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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 March 31, 2002
Commission file number: 1-13762
RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)
Maryland 11-3233650
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(State other jurisdiction of incorporation of organization) (IRS. Employer Identification Number)
225 Broadhollow Road, Melville, NY 11747
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(Address of principal executive office) (zip code)
(631) 694-6900
(Registrant's telephone number including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes X No__, and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
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The company has two classes of common stock, issued at $.01 par value
per share with 50,820,534 and 10,283,513 shares of Class A common stock
and Class B common stock outstanding, respectively as of May 2, 2002
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RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 2002
TABLE OF CONTENTS
INDEX PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001........... 2
Consolidated Statements of Income for the three months ended
March 31, 2002 and 2001 (unaudited).......................................................... 3
Consolidated Statements of Cash Flows for the three months ended
March 31, 2002 and 2001 (unaudited).......................................................... 4
Notes to the Consolidated Financial Statements (unaudited)................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk .................................. 24
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings............................................................................ 28
Item 2. Changes in Securities and Use of Proceeds.................................................... 28
Item 3. Defaults Upon Senior Securities.............................................................. 28
Item 4. Submission of Matters to a Vote of Securities Holders........................................ 28
Item 5. Other Information............................................................................ 28
Item 6. Exhibits and Reports on Form 8-K............................................................. 28
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SIGNATURES 28
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1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2002 2001
----------- -----------
(Unaudited)
ASSETS:
Commercial real estate properties, at cost:
Land ................................................................................. $ 409,824 $ 408,837
Building and improvements ............................................................ 2,345,406 2,328,374
Developments in progress:
Land ................................................................................. 68,769 69,365
Development costs .................................................................... 70,482 74,303
Furniture, fixtures and equipment ........................................................ 7,731 7,725
----------- -----------
2,902,212 2,888,604
Less accumulated depreciation ............................................................ (384,696) (361,960)
----------- -----------
2,517,516 2,526,644
Investments in real estate joint ventures ................................................ 5,673 5,744
Investments in mortgage notes and notes receivable ....................................... 55,710 56,234
Investments in service companies and affiliate loans and joint ventures .................. 79,362 79,184
Cash and cash equivalents ................................................................ 40,442 121,975
Tenant receivables ....................................................................... 10,617 9,633
Deferred rents receivable ................................................................ 89,838 81,089
Prepaid expenses and other assets ........................................................ 23,045 45,495
Contract and land deposits and pre-acquisition costs ..................................... 27,848 3,782
Deferred leasing and loan costs .......................................................... 64,495 64,438
----------- -----------
TOTAL ASSETS ............................................................................. $ 2,914,546 $ 2,994,218
=========== ===========
LIABILITIES:
Mortgage notes payable ................................................................... $ 748,591 $ 751,077
Unsecured credit facility ................................................................ 217,000 271,600
Senior unsecured notes ................................................................... 449,484 449,463
Accrued expenses and other liabilities ................................................... 70,540 87,683
Dividends and distributions payable ...................................................... 33,008 32,988
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TOTAL LIABILITIES ........................................................................ 1,518,623 1,592,811
----------- -----------
Minority partners' interests in consolidated partnerships ................................ 243,722 242,698
Preferred unit interest in the operating partnership ..................................... 19,662 30,965
Limited partners' minority interest in the operating partnership ......................... 86,752 81,887
----------- -----------
350,136 355,550
----------- -----------
Commitments and contingencies ............................................................ -- --
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, 50,305,143 and 49,982,377 shares issued
and outstanding, respectively................................................ 503 500
Class B common stock, 10,283,513 shares issued and outstanding ....................... 103 103
Additional paid in capital ............................................................... 1,045,069 1,045,142
----------- -----------
Total Stockholders' Equity ............................................................... 1,045,787 1,045,857
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................... $ 2,914,546 $ 2,994,218
=========== ===========
(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
MARCH 31,
---------------------------------
2002 2001
------------ ------------
REVENUES:
Base rents ..................................................................... $ 107,169 $ 107,494
Tenant escalations and reimbursements .......................................... 15,336 15,945
Equity in earnings of real estate joint ventures and service companies ......... 335 398
Interest income on mortgage notes and notes receivable ......................... 1,556 1,508
Gain on sales of real estate ................................................... 537 --
Investment and other income .................................................... 534 5,541
------------ ------------
TOTAL REVENUES ............................................................. 125,467 130,886
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EXPENSES:
Property operating expenses .................................................... 42,212 40,994
Marketing, general and administrative .......................................... 7,139 7,497
Interest ....................................................................... 20,996 23,631
Depreciation and amortization .................................................. 26,136 23,521
------------ ------------
TOTAL EXPENSES ............................................................ 96,483 95,643
------------ ------------
Income before minority interests and preferred dividends and distributions ..... 28,984 35,243
Minority partners' interests in consolidated partnerships ...................... (5,120) (5,755)
Distributions to preferred unit holders ........................................ (461) (660)
Limited partners' minority interest in the operating partnership ............... (1,934) (2,715)
------------ ------------
Net Income ..................................................................... 21,469 26,113
Dividends to preferred shareholders ............................................ (5,487) (5,425)
------------ ------------
Net income available to common shareholders .................................... $ 15,982 $ 20,688
============ ============
Net Income available to:
Class A common ............................................................. $ 12,159 $ 15,308
Class B common ............................................................. 3,823 5,380
------------ ------------
Total .......................................................................... $ 15,982 $ 20,688
============ ============
Basic net income per weighted average common share:
Class A common ............................................................. $ .24 $ .34
Class B common ............................................................. $ .37 $ .52
Basic weighted average common shares outstanding:
Class A common ............................................................. 50,013,140 45,483,544
Class B common ............................................................. 10,283,513 10,283,513
Diluted net income per weighted average common share:
Class A common ............................................................. $ .24 $ .33
Class B common ............................................................ $ .26 $ .37
Diluted weighted average common shares outstanding:
Class A common ............................................................. 50,350,189 45,949,816
Class B common ............................................................. 10,283,513 10,283,513
(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
3
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ............................................................................... $ 21,469 $ 26,113
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ...................................................... 26,136 23,521
Gain on sales of real estate ....................................................... (537) --
Minority partners' interests in consolidated partnerships .......................... 5,120 5,755
Limited partners' minority interest in the operating partnership ................... 1,934 2,715
Equity in earnings of real estate joint ventures and service companies ............. (335) (398)
Changes in operating assets and liabilities:
Tenant receivables ................................................................. (984) (1,188)
Real estate tax escrows ............................................................ (1,806) (1,937)
Prepaid expenses and other assets .................................................. 13,315 13,118
Deferred rents receivable .......................................................... (8,749) (11,203)
Accrued expenses and other liabilities ............................................. (22,964) (11,674)
--------- ---------
Net cash provided by operating activities .......................................... 32,599 44,822
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in contract deposits and pre-acquisition costs ............................ (9,134) (795)
Additions to developments in progress .............................................. (3,621) (5,078)
Proceeds from mortgage note receivable repayments .................................. 4 3
Investments in affiliate joint ventures ............................................ -- (32,752)
Additions to commercial real estate properties ..................................... (4,931) (43,568)
Additions to furniture, fixtures and equipment ..................................... (6) (113)
Payment of leasing costs ........................................................... (2,987) (3,102)
Proceeds from sales of real estate ................................................. 600 --
--------- ---------
Net cash used in investing activities .............................................. (20,075) (85,405)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock net of issuance costs ....................... 4,492 1,338
Principal payments on secured borrowings ........................................... (2,486) (1,883)
Payment of loan and equity issuance costs .......................................... (322) (334)
Increase in investments in affiliate loans and service companies ................... -- 5,557
Proceeds from unsecured credit facility ............................................ 30,000 88,000
Repayment of unsecured credit facility ............................................. (84,600) --
Distributions to minority partners in consolidated partnerships .................... (4,096) (5,104)
Distributions to limited partners in the operating partnership ..................... (3,178) (2,967)
Distributions to preferred unit holders ............................................ (481) (660)
Dividends to common shareholders ................................................... (27,899) (23,676)
Dividends to preferred shareholders ................................................ (5,487) (5,425)
--------- ---------
Net cash (used in) provided by financing activities ................................ (94,057) 54,846
--------- ---------
Net (decrease) increase in cash and cash equivalents ............................... (81,533) 14,263
Cash and cash equivalents at beginning of period ................................... 121,975 17,843
--------- ---------
Cash and cash equivalents at end of period ......................................... $ 40,442 $ 32,106
========= =========
(SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS)
4
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(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 other business assets and (iv) 100% of the
non-voting preferred stock of the management and construction companies. At
March 31, 2002, the Company's ownership percentage in the Operating Partnership
was approximately 88.4%.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership at March 31,
2002 and December 31, 2001 and the results of their operations and their cash
flows for the three months ended March 31, 2002 and 2001, respectively. The
Operating Partnership's investments in majority owned and/or controlled real
estate joint ventures 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 companies currently conducted by Reckson
Management Group, Inc., RANY Management Group, Inc. and Reckson Construction
Group, Inc., in which the Operating Partnership owns a non-controlling interest
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.
