-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Frlo0JV/Cvb19j2uAx/QEkdSf2RAiq/rGG5ErgGOU58G/uwjqtVsUU/cjq94GRy+ CtxC1xDr0zZ7xv+RXWGyrQ== 0000930548-96-000005.txt : 19961111 0000930548-96-000005.hdr.sgml : 19961111 ACCESSION NUMBER: 0000930548-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961108 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RECKSON ASSOCIATES REALTY CORP CENTRAL INDEX KEY: 0000930548 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 113233650 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13762 FILM NUMBER: 96656320 BUSINESS ADDRESS: STREET 1: 225 BROADHOLLOW RD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5166946900 MAIL ADDRESS: STREET 1: 225 BROADHOLLOW RD CITY: MELVILLE STATE: NY ZIP: 11747 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 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, 1996 Commission file number: 1-13762 RECKSON ASSOCIATES REALTY CORP. (Exact name of registrant as specified in its charter) Maryland 11-3233650 (State other jurisdiction of incorporation (IRS. Employer of organization) Identification Number) 225 Broadhollow Road, Melville, NY 11747 (Address of principal executive office) (zip code) (516) 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) and (2) has been subject to such filing requirements for the past 90 days. Yes X No The company has only one class of common stock, issued at $.01 par value per share with 12,170,982 shares outstanding as of November 1, 1996. RECKSON ASSOCIATES REALTY CORP. QUARTERLY REPORT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TABLE OF CONTENTS INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets of Reckson Associates Realty Corp. as of September 30, 1996 and December 31, 1995.............. Consolidated Statement of Operations of Reckson Associates Realty Corp. for the three months ended September 30, 1996 and September 30, 1995...................................... Consolidated Statement of Operations of Reckson Associates Realty Corp. for the nine months ended September 30, 1996 and for the period from June 3, 1995 to September 30, 1995 and the Combined Statement of Operations of the Reckson Group (predecessor to Reckson Associates Realty Corp.) for the period from January 1, 1995 to June 2, 1995........................ Consolidated Statement of Cash Flows of Reckson Associates Realty Corp. for the nine months ended September 30, 1996 and for the period from June 3, 1995 to September 30, 1995 and the Combined Statement of Cash Flows of the Reckson Group (predecessor to the Reckson Associates Realty Corp.) for the period from January 1, 1995 to June 2, 1995............................. Notes to the Consolidated Financial Statements of Reckson Associates Realty Corp........................................ Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... PART II OTHER INFORMATION............................................... Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Securities Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART I - FINANCIAL INFORMATION Item 1 - FINANCIAL STATEMENTS RECKSON ASSOCIATES REALTY CORP. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except for share amounts)
September 30, December 31, 1996 1995 _________ _________ (Unaudited) ASSETS Commercial real estate properties, at cost: Land $ 41,461 $ 19,399 Building and improvements 384,723 268,657 Furniture, fixtures and equipment 2,742 2,656 _________ _________ 428,926 290,712 Less accumulated depreciation (84,106) (74,725) _________ _________ 344,820 215,987 Cash and cash equivalents 11,766 6,984 Tenants receivables 1,714 1,476 Affiliate receivables 1,992 219 Deferred rent receivable 10,958 8,737 Investment in mortgage note receivable 22,783 Deferred acquisition costs, prepaid expenses and other assets 17,719 1,839 Deferred leasing and loan costs 10,055 7,486 Investment in real estate partnerships 5,302 _________ _________ Total Assets $ 427,109 $ 242,728 ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage notes payable $ 110,757 $ 98,126 Credit facility 109,000 40,000 Accrued expenses and other liabilities 9,715 6,667 Affiliate payables 180 257 Dividends and distributions payable 8,342 --- _________ _________ Total Liabilities 237,994 145,050 _________ _________ Minority interest in consolidated partnership 9,200 9,771 Limited partners' minority interest in operating partnership 37,696 26,148 STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value, 25,000,000 shares authorized, none issued or outstanding --- --- Common Stock, $.01 par value, 100,000,000 shares authorized, 10,457,660 and 7,454,594 shares issued and outstanding, respectively 105 75 Additional paid in capital 142,114 61,684 Retained Earnings --- --- _________ _________ Total Stockholders' Equity 142,219 61,759 _________ _________ Total Liabilities and Stockholders' Equity $ 427,109 $ 242,728 ========= ========= See Accompanying Notes to Financial Statements
RECKSON ASSOCIATES REALTY CORP. CONSOLIDATED STATEMENT OF OPERATIONS AND THE RECKSON GROUP COMBINED STATEMENT OF OPERATIONS (Dollars in thousands, except per share amounts)
Reckson Reckson Associates Associates Realty Corp. Realty Corp. Three Months Three Months Ended Ended September 30, September 30, 1996 1995 _________ _________ (Unaudited) (Unaudited) REVENUES: Base rents $ 21,098 $ 13,326 Tenants escalation and reimbursements 2,794 2,370 Construction and management income --- --- Equity in earnings of real estate partnerships 95 --- Equity in earnings of service companies 175 100 Other 556 285 _________ _________ Total Revenues 24,718 16,081 _________ _________ EXPENSES: Operating Expenses: Property operating expenses 5,278 3,163 Real Estate Taxes 3,613 2,321 Ground Rents 284 237 Construction costs and expenses --- --- Marketing, general and administrative 1,329 720 _________ _________ Total Operating Expenses 10,504 6,441 Interest 3,254 2,111 Depreciation and amortization 4,565 2,859 _________ _________ Total Expenses 18,323 11,411 _________ _________ Minority Partners' Interest in consolidated partnership (income) loss (166) (169) Limited Partners' interest in the Operating partnership (income) loss (1,516) (1,084) _________ _________ Net income (Loss) before extraordinary item $ 4,713 $ 3,417 _________ _________ Net income (loss) per common share $ .45 ========= Weighted average common shares outstanding 10,440,237 ========= See Accompanying Notes to Financial Statements
RECKSON ASSOCIATES REALTY CORP. CONSOLIDATED STATEMENT OF OPERATIONS AND THE RECKSON GROUP COMBINED STATEMENT OF OPERATIONS (Dollars in thousands, except per share amounts)
