-----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, UuePTruaZVm6vtEGPY90T4zXVjN7c1hLbuGfptPJb/jYyRA4QT07gg0pyZADtQY5 K91fILsHTkGrKluzq0o6uA== 0000930548-97-000004.txt : 19970811 0000930548-97-000004.hdr.sgml : 19970811 ACCESSION NUMBER: 0000930548-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 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: 97654581 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 June 30, 1997 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 34,481,737 shares outstanding as of August 1, 1997. RECKSON ASSOCIATES REALTY CORP. QUARTERLY REPORT FOR THE THREE MONTHS ENDED JUNE 30, 1997 TABLE OF CONTENTS INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets of Reckson Associates Realty Corp. as of June 30, 1997 and December 31, 1996 .............. Consolidated Statement of Operations of Reckson Associates Realty Corp. for the three months and six months ended June 30, 1977 and 1996 ................................. Consolidated Statement of Cash Flows of Reckson Associates Realty Corp. for the six months ended June 30, 1997 and 1996 ............................................... 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)
June 30, December 31, 1997 1996 _________ _________ (Unaudited) ASSETS: Commercial real estate properties, at cost: Land $ 73,560 $ 45,259 Building and improvements 597,901 457,403 Land held for future development 14,912 5,637 Development in progress 15,811 8,469 Furniture, fixtures and equipment 3,312 2,736 _________ _________ 705,496 519,504 Less accumulated depreciation (97,302) (88,602) _________ _________ 608,194 430,902 Investment in real estate joint ventures 6,831 5,437 Investment in mortgage notes and notes receivable 81,333 51,837 Cash and cash equivalents 20,424 12,688 Tenants receivables 2,294 1,732 Affiliate receivables 5,701 3,826 Deferred rent receivable 13,585 12,573 Prepaid expenses and other assets 11,102 6,225 Contract and land deposits and pre-acquisition costs 7,613 7,100 Deferred leasing and loan costs 13,603 11,438 _________ _________ Total Assets $ 770,680 $ 543,758 ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY: Mortgage notes payable $ 165,527 $ 161,513 Credit facility 113,000 108,500 Accrued expenses and other liabilities 18,025 15,868 Affiliate payables 731 502 Dividends and distributions payable 13,100 9,442 _________ _________ Total Liabilities 310,383 295,825 _________ _________ Minority interest in consolidated partnership 9,088 9,187 Limited partners' minority interest in operating partnership 76,209 51,879 _________ _________ 85,297 61,066 _________ _________ 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, 34,331,774 and 24,356,354 shares issued and outstanding, respectively 343 244 Additional paid in capital 374,657 186,623 _________ _________ Total Stockholders' Equity 375,000 186,867 _________ _________ Total Liabilities and Stockholders' Equity $ 770,680 $ 543,758 ========= ========= See Accompanying Notes to Financial Statements.
RECKSON ASSOCIATES REALTY CORP. CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 _________ _________ _________ _________ (Unaudited) (Unaudited) (Unaudited) (Unaudited) REVENUES: Base rents $ 31,160 $ 19,572 $ 57,751 $ 35,716 Tenants escalation and reimbursements 3,340 2,378 6,585 4,696 Equity in earnings of real estate joint ventures 105 71 201 71 Equity in earnings of service companies --- 246 142 759 Interest income on mortgage notes and notes receivable 931 --- 1,889 --- Other 658 427 1,318 517 _________ _________ _________ _________ Total Revenues 36,194 22,694 67,886 41,759 _________ _________ _________ _________ EXPENSES: Operating Expenses: Property operating expenses 7,069 4,697 12,733 8,241 Real Estate Taxes 4,806 3,117 9,370 5,983 Ground Rents 306 262 609 519 Marketing, general and administrative 1,858 1,424 3,838 2,390 _________ _________ _________ _________ Total Operating Expenses 14,039 9,500 26,550 17,133 _________ _________ _________ _________ Interest 3,848 2,615 8,583 5,511 Depreciation and amortization 6,317 4,160 11,957 7,793 _________ _________ _________ _________ Total Expenses 24,204 16,275 47,090 30,437 _________ _________ _________ _________ Income before minority interest and extraordinary item 11,990 6,419 20,796 11,322 Minority Partners' Interest in consolidated partnership (income) loss (201) (237) (444) (472) Limited Partners' interest in the Operating partnership (income) loss (1,993) (1,491) (3,771) (2,841) _________ _________ _________ _________ Income(Loss)before extraordinary item 9,796 4,691 16,581 8,009 Extraordinary items-(loss) on a restatement or extinguishment of debt, net of limited partners share of $400, $0, $400 and $364 respectively (1,962) --- (1,962) (895) _________ _________ _________ _________ Net income $ 7,834 $ 4,691 $ 14,619 $ 7,144 ========= ========= ========= ========= Net income per common share before extraordinary item $ 0.29 $ 0.23 $ .54 $ .45 ========= ========= ========= ========= Extraordinary item-(loss) per common share (.06) $ --- $ (.06) (.05) ========= ========= ========= ========= Net income (loss) per common share $ 0.23 $ 0.23 $ .48 $ .40 ========= ========= ========= ========= Weighted average common shares outstanding 34,298 20,349 30,455 17,619 ========= ========= ========= ========= See Accompanying Notes to Financial Statements
