-----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, V68NtBmkA+8YS3clUl7SpFOix/xde8R20K4qX6WjU+r7HI3v6icNXW0e139MmQuH BYi62RsSLieL+gqYAnOa5A== 0000930548-98-000011.txt : 19980817 0000930548-98-000011.hdr.sgml : 19980817 ACCESSION NUMBER: 0000930548-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 001-13762 FILM NUMBER: 98689716 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, 1998 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 40,011,104 shares outstanding as of August 10, 1998. RECKSON ASSOCIATES REALTY CORP. QUARTERLY REPORT FOR THE THREE MONTHS ENDED JUNE 30, 1998 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, 1998 and December 31, 1997 .................... Consolidated Statements of Income of Reckson Associates Realty Corp. for the three and six months ended June 30, 1998 and 1997 ......................................................... Consolidated Statements of Cash Flows of Reckson Associates Realty Corp. for the six months ended June 30, 1998 and 1997.. 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 (Dollar in thousands, except for share amounts)
June 30, December 31, 1998 1997 ------------------ ------------------ (Unaudited) Assets: Commercial real estate properties, at cost: Land $ 191,847 $ 138,526 Building and improvements 1,245,715 818,229 Developments in progress: Land 16,503 29,309 Development costs 81,299 25,164 Furniture, fixtures and equipment 4,831 4,054 ------------------- ------------------- 1,540,195 1,015,282 Less accumulated depreciation (132,399) (111,068) ------------------- ------------------- 1,407,796 904,214 Investment in real estate joint ventures 11,628 7,223 Investment in mortgage notes and notes receivable 84,674 104,509 Cash and cash equivalents 3,446 21,828 Tenants receivables 4,062 4,975 Investments in and advances to affiliates 56,171 26,547 Deferred rent receivable 19,098 14,973 Prepaid expenses and other assets 15,467 5,248 Contract and land deposits and pre-acquisition costs 3,088 7,559 Deferred leasing and loan costs 19,537 16,181 ------------------- ------------------- Total Assets $ 1,624,967 $ 1,113,257 =================== =================== Liabilities: Mortgage notes payable $ 236,776 $ 180,023 Credit facilities 298,250 210,250 Senior unsecured notes 150,000 150,000 Accrued expenses and other liabilities 36,629 30,987 Affiliate payables 1,877 807 Dividends and distributions payable 20,461 120 ------------------- ------------------- Total Liabilities 743,993 572,187 ------------------- ------------------- Minority interests in consolidated partnerships 35,685 6,655 Limited partners' minority interest in the operating partnership 132,165 85,750 ------------------- ------------------- 167,850 92,405 ------------------- ------------------- Stockholders' Equity: Preferred Stock, $.01 par value, 25,000,000 shares authorized, 9,200,000 issued and outstanding 92 --- Common Stock, $.01 par value, 100,000,000 shares authorized, 39,991,745 and 37,770,158 shares issued and outstanding, respectively 400 378 Additional paid in capital 712,632 448,287 ------------------- ------------------- Total Stockholders' Equity 713,124 448,665 ------------------- ------------------- Total Liabilities and Stockholders' Equity $ 1,624,967 $ 1,113,257 =================== =================== See accompanying notes to financial statements.
Reckson Associates Realty Corp. Consolidated Statements of Income (Unaudited and in thousands, except per share and share amounts)
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Revenues: Base rents $ 55,536 $ 31,160 $ 102,571 $ 57,751 Tenant escalations and reimbursements 7,061 3,340 13,113 6,585 Equity in earnings of real estate joint ventures 173 105 273 201 Equity in earnings of service companies 651 --- 392 142 Interest income on mortgage notes and notes receivable 1,773 931 3,453 1,889 Other 1,125 658 1,581 1,318 ------------- ------------- ------------- ------------- Total Revenues 66,319 36,194 121,383 67,886 ------------- ------------- ------------- ------------- Expenses: Property operating expenses 12,265 7,069 22,018 12,733 Real estate taxes 9,032 4,806 17,036 9,370 Ground rents 432 306 845 609 Marketing, general and administrative 3,639 1,858 7,102 3,838 Interest 10,970 3,848 21,497 8,583 Depreciation and amortization 12,457 6,317 23,264 11,957 ------------- ------------- ------------- ------------- Total Expenses 48,795 24,204 91,762 47,090 ------------- ------------- ------------- ------------- Income before minority interests and extraordinary items 17,524 11,990 29,621 20,796 ------------- ------------- ------------- ------------- Minority partners' interests in consolidated partnerships (683) (201) (1,216) (444) ------------- ------------- ------------- ------------- Distributions to preferred unitholders (435) ---- (435) --- ------------- ------------- ------------- ------------- Limited partners' interest in the operating partnership (2,762) (1,993) (4,753) (3,771) ------------- ------------- ------------- ------------- Income before extraordinary item and dividends to preferred shareholders 13,644 9,796 23,217 16,581 Extraordinary items - (loss) on restatement or extinguishment of debt, net of limited partners' share of $0, $400, $0 and $400, respectively ---- (1,962) ---- (1,962) Dividends to preferred shareholders 3,733 ---- 3,733 --- ------------- ------------- ------------- ------------- Net income available to common shareholders $ 9,911 $ 7,834 $ 19,484 $ 14,619 ============= ============= ============= ============= Basic net income per weighted average common share before extraordinary items $ 0.25 $ 0.29 $ 0.50 $ 0.54 Extraordinary items (loss) per common share ---- (0.06) ---- (0.06) ------------- ------------- ------------- ------------- Basic net income per weighted average common share $ 0.25 $ 0.23 $ 0.50 $ 0.48 ============= ============= ============= ============= Weighted average common shares outstanding 39,636,815 34,298,137 38,913,713 30,455,000 ============= ============= ============= ============= Diluted net income per weighted average common share $ 0.25 $ 0.22 $ 0.49 $ 0.47 ============= ============= ============= ============= Diluted weighted average common shares outstanding 40,178,083 34,801,582 39,476,786 30,950,151 ============= ============= ============= ============= See accompanying notes to financial statements.
