with Tower was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16. Accordingly, the fair value of the
consideration given by the Operating Partnership, in accordance with generally
accepted accounting principles ("GAAP"), was used as the valuation basis for
the merger. The assets acquired and liabilities assumed by the Operating
Partnership were recorded at the fair value as of the closing date of the
merger and the excess of the purchase price over the historical basis of the
net assets acquired was allocated primarily to operating real estate properties
and real estate properties which have been sold.
The minority interests at March 31, 2000 represent an approximate 28%
interest in certain industrial joint venture properties formerly owned by RMI,
a convertible preferred interest in Metropolitan and a 40% interest in Omni.
The accompanying interim unaudited financial statements have been prepared
by the 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 GAAP may have been condensed or omitted pursuant to such rules
and regulations, although management believes that the disclosures are adequate
to make the information presented not misleading. The unaudited financial
statements as of March 31, 2000 and for the three month periods ended March 31,
2000 and 1999 include, in the opinion of management, ll 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 March 31, 2000, the Operating Partnership had approximately $527.5
million of fixed rate mortgage notes which mature at various times between June
2000 and November 2027. The notes are secured by 23 properties and have a
weighted average interest rate of approximately 7.57%.
4. SENIOR UNSECURED NOTES
As of March 31, 2000, the Operating Partnership had outstanding
approximately $449.3 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures
(dollars in thousands):
7
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<CAPTION>
FACE
ISSUANCE AMOUNT COUPON RATE TERM MATURITY
- ------------------- ----------- ------------- ---------- ----------------
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August 27, 1997 $150,000 7.20% 10 years August 28, 2007
March 26, 1999 $100,000 7.40% 5 years March 15, 2004
March 26, 1999 $200,000 7.75% 10 years March 15, 2009
</TABLE>
Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 were issued at an aggregate
discount of $738,000.
Net proceeds of approximately $297.4 million received from the issuance of
the March 26, 1999 Senior Unsecured Notes were used to repay outstanding
borrowings under the Operating Partnership's unsecured credit facility.
5. UNSECURED CREDIT FACILITIES AND UNSECURED TERM LOAN
As of March 31, 2000, the Operating Partnership had a three year $500
million unsecured revolving credit facility (the "Credit Facility") from Chase
Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the
Credit Facility bank group which matures in July, 2001. Interest rates on
borrowings under the Credit Facility are priced off of LIBOR plus a sliding
scale ranging from 65 basis points to 90 basis points based on the Operating
Partnership's investment grade rating on its senior unsecured debt. On March 16,
1999, the Operating Partnership received its investment grade rating on its
senior unsecured debt. As a result, the pricing under the Credit Facility was
adjusted to LIBOR plus 90 basis points.
The Operating Partnership utilizes the Credit Facility primarily to
finance the acquisitions of properties and other real estate investments, fund
its development activities and for working capital purposes. At March 31, 2000,
the Operating Partnership had availability under the Credit Facility to borrow
an additional $51.3 million (net of $41.1 million of outstanding undrawn
letters of credit).
As of March 31, 2000, the Operating Partnership had an 18-month, $75 million
unsecured term loan (the "Term Loan") from Chase Manhattan Bank which matures in
June, 2001. Interest rates on borrowings under the Term Loan are priced off of
LIBOR plus 150 basis points. The Term Loan replaced the Operating Partnership's
previous term loan, which matured on December 17, 1999.
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 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 consolidated statement of income for the
period from the date of acquisition.
On August 9, 1999, the Operating Partnership executed a contract for the
sale, which will take place in three stages, of its interest in RMI, which
consisted of 28 properties, comprising approximately 6.1 million square feet
and three other big box industrial properties to KTR. In addition, the
Operating Partnership also entered into a sale agreement with Matrix relating
to a first mortgage note and certain
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industrial land holdings (the "Matrix Sale"). The combined total sale price is
$310 million (approximately $42 million of which is payable to the Morris
Companies and its affiliates) and 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.
During September 1999, the Matrix Sale and the first stage of the RMI
closing occurred whereby the Operating Partnership sold its interest in RMI to
KTR for a combined sales price of approximately $164.7 million (net of minority
partner's interest). The combined consideration consisted of approximately (i)
$86.3 million in cash, (ii) $40 million of preferred stock of KTR, (iii) $1.5
million in common stock of KTR, (iv) approximately $26.7 million of debt relief
and (v) approximately $10.2 million in purchase money mortgages. As a result,
the Operating Partnership incurred a gain of approximately $10.1 million. Cash
proceeds from the sales were used primarily to repay borrowings under the
Credit Facility. The $41.5 million of common and preferred stock of KTR has
been included in prepaid expenses and other assets on the accompanying
consolidated balance sheet.
During April and May 2000, the second and third stages of the RMI closing
occurred whereby the Operating Partnership sold six industrial buildings. The
total consideration received in connection with stages two and three totaled
approximately $98 million (approximately $6 million of which is payable to the
Morris Companies and its affiliates) and consisted of approximately $26 million
of preferred operating partnership units of KTR and approximately $72 million
in cash. Cash proceeds from the sales were used primarily to repay borrowings
under the Credit Facility.
In July 1998, the Company formed a joint venture, Metropolitan Partners
LLC, a Delaware limited liability company ("Metropolitan"), with Crescent Real
Estate Equities Company, a Texas real estate investment trust ("Crescent").
On December 8, 1998, the Company, Metropolitan and Tower Realty Trust, Inc.
("Tower") executed a merger agreement and on May 24, 1999 Tower was merged (the
"Merger") into Metropolitan, with Metropolitan surviving the Merger.
