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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___________ to
__________
Commission File Number 1-13762
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RECKSON OPERATING PARTNERSHIP, L. P.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3233647
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 BROADHOLLOW ROAD,
MELVILLE, NY
(Address of principal 11747
executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 694-6900
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Securities registered pursuant to Section 12(b) of the Act: None
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. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement of Reckson Associates Realty
Corp. relating to its Annual Shareholder's Meeting to be held May 29, 2003 are
incorporated by reference into Part III.
As of March 24, 2003, 3,480,164 common units of limited partnership
interest were held by non-affiliates of the Registrant. There is no established
trading market for such units.
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TABLE OF CONTENTS
ITEM
NO. PAGE
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PART I
1. Business ...................................................................... I-1
2. Properties .................................................................... I-10
3. Legal Proceedings ............................................................. I-22
4. Submission of Matters to a Vote of Security Holders ........................... I-22
PART II
5. Market for Registrant's Common Equity and Related Security Matters ............ II-1
6. Selected Financial Data ....................................................... II-3
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................... II-5
7(a). Quantitative and Qualitative Disclosures about Market Risk .................... II-21
8. Financial Statements and Supplementary Data ................................... II-22
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .................................................................... II-22
PART III
10. Directors and Executive Officers of the Registrant ............................ III-1
11. Executive Compensation ........................................................ III-1
12. Security Ownership of Certain Beneficial Owners and Management ................ III-1
13. Certain Relationships and Related Transactions ................................ III-1
14. Controls and Procedures ....................................................... III-1
16. Principal Accountant Fees and Services ........................................ III-1
PART IV
15. Financial Statements and Schedules, Exhibits and Reports on Form 8-K .......... IV-1
PART I
ITEM 1. BUSINESS
GENERAL
Reckson Operating Partnership, L. P. (the "Operating Partnership")
commenced operations on June 2, 1995. Reckson Associates Realty Corp. (the
"Company"), which serves as the sole general partner of the Operating
Partnership, is a fully integrated, self administered and self managed real
estate investment trust ("REIT"). The Operating Partnership and the Company
were 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 office and
industrial properties in the New York tri-state area (the "Tri-State Area").
Based on industry surveys, management believes that the Operating Partnership
is one of the largest owners and operators of Class A suburban and central
business district ("CBD") office properties and industrial properties in the
Tri-State Area. As of December 31, 2002 the Operating Partnership owned 178
properties (inclusive of 11 joint venture properties) in the Tri-State Area
suburban and CBD markets encompassing approximately 20.3 million rentable
square feet, all of which are managed by the Operating Partnership. These
properties include 60 Class A suburban office properties encompassing
approximately 8.5 million rentable square feet, of which 42 of these
properties, or 74% as measured by square footage, are located within the
Operating Partnership's ten office parks. Reckson has historically emphasized
the development and acquisition of properties that are part of large scale
suburban office parks. The Operating Partnership 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. The properties also include 15 Class A CBD office properties
encompassing approximately 5.1 million rentable square feet. The CBD office
properties consist of five properties located in New York City, eight
properties located in Stamford, CT and two properties located in White Plains,
NY. Additionally, the properties include 101 industrial properties encompassing
approximately 6.7 million rentable square feet, of which 71 of these
properties, or 58% as measured by square footage, are located within the
Operating Partnership's three industrial parks. The properties also include two
retail properties comprising approximately 20,000 rentable square feet.
Through its ownership of properties in the key CBD and suburban office
markets in the Tri-State Area, the Operating Partnership believes it has a
unique competitive advantage as the trend toward the regional decentralization
of the workplaces increases. Due to the events of September 11, 2001, as well
as technological advances which further enable decentralization, companies are
strategically re-evaluating the benefits and feasibility of regional
decentralization and reassessing their long-term space needs. The Operating
Partnership believes this multi-location regional decentralization will
continue to take place, increasing as companies begin to have better visibility
as to the future of the economy, further validating our regional strategy of
maintaining a significant market share in each of the key CBD and suburban
office markets in the Tri-State Area.
The Operating Partnership also owns approximately 338 acres of land in 14
separate parcels of which the Operating Partnership can develop approximately
3.2 million square feet of office space and approximately 470,000 square feet
of industrial space. The Operating Partnership is currently evaluating
alternative land uses for certain of the land holdings to realize the highest
economic value. These alternatives may include rezoning certain land parcels
from commercial to residential for potential disposition. As of December 31,
2002, the Operating Partnership had invested approximately $121.2 million in
these development projects. Management has made subjective assessments as to
the value and
I-1
recoverability of these investments based on current and proposed development
plans, market comparable land values and alternative use values. The Operating
Partnership has capitalized approximately $10.5 million for the year ended
December 31, 2002 related to real estate taxes, interest and other carrying
costs related to these development projects. Since the IPO the Operating
Partnership has developed, redeveloped, renovated or repositioned 27 properties
encompassing approximately 5.3 million square feet of office and industrial /
R&D space.
The Operating Partnership holds a $17.0 million note receivable which
bears interest at 11.5% per annum and is secured by a minority partnership
interest in Omni Partners, L. P., owner of the Omni, a 579,000 square foot
Class A office property located in Uniondale, N.Y., effectively increasing its
economic interest in the property owning partnership (the "Omni Note"). The
Operating Partnership currently owns a 60% majority partnership interest in
Omni Partners, L.P. and on March 14, 2007 may exercise an option to acquire the
remaining 40% interest for a price based on 90% of the fair market value of the
property. The Operating Partnership also holds three other notes receivable
aggregating $36.5 million which bear interest at rates ranging from 10.5% to
12% per annum and are secured in part by a minority partner's preferred unit
interest in the Operating Partnership, certain interest in real property and a
personal guaranty (the "Other Notes" and collectively with the Omni Note, the
"Note Receivable Investments"). As of December 31, 2002, management has made
subjective assessments as to the underlying security value on the Company's
Note Receivable Investments. Based on these assessments the Operating
Partnership's management believes there is no impairment to the carrying value
related to the Operating Partnership's Note Receivable Investments. The
Operating Partnership also owns a 355,000 square foot office building in
Orlando, Florida. This non-core real estate holding was acquired in May 1999 in
connection with the Operating Partnership's initial New York City portfolio
acquisition. This property is cross collateralized under a $103 million
mortgage note payable along with one of the Operating Partnership's New York
City buildings.
The Operating Partnership also owns a 60% non-controlling interest in a
172,000 square foot office building located at 520 White Plains Road in White
Plains, New York (the "520JV") which it manages. The remaining 40% interest is
owned by JAH Realties L.P. Jon Halpern, the CEO and a director of HQ Global
Workplaces, is a partner in JAH Realties, L.P. As of December 31, 2002, the
520JV had total assets of $21.0 million, a mortgage note payable of $12.5
million and other liabilities of $197,000. The Operating Partnership's
allocable share of the 520JV mortgage note payable is approximately $7.5
million. This mortgage note payable bears interest at 8.85% per annum and
matures on September 1, 2005. In addition, the 520JV had total revenues of $4.2
million and $4.0 million and total expenses of $3.3 million and $3.3 million
for the years ended December 31, 2002 and 2001, respectively. The operating
agreement of the 520JV requires joint decisions from all members on all
significant operating and capital decisions including sale of the property,
refinancing of the property's mortgage debt, development and approval of
leasing strategy and leasing of rentable space. As a result of the
decision-making participation relative to the operations of the property, the
Operating Partnership accounts for the 520JV under the equity method of
accounting. The 520JV contributed approximately $648,000 and $478,000 to the
Operating Partnership's equity in earnings of real estate joint ventures for
the year ended December 31, 2002 and 2001, respectively.
During July 1998, the Operating Partnership formed Metropolitan Partners,
LLC ("Metropolitan") for the purpose of acquiring Class A office properties in
New York City. Currently the Operating Partnership owns, through Metropolitan,
five Class A office properties aggregating approximately 3.5 million square
feet.
During September 2000, the Operating Partnership formed a joint venture
(the "Tri-State JV") with Teachers Insurance and Annuity Association ("TIAA")
and contributed nine Class A suburban office properties aggregating
approximately 1.5 million square feet to the Tri-State JV for a 51% majority
ownership interest. TIAA contributed approximately $136 million for a 49%
interest in the Tri-State JV which was then distributed to the Operating
Partnership. The Operating Partnership is responsible for managing the
day-to-day operations and business affairs of the Tri-State JV and has
substantial rights in making decisions affecting the properties such as
leasing, marketing and financing. The minority member has certain rights
primarily intended to protect its investment. For purposes of its financial
statements the Operating Partnership consolidates the Tri-State JV.
I-2
On December 21, 2001, the Operating Partnership formed a joint venture
with the New York State Teachers' Retirement Systems ("NYSTRS") (the "919JV")
whereby NYSTRS acquired a 49% indirect interest in the property located at 919
Third Avenue, New York, NY for $220.5 million which included $122.1 million of
its proportionate share of secured mortgage debt and approximately $98.4
million of cash which was then distributed to the Operating Partnership. The
Operating Partnership is responsible for managing the day-to-day operations and
business affairs of the 919JV and has substantial rights in making decisions
affecting the property such as developing a budget, leasing and marketing. The
minority member has certain rights primarily intended to protect its
investment. For purposes of its financial statements the Operating Partnership
consolidates the 919JV.
All of the Company's interests in its properties, land held for
development, the Note Receivable Investments and joint ventures are held
directly or indirectly by, and all of its operations are conducted through, the
Operating Partnership. The Company controls the Operating Partnership as the
sole general partner and, as of December 31, 2002, owned approximately 89.5% of
the Operating Partnership's outstanding common units of limited partnership
interest ("Units").
As of December 31, 2002, the Operating Partnership has invested
approximately $59.8 million in REIT-qualified joint ventures with Reckson
Strategic Venture Partners, LLC ("RSVP"), a real estate venture capital fund
created in 1997 as a research and development vehicle for the Operating
Partnership to invest in alternative real estate sectors outside the Operating
Partnership's core office and industrial focus (see Recent Developments-Other
Investing Activities).
The Operating Partnership 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
"Credit Facility") with a maximum borrowing amount of $500 million scheduled to
mature on December 30, 2005. The Credit Facility requires the Operating
Partnership to comply with a number of financial and other covenants on an
ongoing basis.
The Operating Partnership maintains access to unsecured debt markets
through its investment grade ratings. The Operating Partnership 's ratings as
of December 31, 2002 from the major rating organizations are as follows:
RATING ORGANIZATION RATING OUTLOOK
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Moody's ............................. Baa3 Stable
Standard & Poor's ................... BBB- Stable
These security ratings are not a recommendation to buy, sell or hold the
Operating Partnership's securities and they are subject to revision or
withdrawal at any time by the rating organization. Ratings assigned by every
rating organization have their own meaning within the organization's overall
classification system. Each rating should be evaluated independently of any
other rating.
There are numerous commercial properties that compete with the Operating
Partnership in attracting tenants and numerous companies that compete in
selecting land for development and properties for acquisition.
The Operating Partnership's principal executive offices are located at 225
Broadhollow Road, Melville, New York 11747 and its telephone number at that
location is (631) 694-6900. At December 31, 2002, the Operating Partnership had
303 employees.
The Operating Partnership makes certain filings with the Securities and
Exchange Commission, including its annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those
reports, available free of charge through its website, www.reckson.com, as soon
as reasonably practicable after they are filed with the Securities and Exchange
Commission. The Company's SEC filings, annual report to shareholders, press
releases and recent presentations are also available free of charge on the
website.
I-3
RECENT DEVELOPMENTS
Acquisitions, Dispositions and Investing Activities
On April 1, 2002, the Operating Partnership paid approximately $23.8
million to acquire 52.7 acres of land located in Valhalla, NY on which the
Operating Partnership can develop approximately 875,000 square feet of office
space. The Operating Partnership currently owns and operates three buildings
encompassing approximately 700,000 square feet in the same office park in which
this land parcel is located. This acquisition was financed in part from the
sales proceeds of an office property being held by a qualified intermediary for
the purposes of an exchange of real property pursuant to Section 1031 of the
Internal Revenue Code and from an advance under the Credit Facility.
On August 7, 2002, the Operating Partnership sold an industrial property
on Long Island aggregating approximately 32,000 square feet for approximately
$1.8 million. This property was sold to the sole tenant of the property through
an option contained in the tenant's lease. On August 8, 2002, the Operating
Partnership sold two Class A office properties located in Westchester County,
NY aggregating approximately 157,000 square feet for approximately $18.5
million. Net proceeds from these sales were used to repay borrowings under the
Credit Facility and for general corporate purposes.
During February 2003, the Operating Partnership, through its wholly owned
service company, Reckson Construction Group Inc., entered into a contract with
an affiliate of First Data Corp. to sell a 19.3-acre parcel of land located in
Melville, New York and has been retained by the purchaser to develop a
build-to-suit 195,000 square foot office building for aggregate consideration
of approximately $47 million. This transaction is scheduled to close during the
first quarter of 2003 and construction of the aforementioned office building is
scheduled to commence shortly thereafter.
Other Investing Activities
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Operating Partnership's core office and industrial focus
and whose common equity is held indirectly by FrontLine. In connection with the
formation and spin-off of FrontLine, the Operating Partnership established an
unsecured credit facility with FrontLine (the "FrontLine Facility") in the
amount of $100 million for FrontLine to use in its investment activities,
operations and other general corporate purposes. The Operating Partnership
advanced approximately $93.4 million under the FrontLine Facility. The
Operating Partnership also approved the funding of investments of up to $100
million relating to RSVP (the "RSVP Commitment"), through RSVP-controlled joint
ventures (for REIT-qualified investments) or advances made to FrontLine under
an unsecured loan facility (the "RSVP Facility") having terms similar to the
FrontLine Facility (advances made under the RSVP Facility and the FrontLine
Facility hereafter, the "FrontLine Loans"). During March 2001, the Operating
Partnership increased the RSVP Commitment to $110 million and as of December
31, 2002, approximately $109.1 million had been funded through the RSVP
Commitment, of which $59.8 million represents investments by the Operating
Partnership in RSVP-controlled (REIT-qualified) joint ventures and $49.3
million represents loans made to FrontLine under the RSVP Facility. As of
December 31, 2002, interest accrued (net of reserves) under the FrontLine
Facility and the RSVP Facility was approximately $19.6 million. RSVP retained
the services of two managing directors to manage RSVP's day-to-day operations.
Prior to the spin off of Frontline, the Company guaranteed certain salary
provisions of their employment agreements with RSVP Holdings, LLC, RSVP's
common member. The term of these employment agreements is seven years
commencing March 5, 1998, provided however, that the term may be earlier
terminated after five years upon certain circumstances. The salary for each
managing director is $1 million in the first five years and $1.6 million in
years six and seven.
At June 30, 2001, the Company assessed the recoverability of the FrontLine
Loans and reserved approximately $3.5 million of the interest accrued during
the three-month period then ended. In addition, the Company formed a committee
of its Board of Directors, comprised solely of independent directors, to
consider any actions to be taken by the Company in connection with the
FrontLine Loans and its investments in joint ventures with RSVP. During the
third quarter of 2001, the Company noted a
I-4
significant deterioration in FrontLine's operations and financial condition
and, based on its assessment of value and recoverability and considering the
findings and recommendations of the committee and its financial advisor, the
Company recorded a $163 million valuation reserve charge, inclusive of
anticipated costs, in its consolidated statements of operations relating to its
investments in the FrontLine Loans and joint ventures with RSVP. The Operating
Partnership has discontinued the accrual of interest income with respect to the
FrontLine Loans. The Operating Partnership has also reserved against its share
of GAAP equity in earnings from the RSVP controlled joint ventures funded
through the RSVP Commitment until such income is realized through cash
distributions. If the RSVP-controlled joint ventures reported losses, the
Operating Partnership would record its proportionate share of such losses.
At December 31, 2001, the Operating Partnership, pursuant to Section 166
of the Code, charged off for tax purposes $70 million of the aforementioned
reserve directly related to the FrontLine Facility, including accrued interest.
On February 14, 2002, the Operating Partnership charged off for tax purposes an
additional $38 million of the reserve directly related to the FrontLine
Facility, including accrued interest, and $47 million of the reserve directly
related to the RSVP Facility, including accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating
Partnership and on June 12, 2002, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Operating
Partnership's investments in the FrontLine Loans and joint venture investments
with RSVP, inclusive of the Operating Partnership's share of previously accrued
GAAP equity in earnings on those investments, is approximately $65 million
which was reassessed with no change by management as of December 31, 2002. Such
amount has been reflected in investments in service companies and affiliate
loans and joint ventures on the Operating Partnership's consolidated balance
sheet. The common and preferred members of RSVP are currently in dispute over
certain provisions of the RSVP operating agreement. The members are currently
negotiating to restructure the RSVP operating agreement to settle the dispute.
There can be no assurances that the members will successfully negotiate a
settlement.
Both the FrontLine Facility and the RSVP Facility terminate on June 15,
2003, are unsecured and advances thereunder are recourse obligations of
FrontLine. Notwithstanding the valuation reserve, under the terms of the credit
facilities, interest accrued on the FrontLine Loans at a rate equal to the
greater of (a) the prime rate plus two percent and (b) 12% per annum, with the
rate on amounts that were outstanding for more than one year increasing
annually at a rate of four percent of the prior year's rate. In March 2001, the
credit facilities were amended to provide that (i) interest is payable only at
maturity and (ii) the Company may transfer all or any portion of its rights or
obligations under the credit facilities to its affiliates. The Company
requested these changes as a result of changes in REIT tax laws. As a result of
FrontLine's default under the FrontLine Loans, interest on borrowings
thereunder accrue at default rates ranging between 13% and 14.5% per annum.
Scott H. Rechler, who serves as Co-Chief Executive Officer and a director
of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine.
The following table sets forth the Operating Partnership's invested
capital (before valuation reserves) in RSVP controlled (REIT-qualified) joint
ventures and amounts which were advanced under the RSVP Commitment to
FrontLine, for its investment in RSVP controlled investments (in thousands):
RSVP CONTROLLED AMOUNTS
JOINT VENTURES ADVANCED TOTAL
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Privatization ..................... $21,480 $ 3,520 $ 25,000
Student Housing ................... 18,086 3,935 22,021
Medical Offices ................... 20,185 -- 20,185
Parking ........................... -- 9,091 9,091
Resorts ........................... -- 8,057 8,057
Net leased retail ................. -- 3,180 3,180
Other assets and overhead ......... -- 21,598 21,598
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$59,751 $49,381 $109,132
======= ======= ========
I-5
Included in these investments is approximately $16.5 million of cash that
has been contributed to the respective RSVP controlled joint ventures or
advanced under the RSVP Commitment to FrontLine and is being held, along with
cash contributed by the preferred investors.
Leasing Activity
During the year ended December 31, 2002, the Operating Partnership
executed 255 leases encompassing approximately 2.8 million square feet. The
following table summarizes the leasing activity by location and property type:
AVERAGE EFFECTIVE
NUMBER OF LEASES LEASED SQUARE FEET RENT (1)
------------------ -------------------- ------------------
CBD office properties
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Connecticut ....................... 21 131,441 $ 33.33
New York City ..................... 32 264,645 $ 42.73
Westchester ....................... 16 126,233 $ 23.21
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Subtotal/Weighted average ......... 69 522,319 $ 35.65
--- ---------
Suburban office properties
--------------------------
Long Island ....................... 55 355,304 $ 25.64
New Jersey ........................ 31 387,229 $ 24.31
Westchester ....................... 49 475,345 $ 21.58
--- ---------
Subtotal/Weighted average ......... 135 1,217,878 $ 23.63
--- ---------
Industrial properties
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Long Island ....................... 49 1,033,336 $ 7.05
New Jersey ........................ 2 5,750 $ 10.30
--- ---------
Subtotal/Weighted average ......... 51 1,039,086 $ 7.07
--- ---------
Total ............................. 255 2,779,283 $ 19.70
=== =========
(1) Base rent adjusted on a straight-line basis for free rent periods, tenant
improvements and leasing commissions
Financing Activities
The Operating Partnership currently has a three year $500 million
unsecured revolving credit facility (the "Credit Facility") from JPMorgan Chase
Bank, as administrative agent, Wells Fargo Bank, National Association as
syndication agent and Citicorp North America, Inc. and Wachovia Bank, National
Association as co-documentation agents. The Credit Facility matures in December
2005, contains options for a one year extension subject to a fee of 25 basis
points and, upon receiving additional lender commitments, increasing the
maximum revolving credit amount to $750 million. In addition, borrowings under
the Credit Facility are currently priced off LIBOR plus 90 basis points and the
Credit Facility carries a facility fee of 20 basis points per annum. In the
event of a change in the Operating Partnership's unsecured credit rating the
interest rates and facility fee are subject to change. The outstanding
borrowings under the Credit Facility were $267.0 million at December 31, 2002.
The following table sets forth the Operating Partnership's Applicable
Margin, pursuant to the Credit Facility, which indicates the additional
respective percentages per annum applied to LIBOR based borrowings determined
based on the Operating Partnership's unsecured credit rating:
UNSECURED CREDIT RATING APPLICABLE
S&P / MOODY'S MARGIN
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A- / A3 .............................. .60%
BBB+ / Baa1 .......................... .625%
BBB / Baa2 ........................... .70%
BBB- / Baa3 .......................... .90%
Below BBB- / Baa3 or unrated ......... 1.20%
I-6
The Credit Facility replaced the Operating Partnership's $575 million
unsecured credit facility (the "Prior Facility" and together with the Credit
Facility, the "Credit Facility"). As a result, certain deferred loan costs
incurred in connection with the Prior Facility were written off. Such amount is
reflected as an extraordinary loss on the Operating Partnership's consolidated
statements of operations.
The Operating Partnership utilizes the Credit Facility primarily to
finance real estate investments, fund its real estate development activities
and for working capital purposes. At December 31, 2002, the Operating
Partnership had availability under the Credit Facility to borrow approximately
an additional $203.0 million subject to compliance with certain financial
covenants.
On June 17, 2002, the Operating Partnership issued $50 million of
five-year 6.00% (6.125% effective rate) senior unsecured notes. Net proceeds of
approximately $49.4 million received from this issuance were used to repay
outstanding borrowings under the Prior Facility.
Unit Issuances
During the year ended December 31, 2002, approximately 11,303 preferred
units of limited partnership interest, with a liquidation preference value of
approximately $11.3 million, were exchanged for 451,394 Class A Units at an
average price of $24.66 per Unit. In addition, the Company increased its
general partner interest in the Operating Partnership by acquiring 666,468
outstanding Units from certain limited partners in exchange for an equal number
of shares of its Class A common stock.
The Board of Directors of the Company has authorized the purchase of up to
an additional five million shares of the Company's Class A common stock and /
or its Class B common stock. Under this buy-back program, the Operating
Partnership purchased 368,200 Class B common units at an average price of
$22.90 per Class B unit and 2,698,400 Class A common units at an average price
of $21.60 per Class A unit for an aggregate purchase price for both the Class A
and Class B common units of approximately $66.7 million. As a result of these
purchases, annual common unit distributions will decrease by approximately $5.5
million. Previously, in conjunction with the Company's prior stock buy-back
program, the Operating Partnership purchased and retired 1,410,804 Class B
common units at an average price of $21.48 per Class B unit and 61,704 Class A
common units at an average price of $23.03 per Class A unit for an aggregate
purchase price for both the Class A and Class B common units of approximately
$31.7 million.
The Board of Directors of the Company has formed a pricing committee to
consider purchases of up to $75 million of the Company's outstanding preferred
securities. During October 2002, the Company purchased and retired 357,500
shares of its Series A preferred stock at $22.29 per share for approximately
$8.0 million. As a result, the Operating Partnership purchased and retired an
equal number of preferred units of general partnership interest from the
Company and reduced annual preferred distributions by approximately $682,000.
OPERATING STRATEGIES AND GROWTH OPPORTUNITIES
The Operating Partnership's primary business objectives are to maximize
current return to its partners through increases in distributable cash flow and
to increase partner's long-term total return through the appreciation in the
value of its common units. The Operating Partnership's core business strategy
is based on a long-term outlook considering real estate is a cyclical business.
The Operating Partnership seeks to accomplish long-term stability and success
by developing and maintaining an infrastructure and franchise that is modeled
for success over the long-term. This approach allows the Operating Partnership
to recognize different points in the market cycle and adjust its strategy
accordingly. Currently, the Operating Partnership remains cautious about the
market environment. With this cautious bias we choose to maintain our
conservative strategy of focusing on retaining high
I-7
occupancies, controlling operating expenses, maintaining a high level of
investment discipline and preserving financial flexibility. The Operating
Partnership plans to achieve these objectives by continuing Reckson's operating
strategies and capitalizing on the internal and external growth opportunities
as described below.
Operating 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: (i) a multidisciplinary leasing
approach that involves architectural design and construction personnel as well
as leasing professionals, (ii) innovative marketing programs that strategically
position the Operating Partnership's properties and distinguish its portfolio
from the competition, increase brand equity and gain market-share. These
cost-effective, high-yield programs include electronic web-casting, targeted
outdoor and print media campaigns and sales promotion that enhances broker
relationships and influences tenant retention, (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 the Operating Partnership's market position
and efficiencies attributable to the state-of-the-art energy control systems at
many of the office properties, (v) a fully integrated infrastructure of
proprietary and property management accounting systems which encompasses
technology advanced systems and tools that provides meaningful information, on
a real time basis, throughout the entire organization and (vi) 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 marketplace in order to maximize value.
The Operating Partnership also intends to adhere to a policy of
maintaining a stabilized debt ratio over time (defined as the total debt of the
Operating Partnership as a percentage of the sum of the Operating Partnerships
total debt and the value of its equity) of not more than 50%. As of
December 31, 2002, the Operating Partnership's debt ratio was approximately
44.9%. This calculation is net of minority partners' proportionate share of
debt and including the Operating Partnership's share of unconsolidated joint
venture debt. This debt ratio is intended to provide the Operating Partnership
with financial flexibility to select the optimal source of capital (whether
through debt or partners contributions) with which to finance external growth.
Growth Opportunities. The Operating Partnership intends to achieve its
primary business objectives by applying its operating strategies to the
internal and external growth opportunities described below.
Internal Growth. To the extent New York City, Long Island, Westchester,
New Jersey and Southern Connecticut office and industrial markets stabilize and
begin to recover with new supply management believes the Operating Partnership
is well positioned to benefit from rental revenue growth through: (i)
contractual annual compounding of 3-4% Base Rent increases (defined as fixed
gross rental amounts that excludes payments on account of real estate taxes,
operating expense escalations and base electrical charges) on approximately 85%
of existing leases from its Long Island properties, (ii) periodic contractual
increases in Base Rent on existing leases from its Westchester properties, the
New Jersey properties, the New York City properties and the Southern
Connecticut properties and (iii) the potential for increases to Base Rents as
leases expire and space is re-leased at the higher rents that exist in the
current market environment.
Through its ownership of properties in the key CBD and suburban office
markets in the Tri-State Area, the Operating Partnership believes it has a
unique competitive advantage as the trend toward the regional decentralization
of the workplace increases. Due to the events of September 11, 2001 as well as
technological advances which further enable decentralization, companies are
strategically re-evaluating the benefits and feasibility of regional
decentralization and reassessing their long-term space needs. The Operating
Partnership believes this multi-location regional decentralization will
continue to take place, increasing as companies begin to have better visibility
as to the future of the economy, further validating our regional strategy of
maintaining a significant market share in each of the key CBD and suburban
office markets in the Tri-State Area.
External Growth. The Operating Partnership seeks to acquire multi-tenant
Class A office buildings in New York City and the surrounding Tri-State Area
core suburban and CBD markets as well as
I-8
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 Operating Partnership believes that its (i) capital
structure, in particular its Credit Facility providing for a maximum borrowing
amount of up to $500 million and access to unsecured debt markets, (ii) ability
to acquire a property for Units 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, (v) fully integrated operations in
its five existing divisions and (vi) its substantial position and franchise in
the submarkets in which it owns properties will enhance the Operating
Partnership's ability to identify and capitalize on acquisition opportunities.
The Operating Partnership also intends to selectively develop new Class A
suburban and CBD office and industrial properties and to continue to redevelop
existing properties as these opportunities arise. The Operating Partnership
will concentrate its development activities on industrial and Class A suburban
and CBD office properties within the Tri-State Area. The Operating
Partnership's expansion into the New York City office market has provided it
with additional opportunities to acquire interests in properties at attractive
yields. The Operating Partnership also believes that the addition of its New
York City division provides additional leasing and operational facilities and
enhances its overall franchise value by being the only real estate operating
company in the Tri-State Area with significant presence in both Manhattan and
each of the surrounding sub-markets.
In addition, when valuations for commercial real estate properties are
high, the Operating Partnership will seek to sell certain properties or
interests therein to realize value and profit created. The Operating
Partnership will then seek opportunities to reinvest the capital realized from
these dispositions back into value-added assets in the Operating Partnership's
core Tri-State Area markets, as well as pursue the Company's stock repurchase
program.
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 owners 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 owners 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 Operating Partnership 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 Operating Partnership's office and 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 Operating Partnership's 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 Operating Partnerships business.
I-9
ITEM 2. PROPERTIES
General
As of December 31, 2002 the Operating Partnership owned 178 properties
(including 11 joint venture properties) in the Tri-State Area suburban and CBD
markets, encompassing approximately 20.3 million rentable square feet, all of
which are managed by the Operating Partnership. The properties include 60 Class
A suburban office properties encompassing approximately 8.5 million rentable
square feet, of which 42 of these properties, or 74% as measured by square
footage, are located within the Operating Partnership's ten office parks.
Reckson has historically emphasized the development and acquisition of
properties that are part of large-scale suburban office parks. The Operating
Partnership 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. The
properties also include 15 Class A CBD office properties encompassing
approximately 5.1 million rentable square feet. The CBD office properties
consist of five properties located in New York City, eight properties located
in Stamford, CT and two properties located in White Plains, NY. Additionally,
the Operating Partnership owns 101 industrial properties encompassing
approximately 6.7 million rentable square feet, of which 71 of these
properties, or 58% as measured by square footage, are located within the
Operating Partnership's three industrial parks. The properties also include two
retail properties comprising approximately 20,000 rentable square feet. The
Operating Partnership also owns a 355,000 square foot office property located
in Orlando, Florida.
Set forth below is a summary of certain information relating to the
Operating Partnership's properties, categorized by office and industrial
properties, as of December 31, 2002.
OFFICE PROPERTIES
General
As of December 31, 2002, the Operating Partnership owned or had an
interest in 60 Class A suburban office properties encompassing approximately
8.5 million square feet and 15 Class A CBD office properties encompassing
approximately 5.1 million square feet. As of December 31, 2002, the office
properties were approximately 95.7% leased (percent leased excludes properties
under development) to approximately 979 tenants.
The office properties are Class A 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. Forty two of the 60 suburban
office properties are located within the Operating Partnership's ten office
parks. 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 the Operating
Partnership's reputation for providing a high level of tenant service have
enabled the Operating Partnership to attract and retain a national tenant base.
The office tenants include national companies representing all major industry
groups including consumer products, financial services, pharmaceuticals, health
care, telecommunications and technology and insurance and service companies
such as, "Big Four" accounting firms and major law firms. The 15 Class A CBD
office properties consist of five properties located in New York City, eight
properties located in Stamford, CT and two properties located in White Plains,
NY.
The office properties are leased to both national and 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 and/or
I-10
payment of operating expense escalations over a base year, (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 following table sets forth certain information as of December 31, 2002
for each of the office properties.