Reckson Associates Realty Corp. Consolidated Statements of Cash Flows (Unaudited and in thousands)
Six Months Ended June 30, ------------------------------ 1998 1997 ------------ ------------ Cash flows from Operating Activities: Net Income available to common shareholders $ 19,484 $ 14,619 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 23,264 11,957 Minority partners' interests in consolidated partnerships 1,216 444 Limited partners' interest in the operating partnership 4,753 3,771 Extraordinary loss on extinguishment of debt --- 1,962 Gain on sale of interest in Reckson Executive Centers, LLC (9) --- Gain on sale of securities (43) --- Equity in earnings of service companies (392) (142) Equity in earnings of real estate joint ventures (273) (201) Distributions from real estate joint venture 217 191 Interest income on mortgage notes and notes receivable (316) (374) Changes in operating assets and liabilities: Tenant receivables 913 (561) Escrow reserves 115 34 Prepaid expenses and other assets (9,832) (4,301) Deferred rents receivable (3,614) (2,371) Accrued expenses and other liabilities 8,961 3,081 ------------ ------------ Net cash provided by operating activities 44,444 28,109 ------------ ------------ Cash Flows from Investing Activities: Increase in escrow reserves (580) --- Purchase of commercial real estate properties (422,509) (171,195) Investment in mortgage notes and notes receivable 20,097 (29,124) Investment in real estate joint ventures (2,970) (1,385) Investment in service companies 15 15 Additions to commercial real estate properties (9,754) (7,608) Purchase of furniture, fixtures and equipment (776) (481) Payment of leasing costs (3,768) (3,194) Investment in securities 809 --- ------------ ------------ Net cash used in investing activities (419,436) (212,972) ------------ ------------ Cash Flows from Financing Activities: Proceeds from issuance of common stock net of issuance costs 93,515 212,117 Proceeds from issuance of preferred stock net of issuance costs 220,800 --- Principal payments on secured borrowings (3,118) (653) Payment of loan costs (69) (2,807) Advances to affiliates (25,727) (1,358) Proceeds from unsecured credit facilities 180,996 126,500 Repayment of unsecured credit facilities (94,000) (122,000) Distribution to minority partners in consolidated partnerships (1,289) (543) Distribution to limited partners in the operating partnerships (2,352) (4,036) Dividends to common shareholders (12,146) (14,621) ------------ ------------ Net cash provided by financing activities 356,610 192,599 ------------ ------------ Net (decrease) increase in cash and cash equivalents (18,382) 7,736 Cash and cash equivalents at beginning of period 21,828 12,688 ------------ ------------ Cash and cash equivalents at end of period $ 3,446 20,424 ============ ============ See accompanying notes to financial statements.
Reckson Associates Realty Corp. Notes to the Consolidated Financial Statements JUNE 30, 1998 (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. In June, 1995 the Company completed an initial public offering of 7,038,000 shares (pre-split) of $.01 par value common stock ("the IPO"). The IPO price of $24.25 per common share (pre-split) resulted in gross offering proceeds of approximately $170,671,500. The Company also issued 400,000 shares (pre-split) 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, advisory fee and other offering expenses, were approximately $162,000,000. 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 (pre-split) 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. As of June 30, 1998, the Company owned and operated 69 office properties comprising approximately 9.6 million square feet, 120 industrial properties comprising approximately 9.8 million square feet and two 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 acquire approximately 914 acres of land (including 400 acres under option) in 19 separate parcels of which the Company can develop 1.9 million square feet of industrial space and 6.8 million square feet of office space. The Company also has invested approximately $47.3 million in certain mortgage notes encumbering four Class A office properties encompassing approximately 577,000 square feet and a 400 acre parcel of land and in a note receivable secured by a partnership interest in Omni Partners, L.P., owner of the Omni, a 575,000 Class A office property located in Uniondale, New York. During 1997, the Company formed Reckson Service Industries, Inc. ("RSI") and Reckson Strategic Venture Partners, LLC ("RSVP"). The Operating Partnership owned a 95% non voting common stock interest in RSI through June 10, 1998. RSI serves as the managing member of RSVP. RSI invests in operating companies that generally will provide commercial services to properties owned by the Company and its tenants and third parties. RSVP was formed to provide the Company with a research and development vehicle to invest in alternative real estate sectors. RSVP invests primarily in real estate and real estate related operating companies generally outside of the Company's core office and industrial focus. RSVP's strategy is to identify and acquire interests in established entrepreneurial enterprises with experienced management teams in market sectors which are in the early stages of their growth cycle or offer unique circumstances for attractive investments as well as a platform for future growth. On June 11, 1998, the Operating Partnership distributed its 95% net non voting common stock interest in RSI of approximately $3 million to its partners, including the Company which, in turn, distributed the common stock of RSI received from the Operating Partnership to its stockholders. At June 30, 1998, the Operating Partnership had made loans to RSI and RSVP aggregating approximately $21.8 million and $7.6 million, respectively in connection with start up costs and certain initial investments. Such amounts have been included in investments in and advances to affiliates on the accompanying balance sheet. Subsequent to June 30, 1998, RSI and RSVP repaid approximately $13 million and $6.8 million, respectively of loans to the Operating Partnership. In October 1997, the Company entered into an agreement to invest $150 million in the Morris Companies, a New Jersey developer and owner of "Big Box" warehouse facilities. The Morris Companies' properties include 23 industrial buildings encompassing approximately 4.0 million square feet. The Company has invested approximately $72 million for an approximate 73% controlling interest in Reckson Morris Operating Partnership, L.P. ("RMI"). In connection with the transaction the Morris Companies contributed 100% of their interests in certain industrial properties to RMI in exchange for operating partnership units in RMI. On July 9, 1998, the Company announced the formation of Metropolitan Partners ("Metropolitan"), a strategic joint venture controlled equally by the Company and Crescent Real Estate Equities Company ("Crescent") for the purpose of creating a platform to invest in the New York City real estate market. Metropolitan has executed a definitive merger agreement in which Metropolitan has agreed to purchase Tower Realty Trust, Inc., ("Tower") a New York City based real estate investment trust that owns and operates approximately 4.3 million square feet of office space in 25 buildings, including 2.3 million square feet in New York City, for a total transaction value of approximately $733 million, which includes $286 million of outstanding Tower indebtedness. Tower stockholders will have the right to elect to receive for each share of Tower (i) $24.00 in cash or (ii) .4615 shares of the Company's common stock and .3523 shares of Crescent common stock (based on the closing price of the Company's and Crescent's common stock on July 7, 1998 of $26.00 and $34.0625, per share, respectively), for up to an aggregate of 40% of the total consideration payable in the transaction. If the average closing price of the Company's or Crescent's shares appreciates by more than 7% from the July 7 closing prices Tower shareholders will be entitled to benefit only up to 7% of such appreciation, and no more. The transaction will be accounted for as an equity investment by the Company and is anticipated to close in the 4th quarter of 1998. 2. Basis of Presentation The accompanying consolidated financial statements include the consolidated financial position of the Company and the Operating Partnership at June 30, 1998 and the results of their operations for the three and six months ended June 30, 1998 and 1997 respectively, and, their cash flows for the six months ended June 30, 1998 and 1997 respectively. The Operating Partnership's investment in RMI is reflected in the accompanying financial statements on a consolidated basis with a reduction for minority partner interest. The operating results of the service businesses currently conducted by Reckson Management Group, Inc., and Reckson Construction Group, Inc., are reflected in the accompanying financial statements on the equity method of accounting. The operating results of Reckson Executive Centers, L.L.C., ("REC"), a service business of the Operating Partnership were reflected in the accompanying financial statements on the equity method of accounting through March 31, 1998. On April 1, 1998, the Operating Partnership sold its 9.9% interest in REC to RSI for $200,000. Additionally, the operating results of RSI a service business of the Operating Partnership, were reflected in the accompanying financial statements on the equity method of accounting through June 10, 1998. On June 11, 1998 the Operating Partnership distributed its 95% net non voting common stock interest in RSI to its partners, including the Company which, in turn, distributed the common stock of RSI received from the Operating Partnership to its stockholders. The Operating Partnership also invests in real estate joint ventures where it may own less than a controlling interest, such investments are also reflected in the accompanying financial statements on the equity method of accounting. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. 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, 1998. 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, 1997. 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. In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share". Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements. The conversion of Units into common stock would not have a significant effect on per share amounts as the Units share proportionately with the common stock in the results of the Operating Partnership's operations. Additionally, during 1997, the Financial Accounting Standards Board also issued statement No. 130 "Reporting Comprehensive Income" ("SFAS 130") which is effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting comprehensive income and its components in a full set of general-purpose financial statements. SFAS 130 requires that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of this standard will not have an impact on the Company's financial position or results of operations. Certain prior period amounts have been reclassified to conform to the current period presentation. 3. Mortgage Notes Payable As of June 30, 1998, the Company had approximately $237 million of fixed rate mortgage notes which mature at various times between 1999 and 2012. The notes are secured by 21 properties and have a weighted average interest rate of 7.91%. On May 21, 1998, the Company satisfied the mortgage note encumbering one property in the amount of approximately $1.9 million. 4. Senior Unsecured Notes As of June 30, 1998, the Company had outstanding $150 million of 10-year senior unsecured notes(the "Senior Unsecured Notes"). The Senior unsecured Notes were priced at par with interest at 110 basis points over the 10-year treasury note for an all in coupon of 7.2%. Interest is payable semiannually with principal and unpaid interest due on August 28, 2007. 5. Credit Facilities As of June 30, 1998, the Company had 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. In addition, the Company obtained a $200 million unsecured credit facility (the "Bridge Facility") which matures on July 15, 1998. The Bridge Facility was provided by the two lead members of the Unsecured Credit Facility bank group and serves as interim financing while the Company seeks to expand the availability under the Unsecured Credit Facility. On July 23, 1998, the Company obtained a $500 million unsecured revolving credit facility (the "Credit Facility") with Chase Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the credit facility bank group. This Credit Facility replaces both the Unsecured Credit and Bridge Facilities. Interest rates on borrowings under the Credit Facility will be priced off of LIBOR plus a sliding scale ranging from 112.5 basis points to 137.5 basis points based on the leverage ratio of the Company. Upon the Company receiving an investment grade rating on its senior unsecured debt by two rating agencies, the pricing is adjusted based off of LIBOR plus a scale ranging from 65 basis points to 90 basis points depending upon the rating. 6. Commercial Real Estate Investments In October 1997, the Company entered into an agreement to invest $150 million in the Morris Companies, a New Jersey developer and owner of "Big Box" warehouse facilities. The Morris Companies' properties include 23 industrial buildings encompassing approximately 4.0 million square feet. The Company's investment will be used to acquire a controlling interest in Reckson Morris Operating Partnership, L.P. ("RMI"). In connection with the transaction the Morris Companies contributed 100% of their interests in certain industrial properties to RMI in exchange for operating partnership units in RMI. At June 30, 1998 the Company had acquired an approximate 73% interest in RMI for approximately $72 million. In addition, at June 30, 1998, the Company had advanced approximately $17.7 million to the Morris Companies primarily to fund certain construction costs related to development properties to be contributed to RMI. During January, 1998, the Company acquired two office properties and five industrial properties encompassing 325,000 and 775,000 square feet, respectively for aggregate purchase prices of approximately $27.6 million and $32.1 million, respectively. In addition, the Company acquired approximately 99 acres of land for approximately $3.39 million which allows for approximately 730,000 square feet of development opportunities. These acquisitions were financed with proceeds from the credit facilities and the issuance of 513,259 OP Units. During February 1998, the Company acquired approximately 25 acres of land and a vacant 165,000 square foot building for approximately $3.43 million. The Company is currently repositioning these properties which will allow for approximately 483,000 square feet of future development opportunities. Additionally, on February 6, 1998 the Company completed its acquisition of a 351,000 square foot office building located in Lake Success, New York for approximately $9.3 million. The Company had previously acquired an approximate 68% first mortgage interest in the property for approximately $25.7 million for a total acquisition of $35 million. The acquisition was financed with proceeds from a draw under the credit facilities. On February 25, 1998, the Company made an additional investment in RMI of approximately $6.6 million for the acquisition of 300-350 Kennedy Drive, Sayerville, New Jersey increasing its interest in RMI to approximately 73%. On March 20, 1998, the Company acquired a 250,000 square foot office building located in Short Hills, New Jersey for approximately $67 million. The acquisition was financed with proceeds from a draw under the credit facilities. On April 3, 1998, the Company completed its acquisition of approximately 33.6 acres of vacant land located in Huntington Township, New York, which allows for approximately 495,000 square feet of future development opportunities for approximately $8.5 million (of which $6.4 million had been previously paid). On April 21, 1998, the Company acquired a portfolio of six office properties encompassing approximately 980,000 square feet in Westchester County, New York from Cappelli Enterprises and affiliated entities ("Cappelli") for a purchase price of approximately $173 million. The Cappelli acquisition includes a five building, 850,000 square foot Class A office park in Valhalla and Court House Square, a 130,000 square foot Class A office building located in White Plains. The Company also obtained an option from Cappelli to acquire the remaining 50% interest in 360 Hamilton Avenue, a 365,000 square foot vacant office tower in downtown White Plains for $10 million of which $4 million was paid at closing of the portfolio acquisition. In addition, the Company received an option from Cappelli to acquire the remaining development parcels within the Valhalla office park on which up to 875,000 square feet of office space can be developed. During April 1998, the Company made mortgage loans to Cappelli totaling $18 million which are secured by the development parcels. The loans bear interest at 10% per annum and mature on April 14, 1999. Such amounts have been included in investments in mortgage notes and notes receivable on the accompanying balance sheet. This acquisition was financed in part through proceeds from a draw under the credit facilities, the issuance of 36,518 preferred units (Note 7), and the assumption of approximately $45.1 million of mortgage debt. On July 2, 1998, Cappelli exercised his option to sell the remaining 50% interest in 360 Hamilton Avenue located in downtown White Plains, New York to the Company for $10 million (of which $4 million had been previously paid) plus the return of his capital contributions of approximately $1.5 million. As a result, the Company now owns 100% of the property. The acquisition was financed in part through proceeds from a draw under the credit facilities, the issuance of 6,000 preferred units (Note 7), and the assumption of approximately $2 million of additional mortgage debt. Additionally, on April 21, 1998, the Company acquired a 84,500 square foot office building located in Fairfield, New Jersey for $3.4 million. The acquisition was financed in part with proceeds from a draw under the credit facilities and the issuance of 1,979 OP Units (Note 7). On May 1, 1998, the Company leased a 120,000 square foot office building located in Hicksville, New York. The lease which expires in the year 2018 requires fixed monthly rental payments subject to annual increases and for the pass through to the Company of all operating expenses and real estate taxes relating to the property. On June 19, 1998, the Company acquired a 210,000 square foot industrial property located in West Caldwell, New Jersey for $9.4 million. The acquisition was financed with proceeds from a draw under the credit facilities. On June 24, 1998, the Company acquired approximately 19.3 acres of land located in Melville, New York for approximately $5.5 million. The Company has entered into contract negotiations to sell this parcel during the third calendar quarter of 1998. The acquisition was financed with proceeds from a draw under the credit facilities. On July 1, 1998, the Company acquired Stamford Towers located in Stamford, Connecticut for approximately $61.3 million. Stamford Towers is a Class A office complex consisting of two eleven story towers totaling approximately 325,000 square feet. During July, 1998, RMI purchased two industrial properties encompassing approximately 426,000 square feet for approximately $24.75 million. These acquisitions were financed through draws under the credit facilities. 