Concurrently with the Merger, Tower Realty Operating Partnership, L.P. was
merged with and into a subsidiary of Metropolitan. The consideration issued in
the mergers was comprised of (i) 25% cash (approximately $107.2 million) and
(ii) 75% of shares of Class B Exchangeable Common Stock, par value $.01 per
share, of the Company (the "Class B common stock") (valued for GAAP purposes at
approximately $304.1 million).
The Company controls Metropolitan and owns 100% of the common equity;
Crescent owns a $85 million preferred equity investment in Metropolitan.
Crescent's investment accrues distributions at a rate of 7.5% per annum for a
two-year period (May 24, 1999 - May 24, 2001) and may be redeemed by
Metropolitan at any time during that period for $85 million, plus an amount
sufficient to provide a 9.5% internal rate of return. If Metropolitan does not
redeem the preferred interest, upon the expiration of the two-year period,
Crescent must convert its $85 million preferred interest into either (i) a
common membership interest in Metropolitan or (ii) shares of the Company's
Class A common stock at a conversion price of $24.61 per share.
The Tower portfolio acquired in the Merger consisted of three office
properties comprising approximately 1.6 million square feet located in New York
City, one office property located on Long Island and certain office properties
and other real estate assets located outside the Tri-State Area. All of the
assets acquired in the Merger, located outside the Tri-State Area, other than
an office property located in Orlando, Florida, have been sold.
7. PARTNERS' CAPITAL
On May 24, 1999, in conjunction with the Tower acquisition, 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
are entitled to receive an initial annual distribution of $2.24 per unit which
distribution is subject to adjustment annually. 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
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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 the four year, six-month anniversary of the issuance of
the Class B common units.
On March 8, 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 $ 0.37125 April 3, 2000 April 14, 2000 March 31, 2000 $ 1.485
Class B common unit $ 0.56000 April 14, 2000 May 1, 2000 April 30, 2000 $ 2.240
Series A preferred unit $ 0.47660 April 14, 2000 May 1, 2000 April 30, 2000 $ 1.906
Series E preferred unit $ 0.49063 April 14, 2000 May 1, 2000 April 30, 2000 $ 1.963
</TABLE>
As of March 31, 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)
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
---------- ---------
Cash paid during the period for interest . $33,306 $18,729
======= =======
Interest capitalized during the period ......... $ 2,362 $ 2,311
======= =======
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, as the Operating Partnership expects to meet its short-term
liquidity requirements in part through the Credit Facility and Term Loan,
interest incurred on borrowings under the Credit Facility and Term Loan is not
considered as part of property operating performance. Further, the Operating
Partnership does not consider the property operating performance of the office
property located in Orlando, Florida as a part of its Core Portfolio.
Additionally, commencing January 1, 2000, the Operating Partnership does not
consider the operating performance of the industrial joint venture properties
formerly owned by RMI, a reportable segment.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
10
<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 March 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MARCH 31, 2000
---------------------------------------------
CONSOLIDATED
CORE PORTFOLIO OTHER TOTALS
---------------- ------------- --------------
<S> <C> <C> <C>
REVENUES:
Base rents, tenant escalations and
reimbursements ............................... $ 104,821 $ 2,426 $ 107,247
Equity in earnings of real estate joint
ventures and service companies ............... -- 1,413 1,413
Interest and other income ..................... 406 8,592 8,998
----------- --------- ----------
Total Revenues ............................... 105,227 12,431 117,658
----------- --------- ----------
EXPENSES:
Property operating expenses ................... 37,488 668 38,156
Marketing, general and administrative ......... 5,100 778 5,878
Interest ...................................... 9,192 14,648 23,840
Depreciation and amortization ................. 19,334 1,678 21,012
----------- --------- ----------
Total Expenses ............................... 71,114 17,772 88,886
----------- --------- ----------
Income (loss) before distributions to
preferred unitholders and minority
interests' .................................. $ 34,113 $ (5,341) $ 28,772
=========== ========== ==========
Total Assets ................................. $ 2,069,161 $ 836,410 $2,905,571
=========== ========= ==========
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
MARCH 31, 1999
--------------------------------------
CORE CONSOLIDATED
PORTFOLIO RMI OTHER TOTALS
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Base rents, tenant escalations and
reimbursements ............................... $ 66,022 $ 4,613 $ -- $ 70,635
Equity in earnings of real estate joint
ventures and service companies ............... -- -- 377 377
Interest and other income ..................... 69 2 5,024 5,095
---------- -------- -------- ----------
Total Revenues ............................... 66,091 4,615 5,401 76,107
---------- -------- -------- ----------
EXPENSES:
Property operating expenses ................... 22,157 751 -- 22,908
Marketing, general and administrative ......... 3,942 131 1 4,074
Interest ...................................... 4,559 277 9,107 13,943
Depreciation and amortization ................. 12,781 1,080 1,230 15,091
---------- -------- -------- ----------
Total Expenses ............................... 43,439 2,239 10,338 56,016
---------- -------- -------- ----------
Income (loss) before distributions to
preferred unitholders and minority
interests' .................................. $ 22,652 $ 2,376 $ (4,937) $ 20,091
========== ======== ======== ==========
Total Assets ................................. $1,435,086 $159,873 $315,890 $1,910,849
========== ======== ======== ==========
</TABLE>
10. OTHER INVESTMENTS AND ADVANCES
During 1997, the Company formed FrontLine Capital Group ("FrontLine")
(formerly Reckson Service Industries, Inc.) and Reckson Strategic Venture
Partners, LLC ("RSVP"). In connection with the formation of FrontLine, the
Operating Partnership established a credit facility with FrontLine (the
"FrontLine Facility") in the amount of $100 million for FrontLine's e-commerce
and e-services operations and other general corporate purposes. As of March 31,
2000, the Company had advanced approximately $92.7 million under the FrontLine
Facility. In addition, the Operating Partnership has approved the funding of
investments of up to $100 million with or in RSVP (the "RSVP Commitment"),
through RSVP-controlled joint venture REIT-qualified investments or advances
made to FrontLine under terms similar to the FrontLine Facility. As of March
31, 2000, approximately $60.9 million had been invested through the RSVP
Commitment, of which $24.8 million represents RSVP-controlled joint venture
REIT-qualified investments and $36.1 million represents advances to FrontLine
under the RSVP Commitment.
