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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number: 1-13762
RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)
Maryland 11-3233650
(State other jurisdiction of incorporation (IRS. Employer
of organization) Identification Number)
225 Broadhollow Road, Melville, NY 11747
(Address of principal executive office) (zip code)
(516) 694-6900
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K.
Yes No X
The aggregate market value of the shares of common stock held by
non-affiliates was approximately $926,000,000 based on the closing price on the
New York Stock Exchange for such shares on March 20,1998.
The number of the Registrant's shares of common stock outstanding was
38,632,335 as of March 20,1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Shareholder's
Meeting to be held May 21, 1998 are incorporated by reference into Part III.
TABLE OF CONTENTS
Item No.
- --------
Part I
1. Business . . . . . . . . ... . . . . . . . . . . . . . . . . . .
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . .
4. Submission of Matters to a Vote of Security-Holders. . . . . . .
Part II
5. Market for Registrant's Common Equity and Related Stockholder Matters
6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . .
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations. ... . . . . . . . . . . . . . . . . . . . . . . .
8. Financial Statements and Supplemental Data . . . . . . . . . . .
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . . . . . . . . . . .
Part III
10. Directors and Executive Officers of the Registrant . . . . . . .
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . .
12. Security Ownership of Certain Beneficial Owners and Management .
13. Certain Relationships and Related Transactions . . . . . . . . .
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Part I
Item 1. Business
General
Reckson Associates Realty Corp. was incorporated in September 1994 and
commenced operations effective with the completion of its initial public
offering (the "IPO") on June 2, 1995. Reckson Associates Realty Corp., together
with Reckson Operating Partnership, L.P. (the "Operating Partnership"), and
their affiliates (collectively, the "Company") was formed for the purpose of
continuing the commercial real estate business of Reckson Associates, its
affiliated partnerships and other entities ("Reckson"). For more than 40 years,
Reckson has been engaged in the business of owning, developing, acquiring,
constructing, managing and leasing suburban office and industrial properties in
the New York metropolitan area. Based on industry surveys, management believes
that the Company is one of the largest owners and operators of Class A suburban
office properties and industrial properties in the New York City tri-state area
(the "Tri-State Area"). The Company operates as a fully-integrated, self-
administered and self-managed Real Estate Investment Trust ("REIT"). As of
December 31, 1997, the Company owned 155 properties (the "Properties")
(including three joint venture properties) encompassing approximately 13.6
million rentable square feet, all of which are managed by the Company. The
Properties consist of 58 Class A suburban office properties (the "Office
Properties") encompassing approximately 7.6 million square feet, 95 industrial
properties (the "Industrial Properties") encompassing approximately 6.0 million
square feet and two 10,000 square foot retail properties. In addition, as of
December 31, 1997 the Company had invested approximately $72.5 million in
certain mortgage indebtedness encumbering five Class A office properties
encompassing approximately 927,000 square feet, a 400 acre parcel of land and a
586,000 square foot industrial property in New Jersey (the "Mortgage Note
Investments"). As of December 31, 1997, the Company also owned or had
contracted to acquire approximately 847 acres of land in 17 separate parcels
that may present future development opportunities.
The Office Properties are Class A suburban office buildings and are well-
located, well-maintained and professionally managed. In addition, these
properties are modern with high finishes or have been modernized to successfully
compete with newer buildings and achieve among the highest rent, occupancy and
tenant retention rates within their markets. The majority of the Office
Properties are located in eight planned office parks and are tenanted primarily
by national service firms such as "Big Six" accounting firms, securities
brokerage houses, insurance companies and health care providers. The Industrial
Properties are utilized for distribution, warehousing, research and development
and light manufacturing/assembly activities and are located primarily in three
planned industrial parks developed by Reckson.
All of the Company's interests in the Properties, the Mortgage Note
Investments and land are held directly or indirectly by, and substantially all
of its operations relating to the Properties are conducted through, the
Operating Partnership. The Company controls the Operating Partnership as the
sole general partner and as of December 31, 1997, owned approximately 84% of the
Operating Partnership's outstanding units of limited partnership ("Units").
The Company seeks to maintain cash reserves for normal repairs,
replacements, improvements, working capital and other contingencies. The
Operating Partnership has established an unsecured credit facility (the
"Unsecured Credit Facility") with a maximum borrowing amount of $250 million
scheduled to mature on April 30, 2000. The Unsecured Credit Facility requires
the Company to comply with a number of financial and other covenants on an
ongoing basis and, under certain circumstances, may be extended by the Operating
Partnership for a period of one year.
In April 1996, the Company completed a public offering of 3,000,000 shares
(pre-split) of Common Stock at a price of $30.50 per share (pre-split) (the
"April 1996 Offering"). In October 1996, the Company completed a public
offering of 1,725,000 shares (pre-split) of Common Stock at a price of $35.50
per share (pre-split) (the "October 1996 Offering"). Net proceeds to the
Company of approximately $86 million from the April 1996 offering and
approximately $60 million from the October 1996 offering were used to make
acquisitions of Properties and to re-pay borrowings.
In March 1997, the Company completed a public offering and sold 4,945,000
common shares (pre-split) at a price of $45.25 (pre-split) (including 645,000
common shares related to the exercise of the underwriter over allotment option)
(the "March 1997 Offering"). In December 1997, the Company completed a public
offering and sold 3,081,777 common shares at a price of $26 per share (the
"December 1997 Offering"). In February 1998, the Company completed a public
stock offering and sold 791,152 common shares at a price of $25.44 per share.
Net proceeds to the Company of approximately $212 million from the March 1997
Offering, $80 million from the December 1997 Offering and $19 million from the
February 1998 Offering were used to make acquisitions of Properties and to
re-pay borrowings.
There are numerous commercial properties that compete with the Company in
attracting tenants and numerous companies that compete in selecting land for
development and properties for acquisition.
The Company's executive offices are located at 225 Broadhollow Road,
Melville, New York 11747 and its telephone number at that location is (516) 694-
6900. At December 31, 1997, the Company had approximately 210 employees.
Recent Developments
Acquisition and Sales Activity.
Set forth below is a brief description of the Company's major acquisition
activity during 1997. All of these Properties are located in the Tri-State
Area.
During 1997, the Company acquired or contracted to acquire approximately
$431 million of Class A suburban office and industrial properties encompassing
approximately 4.9 million square feet located in the Tri-State Area. In
addition, the Company acquired approximately 335 acres of land for an aggregate
purchase price of approximately $24.2 million.
In that regard, during 1997, the Company acquired five Class A suburban
Office Properties and 15 Industrial Properties encompassing approximately
881,000 and 968,000 square feet respectively, located on Long Island.
During 1997, the Company acquired eight office properties encompassing
approximately 830,000 square feet and three industrial properties encompassing
approximately 163,000 square feet in Westchester for an aggregate purchase price
of approximately $117 million. In addition, the Company acquired approximately
32 acres of land for a purchase price of approximately $8 million.
During 1997, the Company acquired one industrial property encompassing
approximately 452,000 square feet in Connecticut for a purchase price of
approximately $27 million.
During 1997, the Company acquired 13 office properties encompassing
approximately 1.5 million square feet and one industrial property encompassing
approximately 128,000 square feet in New Jersey for an aggregate purchase price
of approximately $156 million. Included in these acquisitions is the New Jersey
Portfolio acquisition as described below. In addition, the Company acquired
approximately 303 acres of land for an aggregate purchase price of approximately
$16.2 million.
In October 1997, the Company entered into an agreement to invest $150
million in the Morris Companies, a New Jersey developer and owner of "Big Box"
warehouse facilities. The Morris Companies' properties include twenty-three
industrial buildings encompassing approximately 4.0 million square feet. The
Company's investment will be used to acquire a controlling interest in Reckson
Morris Operating Partnership, L.P. ("RMI"). In connection with the transaction
the Morris Companies will contribute 100% of their interests in certain
industrial properties to RMI in exchange for operating partnership units in RMI.
on January 6, 1998, the Company made its initial investment into RMI of
approximately $65 million. In addition, at December 31, 1997, the Company had
advanced approximately $12 million to the Morris Companies primarily to fund
certain construction costs related to development properties to be contributed
to RMI.
In October 1997, the Company sold 671 Old Willets Path in Hauppauge, New
York for approximately $725,000 and recorded a gain on the sale of $672,000.
In addition, during 1997, the Company invested approximately $29 million in
certain mortgage indebtedness encumbering one Class A office building on Long
Island encompassing approximately 177,000 square feet, a 400 acre parcel of land
located in New Jersey and a 586,000 square foot industrial property located in
New Jersey. In addition, on March 13, 1997 the Company loaned approximately $17
million to its minority partner in Omni, its flagship Long Island office
building, and effectively increased its economic interest in the property owning
partnership.
Set forth below is a brief description of the Company's major acquisition
activity during 1996. All of these Properties are located in the Tri-State Area.
During 1996 the Company's emphasis focused on "Anchor Acquisitions" in suburban
office parks (i.e., an acquisition of a portfolio of properties in a prime
location that provides the Company with a critical mass sufficient to create
operating efficiencies).
New Jersey Portfolio Acquisition. In December 1996, The Company entered
into contract to acquire five Class A office buildings (the "New Jersey
Portfolio") encompassing approximately 500,000 square feet from certain
entities/associates with Robert Heller a New Jersey Developer for approximately
$56.9 million. These properties were acquired during 1997. Four of the
properties are located in the Executive Hill Office Park a 32 acre office park
that contains four buildings with approximately 392,000 square feet and is
located in West Orange, New Jersey, adjacent to route 280, a major interstate
highway. Executive Hill was developed between 1971 and 1984 by various entities
associated with Robert Heller. One of the properties in the office park, 10
Rooney Circle, was a vacant 70,000 square foot building at acquisition that has
undergone a complete renovation including the reskinning of its facade in
granite, installation of two new lobbies and development of a new entranceway.
The property is now fully leased to two tenants. Tenants at Executive Hill
include Chase Manhattan Bank, International Business Machines, Computer Science
Corporation, and State Farm Insurance Company. In connection with this
acquisition, the Company established its Northern New Jersey Division and named
Mark Schaevitz as its Managing Director. Mr. Schaevitz, who acted as Chief
Operating Officer over Mr. Heller's real estate operations for the prior 15
years, joined The Company along with certain key members of his management team
to lead the Company's efforts in Northern New Jersey. The acquisition of the
New Jersey Portfolio, the establishment of the Northern New Jersey Division and
retention of Mr. Schaevitz, and his management team are consistent with the
Company's strategy of developing a local presence in the key suburban markets in
the Tri-State Area through Anchor Acquisitions.
The Landmark Square Acquisition. In October 1996, The Company acquired
Landmark Square, a seven acre office complex containing six buildings and
encompassing 800,000 square feet located in Stamford Connecticut from the
Metropolitan Life Insurance Company("Met Life") for approximately $77 million.
The Company financed the acquisition with a $50 million first mortgage loan from
Met Life which bears interest at a fixed rate of 8.02% and has a ten year term
and proceeds from the October 1996 Offering. Landmark Square was constructed as
part of and is the focal point of a major revitalization development program by
the F.D.Rich Company in the 1970's and 1980's. Met Life obtained title to the
property as a result of a foreclosure of their property mortgage. An affiliate
of The F.D. Rich Company continued to manage Landmark Square until the time it
was purchased by the Company. Landmark Square, contiguous to Stamford Town
Center, a 900,000 square foot upscale shopping mall, offers such amenities as a
full service athletic facility and the Landmark Club, one of Stamford's premier
dining clubs. The Company has commenced an approximately $12.0 million, five
year capital improvement and repositioning program at the complex. Tenants at
Landmark Square include Guiness PLC/United Distillers, Crown Theatre, McKinsey &
Co. and Fleet Bank. In connection with the acquisition of Landmark Square the
Company established its Southern Connecticut Division and named F.D. ("Rick")
Rich III, Managing Director of that division and a Senior Vice President of the
Company . Mr. Rich has over 20 years experience in all facets of real estate
development and operations including operating Landmark Square for the last ten
years. The Landmark Square acquisition, the establishment of the Southern
Connecticut Division and employing Mr. Rich as well as his operations team is
consistent with the Company's strategy of making Anchor Acquisitions in new
markets and in establishing a local presence in each of the key suburban markets
in the Tri-State Area.
The Westchester Acquisition. During 1996, the Company acquired seven Class
A suburban office properties and a 60% joint venture interest in an eighth Class
A suburban office property (collectively, the "Westchester Properties")
encompassing an aggregate of approximately 935,000 square feet located in
Westchester County, New York, and associated management and construction
operations, from affiliates of Halpern Enterprises ("Halpern") for an aggregate
maximum purchase price of approximately $79 million (the "Westchester
Acquisition").
On February 22, 1996, six of the Westchester Properties encompassing
approximately 505,000 square feet (505, 560 and 580 White Plains Road,
Tarrytown, New York; 235 and 245 Main Street, White Plains, New York and 2
Church Street, Ossining, New York), together with the aforementioned management
and construction operations, were acquired by the Company for an aggregate
maximum purchase price of approximately $48.7 million. The purchase price was
funded by $29.0 million of borrowings under the Company's credit facility, the
assumption of $9.4 million of mortgage debt and the issuance of 307,606 (pre-
split) units of limited partnership of the Operating Partnership ("Units"). In
accordance with the terms of the purchase contract, each Unit was valued at
$28.11 (pre-split).
On April 9,1996 The Company acquired the seventh Westchester Property (660
White Plains Road, Tarrytown, New York) and the 60% joint venture interest in
the eighth Westchester Property (520 White Plains Road, Tarrytown, New York) the
purchase of interests in these two properties aggregated approximately $31
million.
The Westchester Acquisition was consistent with the Company's strategy of
developing a local presence in the key suburban markets in the Tri-State Area
through Anchor Acquisitions. The Westchester Acquisition afforded the Company
the opportunity to enter the Westchester market by acquiring a large portfolio
of well-located Class A office properties. In addition, five of the Westchester
Properties are located in the Tarrytown Corporate Center, one of Westchester's
largest office parks containing more than 1.2 million square feet of office
space and a 444-room Marriott Hotel. Completed in 1972, Tarrytown Corporate
Center was the first office development undertaken in the Route 119 corridor in
Westchester County, an area that has developed into a prime commercial location.
Major tenants at the Center include Citibank, Ford Motor Credit, U.S. Philips,
Xerox and the Ciba-Geigy Corporation (which maintains its corporate headquarters
at the Center). Designed by the award-winning architectural firm of Warshauer,
Mellusi, and Warshauer, Tarrytown Corporate Center includes seven office
buildings encompassing approximately 991,000 square feet, of which the company
has acquired six of such buildings encompassing approximately 876,000 square
feet. Finally, as part of the Westchester Acquisition, the Company acquired the
Halpern organization's in-house expertise in management, leasing and
construction. The Halpern organization, which was in existence for over 25
years, was a full service commercial real estate company and one of
Westchester's largest owners and operators of office properties. Acquisition of
the Halpern organization enabled the Company to establish a significant local
presence which management believes is essential to the successful operation of
commercial real estate.
Eleven Industrial Properties acquired by the Company during 1996 are single
story properties encompassing an aggregate of approximately 856,000 square feet.
As of December 31, 1997, nine of these properties were 100% leased to single
tenants, one of these properties is 100% leased to two tenants and one of these
properties is 66% leased to a single tenant with a lease pending for the
remaining portion.
Leasing Activity
During the year ended December 31, 1997, the Company leased 548,992 square
feet at the Office Properties at an average effective rent (i.e., base rent
adjusted on a straight-line basis for free rent periods, tenant improvements and
leasing commissions) of $19.95 per square foot and 790,359 square feet at the
Industrial Properties at an average effective rent of $6.37 per square foot.
Included in this leasing data is 197,239 square feet at the Long Island Office
Properties at an average effective rent of $22.69; 179,061 square feet at the
Westchester Office Properties at an average effective rent of $17.42; 123,501
square feet at the Connecticut Office Properties at an average effective rent of
$20.23; and 49,191 square feet at the New Jersey Office Properties at an average
effective rent of $17.43. Also included in this leasing data is 698,359 square
feet at the Long Island Industrial Properties at an average effective rent of
$6.08 and 92,000 square feet at the Westchester Industrial Properties at an
average effective rent of $8.54.
Financing Activities
The Unsecured Credit Facility. On April 30, 1997, the Company obtained a
three-year $250 million unsecured credit facility from a bank group arranged by
Chase Manhattan Bank and Union Bank of Switzerland (the "Unsecured Credit
Facility"). The Company's ability to borrow thereunder is subject to the
satisfaction of certain financial covenants, including covenants relating to
limitations on unsecured and secured borrowings, minimum interest and fixed
charge coverage rations, a minimum equity value and a maximum dividend payout
ratio. In addition, borrowings under the Unsecured Credit Facility bear
interest at a floating rate equal to one, two, three or six months LIBOR (at the
Company's election) plus a spread ranging from 1.125% to 1.50%, based on the
Company's leverage ratio. The Unsecured Credit Facility replaced the Company's
$150 million secured credit facility. The Company utilizes the Unsecured Credit
Facility primarily to finance the acquisitions of properties and other real
estate investments, fund its development activities and for working capital
purposes. At December 31, 1997, the Company had availability under the
Unsecured Credit Facility to borrow an additional $35.75 million (net of $4.0
million of outstanding undrawn letters of credit).
On January 2, 1998, the Company obtained a $200 million unsecured credit
facility (the "Bridge Facility") which matures on April 1, 1998. The Bridge
Facility was provided by the two lead members of the Unsecured Credit Facility
bank group and serves as interim financing while the Company seeks to expand the
availability under the Unsecured Credit Facility.
Other Financing Activities. During August 1997, the Company refinanced
approximately $43 million of mortgage debt on its Omni office property with a
$58 million fixed rate mortgage loan. The loan which matures on September 1,
2007 has a fixed rate of 7.72%.
On August 28, 1997, the Company sold $150 million of 7.2% senior unsecured
notes due August 2007. The net proceeds of these notes were used to repay
borrowings under the Unsecured Credit Facility and for acquisitions of
properties.
Stock Split
On February 12, 1997, the Board of Directors of the Company declared a two-
for-one stock split, effected as a stock dividend distributable on April 15,
1997 to stockholders of record on April 4, 1997.
Stock Offerings
On March 12, 1997, the Company sold 4,945,000 shares (pre-split) (including
645,000 common shares related to the exercise of the underwriters over allotment
option) of the Company's common stock at $45.25 per share (pre-split) for an
aggregate consideration of approximately $224 million before deducting offering
expenses.
On December 5, 1997, the Company sold 3,081,177 shares of the Company's
common stock at $26.00 per share for an aggregate consideration of approximately
$80 million before deducting offering expenses.
On February 18, 1998, the Company sold 791,152 shares of the Company's
common stock at $25.44 per share for an aggregate consideration of approximately
$20 million before deducting offering expenses.
Corporate Strategies and Growth Opportunities
The Company's primary business objectives are to maximize current return to
stockholders through increases in distributable cash flow per share and to
increase stockholders' long-term total return through the appreciation in value
of its Common Stock. The Company plans to achieve these objectives by continuing
Reckson's corporate strategies and capitalizing on the internal and external
growth opportunities described below.
Corporate Strategies. Management believes that throughout its 40-year
operating history, Reckson has created value in its properties through a variety
of market cycles by implementing the operating strategies described below. These
operating strategies include the implementation of (I) a multidisciplinary
leasing approach that involves architectural design and construction personnel
as well as leasing professionals, (ii) innovative property marketing programs
such as the Executive Center business, which was established by Reckson to
provide "incubation space" for start-up companies as well as office space for
satellite offices of larger companies, (iii) a comprehensive tenant service
program and property amenities designed to maximize tenant satisfaction and
retention, (iv) cost control management and systems that take advantage of
economies of scale that arise from Reckson's market position and efficiencies
attributable to the state-of-the-art energy control system at many of the Office
Properties and (v) an acquisition and development strategy that is continuously
adjusted in light of anticipated changes in market conditions and that seeks to
capitalize on management's multidisciplinary expertise and market knowledge to
modify, upgrade and reposition a property in its market place in order to
maximize value.
The Company also intends to adhere to a policy of maintaining a Debt Ratio
(defined as the total debt of the Company as a percentage of the market value of
outstanding shares of Common Stock and Units) of less than 50%. As of December
31, 1997, the Company's Debt Ratio was approximately 31.6%. This calculation is
net of minority partners' 40% interest in Omni's debt and including the
Company's share of unconsolidated joint venture debt. This Debt Ratio is
intended to provide the Company with financial flexibility to select the optimal
source of capital (whether debt or equity) with which to finance external
growth.
Growth Opportunities. The Company intends to achieve its primary business
objectives by applying its corporate strategies to the internal and external
growth opportunities described below.
Internal Growth. As the Long Island, Westchester, New Jersey and Southern
Connecticut suburban office and industrial markets continue to improve,
management believes the Company is well positioned to benefit from rental
revenue growth through: (i) contractual annual compounding 4% Base Rent (i.e.,
gross rent excluding tenant payments on account of real estate tax, operating
expense escalations and base electrical charges) increases on approximately 85%
of existing leases at the Long Island Properties; (ii) periodic contractual
increases in Base Rent on existing leases at the Westchester Properties, the New
Jersey Properties and the Southern Connecticut Properties; and (iii) the
potential for increases to Base Rents as leases expire as a result of continuing
tightening of the office and industrial markets with limited new supply.
External Growth. The Company seeks to acquire multi-tenant suburban Class
A office and industrial properties located in the Tri-State Area. Management
believes that the Tri-State Area presents opportunities to acquire or invest in
properties at attractive yields. The Company believes that its (i) capital
structure, in particular its Unsecured Credit Facility providing for a maximum
borrowing amount of up to $250 million, (ii) ability to acquire a property for
Units of the Operating Partnership and thereby defer the seller's income tax on
gain, (iii) operating economies of scale, (iv) relationships with financial
institutions and private real estate owners, and (v) fully integrated operations
in four regional Divisions, will enhance the Company's ability to identify and
capitalize on acquisition opportunities. The Company also intends to selectively
develop new Class A suburban office and industrial properties and to continue to
redevelop existing office and industrial properties as these opportunities
arise. In the near future the Company will concentrate its development
activities on industrial and Class A suburban office properties within it's Tri-
State Area markets.