7. Stockholders' Equity On January 6, 1998, the Operating Partnership issued 513,259 OP Units in connection with the acquisition of an office building located in Uniondale, New York. On February 18, 1998, the Company completed a common stock offering and sold 791,152 common shares at a price of $25.44 per share. Net proceeds from the offering of approximately $19.1 million were used to repay borrowings under the credit facilities. On March 23, 1998, the Company sold approximately $5.9 million of common stock to RSI at the market closing price of $25 per share. The Operating Partnership loaned RSI the $5.9 million to execute this transaction. Such amount was repaid to the Operating Partnership by RSI subsequent to June 30, 1998. During April 1998, the Company completed a preferred stock offering and sold 9,200,000 shares (including 1,200,000 shares related to the exercise of the underwriters over allotment option) of 7.625% Series A Convertible Cumulative Preferred Stock at a price of $25.00 per share. The preferred stock is convertible to the Company's common stock at a conversion rate of .8738 shares of common stock for each share of preferred stock. Net proceeds from the offering of approximately $221 million were used to repay borrowings under the credit facilities. On April 21, 1998, the Operating Partnership issued 25,000 Series B preferred units at a stated value of $1,000 per unit and 11,518 Series C preferred units at a stated valued of $1,000 per unit in connection with the acquisition of the Cappelli portfolio. The Series B preferred units have a current coupon rate of 6.25% and are convertible to common units at a conversion price of approximately $32.51 for each preferred unit. The Series C preferred units have a current coupon rate of 6.25% and are convertible to common units at a conversion price of approximately $29.39 for each preferred unit. On April 29, 1998, the Company completed a common stock offering and sold 1,093,744 common shares at a price of $24.38 per share. Net proceeds from the offering were approximately $25.3 million and were used to repay borrowings under the credit facilities. On May 27, 1998, the Board of Directors declared a dividend of $.3375 per share of common stock payable on July 21, 1998 to its shareholders of record as of July 10, 1998. The dividend declared, which related to the three months ended June 30, 1998, is based upon an annual distribution of $1.35 per share. On May 29, 1998, the Board of Directors declared a dividend on its Series A Convertible Cumulative Preferred Stock of $.5719 per share payable on July 31, 1998 to stockholders of record on July 15, 1998. The dividend declared, which relates to the period from April 13, 1998 through July 31, 1998 is based on an annual distribution of $1.906 per share. On July 2, 1998, the Operating Partnership issued 6,000 Series D preferred units at a stated value of $1,000 per unit in connection with the acquisition of the remaining 50% interest in 360 Hamilton Avenue located in White Plains, New York. The Series D preferred units have a current coupon of 6.25% and are convertible to common units at a conversion price of approximately $29.12 for each preferred unit. Basic net income per share was calculated using the weighted average number of shares outstanding of 39,636,815 and 34,298,137 for the three months ended June 30, 1998 and 1997, respectively and 38,913,713 and 30,455,000 for the six months ended June 30, 1998 and 1997, respectively. The following is the Company's reconciliation of the numerators and denominators of the basic and diluted net income per weighted average common share computations and other related disclosures required by FAS Statement 128 (in thousands except share amounts). The following table set forth the computation of basic and diluted earnings per share:
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ----------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- Numerator: Income before extraordinary item and dividends to preferred shareholders $ 13,644 $ 9,796 $ 23,217 $ 16,581 Preferred stock dividends (3,733) ---- (3,733) ---- ------------- ------------- ------------- ------------- Numerator for basic earnings per share 9,911 9,796 19,484 16,581 Effect of dilutive securities: Preferred stock dividends --- --- --- --- ------------- ------------- ------------- ------------- Numerator for diluted earnings per share $ 9,911 $ 9,796 $ 19,484 $ 16,581 ============= ============= ============= ============= Denominator: Denominator for basic earnings per share- weighted-average shares 39,637 34,298 38,914 30,455 ------------- ------------- ------------- ------------- Effect of dilutive securities: Employee stock options 541 504 563 495 Convertible preferred stock --- --- --- --- ------------- ------------- ------------- ------------- Dilutive potential common shares 541 504 563 495 ------------- ------------- ------------- ------------- Denominator for diluted earnings per share- adjusted weighted-average shares and assumed conversions 40,178 34,802 39,477 30,950 ============= ============= ============= ============= Basic earnings per common share: Income before extraordinary item $ 0.25 $ 0.29 $ 0.50 $ 0.54 Extraordinary item --- (0.06) --- (0.06) ------------- ------------- ------------- ------------- Net income per common share $ 0.25 $ 0.23 $ 0.50 $ 0.48 ============= ============= ============= ============= Diluted earnings per common share: Income before extraordinary item $ 0.25 $ 0.28 $ 0.49 $ 0.54 Extraordinary item --- (0.06) --- (0.07) ------------- ------------- ------------- ------------- Diluted net income per common share $ 0.25 $ 0.22 $ 0.49 $ 0.47 ============= ============= ============= =============
8. Supplemental Disclosure of Cash Flow Information (in thousands)
Six Months Ended June 30, --------------------- 1998 1997 --------- --------- Cash paid during the period for interest $ 17,869 $ 9,956 ========= ========= Interest capitalized during the period $ 1,739 $ 869 ========= =========
On January 2, 1998, the Company issued an additional 18,752 OP Units in connection with the acquisition of a 92,000 square foot industrial building located in Elmsford, New York for an additional non cash investment of approximately $.48 million. On January 6, 1998, the Company acquired 51 Charles Lindbergh Boulevard in Uniondale, New York which included the issuance of 513,259 OP Units for a total non cash investment of $12 million. Additionally, in connection with the Company's investment in the Morris Companies, the Company assumed approximately $10.8 million of indebtedness net of minority partners interest. On March 23, 1998, the Company sold 235,480 shares of its common stock to RSI for approximately $5.9 million which is payable to the Company at June 30, 1998. On April 21, 1998, in connection with the acquisition of the Cappelli portfolio, the Company assumed approximately $45.1 million of indebtedness. Additionally, in connection with the acquisition of 155 Passaic Avenue in Fairfield, New Jersey, the Company issued 1,979 OP Units for a total non cash investment of approximately $50,000. On June 11, 1998, the Operating Partnership distributed its 95% net non voting common stock interest in RSI of approximately $3 million to its partners, including the Company which, in turn, distributed the common stock of RSI received from the Operating Partnership to its stockholders. 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 surrounding New York City. Since completion of its initial public offering in May 1995, the Company has acquired or contracted to acquire approximately $1.3 billion of properties comprising approximately 15.7 million square feet of space. On February 18, 1998, the Company completed a common stock offering and sold 791,152 common shares at a price of $25.44 per share. Net proceeds from the offering of approximately $19.1 million were used to repay borrowings under the credit facilities. During April 1998, the Company completed a preferred stock offering and sold 9,200,000 shares (including 1,200,000 shares related to the exercise of the underwriters over allotment option) of 75/8% Series A Convertible Cumulative Preferred Stock at a price of $25.00 per share. The preferred stock is convertible to the Company's common stock at a conversion rate of .8738 shares of common stock for each share of preferred stock. Net proceeds from the offering were approximately $221 million and were used to repay borrowings under the credit facilities. On April 29, 1998, the Company completed a common stock offering and sold 1,093,744 common shares at a price of $24.38 per share. Net proceeds from the offering were approximately $25.3 million and were used to repay borrowings under the credit facilities. At June 30, 1998, the Company's portfolio of real estate properties included 69 office buildings containing approximately 9.6 million square feet, 120 industrial buildings containing approximately 9.8 million square feet and two retail properties containing approximately 20,000 square feet. During the six months ended June 30,1998, the Company acquired seven