During November 1999, the Board of Directors of the Company approved an
amendment to the FrontLine Facility and the RSVP Commitment to permit FrontLine
to incur secured debt and to pay interest thereon. In consideration of the
amendments, FrontLine paid the Operating Partnership a fee of approximately
$3.6 million in the form of shares of FrontLine common stock. Such fee is being
recognized in income over an estimated nine month benefit period.
FrontLine identifies, acquires interests in and develops a network of
e-commerce and e-services companies that service small to medium sized
enterprises, independent professionals and entrepreneurs and the mobile
workforce of larger companies. FrontLine serves as the managing member of RSVP.
RSVP was formed to provide the Company with a research and development vehicle
to invest in alternative real estate sectors. RSVP invests primarily in real
estate and real estate related operating companies generally outside of the
Company's core office and industrial focus. RSVP's strategy is to identify and
acquire interests in established entrepreneurial enterprises with experienced
management teams in market sectors which are in the early stages of their growth
cycle or offer unique circumstances for attractive investments as well as a
platform for future growth.
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 March 31, 2000, the Operating Partnership owned and operated 78
office properties comprising approximately 13.7 million square feet, 110
industrial properties comprising approximately 8.3 million square feet and two
retail properties comprising approximately 20,000 square feet, located in the
Tri-State Area. The Operating Partnership also owns a 357,000 square foot
office building located in Orlando, Florida and approximately 346 acres of land
in 16 separate parcels of which the Operating Partnership can develop
approximately 1.9 million square feet of office space and approximately 300,000
square feet of industrial space. The Operating Partnership also has invested
approximately $314.8 million in mortgage notes encumbering two Class A office
properties encompassing approximately 1.6 million square feet, approximately
472 acres of land located in New Jersey and in a note receivable secured by a
partnership interest in Omni Partner's, L.P., owner of the Omni, a 575,000
square foot Class A office property located in Uniondale, New York. In
addition, the Operating Partnership also holds $41.5 million of preferred and
common stock of Keystone Property Trust ("KTR"), as discussed below.
During 1997, the Company formed FrontLine Capital Group ("FrontLine")
(formerly Reckson Service Industries, Inc.) and Reckson Strategic Venture
Partners, LLC ("RSVP"). In connection with the formation of FrontLine, the
Operating Partnership established a credit facility with FrontLine (the
"FrontLine Facility") in the amount of $100 million for FrontLine's e-commerce
and e-services operations and other general corporate purposes. As of March 31,
2000, the Company had advanced approximately $92.7 million under the FrontLine
Facility. In addition, the Operating Partnership has approved the funding of
investments of up to $100 million with or in RSVP (the "RSVP Commitment"),
through RSVP-controlled joint venture REIT-qualified investments or advances
made to FrontLine
12
<PAGE>
under terms similar to the FrontLine Facility. As of March 31, 2000,
approximately $60.9 million had been invested through the RSVP Commitment, of
which $24.8 million represents RSVP-controlled joint venture REIT-qualified
investments and $36.1 million represents advances to FrontLine under the RSVP
Commitment.
During November 1999, the Board of Directors of the Company approved an
amendment to the FrontLine Facility and the RSVP Commitment to permit FrontLine
to incur secured debt and to pay interest thereon. In consideration of the
amendments, FrontLine paid the Operating Partnership a fee of approximately
$3.6 million in the form of shares of FrontLine common stock. Such fee is being
recognized in income over an estimated nine month benefit period.
FrontLine identifies, acquires interests in and develops a network of
e-commerce and e-services companies that service small to medium sized
enterprises, independent professionals and entrepreneurs and the mobile
workforce of larger companies. FrontLine serves as the managing member of RSVP.
RSVP was formed to provide the Company with a research and development vehicle
to invest in alternative real estate sectors. RSVP invests primarily in real
estate and real estate related operating companies generally outside of the
Company's core office and industrial focus. RSVP's strategy is to identify and
acquire interests in established entrepreneurial enterprises with experienced
management teams in market sectors which are in the early stages of their
growth cycle or offer unique circumstances for attractive investments as well
as a platform for future growth.
On January 6, 1998, the Operating Partnership made an investment in the
Morris Companies, a New Jersey developer and owner of "Big Box" warehouse
facilities. In connection with the transaction the Morris Companies contributed
100% of their interests in certain industrial properties to Reckson Morris
Operating Partnership, L. P. ("RMI") in exchange for operating partnership
units in RMI. On September 27, 1999, the Operating Partnership sold its
interest in RMI to KTR.
On August 9, 1999, the Operating Partnership executed a contract for the
sale, which will take place in three stages, of its interest in RMI, which
consisted of 28 properties, comprising approximately 6.1 million square feet
and three other big box industrial properties to KTR. In addition, the
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 (approximately $42
million of which is payable to the Morris Companies and its affiliates) 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.
During September 1999, the Matrix Sale and the first stage of the RMI
closing occurred whereby the Operating Partnership sold its interest in RMI to
KTR for a combined sales price of approximately $164.7 million (net of minority
partner's interest). The combined consideration consisted of approximately (i)
$86.3 million in cash, (ii) $40 million of preferred stock of KTR, (iii) $1.5
million in common stock of KTR, (iv) approximately $26.7 million of debt relief
and (v) approximately $10.2 million in purchase money mortgages. As a result,
the Operating Partnership incurred a gain of approximately $10.1 million. Cash
proceeds from the sales were used primarily to repay borrowings under the
Credit Facility. The $41.5 million of common and preferred stock of KTR has
been included in prepaid expenses and other assets on the Operating
Partnership's consolidated balance sheet.