Reckson Reckson Associates Associates Reckson Group Realty Corp. Realty Corp. For The Period Nine Months For The Period From Ended From June 3, 1995 January 1, 1995 September 30, To September 30, To June 2, 1996 1995 1995 _________ _________ _________ (Unaudited) (Unaudited) (Unaudited) REVENUES: Base Rents $ 56,815 $ 17,599 $ 16,413 Tenants escalation and reimbursements 7,492 3,071 2,907 Construction and management revenues --- --- 2,950 Equity in earnings of real estate partnerships 166 --- --- Equity in earnings of service companies 934 100 --- Other 1,073 334 548 _________ _________ _________ Total Revenues 66,480 21,104 22,818 _________ _________ _________ EXPENSES: Operating Expenses: Property operating expenses 13,519 4,187 3,985 Real estate taxes 9,595 3,090 3,390 Ground rents 803 316 234 Construction costs and expenses --- --- 1,929 Marketing, general and administrative 3,720 953 1,858 _________ _________ _________ Total Operating Expenses 27,637 8,546 11,396 Interest 8,765 2,827 7,622 Depreciation and amortization 12,359 3,857 3,606 _________ _________ _________ Total Expenses 48,761 15,230 22,624 Minority partners' interest in consolidated partnership (income) loss (638) (120) --- Limited partners' interest in operating partnership (income) loss (4,357) (1,714) --- _________ _________ _________ Income (loss) before extraordinary item 12,724 4,040 194 Extraordinary item - write off of costs on restatement of credit facility, net of Limited partner's share of $364 in 1996 and loss on extinguishment of debts, net of limited partners' minority interest of $1,788 in 1995 (895) (4,235) --- _________ _________ _________ Net income (loss) $ 11,829 $ (195) $ 194 ========= ========= ========= Net income (loss) per common share $ 1.26 ========= Weighted average common shares outstanding 9,357,183 ========= See Accompanying Notes to Financial Statements
RECKSON ASSOCIATES REALTY CORP. CONSOLIDATED STATEMENT OF CASH FLOWS AND THE RECKSON GROUP COMBINED STATEMENT OF CASH FLOWS (Unaudited and in thousands)
Reckson Reckson Associates Associates Reckson Group Realty Corp. Realty Corp. For The Period Nine Months For The Period From Ended From June 3, 1995 January 1, 1995 September 30, To September 30, To June 2, 1996 1995 1995 _________ _________ _________ CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME (LOSS) $ 11,829 $ (195) $ 194 Adjustments to reconcile net income loss to net cash provided by operating activities Depreciation and amortization 12,359 3,857 3,606 (Gain) loss on sale of properties --- --- (35) (Gain) loss on sales of securities --- --- (99) (Gain) loss on extinguishment of debts --- 6,022 --- Write off of costs on restatement of credit facility 895 --- --- Minority partners' interest in Consolidated Partnership 638 120 --- Limited partners' interest in Operating Partnership 4,357 (73) --- Equity in earnings of service companies (934) --- --- Equity in earnings of real estate partnerships (166) --- --- Dividend from service companies 100 --- --- Share of net (income) from investments in partnerships --- --- (303) Distribution from real estate partnership 95 --- --- Interest income on mortgage note receivable (367) --- --- Changes in operating assets and liabilities: Tenant receivables (238) (1,125) 308 Affiliate receivables --- (300) --- Prepaid expenses and other assets (2,253) (2,124) 417 Deferred rents receivable (2,222) (527) (6) Accrued expenses and other liabilities 486 630 (2,499) Deferred ground rents payable 169 --- 36 _________ _________ _________ Net cash provided by operating activities 24,748 6,285 1,619 _________ _________ _________ CASH FLOW FROM INVESTING ACTIVITIES: Cash from contributed net assets --- 1,168 --- Increase in deferred acquisition costs and other (9,490) --- --- Purchase of commercial real estate property (103,732) (45,511) --- Investment in mortgage note receivable (22,417) --- --- Repayment of notes payable - affiliates --- (6,000) --- Investment in real estate partnerships (5,231) --- --- Cash paid in exchange for partnership net assets --- (14,376) --- Investment in service company (3,170) --- --- Additions to land, buildings and improvements (11,088) (1,351) (814) Purchase of furniture, fixtures and equipment (106) --- (13) Distribution from partnership investments --- --- 115 Contributions to partnership investments --- --- (244) Payment of leasing costs (4,531) (629) (125) Advance to equity investee (470) --- --- Proceeds from sales of properties --- --- 35 Proceeds from sales of securities --- --- 336 _________ _________ _________ Net cash used in investing activities (160,235) (66,699) (710) _________ _________ _________ CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from borrowings 3,481 10,700 14,004 Principal payments on borrowings (216) (124,017) (13,088) Prepayment penalties paid --- (6,356) --- Payment of loan costs (1,349) (2,685) (268) Repayments of advances to affiliates --- (1,441) --- Advances from (to) affiliates (874) 1,734 (1,460) Proceeds from secured credit facility 105,000 35,000 --- Repayments of secured credit facility (36,000) --- --- Proceeds from issuance of common stock net of issuance costs 85,248 162,705 --- Distribution to minority partners in Consolidated Partnership (1,210) (689) --- Distribution to minority partners in Operating Partnership (3,744) (493) --- Payments of dividends (10,564) (1,341) --- Increase in security deposit liability 497 --- --- Distribution to predecessor owners --- (500) (4,280) _________ _________ --------- Net cash provided by (used in) financing activities 140,269 72,617 (5,092) _________ _________ --------- Net increase (decrease) in cash and cash equivalents 4,782 12,203 (4,183) Cash and cash equivalents at beginning of period 6,984 --- 7,041 _________ _________ _________ Cash and cash equivalents at end of period $ 11,766 $ 12,203 $ 2,858 ========= ========= ========= See Accompanying Notes to Financial Statements
