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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, 2001
COMMISSION FILE NUMBER: 1-13762
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RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)
MARYLAND 11-3233650
(State other jurisdiction of incorporation (IRS. Employer Identification Number)
of organization)
225 BROADHOLLOW ROAD, MELVILLE, NY 11747
(Address of principal executive office) (zip code)
(631) 694-6900
(Registrant's telephone number including area code)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes X No__, and (2) has been
subject to such filing requirements for the past 90 days. Yes X No__.
----------------
The company has two classes of common stock, issued at $.01 par value per
share with 49,627,051 and 10,283,513 shares of Class A common stock and Class B
common stock outstanding, respectively as of August 10, 2001
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RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED JUNE 30, 2001
TABLE OF CONTENTS
INDEX PAGE
-------- --------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2001 (unaudited) and
December 31, 2000 .................................................................... 2
Consolidated Statements of Income for the three and six months ended June 30, 2001 and
2000 (unaudited) ..................................................................... 3
Consolidated Statements of Cash Flows for the six months ended June 30, 2001
and 2000 (unaudited) ................................................................. 4
Notes to the Consolidated Financial Statements (unaudited) ........................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........................... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................................... 26
Item 2. Changes in Securities and Use of Proceeds ............................................ 26
Item 3. Defaults Upon Senior Securities ...................................................... 26
Item 4. Submission of Matters to a Vote of Securities Holders ................................ 26
Item 5. Other Information .................................................................... 26
Item 6. Exhibits and Reports on Form 8-K ..................................................... 26
SIGNATURES .................................................................................... 27
1
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
JUNE 30, 2001 DECEMBER 31,
(UNAUDITED) 2000
--------------- ---------------
ASSETS:
Commercial real estate properties, at cost:
Land .................................................................... $ 396,103 $ 396,482
Building and improvements ............................................... 2,308,001 2,219,448
Developments in progress:
Land .................................................................... 69,183 60,918
Development costs ....................................................... 87,204 93,759
Furniture, fixtures and equipment ........................................ 7,414 7,138
----------- -----------
2,867,905 2,777,745
Less accumulated depreciation ............................................ (332,649) (288,479)
----------- -----------
2,535,256 2,489,266
Investment in real estate joint ventures ................................. 69,026 43,534
Investment in mortgage notes and notes receivable ........................ 55,223 58,220
Cash and cash equivalents ................................................ 26,395 17,843
Tenant receivables ....................................................... 9,829 11,511
Investments in and advances to affiliates ................................ 180,759 177,474
Deferred rents receivable ................................................ 90,080 67,930
Prepaid expenses and other assets ........................................ 77,378 68,895
Contract and land deposits and pre-acquisition costs ..................... 3,026 1,676
Deferred leasing and loan costs. ......................................... 65,270 61,681
----------- -----------
TOTAL ASSETS ............................................................. $ 3,112,242 $ 2,998,030
=========== ===========
LIABILITIES:
Mortgage notes payable ................................................... $ 730,170 $ 728,971
Unsecured credit facility ................................................ 334,600 216,600
Senior unsecured notes ................................................... 449,424 449,385
Accrued expenses and other liabilities. .................................. 91,788 95,393
Dividends and distributions payable ...................................... 33,113 28,801
----------- -----------
TOTAL LIABILITIES ........................................................ 1,639,095 1,519,150
----------- -----------
Minority partners' interests in consolidated partnerships ................ 140,442 226,350
Preferred unit interest in the operating partnership ..................... 34,733 42,518
Limited partners' minority interest in the operating partnership ......... 107,021 97,353
----------- -----------
282,196 366,221
----------- -----------
Commitments and other comments ........................................... -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 25,000,000 shares authorized
Series A preferred stock, 9,192,000 shares issued and outstanding ....... 92 92
Series B preferred stock, 2,000,000 shares issued and outstanding ....... 20 20
Common Stock, $.01 par value, 100,000,000 shares authorized ..............
Class A common stock, 49,619,419 and 45,352,286 shares issued and
outstanding, respectively ............................................. 496 454
Class B common stock, 10,283,513 shares issued and outstanding .......... 103 103
Additional paid in capital ............................................... 1,186,537 1,111,990
Accumulated other comprehensive income ................................... 3,703 --
----------- -----------
Total Stockholders' Equity ............................................... 1,190,951 1,112,659
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 3,112,242 $ 2,998,030
=========== ===========
(see accompanying notes to financial statements)
2
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
REVENUES:
Base rents ..................................................... $ 111,184 $ 96,099 $ 218,678 $ 190,499
Tenant escalations and reimbursements .......................... 14,165 12,984 30,110 25,830
Equity in earnings of real estate joint ventures and service
companies ..................................................... 801 1,775 1,199 3,187
Interest income on mortgage notes and notes receivable ......... 1,559 2,190 3,067 4,476
Gain on sales of real estate ................................... -- 6,662 -- 6,662
Investment and other income .................................... 4,678 5,745 10,219 12,459
----------- ----------- ----------- -----------
Total Revenues ................................................ 132,387 125,455 263,273 243,113
----------- ----------- ----------- -----------
EXPENSES:
Property operating expenses .................................... 40,874 36,508 81,868 74,797
Marketing, general and administrative .......................... 8,411 6,509 15,908 12,947
Interest ....................................................... 23,562 24,176 47,193 48,016
Depreciation and amortization .................................. 27,172 22,426 50,693 43,437
----------- ----------- ----------- -----------
Total Expenses ................................................ 100,019 89,619 195,662 179,197
----------- ----------- ----------- -----------
Income before minority interests and preferred dividends
and distributions ............................................. 32,368 35,836 67,611 63,916
Minority partners' interests in consolidated partnerships ...... (4,065) (1,925) (9,820) (3,899)
Distributions to preferred unit holders ........................ (461) (660) (1,121) (1,321)
Limited partners' minority interest in the operating
partnership ................................................... (2,616) (3,083) (5,331) (5,361)
----------- ----------- ----------- -----------
Net Income ..................................................... 25,226 30,168 51,339 53,335
Dividends to preferred shareholders ............................ (5,467) (7,197) (10,892) (14,521)
----------- ----------- ----------- -----------
Net income available to common shareholders .................... $ 19,759 $ 22,971 $ 40,447 $ 38,814
=========== =========== =========== ===========
Net Income available to:
Class A common shareholders ................................... $ 15,109 $ 16,655 $ 30,417 $ 28,101
Class B common shareholders ................................... 4,650 6,316 10,030 10,713
----------- ----------- ----------- -----------
Total .......................................................... $ 19,759 $ 22,971 $ 40,447 $ 38,814
=========== =========== =========== ===========
Basic net income per weighted average common share:
Class A common shareholders ................................... $ .32 $ .40 $ .66 $ .69
=========== =========== =========== ===========
Class B common shareholders ................................... $ .45 $ .61 $ .98 $ 1.04
=========== =========== =========== ===========
Basic weighted average common shares outstanding:
Class A common shareholders ................................... 47,221,917 41,343,118 46,357,533 40,862,650
Class B common shareholders ................................... 10,283,513 10,283,513 10,283,513 10,283,556
Diluted net income per weighted average common share:
Class A common shareholders ................................... $ .32 $ .40 $ .65 $ .68
=========== =========== =========== ===========
Class B common shareholders ................................... $ .34 $ .44 $ .71 $ .75
=========== =========== =========== ===========
Diluted weighted average common shares outstanding:
Class A common shareholders ................................... 47,600,390 41,700,478 46,779,905 41,204,762
Class A common shareholders ................................... 10,283,513 10,283,513 10,283,513 10,283,556
(see accompanying notes to financial statements)
3
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
2001 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................................... $ 51,339 $ 53,335
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ...................................................... 50,693 43,437
Gain on sales of real estate ....................................................... -- (6,662)
Minority partners' interests in consolidated partnerships .......................... 9,820 3,899
Limited partners' minority interest in the operating partnership ................... 5,331 5,361
Equity in earnings of real estate joint ventures and service companies ............. (1,199) (3,187)
Changes in operating assets and liabilities:
Tenant receivables ................................................................. 1,682 1,777
Real estate tax escrows ............................................................ (1,266) 3,387
Prepaid expenses and other assets .................................................. (1,765) (3,857)
Deferred rents receivable .......................................................... (22,150) (12,534)
Accrued expenses and other liabilities ............................................. (437) 8,552
---------- ----------
Net cash provided by operating activities .......................................... 92,048 93,508
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in contract deposits and pre-acquisition costs ............................ (1,343) (6,079)
Additions to developments in progress .............................................. (5,252) (15,923)
Purchases of commercial real estate properties ..................................... -- (154,573)
Proceeds from mortgage note receivable repayments .................................. 2,945 2,157
Investments in real estate joint ventures .......................................... (24,966) (4,770)
Distribution from a real estate joint venture ...................................... -- 226
Additions to commercial real estate properties ..................................... (87,982) (22,108)
Additions to furniture, fixtures and equipment ..................................... (244) (676)
Payment of leasing costs ........................................................... (5,998) (9,379)
Proceeds from sales of properties and mortgage redemption .......................... -- 42,595
---------- ----------
Net cash used in investing activities .............................................. (122,840) (168,530)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock net of issuance costs ....................... 1,331 1,486
Principal payments on secured borrowings ........................................... (73,801) (23,708)
Payment of loan and equity issuance costs .......................................... (789) (2,399)
(Increase) decrease in investments in and advances to affiliates ................... (4,160) 5,646
Proceeds from secured borrowings ................................................... 75,000 92,000
Proceeds from unsecured credit facility ............................................ 118,000 125,000
Repayment of unsecured credit facility ............................................. -- (49,000)
Distributions to minority partners in consolidated partnerships .................... (10,727) (4,914)
Distributions to limited partners in the operating partnership ..................... (5,935) (5,714)
Distributions to preferred unit holders ............................................ (1,195) (1,321)
Dividends to common shareholders ................................................... (47,530) (41,638)
Dividends to preferred shareholders ................................................ (10,850) (14,649)
---------- ----------
Net cash provided by financing activities .......................................... 39,344 80,789
---------- ----------
Net increase in cash and cash equivalents .......................................... 8,552 5,767
Cash and cash equivalents at beginning of period ................................... 17,843 21,368
---------- ----------
Cash and cash equivalents at end of period ......................................... $ 26,395 $ 27,135
========== ==========
(see accompanying notes to financial statements)
4
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
1. ORGANIZATION AND FORMATION OF THE COMPANY
Reckson Associates Realty Corp. (the "Company") is a self-administered and
self managed real estate investment trust ("REIT") engaged in the ownership,
management, operation, leasing and development of commercial real estate
properties, principally office and industrial buildings and also owns land for
future development (collectively, the "Properties") located in the New York
tri-state area (the "Tri-State Area").