Limited partners' minority interest at March 31, 2002 represent an approximate
11.6% limited partnership minority interest in the Operating Partnership.
Minority partners' interests in consolidated partnerships represent a 49%
interest in RT Tri-State LLC, owner of an eight property suburban office
portfolio, a 40% interest in Omni Partners, L.P., owner of a 575,000 square foot
suburban office property and beginning December 21, 2001, a 49% interest in
Metropolitan 919 Third Avenue, LLC, owner of the property located at 919 Third
Avenue, New York, NY.
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 March 31, 2002 and for the
three month periods ended March 31, 2002 and 2001 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, 2002. 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 10-K
for the year ended December 31, 2001.
5
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.
In October 2001, the Financial Accounting Standards Board issued Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. Statement
No. 144 provides accounting guidance for financial accounting and reporting for
the impairment or disposal of long-lived assets. Statement No. 144 supersedes
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. It also supersedes the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30, Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions related to the disposal of a segment of a business. Statement No.
144 is effective for fiscal years beginning after December 15, 2001. The Company
adopted Statement No. 144 on January 1, 2002. The adoption of this statement did
not have a material effect on the results of operations or the financial
position of the Company.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
3. MORTGAGE NOTES PAYABLE
As of March 31, 2002, the Company had approximately $748.6 million of fixed rate
mortgage notes which mature at various times between 2004 and 2027. The notes
are secured by 21 properties with a net carrying value of approximately $1.5
billion and have a weighted average interest rate of approximately 7.3%.
4. SENIOR UNSECURED NOTES
As of March 31, 2002, the Operating Partnership had outstanding approximately
$449.5 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
ISSUANCE AMOUNT COUPON 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.
6
5. UNSECURED CREDIT FACILITY
As of March 31, 2002, 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 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 March 31, 2002, the Company had availability under the Credit
Facility to borrow an additional $358.0 million (of which, approximately $25.9
million has been allocated for outstanding undrawn letters of credit), subject
to compliance with certain financial covenants.
6. COMMERCIAL REAL ESTATE INVESTMENTS
As of March 31, 2002, the Company owned and operated 77 office properties
(inclusive of eleven office properties owned through joint ventures) comprising
approximately 13.8 million square feet, 102 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 approximately 254 acres of land in 12 separate parcels of
which the Company can develop approximately two million square feet of office
space and approximately 450,000 square feet of industrial space. On April 1,
2002, the Company paid approximately $23.8 million to acquire an additional 52.7
acres of land located in Valhalla, NY on which the Company can develop
approximately 875,000 square feet of office space. The Company financed this
acquisition in part from the sales proceeds of an office property being held by
a qualified intermediary for the purposes of an exchange of real property
pursuant to Section 1031 of the Internal Revenue Code of 1986 and from an
advance under the Credit Facility. In addition, the Company owns a 32 acre land
parcel in Rye Brook, NY which is under contract for sale for approximately $22.3
million. The closing is scheduled to occur during 2002.
The Company also owns a 357,000 square foot office building in Orlando, Florida
and 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, NY and $36.5 million under
three notes which bear interest at rates ranging from 10.5% to 12% per annum and
are secured by a minority partner's preferred unit interest in the Operating
Partnership and certain real property.
On December 21, 2001, the Company formed a joint venture with the New York State
Teachers' Retirement System ("NYSTRS") whereby NYSTRS acquired a 49% indirect
interest in the property located at 919 Third Avenue, New York, NY for $220.5
million which included $122.1 million of its proportionate share of secured
mortgage debt and approximately $98.4 million of cash which was then distributed
to the Company. On January 4, 2002, net proceeds from this sale were used
primarily to repay borrowings under the Credit Facility and for working capital
purposes.
In addition, the Company has entered into a contract to sell, for approximately
$18.5 million, two Class A office properties located in Westchester County, NY
aggregating approximately 157,000 square feet. The closing is scheduled to occur
during the second quarter of 2002.
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.
During the three months ended March 31, 2002, approximately 11,303 Series B
preferred units of the Operating Partnership, with a liquidation preference
value of approximately $11.3 million, were exchanged for 451,934 OP Units at a
price of $25.01 per OP Unit.
The Company currently has issued and outstanding 10,283,513 shares of Class B
Exchangeable Common Stock, par value $.01 per share (the "Class B common
stock"). The shares of Class B common stock currently receive an annual dividend
of $2.5968 per share, which is subject to adjustment annually based on a formula
which measures increases or decreases in the Company's Funds From Operations, as
defined, over a base year.
7
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.
During March 2002, 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 April 5, 2002 April 17, 2002 March 31, 2002 $1.6984
Class B common stock $.6492 April 12, 2002 April 30, 2002 April 30, 2002 $2.5968
Series A preferred stock $.4766 April 12, 2002 April 30, 2002 April 30, 2002 $1.9063
Series B preferred stock $.553125 April 12, 2002 April 30, 2002 April 30, 2002 $2.2125
The Board of Directors of the Company has authorized the purchase of up to an
additional five million shares of the Company's Class B common stock and/or its
Class A common stock. Transactions conducted on the New York Stock Exchange 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.
Previously, under the Company's prior stock buy-back program, 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 61,704 shares of Class A common stock at
an average price of $23.03 per Class A share for an aggregate purchase price of
approximately $31.7 million. In addition, the Board of Directors of the Company
has formed a pricing committee to consider purchases of the Company's
outstanding preferred securities.
The Company currently has issued and outstanding 9,192,000 shares of 7.625%
Series A Convertible Cumulative Preferred Stock (the "Series A preferred
stock"). The Series A preferred stock is redeemable by the Company on or after
April 13, 2003 at a price of approximately $25.95 per share with such price
decreasing, at annual intervals, to $25.00 per share over a five year period. In
addition, the Series A preferred stock, at the option of the holder, is
convertible anytime into the Company's Class A common stock at a price of $28.51
per share.
The Company currently has issued and outstanding two million shares of Series B
Convertible Cumulative Preferred Stock (the "Series B preferred stock"). The
Series B preferred stock is redeemable by the Company as follows: (i) on or
after March 2, 2002 to and including June 2, 2003, at an amount which provides
an annual rate of return in respect of such shares of 15%, (ii) on or after June
3, 2003 to and including June 2, 2004, $25.50 per share and (iii) on or after
June 3, 2004 and thereafter, $25.00 per share. In addition, the Series B
preferred stock, at the option of the holder, is convertible at anytime into the
Company's Class A common stock at a price of $26.05 per share. The Series B
preferred stock currently accumulates dividends at a rate of 8.85% per annum.
Basic net income per share on the Company's Class A common stock was calculated
using the weighted average number of shares outstanding of 50,013,140 and
45,483,544 for the three months ended March 31, 2002 and 2001, respectively.
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 March 31, 2002 and 2001.