During April and May 2000, the second and third stages of the RMI closing
occurred whereby the Operating Partnership sold six industrial buildings. The
total consideration received in connection with stages two and three totaled
approximately $98 million (approximately $6 million of which is payable to the
Morris Companies and its affiliates) and consisted of approximately $26 million
of preferred operating partnership units of KTR and approximately $72 million
in cash. Cash proceeds from the sales were used primarily to repay borrowings
under the Operating Partnership's unsecured credit facility.
In July 1998, the Company formed a joint venture, Metropolitan Partners
LLC, a Delaware limited liability company ("Metropolitan"), with Crescent Real
Estate Equities Company, a Texas real estate investment trust ("Crescent").
13
<PAGE>
On December 8, 1998, the Company, Metropolitan and Tower Realty Trust,
Inc. ("Tower") executed a merger agreement and on May 24, 1999 Tower was merged
(the "Merger") into Metropolitan, with Metropolitan surviving the Merger.
Concurrently with the Merger, Tower Realty Operating Partnership, L.P. was
merged with and into a subsidiary of Metropolitan. The consideration issued in
the mergers was comprised of (i) 25% cash (approximately $107.2 million) and
(ii) 75% of shares of Class B Exchangeable Common Stock, par value $.01 per
share, of the Company (the "Class B common stock") (valued for GAAP purposes at
approximately $304.1 million).
The Company controls Metropolitan and owns 100% of the common equity;
Crescent owns a $85 million preferred equity investment in Metropolitan.
Crescent's investment accrues distributions at a rate of 7.5% per annum for a
two-year period (May 24, 1999 - May 24, 2001) and may be redeemed by
Metropolitan at any time during that period for $85 million, plus an amount
sufficient to provide a 9.5% internal rate of return. If Metropolitan does not
redeem the preferred interest, upon the expiration of the two-year period,
Crescent must convert its $85 million preferred interest into either (i) a
common membership interest in Metropolitan or (ii) shares of the Company's
Class A common stock at a conversion price of $24.61 per share.
The Tower portfolio acquired in the Merger consisted of three office
properties comprising approximately 1.6 million square feet located in New York
City, one office property located on Long Island and certain office properties
and other real estate assets located outside the Tri-State Area. All of the
assets acquired in the Merger located outside the Tri-State Area, other than an
office property located in Orlando, Florida, have been sold.
The market capitalization of the Operating Partnership at March 31, 2000
was approximately $3.06 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 $1.45 billion (including its share of joint venture debt and net
of minority partners' interest) of debt outstanding at March 31, 2000. As a
result, the Operating Partnership's total debt to total market capitalization
ratio at March 31, 2000 equaled approximately 47.2%.
RESULT OF OPERATIONS
The Operating Partnership's total revenues increased by $41.6 million or
54.6% for the three months ended March 31, 2000 as compared to the 1999 period.
Property operating revenues, which include base rents and tenant escalations
and reimbursements ("Property Operating Revenues") increased by $36.6 million
or 51.8% for the three months ended March 31, 2000 as compared to the 1999
period. The increase in Property Operating Revenues is substantially
attributable to the Tower portfolio acquisition in May 1999, the acquisition of
the first mortgage note secured by 919 Third Avenue (which revenue was
reflected in Property Operating Revenues) in June 1999 and the acquisition of
1350 Avenue of the Americas in January 2000. In addition, Property Operating
Revenues were also positively impacted by approximately $3.1 million from
increases in occupancies and rental rates in our "same store" properties. The
Operating Partnership's base rent reflects the positive impact of the
straight-line rent adjustment of $4.5 million for the three months ended March
31, 2000 as compared to $1.4 million for the 1999 period. The remaining balance
of the increase in total revenues is primarily attributable to interest income
and fees relating to the FrontLine Facility and the RSVP Commitment.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $15.2 million or 66.6% for the three months ended March
31, 2000 as compared to the 1999 period. These increases are primarily due to
the acquisition of the Tower portfolio in May 1999, the acquisition of the first
mortgage note secured by 919 Third Avenue in June 1999, (which operations were
reflected in Property Expenses) and the acquisition of 1350 Avenue of the
Americas in January 2000. Gross operating margins (defined as Property Operating
Revenues less Property Expenses, taken as a percentage of Property Operating
Revenues) for the three months ended March 31, 2000 and 1999 were 64.4% and
67.6% respectively. The decrease in gross operating margins is primarily
attributable to a larger
14
<PAGE>
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 margin is attributable to the office
properties acquired during the period May 1999 through January 2000 and the
disposition of net leased industrial properties in September 1999. This shift in
the composition of the portfolio was offset by increases in rental rates and
operating efficiencies realized.
Marketing, general and administrative expenses increased by $1.8 million
for the three months ended March 31, 2000 as compared to the 1999 period. The
increase is due to the increased costs of managing the acquisition properties
and the increase in corporate management and administrative costs associated
with the growth of the Operating Partnership including the opening of its New
York City division. Marketing, general and administrative expenses as a
percentage of total revenues were 5.0% for the three months ended March 31,
2000 as compared to 5.4% for the 1999 period.
Interest expense increased by $9.9 million for the three months ended
March 31, 2000 as compared to the 1999 period. The increase is primarily due to
secured borrowings assumed in the Tower acquisition as well as new debt
incurred with the Tower and 1350 Avenue of the Americas acquisitions.