OWNERSHIP
INTEREST
(GROUND
LEASE LAND
PERCENTAGE EXPIRATION YEAR AREA
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES)
------------ -------------- ------------- ---------
Leases Suburban Office Properties:
Huntington Melville Corporate Center
395 North Service Rd,
Melville, NY .......................... 100% Lease (2081) 1988 7.5
200 Broadhollow Rd,
Melville, NY .......................... 100% Fee 1981 4.6
48 South Service Rd,
Melville, NY .......................... 100% Fee 1986 7.3
35 Pinelawn Rd,
Melville, NY .......................... 100% Fee 1980 6.0
275 Broadhollow Rd,
Melville, NY .......................... 51% Fee 1970 5.8
58 South Service Rd,
Melville, NY .......................... 100% Fee 2000 16.5
1305 Old Walt Whitman Rd,
Melville, NY .......................... 51% Fee 1998(3) 18.1
----
Total- Huntington Meville Corporate
Center ................................ 65.8
North Shore Atrium
6800 Jericho Turnpike,
Syosset, NY ........................... 100% Fee 1977 13.0
6900 Jericho Turnpike,
Syosset, NY ........................... 100% Fee 1982 5.0
----
Total-North Shore Atrium ............... 18.0
Nassau West Corporate Center
50 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 100% Lease (2082) 1984 9.1
60 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 100% Lease (2082) 1989 7.8
51 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 100% Lease (2084) 1989 6.6
55 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 100% Lease (2082) 1982 10.0
333 Earl Ovington Blvd.,
Mitchel Field, NY ..................... 60% Lease (2088) 1991 30.6
90 Merrick Ave.,
Mitchel Field, NY ..................... 51% Lease (2084) 1985 13.2
----
Total-Nassau West Corporate Center...... 77.3
Tarrytown Corporate Center
505 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1974 1.4
520 White Plains Rd.,
Tarrytown, NY ......................... 60% Fee (4) 1981 6.8
555 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1972 4.2
560 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1980 4.0
580 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1977 6.1
660 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1983 10.9
----
Total-Tarrytown Corporate Center ....... 33.4
Reckson Executive Park
1 International Dr.,
Ryebrook, NY .......................... 100% Fee 1983 N/A
2 International Dr.,
Ryebrook, NY .......................... 100% Fee 1983 N/A
3 International Dr.,
Ryebrook, NY .......................... 100% Fee 1983 N/A
4 International Dr.,
Ryebrook, NY .......................... 100% Fee 1986 N/A
5 International Dr.,
Ryebrook, NY .......................... 100% Fee 1986 N/A
6 International Dr.,
Ryebrook, NY .......................... 100% Fee 1986 N/A
----
Total-Reckson Executive Park ........... 44.4
ANNUAL
NUMBER RENT NUMBER
OF RENTABLE ANNUAL PER OF
FLOORS SQUARE PERCENT BASE LEASED TENANT
(FEET) FEET LEASED RENT (2) SQ. FT. LEASES
-------- ------------ ----------- ------------- ----------- -------
Leases Suburban Office Properties:
Huntington Melville Corporate Center
395 North Service Rd,
Melville, NY .......................... 4 185,094 100.0% $ 5,120,325 $ 27.66 4
200 Broadhollow Rd,
Melville, NY .......................... 4 67,895 100.0% $ 1,544,676 $ 22.75 14
48 South Service Rd,
Melville, NY .......................... 4 126,664 100.0% $ 2,955,872 $ 23.34 8
35 Pinelawn Rd,
Melville, NY .......................... 2 106,296 97.6% $ 1,986,613 $ 18.69 30
275 Broadhollow Rd,
Melville, NY .......................... 4 126,250 100.0% $ 3,019,668 $ 23.92 9
58 South Service Rd,
Melville, NY .......................... 4 281,279 74.1% $ 6,615,411 $ 23.52 6
1305 Old Walt Whitman Rd,
Melville, NY .......................... 3 164,166 100.0% $ 4,408,597 $ 26.85 6
------- ----- ----------- ------- --
Total- Huntington Meville Corporate
Center ................................ 1,057,644 92.9% $25,651,162 $ 24.25 77
North Shore Atrium
6800 Jericho Turnpike,
Syosset, NY ........................... 2 204,331 100.0% $ 4,043,134 $ 19.79 44
6900 Jericho Turnpike,
Syosset, NY ........................... 4 94,945 93.5% $ 1,966,100 $ 20.71 13
--------- ----- ----------- ------- --
Total-North Shore Atrium ............... 299,276 97.9% $ 6,009,233 $ 20.08 57
Nassau West Corporate Center
50 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 6 213,006 93.7% $ 4,893,918 $ 22.98 20
60 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 2 195,570 100.0% $ 4,923,880 $ 25.18 5
51 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 1 108,000 100.0% $ 2,508,903 $ 23.23 1
55 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 2 214,581 100.0% $ 2,757,057 $ 12.85 2
333 Earl Ovington Blvd.,
Mitchel Field, NY ..................... 10 578,798 94.9% $15,626,736 $ 27.00 28
90 Merrick Ave.,
Mitchel Field, NY ..................... 9 232,419 97.3% $ 5,926,057 $ 25.50 22
--------- ----- ----------- ------- --
Total-Nassau West Corporate Center...... 1,542,374 96.8% $36,636,550 $ 23.75 78
Tarrytown Corporate Center
505 White Plains Rd.,
Tarrytown, NY ......................... 2 26,319 88.3% $ 369,967 $ 14.06 20
520 White Plains Rd.,
Tarrytown, NY ......................... 6 156,034 100.0% $ 3,723,762 $ 23.87 2
555 White Plains Rd.,
Tarrytown, NY ......................... 5 121,815 90.8% $ 2,620,174 $ 21.51 10
560 White Plains Rd.,
Tarrytown, NY ......................... 6 124,049 84.5% $ 2,335,277 $ 18.83 17
580 White Plains Rd.,
Tarrytown, NY ......................... 6 169,446 100.0% $ 3,333,977 $ 19.68 18
660 White Plains Rd.,
Tarrytown, NY ......................... 6 253,226 89.8% $ 5,401,627 $ 21.33 36
--------- ----- ----------- ------- --
Total-Tarrytown Corporate Center ....... 850,889 93.0% $17,784,785 $ 20.90 103
Reckson Executive Park
1 International Dr.,
Ryebrook, NY .......................... 3 90,000 100.0% $ 1,260,000 $ 14.00 1
2 International Dr.,
Ryebrook, NY .......................... 3 90,000 100.0% $ 1,260,000 $ 14.00 1
3 International Dr.,
Ryebrook, NY .......................... 3 91,193 100.0% $ 2,128,033 $ 23.34 5
4 International Dr.,
Ryebrook, NY .......................... 3 87,805 90.7% $ 1,954,873 $ 22.26 8
5 International Dr.,
Ryebrook, NY .......................... 3 90,000 100.0% $ 2,332,500 $ 25.92 1
6 International Dr.,
Ryebrook, NY .......................... 3 94,753 79.3% $ 1,582,612 $ 16.70 8
--------- ----- ----------- ------- ---
Total-Reckson Executive Park ........... 543,751 94.9% $10,518,019 $ 19.34 24
I-11
OWNERSHIP
INTEREST
(GROUND
LEASE LAND
PERCENTAGE EXPIRATION YEAR AREA
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES)
------------ ------------ ------------- ---------
Summit at Valhalla
100 Summit Dr.,
Valhalla, NY .......................... 100% Fee 1988 11.3
200 Summit Dr.,
Valhalla, NY .......................... 100% Fee 1990 18.0
500 Summit Dr.,
Valhalla, NY .......................... 100% Fee 1986 29.1
-----
Total-Summit at Valhalla ............... 58.4
Mt. Pleasant Corporate Center
115/117 Stevens Ave.,
Mt. Pleasant, NY ...................... 100% Fee 1984 5.0
-----
Total-Mt Pleasant Corporate Center ..... 5.0
Stand-alone Long Island properties:
400 Garden City Plaza,
Garden City, NY ....................... 51% Fee 1989 5.7
88 Duryea Road,
Melville, NY .......................... 100% Fee 1986 1.5
310 East Shore Rd.,
Great Neck, NY ........................ 100% Fee 1981 1.5
333 East Shore Rd., Lease
Great Neck, NY ........................ 100% (2030) 1976 1.5
520 Broadhollow Rd.,
Melville, NY .......................... 100% Fee 1978 7.0
1660 Walt Whitman Rd.,
Melville, NY .......................... 100% Fee 1980 6.5
150 Motor Parkway, Hauppauge, NY . 100% Fee 1984 11.3
120 Mineola Blvd.,
Mineola, NY ........................... 100% Fee 1989 0.7
538 Broadhollow Rd.,
Melville, NY .......................... 100% Fee 1986 7.5
50 Marcus Dr.,
Melville, NY .......................... 100% Fee 2000 12.9
-----
Total-Stand-alone Long Island .......... 56.1
Stand-alone Westchester
120 White Plains Rd.,
Tarrytown, NY ......................... 51% Fee 1984 9.7
80 Grasslands, Elmsford, NY ............ 100% Fee 1989 4.9
-----
Total-Stand-alone Westchester .......... 14.6
Executive Hill Office Park
100 Executive Dr.,
Rt. 280 Corridor, NJ .................. 100% Fee 1978 10.1
200 Executive Dr.,
Rt. 208 Corridor, NJ .................. 100% Fee 1980 8.2
300 Executive Dr.,
Rt. 280 Corridor, NJ .................. 100% Fee 1984 8.7
10 Rooney Circle,
Rt. 280 Corridor, NJ .................. 100% Fee 1971 5.2
-----
Total-Executive Hill Office Park ....... 32.2
University Square Princeton
100 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 100% Fee 1987 N/A
104 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 100% Fee 1987 N/A
115 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 100% Fee 1987 N/A
-----
Total- University Square ............... 11.0
Short Hills Office Complex
101 John F. Kennedy Parkway,
Short Hills, NJ ....................... 100% Fee 1981 9.0
103 John F. Kennedy Parkway,
Short Hills, NJ (3) ................... 100% Fee 1981 6.0
51 John F Kennedy Parkway,
Short Hills, NJ ....................... 51% Fee 1988 11.0
-----
Total- Short Hills Office .............. 26.0
Stand-alone New Jersey Properties
99 Cherry Hill Road,
Parsippany, NJ ........................ 100% Fee 1982 8.8
119 Cherry Hill Rd,
Parsippany, NJ ........................ 100% Fee 1982 9.3
One Eagle Rock,
Hanover, NJ ........................... 100% Fee 1986 10.4
3 University Plaza,
Hackensack, NJ ........................ 100% Fee 1985 10.6
1255 Broad ST.,
Clifton, NJ ........................... 100% Fee 1968 11.1
492 River Rd.,
Nutley, NJ ............................ 100% Fee 1952 17.3
-----
Total- Stand-alone NJ Properties ....... 67.5
Total Suburban Office Properties ....... 509.7
ANNUAL
NUMBER RENT NUMBER
OF RENTABLE ANNUAL PER OF
FLOORS SQUARE PERCENT BASE LEASED TENANT
(FEET) FEET LEASED RENT (2) SQ. FT. LEASES
-------- ------------ --------- --------------- ----------- -------
Summit at Valhalla
100 Summit Dr.,
Valhalla, NY .......................... 4 248,174 87.3% $ 5,408,368 $ 21.79 7
200 Summit Dr.,
Valhalla, NY .......................... 4 233,391 100.0% $ 3,034,932 $ 13.00 12
500 Summit Dr.,
Valhalla, NY .......................... 4 208,660 100.0% $ 5,425,160 $ 26.00 1
------- ----- ------------ ------- --
Total-Summit at Valhalla ............... 690,225 95.4% $ 13,868,460 $ 20.09 20
Mt. Pleasant Corporate Center
115/117 Stevens Ave.,
Mt. Pleasant, NY ...................... 3 166,237 95.5% $ 3,444,106 $ 20.72 17
------- ----- ------------ ------- --
Total-Mt Pleasant Corporate Center ..... 166,237 95.5% $ 3,444,106 $ 20.72 17
Stand-alone Long Island properties:
400 Garden City Plaza,
Garden City, NY ....................... 5 172,757 100% $ 4,289,767 $ 24.83 23
88 Duryea Road,
Melville, NY .......................... 2 23,878 100% $ 475,195 $ 19.90 4
310 East Shore Rd.,
Great Neck, NY ........................ 4 50,108 98.1% $ 1,274,544 $ 25.44 18
333 East Shore Rd.,
Great Neck, NY ........................ 2 17,650 100.0% $ 358,772 $ 20.33 9
520 Broadhollow Rd.,
Melville, NY .......................... 1 85,784 100.0% $ 1,812,368 $ 21.13 3
1660 Walt Whitman Rd.,
Melville, NY .......................... 1 74,360 85.4% $ 1,182,684 $ 15.90 6
150 Motor Parkway, Hauppauge, NY . 4 185,475 90.4% $ 3,376,724 $ 18.21 26
120 Mineola Blvd.,
Mineola, NY ........................... 6 101,572 94.1% $ 2,275,057 $ 22.40 14
538 Broadhollow Rd.,
Melville, NY .......................... 4 180,281 69.2% $ 2,574,315 $ 14.28 7
50 Marcus Dr.,
Melville, NY .......................... 2 163,762 100.0% $ 2,125,904 $ 12.98 1
------- ----- ------------ ------- --
Total-Stand-alone Long Island .......... 1,055,627 91.4% $ 19,745,330 $ 18.70 111
Stand-alone Westchester
120 White Plains Rd.,
Tarrytown, NY ......................... 6 203,788 96.3% $ 4,367,366 $ 21.43 10
80 Grasslands, Elmsford, NY ............ 3 87,114 100.0% $ 1,847,983 $ 21.21 7
--------- ----- ------------ ------- ---
Total-Stand-alone Westchester .......... 290,902 97.4% $ 6,215,349 $ 21.37 17
Executive Hill Office Park
100 Executive Dr.,
Rt. 280 Corridor, NJ .................. 3 93,285 89.3% $ 1,606,181 $ 17.22 10
200 Executive Dr.,
Rt. 208 Corridor, NJ .................. 4 105,612 100.0% $ 1,919,584 $ 18.18 11
300 Executive Dr.,
Rt. 280 Corridor, NJ .................. 4 124,636 89.0% $ 2,610,373 $ 20.94 11
10 Rooney Circle,
Rt. 280 Corridor, NJ .................. 3 70,716 78.9% $ 1,348,889 $ 19.07 3
--------- ----- ------------ ------- ---
Total-Executive Hill Office Park ....... 394,249 90.2% $ 7,485,026 $ 18.99 35
University Square Princeton
100 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 1 27,888 100.0% $ 648,433 $ 23.25 3
104 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 1 70,239 100.0% $ 1,663,171 $ 23.68 2
115 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 1 33,600 100.0% $ 834,759 $ 24.84 1
--------- ----- ------------ ------- ---
Total- University Square ............... 131,727 100.0% $ 3,146,363 $ 23.89 6
Short Hills Office Complex
101 John F. Kennedy Parkway,
Short Hills, NJ ....................... 6 195,000 100.0% $ 3,446,625 $ 17.68 1
103 John F. Kennedy Parkway,
Short Hills, NJ (3) ................... 4 123,000 100.0% $ 3,833,500 $ 31.17 1
51 John F Kennedy Parkway,
Short Hills, NJ ....................... 5 250,642 97.6% $ 8,971,534 $ 35.79 17
--------- ----- ------------ ------- ---
Total- Short Hills Office .............. 568,642 98.9% $ 16,251,659 $ 28.58 19
Stand-alone New Jersey Properties
99 Cherry Hill Road,
Parsippany, NJ ........................ 3 93,355 73.6% $ 1,595,179 $ 17.09 12
119 Cherry Hill Rd,
Parsippany, NJ ........................ 3 95,665 97.8% $ 1,441,617 $ 15.07 16
One Eagle Rock,
Hanover, NJ ........................... 3 142,438 100.0% $ 3,049,825 $ 21.41 8
3 University Plaza,
Hackensack, NJ ........................ 6 219,550 94.9% $ 4,730,404 $ 21.55 21
1255 Broad ST.,
Clifton, NJ ........................... 2 193,574 100.0% $ 4,259,924 $ 22.01 2
492 River Rd.,
Nutley, NJ ............................ 13 130,009 100.0% $ 2,177,651 $ 16.75 1
--------- ----- ------------ ------- ---
Total- Stand-alone NJ Properties ....... 874,591 95.7% $ 17,254,600 $ 19.73 60
Total Suburban Office Properties ....... 8,466,134 94.8% $184,010,642 $ 21.73 624
I-12
OWNERSHIP
INTEREST
(GROUND
LEASE LAND
PERCENTAGE EXPIRATION YEAR AREA
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES)
------------ ------------ ------------- ---------
CBD Office Properties:
Landmark Square
One Landmark Sq.,
Stamford, CT ............................ 100% Fee 1973 N/A
Two Landmark Sq.,
Stamford, CT ............................ 100% Fee 1976 N/A
Three Landmark Sq.,
Stamford, CT ............................ 100% Fee 1978 N/A
Four Landmark Sq.,
Stamford, CT ............................ 100% Fee 1977 N/A
Five Landmark Sq.,
Stamford, CT ............................ 100% Fee 1976 N/A
Six Landmark Sq.,
Stamford, CT ............................ 100% Fee 1984 N/A
---
Total- Landmark Square ................... 7.2
Stamford Towers:
680 Washington Blvd,
Stamford, CT ............................ 51% Fee 1989 1.3
750 Washington Blvd,
Stamford, CT ............................ 51% Fee 1989 2.4
Total-Stamford Towers .................... 3.7
Stand-alone Westchester
360 Hamilton Ave.,
White Plains, NY ........................ 100% Fee 1977 1.5
140 Grand ST.,
White Plains, NY ........................ 100% Fee 1991 2.2
---
Total-Stand-alone Westchester ............ 3.7
New York City Office Properties
120 W. 45th ST.,
New York, NY ............................ 100% Fee 1989 0.4
100 Wall ST.,
New York, NY ............................ 100% Fee 1969 0.5
810 Seventh Ave.,
New York, NY ............................ 100% Fee(5) 1970 0.6
919 Third Ave.,
New York, NY ............................ 100% Fee(6) 1971 1.5
1350 Ave. of the Americas,
New York, NY ............................ 100% Fee 1966 0.6
---
Total-New York City Office Properties 3.6
Total CBD Office Properties .............. 18.2
Total-Office Properties .................. 527.9
ANNUAL
NUMBER RENT NUMBER
OF RENTABLE ANNUAL PER OF
FLOORS SQUARE PERCENT BASE LEASED TENANT
(FEET) FEET LEASED RENT (2) SQ. FT. LEASES
-------- ------------ --------- --------------- ----------- -------
CBD Office Properties:
Landmark Square
One Landmark Sq.,
Stamford, CT ............................ 22 280,661 98.3% $ 7,037,786 $ 25.08 59
Two Landmark Sq.,
Stamford, CT ............................ 3 36,889 83.2% $ 795,071 $ 21.55 8
Three Landmark Sq.,
Stamford, CT ............................ 6 128,887 95.8% $ 3,212,338 $ 24.92 14
Four Landmark Sq.,
Stamford, CT ............................ 5 98,054 95.3% $ 1,966,176 $ 20.05 13
Five Landmark Sq.,
Stamford, CT ............................ 3 58,000 100.0% $ 310,536 $ 5.35 3
Six Landmark Sq.,
Stamford, CT ............................ 10 168,180 99.5% $ 4,001,941 $ 23.80 8
------- ----- ------------ ------- --
Total- Landmark Square ................... 770,671 97.2% $ 17,323,849 $ 22.48 105
Stamford Towers:
680 Washington Blvd,
Stamford, CT ............................ 11 132,759 100% $ 4,000,443 $ 30.13 7
750 Washington Blvd,
Stamford, CT ............................ 11 185,901 98.2% $ 4,555,349 $ 24.50 9
Total-Stamford Towers .................... 318,660 98.9% $ 8,555,792 $ 26.85 16
Stand-alone Westchester
360 Hamilton Ave.,
White Plains, NY ........................ 12 381,257 91.0% $ 8,505,931 $ 22.31 15
140 Grand ST.,
White Plains, NY ........................ 9 123,827 95.9% $ 2,943,592 $ 23.77 14
------- ----- ------------ ------- ---
Total-Stand-alone Westchester ............ 505,084 92.2% $ 11,449,523 $ 22.67 29
New York City Office Properties
120 W. 45th ST.,
New York, NY ............................ 40 441,175 97.0% $ 16,866,305 $ 38.23 33
100 Wall ST.,
New York, NY ............................ 29 457,678 100.0% $ 14,199,700 $ 31.03 29
810 Seventh Ave.,
New York, NY ............................ 42 690,977 97.0% $ 22,693,099 $ 32.84 34
919 Third Ave.,
New York, NY ............................ 47 1,355,239 100.0% $ 58,949,836 $ 43.50 21
1350 Ave. of the Americas,
New York, NY ............................ 35 543,415 91.9% $ 17,288,113 $ 31.81 70
--------- ----- ------------ ------- ---
Total-New York City Office Properties 3,488,484 97.8% $129,997,053 $ 37.26 187
Total CBD Office Properties .............. 5,082,899 97.2% $167,326,216 $ 32.92 337
Total-Office Properties .................. 13,549,033 95.7% $351,336,858 $ 25.93 961
- ------------------
(1) Ground lease expirations assume exercise of renewal options by the lessee.
(2) Represents Base Rent, net of electric reimbursement, of signed leases at
December 31, 2002 adjusted for scheduled contractual increases during the
12 months ending December 31, 2003. Total Base Rent for these purposes
reflects the effect of any lease expirations that occur during the
12-month period ending December 31, 2003. 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.
(3) Year renovated.
(4) The actual fee interest in 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.
(5) There is a ground lease in place on a small portion of the land which
expires in 2044.
(6) There is a ground lease in place on a small portion of the land which
expires in 2066.
I-13
INDUSTRIAL / R&D PROPERTIES
General.
As of December 31, 2002, the Operating Partnership owned or had an
interest in 101 industrial / R&D properties that encompass approximately 6.7
million rentable square feet. As of December 31, 2002, the industrial / R&D
properties were approximately 94.7% leased (percentage leased excludes
properties under development) to approximately 239 tenants. Many of these
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 / R&D properties are leased to both national and local
tenants. These tenants utilize these properties for distribution, warehousing,
research and development and light manufacturing / assembly activities. Leases
on the industrial / R&D 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 generally 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 of the industrial / R&D 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 86%, as measured by square footage, of the industrial / R&D
properties, are located on Long Island. Fifty eight percent of these
properties, as measured by square footage, are located in the following three
industrial parks developed by Reckson: (i) Vanderbilt Industrial Park, (ii)
Airport International Plaza and (iii) County Line Industrial Center.
In addition to the industrial / R&D properties on Long Island, the
Operating Partnership owns eight industrial properties encompassing
approximately 912,000 square feet in the other suburban markets.
The following table sets forth certain information as of December 31, 2002
for each of the industrial properties.
OWNERSHIP
INTEREST
(GROUND
LEASE LAND CLEARENCE
PERCENTAGE EXPIRATION YEAR AREA HEIGHT
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES) (FEET)
------------ ------------ ------------- --------- -----------
LONG ISLAND INDUSTRIAL
Airport Industrial Plaza
110 Orville Dr.,
Islip, NY .............. 100.0% Fee 1979 6.4 24
1101 Lakeland Ave.,
Islip, NY .............. 100.0% Fee 1983 4.9 20
120 Wilbur Place,
Islip, NY .............. 100.0% Fee 1972 2.8 16
125 Wilbur Place,
Islip, NY .............. 100.0% Fee 1977 4.0 16
1385 Lakeland Ave.,
Islip, NY .............. 100.0% Fee 1973 2.4 16
140 Wilbur Place,
Islip, NY .............. 100.0% Fee 1973 3.1 20
160 Wilbur Place,
Islip, NY .............. 100.0% Fee 1978 3.9 16
170 Wilbur Place,
Islip, NY .............. 100.0% Fee 1979 4.9 16
180 Orville Dr.,
Islip, NY .............. 100.0% Fee 1982 2.3 16
20 Orville Dr.,
Islip, NY .............. 100.0% Fee 1978 1.0 16
2002 Orville Drive North,
Islip, NY .............. 100.0% Fee 2000 15.8 24
2004 Orville Drive North,
Islip, NY .............. 100.0% Fee 1998 7.4 24
2005 Orville Drive North,
Islip, NY .............. 100.0% Fee 1999 8.7 24
25 Orville Dr.,
Islip, NY .............. 100.0% Fee 1970 2.2 16
4040 Veterans Highway,
Islip, NY .............. 100.0% Fee 1972 1.0 14
50 Orville Dr.,
Islip, NY .............. 100.0% Fee 1976 1.6 15
ANNUAL
RESEARCH RENT NUMBER
AND RENTABLE ANNUAL PER OF
DEVELOPMENT SQUARE PERCENT BASE LEASED TENANT
FINISH FEET LEASED RENT (2) SQ. FT. LEASES
------------- ---------- ----------- ------------- --------- -------
LONG ISLAND INDUSTRIAL
Airport Industrial Plaza
110 Orville Dr.,
Islip, NY .............. 80% 110,000 100.0% $ 685,667 $ 6.23 1
1101 Lakeland Ave.,
Islip, NY .............. 65% 90,411 100.0% $ 567,419 $ 6.28 1
120 Wilbur Place,
Islip, NY .............. 62% 34,866 100.0% $ 251,070 $ 7.20 4
125 Wilbur Place,
Islip, NY .............. 45% 61,698 86.9% $ 304,521 $ 4.94 9
1385 Lakeland Ave.,
Islip, NY .............. 9% 35,000 78.6% $ 202,783 $ 5.79 3
140 Wilbur Place,
Islip, NY .............. 33% 48,500 100.0% $ 316,495 $ 6.53 2
160 Wilbur Place,
Islip, NY .............. 87% 62,710 100.0% $ 560,665 $ 8.94 2
170 Wilbur Place,
Islip, NY .............. 30% 72,203 100.0% $ 470,721 $ 6.52 5
180 Orville Dr.,
Islip, NY .............. 4% 37,612 100.0% $ 210,214 $ 5.59 2
20 Orville Dr.,
Islip, NY .............. 100% 12,900 100.0% $ 196,548 $ 15.24 1
2002 Orville Drive North,
Islip, NY .............. 11% 206,005 100.0% $1,797,445 $ 8.73 2
2004 Orville Drive North,
Islip, NY .............. 10% 106,515 100.0% $ 397,934 $ 3.74 1
2005 Orville Drive North,
Islip, NY .............. 20% 130,010 100.0% $1,023,169 $ 7.87 1
25 Orville Dr.,
Islip, NY .............. 100% 33,655 100.0% $ 523,115 $ 15.54 1
4040 Veterans Highway,
Islip, NY .............. 100% 2,800 100.0% $ 82,600 $ 29.50 1
50 Orville Dr.,
Islip, NY .............. 99% 27,943 100.0% $ 257,597 $ 9.22 3
I-14
OWNERSHIP
INTEREST
(GROUND
LEASE LAND CLEARENCE
PERCENTAGE EXPIRATION YEAR AREA HEIGHT
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES) (FEET)
------------ ------------ ------------- --------- -----------
65 Orville Dr.,
Islip, NY .................... 100.0% Fee 1971 2.2 14
70 Orville Dr.,
Islip, NY .................... 100.0% Fee 1975 2.3 22
80 Orville Dr.,
Islip, NY .................... 100.0% Fee 1988 6.5 16
85 Orville Dr.,
Islip, NY .................... 100.0% Fee 1974 1.9 14
95 Orville Dr.,
Islip, NY .................... 100.0% Fee 1974 1.8 14
----
Airport Industrial Plaza Total 87.1
Hauppauge Industrial Park
100 Engineers Rd.,
Hauppauge, NY ................ 100.0% Fee 1968 5.0 14
104 Parkway Dr.,
Hauppauge, NY ................ 100.0% Fee 1985 1.8 15
110 Plant Ave.,
Hauppauge, NY ................ 100.0% Fee 1974 6.8 18
120 Ricefield Ln.,
Hauppauge, NY ................ 100.0% Fee 1983 2.0 15
125 Ricefield Ln.,
Hauppauge, NY ................ 100.0% Fee 1973 2.0 14
135 Ricefield Ln.,
Hauppauge, NY ................ 100.0% Fee 1981 2.1 15
150 Engineers Rd.,
Hauppauge, NY ................ 100.0% Fee 1969 6.8 22
180 Oser Ave., Lease
Hauppauge, NY ................ 100.0% (2009) 1978 3.4 16
185 Oser Ave,
Hauppauge, NY ................ 100.0% Fee 1974 2.0 18
20 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1979 5.0 16
225 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1977 1.2 14
25 Davids Dr.,
Hauppauge, NY ................ 100.0% Fee 1975 3.2 20
250 Kennedy Dr.,
Hauppauge, NY ................ 100.0% Fee 1979 7.0 16
30 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1978 4.4 16
325 Rabro Dr.,
Hauppauge, NY ................ 100.0% Fee 1967 2.7 14
360 Motor Pk.,
Hauppauge, NY ................ 100.0% Fee 1967 4.2 16
360 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1981 1.3 18
375 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1981 1.2 18
390 Motor Parkway,
Hauppauge, NY ................ 100.0% Fee 1980 10.0 14
395 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1980 6.1 14
40 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1974 3.1 16
400 Moreland Rd.,
Hauppauge, NY ................ 100.0% Fee 1967 6.3 17
400 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1982 9.5 16
410 Motor Pk.,
Hauppauge, NY ................ 100.0% Fee 1965 3.0 15
425 Rabro Dr.,
Hauppauge, NY ................ 100.0% Fee 1980 4.0 16
45 Adams Ave.,
Hauppauge, NY ................ 100.0% Fee 1979 2.1 18
50 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1975 4.1 21
55 Engineers Rd.,
Hauppauge, NY ................ 100.0% Fee 1968 3.0 18
595 Old Willets Path,
Hauppauge, NY ................ 100.0% Fee 1968 3.5 14
60 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1975 3.3 21
600 Old Willets Path ,
Hauppauge, NY ................ 100.0% Fee 1965 4.5 14
611 Old Willets Path,
Hauppauge, NY ................ 100.0% Fee 1963 3.0 14
63 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1974 1.2 20
631/641 Old Willets Path,
Hauppauge, NY ................ 100.0% Fee 1965 1.9 14
65 Engineers Rd.,
Hauppauge, NY ................ 100.0% Fee 1969 1.8 22
65 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1975 1.2 18
651/661 Old Willets Path,
Hauppauge, NY ................ 100.0% Fee 1966 2.0 14
ANNUAL
RESEARCH RENT NUMBER
AND RENTABLE ANNUAL PER OF
DEVELOPMENT SQUARE PERCENT BASE LEASED TENANT
FINISH FEET LEASED RENT (2) SQ. FT. LEASES
------------- ------------ ----------- ------------- --------- -------
65 Orville Dr.,
Islip, NY .................... 20% 32,000 100.0% $ 220,068 $ 6.88 2
70 Orville Dr.,
Islip, NY .................... 18% 41,508 100.0% $ 355,988 $ 8.58 2
80 Orville Dr.,
Islip, NY .................... 47% 92,684 100.0% $ 611,343 $ 6.60 8
85 Orville Dr.,
Islip, NY .................... 20% 25,091 100.0% $ 173,671 $ 6.92 2
95 Orville Dr.,
Islip, NY .................... 20% 25,300 100.0% $ 135,945 $ 5.37 1
------ ----- ---------- ------- -
Airport Industrial Plaza Total 1,289,411 98.8% $9,344,978 $ 7.25 54
Hauppauge Industrial Park
100 Engineers Rd.,
Hauppauge, NY ................ 100% 40,880 100.0% $ 573,914 $ 14.04 1
104 Parkway Dr.,
Hauppauge, NY ................ 15% 27,600 100.0% $ 111,918 $ 4.06 1
110 Plant Ave.,
Hauppauge, NY ................ 2% 125,000 100.0% $ 488,194 $ 3.91 1
120 Ricefield Ln.,
Hauppauge, NY ................ 9% 33,100 100.0% $ 193,917 $ 5.86 1
125 Ricefield Ln.,
Hauppauge, NY ................ 20% 30,495 100.0% $ 201,844 $ 6.62 1
135 Ricefield Ln.,
Hauppauge, NY ................ 50% 32,340 100.0% $ 153,100 $ 4.73 1
150 Engineers Rd.,
Hauppauge, NY ................ 10% 135,000 100.0% $ 179,625 $ 1.33 1
180 Oser Ave.,
Hauppauge, NY ................ 50% 61,264 100.0% $ 507,518 $ 8.28 9
185 Oser Ave,
Hauppauge, NY ................ 50% 30,000 100.0% $ 219,834 $ 7.33 1
20 Oser Ave.,
Hauppauge, NY ................ 98% 42,000 100.0% $ 393,135 $ 9.36 2
225 Oser Ave.,
Hauppauge, NY ................ 85% 9,960 100.0% $ 130,891 $ 13.14 1
25 Davids Dr.,
Hauppauge, NY ................ 50% 40,000 100.0% $ 350,200 $ 8.75 1
250 Kennedy Dr.,
Hauppauge, NY ................ 10% 127,980 100.0% $ 455,298 $ 3.56 1
30 Oser Ave.,
Hauppauge, NY ................ 69% 41,851 100.0% $ 310,213 $ 7.41 4
325 Rabro Dr.,
Hauppauge, NY ................ 27% 35,473 32.9% $ 89,096 $ 2.51 1
360 Motor Pk.,
Hauppauge, NY ................ 100% 54,000 100.0% $ 306,060 $ 5.67 1
360 Oser Ave.,
Hauppauge, NY ................ 20% 23,000 100.0% $ 169,114 $ 7.35 1
375 Oser Ave.,
Hauppauge, NY ................ 60% 20,000 100.0% $ 160,633 $ 8.03 1
390 Motor Parkway,
Hauppauge, NY ................ 10% 181,060 100.0% $1,033,943 $ 5.71 1
395 Oser Ave.,
Hauppauge, NY ................ 100% 49,500 100.0% $ 464,805 $ 9.39 1
40 Oser Ave.,
Hauppauge, NY ................ 45% 59,850 100.0% $ 435,463 $ 7.28 13
400 Moreland Rd.,
Hauppauge, NY ................ 80% 57,050 100.0% $ 931,626 $ 16.33 1
400 Oser Ave.,
Hauppauge, NY ................ 36% 163,885 94.8% $1,252,016 $ 7.64 27
410 Motor Pk.,
Hauppauge, NY ................ 18% 41,784 100.0% $ 273,524 $ 6.55 3
425 Rabro Dr.,
Hauppauge, NY ................ 50% 65,421 100.0% $ 765,971 $ 11.71 1
45 Adams Ave.,
Hauppauge, NY ................ 75% 28,000 100.0% $ 270,667 $ 9.67 1
50 Oser Ave.,
Hauppauge, NY ................ 15% 60,000 100.0% $ 246,000 $ 4.10 1
55 Engineers Rd.,
Hauppauge, NY ................ 100% 36,000 100.0% $ 373,307 $ 10.37 1
595 Old Willets Path,
Hauppauge, NY ................ 39% 31,670 100.0% $ 218,811 $ 6.91 4
60 Oser Ave.,
Hauppauge, NY ................ 10% 48,000 100.0% $ 196,800 $ 4.10 1
600 Old Willets Path ,
Hauppauge, NY ................ 10% 69,654 100.0% $ 438,114 $ 6.29 1
611 Old Willets Path,
Hauppauge, NY ................ 5% 20,000 100.0% $ 172,329 $ 8.62 2
63 Oser Ave.,
Hauppauge, NY ................ 20% 23,000 100.0% $ 151,220 $ 6.57 1
631/641 Old Willets Path,
Hauppauge, NY ................ 28% 25,000 100.0% $ 177,624 $ 7.10 4
65 Engineers Rd.,
Hauppauge, NY ................ 10% 23,000 100.0% $ 149,500 $ 6.50 1
65 Oser Ave.,
Hauppauge, NY ................ 10% 20,000 100.0% $ 115,023 $ 5.75 1
651/661 Old Willets Path,
Hauppauge, NY ................ 54% 25,000 100.0% $ 189,845 $ 7.59 6
I-15
OWNERSHIP
INTEREST
(GROUND
LEASE LAND CLEARENCE
PERCENTAGE EXPIRATION YEAR AREA HEIGHT
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES) (FEET)
------------ ------------ ------------- --------- -----------
681 Old Willets Path,
Hauppauge, NY ......................... 100.0% Fee 1961 1.3 14
73 Oser Ave.,
Hauppauge, NY ......................... 100.0% Fee 1974 1.2 20
740 Old Willets Path,
Hauppauge, NY ......................... 100.0% Fee 1965 3.5 14
80 Oser Ave.,
Hauppauge, NY ......................... 100.0% Fee 1974 1.1 18
85 Adams Dr.,
Hauppauge, NY ......................... 100.0% Fee 1980 1.8 15
85 Engineers Rd.,
Hauppauge, NY ......................... 100.0% Fee 1968 2.3 18
85 Nicon Ct.,
Hauppauge, NY ......................... 100.0% Fee 1978 6.1 30
90 Oser Ave.,
Hauppauge, NY ......................... 100.0% Fee 1973 1.1 16
90 Plant Ave.,
Hauppauge, NY ......................... 100.0% Fee 1972 4.3 16
-----
Hauppauge Industrial Park Total ........ 158.4
County Line Industrial Center,
Melville Long Island
5 Hub Dr.,
Melville, NY .......................... 100.0% Fee 1979 6.9 20
10 Hub Dr.,
Melville, NY .......................... 100.0% Fee 1975 6.6 20
265 Spagnoli Rd.,
Melville, NY .......................... 100.0% Fee 1978 6.0 20
30 Hub Dr.,
Melville, NY .......................... 100.0% Fee 1976 5.1 20
-----
County Line Total ...................... 24.6
Standalone Islip Long Island
135 Fell Ct.,
Islip, NY ............................. 100.0% Fee 1965 3.2 16
208 Blydenburgh Rd.,
Islandia, NY .......................... 100.0% Fee 1969 2.4 14
210 Blydenburgh Rd.,
Islandia, NY .......................... 100.0% Fee 1969 1.2 14
32 Windsor Pl.,
Islip, NY ............................. 100.0% Fee 1971 2.5 18
42 Windsor Pl.,
Islip, NY ............................. 100.0% Fee 1972 2.4 18
71 Hoffman Ln.,
Islandia, NY. ......................... 100.0% Fee 1970 5.8 16
-----
Islip Long Island Total ................ 17.5
Standalone Farmingdale Long Island
70 Schmitt Blvd.,
Farmingdale, NY ....................... 100.0% Fee 1975 4.4 18
105 Price Parkway,
Farmingdale, NY ....................... 100.0% Fee 1969 12.0 26
110 Bi County Blvd.,
Farmingdale, NY ....................... 100.0% Fee 1984 9.5 19
-----
Farmingdale Long Island Total .......... 25.9
Standalone Melville Long Island
20 Melville Park Road,
Melville, NY .......................... 100.0% Fee 1965 4.0 23
45 Melville Park Drive,
Melville, NY .......................... 100.0% Fee 1998 4.2 24
65 Marcus Drive,
Melville, NY .......................... 100.0% Fee 1968 5.0 16
70 Maxess Road,
Melville, NY .......................... 100.0% Fee 1969 9.3 15
-----
Melville Long Island Total ............. 22.5
Standalone Hauppauge Long Island
1516 Motor Pk.,
Hauppauge, NY ......................... 100.0% Fee 1981 7.9 24
300 Motor Pk.,
Hauppauge, NY ......................... 100.0% Fee 1979 4.2 14
-----
Hauppauge Long Island Total ............ 12.1
Standalone Other Long Island
100 Andrews Rd.,
Hicksville, NY ........................ 100.0% Fee 1954 11.7 25
110 Marcus Drive,
Huntington, NY ........................ 100.0% Fee 1980 6.1 20
19 Nicholas Dr.,
Yaphank, NY (3) ....................... 100.0% Fee 1989 29.6 24
35 Engle St.,
Hicksville, NY ........................ 100.0% Lease (4) 1966 4.0 24
48 Harbor Pk Dr.,
Port Washington, NY ................... 100.0% Fee 1976 2.7 16
85 S. Service Rd.,
Plainview, NY ......................... 100.0% Fee 1961 1.6 14
933 Motor Parkway,
Smithtown, NY ......................... 100.0% Fee 1973 5.6 20
-----
Standalone Other Long Island Total ..... 61.3
ANNUAL
RESEARCH RENT NUMBER
AND RENTABLE ANNUAL PER OF
DEVELOPMENT SQUARE PERCENT BASE LEASED TENANT
FINISH FEET LEASED RENT (2) SQ. FT. LEASES
------------- ------------ ----------- -------------- --------- -------
681 Old Willets Path,
Hauppauge, NY ......................... 10% 15,000 100.0% $ 110,634 $ 7.38 1
73 Oser Ave.,
Hauppauge, NY ......................... 10% 20,000 100.0% $ 139,873 $ 6.99 1
740 Old Willets Path,
Hauppauge, NY ......................... 50% 30,000 100.0% $ 29,670 $ 0.99 1
80 Oser Ave.,
Hauppauge, NY ......................... 40% 19,500 100.0% $ 74,425 $ 3.82 1
85 Adams Dr.,
Hauppauge, NY ......................... 100% 20,000 100.0% $ 280,000 $ 14.00 1
85 Engineers Rd.,
Hauppauge, NY ......................... 5% 40,800 100.0% $ 225,095 $ 5.52 2
85 Nicon Ct.,
Hauppauge, NY ......................... 10% 104,000 100.0% $ 634,400 $ 6.10 1
90 Oser Ave.,
Hauppauge, NY ......................... 40% 37,500 100.0% $ 144,375 $ 3.85 1
90 Plant Ave.,
Hauppauge, NY ......................... 19% 74,915 100.0% $ 162,117 $ 2.16 3
------- ----- ----------- ------- -
Hauppauge Industrial Park Total ........ 2,299,532 98.6% $14,651,684 $ 6.37 113
County Line Industrial Center,
Melville Long Island
5 Hub Dr.,
Melville, NY .......................... 47% 88,001 100.0% $ 577,634 $ 6.56 2
10 Hub Dr.,
Melville, NY .......................... 18% 95,671 100.0% $ 749,371 $ 7.83 3
265 Spagnoli Rd.,
Melville, NY .......................... 61% 85,555 100.0% $ 737,824 $ 8.62 2
30 Hub Dr.,
Melville, NY .......................... 10% 73,127 100.0% $ 516,326 $ 7.06 2
--------- ----- ----------- ------- ---
County Line Total ...................... 342,354 100.0% $ 2,581,155 $ 7.54 9
Standalone Islip Long Island
135 Fell Ct.,
Islip, NY ............................. 10% 30,124 100.0% $ 253,973 $ 8.43 1
208 Blydenburgh Rd.,
Islandia, NY .......................... 20% 24,000 100.0% $ 135,094 $ 5.63 3
210 Blydenburgh Rd.,
Islandia, NY .......................... 10% 20,000 100.0% $ 103,977 $ 5.20 2
32 Windsor Pl.,
Islip, NY ............................. 10% 43,000 100.0% $ 155,887 $ 3.63 1
42 Windsor Pl.,
Islip, NY ............................. 10% 65,000 100.0% $ 260,000 $ 4.00 1
71 Hoffman Ln.,
Islandia, NY. ......................... 10% 30,400 0.0% $ 0 $ 0.00 0
--------- ----- ----------- ------- ---
Islip Long Island Total ................ 212,524 85.7% $ 908,932 $ 4.28 8
Standalone Farmingdale Long Island
70 Schmitt Blvd.,
Farmingdale, NY ....................... 15% 76,312 100.0% $ 605,343 $ 7.93 1
105 Price Parkway,
Farmingdale, NY ....................... 10% 297,000 100.0% $ 1,517,267 $ 5.11 1
110 Bi County Blvd.,
Farmingdale, NY ....................... 81% 146,696 100.0% $ 1,441,847 $ 9.83 9
--------- ----- ----------- ------- ---
Farmingdale Long Island Total .......... 520,008 100.0% $ 3,564,457 $ 6.85 11
Standalone Melville Long Island
20 Melville Park Road,
Melville, NY .......................... 15% 67,922 100.0% $ 401,204 $ 5.91 1
45 Melville Park Drive,
Melville, NY .......................... 50% 40,247 100.0% $ 607,924 $ 15.10 1
65 Marcus Drive,
Melville, NY .......................... 20% 60,000 100.0% $ 675,462 $ 11.26 1
70 Maxess Road,
Melville, NY .......................... 40% 78,600 100.0% $ 750,300 $ 9.55 1
--------- ----- ----------- ------- ---
Melville Long Island Total ............. 246,769 100.0% $ 2,434,889 $ 9.87 4
Standalone Hauppauge Long Island
1516 Motor Pk.,
Hauppauge, NY ......................... 10% 140,000 100.0% $ 905,215 $ 6.47 1
300 Motor Pk.,
Hauppauge, NY ......................... 100% 54,154 91.5% $ 912,473 $ 16.85 6
--------- ----- ----------- ------- ---
Hauppauge Long Island Total ............ 194,154 97.6% $ 1,817,689 $ 9.36 7
Standalone Other Long Island
100 Andrews Rd.,
Hicksville, NY ........................ 10% 167,754 100.0% $ 1,232,628 $ 7.35 2
110 Marcus Drive,
Huntington, NY ........................ 40% 78,240 100.0% $ 547,418 $ 7.00 1
19 Nicholas Dr.,
Yaphank, NY (3) ....................... 5% 230,000 100.0% $ 1,391,968 $ 6.05 1
35 Engle St.,
Hicksville, NY ........................ 5% 120,283 100.0% $ 631,005 $ 5.25 1
48 Harbor Pk Dr.,
Port Washington, NY ................... 100% 35,000 100.0% $ 795,675 $ 22.73 1
85 S. Service Rd.,
Plainview, NY ......................... 10% 20,000 100.0% $ 137,395 $ 6.87 2
933 Motor Parkway,
Smithtown, NY ......................... 20% 48,000 50.0% $ 158,756 $ 3.31 1
--------- ----- ----------- ------- ---
Standalone Other Long Island Total ..... 699,277 96.6% $ 4,894,845 $ 7.00 9
I-16
OWNERSHIP
INTEREST
(GROUND
LEASE LAND CLEARENCE
PERCENTAGE EXPIRATION YEAR AREA HEIGHT
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES) (FEET)
------------ ------------ ------------- --------- -----------
NEW JERSEY INDUSTRIAL
Western Morris and South Plainfield
100 Forge Way,
Rockaway, NJ ......................... 100.0% Fee 1986 3.5 24
200 Forge Way,
Rockaway, NJ ......................... 100.0% Fee 1989 12.7 28
300 Forge Way,
Rockaway, NJ ......................... 100.0% Fee 1989 4.2 24
400 Forge Way,
Rockaway, NJ ......................... 100.0% Fee 1989 12.8 28
40 Cragwood Rd.,
South Plainfield, NJ ................. 100.0% Fee 1965 13.5 16
-----
W. Morris S. Plainfield Total ......... 46.7
WESTCHESTER INDUSTRIAL
Elmsford Westchester
100 Grasslands Rd.,
Elmsford, NY ......................... 100.0% Fee 1964 3.6 16
500 Saw Mill Rd.,
Elmsford, NY ......................... 100.0% Fee 1968 7.3 22
-----
Elmsford Westchester Total ............ 10.9
CONNECTICUT INDUSTRIAL
Shelton Connecticut
710 Bridgeport,
Shelton, CT 100.0% Fee 1971-1979 36.1 22
-----
Shelton Connecticut Total ............. 36.1
TOTAL INDUSTRIAL ...................... 503.1
ANNUAL
RESEARCH RENT NUMBER
AND RENTABLE ANNUAL PER OF
DEVELOPMENT SQUARE PERCENT BASE LEASED TENANT
FINISH FEET LEASED RENT (2) SQ. FT. LEASES
------------- ------------ ----------- ------------- --------- -------
NEW JERSEY INDUSTRIAL
Western Morris and South Plainfield
100 Forge Way,
Rockaway, NJ ......................... 46% 20,150 100.0% $ 175,639 $ 8.72 5
200 Forge Way,
Rockaway, NJ ......................... 53% 72,118 100.0% $ 634,638 $ 8.80 2
300 Forge Way,
Rockaway, NJ ......................... 63% 24,200 100.0% $ 212,550 $ 8.78 2
400 Forge Way,
Rockaway, NJ ......................... 20% 73,000 100.0% $ 535,731 $ 7.34 3
40 Cragwood Rd.,
South Plainfield, NJ ................. 30% 130,793 69.3% $ 1,278,645 $ 9.78 4
------- ----- ----------- ------- -
W. Morris S. Plainfield Total ......... 320,261 87.5% $ 2,837,203 $ 8.86 16
WESTCHESTER INDUSTRIAL
Elmsford Westchester
100 Grasslands Rd.,
Elmsford, NY ......................... 100% 47,690 100.0% $ 924,818 $ 19.39 4
500 Saw Mill Rd.,
Elmsford, NY ......................... 20% 92,000 100.0% $ 920,000 $ 10.00 1
------- ----- ----------- ------- --
Elmsford Westchester Total ............ 139,690 100.0% $ 1,844,818 $ 13.21 5
CONNECTICUT INDUSTRIAL
Shelton Connecticut
710 Bridgeport,
Shelton, CT 29% 452,414 54.3% $ 2,032,502 $ 4.49 1
------- ----- ----------- ------- --
Shelton Connecticut Total ............. 452,414 54.3% $ 2,032,502 $ 4.49 1
TOTAL INDUSTRIAL ...................... 6,716,394 94.7% $46,913,152 $ 6.98 237
- ----------------
(1) Calculated as the difference from the lowest beam to floor.