8
The following table sets forth the Company's reconciliation of numerators and
denominators of the basic and diluted net income per weighted average common
share and the computation of basic and diluted net income per weighted average
share for the Company's Class A common stock (in thousands except for earnings
per share data):
THREE MONTHS ENDED
MARCH 31,
--------------------------
Numerator: 2002 2001
-------- --------
Income before dividends to preferred shareholders and income allocated to
Class B shareholders ................................................................. $ 21,469 $ 26,113
Dividends to preferred shareholders ....................................................... (5,487) (5,425)
Income allocated to Class B common shareholders .......................................... (3,823) (5,380)
-------- --------
Numerator for basic and diluted net income per Class A common share ............................ $ 12,159 $ 15,308
======== ========
Add back:
Denominator:
Denominator for basic net income per share - weighted average
Class A common shares .............................................................. 50,013 45,484
Effect of dilutive securities:
Common stock equivalents ............................................................ 337 466
-------- --------
Denominator for diluted net income per Class A common share - adjusted
weighted average shares and assumed conversions ........................................... 50,350 45,950
======== ========
Basic net income per Class A common share:
Net income per Class A common share ....................................................... $ .24 $ .34
======== ========
Diluted net income per Class A common share:
Diluted net income per Class A common share ............................................... $ .24 $ .33
======== ========
9
The following table sets forth the Company's reconciliation of numerators and
denominators of the basic and diluted net income per weighted average common
share and the computation of basic and diluted net income per weighted average
share for the Company's Class B common stock (in thousands except for earnings
per share data):
THREE MONTHS ENDED
MARCH 31,
2002 2001
-------- --------
Numerator:
Income before dividends to preferred shareholders and income
allocated to Class A shareholders ................................................. $ 21,469 $ 26,113
Dividends to preferred shareholders ................................................... (5,487) (5,425)
Income allocated to Class A common shareholders ....................................... (12,159) (15,308)
-------- --------
Numerator for basic net income per Class B common share .................................... 3,823 5,380
Add back:
Income allocated to Class A common shareholders ....................................... 12,159 15,308
Limited partner's minority interest in the operating partnership ...................... 1,934 2,715
-------- --------
Numerator for diluted net income per Class B common share .................................. $ 17,916 $ 23,403
======== ========
Denominator:
Denominator for basic net income per share - weighted average
Class B common shares .......................................................... 10,284 10,284
Effect of dilutive securities:
Weighted average Class A common shares outstanding .................................. 50,013 45,484
Weighted average OP Units outstanding ............................................... 7,507 7,693
Common stock equivalents ............................................................ 337 466
-------- --------
Denominator for diluted net income per Class B common share-adjusted
weighted average shares and assumed conversions ........................................ 68,141 63,927
======== ========
Basic net income per Class B common share:
Net income per Class B common share ................................................... $ .37 $ .52
======== ========
Diluted net income per Class B common share:
Diluted net income per Class B common share ........................................... $ .26 $ .37
======== ========
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (in thousands)
THREE MONTHS ENDED
MARCH 31,
2002 2001
-------- --------
Cash paid during the period for interest ............................................ $ 31,219 $ 34,950
======== ========
Interest capitalized during the period .............................................. $ 2,607 $ 2,703
======== ========
10
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 Co-Presidents and Chief Financial Officer who have
been identified as the Chief Operating Decision Makers because of their final
authority over resource allocation, decisions and performance assessment.
In addition, the Company does not consider (i) interest incurred on its Credit
Facility 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 following table sets forth the components of the Company's revenues and
expenses and other related disclosures for the three months ended March 31, 2002
and 2001 (in thousands):
Three months ended
-----------------------------------------------------------------------------------
March 31, 2002 March 31, 2001
------------------------------------------- --------------------------------------
Core Portfolio Other CONSOLIDATED Core Other CONSOLIDATED
TOTALS Portfolio TOTALS
-------------- ---------- ------------ --------- ---------- ------------
REVENUES:
Base rents, tenant
escalations and reimbursements ......... $ 120,198 $ 2,307 $ 122,505 $ 120,722 $ 2,717 $ 123,439
Equity in earnings of real
estate joint ventures and
service companies ........................ -- 335 335 -- 398 398
Other income ................................. 952 1,675 2,627 549 6,500 7,049
---------- ---------- ---------- ---------- --------- ----------
Total Revenues ............................... 121,150 4,317 125,467 121,271 9,615 130,886
---------- ---------- ---------- ---------- --------- ----------
EXPENSES:
Property operating expenses .................. 41,420 792 42,212 40,354 640 40,994
Marketing, general and administrative ........ 4,604 2,535 7,139 4,624 2,873 7,497
Interest ..................................... 12,964 8,032 20,996 12,906 10,725 23,631
Depreciation and amortization ................ 24,597 1,539 26,136 21,535 1,986 23,521
---------- ---------- ---------- ---------- --------- ----------
Total Expenses ............................... 83,585 12,898 96,483 79,419 16,224 95,643
---------- ---------- ---------- ---------- --------- ----------
Income (loss) before minority interests and
preferred dividends and distributions .... $ 37,565 $ (8,581) $ 28,984 $ 41,852 $ (6,609) $ 35,243
========== ========== ========== ========== ========== ==========
Total assets ................................. $2,660,419 $ 254,127 $2,914,546 $2,642,468 $ 421,176 $3,063,644
========== ========== ========== ========== ========== ==========
11
10. RELATED PARTY TRANSACTIONS
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture Partners,
LLC ("RSVP"). RSVP is a real estate venture capital fund which invests primarily
in real estate and real estate operating companies outside the Company's core
office and industrial focus and whose common equity is held indirectly by
FrontLine. In connection with the formation and spin-off 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. The
Company has 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 (the "RSVP Facility") having terms similar to the
FrontLine Facility (advances made under the RSVP Facility and the FrontLine
Facility hereafter, the "FrontLine Loans"). During March 2001, the Company
increased the RSVP Commitment to $110 million and as of March 31, 2002,
approximately $109.1 million had been funded through the RSVP Commitment, of
which $59.8 million represents investments by the Company in RSVP-controlled
(REIT-qualified) joint ventures and $49.3 million represents loans made to
FrontLine under the RSVP Facility. As of March 31, 2002, interest accrued (net
of reserves) under the FrontLine Facility and the RSVP Facility was
approximately $ 19.6 million.
At June 30, 2001, the Company assessed the recoverability of the FrontLine Loans
and reserved approximately $3.5 million of the interest accrued during the
three-month period then ended. In addition, the Company 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 the FrontLine Loans
and its investments in joint ventures with RSVP. During the third quarter of
2001, the Company noted a significant deterioration in FrontLine's operations
and financial condition and, based on its assessment of value and recoverability
and considering the findings and recommendations of the committee and its
financial advisor, the Company recorded a $163 million valuation reserve charge,
inclusive of anticipated costs, in its consolidated statements of operations
relating to its investments in the FrontLine Loans and joint ventures with RSVP.
The Company has discontinued the accrual of interest income with respect to the
FrontLine Loans. The Company has also reserved against its share of GAAP equity
in earnings from the RSVP controlled joint ventures funded through the RSVP
Commitment until such income is realized through cash distributions.
At December 31, 2001, the Company, pursuant to Section 166 of the Internal
Revenue Code of 1986, charged off $70 million of the aforementioned reserve
directly related to the FrontLine Facility, including accrued interest. On
February 14, 2002, the Company charged off an additional $38 million of the
reserve directly related to the FrontLine Facility, including accrued interest
and $47 million of the reserve directly related to the RSVP Facility, including
accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating
Partnership, has insufficient cash reserves to continue operations for the next
twelve months and has reported that it is currently in discussions with its
creditors, including the Company, and that it may be required to seek protection
from creditors under federal bankruptcy laws. FrontLine has reported that
although negotiations are ongoing, it does not appear likely that a satisfactory
restructuring of these obligations will be achieved. Accordingly, FrontLine has
stated that it is currently considering its future options, including seeking
protection from its creditors under the federal bankruptcy laws.