The Company was incorporated in Maryland in September 1994. In June 1995,
the Company completed an Initial Public Offering (the "IPO") and commenced
operations.
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 approximate 73% interest
in the Operating Partnership. All Properties acquired by the Company are held by
or through the Operating Partnership. In conjunction with the IPO, the Operating
Partnership executed various option and purchase agreements whereby it issued
common units of limited partnership interest in the Operating Partnership ("OP
Units") to certain continuing investors in exchange for (i) interests in certain
property partnerships, (ii) fee simple and leasehold interests in properties and
development land, (iii) certain business assets of executive center entities and
(iv) 100% of the non-voting preferred stock of the management and construction
companies.
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Tower Realty Trust, Inc.
("Tower"). On May 24, 1999 the Company completed the merger with Tower and
acquired three Class A office properties located in New York City totaling 1.6
million square feet and one office property located on Long Island totaling
approximately 101,000 square feet. In addition, pursuant to the merger, the
Company also acquired certain office properties, a property under development
and land located outside of the Tri-State Area. All of the assets acquired in
the merger located outside of the Tri-State Area, other than a 357,000 square
foot office property located in Orlando, Florida, have been sold.
On September 28, 2000, the Company formed a joint venture (the "Tri-State
JV") with Teachers Insurance and Annuity Association ("TIAA") and contributed
eight Class A suburban office properties to the Tri-State JV in exchange for
approximately $136 million and a 51% majority ownership interest in the
Tri-State JV.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership at June 30, 2001
and December 31, 2000 and the results of their operations for the three and six
months ended June 30, 2001 and 2000, respectively, and, their cash flows for the
six months ended June 30, 2001 and 2000, respectively. The Operating
Partnership's investments in Omni Partners, L. P. ("Omni"), the Tri-State JV and
certain joint venture properties are reflected in the accompanying financial
statements on a consolidated basis with a reduction for the minority partners'
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 Partnership also invests in real estate joint ventures
where it may own less than a controlling interest. Such investments are also
reflected in the accompanying financial statements on the equity method of
accounting. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
The minority interests at June 30, 2001 represent an approximate 11.3%
limited partnership interest in the Operating Partnership, a 49% interest in the
Tri-State JV and a 40% interest in Omni.
5
The accompanying interim unaudited financial statements have been prepared
by the Company's management pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosure
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States ("GAAP") may have
been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. The unaudited financial statements as of June 30, 2001
and for the three and six month periods ended June 30, 2001 and 2000 include, in
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial information set forth
herein. The results of operations for the interim periods are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. 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, 2000.
The Company intends to qualify as a 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.
Financial Accounting Standards Board's ("FASB") Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133")
which became effective January 1, 2001 requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in
accumulated other comprehensive income ("OCI") until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. As of January 1, 2001, the
carrying value of the Company's derivatives equaled their fair value and as a
result no cumulative effect changes were recorded. Additionally, as of June 30,
2001, the fair value of the Company's derivatives equaled approximately $3.7
million and has been reflected in other assets and OCI on the accompanying
balance sheet. On July 18, 2001, the mortgage note payable which these
derivatives relate to was funded (see Note 3) and their fair value at that time
was approximately $676,000 less than their carrying value. This amount will be
amortized to interest expense over the term of the mortgage note to which it
relates.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
3. MORTGAGE NOTES PAYABLE
As of June 30, 2001, the Company had approximately $530.2 million of fixed
rate mortgage notes which mature at various times between 2001 and 2027. The
notes are secured by 23 properties and have a weighted average interest rate of
approximately 7.5%.
In addition, as of June 30, 2001, the Company had a $200 million variable
rate mortgage note, which matures in 2003. The note is secured by the property
located at 919 Third Avenue, NY, NY. On July 18, 2001, the Company refinanced
this mortgage note with a ten year, $250 million fixed rate mortgage note which
bears interest at 6.867% per annum. Net proceeds of approximately $47 million
were used primarily to repay maturing fixed rate debt and the Company's
unsecured credit facility.
On June 1, 2001, the Company refinanced the $70 million variable rate
mortgage note, which secured the property located at 1350 Avenue of the
Americas, with a five year, $75 million fixed rate mortgage note which bears
interest at 6.52% per annum. Net proceeds of approximately $3.4 million were
used for working capital purposes.
On July 24, 2001, the Company repaid a mortgage note in the amount of
approximately $15.5 million, which was secured by the property located at 50
Charles Lindbergh Blvd., Mitchel Field, NY.
6
4. SENIOR UNSECURED NOTES
As of June 30, 2001, the Operating Partnership had outstanding
approximately $449.4 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures
(dollars in thousands):
FACE COUPON
ISSUANCE AMOUNT RATE TERM MATURITY
----------------- ----------- ---------- ---------- ----------------
August 27, 1997 $150,000 7.20% 10 years August 28, 2007
March 26, 1999 $100,000 7.40% 5 years March 15, 2004
March 26, 1999 $200,000 7.75% 10 years March 15, 2009
Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 were issued at an aggregate
discount of $738,000. Such discount is being amortized over the term of the
Senior Unsecured Notes to which they relate.
5. UNSECURED CREDIT FACILITY
As of June 30, 2001, the Company had a three year $575 million unsecured
revolving credit facility (the "Credit Facility") from The Chase Manhattan Bank,
as administrative agent, UBS Warburg LLC as syndication agent and Deutsche Bank
as documentation agent. The Credit Facility matures in September 2003 and
borrowings under the Credit Facility are currently priced off of LIBOR plus 105
basis points.
The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working capital
purposes. At June 30, 2001, the Company had availability under the Credit
Facility to borrow an additional $240.4 million (of which, approximately $34.1
million has been allocated for outstanding undrawn letters of credit).
6. COMMERCIAL REAL ESTATE INVESTMENTS
As of June 30, 2001, the Company owned and operated 82 office properties
(inclusive of ten office properties owned through joint ventures) comprising
approximately 14.4 million square feet, 104 industrial properties comprising
approximately 6.8 million square feet and two retail properties comprising
approximately 20,000 square feet located in the Tri-State Area. The Company also
owns a 357,000 square foot office building located in Orlando, Florida and
approximately 290 acres of land in 13 separate parcels of which the Company can
develop approximately 1.4 million square feet of office space and approximately
224,000 square feet of industrial space. The Company also has invested
approximately $17.0 million in a note receivable secured by a partnership
interest in Omni Partners, L.P., owner of the Omni, a 575,000 square foot Class
A office property located in Uniondale, New York and $36.5 million under three
notes which are secured by a minority partners' preferred interest in the
Operating Partnership.
In July 1998, the Company formed a joint venture, Metropolitan Partners LLC
("Metropolitan"), with Crescent Real Estate Equities Company, a Texas REIT
("Crescent") for the purpose of acquiring Tower Realty Trust, Inc. ("Tower"). On
May 24, 1999 the Company completed the merger with Tower and acquired three
Class A office properties located in New York City totaling 1.6 million square
feet and one office property located on Long Island totaling approximately
101,000 square feet. In addition, pursuant to the merger, the Company also
acquired certain office properties, a property under development and land
located outside of the Tri-State Area. All of the assets acquired in the merger
located outside of the Tri-State Area, other than a 357,000 square foot office
property located in Orlando, Florida, have been sold.
Metropolitan is 100% owned by the Company; Crescent owned a $85 million
preferred equity investment in Metropolitan which accrued distributions at a
rate of 7.5% per annum for a two-year period (May 24, 1999 through May 30,
2001). On May 31, 2001, at Crescent's election, Crescent converted its
preferred equity investment into 3,453,881 shares of the Company's Class A
common stock based on a conversion price of $24.61 per share.
7
On September 28, 2000, the Company formed the Tri-State JV with TIAA and
contributed eight Class A suburban office properties aggregating approximately
1.5 million square feet to the Tri-State JV in exchange for approximately $136
million and a 51% majority ownership interest in the Tri-State JV.