RECKSON ASSOCIATES REALTY CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (Unaudited) 1. ORGANIZATION AND FORMATION OF THE COMPANY Reckson Associates Realty Corp. ("the Company") was incorporated in Maryland in September 1994 and is the successor to the operations of the Reckson Group. On June 2, 1995 the Company completed an initial public offering of 6,120,000 shares of common stock ("the IPO"). The IPO price was $24.25 per common share resulting in gross offering proceeds of approximately $148,410,000. The Company also issued 400,000 shares in a concurrent offering to the Rechler resulting in $9,700,000 in additional proceeds. Subsequent to the aforementioned issuances, the underwriters exercised their over allotment option on June 28, 1995 and, accordingly, the Company issued an additional 918,000 shares of common stock and received gross proceeds of $22,261,500. The aggregate proceeds to the Company, net of underwriting discount and advisory fee and other offering expenses, were approximately $162,000,000. The following transactions occurred simultaneously with the completion of the IPO: The Company consummated various purchase agreements to acquire certain properties and interests in partnerships which own properties from certain non-continuing investors. Pursuant to such agreements the Company paid approximately $6,952,000 in cash to certain holders of the interests. The Company became the sole general partner of Reckson Operating Partnership L.P. (the "Operating Partnership") by contributing substantially all of the net proceeds of the IPO, in exchange for an approximately 73% interest in the Operating Partnership. All properties acquired by the Company are held by or through the Operating Partnership. The Operating Partnership executed various option and purchase agreements whereby it issued 2,758,960 units in the Operating Partnership ("OP Units") to certain continuing investors and assumed approximately $163,438,000 (net of Omni mortgages) of indebtedness in exchange for interests in certain property partnerships, fee simple and leasehold interests in properties and development land, certain business assets of the executive center entities and 100% of the non-voting preferred stock of the management and construction companies. In addition, the Operating Partnership paid approximately $2,623,000 for costs associated with the transfer of the properties and other interests. The Operating Partnership contributed $17,500,000 to Omni Partners, L.P. ("Omni"). Omni used $10,000,000 of the cash contribution to repay mortgage indebtedness encumbering Omni's property and $1,000,000 of cash contribution to repay a loan from its existing partners. In addition, the remaining $27,214,000 balance of the first mortgage was refinanced. In July 1995, the Omni paid $6,500,000 to the minority partners in Omni to redeem a portion of their limited partnership interest therein. In addition, the Operating Partnership paid approximately $805,000 of financing costs, on behalf of Omni, in connection with the refinancing of Omni's debt. As a result of these transactions the Operating Partnership has a 60% managing general partner interest in Omni. In addition, the Operating Partnership will receive a priority interest in the Omni's annual cash flow equal to 12% of $11.0 million of the Operating Partnership's aggregate capital contributions. The Operating Partnership used a portion of the IPO proceeds and the proceeds of certain new mortgage borrowings to repay approximately $114,016,000 of indebtedness (excluding the Omni indebtedness and including $1,500,000 of a line of credit). In conjunction with such repayment, the Operating Partnership incurred an extraordinary loss of $6,022,000 (before minority interest) consisting of approximately $6,356,000 in prepayment costs and other fees, $1,742,000 of unamortized deferred financing fees written off and a gain on partial forgiveness of a mortgage obligation of approximately $2,075,000. In addition, the Operating Partnership used $5,000,000 of the IPO proceeds to repay notes to a Reckson Group partnership. The Operating Partnership borrowed $15,000,000 under a credit facility to repay certain mortgage indebtedness and to fund an acquisition of a commercial real estate investment. As of September 30, 1996, the Company owned and operated 26 office properties comprising 3.6 million square feet, 73 industrial properties comprising 4.2 million square feet and 2 retail properties comprising 20,000 square feet, located in the New York "Tri-State" area. In addition, the Company owned or had contracted to own approximately 135 acres of land in eight separate parcels for development. 2. BASIS OF PRESENTATION The accompanying consolidated financial statements include the consolidated financial position of the Company and the Operating Partnership at September 30, 1996 and the results of their operations for the three and nine months ended September 30, 1996 and their cash flows for the nine months ended September 30, 1996. Subsequent to the IPO, the operating results of the service businesses currently conducted by Reckson Management Group, Inc., Reckson Construction Group, Inc. and Reckson Executive Centers L.L.C. are 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 combined financial statements of the Reckson Group reflect a combination of real estate properties that are organized as partnerships and a S corporation and affiliated corporate real estate management and construction companies (the "Subsidiary Corporations") which were under common control of Reckson Associates and affiliated entities. The Reckson Group uses the equity method of accounting for investments in less than 50% owned entities and majority owned entities where control is temporary. The Reckson Group is considered the predecessor entity to Reckson Associates Realty Corp. due to common ownership and management; therefore, its combined financial statements are presented for comparative purposes. The accompanying interim financial statements have been prepared by the Company's management in accordance with generally accepted accounting principles for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the interim financial statements presented herein reflect all adjustments of a normal and recurring nature which are necessary to fairly state the interim financial statements. The results of operations for the interim period are not necessarily indicative of the results that may be expected for year ending December 31, 1996. These financial statements should be read in conjunction with the Company's and Reckson Group's audited financial statements and the notes thereto included in the Company's Form 10K for the year ended December 31, 1995. The Company intends to qualify as a real estate investment trust ("REIT") under Section 856 through 869 of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company will not generally be subject to corporate Federal income taxes as long as it satisfies certain technical requirements of the Code relating to composition of its income and assets and requirements relating to distributions of taxable income to shareholders. 