As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of previously accrued GAAP equity in earnings
on those investments, is approximately $65.0 million. Such amount has been
reflected in investments in service companies and affiliate loans and joint
ventures on the Company's consolidated balance sheet.
Both the FrontLine Facility and the RSVP Facility have a term of five years, are
unsecured and advances under each are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrued on the FrontLine Loans 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 were 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. As a result of FrontLines default under the
FrontLine Loans, interest on borrowings thereunder accrue interest at default
interest rates ranging between 13% and 14.5% per annum.
In November 1999, the Company received 176,186 shares of the common stock of
FrontLine as fees in connection with the FrontLine Loans. As a result of certain
tax rule provisions included in the REIT Modernization Act, it was determined
that the Company could no longer maintain any equity position in FrontLine. As
part of a compensation program, the Company distributed these shares to certain
non-executive employees subject to recourse loans. The loans were scheduled to
be forgiven over time based on continued employment with the Company. Based on
the current value of FrontLine's common stock the Company has established a
valuation reserve charge relating to the outstanding balance of these loans in
the amount of $2.4 million.
12
11. COMMITMENTS AND CONTINGENCIES
HQ Global Workplaces, Inc., ("HQ") one of the largest providers of flexible
officing solutions in the world and which is controlled by FrontLine currently
operates eleven executive office centers in the Company's properties, three of
which are held through joint ventures. The leases under which these office
centers operate expire between 2008 and 2011, encompass approximately 225,000
square feet and have current contractual annual base rents of approximately $6.7
million. On March 13, 2002, as a result of experiencing financial difficulties,
HQ voluntarily filed a petition for relief under Chapter 11 of the U.S.
Bankruptcy Code. As of March 31, 2002, HQ's leases with the Company were in
default under their lease terms and further, HQ petitioned the Bankruptcy Court
to reject two of their leases with the Company effective March 13, 2002. The two
rejected leases aggregate approximately 23,900 square feet and provided for
contractual base rents of approximately $548,000 for the 2002 calendar year. In
addition, commencing April 1, 2002 and pursuant to the bankruptcy filing, HQ has
been paying current rental charges, other than the two leases which are being
petitioned for rejection, under their leases with the Company. There can be no
assurances as to whether HQ will affirm or reject the remaining leases with the
Company or whether or not the Bankruptcy Court will grant HQ's petition to
reject the two aforementioned leases. The Company reserved approximately
$500,000 (net of minority partners' interests and including the Company's share
of unconsolidated joint venture interest), or 74%, of the amounts due from HQ as
of March 31, 2002.
13
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, security and
insurance 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.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Company include accounts of the
Company and all majority-owned subsidiaries. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions in certain
circumstances that affect amounts reported in the Company's consolidated
financial statements and related notes. In preparing these financial statements,
management has utilized information available including its past history,
industry standards and the current economic environment among other factors in
forming its estimates and judgments of certain amounts included in the
consolidated financial statements, giving due consideration to materiality. It
is possible that the ultimate outcome as anticipated by management in
formulating its estimates inherent in these financial statements may not
materialize. However, application of the critical accounting policies below
involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates. In addition, other companies may utilize different estimates, which
may impact comparability of the Company's results of operations to those of
companies in similar businesses.
Revenue Recognition and Accounts Receivable
Rental revenue is recognized on a straight line basis, which averages minimum
rents over the terms of the leases. The excess of rents recognized over amounts
contractually due are included in deferred rents receivable on the Company's
balance sheets. The leases also typically provide for tenant reimbursements of
common area maintenance and other operating expenses and real estate taxes.
Ancillary and other property related income is recognized in the period earned.
The Company makes estimates of the collectibility of its accounts receivables
related to base rents, tenant escalations and reimbursements and other revenue
or income. The Company specifically analyzes tenant receivables and analyzes
historical bad debts, customer credit worthiness, current economic trends and
changes in customer payment terms when evaluating the adequacy of its allowance
for doubtful accounts. In addition, when tenants are in bankruptcy the Company
makes estimates of the expected recovery of pre-petition administrative and
damage claims. In some cases, the ultimate resolution of those claims can exceed
beyond a year. These estimates have a direct impact on the Company's net income,
because a higher bad debt reserve results in less net income.
14
The Company records interest income on investments in mortgage notes and notes
receivable on an accrual basis of accounting. The Company does not accrue
interest on impaired loans where, in the judgment of management, collection of
interest according to the contractual terms is considered doubtful. Among the
factors the Company considers in making an evaluation of the collectibility of
interest are: (i) the status of the loan, (ii) the value of the underlying
collateral, (iii) the financial condition of the borrower and (iv) anticipated
future events.
Gain on sales of real estate are recorded when title is conveyed to the buyer,
subject to the buyer's financial commitment being sufficient to provide economic
substance to the sale.
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are recorded
at cost. Tenant improvements, which are included in buildings and improvements,
are also stated at cost. Expenditures for maintenance and repairs are charged to
operations as incurred. Renovations and/or replacements, which improve or extend
the life of the asset are capitalized and depreciated over their estimated
useful lives.
Depreciation is computed utilizing the straight-line method over the estimated
useful lives of ten to thirty years for buildings and improvements and five to
ten years for furniture, fixtures and equipment. Tenant improvements are
amortized on a straight-line basis over the term of the related leases.
The Company is required to make subjective assessments as to the useful lives of
its properties for purposes of determining the amount of depreciation to reflect
on an annual basis with respect to those properties. These assessments have a
direct impact on the Company's net income. Should the Company lengthen the
expected useful life of a particular asset, it would be depreciated over more
years, and result in less depreciation expense and higher annual net income.
Assessment by the Company of certain other lease related costs must be made when
the Company has a reason to believe that the tenant will not be able to execute
under the term of the lease as originally expected.
Long Lived Assets
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property are
less than the carrying value of the property. Such cash flows consider factors
such as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other factors. To the extent impairment has
occurred, the loss will be measured as the excess of the carrying amount of the
property over the fair value of the property.
The Company is required to make subjective assessments as to whether there are
impairments in the value of its real estate properties and other investments.
These assessments have a direct impact on the Company's net income, because
taking an impairment results in an immediate negative adjustment to net income.
In determining impairment, if any, the Company has adopted the use of Financial
Accounting Standards Board Statement No. 144, Accounting for the Impairment or
Disposal of Long Lived Assets.
15
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 March 31, 2002,
the Company owned and operated 77 office properties (inclusive of eleven office
properties which are owned through joint ventures) comprising approximately 13.8
million square feet, 102 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 approximately 254 acres of land in 12 separate parcels of
which the Company can develop approximately two million square feet of office
space and approximately 450,000 square feet of industrial space. On April 1,
2002, the Company paid approximately $23.8 million to acquire an additional 52.7
acres of land located in Valhalla, NY on which the Company can develop
approximately 875,000 square feet of office space. The Company financed this
acquisition in part from the sales proceeds of an office property being held by
a qualified intermediary for the purposes of an exchange of real property
pursuant to Section 1031 of the Internal Revenue Code of 1986 and from an
advance under the Credit Facility. In addition, the Company owns a 32 acre land
parcel in Rye Brook, NY which is under contract for sale for approximately $22.3
million. The closing is scheduled to occur during 2002.
The Company also owns a 357,000 square foot office building in Orlando, Florida
and 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, NY and $36.5 million under
three notes which bear interest at rates ranging from 10.5% to 12% per annum and
are secured by a minority partner's preferred unit interest in the Operating
Partnership and certain real property.
As part of the Company's REIT structure it is provided management, leasing and
construction related services through taxable REIT subsidiaries as defined by
the Internal Revenue Code of 1986. These services are currently provided by
Reckson Management, Inc., RANY Management Group, Inc., and Reckson Construction
Group, Inc. (collectively, the "Service Companies"). The Operating Partnership
owns a 97% non-controlling interest in the Service Companies. An entity which is
owned by certain executive officers of the Company owns a 3% controlling
interest in the Service Companies.
During July 1998, the Company formed Metropolitan Partners, LLC ("Metropolitan")
for the purpose of acquiring Class A office properties in New York City.