RECKSON ASSOCIATES REALTY CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited and in thousands)
Six Months Six Months Ended Ended June 30, June 30, 1997 1996 _________ _________ CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $ 14,619 $ 7,114 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 11,957 7,793 Write off of costs on restatement of credit facility --- 895 Minority partners' interest in Consolidated Partnership 444 472 Limited partners' interest in Operating Partnership 3,771 2,843 Extraordinary loss on extinguishment of debt 1,962 --- Equity in earnings of service companies (142) (759) Equity in earnings of real estate partnerships (201) (71) Dividend from service companies --- 100 Distribution from real estate partnership 191 --- (Increase) decrease in operating assets and liabilities Interest income on mortgage notes receivable (374) --- Tenant receivables (561) (507) Prepaid expenses and other assets (4,267) (3,283) Deferred rents receivable (2,371) (1,306) Accrued expenses and other liabilities 818 425 Deferred ground rents payable 131 113 Advance rents received 1,318 --- _________ _________ Net cash provided by operating activities 27,295 13,829 _________ _________ CASH FLOWS FROM INVESTING ACTIVITIES: Increase in deferred acquisition costs and other (275) (4,667) Purchase of commercial real estate property (170,920) (67,611) Investment in mortgage note receivable (29,124) --- Investment in real estate partnerships (1,385) (5,074) Investment in service company 15 (3,170) Additions to land, buildings and improvements (7,608) (6,870) Purchase of furniture, fixtures and equipment (481) (106) Payment of leasing costs (3,194) (2,767) Advance to equity investee --- (470) _________ _________ Net cash used in investing activities (212,972) (90,735) _________ _________ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock net of issuance costs 212,117 85,546 Proceeds from borrowings --- 1,675 Principal payments on borrowings (653) (42) Payment of loan costs (2,807) (301) Advances to affiliates (1,358) (169) Proceeds from secured credit facility 126,500 36,000 Repayments of secured credit facility (122,000) (36,000) Distribution to minority partners in Consolidated Partnership (543) (805) Distribution to minority partners in Operating Partnership (4,272) (1,840) Payments of common dividends (14,385) (4,300) Increase in security deposit liability 814 466 _________ _________ Net cash provided by financing activities 193,413 80,230 _________ _________ Net increase in cash and cash equivalents 7,736 3,324 Cash and cash equivalents at beginning of period 12,688 6,984 _________ _________ Cash and cash equivalents at end of period $ 20,424 $ 10,308 ========= ========= See Accompanying Notes to Financial Statements
Reckson Associates Realty Corp. Notes to Consolidated Financial Statements June 30, 1997 (Unaudited) 1. Organization and Formation of the Company Reckson Associates Realty Corp. ("the Company") was incorporated in Mary- land in September 1994 and is the successor to the operations of the Reckson Group. In June, 1995 the Company completed an initial public offering of 7,038,000 shares of common stock ("the IPO"). The IPO price was $24.25 per common share resulting in gross offering proceeds of approximately $170,671,500. The Company also issued 400,000 shares in a concurrent offering to the Rechler family resulting in $9,700,000 in additional proceeds. 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 June 30, 1997, the Company owned and operated 39 office properties comprising approximately 5.5 million square feet, 89 industrial properties comprising approximately 5.5 million square feet and 2 retail properties comprising approximately 20,000 square feet, located in the New York "Tri-State" area. In addition, the Company owned or had contracted to own approximately 698 acres of land (including 400 acres under option) in eleven separate parcels for development. The Company also has invested approximately $52.1 million in certain mortgage notes encumbering five Class A office properties encompassing approximately 928,000 square feet and a 400 acre parcel of land. In addition, the Company has invested $17 million in a note receivable secured by Odyssey's interest in the Omni (see note 5). During July 1997, the Company announced the formation of Reckson Strategic, Inc. ("RSI") and Reckson Opportunity Partners, L.P. ("ROPartners"). RSI is a 95% owned subsidiary of the Operating Partnership and will serve as the majority managing member of the general partner of ROPartners. ROPartners will invest primarily in real estate operating companies that present the potential for significant growth opportunities. At June 30, 1997, the Operating Partnership had loaned ROPartners approximately $10.7 million in connection with certain start up costs and ROPartners initial investment in a student housing facility. 