In October 1997, the Company entered into an agreement to invest $150
million in the Morris Companies, a New Jersey developer and owner of "Big Box"
warehouse facilities. The Morris Companies' properties include 23 industrial
buildings encompassing approximately 4.0 million square feet. The Company's
investment will be used to acquire a controlling interest in Reckson Morris
Operating Partnership, L.P. ("RMI"). In connection with the transaction the
Morris Companies will contribute 100% of their interests in certain industrial
properties to RMI in exchange for operating partnership units in RMI. On
January 6, 1998, the Company acquired an approximate 70% interest in RMI for
approximately $65 million. In addition, at December 31, 1997, the Company had
advanced approximately $12 million to the Morris Companies primarily to fund
certain construction costs related to development properties to be contributed
to RMI.
During 1997, the Company formed Reckson Service Industries, Inc. ("RSI) and
Reckson Strategic Venture Partners, LLC ("RSVP"). RSI will serve as the
managing member of RSVP. RSI will invest in operating companies that generally
will provide commercial services to properties owned by the Company and its
tenants and third parties. Since RSI will not be making REIT qualifying
investments, its shares will be distributed to the Company's shareholders and
trade as a separate public company. RSVP was formed to provide the Company with
a "research and development" vehicle to invest in alternative real estate
sectors. RSVP will invest primarily in real estate and real estate related
operating companies generally outside of the Company's core office and
industrial focus. RSVP's strategy is to identify and acquire interests in
established entrepreneurial enterprises with experienced management teams in
market sectors which are in the early stages of their growth cycle or offer
unique circumstances for attractive investments as well as a platform for future
investments. The research and development vehicle will enable the Company to
minimize its investment risks during the early stages of an investment. The
vehicle permits the Company to monitor the long-term potential for each
investment. As later stage capital is required, the Company will determine the
prudence of additional investment and the potential for incorporating it as a
core business line. To facilitate investments by RSVP, the Company has
committed $100 million of initial capital. In addition, RSVP has obtained a
$200 million preferred equity facility from Paine Webber Real Estate Securities
(PWRES") and a PWRES/George Soros sponsored fund. At December 31, 1997, the
Company had made investments in or loans to RSI and RSVP aggregating
approximately $4.3 million and $7.4 million, respectively.
Environmental Matters
Under various Federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. These laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost
of any required remediation and the owner's liability therefore as to any
property is generally not limited under such enactments and could exceed the
value of the property and/or the aggregate assets of the owner. The presence of
such substances, or the failure to properly remediate such substances, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at a disposal or treatment facility,
whether or not such facility is owned or operated by such person. Certain
environmental laws govern the removal, encapsulation or disturbance of asbestos-
containing materials ("ACMs") when such materials are in poor condition, or in
the event of renovation or demolition. Such laws impose liability for release
of ACMs into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with ACMs. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties or as having arranged for the disposal or treatment
of hazardous or toxic substances and, therefore, potentially liable for removal
or remediation costs, as well as certain other related costs, including
governmental fines and injuries to persons and property.
All of the Office Properties and all of the Industrial Properties have been
subjected to a Phase I or similar environmental audit after April 1, 1994 (which
involved general inspections without soil sampling, ground water analysis or
radon testing and, for the Properties constructed in 1978 or earlier, survey
inspections to ascertain the existence of ACMs were conducted) completed by
independent environmental consultant companies (except for 35 Pinelawn Road
which was originally developed by Reckson and subjected to a Phase 1 in April
1992). These environmental audits have not revealed any environmental liability
that would have a material adverse effect on the Company's business.
Item 2. Properties
General
As of December 31, 1997, the Company owned 155 properties (including three
joint venture properties) encompassing approximately 13.6 million square feet.
These properties consist of 58 Class A suburban office properties encompassing
approximately 7.6 million square feet, 95 industrial properties encompassing
approximately 6.0 million rentable square feet and two free-standing 10,000
square foot retail properties. The rentable square feet of each property has
been determined for these purposes based on the aggregate leased square footage
specified in currently effective leases and, with respect to vacant space,
management's estimate. In addition, as of December 31, 1997, the Company owned
or had contracted to acquire approximately 847 acres of land in 17 separate
parcels that may present future development opportunities.
Reckson has historically emphasized the development of large scale office
and industrial parks and approximately 66% of the Office Properties and 58% of
the Industrial Properties are located in such parks (measured by rentable square
footage). The Company believes that owning properties in planned office and
industrial parks provides certain strategic advantages, including the following:
(i) certain tenants prefer being located in a park with other high quality
companies to enhance their corporate image, (ii) parks afford tenants certain
aesthetic amenities such as a common landscaping plan, standardization of
signage and common dining and recreational facilities, (iii) tenants may expand
(or contract) their business within a park, enabling them to centralize business
functions and (iv) a park provides tenants with access to other tenants and may
facilitate business relationships between tenants.
Also, as of December 31, 1997, the Company had invested approximately $72.5
million in certain mortgage indebtedness encumbering five Class A office
properties on Long Island, one 586,000 square foot industrial property in New
Jersey and a 400 acre parcel of land. In addition, on March 13, 1997 the
Company loaned approximately $17 million to its minority partner in Omni, its
flagship Long Island office building, and effectively increased its economic
interest in the property owning partnership.
Set forth below is a summary of certain information relating to the
Properties, categorized by office and industrial parks, as of December 31, 1997.
Office Properties
General. As of December 31, 1997, the Company owned or had an interest in
58 Class A suburban office properties that encompass approximately 7.6 million
rentable square feet. As of December 31, 1997, these office properties were
approximately 92% leased to 696 tenants.
The Office Properties are Class A suburban office buildings and are well-
located, well-maintained and professionally managed. In addition, these
properties are modern with high finishes and achieve among the highest rent,
occupancy and tenant retention rates within their sub-markets. Thirty-seven of
the 58 office properties are located in the following eight planned office
parks: the 23 acre North Shore Atrium, the 32 acre Huntington Melville Corporate
Center, the 50 acre Nassau West Corporate Center, the 29 acre Tarrytown
Corporate Center, the seven acre Landmark Square, the 32 acre Executive Hill
Office Park the 76 acre Royal Executive Park and the 11 acre University Square.
The buildings in these office parks offer a full array of amenities including
health clubs, racquetball courts, sun decks, restaurants, computer controlled
HVAC access systems and conference centers. Management believes that the
location, quality of construction and amenities as well as Reckson's reputation
for providing a high level of tenant service have enabled Reckson to attract and
retain a national tenant base. The office tenants include national service
companies, such as "Big Six" accounting firms, securities brokerage houses,
insurance companies and health care providers.
The Long Island Office Properties are leased to national tenants, as well
as to local tenants. Leases on the Office Properties are typically written for
terms ranging from five to ten years and require (i) payment of a fixed gross
rental amount that excludes payments on account of real estate tax, operating
expense escalations and base electrical charges ("Base Rent"), (ii) payment of a
base electrical charge, (iii) payment of real estate tax escalations over a base
year, (iv) payment of compounded annual increases to Base Rent in lieu of
operating expense escalations (which the Company believes have historically
exceeded the annual increase in actual operating expenses), (v) payment of
overtime HVAC and electric and (vi) payment of electric escalations over a base
year. In virtually all leases, the landlord is responsible for structural
repairs. Renewal provisions typically provide for renewal rates at market rates
or a percentage thereof, provided that such rates are not less than the most
recent renewal rates.
The Westchester Properties, the Southern Connecticut Properties and the New
Jersey Properties are also leased to national tenants, as well as to local
tenants. Leases are typically for terms ranging from five to ten years and
require (i) payment of Base Rent, (ii) payment of a base electrical charge,
(iii) payment of real estate tax escalations over a base year, (iv) payment of
periodic fixed increases in Base Rent, (v) payment of operating expense
escalations over a base year, and (vi) payment of electric escalations over a
base year. In virtually all leases, the landlord is responsible for structural
repairs. Renewal provisions typically provide for renewal rates at market rate
or a percentage thereof, provided that such rates are not less than the most
recent renewal rates.
The following table sets forth certain information as of December 31, 1997
for each of the Office Properties.
Ownership
Interest
(Ground
Company's Lease Land Number
Percentage Expiration Year Area of
Property Ownership Date) Constructed (Acres) Floors
- ------------------------------------ ----------- ----------- ----------- ----------- -----------
Office Properties:
Huntington Melville Corporate Center,
Melville, NY
Leasehold
395 North Service Rd 100% (2081) 1988 7.5 4
200 Broadhollow Rd. 100% Fee 1981 4.6 4
48 South Service Rd. 100% Fee 1986 7.3 4
35 Pinelawn Rd 100% Fee 1980 6.0 2
275 Broadhollow Rd 100% Fee 1970 5.8 4
1305 Old Walt Whitman Rd 100% Fee 1950 18.1 3
-----------
Total-Huntington Melville
Corporate Center 49.3
===========
North Shore Atrium,
Syosset, NY
6800 Jericho Turnpike
(North Shore Atrium I) 100% Fee 1977 13.0 2
6900 Jericho Turnpike
(North Shore Atrium II) 100% Fee 1982 5.0 4
-----------
Total-North Shore Atrium 18.0
===========
Nassau West Corporate Center,
Mitchel Field, NY
50 Charles Lindbergh Blvd. Leasehold
(Nassau West Corporate Center II) 100% (2082) 1984 9.1 6
60 Charles Lindbergh Blvd. Leasehold
(Nassau West Corporate Center I) 100% (2082) 1989 7.8 2
Leasehold
333 Earl Ovington Blvd. (The Omni) 60% (2088) 1991 30.6 10
Leasehold
90 Merrick Rd. 100% (2084) 1985 13.2 9
-----------
Total-Nassau West Corporate Center 60.7
===========
Tarrytown Corp. Center
Tarrytown, NY
505 White Plains Road 100% Fee 1974 1.4 2
520 White Plains Road 60% Fee 1981 6.8 6
555 White Plains Road 100% Fee 1972 4.2 5
560 White Plains Road 100% Fee 1980 4.2 6
580 White Plains Road 100% Fee 1977 6.1 6
660 White Plains Road 100% Fee 1983 10.9 6
-----------
Total-Tarrytown Corporate Center 33.4
===========
Royal Executive Park,
Rye Brook, NY
1 International Dr. 100% Fee 1983 N/A 3
2 International Dr. 100% Fee 1983 N/A 3
3 International Dr. 100% Fee 1983 N/A 3
4 International Dr. 100% Fee 1986 N/A 3
5 International Dr. 100% Fee 1986 N/A 3
6 International Dr. 100% Fee 1986 N/A 3
-----------
Total- Royal Executive Park 44.4
===========
Landmark Square,
Stamford, CT
One Landmark Square 100% Fee 1973 N/A 22
Two Landmark Square 100% Fee 1976 N/A 3
Three Landmark Square 100% Fee 1978 N/A 6
Four Landmark Square 100% Fee 1977 N/A 5
Five Landmark Square 100% Fee 1976 N/A 3
Six Landmark Square 100% Fee 1984 N/A 10
-----------
Total - Landmark Square 7.2
===========
Stand-alone Long Island
Office Properties
400 Garden City Plaza
Garden City, NY 100% Fee 1989 5.7 5
88 Duryea Rd.
Melville, NY 100% Fee 1986 1.5 2
310 East Shore Rd.
Great Neck, NY 100% Fee 1981 1.5 4
333 East Shore Rd. Leasehold
Great Neck, NY 100% (2030) 1976 1.5 2
520 Broadhollow Rd.
Melville, NY 100% Fee 1978 7.0 1
1660 Walt Whitman Rd.
Melville, NY 100% Fee 1980 6.5 1
125 Baylis Rd.
Melville, NY 100% Fee 1980 8.2 2
150 Motor Parkway,
Hauppauge, NY 100% Fee 1984 11.3 4
-----------
Total-Stand-alone Long Island
Office Properties 43.2
===========
Stand-alone Westchester
Office Properties
155 White Plains Road,
Tarrytown, NY 100% Fee 1963 13.2 2
235 Main Street,
White Plains, NY 100% Fee 1974 0.4 6
245 Main Street,
White Plains, NY 100% Fee 1983 0.4 6
2 Church Street,
Ossining, NY 100% Fee 1979 1.1 2
120 White Plains Rd.,
Tarrytown, NY 100% Fee 1984 9.7 6
80 Grasslands
Elmsford, NY 100% Fee 1989 4.9 3
360 Hamilton Avenue,
White Plains, NY 50% Fee 1977 1.5 12
-----------
Total Stand-alone Westchester
Office Properties 31.2
===========
Executive Hill Office Park
West Orange, NJ
100 Executive Drive 100% Fee 1978 10.1 3
200 Executive Drive 100% Fee 1980 8.2 4
300 Executive Drive 100% Fee 1984 8.7 4
10 Rooney Circle 100% Fee 1971 5.2 3
-----------
Total-Executive Hill Office Park 32.2
===========
University Square,
Princeton, NJ
100 Campus Dr. 100% Fee 1987 N/A 1
104 Campus Dr. 100% Fee 1987 N/A 1
115 Campus Dr. 100% Fee 1987 N/A 1
-----------
Total University Square 11.0
===========
Stand-alone New Jersey Properties
1 Paragon Drive
Montvale, NJ 100% Fee 1980 11 2
101 West John F Kennedy Pkwy,
Short Hills, NJ 100% Fee 1981 9 6
101 East John F, Kennedy Pkwy,
Short Hills, NJ 100% Fee 1981 6 4
One Eagle Rock,
Hanover, NJ 100% Fee 1986 10.4 3
3 University Plaza,
Hackensack, NJ 100% Fee 1985 10.6 6
1255 Broad Street,
Clifton, NJ 100% Fee 1968 11.1 2
-----------
Total Stand-alone New Jersey
Properties 58.1
===========
Total-Office Properties 388.7
===========
See next table for footnotes.
Annual Number
Rentable Annual Base Rent of
Square Percent Base Rent Per Leased Tenant
Property Feet Leased Sq. Ft. Leases
----------- ----------- ------------- ----------- -----------
Office Properties:
Huntington Melville Corporate Center,
Melville, NY
395 North Service Rd 187,393 100.0% $ 4,503,308 $ 24.03 6
200 Broadhollow Rd. 67,432 66.1% $ 1,011,703 $ 22.69 10
48 South Service Rd. 125,372 79.3% $ 1,917,281 $ 19.27 6
35 Pinelawn Rd 105,241 96.3% $ 1,977,718 $ 19.51 29
275 Broadhollow Rd 124,441 96.2% $ 2,489,324 $ 20.79 22
1305 Old Walt Whitman Rd 167,400 --- $ --- $ --- ---
----------- ------------- -----------
Total-Huntington Melville
Corporate Center 777,279 90.6% $ 11,899,334 $ 21.53 73
=========== ============= ===========
North Shore Atrium,
Syosset, NY
6800 Jericho Turnpike
(North Shore Atrium I) 209,028 84.5% $ 3,065,600 $ 17.36 36
6900 Jericho Turnpike
(North Shore Atrium II) 101,036 54.2% $ 1,105,410 $ 20.19 8
----------- ------------- -----------
Total-North Shore Atrium 310,064 74.6% $ 4,171,010 $ 18.03 44
=========== ============= ===========
Nassau West Corporate Center,
Mitchel Field, NY
50 Charles Lindbergh Blvd.
(Nassau West Corporate Center II) 211,845 90.1% $ 4,159,313 $ 21.78 21
60 Charles Lindbergh Blvd.
(Nassau West Corporate Center I) 186,889 100.0% $ 3,690,130 $ 19.71 8
333 Earl Ovington Blvd. (The Omni) 575,000 91.4% $ 14,878,749 $ 28.31 27
90 Merrick Rd. 221,839 72.2% $ 3,200,818 $ 19.97 20
----------- ------------- -----------
Total-Nassau West Corporate Center 1,195,573 89.0% $ 25,929,010 $ 24.37 76
=========== ============= ===========
Tarrytown Corp. Center
Tarrytown, NY
505 White Plains Road 26,468 96.2% $ 473,430 $ 18.59 18
520 White Plains Road 171,761 100.0% $ 3,192,362 $ 18.59 1
555 White Plains Road 121,585 96.8% $ 1,802,001 $ 15.31 8
560 White Plains Road 126,471 100.0% $ 2,378,519 $ 18.61 19
580 White Plains Road 170,726 97.5% $ 2,775,832 $ 16.67 23
660 White Plains Road 258,715 98.9% $ 4,802,073 $ 18.76 52
----------- ------------- -----------
Total-Tarrytown Corporate Center 875,726 98.8% $ 15,424,217 $ 17.83 121
=========== ============= ===========
Royal Executive Park,
Rye Brook, NY
1 International Dr. 90,000 100.0% $ 1,125,000 $ 12.50 1
2 International Dr. 90,000 100.0% $ 1,125,000 $ 12.50 1
3 International Dr. 91,174 93.3% $ 1,553,377 $ 18.27 5
4 International Dr. 86,694 95.6% $ 1,790,042 $ 21.60 9
5 International Dr. 90,000 100.0% $ 2,416,500 $ 26.85 1
6 International Dr. 94,016 98.0% $ 1,391,926 $ 15.11 7
----------- ------------- -----------
Total- Royal Executive Park 541,884 97.8% $ 9,401,845 $ 17.74 24
=========== ============= ===========
Landmark Square,
Stamford, CT
One Landmark Square 296,716 84.4% $ 5,229,935 $ 20.87 58
Two Landmark Square 39,701 81.8% $ 701,190 $ 21.58 9
Three Landmark Square 128,286 79.7% $ 2,432,326 $ 23.79 18
Four Landmark Square 104,446 96.4% $ 1,827,791 $ 18.14 18
Five Landmark Square 57,273 87.7% $ 175,000 $ 3.48 1
Six Landmark Square 171,899 94.6% $ 3,633,757 $ 22.35 8
----------- ------------- -----------
Total - Landmark Square 798,321 87.5% $ 13,999,999 $ 20.04 112
=========== ============= ===========
Stand-alone Long Island
Office Properties
400 Garden City Plaza
Garden City, NY 176,073 95.3% $ 3,491,953 $ 20.82 23
88 Duryea Rd.
Melville, NY 25,061 79.6% $ 308,404 $ 15.46 3
310 East Shore Rd.
Great Neck, NY 50,000 100.0% $ 1,148,590 $ 22.92 21
333 East Shore Rd.
Great Neck, NY 17,715 99.6% $ 434,960 $ 24.64 9
520 Broadhollow Rd.
Melville, NY 83,176 100.0% $ 1,514,193 $ 18.20 5
1660 Walt Whitman Rd.
Melville, NY 73,115 99.7% $ 1,224,483 $ 16.79 5
125 Baylis Rd.
Melville, NY 98,329 88.8% $ 1,183,658 $ 13.56 10
150 Motor Parkway,
Hauppauge, NY 191,447 70.4% $ 2,310,756 $ 17.14 19
----------- ------------- -----------
Total-Stand-alone Long Island
Office Properties 714,916 88.6% $ 11,616,997 $ 18.33 95
=========== ============= ===========
Stand-alone Westchester Properties
155 White Plains Road,
Tarrytown, NY 60,909 90.6% $ 1,021,179 $ 18.50 5
235 Main Street,
White Plains, NY 83,237 79.0% $ 1,156,248 $ 17.58 23
245 Main Street,
White Plains, NY 73,543 87.3% $ 1,298,363 $ 20.22 15
2 Church Street,
Ossining, NY 24,250 60.6% $ 214,463 $ 14.59 4
120 White Plains Rd.,
Tarrytown, NY 203,000 99.4% $ 4,388,428 $ 22.33 11
80 Grasslands
Elmsford, NY 85,104 93.4% $ 1,509,382 $ 18.99 6
360 Hamilton Avenue,
White Plains, NY 365,000 --- $ --- $ --- ---
----------- ------------- -----------
Total Stand-alone Westchester
Office Properties 895,043 90.7% $ 9,588,063 $ 20.14 64
=========== ============= ===========
Executive Hill Office Park
West Orange, NJ
100 Executive Drive 92,872 100.0% $ 1,700,804 $ 18.31 12
200 Executive Drive 102,630 88.9% $ 1,760,392 $ 19.29 16
300 Executive Drive 126,196 99.0% $ 2,532,643 $ 20.28 12
10 Rooney Circle 69,684 100.0% $ 1,406,904 $ 20.19 2
----------- ------------- -----------
Total-Executive Hill Office Park 391,382 96.8% $ 7,400,743 $ 19.53 42
=========== ============= ===========
University Square,
Princeton, NJ
100 Campus Dr. 27,350 100.0% $ 339,125 $ 12.40 2
104 Campus Dr. 70,155 100.0% $ 1,140,019 $ 16.25 1
115 Campus Dr. 33,600 100.0% $ 602,144 $ 17.92 2
----------- ------------- -----------
Total University Square 131,105 100.0% $ 2,081,288 $ 15.87 5
=========== ============= ===========
Stand-alone New Jersey Properties
1 Paragon Drive
Montvale, NJ 104,599 95.6% $ 1,138,187 $ 11.38 12
101 West John F Kennedy Pkwy,
Short Hills, NJ 185,233 100.0% $ 2,963,728 $ 16.00 1
101 East John F, Kennedy Pkwy,
Short Hills, NJ 122,841 100.0% $ 1,965,456 $ 16.00 1
One Eagle Rock,
Hanover, NJ 140,000 96.8% $ 609,525 $ 4.50 2
3 University Plaza,
Hackensack, NJ 216,403 97.9% $ 3,258,186 $ 15.37 24
1255 Broad Street,
Clifton, NJ 180,000 --- $ -- $ -- --
----------- ------------- -----------
Total Stand-alone New Jersey
Properties 949,076 98.2% $ 9,935,082 $ 13.15 40
=========== ============= ===========
Total-Office Properties 7,580,369 92.1% $121,447,588 $ 19.21 696
=========== ============= ===========
Ground lease expirations assume exercise of renewal options by the lessee.