Currently the Company owns, through Metropolitan, five Class A office properties
aggregating approximately 3.5 million square feet.
During September 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 aggregating approximately 1.5 million square
feet to the Tri-State JV for a 51% majority ownership interest. TIAA contributed
approximately $136 million for a 49% interest in the Tri-State JV which was then
distributed to the Company. For purposes of its financial statements the Company
consolidates this joint venture.
On December 21, 2001, the Company formed a joint venture with the New York State
Teachers' Retirement Systems ("NYSTRS") whereby NYSTRS acquired a 49% indirect
interest in the property located at 919 Third Avenue, New York, NY for $220.5
million which included $122.1 million of its proportionate share of secured
mortgage debt and approximately $98.4 million of cash which was then distributed
to the Company. For purposes of its financial statements the Company
consolidates this joint venture.
In addition, the Company has entered into a contract to sell, for approximately
$18.5 million, two Class A office properties located in Westchester County, NY
aggregating approximately 157,000 square feet. The closing is scheduled to occur
during the second quarter of 2002.
16
The market capitalization of the Company at March 31, 2002 was approximately
$3.3 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 $24.66 per share/unit (based on the closing price of the
Company's Class A common stock on March 28, 2002), (ii) the market value of the
Company's Class B common stock of $25.76 per share (based on the closing price
of the Company's Class B common stock on March 28, 2002), (iii) the liquidation
preference value of the Company's Series A preferred 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 $1.3
billion (including its share of joint venture debt and net of minority partners'
interests share of joint venture debt) of debt outstanding at March 31, 2002. As
a result, the Company's total debt to total market capitalization ratio at March
31, 2002 equaled approximately 39.0%.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture Partners,
LLC ("RSVP"). RSVP is a real estate venture capital fund which invests primarily
in real estate and real estate operating companies outside the Company's core
office and industrial focus and whose common equity is held indirectly by
FrontLine. In connection with the formation and spin-off 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. The
Company has 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 (the "RSVP Facility") having terms similar to the
FrontLine Facility (advances made under the RSVP Facility and the FrontLine
Facility hereafter, the "FrontLine Loans"). During March 2001, the Company
increased the RSVP Commitment to $110 million and as of March 31, 2002,
approximately $109.1 million had been funded through the RSVP Commitment, of
which $59.8 million represents investments by the Company in RSVP-controlled
(REIT-qualified) joint ventures and $49.3 million represents loans made to
FrontLine under the RSVP Facility. As of March 31, 2002, interest accrued (net
of reserves) under the FrontLine Facility and the RSVP Facility was
approximately $ 19.6 million.
At June 30, 2001, the Company assessed the recoverability of the FrontLine Loans
and reserved approximately $3.5 million of the interest accrued during the
three-month period then ended. In addition, the Company 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 the FrontLine Loans
and its investments in joint ventures with RSVP. During the third quarter of
2001, the Company noted a significant deterioration in FrontLine's operations
and financial condition and, based on its assessment of value and recoverability
and considering the findings and recommendations of the committee and its
financial advisor, the Company recorded a $163 million valuation reserve charge,
inclusive of anticipated costs, in its consolidated statements of operations
relating to its investments in the FrontLine Loans and joint ventures with RSVP.
The Company has discontinued the accrual of interest income with respect to the
FrontLine Loans. The Company has also reserved against its share of GAAP equity
in earnings from the RSVP controlled joint ventures funded through the RSVP
Commitment until such income is realized through cash distributions.
At December 31, 2001, the Company, pursuant to Section 166 of the Internal
Revenue Code of 1986, charged off $70 million of the aforementioned reserve
directly related to the FrontLine Facility, including accrued interest. On
February 14, 2002, the Company charged off an additional $38 million of the
reserve directly related to the FrontLine Facility, including accrued interest
and $47 million of the reserve directly related to the RSVP Facility, including
accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating
Partnership, has insufficient cash reserves to continue operations for the next
twelve months and has reported that it is currently in discussions with its
creditors, including the Company, and that it may be required to seek protection
from creditors under federal bankruptcy laws. FrontLine has reported that
although negotiations are ongoing, it does not appear likely that a satisfactory
restructuring of these obligations will be achieved. Accordingly, FrontLine has
stated that it is currently considering its future options, including seeking
protection from its creditors under the federal bankruptcy laws.
As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of previously accrued GAAP equity in earnings
on those investments, is approximately $65.0 million. Such amount has been
reflected in investments in service companies and affiliate loans and joint
ventures on the Company's consolidated balance sheet.
17
Both the FrontLine Facility and the RSVP Facility have a term of five years, are
unsecured and advances under each are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrued on the FrontLine Loans 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 were 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. As a result of FrontLines default under the
FrontLine Loans, interest on borrowings thereunder accrue interest at default
interest rates ranging between 13% and 14.5% per annum.
In November 1999, the Company received 176,186 shares of the common stock of
FrontLine as fees in connection with the FrontLine Loans. As a result of certain
tax rule provisions included in the REIT Modernization Act, it was determined
that the Company could no longer maintain any equity position in FrontLine. As
part of a compensation program, the Company distributed these shares to certain
non-executive employees subject to recourse loans. The loans were scheduled to
be forgiven over time based on continued employment with the Company. Based on
the current value of FrontLine's common stock the Company has established a
valuation reserve charge relating to the outstanding balance of these loans in
the amount of $2.4 million.
HQ Global Workplaces, Inc., ("HQ") one of the largest providers of flexible
officing solutions in the world and which is controlled by FrontLine currently
operates eleven executive office centers in the Company's properties, three of
which are held through joint ventures. The leases under which these office
centers operate expire between 2008 and 2011, encompass approximately 225,000
square feet and have current contractual annual base rents of approximately $6.7
million. On March 13, 2002, as a result of experiencing financial difficulties,
HQ voluntarily filed a petition for relief under Chapter 11 of the U.S.
Bankruptcy Code. As of March 31, 2002, HQ's leases with the Company were in
default under their lease terms and further, HQ petitioned the Bankruptcy Court
to reject two of their leases with the Company effective March 13, 2002. The two
rejected leases aggregate approximately 23,900 square feet and provided for
contractual base rents of approximately $548,000 for the 2002 calendar year. In
addition, commencing April 1, 2002 and pursuant to the bankruptcy filing, HQ has
been paying current rental charges, other than the two leases which are being
petitioned for rejection, under their leases with the Company. There can be no
assurances as to whether HQ will affirm or reject the remaining leases with the
Company or whether or not the Bankruptcy Court will grant HQ's petition to
reject the two aforementioned leases. The Company reserved approximately
$500,000 (net of minority partners' interests and including the Company's share
of unconsolidated joint venture interest), or 74%, of the amounts due from HQ as
of March 31, 2002.
18
RESULTS OF OPERATIONS
Three months ended March 31, 2002 as compared to the three months ended March
31, 2001.
The Company's total revenues decreased by $5.4 million or 4.1% for the three
months ended March 31, 2002 as compared to the 2001 period. Property operating
revenues, which include base rents and tenant escalations and reimbursements
("Property Operating Revenues") decreased by $934,000 or .8% for the three
months ended March 31, 2002 as compared to the 2001 period. The change in
Property Operating Revenues is primarily attributable to increases in rental
rates in our "same store" properties amounting to $5.6 million. In addition,
$1.9 million of the increase was generated by lease up of newly developed and
redeveloped properties. These increases in Property Operating Revenues were
offset by $4.2 million of revenue attributable to six properties that were sold
in 2001. The Company's base rent reflects the positive impact of the
straight-line rent adjustment of $8.7 million for the three months ended March
31, 2002 as compared to $11.2 million for the 2001 period. Included in the $8.7
million straight-line rent adjustment is $5.3 million attributable to 919 Third
Avenue as compared to $7.5 million for the 2001 period. This amount is primarily
attributable to the free rent period, which was effective through February 28,
2002, contained in the lease of the largest tenant in the building. Other
revenues (excluding Property Operating Revenues) decreased by $4.5 million or
60.2% for the three months ended March 31, 2002 as compared to the 2001 period.