3. MORTGAGE NOTES PAYABLE As of September 30, 1996, the Company had $106.4 million of fixed rate mortgage loans which mature at various times between 2000 and 2004. The loans are secured by eleven properties and have a weighted average interest of 7.38%. In addition, the Company has $4.4 million of floating rate loans at rates equal to 150 basis points over one-month LIBOR. In connection with the acquisition of Landmark (see note 5), the Company obtained a $50 million first mortgage loan, secured by the six buildings encompassing Landmark. Principal and interest payments on the mortgage loan are due monthly based upon an interest rate of 8.02% per annum and a 25 year amortization period. The loan matures in November 1, 2006. 4. CREDIT FACILITY On June 2, 1995, the Company obtained a credit facility (the "Credit Facility") from a financial institution in the amount of $150 million which is collateralized by a $45 million first mortgage. The Company pays a financing fee equal to 1.5% on each draw. The loan agreement also provides for unused commitment fees over the term of the facility. The Credit Facility has a two-year term which the Company has the option to extend one year subject to an extension fee of 1.0% of the principal indebtedness outstanding on the extension date. Maximum advance availability is determined under a borrowing base formula. At September 30, 1996, the maximum advance availability was $150 million. The maximum advance availability can be increased by adding income producing properties to the borrowing base. The balance outstanding on the Credit Facility at September 30, 1996 was $109 million. On February 22, 1996, the Operating Partnership amended and restated the Credit Facility, pursuant to which the interest rate was reduced to 175 basis points over one-month LIBOR and the minimum debt service coverage ratio was reduced to 1.6. 5. COMMERCIAL REAL ESTATE INVESTMENTS On November 24, 1995, the Company entered into an agreement to purchase eight office properties, including one joint venture property, located in Westchester County, New York, encompassing approximately 935,000 square feet (the "Westchester Properties"). On February 22, 1996, the Company acquired six of the Westchester Properties as well as certain related management and construction assets for an aggregate maximum purchase price of approximately $49 million. The Company financed the acquisition through the assumption of a $9.3 million mortgage note, a draw on the Credit Facility (see note 4) and issuance of OP Units. In addition, up to $1.7 million of the maximum purchase price will be paid to the selling entities within 60 days after the first anniversary of the closing date, provided the Westchester Properties generate minimum net operating income during the 12 month period following the closing date. On April 9, 1996, the Company acquired the two remaining Westchester Properties (including the joint venture property) for an aggregate purchase price of approximately $32 million. The Company financed the acquisition with proceeds from an equity offering (see note 6) and issuance of OP Units. On July 12, 1996, the Company acquired a single-story industrial building located in Farmingdale, New York, containing approximately 297,000 square feet for approximately $8.5 million. The acquisition was financed through a draw on the Credit Facility. On July 31, 1996, the Company acquired an approximately 70% participating interest in a mortgage note secured by a 350,000 square foot building located in Lake Success, New York. The Company paid approximately $23 million for its interest in the mortgage note which was funded through a draw on the Credit Facility. The mortgage note has an outstanding principal balance of approximately $51 million (excluding accrued and unpaid interest). Cash Flow from the property has been insufficient to service payments required under the mortgage note prior to and since the Company acquired an interest therein. On August 16, 1996, the Company acquired a single story industrial building located in Melville, New York, containing an aggregate of approximately 60,000 square feet for approximately $2.3 million. The acquisition was financed through a draw on the Credit Facility. On September 17, 1996, the Company acquired a low rise office building along with seven acres of adjacent undeveloped land, located in Tarrytown, New York, containing approximately 61,000 square feet for approximately $4.2 million. The acquisition was funded through a draw on the Credit Facility. On July 10, 1996, the Company exercised its option to acquire 60 Charles Lindbergh Boulevard in Uniondale, New York. The 187,000 square foot, Class a office building was acquired for approximately $20.75 million. The acquisition was financed through a draw from the Credit Facility and issuance of Operating Partnership units. In addition, on September 20, 1996, the Company exercised its option to purchase a 36,000 square foot industrial building located in Port Washington, New York, for approximately $3.5 million. The acquisition was financed through a draw on the Credit Facility which was used to repay existing indebtedness. These properties was acquired in connection with an option granted to the Company at the IPO. The option agreement provided for a purchase price equal to the lesser of (i) a fixed price established at the time of the IPO and (ii) the net operating income divided by a capitalization rate of 11.5%, provided that the purchase price could not be less than the outstanding balance of the mortgage debt encumbering the property at the acquisition date. The properties was purchased from a partnership owned by Donald Rechler and Roger Rechler. On October 7, 1996, the Company acquired Landmark Square ("Landmark"), a six building office complex encompassing an aggregate of approximately 800,000 square feet located in Stamford, Connecticut. The Company purchased Landmark from the Metropolitan Life Insurance Company ("MetLife") for approximately $77 million. The acquisition was funded with a first mortgage provided by MetLife in the amount of $50 million, and $27 million of borrowings incurred under a bridge loan from its Credit Facility. 