Represents Base Rent of signed leases at December 31, 1997 adjusted for
scheduled contractual increases during the 12 months ending December 31, 1998.
Total Base Rent for these purposes reflects the effect of any lease expirations
that occur during the 12-month period ending December 31, 1998. Amounts
included in rental revenue for financial reporting purposes have been
determined on a straight-line basis rather than on the basis of contractual
rent as set forth in the foregoing table.
Property is currently under redevelopment.
Percent leases excludes properties under development.
Year renovated.
The actual fee interest in 520 White Plains Road is held by the County of
Westchester Industrial Development Agency. The fee interest in 520 White
Plains Road may be acquired if the outstanding principal under certain loan
agreements and annual basic installments are prepaid in full.
Industrial Properties
General. As of December 31, 1997, the Company owned or had an interest in 95
Industrial Properties that encompass approximately 6.0 million rentable square
feet. All but six of the Industrial Properties are located on Long Island. As
of December 31, 1997, the Industrial Properties were approximately 94% leased
to 230 tenants. Many of the Industrial Properties have been constructed with
high ceiling heights (i.e., above 18 feet), upscale office building facades,
parking in excess of zoning requirements, drive-in and/or loading dock
facilities, and other features which permit them to be leased for industrial
and/or office purposes.
The Industrial Properties are leased to national tenants as well as to local
companies. These tenants utilize the Industrial Properties for distribution,
warehousing, research and development and light manufacturing/assembly
activities. Leases on the Industrial Properties are typically written for terms
ranging from three to seven years and require (i) payment of a Base Rent, (ii)
payments of real estate tax escalations over a base year, (iii) payments of
compounded annual increases to Base Rent and (iv) reimbursement of all
operating expenses. Electric costs are borne and paid directly by the tenant.
Certain leases are "triple net" (i.e., the tenant is required to pay in
addition to annual Base Rent, all operating expenses and real estate taxes). In
virtually all leases, the landlord is responsible for structural repairs.
Renewal provisions typically provide for renewal rents at market rates,
provided that such rates are not less than the most recent rental rates.
Approximately 58% of the Industrial Properties measured by square footage,
are located in three large scale planned industrial parks that were developed
by Reckson. They are (i) Vanderbilt Industrial Park, a 400-acre industrial
park containing 50 buildings with approximately 3.6 million square feet.(ii)
Airport International Plaza a 200-acre industrial park containing 32 buildings
with approximately 1.4 million square feet, and (iii) County Line Industrial
Center, a 28-acre industrial park containing six buildings and approximately
one million square feet.
In addition to its industrial parks, as of December 31, 1997, the Company
owned 27 standalone Industrial Properties. As of December 31, 1997, these
Properties were approximately 94% leased to 54 tenants. Included in the 27
standalone Industrial Properties are 21 Properties located on Long Island
encompassing approximately 1.6 million square feet, of which 32% are located in
Farmingdale, 13% are located in Islip/Islandia, 13% are located in Melville and
12% are located in Hauppauge.
The following table sets forth certain information as of December 31, 1997
for each of the Industrial Properties.
Ownership Percentage
Interest Office/
(Ground Research
Company's Lease Land Clearance and
Percentage Expiration Year Area Height Development
Property Ownership Date) Constructed (Acres) (Feet) Finish
-------------- -------------- -------------- -------------- -------------- --------------
Industrial Properties:
Vanderbilt Industrial Park,
Hauppauge, NY
360 Vanderbilt Motor Parkway 100% Fee 1967 4.2 16 62%
410 Vanderbilt Motor Parkway 100% Fee 1965 3.0 15 7%
595 Old Willets Path 100% Fee 1968 3.5 14 14%
611 Old Willets Path 100% Fee 1963 3.0 14 11%
631/641 Old Willets Path 100% Fee 1965 1.9 14 31%
651/661 Old Willets Path 100% Fee 1966 2.0 14 45%
681 Old Willets Path 100% Fee 1961 1.3 14 10%
740 Old Willets Path 100% Fee 1965 3.5 14 5%
325 Rabro Dr. 100% Fee 1967 2.7 14 10%
250 Kennedy Dr. 100% Fee 1979 7.0 16 9%
90 Plant Ave. 100% Fee 1972 4.3 16 13%
110 Plant Ave. 100% Fee 1974 6.8 18 8%
55 Engineers Rd. 100% Fee 1968 3.0 18 8%
65 Engineers Rd. 100% Fee 1969 1.8 22 10%
85 Engineers Rd. 100% Fee 1968 2.3 18 5%
100 Engineers Rd. 100% Fee 1968 5.0 14 11%
150 Engineers Rd. 100% Fee 1969 6.8 22 11%
20 Oser Ave. 100% Fee 1979 5.0 16 18%
30 Oser Ave. 100% Fee 1978 4.4 16 21%
40 Oser Ave. 100% Fee 1974 3.1 16 33%
50 Oser Ave. 100% Fee 1975 4.1 21 15%
60 Oser Ave. 100% Fee 1975 3.3 21 19%
63 Oser Ave. 100% Fee 1974 1.2 20 9%
65 Oser Ave. 100% Fee 1975 1.2 18 10%
73 Oser Ave. 100% Fee 1974 1.2 20 15%
80 Oser Ave. 100% Fee 1974 1.1 18 25%
85 Nicon Ct. 100% Fee 1978 6.1 30 10%
90 Oser Ave. 100% Fee 1973 1.1 16 26%
104 Parkway Dr. 100% Fee 1985 1.8 15 50%
110 Ricefield Ln. 100% Fee 1980 2.0 15 25%
120 Ricefield Ln. 100% Fee 1983 2.0 15 24%
125 Ricefield Ln. 100% Fee 1973 2.0 14 20%
135 Ricefield Ln. 100% Fee 1981 2.1 15 10%
85 Adams Dr. 100% Fee 1980 1.8 15 90%
395 Oser Ave 100% Fee 1980 6.1 14 100%
Leasehold
185 Oser Ave 100% (1999) 1974 2.0 18 40%
25 Davids Dr. 100% Fee 1975 3.2 20 90%
45 Adams Ave 100% Fee 1979 2.1 18 90%
225 Oser Ave 100% Fee 1977 1.2 14 80%
180 Oser Ave 100% Fee 1978 3.4 16 35%
360 Oser Ave 100% Fee 1981 1.3 18 35%
400 Oser Ave 100% Fee 1982 9.5 16 30%
375 Oser Ave 100% Fee 1981 1.2 18 40%
425 Rabro 100% Fee 1980 4.0 16 25%
390 Motor Parkway 100% Fee 1980 10.0 14 4%
600 Old Willets Path 100% Fee 1965 4.5 14 25%
400 Moreland Road 100% Fee 1967 6.3 17 10%
--------------
Total Vanderbilt Industrial Park 160.4
==============
Airport International Plaza,
Islip, NY
20 Orville Dr. 100% Fee 1978 1.0 16 50%
25 Orville Dr. 100% Fee 1970 2.2 16 100%
50 Orville Dr. 100% Fee 1976 1.6 15 20%
65 Orville Dr. 100% Fee 1971 2.2 14 13%
70 Orville Dr. 100% Fee 1975 2.3 22 7%
80 Orville Dr. 100% Fee 1988 6.5 16 21%
85 Orville Dr. 100% Fee 1974 1.9 14 20%
95 Orville Dr. 100% Fee 1974 1.8 14 10%
110 Orville Dr. 100% Fee 1979 6.4 24 15%
180 Orville Dr. 100% Fee 1982 2.3 16 18%
1101 Lakeland Ave. 100% Fee 1983 4.9 20 8%
1385 Lakeland Ave. 100% Fee 1973 2.4 16 18%
125 Wilbur Place 100% Fee 1977 4.0 16 31%
140 Wilbur Place 100% Fee 1973 3.1 20 37%
160 Wilbur Place 100% Fee 1978 3.9 16 30%
170 Wilbur Place 100% Fee 1979 4.9 16 28%
4040 Veterans Highway 100% Fee 1972 1.0 14 100%
--------------
Total Airport International Plaza 52.4
==============
County Line Industrial Center,
Melville, NY
5 Hub Dr. 100% Fee 1979 6.9 20 20%
10 Hub Dr. 100% Fee 1975 6.6 20 15%
30 Hub Drive 100% Fee 1976 5.1 20 18%
265 Spagnoli Rd. 100% Fee 1978 6.0 20 28%
--------------
Total County Line Industrial Center 24.6
==============
Standalone Long Island
Industrial Properties
32 Windsor Pl.,
Islip, NY 100% Fee 1971 2.5 18 10%
42 Windsor Pl.,
Islip, NY 100% Fee 1972 2.4 18 8%
208 Blydenburgh Rd.,
Islandia, NY 100% Fee 1969 2.4 14 17%
210 Blydenburgh Rd.,
Islandia, NY 100% Fee 1969 1.2 14 16%
71 Hoffman Ln.,
Islandia, NY 100% Fee 1970 5.8 16 10%
135 Fell Ct.,
Islip, NY 100% Fee 1965 3.2 16 20%
--------------
Subtotal Islip/Islandia 17.5 --- ---
--------------
70 Schmitt Boulevard,
Farmingdale, NY 100% Fee 1975 4.4 18 10%
105 Price Parkway,
Farmingdale, NY 100% Fee 1969 12.0 26 8.5%
110 BI County Blvd.,
Farmingdale, NY 100% Fee 1984 9.5 19 45%
--------------
Subtotal Farmingdale 25.9 --- ---
--------------
70 Maxess Road,
Melville, NY 100% Fee 1969 9.3 15 38%
20 Melville Road ,
Melville, NY 100% Fee 1965 4.0 23 66%
65 Marcus Dr.,
Melville, NY 100% Fee 1968 5.0 16 50%
--------------
Subtotal Melville 18.3 --- ---
--------------
300 Motor Parkway,
Hauppauge, NY 100% Fee 1979 4.2 14 100%
1516 Motor Parkway,
Hauppauge, NY 100% Fee 1981 7.9 24 5%
--------------
Subtotal Hauppauge 12.1 --- ---
--------------
933 Motor Parkway,
Smithtown, NY 100% Fee 1973 5.6 20 26%
65 S. Service Rd. ,
Plainview, NY 100% Fee 1961 1.6 14 10%
85 S. Service Rd.,
Plainview, NY 100% Fee 1961 1.6 14 60%
19 Nicholas Drive,
Yaphank, NY 100% Fee 1989 29.6 24 5%
48 Harbor Park Dr.,
Port Washington, NY 100% Fee 1976 2.7 16 100%
110 Marcus Drive,
Huntington, NY 100% Fee 1980 6.1 20 39%
100 Andrews,
Hicksville, NY 100% Fee 1954 11.7 25 12%
--------------
Total Standalone Long Island
Industrial Properties 132.7
==============
Standalone Westchester Industrial
Properties
100 Grasslands Rd.,
Elmsford, NY 100% Fee 1964 3.6 16 100%
2 Macy Rd.,
Harrison, NY 100% Fee 1962 5.7 16 100%
500 Saw Mill Rd.,
Elmsford, NY 100% Fee 1968 7.3 22 17%
--------------
Total Standalone Westchester
Industrial Properties 16.6
==============
Standalone New Jersey Industrial
Properties
40 Cragwood Rd,
South Plainfield, NJ 100% Fee 1965 13.5 16 49%
492 River Rd,
Nutley, NJ 100% Fee 1952 17.3 13 100%
--------------
Total New Jersey Standalone
Industrial Properties 30.8
==============
Standalone Connecticut
Industrial Property
710 Bridgeport
Shelton, CT 100% Fee 1971-1979 36.1 22 30%
--------------
Total Connecticut Standalone
Industrial Property 36.1
==============
Total Industrial Properties 453.6
==============
See footnotes in following table.
Annual Number
Rentable Annual Base Rent of
Square Percent Base Rent Per Leased Tenant
Property Feet Leased Sq. Ft. Leases
-------------- -------------- -------------- -------------- -------------
Industrial Properties:
Vanderbilt Industrial Park,
Hauppauge, NY
360 Vanderbilt Motor Parkway 54,000 100.0% $ 35,910 $ 0.67 1
410 Vanderbilt Motor Parkway 41,784 100.0% $ 192,246 $ 4.60 4
595 Old Willets Path 31,670 100.0% $ 144,433 $ 4.56 4
611 Old Willets Path 20,000 100.0% $ 137,698 $ 6.88 2
631/641 Old Willets Path 25,000 56.0% $ 91,877 $ 6.56 2
651/661 Old Willets Path 25,000 100.0% $ 141,431 $ 5.66 7
681 Old Willets Path 15,000 100.0% $ 12,594 $ 0.84 1
740 Old Willets Path 30,000 100.0% $ 29,676 $ 0.99 1
325 Rabro Dr. 35,000 100.0% $ 193,078 $ 5.44 2
250 Kennedy Dr. 127,980 100.0% $ 379,894 $ 2.97 1
90 Plant Ave. 75,000 100.0% $ 193,035 $ 2.57 3
110 Plant Ave. 125,000 100.0% $ 517,087 $ 4.14 1
55 Engineers Rd. 36,000 100.0% $ 290,916 $ 8.08 1
65 Engineers Rd. 23,000 100.0% $ 126,417 $ 5.50 1
85 Engineers Rd. 40,800 100.0% $ 198,984 $ 4.88 2
100 Engineers Rd. 88,000 100.0% $ 353,088 $ 4.01 1
150 Engineers Rd. 135,000 100.0% $ 232,505 $ 1.72 1
20 Oser Ave. 42,000 98.65% $ 323,107 $ 7.80 2
30 Oser Ave. 42,000 100.0% $ 307,347 $ 7.32 5
40 Oser Ave. 59,800 100.0% $ 310,555 $ 5.18 13
50 Oser Ave. 60,000 100.0% $ 240,000 $ 4.00 1
60 Oser Ave. 48,000 100.0% $ 192,000 $ 4.00 1
63 Oser Ave. 22,000 100.0% $ 104,676 $ 4.76 1
65 Oser Ave. 20,000 100.0% $ 113,628 $ 5.68 1
73 Oser Ave. 20,000 100.0% $ 12,951 $ 0.65 1
80 Oser Ave. 19,500 100.0% $ 62,114 $ 3.19 1
85 Nicon Ct. 104,000 100.0% $ 472,626 $ 4.54 1
90 Oser Ave. 37,500 100.0% $ 120,381 $ 3.21 1
104 Parkway Dr. 27,600 100.0% $ 91,000 $ 3.30 1
110 Ricefield Ln. 32,264 100.0% $ 149,921 $ 4.65 1
120 Ricefield Ln. 33,060 100.0% $ 160,000 $ 4.84 1
125 Ricefield Ln. 30,495 100.0% $ 187,299 $ 6.14 1
135 Ricefield Ln. 32,340 100.0% $ 193,164 $ 5.97 1
85 Adams Dr. 20,000 100.0% $ 260,000 $ 13.00 1
395 Oser Ave 50,000 100.0% $ 400,000 $ 8.00 1
185 Oser Ave 30,000 100.0% $ 13,750 $ 0.46 1
25 Davids Dr. 40,000 100.0% $ 293,495 $ 7.34 1
45 Adams Ave 28,000 100.0% $ 147,525 $ 5.27 1
225 Oser Ave 10,000 100.0% $ 66,250 $ 6.62 2
180 Oser Ave 61,868 76.2% $ 298,120 $ 6.33 9
360 Oser Ave 23,000 100.0% $ 128,800 $ 5.60 1
400 Oser Ave 164,936 76.5% $ 758,761 $ 6.02 23
375 Oser Ave 20,000 100.0% $ 137,250 $ 6.86 1
425 Rabro 65,641 100.0% $ 577,940 $ 8.80 1
390 Motor Parkway 181,155 45.5% $ 300,947 $ 3.65 2
600 Old Willets Path 69,627 --- $ --- $ --- 0
400 Moreland Road 56,875 --- $ --- $ --- ---
-------------- -------------- -------------
Total Vanderbilt Industrial Park 2,379,895 92.8% $ 9,694,476 $ 4.64 112
============== ============== =============
Airport International Plaza,
Islip, NY
20 Orville Dr. 12,852 100.0% $ 96,697 $ 7.52 1
25 Orville Dr. 32,300 100.0% $ 445,550 $ 13.24 2
50 Orville Dr. 28,000 50.0% $ 129,099 $ 9.22 1
65 Orville Dr. 32,000 100.0% $ 158,524 $ 4.95 2
70 Orville Dr. 41,508 100.0% $ 219,020 $ 5.28 2
80 Orville Dr. 92,544 100.0% $ 643,027 $ 6.95 9
85 Orville Dr. 25,000 100.0% $ 0 $ 0.00 0
95 Orville Dr. 25,000 100.0% $ 125,750 $ 5.03 1
110 Orville Dr. 110,000 100.0% $ 629,933 $ 5.73 1
180 Orville Dr. 37,612 100.0% $ 214,228 $ 5.70 2
1101 Lakeland Ave. 90,411 100.0% $ 573,999 $ 6.35 1
1385 Lakeland Ave. 35,000 100.0% $ 171,574 $ 4.90 3
125 Wilbur Place 62,686 76.2% $ 232,168 $ 4.86 10
140 Wilbur Place 48,500 100.0% $ 270,377 $ 5.57 2
160 Wilbur Place 62,710 100.0% $ 263,986 $ 4.21 6
170 Wilbur Place 72,062 96.5% $ 350,222 $ 5.03 8
4040 Veterans Highway 2,800 100.0% $ 54,061 $ 19.31 1
-------------- -------------- -------------
Total Airport International Plaza 810,985 93.2% $ 4,578,215 $ 6.06 52
============== ============== =============
County Line Industrial Center,
Melville, NY
5 Hub Dr. 88,001 100.0% $ 479,106 $ 5.44 2
10 Hub Dr. 95,546 100.0% $ 545,612 $ 5.71 5
30 Hub Drive 73,127 100.0% $ 374,454 $ 5.12 2
265 Spagnoli Rd. 85,500 100.0% $ 585,012 $ 6.84 3
-------------- -------------- -------------
Total County Line Industrial Center 342,174 100.0% $ 1,984,184 $ 5.80 12
============== ============== =============
Standalone Long Island
Industrial Properties
32 Windsor Pl.,
Islip, NY 43,000 100.0% $ 128,128 $ 2.98 1
42 Windsor Pl.,
Islip, NY 65,000 100.0% $ 221,963 $ 3.41 1
208 Blydenburgh Rd.,
Islandia, NY 24,000 100.0% $ 97,190 $ 4.05 4
210 Blydenburgh Rd.,
Islandia, NY 20,000 100.0% $ 102,183 $ 5.11 2
71 Hoffman Ln.,
Islandia, NY 30,400 100.0% $ 167,641 $ 5.51 1
135 Fell Ct.,
Islip, NY 30,000 100.0% $ 222,756 $ 7.43 1
-------------- -------------- -------------
Subtotal Islip/Islandia 212,400 100.0% $ 939,861 $ 4.43 10
-------------- -------------- -------------
70 Schmitt Boulevard,
Farmingdale, NY 76,312 100.0% $ 893,860 $ 11.71 1
105 Price Parkway,
Farmingdale, NY 297,000 100.0% $ 1,308,808 $ 4.41 1
110 BI County Blvd.,
Farmingdale, NY 147,303 88.2% $ 1,199,857 $ 9.24 13
-------------- -------------- -------------
Subtotal Farmingdale 520,615 96.7% $ 3,402,525 $ 6.76 15
-------------- -------------- -------------
70 Maxess Road,
Melville, NY 78,000 100.0% $ 622,578 $ 7.98 1
20 Melville Road ,
Melville, NY 67,922 100.0% $ 370,650 $ 5.46 1
65 Marcus Dr.,
Melville, NY 60,000 100.0% $ 546,075 $ 9.10 1
-------------- -------------- -------------
Subtotal Melville 205,922 100.0% $ 1,539,303 $ 7.48 3
-------------- -------------- -------------
300 Motor Parkway,
Hauppauge, NY 55,942 82.4% $ 750,016 $ 16.26 10
1516 Motor Parkway,
Hauppauge, NY 140,000 100.0% $ 837,200 $ 5.98 1
-------------- -------------- -------------
Subtotal Hauppauge 195,942 95.0% $ 1,587,216 $ 8.53 11
-------------- -------------- -------------
933 Motor Parkway,
Smithtown, NY 48,000 100.0% $ 321,884 $ 6.71 1
65 S. Service Rd. ,
Plainview, NY 10,000 100.0% $ 65,498 $ 6.55 1
85 S. Service Rd.,
Plainview, NY 20,000 100.0% $ 128,280 $ 6.41 2
19 Nicholas Drive,
Yaphank, NY 145,000 100.0% $ 907,726 $ 6.26 1
48 Harbor Park Dr.,
Port Washington, NY 35,000 100.0% $ 653,987 $ 18.69 1
110 Marcus Drive,
Huntington, NY 78,240 100.0% $ 596,903 $ 7.63 1
100 Andrews,
Hicksville, NY 167,500 66.1% $ 645,539 $ 5.83 1
-------------- -------------- -------------
Total Standalone Long Island
Industrial Properties 1,638,619 94.9% $ 10,788,722 $ 6.94 47
============== ============== =============
Standalone Westchester Industrial
Properties
100 Grasslands Rd.,
Elmsford, NY 45,000 36.1% $ 82,999 $ 5.10 1
2 Macy Rd.,
Harrison, NY 26,000 100.0% $ 422,500 $ 16.25 1
500 Saw Mill Rd.,
Elmsford, NY 92,000 100.0% $ 772,800 $ 8.40 1
-------------- -------------- -------------
Total Standalone Westchester
Industrial Properties 163,000 82.4% $ 1,278,299 $ 9.52 3
============== ============== =============
Standalone New Jersey Industrial
Properties
40 Cragwood Rd,
South Plainfield, NJ 135,000 74.0% $ 1,242,514 $ 12.43 2
492 River Rd,
Nutley, NJ 128,000 --- $ --- $ --- ---
-------------- -------------- -------------
Total New Jersey Standalone
Industrial Properties 263,000 74.0% $ 1,242,514 $ 12.43 2
============== ============== =============
Standalone Connecticut
Industrial Property
710 Bridgeport
Shelton, CT 452,414 100.0% $ 2,849,007 $ 6.30 2
-------------- -------------- -------------
Total Connecticut Standalone
Industrial Property 452,414 100.0% $ 2,849,007 $ 6.30 2
============== ============== =============
Total Industrial Properties 6,050,087 93.7% $ 32,415,417 $ 5.97 230
============== ============== =============
Calculated as the difference from the lowest beam to floor.