7. STOCKHOLDERS' EQUITY
An OP Unit and a share of Class A common stock have essentially the same
economic characteristics as they effectively share equally in the net income or
loss and distributions of the Operating Partnership. Subject to certain holding
periods OP Units may either be redeemed for cash or, at the election of the
Company, exchanged for shares of Class A common stock on a one-for-one basis.
On April 2, 2001, approximately 7,785 preferred units of the Operating
Partnership, with a liquidation preference value of approximately $7.8 million,
were exchanged for 305,706 OP Units at an average price of $25.47 per OP Unit.
In addition, during the three months ended June 30, 2001, 352,878 OP Units were
exchanged for an equal number of shares of the Company's Class A common stock.
On May 24, 1999, the Company issued 11,694,567 shares of Class B
Exchangeable Common Stock, par value $.01 per share, of the Company (the "Class
B common stock"), which were valued for GAAP purposes at $26 per share for total
consideration of approximately $304.1 million. The shares of Class B common
stock were entitled to receive an initial annual dividend of $2.24 per share,
which dividend is subject to adjustment annually. On July 31, 2001, the annual
dividend on the Class B Common Stock was increased to $2.5968 per share.
The shares of Class B common stock are exchangeable at any time, at the
option of the holder, into an equal number of shares of Class A common stock,
par value $.01 per share, of the Company subject to customary antidilution
adjustments. The Company, at its option, may redeem any or all of the Class B
common stock in exchange for an equal number of shares of the Company's Class A
common stock at any time following November 23, 2003.
On May 31, 2001, in connection with Crescent's conversion of its $85
million preferred equity investment in Metropolitan, the Company issued
3,453,881 shares of Class A common stock.
During June 2001, the Board of Directors of the Company declared the
following dividends on the Company's securities:
ANNUALIZED
DIVIDEND / RECORD PAYMENT THREE MONTHS DIVIDEND /
SECURITY DISTRIBUTION DATE DATE ENDED DISTRIBUTION
-------------------------- -------------- --------------- --------------- --------------- -------------
Class A common stock $ .4246 July 6, 2001 July 17, 2001 June 30, 2001 $ 1.6984
Class B common stock $ .6492 July 13, 2001 July 31, 2001 July 31, 2001 $ 2.5968
Series A preferred stock $ .4766 July 13, 2001 July 31, 2001 July 31, 2001 $ 1.9063
Series B preferred stock $ .553125 July 13, 2001 July 31, 2001 July 31, 2001 $ 2.2125
The Board of Directors of the Company has authorized the purchase of up to
three million shares of the Company's Class B common stock. In addition, the
Board of Directors has also authorized the purchase of up to an additional three
million shares of the Company's Class B common stock and/or its Class A common
stock. The buy-back program will be effected in accordance with the safe harbor
provisions of the Securities Exchange Act of 1934 and may be terminated by the
Company at any time. As of June 30, 2001, the Company had purchased and retired
1,410,804 shares of Class B common stock at an average price of $21.48 per Class
B share and 4,204 shares of Class A common stock at an average price of $22.03
per Class A share for an aggregate purchase price of approximately $30.4
million.
Basic net income per share on the Company's Class A common stock was
calculated using the weighted average number of shares outstanding of 47,221,917
and 41,343,118 for the three months ended June 30, 2001 and 2000, respectively,
and 46,357,533 and 40,862,650 for the six months ended June 30, 2001 and 2000,
respectively.
8
Basic net income per share on the Company's Class B common stock was
calculated using the weighted average number of shares outstanding of 10,283,513
for the three months ended June 30, 2001 and 2000, respectively, and 10,283,513
and 10,283,556 for the six months ended June 30, 2001 and 2000, respectively.
The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted earnings per weighted average common
share and the computation of basic and diluted earnings per weighted average
share for the Company's Class A common stock (in thousands except for earnings
per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Numerator:
Net Income .............................................. $ 25,226 $ 30,168 $ 51,339 $ 53,335
Dividends to preferred shareholders ..................... (5,467) (7,197) (10,892) (14,521)
Income allocated to Class B common shareholders ......... (4,650) (6,316) (10,030) (10,713)
-------- -------- --------- ---------
Numerator for basic and diluted earnings per Class A
common share .......................................... $ 15,109 $ 16,655 $ 30,417 $ 28,101
======== ======== ========= =========
Denominator:
Denominator for basic earnings per share-weighted
average Class A common shares ......................... 47,222 41,343 46,358 40,863
Effect of dilutive securities:
Employee stock options .................................. 378 357 422 342
-------- -------- --------- ---------
Denominator for diluted earnings per Class A common
share -- adjusted weighted average shares and
assumed conversions ..................................... 47,600 41,700 46,780 41,205
======== ======== ========= =========
Basic earnings per Class A common share:
Net income per Class A common share ..................... $ .32 $ .40 $ .66 $ .69
======== ======== ========= =========
Diluted earnings per Class A common share:
Diluted net income per Class A common share ............. $ .32 $ .40 $ .65 $ .68
======== ======== ========= =========
9
The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted earnings per weighted average common
share and the computation of basic and diluted earnings per weighted average
share for the Company's Class B common stock (in thousands except for earnings
per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Numerator:
Net Income .............................................. $ 25,226 $ 30,168 $ 51,339 $ 53,335
Dividends to preferred shareholders ..................... (5,467) (7,197) (10,892) (14,521)
Income allocated to Class A common shareholders ......... (15,109) (16,655) (30,417) (28,101)
--------- --------- --------- ---------
Numerator for basic earnings per Class B common
share ................................................. 4,650 6,316 10,030 10,713
Add back:
Income allocated to Class A common shareholders ......... 15,109 16,655 30,417 28,101
Limited partners' minority interest in the operating
partnership ........................................... 2,616 3,083 5,331 5,361
--------- --------- --------- ---------
Numerator for diluted earnings per Class B common
share ................................................. $ 22,375 $ 26,054 $ 45,778 $ 44,175
========= ========= ========= =========
Denominator:
Denominator for basic earnings per share- weighted
average Class B common shares ......................... 10,284 10,284 10,284 10,284
Effect of dilutive securities:
Weighted average Class A common shares
outstanding .......................................... 47,222 41,343 46,358 40,863
Weighted average OP Units outstanding ................. 7,763 7,695 7,728 7,697
Employee stock options ................................ 378 357 422 342
--------- --------- --------- ---------
Denominator for diluted earnings per Class B common
share-adjusted weighted average shares and assumed
conversions ............................................. 65,647 59,679 64,792 59,186
========= ========= ========= =========
Basic earnings per Class B common share:
Net income per Class B common share ..................... $ .45 $ .61 $ .98 $ 1.04
========= ========= ========= =========
Diluted earnings per Class B common share:
Diluted net income per Class B common share ............. $ .34 $ .44 $ .71 $ .75
========= ========= ========= =========
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (in thousands)
SIX MONTHS ENDED
JUNE 30,
-----------------------
2001 2000
---------- ----------
Cash paid during the period for interest ......... $52,766 $52,135
======= =======
Interest capitalized during the period ........... $ 5,137 $ 5,173
======= =======
9. SEGMENT DISCLOSURE
The Company owns all of the interests in its real estate properties by or
through the Operating Partnership. The Company's portfolio consists of Class A
office properties located within the New York City metropolitan area and Class A
suburban office and industrial properties located and operated within the
Tri-State Area (the "Core Portfolio"). The Company's portfolio also includes one
office property located in Orlando, Florida. The Company has managing directors
who report directly to the Chief Operating Officers and Chief Financial Officer
who have been identified as the Chief Operating Decision Makers because of their
final authority over resource allocation, decisions and performance assessment.