(2) Represents Base Rent, net of electric reimbursement, of signed leases at
December 31, 2002 adjusted for scheduled contractual increases during the
12 months ending December 31, 2003. Total Base Rent for these purposes
reflects the effect of any lease expirations that occur during the 12
month period ending December 31, 2003. 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.
(3) The actual fee interest 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.
(4) The Company has entered into a 20 year lease agreement in which it has the
right to sublease the premises.
RETAIL PROPERTIES
As of December 31, 2002, the Operating Partnership owned two free-standing
retail properties encompassing approximately 10,000 square feet each located in
Great Neck and Huntington, New York. One of these properties is fully leased
and one property is approximately 70% leased.
DEVELOPMENTS IN PROGRESS
As of December 31, 2002, the Operating Partnership had invested
approximately $121.2 million in developments in progress. This amount includes
approximately $5.4 million relating to a development currently under
construction which when completed will encompass approximately 71,000 square
feet of new industrial / R&D space. In addition, the Operating Partnership has
invested approximately $115.8 million relating to 13 remaining parcels of land
which it can develop approximately 3.6 million square feet of office and
industrial / R&D space.
In February 2003, the Operating Partnership, through its wholly owned
service company, Reckson Construction Group Inc., entered into a contract to
sell a 19.3-acre development parcel located in Melville, New York. In addition,
Reckson Construction Group, Inc., has been retained by the purchaser to develop
a 195,000 square foot build-to-suit office building on this development parcel.
THE OPTION PROPERTIES
In connection with the IPO, the Operating Partnership was granted ten-year
options to acquire ten properties (the "Option Properties") which are either
owned by certain Rechler family members who are also executive officers of the
Company, or in which the Rechler family members own a non-controlling minority
interest at a price based upon an agreed upon formula. In years prior to 2001,
one of these properties was sold by the Rechler family members to a third party
and four of these properties were acquired by the Operating Partnership for an
aggregate purchase price of approximately $35 million, which included the
issuance of approximately 475,000 Units valued at approximately $8.8 million.
I-17
Currently, certain Rechler family members retain their equity interests in
the five remaining Option Properties (the "Remaining Option Properties") which
were not contributed to the Operating Partnership as part of the IPO. Such
options provide the Operating Partnership the right to acquire fee interest in
two of the Remaining Option Properties and the Rechlers' minority interests in
three Remaining Option Properties. The Independent Directors of the Company's
Board of Directors are currently reviewing whether the Operating Partnership
should exercise one or more of the options relating to the Remaining Option
Properties.
HISTORICAL NON-INCREMENTAL REVENUE-GENERATING CAPITAL EXPENDITURES, TENANT
IMPROVEMENT COSTS AND LEASING COMMISSIONS
The following table sets forth annual and per square foot non-incremental
revenue-generating capital expenditures in which the Operating Partnership paid
or accrued, during the respective periods, to retain revenues attributable to
existing leased space for the years ended 1998 through 2002 for the Operating
Partnership's office and industrial / R&D properties other than One Orlando
Center in Orlando, FL.:
NON-INCREMENTAL REVENUE
GENERATING
CAPITAL EXPENDITURES 1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Suburban Office Properties
Total ................... $ 2,004,976 $ 2,298,899 $ 3,289,116 $ 4,606,069 $ 5,283,674
Per square foot ......... $ 0.23 $ 0.23 $ 0.33 $ 0.45 $ 0.53
NYC Office Properties
Total ................... N/A N/A $ 946,718 $ 1,584,501 $ 1,939,111
Per square foot ......... N/A N/A $ 0.38 $ 0.45 $ 0.56
Industrial/R&D Properties
Total ................... $ 1,205,266 $ 1,048,688 $ 813,431 $ 711,666 $ 1,881,627
Per square foot ......... $ 0.12 $ 0.11 $ 0.11 $ 0.11 $ 0.28
The following table sets forth annual and per square foot non-incremental
revenue-generating tenant improvement costs and leasing commissions in which
the Operating Partnership committed to perform, during the respective periods,
to retain revenues attributable to existing leased space for the years 1998
through 2002 for the Operating Partnership's office and industrial / R&D
properties other than One Orlando Center in Orlando, FL.:
NON-INCREMENTAL REVENUE
GENERATING TENANT COMMITTED
IMPROVEMENT COSTS AND ---------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
LEASING COMMISSIONS --------------- --------------- --------------- --------------- ---------------
Long Island Office Properties
Annual Tenant
Improvement Costs .............. $ 1,140,251 $ 1,009,357 $ 2,853,706 $ 2,722,457 $ 1,917,466
Per square foot improved ......... $ 3.98 $ 4.73 $ 6.99 $ 8.47 $ 7.81
Annual Leasing
Commissions .................... $ 418,191 $ 551,762 $ 2,208,604 $ 1,444,412 $ 1,026,970
Per square foot leased ........... $ 1.46 $ 2.59 $ 4.96 $ 4.49 $ 4.18
Total per square foot ............ $ 5.44 $ 7.32 $ 11.95 $ 12.96 $ 11.99
I-18
COMMITTED
-----------------------------------------------------------------------------------
1998 1999 2000 2001 2002
------------- --------------- --------------- --------------- ---------------------
Westchester Office Properties
Annual Tenant
Improvement Costs .............. $ 711,160 $ 1,316,611 $ 1,860,027 $ 2,584,728 $ 6,391,589 (1)
Per square foot improved ......... $ 4.45 $ 5.62 $ 5.72 $ 5.91 $ 15.05
Annual Leasing
Commissions .................... $ 286,150 $ 457,730 $ 412,226 $ 1,263,012 $ 1,975,850 (1)
Per square foot leased ........... $ 1.79 $ 1.96 $ 3.00 $ 2.89 $ 4.65
Total per square foot ............ $ 6.24 $ 7.58 $ 8.72 $ 8.80 $ 19.70
Connecticut Office Properties
Annual Tenant
Improvement Costs .............. $ 202,880 $ 179,043 $ 385,531 $ 213,909 $ 491,435
Per square foot improved ......... $ 5.92 $ 4.88 $ 4.19 $ 1.46 $ 3.81
Annual Leasing
Commissions .................... $ 151,063 $ 110,252 $ 453,435 $ 209,322 $ 307,023
Per square foot leased ........... $ 4.41 $ 3.00 $ 4.92 $ 1.43 $ 2.38
Total per square foot ............ $ 10.33 $ 7.88 $ 9.11 $ 2.89 $ 6.19
New Jersey Office Properties
Annual Tenant
Improvement Costs .............. $ 654,877 $ 454,054 $ 1,580,323 $ 1,146,385 $ 2,842,521
Per square foot improved ......... $ 3.78 $ 2.29 $ 6.71 $ 2.92 $ 10.76
Annual Leasing
Commissions .................... $ 396,127 $ 787,065 $ 1,031,950 $ 1,602,962 $ 1,037,012
Per square foot leased ........... $ 2.08 $ 3.96 $ 4.44 $ 4.08 $ 3.92
Total per square foot ............ $ 5.86 $ 6.25 $ 11.15 $ 7.00 $ 14.68
New York Office Properties
Annual Tenant
Improvement Costs .............. N/A N/A $ 65,267 $ 788,930 $ 4,350,106
Per square foot improved ......... N/A N/A $ 1.79 $ 15.69 $ 18.39
Annual Leasing
Commissions .................... N/A N/A $ 418,185 $ 1,098,829 $ 2,019,837
Per square foot leased ........... N/A N/A $ 11.50 $ 21.86 $ 8.54
Total per square foot ............ N/A N/A $ 13.29 $ 37.55 $ 26.93
Industrial/R&D Properties
Annual Tenant
Improvement Costs .............. $ 283,842 $ 375,646 $ 650,216 $ 1,366,488 $ 1,850,812
Per square foot improved ......... $ 0.76 $ 0.25 $ 0.95 $ 1.65 $ 1.97
Annual Leasing
Commissions .................... $ 200,154 $ 835,108 $ 436,506 $ 354,572 $ 890,688
Per square foot leased ........... $ 0.44 $ 0.56 $ 0.64 $ 0.43 $ 0.95
Total per square foot ............ $ 1.20 $ 0.81 $ 1.59 $ 2.08 $ 2.92
As noted, incremental revenue-generating tenant improvement costs and
leasing commissions are excluded from the tables set forth above. The
historical capital expenditures, tenant improvement costs and leasing
commissions set forth above are not necessarily indicative of future
non-incremental revenue-generating capital expenditures or non-incremental
revenue-generating tenant improvement costs and leasing commissions that may be
incurred to retain revenues on leased space.
(1) Excludes tenant improvements and leasing commissions related to a 163,880
square foot leasing transaction with Fuji Photo Film U.S.A. Leasing
commissions on this transaction amounted to $5.33 per square foot and
tenant improvement allowance amounted to $40.88 per square foot.
I-19
The following table sets forth the Operating Partnership's components of
its paid or accrued non-incremental and incremental revenue-generating capital
expenditures, tenant improvements and leasing costs for the year ended December
31, 2002 as reported on its Statements of Cash Flows -- Investment Activities
contained in its consolidated financial statements (in thousands):
Capital expenditures:
Non-incremental ...................................... $ 9,104
Incremental .......................................... 7,911
Tenant improvements:
Non-incremental ...................................... 20,973
Incremental .......................................... 10,064
--------
Additions to commercial real estate properties ......... $ 48,052
========
Leasing costs:
Non-incremental ...................................... $ 10,483
Incremental .......................................... 5,931
--------
Payment of deferred leasing costs ...................... $ 16,414
========
Acquisition and development costs ...................... $ 41,896
========
The following table sets forth the Company's schedule of its top 25
tenants based on base rental revenue as of December 31, 2002:
PERCENT OF PRO-RATA PERCENT OF CONSOLIDATED
TOTAL SHARE OF ANNUALIZED ANNUALIZED BASE
TENANT NAME (1) TENANT TYPE SQUARE FEET BASE RENTAL REVENUE RENTAL REVENUE
- ------------------------------------- ------------------- ------------- --------------------- ------------------------
* Debevoise & Plimpton .............. Office 465,420 3.3% 5.6%
* American Express .................. Office 238,342 2.0% 1.8%
* WorldCom/MCI ...................... Office 335,242 1.8% 1.7%
Bell Atlantic ....................... Office 210,426 1.6% 1.4%
* Schulte Roth & Zabel .............. Office 238,052 1.4% 2.4%
* HQ Global ......................... Office/Industrial 201,900 1.2% 1.5%
United Distillers ................... Office 137,918 1.1% 1.0%
T.D. Waterhouse ..................... Office 139,211 1.1% 0.9%
* Prudential ........................ Office 127,153 0.9% 0.9%
* Banque Nationale De Paris ......... Office 145,834 0.9% 1.5%
* Kramer Levin Nessen Kamin ......... Office 158,144 0.9% 1.5%
Vytra Healthcare .................... Office 105,613 0.8% 0.7%
P.R. Newswire Associates ............ Office 67,000 0.8% 0.7%
Hoffmann-La Roche Inc. .............. Office 120,736 0.7% 0.6%
D.E. Shaw ........................... Office 89,526 0.7% 0.6%
Heller Ehrman White ................. Office 64,526 0.7% 0.6%
* State Farm ........................ Office/Industrial 164,175 0.7% 1.0%
EMI Entertainment World ............. Office 65,844 0.7% 0.6%
Laboratory Corp. of America ......... Office 108,000 0.7% 0.6%
Estee Lauder ........................ Industrial 374,578 0.7% 0.6%
* Draft Worldwide, Inc. ............. Office 124,008 0.7% 1.2%
Practicing Law Institute ............ Office 62,000 0.7% 0.6%
Lockheed Martin Corp. ............... Office 123,554 0.7% 0.6%
Towers Perrin Foster ................ Office 88,233 0.6% 0.6%
Radianz (Reuters) ................... Office 130,009 0.6% 0.5%
- ----------------
(1) Ranked by pro rata share of annualized base rental revenue adjusted for pro
rata share of joint venture interests and to reflect WorldCom/MCI leases
rejected to date.
* Part or all of space occupied by tenant is in a 51% or more owned joint
venture building.
I-20
The following table sets forth the Company's lease expiration table, as of
January 1, 2003 for its Total Portfolio of properties, its Office Portfolio and
its Industrial/R&D portfolio:
TOTAL PORTFOLIO (A)
NUMBER OF SQUARE % OF TOTAL CUMULATIVE
YEAR OF LEASES FEET PORTFOLIO % OF TOTAL
EXPIRATION EXPIRING EXPIRING SQ FT PORTFOLIO SQ FT
- -------------------------------- ----------- ------------ ------------ ----------------
2003 ........................... 159 1,533,361 7.6% 7.6%
2004 ........................... 192 1,622,196 8.0% 15.6%
2005 ........................... 244 2,460,052 12.1% 27.7%
2006 ........................... 223 2,649,790 13.1% 40.7%
2007 ........................... 142 1,619,006 8.0% 48.7%
2008 ........................... 98 1,420,922 7.0% 55.7%
2009 and thereafter ............ 276 7,963,703 39.4% 95.0%
----- ---------- ---- ----
Total/Weighted Average ......... 1,334 19,269,030 95.0% --
===== ========== ==== ====
Total Portfolio Square Feet 20,283,964
OFFICE PORTFOLIO (A)
NUMBER OF SQUARE % OF TOTAL CUMULATIVE
YEAR OF LEASES FEET OFFICE % OF TOTAL
EXPIRATION EXPIRING EXPIRING SQ FT PORTFOLIO SQ FT
- ---------------------------------- ----------- ------------ ------------ ----------------
2003 ............................. 139 1,064,852 7.9% 7.9%
2004 ............................. 151 1,012,551 7.5% 15.3%
2005 ............................. 211 1,804,599 13.3% 28.7%
2006 ............................. 170 1,647,446 12.2% 40.8%
2007 ............................. 110 1,255,054 9.3% 50.1%
2008 ............................. 69 766,199 5.7% 55.7%
2009 and thereafter .............. 227 5,339,943 39.4% 95.2%
----- ---------- ---- ----
Total/Weighted Average ........... 1,077 12,890,644 95.2% --
===== ========== ==== ====
Total Office Portfolio Square Feet 13,549,033
INDUSTRIAL/R&D PORTFOLIO
NUMBER OF SQUARE % OF TOTAL CUMULATIVE
YEAR OF LEASES FEET INDUSTRIAL/R&D % OF TOTAL
EXPIRATION EXPIRING EXPIRING SQ FT PORTFOLIO SQ FT
- ------------------------------------------ ----------- ------------ ---------------- ----------------
2003 ..................................... 20 468,509 7.0% 7.0%
2004 ..................................... 41 609,645 9.1% 16.0%
2005 ..................................... 33 655,453 9.7% 25.7%
2006 ..................................... 53 1,002,344 14.9% 40.6%
2007 ..................................... 32 363,952 5.4% 46.0%
2008 ..................................... 29 654,723 9.7% 55.7%
2009 and thereafter ...................... 49 2,623,760 39.0% 94.7%
--- --------- ---- ----
Total/Weighted Average ................... 257 6,378,386 94.7% --
=== ========= ==== ====
Total Industrial/R&D Portfolio Square Feet 6,734,931
(a) Excludes the 355,000 square foot office property located in Orlando,
Florida and three leases aggregating approximately 192,000 square feet,
occupied by WorldCom which were rejected by WorldCom in February 2003,
pursuant to their bankruptcy proceedings.
I-21
MORTGAGE INDEBTEDNESS
The following table sets forth certain information regarding the mortgage
debt of the Operating Partnership, as of December 31, 2002.
PRINCIPAL
AMOUNT AMORTIZATION
PROPERTY OUTSTANDING INTEREST RATE MATURITY DATE SCHEDULE
- -------- --------------- ------------------ ------------------- -------------
(IN THOUSANDS)
80 Orville Drive, Islip, NY ............................ $ 2,616 10.10% February 1, 2004 (3)
395 North Service Road, Melville, NY ................... 19,709 6.45% October 26, 2005 (2)
200 Summit Lake Drive, Valhalla, NY .................... 19,373 9.25% January 1, 2006 25 year
1350 Avenue of the Americas, NY, NY .................... 74,631 6.52% June 1, 2006 30 year
Landmark Square, Stamford, CT (5) ...................... 45,090 8.02% October 7, 2006 25 year
100 Summit Lake Drive, Valhalla, NY .................... 19,101 8.50% April 1, 2007 15 year
333 Earl Ovington Blvd., Mitchel Field, NY (1) ......... 53,864 7.72% August 14, 2007 25 year
810 7th Avenue, NY, NY ................................. 82,854 7.73% August 1, 2009 25 year
100 Wall Street, NY, NY ................................ 35,904 7.73% August 1, 2009 25 year
6800 Jericho Turnpike, Syosset, NY ..................... 7,348 8.07% July 1, 2010 25 year
6900 Jericho Turnpike, Syosset, NY ..................... 13,922 8.07% July 1, 2010 25 year
580 White Plains Road, Tarrytown, NY ................... 12,685 7.86% September 1, 2010 25 year
919 3rd Avenue, NY, NY (6) ............................. 246,651 6.867% August 1, 2011 30 year
110 Bi-County Blvd., Farmingdale, NY. .................. 3,635 9.125% November 30, 2012 20 year
120 West 45th Street, NY, NY ........................... 38,366 6.82% (4) November 1, 2027 28 year
One Orlando Center, Orlando, FL ........................ 64,263 6.82% (4) November 1, 2027 28 year
---------
Total / Weighted average ............................... $ 740,012 7.26%
=========
- ------------
(1) The Operating Partnership has a 60% general partnership interest in this
property and its proportionate share of the aggregate principal amount of
the mortgage debt is approximately $32.3 million.
(2) Principal payments of $34,000 per month.
(3) Interest only
(4) Subject to interest rate adjustment on November 1, 2004 to the greater of
8.82% per annum or the yield of noncallable U.S. Treasury obligations with
a term of fifteen years plus 2% per annum.
(5) Encompasses six Class A office properties.
(6) The Operating Partnership has a 51% membership interest in this property
and its proportionate share of the aggregate principal amount of the
mortgage debt is approximately $125.8 million.
In addition, the Operating Partnership has a 60% interest in an
unconsolidated joint venture property. The Operating Partnership's pro-rata
share of the mortgage debt at December 31, 2002 is approximately $7.5 million.
This mortgage note payable bears interest at 8.85% per annum and matures on
September 1, 2005.
ITEM 3. LEGAL PROCEEDINGS
The Operating Partnership is not presently subject to any material
litigation nor, to the Operating Partnership's knowledge, is any litigation
threatened against the Operating Partnership, 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, business or
financial condition of the Operating Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE SECURITY HOLDERS
None.
I-22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY MATTERS
There is no established trading market for the Registrant's common equity.
As of March 24, 2003, there were approximately 93 holders of the Registrant's
common equity.
The following table sets forth, for the periods indicated, the
distributions declared on the Class A common units and the Class B common
units.
CLASS A COMMON UNITS
QUARTER ENDED DISTRIBUTION
------------- ------------
March 31, 2001 ......................... $ .3860
June 30, 2001 .......................... $ .4246 (1)
September 30, 2001 ..................... $ .4246
December 31, 2001 ...................... $ .4246
March 31, 2002 ......................... $ .4246
June 30, 2002 .......................... $ .4246
September 30, 2002 ..................... $ .4246
December 31, 2002 ...................... $ .4246
(1) Commencing with the distribution for the quarter ending June 30, 2001, the
Operating Partnership increased the quarterly distribution to $.4246 per
unit, which is equivalent to an annual distribution of $1.6984 per unit.
CLASS B COMMON UNITS
QUARTER ENDED DISTRIBUTION
------------- ------------
March 31, 2001 ........................ $ .6000
June 30, 2001 ......................... $ .6164 (1)
September 30, 2001 .................... $ .6492
December 31, 2001 ..................... $ .6492
March 31, 2002 ........................ $ .6492
June 30, 2002 ......................... $ .6485 (2)
September 30, 2002 .................... $ .6471
December 31, 2002 ..................... $ .6471
(1) Commencing with the distribution for the three month period ended July 31,
2001, the Operating Partnership increased the quarterly distribution to
$.6492 per unit, which is equivalent to an annual distribution of $2.5968
per unit.
(2) Commencing with the distribution for the three month period ended July 31,
2002, the Operating Partnership decreased the quarterly distribution to
$.6471 per unit, which is equivalent to an annual distribution of $2.5884
per unit.
II-1
The Operating Partnership issues additional units to the Company, with
terms similar to the terms of any securities issued by the Company (including
any securities issued by the Company upon the exercise of stock options), and
thereby increases the Company's general partnership interest in the Operating
Partnership. Any consideration received by the Company in respect of the
issuance of its securities is contributed to the Operating Partnership.
As of December 31, 2002, the Company had approximately 5.2 million shares
of its Class A common stock reserved for issuance under its stock option plans,
in certain cases subject to vesting terms, at a weighted average exercise price
of $23.42 per option. In addition, the Company has approximately 1.7 million
shares of its Class A common stock reserved for future issuance under its stock
option plans.
II-2
ITEM 6. SELECTED FINANCIAL DATA
RECKSON OPERATING PARTNERSHIP, L.P.
SELECTED FINANCIAL DATA
(in thousands except per unit data and property count)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2002 2001
-------------- --------------
OPERATING DATA:
Total revenues .................................................... $ 506,092 $ 514,632
Total expenses .................................................... 407,545 389,054
Income before distributions to preferred unit holders, minority
interests, equity in earnings of real estate joint ventures and
service companies, gain on sales of real estate, valuation
reserves, discontinued operations and extraordinary loss ......... 98,547 125,578
Minority interests ................................................ 18,730 15,975
Extraordinary loss ................................................ 2,602 2,898
Valuation reserves on investments in affiliate loans and joint
ventures and other investments ................................... -- 166,101
Preferred distributions ........................................... 23,123 23,977
Equity in earnings of real estate joint ventures and service
companies ........................................................ 1,113 2,087
Gain on sales of real estate ...................................... 537 20,173
Discontinued operations ........................................... 5,473 1,170
---------- ----------
Net income (loss) allocable to common unit holders ................ $ 61,215 $ (59,943)
========== ==========
PER UNIT DATA: (1)
Net income (loss) per weighted average common unit:
Basic net income (loss) before extraordinary loss ................ $ .80 $ (1.11)
Gain on sales of real estate ..................................... .01 .28
Discontinued operations .......................................... .08 .02
Extraordinary loss ............................................... ( .04) ( .04)
---------- ----------
Class A common unit .............................................. $ .85 $ (.85)
========== ==========
Basic net income (loss) before extraordinary loss ................ $ 1.21 $ (1.61)
Gain on sales of real estate ..................................... .01 .42
Discontinued operations .......................................... .11 .02
Extraordinary loss ............................................... ( .05) ( .06)
---------- ----------
Class B common unit .............................................. $ 1.28 $ (1.23)
========== ==========
Weighted average common units outstanding:
Class A common units ............................................. 57,059 55,773
Class B common units ............................................. 10,122 10,284
Cash distributions declared per unit:
Class A common unit .............................................. $ 1.70 $ 1.66
Class B common unit .............................................. $ 2.59 $ 2.55
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
2000 1999 1998
------------- -------------- --------------
OPERATING DATA:
Total revenues .................................................... $ 483,277 $ 387,653 $ 261,266
Total expenses .................................................... 369,276 295,496 199,078
Income before distributions to preferred unit holders, minority
interests, equity in earnings of real estate joint ventures and
service companies, gain on sales of real estate, valuation
reserves, discontinued operations and extraordinary loss ......... 114,001 92,157 62,188
Minority interests ................................................ 9,120 6,802 2,819
Extraordinary loss ................................................ 1,571 629 1,993
Valuation reserves on investments in affiliate loans and joint
ventures and other investments ................................... -- -- --
Preferred distributions ........................................... 28,012 27,001 14,244
Equity in earnings of real estate joint ventures and service
companies ........................................................ 4,383 2,148 1,836
Gain on sales of real estate ...................................... 18,669 10,052 --
Discontinued operations ........................................... 1,303 1,309 1,285
--------- ---------- ----------
Net income (loss) allocable to common unit holders ................ $ 99,653 $ 71,234 $ 46,253
========= ========== ==========
PER UNIT DATA: (1)
Net income (loss) per weighted average common unit:
Basic net income (loss) before extraordinary loss ................ $ 1.22 $ 1.03 $ .99
Gain on sales of real estate ..................................... .28 .17 --
Discontinued operations .......................................... .02 .02 .03
Extraordinary loss ............................................... ( .02) ( .01) ( .04)
--------- ---------- ----------
Class A common unit .............................................. $ 1.50 $ 1.21 $ .98
========= ========== ==========
Basic net income (loss) before extraordinary loss ................ $ 1.88 $ 1.66 $ --
Gain on sales of real estate ..................................... .43 .27 --
Discontinued operations .......................................... .03 .04 --
Extraordinary loss ............................................... ( .04) ( .03) --
--------- ---------- ----------
Class B common unit .............................................. $ 2.30 $ 1.94 $ --
========= ========== ==========
Weighted average common units outstanding:
Class A common units ............................................. 50,766 47,975 47,201
Class B common units ............................................. 10,284 6,744 --
Cash distributions declared per unit:
Class A common unit .............................................. $ 1.53 $ 1.45 $ 1.33
Class B common unit .............................................. $ 2.35 $ 1.54 $ --
II-3
RECKSON OPERATING PARTNERSHIP, L.P.