Represents Base Rent of signed leases at December 31, 1997 adjusted for
scheduled contractual increases during the 12 months ending December 31, 1998.
Total Base Rent for these purposes reflects the effect of any lease expirations
that occur during the 12 month period ending December 31, 1998. Amounts
included in rental revenue for financial reporting purposes have been
determined on a straight-line basis rather than on the basis of contractual
rent as set forth in the foregoing table.
Property under redevelopment.
Percent leased excludes properties under redevelopment.
A tenant has been granted an option exercisable after April 30, 1997 and
prior to October 31, 2002 to purchase this property for $600,000.
The actual fee interest in 19 Nicholas Drive is currently held by the
Town of Brookhaven Industrial Development Agency. The Company may acquire such
fee interest by making a nominal payment to the Town of Brookhaven Industrial
Development Agency.
Retail Properties
As of December 31, 1997, the Company owned two free-standing 10,000 square
foot retail properties. The retail properties which are located in Great
Neck, New York and Huntington, New York were 100% leased as of December 31,
1997.
Developments in Progress
As of December 31, 1997, the Company owned or had under contract
approximately 847 acres of land in 17 separate parcels, 10 of which are located
in Long Island, 2 of which are located in Westchester and 5 of which are
located in New Jersey. The parcels have been zoned for potential industrial
and retail development. The Company plans to seek development opportunities as
market conditions permit. The Company had invested approximately $29.3 million
in land costs and approximately $25.2 million in additional development costs
at December 31, 1997.
Historical Non-Incremental Revenue-Generating Capital Expenditures, Tenant
Improvement Costs and Leasing Commissions
The following table sets forth annual and per square foot recurring, non-
incremental revenue-generating capital expenditures and non-incremental
revenue-generating tenant improvement costs and leasing commissions incurred by
the Company to retain revenues attributable to existing leased space for the
period 1993 through 1997 for the Office Properties and the Industrial
Properties. As noted, revenue-generating tenant improvement costs and leasing
commissions are excluded from the table set forth immediately below. The
historical capital expenditures, tenant improvement costs and leasing
commissions set forth below are not necessarily indicative of future recurring,
non-incremental revenue-generating capital expenditures or non-incremental
revenue-generating tenant improvement costs and leasing commissions.
1993 1994 1995 1996 1997
-------------- -------------- -------------- -------------- --------------
Capital Expenditures
Long Island Office Properties
Total $ 227,996 $ 158,340 $ 364,545 $ 379,026 $ 1,108,675
Per square foot 0.15 0.1 0.19 0.13 0.22
Industrial Properties
Total $ 276,052 $ 524,369 $ 290,457 $ 670,751 $ 733,233
Per square foot 0.09 0.18 0.08 0.18 0.15
Non-Incremental Revenue-Generating Tenant
Improvement Costs and Leasing Commissions
Long Island Office Properties
Annual Tenant Improvement Costs $ 406,602 $ 902,312 $ 452,057 $ 523,574 $ 784,044
Per square foot improved 1.93 5.13 4.44 4.28 7.00
Annual Leasing Commissions 670,736 341,253 144,925 119,047 415,822
Per square foot leased 3.18 1.94 1.42 0.97 4.83
Total per square foot $ 5.11 $ 7.07 $ 5.86 $ 5.25 $ 11.83
Westchester Office Properties
Annual Tenant Improvement Costs N/A N/A N/A $ 834,764 $ 1,211,665
Per square foot improved N/A N/A N/A 6.33 8.90
Annual Leasing Commissions N/A N/A N/A 264,388 366,257
Per square foot leased N/A N/A N/A 2.00 2.69
Total per square foot N/A N/A N/A $ 8.33 $ 11.59
Landmark Square
Annual Tenant Improvement Costs N/A N/A N/A $ 58,000 $ 1,022,421
Per square foot improved N/A N/A N/A 12.45 13.39
Annual Leasing Commissions N/A N/A N/A 0 256,615
Per square foot leased N/A N/A N/A 0.00 3.36
Total per square foot N/A N/A N/A $ 12.45 $ 16.75
Industrial Properties
Annual Tenant Improvement Costs $ 186,761 $ 585,891 $ 210,496 $ 380,334 $ 230,466
Per square foot improved 0.33 0.88 0.90 0.72 0.55
Annual Leasing Commissions 278,905 176,040 107,351 436,213 81,013
Per square foot leased 0.49 0.27 0.46 0.82 0.19
Total per square foot $ 0.82 $ 1.15 $ 1.36 $ 1.54 $ 0.74
The Option Properties
Six properties owned by Reckson (the "Reckson Option Properties") and four
properties in which Reckson owns a non-controlling minority interest (the
"Other Option Properties") and, together with the Reckson Option Properties,
the ("Option Properties") were not contributed to the Operating Partnership
upon completion of the IPO. However, the Operating Partnership was granted 10
year options to acquire interests in the Option Properties under the terms and
conditions described below. As of the date hereof, the Company had acquired or
contracted to acquire all but two of the Reckson Option Properties.
The two remaining Reckson Option Properties are comprised of 225
Broadhollow Road, Melville, New York, a 185,889 square foot suburban Class A
office property located in the Huntington Melville Corporate Center, and, 593
Acorn Street, Babylon, New York, a 39,551 square foot stand alone industrial
property both of which are managed by the Company.
The Operating Partnership has been granted options, exercisable over a 10
year period that commenced upon closing of the IPO, to acquire each of the
Reckson Option Properties and Reckson's ownership interest in the Other Option
Properties at a purchase price equal to the lesser of (i) a fixed price (the
"Fixed Price") and (ii) the Net Operating Income attributable to such Option
Property during the 12 month period preceding exercise of the option by the
Operating Partnership (multiplied by Reckson's percentage ownership interest in
the case of the Other Option Properties) divided by a capitalization rate of
11.5%; provided that, in no event shall the purchase price be less than the
outstanding balance of the mortgage debt encumbering the Option Property
(multiplied by Reckson's percentage ownership interest in the case of the Other
Option Properties) on the acquisition date. Net Operating Income is defined
generally for these purposes as gross income minus annual operating costs. The
portion of the purchase price not required to repay mortgage debt and other
transaction costs incurred in connection with the sale of such Option Property
shall be payable in Units. The fixed prices for 225 Broadhollow Road and 593
Acorn Street is $21,242,000 and $878,100, respectively.
The Reckson partnerships that currently own the Reckson Option Properties
may sell any of these properties to a party other than the Operating
Partnership, provided that the selling entity provides the Company with 30-days
advance notice of such sale. Upon receiving such notice, the Company may then
elect to exercise the option to acquire the Reckson Option Property and, if it
so chooses, sell the property to such party.
In addition to the foregoing, in the event a sale of any Option Property
to a third party is consummated, the Operating Partnership will receive
"Reckson's Net After Tax Profit" from such sale. Reckson's Net After Tax Profit
is defined generally for such purposes as the product of (i) Reckson's
percentage ownership interest in the Option Property (100% in the case of
Reckson Option Properties) multiplied by (ii) the excess of the gross sales
price over the total of any outstanding mortgage or other encumbrance, the
federal income tax payable by the partners as a result of the sale, as well as
other transaction costs incurred in connection with the sale of such Option
Property, including transfer taxes, closing adjustments, brokerage commissions,
legal fees and accounting fees.
The terms of the options granted to the Operating Partnership with respect
to the Option Properties have not been based on appraisals and are not the
product of an arm's-length negotiation since members of the Rechler family
maintain an ownership interest in such Option Properties. However, management
believes that such terms are fair to the Company and a determination by the
Operating Partnership to exercise an option to acquire an interest in any
Option Property shall be subject to the approval of the Independent Directors
and, with respect to interests in the Other Option Properties, the approval of
Reckson's partners.
Mortgage Indebtedness
The following table sets forth certain information regarding the mortgage
debt of the Company, as of December 31, 1997.
Principal
Amount Interest Maturity Amortization
Property Outstanding Rate Date Schedule
============== ========== ========== ==============
6800 Jericho Turnpike (North Shore Atrium I) $ 15,001,000 7 1/4% 6/10/00 ---
6900 Jericho Turnpike (North Shore Atrium II) $ 5,279,000 7 1/4% 6/10/00 ---
200 Broadhollow Rd. $ 6,649,000 7 3/4% 6/02/02
395 North Service Road $ 9,917,000 6.82% 6/02/00 25 year
50 Charles Lindbergh Blvd. $ 15,479,000 7 1/4% 7/10/01 ---
333 Earl Ovington Blvd. (The Omni) $ 57,839,000 7.72 % 08/14/07 25 year
310 East Shore Rd. $ 2,322,000 8% 7/01/02 ---
80 Orville Dr. $ 2,616,000 7 1/2% 2/01/04 ---
70 Maxess Road $ 1,863,000 8 3/4% 12/21/00 20 year
70 Schmitt Boulevard $ 425,000 9 1/4% 8/01/99
580 White Plains Road $ 8,811,000 7 3/8% 9/01/00 25 year
Landmark Square $ 49,291,000 8.02% 10/07/06 25 year
110 Bi-County Blvd. $ 4,531,000 9 1/8% 11/30/12 20 year
--------------
Total $ 180,023,000
==============
The Company has a 60% general partnership interest in the Omni
Partnership. The Company's proportionate share of the aggregate principal
amount of the mortgage debt on the Omni is $34.7 million.
Interest rate increases to 10.1% after the first five years of the loan.
Interest only during years one through three. Thereafter, the Company will
pay equal monthly installments of principal and interest with amortization
based on a 30 year schedule.
Scheduled principal payments of $25,000 per month for the period September
1997 to August 1998. Principal payments of $18,750 per month for the period
September 1998 to August 1999.
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders during the fourth
quarter of the year ended December 31, 1997.
Part II
Item 5. Market For Registrant's Common Equity and Related Stockholder
matters
The Company's common stock began trading on the New York Stock Exchange
("NYSE") on May 25, 1995, under the symbol "RA". The following table sets
forth the quarterly high and low closing sales prices per share of the common
stock reported on the NYSE and the distributions paid by the Company for each
respective quarter.
High Low Distribution
-------------- -------------- --------------
June 30, 1995 (from June 2, 1995) $12.313 $12.000 $0.0900
September 30, 1995 $13.938 $12.250 $0.2891
December 31, 1995 $14.750 $12.938 $0.2891
March 31, 1996 $16.125 $14.563 $0.2891
June 30, 1996 $16.500 $14.625 $0.3000
September 30, 1996 $18.563 $15.500 $0.3000
December 31, 1996 $21.338 $17.625 $0.3000
March 31, 1997 $23.563 $20.438 $0.3000
June 30, 1997 $23.000 $20.875 $0.3000
September 30, 1997 $27.000 $22.375 $0.3125
December 31, 1997 $28.750 $24.063 $0.3125
The Company paid a distribution of $.09 per share of common stock on July 14,
1995, for the period June 2, 1995 (the closing date of the IPO) through June 30,
1995, which is approximately equivalent to a quarterly distribution of $.2891
and annual distribution of $1.154 per share of Common Stock.
Commencing with the distribution for the quarter ended June 30, 1996, the Board
of Directors of the Company increasedthe quarterly distribution to $.30 per
share, which is equivalent to an annual distribution of $1.20 per share.
Commencing with the distribution for the quarter ended June 30, 1997, the Board
of Directors of the Company increased the quarterly distribution to $.3125 per
share, which is equivalent to an annual distribution of $1.25 per share.
Historical amounts adjusted to reflect a two-for-one stock split effective
April 15, 1997.
On September 21, 1994, prior to completion of the IPO, the Company was
capitalized with the issuance to each of Donald Rechler and Roger Rechler of 50
shares (pre-split) of common stock for a purchase price of $10.00 per
share(pre-split). In addition, on June 2, 1995 (the closing date of the IPO),
the Company completed a concurrent offering of 400,000 shares (pre-split) of
common stock to members of the Rechler family at the initial public offering
price of $24.25 per share (pre-split). The Company issued these shares in
reliance on an exception from registration under Section 4(2) of the Securities
Act of 1933.
Item 6. Selected Financial Data
Reckson
Reckson Reckson Associates Reckson
Associates Associates Realty Corp. Group for the Reckson
Realty Corp. Realty Corp. for the Period Period Group for the
Year Ended Year Ended June 3, 1995 to January 1, Year Ended
December 31, December 31, December 31, 1995 to June December 31,
1997 1996 1995 2, 1995 1994 1993
------------ ------------ -------------- ------------ ------------- ------------
Operating Data:
Revenues $ 153,395 $ 96,141 $ $38,455 $ 20,889 $ 56,931 $ 60,347
Total expenses 107,905 70,951 27,901 20,695 55,685 67,580
Income (loss before minority interests
and extraordinary items 45,490 25,190 10,554 194 1,246 (7,233)
Minority interests 8,624 6,768 3,067 --- --- ---
Extraordinary items - gain (loss)
(net of minority interests' share) (2,230) (895) (4,234) --- 4,434 41,190
Net income 34,636 17,527 3,253 194 5,680 33,957
Per Share Data:
Basic:
Income before extraordinary items $ 1.13 $ 0.92 $ 0.51 --- --- ---
Extraordinary items (loss) (0.07) (0.04) (0.29) --- --- ---
Net income 1.06 0.88 0.22 --- --- ---
Diluted:
Income before extraordinary items $ 1.11 $ 0.91 $ 0.51 --- --- ---
Extraordinary items-(loss) (.07) (.04) (.29) --- --- ---
Diluted net income 1.04 .87 .22 --- --- ---
Balance Sheet Data: (period end)
Real estate, before accumulated
depreciation $ 1,015,282 $ 519,504 $ 290,712 --- $ 162,192 ---
Total assets 1,113,257 543,758 242,728 --- 132,035 ---
Mortgage notes payable 180,023 161,513 98,126 --- 180,286 ---
Credit Facility 210,250 108,500 40,000 --- --- ---
Senior Unsecured notes 150,000 --- --- --- --- ---
Market value of equity 1,141,592 653,606 303,943 --- --- ---
Total market capitalization including
debt and 1,668,800 921,423 426,798 --- --- ---
Other Data:
Funds from operations $ 69,548 $ 41,133 $ 17,246 --- --- ---
Total square feet (at end of period) 13,645 8,800 5,430 4,529 4,529 4,529
Number of properties (at end of period) 155 110 81 72 72 72
Represents certain financial information on a consolidated historical basis for
Reckson Associates Realty Corp., and on a combined historical basis for the
Reckson Group.
Based on 32,727,000, 19,928,000 and 14,678,000 weighted average shares of
common stock outstanding for the years ended December 31, 1997, 1996 and for
the period June 3, 1995 to December 31, 1995, respectively.
Based on 33,260,000, 20,190,000 and 14,725,000 weighted average shares of
common stock outstanding for the years ended December 31, 1997, 1996 and for
the period June 3, 1995 to December 31, 1995, respectively.
Based on the market value of 44,988,846, 31,119,364 and 20,690,448 shares of
common stock and operating partnership units at December 31, 1997, 1996 and
1995, respectively (based on a share price of $25.38, $ 21.13 and $14.69 at
December 31, 1997, 1996 and 1995, respectively).
Debt amount is net of minority partners' proportionate share of Omni debt plus
the Company's share of joint venture debt.
See "Management's Discussion and Analysis" for a discussion of funds from
operations.
The earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, Earnings Per
Share. For further discussion of earnings per share and the impact of
Statement No. 128, see the notes to the consolidated financial statements.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the historical
financial statements of Reckson Associates Realty Corp. (the "Company") and the
combined financial statements of the Reckson Group and related notes.
Overview and Background
The Reckson Group, the predecessor to the Company (the "Predecessor"), was
engaged in the ownership, management, operation, leasing and development of
commercial real estate properties, principally office and industrial buildings,
and also owned certain undeveloped land located primarily on Long Island, New
York. On June 2, 1995, following completion of the Initial Public Offering (the
"IPO") and the related formation transactions, the Company owned or had an
interest in 72 properties (including one joint venture property) and succeeded
to the Reckson Group's real estate business.
The Company owns all of the interests in its real estate properties
through Reckson Operating Partnership, L.P. (the "Operating Partnership") or
Reckson FS Limited Partnership. At December 31, 1997, the Company owned 155
properties (the "Properties"), (including three joint venture properties)
encompassing approximately 13.6 million square feet. The Properties include 58
suburban office properties containing approximately 7.6 million square feet, 95
industrial properties containing approximately 6.0 million square feet and two
retail properties containing 20,000 square feet.
Since the IPO, the Company has acquired or contracted to acquire
approximately $804 million of Class A suburban office and industrial properties
encompassing approximately 10.7 million square feet located in the New York
City Tri-State Area of Long Island, Westchester, Southern Connecticut and
Northern New Jersey. In that regard, the Company has acquired 13 office
Properties and 32 industrial Properties encompassing approximately 2.1 and 2.5
million square feet, respectively, located on Long Island for an aggregate
purchase price of approximately $302 million. In February 1996, the Company
established its Westchester Division with the acquisition of an eight building
935,000 square foot Class A office portfolio and associated management and
construction operations for an aggregate purchase price of approximately $79
million. Since its initial investment in Westchester the Company has acquired
11 office properties encompassing approximately 1.4 million square feet and
three industrial properties encompassing approximately 163,000 square feet for
an aggregate purchase price of approximately $130.9 million. In October 1996,
the Company established its Southern Connecticut Division with the purchase of
Landmark Square, a six building office complex encompassing approximately
800,000 square feet located in Stamford, Connecticut for an aggregate purchase
price of approximately $77 million. Since its initial investment in Southern
Connecticut the Company has acquired one industrial property encompassing
452,414 square feet for a purchase price of approximately $27.0 million. In
May 1997, the Company acquired five Class A suburban office properties
encompassing approximately 496,000 square feet located in Northern New Jersey
for an aggregate purchase price of approximately $56.9 million and, in
connection with this acquisition, established its Northern New Jersey Division.
Since its initial investment in Northern New Jersey the Company has acquired
eight office properties encompassing approximately 976,000 square feet and six
industrial properties encompassing approximately 903,000 square feet for an
aggregate purchase price of approximately $131.3 million. Additionally, the
Company has invested approximately $31.5 million for approximately 74 acres of
land located in Long Island, 32 acres of land located in Westchester and 268
acres of land located in New Jersey which allows for approximately 3.5 million
square feet of future development opportunities. In addition, the Company has
invested approximately $72.5 million in certain mortgage indebtedness
encumbering five Class A office properties on Long Island encompassing
approximately 927,000 square feet, a 400 acre parcel of land and a 586,000
square foot industrial property in New Jersey. In October 1997, the Company
entered into an agreement to invest $150 million in the Morris Companies, a
New Jersey developer and owner of "Big Box" warehouse facilities. The Morris
Companies' properties include 23 industrial buildings encompassing
approximately 4.0 million square feet. The Company's investment will be used
to acquire a controlling interest in Reckson Morris Operating Partnership, L.P.
("RMI"). In connection with the transaction the Morris Companies will
contribute 100% of their interests in certain industrial properties to RMI in
exchange for operating partnership units in RMI. On January 6, 1998, the
Company acquired an approximate 70% interest in RMI for approximately $65
million. In addition, at December 31, 1997, the Company had advanced
approximately $12 million to the Morris Companies primarily to fund certain
construction costs related to development properties to be contributed to RMI.
During 1997, the Company formed Reckson Service Industries, Inc. ("RSI")
and Reckson Strategic Venture Partners, LLC ("RSVP"). RSI will serve as the
managing member of RSVP. RSI will invest in operating companies that generally
will provide commercial services to properties owned by the Company and its
tenants and third parties. Since RSI will not be making REIT qualifying
investments, its shares will be distributed to the Company's shareholders and
trade as a separate public company. RSVP was formed to provide the Company
with a "research and development" vehicle to invest in alternative real estate
sectors. RSVP will invest primarily in real estate and real estate related
operating companies generally outside of the Company's core office and
industrial focus. RSVP's strategy is to identify and acquire interests in
established entrepreneurial enterprises with experienced management teams in
market sectors which are in the early stages of their growth cycle or offer
unique circumstances for attractive investments as well as a platform for
future investments. The research and development vehicle will enable the
Company to minimize its investment risks during the early stages of an
investment. The vehicle permits the Company to monitor the long-term potential
for each investment. As later stage capital is required, the Company will
determine the prudence of additional investment and the potential for
incorporating it as a core business line. Following the spin off of RSI the
Company will make investments with RSVP on a joint venture basis. To
facilitate investment by RSVP, the Company has committed $100 million of
initial capital. In addition, RSVP has obtained a $200 million preferred
equity facility from Paine Webber Real Estate Securities ("PWRES") and a
PWRES/George Soros sponsored fund has agreed in principal to join the
investment. At December 31, 1997, the Company had made investments in or
loans to RSI and RSVP aggregating approximately $4.3 million and $7.4 million,
respectively.
The market capitalization of the Company, based on the market value of the
44,988,846 issued and outstanding shares of Common Stock and Operating
Partnership Units ("Units") (based on a share price of $25.38 as of December
31, 1997) and the $527 million (net of minority partners' 40% interest in debt
encumbering the Omni and including the Company's share of joint venture debt)
of debt outstanding at December 31, 1997, was approximately $1.7 billion. As a
result, the Company's total debt to market capitalization ratio at December 31,
1997 equaled 31.6%.