10
In addition, the Company does not consider (i) interest incurred on its
Credit Facility, term loan and Senior Unsecured Notes and (ii) the operating
performance of the office property located in Orlando, Florida as part of its
Core Portfolio's property operating performance.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
The following table sets forth the components of the Company's revenues and
expenses and other related disclosures for the three months ended June 30, 2001
and 2000 (in thousands):
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
JUNE 30, 2001 JUNE 30, 2000
--------------------------------------------- ------------------------------------------
CONSOLIDATED CORE CONSOLIDATED
CORE PORTFOLIO OTHER TOTALS PORTFOLIO OTHER TOTALS
---------------- ------------- -------------- -------------- ------------- -------------
REVENUES:
Base rents, tenant escalations and
reimbursements ...................... $ 123,030 $ 2,319 $ 125,349 $ 106,852 $ 2,231 $ 109,083
Equity in earnings of real estate
joint ventures and service
companies ........................... -- 801 801 -- 1,775 1,775
Other income ......................... 1,929 4,308 6,237 257 14,340 14,597
----------- --------- ----------- ----------- --------- -----------
Total Revenues ....................... 124,959 7,428 132,387 107,109 18,346 125,455
----------- --------- ----------- ----------- --------- -----------
EXPENSES:
Property operating expenses .......... 40,080 794 40,874 35,950 558 36,508
Marketing, general and
administrative ...................... 5,446 2,965 8,411 4,788 1,721 6,509
Interest ............................. 12,149 11,413 23,562 9,403 14,773 24,176
Depreciation and amortization ........ 25,096 2,076 27,172 20,055 2,371 22,426
----------- --------- ----------- ----------- --------- -----------
Total Expenses ....................... 82,771 17,248 100,019 70,196 19,423 89,619
=========== ========= =========== =========== ========= ===========
Income (loss) before minority
interests and preferred dividends
and distributions ................... $ 42,188 $ (9,820) $ 32,368 $ 36,913 $ (1,077) $ 35,836
=========== ========= =========== =========== ========= ===========
Total assets ......................... $ 2,475,072 $ 637,170 $ 3,112,242 $ 2,054,183 $ 830,484 $ 2,884,667
=========== ========= =========== =========== ========= ===========
The following table sets forth the components of the Company's revenues and
expenses and other related disclosures for the six months ended June 30, 2001
and 2000 (in thousands):
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
JUNE 30, 2001 JUNE 30, 2000
--------------------------------------------- ---------------------------------------
CONSOLIDATED CORE CONSOLIDATED
CORE PORTFOLIO OTHER TOTALS PORTFOLIO OTHER TOTALS
---------------- ------------- -------------- ----------- ------------- -------------
REVENUES:
Base rents, tenant escalations and
reimbursements ....................... $ 243,752 $ 5,036 $ 248,788 $ 211,672 $ 4,657 $ 216,329
Equity in earnings of real estate
joint ventures and service
companies ............................ -- 1,199 1,199 -- 3,187 3,187
Other income .......................... 2,478 10,808 13,286 664 22,933 23,597
--------- --------- --------- --------- --------- ---------
Total Revenues ........................ 246,230 17,043 263,273 212,336 30,777 243,113
--------- --------- --------- --------- --------- ---------
EXPENSES:
Property operating expenses ........... 80,434 1,434 81,868 73,571 1,226 74,797
Marketing, general and
administrative ....................... 10,070 5,838 15,908 9,755 3,192 12,947
Interest .............................. 25,055 22,138 47,193 18,595 29,421 48,016
Depreciation and amortization ......... 46,631 4,062 50,693 39,388 4,049 43,437
--------- --------- --------- --------- --------- ---------
Total Expenses ........................ 162,190 33,472 195,662 141,309 37,888 179,197
========= ========= ========= ========= ========= =========
Income (loss) before minority
interests and preferred dividends
and distributions .................... $ 84,040 $ (16,429) $ 67,611 $ 71,027 $ (7,111) $ 63,916
========= ========= ========= ========= ========= =========
11
10. OTHER INVESTMENTS AND ADVANCES
During 1997, the Company formed FrontLine Capital Group, formerly
Reckson Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture
Partners, LLC ("RSVP"). In connection with the formation of FrontLine, the
Operating Partnership established an unsecured credit facility with FrontLine
(the "FrontLine Facility") in the amount of $100 million for FrontLine to use in
its investment activities, operations and other general corporate purposes. As
of June 30, 2001, the Company had advanced approximately $93.4 million under the
FrontLine Facility. The Operating Partnership also approved the funding of
investments of up to $100 million relating to RSVP (the "RSVP Commitment"),
through RSVP-controlled joint ventures (for REIT-qualified investments) or
advances made to FrontLine under an unsecured loan facility on terms similar to
the FrontLine Facility. During March 2001, the Company increased the RSVP
Commitment to $110 million and as of June 30, 2001, approximately $109.1 million
had been funded through the RSVP Commitment, of which $59.8 million represents
investments in RSVP-controlled (REIT-qualified) joint ventures and $49.3 million
represents advances loaned to FrontLine. In addition, as of June 30, 2001, the
Company, through its Credit Facility, has allocated approximately $200,000 in
outstanding undrawn letters of credit for the benefit of FrontLine. As of June
30, 2001, interest accrued under the FrontLine Facility and RSVP Commitment was
approximately $19.6 million, of which approximately $5 million was accrued for
the three month period ended June 30, 2001.
FrontLine's primary business, HQ Global Holdings, Inc. ("HQ"), one of the
largest providers of flexible officing solutions in the world, recently
announced that the termination of the merger discussions between HQ and another
officing solutions provider and the decline in the overall economic environment
have negatively impacted its operating results. FrontLine also announced that it
obtained relief for the second and third quarters of 2001 from both HQ's lenders
and from the lender on its $25 million secured credit facility. FrontLine is in
discussions with this secured lender concerning the extension of the secured
credit facility beyond its current maturity during the third quarter 2001.
FrontLine and HQ are currently in discussions with their lenders concerning the
potential need for amendments to financial covenants for future periods. In
addition, FrontLine has announced that it is considering seeking stockholder
approval, if necessary, to issue shares of its common stock in lieu of cash, in
the event certain put rights of holders of HQ common stock are exercised. The
Company has formed a committee of its Board of Directors, comprised solely of
independent directors, to consider any actions to be taken by the Company in
connection with its loans to FrontLine through the FrontLine Facility or the
RSVP Commitment. As a result of these circumstances, the Company has taken a
reserve against interest income accrued for the second quarter 2001 the loans
under the FrontLine Facility and RSVP Commitment in the amount of approximately
$3.5 million based on its assessment of the amounts expected to be received on
these loans. In addition, based on current conditions, the Company expects to
record a similar reserve in future periods. FrontLine's ability to meet its
obligations as they come due, or repay the Company will depend upon, amongst
other things, the outcome of certain events described above.
Both the FrontLine Facility and the loans under the RSVP Commitment have a
term of five years, are unsecured and advances under each are recourse
obligations of FrontLine. Interest accrues on advances made under the credit
facilities at a rate equal to the greater of (a) the prime rate plus two percent
and (b) 12% per annum, with the rate on amounts that are outstanding for more
than one year increasing annually at a rate of four percent of the prior year's
rate. In March 2001, the credit facilities were amended to provide that (i)
interest is payable only at maturity and (ii) the Company may transfer all or
any portion of its rights or obligations under the credit facilities to its
affiliates. The Company requested these changes as a result of changes in REIT
tax laws
In addition to its interest in HQ, FrontLine also owns an interest in
RSVP which invests primarily in real estate and real estate related
operating companies generally outside of the Company's core office and
industrial focus.
12
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.
The Company considers certain statements set forth herein to be
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, with respect to the Company's expectations for future periods.
Certain forward-looking statements, including, without limitation, statements
relating to the timing and success of acquisitions and the completion of
development or redevelopment of properties, the financing of the Company's
operations, the ability to lease vacant space and the ability to renew or relet
space under expiring leases, involve risks and uncertainties. Although the
Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, the actual results may differ
materially from those set forth in the forward-looking statements and the
Company can give no assurance that its expectation will be achieved. Among those
risks, trends and uncertainties are the general economic climate, including the
conditions affecting industries in which our principal tenants compete; changes
in the supply of and demand for office and industrial properties in the New York
Tri-State area; changes in interest rate levels; downturns in rental rate levels
in our markets and our ability to lease or release space in a timely manner at
current or anticipated rental rate levels; the availability of financing to us
or our tenants; changes in operating costs, including utility costs; repayment
of debt owed to the Company by third parties (including FrontLine Capital
Group); risks associated with joint ventures; and other risks associated with
the development and acquisition of properties, including risks that development
may not be completed on schedule, that the tenants will not take occupancy or
pay rent, or that development or operating costs may be greater than
anticipated. Consequently, such forward-looking statements should be regarded
solely as reflections of the Company's current operating and development plans
and estimates. These plans and estimates are subject to revisions from time to
time as additional information becomes available, and actual results may differ
from those indicated in the referenced statements.
OVERVIEW AND BACKGROUND
The 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 real estate markets in and around the New York
tri-state area (the "Tri-State Area").
The Company owns all of the interests in its real properties through
Reckson Operating Partnership, L.P. (the "Operating Partnership"). As of June
30, 2001, the Company owned and operated 82 office properties (inclusive of ten
office properties which are owned through joint ventures) comprising
approximately 14.4 million square feet, 104 industrial properties comprising
approximately 6.8 million square feet and two retail properties comprising
approximately 20,000 square feet located in the Tri-State Area. The Company also
owns a 357,000 square foot office building located in Orlando, Florida and
approximately 290 acres of land in 13 separate parcels of which the Company can
develop approximately 1.4 million square feet of office space and approximately
224,000 square feet of industrial space. The Company also has invested
approximately $17.0 million in a note receivable secured by a partnership
interest in Omni Partners, L.P., owner of the Omni, a 575,000 square foot Class
A office property located in Uniondale, New York and $36.5 million under three
notes which are secured by a minority partners' preferred interest in the
Operating Partnership.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture Partners,
LLC ("RSVP"). In connection with the formation of FrontLine, the Operating
Partnership established an unsecured credit facility with FrontLine (the
"FrontLine Facility") in the amount of $100 million for FrontLine to use in its
investment activities, operations and other general corporate purposes. As of
June 30, 2001, the Company had advanced approximately $93.4 million under the
FrontLine Facility. The Operating Partnership also approved the funding of
investments of up to $100 million relating to RSVP (the "RSVP Commitment"),
through RSVP-controlled joint ventures (for REIT-qualified investments) or
advances made to FrontLine under an unsecured loan facility on
13
terms similar to the FrontLine Facility. During March 2001, the Company
increased the RSVP Commitment to $110 million and as of June 30, 2001,
approximately $109.1 million had been funded through the RSVP Commitment, of
which $59.8 million represents investments in RSVP-controlled (REIT-qualified)
joint ventures and $49.3 million represents advances loaned to FrontLine. In
addition, as of June 30, 2001, the Company, through its unsecured credit
facility, has allocated approximately $200,000 in outstanding undrawn letters of
credit for the benefit of FrontLine. As of June 30, 2001, interest accrued under
the FrontLine Facility and RSVP Commitment was approximately $19.6 million, of
which approximately $5 million was accrued for the three month period ended June
30, 2001.