industrial properties encompassing approximately 1.1 million square feet of space for an aggregate purchase price of approximately $45 million and 11 office properties encompassing approximately 1.9 million square feet of space for an aggregate purchase price of approximately $308 million. In October 1997, the Company entered into an agreement to invest $150 million in the Morris Companies, a New Jersey developer and owner of "Big Box" warehouse facilities. The Morris Companies properties include 23 industrial buildings encompassing approximately 4.0 million square feet. As of June 30, 1998, the Company has invested approximately $72 million for an approximate 73% controlling interest in Reckson Morris Operating Partnership, L.P. ("RMI"). In connection with the transaction the Morris Companies contributed 100% of their interests in certain industrial properties to RMI in exchange for operating partnership units in RMI. On July 9, 1998, the Company announced the formation of Metropolitan Partners ("Metropolitan"), a strategic joint venture controlled equally by the Company and Crescent Real Estate Equities Company ("Crescent") for the purpose of creating a platform to invest in the New York City real estate market. Metropolitan has executed a definitive merger agreement in which Metropolitan has agreed to purchase Tower Realty Trust, Inc., ("Tower") a New York City based real estate investment trust that owns and operates approximately 4.3 million square feet of office space in 25 buildings, including 2.3 million square feet in New York City, for a total transaction value of approximately $733 million, which includes $286 million of outstanding Tower indebtedness. Tower stockholders will have the right to elect to receive for each share of Tower (i) $24.00 in cash or (ii) .4615 shares of the Company's common stock and .3523 shares of Crescent common stock (based on the closing price of the Company's and Crescent's common stock on July 7, 1998 of $26.00 and $34.0625, per share, respectively), for up to an aggregate of 40% of the total consideration payable in the transaction. If the average closing price of the Company's or Crescent's shares appreciates by more than 7% from the July 7 closing prices Tower shareholders will be entitled to benefit only up to 7% of such appreciation, and no more. The transaction will be accounted for as an equity investment by the Company and is anticipated to close in the 4th quarter of 1998. The market capitalization of the Company at June 30, 1998 was approximately $2.1 billion. The Company's market capitalization is based on the market value of the Company's common stock and OP units (assuming conversion) of $23.625 per share/unit, the Company's preferred stock of $25 per share, the Company's preferred units of $1,000 per unit and, the $668.7 million (including its share of joint venture debt and net of minority partners' interests) of debt outstanding at June 30, 1998. As a result, the Company's total debt to total market capitalization ratio at June 30, 1998 equaled approximately 32.4%. Results of Operations The Company's total revenues increased by $30.1 million or 83% for the three months ended June 30, 1998 as compared to the 1997 period. The growth in total revenues is substantially attributable to the Company's acquisition of 68 properties comprising approximately 9.8 million square feet. Property operating revenues, which include base rents and tenant escalations and reimbursements ("Property Operating Revenues") increased by $28.1 million or 81% for the three months ended June 30, 1998 as compared to the 1997 period. The 1998 increase in Property Operating Revenues is comprised of $0.4 million attributable to increases in rental rates and changes in occupancies and $27.7 million attributable to acquisitions of properties. The remaining balance of the increase in total revenues in 1998 is primarily attributable to interest income on the Company's investments in mortgage notes and notes receivable. The Company's base rent was increased by the impact of the straight-line rent adjustment by $2.1 million for the three months ended June 30, 1998 as compared to $1.2 million for the 1997 period. Property operating expenses, real estate taxes and ground rents ("Property Expenses") increased by $9.5 million for the three months ended June 30, 1998 as compared to the 1997 period. These increases are primarily due to the acquisition of properties. Gross operating margins (defined as Property Operating Revenues less Property Expenses, taken as a percentage of Property Operating Revenues) for 1998 and 1997 were 65.3% and 64.7%, respectively. The increase in gross operating margins reflects increases realized in rental rates, the Company's ability to realize certain operating efficiencies as a result of operating a larger portfolio of properties with concentrations of properties in office and industrial parks or in its established sub-markets, and increased ownership of net leased properties including the impact of the RMI properties. Marketing, general and administrative expenses increased by $1.8 million for the three months ended June 30, 1998 as compared to the 1997 period. The increase is due to the increased costs of managing the acquisition properties, the costs of opening the Company's Northern New Jersey division, costs associated with the management of the RMI assets, and the increase in corporate management and administrative costs associated with the growth of the Company. Marketing, general and administrative expenses as a percentage of total revenues were 5.5% for the three months ended June 30, 1998 as compared to 5.1% for the 1997 period. Interest expense increased by $7.1 million for the three months ended June 30, 1998 as compared to the 1997 period. The increase is attributable to an increase in mortgage debt including the refinancing of the Omni in the amount of $58 million in August 1997, the assumption of approximately $14.8 million of mortgage indebtedness in connection with the Company's investment in RMI, the assumption of approximately $45.1 million of mortgage indebtedness in connection with the Cappelli acquisition, increased cost attributable to an increased average balance on the Company's credit facilities and interest on the Company's $150 million of senior unsecured notes. The weighted average balance outstanding on the Company's credit facilities was $307 million for the three months ended June 30, 1998 as compared to $82.5 million for the 1997 period. The Company's total revenues increased by $53.5 million or 79% for the six months ended June 30, 1998 as compared to the 1997 period. The growth in total revenues is substantially attributable to the Company's acquisition of 81 properties comprising approximately 10.6 million square feet. Property Operating Revenues increased by $51.3 million or 80% for the six months ended June 30, 1998 as compared to the 1997 period. The 1998 increase in Property Operating Revenues is comprised of $1.4 million attributable to increases in rental rates and changes in occupancies and $49.9 million attributable to acquisitions of properties. The remaining balance of the increase in total revenues in 1998 is primarily attributable to interest income on the Company's investments in mortgage notes and notes receivable. The Company's base rent was increased by the impact of the straight-line rent adjustment by $3.6 million for the six months ended June 30, 1998 as compared to $2.3 million for the 1997 period. Property Expenses increased by $17.2 million for the six months ended June 30, 1998 as compared to the 1997 period. These increases are primarily due to the acquisition of properties. Gross operating margins for 1998 and 1997 were 65.5% and 64.7%, respectively. The increase in gross operating margins reflects increases realized in rental rates, the Company's ability to realize certain operating efficiencies as a result of operating a larger portfolio of properties with concentration of properties in office and industrial parks or in its established sub-markets and increased ownership of net leased properties including the impact of the RMI properties. Interest expense increased by $12.9 million for the six months ended June 30, 1998 as compared to the 1997 period. The increase is attributable to an increase in mortgage debt including the refinancing of the Omni in the amount of $58 million in August 1997, the assumption of approximately $14.8 million of mortgage indebtedness in connection with the Company's investment in RMI, the assumption of approximately $45.1 million of mortgage indebtedness in connection with the Cappelli acquisition, increased cost attributable to an increased average balance on the Company's credit facilities and interest on the Company's $150 million of senior unsecured notes. The weighted average balance outstand- ing on the Company's credit facilities was $311.5 million for the six months ended June 30, 1998 as compared to $92.5 million for the 1997 period. Liquidity and Capital Resources In June 1995, the Company completed an initial public offering of 7,438,000 shares (pre-split) of its common stock at $24.25 per share (pre-split). Net proceeds to the Company were approximately $162 million. During 1996 and 1997 the Company completed four add-on offerings aggregating 22,421,200 shares (split-adjusted) of its common stock (the "Add-on Offerings") resulting in net proceeds to the Company of approximately $437 million. Proceeds from the Add-On Offerings were primarily used to repay borrowings under the credit facilities and to fund the purchase of commercial real estate properties. On January 6, 1998, the