Results of Operations
For discussion purposes, the results of operations for the year ended
December 31, 1995 combine the operating results of the Predecessor (excluding
results of properties not transferred to the Company) for the period January 1,
1995 to June 2, 1995.
The Company's total revenues increased by $57.3 million or 60% from 1996
to 1997 and $36.8 million or 62% from 1995 to 1996. The growth in total
revenues is substantially attributable to the Company's acquisition of 46
properties comprising approximately 4.9 million square feet in 1997 and 29
properties comprising approximately 3.3 million square feet in 1996 and nine
properties comprising approximately 900,000 square feet in 1995. Property
operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $51 million or 55%
from 1996 to 1997 and by $35.6 million or 62% from 1995 to 1996. The 1997
increase in Property Operating Revenues is comprised of $2.1 million
attributable to increases in rental rates and changes in occupancies and $48.9
million attributable to acquisitions of properties. The 1996 increase in
Property Operating Revenues is comprised of $6.6 million attributable to
increases in rental rates and changes in occupancies and $29 million
attributable to acquisitions of properties. The remaining balance of the
increase in total revenues in 1997 is primarily attributable to interest income
on the Company's investments in mortgage notes and notes receivable. The
increase from 1996 to 1997 was offset by a decrease in the equity in earnings
of service companies as a result of the management and construction companies
focusing most of their resources on the Company's core portfolio and
redevelopment opportunities rather than third party services. The Company's
base rent was increased by the impact of the straight-line rent adjustment by
$4.5 million in 1997, $3.8 million in 1996 and $2.8 million in 1995.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $16.8 million from 1996 to 1997 and by $12.9 million
from 1995 to 1996. These increases are primarily due to the acquisition of
properties. Gross operating margins (defined as Property Operating Revenues
less Property Expenses, taken as a percentage of Property Operating Revenues)
for 1997, 1996 and 1995 were 64.7%, 63.4% and 63.2%, respectively. The
increases in gross operating margins reflects increases realized in rental
rates, the Company's ability to realize certain operating efficiencies as a
result of operating a larger portfolio of properties with concentrations of
properties in office and industrial parks or in its established sub-markets,
and to a lesser extent increased ownership of net leased properties.
Marketing, general and administrative expenses were $8.3 million in 1997,
$5.9 million in 1996 and $3.7 million in 1995. The increase in marketing,
general and administrative expenses is due to the increased costs of managing
the acquisition properties, the cost of opening and maintaining the Company's
Westchester, Southern Connecticut and Northern New Jersey divisions and the
increase in corporate management and administrative costs associated with the
growth of the Company. Marketing, general and administrative expenses as a
percentage of total revenues were 5.4% in 1997, 6.1% in 1996 and 6.3% in 1995.
Interest expense was $21.6 million in 1997, $13.3 million in 1996 and
$12.9 million in 1995. The increase of $8.3 million from 1996 to 1997 is
attributable to an increase in mortgage debt including a $50 million mortgage
note incurred in connection with the acquisition of Landmark Square in October
1996, the refinancing of Omni in the amount of $58 million in August 1997,
increased interest cost attributable to an increased average balance on the
Company's credit facilities and interest on the Company's $150 million of
senior unsecured notes (the "Senior Unsecured Notes"). The weighted average
balance outstanding on the Company's credit facilities was $103.2 million for
1997, $71.2 million for 1996 and $24.8 million for the period from June 3, 1995
to December 31, 1995.
Included in amortization expense is amortized finance costs of $.80
million in 1997, $.53 million in 1996 and $.52 million for the period June 3,
1995 to December 31, 1995. The increase of $.27 million from 1996 to 1997 was
the result of the amortization of financing costs associated with the Unsecured
Credit Facility, the Landmark Square mortgage, the Omni refinanced mortgage and
the Senior Unsecured Notes.
Extraordinary items, net of minority interest resulted in a $2.2 million
loss in 1997, a $.9 million loss in 1996 and a $4.2 million loss for the period
June 3, 1995 to December 31, 1995. In 1997, the extraordinary items, net of
minority interest, was attributable to the write off of certain deferred loan
costs incurred in connection with the Company's secured credit facility which
was terminated in April 1997. In 1996, the extraordinary item, net of minority
interest, was attributable to the write-off of certain deferred loan costs
incurred in connection with the secured credit facility which was substantially
modified and restated in February 1996.
Liquidity and Capital Resources
Summary of Cash Flows
Net cash provided by operating activities totaled $70.6 million in 1997,
$39.4 million in 1996 and $18.6 million in 1995. Increases for each year were
primarily attributable to the growth in cash flow provided by the acquisition
of properties and to a lesser extent from interest income from mortgage notes
and notes receivable.
Net cash used by investing activities totaled $547 million in 1997, $273.7
million in 1996 and $79.0 million in 1995. Cash used in investing activities
related primarily to investments in real estate properties including
development costs and investments in mortgage notes and notes receivable.
Net cash provided by financing activities totaled $485.4 million in 1997,
$240 million in 1996 and $63.2 million in 1995. Cash provided by financing
activities during 1997 and 1996 was primarily attributable to proceeds from
public stock offerings and draws on the Company's credit facilities and
additionally in 1997 proceeds from the issuance of Senior Unsecured Notes.
Investing Activities
During 1997, the Company acquired (i) on Long Island, five office
properties encompassing an aggregate of approximately 881,000 square feet for
approximately $87.5 million and 15 industrial properties encompassing
approximately 968,000 square feet for approximately $43.5 million; (ii) in
Westchester, eight office properties encompassing approximately 830,000 square
feet for approximately $109.4 million and three industrial properties
encompassing approximately 163,000 square feet for approximately $8.0 million;
(iii) in Connecticut, one industrial property encompassing 452,000 square feet
for approximately $27.0 million and (iv) in Northern New Jersey, five Class A
office properties including Executive Hill Office Park encompassing
approximately 496,000 square feet for approximately $56.9 million.
Additionally, in New Jersey the Company acquired eight office properties
encompassing approximately 1.5 million square feet for $153 million and one
industrial property encompassing approximately 128,000 square feet for $2.8
million. During 1997, the Company invested $29 million in mortgage notes
receivable encumbering one Class A office property, one industrial property and
a 400 acre parcel of land. In addition, on March 13, 1997, the Company loaned
$17 million to its minority partner in Omni, its flagship Long Island office
property, and effectively increased its economic interest in the property
owning partnership.
Financing Activities
On January 7, 1997, the Operating Partnership issued 101,902 (pre split)
Units in connection with the acquisition of 110 Bi-County Boulevard, a 147,281
square foot office property located in Farmingdale, New York.
On March 12, 1997, the Company completed a public stock offering and sold
4,945,000 common shares at a price of $45.25 (pre-split) (including 645,000
common shares related to the exercise of the underwriters over allotment
option). Net proceeds to the Company were approximately $212 million. The net
proceeds of the offering were used to acquire properties and to repay credit
facility borrowings.
On April 30, 1997, the Company repaid and replaced borrowings under its
existing $150 million secured credit facility with proceeds from the $250
million unsecured credit facility.
During August 1997, the Company refinanced approximately $43 million of
mortgage debt on its Omni office property with a $58 million fixed rate
mortgage loan. The loan which matures on September 1, 2007 has a fixed rate of
interest of 7.72%.
On August 28, 1997, the Company sold $150 million of 7.2% Senior Unsecured
Notes due August 2007. The net proceeds of the Senior Unsecured Notes were
used to repay borrowings under the unsecured credit facility and for
acquisitions of properties.
On December 5, 1997, the Company completed a public stock offering and
sold 3,081,177 common shares at a price of $26 per share. Net proceeds from
the offering were approximately $79.7 million. Net proceeds from the offering
were used to acquire properties and to repay borrowings under the unsecured
credit facility.
During 1997, the Company paid dividends of $1.54 per share (representing
dividends for five quarters).
On February 18, 1998, the Company completed a public stock offering and
sold 791,152 common shares at a price of $25.44 per share. Net proceeds from
the offering were approximately $19.1 million and were used to fund
acquisitions of properties and repay borrowings under the unsecured credit
facilities.
Capitalization
The Company's indebtedness at December 31, 1997 totaled $527 million (net
of the minority partners' 40% interest in Omni's debt and including the
Company's share of joint venture debt of approximately $13 million) and was
comprised of $210.3 million outstanding under the Unsecured Credit Facility,
$150 million of Senior Unsecured Notes and $167 million of mortgage
indebtedness with an average interest rate of approximately 7.71% and an
average maturity of approximately 7.1 years. Based on the Company's total
market capitalization of approximately $1.70 billion at December 31, 1997,
(calculated at a $25.38 stock price at December 31, 1997 and assuming the
conversion of the 7,218,688 Units and $527 million of debt) the Company's debt
represented 31.6% of its total market capitalization.
On April 30, 1997, the Company obtained a three-year $250 million
unsecured credit facility from a bank group led by Chase Manhattan Bank and
Union Bank of Switzerland (the "Unsecured Credit Facility"). The Company's
ability to borrow thereunder is subject to the satisfaction of certain
financial covenants, including covenants relating to limitations on unsecured
and secured borrowings, minimum interest and fixed charge coverage ratios, a
minimum equity value and a maximum dividend payout ratio. In addition,
borrowings under the Unsecured Credit Facility bear interest at a floating rate
equal to one, two, three or six month LIBOR (at the Company's election) plus a
spread ranging from 1.125% to 1.50%, based on the Company's leverage ratio.
The Unsecured Credit Facility replaced the Company's $150 million secured
credit facility. The Company utilizes the Unsecured Credit Facility primarily
to finance the acquisitions of properties and other real estate investments,
fund its development activities and for working capital purposes. At December
31, 1997, the Company had availability under the Unsecured Credit Facility to
borrow an additional $35.75 million (net of $4.0 million of outstanding undrawn
letters of credit).
On January 2, 1998, the Company obtained a $200 million unsecured credit
facility (the "Bridge Facility") which matures on April 1, 1998. The Bridge
Facility was provided by the two lead members of the Unsecured Credit Facility
bank group and serves as interim financing while the Company seeks to expand
the availability under the Unsecured Credit Facility.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding non-
recurring capital expenditures of the Company. In addition, construction,
management, maintenance, leasing and property management fees have provided
sources of cash flow. The Company expects to meet its short term liquidity
requirements generally through its net cash provided by operating activities
along with the Unsecured Credit Facility previously discussed. The Company
expects to meet certain of its financing requirements through long-term secured
and unsecured borrowings and the issuance of debt securities and additional
equity securities of the Company. The Company will refinance existing mortgage
indebtedness or indebtedness under the Unsecured Credit Facility at maturity or
retire such debt through the issuance of additional debt securities or
additional equity securities. The Company anticipates that the current balance
of cash and cash equivalents and cash flows from operating activities, together
with cash available from borrowings and equity offerings, will be adequate to
meet the capital and liquidity requirements of the Company in both the short
and long-term.
In connection with the acquisition of Landmark Square, the Company plans
to incur approximately $12 million of capital improvements to refit the
building to portfolio standards. At December 31, 1997, approximately $3.7
million had been incurred in connection with the refit of this building.
In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its stockholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to stockholders and for payment of expenditures.
The Company intends to invest amounts accumulated for distribution in short-
term investments.
Inflation
Certain office leases provide for fixed base rent increases or indexed
escalations. In addition, certain office leases provide for separate
escalations of real estate taxes and electric costs over a base amount. The
industrial leases also generally provide for fixed base rent increases, direct
pass through of certain operating expenses and separate real estate tax
escalation over a base amount. The Company believes that inflationary increases
in expenses will generally be offset by contractual rent increases and expense
escalations described above.
The Unsecured Credit Facility bears interest at a variable rate, which
will be influenced by changes in short-term interest rates, and is sensitive to
inflation.
Impact of Year 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, or engage in
similar normal business activities.
The Company has completed as assessment to modify or replace portions of
its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. Currently, the entire property
management system is year 2000 compliant and has been thoroughly tested. Since
the Company's accounting software is maintained and supported by a third party,
the total year 2000 project cost is estimated to be minimal.
The project is estimated to be completed not later than September 30,
1998, which is prior to any anticipated impact on its operating systems.
Additionally, the Company has received assurances from its contractors that all
of the Company's building management and mechanical systems are currently year
2000 compliant or will be made compliant prior to any impact on those systems.
The Company believes that with modifications to existing software and
conversions to new software, the year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the year 2000 Issue
could have a material impact on the operations of the Company.
The costs of the project and the date on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability and costs of personnel trained in this area, the ability
to locate and correct all relevant computer codes, and similar uncertainties.
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 restructurings and sales of properties,
plus depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles 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. (See Selected Financial Data). In March 1995, NAREIT issued a
"White Paper" analysis to address certain interpretive issues under its
definition of FFO. The White Paper provides that amortization of deferred
financing costs and depreciation of non-rental real estate assets are no longer
to be added back to net income to arrive ad FFO.
Since all companies and analysts do not calculate FFO in a similar
fashion, the Company's calculation of FFO presented herein may not be
comparable to similarly titled measures as reported by other companies.
The following table presents the Company's FFO calculation (in thousands):
Pro forma
Year Year June 3, Year
Ended Ended 1995 to Ended
December December December December
31, 1997 31 1996 31, 1995 31, 1995
-------------- -------------- -------------- --------------
Income before limited partners' interest in
Operating Partnership and Extraordinary items $ 44,683 $ 24,382 $ 10,370 $ 17,331
Less:
Extraordinary loss, net of limited partners' interest
in Operating Partnership of $578, $364 and $1,788,
respectively 2,230 895 4,234 4,234
Limited Partners' minority interest in
Operating Partnership 7,817 5,960 2,883 4,719
-------------- -------------- -------------- --------------
Net Income 34,636 17,527 3,253 8,378
Adjustment for Funds From Operations
Add:
Limited Partners' minority interest in
Operating Partnership 7,817 5,960 2,883 4,719
Depreciation and Amortization 26,834 17,429 7,233 12,369
Minority interests in consolidated partnership 807 808 184 445
Extraordinary loss, net of limited partners' interest in
Operating Partnership of $578, $364 and
$1,788 respectively 2,230 895 4,234 4,234
Less:
Gain on sale of property 672 --- --- ---
Amount distributed to minority partners in
consolidated partnership 2,104 1,486 541 1,015
-------------- -------------- -------------- --------------
Funds From Operations (FFO) $ 69,548 $ 41,133 $ 17,246 $ 29,130
============== ============== ============== ==============
Weighted Average Shares/Units Outstanding 39,743 26,431 20,326 20,690
============== ============== ============== ==============
Pro Forma amounts have been prepared as if the IPO and the formation
transactions occurred on January 1, 1995.
Assumes conversion of limited partnership units of the Operating Partnership.
Item 8. Financial Statements and Supplemental Data
The response to this item is included in a separate section of this Form
10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information contained in the section captioned "Proposal I: Election
of Directors" of the Company's definitive proxy statement for the 1998 annual
meeting of stockholders is incorporated herein by reference.
Item 11. Executive Compensation
The information contained in the section captioned "Executive
Compensation" of the Company's definitive proxy statement for the 1998 annual
meeting of stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the section captioned "Principal and
Management Stockholders" of the Company's definitive proxy statement for the
1998 annual meeting of stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information contained in the section captioned "Certain Relationships
and Related Transactions" of the Company's definitive proxy statement for the
1998 annual meeting of the stockholders is incorporated herein by reference.
Part IV
Item 14. Financial Statements and Schedules, Exhibits and Reports on Form 8-K
(a)(1 and 2) Financial Statements and Schedules
The following consolidated financial information is included as a separate
section of this annual report on Form 10-K:
Reckson Associates Realty Corp. and the Reckson Group
Report of Independent Auditors ..............................................
Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996....
Consolidated Statements of Income for the years ended December 31, 1997, 1996
and for the period from June 3, 1995 to December 31, 1995 and the Combined
Statement of Income for the period January 1, 1995 to June 2, 1995...........
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1997, 1996 and for the period from June 3, 1995 to December 31, 1995 and
the Combined Statement of Owners' (Deficit) for the period from January 1,
1995 to June 2, 1995.........................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and for the period from June 3, 1995 to December 31, 1995 and the
Combined Statement of Cash Flows for the period January 1, 1995 to June 2,
1995.........................................................................
Notes to Financial Statements ...............................................
Schedule III Real Estate and Accumulated Depreciation........................
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.
(3) Exhibit Index
Exhibit
Number Description
- ------- --------------
3.1* Articles of Incorporation of Registrant
3.2** By-Laws of Registrant
3.3** Amended and Restated Articles of Incorporation
4.1* Specimen Share Certificate
10.1** Amended and Restated Agreement of Limited Partnership of Reckson
Operating Partnership, L.P.
10.2 Third Amended and Restated Agreement of Limited Partnership of Omni
Partners, L.P.
10.3** Employment and Non-Competition Agreement between Registrant and
Donald Rechler
10.4** Employment and Non-Competition Agreement between Registrant and
Scott Rechler
10.5** Employment and Non-Competition Agreement between Registrant and
Mitchell Rechler
10.6** Employment and Non-Competition Agreement between Registrant and
Gregg Rechler
10.7** Non-Competition Agreement between Registrant and Roger Rechler
10.8** Employment and Non-Competition Agreement between Registrant and
J. Michael Maturo
10.9** Purchase Option Agreements relating to the Reckson Option Properties
10.10** Purchase Option Agreements relating to the Other Option Properties
10.11*** Amended 1995 Stock Option Plan
10.12**** Registrant's Unsecured Credit Facility
10.13*** 1996 Employee Stock Option Plan
10.14** Executive Center Leases
10.15* Ground Leases for certain of the Properties
10.16** Amended and Restated Agreement of Limited Partnership of Reckson
FS Limited Partnership
10.17** Indemnity Agreement relating to 100 Oser Avenue
10.18** Contribution Agreement by and among Registrant, Reckson Operating
Partnership, L.P. and Tarrytown Corporate Center, Tarrytown
Corporate Center IV, L.P., Tarrytown Corporate Center II, Crest
Realties, 2 Church Street Associates, JAH Realties, and Jon
Halpern
10.19 Amended and Restated 1997 Stock Option Plan
10.20 1998 Stock Option Plan
10.21 Amended and Restated Agreement of Limited Partnership of Reckson
Morris Operating Partnership, L.P.
10.22 Registrant's Unsecured Bridge Facility
10.23 Note Purchase Agreement for the Senior Unsecured Notes
10.24 Severance Agreement between Registrant and Donald Rechler
10.25 Severance Agreement between Registrant and Scott Rechler
10.26 Severance Agreement between Registrant and Mitchell Rechler
10.27 Severance Agreement between Registrant and Gregg Rechler
10.28 Severance Agreement between Registrant and Roger Rechler
10.29 Severance Agreement between Registrant and J. Michael Maturo
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries
23.0 Consent of Independent Auditors
24.1 Powers of Attorney (included in Part IV of this Form 10-K)
27.0 Financial Data Schedule
27.1 Restated Financial Data Schedule for the 6 months ended June 30,
1996 reflecting the effect of FASB #128, Earnings Per Share.
27.2 Restated Financial Data Schedule for the 9 months ended September
30, 1996 reflecting the effect of FASB #128, Earnings Per Share.
27.3 Restated Financial Data Schedule for the year ended December 31,
1996 reflecting the effect of FASB #128, Earnings Per Share.
27.4 Restated Financial Data Schedule for the 3 months ended March 31,
1997 reflecting the effect of FASB #128, Earnings Per Share.
27.5 Restated Financial Data Schedule for the 6 months ended June 30,
1997 reflecting the effect of FASB #128, Earnings Per Share.
27.6 Restated Financial Data Schedule for the 9 months ended September
30, 1997 reflecting the effect of FASB #128, Earnings Per Share.
* Previously filed as an exhibit to Registration Statement on Form S-11
(No. 33-84324) and incorporated herein by reference.
** Previously filed as an exhibit to Registration Statement on Form S-11
(No. 333-1280) and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's Form 8-K report filed
with the SEC on November 25, 1996 and incorporated herein by reference.
**** Previously filed as an exhibit to the Company's Form 8-K report filed
with the SEC on May 15, 1997 and incorporated herein by reference.
(b) Reports on Form 8-K
On September 9, 1997 the Company filed a report on Form 8-K relating to
the acquisition of 400 Garden City Plaza, Garden City, New York.
On October 21, 1997, the Company filed a report on Form 8-K announcing
its contract to invest $150,000,000 and acquire a controlling interest in
the Morris Companies.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 24, 1998.
Reckson Associates Realty Corp.
By: /s/ Donald J. Rechler
(Donald J. Rechler)
Chairman of the Board, and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Reckson Associates Realty Corp., hereby severally constitute Scott
H. Rechler, Mitchell D. Rechler and J. Michael Maturo, and each of them singly,
our true and lawful attorneys with full power to them, and each of them singly,
to sign for us and in our names in the capacities indicated below, the Form 10-
K filed herewith and any and all amendments to said Form 10-K, and generally to
do all such things in our names and in our capacities as officers and directors
to enable Reckson Associates Realty Corp. to comply with the provisions of the
Securities Exchange Act of 1934, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Form 10-K and any and
all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Donald J. Rechler Chairman of the Board, Chief Executive
- ------------------------ Officer and Director (principal executive
(Donald J. Rechler) officer) March 24, 1998
/s/ Scott Rechler President Chief Operating Officer
- ------------------------ and Director
(Scott Rechler) March 24, 1998
/s/ Roger M. Rechler Vice Chairman of the Board and
- ------------------------ Director
(Roger M. Rechler) March 24, 1998
/s/ J. Michael Maturo Executive Vice President, Treasurer
- ------------------------ and Chief Financial Officer (principal
(J. Michael Maturo) financial officer and principal March 24, 1998
accounting officer)
/s/ Mitchell D. Rechler Executive Vice President and
- ------------------------ Director
(Mitchell D. Rechler) March 24, 1998
/s/ Harvey R. Blau Director
- ------------------------
(Harvey R. Blau) March 24, 1998
/s/ Leonard Feinstein Director
- ------------------------
(Leonard Feinstein) March 24, 1998
/s/ John V.N. Klein Director
- ------------------------
(John V.N. Klein) March 24, 1998
/s/ Conrad Stephenson Director
- ------------------------
(Conrad Stephenson) March 24, 1998
/s/ Herve A. Kevenides Director
- ------------------------
(Herve A. Kevenides) March 24, 1998
/s/ Jon L. Halpern Director
- ------------------------
(Jon L. Halpern) March 24, 1998
/s/ Lewis S. Ranieri Director
- ------------------------
(Lewis S. Ranieri) March 24, 1998
Report of Independent Auditors
Board of Directors and Stockholders
Reckson Associates Realty Corp.