FrontLine's primary business, HQ Global Holdings, Inc. ("HQ"), one of the
largest providers of flexible officing solutions in the world, recently
announced that the termination of the merger discussions between HQ and another
officing solutions provider and the decline in the overall economic environment
have negatively impacted its operating results. FrontLine also announced that it
obtained relief for the second and third quarters of 2001 from both HQ's lenders
and from the lender on its $25 million secured credit facility. FrontLine is in
discussions with this secured lender concerning the extension of the secured
credit facility beyond its current maturity during the third quarter 2001.
FrontLine and HQ are currently in discussions with their lenders concerning the
potential need for amendments to financial covenants for future periods. In
addition, FrontLine has announced that it is considering seeking stockholder
approval, if necessary, to issue shares of its common stock in lieu of cash, in
the event certain put rights of holders of HQ common stock are exercised. The
Company has formed a committee of its Board of Directors, comprised solely of
independent directors, to consider any actions to be taken by the Company in
connection with its loans to FrontLine through the FrontLine Facility or the
RSVP Commitment. As a result of these circumstances, the Company has taken a
reserve against interest income accrued for the second quarter 2001 on the loans
under the FrontLine Facility and RSVP Commitment in the amount of approximately
$3.5 million based on its assessment of the amounts expected to be received on
those loans. In addition, based on current conditions, the Company expects to
record a similar reserve in future periods. FrontLine's ability to meet its
obligations as they come due, or repay the Company will depend upon, amongst
other things, the outcome of certain events described above.
Both the FrontLine Facility and the loans under the RSVP Commitment have a
term of five years, are unsecured and advances under each are recourse
obligations of FrontLine. Interest accrues on advances made under the credit
facilities at a rate equal to the greater of (a) the prime rate plus two percent
and (b) 12% per annum, with the rate on amounts that are outstanding for more
than one year increasing annually at a rate of four percent of the prior year's
rate. In March 2001, the credit facilities were amended to provide that (i)
interest is payable only at maturity and (ii) the Company may transfer all or
any portion of its rights or obligations under the credit facilities to its
affiliates. The Company requested these changes as a result of changes in REIT
tax laws.
In addition to its interest in HQ, FrontLine also owns an interest in
RSVP which invests primarily in real estate and real estate related operating
companies generally outside of the Company's core office and industrial focus.
In July 1998, the Company formed a joint venture, Metropolitan Partners LLC
("Metropolitan"), with Crescent Real Estate Equities Company, a Texas REIT
("Crescent") for the purpose of acquiring Tower Realty Trust, Inc. ("Tower"). On
May 24, 1999 the Company completed the merger with Tower and acquired three
Class A office properties located in New York City totaling 1.6 million square
feet and one office property located on Long Island totaling approximately
101,000 square feet. In addition, pursuant to the merger, the Company also
acquired certain office properties, a property under development and land
located outside of the Tri-State Area. All of the assets acquired in the merger
located outside of the Tri-State Area, other than a 357,000 square foot office
property located in Orlando, Florida, have been sold.
Metropolitan is 100% owned by the Company; Crescent owned a $85 million
preferred equity investment in Metropolitan which accrued distributions at a
rate of 7.5% per annum for a two-year period (May 24, 1999 through May 30,
2001). On May 31, 2001, at Crescent's election, Crescent converted its
preferred equity investment into 3,453,881 shares of the Company's Class A
common stock based on a conversion price of $24.61 per share.
On September 28, 2000, the Company formed a joint venture (the "Tri-State
JV") with Teachers Insurance and Annuity Association and contributed eight Class
A suburban office properties aggregating approximately 1.5 million square feet
to the Tri-State JV in exchange for approximately $136 million and a 51%
majority ownership interest in the Tri-State JV.
The market capitalization of the Company at June 30, 2001 was approximately
$3.4 billion. The Company's market capitalization is based on the sum of (i) the
market value of the Company's Class A common stock and common units of limited
partnership interest in the Operating Partnership ("OP Units") (assuming
conversion) of $23.00 per share/unit (based on the closing price of the
Company's Class A common stock on June 29, 2001), (ii) the market value of the
Company's Class B common stock of $24.61 per share (based on the closing price
of the Company's Class B common stock on June 29, 2001), (iii) the liquidation
preference value of the Company's Series A preferred
14
and Series B preferred stock of $25 per share, (iv) the liquidation preference
value of the Operating Partnership's preferred units of $1,000 per unit and (v)
the approximately $1.5 billion (including its share of joint venture debt and
net of minority partners' interests share of joint venture debt) of debt
outstanding at June 30, 2001. As a result, the Company's total debt to total
market capitalization ratio at June 30, 2001 equaled approximately 44.3%.
RESULTS OF OPERATIONS
The Company's total revenues increased by $6.9 million or 5.5% for the
three months ended June 30, 2001 as compared to the 2000 period. Property
operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $16.3 million or
14.9% for the three months ended June 30, 2001 as compared to the 2000 period.
The increase in Property Operating Revenues is primarily attributable to $7.7
million from increases in occupancies and rental rates in our "same store"
properties. In addition, $3.6 million of the increase was generated by developed
and redeveloped properties. The Company's base rent reflects the positive impact
of the straight-line rent adjustment of $10.9 million for the three months ended
June 30, 2001 as compared to $8.3 million for the 2000 period. Included in the
$10.9 million straight-line rent adjustment is $6.9 million attributable to 919
Third Avenue as compared to $4.3 million for the 2000 period. This amount is
primarily attributable to the free rent period contained in the lease of the
largest tenant in the building. The free rent period is effective through
February 28, 2002. Other revenues (excluding Property Operating Revenues),
decreased by $9.3 million or 57% for the three months ended June 30, 2001 as
compared to the 2000 period. This decrease is primarily attributable to $6.7
million in gain on sales of real estate in the 2000 period with no asset sales
in the 2001 period. In addition, this decrease was also attributable to the $3.5
million reserve against interest income accrued for the second quarter of 2001,
relating to the FrontLine Facility and loans under the RSVP Commitment.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $4.4 million or 12% for the three months ended June 30,
2001 as compared to the 2000 period. This increase is primarily due to an
increase of $2.6 million in our "same-store" properties
Gross Operating Margins (defined as Property Operating Revenues less
Property Expenses, taken as a percentage of Property Operating Revenues) for the
three months ended June 30, 2001 and 2000 were 67.4% and 66.5%, respectively.
The increase in Gross Operating Margins is primarily attributable to the
increase in rental rates and occupancy levels.
Marketing, general and administrative expenses increased by approximately
$1.9 million for the three months ended June 30, 2001 as compared to the 2000
period. The increase was primarily attributable to legal and professional fees
incurred in connection with certain c ancelled acquisition transactions.
Marketing, general and administrative expenses, as a percentage of total
revenues, were 6.4% for the three months ended June 30, 2001 as compared to 5.2%
for the 2000 period.
Interest expense decreased by approximately $614,000 for the three months
ended June 30, 2001 as compared to the 2000 period. The decrease was primarily
attributable to a decrease in interest expense on the Company's variable rate
debt due to lower interest rates.
The Company's total revenues increased by $20.2 million or 8.3% for the six
moths ended June 30, 2001 as compared to the 2000 period. Property Operating
Revenues increased by $32.5 million or 15% for the six months ended June 30,
2001 as compared to the 2000 period. The increase in Property Operating Revenues
is primarily attributable to $13.9 million from increases in occupancies and
rental rates in our "same store" properties. In addition, $6.4 million of the
increase was generated by developed and redeveloped properties. The Company's
base rent reflects the positive impact of the straight-line rent adjustment of
$22.1 million for the six months ended June 30, 2001 as compared to $12.8
million for the 2000 period. Included in the $22.1 million straight-line rent
adjustment is $14.4 million attributable to 919 Third Avenue, as compared to
$5.4 million for the 2000 period. This amount is primarily attributable to the
free rent contained in the lease of the largest tenant in the building. The free
rent period is effective through February 28, 2002. Other revenues (excluding
Property Operating Revenues), decreased by $12.3 million or 45.9% for the six
months ended June 30, 2001 as compared to the 2000 period. This decrease is
15
primarily attributable to $6.7 million in gain on sales of real estate in the
2000 period with no asset sales in the 2001 period. In addition, this decrease
was also attributable to the $3.5 million reserve against interest income
accrued for the second quarter of 2001, relating to the FrontLine Facility and
loans under the RSVP Commitment.
Property Expenses increased by $7.1 million or 9.5% for the six months
ended June 30, 2001 as compared to the 2000 period. This increase is primarily
due to an increase of $4.6 million in our "same-store" properties.
Marketing general and administrative expenses increased by $3.0 million for
the six months ended June 30, 2001 as compared to the 2000 period. The increase
was primarily attributable to legal and professional fees incurred in connection
with certain cancelled acquisition transactions, increases in certain tenant and
community relation costs and increases in compensation and related employee
benefits. Marketing general and administrative expenses, as a percentage of
total revenues, were 6.0% for the six months ended June 30, 2001 as compared to
5.3% for the 2000 period.