Additionally, the increase is also due to $300 million of Senior Unsecured
Notes issued on March 26, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Operating Partnership had a three year $500
million unsecured revolving credit facility (the "Credit Facility") from Chase
Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the
Credit Facility bank group which matures in July, 2001. Interest rates on
borrowings under the Credit Facility are priced off of LIBOR plus a sliding
scale ranging from 65 basis points to 90 basis points based on the Operating
Partnership's investment grade rating on its senior unsecured debt. On March 16,
1999, the Operating Partnership received its investment grade rating on its
senior unsecured debt. As a result, the pricing under the Credit Facility was
adjusted to LIBOR plus 90 basis points.
The Operating Partnership utilizes the Credit Facility primarily to
finance the acquisitions of properties and other real estate investments, fund
its development activities and for working capital purposes. At March 31, 2000,
the Operating Partnership had availability under the Credit Facility to borrow
an additional $51.3 million (net of $41.1 million of outstanding undrawn
letters of credit).
As of March 31, 2000, the Operating Partnership had an 18-month, $75
million unsecured term loan (the "Term Loan") from Chase Manhattan Bank which
matures in June, 2001. Interest rates on borrowings under the Term Loan are
priced off of LIBOR plus 150 basis points. The Term Loan replaced the Operating
Partnership's previous term loan, which matured on December 17, 1999.
On May 24, 1999, in conjunction with the Tower acquisition, 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
are entitled to receive an initial annual distribution of $2.24 per unit, which
distribution is subject to adjustment annually. 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 the four year, six-month anniversary of the issuance of the
Class B common units.
As of March 31, 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.
The Operating Partnership's indebtedness at March 31, 2000 totaled
approximately $1.45 billion (including its share of joint venture debt and net
of the minority partners' interests) and was comprised of $407.6 million
outstanding under the Credit Facility, $75 million outstanding under the Term
Loan, $449.3 million of senior unsecured notes and approximately $527.5 million
of mortgage indebtedness. Based on the Operating Partnership's total market
capitalization of approximately $3.06 billion at March
15
<PAGE>
31, 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 of $85 million
and (iv) the $1.45 billion of debt), the Operating Partnership's debt
represented approximately 47.2% 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 securities and additional equity securities
of the Operating Partnership. 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 Term Loan bear interest at a variable rate, which
will be influenced by changes in short-term interest rates, and are sensitive
to inflation.
IMPACT OF YEAR 2000
During 1999, the Operating Partnership discussed the nature and progress
of its plans to become Year 2000 ready. In that regard, the Operating
Partnership has completed its assessment, remediation and testing of its
systems in order for those systems to function properly with respect to dates
occurring in the Year 2000 and thereafter. As a result of those efforts, the
Operating Partnership experienced no significant disruptions in connection with
its building management, mechanical and computer systems and believes that
those systems successfully responded to the Year 2000 date change. The
Operating Partnership has expended approximately one million dollars with
upgrading, replacing or remediating its systems and is not aware of any
material problems resulting from Year 2000 issues. Further, the Operating
Partnership will continue to monitor its critical building management,
mechanical and computer systems throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an 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
16
<PAGE>
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.
The following table presents the Operating Partnership's FFO calculation
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Net Income available to common unit holders .............. $18,812 $ 13,882
Adjustment for Funds From Operations:
Add:
Real estate depreciation and amortization ............... 20,616 14,689
Minority interests in consolidated partnerships ......... 1,975 1,168
Less:
Amount distributed to minority partners in
consolidated partnerships ............................. 2,381 1,444
------- --------
Funds From Operations .................................... $39,022 $ 28,295
======= ========
Weighted average units outstanding ....................... 58,366 47,759
======= ========
</TABLE>
17
<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 three month period ended March 31, 2000 and the historical average of
such non-incremental capital expenditures, tenant improvements and leasing
commissions for the years 1996 through 1999.
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
THREE MONTHS
1996-1999 ENDED
1996 1997 1998 1999 AVERAGE MARCH 31, 2000
------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SUBURBAN OFFICE PROPERTIES
Total ........................ $ 375,026 $ 1,108,675 $ 2,004,976 $ 2,298,899 $ 1,446,894 $ 770,138
Per Square Foot .............. 0.13 0.22 0.23 0.23 0.20 0.08
CBD OFFICE PROPERTIES .........
Total ........................ N/A N/A N/A N/A N/A $ 362,774
Per Square Foot .............. N/A N/A N/A N/A N/A 0.17
INDUSTRIAL PROPERTIES .........
Total ........................ $ 670,751 $ 733,233 $ 1,205,266 $ 1,048,688 $ 914,485 $ 118,494
Per Square Foot .............. 0.18 0.15 0.12 0.11 0.14 0.01
</TABLE>
NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS
<TABLE>
<CAPTION>
1996 1997 1998
------------- -------------- ---------------
<S> <C> <C> <C>
LONG ISLAND OFFICE PROPERTIES
Tenant Improvements ................. $ 523,574 $ 784,044 $ 1,140,251
Per Square Foot Improved ............ 4.28 7.00 3.98
Leasing Commissions ................. $ 119,047 $ 415,822 $ 418,191
Per Square Foot Leased .............. 0.97 4.83 1.46
--------- ---------- -----------
Total Per Square Foot ............... $ 5.25 $ 11.83 $ 5.44
========= ========== ===========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements ................. $ 834,764 $1,211,665 $ 711,160
Per Square Foot Improved ............ 6.33 8.90 4.45
Leasing Commissions ................. $ 264,388 $ 366,257 $ 286,150
Per Square Foot Leased .............. 2.00 2.69 1.79
--------- ---------- -----------
Total Per Square Foot ............... $ 8.33 $ 11.59 $ 6.24
========= ========== ===========
CONNECTICUT OFFICE PROPERTIES (A)
Tenant Improvements ................. $ 58,000 $1,022,421 $ 202,880
Per Square Foot Improved ............ 12.45 13.39 5.92
Leasing Commissions ................. $ 0 $ 256,615 $ 151,063
Per Square Foot Leased .............. 0.00 3.36 4.41
--------- ---------- -----------
Total Per Square Foot ............... $ 12.45 $ 16.75 $ 10.33
========= ========== ===========
NEW JERSEY OFFICE PROPERTIES .........