We have audited the accompanying consolidated balance sheets of Reckson
Associates Realty Corp. as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended and for the period from June 3, 1995 (commencement of
operations) to December 31, 1995 and the related combined statements of income,
owners' (deficit) and cash flows for the period January 1, 1995 to June 2, 1995
of the Reckson Group. We have also audited the financial statement schedule
listed in the index at item 14(a). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Reckson
Associates Realty Corp. at December 31, 1997 and 1996, and the consolidated
results of operations and cash flows for the years then ended and for the
period June 3, 1995 (commencement of operations) to December 31, 1995 and the
combined results of operations and cash flows for the period January 1, 1995 to
June 2, 1995 of the Reckson Group in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 13, 1998,
except for Note 14 as
to which the date is February 18, 1998.
Reckson Associates Realty Corp.
Consolidated Balance Sheets
(in thousands, except share amounts)
December 31,
1997 1996
------------- -------------
Assets
Commercial real estate properties, at cost
(Notes 2,3, 5, 7 and 8 )
Land $ 138,526 $ 45,259
Buildings and improvements 818,229 457,403
Developments in progress:
Land 29,309 5,637
Development costs 25,164 8,469
Furniture, fixtures and equipment 4,054 2,736
------------- -------------
1,015,282 519,504
Less accumulated depreciation (111,068) (88,602)
------------- -------------
904,214 430,902
------------- -------------
Investments in real estate joint ventures 7,223 5,437
Investment in mortgage notes and notes
receivable (Note 8) 104,509 51,837
Cash and cash equivalents (Note 12) 21,828 12,688
Tenant receivables 4,975 1,732
Affiliate receivables (Note 7) 18,090 3,826
Deferred rent receivable 14,973 12,573
Prepaid expenses and other assets (Note 7) 13,705 6,225
Contract and land deposits and pre-acquisition costs 7,559 7,100
Deferred lease and loan costs, less accumulated
amortization of $14,844 (1997) and $12,915 (1996) 16,181 11,438
------------- -------------
Total Assets $ 1,113,257 $ 543,758
============= =============
Liabilities
Mortgage notes payable (Note 2) $ 180,023 $ 161,513
Credit facilities (Note 3) 210,250 108,500
Senior unsecured notes ( Note 4) 150,000 ---
Accrued expenses and other liabilities (Note 5) 30,987 15,868
Dividends and distributions payable 120 9,442
Affiliate payables (Note 7) 807 502
------------- -------------
Total Liabilities 572,187 295,825
------------- -------------
Minority interest in consolidated partnership 6,655 9,187
Limited Partners' minority interest in Operating
Partnership 85,750 51,879
------------- -------------
92,405 61,066
------------- -------------
Commitments and other comments
(Notes 9, 10, 12 and 14) --- ---
Stockholders' Equity (Note 6):
Preferred Stock, $.01 par value, 25,000,000 shares
authorized none issued or outstanding --- ----
Common Stock, $.01 par value, 100,000,000
shares authorized, 37,770,158 and 24,356,354,
shares issued and outstanding, respectively 378 244
Additional paid in capital 448,287 186,623
------------- -------------
Total Stockholders' Equity 448,665 186,867
------------- -------------
Total Liabilities and Stockholders' Equity $ 1,113,257 $ 543,758
============= =============
See accompanying notes to financial statements.
Reckson Associates Realty Corp.
Consolidated Statement of Income
And Reckson Group
Combined Statements of Income
(in thousands, except share amounts)
Reckson Reckson Reckson Reckson
Associates Associates Associates Group for
Realty Corp Realty Corp Realty Corp the Period
for the Year for the Year for the Period January 1,
Ended Ended June 3, 1995 to 1995 to
December December December 31, June 2,
31, 1997 31, 1996 1995 1995
-------------- -------------- --------------- --------------
Revenues (Note 10):
Base rents $ 128,778 $ 82,150 $ 32,661 $ 16,413
Tenant escalations and reimbursements 14,981 10,628 5,246 2,907
Construction revenues - net --- --- --- 432
Management revenues --- --- --- 589
Equity in earnings of service companies 55 1,031 100 ---
Equity in earnings of real estate joint ventures 459 266 --- ---
Interest income on mortgage notes and notes
receivable 5,437 --- --- ---
Investment and other income (Note 8) 3,685 2,066 448 548
-------------- -------------- --------------- --------------
Total Revenues 153,395 96,141 38,455 20,889
-------------- -------------- --------------- --------------
Expenses:
Property operating expenses 28,943 18,959 7,144 3,985
Real estate taxes 20,579 13,935 5,755 3,390
Ground rents 1,269 1,107 579 234
Marketing, general and administrative 8,292 5,949 1,859 1,858
Interest 21,585 13,331 5,331 7,622
Depreciation and amortization 27,237 17,670 7,233 3,606
-------------- -------------- --------------- --------------
Total Expenses 107,905 70,951 27,901 20,695
-------------- -------------- --------------- --------------
Income before minority interests and extraordinary
items 45,490 25,190 10,554 194
Minority partners' interest in consolidated partnership
income (807) (808) (184) ---
Limited partners' minority interest in Operating
Partnership income (7,817) (5,960) (2,883) ---
-------------- -------------- --------------- --------------
Income before extraordinary items 36,866 18,422 7,487 194
Extraordinary items (loss) on extinguishment of
debts, net of Limited Partners' minority interest in
Operating Partnership share of $578, $364 and $1,788,
respectively, (Notes 1 and 3) (2,230) (895) (4,234) ---
-------------- -------------- --------------- --------------
Net income $ 34,636 $ 17,527 $ 3,253 $ 194
-------------- -------------- --------------- --------------
Basic net income per common share:
Income before extraordinary items $ 1.13 $ 0.92 $ 0.51
Extraordinary items(loss)on extinguishment of debts (0.07) (0.04) (0.29)
-------------- -------------- ---------------
Net income per common share $ 1.06 $ 0.88 $ 0.22
-------------- -------------- ---------------
Weighted average common shares outstanding 32,727,000 19,928,000 14,678,000
-------------- -------------- ---------------
Diluted net income per common shares
(Notes 1 and 6) $ 1.04 $ 0.87 $ 0.22
============== ============== ===============
Diluted weighted average common share
outstanding (Notes 1 and 6) 33,260,000 20,190,000 14,725,000
============== ============== ===============
See accompanying notes to financial statements.
Reckson Associates Realty Corp.
Consolidated Statement of Stockholder's Equity
And Reckson Group
Combined Statements of Owner's Equity
(in thousands)
Retained Limited
Additional Earnings Total Partners'
Common Paid in Owners'/ Stockholders' Minority
Stock Capital (Deficit) Equity Interest
------------- ------------- ------------- ------------- -------------
Owners' Deficit, December 31, 1994 $ --- $ --- $ (73,492) $ (73,492) $ ---
Distributions --- --- (4,399) (4,399)
Contributions --- --- 119 119
Adjustment to unrealized gain on available-for-sale
securities --- --- 95 95
Net income --- --- 194 194
------------- ------------- ------------- ------------- -------------
Owners' Deficit, June 2, 1995 --- --- (77,483) (77,483) ---
Deficit not contributed by the Owners of Reckson
Group --- --- 9,589 9,589
Deficit contributed by the Owners of Reckson Group --- (67,894) 67,894 ---
Initial public offering 75 161,936 --- 162,011
Establishment of minority interest in Operating
Partnership --- (25,651) --- (25,651) 25,651
Issuance of Operating Partnership Units --- --- --- --- 3,237
Net income --- --- 3,253 3,253 1,095
Dividends and distributions paid and payable --- (6,707) (3,253) (9,960) (3,835)
------------- ------------- ------------- ------------- -------------
Stockholders' equity, December 31, 1995 75 61,684 --- 61,759 26,148
Proceeds from pubic offerings 47 120,498 --- 120,545 24,671
Issuance of Operating Partnership Units (Note 11) --- 10,909 --- 10,909 3,135
Proceeds from exercise of employee options --- 263 --- 263 75
Two for one stock split (Note 6) 122 (122) --- --- ---
Net Income --- --- 17,527 17,527 5,596
Dividends and distributions paid and payable --- (6,609) (17,527) (24,136) (7,746)
------------- ------------- ------------- ------------- -------------
Stockholders' equity, December 31, 1996 244 186,623 --- 186,867 51,879
Two for one stock split (Note 6) 50 (50) --- --- ---
Proceeds from public offerings 80 256,564 --- 256,644 33,925
Issuance of Operating Partnership Units (Note 11) --- 9,473 --- 9,473 1,236
Proceeds from exercise of employee options 4 1,706 --- 1,710 178
Net Income --- --- 34,636 34,636 7,239
Dividends and distributions paid and payable --- (6,029) (34,636) (40,665) (8,707)
------------- ------------- ------------- ------------- -------------
Stockholder's equity, December 31, 1997 $ 378 $ 448,287 $ --- $ 448,665 $ 85,750
============= ============= ============= ============= =============
See accompanying notes to financial statements
Reckson Associates Realty Corp.
Consolidated Statement of Cash Flows
And Reckson Group
Consolidated Statements of Cash Flows
(in thousands)
Reckson Reckson Reckson
Associates Associates Associates Reckson
Realty Corp. Realty Corp. Realty Corp. Group for th
for the Year for the Year for the Period Period
Ended Ended June 3, 1995 to January
December 31, December 31, December 31, 1,1995 to Ju
1997 1996 1995 2, 1995
------------- ------------- -------------- -------------
Cash Flows from Operating Activities:
Net Income $ 34,636 $ 17,527 $ 3,253 $ 194
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 27,237 17,670 7,233 3,606
Loss on extinguishment of debts, net of minority interest 2,230 895 4,234 ---
Minority partners' interest in consolidated partnership 807 808 184 ---
Limited Partners' minority interest in Operating Partnership 7,817 5,960 2,883 ---
Gain on sales of property and securities (672) --- --- (134)
Distribution from and share of net loss (income) from investments
in partnerships 408 191 --- (303)
Deferred rents receivable (4,500) (3,837) --- ---
Equity in undistributed earnings of service companies (55) (931) (100) ---
Equity in earnings of real estate partnerships (459) (266) --- ---
Interest income on mortgage notes and notes receivable (2,392) (870) --- ---
Deferred ground rents payable 273 244 --- ---
Changes in operating assets and liabilities:
Prepaid expenses and other assets (1,931) (608) (297) 417
Tenant and affiliate receivables (1,183) (256) (2,438) 302
Accrued expenses and other liabilities 8,427 2,895 2,071 (2,463)
------------- ------------- -------------- -------------
Net cash provided by operating activities 70,643 39,422 17,023 1,619
------------- ------------- -------------- -------------
Cash Flows from Investing Activities:
Cash from contributed net assets --- --- 629 ---
Purchases of commercial real estate properties (429,379) (181,130) (49,241) ---
Repayment of notes payable affiliates --- --- (6,000) ---
Cash paid in exchange for partnership net assets --- --- (16,075) ---
Investment in mortgage notes and notes receivable (50,282) (50,892) --- ---
Increase in contract deposits and preacquisition costs (1,303) (6,668) (810) ---
Additions to developments in progress (40,367) (8,427) (2,567) ---
Additions to commercial real estate properties (12,038) (12,441) (2,326) (814)
Payment of leasing costs (5,417) (5,028) (1,672) (125)
Investment in securities (1,756) --- --- ---
Additions to furniture, fixtures and equipment (1,159) (115) (21) (13)
Investments in and advances to real estate joint ventures (1,734) (5,832) (232) ---
Investment in service companies (4,241) (3,170) --- ---
Distributions from partnership investments --- --- --- 115
Contributions to partnership investments --- --- --- (244)
Proceeds from sales of properties and securities 725 --- --- 371
------------- ------------- -------------- -------------
Net cash (used in) provided by investing activities (546,951) (273,703) (78,315) (710)
------------- ------------- -------------- -------------
Cash Flows from Financing Activities:
Proceeds from borrowings --- 54,402 40,779 14,004
Principal payments on borrowings (1,624) (380) (151,230) (13,088)
Proceeds from issuance of bonds, net of bond issuance costs 147,420 --- --- ---
Proceeds from mortgage refinancings, net of refinancing costs 20,134 --- --- ---
Payment of loan costs and prepayment penalties (2,403) (2,525) (9,138) (268)
Advances to affiliates (20,513) (2,952) (243) (1,060)
Proceeds from credit facilities 421,000 144,500 40,000 ---
Principal payments on credit facilities (319,250) (76,000) --- ---
Proceeds from issuance of common stock, and exercise of
options net of issuance costs 299,991 145,317 162,100 ---
Payment of dividends and distribution to minority partners
in consolidated partnership (53,327) (22,546) (13,795) ---
Distributions to minority partners in operating partnership (8,707) (1,392) (541) ---
Deferred offering costs --- --- --- (400)
Distributions to Predecessor Owners --- --- --- (4,280)
Increase in security deposits payable 2,727 1,561 343 ---
------------- ------------- -------------- -------------
Net cash provided by (used in) financing activities 485,448 239,985 68,275 (5,092)
------------- ------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents 9,140 5,704 6,983 (4,183)
Cash and cash equivalents at beginning of period 12,688 6,984 1 7,041
------------- ------------- -------------- -------------
Cash and cash equivalents at end of period $ 21,828 $ 12,688 $ 6,984 $ 2,858
============= ============= ============== =============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 20,246 $ 13,261 $ 4,700 $ 8,600
============= ============= ============== =============
See accompanying notes to financial statements.
Reckson Associates Realty Corp.
and
Reckson Group
Notes to Financial Statements
1. Description of Business and Significant Accounting Policies
Description of Business
Reckson Associates Realty Corp. (the "Company") and the Reckson Group
(the "Predecessor") are engaged in the ownership, management, operation,
leasing and development of commercial real estate properties, principally
office and industrial buildings and also own certain undeveloped land
(collectively, the "Properties") located in the New York City tri-state area.
Organization and Formation of the Company
The Company was incorporated in Maryland in September 1994 and is the
successor to the operations of the Reckson Group. On June 2, 1995, the
Company completed an initial public offering of 6,120,000 shares pre
split)of $.01 par value common stock ("the Offering"). The Offering price
was $24.25 per share (pre split) resulting in gross proceeds of
$148,410,000. The Company also issued 400,000 shares (pre split) in a
concurrent offering to the Rechler family resulting in $9,700,000 of
additional proceeds. On June 28, 1995, the underwriters exercised their over
allotment option and, accordingly, the Company issued an additional 918,000
shares (pre split) of common stock and received gross proceeds of $22,261,500.
The aggregate proceeds to the Company, net of underwriters' discount, advisory
fee and offering costs were approximately $162,000,000.
The Company became the sole general partner of Reckson Operating
Partnership L.P. (the "Operating Partnership") by contributing substantially
all of the net proceeds of the Offering, 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.
The Operating Partnership executed various option and purchase agreements
whereby it issued 2,758,960 units (pre split) in the Operating Partnership
("Units") to the continuing investors and assumed approximately $163,438,000
(net of the Omni mortgages) of indebtedness in exchange for interests in
certain property partnerships, fee simple and leasehold interests in properties
and development land, certain business assets of the executive center entities
and 100% of the non-voting preferred stock of the management and construction
companies.
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying consolidated financial statements of Reckson Associates
Realty Corp. include the accounts of the Company and its subsidiaries. The
Company's investments in Reckson Management Group, Inc., Reckson Construction
Group, Inc., Reckson Service Industries, Inc. and Reckson Executive Centers,
L.L.C. are accounted for on the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
The minority interests at December 31, 1997 represent approximately a 16%
limited partnership interest in the Operating Partnership and a 40% minority
partners' interest in the Omni.
The Reckson Group was not a legal entity but rather a combination of
partnerships, an "S" corporation and affiliated real estate management and
construction corporations which were under the common control of Reckson
Associates (a general partnership) and affiliated entities. All significant
intercompany transactions and balances were eliminated in combination. The
Reckson Group used the equity method of accounting for investments in less
than 50% owned entities and majority owned entities where control was
temporary.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Real Estate
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, which are included in buildings and improvements, are amortized
on a straight-line basis over the term of the related leases.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three
months or less when purchased, to be cash equivalents.
Deferred Costs
Lease fees and loan costs are capitalized and amortized over the life of
the related lease or loan. The Company incurred costs related to offerings of
common stock which were charged to Stockholders' Equity.
Income Taxes
Prior to June 3, 1995 all of the Properties were owned by partnerships and
an S-corporation, whose partners and shareholders were required to include
their respective share of profits and losses in their individual tax returns.
The Company generally will not be subject to federal income taxes as long
as it qualifies as a real estate investment trust ("REIT"). A REIT will
generally not be subject to federal income taxation on that portion of income
that qualifies as REIT taxable income and to the extent that it distributes
such taxable income to its stockholders and complies with certain requirements.
As a REIT, the Company is allowed to reduce taxable income by all or a portion
of distributions to stockholders and must distribute at least 95% of its
taxable income to qualify as a REIT. As distributions have exceeded taxable
income, no federal income tax provision has been reflected in the accompanying
consolidated financial statements. State income taxes are not significant.
During 1997, the Company paid dividends of $1.54 per share (representing
dividends for five quarters) of which approximately 72% was considered ordinary
income and 28% was a return of capital for federal income tax purposes. During
1996, the Company paid dividends of $.89 per share (split adjusted and
representing dividends for three quarters) all of which was ordinary income for
federal income tax purposes.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease. The excess of rents recognized over amounts contractually due are
included in deferred rents receivable on the accompanying balance sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. Certain lease agreements provide for reimbursement
of real estate taxes, insurance, common area maintenance costs and indexed
rental increases, which are recorded on an accrual basis.
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, the status of the loan, the value of the
underlying collateral, the financial condition of the borrower and anticipated
future events. Loan discounts are amortized over the life of the real estate
using the constant interest method.
Construction Operations
Construction operations are accounted for utilizing the completed contract
method. Under this method, costs and related billings are deferred until the
contract is substantially complete. Estimated losses on uncompleted contracts
are recorded in the period that management determines that a loss may be
incurred.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," (FAS No. 123) requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, no compensation expense was recognized because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant (see Note 6).
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements. The conversion of Units into common stock (Note 6) would not
have a significant effect on per share amounts as the Units share
proportionately with the common stock in the results of the Operating
Partnership's operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. Mortgage Notes Payable
At December 31, 1997, there are thirteen mortgage notes payable with an
aggregate outstanding principal amount of approximately $180 million.
Properties with an aggregate carrying value at December 31, 1997 of
approximately $225 million are pledged as collateral against the mortgage notes
payable. In addition, $59.2 million of the $180 million are recourse to the
Company. The mortgage notes bear interest at rates ranging from 6.82% to
9.25%, and mature between 1999 and 2012. The weighted average interest rate on
the outstanding mortgage notes payable at December 31, 1997 is 7.71%. Certain
of the mortgage notes payable are guaranteed by certain minority partners in
the Operating Partnership.
Scheduled principal repayments during the next five years and thereafter
are as follows (in thousands):
Year Ended December 31,
1998 $ 2,327
1999 2,368
2000 33,788
2001 2,336
2002 26,978
Thereafter 112,226
---------------
$ 180,023
===============
3. Credit Facilities
On April 30, 1997, the Company obtained a three-year $250 million
unsecured credit facility from a bank group led by Chase Manhattan Bank and
Union Bank of Switzerland (the "Unsecured Credit Facility"). The Company's
ability to borrow thereunder is subject to the satisfaction of certain
financial covenants, including limitations on unsecured and secured
borrowings, minimum interest and fixed charge coverage ratios, a minimum
equity value and a maximum dividend payout ratio. In addition, borrowings
under the Unsecured Credit Facility bear interest at a floating rate equal to
one, two, three or six month LIBOR (at the Company's election) plus a spread
ranging from 1.125% to 1.50%, based on the Company's leverage ratio. The
Unsecured Credit Facility replaced the Company's existing $150 million secured
credit facility. As a result, certain deferred loan costs incurred in
connection with the secured credit facility were written off. Such amount is
reflected as an extraordinary loss in the accompanying consolidated statement
of income.
The Company capitalized interest incurred on credit facility borrowings
to fund certain development costs in the amount of $2,351,201 and $800,434 for
the years ended December 31, 1997 and 1996, respectively.
On January 2, 1998, the Company obtained a $200 million unsecured credit
facility (the "Bridge Facility") which matures on April 1, 1998. The Bridge
Facility was provided by the two lead members of the Unsecured Credit Facility
bank group and serves as interim financing while the Company seeks to expand
the availability under the Unsecured Credit Facility.
4. Senior Unsecured Notes
On August 28, 1997, the Company sold $150 million of 10-year senior
unsecured notes in a privately placed transaction. The senior unsecured notes
were priced at par with interest at 110 basis points over the 10- year
treasury note for an all in coupon of 7.2%. Interest is payable semiannually
with principal and unpaid interest due on August 28, 2007.
5. Land Leases
The Company leases, pursuant to noncancellable operating leases, the land
on which seven of its buildings were constructed. The leases, which contain
renewal options, expire between 2018 and 2080. The leases contain provisions
for scheduled increases in the minimum rent and one of the leases additionally
provides for adjustments to rent based upon the fair market value of the
underlying land at specified intervals. Minimum ground rent is recognized on a
straight-line basis over the terms of the leases. The excess of amounts
recognized over amounts contractually due is $1,948,000 and $1,676,000 at
December 31, 1997 and 1996, respectively. These amounts are included in
accrued expenses and other liabilities on the accompanying balance sheets.