2. Basis of Presentation The accompanying consolidated financial statements include the consolidated financial position of the Company and the Operating Partnership at June 30, 1997 and the results of their operations for the three and six months ended June 30, 1997 and their cash flows for the six month period ended June 30, 1997. 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. 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 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 the year ending December 31, 1997. These financial statements should be read in conjunction with the Company's audited financial statements and the notes thereto included in the Company's Form 10K for the year ended December 31, 1996. 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 June 30, 1997, the Company had approximately $132.9 million of fixed rate mortgage loans which mature at various times between 1999 and 2012. The loans are secured by eighteen properties and have a weighted average interest rate of 7.74%. In addition, the Company has a $32.6 million floating rate mortgage loan on the Omni with an interest rate equal to 150 basis points over one-month LIBOR. The Company has received a $58 million mortgage loan commitment from a financial institution to refinance the current mortgage encumbering the Omni. The loan will have a 10-year term and will bear interest at a fixed rate to be determined based on 10-year treasury rates plus 130 basis points. 4. Credit Facility On April 30, 1997, the Company obtained a three-year $250 million unsecured credit facility from Chase Manhattan Bank and Union Bank of Switzerland (the "Unsecured Credit Facility"). The Company's ability to borrow thereunder is subject to the satisfaction of certain customary financial covenants. In addition, borrowings under the Unsecured Credit Facility bear interest at a floating rate equal to one, two, three or six month LIBOR (at the Company's election) plus a spread ranging from 1.125% to 1.5% based on the Company's leverage ratio. The Unsecured Credit Facility replaced the Company's existing $150 million secured credit facility. 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. 5. Commercial Real Estate Investments On January 7, 1997, the Company exercised its option to acquire 110 Bi-County Blvd. in Farmingdale, New York. The 147,281 square foot industrial property was acquired for approximately $9.0 million. The acquisition was financed with the issuance of OP units and the assumption of a first mortgage loan in the amount of approximately $4.67 million. This property was acquired in connection with an option agreement, entered into by the Company at the time of the IPO, which 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%. The properties were purchased from a partnership owned by Donald Rechler and Roger Rechler. On March 5, 1997, the Company acquired a single story industrial building located in Hauppauge, New York, encompassing approximately 70,000 square feet for approximately $2.35 million. The acquisition was financed with proceeds from a draw on the Credit Facility. On March 12, 1997, the Company acquired a portfolio of ten industrial buildings located within the Company's Vanderbilt Industrial Park in Hauppauge, New York. Eight of the buildings are multi-tenanted and two of the buildings are 100% leased to single tenants. The ten buildings encompass approximately 447,800 square feet and were purchased for approximately $21.6 million. The acquisition was financed with proceeds from the Company's most recent equity offering (see Note 6). On March 13, 1997, the Company loaned approximately $17 million to its minority partners in Omni, its flagship office building, and effectively increased its economic interest in the property owning partnership. On March 31, 1997, the Company acquired a vacant industrial building located in Clifton, New Jersey encompassing approximately 180,000 square feet for approximately $4.4 million. The Company plans to redevelop the property into a Class A office building. The acquisition was financed with proceeds from the most recent equity offering (see Note 6). During April 1997, the Company acquired one Class A office building located in Melville, New