Tenant Improvements ................. N/A N/A $ 654,877
Per Square Foot Improved ............ N/A N/A 3.78
Leasing Commissions ................. N/A N/A $ 396,127
Per Square Foot Leased .............. N/A N/A 2.08
--------- ---------- -----------
Total Per Square Foot ............... N/A N/A $ 5.86
========= ========== ===========
NEW YORK OFFICE PROPERTIES ...........
Tenant Improvements ................. N/A N/A N/A
Per Square Foot Improved ............ N/A N/A N/A
Leasing Commissions ................. N/A N/A N/A
Per Square Foot Leased .............. N/A N/A N/A
--------- ---------- -----------
Total Per Square Foot ............... N/A N/A N/A
========= ========== ===========
INDUSTRIAL PROPERTIES ................
Tenant Improvements ................. $ 380,334 $ 230,466 $ 283,842
Per Square Foot Improved ............ 0.72 0.55 0.76
Leasing Commissions ................. $ 436,213 $ 81,013 $ 200,154
Per Square Foot Leased .............. 0.82 0.19 0.44
--------- ---------- -----------
Total Per Square Foot ............... $ 1.54 $ 0.74 $ 1.20
========= ========== ===========
<CAPTION>
THREE MONTHS
1996-1999 ENDED
1999 AVERAGE MARCH 31, 2000
--------------- -------------- ---------------
<S> <C> <C> <C>
LONG ISLAND OFFICE PROPERTIES
Tenant Improvements ................. $ 1,009,357 $ 864,307 $ 587,337
Per Square Foot Improved ............ 4.73 5.00 5.02
Leasing Commissions ................. $ 551,762 $ 376,206 $ 834,492
Per Square Foot Leased .............. 2.59 2.46 7.13
----------- ---------- ---------
Total Per Square Foot ............... $ 7.32 $ 7.46 $ 12.15
=========== ========== =========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements ................. $ 1,316,611 $1,018,550 $ 643,796
Per Square Foot Improved ............ 5.62 6.33 14.71
Leasing Commissions ................. $ 457,730 $ 343,631 $ 131,402
Per Square Foot Leased .............. 1.96 2.11 3.00
----------- ---------- ---------
Total Per Square Foot ............... $ 7.58 $ 8.44 $ 17.71
=========== ========== =========
CONNECTICUT OFFICE PROPERTIES (A)
Tenant Improvements ................. $ 179,043 $ 449,952 $ 129,380
Per Square Foot Improved ............ 4.88 9.16 4.22
Leasing Commissions ................. $ 110,252 $ 159,363 $ 96,388
Per Square Foot Leased .............. 3.00 2.69 3.14
----------- ---------- ---------
Total Per Square Foot ............... $ 7.88 $ 11.85 $ 7.36
=========== ========== =========
NEW JERSEY OFFICE PROPERTIES .........
Tenant Improvements ................. $ 454,054 $ 554,466 $ 316,187
Per Square Foot Improved ............ 2.29 3.04 6.81
Leasing Commissions ................. $ 787,065 $ 591,596 $ 254,045
Per Square Foot Leased .............. 3.96 3.02 5.89
----------- ---------- ---------
Total Per Square Foot ............... $ 6.25 $ 6.06 $ 12.70
=========== ========== =========
NEW YORK OFFICE PROPERTIES ...........
Tenant Improvements ................. N/A N/A N/A
Per Square Foot Improved ............ N/A N/A N/A
Leasing Commissions ................. N/A N/A N/A
Per Square Foot Leased .............. N/A N/A N/A
----------- ---------- ---------
Total Per Square Foot ............... N/A N/A N/A
=========== ========== =========
INDUSTRIAL PROPERTIES ................
Tenant Improvements ................. $ 375,646 $ 317,572 $ 66,483
Per Square Foot Improved ............ 0.25 0.57 0.25
Leasing Commissions ................. $ 835,108 $ 388,122 $ 86,439
Per Square Foot Leased .............. 0.56 0.50 0.33
----------- ---------- ---------
Total Per Square Foot ............... $ 0.81 $ 1.07 $ 0.58
=========== ========== =========
</TABLE>
- ----------
(A) 1996 -- 1999 average weighted to reflect October 1996 acquisition date
18
<PAGE>
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for executed
leases as of March 31, 2000:
LONG ISLAND OFFICE PROPERTIES (EXCLUDING OMNI):
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET 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 ........................ 32 138,314 4.5% $ 21.24 $ 22.66
2001 ........................ 41 188,697 6.2% $ 22.29 $ 24.45
2002 ........................ 32 261,102 8.5% $ 22.29 $ 24.53
2003 ........................ 52 340,359 11.2% $ 21.90 $ 24.85
2004 ........................ 45 275,654 9.0% $ 23.04 $ 25.73
2005 ........................ 53 529,651 17.3% $ 22.74 $ 26.08
2006 AND THEREAFTER ......... 71 1,322,630 43.3% -- --
-- --------- -----
TOTAL ....................... 326 3,056,407 100.0%
=== ========= =====
</TABLE>
OMNI:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET 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 6.2% $ 27.39 $ 32.74
2002 ........................ 3 129,351 24.3% $ 30.00 $ 33.52
2003 ........................ 6 81,809 15.4% $ 29.60 $ 33.60
2004 ........................ 4 112,414 21.1% $ 26.04 $ 33.40
2005 ........................ 6 59,115 11.1% $ 27.91 $ 34.66
2006 AND THEREAFTER ......... 5 116,605 21.9% -- --
-- ------- -----
TOTAL ....................... 28 531,974 100.0%
== ======= =====
</TABLE>
INDUSTRIAL PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET 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 ........................ 27 402,203 8.4% $ 5.49 $ 6.19
2001 ........................ 31 652,359 13.7% $ 5.84 $ 7.06