SELECTED FINANCIAL DATA--CONTINUED
(in thousands except per unit data and property count)
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
2002 2001
-------------- --------------
BALANCE SHEET DATA:
(PERIOD END)
Commercial real estate properties, before accumulated
depreciation ........................................... $ 2,954,527 $ 2,880,879
Cash and cash equivalents (5) ........................... 30,576 121,773
Total assets ............................................ 2,912,052 2,998,782
Mortgage notes payable .................................. 740,012 751,077
Unsecured credit facility (5) ........................... 267,000 271,600
Unsecured term loan ..................................... -- --
Senior unsecured notes .................................. 499,305 449,463
Market value of equity (2) .............................. 1,681,372 1,915,587
Total market capitalization including debt (2 and 3) .... 3,052,818 3,251,599
OTHER DATA:
Funds from operations (4) ............................... $ 161,024 $ 183,641
Total square feet (at end of period) .................... 20,284 20,611
Number of properties (at end of period) ................. 178 182
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
2000 1999 1998
------------- -------------- --------------
BALANCE SHEET DATA:
(PERIOD END)
Commercial real estate properties, before accumulated
depreciation ........................................... $2,770,607 $ 2,208,399 $ 1,737,133
Cash and cash equivalents (5) ........................... 16,624 21,122 2,228
Total assets ............................................ 2,999,794 2,734,577 1,854,520
Mortgage notes payable .................................. 728,971 459,174 253,463
Unsecured credit facility (5) ........................... 216,600 297,600 465,850
Unsecured term loan ..................................... -- 75,000 20,000
Senior unsecured notes .................................. 449,385 449,313 150,000
Market value of equity (2) .............................. 2,016,390 1,726,845 1,332,882
Total market capitalization including debt (2 and 3) .... 3,397,204 2,993,756 2,119,936
OTHER DATA:
Funds from operations (4) ............................... $ 169,911 $ 132,444 $ 98,501
Total square feet (at end of period) .................... 21,291 21,385 21,000
Number of properties (at end of period) ................. 188 189 204
(1) Based on the weighted average common units outstanding for the period then
ended.
(2) Based on the market value of the Operating Partnership's common units, the
stated value of the Operating Partnership's preferred units and the number
of units outstanding at the end of the period.
(3) Debt amount is net of minority partners' proportionate share of joint
venture debt plus the Operating Partnership's share of unconsolidated
joint venture debt.
(4) Management believes that funds from operations ("FFO") is an appropriate
measure of performance for the Operating Partnership. FFO is defined by
the National Association of Real Estate Investment Trusts (NAREIT) as net
income or loss, excluding gains or losses from debt restructuring and
sales of properties plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. FFO does
not represent cash generated from operating activities in accordance with
Generally Accepted Accounting Principals and is not indicative of cash
available to fund cash needs. FFO should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity.
FFO for the year ended December 31, 2001 excludes $163 million of
valuation reserves on investments in affiliate loans and joint ventures.
Since all companies and analysts do not calculate FFO in a similar
fashion, the Operating Partnership's calculation of FFO presented herein
may not be comparable to similarly titled measures as reported by other
companies.
(5) On January 4, 2002, approximately $85 million of the cash proceeds received
from the sale of a 49% interest in the property located at 919 Third
Avenue, New York, NY, was used to pay down the Operating Partnership's
unsecured credit facility
II-4
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 Operating Partnership, L.P. (the "Operating
Partnership") and related notes.
The Operating Partnership considers certain statements set forth herein to
be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, with respect to the Operating Partnership's
expectations for future periods. Certain forward-looking statements, including,
without limitation, statements relating to the timing and success of
acquisitions and the completion of development or redevelopment of properties,
the financing of the Operating Partnership's operations, the ability to lease
vacant space and the ability to renew or relet space under expiring leases,
involve risks and uncertainties. Many of the forward-looking statements can be
identified by the use of words such as "believes", "may", "expects",
"anticipates", "intends" or similar expressions. Although the Operating
Partnership believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, the actual results may differ
materially from those set forth in the forward-looking statements and the
Operating Partnership can give no assurance that its expectation will be
achieved. Among those risks, trends and uncertainties are: the general economic
climate, including the conditions affecting industries in which our principal
tenants compete; changes in the supply of and demand for office and industrial
/ R&D properties in the New York Tri-State area; changes in interest rate
levels; downturns in rental rate levels in our markets and our ability to lease
or re-lease space in a timely manner at current or anticipated rental rate
levels; the availability of financing to us or our tenants; financial condition
of our tenants; changes in operating costs, including utility, security and
insurance costs; repayment of debt owed to the Operating Partnership by third
parties (including FrontLine Capital Group); risks associated with joint
ventures; liability for uninsured losses or environmental matters; and other
risks associated with the development and acquisition of properties, including
risks that development may not be completed on schedule, that the tenants will
not take occupancy or pay rent, or that development or operating costs may be
greater than anticipated. Consequently, such forward-looking statements should
be regarded solely as reflections of the Operating Partnership's current
operating and development plans and estimates. These plans and estimates are
subject to revisions from time to time as additional information becomes
available, and actual results may differ from those indicated in the referenced
statements.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Operating Partnership include
accounts of the Operating Partnership and all majority-owned and controlled
subsidiaries. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States ("GAAP") requires
management to make estimates and assumptions in certain circumstances that
affect amounts reported in the Operating Partnership's consolidated financial
statements and related notes. In preparing these financial statements,
management has utilized information available including its past history,
industry standards and the current economic environment among other factors in
forming its estimates and judgments of certain amounts included in the
consolidated financial statements, giving due consideration to materiality. It
is possible that the ultimate outcome as anticipated by management in
formulating its estimates inherent in these financial statements may not
materialize. However, application of the critical accounting policies below
involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates. In addition, other companies may utilize different estimates, which
may impact comparability of the Operating Partnership's results of operations
to those of companies in similar businesses.
Revenue Recognition and Accounts Receivable
Rental revenue is recognized on a straight line basis, which averages
minimum rents over the terms of the leases. The excess of rents recognized over
amounts contractually due are included in deferred rents receivable on the
Operating Partnership's balance sheets. The leases also typically provide for
tenant reimbursements of common area maintenance and other operating expenses
and real estate taxes. Ancillary and other property related income is
recognized in the period earned.
II-5
The Operating Partnership makes estimates of the collectibility of its
accounts receivables related to base rents, tenant escalations and
reimbursements and other revenue or income. The Operating Partnership
specifically analyzes tenant receivables and analyzes historical bad debts,
customer credit worthiness, current economic trends and changes in customer
payment terms when evaluating the adequacy of its allowance for doubtful
accounts. In addition, when tenants are in bankruptcy the Operating Partnership
makes estimates of the expected recovery of pre-petition administrative and
damage claims. In some cases, the ultimate resolution of those claims can
exceed beyond a year. These estimates have a direct impact on the Operating
Partnership's net income, because a higher bad debt reserve results in less net
income.
The Operating Partnership records interest income on investments in
mortgage notes and notes receivable on an accrual basis of accounting. The
Operating Partnership 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 Operating Partnership
considers in making an evaluation of the collectibility of interest are: (i)
the status of the loan, (ii) the value of the underlying collateral, (iii) the
financial condition of the borrower and (iv) anticipated future events.
Gain on sales of real estate are recorded when title is conveyed to the
buyer, subject to the buyer's financial commitment being sufficient to provide
economic substance to the sale and the Company having no substantial continuing
involvement with the buyer.
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are
recorded at cost. Tenant improvements, which are included in buildings and
improvements, are also stated at cost. Expenditures for maintenance and repairs
are charged to operations as incurred. Renovations and / or replacements, which
improve or extend the life of the asset are capitalized and depreciated over
their estimated useful lives.
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to thirty years for buildings and improvements
and five to ten years for furniture, fixtures and equipment. Tenant
improvements are amortized on a straight-line basis over the term of the
related leases.
The Operating Partnership is required to make subjective assessments as to
the useful lives of its properties for purposes of determining the amount of
depreciation to reflect on an annual basis with respect to those properties.
These assessments have a direct impact on the Operating Partnership's net
income. Should the Operating Partnership lengthen the expected useful life of a
particular asset, it would be depreciated over more years, and result in less
depreciation expense and higher annual net income.
Assessment by the Operating Partnership of certain other lease related
costs must be made when the Operating Partnership has a reason to believe that
the tenant will not be able to execute under the term of the lease as
originally expected.
Long Lived Assets
On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A property's
value is impaired only if management's estimate of the aggregate future cash
flows (undiscounted and without interest charges) to be generated by the
property are less than the carrying value of the property. Such cash flows
consider factors such as expected future operating income, trends and
prospects, as well as the effects of demand, competition and other factors. To
the extent impairment has occurred, the loss will be measured as the excess of
the carrying amount of the property over the fair value of the property.
The Operating Partnership is required to make subjective assessments as to
whether there are impairments in the value of its real estate properties and
other investments. These assessments have a direct impact on the Operating
Partnership's net income, because taking an impairment results in an immediate
negative adjustment to net income. In determining impairment, if any, the
Operating Partnership has adopted Financial Accounting Standards Board ("FASB")
Statement No. 144, "Accounting for the Impairment or Disposal of Long Lived
Assets".
II-6
OVERVIEW AND BACKGROUND
The Operating Partnership, which commenced operations on June 2 1995, is
engaged in the ownership, management, operation, leasing and development of
commercial real estate properties, principally office and industrial buildings,
and also owns certain undeveloped land located in the New York tri-state area
(the "Tri-State Area"). Reckson Associates Realty Corp. (the "Company"), is a
self administered and self managed real estate investment trust ("REIT"), and
serves as the sole general partner in the Operating Partnership.
In connection with the Company's initial public offering ("IPO"), the
Operating Partnership was granted ten year options to acquire ten properties
(the "Option Properties") which are either owned by certain Rechler family
members who are also executive officers of the Company, or in which the Rechler
family members own a non-controlling minority interest at a price based upon an
agreed upon formula. In years prior to 2001, one Option Property was sold by
the Rechler family members to a third party and four of the Option Properties
were acquired by the Operating Partnership for an aggregate purchase price of
approximately $35 million, which included the issuance of approximately 475,000
Units valued at approximately $8.8 million. Currently, certain Rechler family
members retain their equity interests in the five remaining Option Properties
(the "Remaining Option Properties") which were not contributed to the Operating
Partnership as part of the IPO. Such options provide the Operating Partnership
the right to acquire fee interest in two of the Remaining Option Properties and
the Rechlers' minority interests in three Remaining Option Properties. The
Independent Directors of the Company are currently reviewing whether the
Company should exercise one or more of the options relating to the Remaining
Option Properties.
The Operating Partnership conducts its management, leasing and
construction related services through the Company's taxable REIT subsidiaries
as defined by the Internal Revenue Code of 1986 (the "Code"). These services
are currently provided by Reckson Management Group, Inc., RANY Management
Group, Inc., Reckson Construction Group New York, Inc. and Reckson Construction
Group, Inc. (collectively, the "Service Companies") in which, as of September
30, 2002, the Operating Partnership owned a 97% non-controlling interest. An
entity which is substantially owned by certain Rechler family members who are
also executive officers of the Company owned a 3% controlling interest in the
Service Companies. In order to minimize the potential for corporate conflicts
of interests which became possible as a result of changes to the Code that
permit REIT's to own 100% of taxable REIT subsidiaries, the Independent
Directors of the Company approved the purchase by the Operating Partnership of
the remaining 3% interest in the Service Companies. On October 1, 2002, the
Operating Partnership acquired such 3% interests in the Service Companies for
an aggregate purchase price of approximately $122,000. Such amount was less
than the total amount of capital contributed to the Service Companies by the
Rechler family members. As a result of the acquisition of the remaining
interests in the Service Companies, the Operating Partnership commenced
consolidating the operations of the Service Companies. During 2002, Reckson
Construction Group, Inc. billed approximately $144,000 of market rate services
and Reckson Management Group, Inc. billed approximately $313,000 of market rate
management fees to the Remaining Option Properties. In addition, for the year
ended December 31, 2002, Reckson Construction Group, Inc. performed market rate
services, aggregating approximately $322,000 for a property in which certain
executive officers maintain an equity interest.
Reckson Management Group, Inc. leases 43,713 square feet of office and
storage space at a Remaining Option Property for its corporate offices located
in Melville, New York at an annual base rent of approximately $1.2 million.
Reckson Management Group, Inc. also leases 10,722 square feet of warehouse
space used for equipment, materials and inventory storage at a Remaining Option
Property located in Deer Park, New York at an annual base rent of approximately
$75,000.
A company affiliated with an Independent Director of the Company leases
15,566 square feet in a property owned by the Operating Partnership at an
annual base rent of approximately $431,500. Reckson Strategic Venture Partners,
LLC ("RSVP") leases 5,144 square feet in one of the Operating Partnership's
joint venture properties at an annual base rent of approximately $176,000.
II-7
During July 1998, the Operating Partnership formed Metropolitan Partners,
LLC ("Metropolitan") for the purpose of acquiring Class A office properties in
New York City. Currently the Operating Partnership owns, through Metropolitan,
five Class A office properties aggregating approximately 3.5 million square
feet.
During September 2000, the Operating Partnership formed a joint venture
(the "Tri-State JV") with Teachers Insurance and Annuity Association ("TIAA")
and contributed eight Class A suburban office properties aggregating
approximately 1.5 million square feet to the Tri-State JV for a 51% majority
ownership interest. TIAA contributed approximately $136 million for a 49%
interest in the Tri-State JV which was then distributed to the Operating
Partnership. As a result, the Operating Partnership realized a gain of
approximately $15.2 million. The Company is responsible for managing the
day-to-day operations and business affairs of the Tri-State JV and has
substantial rights in making decisions affecting the properties such as
leasing, marketing and financing. The minority member has certain rights
primarily intended to protect its investment. For purposes of its financial
statements the Company consolidates the Tri-State JV.
On December 21, 2001, the Operating Partnership formed a joint venture
with the New York State Teachers' Retirement Systems ("NYSTRS") whereby NYSTRS
acquired a 49% indirect interest in the property located at 919 Third Avenue,
New York, NY for $220.5 million which included $122.1 million of its
proportionate share of secured mortgage debt and approximately $98.4 million of
cash which was then distributed to the Operating Partnership. As a result, the
Operating Partnership realized a gain of approximately $18.9 million. The
Company is responsible for managing the day-to-day operations and business
affairs of the 919JV and has substantial rights in making decisions affecting
the property such as developing a budget, leasing and marketing. The minority
member has certain rights primarily intended to protect its investment. For
purposes of its financial statements the Company consolidates the 919JV.
As of December 31, 2002 the Operating Partnership owned 178 properties
(inclusive of 11 joint venture properties) in the Tri-State Area suburban and
central business district ("CBD") markets, encompassing approximately 20.3
million rentable square feet, all of which are managed by the Operating
Partnership. These properties include 60 Class A suburban office properties
encompassing approximately 8.5 million rentable square feet, of which 42 of
these properties, or 74% as measured by square footage, are located within the
Operating Partnership's ten office parks. Reckson has historically emphasized
the development and acquisition of properties that are part of large-scale
suburban office parks. The Operating Partnership 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. The properties also include 15 Class A CBD office properties
encompassing approximately 5.1 million rentable square feet. The CBD office
properties consist of five properties located in New York City, eight
properties located in Stamford, CT and two properties located in White Plains,
NY. Additionally, the Company owned 101 industrial / R&D properties
encompassing approximately 6.7 million rentable square feet, of which 71 of
these properties, or 58% as measured by square footage, are located within the
Operating Partnership's three industrial parks. The properties also include two
retail properties comprising approximately 20,000 rentable square feet.
The Operating Partnership also owns approximately 338 acres of land in 14
separate parcels of which the Operating Partnership can develop approximately
3.2 million square feet of office space and approximately 470,000 square feet
of industrial / R&D space. The Operating Partnership is currently evaluating
alternative land uses for certain of the land holdings to realize the highest
economic value. These alternatives may include rezoning certain land parcels
from commercial to residential for potential disposition. As of December 31,
2002, the Operating Partnership had invested approximately $121.2 million in
these development projects. Management has made subjective assessments as to
the value and recoverability of these investments based on current and proposed
development plans, market comparable land values and alternative use values.
The Operating Partnership has capitalized
II-8
approximately $10.5 million during 2002 related to real estate taxes, interest
and other carrying costs related to these development projects. Since the IPO,
the Operating Partnership has developed, redeveloped, renovated or repositioned
27 properties encompassing approximately 5.3 million square feet of office and
industrial space.
During February 2003, the Operating Partnership, through Reckson
Construction Group Inc., entered into a contract with an affiliate of First
Data Corp. to sell a 19.3-acre parcel of land located in Melville, New York and
has been retained by the purchaser to develop a build-to-suit 195,000 square
foot office building for aggregate consideration of approximately $47 million.
This transaction is scheduled to close during the first quarter of 2003 and
construction of the aforementioned office building is scheduled to commence
shortly thereafter.
The Operating Partnership holds a $17.0 million note receivable which
bears interest at 11.5% per annum and is secured by a minority partnership
interest in Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class
A office property located in Uniondale, N.Y. (the "Omni Note"). The Operating
Partnership currently owns a 60% majority partnership interest in Omni
Partners, L.P. and on March 14, 2007 may exercise an option to acquire the
remaining 40% interest for a price based on 90% of the fair market value of the
property. The Operating Partnership also holds three other notes receivable
aggregating $36.5 million which bear interest at rates ranging from 10.5% to
12% per annum and are secured in part by a minority partner's preferred unit
interest in the Operating Partnership, certain interest in real property and a
personal guaranty (the "Other Notes" and collectively with the Omni Note, the
"Note Receivable Investments"). As of December 31, 2002, management has made
subjective assessments as to the underlying security value on the Operating
Partnership's Note Receivable Investments. Based on these assessments the
Operating Partnership's management believes there is no impairment to the
carrying value related to the Operating Partnership's Note Receivable
Investments. The Operating Partnership also owns a 355,000 square foot office
building in Orlando, Florida. This non-core real estate holding was acquired in
May 1999 in connection with the Operating Partnership's initial New York City
portfolio acquisition. This property is cross collateralized under a $103
million mortgage note payable along with one of the Operating Partnership's New
York City buildings.
The Operating Partnership also owns a 60% non-controlling interest in a
172,000 square foot office building located at 520 White Plains Road in White
Plains, New York (the "520JV") which it manages. The remaining 40% interest is
owned by JAH Realties L.P. Jon Halpern, the CEO and a director of HQ Global
Workplaces, is a partner in JAH Realties, L.P. As of December 31, 2002, the
520JV had total assets of $21.0 million, a mortgage note payable of $12.5
million and other liabilities of $197,000. The Operating Partnership's
allocable share of the 520JV mortgage note payable is approximately $7.5
million. This mortgage note payable bears interest at 8.85% per annum and
matures on September 1, 2005. In addition, the 520JV had total revenues of $4.2
million and $4.0 million and total expenses of $3.3 million and $3.3 million
for the years ended December 31, 2002 and 2001, respectively. The operating
agreement of the 520JV requires joint decisions from all members on all
significant operating and capital decisions including sale of the property,
refinancing of the property's mortgage debt, development and approval of
leasing strategy and leasing of rentable space. As a result of the
decision-making participation relative to the operations of the property, the
Operating Partnership accounts for the 520JV under the equity method of
accounting. The 520JV contributed approximately $648,000 and $478,000 to the
Operating Partnership's equity in earnings of real estate joint ventures for
the year ended December 31, 2002 and 2001, respectively.
Through its ownership of properties in the key CBD and suburban office
markets in the Tri-State Area, the Operating Partnership believes it has a
unique competitive advantage as the trend toward the regional decentralization
of the workplace increases. Due to the events of September 11, 2001, as well as
technological advances which further enable decentralization, companies are
strategically re-evaluating the benefits and feasibility of regional
decentralization and reassessing their long-term space needs. The Operating
Partnership believes this multi-location regional decentralization will
continue to take place, increasing as companies begin to have better visibility
as to the future of the economy, further validating our regional strategy of
maintaining a significant market share in each of the key CBD and suburban
office markets in the Tri-State Area.
II-9
The Operating Partnership's core business strategy is based on a long-term
outlook considering real estate is a cyclical business. The Operating
Partnership seeks to accomplish long-term stability and success by developing
and maintaining an infrastructure and franchise that is modeled for success
over the long-term. This approach allows the Operating Partnership to recognize
different points in the market cycle and adjust its strategy accordingly.
Currently, the Operating Partnership remains cautious about the market
environment. With this cautious bias we choose to maintain our conservative
operating strategy of focusing on retaining high occupancies, controlling
operating expenses, maintaining a high level of investment discipline and
preserving financial flexibility.
The market capitalization of the Operating Partnership at December 31,
2002 was approximately $3.1 billion. The Operating Partnership's market
capitalization is calculated based on the sum of (i) the value of the Operating
Partnership's Class A common units and Class B common units (which, for this
purpose, is assumed to be the same per unit as the value of a share of the
Company's Class A common stock and Class B common stock), (ii) the liquidation
preference values of the Operating Partnership's preferred units and (iii)
approximately $1.4 billion (including its share of joint venture debt and net
of minority partners' interests share of joint venture debt) of debt
outstanding at December 31, 2002. As a result, the Operating Partnership's
total debt to total market capitalization ratio at December 31, 2002 equaled
approximately 44.9%.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Operating Partnership's core office and industrial focus
and whose common equity is held indirectly by FrontLine. In connection with the
formation and spin-off of FrontLine, the Operating Partnership established an
unsecured credit facility with FrontLine (the "FrontLine Facility") in the
amount of $100 million for FrontLine to use in its investment activities,
operations and other general corporate purposes. The Operating Partnership
advanced approximately $93.4 million under the FrontLine Facility. The
Operating Partnership also approved the funding of investments of up to $100
million relating to RSVP (the "RSVP Commitment"), through RSVP-controlled joint
ventures (for REIT-qualified investments) or advances made to FrontLine under
an unsecured loan facility (the "RSVP Facility") having terms similar to the
FrontLine Facility (advances made under the RSVP Facility and the FrontLine
Facility hereafter, the "FrontLine Loans"). During March 2001, the Operating
Partnership increased the RSVP Commitment to $110 million and as of December
31, 2002, approximately $109.1 million had been funded through the RSVP
Commitment, of which $59.8 million represents investments by the Operating
Partnership in RSVP-controlled (REIT-qualified) joint ventures and $49.3
million represents loans made to FrontLine under the RSVP Facility. As of
December 31, 2002, interest accrued (net of reserves) under the FrontLine
Facility and the RSVP Facility was approximately $19.6 million. RSVP retained
the services of two managing directors to manage RSVP's day-to-day operations.
Prior to the spin off of Frontline, the Company guaranteed certain salary
provisions of their employment agreements with RSVP Holdings, LLC, RSVP's
common member. The term of these employment agreements is seven years
commencing March 5, 1998, provided however, that the term may be earlier
terminated after five years upon certain circumstances. The salary for each
managing director is $1 million in the first five years and $1.6 million in
years six and seven.
At June 30, 2001, the Company assessed the recoverability of the FrontLine
Loans and reserved approximately $3.5 million of the interest accrued during
the three-month period then ended. In addition, the Company formed a committee
of its Board of Directors, comprised solely of independent directors, to
consider any actions to be taken by the Company in connection with the
FrontLine Loans and its investments in joint ventures with RSVP. During the
third quarter of 2001, the Company noted a significant deterioration in
FrontLine's operations and financial condition and, based on its assessment of
value and recoverability and considering the findings and recommendations of
the committee and its financial advisor, the Company recorded a $163 million
valuation reserve charge, inclusive of anticipated costs, in its consolidated
statements of operations relating to its investments in the FrontLine Loans and
joint ventures with RSVP. The Operating Partnership has discontinued the
accrual of interest income with respect to the FrontLine Loans. The Operating
Partnership has also reserved against its share of GAAP equity in earnings from
the RSVP controlled joint ventures funded through the RSVP
II-10
Commitment until such income is realized through cash distributions. If the
RSVP-controlled joint ventures reported losses, the Operating Partnership would
record its proportionate share of such losses.
At December 31, 2001, the Operating Partnership, pursuant to Section 166
of the Code, charged off for tax purposes $70 million of the aforementioned
reserve directly related to the FrontLine Facility, including accrued interest.
On February 14, 2002, the Operating Partnership charged off for tax purposes an
additional $38 million of the reserve directly related to the FrontLine
Facility, including accrued interest, and $47 million of the reserve directly
related to the RSVP Facility, including accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating
Partnership and on June 12, 2002, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Operating
Partnership's investments in the FrontLine Loans and joint venture investments
with RSVP, inclusive of the Operating Partnership's share of previously accrued
GAAP equity in earnings on those investments, is approximately $65 million
which was reassessed with no change by management as of December 31, 2002. Such
amount has been reflected in investments in service companies and affiliate
loans and joint ventures on the Operating Partnership's consolidated balance
sheet. The common and preferred members of RSVP are currently in dispute over
certain provisions of the RSVP operating agreement. The members are currently
negotiating to restructure the RSVP operating agreement to settle the dispute.
There can be no assurances that the members will successfully negotiate a
settlement.
Both the FrontLine Facility and the RSVP Facility terminate on June 15,
2003, are unsecured and advances thereunder are recourse obligations of
FrontLine. Notwithstanding the valuation reserve, under the terms of the credit
facilities, interest accrued on the FrontLine Loans at a rate equal to the
greater of (a) the prime rate plus two percent and (b) 12% per annum, with the
rate on amounts that were outstanding for more than one year increasing
annually at a rate of four percent of the prior year's rate. In March 2001, the
credit facilities were amended to provide that (i) interest is payable only at
maturity and (ii) the Company may transfer all or any portion of its rights or
obligations under the credit facilities to its affiliates. The Company
requested these changes as a result of changes in REIT tax laws. As a result of
FrontLine's default under the FrontLine Loans, interest on borrowings
thereunder accrue at default rates ranging between 13% and 14.5% per annum.
Scott H. Rechler, who serves as Co-Chief Executive Officer and a director
of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine.
HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of
flexible officing solutions in the world and which is controlled by FrontLine,
currently operates nine (formerly eleven) executive office centers in the
Operating Partnership's properties, three of which are held through joint
ventures. The leases under which these office centers operate expire between
2008 and 2011, encompass approximately 202,000 square feet and have current
contractual annual base rents of approximately $6.1 million. On March 13, 2002,
as a result of experiencing financial difficulties, HQ voluntarily filed a
petition for relief under Chapter 11 of the U.S. Bankruptcy Code. Subsequent to
HQ filing for bankruptcy protection it defaulted under their leases with the
Operating Partnership. Further, effective March 13, 2002, the Bankruptcy Court
granted HQ's petition to reject two of its leases with the Operating
Partnership. The two rejected leases aggregated approximately 23,900 square
feet and provided for contractual base rents of approximately $548,000 for the
2002 calendar year. Commencing April 1, 2002 and pursuant to the bankruptcy
filing, HQ has been paying current rental charges under its leases with the
Operating Partnership, other than under the two rejected leases. The Operating
Partnership is in negotiation to restructure four of the leases and leave the
terms of the remaining five leases unchanged. All negotiations with HQ are
conducted through a committee designated by the Company's Board and chaired by
an independent director. There can be no assurance as to whether any deal will
be consummated with HQ or if HQ will affirm or reject any or all of its
remaining leases with the Operating Partnership. As a result of the foregoing,
the Operating Partnership has reserved approximately $550,000 (net of minority
partners' interests and including the Operating Partnership's share of
unconsolidated joint venture interest), or 74%, of the amounts due from HQ as
of December 31, 2002. Scott H. Rechler serves as non-executive Chairman of the
Board of HQ and Jon Halpern is the Chief Executive Officer and a director of
HQ.
II-11
WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications
company, which leased, as of December 31, 2002, approximately 527,000 square
feet in thirteen of the Operating Partnership's properties located throughout
the Tri-State Area voluntarily filed a petition for relief under Chapter 11 of
the U.S. Bankruptcy Code on July 21, 2002. The total annualized base rental
revenue from these leases amounted to approximately $12.0 million, or 2.9% of
the Operating Partnership's total 2002 annualized rental revenue, making it the
Operating Partnership's second largest tenant based on base rental revenue
earned on a consolidated basis. All of WorldCom's leases were current on base
rental charges through December 31, 2002 and the Operating Partnership
currently holds approximately $300,000 in security deposits relating to these
leases. In February 2003, the Bankruptcy Court granted WorldCom's petition to
reject three of its leases with the Operating Partnership. The three rejected
leases aggregated approximately 192,000 square feet and provided for
contractual base rents of approximately $4.8 million for the 2002 calendar
year. The Operating Partnership is currently in negotiations to restructure the
remaining WorldCom leases. There can be no assurance as to whether WorldCom
will affirm or reject any or all of its remaining leases with the Operating
Partnership. As a result of the foregoing, the Operating Partnership has
written off approximately $1.1 million of deferred rent receivable. In
addition, the Operating Partnership reserved an additional $475,000 against the
deferred rents receivable representing approximately 46% of the outstanding
deferred rents receivable attributable to the remaining WorldCom leases.
MetroMedia Fiber Network Services, Inc. ("MetroMedia"), which leased
approximately 112,000 square feet in one property from the Operating
Partnership, voluntarily filed a petition for relief under Chapter 11 of the
U.S. Bankruptcy Code in May 2002. MetroMedia's lease with the Operating
Partnership provided for contractual base rent of approximately $25 per square
foot amounting to $2.8 million per calendar year and expired in May 2010. In
July 2002, the Bankruptcy Court granted MetroMedia's petition to restructure
and reduce space under its existing lease. As a result, the lease was amended
to reduce MetroMedia's space by 80,357 square feet to 31,718 square feet.
Annual base rent on the 31,718 square feet MetroMedia will continue to lease is
$25 per square foot amounting to approximately $793,000 per annum. Further,
pursuant to the Bankruptcy Court order MetroMedia is required to pay to the
Operating Partnership a surrender fee of approximately $1.8 million. As a
result of the foregoing, the Operating Partnership wrote-off approximately
$388,000 of deferred rent receivable relating to this lease and recognized the
aforementioned surrender fee.
Arthur Andersen, LLP ("AA") leased approximately 38,000 square feet in one
of the Operating Partnership's New York City buildings. AA's lease with the
Operating Partnership provided for base rent of approximately $2 million on an
annualized basis and expired in April 2004. AA has experienced significant
financial difficulties with its business and as a result has entered into a
lease termination agreement with the Operating Partnership effective November
30, 2002. In October 2002, AA paid the Operating Partnership for all base
rental and other charges through November 30, 2002 and a lease termination fee
of approximately $144,000. As a result of the foregoing, the Operating
Partnership has written off approximately $130,000 of deferred rent receivable
attributable to AA's lease.
RESULTS OF OPERATIONS
The Operating Partnership's total revenues decreased by $8.5 million or
1.7% from 2001 to 2002 and increased by $31.4 million or 6.5% from 2000 to
2001. Property operating revenues, which include base rents and tenant
escalations and reimbursements ("Property Operating Revenues") increased by
$3.9 million or .8% from 2001 to 2002 and $45.7 million or 10.2% from 2000 to
2001. The 2002 increase in Property Operating Revenues is attributable to net
increases in rental rates and lease termination fees in our "same store"
properties of $8.2 million. In addition, Property Operating Revenues increased
by $8.7 million attributable to lease up of newly developed and redeveloped
assets. These increases were offset by $10.6 million of revenue attributable to
six properties that were sold in 2001 and an increase in reserves or write-offs
of $2.4 million related to tenant receivables and deferred rents receivable.
The 2001 increase in Property Operating Revenues is primarily attributable to
increases in rental rates in our "same store" properties amounting to $29.3
million. In addition, $12.4 million of the increase was generated by the lease
up of newly developed and redeveloped properties added to the operating
portfolio. The
II-12
increase in Property Operating Revenues offset the decrease of $14.4 million in
other revenues. This decrease is primarily due to a decrease of $11.6 million
related to interest earned on advances made under the FrontLine Loans.
The Operating Partnership's base rent reflects the positive impact of the
straight-line rent adjustment of $26.6 million in 2002, $41.6 million in 2001
and $38.8 million in 2000. The 2002, 2001 and 2000 straight-line rent
adjustment includes $9.4 million, $26.9 million and $23.3 million,
respectively, generated from the property located at 919 Third Avenue, New
York, NY, which is primarily attributable to rental abatement periods for the
three largest tenants.
During the year ended December 31, 2002, the Operating Partnership
incurred approximately $6.3 million of bad debt expense related to tenant
receivables and deferred rents receivable which accordingly reduced total
revenues for the year then ended.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $7.8 million or 4.6% from 2001 to 2002 and $11.2
million or 7.2% from 2000 to 2001. The 2002 increase in Property Expenses is
primarily due to a $5.3 million increase in property operating expenses and a
$5.9 million increase in real estate taxes related to our "same store"
properties. Included in the $5.3 million increase in property operating
expenses is $2.7 million and $1.4 million of increased insurance and security
costs, respectively. These increases result primarily from implications of the
events that occurred on September 11, 2001 and the security cost increases
relate primarily to our New York City properties. In addition, Property
Expenses increased by $2.0 million attributable to the lease up of newly
developed and redeveloped properties. These increases in Property Expenses were
offset by $5.4 million of expenses attributable to six properties that were
sold in 2001. The 2001 increase in Property Expenses is primarily due to an
increase in property operating expenses of $10.2 million in our "same-store"
properties which consists of a $6.2 million increase in property operating
expenses and a $4.0 million increase in real estate taxes. The increase in
Property Expenses is also attributable to increases in labor costs, maintenance
contracts and security costs. In addition, there was an increase in Property
Expenses of $2.7 million due to higher occupancy levels at our developed and
redeveloped properties.
Gross operating margins (defined as Property Operating Revenues less
Property Expenses, taken as a percentage of Property Operating Revenues) for
2002, 2001 and 2000 were 64.9%, 66.1% and 65.2%, respectively. The slight
decrease from 2001 to 2002 in gross operating margin percentages resulted
primarily from portfolio wide increases in real estate taxes and property and
liability insurance costs. The increase from 2000 to 2001 is primarily due to
an increase in rental rates.
Marketing, general and administrative expenses were $31.6 million in 2002,
$26.6 million in 2001 and $25.0 million in 2000. The increase in marketing,
general and administrative expenses is primarily due to the increased costs of
maintaining offices and infrastructure in each of the Operating Partnership's
five divisional markets and costs associated with the growth of the Operating
Partnership. The Operating Partnership's business strategy has been to expand
further into the Tri-State Area suburban and CBD markets and the New York City
market, to create a superior franchise value by applying its standards for high
quality office and industrial / R&D space and premier tenant service to its
five operating divisions. Over the past three years the Operating Partnership
has supported this effort by increasing its marketing programs and
strengthening its resources and operating systems. The cost of these efforts is
reflected in both marketing, general and administrative expenses as well as the
revenue growth of the Operating Partnership. In addition, approximately $4.4
million of the 2002 increase is attributable to the amortization of stock loans
to certain executive and senior officers of the Company and other costs
incurred by the Company on behalf of the Operating Partnership. To a lesser
extent, in 2001, the increase in marketing, general and administrative costs
was impacted by legal and professional fees incurred in connection with certain
cancelled acquisition transactions and amortization of deferred compensation
costs. Marketing, general and administrative expenses as a percentage of total
revenues were 6.2% in 2002, 5.2% in 2001 and 5.2% in 2000.