Operating Partnership issued 513,259 OP Units in connection with the acquisition of one office property, located in Uniondale, New York. On February 18, 1998, the Company completed a common stock offering and sold 791,152 common shares at a price of $25.44 per share. Net proceeds from the offering of approximately $19.1 million were used to repay borrowings under the credit facilities. During April 1998, the Company completed a preferred stock offering and sold 9,200,000 shares (including 1,200,000 shares related to the exercise of the underwriters over allotment option) of 75/8% Series A Convertible Cumulative Preferred Stock at a price of $25.00 per share. The preferred stock is convertible to the Company's common stock at a conversion rate of .8738 shares of common stock for each share of preferred stock. Net proceeds from the offering of approximately $221 million were used to repay borrowings under the credit facilities. On April 21, 1998, the Operating Partnership issued 25,000 Series B preferred units at a stated value of $1,000 per unit and 11,518 Series C preferred units at a stated value of $1,000 per unit in connection with the acquisition of the Cappelli Portfolio. The Series B preferred units have a current coupon rate of 6.25% and are convertible to common units at a conversion price of approximately $32.51 for each preferred unit. The Series C preferred units have a current coupon rate of 6.25% and are convertible to common units at a conversion price of approximately $29.39 for each preferred unit. Additionally, on April 21, 1998, in connection with the acquisition of 155 Passaic Avenue in Fairfield, New Jersey, the company issued 1,979 OP Units. On April 29, 1998, the Company completed a public stock offering and sold 1,093,744 common shares at a price of $24.38 per share. Net proceeds from the offering of approximately $25.3 million were used to repay borrowings under the credit facilities. On July 2, 1998, the Operating Partnership issued 6,000 Series D preferred units at a stated value of $1,000 per unit in connection with the acquisition of the remaining 50% interest in 360 Hamilton Avenue located in White Plains, New York. The Series D preferred units have a current coupon of 6.25% and are convertible to common units at a conversion price of approximately $29.12 for each preferred unit. As of June 30, 1998, the Company had a three-year $250 million unsecured credit facility from a bank group led by 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 financial covenants, including covenants relating to limitations on unsecured and secured borrowings, minimum interest and fixed charge coverage ratios, a minimum equity value and a maximum dividend payout ratio. In additional, 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 1.50%, based on the Company's leverage ratio. The Company utilizes the Unsecured Credit Facility primarily to finance the acquisitions of properties and other real estate investments, fund its development activities and for working capital purposes. At June 30, 1998, the Company had availability under the Unsecured Credit Facility to borrow an additional $96.3 million (net of $7.7 million of outstanding undrawn letters of credit). In addition, the Company obtained a $200 million unsecured credit facility (the "Bridge Facility") which matures on July 15, 1998. The Bridge Facility was provided by the two lead members of the Unsecured Credit Facility bank group and serves as interim financing while the Company seeks to expand the availability under the Unsecured Credit Facility. At June 30, 1998, the Company had availability under the Bridge Facility to borrow an additional $47.75 million. On July 23, 1998, the Company obtained a $500 million unsecured revolving credit facility (the "Credit Facility") with Chase Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the credit facility bank group. This Credit Facility replaces both the Unsecured Credit and Bridge Facilities. Interest rates on borrowings under the Credit Facility will be priced off of LIBOR plus a sliding scale ranging from 112.5 basis points to 137.5 basis points based on the leverage ratio of the Company. Upon the Company receiving an investment grade rating on its senior unsecured debt by two rating agencies, the pricing is adjusted based off of LIBOR plus a scale ranging from 65 basis points to 90 basis points depending upon the rating. The Company's indebtedness at June 30, 1998 totaled $668.7 million (including its share of joint venture debt and net of the minority partners' interests) and was comprised of $146 million outstanding under the Unsecured Credit Facility, $152.25 million outstanding under the Bridge Facility, $150 million of unsecured notes and approximately $220.45 million of mortgage indebtedness. Based on the Company's total market capitalization of approximately $2.1 billion at June 30, 1998, (calculated based on the market value of the Company's common stock and OP units, assuming conversion, the stated value of the Company's preferred stock and preferred units), the Company's debt represented approximately 32.4% of its total market capitalization. Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service and capital expenditures, excluding non- recurring capital expenditures of the Company. In addition, construction, management, maintenance, leasing and property management fees have provided sources of cash flow. The Company expects to meet its short term liquidity requirements generally through its net cash provided by operating activities along with the Unsecured Credit Facility previously discussed. The Company expects to meet certain of its financing requirements through long-term secured and unsecured borrowings and the issuance of debt securities and additional equity securities of the Company. The Company will refinance existing mortgage indebtedness or indebtedness under the Unsecured Credit Facility at maturity or retire such debt through the issuance of additional debt securities or additional equity securities. The Company anticipates that the current balance of cash and cash equivalents and cash flows from operating activities, together with cash available from borrowings and equity offerings, will be adequate to meet the capital and liquidity requirements of the Company in both the short and long-term. 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. 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, 1998 and the historical average of such capital expenditures, tenant improvements and leasing commissions for the years 1994 through 1997. Non-Incremental Revenue Generating Capital Expenditures
1994-1997 1994 1995 1996 1997 Average 1998 ---------- ---------- ---------- ------------ ------------ ---------- Capital Expenditures Long Island Office Properties Total $ 158,340 $ 364,545 $ 375,026 $ 1,108,675 $ 501,646 $ 962,709 Per square foot 0.10 0.19 0.13 0.22 0.16 0.12 Industrial Properties Total $ 524,369 $ 290,457 $ 670,751 $ 733,233 $ 554,702 $ 461,474 Per square foot 0.18 0.08 0.18 0.15 0.15 0.05
Non-Incremental Revenue Generating Tenant Improvement and Leasing Commissions
1994-1997 1994 1995 1996 1997 Average 1998 ---------- ---------- ---------- ------------ ------------ ---------- Long Island Office Properties Tenant Improvements $ 902,312 $ 452,057 $ 523,574 $ 784,044 $ 665,497 $ 666,305 Per square foot improved 5.13 4.44 4.28 7.00 5.21 8.41 Leasing Commissions $ 341,253 $ 144,925 $ 119,047 $ 415,822 $ 255,262 $ 224,269 Per square foot leased 1.94 1.42 0.97 4.83 2.29 2.83 ---------- ---------- ---------- ------------ ------------ ---------- Total per square foot $ 7.07 $ 5.86 $ 5.25 $ 11.83 $ 7.50 $ 11.24 ========== ========== ========== ============ ============ ========== Westchester Office Properties Tenant Improvements N/A N/A $ 834,764 $ 1,211,665 $ 1,023,215 $ 593,809 Per square foot improved N/A N/A 6.33 9.00 7.61 8.09 Leasing Commissions N/A N/A $ 264,388 $ 266,257 $ 315,323 $ 192,515 Per square foot leased N/A N/A 2.00 2.69 2.35 2.63 ---------- ---------- ---------- ------------ ------------ ---------- Total per square foot N/A N/A $ 8.33 $ 11.59 $ 9.96 $ 10.72 ========== ========== ========== ============ ============ ========== Connecticut Office Properties Tenant Improvements N/A N/A $ 58,000 $ 1,022,421 $ 864,337 $ 122,155 Per square foot improved N/A N/A 12.45 13.39 12.92 7.13 Leasing Commissions N/A N/A $ 0 $ 256,615 $ 205,292 $ 85,857 Per square foot leased N/A N/A 0.00 3.36 1.68 5.01 ---------- ---------- ---------- ------------ ------------ ---------- Total per square foot N/A N/A $ 12.45 $ 16.75 $ 14.60 $ 12.14 ========== ========== ========== ============ ============ ========== New Jersey Office Properties Tenant Improvements N/A N/A N/A N/A N/A $ 430,155 Per square foot improved N/A N/A N/A N/A N/A 4.07 Leasing Commissions N/A N/A N/A N/A N/A $ 156,867 Per square foot leased N/A N/A N/A N/A N/A 1.30 ---------- ---------- ---------- ------------ ------------ ---------- Total per square foot N/A N/A N/A N/A N/A $ 5.37 ========== ========== ========== ============ ============ ========== Industrial Properties Tenant Improvements $ 585,981 $ 210,496 $ 380,334 $ 230,466 $ 351,819 $ 207,996 Per square foot improved 0.88 0.90 0.72 0.55 0.76 0.60 Leasing Commissions $ 176,040 $ 107,351 $ 436,213 $ 81,013 $ 200,154 $ 130,285 Per square foot leased 0.27 0.46 0.82 0.19 0.44 0.37 ---------- ---------- ---------- ------------ ------------ ---------- Total per square foot $ 1.15 $ 1.36 $ 1.54 $ 0.74 $ 1.20 $ 0.97 ========== ========== ========== ============ ============ ========== 1994 - 1997 average weighted to reflect October 1996 acquistion date.