2002 ........................ 25 212,744 4.5% $ 6.26 $ 6.97
2003 ........................ 30 724,434 15.2% $ 5.26 $ 6.08
2004 ........................ 34 622,185 13.1% $ 6.36 $ 7.16
2005 ........................ 12 351,234 7.4% $ 5.48 $ 7.79
2006 AND THEREAFTER ......... 40 1,794,543 37.7% -- --
-- --------- -----
TOTAL ....................... 199 4,759,702 100.0%
=== ========= =====
</TABLE>
19
<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 ........................ 6 62,492 4.9% $ 9.43 $ 9.31
2001 ........................ 8 150,120 11.7% $ 10.75 $ 11.80
2002 ........................ 2 64,620 5.0% $ 10.10 $ 12.70
2003 ........................ 5 291,034 22.8% $ 5.62 $ 6.62
2004 ........................ 10 129,218 10.1% $ 12.17 $ 13.43
2005 ........................ 2 269,704 21.1% $ 8.24 $ 9.03
2006 AND THEREAFTER ......... 12 311,496 24.4% -- --
-- ------- -----
TOTAL ....................... 45 1,278,684 100.0%
== ========= =====
</TABLE>
WESTCHESTER OFFICE PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET 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 ........................ 38 280,179 9.6% $ 22.44 $ 22.44
2001 ........................ 43 228,679 7.8% $ 20.77 $ 21.16
2002 ........................ 51 461,797 15.8% $ 19.99 $ 20.24
2003 ........................ 39 252,385 8.7% $ 21.88 $ 23.13
2004 ........................ 27 164,609 5.6% $ 21.60 $ 22.01
2005 ........................ 21 279,077 9.6% $ 24.50 $ 24.99
2006 AND THEREAFTER ......... 35 1,246,721 42.9% -- --
-- --------- -----
TOTAL ....................... 254 2,913,447 100.0%
=== ========= =====
</TABLE>
STAMFORD OFFICE PROPERTIES:
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET 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 ........................ 25 101,334 9.6% $ 21.14 $ 21.90
2001 ........................ 24 110,180 10.4% $ 24.52 $ 25.56
2002 ........................ 18 95,920 9.1% $ 27.07 $ 28.29
2003 ........................ 15 94,448 9.0% $ 31.61 $ 32.39
2004 ........................ 22 225,924 21.4% $ 22.86 $ 23.74
2005 ........................ 10 71,830 6.8% $ 26.80 $ 28.51
2006 AND THEREAFTER ......... 19 355,295 33.7% -- --
-- ------- -----
TOTAL ....................... 133 1,054,931 100.0%
=== ========= =====
</TABLE>
20
<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 .................... 17 99,045 5.1% $ 17.49 $ 18.39
2001 .................... 22 260,124 13.4% $ 17.89 $ 18.10
2002 .................... 21 182,636 9.4% $ 19.83 $ 20.08
2003 .................... 20 336,393 17.4% $ 19.83 $ 19.92
2004 .................... 33 228,731 11.8% $ 22.60 $ 23.11
2005 .................... 23 317,732 16.4% $ 22.50 $ 23.25
2006 AND THEREAFTER ..... 16 512,495 26.5% -- --
-- ------- -----
TOTAL ................... 152 1,937,156 100.0%
=== ========= =====
</TABLE>
NEW YORK CITY OFFICE
<TABLE>
<CAPTION>
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET 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 ........................ 15 153,333 4.6% $ 29.37 $ 30.09
2001 ........................ 23 176,179 5.3% $ 37.19 $ 34.55
2002 ........................ 17 183,333 5.5% $ 31.82 $ 31.86
2003 ........................ 7 115,726 3.5% $ 31.89 $ 32.22
2004 ........................ 17 178,012 5.3% $ 33.01 $ 31.65
2005 ........................ 27 431,088 12.9% $ 34.56 $ 34.62
2006 AND THEREAFTER ......... 105 2,098,488 62.9% -- --
--- --------- -----
TOTAL ....................... 211 3,336,159 100.0%
=== ========= =====
</TABLE>
- ----------
(1) Per square foot rental rate represents annualized straight line rent as of
the lease expiration date.
(2) Per square foot rental rate represents annualized base rent as of the lease
expiration date plus non-recoverable operating expense pass-throughs.
21
<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 does not hedge interest rate risk using financial instrument nor is
the Operating Partnership 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 or Term Loan until such time as it is able to retire the
short-term variable rate debt with a long-term fixed rate debt offering on
terms that are advantageous to the Operating Partnership or through general
partner contributions.
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 fair market value ("FMV") at
March 31, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2000 2001 2002 2003 2004
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Long term debt:
Fixed rate .............. $ 33,479 $ 92,751 $ 16,499 $ 8,350 $ 11,769
Weighted average interest
rate ................... 7.36% 7.50% 7.79% 7.77% 8.30%
Variable rate ........... $ -- $482,600 $ -- $ -- $ --
Weighted average interest
rate ................... -- 7.01% -- -- --
<CAPTION>
THEREAFTER TOTAL(1) FMV
------------ ------------- ------------
<S> <C> <C> <C>
Long term debt:
Fixed rate .............. $ 814,660 $ 977,508 $ 977,508
Weighted average interest
rate ................... 7.53% 7.46%
Variable rate ........... $ -- $ 482,600 $ 482,600
Weighted average interest
rate ................... -- 7.01%
</TABLE>
- ------------------
(1) Includes unamortized issuance discounts of $670,000 on the 5 and 10-year
senior unsecured notes issued on March 26, 1999, which are due at
maturity.