6. STOCKHOLDERS' EQUITY On February 22, 1996, the Operating Partnership issued 307,606 OP Units in connection with the acquisition of six of the Westchester Properties. On April 9, 1996, the Company issued an additional 31,161 OP Units in connection with the acquisition of the two remaining Westchester Properties. On April 9, 1996, the Company completed a public stock offering (the "April Offering") and sold 3,000,000 common shares at a price of $30.50 per share. Proceeds from the April Offering, net of underwriting discount and costs of the offering were approximately $85.5 million. On July 10, 1996, the Operating Partnership issued 114,722 OP Units in connection with the acquisition of 60 Charles Lindbergh Boulevard. Net income per share was calculated using the weighted average number of shares outstanding of 10,440,237 for three months ended September 30, 1996 and 9,357,183 for the nine months ended September 30, 1996. On September 15, 1996, the Board of Directors declared a dividend of $.60 per share of common stock payable on October 15, 1996, to shareholders of record as of October 1, 1996. The dividend declared, which related to the nine months ended September 30, 1996 is based upon an annual distribution of $2.40 per share. On October 22, 1996, the Company completed a public stock offering and sold 1,500,000 common shares at a price of $35.50 per share. Proceeds from the offering, net of underwriting discount and costs of the offering were approximately $52 million. In addition, on October 23, the underwriter exercised its over allotment option to purchase 225,000 common shares. Net proceeds to the Company amounted to approximately $7.8 million. 7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Reckson Reckson Associates Associates Reckson Group Realty Corp. Realty Corp. For the Period Nine Months For the Period From Ended From June 3, 1995 January 1, 1995 September 30, To September 30, To June 2, 1996 1995 1995 _________ _________ _________ Cash paid during the period for interest $ 9,260 $ 2,089 $ 8,600 On February 22, 1996, the Company purchased six of the Westchester properties which included the following non-cash transactions (in thousands): Issuance of 307,606 units $ 8,647 Assumption of existing mortgage indebtedness 9,326 _________ Total non-cash investment $ 17,973 ========= On April 9, 1996, the Company purchased 660 White Plains Road in Westchester which included the issuance of 31,161 units for a total non-cash investment of $880,000. On July 10, 1996, the Company purchased 60 Charles Lindbergh Boulevard in Uniondale, New York, which included the issuance of 114,722 units for a total investment of $3,743,391. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements of Reckson Associates Realty Corp. (the "Company") and the Combined Financial Statements of the Reckson Group and related notes thereto. OVERVIEW AND BACKGROUND The Reckson Group (the predecessor to the Company) was engaged in the ownership, management, operation, leasing and development of commercial real estate properties, principally office and industrial buildings, and certain development land located primarily on Long Island. On June 2, 1995, following completion of an initial public offering and related formation transactions, the Company owned or had an interest in 72 properties and succeeded to the Reckson Group's real estate business. The Company owns all of the interests in the properties through Reckson Operating Partnership, L.P. (the "Operating Partnership"). At September 30, 1996, the Company's portfolio of real estate properties included 26 office buildings containing approximately 3.6 million square feet, 73 industrial buildings containing approximately 4.2 million square feet and 2 retail properties containing 20,000 square feet. At July 31, 1996, the Company acquired an approximately 70% participating interest in a mortgage note secured by a 350,000 square foot office building located in Lake Success, New York. The Company paid approximately $23 million for its interest in the mortgage note which was funded through a draw on the Credit Facility. Cash flow from the property has been insufficient to service payments required under the Mortgage Note prior to and since the Company acquired an interest therein. On August 16, 1996, the Company acquired a single story industrial building located in Melville, New York, containing an aggregate of approximately 60,000 square feet for approximately $2.3 million. The acquisition was financed through a draw on the Credit Facility. On September 17, 1996, the Company acquired a 61,000 square foot office building along with seven acres of undeveloped land in Tarrytown, New York for approximately $4.2 million. The acquisition was funded with a draw on the Credit Facility. On September 20, 1996, the Company acquired a 36,000 square foot industrial building located in Port Washington, New York for $3.5 million. The acquisition was funded with borrowings under the Credit Facility. On October 7, 1996, the Company acquired Landmark Square ("Landmark"), a six building office complex encompassing an aggregate of approximately 800,000 square feet located in Stamford, Connecticut. The Company purchased Landmark from the Metropolitan Life Insurance Company ("MetLife") for approximately $77 million. The acquisition was funded with a first mortgage provided by MetLife in the amount of $50 million, and $27 million of borrowings incurred under a bridge loan from its Credit Facility. On April 9, 1996, the Company completed a public stock offering (the "April Offering") and sold 3,000,000 common shares at a price of $30.50 per share. Proceeds from the offering net of underwriting discount and costs of the offering were approximately $85.5 million. On October 22, 1996, the Company completed a public stock offering and sold 1,500,000 common shares at a price of $35.50 per share. Net proceeds to the Company amounted to approximately $52 million. On October 23, 1996, the underwriter exercised its over allotment option to purchase 225,000 common shares. Net proceeds to the Company amounted to approximately $7.8 million. The market capitalization of the Company, based on the market value (at a stock price $37.13 at September 30, 1996) of 10,441,166 issued and outstanding shares of Company common stock and 3,360,613 OP Units (assuming conversion to common stock) and the $214.5 million (including share of joint venture and net of minority partners' 40% interest in Omni's debt) of debt outstanding at September 30, 1996 was $726.8 million. As a result, the Company's total debt to total market capitalization ratio at September 30, 1996 equaled approximately 30%. RESULTS OF OPERATIONS The Company believes that in order to provide a meaningful historical analysis of the financial statements, certain adjustments must be made to the historical Reckson Group combined financial statements to make each accounting period comparable. Accordingly, the revenues and expenses for the periods indicated below include the operations of those properties which were sold or transferred to