Interest expense decreased by approximately $823,000 for the six months
ended June 30, 2001 as compared to the 2000 period. The decrease was primarily
attributable to a decrease in interest expense on the Company's variable rate
debt due to lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, the Company had a three year $575 million unsecured
revolving credit facility (the "Credit Facility") from The Chase Manhattan Bank,
as administrative agent, UBS Warburg LLC as syndication agent and Deutsche Bank
as documentation agent. The Credit Facility matures in September 2003 and
borrowings under the Credit Facility are currently priced off of LIBOR plus 105
basis points.
The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working capital
purposes. At June 30, 2001, the Company had availability under the Credit
Facility to borrow an additional $240.4 million (of which, approximately $34.1
million has been allocated for outstanding undrawn letters of credit).
On June 1, 2001, the Company refinanced a $70 million short term variable
rate mortgage note with a five year $75 million fixed rate mortgage note, which
bears interest at 6.52% per annum. In addition, on July 18, 2001, the Company
refinanced a $200 million short term variable rate mortgage note with a ten year
$250 million fixed rate mortgage note, which bears interest at 6.867% per annum.
The net proceeds of approximately $50.4 million received by the Company as a
result of these refinancings was used to repay maturing fixed rate debt, the
Credit Facility and for working capital purposes.
On April 2, 2001, approximately 7,785 preferred units of limited
partnership interest in the Operating Partnership, with a liquidation preference
value of approximately $7.8 million, were exchanged for 305,706 OP Units at an
average price of $25.47 per OP Unit. In addition, during the three months ended
June 30, 2001, 352,878 OP Units were exchanged for an equal number of shares of
the Company's Class A common stock.
On May 31, 2001, in connection with Crescent's conversion of its $85
million preferred equity investment in Metropolitan, the Company issued
3,453,881 shares of Class A common stock.
On May 24, 1999, the Company issued 11,694,567 shares of Class B
Exchangeable Common Stock, par value $.01 per share, of the Company (the "Class
B common stock"), which were valued for accounting principles generally accepted
in the United States ("GAAP") purposes at $26 per share for total consideration
of approximately $304.1 million. The shares of Class B common stock were
entitled to receive an initial annual dividend of $2.24 per share, which
dividend is subject to adjustment annually. On July 31, 2000, the annual
dividend on the Class B Common Stock was increased to $2.5968 per share.
The shares of Class B common stock are exchangeable at any time, at the
option of the holder, into an equal number of shares of Class A common stock,
par value $.01 per share, of the Company subject to customary antidilution
adjustments. The Company, at its option, may redeem any or all of the Class B
common stock in exchange for an equal number of shares of the Company's Class A
common stock at any time following November 23, 2003.
16
The Board of Directors of the Company has authorized the purchase of up to
three million shares of the Company's Class B common stock. In addition, the
Board of Directors has also authorized the purchase of up to an additional three
million shares of the Company's Class B common stock and/or its Class A common
stock. The buy-back program will be effected in accordance with the safe harbor
provisions of the Securities Exchange Act of 1934 and may be terminated by the
Company at any time. As of June 30, 2001, the Company had purchased and retired
1,410,804 shares of Class B common stock at an average price of $21.48 per Class
B share and 4,204 shares of Class A common stock at an average price of $22.03
per Class A share for an aggregate purchase price of approximately $30.4
million.
The Company's indebtedness at June 30, 2001 totaled approximately $1.5
billion (including its share of joint venture debt and net of minority partners'
interests share of joint venture debt) and was comprised of $334.6 million
outstanding under the Credit Facility, approximately $449.4 million of senior
unsecured notes and approximately $717 million of mortgage indebtedness. Based
on the Company's total market capitalization of approximately $3.4 billion at
June 30, 2001 (calculated based on the sum of (i) the market value of the
Company's Class A common stock and OP Units, assuming conversion, (ii) the
market value of the Company's Class B common stock, (iii) the liquidation
preference value of the Company's preferred stock, (iv) the liquidation
preference value of the Operating Partnership's preferred units and (v) the $1.5
billion of debt), the Company's debt represented approximately 44.3% 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. The Company expects to meet
its short-term liquidity requirements generally through its net cash provided by
operating activities along with the Credit Facility previously discussed. The
Company expects to meet certain of its financing requirements through long-term
secured and unsecured borrowings and the issuance of debt and equity securities
of the Company. In addition, the Company also believes that it will, from time
to time, generate funds from the disposition of certain of its real estate
properties or interests therein. The Company will refinance existing mortgage
indebtedness or indebtedness under the Credit Facility at maturity or retire
such debt through the issuance of additional debt securities or additional
equity securities. The 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 90% 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.
INFLATION
The office leases generally provide for fixed base rent increases or
indexed escalations. In addition, the office leases provide for separate
escalations of real estate taxes, operating expenses 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
and expense escalations described above.
The Credit Facility and a certain mortgage note payable bear interest at a
variable rate, which will be influenced by changes in short-term interest rates,
and are sensitive to inflation.
17
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 accounting principles generally accepted
in the United States ("GAAP") 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 November 1999, NAREIT issued a "White Paper"
analysis to address certain interpretive issues under its definition of FFO. The
White Paper provides that FFO should include both recurring and non-recurring
operating results, except those results defined as "extraordinary items" under
GAAP. This revised definition is effective for all periods beginning on or after
January 1, 2000.
Since all companies and analysts do not calculate FFO in a similar fashion,
the Company's calculation of FFO presented herein may not be comparable to
similarly titled measures as reported by other companies.
18
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,
----------------------------- -----------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net income available to common shareholders .............. $ 19,759 $ 22,971 $ 40,447 $ 38,814
Adjustments for basic funds from operations:
Add:
Limited partners' minority interest in the operating
partnership .......................................... 2,616 3,083 5,331 5,361
Real estate depreciation and amortization ............. 26,727 21,937 49,715 42,552
Minority partners' interests in consolidated
partnerships ......................................... 4,065 1,925 9,820 3,899
Less:
Gain on sales of real estate .......................... -- 6,662 -- 6,662
Amounts distributable to minority partners in
consolidated partnerships ............................ 5,104 2,136 10,805 4,517
-------- -------- -------- --------
Basic Funds From Operations ("FFO") ...................... 48,063 41,118 94,508 79,447
Add:
Dividends and distributions on dilutive shares and
units ................................................ 6,958 9,451 14,637 19,029
-------- -------- -------- --------
Diluted FFO ............................................. $ 55,021 $ 50,569 $109,145 $ 98,476
======== ======== ======== ========
Basic FFO calculations:
Weighted average common shares outstanding .............. 57,505 51,627 56,641 51,146
Weighted average units of limited partnership interest
outstanding ........................................... 7,763 7,695 7,728 7,697
-------- -------- -------- --------
Basic weighted average common shares and units
outstanding ........................................... 65,268 59,322 64,369 58,843
======== ======== ======== ========
Basic FFO per weighted average common share or unit ..... $ .74 $ .69 $ 1.47 $ 1.35
Basic weighted average dividends or distributions per
share or unit ......................................... $ .46 $ .42 $ .88 $ .83
Basic FFO payout ratio .................................. 62.1% 60.8% 59.8% 61.2%
Diluted FFO calculations:
Basic weighted average common shares and units
outstanding ........................................... 65,268 59,322 64,369 58,843
Adjustments for dilutive FFO weighted average shares
and units outstanding:
Add:
Weighted average common stock equivalents ............ 378 357 422 342
Weighted average shares of Series A Preferred
Stock .............................................. 8,060 8,060 8,060 8,060
Weighted average shares of Series B Preferred
Stock .............................................. 1,919 5,294 1,919 5,526
Weighted average shares of minority partners
preferred interest ................................. 2,277 3,454 2,862 3,454
Weighted average units of preferred limited
partnership interest ............................... 1,127 1,367 1,246 1,367
-------- -------- -------- --------
Dilutive FFO weighted average shares and units
outstanding ........................................... 79,029 77,854 78,878 77,592
======== ======== ======== ========
Diluted FFO per weighted average share or unit .......... $ .70 $ .65 $ 1.38 $ 1.27
Diluted weighted average dividends or distributions per
share or unit ......................................... $ .45 $ .41 $ .87 $ .81
Diluted FFO payout ratio ................................ 64.9% 63.6% 62.6% 63.8%
19
The following table presents the Company's CAD calculation (unaudited and
in thousands, except per share/unit data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Basic Funds From Operations .................................. $ 48,063 $ 41,118 $ 94,508 $ 79,447
Adjustments for basic cash available for distribution:
Less:
Straight line rents (Note a) .............................. 10,854 8,300 22,013 12,838
Non-incremental capitalized tenant improvements and
leasing commissions ...................................... 4,098 1,873 6,744 4,743
Non-incremental capitalized improvements .................. 1,629 1,446 2,264 2,697
-------- -------- -------- --------
Basic Cash Available for Distribution ("CAD") ................ 31,482 29,499 63,487 59,169
Add:
Dividends and distributions on dilutive shares and units 1,491 9,451 3,745 19,029
-------- -------- -------- --------
Diluted CAD ................................................. $ 32,973 $ 38,950 $ 67,232 $ 78,198
======== ======== ======== ========
Basic CAD calculations:
Weighted average common shares outstanding .................. 57,505 51,627 56,641 51,146
Weighted average units of limited partnership interest
outstanding ............................................... 7,763 7,695 7,728 7,697
-------- -------- -------- --------
Basic weighted average common shares and units
outstanding ............................................... 65,268 59,322 64,369 58,843
======== ======== ======== ========
Basic CAD per weighted average common share or unit ......... $ .48 $ .50 $ .99 $ 1.01
Basic weighted average dividends or distributions per
share or unit ............................................. $ .46 $ .42 $ .88 $ .83
Basic CAD payout ratio ...................................... 94.8% 84.7% 89.0% 82.1%
Diluted CAD calculations:
Basic weighted average common shares and units
outstanding ............................................... 65,268 59,322 64,369 58,843
Adjustments for dilutive CAD weighted average shares
and units outstanding:
Add:
Weighted average common stock equivalents ................ 378 357 422 342
Weighted average shares of Series A Preferred Stock -- 8,060 -- 8,060
Weighted average shares of Series B Preferred Stock -- 5,294 -- 5,526
Weighted average shares of minority
partners'preferred interest ............................ 2,277 3,454 2,862 3,454
Weighted average units of preferred limited
partnership interest ................................... 1,127 1,367 1,246 1,367
-------- -------- -------- --------
Dilutive CAD weighted average shares and units
outstanding ............................................... 69,050 77,854 68,899 77,592
======== ======== ======== ========
Diluted CAD per weighted average share or unit .............. $ .48 $ .50 $ .98 $ 1.01
Diluted weighted average dividends or distributions per
share or unit ............................................. $ .46 $ .41 $ .87 $ .81
Diluted CAD payout ratio .................................... 95.4% 82.5% 89.5% 80.3%
----------
Notes:
(a) Includes straight-line rental income attributable to the property located
at 919 Third Avenue, New York, N.Y. of $6,880, $4,309, $14,384 and $5,384,
respectively.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary market risk facing the Company is interest rate risk on its
long term debt, mortgage notes and notes receivable. The Company will, when
advantageous, hedge its interest rate risk using financial instruments. The
Company is not subject to foreign currency risk.