Interest expense was $88.6 million in 2002, $93.1 million in 2001 and
$96.3 million in 2000. The decrease of $4.5 million from 2001 to 2002 is
attributable to an overall decrease in interest rates on the Operating
Partnership's unsecured credit facility amounting to approximately $8.7
million. This decrease
II-13
was offset by (i) increased interest expense of $1.7 million on the Operating
Partnership's senior unsecured notes resulting from the issuance of $50 million
of five-year notes in June 2002, (ii) a net increase in mortgage interest
expense of approximately $520,000 which was primarily attributable to the $50
million principal increase on the debt of 919 Third Avenue in July 2001 and the
satisfaction of three mortgage notes payable aggregating approximately $24.3
million during 2001 and (iii) approximately a $2.0 million decrease in
capitalized interest attributable to a decrease in the level of development
projects. The decrease of $3.2 million from 2000 to 2001 is attributable to
lower interest rates and a decreased average balance on the Operating
Partnership's unsecured credit facility. This was partially offset by an
increase in the Operating Partnership's mortgage notes payable which was the
result of the refinancing of the property located at 919 Third Avenue, New
York, NY. The weighted average balance outstanding on the Operating
Partnership's unsecured credit facility was $284.5 million in 2001 and $416.5
million in 2000.
Included in depreciation and amortization expense is amortized financing
costs of $4.5 million in 2002, $4.5 million in 2001 and $4.1 million in 2000.
For the year ended December 31, 2001, the Operating Partnership's
consolidated statement of operations includes valuation reserve charges of
$166.1 million which is comprised of the following: (i) valuation reserve
charges, inclusive of anticipated costs, of $163 million related to the
Operating Partnership's investments in the FrontLine Loans and joint ventures
with RSVP (see Overview and Background for a further discussion of this
valuation reserve charge), (ii) in November 1999, the Company received 176,186
shares of the common stock of FrontLine as fees in connection with the
FrontLine Loans. As a result of certain tax rule provisions included in the
REIT Modernization Act, it was determined that the Company could no longer
maintain any equity position in FrontLine. As part of a compensation program,
the Company distributed these shares to certain non-executive employees subject
to recourse loans. The loans were scheduled to be forgiven over time based on
continued employment with the Company. Based on the current value of
FrontLine's common stock the Operating Partnership has established a valuation
reserve charge relating to the outstanding balance of these loans in the amount
of $2.4 million and (iii) based on the Company's value assessment of its
investment in Captivate Network, Inc., an unrelated technology based service
company, the Operating Partnership recorded a valuation reserve charge of
approximately $700,000.
Extraordinary losses resulted in a $2.6 million loss in 2002, a $2.9
million loss in 2001 and a $1.6 million loss in 2000. The extraordinary losses
were all attributable to the write-offs of certain deferred loan costs incurred
in connection with the Operating Partnership's refinancing of its debt.
LIQUIDITY AND CAPITAL RESOURCES
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 Operating Partnership. The Operating
Partnership expects to meet its short-term liquidity requirements generally
through its net cash provided by operating activities along with the Credit
Facility previously discussed. The Credit Facility contains several financial
covenants with which the Operating Partnership must be in compliance in order
to borrow funds thereunder. During certain quarterly periods, the Operating
Partnership may incur significant leasing costs as a result of increased market
demands from tenants and high levels of leasing transactions. As a result,
during these periods the Operating Partnership's cash flow from operating
activities may not be sufficient to pay 100% of the quarterly distributions due
on its common units. To meet the short-term funding requirements relating to
these leasing costs, the Operating Partnership may use proceeds of property
sales or borrowings under its Credit Facility. The Operating Partnership
expects to meet certain of its financing requirements through long-term secured
and unsecured borrowings and the issuance of debt and equity securities of the
Operating Partnership. There can be no assurance that there will be adequate
demand for the Company's equity at the time or at the price in which the
Company desires to raise capital through the sale of additional equity. In
addition, when valuations for commercial real estate properties are high, the
Operating Partnership will seek to sell certain properties or interests therein
to realize value and profit created. The Operating Partnership will then seek
opportunities to reinvest the capital realized from these dispositions back
into value-added
II-14
assets in the Operating Partnership's core Tri-State Area markets, as well as
pursue its stock repurchase program. The Operating Partnership will refinance
existing mortgage indebtedness or indebtedness under the Credit Facility at
maturity or retire such debt through the issuance of additional debt securities
or additional equity securities. The Operating Partnership 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
Operating Partnership in both the short and long-term.
As a result of current economic conditions, certain tenants have either
not renewed their leases upon expiration or have paid the Operating Partnership
to terminate their leases. In addition, a number of U.S. companies have filed
for protection under federal bankruptcy laws. Certain of these companies are
tenants of the Operating Partnership. The Operating Partnership is subject to
the risk that other companies that are tenants of the Operating Partnership may
file for bankruptcy protection. This may have an adverse impact on the
financial results and condition of the Operating Partnership. In addition,
vacancy rates in our markets have been trending higher and in some instances
our asking rents in our markets have been trending lower and landlords are
being required to grant greater concessions such as free rent and tenant
improvements. Additionally, the Operating Partnership carries comprehensive
liability, fire, extended coverage and rental loss insurance on all of its
properties. Five of the Operating Partnership's properties are located in New
York City. As a result of the events of September 11, 2001, insurance companies
are limiting coverage for acts of terrorism in all risk policies. In November
2002, the Terrorism Risk Insurance Act of 2002 was signed into law which, among
other things, requires insurance companies to offer coverage for losses
resulting from defined "acts of terrorism" through 2004. The Operating
Partnership's current insurance coverage provides for full replacement cost of
its properties, except that the coverage for acts of terrorism on its
properties covers losses in an amount up to $300 million per occurrence. As a
result, the Operating Partnership may suffer losses from acts of terrorism that
are not covered by insurance. In addition, the mortgage loans which are secured
by certain of the Operating Partnership's properties contain customary
covenants, including covenants that require the Operating Partnership to
maintain property insurance in an amount equal to replacement cost of the
properties. There can be no assurance that the lenders under these mortgage
loans will not take the position that exclusions from the Operating
Partnership's coverage for losses due to terrorist acts is a breach of a
covenant which, if uncured, could allow the lenders to declare an event of
default and accelerate repayment of the mortgage loans. Other outstanding debt
instruments contain standard cross default provisions that would be triggered
in the event of an acceleration of the mortgage loans. This matter could
adversely affect the Operating Partnership's financial results, its ability to
finance and / or refinance its properties or to buy or sell properties.
The terrorist attacks of September 11, 2001, in New York City may
adversely effect the value of the Operating Partnership's New York City
properties and its ability to generate cash flow. There may be a decrease in
demand in metropolitan areas that are considered at risk for future terrorist
attacks, and this decrease may reduce the Operating Partnership's revenues from
property rentals.
In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its stockholders of at least 90% of REIT
taxable income. As a result, it is anticipated that the Operating Partnership
will make distributions in amounts sufficient to meet this requirement. The
Operating Partnership expects to use its cash flow from operating activities
for distributions to unit holders and for payment of recurring, non-incremental
revenue-generating expenditures. The Operating Partnership intends to invest
amounts accumulated for distribution in short-term investments.
Summary of Cash Flows
Net cash provided by operating activities totaled $196.1 million in 2002,
$188.8 million in 2001 and $170.2 million in 2000. Increases for each year were
primarily attributable to the growth in cash flow provided by the acquisition
of properties and / or the increased occupancy levels of the Operating
Partnership's development properties and the increase in rental rates in all of
the Operating Partnership's markets. The lower level of increase in 2002 is
attributable to a more competitive operating environment in which the Operating
Partnership did not acquire additional properties as well as a decrease in
market rental rates and occupancies in the Operating Partnership's markets.
II-15
Net cash used in investing activities totaled $85.1 million in 2002, $87.5
million in 2001 and $261.3 million in 2000. The decrease in cash flows used in
investing activities over the past three years is primarily attributable to the
Operating Partnership's decrease in property acquisitions. Cash used in
investing activities during 2002 related primarily to the Operating
Partnership's ongoing development of its properties, the acquisition of
approximately 52.7 acres of development land located in Valhalla, NY and costs
associated with creating tenant space including the payment of leasing costs.
Cash used in investing activities during 2001 and 2000 related primarily to
investments in real estate properties including development costs. Included in
these investing activities for the 2001 and 2000 periods is the Operating
Partnership's investments of approximately $18.7 million and $16.3 million,
respectively, in RSVP-controlled (REIT qualified) joint ventures. Cash used in
investing activities for the 2001 and 2000 periods was offset by proceeds from
the redemption of the Operating Partnership's preferred equity investments in
Keystone Property Trust as well as from sales of real estate, securities and
mortgage note receivable repayments in each of the years then ended.
Net cash used in financing activities totaled $202.2 million in 2002. Net
cash provided by financing activities totaled $3.8 million in 2001 and $86.6
million in 2000. Cash used in financing activities during 2002 related
primarily to the Company's stock buy-back program and repurchases of its Series
A preferred stock aggregating approximately $75 million. In addition, during
2002 cash used in financing activities was impacted by principal payments on
secured borrowings and distributions. These uses of cash were offset by the
Operating Partnership issuing $50 million of five-year senior unsecured notes.
Cash provided by financing activities during 2001 and 2000 related primarily to
proceeds from secured debt financings, minority partner contributions and
advances under the Operating Partnership's unsecured credit facility. Cash
provided by financing activities for the 2001 and 2000 periods was offset by
advances made under the FrontLine Loans of approximately $7.2 million and $13.6
million, respectively. Cash provided by financing activities during these years
was also offset by principal payments on secured borrowings and the unsecured
credit facility as well as loan issuance costs and distributions.
Investing Activities
On April 1, 2002, the Operating Partnership paid approximately $23.8
million to acquire 52.7 acres of land located in Valhalla, NY on which the
Operating Partnership can develop approximately 875,000 square feet of office
space. The Operating Partnership currently owns and operates three buildings
encompassing approximately 700,000 square feet in the same office park in which
this land parcel is located. This acquisition was financed in part from the
sales proceeds of an office property being held by a qualified intermediary for
the purposes of an exchange of real property pursuant to Section 1031 of the
Code and from an advance under the Credit Facility.
On August 7, 2002, the Operating Partnership sold an industrial property
on Long Island aggregating approximately 32,000 square feet for approximately
$1.8 million. This property was sold to the sole tenant of the property through
an option contained in the tenant's lease. On August 8, 2002, the Operating
Partnership sold two Class A office properties located in Westchester County,
NY aggregating approximately 157,000 square feet for approximately $18.5
million. Net proceeds from these sales were used to repay borrowings under the
Credit Facility and for general corporate purposes.
II-16
The following table sets forth the Operating Partnership's invested
capital (before valuation reserves) in RSVP controlled (REIT-qualified) joint
ventures and amounts which were advanced under the RSVP Commitment to
FrontLine, for its investment in RSVP controlled investments (in thousands):
RSVP CONTROLLED AMOUNTS
JOINT VENTURES ADVANCED TOTAL
--------------- -------- --------
Privatization ..................... $21,480 $ 3,520 $ 25,000
Student Housing ................... 18,086 3,935 22,021
Medical Offices ................... 20,185 -- 20,185
Parking ........................... -- 9,091 9,091
Resorts ........................... -- 8,057 8,057
Net leased retail ................. -- 3,180 3,180
Other assets and overhead ......... -- 21,598 21,598
- --------------------------------------------------------------------------------
$59,751 $49,381 $109,132
================================================================================
Included in these investments is approximately $16.5 million of cash that
has been contributed to the respective RSVP controlled joint ventures or
advanced under the RSVP Commitment to FrontLine and is being held, along with
cash contributed by the preferred investors.
Financing Activities
During 2002, the Operating Partnership paid cash distributions on its
Class A common units of approximately $1.70 per unit and approximately $2.59
per unit on its Class B common units.
During the year ended December 31, 2002, approximately 11,303 preferred
units of limited partnership interest, with a liquidation preference value of
approximately $11.3 million, were exchanged for 451,394 Class A Units at an
average price of $24.66 per Unit. In addition, the Company increased its
general partner interest in the Operating Partnership by acquiring 666,468
outstanding Units from certain limited partners in exchange for an equal number
of shares of its Class A common stock.
During the year ended December 31, 2001, approximately 11,553 preferred
units of limited partnership interest, with a liquidation preference value of
approximately $11.6 million, were exchanged for 456,351 Units at an average
price of $25.32 per Unit. In addition, the Company increased its general
partner interest in the Operating Partnership by acquiring 660,370 outstanding
Units from certain limited partners in exchange for an equal number of shares
of it's Class A common stock.
In May 2001, a minority partner that owned an $85 million preferred equity
investment in Metropolitan converted its preferred equity investment into
3,453,881 shares of the Company's Class A common stock based on a conversion
price of $24.61 per share and the Operating Partnerhsip issued 3,453,881 Class
A common units to the Company. As a result of the minority partner's conversion
of its preferred equity investment, the Operating Partnership owns 100% of
Metropolitan.
The Operating Partnership currently has a three year $500 million
unsecured revolving credit facility (the "Credit Facility") from JPMorgan Chase
Bank, as administrative agent, Wells Fargo Bank, National Association as
syndication agent and Citicorp North America, Inc. and Wachovia Bank, National
Association as co-documentation agents. The Credit Facility matures in December
2005, contains options for a one year extension subject to a fee of 25 basis
points and, upon receiving additional lender commitments, increasing the
maximum revolving credit amount to $750 million. In addition, borrowings under
the Credit Facility are currently priced off LIBOR plus 90 basis points and the
Credit Facility carries a facility fee of 20 basis points per annum. In the
event of a change in the Operating Partnership's unsecured credit rating the
interest rates and facility fee are subject to change. The outstanding
borrowings under the Credit Facility were $267.0 million at December 31, 2002.
The Credit Facility replaced the Operating Partnership's $575 million
unsecured credit facility (the "Prior Facility" and together with the Credit
Facility, the "Credit Facility"). As a result, certain deferred loan costs
incurred in connection with the Prior Facility were written off. Such amount is
reflected as an extraordinary loss on the Operating Partnership's consolidated
statements of operations.
II-17
The Operating Partnership utilizes the Credit Facility primarily to
finance real estate investments, fund its real estate development activities
and for working capital purposes. At December 31, 2002, the Operating
Partnership had availability under the Credit Facility to borrow approximately
an additional $203.0 million subject to compliance with certain financial
covenants.
On June 17, 2002, the Operating Partnership issued $50 million of
five-year 6.00% (6.125% effective rate) senior unsecured notes. Net proceeds of
approximately $49.4 million received from this issuance were used to repay
outstanding borrowings under the Prior Facility.
The Board of Directors of the Company has authorized the purchase of up to
an additional five million shares of the Company's Class A common stock and /
or its Class B common stock. Under this buy-back program, the Operating
Partnership purchased 368,200 Class B common units at an average price of
$22.90 per Class B unit and 2,698,400 Class A common units at an average price
of $21.60 per Class A unit for an aggregate purchase price for both the Class A
and Class B common units of approximately $66.7 million. As a result of these
purchases, annual common unit distributions will decrease by approximately $5.5
million. Previously, in conjunction with the Company's prior stock buy-back
program, the Operating Partnership purchased and retired 1,410,804 Class B
common units at an average price of $21.48 per Class B unit and 61,704 Class A
common units at an average price of $23.03 per Class A unit for an aggregate
purchase price for both the Class A and Class B common units of approximately
$31.7 million.
The Board of Directors of the Company has formed a pricing committee to
consider purchases of up to $75 million of the Company's outstanding preferred
securities. During October 2002, the Company purchased and retired 357,500
shares of its Series A preferred stock at $22.29 per share for approximately
$8.0 million. As a result, the Operating Partnership purchased and retired an
equal number of preferred units of general partnership interest from the
Company and reduced annual preferred distributions by approximately $682,000.
Capitalization
The Operating Partnership's indebtedness at December 31, 2002 totaled
approximately $1.4 billion (including its share of joint venture debt and net
of the minority partners' interests share of joint venture debt) and was
comprised of $267.0 million outstanding under the Credit Facility,
approximately $499.3 million of senior unsecured notes and approximately $605.1
million of mortgage indebtedness. Based on the Operating Partnership's total
market capitalization of approximately $3.1 billion at December 31, 2002,
(calculated based on the value of the Operating Partnership's Class A common
units and Class B common units (which, for this purpose, is assumed to be the
same per unit as the value of a share of the Company's Class A common stock and
Class B common stock), the liquidation preference value of the Operating
Partnership's preferred units and the $1.4 billion of debt), the Operating
Partnership's debt represented approximately 44.9% of its total market
capitalization.
During 2002, the Operating Partnership purchased 2,698,400 Class A common
units, 368,200 Class B common units and 357,500 preferred units of general
partnership interest from the Company for an aggregate purchase price of
approximately $75 million. In addition, the Operating Partnership issued $50
million of five year, 6.00% senior unsecured notes. Net proceeds from this
issuance were used to repay outstanding borrowings under the Prior Facility.
The Operating Partnership issues additional units to the Company with terms
similar to the terms of any securities issued by the Company (including any
securities issued by the Company upon the exercise of stock options), and
thereby increases the Company's general partnership interest in the Operating
Partnership. Any consideration received by the Company in respect of the
issuance of its securities is contributed to the Operating Partnership.
On October 16, 2000, the Company's Board of Directors announced that it
adopted a Shareholder Rights Plan designed to protect its shareholders from
various abusive takeover tactics, including attempts to acquire control of the
Company at an inadequate price, depriving its shareholders of the full value of
II-18
their investment. The Operating Partnership has adopted a similar rights plan
(the "Rights Plan") which would be triggered in the event the Company's
Shareholder Rights Plan is triggered. A description of the Rights Plan is
included in the Notes to Financial Statements of the Operating Partnership.
Contractual Obligations and Commercial Commitments
The following table sets forth the Operating Partnership's significant
debt obligations by scheduled principal cash flow payments and maturity date
and its commercial commitments by scheduled maturity at December 31, 2002 (in
thousands):
MATURITY DATE
------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
Mortgage notes payable (1) ........... $ 12,300 $ 13,169 $ 14,167 $ 13,785 $ 11,305 $ 117,389 $ 182,115
Mortgage notes payable (2) ........... -- 2,616 18,553 129,920 60,539 346,269 557,897
Senior unsecured notes ............... -- 100,000 -- -- 200,000 200,000 500,000
Unsecured credit facility ............ -- -- 267,000 -- -- -- 267,000
Land lease obligations ............... 2,707 2,811 2,814 2,795 2,735 43,276 57,138
Operating leases ..................... 1,368 1,313 1,359 1,407 1,455 683 7,585
Air rights lease obligations ......... 369 379 379 379 379 4,280 6,165
------------------------------------------------------------------------------------
$ 16,744 $ 120,288 $ 304,272 $ 148,286 $ 276,413 $ 711,897 $ 1,577,900
============================================================================================================================
(1) Scheduled principal amortization payments
(2) Principal payments due at maturity
(3) In addition, the Operating Partnership has a 60% interest in an
unconsolidated joint venture property. The Operating Partnership's pro
rata share of the mortgage debt at December 31, 2002 is approximately
$7.5 million. This mortgage note payable bears interests at 8.85% per
annum and matures on September 1, 2005.
Certain of the mortgage notes payable are guaranteed by certain limited
partners in the Operating Partnership and / or the Company. In addition,
consistent with customary practices in non-recourse lending, certain
non-recourse mortgages may be recourse to the Company under certain limited
circumstances including environmental issues and breaches of material
representations.
At December 31, 2002, the Operating Partnership had approximately $1.0
million in outstanding undrawn standby letters of credit issued under the
Credit Facility. In addition, approximately $45.1 million, or 6.1% of the
Operating Partnership's mortgage debt is recourse to the Operating Partnership.
Others Matters
Thirteen of the Operating Partnership's office properties which were
acquired by the issuance of Units are subject to agreements limiting the
Operating Partnership's ability to transfer them prior to agreed upon dates
without the consent of the limited partner who transferred the respective
property to the Operating Partnership. In the event the Operating Partnership
transfers any of these properties prior to the expiration of these limitations,
the Operating Partnership may be required to make a payment relating to taxes
incurred by the limited partner. The limitations on seven of the properties
expire prior to June 30, 2003. The limitations on the remaining properties
expire in 2013.
Eleven of the Operating Partnership's office properties are held in joint
ventures which contain certain limitations on transfer. These limitations
include requiring the consent of the joint venture partner to transfer a
property prior to various specified dates ranging from 2003 to 2005, rights of
first offer, and buy / sell provisions.
The Company has historically structured long term incentive programs
("LTIP") using restricted stock and stock loans. In July 2002, as a result of
certain provisions of the Sarbanes Oxley legislation, the Company has
discontinued the use of stock loans in its LTIP. In connection with LTIP grants
made prior to the enactment of the Sarbanes Oxley legislation the Company made
stock loans to certain executive and senior officers to purchase 1,372,393
shares of its Class A common stock at market prices ranging from $18.44 per
share to $27.13 per share. The stock loans were set to bear interest at the
mid-term
II-19
Applicable Federal Rate and were secured by the shares purchased. Such stock
loans including accrued interest vest and are ratably forgiven each year on the
annual anniversary of the grant date based upon vesting periods ranging from
four to ten years based on continued service and in part on attaining certain
annual performance measures. These stock loans had an initial aggregate
weighted average vesting period of approximately nine years. Approximately $4.5
million of compensation expense was recorded for the year ended December 31,
2002 related to these LTIP. Such amount has been included in marketing, general
and administrative expenses on the Operating Partnership's consolidated
statements of operations.
During 2002, approximately $3.9 million of stock loans made in prior years
in connection with the aforementioned LTIP matured. These stock loans were
secured by 155,418 shares of Class A common stock which were issued at prices
ranging from $22.50 per share to $27.13 per share. As a result of the Company
discontinuing the use of stock loans as part of its LTIP, the stock loans were
satisfied with restricted stock held by the Company which secured the stock
loans. The aggregate market value of these shares on the maturity dates of the
stock loans was approximately $3.4 million. The aggregate difference between
the market value of these shares and the carrying value of the stock loans was
recorded as a loss on the Operating Partnership's consolidated statements of
operations. The 155,418 shares of Class A common stock were subsequently
retired by the Company and the related Units were cancelled by the Operating
Partnership.
The outstanding stock loan balances due from the Company's executive and
senior officers aggregated approximately $17.0 million and $24.3 million at
December 31, 2002 and 2001, respectively, and have been included as a reduction
of additional paid in capital on the Operating Partnership's consolidated
statements of partners' capital. The Company has other outstanding loans to its
executive and senior officers amounting to approximately $1.0 million at
December 31, 2002 and 2001, related to life insurance contracts and
approximately $1.0 million and $.9 million at December 31, 2002 and 2001,
respectively, primarily related to tax payment advances on a stock compensation
award made to a non-executive officer.
In November 2002, the Company granted rights to 190,524 shares of its
Class A common stock to certain executive officers. These shares vest ratably
over a four-year period and will be issued in ratable installments on each
anniversary date of the grant as compensation to the executive officer.
Effective January 2003, the Company established a new LTIP for its
executive and senior officers. The four year plan has a core component which
provides for annual stock based compensation based upon continued service and
in part based on attaining certain annual performance measures. The plan has a
special long-term component which provides for compensation to be earned at the
end of a four year period if the Company attains certain four year cumulative
performance measures. Amounts earned under the special long-term component may
be paid in cash or stock at the discretion of the Compensation Committee of the
Board. Performance measures are based on total shareholder returns on a
relative and absolute basis.
The Operating Partnership issues Units to the Company in respect of any
common stock issued by the Company. In addition, the Operating Partnership or a
subsidiary, funds the compensation of personnel, including any amounts payable
under the LTIP.
Funds From Operations
Management believes that funds from operations ("FFO") is an appropriate
measure of performance for the Operating Partnership. FFO is defined by the
National Association of Real Estate Investment Trusts ("NAREIT") as net income
or loss, excluding gains or losses from debt restructuring and sales of
properties plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
indicative of cash available to fund cash needs. FFO should not be considered
as an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity. (See
Selected Financial Data). FFO for the year ended December 31, 2001 excludes
$163 million of valuation reserves on investments in affiliate loans and joint
ventures.
II-20
Since all companies and analysts do not calculate FFO in a similar
fashion, the Operating Partnership's calculation of FFO presented herein may
not be comparable to similarly titled measures as reported by other companies.
The following table presents the Operating Partnerships FFO calculation
for the years ended December 31, (in thousands):
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary loss .................................. $ 63,817 $ (57,045) $ 101,224
Less:
Extraordinary loss ...................................................... 2,602 2,898 1,571
- --------------------------------------------------------------------------------------------------------------
Net Income ............................................................... 61,215 (59,943) 99,653
Adjustment for Funds From Operations:
Add:
Real estate depreciation and amortization ............................... 108,906 100,967 90,552
Minority interests' in consolidated partnerships ........................ 18,730 15,975 9,120
Valuation reserves on investments in affiliate loans and joint ventures . -- 163,000 --
Extraordinary loss ...................................................... 2,602 2,898 1,571
Less:
Gain on sales of real estate ............................................ 5,433 20,173 18,669
Amounts distributable to minority partners in consolidated partnerships . 24,996 19,083 12,316
- --------------------------------------------------------------------------------------------------------------
Funds From Operations .................................................... $ 161,024 $ 183,641 $ 169,911
- --------------------------------------------------------------------------------------------------------------
Weighted average units outstanding ....................................... 67,180 66,057 61,050
==============================================================================================================
INFLATION
The office leases generally provide for fixed base rent increases or
indexed escalations. In addition, the office leases provide for separate
escalations of real estate taxes, operating expenses and electric costs over a
base amount. The industrial / R&D 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 Operating Partnership
believes that inflationary increases in expenses will be offset by contractual
rent increases and expense escalations described above. As a result of the
impact of the events of September 11, 2001, the Operating Partnership has
realized increased insurance costs, particularly relating to property and
terrorism insurance, and security costs. The Operating Partnership has included
these costs as part of its escalatable expenses. The Operating Partnership has
billed these escalatable expense items to its tenants consistent with the terms
of the underlying leases and believes they are collectible. To the extent the
Operating Partnership's properties contain vacant space, the Operating
Partnership will bear such inflationary increases in expenses.
The Credit Facility bears interest at a variable rate, which will be
influenced by changes in short-term interest rates, and is sensitive to
inflation.
ITEM 7 (A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary market risk facing the Operating Partnership is interest rate
risk on its long term debt, mortgage notes and notes receivable. The Operating
Partnership will, when advantageous, hedge its interest rate risk using
financial instruments. The Operating Partnership is not subject to foreign
currency risk.
The Operating Partnership manages its exposure to interest rate risk on
its variable rate indebtedness by borrowing on a short-term basis under its
Credit Facility until such time as it is able to retire the short-term variable
rate debt with either a long-term fixed rate debt offering, long term mortgage
debt, general partner contributions or through sales or partial sales of
assets.
The Operating Partnership will recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges will be adjusted to fair
value through income. If a derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of the derivative will either be offset
II-21
against the change in fair value of the hedged asset, liability or firm
commitment through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
As of December 31, 2002, the Operating Partnership had no derivatives.
The fair market value ("FMV") of the Operating Partnership's long term
debt, mortgage notes and notes receivable is estimated based on discounting
future cash flows at interest rates that management believes reflects the risks
associated with long term debt, mortgage notes and notes receivable of similar
risk and duration.
The following table sets forth the Operating Partnership's long term debt
obligations by scheduled principal cash flow payments and maturity date,
weighted average interest rates and estimated FMV at December 31, 2002 (dollars
in thousands):
For the Year Ended December 31,
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2003 2004 2005 2006 2007
- -------------------------------------------------------------------------------------------------------
Long term debt:
Fixed rate ..................... $ 12,300 $ 115,785 $ 32,720 $ 143,705 $ 271,844
Weighted average interest rate . 7.51% 7.47% 6.92% 7.38% 7.51%
Variable rate .................. $ -- $ -- $ 267,000 $ -- $ --
Weighted average interest rate . --% --% 4.25% --% --%
THEREAFTER TOTAL (1) F M V
- ----------------------------------------------------------------------------
Long term debt:
Fixed rate ..................... $ 663,658 $ 1,240,012 $ 1,260,299
Weighted average interest rate . 7.32% 7.37%
Variable rate .................. $ -- $ 267,000 $ 267,000
Weighted average interest rate . --% 4.25%
(1) Includes unamortized issuance discounts of $537 on the 5 and 10 year senior
unsecured notes issued on March 26, 1999 which are due at maturity.
In addition, the Operating Partnership has assessed the market risk for
its variable rate debt, which is based upon LIBOR, and believes that a one
percent increase in the LIBOR rate would have an approximate $2.7 million
annual increase in interest expense based on approximately $267.0 million
outstanding at December 31, 2002.
The following table sets forth the Operating Partnership's mortgage notes
and notes receivable by scheduled maturity date, weighted average interest
rates and estimated FMV at December 31, 2002 (dollars in thousands): For the
Year Ended December 31,
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
2003 2004 2005 2006 2007
- ---------------------------------------------------------------------------------------------
Mortgage notes and notes receivable:
Fixed rate ............................. $ -- $ 36,500 $ -- $ -- $ --
Weighted average interest rate ......... --% 10.23% --% --% --%
THEREAFTER TOTAL (2) F M V
- -----------------------------------------------------------------------------
Mortgage notes and notes receivable:
Fixed rate ............................. $ 16,990 $ 53,490 $ 54,642
Weighted average interest rate ......... 11.95% 10.77%
(2) Excludes mortgage note receivable acquisition costs and interest
receivables aggregating approximately $1.1 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY 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.
II-22
PART III
ITEMS 10, 11, 12, 13, 14 AND 16
The Company is the sole managing general partner of the Operating
Partnership. All of the Company's business is conducted through the Operating
Partnership. As a result, the information required by items 10, 11, 12, 13, 14
and 16 is identical to the information contained in Items 10, 11, 12, 13, 14
and 16 of the Company's Form 10-K, which incorporates by reference information
appearing in the Company's Proxy Statement furnished to shareholders in
connection with the Company's 2003 Annual Meeting. Such information is
incorporated by reference in this Form 10-K.
III-1
PART IV
ITEM 15. 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:
PAGE
-----
RECKSON OPERATING PARTNERSHIP, L. P.
Report of Independent Auditors .............................................. IV-8
Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001 ... IV-9
Consolidated Statements of Operations for the years ended December 31, 2002,
2001 and 2000 ............................................................. IV-10
Consolidated Statements of Partners' Capital for the years ended December 31,
2002, 2001 and 2000 ....................................................... IV-11
Consolidated Statements of Cash Flows for the years ended December 31, 2002,
2001 and 2000 ............................................................. IV-12
Notes to Financial Statements ............................................... IV-13
Schedule III -- Real Estate and Accumulated Depreciation .................... IV-34
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.
IV-1
(3) Exhibits
EXHIBIT FILING
NUMBER REFERENCE DESCRIPTION
- --------- ----------- --------------------------------------------------------------------------------
3.1 a Amended and Restated Agreement of Limited Partnership of the Registrant
3.2 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series A Preferred Units of Limited Partnership
Interest
3.3 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series B Preferred Units of Limited Partnership
Interest
3.4 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series C Preferred Units of Limited Partnership
Interest
3.5 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series D Preferred Units of Limited Partnership
Interest
3.6 g Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series B Common Units of Limited Partnership
Interest
3.7 g Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series E Preferred Partnership Units of Limited
Partnership
3.8 j Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series F Junior Participating Preferred Partnership
Units Issuable Under the Rights Plan
4.1 f Form of 7.40% Notes due 2004 of the Registrant
4.2 f Form of 7.75% Notes due 2009 of the Registrant
4.3 f Indenture, dated March 26, 1999, among the Registrant, Reckson Associates
Realty Corp. (the "Company"), and The Bank of New York, as trustee
4.4 j Rights Agreement, dated as of October 13, 2000, between the Registrant and
American Stock Transfer and Trust Company
4.5 o Form of 6.00% Notes due 2007 of the Registrant
4.6 d Note Purchase Agreement for the Senior Unsecured Notes
10.1 d Third Amended and Restated Agreement of Limited Partnership of Omni
Partners, L.P.
10.2 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Donald Rechler
10.3 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Scott Rechler
10.4 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Mitchell Rechler
10.5 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Gregg Rechler
10.6 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Roger Rechler
10.7 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Michael Maturo
10.8 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Jason Barnett
10.9 a Purchase Option Agreements relating to the Reckson Option Properties
10.10 a Purchase Option Agreements relating to the Other Option Properties
10.11 m Amended and Restated 1995 Stock Option Plan
10.12 c 1996 Employee Stock Option Plan
10.13 b Ground Leases for certain of the properties
10.14 a Indemnity Agreement relating to 100 Oser Avenue
10.15 m Amended and Restated 1997 Stock Option Plan
10.16 d 1998 Stock Option Plan
10.17 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Donald Rechler
10.18 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Scott Rechler
10.19 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Mitchell Rechler
10.20 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Gregg Rechler
10.21 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Roger Rechler
10.22 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Michael Maturo
10.23 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Jason Barnett
10.24 g Amended and Restated Credit Agreement dated as of August 4, 1999 between
Reckson Service Industries, Inc., as borrower and the Registrant, as Lender
relating to Reckson Strategic Venture Partners, LLC ("RSVP Credit Agreement")
10.25 g Amended and Restated Credit Agreement dated as of August 4, 1999 between
Reckson Service Industries, Inc., as borrower and the Registrant, as Lender
relating to the operations of Reckson Service Industries, Inc. ("RSI Credit
Agreement")
10.26 g Letter Agreement, dated November 30, 1999, amending the RSVP Credit
Agreement and the RSI Credit Agreement
10.27 k Second Amendment to the Amended and Restated Credit Agreement, dated
March 30, 2001, between the Registrant and FrontLine Capital Group
10.28 l Loan Agreement, dated as of June 1, 2001, between 1350 LLC, as Borrower, and
Secore Financial Corporation, as Lender
10.29 l Loan Agreement, dated as of July 18, 2001, between Metropolitan 919 3rd Avenue,
LLC, as Borrower, and Secore Financial Corporation, as Lender
10.30 h Operating Agreement dated as of September 28, 2000 between Reckson Tri-State
Member LLC (together with its permitted successors and assigns) and TIAA
Tri-State LLC
10.31 i Agreement of Spreader, Consolidation and Modification of Mortgage Security
Agreement among Metropolitan 810 7th Ave., LLC, 100 Wall Company LLC and
Monumental Life Insurance Company
10.32 i Consolidated, Amended and Restated Secured Promissory Note relating to
Metropolitan 810 7th Ave., LLC and 100 Wall Company LLC
10.33 n Amended and Restated Operating Agreement of 919 JV LLC
10.34 p 2002 Stock Option Plan
10.35 r Indemnification Agreement, dated as of May 23, 2002, between the Company and
Donald J. Rechler*
IV-2
EXHIBIT FILING
NUMBER REFERENCE DESCRIPTION
- ---------- ----------- -----------------------------------------------------------------------------------
10.36 q Second Amended and Restated Credit Agreement, dated as of December 30, 2002,
among the Registrant, the institutions from time to time party thereto as Lenders
and JPMorgan Chase Bank, as Administrative Agent
10.37 q Form of Guarantee Agreement to the Second Amended and Restated Credit
Agreement, between and among the Registrant, the institutions from time to time
party thereto as Lenders and JPMorgan Chase Bank, as Administrative Agent
10.38 q Form of Promissory Note to the Second Amended and Restated Credit
Agreement, between and among the Registrant, the institutions from time to time
party thereto as Lenders and JPMorgan Chase Bank, as Administrative Agent
10.39 q First Amendment to Second Amended and Restated Credit Agreement, dated as
of January 24, 2003, among the Registrant, JPMorgan Chase Bank, as
Administrative Agent for the institutions from time to time party thereto as
Lenders and Key Bank, N.A., as New Lender
10.40 Long-Term Incentive Award Agreement, dated March 13, 2003, between the
Company and Scott H. Rechler**
10.41 Award Agreement, dated November 14, 2002, between the Company and Scott H.
Rechler***
10.42 Award agreement, dated March 13, 2003, between the Company and Scott H.
Rechler****
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries
23.1 Consent of Independent Auditors
24.1 Power of Attorney (included in Part IV of the Form 10-K)
99.1 Certification of Donald J. Rechler, Co-Chief Executive Officer of the Company,
the sole general partner of the Registrant, pursuant to Section 1350 of Chapter 63
of title 18 of the United States Code
99.2 Certification of Scott H. Rechler, Co-Chief Executive Officer of the Company, the
sole general partner of the Registrant, pursuant to Section 1350 of Chapter 63 of
title 18 of the United States Code
99.3 Certification of Michael Maturo, Executive Vice President, Treasurer and Chief
Financial Officer of the Company, the sole general partner of the Registrant,
pursuant to Section 1350 of Chapter 63 of title 18 of the United States Code
- ----------------
(a) Previously filed as an exhibit to Registration Statement Form S-11 (No. 333-1280) and incorporated herein by
reference.