This decrease is primarily attributable to $4.6 million of interest income
accrued on the FrontLine Loans during the 2001 period with no such comparable
interest accrual for the 2002 period.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $1.2 million or 3.0% for the three months ended March
31, 2002 as compared to the 2001 period. This increase is primarily due to $2.8
million of property operating expense increases of which $1.5 million related to
our "same-store" properties including $0.9 million attributable to an increase
in real estate taxes. These increases in Property Expenses were offset by $1.6
million of expenses attributable to six properties that were sold in 2001.
Gross Operating Margins (defined as Property Operating Revenues less Property
Expenses, taken as a percentage of Property Operating Revenues) for the three
months ended March 31, 2002 and 2001 were 65.5% and 66.8%, respectively. The
decrease in Gross Operating Margins is primarily attributable to decreases in
average occupancy of the portfolio.
Marketing, general and administrative expenses decreased by approximately
$358,000 for 4.8% or the three months ended March 31, 2002 as compared to the
2001 period. The decrease in marketing, general and administrative expenses is
primarily due to staff reduction and cost containment. Marketing, general and
administrative expenses, as a percentage of total revenues, were 5.7% for the
three month periods ended March 31, 2002 and 2001.
Interest expense decreased by approximately $2.6 million for the three months
ended March 31, 2002 as compared to the 2001 period. The decrease was primarily
attributable to a decrease in interest expense on the Company's variable rate
debt due to lower interest rates and a lower average balance outstanding on the
Company's Credit Facility. The weighted average balance outstanding was $205.5
million for the three months ended March 31, 2002 as compared to $254.4 million
for the three months ended March 31, 2001.
19
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2002, 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 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 March 31, 2002, the Company had availability under the Credit
Facility to borrow an additional $358.0 million (of which, approximately $25.9
million has been allocated for outstanding undrawn letters of credit), subject
to compliance with certain financial covenants.
During the three months ended March 31, 2002, approximately 11,303 Series B
preferred units of limited partnership interest in the Operating Partnership,
with a liquidation preference value of approximately $11.3 million, were
exchanged for 451,934 OP Units at a price of $25.01 per OP Unit.
The Company has entered into a contract to sell, for approximately $18.5
million, two Class A office properties located in Westchester County, NY
aggregating approximately 157,000 square feet. The closing is scheduled to occur
during the second quarter of 2002. In addition, the Company owns a 32 acre land
parcel in Rye Brook, NY which is under contract for sale for approximately $22.3
million. The closing is scheduled to occur during 2002.
The following table sets forth the Company's invested capital (before valuation
reserves) in RSVP controlled (REIT-qualified) joint ventures and amounts which
were advanced under the RSVP Commitment to FrontLine, for its investment in RSVP
controlled investments (in thousands):
RSVP controlled
joint ventures Amounts advanced Total
--------------- ---------------- --------
Privatization $ 21,480 $ 3,520 $ 25,000
Student Housing 18,086 3,935 22,021
Medical Offices 20,185 -- 20,185
Parking -- 9,091 9,091
Resorts -- 8,057 8,057
Net leased retail -- 3,180 3,180
Other assets and overhead -- 21,598 21,598
-------- -------- --------
$ 59,751 $ 49,381 $109,132
======== ======== ========
Included in these investments is approximately $17.9 million of cash that has
been contributed to the respective RSVP controlled joint ventures or advanced
under the RSVP Commitment to FrontLine and is being held, along with cash from
the preferred investors.
The Company currently has issued and outstanding 10,283,513 shares of Class B
Exchangeable Common Stock, par value $.01 per share (the "Class B common
stock"). The shares of Class B common stock currently receive an annual dividend
of $2.5968 per share, which is subject to adjustment annually based on a formula
which measures increases or decreases in the Company's Funds From Operations
("FFO"), as defined, over a base year. Accordingly, to the extent FFO for the
twelve month period ending June 30, 2002 is less than the FFO for same period
ended June 30, 2001, the dividend rate on the Class B common stock will be
reduced pursuant to the Articles Supplementary under which the Class B common
stock was issued.
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.
The Board of Directors of the Company has authorized the purchase of up to an
additional five million shares of the Company's Class B common stock and/or its
Class A common stock. Transactions conducted on the New York Stock Exchange 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.
Previously, under the Company's prior stock buy-back program, the Company
purchased and retired 1,410,804 shares of Class B common stock at an average
price of $21.48 per Class B share and 61,704 shares of Class A common stock at
an average price of $23.03 per Class A share for an aggregate purchase price of
approximately $31.7 million. In addition, the Board of Directors of the Company
has formed a pricing committee to consider purchases of the Company's
outstanding preferred securities.
20
The Company's indebtedness at March 31, 2002 totaled approximately $1.3 billion
(including its share of joint venture debt and net of minority partners'
interests share of joint venture debt) and was comprised of $217 million
outstanding under the Credit Facility, approximately $449.5 million of senior
unsecured notes and approximately $612.7 million of mortgage indebtedness. Based
on the Company's total market capitalization of approximately $3.3 billion at
March 31, 2002 (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 $1.3
billion of debt), the Company's debt represented approximately 39.0% of its
total market capitalization.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table sets forth the Company's significant debt obligations by
scheduled principal cash flow payments and maturity date and its commercial
commitments by scheduled maturity at March 31, 2002 (in thousands):
MATURITY DATE
---------------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
Mortgage notes payable(1) $ 8,576 $ 12,300 $ 13,169 $ 14,167 $ 13,785 $ 131,831 $ 193,828
Mortgage notes payable(2) -- -- 2,616 18,553 129,920 403,674 554,763
Senior unsecured notes -- -- 100,000 -- -- 350,000 450,000
Unsecured credit facility -- 217,000 -- -- -- -- 217,000
Land lease obligations 2,015 2,687 2,811 2,814 2,795 49,921 63,043
Air rights lease obligations 276 369 379 379 379 4,658 6,440
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 10,867 $ 232,356 $ 118,975 $ 35,913 $ 146,879 $ 940,084 $1,485,074
========== ========== ========== ========== ========== ========== ==========
(1) Scheduled principal amortization payments
(2) Principal payments due at maturity
Certain of the mortgage notes payable are guaranteed by certain limited partners
in the Operating Partnership and/or the Company. In addition, consistent with
customary practices in non-recourse lending, certain non-recourse mortgages may
be recourse to the Company under certain limited circumstances including
environmental issues and breaches of material representations.
In addition, at March 31, 2002, the Company had approximately $24.4 million and
$1.5 million in outstanding undrawn standby letters of credit issued under the
Credit Facility which expire in 2002 and 2003, respectively.
Thirteen of the Company's office properties and two of the Company's industrial
properties which were acquired by the issuance of OP Units are subject to
agreements limiting the Company's ability to transfer them prior to agreed upon
dates without the consent of the limited partner who transferred the respective
property to the Company. In the event the Company transfers any of these
properties prior to the expiration of these limitations, the Company may be
required to make a payment relating to taxes incurred by the limited partner.
The limitations on nine of the properties expire prior to June 30, 2003. The
limitations on the remaining properties expire between 2007 and 2013.
Eleven of the Company's office properties are held in joint ventures which
contain certain limitations on transfer. These limitations include requiring the
consent of the joint venture partner to transfer a property prior to various
specified dates ranging from 2003 to 2005, rights of first offer, and buy/sell
provisions.
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
Credit Facility contains several financial covenants with which the Company must
be in compliance in order to borrow funds thereunder. 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.
21
As a result of current economic conditions, certain tenants have either not
renewed their leases upon expiration or have paid the Company to terminate their
leases. In addition, vacancy rates in our markets have been trending higher and
in some instances our asking rents in our markets have been trending lower.
Additionally, due to the events of September 11th, the Company anticipates
higher operating expenses as they relate to certain insurance coverage and
security measures.
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 bears interest at a variable rate, which will be influenced
by changes in short-term interest rates, and is sensitive to inflation.