Future minimum lease commitments relating to the land leases as of December
31, 1997 are as follows (in thousands):
1998 $ $1,093
1999 1,202
2000 1,203
2001 1,212
2002 1,212
Thereafter 42,114
-------------
$ 48,036
=============
6. Stockholders' Equity
A Unit and a share of 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. Beginning on the second
anniversary of the consummation of the Offering, Units may be redeemed for
cash or, at the election of the Company, for shares of common stock on a one-
for-one basis.
On February 12, 1997, the Board of Directors of the Company declared a
two for one stock split to be effected as a stock dividend distributable on
April 15, 1997 to stockholders of record on April 4, 1997.
On March 12, 1997, the Company sold 9,890,000 shares (split adjusted) of
the Company's common stock at $22.63 per share (split adjusted) for an
aggregate consideration of approximately $224 million before deducting
offering costs.
On December 5, 1997, the Company sold 3,081,177 shares of the Company's
common stock at $26.00 per share for an aggregate consideration of
approximately $80.1 million before deducting offering costs.
The Company has established the 1995, 1996 and 1997 Employee Stock Option
Plans (the "Plans") for the purpose of attracting and retaining executive
officers, directors and other key employees. As of December 31, 1997,
1,500,000, 400,000 and 3,000,000 of the Company's authorized shares have been
reserved for issuance under the 1995, 1996 and 1997 plans, respectively.
The following table sets forth the outstanding options and their
corresponding exercise price per share:
Options Exercise Price Range
Granted From To
-------------- ----------- -----------
1995 Employee Stock Option Plan 1,296,216 $ 12.13 $ 22.75
1996 Employee Stock Option Plan 70,433 $ 19.75 $ 22.75
1997 Employee Stock Option Plan 1,147,500 $ 22.75 $ 27.13
--------------
Total 2,514,149
==============
Prices through December 31, 1996 are split adjusted.
Options granted to new employees vest in three equal installments on the
first, second and third anniversaries of the date of the grant. Options
granted to existing employees are generally exercisable on the date of the
grant.
In addition, the independent directors of the Company have been granted
options to purchase 45,000 shares pursuant to the 1995 Employee Stock Option
Plan at exercise prices ranging from $12.13 to $22.50 per share (split
adjusted) and options to purchase 3,000 shares pursuant to the 1997 Employee
Stock Option Plan at an exercise price of $25.31 per share. The options
granted to the independent directors were exercisable on the date of the
grant.
The Company has made loans to certain executive officers to purchase
310,834 shares of common stock at market prices ranging from $22.50 per share
to $27.13 per share. The loans bear interest at the mid-term Applicable
Federal Rate and are secured by the shares purchased. Such loans including
accrued interest will be forgiven each year on the annual anniversary of the
grant date based upon a ten year amortization period with a balloon payment
due on the fifth anniversary. As of December 31, 1997, the loan balances
aggregated approximately $7,860,000 and have been included as a reduction of
additional paid in capital on the accompanying consolidated balance sheets.
During 1997 and 1996, 140,406 and 13,977, respectively of employee
options were exercised resulting in proceeds to the Company of approximately
$1,888,000 and $338,000, respectively.
During 1998, the Company established the 1998 Employee Stock Option Plan
which reserves 3,000,000 shares of the Company's authorized shares for
issuance under this plan. On January 9, 1998, 1,415,965 options were granted
at an exercise price of $25.75 per share.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of FAS
No. 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995; respectively: risk-free interest rate of
5%; dividend yields of 4.7%, 7.57% and 10.22%; volatility factors of the
expected market price of the Company's common stock of .142, and a weighted-
average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for earnings per
share information):
Year Ended Year Ended June 3,1995 to
December 31, December 31, December 31,
1997 1996 1995
---------------- ---------------- ---------------
Pro forma net income $ 34,287 $ 17,431 $ 3,226
================ ================ ===============
Basic Pro forma earnings per share $ 1.05 $ 0.88 $ 0.22
================ ================ ===============
Diluted pro forma earnings per share $ 1.03 $ 0.86 $ 0.22
================ ================ ===============
A summary of the Company's stock option activity, and related information
follows:
Weighted-Average
Exercise
Options Price
----------------- -----------------
Outstanding - June 3, 1995 --- ---
Granted 864,060 $ 12.23
Exercised --- ---
Forfeited --- ---
-----------------
Outstanding- December 31, 1995 864,060 $ 12.23
Granted 621,478 $ 16.94
Exercised (27,954) $ 12.39
Forfeited (36,370) $ 12.77
-----------------
Outstanding - December 31, 1996 1,421,214 $ 14.28
Granted 1,123,300 $ 26.67
Exercised (126,429) $ 14.94
Forfeited (10,319) $ 16.33
-----------------
Outstanding- December 31, 1997 2,407,766 $ 20.16
=================
Prices through December 31, 1996 are split adjusted.
The weighted average fair value of options granted for the period June 2,
1995 to December 31, 1995, for the years ended December 31, 1996 and 1997 was
$.25, $.86 and $1.47, respectively. In addition, there were 30,000 options at
a weighted average per share exercise price of $12.13, 403,564 options at a
weighted average per share exercise price of $13.95 and 1,758,534 options at a
weighted average per share exercise price of $20.16 exercisable at December
31, 1995, 1996 and 1997, respectively.
Exercise prices for options outstanding as of December 31, 1997 ranged
from $12.13 per share to $27.13 per share. The weighted-average remaining
contractual life of those options is approximately 8.81 years.
The Company made loans to certain senior officers to purchase units at
market prices ranging from $12.13 per unit to $21.94 per unit. The loans bear
interest at rates ranging between 8% to 8.5% and are secured by the units
purchased. Such loans will be forgiven ratably at each anniversary of
employment over a four to five year period. The loan balances of $325,500 and
$250,000 at December 31, 1997 and 1996, respectively have been included as a
reduction of additional paid in capital on the accompanying consolidated
balance sheets.
The following is the Company's reconciliation of the numerators and
denominators of the basic and diluted net income per weighted average common
share computations and other related disclosures required by FAS Statement 128
(in thousands except share amounts).
The following table sets forth the computation of basic and diluted
earnings per share:
For the year For the year For the period
ended ended June 3,1995 to
December 31, December 31, December 31,
1997 1996 1995
--------------- --------------- ---------------
Numerator:
Net income before extraordinary items $ $36,866 $ $18,422 $ $7,487
--------------- --------------- ---------------
Numerator for basic and diluted earnings
per share $ $36,866 $ $18,422 $ $7,487
=============== =============== ===============
Denominator:
Denominator for basic earnings per share -
weighted-average shares 32,727 19,928 14,678
Effect of dilutive securities:
Employee stock options 533 262 47
--------------- --------------- ---------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 33,260 20,190 14,725
=============== =============== ===============
Basic earnings per common share:
Income before extraordinary items $ 1.13 $ 0.92 $ 0.51
Extraordinary items (.07) (.04) (.29)
--------------- --------------- ---------------
Net income per common share $ 1.06 $ 0.88 $ 0.22
=============== =============== ===============
Diluted earnings per common share:
Income before extraordinary items $ 1.11 $ 0.91 $ 0.51
Extraordinary items (.07) (.04) (.29)
--------------- --------------- ---------------
Diluted net income per common share $ 1.04 $ 0.87 $ 0.22
=============== =============== ===============
7. Related Party Transactions
The Company, through its subsidiaries and affiliates, provides
management, leasing and other tenant related services to the Properties.
Certain executive officers of the Company have continuing ownership interests
in the unconsolidated service companies.
In connection with the IPO, the Company was granted options, exercisable
over a 10 year period to acquire six properties owned by the Predecessor (the
"Reckson Option Properties") and four properties in which the Predecessor owns
a non-controlling minority interest (the "Other Option Properties" and,
together with the Reckson Option Properties, the "Option Properties") at a
purchase price equal to the lesser of (i) a fixed purchase price and (ii) the
Net Operating Income, as defined, attributable to such Option Property during
the 12 month period preceding the exercise of the option divided by a
capitalization rate of 11.5%, but the purchase price shall in no case be less
than the outstanding balance of the mortgage debt encumbering the Option
Property on the acquisition date.
During 1996, the Company acquired three of the Reckson Option Properties
for an aggregate purchase price of approximately $26 million. In connection
with the purchase of such Option Properties the Company issued 271,228 Units
at prices ranging from $16.38 per unit to $18.50 per unit (split adjusted) as
partial consideration in the transactions. Such Units were issued to certain
members of management and entities whose partners included members of
management.
During 1997, the Company acquired one of the Reckson Option Properties
for a purchase price of approximately $9 million. In connection with the
purchase, the Company issued 203,804 Units at a price of $21 per unit (split
adjusted) as partial consideration in the transaction. Such Units were issued
to certain members of management and entities whose partners include members
of management.
The Company made construction loan advances to fund certain redevelopment
and leasing costs relating to one of the Other Option Properties. At December
31, 1997 and 1996, advances due the Company were approximately $4,200,000 and
$2,940,000, respectively. Such amounts bear interest at the rate of 11% per
annum and are due on demand. In January 1998, the outstanding advances
including accrued and unpaid interest was repaid in full.
During 1997, the Company formed Reckson Service Industries, Inc. ("RSI")
and Reckson Strategic Venture Partners, LLC ("RSVP"). The Operating
Partnership owns a 95% nonvoting interest in RSI. RSI will serve as the
managing member of RSVP. RSI will invest in operating companies that
generally will provide commercial services to properties owned by the Company
and its tenants and third parties. RSVP was formed to provide the Company
with a "research and development" vehicle to invest in alternative real estate
sectors. RSVP will invest primarily in real estate and real estate related
operating companies generally outside of the Company's core office and
industrial focus. RSVP's strategy is to identify and acquire interests in
established entrepreneurial enterprises with experienced management teams in
market sectors which are in the early stages of their growth cycle or offer
unique circumstances for attractive investments as well as a platform for
future growth. The Company will determine the prudence of increasing its
investment and the potential for incorporating it as a core business. At
December 31, 1997, the Operating Partnership had made investments in or loans
to RSI and RSVP aggregating approximately $4.3 million and $7.4 million,
respectively in connection with start up costs and certain initial
investments. Such amounts have been included in other assets on the
accompanying balance sheet.
8. Commercial Real Estate Investments
During the period from June 3, 1995 to December 31, 1996 the Company
acquired 22 office properties encompassing approximately 2.8 million square
feet and 16 industrial properties encompassing approximately 1.4 million
square feet for an aggregate purchase price of approximately $273 million.
During 1997, the Company acquired five office properties encompassing
approximately 881,000 square feet and 15 industrial properties encompassing
approximately 968,000 square feet on Long Island for an aggregate purchase
price of approximately $131 million.
During 1997, the Company acquired eight office properties encompassing
approximately 830,000 square feet and three industrial properties encompassing
approximately 163,000 square feet in Westchester for an aggregate purchase
price of approximately $117 million. In addition, the Company acquired
approximately 32 acres of land located in Westchester for a purchase price of
approximately $8 million.
During 1997, the Company acquired one industrial property encompassing
approximately 452,000 square feet in Connecticut for a purchase price of
approximately $27 million.
During 1997, the Company acquired 13 office properties encompassing
approximately 1.5 million square feet and one industrial property encompassing
approximately 128,000 square feet in New Jersey for an aggregate purchase
price of approximately $156 million. In addition, the Company acquired
approximately 303 acres of land located in New Jersey for an aggregate
purchase price of approximately $16.2 million.
In October 1997, the Company entered into an agreement to invest $150
million in the Morris Companies, a New Jersey developer and owner of "Big Box"
warehouse facilities. The Morris Companies' properties include twenty three
industrial buildings encompassing approximately 4.0 million square feet. The
Company's investment will be used to acquire a controlling interest in Reckson
Morris Operating Partnership, L.P. ("RMI"). In connection with the
transaction the Morris Companies will contribute 100% of their interests in
certain industrial properties to RMI in exchange for operating partnership
units in RMI. On January 6, 1998, the Company made its initial investment
into RMI of approximately $65 million. In addition, at December 31, 1997, the
Company had advanced approximately $12 million to the Morris Companies
primarily to fund certain construction costs related to development properties
to be contributed to RMI.
In October 1997, the Company sold 671 Old Willets Path in Hauppauge, New
York for approximately $725,000 and recorded a gain on the sale of $672,000.
In addition, the Company has invested approximately $72.5 million in
certain mortgage indebtedness encumbering five Class A office buildings
located on Long Island encompassing approximately 927,000 square feet, a 400
acre parcel of land located in New Jersey and, a 586,000 square foot
industrial property in New Jersey. In addition, on March 13, 1997 the Company
loaned approximately $17 million to its minority partner in Omni, its flagship
Long Island office property, and effectively increased its economic interest
in the property owning partnership.
9. Fair Value of Financial Instruments
The following disclosures of estimated fair value at December 31, 1997
were determined by management, using available market information and
appropriate valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair value. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
Cash equivalents and variable rate debt are carried at amounts which
reasonably approximate their fair values.
Mortgage notes payable have an estimated aggregate fair value which
approximates its carrying value. Estimated fair value is based on interest
rates currently available to the Company for issuance of debt with similar
terms and remaining maturities.
10. Rental Income
The Properties are being leased to tenants under operating leases. The
minimum rental amount due under certain leases are generally either subject to
scheduled fixed increases or indexed escalations. In addition, the leases
generally also require that the tenants reimburse the Company for increases in
certain operating costs and real estate taxes above base year costs.
Included in base rents and tenant escalations and reimbursements in the
accompanying statements of operations are amounts from Reckson Executive
Centers, LLC, an equity investee, as follows (in thousands):
Tenant
Escalations and
For the Periods Base Rents Reimbursements
--------------- ---------------
Year ended December 31, 1997 $ 2,154 $ 441
Year ended December 31, 1996 $ 1,898 $ 417
June 3, 1995 to December 31, 1995 $ 1,095 $ 100
January 1, 1995 to June 2, 1995 $ 675 $ 48
Expected future minimum rents to be received over the next five years and
thereafter from leases in effect at December 31, 1997 are as follows (in
thousands):
Reckson
Executive
Centers, LLC Other Tenants Total
-------------- -------------- --------------
1998 $ 2,561 $ 156,909 $ 159,470
1999 2,634 147,473 150,107
2000 1,549 133,814 135,363
2001 787 109,767 110,554
2002 820 94,112 94,932
Thereafter 3,814 206,336 210,150
-------------- -------------- --------------
$ 12,165 $ 848,411 $ 860,576
============== ============== ==============
11. Non-Cash Investing and Financing Activities
Additional supplemental disclosures of non-cash investing and financing
activities are as follows (in thousands):
(1) During 1996, the Company purchased eight office properties located in
Westchester County and associated management and construction operations
as follows:
Cash Paid $58,533
Issuance of 677,534 Units (1) 9,527
Purchase price holdback 1,700
Mortgage assumed 9,366
--------------
Total purchase price $79,126
==============
(2) During 1996, the Company acquired three of the Reckson Option Properties
as follows:
Debt assumed and repaid $21,750
Issuance of 271,228 Units (1) 4,516
--------------
Total purchase price $26,266
==============
(3) In January 1997, the Company acquired one of the Reckson Option
Properties as follows:
Mortgage assumed $4,667
Issuance of 203,804 Units (1) 4,280
Cash paid 61
--------------
Total purchase price $9,008
==============
(4) In November 1997, the Company purchased a 181,000 square foot industrial
building located in Hauppauge, New York as follows:
Mortgage assumed and repaid $3,037
Issuance of 62,905 Units 1,578
Cash paid 10
--------------
Total purchase price $4,625
==============
(5) In December 1997, the Company purchased a 92,000 square foot industrial
building located in Elmsford, New York as follows:
Issuance of 183,469 Units $4,700
----
(1) Split adjusted
12. Commitments and Other Comments
The Company entered into employment agreements with its chairman and five
executive officers. The agreements are for terms expiring through June 1998.
The Company sponsors a defined contribution savings plan pursuant to
section 401(k) of the Internal Revenue Code. Under such plan, there are no
prior service costs. All employees are eligible to participate in the plan
after one year of service. Employer contributions are based on a discretionary
amount determined by the Company's management. During 1997 and 1996, the
Company made no contributions.
At December 31, 1996, the Company had restricted cash of $1.8 million
which collateralized an outstanding letter of credit for an equal amount.
At December 31, 1997, the Company had outstanding undrawn letters of
credit against the Unsecured Credit Facility of approximately $4 million.
13. Quarterly Financial Data (Unaudited)
The following summary represents the Company's results of operations for
each quarter during 1997 and 1996 (in thousands, except share amounts):
1997
--------------- --------------- --------------- ---------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- --------------- --------------- ---------------
Total revenues $ 31,692 $ 36,194 $ 40,342 $ 45,167
=============== =============== =============== ===============
Income before minority interests and
extraordinary items $ 8,805 $ 11,990 $ 11,470 $ 13,225
Minority interest (2,021) (2,194) (2,061) (2,348)
Extraordinary (loss) --- (1,962) (268) ---
--------------- --------------- --------------- ---------------
Net income $ 6,784 $ 7,834 $ 9,141 $ 10,877
=============== =============== =============== ===============
Basic net income per weighted
average common share:
Income before extraordinary item $ 0.26 $ 0.29 $ 0.27 $ 0.31
Extraordinary loss --- (.06) (.01) ---
--------------- --------------- --------------- ---------------
Net income $ 0.26 $ 0.23 $ 0.26 $ 0.31
=============== =============== =============== ===============
Weighted average common shares
outstanding 26,569,162 34,298,137 34,477,050 35,445,213
=============== =============== =============== ===============
Diluted net income per common
share (Notes 1 and 6):
Income before extraordinary items $ 0.25 $ 0.28 $ 0.27 $ 0.30
Extraordinary items --- (.06) (.01) ---
--------------- --------------- --------------- ---------------
Diluted net income per common share $ 0.25 $ 0.22 $ 0.26 $ 0.30
=============== =============== =============== ===============
Diluted weighted average common
shares outstanding 27,056,018 34,801,582 35,030,464 36,032,319
=============== =============== =============== ===============
1996
--------------- --------------- --------------- ---------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- --------------- --------------- ---------------
Total revenues $ 19,065 $ 22,694 $ 24,719 $ 29,663
=============== =============== =============== ===============
Income before minority interests and
extraordinary items $ 4,902 $ 6,421 $ 6,395 $ 7,472
Minority interest (1,584) (1,730) (1,682) (1,772)
Extraordinary (loss) (895) --- --- ---
--------------- --------------- --------------- ---------------
Net income $ 2,423 $ 4,691 $ 4,713 $ 5,700
=============== =============== =============== ===============
Basic net income per weighted
average common share:
Income before extraordinary item $ 0.22 $ 0.23 $ 0.23 $ 0.24
Extraordinary loss (.06) --- --- ---
--------------- --------------- --------------- ---------------
Net income $ 0.16 $ 0.23 $ 0.23 $ 0.24
=============== =============== =============== ===============
Weighted average common shares
outstanding 14,889,612 20,349,210 20,880,474 23,541,600
=============== =============== =============== ===============
Diluted net income per common
share (Notes 1 and 6):
Income before extraordinary items $ 0.22 $ 0.23 $ 0.22 $ 0.24
Extraordinary items (.06) --- --- ---
--------------- --------------- --------------- ---------------
Diluted net income per common share $ 0.16 $ 0.23 $ 0.22 $ 0.24
=============== =============== =============== ===============
Diluted weighted average common
shares outstanding 15,049,117 20,557,479 21,173,909 23,929,975
=============== =============== =============== ===============
14. Subsequent Events
On February 18, 1998 the Company sold 791,152 shares of the Company's
common stock at $25.44 per share for an aggregate consideration of
approximately $20.1 million before deducting offering expenses. Net proceeds
were used to repay borrowings under the Unsecured Credit Facility and for
property acquisitions.
Reckson Associates Realty Corp.