LEASE EXPIRATIONS The following tables sets forth scheduled lease expirations for executed leases as of June 30, 1998. Long Island Office Properties (excluding Omni):
Total % of Per Rentable Total Square Per Square Rentable Foot Square Number Feet Feet S/L Foot Year of Lease Expiration of Leases Expiring Expiring Rent Rent - -------------------------------- --------- ----------- ----------- ---------- ---------- 1998 17 70,210 2.8% $ 21.25 $ 23.22 1999 37 128,715 5.1% $ 19.89 $ 20.94 2000 50 288,025 11.3% $ 21.71 $ 22.90 2001 39 237,226 9.3% $ 22.19 $ 23.99 2002 35 272,699 10.7% $ 21.99 $ 23.50 2003 51 318,142 12.5% $ 21.69 $ 20.80 2004 and thereafter 70 1,230,159 48.3% --- --- --------- ----------- ---------- 299 2,545,176 100.0% ========= =========== ========== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable expense pass-throughs.
Omni:
Total % of Per Rentable Total Square Per Square Rentable Foot Square Number Feet Feet S/L Foot Year of Lease Expiration of Leases Expiring Expiring Rent Rent - -------------------------------- --------- ----------- ----------- ---------- ---------- 1998 --- --- --- --- --- 1999 --- --- --- --- --- 2000 4 60,316 10.8% $ 32.49 $ 34.52 2001 4 32,680 5.8% $ 28.22 $ 33.00 2002 4 129,351 23.0% $ 25.55 $ 27.69 2003 5 72,530 12.9% $ 29.52 $ 29.88 2004 and thereafter 10 267,013 47.5% --- --- --------- ----------- ---------- 27 561,890 100.0% ========= =========== ========== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable expense pass-throughs.
Industrial Properties
Total % of Per Rentable Total Square Per Square Rentable Foot Square Number Feet Feet S/L Foot Year of Lease Expiration of Leases Expiring Expiring Rent Rent - -------------------------------- --------- ----------- ----------- ---------- ---------- 1998 22 148,244 2.9% $ 6.59 $ 6.58 1999 37 792,561 15.3% $ 5.61 $ 5.54 2000 32 1,131,940 21.8% $ 4.96 $ 5.09 2001 32 899,619 17.4% $ 5.82 $ 6.29 2002 24 145,046 2.8% $ 6.41 $ 6.45 2003 23 579,416 11.2% $ 4.85 $ 5.02 2004 and thereafter 34 1,485,035 28.6% --- --- --------- ----------- ---------- 204 5,181,861 100.0% ========= =========== ========== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable expense pass-throughs.
Research and Development Properties
Total % of Per Rentable Total Square Per Square Rentable Foot Square Number Feet Feet S/L Foot Year of Lease Expiration of Leases Expiring Expiring Rent Rent - -------------------------------- --------- ----------- ----------- ---------- ---------- 1998 4 170,839 13.5% $ 10.34 $ 11.96 1999 8 44,324 3.5% $ 8.89 $ 9.40 2000 8 118,169 9.4% $ 8.58 $ 8.27 2001 7 96,120 7.6% $ 11.62 $ 11.78 2002 3 67,967 5.4% $ 10.75 $ 12.66 2003 4 258,354 20.5% $ 5.38 $ 5.80 2004 and thereafter 11 505,394 40.1% --- --- --------- ----------- ---------- 45 1,261,167 100.0% ========= =========== ========== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable expense pass-throughs.
Westchester Office Properties:
Total % of Per Rentable Total Square Per Square Rentable Foot Square Number Feet Feet S/L Foot Year of Lease Expiration of Leases Expiring Expiring Rent Rent - -------------------------------- --------- ----------- ----------- ---------- ---------- 1998 17 121,781 4.3% $ 18.21 $ 18.82 1999 36 142,952 5.1% $ 19.58 $ 19.81 2000 45 511,409 18.2% $ 22.31 $ 22.98 2001 50 650,193 23.1% $ 23.86 $ 24.26 2002 44 385,133 13.7% $ 18.94 $ 20.05 2003 32 229,346 8.1% $ 21.15 $ 21.06 2004 and thereafter 39 775,970 27.5% --- --- --------- ----------- ---------- 263 2,816,784 100.0% ========= =========== ========== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable expense pass-throughs.
Stamford Office Properties
Total % of Per Rentable Total Square Per Square Rentable Foot Square Number Feet Feet S/L Foot Year of Lease Expiration of Leases Expiring Expiring Rent Rent - -------------------------------- --------- ----------- ----------- ---------- ---------- 1998 6 11,248 1.6% $ 15.75 $ 16.25 1999 15 39,980 5.7% $ 21.27 $ 21.65 2000 23 99,904 14.1% $ 21.68 $ 22.45 2001 19 96,633 13.7% $ 23.96 $ 24.85 2002 13 43,739 6.2% $ 22.82 $ 24.38 2003 12 89,975 12.7% $ 31.17 $ 30.33 2004 and thereafter 26 325,084 46.0% --- --- --------- ----------- ---------- 114 706,563 100.0% ========= =========== ========== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable expense pass-throughs.