the Company in connection with the formation transactions. In addition, 100% of the operations of Omni are presented in each period. The following sections discuss the results of operations as adjusted and are in thousands. Three months ended September 30, 1996 vs. the three months ended September 30, 1995. Three Months Ended September 30, (as adjusted) 1996 1995 _________ _________ Base rental revenue $ 21,098 $ 13,326 Escalations 2,794 2,370 Service company income 175 100 Equity in real estate partnerships 95 --- Other 556 285 _________ _________ Total Operating Revenues 24,718 16,081 _________ _________ Operating Expenses 5,278 3,163 Real estate taxes 3,613 2,321 Ground rents 284 237 Interest 3,254 2,111 Depreciation and amortization 4,565 2,859 Marketing General and Administration 1,329 720 _________ ________ Total expenses 18,323 11,411 _________ ________ Income (Loss) $ 6,395 $ 4,670 ========= ======== Income of $6,395 for the nine months ended September 30, 1996 increased by $1,725 as compared to income of $4,670 for the 1995 period. The increase in base rental revenue of $7,772 and $424 for escalations is primarily attributable to additional square footage leased, particularly at the Omni and the acquisition of properties during the period June 3, 1995 to September 30, 1996. Operating expenses and real estate taxes increased by $3,407 for the three months ended September 30, 1996 as compared to the 1995 period. The increase in operating expenses and real estate taxes during the 1996 period are primarily attributable to operating an increased number of properties. Interest expense increased $1,143 for the three months ended September 30, 1996, compared to the prior period, principally due to an increase in the amount of outstanding debt incurred in connection with the acquisition of properties. Marketing, general and administrative expenses increased by $609 primarily as a result of overall growth of the Company including payroll and related costs, the opening of the Westchester division and costs of operating as a public company. Nine months ended September 30, 1996 compared to nine months ended September 30, 1995: Nine Months Ended September 30, (as adjusted) 1996 1995 _________ _________ Base rental revenue $ 56,815 $ 37,279 Escalations and tenant reimbursements 7,492 6,488 Service company income 934 1,022 Equity in real estate joint ventures 166 --- Other 1,073 882 _________ _________ Total Operating Revenues 66,480 45,671 _________ _________ Operating expenses 13,519 9,105 Real estate taxes 9,595 6,948 Ground rents 803 727 Interest 8,765 11,250 Depreciation and amortization 12,359 8,312 Marketing, general and administration 3,720 2,720 _________ _________ Total Expenses 48,761 39,062 _________ _________ Income (Loss) $ 17,719 $ 6,609 ========= ========= Income of $17,719 for the nine months ended September 30, 1996 increased by $11,110 as compared to income of $6,609 for the nine months ended September 30, 1995. The increase in base rental revenue of $19,536 is primarily attributable to additional square footage leased particularly at the Omni and the acquisition of properties during the period from June 3, 1995 to September 30, 1996. Operating expenses and real estate taxes increased by an aggregate amount of $7,061 for the nine months ended September 30, 1996 as compared to the 1995 period. The increase in operating expenses during the 1996 period is primarily attributable to operating an increased number of properties during the 1996 period and the impact of severe winter weather during early 1996 as compared to the 1995 period. Interest expense decreased by $2,485 for the nine months ended September 30, 1996 compared to the prior year, principally due to the repayment and refinancing of debt in connection with the formation transactions in June 1995. Marketing, general and administration expenses increased by $1,000 primarily as a result of the opening of the Westchester division and costs of operating as a public company. In February 1996, the Company amended and restated The Credit Facility loan agreement. As a result, certain deferred loan costs incurred in connection with the original credit facility were written off. Such amount is reflected as an extraordinary loss in the accompanying consolidated statement of operations for the nine months ended September 30, 1996. LIQUIDITY AND CAPITAL RESOURCES In June 1995, the Company completed an initial public offering of 7,438,000 shares of its common stock at $24.25 per share (including an over-allotment option of 918,000 shares). Net proceeds to the Company, after underwriting discounts and other offering costs were approximately $162 million. In conjunction with the formation transactions certain investors contributing interests in properties and or property partnerships received OP Units. A Unit and a share of the Company's common stock have essentially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Operating Partnership. Holders of OP Units will have the opportunity beginning on the second anniversary of the consummation of the IPO to have their OP Units redeemed for cash equal to the fair market value thereof at the time of redemption or at the election of the Company for shares of common stock on a one for one basis. Each time an OP Unit is redeemed, the Company's percentage interest in the Operating Partnership will be proportionately increased. The Company used the proceeds of the IPO and an initial draw of $15 million on its $150 million credit facility with Salomon Brothers, Inc. (the "Credit Facility") (i) to repay certain mortgage indebtedness on properties in the amount of $121.1 million (including repayment of $10 million of Omni's debt, prepayment costs and other related expenses); (ii) to pay approximately $6 million of notes payable to partners of certain of the property partnerships; (iii) to pay approximately $1.2 million of financing fees related to the Credit Facility; (iv) to pay approximately $16 million to purchase interests in property partnerships and or properties from the non-continuing investors; (v) to acquire certain other real estate properties from third parties (the "Acquisition Properties") for approximately $25.9 million; and (vi) to establish working capital reserves. In connection with the purchase of one of the Acquisition Properties the Company issued 131,670 OP Units as partial consideration in the transaction. On April 9, 1996, the Company completed the 1996 Offering. Net proceeds to the Company (after underwriting discount of $5.0 million and approximately $750,000 of offering costs) were