York encompassing approximately 124,000 square feet and one research and development facility located in Shelton, Connecticut encompassing approximately 452,000 square feet. The aggregate purchase prices for these properties amounted to approximately $44 million. In addition, the Company acquired two Class A office buildings encompassing approximately 308,000 square feet in Short Hills, New Jersey for approximately $51.5 million. These acquisitions were financed with proceeds from the most recent equity offering (see Note 6). During May 1997, the Company acquired one office property located in Melville, New York encompassing 167,400 square feet for approximately $4.7 million and two office buildings in West Orange, New Jersey encompassing a total of 162,556 square feet for aggregate purchase prices of approximately $15.7 million. These acquisitions were financed with proceeds from the Company's most recent equity offering (see Note 6) and through draws on the Unsecured Credit Facility. During June 1997, the Company acquired 187 acres of land for development in Madison/Chatham, New Jersey for $8.7 million. Approximately 1 million square feet of office space can be developed on this property. During July 1997, the Company acquired three office properties in New Jersey encompassing approximately 445,229 square feet for an aggregate purchase price of approximately $48 million. These acquisitions were financed through a draw on the Unsecured Credit Facility. 6. Stockholders Equity On March 12, 1997 the Company completed a public stock offering (the "Offering") and sold 4,945,000 common shares at a price of $45.25 per share (including 645,000 related to the exercise of the underwriters over allotment option). Net proceeds from the Offering were approximately $212 million. On January 7, 1997, the Operating Partnership issued 101,902 OP Units in connection with the acquisition of 110 Bi-County Boulevard. Net income per share was calculated using the weighted average number of shares outstanding of 34,298,137 for the three months ended June 30, 1997 and 30,455,000 for the six months ended June 30, 1997. The weighted average number of shares at June 30, 1996 reflect the impact of the April 15, 1997 stock split. On February 12,1997, the Board of Directors of the Company declared a two-for-one stock split, effective as a stock dividend distributable on April 15, 1997 to stockholders of record on April 4, 1997. On May 23, 1997, the Board of Directors declared a dividend of $.3125 per share of common stock payable on July 23, 1997, to shareholders of record as of July 8, 1997. The dividend declared, which related to the three months ended June 30, 1997 is based upon an annual distribution of $1.25 per share. In February 1997, the Financial Accounting Standards Board, FASB, issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share", which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. This will not have any impact on primary earnings per share for the three and six month periods ended June 30, 1997 and June 30, 1996. The Company has not yet determined what the impact of Statement 128 will be on the calculation of fully diluted earnings per share. 7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in thousands) Six Months Ended June 30, 1997 1996 __________ __________ Cash paid during the period for interest $ 9,956 $ 5,990 ========== ========== Interest capitalized during the period $ 869 $ 223 ========== ========== On January 7, 1997, the Company purchased 110 Bi-County Boulevard in Farmingdale, New York, which included the issuance of 101,902 units for a total non-cash investment of $4,279,884. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements of Reckson Associates Realty Corp. (the "Company") and related notes thereto. Overview and Background The Company is a self-administered and self managed real estate investment trust (REIT) specializing in the acquisition, leasing, financing, management and development of office and industrial properties. The Company's growth strategy is focused on the suburban markets within the 50 mile radius surrounding New York City. Since completion of its initial public offering in May 1995, the Company has acquired or contracted to acquire approximately $625 million of properties comprising approximately 8.7 million square feet of space. On March 12, 1997, the Company completed a public stock offering and sold 4,945,000 common shares at a price of $45.25 per share (including 645,000 common shares sold in connection with the underwriters exercise of the overallotment option). Net proceeds from the offering were approximately $212 million. At June 30, 1997, the Company's portfolio of real estate properties included 39 office buildings containing approximately 5.5 million square feet, 89 industrial buildings containing