22
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.
Since all companies and analysts do not calculate FFO in a similar fashion, the
Company's calculation of FFO presented herein may not be comparable to similarly
titled measures as reported by other companies.
The following table presents the Company's FFO calculation (unaudited and in
thousands, except per share/unit data):
THREE MONTHS ENDED
MARCH 31,
-------------------------
2002 2001
------- -------
Net income available to common shareholders .......................................... $15,982 $20,688
Adjustments for basic funds from operations:
Add:
Limited partners' minority interest in the operating partnership .................. 1,934 2,715
Real estate depreciation and amortization ......................................... 25,321 22,988
Minority partners' interests in consolidated partnerships ......................... 5,120 5,755
Less:
Gain on sales of real estate ...................................................... 537 --
Amounts distributable to minority partners in consolidated partnerships ........... 6,563 5,701
------- -------
Basic Funds From Operations ("FFO") .................................................. 41,257 46,445
Add:
Dividends and distributions on dilutive shares and units .......................... 5,948 7,679
------- -------
Diluted FFO ....................................................................... $47,205 $54,124
======= =======
Weighted average common shares outstanding ........................................... 60,297 55,767
Weighted average units of limited partnership interest outstanding ................... 7,507 7,693
------- -------
Basic weighted average common shares and units outstanding ........................... 67,804 63,460
Adjustments for dilutive FFO weighted average shares and units outstanding:
Add:
Weighted average common stock equivalents ...................................... 337 466
Weighted average shares of Series A Preferred Stock ............................ 8,060 8,060
Weighted average shares of Series B Preferred Stock ............................ 1,919 1,919
Weighted average shares of minority partners preferred interest ................ -- 3,454
Weighted average shares of preferred limited partnership interest .............. 993 1,367
------- -------
Dilutive FFO weighted average shares and units outstanding ........................... 79,113 78,726
======= =======
23
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 will 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 March 31, 2002 (dollars in thousands):
For the Year Ended December 31,
-------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total(1) FMV
-----------------------------------------------------------------------------------------------------
Long term debt:
Fixed rate ............. $ 8,576 $ 12,300 $ 115,785 $ 32,720 $ 143,705 $ 885,505 $1,198,591 $1,218,164
Weighted average
Interest rate..... 7.52% 7.51% 7.47% 6.92% 7.38% 7.34% 7.35%
Variable rate....... $ -- $217,000 $ -- $ -- $ -- $ -- $ 217,000 $ 217,000
Weighted average
Interest rate..... -- 3.05% -- -- -- -- 3.05%
(1) Includes unamortized issuance discounts of approximately $516 on the 5 and
10-year senior unsecured notes issued on March 26, 1999 which are due at
maturity.
In addition, a one percent increase in the LIBOR rate would have an approximate
$2.2 million annual increase in interest expense based on $217.0 million of
variable rate debt outstanding at March 31, 2002.
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
March 31, 2002 (dollars in thousands):
For the Year Ended December 31,
-------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total(1) FMV
-----------------------------------------------------------------------------------------------------
Mortgage notes and
notes receivable:
Fixed rate......... $ 1,161 $ -- $ 36,500 $ -- $ -- $ 16,990 $ 54,651 $ 55,903
Weighted average
Interest rate..... 9.0% -- 10.23% -- -- 11.90% 10.72%
(1) Excludes interest receivables aggregating approximately $1,059.
24
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 years 1998 through 2001 and the three months ended March 31, 2002.
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES
Average
1998 1999 2000 2001 1998-2001 1Q02
-------------- --------------- -------------- -------------- --------------- --------------
Suburban Office Properties
Total $2,004,976 $2,298,899 $3,289,116 $4,606,069 $3,049,765 $1,252,454
Per Square Foot 0.23 0.23 0.33 0.31 $0.12
0.45
NYC Office Properties
Total N/A N/A $946,718 $1,584,501 $1,265,610 $147,258
Per Square Foot N/A N/A 0.38 0.42 $0.04
0.45
Industrial Properties
Total $1,205,266 $1,048,688 $813,431 $711,666 $944,763 $112,022
Per Square Foot 0.12 0.11 0.11 0.11 $0.02
0.11
NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS
1998 1999 2000 2001
--------------- -------------- -------------- ---------------
Long Island Office Properties
Tenant Improvements $1,140,251 $1,009,357 $2,853,706 $2,722,457
Per Square Foot Improved 3.98 4.73 6.99 8.47
Leasing Commissions $418,191 $551,762 $2,208,604 $1,444,412
Per Square Foot Leased 1.46 2.59 4.96 4.49
--------------- -------------- -------------- ---------------
Total Per Square Foot $5.44 $7.32 $11.95 $12.96
=============== ============== ============== ===============
Westchester Office Properties
Tenant Improvements $711,160 $1,316,611 $1,860,027 $2,584,728
Per Square Foot Improved 4.45 5.62 5.72 5.91
Leasing Commissions $286,150 $457,730 $412,226 $1,263,012
Per Square Foot Leased 1.79 1.96 3.00 2.89
--------------- -------------- -------------- ---------------
Total Per Square Foot $6.24 $7.58 $8.72 $8.80
=============== ============== ============== ===============
Connecticut Office Properties
Tenant Improvements $202,880 $179,043 $385,531 $213,909
Per Square Foot Improved 5.92 4.88 4.19 1.46
Leasing Commissions $151,063 $110,252 $453,435 $209,322
Per Square Foot Leased 4.41 3.00 4.92 1.43
--------------- -------------- -------------- ---------------
Total Per Square Foot $10.33 $7.88 $9.11 $2.89
=============== ============== ============== ===============
New Jersey Office Properties
Tenant Improvements $654,877 $454,054 $1,580,323 $1,146,385
Per Square Foot Improved 3.78 2.29 6.71 2.92
Leasing Commissions $396,127 $787,065 $1,031,950 $1,602,962
Per Square Foot Leased 2.08 3.96 4.44 4.08
--------------- -------------- -------------- ---------------
Total Per Square Foot $5.86 $6.25 $11.15 $7.00
=============== ============== ============== ===============
New York City Office Properties
Tenant Improvements N/A N/A $65,267 $788,930
Per Square Foot Improved N/A N/A 1.79 15.69
Leasing Commissions N/A N/A $418,185 $1,098,829
Per Square Foot Leased N/A N/A 11.50 21.86
--------------- -------------- -------------- ---------------
Total Per Square Foot N/A N/A $13.29 $37.55
=============== ============== ============== ===============
Industrial Properties
Tenant Improvements $283,842 $375,646 $650,216 $1,366,488
Per Square Foot Improved 0.76 0.25 0.95 1.65
Leasing Commissions $200,154 $835,108 $436,506 $354,572
Per Square Foot Leased 0.44 0.56 0.64 0.43
--------------- -------------- -------------- ---------------
Total Per Square Foot $1.20 $0.81 $1.59 $2.08
=============== ============== ============== ===============
Average
1998-2001 1Q02 New Renewal
-------------- -------------- ------------- ---------------
Long Island Office Properties
Tenant Improvements $1,931,443 $408,299 $320,921 $87,378
Per Square Foot Improved 6.04 6.34 13.81 2.12
Leasing Commissions $1,155,742 $250,157 $175,216 $74,941
Per Square Foot Leased 3.38 3.88 7.54 1.82
-------------- --------------- -------------- ----------------
Total Per Square Foot $9.42 10.22 $21.35 $3.94
============== =============== ============== ================
Westchester Office Properties