The Company manages its exposure to interest rate risk on its variable rate
indebtedness by borrowing on a short-term basis under its Credit Facility until
such time as it is able to retire the short-term variable rate debt with either
a long-term fixed rate debt offering, long term mortgage debt, equity offerings
or through sales or partial sales of assets.
The Company will recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedged asset, liability, or firm commitment through
earnings, or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings.
The fair market value ("FMV") of the Company's long term debt, mortgage
notes and notes receivable is estimated based on discounting future cash flows
at interest rates that management believes reflects the risks associated with
long term debt, mortgage notes and notes receivable of similar risk and
duration.
The following table sets forth the Company's long term debt obligations by
scheduled principal cash flow payments and maturity date, weighted average
interest rates and estimated FMV at June 30, 2001 (dollars in thousands):
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2001 2002 2003 2004 2005
------------- ------------- ------------- -------------- -------------
Long term debt:
Fixed rate .......... $ 19,424 $ 17,381 $ 9,696 $ 113,107 $ 11,361
Weighted average
interest rate ..... 7.55% 7.77% 7.68% 7.49% 7.70%
Variable rate ....... $ -- $ -- $ 534,600 $ -- $ --
Weighted average
interest rate ..... -- -- 5.38% -- --
THEREAFTER TOTAL(1) FMV
-------------- -------------- ------------
Long term debt:
Fixed rate .......... $ 809,201 $ 980,170 $ 982,950
Weighted average
interest rate ..... 7.47% 7.48%
Variable rate ....... $ -- $ 534,600 $ 534,600
Weighted average
interest rate ..... -- 5.38%
----------
(1) Includes unamortized issuance discounts of $576,000 on the 5 and 10 year
senior unsecured notes issued on March 26, 1999 which are due at maturity.
In addition, the Company has assessed the market risk for its variable rate
debt, which is based upon LIBOR, and believes that a one percent increase in the
LIBOR rate would have an approximate $5.3 million annual increase in interest
expense based on approximately $534.6 million of variable rate debt outstanding
at June 30, 2001.
The following table sets forth the Company's mortgage notes and note
receivables by scheduled maturity date, weighted average interest rates and
estimated FMV at June 30, 2001 (dollars in thousands):
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL (2) FMV
---------- ------------ ------ ------------- ------ ------------ ------------- -----------
Mortgage notes and notes
receivable:
Fixed rate .............. $ 8 $ 1,165 $ -- $ 36,500 $ -- $ 16,990 $ 54,663 $ 56,009
Weighted average
Interest rate ......... 9.00% 9.00% -- 10.23% -- 11.65% 10.64%
----------
(2) Excludes interest receivables aggregating approximately $560,000.
21
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES, TENANT IMPROVEMENT
COSTS AND LEASING COMMISSIONS
The following table summarizes the expenditures incurred for capital
expenditures for the entire portfolio and tenant improvements and leasing
commissions for space leased at the Company's office and industrial properties
for the six month period ended June 30, 2001 and the historical of such capital
expenditures, tenant improvements and leasing commissions for the years 1997
through 2000.
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES
SIX MONTHS
1997-2000 ENDED
1997 1998 1999 2000 AVERAGE 30-JUN-01
--------------- --------------- --------------- --------------- --------------- ---------------
SUBURBAN OFFICE PROPERTIES
Total ................... $ 1,108,675 $ 2,004,976 $ 2,298,899 $ 3,289,116 $ 2,175,417 $ 1,443,882
Per Square Foot ......... 0.22 0.23 0.23 0.33 0.25 0.14
CBD OFFICE PROPERTIES
Total ................... N/A N/A N/A $ 946,718 $ 946,718 $ 641,809
Per Square Foot ......... N/A N/A N/A 0.38 0.38 0.18
INDUSTRIAL PROPERTIES
Total ................... $ 733,233 $ 1,205,266 $ 1,048,688 $ 813,431 $ 950,155 $ 309,398
Per Square Foot ......... 0.15 0.12 0.11 0.11 0.12 $ 0.05
NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS
SIX MONTHS
1997-2000 ENDED
1997 1998 1999 2000 AVERAGE 30-JUN-01
-------------- --------------- --------------- --------------- --------------- -------------
LONG ISLAND OFFICE PROPERTIES
Tenant Improvements .............. $ 784,044 $ 1,140,251 $ 1,009,357 $ 2,853,706 $ 1,466,840 $ 702,596
Per Square Foot Improved ......... 7.00 3.98 4.73 6.99 5.68 9.50
Leasing Commissions .............. $ 415,822 $ 418,191 $ 551,762 $ 2,208,604 $ 898,595 $ 333,643
Per Square Foot Leased ........... 4.83 1.46 2.59 4.96 3.46 4.51
---------- ----------- ----------- ----------- ----------- ----------
Total Per Square Foot ............ $ 11.83 $ 5.44 $ 7.32 $ 11.95 $ 9.14 $ 14.01
========== =========== =========== =========== =========== ==========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements .............. $1,211,665 $ 711,160 $ 1,316,611 $ 1,860,027 $ 1,274,866 $1,358,938
Per Square Foot Improved ......... 8.90 4.45 5.62 5.72 6.17 6.06
Leasing Commissions .............. $ 366,257 $ 286,150 $ 457,730 $ 412,226 $ 380,591 $ 39,295
Per Square Foot Leased ........... 2.69 1.79 1.96 3.00 2.36 0.17
---------- ----------- ----------- ----------- ----------- ----------
Total Per Square Foot ............ $ 11.59 $ 6.24 $ 7.58 $ 8.72 $ 8.53 $ 6.23
========== =========== =========== =========== =========== ==========
CONNECTICUT OFFICE PROPERTIES
Tenant Improvements .............. $1,022,421 $ 202,880 $ 179,043 $ 385,531 $ 447,469 $ 175,648
Per Square Foot Improved ......... 13.39 5.92 4.88 4.19 7.10 2.14
Leasing Commissions .............. $ 256,615 $ 151,063 $ 110,252 $ 453,435 $ 242,841 $ 182,516
Per Square Foot Leased ........... 3.36 4.41 3.00 4.92 3.92 2.22
---------- ----------- ----------- ----------- ----------- ----------
Total Per Square Foot ............ $ 16.75 $ 10.33 $ 7.88 $ 9.11 $ 11.02 $ 4.36
========== =========== =========== =========== =========== ==========
NEW JERSEY OFFICE PROPERTIES
Tenant Improvements .............. N/A $ 654,877 $ 454,054 $ 1,580,323 $ 896,418 $ 737,260
Per Square Foot Improved ......... N/A 3.78 2.29 6.71 4.26 5.30
Leasing Commissions .............. N/A $ 396,127 $ 787,065 $ 1,031,950 $ 738,381 $ 904,348
Per Square Foot Leased ........... N/A 2.08 3.96 4.44 3.49 6.51
---------- ----------- ----------- ----------- ----------- ----------
Total Per Square Foot ............ N/A $ 5.86 $ 6.25 $ 11.15 $ 7.75 $ 11.81
========== =========== =========== =========== =========== ==========
NEW YORK CITY OFFICE
PROPERTIES
Tenant Improvements .............. N/A N/A N/A $ 65,267 $ 65,267 $ 738,800
Per Square Foot Improved ......... N/A N/A N/A 1.79 1.79 17.20
Leasing Commissions .............. N/A N/A N/A $ 418,185 $ 418,185 $1,025,394
Per Square Foot Leased ........... N/A N/A N/A 11.50 11.50 23.87
---------- ----------- ----------- ----------- ----------- ----------
Total Per Square Foot ............ N/A N/A N/A $ 13.29 $ 13.29 $ 41.07
========== =========== =========== =========== =========== ==========
INDUSTRIAL PROPERTIES
Tenant Improvements .............. $ 230,466 $ 283,842 $ 375,646 $ 650,216 $ 385,043 $ 34,650
Per Square Foot Improved ......... 0.55 0.76 0.25 0.95 0.63 0.17
Leasing Commissions .............. $ 81,013 $ 200,154 $ 835,108 $ 436,506 $ 388,195 $ 50,055
Per Square Foot Leased ........... 0.19 0.44 0.56 0.64 0.46 0.25
---------- ----------- ----------- ----------- ----------- ----------
Total Per Square Foot ............ $ 0.75 $ 1.20 $ 0.81 $ 1.59 $ 1.09 $ 0.42