approximately 5.5 million square feet and 2 retail properties containing approximately 20,000 square feet. During the three months ended June 30, 1997, the Company acquired one research and development building encompassing approximately 452,000 square feet of space for an aggregate purchase approximately $27 million and six office properties encompassing approximately 762,000 square feet of space for an aggregate purchase price of approximately $88.8 million. For the six months ended June 30, 1997, the Company acquired fourteen industrial buildings encompassing approximately 1.3 million square feet for aggregate purchase prices of approximately $64.4 million and six office buildings encompassing approximately 762,000 square feet for aggregate purchase prices of approximately $88.8 million. These acquisitions were financed with a combination of proceeds from draws on the Company's credit facilities, the issuance of Operating Partnership units and proceeds from the Offering. During July 1997, the Company acquired three office properties in New Jersey encompassing approximately 445,229 square feet for an aggregate purchase price of approximately $48 million. These acquisitions were financed through a draw on the Unsecured Credit Facility. The market capitalization of the Company, based on the market value at a stock price of $23.00 at June 30, 1997 on 34,331,774 issued and outstanding shares of Company common stock and 6,974,814 OP Units (assuming conversion to common stock) and the $271.7 million (including its share of joint venture debt and net of minority partners' 40% interest in Omni's debt) of debt outstanding at June 30, 1997 was approximately $1.2 billion. As a result, the Company's total debt to total market capitalization ratio at June 30, 1997 equaled approximately 22.2%. Three months ended June 30, 1997 vs. the three months ended June 30, 1996 (in thousands). Three Months Ended June 30, (unaudited) 1997 1996 _________ _________ Base rental revenue $ 31,160 $ 19,572 Tenant escalations and reimbursements 3,340 2,378 Equity (loss) in earnings of service companies --- 246 Equity in real estate joint ventures 105 71 Interest income on mortgage notes and note receivable 931 --- Other 658 427 _________ _________ Total Operating Revenues 36,194 22,694 _________ _________ Operating Expenses 7,069 4,697 Real estate taxes 4,806 3,117 Ground rents 306 262 Interest 3,848 2,615 Depreciation and amortization 6,317 4,160 Marketing general and administration 1,858 1,424 _________ ________ Total expenses 24,204 16,275 _________ ________ Income from operations $ 11,990 $ 6,419 ========= ======== Income of $11,990 for the three months ended June 30, 1997 increased by $5,571 as compared to income of $6,419 for the 1996 period. The increase in base rental revenue of $11,588 and $962 in escalations is primarily attributable to the acquisition of properties during 1996 and 1997. Operating expenses and real estate taxes increased by $4,061 for the three months ended June 30, 1997 as compared to the 1996 period. The increase in operating expenses and real estate taxes during the 1997 period are primarily attributable to operating an increased number of properties. Interest expense increased $1,233 for the three months ended June 30, 1997, compared to the prior period, principally due to an increase in the average of outstanding debt incurred in connection with the acquisition of properties. Marketing, general and administrative expenses increased by $434 primarily as a result of overall growth of the Company including payroll and related costs related to the opening of the Northern New Jersey and Southern Connecticut divisions. Gross operating margin (defined as operating revenues, consisting of base rental revenue and tenant escalations and reimbursements less total operating expenses, real estate taxes and ground rents, as a percentage of operating revenues) for the three months ended June 30, 1997 was 64.8% as compared to 63.3% for the three months ended June 30, 1996. The increase reflects the Company's ability to realize certain operating efficiencies as a result of operating a larger portfolio of properties in each of its established markets. Six months ended June 30, 1997 vs. the six months ended June 30, 1996(in thousands). Six Months Ended June 30, (unaudited) 1997 1996 _________ _________ Base rental revenue $ 57,751 $ 35,716 Tenant escalations and reimbursements 6,585 4,696 Equity (loss) in earnings of service companies 142 759 Equity in real estate joint ventures 201 71 Interest income on mortgage notes and note receivable 1,889 --- Other 1,318 517 _________ _________ Total Operating Revenues 67,886 41,759 _________ _________ Operating Expenses 12,733 8,241 Real estate taxes 9,370 5,983 Ground rents 609 519 Interest 8,583 5,511 Depreciation and amortization 