New Jersey Office Properties:
Total % of Per Rentable Total Square Per Square Rentable Foot Square Number Feet Feet S/L Foot Year of Lease Expiration of Leases Expiring Expiring Rent Rent - -------------------------------- --------- ----------- ----------- ---------- ---------- 1998 6 28,864 1.9% $ 23.01 $ 19.15 1999 19 206,163 13.5% $ 20.97 $ 21.25 2000 28 304,437 20.0% $ 22.89 $ 23.76 2001 17 234,193 15.4% $ 18.27 $ 18.66 2002 14 138,167 9.1% $ 19.80 $ 20.57 2003 10 275,642 18.1% $ 18.90 $ 19.03 2004 and thereafter 15 335,665 22.0% --- --- --------- ----------- ---------- 109 1,523,131 100.0% ========= =========== ========== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable expense pass-throughs
Reckson/Morris Industrial:
Total % of Per Rentable Total Square Per Square Rentable Foot Square Number Feet Feet S/L Foot Year of Lease Expiration of Leases Expiring Expiring Rent Rent - -------------------------------- --------- ----------- ----------- ---------- ---------- 1998 --- --- --- $ --- $ --- 1999 10 776,973 31.5% $ 5.29 $ 5.64 2000 5 133,893 5.4% $ 5.06 $ 6.37 2001 --- --- --- $ --- $ --- 2002 1 610,949 24.8% $ 3.75 $ 4.27 2003 2 96,656 3.9% $ 4.64 $ 4.97 2004 and thereafter 8 850,084 34.4% --- --- --------- ----------- ---------- 26 2,468,555 100.0% ========= =========== ========== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable 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 and the Bridge Facility bear interest at a variable rate, which will be influenced by changes in short-term interest rates, and is sensitive to inflation. Funds from Operations Management believes that funds from operations ("FFO") is an appropriate measure of performance of an equity REIT. FFO is defined by the National Association of Real Estate Investment Trusts (NAREIT) as net income or loss, excluding gains or losses from debt restructuring and sales of properties plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principals and is not indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indicator of the 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 real estate assets are no longer to be added back to net income to arrive at FFO. Since all companies and analysts do not calculate FFO in a similar fashion, the Company's calculation of FFO presented herein may not be comparable to similarly titled measures as reported by other companies. The following table presents the Company's FFO calculation (unaudited and in thousands, except per share/unit data):
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net income available to common shareholders $ 9,911 $ 7,834 $ 19,484 $ 14,619 Adjustments for Funds from Operations Add: Depreciation and Amortization 12,181 6,262 22,787 11,836 Minority interests in consolidated partnerships 683 201 1,216 444 Limited partners' interest in the Operating Partnership 2,762 1,993 4,753 3,771 Extraordinary items-loss on restatement or extinguishment of debt, net of limited partners' share of $0, $400, $0, and $400, respectively --- 1,962 --- 1,962 ---------- ---------- ---------- ---------- 25,537 18,252 48,240 32,632 Subtract: Amount distributable to minority partners in consolidated partnerships 987 597 1,775 1,132 ---------- ---------- ---------- ---------- Funds from Operations (FFO) 24,550 17,655 46,465 31,500 Subtract: Straight line rents 2,024 1,194 3,488 2,284 Non-Incremental Capitalized tenant improvements and leasing commissions 1,592 890 2,815 1,753 Non-Incremental Capitalized improvements 848 426 1,473 791 ---------- ---------- ---------- ---------- Cash available for distribution (CAD) $ 20,086 $ 15,145 $ 38,689 $ 26,672 ========== ========== ========== ========== Basic FFO and CAD calculations: Weighted average shares/units 47,331 41,273 46,615 37,423 ========== ========== ========== ========== FFO per weighted average share/unit $ 0.52 $ 0.43 $ 1.00 $ 0.84 ========== ========== ========== ========== CAD per weighted average share/unit $ 0.42 $ 0.37 $ 0.83 $ 0.71 ========== ========== ========== ========== Dividends per share/unit $ 0.34 $ 0.31 $ 0.65 $ 0.61 ========== ========== ========== ========== FFO payout ratio 64.9% 72.7% 65.0% 72.9% ========== ========== ========== ========== CAD payout ratio 80.4% 84.4% 78.3% 86.3% ========== ========== ========== ========== Fully diluted FFO and CAD calculations: Diluted weighted average shares/units 47,872 41,776 47,179 37,918 ========== ========== ========== ========== FFO per diluted weighted average share/unit $ 0.51 $ 0.42 $ 0.98 $ 0.83 ========== ========== ========== ========== CAD per diluted weighted average share/unit $ 0.42 $ 0.36 $ 0.82 $ 0.70 ========== ========== ========== ========== Dividends per share/unit $ 0.34 $ 0.31 $ 0.65 $ 0.61 ========== ========== ========== ========== Diluted FFO payout ratio 66.2% 74.4% 66.3% 73.8% ========== ========== ========== ========== Diluted CAD payout ratio 80.4% 86.8% 79.3% 87.5% ========== ========== ========== ==========
PART II - OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities On March 23, 1998, the Company sold 235,480 shares of its common stock, par value $0.01, to RSI at a price of $25 per share (representing the closing price on the date of issuance) for aggregate sales proceeds of $5,887,000. Such transaction was exempt from registration under the Securities Act of 1933 pursuant to Section 4 (2) of such Act. Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Securities Holders On May 21, 1998, the Company held its annual meeting of stockholders. The matters on which the stockholders voted, in person or by proxy, were (1) the election of three nominees as class III directors to serve until the 2001 annual meeting of stockholders, or until their respective successors are duly elected and qualified, (2) to ratify the selection of the independent auditors of the Company and (3) to approve the Company's 1998 Stock Option Plan. The three nominees were elected, the auditors were ratified and the 1998 Stock Option Plan was approved. The results of the voting are set forth below: Election of Directors Votes Cast For --------------------- -------------- Roger Rechler 33,300,492 Harvey R. Blau 33,300,914 John V.N. Klein 33,300,914 Ratification of Auditors ----------------------------------------- Votes Cast For Votes Cast Against -------------- ------------------ 33,336,037 21,008 Approval of 1998 Stock Option Plan ----------------------------------------- Votes Cast For Votes Cast Against -------------- ------------------ 20,648,321 12,574,506 Item 5. Other information - None Item 6. Exhibits and Reports on Form 8-K a) Exhibits 27 Financial Data Schedule b) During the three months ended June 30, 1998, the registrant filed the following reports: Form 8-K, dated April 6, 1998. Regarding the contract to acquire the Cappelli Portfolio and the remaining 50% interest in 360 Hamilton Avenue for approximately $177 million. Additionally, the Form 8-K disclosed that Louis Cappelli would have the right to be nominated to the Company's Board of Directors. Form 8-K/A No. 2, dated April 6, 1998. Relating to Form 8-K filed on January 26, 1998 and Form 8-K/A filed on or about February 12, 1998 relating to RSI entering into an intercompany agreement and plans to enter into two $100 million credit facilities with Reckson Operating Partnership, L.P.. 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 10, 1998 /s/ Scott H. Rechler Date Scott H. Rechler, Chief Operating Officer and Director August 10, 1998 /s/ Michael Maturo Date Michael Maturo, Executive Vice President, Treasurer and Chief Financial Officer EX-27 2
5 0000930548 RECKSON ASSOCIATES REALTY CORP 1,000 6-MOS DEC-31-1998 JUN-30-1998 3,446 0 74,888 0 0 78,334 1,540,195 (132,399) 1,624,967 58,967 685,026 0 92 400 712,632 1,624,967 115,684 121,383 0 47,001 0 0 21,497 29,621 0 29,621 0 0 0 19,484 .50 .49
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