(b) Previously filed as an exhibit to Registration Statement Form S-11 (No. 33-84324) and incorporated herein by
reference.
(c) 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.
(d) Previously filed as an exhibit to the Company's Form 10-K filed with the SEC on March 26, 1998 and incorporated
herein by reference.
(e) Previously filed as an exhibit to the Company's Form 8-K report filed with the SEC on March 1, 1999 and incorporated
herein by reference.
(f) Previously filed as an exhibit to the Registrant's Form 8-K filed with SEC on March 26, 1999 and incorporated herein
by reference.
(g) Previously filed as an exhibit to the Company's Form 10-K filed with the SEC on March 17, 2000 and incorporated
herein by reference.
(h) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on October 17, 2000 and incorporated
herein by reference.
(i) Previously filed as an exhibit to the Company's Form 10-K filed with the SEC on March 21, 2001 and incorporated
herein by reference.
(j) Previously filed as an exhibit to the Registrant's Form 10-K filed with the SEC on March 22, 2001 and incorporated
herein by reference.
(k) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on May 14, 2001 and incorporated
herein by reference.
(l) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on August 14, 2001 and incorporated
herein by reference.
(m) Previously filed as an exhibit to the Company's Form 10-Q filed with the SEC on November 14, 2001 and incorporated
herein by reference.
(n) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on January 8, 2002 and incorporated
herein by reference.
(o) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on June 18, 2002 and incorporated
herein by reference.
(p) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on August 14, 2002 and incorporated
herein by reference.
(q) Previously filed as an exhibit to the Registrant's Current Report on 8-K filed with the SEC on January 27, 2003 and
incorporated herein by reference.
(r) Previously filed with the Registrant's Form 10-Q filed with the SEC on November 14, 2002 and incorporated herein by
reference.
* Each of Scott H. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M. Rechler, Jason M. Barnett,
Herve A. Kevenides, John
V.N. Klein, Lewis S. Ranieri and Conrad D. Stephenson has entered into an Indemnification Agreement with the Company,
dated May 23, 2002. Each
of Ronald H. Menaker and Peter Quick has entered into an Indemnification Agreement with the Company dated May 1,
2002. These Agreements are
identical in all material respects to the Indemnification Agreement for Donald J. Rechler filed herewith.
** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M. Rechler and Jason M.
Barnett has entered into a
Long-Term Incentive Award Agreement with the Company, dated March 13, 2003. These Agreements are identical in all
material respects to the
Long-Term Incentive Award Agreement for Scott H. Rechler filed herewith.
*** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo and Roger M. Rechler has been
awarded certain rights to shares
of Class A common stock of the Company, pursuant to award agreements dated Nov ember 14, 2002. These Agreements are
identical in all material
respects to the Agreement for Scott H. Rechler filed herewith, except that Donald J. Rechler received rights to
46,983 shares each of Mitchell D.
Rechler, Gregg M. Rechler and Michael Maturo received rights to 27,588 shares and Roger M. Rechler received rights to
25,530 shares.
**** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M. Rechler and Jason M.
Barnett has been awarded
certain rights to shares of Class A common stock of the Company, pursuant to award agreements dated March 13, 2003.
These Agreements are
identical in all material respects to the Agreement for Scott H. Rechler filed herewith.
REPORTS ON FORM 8-K
On November 5, 2002, the Registrant submitted a report on Form 8-K under Item 9
thereof in order to submit supplemental operating and financial data for the
quarter ended September 30, 2002.
On November 6, 2002, the Registrant submitted a report on Form 8-K under Item 9
thereof in order to submit its third quarter presentation.
IV-3
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 13, 2003.
RECKSON OPERATING PARTNERSHIP, L.P.
By: RECKSON ASSOCIATES REALTY CORP.
its general partner
By: /s/ Donald J. Rechler
---------------------------
Donald J. Rechler,
Chairman of the Board and
Co-Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Reckson Associates Realty Corp., the corporate general partner of
the registrant, hereby severally constitute Scott H. Rechler, Mitchell D.
Rechler and 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
the registrant 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 in the capacities indicated on March 13, 2003.
SIGNATURE TITLE SIGNATURE TITLE
- ----------------------- ------------------------------ ------------------------ --------------------
/s/ Donald J. Rechler Chairman of the Board, /s/ Ronald Menaker Director of
- ----------------------- Co-Chief Executive Officer ------------------------ Reckson Associates
Donald J. Rechler and Director (Principal Ronald Menaker Realty Corp.
Executive Officer) of Reckson
Associates Realty Corp.
/s/ Scott H. Rechler Co-Chief Executive Officer and /s/ Peter Quick Director of
- ----------------------- Director of Reckson ------------------------ Reckson Associates
Scott H. Rechler Associates Realty Corp. Peter Quick Realty Corp.
/s/ Mitchell D. Rechler Co-President, Chief /s/ Herve A. Kevenides Director of
- ----------------------- Administrative Officer and ------------------------ Reckson Associates
Mitchell D. Rechler Director of Reckson Herve A. Kevenides Realty Corp.
Associates Realty Corp.
/s/ Gregg M. Rechler Co-President, Chief Operating /s/ John V.N. Klein Director of
- ----------------------- Officer and Director of ------------------------ Reckson Associates
Gregg M. Rechler Reckson Associates Realty John V.N. Klein Realty Corp.
Corp.
/s/ Michael Maturo Executive Vice President, /s/ Lewis S. Ranieri Director of Reckson
- ----------------------- Treasurer and Chief Financial ------------------------ Associates Realty
Michael Maturo Officer (Principal Financial Lewis S. Ranieri Corp.
Officer and Principal
Accounting Officer) of
Reckson Associates Realty
Corp.
/s/ Roger M. Rechler Executive Vice President, /s/ Conrad D. Stephenson Director of Reckson
- ----------------------- Vice-Chairman of the Board ------------------------ Associates Realty
Roger M. Rechler and Director of Reckson Conrad D. Stephenson Corp.
Associates Realty Corp.
IV-4
CERTIFICATION
I, Donald J. Rechler, certify that:
1. I have reviewed this annual report on Form 10-K of Reckson Operating
Partnership, L.P.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003
/s/ Donald J. Rechler
-------------------------------
Donald J. Rechler
Co-Chief Executive Officer
Co-Chief Executive Officer,
Reckson Associates Realty Corp.,
the sole general partner of
the Registrant
IV-5
CERTIFICATION
I, Scott H. Rechler, certify that:
1. I have reviewed this annual report on Form 10-K of Reckson Operating
Partnership, L.P.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003
/s/ Scott H. Rechler
-------------------------------
Scott H. Rechler
Co-Chief Executive Officer,
Reckson Associates Realty Corp.,
the sole general partner of
the Registrant
IV-6
CERTIFICATION
I, Michael Maturo, certify that:
1. I have reviewed this annual report on Form 10-K of Reckson Operating
Partnership, L.P.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003
/s/ Michael Maturo
-----------------------------------
Michael Maturo
Executive Vice President, Treasurer
and Chief Financial Officer,
Reckson Associates Realty Corp.,
the sole general partner of
the Registrant
IV-7
REPORT OF INDEPENDENT AUDITORS
To the Partners
Reckson Operating Partnership, L. P.
We have audited the accompanying consolidated balance sheets of Reckson
Operating Partnership, L. P. (the "Operating Partnership") as of December 31,
2002 and 2001, and the related consolidated statements of operations, partners'
capital, and cash flows for each of the three years in the period ended
December 31, 2002. We have also audited the financial statement schedule listed
in the index at item 15 (a). These financial statements and financial statement
schedule are the responsibility of the Operating Partnership'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 auditing standards generally
accepted in the United States. 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
Operating Partnership, L. P. at December 31, 2002 and 2001, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States. 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 27, 2003
IV-8
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT UNIT DATA)
DECEMBER 31,
-----------------------------
2002 2001
----------- -----------
ASSETS
Commercial real estate properties, at cost (Notes 2, 3, 5, and 6)
Land ............................................................................. $ 418,040 $ 408,837
Buildings and improvements ....................................................... 2,415,252 2,328,374
Developments in progress:
Land ............................................................................. 92,924 69,365
Development costs ................................................................ 28,311 74,303
Furniture, fixtures and equipment ................................................. 13,595 7,725
----------- -----------
2,968,122 2,888,604
Less accumulated depreciation .................................................. (454,018) (361,960)
----------- -----------
2,514,104 2,526,644
Investments in real estate joint ventures ......................................... 6,116 5,744
Investment in mortgage notes and notes receivable (Note 6) ........................ 54,547 56,234
Cash and cash equivalents (Note 9) ................................................ 30,576 121,773
Tenant receivables ................................................................ 14,050 9,633
Investments in service companies and affiliate loans and joint ventures (Note 8) 78,104 84,142
Deferred rents receivable ......................................................... 107,366 81,089
Prepaid expenses and other assets ................................................. 36,846 45,303
Contract and land deposits and pre-acquisition costs .............................. 240 3,782
Deferred leasing and loan costs, less accumulated amortization of $48,049 and
$41,411, respectively ............................................................ 70,103 64,438
----------- -----------
Total Assets ................................................................... $ 2,912,052 $ 2,998,782
=========== ===========
LIABILITIES
Mortgage notes payable (Note 2) ................................................... $ 740,012 $ 751,077
Unsecured credit facility (Note 3) ................................................ 267,000 271,600
Senior unsecured notes (Note 4) ................................................... 499,305 449,463
Accrued expenses and other liabilities ............................................ 90,320 84,651
Distributions payable ............................................................. 31,575 32,988
----------- -----------
Total Liabilities .............................................................. 1,628,212 1,589,779
----------- -----------
Minority interests in consolidated partnerships ................................... 242,934 242,698
----------- -----------
Commitments and contingencies (Notes 9, 10, and 13) ............................... -- --
PARTNERS' CAPITAL (NOTE 7)
Preferred Capital, 10,854,162 and 11,222,965 units outstanding, respectively ...... 281,690 301,573
General Partners Capital:
Class A common units, 48,246,083 and 49,982,377 units outstanding,
respectively ................................................................... 478,121 551,417
Class B common units, 9,915,313 and 10,283,513 units outstanding,
respectively ................................................................... 209,675 231,428
Limited Partners Capital, 7,276,224 and 7,487,218 units outstanding, respectively 71,420 81,887
----------- -----------
Total Partners Capital ........................................................... 1,040,906 1,166,305
----------- -----------
Total Liabilities and Partners Capital ......................................... $ 2,912,052 $ 2,998,782
=========== ===========
(see accompanying notes to financial statements)
IV-9
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT UNIT DATA)
FOR THE YEAR
ENDED DECEMBER 31,
------------
2002
------------
REVENUES (NOTE 10):
Property operating revenues:
Base rents .............................................................................. $ 437,393
Tenant escalations and reimbursements ................................................... 60,689
------------
Total property operating revenues ........................................................ 498,082
Interest income on mortgage notes and notes receivable (including $4,287, $4,196 and
$5,237, respectively from related parties) .............................................. 6,279
Investment and other income (including $85, $5,164 and $21,455, respectively from
related parties) ........................................................................ 1,731
------------
Total Revenues .......................................................................... 506,092
------------
EXPENSES:
Property operating expenses .............................................................. 175,041
Marketing, general and administrative .................................................... 31,578
Interest ................................................................................. 88,585
Depreciation and amortization ............................................................ 112,341
------------
Total Expenses .......................................................................... 407,545
------------
Income before distributions to preferred unit holders, minority interests, equity in
earnings of real estate joint ventures and service companies, gain on sales of real
estate, valuation reserves, discontinued operations and extraordinary loss .............. 98,547
Minority partners' interest in consolidated partnerships ................................. (18,730)
Equity in earnings of service companies and real estate joint ventures (including $465,
$1,450 and $2,792, respectively from related parties) ................................... 1,113
Gain on sales of real estate (Note 6) .................................................... 537
Valuation reserves on investments in affiliate loans and joint ventures and other
investments (Notes 8 and 13) ............................................................ --
------------
Income (loss) before discontinued operations, extraordinary loss and distributions to
preferred unitholders ................................................................... 81,467
Discontinued operations:
Income from discontinued operations ..................................................... 578
Gain on sales of real estate ............................................................ 4,895
------------
Income (loss) before extraordinary loss and distributions to preferred unit holders ...... 86,940
Extraordinary loss on extinguishment of debts ............................................ (2,602)
------------
Net income (loss) ........................................................................ 84,338
Preferred unit distributions ............................................................. (23,123)
------------
Net income (loss) allocable to common unitholders $ 61,215
============
Net income (loss) allocable to:
Class A common units .................................................................... $ 48,286
Class B common units .................................................................... 12,929
------------
Total .................................................................................... $ 61,215
============
Net income (loss) per weighted average units:
Class A common .......................................................................... $ .80
Gain on sales of real estate ............................................................ .01
Discontinued operations ................................................................. .08
Extraordinary loss ...................................................................... (.04)
------------
Net income (loss) per Class A common .................................................... $ .85
============
Class B common .......................................................................... $ 1.21
Gain on sales of real estate ............................................................ .01
Discontinued operations ................................................................. .11
Extraordinary loss ...................................................................... (.05)
------------
Net income (loss) per Class B commonunit ................................................. $ 1.28
============
Weighted average common units outstanding:
Class A common .......................................................................... 57,059,000
Class B common .......................................................................... 10,122,000
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2001 2000
----------- ------------
REVENUES (NOTE 10):
Property operating revenues:
Base rents .............................................................................. $ 434,671 $ 394,019
Tenant escalations and reimbursements ................................................... 59,538 54,470
----------- ------------
Total property operating revenues ........................................................ 494,209 448,489
Interest income on mortgage notes and notes receivable (including $4,287, $4,196 and
$5,237, respectively from related parties) .............................................. 6,238 8,212
Investment and other income (including $85, $5,164 and $21,455, respectively from
related parties) ........................................................................ 14,185 26,576
----------- ------------
Total Revenues .......................................................................... 514,632 483,277
----------- ------------
EXPENSES:
Property operating expenses .............................................................. 167,291 156,103
Marketing, general and administrative .................................................... 26,600 25,029
Interest ................................................................................. 93,055 96,335
Depreciation and amortization ............................................................ 102,108 91,809
----------- ------------
Total Expenses .......................................................................... 389,054 369,276
----------- ------------
Income before distributions to preferred unit holders, minority interests, equity in
earnings of real estate joint ventures and service companies, gain on sales of real
estate, valuation reserves, discontinued operations and extraordinary loss .............. 125,578 114,001
Minority partners' interest in consolidated partnerships ................................. (15,975) (9,120)
Equity in earnings of service companies and real estate joint ventures (including $465,
$1,450 and $2,792, respectively from related parties) ................................... 2,087 4,383
Gain on sales of real estate (Note 6) .................................................... 20,173 18,669
Valuation reserves on investments in affiliate loans and joint ventures and other
investments (Notes 8 and 13) ............................................................ (166,101) --
----------- ------------
Income (loss) before discontinued operations, extraordinary loss and distributions to
preferred unitholders ................................................................... (34,238) 127,933
Discontinued operations:
Income from discontinued operations ..................................................... 1,170 1,303
Gain on sales of real estate ............................................................ -- --
----------- ------------
Income (loss) before extraordinary loss and distributions to preferred unit holders ...... (33,068) 129,236
Extraordinary loss on extinguishment of debts ............................................ (2,898) (1,571)
----------- ------------
Net income (loss) ........................................................................ (35,966) 127,665
Preferred unit distributions ............................................................. (23,977) (28,012)
----------- ------------
Net income (loss) allocable to common unitholders $ (59,943) $ 99,653
=========== ============
Net income (loss) allocable to:
Class A common units .................................................................... $ (47,283) $ 76,046
Class B common units .................................................................... (12,660) 23,607
----------- ------------
Total .................................................................................... $ (59,943) $ 99,653
=========== ============
Net income (loss) per weighted average units:
Class A common .......................................................................... $ (1.11) $ 1.22
Gain on sales of real estate ............................................................ .28 .28
Discontinued operations ................................................................. .02 .02
Extraordinary loss ...................................................................... (.04) (.02)
----------- ------------
Net income (loss) per Class A common .................................................... $ (.85) $ 1.50
=========== ============
Class B common .......................................................................... $ (1.61) $ 1.88
Gain on sales of real estate ............................................................ .42 .43
Discontinued operations ................................................................. .02 .03
Extraordinary loss ...................................................................... (.06) (.04)
----------- ------------
Net income (loss) per Class B commonunit ................................................. $ (1.23) $ 2.30
=========== ============
Weighted average common units outstanding:
Class A common .......................................................................... 55,773,000 50,766,000
Class B common .......................................................................... 10,284,000 10,284,000
(see accompanying notes to financial statements)
IV-10
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
GENERAL PARTNERS' CAPITAL
-----------------------------------------
PREFERRED CLASS B CLASS A LIMITED PARTNERS' TOTAL
CAPITAL COMMON UNITS COMMON UNITS CAPITAL PARTNERS' CAPITAL
---------- ------------ ------------ ----------------- -----------------
Balance January 1, 2000 .............. $ 413,126 $ 270,689 $ 477,172 $ 90,986 $ 1,251,973
Net Income ........................... -- 23,607 64,552 11,494 99,653
Contributions ........................ -- -- 6,701 -- 6,701
Distributions ........................ -- (24,132) (66,096) (11,765) (101,993)
Retirement / redemption of units ..... (100,000) (46) 93,241 6,638 (167)
---------- --------- --------- --------- -----------
Balance December 31, 2000 ............ 313,126 270,118 575,570 97,353 1,256,167
Net loss ............................. -- (12,660) (41,253) (6,030) (59,943)
Contributions ........................ -- -- 82,821 18,745 101,566
Distributions ........................ -- (26,030) (81,142) (12,604) (119,776)
Retirement / redemption of units
(Note 7) ............................ (11,553) -- 15,421 (15,577) (11,709)
---------- --------- --------- --------- -----------
Balance December 31, 2001 ............ 301,573 231,428 551,417 81,887 1,166,305
Net income ........................... -- 12,929 41,604 6,682 61,215
Contributions ........................ -- -- 26,227 2,473 28,700
Distributions ........................ -- (26,250) (84,365) (12,449) (123,064)
Retirement / redemption of units
(Note 7) ............................ (19,883) (8,432) (56,762) (7,173) (92,250)
---------- --------- --------- --------- -----------
Balance December 31, 2002 ............ $ 281,690 $ 209,675 $ 478,121 $ 71,420 $ 1,040,906
========== ========= ========= ========= ===========
(see accompanying notes to financial statements)
IV-11
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
2002 2001 2000
---------- ---------- ----------
NET INCOME (LOSS) .............................................................. $ 84,338 $ (35,966) $ 127,665
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization ................................................. 112,341 102,931 92,547
Extraordinary loss on extinguishment of debts ................................. 2,602 2,898 1,571
Minority partners' interests in consolidated partnerships ..................... 18,730 15,975 9,120
Gain on sales of real estate, securities and mortgage repayment ............... (4,804) (20,173) (18,669)
Valuation reserves on investments in affiliate loans and joint ventures and
other investments ............................................................ -- 166,101 --
Equity in earnings of service companies and real estate joint ventures ........ (1,113) (2,087) (4,383)
Changes in operating assets and liabilities:
Prepaid expenses and other assets ............................................. 4,354 (4,869) (9,568)
Tenant and affiliate receivables .............................................. (4,417) 1,878 (6,394)
Deferred rents receivable ..................................................... (26,277) (38,186) (35,798)
Accrued expenses and other liabilities ........................................ 10,346 342 14,152
---------- ---------- ----------
Net cash provided by operating activities ..................................... 196,100 188,844 170,243
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of commercial real estate properties ................................ -- -- (190,548)
Acquisition of controlling interests in service companies ..................... (122) -- --
Increase in contract and land deposits and preacquisition costs ............... -- (3,267) (2,023)
Additions to developments in progress ......................................... (41,896) (8,260) (13,392)
Additions to commercial real estate properties ................................ (48,052) (152,074) (89,818)
Distributions from investments in real estate joint ventures .................. 276 82 368
Payment of deferred leasing costs ............................................. (16,414) (10,513) (24,082)
Additions to furniture, fixtures and equipment ................................ (2,414) (635) (742)
Investments in affiliate joint ventures ....................................... -- (25,056) (10,780)
Proceeds from redemption of preferred securities .............................. 1,528 35,700 19,903
Proceeds from sales of real estate, securities and mortgage note receivable
repayments ................................................................... 22,022 76,503 49,810
---------- ---------- ----------
Net cash used in investing activities ......................................... (85,072) (87,520) (261,304)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secured borrowings .............................................. -- 325,000 297,163
Principal payments on secured borrowings ...................................... (11,065) (302,894) (27,367)
Proceeds from issuance of senior unsecured notes, net of issuance costs ....... 49,432 -- --
Payment of loan costs and prepayment penalties ................................ (1,568) (6,252) (11,649)
Investments in affiliate loans and service companies .......................... -- (14,227) (14,568)
Proceeds from unsecured credit facility ....................................... 158,000 153,000 689,600
Principal payments on unsecured credit facility and term loan ................. (162,600) (98,000) (845,600)
Contributions ................................................................. 6,310 2,813 4,010
Distributions ................................................................. (147,334) (139,568) (128,369)
Repurchases of common and preferred units ..................................... (74,692) (1,421) --
Contributions by minority partners in consolidated partnerships ............... 1,343 101,832 135,975
Distributions to minority partners in consolidated partnerships ............... (20,051) (16,458) (12,632)
---------- ---------- ----------
Net cash provided by (used in) financing activities ............................ (202,225) 3,825 86,563
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ........................... (91,197) 105,149 (4,498)
Cash and cash equivalents at beginning of period ............................... 121,773 16,624 21,122
---------- ---------- ----------
Cash and cash equivalents at end of period ..................................... $ 30,576 $ 121,773 $ 16,624
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest, including interest capitalized ...... $ 98,083 $ 105,087 $ 106,106
========== ========== ==========
(see accompanying notes to financial statements)
IV-12
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Reckson Operating Partnership, L. P. (the "Operating Partnership") is
engaged in the ownership, management, operation, leasing and development of
commercial real estate properties, principally office and industrial buildings
and also owns certain undeveloped land for future development (collectively,
the "Properties") located in the New York tri-state area (the "Tri-State
Area").
ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
The Operating Partnership commenced operations on June 2, 1995. The sole
general partner in the Operating Partnership, Reckson Associates Realty Corp.
(the "Company") is a self administered and self managed real estate investment
trust ("REIT"). During June, 1995, the Company contributed approximately $162
million in cash to the Operating Partnership in exchange for an approximate 73%
general partnership interest. All properties acquired by the Company are held
by or through the Operating Partnership. In addition, in connection with the
formation of the Operating Partnership, the Operating Partnership executed
various option and purchase agreements whereby it issued units in the Operating
Partnership ("Units") to certain continuing investors and assumed certain
indebtedness in exchange for interests in certain property partnerships, fee
simple and leasehold interests in properties and development land, certain
other business assets and 100% of the non-voting preferred stock of the
management and construction companies. The Company's ownership percentage in
the Operating Partnership was approximately 89.5% and 89.2% at December 31,
2002 and 2001, respectively.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
consolidated financial position of the Operating Partnership and its
subsidiaries at December 31, 2002 and 2001 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002. The Operating Partnership's investments in majority owned and
controlled real estate joint ventures are reflected in the accompanying
financial statements on a consolidated basis with a reduction for minority
partners' interest. The Operating Partnership also invests in real estate joint
ventures where it may own less than a controlling interest. Such investments
are also reflected in the accompanying financial statements on the equity
method of accounting. The operating results of Reckson Management Group, Inc.,
RANY Management Group, Inc., Reckson Construction Group New York, Inc. and
Reckson Construction Group, Inc. (collectively, the "Service Companies"), in
which the Operating Partnership owned a 97% non-controlling interest, are
reflected in the accompanying financial statements on the equity method of
accounting through September 30, 2002. On October 1, 2002, the Operating
Partnership acquired the remaining 3% interests in the Service Companies for an
aggregate purchase price of approximately $122,000. As a result, commencing
October 1, 2002, the Operating Partnership consolidates the operations of the
Service Companies. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements.
The minority interests at December 31, 2002 represent a 49% non-affiliated
interest in RT Tri-State LLC, owner of a nine property suburban office
portfolio, a 40% non-affiliated interest in Omni Partners, L.P., owner of a
579,000 square foot suburban office property and a 49% non-affiliated interest
in Metropolitan 919 Third Avenue, LLC, owner of the property located at 919
Third Avenue, New York, NY.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") 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.
IV-13
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are
recorded at cost. Tenant improvements, which are included in buildings and
improvements, are also stated at cost. Expenditures for ordinary maintenance
and repairs are expensed to operations as they are incurred. Renovations and /
or replacements, which improve or extend the life of the asset are capitalized
and depreciated over their estimated useful lives.
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to thirty years for buildings and improvements
and five to ten years for furniture, fixtures and equipment. Tenant
improvements, which are included in buildings and improvements, are amortized
on a straight-line basis over the term of the related leases.
Long Lived Assets
On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A property's
value is impaired only if management's estimate of the aggregate future cash
flows (undiscounted and without interest charges) to be generated by the
property are less than the carrying value of the property. Such cash flows
consider factors such as expected future operating income, trends and
prospects, as well as the effects of demand, competition and other factors. To
the extent impairment has occurred, the loss will be measured as the excess of
the carrying amount of the property over the fair value of the property.
The Operating Partnership is required to make subjective assessments as to
whether there are impairments in the value of its real estate properties and
other investments. These assessments have a direct impact on the Operating
Partnership's net income, because taking an impairment results in an immediate
negative adjustment to net income. In determining impairment, if any, the
Operating Partnership has adopted Financial Accounting Standards Board ("FASB")
Statement No. 144, "Accounting for the Impairment or Disposal of Long Lived
Assets" (see Recent Accounting Pronouncements).
Cash Equivalents
The Operating Partnership considers highly liquid investments with a
maturity of three months or less when purchased, to be cash equivalents.
Tenant's lease security deposits aggregating approximately $5.6 million
and $5.1 million at December 31, 2002 and 2001, respectively have been included
in cash and cash equivalents on the accompanying balance sheets.
Deferred Costs
Tenant leasing commissions and related costs incurred in connection with
leasing tenant space are capitalized and amortized over the life of the related
lease. In addition, loan costs incurred in obtaining financing are capitalized
and amortized over the term of the related loan.
Income Taxes
No provision has been made for income taxes in the accompanying
consolidated financial statements since such taxes, if any, are the
responsibility of the individual partners.
IV-14
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of a 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 Operating Partnership records interest income on investments in
mortgage notes and notes receivable on an accrual basis of accounting. The
Operating Partnership 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 Operating Partnership
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.
Gain on sales of real estate are recorded when title is conveyed to the
buyer, subject to the buyer's financial commitment being sufficient to provide
economic substance to the sale and the Operating Partnership having no
substantial continuing involvement with the buyer.
Net Income (Loss) Per Common Partnership Unit
Net income (loss) per Class A common partnership unit and Class B Common
partnership unit is determined by allocating net income (loss) after preferred
distributions and minority partners' interest in consolidated partnerships
income to the general and limited partners based on their weighted average
distribution per common partnership units outstanding during the respective
periods presented.
Distributions to Preferred Unit Holders
Holders of preferred units of limited and general partnership interest are
entitled to distributions based on the stated rates of return (subject to
adjustment) for those units.
Derivative Instruments
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which became effective January 1, 2001 requires the Operating
Partnership to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of the derivative will either be offset against the change in
fair value of the hedged asset, liability, or firm commitment through earnings,
or recognized in accumulated other comprehensive income ("OCI") until the
hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
As of January 1, 2001, the carrying value of the Operating Partnership's
derivatives equaled their fair value and as a result no cumulative effect
changes were recorded. Additionally, as of June 30, 2001, the fair value of the
Operating Partnership's derivatives equaled approximately $3.7 million and was
reflected in other assets and OCI on the Operating Partnership's balance sheet.
On July 18, 2001, the mortgage note payable to which these derivatives relate
to was funded (see Note 2) and their fair value at that time was approximately
$676,000 less than their carrying value. This amount is being amortized to
interest expense over the term of the mortgage note to which it relates.
Because of the Operating Partnership's minimal use of derivatives, the adoption
of this Statement did not have a significant effect on earnings or the
financial position of the Operating Partnership.
IV-15
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Recent Accounting Pronouncements
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("Statement No. 144"). Statement
No. 144 provides accounting guidance for financial accounting and reporting for
the impairment or disposal of long-lived assets. Statement No. 144 supersedes
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of. It also supersedes the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30, Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions related to the disposal of a segment of a business. The Operating
Partnership adopted Statement No. 144 on January 1, 2002. The adoption of this
statement did not have a material effect on the results of operations or the
financial position of the Operating Partnership. The adoption of Statement No.
144 does not have an impact on net income (loss) allocable to common
shareholders. Statement No. 144 only impacts the presentation of the results of
operations and gain (loss) on sales of real estate for those properties sold
during the period within the consolidated statements of operations.
On January 1, 2002, the Operating Partnership adopted the provisions of
FASB Statement No. 142, "Goodwill and Other Intangible Assets" ("Statement No.
142"). This statement makes significant changes to the accounting for business
combinations, goodwill, and intangible assets. Among other provisions,
Statement No. 142 requires that a portion of the purchase price of real estate
acquisitions be assigned to the fair value of an intangible asset for above
market operating leases or to an intangible liability for below market
operating leases. Such intangible assets or liabilities are then required to be
amortized into revenue over the remaining life of the respective leases. The
adoption of this statement did not have an effect on the Operating
Partnership's results of operations or financial condition for the year ended
December 31, 2002.
In April 2002, the FASB issued Statement No. 145, ("Statement No. 145"),
which rescinded Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt". Statement No. 145 is effective for fiscal years
beginning after May 15, 2002. The Operating Partnership will adopt Statement
No. 145 on January 1, 2003 which will result in a change to reported net income
(loss).
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees", Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 significantly changes
the current practice in the accounting for, and disclosure of, guarantees.
Guarantees and indemnification agreements meeting the characteristics described
in FIN 45 are required to be initially recorded as a liability at fair value.
FIN 45 also requires a guarantor to make significant new disclosures for
virtually all guarantees even if the likelihood of the guarantor having to make
payment under the guarantee is remote. The disclosure requirements within FIN
45 are effective for financial statements for annual or interim periods ending
after December 15, 2002. The initial recognition and initial measurement
provisions are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The Operating Partnership is currently
evaluating the effects of FIN 45 on the Operating Partnership's results of
operations or financial condition.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which explains how to identify variable
interest entities ("VIE") and how to assess whether to consolidate such
entities. The provisions of this interpretation are immediately effective for
VIE's formed after January 31, 2003. For VIE's formed prior to January 31,
2003, the provisions of this interpretation apply to the first fiscal year or
interim period beginning after June 15, 2003. Management has not yet determined
whether any of its consolidated or unconsolidated subsidiaries represent VIE's
pursuant to such interpretation. Such determination could result in a change in
the Operating Partnership's consolidation policy related to such entities.
IV-16
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. MORTGAGE NOTES PAYABLE
At December 31, 2002, there were 16 fixed rate mortgage notes payable with
an aggregate outstanding principal amount of approximately $740.0 million.
These mortgage notes are secured by properties with an aggregate carrying value
at December 31, 2002 of approximately $1.5 billion and which are pledged as
collateral against the mortgage notes payable. In addition, approximately $45.1
million of the $740.0 million is recourse to the Operating Partnership. The
mortgage notes bear interest at rates ranging from 6.45% to 10.10%, and mature
between 2004 and 2027. The weighted average interest rates on the outstanding
mortgage notes payable at December 31, 2002, 2001 and 2000 were approximately
7.3%, 7.3% and 7.8%, respectively. Certain of the mortgage notes payable are
guaranteed by certain limited partners in the Operating Partnership and / or
the Company.
The following table sets forth the Operating Partnership's mortgage notes
payable at December 31, 2002, by scheduled maturity date (dollars in
thousands):
PRINCIPAL INTEREST MATURITY AMORTIZATION
PROPERTY OUTSTANDING RATE DATE TERM (YEARS)
- --------------------------------------------------------- ----------- -------- --------------- --------------
80 Orville Drive, Islip, NY ............................. $ 2,616 10.10% February, 2004 Interest only
395 North Service Road, Melville, NY .................... 19,709 6.45% October, 2005 $34 per month
200 Summit Lake Drive, Valhalla, NY ..................... 19,373 9.25% January, 2006 25
1350 Avenue of the Americas, NY, NY ..................... 74,631 6.52% June, 2006 30
Landmark Square, Stamford, CT (a) ....................... 45,090 8.02% October, 2006 25
100 Summit Lake Drive, Valhalla, NY ..................... 19,101 8.50% April, 2007 15
333 Earle Ovington Blvd., Mitchel Field, NY (b) ......... 53,864 7.72% August, 2007 25
810 Seventh Avenue, NY, NY .............................. 82,854 7.73% August, 2009 25
100 Wall Street, NY, NY ................................. 35,904 7.73% August, 2009 25
6900 Jericho Turnpike, Syosset, NY ...................... 7,348 8.07% July, 2010 25
6800 Jericho Turnpike, Syosset, NY ...................... 13,922 8.07% July, 2010 25
580 White Plains Road, Tarrytown, NY .................... 12,685 7.86% September, 2010 25
919 Third Avenue, NY, NY (c) ............................ 246,651 6.867% August, 2011 30
110 Bi-County Blvd., Farmingdale, NY .................... 3,635 9.125% November, 2012 20
One Orlando Center, Orlando, FL (d) ..................... 38,366 6.82% November, 2027 28
120 West 45th Street, NY, NY (d) ........................ 64,263 6.82% November, 2027 28
---------
Total / Weighted average ................................ $ 740,012 7.26%
=========
(a) Encompasses six Class A office properties.