11,957 7,793 Marketing, general and administration 3,838 2,390 _________ ________ Total expenses 47,090 30,437 _________ ________ Income from operations $ 20,796 $ 11,322 ========= ======== Income of $20,796, for the six months ended June 30, 1997 increased by $9,474 as compared to income of $11,322 for the six months ended June 30, 1996. The increase in base rental revenue of $22,035 and $1,889 in escalations is primarily attributable to the acquisition of properties during 1996 and 1997. Operating expenses and real estate taxes increased by an aggregate amount of $7,879 for the six months ended June 30, 1997 as compared to the 1996 period. The increase in operating expenses during the 1997 period is primarily attributable to operating an increased number of properties during the 1997 period. Interest expense increased by $3,072, for the six months ended June 30, 1997, compared to the prior year, principally due to an increase in the average outstanding debt incurred in connection with the acquisition of properties. Marketing, general and administration expenses increased by $1,448 primarily as a result of overall growth of the Company including payroll and related costs related to the opening of the Westchester, Northern New Jersey and Southern Connecticut divisions. Gross operating margin (defined as operating revenues, consisting of base rental revenue and tenant escalations and reimbursements less total operating expenses, real estate taxes and ground rents, as a percentage of operating revenues) for the six months ended June 30, 1997 was 64.7% as compared to 63.6% for the six months ended June 30, 1996. The increase reflects the Company's ability to realize certain operating efficiencies as a result of operating a larger portfolio of properties in each of its established markets. In April 1997, the Company terminated its $150 million secured credit facility (see Note 4). As a result, certain deferred loan costs incurred in connection with the credit facility were written off. Such amount is reflected as an extraordinary loss in the accompanying consolidated statement of operations. 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. Net proceeds to the Company were approximately $162 million. During 1996, the Company completed two add-on offerings aggregating 4,725,000 shares of its common stock (the "Add-On Offerings") resulting in net proceeds to the Company of approximately $145.3 million. Proceeds from the Add-On Offerings were primarily used to repay borrowings under the Credit Facility and to fund the purchase of commercial real estate properties. In connection with the purchase of one industrial property the Company issued 101,902 OP Units as partial consideration in the transaction. On March 12, 1997, the Company completed a 4,945,000 common share offering, including 645,000 sold in connection with the exercise of the underwriters overallotment option. Net proceeds to the Company (after underwriting discount of approximately $11.7 million and approximately $300,000 of offering costs) were approximately $212 million. Net proceeds were used to repay borrowings outstanding under the Credit Facility and to purchase certain commercial real estate properties under contract and for future acquisitions of properties and general working capital. On April 30, 1997, the Company obtained a three-year $250 million unsecured credit facility from Chase Manhattan Bank and Union Bank of Switzerland (the "Unsecured Credit Facility"). The Company's ability to borrow thereunder is subject to the satisfaction of certain customary financial covenants. In addition, borrowings under the Unsecured Credit Facility will bear interest at a floating rate equal to one, two, three or six month LIBOR (at the Company's election) plus a spread ranging from 1.125% to 1.5% based on the Company's leverage ratio. The Unsecured Credit Facility replaced the Company's $150 million secured credit facility. The Company's indebtedness at June 30, 1997 totaled $271.7 million (including its share of joint venture debt and net of the minority partners' 40% interest in Omni's debt) and was comprised of $113 million outstanding under the Unsecured Credit Facility and approximately $158.7 million of mortgage indebtedness. Based on the Company's total market capitalization of $1.2 billion at June 30, 1997, (calculated at a $23 per share stock price) and assuming the conversion of the 6,974,814 OP Units outstanding on such date, the Company's debt represented approximately 22.2% 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 Unsecured Credit Facility provides for working capital advances. The Company intends to finance its on-going construction and acquisition activities through borrowings under the Unsecured Credit Facility. At June 30, 1997, the Company had a maximum capacity under the Unsecured Credit Facility of $250 million of which $113 million is drawn and outstanding. 