Tenant Improvements $1,618,132 $740,852 $644,517 $96,335
Per Square Foot Improved 5.43 7.61 13.14 2.00
Leasing Commissions $604,780 $359,568 $209,738 $149,830
Per Square Foot Leased 2.41 3.69 4.27 3.10
-------------- --------------- -------------- ----------------
Total Per Square Foot $7.84 $11.30 $17.41 $5.10
============== =============== ============== ================
Connecticut Office Properties
Tenant Improvements $245,341 $58,218 $56,498 $1,720
Per Square Foot Improved 4.11 7.99 11.63 0.71
Leasing Commissions $231,018 $31,498 $31,498 $0
Per Square Foot Leased 3.44 4.33 6.48 -
-------------- --------------- -------------- ----------------
Total Per Square Foot $7.55 $12.32 $18.11 0.71
============== =============== ============== ================
New Jersey Office Properties
Tenant Improvements $958,910 $216,839 $66,674 $150,165
Per Square Foot Improved 3.93 9.77 11.79 9.08
Leasing Commissions $954,526 $11,068 $11,068 $0
Per Square Foot Leased 3.64 0.50 1.96 -
-------------- --------------- -------------- ----------------
Total Per Square Foot $7.57 $10.27 $13.75 $9.08
============== =============== ============== ================
New York City Office Properties
Tenant Improvements $427,099 $1,282,734 $602,100 $680,634
Per Square Foot Improved 8.74 21.64 16.28 30.54
Leasing Commissions $758,507 $588,161 $304,300 $283,861
Per Square Foot Leased 16.68 9.92 8.23 12.74
-------------- --------------- -------------- ----------------
Total Per Square Foot $25.42 $31.56 24.51 $43.28
============== =============== ============== ================
Industrial Properties
Tenant Improvements $669,048 $586,466 $577,373 $9,093
Per Square Foot Improved 0.90 1.70 4.17 -
Leasing Commissions $456,585 $292,487 $251,687 $40,800
Per Square Foot Leased 0.52 0.85 1.82 0.20
-------------- --------------- -------------- ----------------
Total Per Square Foot $1.42 $2.55 5.99 $0.20
============== =============== ============== ================
25
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for executed leases
as of March 31, 2002:
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)
---------- --------- -------- ------------- ------------ --------
2002 22 78,420 2.5% $23.82 $26.06
2003 46 322,001 10.2% $24.32 $26.83
2004 48 306,231 9.7% $23.23 $24.46
2005 67 402,049 12.7% $25.14 $28.04
2006 44 169,206 5.3% $26.40 $28.69
2007 26 411,249 13.0% $24.57 $30.45
2008 and thereafter 74 1,477,312 46.6% - -
-- --------- ----
Total/Weighted Average 327 3,166,468 100.0% - -
=== ========= =====
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)
---------- --------- -------- ------------- ------------ --------
2002 2 33,890 6.3% $33.55 $36.68
2003 3 49,793 9.3% $29.54 $35.16
2004 5 113,793 21.2% $27.27 $34.74
2005 6 59,115 11.0% $27.91 $35.45
2006 0 - 0.0% - -
2007 2 59,722 11.1% $26.86 $34.41
2008 and thereafter 9 220,105 41.1% - -
- ------- ----
Total/Weighted Average 27 536,418 100.0% - -
== ======= =====
WESTCHESTER OFFICE
Year of Total Rentable % of Total Per Per
Lease Number Square Feet Rentable Square Square Foot Square
Expiration of Leases Expiring Feet Expiring S/L Rent (1) Rent (2)
---------- --------- -------- ------------- ------------ --------
2002 38 275,301 8.9% $21.76 $22.70
2003 47 243,025 7.8% $22.22 $23.88
2004 35 171,448 5.5% $21.40 $22.46
2005 48 457,964 14.8% $22.94 $24.01
2006 39 718,904 23.2% $22.69 $24.47
2007 29 416,130 13.4% $24.85 $27.41
2008 and thereafter 35 819,165 26.4% - -
-- ---------- -----
Total/Weighted Average 271 3,101,937 100.0% - -
=== ========== ======
STAMFORD 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)
---------- --------- -------- ------------- ------------ --------
2002 17 45,536 4.3% $24.67 $25.56
2003 21 145,485 13.8% $30.85 $31.72
2004 28 236,570 22.4% $21.92 $23.08
2005 21 118,584 11.2% $26.63 $28.57
2006 24 291,313 27.6% $24.17 $25.06
2007 9 92,541 8.8% $31.92 $34.29
2008 and thereafter 7 125,617 11.9% - -
--- ---------------- ------
Total/Weighted Average 127 1,055,646 100.0% - -
=== =============== ======
NEW JERSEY 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)
---------- --------- -------- ------------- ------------ --------
2002 15 123,058 7.0% $20.08 $20.78
2003 20 319,328 18.1% $27.16 $28.21
2004 28 206,608 11.7% $23.08 $23.89
2005 27 271,611 15.4% $23.78 $24.81
2006 17 192,248 10.9% $24.40 $25.87
2007 3 46,639 2.6% $20.89 $23.69
2008 and thereafter 17 602,282 34.3% - -
-- ---------------- -----
Total/Weighted Average 128 1,761,774 100.0% - -
=== =============== ======
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)
---------- --------- -------- ------------- ------------ --------
2002 16 161,496 4.7% $35.76 $34.14
2003 7 114,987 3.4% $32.08 $33.00
2004 20 223,677 6.6% $36.24 $39.53
2005 33 449,384 13.2% $35.52 $38.07
2006 52 341,686 10.0% $30.16 $31.81
2007 9 117,577 3.4% $34.16 $36.93
2008 and thereafter 84 2,003,577 58.7% - -
-- --------------- -----
Total/Weighted Average 221 3,412,384 100.0% - -
=== =============== ======
26
INDUSTRIAL
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)
---------- --------- -------- ------------- ------------ --------
2002 14 192,055 3.8% $6.79 $7.34
2003 22 578,712 11.3% $5.67 $6.77
2004 34 561,670 11.0% $6.56 $7.61
2005 25 461,741 9.1% $5.90 $7.43
2006 38 859,320 16.8% $6.64 $7.85
2007 20 220,266 4.3% $7.57 $9.19
2008 and thereafter 45 2,231,320 43.7% - -
-- ---------------- ------
Total / Weighted Average 198 5,105,084 100.0% - -
=== ================ ======
RESEARCH & DEVELOPMENT
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)
---------- --------- -------- ------------- ------------ --------
2002 1 4,620 0.4% $12.85 $13.59
2003 5 91,938 8.2% $10.36 $10.76
2004 9 99,218 8.9% $13.86 $15.07
2005 7 457,440 40.9% $ 8.98 $11.14
2006 6 83,061 7.4% $18.53 $21.50
2007 4 85,444 7.6% $12.60 $13.95
2008 and thereafter 14 298,015 26.6% - -
-- ---------------- ------
Total / Weighted Average 46 1,119,736 100.0% - -
== ================ ======
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not presently subject to any material litigation nor, to the
Company's knowledge, is any litigation threatened against the Company, other
than routine actions for negligence or other claims and administrative
proceedings arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the liquidity, results of
operations or business or financial condition of the Company.
On or about October 3, 2001, Burgess Services, LLC ("Burgess Services"),
Dominion Venture Group, LLC ("Dominion Venture Group") and certain affiliated
parties commenced an action in Oklahoma State Court against Reckson Strategic
Venture Partners, LLC ("RSVP"), the Company, and RAP-Dominion LLC
("RAP-Dominion"), a joint venture through which the Company invested with RSVP
in a venture with certain of the plaintiffs. On April 10, 2002, the litigation
was settled without liability on the part of the Company or the defendant. In
connection with the settlement, the joint venture will be terminated.
Item 2. Changes in Securities and use of proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - None
b) During the three months ended March 31, 2002, the Registrant
filed the following reports on Form 8-K:
On January 8, 2002, the Registrant submitted a report on Form 8-K
under Item 5 thereof relating to the sale by a subsidiary of the
Registrant of a 49% interest in the property located at 919 Third
Avenue.
On March 7, 2002, the Registrant submitted a report on Form 8-K
under Item 9 thereof in order to submit its fourth quarter
presentation in satisfaction of the requirements of Regulation
FD.
On March 7, 2002, 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 December 31, 2001 in
satisfaction of the requirements of Regulation FD.
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 Officer Michael Maturo, Executive Vice President,
Treasurer and Chief Financial Officer
Date: May 2, 2002
28