(b) The Operating Partnership has a 60% general partnership interest in this
property and its proportionate share of the aggregate principal amount is
approximately $32.3 million.
(c) The Operating Partnership has a 51% membership interest in this property
and its proportionate share of the aggregate principal amount is
approximately $125.8 million.
(d) Subject to interest rate adjustment on November 1, 2004 to the greater of
8.82% per annum or the yield on noncallable U.S. Treasury obligations with
a term of fifteen years plus 2% per annum.
In addition, the Operating Partnership has a 60% interest in an
unconsolidated joint venture property. The Operating Partnership's pro rata
share of the mortgage debt at December 31, 2002 is approximately $7.5 million.
This mortgage note payable bears interest at 8.85% per annum and matures on
September 1, 2005.
IV-17
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. MORTGAGE NOTES PAYABLE - (CONTINUED)
Scheduled principal repayments to be made during the next five years and
thereafter, for mortgage notes payable outstanding at December 31, 2002, are as
follows (in thousands):
SCHEDULED DUE AT
PRINCIPAL MATURITY TOTAL
--------- --------- ---------
2003 ............... $ 12,300 $ -- $ 12,300
2004 ............... 13,169 2,616 15,785
2005 ............... 14,167 18,553 32,720
2006 ............... 13,785 129,920 143,705
2007 ............... 11,305 60,539 71,844
Thereafter ......... 117,389 346,269 463,658
--------- --------- ---------
$ 182,115 $ 557,897 $ 740,012
========= ========= =========
3. UNSECURED CREDIT FACILITY
The Operating Partnership currently has a three year $500 million
unsecured revolving credit facility (the "Credit Facility") from JPMorgan Chase
Bank, as administrative agent, Wells Fargo Bank, National Association as
syndication agent and Citicorp North America, Inc. and Wachovia Bank, National
Association as co-documentation agents. The Credit Facility matures in December
2005, contains options for a one year extension subject to a fee of 25 basis
points and, upon receiving additional lender commitments, increasing the
maximum revolving credit amount to $750 million. In addition, borrowings under
the Credit Facility are currently priced off LIBOR plus 90 basis points and the
Credit Facility carries a facility fee of 20 basis points per annum. In the
event of a change in the Operating Partnership's unsecured credit rating the
interest rates and facility fee are subject to change. The outstanding
borrowings under the Credit Facility were $267.0 million at December 31, 2002.
The Credit Facility replaced the Operating Partnership's $575 million
unsecured credit facility (the "Prior Facility" and together with the Credit
Facility, the "Credit Facility"). As a result, certain deferred loan costs
incurred in connection with the Prior Facility were written off. Such amount is
reflected as an extraordinary loss on the Operating Partnership's consolidated
statements of operations.
The Operating Partnership utilizes the Credit Facility primarily to
finance real estate investments, fund its real estate development activities
and for working capital purposes. At December 31, 2002, the Operating
Partnership had availability under the Credit Facility to borrow approximately
an additional $203.0 million subject to compliance with certain financial
covenants.
The Operating Partnership capitalized interest incurred on borrowings to
fund certain development projects in the amount of $8.3 million, $10.2 million
and $11.5 million for the years ended December 31, 2002, 2001 and 2000,
respectively.
4. SENIOR UNSECURED NOTES
As of December 31, 2002, the Operating Partnership had outstanding
approximately $499.3 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures by
scheduled maturity date (dollars in thousands):
FACE
ISSUANCE AMOUNT COUPON RATE TERM MATURITY
- ------------------------- --------- ----------- -------- ---------------
March 26, 1999 .......... $ 100,000 7.40% 5 years March 15, 2004
June 17, 2002 ........... $ 50,000 6.00% 5 years June 15, 2007
August 27, 1997 ......... $ 150,000 7.20% 10 years August 28, 2007
March 26, 1999 .......... $ 200,000 7.75% 10 years March 15, 2009
IV-18
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. SENIOR UNSECURED NOTES - (CONTINUED)
Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 and June 17, 2002 were
issued at aggregate discounts of $738,000 and 267,500, respectively. Such
discounts are being amortized over the term of the Senior Unsecured Notes to
which they relate.
On June 17, 2002, the Operating Partnership issued $50 million of 6.00%
(6.125% effective rate) Senior Unsecured Notes. Net proceeds of approximately
$49.4 million received from this issuance were used to repay outstanding
borrowings under the Prior Facility.
5. LAND LEASES AND AIR RIGHTS
The Operating Partnership leases, pursuant to noncancellable operating
leases, the land on which twelve of its buildings were constructed. The leases,
which contain renewal options, expire between 2009 and 2084. The leases either
contain provisions for scheduled increases in the minimum rent at specified
intervals or for adjustments to rent based upon the fair market value of the
underlying land or other indexes 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 approximately $3.3 million
and $3.0 million at December 31, 2002 and 2001, respectively. These amounts are
included in accrued expenses and other liabilities on the accompanying balance
sheets.
In addition, the Operating Partnership, through the acquisition of certain
properties, is subject to two air rights lease agreements. These lease
agreements have terms expiring between 2048 and 2073, including renewal
options.
Reckson Management Group, Inc. is subject to operating leases for certain
of its management offices and warehouse storage space. These operating leases
expire between 2003 and 2009 (see Note 8).
Future minimum lease commitments relating to the land leases, air rights
lease agreements and operating leases during the next five years and thereafter
are as follows (in thousands):
YEAR ENDED LAND AIR OPERATING
DECEMBER 31, LEASES RIGHTS LEASES
- ----------------------- -------- ------- ---------
2003 ............... $ 2,707 $ 369 $ 1,368
2004 ............... 2,811 379 1,313
2005 ............... 2,814 379 1,359
2006 ............... 2,795 379 1,407
2007 ............... 2,735 379 1,455
Thereafter ......... 43,276 4,280 683
-------- ------- -------
$ 57,138 $ 6,165 $ 7,585
======== ======= =======
6. COMMERCIAL REAL ESTATE INVESTMENTS
As of December 31, 2002, the Operating Partnership owned and operated 75
office properties (inclusive of eleven office properties owned through joint
ventures) comprising approximately 13.6 million square feet, 101 industrial
properties comprising approximately 6.7 million square feet and two retail
properties comprising approximately 20,000 square feet located in the Tri-State
Area.
The Operating Partnership also owns approximately 338 acres of land in 14
separate parcels of which the Operating Partnership can develop approximately
3.2 million square feet of office space and approximately 470,000 square feet
of industrial / R&D space. Included in these development parcels is 52.7 acres
of land located in Valhalla, NY which the Operating Partnership acquired in
April 2002 for approximately $23.8 million and which it can develop
approximately 875,000 square feet of office space. The Operating Partnership
currently owns and operates three buildings encompassing approximately 700,000
IV-19
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. COMMERCIAL REAL ESTATE INVESTMENTS - (CONTINUED)
square feet in the same office park in which this land parcel is located. This
acquisition was financed in part from the sales proceeds of an office property
being held by a qualified intermediary for the purposes of an exchange of real
property pursuant to Section 1031 of the Code and from an advance under the
Credit Facility. The Operating Partnership is currently evaluating alternative
land uses for certain of the land holdings to realize the highest economic
value. These alternatives may include rezoning certain land parcels from
commercial to residential for potential disposition. As of December 31, 2002,
the Operating Partnership had invested approximately $121.2 million in these
development projects. Management has made subjective assessments as to the
value and recoverability of these investments based on current and proposed
development plans, market comparable land values and alternative use values.
The Operating Partnership has capitalized approximately $10.5 million for the
year ended December 31, 2002 related to real estate taxes, interest and other
carrying costs related to these development projects.
During February 2003, the Operating Partnership, through Reckson
Construction Group Inc., entered into a contract with an affiliate of First
Data Corp. to sell a 19.3-acre parcel of land located in Melville, New York and
has been retained by the purchaser to develop a build-to-suit 195,000 square
foot office building for aggregate consideration of approximately $47 million.
This transaction is scheduled to close during the first quarter of 2003 and
construction of the aforementioned office building is scheduled to commence
shortly thereafter.
The Operating Partnership holds a $17.0 million note receivable which
bears interest at 11.5% per annum and is secured by a minority partnership
interest in Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class
A office property located in Uniondale, N.Y. (the "Omni Note"). The Operating
Partnership currently owns a 60% majority partnership interest in Omni
Partners, L.P. and on March 14, 2007 may exercise an option to acquire the
remaining 40% interest for a price based on 90% of the fair market value of the
property. The Operating Partnership also holds three other notes receivable
aggregating $36.5 million which bear interest at rates ranging from 10.5% to
12% per annum and are secured in part by a minority partner's preferred unit
interest in the Operating Partnership, certain interest in real property and a
personal guaranty (the "Other Notes" and collectively with the Omni Note, the
"Note Receivable Investments"). As of December 31, 2002, management has made
subjective assessments as to the underlying security value on the Operating
Partnership's Note Receivable Investments. Based on these assessments the
Operating Partnership's management believes there is no impairment to the
carrying value related to the Operating Partnership's Note Receivable
Investments. The Operating Partnership also owns a 355,000 square foot office
building in Orlando, Florida. This non-core real estate holding was acquired in
May 1999 in connection with the Operating Partnership's initial New York City
portfolio acquisition. This property is cross collateralized under a $103
million mortgage note payable along with one of the Operating Partnership's New
York City buildings.
The Operating Partnership also owns a 60% non-controlling interest in a
172,000 square foot office building located at 520 White Plains Road in White
Plains, New York (the "520JV") which it manages. The remaining 40% interest is
owned by JAH Realties L.P. Jon Halpern, the CEO and a director of HQ Global
Workplaces, is a partner in JAH Realties, L.P. As of December 31, 2002, the
520JV had total assets of $21.0 million, a mortgage note payable of $12.5
million and other liabilities of $197,000. The Company's allocable share of the
520JV mortgage note payable is approximately $7.5 million. This mortgage note
payable bears interest at 8.85% per annum and matures on September 1, 2005. In
addition, the 520JV had total revenues of $4.2 million and $4.0 million and
total expenses of $3.3 million and $3.3 million for the years ended December
31, 2002 and 2001, respectively. The operating agreement of the 520JV requires
joint decisions from all members on all significant operating and capital
decisions including sale of the property, refinancing of the property's
mortgage debt, development and approval of leasing strategy and leasing of
rentable space. As a result of the decision-making participation relative to
the operations of the property, the Operating Partnership accounts for the
520JV under the equity
IV-20
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. COMMERCIAL REAL ESTATE INVESTMENTS - (CONTINUED)
method of accounting. The 520JV contributed approximately $648,000 and $478,000
to the Operating Partnership's equity in earnings of real estate joint ventures
for the year ended December 31, 2002 and 2001, respectively.
On August 7, 2002, the Operating Partnership sold an industrial property
on Long Island aggregating approximately 32,000 square feet for approximately
$1.8 million. This property was sold to the sole tenant of the property through
an option contained in the tenant's lease. On August 8, 2002, the Operating
Partnership sold two Class A office properties located in Westchester County,
NY aggregating approximately 157,000 square feet for approximately $18.5
million. Net proceeds from these sales were used to repay borrowings under the
Credit Facility and for general purposes. The Operating Partnership recorded an
aggregate net gain of approximately $4.9 million as a result of these sales. In
addition, in accordance with Statement No. 144, the operating results of these
properties and the resulting gain on sales of real estate have been reflected
as discontinued operations for all periods presented on the accompanying
statements of operations.
During September 2000, the Operating Partnership formed a joint venture
(the "Tri-State JV") with Teachers Insurance and Annuity Association ("TIAA")
and contributed nine Class A suburban office properties aggregating
approximately 1.5 million square feet to the Tri-State JV for a 51% majority
ownership interest. TIAA contributed approximately $136 million for a 49%
interest in the Tri-State JV which was then distributed to the Operating
Partnership. As a result, the Operating Partnership realized a gain of
approximately $15.2 million. The Operating Partnership is responsible for
managing the day-to-day operations and business affairs of the Tri-State JV and
has substantial rights in making decisions affecting the properties such as
leasing, marketing and financing. The minority member has certain rights
primarily intended to protect its investment. For purposes of its financial
statements the Operating Partnership consolidates the Tri-State JV.
On December 21, 2001, the Operating Partnership formed a joint venture
with the New York State Teachers' Retirement System ("NYSTRS") (the "919JV")
whereby NYSTRS acquired a 49% indirect interest in the property located at 919
Third Avenue, New York, NY for $220.5 million which included $122.1 million of
its proportionate share of secured mortgage debt and approximately $98.4
million of cash which was then distributed to the Operating Partnership. As a
result, the Operating Partnership realized a gain of approximately $18.9
million. The Operating Partnership is responsible for managing the day-to-day
operations and business affairs of the 919JV and has substantial rights in
making decisions affecting the property such as developing a budget, leasing
and marketing. The minority member has certain rights primarily intended to
protect its investment. For purposes of its financial statements the Operating
Partnership consolidates the 919JV.
7. PARTNERS CAPITAL
On December 31, 2002, the Operating Partnership had issued and outstanding
9,915,313 Class B common units. The distributions from the Class B common units
is subject to adjustment annually based on a formula which measures increases
or decreases in the Company's Fund From Operations, as defined, over a base
year. The Class B common units currently receive an annual distribution of
$2.5884 per unit.
The Class B common units are exchangeable at any time, at the option of
the holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The Class B common units will be exchanged for an
equal number of Class A common units upon the exchange, if any, by the Company
of Class A common stock for Class B common stock at any time following November
23, 2003.
The Board of Directors of the Company has authorized the purchase of up to
an additional five million shares of the Company's Class A common stock and /
or its Class B common stock. Under this buy-back program, the Operating
Partnership purchased 368,200 Class B common units at an average
IV-21
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. PARTNERS CAPITAL - (CONTINUED)
price of $22.90 per Class B unit and 2,698,400 Class A common units at an
average price of $21.60 per Class A unit for an aggregate purchase price for
both the Class A and Class B common units of approximately $66.7 million. As a
result of these purchases, annual common unit distributions will decrease by
approximately $5.5 million. Previously, in conjunction with the Company's prior
stock buy-back program, the Operating Partnership purchased and retired
1,410,804 Class B common units at an average price of $21.48 per Class B unit
and 61,704 Class A common units at an average price of $23.03 per Class A unit
for an aggregate purchase price for both the Class A and Class B common units
of approximately $31.7 million.
The Board of Directors of the Company has formed a pricing committee to
consider purchases of up to $75 million of the Company's outstanding preferred
securities. During October 2002, the Company purchased and retired 357,500
shares of its Series A preferred stock at $22.29 per share for approximately
$8.0 million. As a result, the Operating Partnership purchased and retired an
equal number of preferred units of general partnership interest from the
Company and reduced annual preferred distributions by approximately $682,000.
During the year ended December 31, 2002, approximately 11,303 preferred
units of limited partnership interest, with a liquidation preference value of
approximately $11.3 million, were exchanged for 451,934 Units at an average
price of $24.66 per Unit. In addition, the Company increased its general
partnership interest in the Operating Partnership by acquiring 666,468
outstanding Units from certain limited partners in exchange for an equal number
of shares of its Class A common stock.
During the year ended December 31, 2001, approximately 11,553 preferred
units of limited partnership interest, with a liquidation preference value of
approximately $11.6 million, were exchanged for 456,351 Units at an average
price of $25.32 per Unit. In addition, the Company increased its general
partner interest in the Operating Partnership by acquiring 660,370 outstanding
Units from certain limited partners in exchange for an equal number of shares
of it's Class A common stock.
On October 16, 2000, the Company's Board of Directors announced that it
adopted a Shareholder Rights Plan designed to protect its shareholders from
various abusive takeover tactics, including attempts to acquire control of the
Company at an inadequate price, depriving its shareholders of the full value of
their investment. The Operating Partnership has adopted a similar rights plan
(the "Rights Plan") which would be triggered in the event the Company's
Shareholders Rights Plan is triggered. The Rights Plan was not adopted in
response to any known effort to acquire control of the Operating Partnership or
the Company.
Under the Rights Plan, each Class A common unitholder will receive a
dividend of one Right for each Class A common unit owned. The Rights will be
exercisable only if a person or group acquires, or announces their intent to
acquire, 15% or more of the Company's Class A common stock, or announces a
tender offer the consummation of which would result in beneficial ownership by
a person or group of 15% or more of the Company's Class A common stock. Each
Right will entitle the holder to purchase one one-thousandth of a unit of a new
series of junior participating preferred units of the Operating Partnership at
an initial exercise price of $84.44.
If any person acquires beneficial ownership of 15% or more of the
outstanding shares of Class A common stock of the Company, then all Rights
holders (except the acquiring person if such person is a holder of Rights) will
be entitled to purchase the Operating Partnership's Class A common units at a
discounted price. If the Company is acquired in a merger after such an
acquisition, all Rights holders (except the acquiring person if such person is
a holder of Rights) will also be entitled to purchase stock in the buyer at a
discount in accordance with the Rights Plan.
The distribution of Rights was made to Class A common unitholders of
record at the close of business on October 27, 2000 and Class A common units
that are newly-issued after that date (including Class A common units issued
upon conversion of the outstanding Class B common units) will also carry
IV-22
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. PARTNERS CAPITAL - (CONTINUED)
Rights until the Rights become detached from the Class A common units. The
Rights will expire at the close of business on October 13, 2010, unless earlier
redeemed by the Operating Partnership. The Rights distribution is not taxable
to unitholders.
During July 1998, the Operating Partnership formed Metropolitan Partners,
LLC ("Metropolitan") for the purpose of acquiring Class A office properties in
New York City. In May 2001, a minority partner that owned an $85 million
preferred equity investment in Metropolitan converted its preferred equity
investment into 3,453,881 shares of the Company's Class A common stock based on
a conversion price of $24.61 per share and the Operating Partnership issued
3,453,881 Class A common units to the Company. As a result of the minority
partner's conversion of their preferred equity investment, the Operating
Partnership owns 100% of Metropolitan.
The Company has historically structured long term incentive programs
("LTIP") using restricted stock and stock loans. In July 2002, as a result of
certain provisions of the Sarbanes Oxley legislation, the Company has
discontinued the use of stock loans in its LTIP. In connection with LTIP grants
made prior to the enactment of the Sarbanes Oxley legislation the Company made
stock loans to certain executive and senior officers to purchase 1,372,393
shares of its Class A common stock at market prices ranging from $18.44 per
share to $27.13 per share. The stock loans were set to bear interest at the
mid-term Applicable Federal Rate and were secured by the shares purchased. Such
stock loans including accrued interest vest and are ratably forgiven each year
on the annual anniversary of the grant date based upon vesting periods ranging
from four to ten years based on continued service and in part on attaining
certain annual performance measures. These stock loans had an initial aggregate
weighted average vesting period of approximately nine years. Approximately $4.5
million of compensation expense was recorded for the year ended December 31,
2002 related to these LTIP. Such amount has been included in marketing, general
and administrative expenses on the accompanying consolidated statements of
operations.
During 2002, approximately $3.9 million of stock loans made in prior years
in connection with the aforementioned LTIP matured. These stock loans were
secured by 155,418 shares of Class A common stock which were issued at prices
ranging from $22.50 per share to $27.13 per share. As a result of the Company
discontinuing the use of stock loans as part of its LTIP, the stock loans were
satisfied with restricted stock held by the Company which secured the stock
loans. The aggregate market value of these shares on the maturity dates of the
stock loans was approximately $3.4 million. The aggregate difference between
the market value of these shares and the carrying value of the stock loans was
recorded as a loss on the accompanying consolidated statements of operations.
The 155,418 shares of Class A common stock were subsequently retired by the
Company and the related Units were cancelled by the Operating Partnership.
The outstanding stock loan balances due from the Company's executive and
senior officers aggregated approximately $17.0 million and $24.3 million at
December 31, 2002 and 2001, respectively, and have been included as a reduction
of additional paid in capital on the accompanying consolidated statements of
partners' capital. The Company has other outstanding loans to its executive and
senior officers amounting to approximately $1.0 million at December 31, 2002
and 2001, related to life insurance contracts and approximately $1.0 million
and $.9 million at December 31, 2002 and 2001, respectively, primarily related
to tax payment advances on a stock compensation award made to a non-executive
officer.
In November 2002, the Company granted rights to 190,524 shares of its
Class A common stock to certain executive officers. These shares vest ratably
over a four-year period and will be issued in ratable installments on each
anniversary date of the grant as compensation to the executive officer.
Effective January 2003, the Company established a new LTIP for its
executive and senior officers. The four year plan has a core component which
provides for annual stock based compensation based
IV-23
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. PARTNERS CAPITAL - (CONTINUED)
upon continued service and in part based on attaining certain annual
performance measures. The plan has a special long-term component which provides
for compensation to be earned at the end of a four year period if the Company
attains certain four year cumulative performance measures. Amounts earned under
the special long-term component may be paid in cash or stock at the discretion
of the Compensation Committee of the Board. Performance measures are based on
total shareholder returns on a relative and absolute basis.
The Operating Partnership issues additional units to the Company with terms
similar to the terms of any securities issued by the Company (including any
securities issued by the Company upon the exercise of stock options), and
thereby increases the Company's general partnership interest in the Operating
Partnership. Any consideration received by the Company in respect of the
issuance of its securities is contributed to the Operating Partnership. In
addition, the Operating Partnership or a subsidiary, funds the compensation of
personnel, including any amounts payable under the Company's LTIP.
As of December 31, 2002, the Company had approximately 5.2 million shares
of its Class A common stock reserved for issuance under its stock option plans,
in certain cases subject to vesting terms, at a weighted average exercise price
of $23.42 per option. In addition, the Company has approximately 1.7 million
shares of its Class A common stock reserved for future issuance under its stock
option plans.
IV-24
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. RELATED PARTY TRANSACTIONS
In connection with the Company's initial public offering ("IPO"), the
Operating Partnership was granted ten year options to acquire ten properties
(the "Option Properties" which are either owned by certain Rechler family
members who are also executive officers of the Company, or in which the Rechler
family members own a non-controlling minority interest at a price based upon an
agreed upon formula. In years prior to 2001, one Option Property was sold by
the Rechler family members to a third party and four of the Option Properties
were acquired by the Operating Partnership for an aggregate purchase price of
approximately $35 million, which included the issuance of approximately 475,000
Units valued at approximately $8.8 million. Currently, certain Rechler family
members retain their equity interests in the five remaining Option Properties
(the "Remaining Option Properties") which were not contributed to the Operating
Partnership as part of the IPO. Such options provide the Operating Partnership
the right to acquire fee interest in two of the Remaining Option Properties and
the Rechlers' minority interests in three Remaining Option Properties. The
Independent Directors of the Company are currently reviewing whether the
Company should exercise one or more of the options relating to the Remaining
Option Properties.
The Operating Partnership conducts its management, leasing and
construction related services through the Company's taxable REIT subsidiaries
as defined by the Internal Revenue Code of 1986 (the "Code"). These services
are currently provided by Reckson Management Group, Inc., RANY Management
Group, Inc., Reckson Construction Group New York, Inc. and Reckson Construction
Group, Inc. (collectively, the "Service Companies") in which, as of September
30, 2002, the Operating Partnership owned a 97% non-controlling interest. An
entity which is substantially owned by certain Rechler family members who are
also executive officers of the Company owned a 3% controlling interest in the
Service Companies. In order to minimize the potential for corporate conflicts
of interests which became possible as a result of changes to the Code that
permit REIT's to own 100% of taxable REIT subsidiaries, the Independent
Directors of the Company approved the purchase by the Operating Partnership of
the remaining 3% interest in the Service Companies. On October 1, 2002, the
Operating Partnership acquired such 3% interests in the Service Companies for
an aggregate purchase price of approximately $122,000. Such amount was less
than the total amount of capital contributed to the Service Companies by the
Rechler family members. As a result of the acquisition of the remaining
interests in the Service Companies, the Operating Partnership commenced
consolidating the operations of the Service Companies. During 2002, Reckson
Construction Group, Inc. billed approximately $144,000 of market rate services
and Reckson Management Group, Inc. billed approximately $313,000 of market rate
management fees to the Remaining Option Properties. In addition, for the year
ended December 31, 2002, Reckson Construction Group, Inc. performed market rate
services, aggregating approximately $322,000 for a property in which certain
executive officers maintain an equity interest.
Reckson Management Group, Inc. leases 43,713 square feet of office and
storage space at a Remaining Option Property for its corporate offices located
in Melville, New York at an annual base rent of approximately $1.2 million.
Reckson Management Group, Inc. also leases 10,722 square feet of warehouse
space used for equipment, materials and inventory storage at a Remaining Option
Property located in Deer Park, New York at an annual base rent of approximately
$75,000.
A company affiliated with an Independent Director of the Company leases
15,566 square feet in a property owned by the Operating Partnership at an
annual base rent of approximately $431,500. Reckson Strategic Venture Partners,
LLC ("RSVP") leases 5,144 square feet in one of the Operating Partnership's
joint venture properties at an annual base rent of approximately $176,000.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Operating Partnership's core office and industrial focus
and whose common equity is held indirectly by FrontLine. In connection with the
formation and spin-off of FrontLine, the Operating Partnership established an
unsecured credit facility with FrontLine
IV-25
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. RELATED PARTY TRANSACTIONS- (CONTINUED)
(the "FrontLine Facility") in the amount of $100 million for FrontLine to use
in its investment activities, operations and other general corporate purposes.
The Operating Partnership advanced approximately $93.4 million under the
FrontLine Facility. The Operating Partnership also approved the funding of
investments of up to $100 million relating to RSVP (the "RSVP Commitment"),
through RSVP-controlled joint ventures (for REIT-qualified investments) or
advances made to FrontLine under an unsecured loan facility (the "RSVP
Facility") having terms similar to the FrontLine Facility (advances made under
the RSVP Facility and the FrontLine Facility hereafter, the "FrontLine Loans").
During March 2001, the Operating Partnership increased the RSVP Commitment to
$110 million and as of December 31, 2002, approximately $109.1 million had been
funded through the RSVP Commitment, of which $59.8 million represents
investments by the Operating Partnership in RSVP-controlled (REIT-qualified)
joint ventures and $49.3 million represents loans made to FrontLine under the
RSVP Facility. As of December 31, 2002, interest accrued (net of reserves)
under the FrontLine Facility and the RSVP Facility was approximately $19.6
million. RSVP retained the services of two managing directors to manage RSVP's
day-to-day operations. Prior to the spin off of Frontline, the Company
guaranteed certain salary provisions of their employment agreements with RSVP
Holdings, LLC, RSVP's common member. The term of these employment agreements is
seven years commencing March 5, 1998, provided however, that the term may be
earlier terminated after five years upon certain circumstances. The salary for
each managing director is $1 million in the first five years and $1.6 million
in years six and seven.
At June 30, 2001, the Company assessed the recoverability of the FrontLine
Loans and reserved approximately $3.5 million of the interest accrued during
the three-month period then ended. In addition, the Company formed a committee
of its Board of Directors, comprised solely of independent directors, to
consider any actions to be taken by the Company in connection with the
FrontLine Loans and its investments in joint ventures with RSVP. During the
third quarter of 2001, the Company noted a significant deterioration in
FrontLine's operations and financial condition and, based on its assessment of
value and recoverability and considering the findings and recommendations of
the committee and its financial advisor, the Company recorded a $163 million
valuation reserve charge, inclusive of anticipated costs, in its consolidated
statements of operations relating to its investments in the FrontLine Loans and
joint ventures with RSVP. The Operating Partnership has discontinued the
accrual of interest income with respect to the FrontLine Loans. The Operating
Partnership has also reserved against its share of GAAP equity in earnings from
the RSVP controlled joint ventures funded through the RSVP Commitment until
such income is realized through cash distributions. If the RSVP-controlled
joint ventures reported losses, the Operating Partnership would record its
proportionate share of such losses.
At December 31, 2001, the Operating Partnership, pursuant to Section 166
of the Code, charged off for tax purposes $70 million of the aforementioned
reserve directly related to the FrontLine Facility, including accrued interest.
On February 14, 2002, the Operating Partnership charged off for tax purposes an
additional $38 million of the reserve directly related to the FrontLine
Facility, including accrued interest, and $47 million of the reserve directly
related to the RSVP Facility, including accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating
Partnership and on June 12, 2002, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Operating
Partnership's investments in the FrontLine Loans and joint venture investments
with RSVP, inclusive of the Operating Partnership's share of previously accrued
GAAP equity in earnings on those investments, is approximately $65 million
which was reassessed with no change by management as of December 31, 2002. Such
amount has been reflected in investments in service companies and affiliate
loans and joint ventures on the Operating Partnership's consolidated balance
sheet. The common and preferred members of RSVP are currently in dispute over
certain provisions of the RSVP operating agreement. The members are currently
negotiating to restructure the RSVP operating agreement to settle the dispute.
There can be no assurances that the members will successfully negotiate a
settlement.
IV-26
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. RELATED PARTY TRANSACTIONS- (CONTINUED)
Both the FrontLine Facility and the RSVP Facility terminate on June 15,
2003, are unsecured and advances thereunder are recourse obligations of
FrontLine. Notwithstanding the valuation reserve, under the terms of the credit
facilities, interest accrued on the FrontLine Loans at a rate equal to the
greater of (a) the prime rate plus two percent and (b) 12% per annum, with the
rate on amounts that were outstanding for more than one year increasing
annually at a rate of four percent of the prior year's rate. In March 2001, the
credit facilities were amended to provide that (i) interest is payable only at
maturity and (ii) the Company may transfer all or any portion of its rights or
obligations under the credit facilities to its affiliates. The Company
requested these changes as a result of changes in REIT tax laws. As a result of
FrontLine's default under the FrontLine Loans, interest on borrowings
thereunder accrue at default rates ranging between 13% and 14.5% per annum.
Scott H. Rechler, who serves as Co-Chief Executive Officer and a director
of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with FASB Statement No. 107, "Disclosures About Fair Value
of Financial Instruments", management has made the following disclosures of
estimated fair value at December 31, 2002 as required by FASB Statement No.
107.
Cash equivalents, accounts receivable, accounts payable and accrued
expenses and variable rate debt are carried at amounts which reasonably
approximate their fair values.
The fair value of the Operating Partnership's long-term debt, mortgage
notes and notes receivable is estimated based on discounting future cash flows
at interest rates that management believes reflects the risks associated with
long-term debt, mortgage notes and notes receivable of similar risk and
duration. At December 31, 2002, the estimated aggregate fair value of the
Operating Partnership's mortgage notes and notes receivable exceeded their
carrying value by approximately $1.2 million and the aggregate fair value of
the Operating Partnership's long term debt exceeded its carrying value by
approximately $20.3 million.
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.
10. RENTAL INCOME
The Operating Partnership's office and industrial / R&D 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 Operating Partnership for increases in certain operating
costs and real estate taxes above base year costs.
Expected future minimum rents to be received over the next five years and
thereafter from leases in effect at December 31, 2002 are as follows (in
thousands):
2003 ............... $ 409,143
2004 ............... 395,029
2005 ............... 355,969
2006 ............... 309,136
2007 ............... 267,376
Thereafter ......... 1,291,328
- -----------------------------------
$ 3,027,981
===================================
IV-27
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. RENTAL INCOME - (CONTINUED)
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 balances sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets.
During the year ended December 31, 2002, the Operating Partnership
incurred approximately $6.3 million of bad debt expense related to tenant
receivables and deferred rents receivable which accordingly reduced total
operating revenues on the accompanying statements of operations.
11. SEGMENT DISCLOSURE
The Operating Partnership's portfolio consists of Class A office
properties located within the New York City metropolitan area and Class A
suburban office and industrial properties located and operated within the
Tri-State Area (the "Core Portfolio"). The Operating Partnership's portfolio
also includes one office property located in Orlando, Florida. The Operating
Partnership has Managing Directors who report directly to the Company's
Co-Presidents and Chief Financial Officer who have been identified as the Chief
Operating Decision Makers because of their final authority over resource
allocation, decisions and performance assessment.
The Operating Partnership does not consider (i) interest incurred on its
Credit Facility and Senior Unsecured Notes, (ii) the operating performance of
the office property located in Orlando, Florida, (iii) the operating
performance of those properties reflected as discontinued operations on the
Operating Partnership's consolidated statements of operations and (iv) the
operating results of the Service Companies as part of its Core Portfolio's
property operating performance for purposes of its component disclosure set
forth below.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
The following tables set forth the components of the Operating
Partnership's revenues and expenses and other related disclosures, as required
by Statement 131, for the years ended December 31 (in thousands):
2002
---------------------------------------------------
CORE PORTFOLIO OTHER CONSOLIDATED TOTALS
- ----------------------------------------------------------------------------------------------------------------------
Revenues:
Base rents, tenant escalations and reimbursements ............... $ 489,818 $ 8,264 $ 498,082
Other income .................................................... 1,070 6,940 8,010
- ----------------------------------------------------------------------------------------------------------------------
Total Revenues .................................................. 490,888 15,204 506,092
- ----------------------------------------------------------------------------------------------------------------------
Expenses:
Property expenses ............................................... 170,723 4,318 175,041
Marketing, general and administrative ........................... 18,686 12,892 31,578
Interest ........................................................ 51,907 36,678 88,585
Depreciation and amortization ................................... 104,064 8,277 112,341
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses .................................................. 345,380 62,165 407,545
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before preferred distributions, minority interests,
equity in earnings of real estate joint ventures and service
companies, gain on sales of real estate, discontinued
operations and extraordinary loss .............................. $ 145,508 $ (46,961) $ 98,547
======================================================================================================================
Total assets .................................................... $ 2,685,817 $ 226,235 $ 2,912,052
======================================================================================================================
IV-28
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. SEGMENT DISCLOSURE - (CONTINUED)
2001
---------------------------------------------------
CORE PORTFOLIO OTHER CONSOLIDATED TOTALS
- ----------------------------------------------------------------------------------------------------------------------
Revenues:
Base rents, tenant escalations and reimbursements ............... $ 484,953 $ 9,256 $ 494,209
Other income .................................................... 4,314 16,109 20,423
- ----------------------------------------------------------------------------------------------------------------------
Total Revenues .................................................. 489,267 25,365 514,632
- ----------------------------------------------------------------------------------------------------------------------
Expenses:
Property expenses ............................................... 164,357 2,934 167,291
Marketing, general and administrative ........................... 20,466 6,134 26,600
Interest ........................................................ 51,376 41,679 93,055
Depreciation and amortization ................................... 94,480 7,628 102,108
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses .................................................. 330,679 58,375 389,054
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before preferred distributions, minority interests,
valuation reserves, equity in earnings of real estate joint
ventures and service companies, gain on sales of real estate,
discontinued operations and extraordinary loss ................. $ 158,588 $ (33,010) $ 125,578
======================================================================================================================
Total assets .................................................... $ 2,763,771 $ 235,011 $ 2,998,782
======================================================================================================================
2000
---------------------------------------------------
CORE PORTFOLIO OTHER CONSOLIDATED TOTALS
- ----------------------------------------------------------------------------------------------------------------------
Revenues:
Base rents, tenant escalations and reimbursements ............... $ 438,738 $ 9,751 $ 448,489
Other income .................................................... 1,212 33,576 34,788
- ----------------------------------------------------------------------------------------------------------------------
Total Revenues .................................................. 439,950 43,327 483,277
- ----------------------------------------------------------------------------------------------------------------------
Expenses:
Property expenses ............................................... 153,577 2,526 156,103
Marketing, general and administrative ........................... 20,414 4,615 25,029
Interest ........................................................ 40,463 55,872 96,335
Depreciation and amortization ................................... 83,663 8,146 91,809
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses .................................................. 298,117 71,159 369,276
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before preferred distributions, minority interests,
equity in earnings of real estate joint ventures and service
companies, gain on sales of real estate, discontinued
operations and extraordinary loss .............................. $ 141,833 $ (27,832) $ 114,001
======================================================================================================================
Total assets .................................................... $ 2,604,494 $ 395,300 $ 2,999,794
======================================================================================================================
12. NON-CASH INVESTING AND FINANCING ACTIVITIES
Additional supplement disclosures of non-cash inveseting and financing
activities are as follows:
On May 31, 2001, Metropolitan's minority partner, at its election,
converted its preferred equity investment into 3,453,881 shares of the
Company's Class A common stock based on a conversion price of $24.61 per share.