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 six month period ended June 30, 1997 and the historical average of such capital expenditures, tenant improvements and leasing commissions for the years 1994 through 1996. Non-Incremental Revenue Generating Capital Expenditures 1994-1996 Jan-Jun 1994 1995 1996 Average 1997 ________ ________ ________ ________ __________ Office Properties: Total $158,340 $364,545 $375,026 $299,304 $ 496,493 Per Square Foot .10 .19 .13 .14 .12 Industrial Properties: Total $524,369 $290,457 $670,751 $495,192 $ 294,256 Per Square Foot .18 .08 .18 .15 .06 Non-Incremental Revenue - Generating Tenant Improvement and Leasing Commissions 1994 1995 1996 1997 ________ ________ ________ ________ Long Island Office Properties: Tenant Improvement Costs $902,312 $452,057 $523,574 $219,258 Per Square Foot Improved 5.13 4.44 4.28 4.65 Leasing Commissions $341,253 $144,925 $119,047 $210,911 Per Square Foot Leased 1.94 1.42 0.97 4.47 ________ ________ ________ ________ Total Per Square Foot $ 7.07 $ 5.86 $ 5.25 $ 9.12 ======== ======== ======== ======== Westchester Office Properties: Tenant Improvement Costs $ N/A $ N/A $834,764 $511,534 Per Square Foot Improved N/A N/A 6.33 6.26 Leasing Commissions $ N/A $ N/A $264,388 $230,274 Per Square Foot Leased N/A N/A 2.00 2.82 ________ ________ ________ ________ Total Per Square Foot $ N/A $ N/A $ 8.33 $ 9.08 ======== ======== ======== ======== Connecticut Office Properties: Tenant Improvement Costs $ N/A $ N/A $ 58,000 $387,811 Per Square Foot Improved N/A N/A 12.45 13.22 Leasing Commissions $ N/A $ N/A $ 0 $ 75,342 Per Square Foot Leased N/A N/A 0 2.57 ________ ________ ________ ________ Total Per Square Foot $ N/A $ N/A $ 12.45 $ 15.79 ======== ======== ======== ======== Industrial Properties: Tenant Improvement Costs $585,981 $210,496 $380,334 $ 90,524 Per Square Foot Improved .88 .90 .72 0.98 Leasing Commissions $176,040 $107,351 $436,213 $ 65,948 Per Square Foot Improved .27 .46 .82 0.72 ________ ________ ________ ________ Total Per Square Foot $ 1.15 $ 1.36 $ 1.54 $ 1.70 ======== ======== ======== ======== LEASE EXPIRATIONS The following table sets forth scheduled lease expirations for executed leases as of June 30, 1997. Long Island Office Properties (excluding Omni): % of Total Total Per Per Rentable Rentable Square Square Number Square Square Foot Foot Year of Lease of Feet Feet S/L Base Expiration Leases Expiring Expiring Rent(1) Rent(2) __________________ ______ _________ ________ _______ _______ Remainder of 1997 11 85,721 5.6% $ 22.21 $ 25.83 1998 30 197,646 13.0% $ 22.04 $ 23.46 1999 27 116,350 7.6% $ 20.00 $ 20.94 2000 32 183,462 12.0% $ 21.80 $ 23.13 2001 30 160,542 10.5% $ 21.75 $ 22.64 2002 25 218,669 14.4% $ 22.26 $ 22.96 2003and thereafter 46 560,174 36.9% --- --- ______ _________ ________ Totals 201 1,522,564 100.0% ====== ========= ======== Office Properties - Omni: % of Total Total Per Per Rentable Rentable Square Square Number Square Square Foot Foot Year of Lease of Feet Feet S/L Base Expiration Leases Expiring Expiring Rent(1) Rent(2) __________________ ______ _________ ________ _______ _______ Remainder of 1997 1 4,295 0.8% $ 30.69 $ 34.25 1998 --- --- ---% $ --- $ --- 1999 --- --- ---% $ --- $ --- 2000 5 66,131 11.9% $ 31.58 $ 33.77 2001 4 32,680 5.9% $ 28.22 $ 32.58 2002 5 132,716 24.0% $ 25.54 $ 27.46 2003and thereafter 14 317,624 57.4% --- --- ______ _________ ________ Totals 29 553,446 100.0% ====== ========= ======== Industrial Properties: % of Total Total Per Per Rentable Rentable Square Square Number Square Square Foot Foot Year of Lease of Feet Feet S/L Base Expiration Leases Expiring Expiring Rent(1) Rent(2) __________________ ______ _________ ________ _______ _______ Remainder of 1997 16 94,941 2.4% $ 5.43 $ 5.37 1998 41 515,518 13.2% $ 5.08 $ 4.95 1999 35 555,911 14.2% $ 5.73 $ 5.93 2000 22 404,521 10.3% $ 5.20 $ 5.45 2001 24 755,291 19.3% $ 5.43 $ 5.70 2002 12 83,446 2.1% $ 6.27 $ 6.80 2003and thereafter 34 1,506,057 38.5% --- --- ______ _________ ________ Totals 184 3,915,685 100.0% ====== ========= ======== Research and Development: % of Total Total Per Per Rentable Rentable Square Square Number Square Square Foot Foot Year of Lease of Feet Feet S/L Base Expiration Leases Expiring Expiring Rent(1) Rent(2) __________________ ______ _________ ________ _______ _______ Remainder of 1997 3 85,107 7.1% $ 7.84 $ 8.41 1998 6 190,918 16.0% $ 9.59 $ 11.10 1999 11 134,487 11.3% $ 8.21 $ 8.09 2000 9 144,569 12.1% $ 8.63 $ 8.52 2001 5 65,130 5.5% $ 9.17 $ 9.16 2002 2 7,967 0.7% $ 17.32 $ 17.25 2003and thereafter 6 563,864 47.3% --- --- ______ _________ ________ Totals 42 1,192,042 100.0% ====== ========= ======== Westchester Properties: % of Total Total Per Per Rentable