approximately $85.5 million. Net proceeds were effectively used primarily to purchase the Westchester Properties including the related construction and management assets and certain other commercial real estate properties. On October 22, 1996, the Company completed a 1,500,000 common shares offering. Net proceeds to the Company (after underwriting discount of $1.1 million and approximately $200,000 of offering costs) were approximately $52.0 million. Net proceeds were effectively used to purchase Landmark and certain other commercial real estate properties previously purchased or under contract to purchase. In addition, on October 23, 1996 the underwriter elected to exercise its over allotment option to purchase 225,000 common shares. Net proceeds to the Company amounted to approximately $7.8 million and will be used fund future acquisitions of properties and general working capital. The Credit Facility has a two-year term, with a one-year extension and requires monthly payments of interest only, with the balance of all principal and accrued but unpaid interest due on June 2, 1997. The loan agreement provides for a financing fee equal to 1.5% of each draw. The loan agreement also provides for unused commitment fees, over the term of the facility. The Credit Facility is effectively collateralized by a $45 million first mortgage. As further security, the Company (through the Operating Partnership and a subsidiary) guarantee all borrowings under the Credit Facility. In February 1996, the Operating Partnership amended and restated the Credit Facility agreement, pursuant to which the interest rate was reduced to 175 basis points over one-month LIBOR (at September 30, 1996, the one month LIBOR equaled 5.44%) and the minimum debt service coverage ratio was reduced to 1.6. In addition, the Operating Partnership was given the right to convert outstanding borrowings at maturity to a five-year term loan at a fixed rate equal to the then prevailing interest rate on five-year U.S. Treasury instruments plus a spread, provided certain specified conditions are satisfied and no event of default exists. The Credit Facility contains a number of customary financial covenants. The Company's indebtedness at September 30, 1996 totaled $214.5 million (including share of joint venture debt and net of the minority partners' 40% interest in Omni's debt) and was comprised of $109 million outstanding under the Credit Facility and $105.5 million of mortgage indebtedness. Based on the Company's total market capitalization of $726.8 million at September 30, 1996, (calculated at a $37.13 stock price and assuming the conversion of 3,360,613 OP Units outstanding on such date) the Company's debt represented 30% of its total market capitalization. The Company expects to meet its short term liquidity requirements primarily through cash flow from operating activities, which the Company believes will be sufficient to fund non-incremental revenue generating capital expenditures and payment of dividends. In addition to its operating cash flow, the Credit Facility provides for working capital advances. The Company intends to finance its on-going construction and acquisition activities through borrowings under the Credit Facility and mortgage indebtedness. At September 30, 1996, the Company had maximum capacity under the Credit Facility of approximately $150 million subject to the sufficiency of the borrowings base, as defined in the loan agreement (see note 4 to the Financial Statements). The Company expects to meet its long-term liquidity requirements, consisting primarily of debt maturities, through the refinancing of existing mortgage indebtedness or through the issuance of additional equity and/or debt securities. In order to qualify as a REIT for federal income tax purposes, the Company is required to make distributions to its stockholders of at least 95% of REIT taxable income. The Company expects to use its cash flow from operating activities for distributions to stockholders and for payment of recurring, non-incremental revenue-generating expenditures. The Company intends to invest amounts accumulated for distribution in short-term investments. SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES AND TENANT IMPROVEMENT AND LEASING COSTS The following table summarizes the expenditures incurred for capital expenditures, tenant improvements and leasing commissions for the Company's office and industrial properties for the nine month period ended September 30, 1996 and the historical average of such capital expenditures, tenant improvements and leasing commissions for the years 1993 through 1995. Non-Incremental Revenue Generating Capital Expenditures 1993-95 Jan-Sep 1993 1994 1995 average 1996 ________ ________ ________ ________ __________ Office Properties: Reporting Period $227,996 $158,340 $364,545 $250,294 $ 364,587 Per Square Foot .15 .10 .19 .15 .14 Industrial Properties: Reporting Period $276,052 $524,369 $290,457 $363,626 $ 531,677 Per Square Foot .09 .18 .08 .12 .15 Non-Incremental Revenue - Generating Tenant Improvement and Leasing Commissions 1993-95 Jan-Sep 1993 1994 1995 average 1996 ________ ________ ________ ________ __________ Office Properties: Tenant Improvement Costs $406,602 $902,312 $452,057 $586,990 $1,121,566 Per Square Foot Improved 1.93 5.13 4.44 3.83 6.36(1)(2) Leasing Commissions $670,736 $341,253 $144,925 $385,638 $ 324,231 Per Square Foot Leased 3.18 1.94 1.42 2.18 1.84(3) ________ ________ ________ ________ __________ Total Per Square Foot $ 5.11 $ 7.07 $ 5.86 $ 6.01 $ 8.20 ======== ======== ======== ======== ========== Industrial Properties: Tenant Improvement Costs $186,761 $585,981 $210,496 $327,746 $ 249,901 Per Square Foot Improved .33 .88 .90 .70 .51(4) Leasing Commissions $278,905 $176,040 $107,351 $187,432 $ 425,858 Per Square Foot Improved .49 .27 .46 .41 .87(5) ________ ________ ________ ________ __________ Total Per Square Foot $ 0.82 $ 1.15 $ 1.36 $ 1.11 $ 1.38 ======== ======== ======== ======== ======== (1) Excludes $127,000 of tenant improvements incurred in connection with leasing 5,462 square feet of space. Such costs were reimbursed by the tenant who vacated the space prior to their lease expiration date. (2) Per square foot cost for new and renewal leases are $8.71 and $3.28, respectively. Per square foot cost for Long Island portfolio is $5.19. (3) Per square foot cost for new and renewal leases are $2.10 and $1.50, respectively. (4) Per square foot cost for new and renewal leases are $1.01 and $0.09, respectively. (5) Per square foot cost for new and renewal leases are $0.89 and $0.85, respectively. LEASE EXPIRATIONS The following table sets forth scheduled lease expirations for executed leases as of September 30, 1996. Office Properties (excluding Omni and the Westchester Properties): Total Rentable % of Total Average Annual Year of Lease Number Square Feet Rentable Square Rental Rate (1) Expiration of Leases Expiring Feet Expiring for Expirations __________________ ______ _________ ________ _______ Remainder of 1996 5 50,169 3.5% $ 24.57 1997 19 148,637 10.4% $ 24.22 1998 30 196,168 13.7% $ 24.09 1999 30 134,043 9.3% $ 20.97 2000 24 153,837 10.7% $ 23.04 2001 29 150,096 10.5% $ 24.75 2002 and thereafter 53 600,457 41.9% --- ______ _________ ________ Totals 190 1,433,407 100.0% Office Properties - Omni: Total Rentable % of Total Average Annual Year of Lease Number Square Feet Rentable Square Rental Rate (1) Expiration of Leases Expiring Feet Expiring for Expirations __________________ ______ _________ _________ _______ Remainder of 1996 --- --- --- --- 1997 2 27,729 5.1% $ 35.33 1998 --- --- --- --- 1999 --- --- --- --- 2000 5 66,131 12.2% $ 33.27 2001 5 59,693 11.1% $ 22.98 2002 and thereafter 16 386,648 71.6% --- ______ _________ _________ Totals 28 540,201 100.0% ====== ========= ========= Industrial Properties: Total Rentable % of Total Average Annual Year of Lease Number Square Feet Rentable Square Rental Rate (1) Expiration of Leases Expiring Feet Expiring for Expirations __________________ ______ ________ _________ ________ Remainder of 1996 --- --- ---% $ --- 1997 24 194,647 5.6% $ 4.41 1998 28 436,111 12.6% $ 4.54 1999 26 488,896 14.1% $ 5.84 2000 15 297,169 8.6% $ 4.88 2001 25 760,216 22.0% $ 5.50 2002 and thereafter 30 1,281,712 37.1% --- ______ ________ _________ Totals 148 3,458,751 100.0% ====== ======== ========= Research and Development: Total Rentable % of Total Average Annual Year of Lease Number Square Feet Rentable Square Rental Rate (1) Expiration of Leases Expiring Feet Expiring for Expirations __________________ ______ ________ _________ ________ Remainder of 1996 1 1,400 0.4% $ 20.61 (2) 1997 4 82,860 21.5% $ 8.56 1998 4 148,230 38.5% $ 12.09 1999 3 19,488 5.0% $ 10.71 2000 2 57,621 15.0% $ 5.78 2001 2 9,929 2.6% $ 17.60 (3) 2002 and thereafter 3 65,401 17.0% --- ______ ________ _________ Totals 19 384,929 100.0% ====== ======== ========= Westchester Properties: Total Rentable % of Total Average Annual Year of Lease Number Square Feet Rentable Square Rental Rate (1) Expiration of Leases Expiring Feet Expiring for Expirations __________________ ______ ________ _________ ________ Remainder of 1996 11 29,805 3.1% $ 19.75 1997 28 87,003 9.1% $ 20.44 1998 28 141,142 14.8% $ 19.09 1999 19 46,812 4.9% $ 18.72 2000 16 138,597 14.5% $ 20.75 2001 23 88,110 9.2% $ 20.68 2002 and thereafter 33 423,113 44.4% --- ______ ________ ________ Totals 158 954,582 100.0% ====== ======== ======== (1) Per square foot rental rate represents annualized base rent as of lease expiration date plus non-recoverable operating expense pass-through. (2) Square feet subject to expiring leases is utilized as a law office. (3) Square feet subject to expiring leases include a retail bank space. INFLATION The office leases generally provided for fixed base rent increases or indexed escalations. In addition, the office leases provide for separate escalations of real estate taxes and electric costs over a base amount. The industrial leases generally provide for fixed base rent increases, direct pass through of certain operating expenses and separate real estate tax escalations over a base amount. The Company believes that inflationary increases in expenses will be offset by contractual rent increases described above. The Credit Facility bears 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 equity REIT. Funds from operations is defined by the National Association of Real Estate Investment Trusts (NAREIT) as net income or loss, excluding gains or losses from debt restructuring and sales of properties plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Funds from operations does not represent cash generated from operating activities in accordance with generally accepted accounting principals and is not indicative of cash available to fund cash needs. Funds from Operations should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. In March 1995, NAREIT issued a "White Paper" analysis to address certain interpretive issues under its definition of FFO. The White Paper provides that amortization of deferred financing costs and depreciation of non-rental estate assets are no longer to be added back to net income to arrive at FFO. The Company has adopted the new method, however, the following table presents the Company's FFO under both methods of calculation: New Method Old Method Three Months Three Months September 30, September 30, 1996 1995 _________ __________ Net Income $ 4,713 $ 3,417 Add back: Depreciation and Amortization 4,569 2,755 Minority interest in consolidated partnership 166 169 Minority interest of unit holders 1,516 1,084 _________ _________ 6,251 4,008 Subtract: Amount distributable to Minority Partners in consolidated partnership 363 238 _________ _________ Funds From Operations 10,601 7,187 _________ _________ Subtract: Straight line rents 778 451 Non-Incremental Capitalized tenant improvements and leasing commissions 1,203 524 Capitalized improvements 277 79 _________ _________ Cash available for distribution $ 8,343 $ 6,133 ========= ========= Weighted average shares/units 13,801 10,230 ========= ========= FFO per weighted average share/unit $ .77 $ .70 ========= ========= CAD per weighted average share/unit $ .60 $ .60 ========= ========= Dividends per share/unit $ .60 $ .58 ========= ========= FFO payout ratio 77.9% 82.3% ========= ========= CAD payout ratio 100.0% 96.4% ========= ========= PART II OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities - 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 27 Financial Data Schedule 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 thereunto duly authorized. RECKSON ASSOCIATES REALTY CORP. Registrant November 6, 1996 Scott H. Rechler Date Scott H. Rechler, Executive Vice President and Chief Operating Officer November 6, 1996 Michael Maturo Date Michael Maturo, Executive Vice President and Chief Financial Officer EX-27 2
5 0000930548 RECKSON ASSOCIATES REALTY CORP 1,000 9-MOS DEC-31-1996 SEP-30-1996 11,766 0 14,664 0 0 26,430 428,926 84,106 427,109 18,237 219,757 0 0 105 142,214 427,109 64,307 66,480 0 27,637 0 0 8,765 17,719 0 17,719 0 (895) 0 11,829 1.26 1.26
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