In addition, the 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 $482.6 million
annual increase in interest expense based on approximately $4.8 million
outstanding at March 31, 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 March 31, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL (2) FMV
-------------- ---------- ------------ ------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage notes and
notes receivable:
Fixed rate ............. $ 282,983 $ 15 $ 11,055 $ -- $ 36,500 $ 16,990 $ 347,543 $ 347,543
Weighted average
interest rate ......... 9.42% 9.00% 10.34% -- 10.23% 11.65% 9.64%
</TABLE>
The fair value 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.
- ------------------
(2) Excludes mortgage note receivable acquisition costs and interest
receivables aggregating approximately $5.3 million.
22
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities and use of proceeds -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Securities Holders -- None
Item 5. Other information -- None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
<TABLE>
<CAPTION>
NUMBER
- -----------
<S> <C>
10.1 Amended and Restated letter Agreement, dated as of November 30,
1999, amending the RSVP Credit Agreement and the FrontLine Facility
27.0 Financial Data Schedule
</TABLE>
b) During the three months ended March 31, 2000 the Registrant did not
file any Reports on Form 8-K
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
By: \s\ Scott H. Rechler \s\ Michael Maturo
- --------------------------------- --------------------------------------
Scott H. Rechler, Co-Chief Executive Michael Maturo, Executive Vice President,
Officer and President Treasurer And Chief Financial Officer
DATE: May 10, 2000
23
<PAGE>
RECKSON OPERATING PARTNERSHIP, L.P.
EXHIBIT 10.1
November 30, 1999
Reckson Service Industries Inc.
10 East 53rd Street
New York, New York 10022
Re: Second Amended and Restated Credit Agreements
Dear Sirs:
Reference is made to the Amended and Restated Credit Agreement, dated as
of August 4, 1999, between Reckson Service Industries, Inc., as Borrower (the
"Borrower") and Reckson Operating Partnership, L.P., as Lender (the "Lender")
relating to the operations of the Borrower (the "RSI Facility"), and the
Amended and Restated Credit Agreement, dated as of August 4, 1999, between the
Borrower and the Lender relating to Reckson Strategic Venture Partners LLC
(together with the RSI Facility, the "Credit Facilities". Capitalized terms
used herein and not otherwise defined shall have the meaning ascribed to such
terms in the Credit Facilities.
You have advised us of your proposal to obtain (i) a $60 million secured
loan from Warburg Dillon Read and UBS AG (or other lenders) substantially on
the terms set forth on the term sheet attached hereto as Exhibit A (the
"Secured $60 million Loan") and (ii) a $75 million secured loan from Reckson
Strategic Venture Partners LLC (or other lenders) substantially on the terms
set forth in the term sheet attached hereto as Exhibit B (the "Secured $75
million Loan" and, together with the Secured $60 million Loan, the "Secured
Loans"). You have also advised us of your proposal to issue up to $200 million
in preferred stock (the "Preferred Stock").
1. Amendments. We hereby agree to the following amendments to the Credit
Facilities:
a. Section 1.1(b) is hereby amended to add the following definition:
"Adjusted EBITDA" shall mean, for any fiscal quarter, EBITDA less any
amounts payable (i) by any subsidiary in respect of the Indebtedness
of such Subsidiary (including, but not limited to, Indebtedness of
VANTAS Incorporated and the Secured $75 million Loan) and (ii) by the
Borrower in respect of the Secured $60 million Loan.
b. The third sentence of Section 3.1 of the Credit Facilities is hereby
amended by deleting the references to "EBITDA" and replacing such
references with the term "Adjusted EBITDA."
c. Section 7.2(c) of the Credit Facilities is hereby amended to add the
following:
(iv) Indebtedness of the Borrower payable to its subsidiaries,
partner companies or other companies into which the Borrower
makes investments to evidence the obligation of the Borrower to
fund future capital commitments into such entities.
2. Consents. We hereby consent to the following:
a. The Liens to be granted under the Secured Loans shall be deemed to be
Permitted Liens for purposes of the Credit Facilities.
b. In accordance with Section 7.2(c)(iii) of the Credit Facilities, the
incurrence of Indebtedness under the Secured Loans and the payment of
interest thereon is hereby approved.
c. In accordance with Sections 7.2(d) and 7.2(e) of the Credit
Facilities, the filing of one or more Certificates of Designation and
any amendments thereto in respect of the Preferred Stock, and the
payment by the Borrower of dividends to the holders of the Preferred
Stock, is hereby approved.
24
<PAGE>
3. Fees. It is understood that a fee equal to 176,186 shares of common
stock, par value $.01 per share, of the Borrower shall be paid to us upon
delivery of this letter in consideration of the matters covered in this letter.
Very truly yours,
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp., general
partner
By: /s/ Michael Maturo
------------------------------------------
Name: Michael Maturo
Title: Executive Vice President
Confirmed and Accepted:
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Michael Maturo
-------------------------------
Name: Michael Maturo
Title: Executive Vice President
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000930810
<NAME> RECKSON OPERATING PARTNERSHIP, L. P.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 31,042
<SECURITIES> 0
<RECEIVABLES> 239,175
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 270,217
<PP&E> 2,378,953
<DEPRECIATION> (237,028)
<TOTAL-ASSETS> 2,905,571
<CURRENT-LIABILITIES> 105,577
<BONDS> 1,459,438
0
413,126
<COMMON> 834,429
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,905,571
<SALES> 107,247
<TOTAL-REVENUES> 117,658
<CGS> 0
<TOTAL-COSTS> 44,034
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,840
<INCOME-PRETAX> 28,772
<INCOME-TAX> 0
<INCOME-CONTINUING> 28,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,812
<EPS-BASIC> .30
<EPS-DILUTED> 0
</TABLE>