Schedule III-Real Estate And Accumulated Depreciation
December 31, 1997
(In thousands)
Cost Capitalized Gross Amount at
Subsequent to Which Carried at
Initial Cost Acquisition Close of Period
Column A Column B Column C Column D Column E
-------------- -------------------- --------------------- ---------------------
Buildings Buildings Buildings
and and and
Encum- Improve- Improve- Improve-
Description brance Land ments Land ments Land ments Total
------------- --------- ----------- --------- ----------- --------- ----------- -----------
Vanderbilt Industrial Park,
Hauppauge, New York
(27 buildings in an
industrial park) B $ 1,940 $ 9,955 --- $ 8,789 $ 1,940 $ 18,744 $ 20,684
Airport International Plaza,
Islip, New York
(17 buildings in an
industrial park) 2,616(c) 1,263 13,608 --- 9,670 1,263 23,278 24,541
County Line Industrial Center,
Huntington, New York
(3 buildings in an
industrial park) B 628 3,686 --- 2,438 628 6,124 6,752
32 Windsor Place,
Islip, New York B 32 321 --- 46 32 367 399
42 Windsor Place,
Islip, New York B 48 327 --- 542 48 869 917
505 Walt Whitman Rd.,
Huntington, New York B 140 42 --- 52 140 94 234
1170 Northern Blvd.,
N. Great Neck, New York B 30 99 --- 31 30 130 160
50 Charles Lindbergh Blvd.,
Mitchel Field, New York 15,479 A 12,089 --- 3,526 0 15,615 15,615
200 Broadhollow Road,
Melville, New York 6,649 338 3,354 --- 2,362 338 5,716 6,054
48 South Service Road,
Melville, New York B 1,652 10,245 --- 3,351 1,652 13,596 15,248
395 North Service Road,
Melville, New York 9,917 A 15,551 --- 6,475 0 22,026 22,026
6800 Jericho Turnpike,
Syosset, New York 15,001 582 6,566 --- 5,941 582 12,507 13,089
6900 Jericho Turnpike,
Syosset, New York 5,279 385 4,228 --- 1,674 385 5,902 6,287
300 Motor Parkway,
Hauppauge, New York B 276 1,136 --- 828 276 1,964 2,240
88 Duryea Road,
Melville, New York B 200 1,565 --- 616 200 2,181 2,381
210 Blydenburgh Road,
Islandia, New York B 11 158 --- 159 11 317 328
208 Blydenburgh Road,
Islandia, New York B 12 192 --- 145 12 337 349
71 Hoffman Lane,
Islandia, New York B 19 260 --- 172 19 432 451
933 Motor Parkway,
Smithtown, New York B 106 375 --- 361 106 736 842
65 and 85 South Service Rd
Plainview, New York B 40 218 --- 10 40 228 268
333 Earl Ovington Blvd. (Omni)
Mitchel Field, New York 57,839 A 67,221 --- 15,556 0 82,777 82,777
135 Fell Court
Islip, New York B 462 1,265 --- 48 462 1,313 1,775
40 Cragwood Road,
South Plainfield, New Jersey B 708 7,131 17 3,664 725 10,795 11,520
110 Marcus Drive,
Huntington, New York B 390 1,499 --- 13 390 1,512 1,902
333 East Shore Road,
Great Neck, New York B A 564 --- 128 0 692 692
310 East Shore Road,
Great Neck, New York 2,322 485 2,009 --- 265 485 2,274 2,759
70 Schmitt Blvd.,
Farmingdale, New York 425 727 3,408 --- 15 727 3,423 4,150
19 Nicholas Drive,
Yaphank, New York B 160 7,399 --- --- 160 7,399 7,559
1516 Motor Parkway,
Hauppauge, New York B 603 6,722 --- 13 603 6,735 7,338
125 Baylis Road,
Melville, New York B 1,601 8,626 --- 422 1,601 9,048 10,649
35 Pinelawn Road,
Melville, New York B 999 7,073 --- 1,354 999 8,427 9,426
520 Broadhollow Road
Melville, New York B 457 5,572 --- 1,404 457 6,976 7,433
1660 Walt Whitman Road,
Melville, New York B 370 5,072 --- 389 370 5,461 5,831
70 Maxess Road,
Melville, New York 1,863 708 1,859 96 3,806 804 5,665 6,469
85 Nicon Court,
Hauppauge, New York B 797 2,818 --- 54 797 2,872 3,669
104 Parkway Drive So.,
Hauppauge, New York B 54 804 --- 130 54 934 988
20 Melville Park Rd.,
Melville, New York B 391 2,650 --- 96 391 2,746 3,137
105 Price Parkway,
Hauppauge, New York B 2,030 6,327 --- 311 2,030 6,638 8,668
48 Harbor Park Drive,
Hauppauge, New York B 1,304 2,247 --- 89 1,304 2,336 3,640
125 Ricefield Lane,
Hauppauge, New York B 13 852 --- 330 13 1,182 1,195
110 Ricefield Lane,
Hauppauge, New York B 33 1,043 --- 52 33 1,095 1,128
120 Ricefield Lane,
Hauppauge, New York B 16 1,051 --- 30 16 1,081 1,097
135 Ricefield Lane,
Hauppauge, New York B 24 906 --- 473 24 1,379 1,403
30 Hub Drive,
Huntington, New York B 469 1,571 --- 246 469 1,817 2,286
60 Charles Lindbergh,
Mitchel Field, New York B A 20,800 --- 1,344 --- 22,144 22,144
155 White Plains Rd
Tarrytown, New York B 1,613 2,542 --- 595 1,613 3,137 4,750
2 Church Street,
Tarrytown, New York B 232 1,307 --- 385 232 1,692 1,924
235 Main Street,
Tarrytown, New York B 955 5,375 --- 562 955 5,937 6,892
245 Main Street,
Tarrytown, New York B 1,294 7,284 --- 790 1,294 8,074 9,368
505 White Plains Road,
Tarrytown, New York B 236 1,332 --- 163 236 1,495 1,731
555 White Plains Road,
Tarrytown, New York B 712 4,133 13 2,658 725 6,791 7,516
560 White Plains Road,
Tarrytown, New York B 1,553 8,756 --- 1,688 1,553 10,444 11,997
580 White Plains Road,
Tarrytown, New York 8,811 2,591 14,595 --- 1,347 2,591 15,942 18,533
660 White Plains Road,
Tarrytown, New York B 3,929 22,640 --- 1,738 3,929 24,378 28,307
Landmark Square,
Stamford, CT 49,291 11,603 64,466 --- 6,216 11,603 70,682 82,285
110 Bi-County Blvd.,
Farmingdale, New York 4,531 2,342 6,665 --- 124 2,342 6,789 9,131
RREEF Portfolio,
Hauppauge, New York
(10 additional buildings in
Vanderbuilt Industrial Park) B 930 20,619 --- 523 930 21,142 22,072
275 Broadhollow Road,
Melville, New York B 5,250 11,761 --- 464 5,250 12,225 17,475
One Eagle Rock,
East Hanover, New Jersey B 803 7,563 --- 21 803 7,584 8,387
710 Bridgeport Avenue,
Shelton, CT B 5,405 21,620 --- 440 5,405 22,060 27,465
101 JFK Expressway,
Short Hills, New Jersey B 7,745 43,889 --- 263 7,745 44,152 51,897
10 Rooney Circle,
West Orange, New Jersey B 1,302 4,615 --- 408 1,302 5,023 6,325
Executive Hill Office Park,
West Orange, New Jersey B 7,629 31,288 --- 410 7,629 31,698 39,327
3 University Plaza,
Hackensack, New Jersey B 7,894 11,846 --- 110 7,894 11,956 19,850
400 Garden City Plaza,
Garden City, New York B 13,986 10,127 --- 225 13,986 10,352 24,338
425 Rabro Drive,
Hauppauge, New York B 665 3,489 --- 63 665 3,552 4,217
One Paragon Drive,
Montvale, New Jersey B 2,773 9,901 --- 91 2,773 9,992 12,765
90 Merrick Avenue,
East Meadow, New York B --- 19,193 --- 332 --- 19,525 19,525
150 Motor Parkway,
Hauppauge, New York B 1,114 20,430 --- 839 1,114 21,269 22,383
390 Motor Parkway,
Hauppauge, New York B 240 4,459 --- 202 240 4,661 4,901
Royal Executive Park,
Ryebrook, New York B 18,343 55,028 --- 479 18,343 55,507 73,850
120 White Plains Road,
Tarrytown, New York B 3,355 24,605 --- --- 3,355 24,605 27,960
University Square,
Princeton, New Jersey B 8,045 8,888 --- 19 8,045 8,907 16,952
100 Andrews Road,
Hicksville, New York B 2,812 1,711 --- 5,155 2,812 6,866 9,678
2 Macy Road,
Harrison, New York B 642 2,131 --- 19 642 2,150 2,792
80-100 Grasslands,
Elmsford, New York B 1,609 6,823 --- 106 1,609 6,929 8,538
65 Marcus Drive,
Melville, New York B 295 1,966 --- 865 295 2,831 3,126
Land held for development B 29,309 --- --- --- 29,309 --- 29,309
Development in progress B 5,492 10,757 --- 8,915 5,492 19,672 25,164
Other property B --- --- --- 1,998 --- 1,998 1,998
------------- --------- ----------- --------- ----------- --------- ----------- -----------
Total 180,023 $173,201 $ 722,268 $ 126 $ 115,633 $173,327 $ 837,901 $1,011,228
A - These land parcels are leased (see Note 4).
B - There are no encumbrances on these properties.
C - The encumbrance of $2,616 is related to one property.
Reckson Associates Realty Corp.
Schedule III-Real Estate And Accumulated Depreciation
December 31, 1997 (Continued)
(In thousands)
Column A Column F Column G Column H Column I
-------------- ------------- -------------- ---------------
Life on which
Accumulated Date of Date Depreciation
Description Depreciation Construction Acquired is Computed
-------------- ------------- -------------- ---------------
Vanderbilt Industrial Park,
Hauppauge, New York
(27 buildings in an
industrial park) $ 11,432 1961-1979 1961-1979 10-30 years
Airport International Plaza,
Islip, New York
(17 buildings in an
industrial park) 12,463 1970-1988 1970-1988 10-30 years
County Line Industrial Center,
Huntington, New York
(3 buildings in an
industrial park) 3,721 1975-1979 1975-1979 10-30 years
32 Windsor Place,
Islip, New York 294 1971 1971 10-30 years
42 Windsor Place,
Islip, New York 615 1972 1972 10-30 years
505 Walt Whitman Rd.,
Huntington, New York 60 1950 1968 10-30 years
1170 Northern Blvd.,
N. Great Neck, New York 115 1947 1962 10-30 years
50 Charles Lindbergh Blvd.,
Mitchel Field, New York 7,347 1984 1984 10-30 years
200 Broadhollow Road,
Melville, New York 3,151 1981 1981 10-30 years
48 South Service Road,
Melville, New York 5,895 1986 1986 10-30 years
395 North Service Road,
Melville, New York 8,849 1988 1988 10-30 years
6800 Jericho Turnpike,
Syosset, New York 7,338 1977 1978 10-30 years
6900 Jericho Turnpike,
Syosset, New York 2,898 1982 1982 10-30 years
300 Motor Parkway,
Hauppauge, New York 1,101 1979 1979 10-30 years
88 Duryea Road,
Melville, New York 1,027 1980 1980 10-30 years
210 Blydenburgh Road,
Islandia, New York 243 1969 1969 10-30 years
208 Blydenburgh Road,
Islandia, New York 284 1969 1969 10-30 years
71 Hoffman Lane,
Islandia, New York 345 1970 1970 10-30 years
933 Motor Parkway,
Smithtown, New York 490 1973 1973 10-30 years
65 and 85 South Service Rd
Plainview, New York 221 1961 1961 10-30 years
333 Earl Ovington Blvd. (Omni)
Mitchel Field, New York 12,371 1990 1995 10-30 years
135 Fell Court
Islip, New York 238 1965 1992 10-30 years
40 Cragwood Road,
South Plainfield, New Jersey 5,957 1970 1983 10-30 years
110 Marcus Drive,
Huntington, New York 1,113 1980 1980 10-30 years
333 East Shore Road,
Great Neck, New York 430 1976 1976 10-30 years
310 East Shore Road,
Great Neck, New York 1,215 1981 1981 10-30 years
70 Schmitt Blvd.,
Farmingdale, New York 267 1965 1995 10-30 years
19 Nicholas Drive,
Yaphank, New York 597 1989 1995 10-30 years
1516 Motor Parkway,
Hauppauge, New York 560 1981 1995 10-30 years
125 Baylis Road,
Melville, New York 654 1980 1995 10-30 years
35 Pinelawn Road,
Melville, New York 701 1980 1995 10-30 years
520 Broadhollow Road
Melville, New York 736 1978 1995 10-30 years
1660 Walt Whitman Road,
Melville, New York 419 1980 1995 10-30 years
70 Maxess Road,
Melville, New York 193 1967 1995 10-30 years
85 Nicon Court,
Hauppauge, New York 191 1984 1995 10-30 years
104 Parkway Drive So.,
Hauppauge, New York 54 1985 1996 10-30 years
20 Melville Park Rd.,
Melville, New York 105 1965 1996 10-30 years
105 Price Parkway,
Hauppauge, New York 342 1969 1996 10-30 years
48 Harbor Park Drive,
Hauppauge, New York 116 1976 1996 10-30 years
125 Ricefield Lane,
Hauppauge, New York 95 1973 1996 10-30 years
110 Ricefield Lane,
Hauppauge, New York 68 1980 1996 10-30 years
120 Ricefield Lane,
Hauppauge, New York 44 1983 1996 10-30 years
135 Ricefield Lane,
Hauppauge, New York 116 1981 1996 10-30 years
30 Hub Drive,
Huntington, New York 93 1976 1996 10-30 years
60 Charles Lindbergh,
Mitchel Field, New York 1,249 1989 1996 10-30 years
155 White Plains Rd
Tarrytown, New York 133 1963 1996 10-30 years
2 Church Street,
Tarrytown, New York 94 1979 1996 10-30 years
235 Main Street,
Tarrytown, New York 374 1974 1996 10-30 years
245 Main Street,
Tarrytown, New York 507 1983 1996 10-30 years
505 White Plains Road,
Tarrytown, New York 109 1974 1996 10-30 years
555 White Plains Road,
Tarrytown, New York 588 1972 1996 10-30 years
560 White Plains Road,
Tarrytown, New York 837 1980 1996 10-30 years
580 White Plains Road,
Tarrytown, New York 1,108 1977 1996 10-30 years
660 White Plains Road,
Tarrytown, New York 1,603 1983 1996 10-30 years
Landmark Square,
Stamford, CT 2,764 1973-1984 1996 10-30 years
110 Bi-County Blvd.,
Farmingdale, New York 233 1984 1997 10-30 years
RREEF Portfolio,
Hauppauge, New York
(10 additional buildings in
Vanderbuilt Industrial Park) 570 1974-1982 1997 10-30 years
275 Broadhollow Road,
Melville, New York 300 1970 1997 10-30 years
One Eagle Rock,
East Hanover, New Jersey 179 1986 1997 10-30 years
710 Bridgeport Avenue,
Shelton, CT 506 1971-1979 1977 10-30 years
101 JFK Expressway,
Short Hills, New Jersey 978 1981 1997 10-30 years
10 Rooney Circle,
West Orange, New Jersey 119 1971 1997 10-30 years
Executive Hill Office Park,
West Orange, New Jersey 504 1978-1984 1997 10-30 years
3 University Plaza,
Hackensack, New Jersey 167 1985 1997 10-30 years
400 Garden City Plaza,
Garden City, New York 139 1989 1997 10-30 years
425 Rabro Drive,
Hauppauge, New York 49 1980 1997 10-30 years
One Paragon Drive,
Montvale, New Jersey 86 1980 1997 10-30 years
90 Merrick Avenue,
East Meadow, New York 135 1985 1997 10-30 years
150 Motor Parkway,
Hauppauge, New York 151 1984 1997 10-30 years
390 Motor Parkway,
Hauppauge, New York 32 1980 1997 10-30 years
Royal Executive Park,
Ryebrook, New York 195 1983-1986 1997 10-30 years
120 White Plains Road,
Tarrytown, New York 68 1984 1997 10-30 years
University Square,
Princeton, New Jersey 25 1987 1997 10-30 years
100 Andrews Road,
Hicksville, New York 137 1954 1996 10-30 years
2 Macy Road,
Harrison, New York 8 1962 1997 10-30 years
80-100 Grasslands,
Elmsford, New York 24 1989/1964 1997 10-30 years
65 Marcus Drive,
Melville, New York 28 1968 1996 10-30 years
Land held for development --- N/A various N/A
Development in progress ---
Other property 89
--------------
Total $ 108,652
==============
The aggregate cost for Federal Income Tax purposes was approximately
$932.4 million at December 31, 1997.
Reckson Associates Realty Corp.
and Reckson Group
Schedule III-Real Estate and Accumulated Depreciation (continued)
(in thousands)
The changes in real estate for each of the periods in the three years ended
December 31, 1997 are as follows:
January 1, January 1,
1997 to 1996 to June 3, 1995 January 1,
December 31, December 31, to December 1995 to June
1997 1996 31, 1995 2, 1995
-------------- -------------- --------------- --------------
Real estate balance at beginning of period $ 516,768 $ 288,056 $ 216,333 $ 159,693
Improvements 37,178 15,174 3,768 814
Disposal, including write-off of fully depreciated
building improvements (154) (936) (3,174) ---
Properties not contributed to the Company --- --- --- (15,133)
Consolidation of Omni --- --- --- 70,959
Acquisitions 456,836 214,474 55,054 ---
Cash paid in exchange for properties --- --- 16,075 ---
-------------- -------------- --------------- --------------
Balance at end of period $ 1,011,228 $ 516,768 $ 288,056 $ 216,333
============== ============== =============== ==============
The Omni was consolidated as a result of the Company purchasing a
controlling interest as part of the Formation transactions.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, furniture and fixtures, fo of the periods in the three years
ended December 31, 1997 are as follows:
January 1, January 1,
1997 to 1996 to June 3, 1995 January 1,
December 31, December 31, to December 1995 to June
1997 1996 31, 1995 2,1995
---------------------------------------------------------------
Balance at beginning of period $ 86,344 $ 72,499 $ 69,841 $ 71,596
Depreciation for period 22,442 14,781 5,832 2,453
Disposal, including write-off of fully depreciated
building improvements (134) (936) (3,174) ---
Properties not contributed to the Company --- --- --- (7,946)
Consolidation of Omni --- --- --- 3,738
-------------- -------------- --------------- --------------
Balance at end of period $ 108,652 $ 86,344 $ 72,499 $ 69,841
============== ============== =============== ==============
Exhibit Index
Exhibit
Number Description
- ------- --------------
3.1* Articles of Incorporation of Registrant
3.2** By-Laws of Registrant
3.3** Amended and Restated Articles of Incorporation
4.1* Specimen Share Certificate
10.1** Amended and Restated Agreement of Limited Partnership of Reckson
Operating Partnership, L.P.
10.2 Third Amended and Restated Agreement of Limited Partnership of Omni
Partners, L.P.
10.3** Employment and Non-Competition Agreement between Registrant and
Donald Rechler
10.4** Employment and Non-Competition Agreement between Registrant and
Scott Rechler
10.5** Employment and Non-Competition Agreement between Registrant and
Mitchell Rechler
10.6** Employment and Non-Competition Agreement between Registrant and
Gregg Rechler
10.7** Non-Competition Agreement between Registrant and Roger Rechler
10.8** Employment and Non-Competition Agreement between Registrant and
J. Michael Maturo
10.9** Purchase Option Agreements relating to the Reckson Option Properties
10.10** Purchase Option Agreements relating to the Other Option Properties
10.11*** Amended 1995 Stock Option Plan
10.12**** Registrant's Unsecured Credit Facility
10.13*** 1996 Employee Stock Option Plan
10.14** Executive Center Leases
10.15* Ground Leases for certain of the Properties
10.16** Amended and Restated Agreement of Limited Partnership of Reckson
FS Limited Partnership
10.17** Indemnity Agreement relating to 100 Oser Avenue
10.18** Contribution Agreement by and among Registrant, Reckson Operating
Partnership, L.P. and Tarrytown Corporate Center, Tarrytown
Corporate Center IV, L.P., Tarrytown Corporate Center II, Crest
Realties, 2 Church Street Associates, JAH Realties, and Jon
Halpern
10.19 Amended and Restated 1997 Stock Option Plan
10.20 1998 Stock Option Plan
10.21 Amended and Restated Agreement of Limited Partnership of Reckson
Morris Operating Partnership, L.P.
10.22 Registrant's Unsecured Bridge Facility
10.23 Note Purchase Agreement for the Senior Unsecured Notes
10.24 Severance Agreement between Registrant and Donald Rechler
10.25 Severance Agreement between Registrant and Scott Rechler
10.26 Severance Agreement between Registrant and Mitchell Rechler
10.27 Severance Agreement between Registrant and Gregg Rechler
10.28 Severance Agreement between Registrant and Roger Rechler
10.29 Severance Agreement between Registrant and J. Michael Maturo
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries
23.0 Consent of Independent Auditors
24.1 Powers of Attorney (included in Part IV of this Form 10-K)
27.0 Financial Data Schedule
27.1 Restated Financial Data Schedule for the 6 months ended June 30,
1996 reflecting the effect of FASB #128, Earnings Per Share.
27.2 Restated Financial Data Schedule for the 9 months ended September
30, 1996 reflecting the effect of FASB #128, Earnings Per Share.
27.3 Restated Financial Data Schedule for the year ended December 31,
1996 reflecting the effect of FASB #128, Earnings Per Share.
27.4 Restated Financial Data Schedule for the 3 months ended March 31,
1997 reflecting the effect of FASB #128, Earnings Per Share.
27.5 Restated Financial Data Schedule for the 6 months ended June 30,
1997 reflecting the effect of FASB #128, Earnings Per Share.
27.6 Restated Financial Data Schedule for the 9 months ended September
30, 1997 reflecting the effect of FASB #128, Earnings Per Share.
* Previously filed as an exhibit to Registration Statement on Form S-11
(No. 33-84324) and incorporated herein by reference.
** Previously filed as an exhibit to Registration Statement on Form S-11
(No. 333-1280) and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's Form 8-K report filed
with the SEC on November 25, 1996 and incorporated herein by reference.
**** Previously filed as an exhibit to the Company's Form 8-K report filed
with the SEC on May 15, 1997 and incorporated herein by reference.
Exhibit 12.1
Reckson Associates Realty Corp.
Ratios of Earnings to Fixed Charges
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for the periods shown:
June 3, 1995 January 1, 1995 Year Ended December 31,
Year Ended Year Ended to to ------------------------
December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1995 1994 1993
- ----------------- ----------------- ----------------- ----------------- ------ ------
2.77x 2.72x 2.71x 0.96x 0.97x 0.65x
Prior to completion of the IPO on June 2, 1995, the Company's predecessors
operated in a manner as to minimize net taxable income to the owners. The
IPO and the related formation transactions permitted the Company to deleverage
its properties significantly, resulting in a significantly improved ratio of
earnings to fixed charges.
Exhibit 21.1
Reckson Associates Realty Corp.
Statement of Subsidiaries
Name State of Organization
- ------------------------------ -----------------------------
Reckson Operating Partnership, L.P. Maryland
Omni Partners, L.P. Delaware
Reckson FS Limited Parntership Delaware
Reckson Morris Industrial Trust Maryland
Exhibit 23.0
Reckson Associates Realty Corp.
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
Form S-3 No. 333-28015 of Reckson Associates Realty Corp. of our report dated
February 14, 1998, except for Note 14, as to which the date is February 18,
1998, with respect to the consolidated financial statements and schedule of
Reckson Associates Realty Corp. included in this Annual Report Form 10-K for
the year ended December 31, 1997.
Ernst & Young
New York, New York
March 23, 1998