========== =========== =========== =========== =========== ==========
22
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for executed
leases as of June 30, 2001:
LONG ISLAND OFFICE PROPERTIES (EXCLUDING OMNI):
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 28 131,751 3.8% $ 22.25 $ 24.34
2002 ........................ 34 165,933 4.8% $ 21.91 $ 24.68
2003 ........................ 52 375,400 10.9% $ 22.95 $ 25.36
2004 ........................ 49 286,257 8.3% $ 23.24 $ 26.15
2005 ........................ 70 604,700 17.5% $ 23.30 $ 26.18
2006 ........................ 19 106,482 3.1% $ 26.62 $ 30.38
2007 AND THEREAFTER ......... 88 1,787,057 51.6% -- --
-- --------- -----
TOTAL ....................... 340 3,457,580 100.0%
=== ========= =====
OMNI:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 2 8,663 1.5% $ 30.48 $ 33.48
2002 ........................ 4 53,127 9.2% $ 34.55 $ 37.91
2003 ........................ 4 58,018 10.0% $ 30.22 $ 34.97
2004 ........................ 4 112,414 19.5% $ 26.14 $ 34.15
2005 ........................ 7 59,166 10.2% $ 27.99 $ 35.26
2006 ........................ 1 9,749 1.7% $ 35.21 $ 38.02
2007 AND THEREAFTER ......... 10 276,259 47.9% -- --
-- ------- -----
TOTAL ....................... 32 577,396 100.0%
== ======= =====
INDUSTRIAL PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 15 307,259 6.3% $ 5.89 $ 7.36
2002 ........................ 28 246,504 5.0% $ 6.47 $ 7.32
2003 ........................ 28 733,434 14.9% $ 5.35 $ 6.26
2004 ........................ 33 623,753 12.7% $ 6.25 $ 7.32
2005 ........................ 22 427,994 8.7% $ 5.93 $ 7.97
2006 ........................ 33 888,693 18.1% $ 6.36 $ 7.81
2007 AND THEREAFTER ......... 38 1,680,440 34.3% -- --
-- ---------- -----
TOTAL ....................... 197 4,908,077 100.0%
=== ========== =====
23
LEASE EXPIRATIONS - (CONTINUED)
RESEARCH AND DEVELOPMENT PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 6 286,946 22.0% $ 5.53 $ 6.94
2002 ........................ 3 118,620 9.1% $ 10.19 $ 11.82
2003 ........................ 4 37,938 2.9% $ 9.20 $ 10.15
2004 ........................ 9 99,218 7.6% $ 13.86 $ 15.02
2005 ........................ 4 357,440 27.4% $ 8.24 $ 10.76
2006 ........................ 6 90,217 6.9% $ 17.36 $ 20.07
2007 AND THEREAFTER ......... 14 314,417 24.1% -- --
-- ------- -----
TOTAL ....................... 46 1,304,796 100.0%
== ========= =====
WESTCHESTER OFFICE PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 16 56,421 1.8% $ 21.55 $ 24.01
2002 ........................ 48 419,902 13.7% $ 21.18 $ 21.51
2003 ........................ 44 246,101 8.0% $ 21.76 $ 22.80
2004 ........................ 31 172,746 5.6% $ 21.12 $ 22.06
2005 ........................ 50 389,628 12.7% $ 24.98 $ 25.29
2006 ........................ 31 692,851 22.6% $ 22.76 $ 24.70
2007 AND THEREAFTER ......... 41 1,086,508 35.6% -- --
-- --------- -----
TOTAL ....................... 261 3,064,157 100.0%
=== ========= =====
STAMFORD OFFICE PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 19 44,758 4.2% $ 19.99 $ 22.03
2002 ........................ 18 84,104 8.0% $ 27.53 $ 28.30
2003 ........................ 17 120,969 11.4% $ 31.07 $ 31.75
2004 ........................ 21 228,220 21.6% $ 22.01 $ 22.81
2005 ........................ 26 122,242 11.6% $ 26.66 $ 28.62
2006 ........................ 19 273,947 25.9% $ 25.53 $ 25.15
2007 AND THEREAFTER ......... 16 182,285 17.3% -- --
-- ------- -----
TOTAL ....................... 136 1,056,525 100.0%
=== ========= =====
24
LEASE EXPIRATIONS - (CONTINUED)
NEW JERSEY OFFICE PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 10 158,351 8.2% $ 17.36 $ 17.63
2002 ........................ 19 144,155 7.4% $ 20.20 $ 20.99
2003 ........................ 17 307,840 15.8% $ 18.86 $ 18.94
2004 ........................ 29 227,106 11.7% $ 22.59 $ 23.44
2005 ........................ 24 279,093 14.4% $ 23.09 $ 23.79
2006 ........................ 14 150,607 7.8% $ 24.52 $ 25.75
2007 AND THEREAFTER ......... 18 675,409 34.7% -- --
-- ------- -----
TOTAL ....................... 131 1,942,561 100.0%
=== ========= =====
NEW YORK CITY OFFICE
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 9 60,261 1.8% $ 32.00 $ 32.91
2002 ........................ 20 189,578 5.6% $ 32.57 $ 33.52
2003 ........................ 7 115,726 3.4% $ 31.89 $ 32.68
2004 ........................ 19 218,239 6.4% $ 36.46 $ 39.35
2005 ........................ 38 446,810 13.2% $ 36.04 $ 37.80
2006 ........................ 48 343,182 10.1% $ 30.00 $ 31.17
2007 AND THEREAFTER ......... 71 2,014,494 59.5% -- --
-- --------- -----
TOTAL ....................... 212 3,388,290 100.0%
=== ========= =====
----------------
(1) Per square foot rental rate represents annualized straight line rent as of
the lease expiration date.
(2) Per square foot rental rate represents annualized base rent as of the lease
expiration date plus non-recoverable operating expense pass-throughs.
25
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities and use of proceeds
On May 31, 2001, the Registrant issued 3,453,881 shares of its Class A
common stock to Crescent in connection with Crescent's conversion of its $85
million preferred equity interest in Metropolitan Partners LLC, based on a
conversion price of $24.61 per share. This transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
During the three months ended June 30, 2001, the Registrant issued 352,878
shares of its Class A common stock, par value $0.01 per share, in exchange for
an equal number of units of general partnership interest of the Operating
Partnership. These transactions were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Securities Holders
On May 24, 2001, 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 2004 annual
meeting of stockholders and until their respective successors are duly elected
and qualified and (2) to ratify the selection of the independent auditors of the
Company. The three nominees were elected and the auditors were ratified. The
results of the voting are set forth below:
ELECTION OF DIRECTORS VOTES CAST FOR VOTES CAST AGAINST
--------------------------------- ---------------- -------------------
Roger Rechler 29,351,625 N/A
Harvey Blau 35,384,369 N/A
John V.N. Klein 35,383,591 N/A
RATIFICATION OF AUDITORS 38,198,639 147,295
---------------------------------
Item 5. Other information -- None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.1 - Loan agreement dated as of June 1, 2001, between 1350 LLC, as
Borrower, and Secore Financial Corporation, as Lender.
10.2 - Loan agreement dated as of July 18, 2001, between Metropolitan 919
3rd Avenue, LLC, as Borrower, and Secore Financial Corporation, as
Lender.
b) During the three months ended June 30, 2001, the Registrant filed the
following reports on Form 8-K:
On May 3, 2001, the Registrant submitted a report on Form 8-K under Item 9
thereof in order to submit its first quarter presentation in satisfaction of the
requirements of Regulation FD.
On May 4, 2001, the Registrant submitted a report on Form 8-K under Item 9
thereof in order to submit supplemental operating and financial data for the
quarter ended March 31, 2001 in satisfaction of the requirements of Regulation
FD.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RECKSON ASSOCIATES REALTY CORP.
By: \s\ Scott H. Rechler /s/ Michael Maturo
---------------------------------- -------------------------------------
Scott H. Rechler, Co-Chief Executive Michael Maturo, Executive Vice President,
Officer and President Treasurer and Chief Financial Officer
DATE: August 13, 2001
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