Rentable Square Square Number Square Square Foot Foot Year of Lease of Feet Feet S/L Base Expiration Leases Expiring Expiring Rent(1) Rent(2) __________________ ______ _________ ________ _______ _______ Remainder of 1997 7 12,695 1.3% $ 15.10 $ 15.67 1998 27 137,999 13.6% $ 18.51 $ 19.30 1999 17 36,862 3.6% $ 17.86 $ 18.54 2000 23 170,033 16.8% $ 19.62 $ 20.39 2001 26 123,155 12.1% $ 19.22 $ 20.28 2002 23 168,876 16.7% $ 17.73 $ 20.33 2003and thereafter 30 364,295 35.9% --- --- ______ _________ ________ Totals 153 1,013,915 100.0% ====== ========= ======== Stamford Properties: % of Total Total Per Per Rentable Rentable Square Square Number Square Square Foot Foot Year of Lease of Feet Feet S/L Base Expiration Leases Expiring Expiring Rent(1) Rent(2) __________________ ______ _________ ________ _______ _______ Remainder of 1997 10 23,641 3.5% $ 17.05 $ 17.10 1998 10 33,214 4.9% $ 20.69 $ 21.03 1999 17 42,841 6.3% $ 20.75 $ 21.10 2000 23 102,283 15.0% $ 21.24 $ 22.07 2001 16 74,474 10.9% $ 24.09 $ 24.49 2002 9 26,302 3.9% $ 21.67 $ 23.18 2003and thereafter 27 377,654 55.5% --- --- ______ _________ ________ Totals 112 680,409 100.0% ====== ========= ======== New Jersey Properties: % of Total Total Per Per Rentable Rentable Square Square Number Square Square Foot Foot Year of Lease of Feet Feet S/L Base Expiration Leases Expiring Expiring Rent(1) Rent(2) __________________ ______ _________ ________ _______ _______ Remainder of 1997 3 12,566 1.6% $ 20.08 $ 21.43 1998 6 134,207 17.0% $ 21.47 $ 21.86 1999 5 28,553 3.6% $ 20.96 $ 21.02 2000 7 34,497 4.4% $ 20.14 $ 20.36 2001 11 200,905 25.5% $ 17.62 $ 17.76 2002 4 33,379 4.2% $ 18.67 $ 19.06 2003and thereafter 8 343,995 43.7% --- --- ______ _________ ________ Totals 44 788,102 100.0% ====== ========= ======== (1) Per square foot rental rate represents annualized straight line rent as of 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. 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 Unsecured 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. The Company has adopted the new method, the following table presents the Company's FFO calculation (in thousands, except per share/unit data):
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 _________ _________ _________ _________ (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net Income $ 7,834 $ 4,691 $ 14,619 $ 7,114 Adjustments for Funds from Operations Add: Depreciation and Amortization 6,262 4,148 11,836 7,607 Minority interest in consolidated partnership 201 237 444 472 Limited partners' minority interest in Operating Partnership 1,993 1,491 3,771 2,841 Extraordinary items-(loss) on a restatement or extingusihment of debt, net of limited partners' share of $400, $0, $400 and $364 respectively 1,962 --- 1,962 895 _________ _________ _________ _________ 18,252 10,567 32,632 18,929 Subtract: Amount distributable to minority partners in consolidated partnership 597 430 1,132 805 _________ _________ _________ _________ Funds From Operations (FFO) 17,655 10,137 31,500 18,124 Subtract: Straight line rents 1,194 782 2,284 1,502 Non-Incremental Capitalized tenant improvements and leasing commissions 890 655 1,753 743 Capitalized improvements 426 419 791 619 _________ _________ _________ _________ Cash available for distribution $ 15,145 $ 8,281 $ 26,672 $ 15,260 ========= ========= ========= ========= Weighted average shares/units (1) 41,273 26,836 37,423 23,848 ========= ========= ========= ========= FFO per weighted average share/unit $ .43 $ .38 $ .84 $ .76 ========= ========= ========= ========= CAD per weighted average share/unit $ .37 $ .31 $ .71 $ .64 ========= ========= ========= ========= Dividends per share/unit $ .31 $ .30 $ .61 $ .59 ========= ========= ========= ========= FFO payout ratio 72.7% 79.4% 72.9% 77.5% ========= ========= ========= ========= CAD payout ratio 84.4% 97.2% 86.3% 92.0% ========= ========= ========= ========= (1) Assumes conversion of limited partnership units of the Operating Partnership and give effect to the April 15, 1997 two-for-one stock split.
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 b) During the six months ended June 30, 1997, the registrant filed a report 8-K, dated June 12, 1997 pertaining to the acquisition of two class "A" office buildings and two class "A" industrial properties. 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 August 8, 1997 Scott H. Rechler Date Scott H. Rechler, President August 8, 1997 Michael Maturo Date Michael Maturo, Executive Vice President and Chief Financial Officer EX-27 2
5 0000930548 RECKSON ASSOCIATES REALTY CORP. 1000 6-MOS DEC-31-1997 JUN-30-1997 20,424 0 21,580 0 0 42,004 705,496 97,302 770,680 31,856 278,527 0 0 343 374,657 770,680 64,336 67,886 0 26,550 0 0 8,583 20,796 0 20,796 0 0 0 14,619 .48 .48
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