As a result, the Operating Partnership issued 3,453,881 Class A common units to
the Company.
On December 21, 2001, in connection with the sale of a 49% indirect
interest in the property located at 919 Third Avenue, New York, NY, the
Operating Partnership's share of secured mortgage debt was reduced by
approximately $122.1 million.
During the year ended December 31, 2001, approximately 11,553 preferred
units of limited partnership interest, with a liquidation preference value of
approximately $11.6 million, were exchanged
IV-29
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. NON-CASH INVESTING AND FINANCING ACTIVITIES - (CONTINUED)
for 456,351 Units at an average price of $25.32 per Unit. In addition, the
Company increased its general partnership interest in the Operating Partnership
by acquiring 660,370 outstanding Units from certain limited partners in
exchange for an equal number of shares of its Class A common stock.
During the year ended December 31, 2002, approximately 11,303 preferred
units of limited partnership interest, with a liquidation preference value of
approximately $11.3 million, were exchanged for 451,934 Units at an average
price of $24.66 per Unit. In addition, the Company increased its general
partnership interest in the Operating Partnership by acquiring 666,468
outstanding Units from certain limited partners in exchange for an equal number
of shares of its Class A common stock.
13. COMMITMENTS AND CONTINGENCIES
The Operating Partnership had outstanding undrawn letters of credit
against its Credit Facility of approximately $1.0 million and $37.4 million at
December 31, 2002 and 2001, respectively.
HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of
flexible officing solutions in the world and which is controlled by FrontLine,
currently operates nine (formerly eleven) executive office centers in the
Operating Partnership's properties, three of which are held through joint
ventures. The leases under which these office centers operate expire between
2008 and 2011, encompass approximately 202,000 square feet and have current
contractual annual base rents of approximately $6.1 million. On March 13, 2002,
as a result of experiencing financial difficulties, HQ voluntarily filed a
petition for relief under Chapter 11 of the U.S. Bankruptcy Code. Subsequent to
HQ filing for bankruptcy protection it defaulted under their leases with the
Operating Partnership. Further, effective March 13, 2002, the Bankruptcy Court
granted HQ's petition to reject two of its leases with the Operating
Partnership. The two rejected leases aggregated approximately 23,900 square
feet and provided for contractual base rents of approximately $548,000 for the
2002 calendar year. Commencing April 1, 2002 and pursuant to the bankruptcy
filing, HQ has been paying current rental charges under its leases with the
Operating Partnership, other than under the two rejected leases. The Operating
Partnership is in negotiation to restructure four of the leases and leave the
terms of the remaining five leases unchanged. All negotiations with HQ are
conducted through a committee designated by the Company's Board and chaired by
an independent director. There can be no assurance as to whether any deal will
be consummated with HQ or if HQ will affirm or reject any or all of its
remaining leases with the Operating Partnership. As a result of the foregoing,
the Operating Partnership has reserved approximately $550,000 (net of minority
partners' interests and including the Operating Partnership's share of
unconsolidated joint venture interest), or 74%, of the amounts due from HQ as
of December 31, 2002. Scott H. Rechler serves as non-executive Chairman of the
Board of HQ and Jon Halpern is the Chief Executive Officer and a director of
HQ.
WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications
company, which leased, as of December 31, 2002, approximately 527,000 square
feet in thirteen of the Operating Partnership's properties located throughout
the Tri-State Area voluntarily filed a petition for relief under Chapter 11 of
the U.S. Bankruptcy Code on July 21, 2002. The total annualized base rental
revenue from these leases amounted to approximately $12.0 million, or 2.9% of
the Operating Partnership's total 2002 annualized rental revenue, making it the
Operating Partnership's second largest tenant based on base rental revenue
earned on a consolidated basis. All of WorldCom's leases were current on base
rental charges through December 31, 2002 and the Operating Partnership
currently holds approximately $300,000 in security deposits relating to these
leases. In February 2003, the Bankruptcy Court granted WorldCom's petition to
reject three of its leases with the Operating Partnership. The three rejected
leases aggregated approximately 192,000 square feet and provided for
contractual base rents of approximately $4.8 million for the 2002 calendar
year. The Operating Partnership is currently in negotiations to restructure the
remaining WorldCom leases. There can be no assurance as to whether WorldCom
will affirm or reject
IV-30
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
any or all of its remaining leases with the Operating Partnership. As a result
of the foregoing, the Operating Partnership has written off approximately $1.1
million of deferred rent receivable. In addition, the Operating Partnership
reserved an additional $475,000 against the deferred rents receivable
representing approximately 46% of the outstanding deferred rents receivable
attributable to the remaining WorldCom leases.
MetroMedia Fiber Network Services, Inc. ("MetroMedia"), which leased
approximately 112,000 square feet in one property from the Operating
Partnership, voluntarily filed a petition for relief under Chapter 11 of the
U.S. Bankruptcy Code in May 2002. MetroMedia's lease with the Operating
Partnership provided for contractual base rent of approximately $25 per square
foot amounting to $2.8 million per calendar year and expired in May 2010. In
July 2002, the Bankruptcy Court granted MetroMedia's petition to restructure
and reduce space under its existing lease. As a result, the lease was amended
to reduce MetroMedia's space by 80,357 square feet to 31,718 square feet.
Annual base rent on the 31,718 square feet MetroMedia will continue to lease is
$25 per square foot amounting to approximately $793,000 per annum. Further,
pursuant to the Bankruptcy Court order MetroMedia is required to pay to the
Operating Partnership a surrender fee of approximately $1.8 million. As a
result of the foregoing, the Operating Partnership wrote-off approximately
$388,000 of deferred rent receivable relating to this lease and recognized the
aforementioned surrender fee.
Arthur Andersen, LLP ("AA") leased approximately 38,000 square feet in one
of the Operating Partnership's New York City buildings. AA's lease with the
Operating Partnership provided for base rent of approximately $2 million on an
annualized basis and expired in April 2004. AA has experienced significant
financial difficulties with its business and as a result has entered into a
lease termination agreement with the Operating Partnership effective November
30, 2002. In October 2002, AA paid the Operating Partnership for all base
rental and other charges through November 30, 2002 and a lease termination fee
of approximately $144,000. As a result of the foregoing, the Operating
Partnership has written off approximately $130,000 of deferred rent receivable
attributable to AA's lease.
IV-31
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summary represents the Operating Partnership's results of
operations for each fiscal quarter during 2002 and 2001 (in thousands, except
unit data):
2002
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- -------------------------------------------------------------------------------------------------------------------------
Total revenues ......................................... 123,794 124,778 128,678 128,842
- -------------------------------------------------------------------------------------------------------------------------
Income before distributions to preferred unit holders,
minority interests, equity in earnings of real estate
joint ventures and service companies gain on sales of
real estate, discontinued operations and
extraordinary loss .................................... $ 27,878 $ 25,737 $ 22,778 $ 22,154
Preferred unit distributions ........................... (5,948) (5,767) (5,760) (5,648)
Minority partners' interest in consolidated partnerships (5,120) (4,813) (4,446) (4,351)
Equity in earnings of real estate joint ventures and
service companies ..................................... 335 159 104 515
Gain on sales of real estate ........................... 537 -- -- --
Discontinued operations ................................ 234 152 5,399 (312)
Extraordinary loss ..................................... -- -- -- (2,602)
- -------------------------------------------------------------------------------------------------------------------------
Net income allocable to common unit holders ............ 17,916 15,468 18,075 9,756
=========================================================================================================================
Net income allocable to:
Class A common units (a) .............................. $ 14,093 $ 12,211 $ 14,275 $ 7,707
Class B common units (a) .............................. 3,823 3,257 3,800 2,049
- -------------------------------------------------------------------------------------------------------------------------
Total .................................................. $ 17,916 $ 15,468 $ 18,075 $ 9,756
=========================================================================================================================
Net income per weighted average common unit:
Class A common (a) .................................... $ .25 $ .21 $ .25 $ .14
Class B common (a) .................................... $ .37 $ .32 $ .38 $ .21
- -------------------------------------------------------------------------------------------------------------------------
Weighted average common units outstanding:
Class A common ........................................ 57,520,000 58,275,000 56,802,000 55,660,000
Class B common ........................................ 10,284,000 10,284,000 10,101,000 9,915,000
(a) The net income allocable to common unit holders for the first, second and
third quarters as previously reported has been adjusted to record the
amortization of stock loans to certain executive and senior officers of
the Company and other costs incurred by the Company on behalf of the
Operating Partnership. These amounts aggregated approximately $.95
million, $.94 million and $1.1 million, respectively. Such amounts also
adjusted net income per weighted average common unit as follows:
First Quarter Second Quarter Third Quarter
--------------- ---------------- --------------
Class A common .......... $ (.01) $ (.01) $ (.02)
Class B common .......... $ (.02) $ (.02) $ (.03)
IV-32
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED) - (CONTINUED)
2001
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues ............................................. $ 129,548 $ 130,750 $ 130,695 $ 123,639
=============================================================================================================================
Income before distributions to preferred unit holders,
minority interests, valuation reserves, equity in
earnings of real estate joint ventures and service
companies, gain on sales of real estate, discontinued
operations and extraordinary loss ......................... $ 35,525 $ 32,363 $ 30,375 $ 27,315
Preferred unit distributions ............................... (6,085) (5,928) (5,996) (5,968)
Minority partners' interest in consolidated partnerships (5,755) (4,065) (3,065) (3,090)
Valuation reserves on investments in affiliate loans and
joint ventures and other investments ...................... -- -- (163,000) (3,101)
Equity in earnings of real estate joint ventures and
service companies ......................................... 398 801 505 383
Gain on sales of real estate ............................... -- -- 972 19,201
Discontinued operations .................................... 322 263 208 377
Extraordinary loss ......................................... -- -- (2,898) --
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) allocable to common unit holders ......... $ 24,405 $ 23,434 $ (142,899) $ 35,117
=============================================================================================================================
Net income (loss) allocable to:
Class A common units ...................................... $ 18,765 $ 18,535 $ (112,159) $ 27,576
Class B common units ...................................... 5,640 4,899 (30,740) 7,541
- -----------------------------------------------------------------------------------------------------------------------------
Total ...................................................... $ 24,405 $ 23,434 $ (142,899) $ 35,117
=============================================================================================================================
Net income (loss) per weighted average common unit:
Class A common ............................................ $ .35 $ .34 $ (1.96) $ .48
Class B common ............................................ $ .55 $ .48 $ (2.99) $ .73
Weighted average common units outstanding:
Class A common ............................................ 53,177,000 54,984,000 57,368,000 57,499,000
Class B common ............................................ 10,284,000 10,284,000 10,284,000 10,284,000
IV-33
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C
-------- -------- --------
INITIAL COST
--------------------------
BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS
----------- ----------- ---- -------------
Vanderbilt Industrial Park, Hauppauge, New York
(27 buildings in an industrial park) ................ -- $ 1,940 $ 9,955
85 Nicon Court Hauppauge, New York .................. -- 797 2,818
104 Parkway Drive So., Hauppauge, New York .......... -- 54 804
125 Ricefield Lane Hauppauge, New York .............. -- 13 852
120 Ricefield Lane Hauppauge, New York .............. -- 16 1,051
135 Ricefield Lane Hauppauge, New York .............. -- 24 906
1997 Portfolio Acquisition, Hauppauge, New York
(10 additional buildings in Vanderbilt Industrial
Park) .............................................. -- 930 (B) 20,619
425 Rabro Drive Hauppauge, New York ................. -- 665 3,489
600 Old Willets Path Hauppauge, New York ............ -- 295 3,521
Airport International Plaza, Islip, New York
(17 buildings in an industrial park) ................ 2,616 (C) 1,263 13,608
120 Wilbur Place Islip, New York .................... -- 202 1,154
2004 Orville Drive North Islip, New York ............ -- 633 4,226
2005 Orville Drive North Islip, New York ............ -- 984 5,410
County Line Industrial Center, Melville, New York
(3 buildings in an industrial park) ................. -- 628 3,686
30 Hub Drive Melville, New York ..................... -- 469 1,571
32 Windsor Place, Islip, New York ................... -- 32 321
42 Windsor Place Islip, New York .................... -- 48 327
505 Walt Whitman Rd., Huntington, New York .......... -- 140 42
1170 Northern Blvd., N. Great Neck, New York ........ -- 30 99
50 Charles Lindbergh Blvd., Mitchel Field, New
York ................................................ -- (A) 12,089
200 Broadhollow Road Melville, New York ............. -- 338 3,354
48 South Service Road Melville, New York ............ -- 1,652 10,245
395 North Service Road Melville, New York ........... 19,709 (A) 15,551
6800 Jericho Turnpike Syosset, New York ............. 13,922 582 6,566
6900 Jericho Turnpike Syosset, New York ............. 7,348 385 4,228
COLUMN A COLUMN D COLUMN E COLUMN F
-------- -------- -------- --------
COST CAPITALIZED,
SUBSEQUENT TO GROSS AMOUNT AT WHICH
ACQUISITION CARRIED AT CLOSE OF PERIOD
---------------------- -----------------------------
BUILDINGS AND BUILDINGS AND ACCUMULATED
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION
----------- ---- --------------- ---- ------------- ----- ------------
Vanderbilt Industrial Park, Hauppauge, New York
(27 buildings in an industrial park) ................ 173 14,258 2,113 24,213 26,326 16,514
85 Nicon Court Hauppauge, New York .................. -- 243 797 3,061 3,858 684
104 Parkway Drive So., Hauppauge, New York .......... -- 236 54 1,040 1,094 232
125 Ricefield Lane Hauppauge, New York .............. -- 332 13 1,184 1,197 425
120 Ricefield Lane Hauppauge, New York .............. -- 422 16 1,473 1,489 320
135 Ricefield Lane Hauppauge, New York .............. -- 473 24 1,379 1,403 529
1997 Portfolio Acquisition, Hauppauge, New York
(10 additional buildings in Vanderbilt Industrial
Park) .............................................. -- 4,011 930 24,630 25,560 5,385
425 Rabro Drive Hauppauge, New York ................. -- 398 665 3,887 4,552 732
600 Old Willets Path Hauppauge, New York ............ -- 727 295 4,248 4,543 788
Airport International Plaza, Islip, New York
(17 buildings in an industrial park) ................ -- 11,814 1,263 25,422 26,685 17,794
120 Wilbur Place Islip, New York .................... 8 247 210 1,401 1,611 234
2004 Orville Drive North Islip, New York ............ -- 1,431 633 5,657 6,290 1,689
2005 Orville Drive North Islip, New York ............ -- 1,176 984 6,586 7,570 1,071
County Line Industrial Center, Melville, New York
(3 buildings in an industrial park) ................. -- 2,848 628 6,534 7,162 5,264
30 Hub Drive Melville, New York ..................... -- 324 469 1,895 2,364 525
32 Windsor Place, Islip, New York ................... -- 46 32 367 399 367
42 Windsor Place Islip, New York .................... -- 700 48 1,027 1,075 857
505 Walt Whitman Rd., Huntington, New York .......... -- 59 140 101 241 88
1170 Northern Blvd., N. Great Neck, New York ........ -- 187 30 286 316 133
50 Charles Lindbergh Blvd., Mitchel Field, New
York ................................................ -- 5,973 0 18,062 18,062 11,458
200 Broadhollow Road Melville, New York ............. -- 3,562 338 6,916 7,254 4,726
48 South Service Road Melville, New York ............ -- 5,611 1,652 15,856 17,508 9,189
395 North Service Road Melville, New York ........... -- 7,575 0 23,126 23,126 13,405
6800 Jericho Turnpike Syosset, New York ............. -- 10,092 582 16,658 17,240 11,083
6900 Jericho Turnpike Syosset, New York ............. -- 3,931 385 8,159 8,544 5,035
COLUMN A COLUMN G COLUMN H COLUMN I
-------- -------- -------- --------
LIFE ON WHICH
DATE OF DATE DEPRECIATION
DESCRIPTION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ --------- --------------
Vanderbilt Industrial Park, Hauppauge, New York
(27 buildings in an industrial park) ................ 1961-1979 1961-1979 10 - 30 Years
85 Nicon Court Hauppauge, New York .................. 1984 1995 10 - 30 Years
104 Parkway Drive So., Hauppauge, New York .......... 1985 1996 10 - 30 Years
125 Ricefield Lane Hauppauge, New York .............. 1973 1996 10 - 30 Years
120 Ricefield Lane Hauppauge, New York .............. 1983 1996 10 - 30 Years
135 Ricefield Lane Hauppauge, New York .............. 1981 1996 10 - 30 Years
1997 Portfolio Acquisition, Hauppauge, New York
(10 additional buildings in Vanderbilt Industrial
Park) .............................................. 1974-1982 1997 10 - 30 Years
425 Rabro Drive Hauppauge, New York ................. 1980 1997 10 - 30 Years
600 Old Willets Path Hauppauge, New York ............ 1999 1999 10 - 30 Years
Airport International Plaza, Islip, New York
(17 buildings in an industrial park) ................ 1970-1988 1970-1988 10 - 30 Years
120 Wilbur Place Islip, New York .................... 1972 1998 10 - 30 Years
2004 Orville Drive North Islip, New York ............ 1998 1996 10 - 30 Years
2005 Orville Drive North Islip, New York ............ 1999 1996 10 - 30 Years
County Line Industrial Center, Melville, New York
(3 buildings in an industrial park) ................. 1975-1979 1975-1979 10 - 30 Years
30 Hub Drive Melville, New York ..................... 1976 1996 10 - 30 Years
32 Windsor Place, Islip, New York ................... 1971 1971 10 - 30 Years
42 Windsor Place Islip, New York .................... 1972 1972 10 - 30 Years
505 Walt Whitman Rd., Huntington, New York .......... 1950 1968 10 - 30 Years
1170 Northern Blvd., N. Great Neck, New York ........ 1947 1962 10 - 30 Years
50 Charles Lindbergh Blvd., Mitchel Field, New
York ................................................ 1984 1984 10 - 30 Years
200 Broadhollow Road Melville, New York ............. 1981 1981 10 - 30 Years
48 South Service Road Melville, New York ............ 1986 1986 10 - 30 Years
395 North Service Road Melville, New York ........... 1988 1988 10 - 30 Years
6800 Jericho Turnpike Syosset, New York ............. 1977 1978 10 - 30 Years
6900 Jericho Turnpike Syosset, New York ............. 1982 1982 10 - 30 Years
Continued
IV-34
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C
-------- -------- --------
INITIAL COST
--------------------------
BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS
----------- ----------- ---- -------------
300 Motor Parkway Hauppauge, New York ................ -- 276 1,136
88 Duryea Road Melville, New York .................... -- 200 1,565
210 Blydenburgh Road Islandia, New York .............. -- 11 158
208 Blydenburgh Road Islandia, New York .............. -- 12 192
71 Hoffman Lane Islandia, New York ................... -- 19 260
933 Motor Parkway Hauppauge, New York ................ -- 106 375
85 South Service Road Plainview, New York ............ -- 24 145
333 Earl Ovington Blvd., (Omni) Mitchel Field, New
York ................................................ 53,864 (A) 67,221
135 Fell Court Islip, New York ....................... -- 462 1,265
40 Cragwood Road South Plainfield, New Jersey ........ -- 725 7,131
110 Marcus Drive Huntington, New York ................ -- 390 1,499
333 East Shore Road Great Neck, New York ............. -- (A) 564
310 East Shore Road Great Neck, New York ............. -- 485 2,009
70 Schmitt Blvd. Farmingdale, New York ............... -- 727 3,408
19 Nicholas Drive Yaphank, New York .................. -- 160 7,399
1516 Motor Parkway Hauppauge, New York ............... -- 603 6,722
35 Pinelawn Road Melville, New York .................. -- 999 7,073
520 Broadhollow Road Melville, New York .............. -- 457 5,572
1660 Walt Whitman Road Melville, New York ............ -- 370 5,072
70 Maxess Road Melville, New York .................... -- 367 1,859
20 Melville Park Rd., Melville, New York ............. -- 391 2,650
105 Price Parkway Farmingdale, New York .............. -- 2,030 6,327
48 Harbor Park Drive Port Washington, New York ....... -- 1,304 2,247
60 Charles Lindbergh Mitchel Field, New York ......... -- (A) 20,800
505 White Plains Road Tarrytown, New York ............ -- 210 1,332
555 White Plains Road Tarrytown, New York ............ -- 712 4,133
560 White Plains Road Tarrytown, New York ............ -- 1,521 8,756
580 White Plains Road Tarrytown, New York ............ 12,685 2,414 14,595
660 White Plains Road Tarrytown, New York ............ -- 3,929 22,640
Landmark Square Stamford, Connecticut ................ 45,090 11,603 64,466
COLUMN A COLUMN D COLUMN E
-------- -------- --------
COST CAPITALIZED,
SUBSEQUENT TO GROSS AMOUNT AT WHICH
ACQUISITION CARRIED AT CLOSE OF PERIOD
----------------------- -------------------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ---- ------------- ---- ------------- -----
300 Motor Parkway Hauppauge, New York ................ -- 1,833 276 2,969 3,245
88 Duryea Road Melville, New York .................... -- 823 200 2,388 2,588
210 Blydenburgh Road Islandia, New York .............. -- 175 11 333 344
208 Blydenburgh Road Islandia, New York .............. -- 188 12 380 392
71 Hoffman Lane Islandia, New York ................... -- 206 19 466 485
933 Motor Parkway Hauppauge, New York ................ -- 411 106 786 892
85 South Service Road Plainview, New York ............ -- 13 24 158 182
333 Earl Ovington Blvd., (Omni) Mitchel Field, New
York ................................................ -- 22,053 0 89,274 89,274
135 Fell Court Islip, New York ....................... -- 273 462 1,538 2,000
40 Cragwood Road South Plainfield, New Jersey ........ -- 6,034 725 13,165 13,890
110 Marcus Drive Huntington, New York ................ -- 107 390 1,606 1,996
333 East Shore Road Great Neck, New York ............. -- 456 0 1,020 1,020
310 East Shore Road Great Neck, New York ............. -- 2,344 485 4,353 4,838
70 Schmitt Blvd. Farmingdale, New York ............... -- 33 727 3,441 4,168
19 Nicholas Drive Yaphank, New York .................. 5 6,160 165 13,559 13,724
1516 Motor Parkway Hauppauge, New York ............... -- 472 603 7,194 7,797
35 Pinelawn Road Melville, New York .................. -- 2,786 999 9,859 10,858
520 Broadhollow Road Melville, New York .............. (1) 2,794 456 8,366 8,822
1660 Walt Whitman Road Melville, New York ............ -- 1,102 370 6,174 6,544
70 Maxess Road Melville, New York .................... 95 2,957 462 4,816 5,278
20 Melville Park Rd., Melville, New York ............. -- 106 391 2,756 3,147
105 Price Parkway Farmingdale, New York .............. -- 469 2,030 6,796 8,826
48 Harbor Park Drive Port Washington, New York ....... -- 520 1,304 2,767 4,071
60 Charles Lindbergh Mitchel Field, New York ......... -- 4,198 0 24,998 24,998
505 White Plains Road Tarrytown, New York ............ -- 342 210 1,674 1,884
555 White Plains Road Tarrytown, New York ............ 51 4,656 763 8,789 9,552
560 White Plains Road Tarrytown, New York ............ (1) 4,479 1,520 13,235 14,755
580 White Plains Road Tarrytown, New York ............ -- 3,553 2,414 18,148 20,562
660 White Plains Road Tarrytown, New York ............ 45 6,431 3,974 29,071 33,045
Landmark Square Stamford, Connecticut ................ 832 31,464 12,435 95,930 108,365
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- --------
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ ------------ -------- -------------
300 Motor Parkway Hauppauge, New York ................ 1,775 1979 1979 10 - 30 Years
88 Duryea Road Melville, New York .................... 1,496 1980 1980 10 - 30 Years
210 Blydenburgh Road Islandia, New York .............. 315 1969 1969 10 - 30 Years
208 Blydenburgh Road Islandia, New York .............. 344 1969 1969 10 - 30 Years
71 Hoffman Lane Islandia, New York ................... 433 1970 1970 10 - 30 Years
933 Motor Parkway Hauppauge, New York ................ 692 1973 1973 10 - 30 Years
85 South Service Road Plainview, New York ............ 153 1961 1961 10 - 30 Years
333 Earl Ovington Blvd., (Omni) Mitchel Field, New
York ................................................ 30,782 1990 1995 10 - 30 Years
135 Fell Court Islip, New York ....................... 509 1965 1992 10 - 30 Years
40 Cragwood Road South Plainfield, New Jersey ........ 8,397 1970 1983 10 - 30 Years
110 Marcus Drive Huntington, New York ................ 1,310 1980 1980 10 - 30 Years
333 East Shore Road Great Neck, New York ............. 700 1976 1976 10 - 30 Years
310 East Shore Road Great Neck, New York ............. 2,277 1981 1981 10 - 30 Years
70 Schmitt Blvd. Farmingdale, New York ............... 845 1965 1995 10 - 30 Years
19 Nicholas Drive Yaphank, New York .................. 2,556 1989 1995 10 - 30 Years
1516 Motor Parkway Hauppauge, New York ............... 1,737 1981 1995 10 - 30 Years
35 Pinelawn Road Melville, New York .................. 2,802 1980 1995 10 - 30 Years
520 Broadhollow Road Melville, New York .............. 2,723 1978 1995 10 - 30 Years
1660 Walt Whitman Road Melville, New York ............ 1,417 1980 1995 10 - 30 Years
70 Maxess Road Melville, New York .................... 1,239 1967 1995 10 - 30 Years
20 Melville Park Rd., Melville, New York ............. 603 1965 1996 10 - 30 Years
105 Price Parkway Farmingdale, New York .............. 1,632 1969 1996 10 - 30 Years
48 Harbor Park Drive Port Washington, New York ....... 563 1976 1996 10 - 30 Years
60 Charles Lindbergh Mitchel Field, New York ......... 6,078 1989 1996 10 - 30 Years
505 White Plains Road Tarrytown, New York ............ 497 1974 1996 10 - 30 Years
555 White Plains Road Tarrytown, New York ............ 3,554 1972 1996 10 - 30 Years
560 White Plains Road Tarrytown, New York ............ 3,606 1980 1996 10 - 30 Years
580 White Plains Road Tarrytown, New York ............ 5,294 1997 1996 10 - 30 Years
660 White Plains Road Tarrytown, New York ............ 7,976 1983 1996 10 - 30 Years
Landmark Square Stamford, Connecticut ................ 19,337 1973-1984 1996 10 - 30 Years
Continued
IV-35
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C
-------- -------- --------
INITIAL COST
--------------------------
BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS
----------- ----------- ---- -------------
110 Bi -County Blvd. Farmingdale, New York ............ 3,635 2,342 6,665
One Eagle Rock, East Hanover, New Jersey .............. -- 803 7,563
710 Bridgeport Avenue Shelton, Connecticut ............ -- 5,405 21,620
101 JFK Expressway Short Hills, New Jersey ............ -- 7,745 43,889
10 Rooney Circle West Orange, New Jersey .............. -- 1,302 4,615
Executive Hill Office Park West Orange, New Jersey -- 7,629 31,288
3 University Plaza Hackensack, New Jersey ............. -- 7,894 11,846
150 Motor Parkway Hauppauge, New York ................. -- 1,114 20,430
Reckson Executive Park Ryebrook, New York ............. -- 18,343 55,028
University Square Princeton, New Jersey ............... -- 3,288 8,888
100 Andrews Road Hicksville, New York ................. -- 2,337 1,711
80 Grasslands Elmsford, New York ...................... -- 1,208 6,728
65 Marcus Drive Melville, New York .................... -- 295 1,966
100 Forge Way Rockaway, New Jersey .................... -- 315 902
200 Forge Way Rockaway, New Jersey .................... -- 1,128 3,228
300 Forge Way Rockaway, New Jersey .................... -- 376 1,075
400 Forge Way Rockaway, New Jersey .................... -- 1,142 3,267
51 -- 55 Charles Lindbergh Blvd. Mitchel Field, New
York ................................................. -- (A) 27,975
100 Summit Drive Valhalla, New York ................... 19,101 3,007 41,351
115/117 Stevens Avenue Valhalla, New York ............. -- 1,094 22,490
200 Summit Lake Drive Valhalla, New York .............. 19,373 4,343 37,305
140 Grand Street White Plains, New York ............... -- 1,932 18,744
500 Summit Lake Drive Valhalla, New York .............. -- 7,052 37,309
99 Cherry Hill Road Parsippany, New Jersey ............ -- 2,360 7,508
119 Cherry Hill Road Parsippany, New Jersey ........... -- 2,512 7,622
45 Melville Park Road Melville, New York .............. -- 355 1,487
500 Saw Mill River Road Elmsford, New York ............ -- 1,542 3,796
120 W.45th Street New York, New York .................. 64,263 28,757 162,809
1255 Broad Street Clifton, New Jersey ................. -- 1,329 15,869
810 7th Avenue New York, New York ..................... 82,854 26,984 (A) 152,767
COLUMN A COLUMN D COLUMN E
-------- -------- --------
COST CAPITALIZED,
SUBSEQUENT TO GROSS AMOUNT AT WHICH
ACQUISITION CARRIED AT CLOSE OF PERIOD
-------------------------- -------------------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ---- ------------- ---- ------------- -----
110 Bi -County Blvd. Farmingdale, New York ............ -- 406 2,342 7,071 9,413
One Eagle Rock, East Hanover, New Jersey .............. -- 3,151 803 10,714 11,517
710 Bridgeport Avenue Shelton, Connecticut ............ 7 946 5,412 22,566 27,978
101 JFK Expressway Short Hills, New Jersey ............ (3,098) (16,116) 4,647 27,773 32,420
10 Rooney Circle West Orange, New Jersey .............. 1 1,002 1,303 5,617 6,920
Executive Hill Office Park West Orange, New Jersey 4 2,778 7,633 34,066 41,699
3 University Plaza Hackensack, New Jersey ............. -- 2,684 7,894 14,530 22,424
150 Motor Parkway Hauppauge, New York ................. -- 3,479 1,114 23,909 25,023
Reckson Executive Park Ryebrook, New York ............. -- 4,550 18,343 59,578 77,921
University Square Princeton, New Jersey ............... (1) 1,694 3,287 10,582 13,869
100 Andrews Road Hicksville, New York ................. 151 5,742 2,488 7,453 9,941
80 Grasslands Elmsford, New York ...................... -- 606 1,208 7,334 8,542
65 Marcus Drive Melville, New York .................... 56 954 351 2,920 3,271
100 Forge Way Rockaway, New Jersey .................... -- 98 315 1,000 1,315
200 Forge Way Rockaway, New Jersey .................... -- 483 1,128 3,711 4,839
300 Forge Way Rockaway, New Jersey .................... -- 254 376 1,329 1,705
400 Forge Way Rockaway, New Jersey .................... -- 187 1,142 3,454 4,596
51 -- 55 Charles Lindbergh Blvd. Mitchel Field, New
York ................................................. -- 4,292 0 32,267 32,267
100 Summit Drive Valhalla, New York ................... -- 4,879 3,007 46,230 49,237
115/117 Stevens Avenue Valhalla, New York ............. -- 1,911 1,094 24,401 25,495
200 Summit Lake Drive Valhalla, New York .............. -- 4,010 4,343 41,315 45,658
140 Grand Street White Plains, New York ............... (1) 300 1,931 19,044 20,975
500 Summit Lake Drive Valhalla, New York .............. -- 7,837 7,052 45,146 52,198
99 Cherry Hill Road Parsippany, New Jersey ............ 5 1,330 2,365 8,838 11,203
119 Cherry Hill Road Parsippany, New Jersey ........... 6 1,097 2,518 8,719 11,237
45 Melville Park Road Melville, New York .............. (1) 1,825 354 3,312 3,666
500 Saw Mill River Road Elmsford, New York ............ -- 205 1,542 4,001 5,543
120 W.45th Street New York, New York .................. 7,721 (D) 3,756 36,478 166,565 203,043
1255 Broad Street Clifton, New Jersey ................. -- 4,077 1,329 19,946 21,275
810 7th Avenue New York, New York ..................... 117 13,920 27,101 166,687 193,788
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- --------
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ ------------ -------- -------------
110 Bi -County Blvd. Farmingdale, New York ............ 1,508 1984 1997 10 - 30 Years
One Eagle Rock, East Hanover, New Jersey .............. 3,087 1986 1997 10 - 30 Years
710 Bridgeport Avenue Shelton, Connecticut ............ 4,493 1971-1979 1997 10 - 30 Years
101 JFK Expressway Short Hills, New Jersey ............ 5,132 1981 1997 10 - 30 Years
10 Rooney Circle West Orange, New Jersey .............. 1,096 1971 1997 10 - 30 Years
Executive Hill Office Park West Orange, New Jersey 6,337 1978-1984 1997 10 - 30 Years
3 University Plaza Hackensack, New Jersey ............. 3,136 1985 1997 10 - 30 Years
150 Motor Parkway Hauppauge, New York ................. 5,028 1984 1997 10 - 30 Years
Reckson Executive Park Ryebrook, New York ............. 10,587 1983-1986 1997 10 - 30 Years
University Square Princeton, New Jersey ............... 1,774 1987 1997 10 - 30 Years
100 Andrews Road Hicksville, New York ................. 1,897 1954 1996 10 - 30 Years
80 Grasslands Elmsford, New York ...................... 1,389 1989/1964 1997 10 - 30 Years
65 Marcus Drive Melville, New York .................... 724 1968 1996 10 - 30 Years
100 Forge Way Rockaway, New Jersey .................... 190 1986 1998 10 - 30 Years
200 Forge Way Rockaway, New Jersey .................... 630 1989 1998 10 - 30 Years
300 Forge Way Rockaway, New Jersey .................... 328 1989 1998 10 - 30 Years
400 Forge Way Rockaway, New Jersey .................... 580 1989 1998 10 - 30 Years
51 -- 55 Charles Lindbergh Blvd. Mitchel Field, New
York ................................................. 7,035 1981 1998 10 - 30 Years
100 Summit Drive Valhalla, New York ................... 8,114 1988 1998 10 - 30 Years
115/117 Stevens Avenue Valhalla, New York ............. 3,928 1984 1998 10 - 30 Years
200 Summit Lake Drive Valhalla, New York .............. 6,718 1990 1998 10 - 30 Years
140 Grand Street White Plains, New York ............... 3,078 1991 1998 10 - 30 Years
500 Summit Lake Drive Valhalla, New York .............. 7,159 1986 1998 10 - 30 Years
99 Cherry Hill Road Parsippany, New Jersey ............ 1,340 1982 1998 10 - 30 Years
119 Cherry Hill Road Parsippany, New Jersey ........... 1,425 1982 1998 10 - 30 Years
45 Melville Park Road Melville, New York .............. 763 1998 1998 10 - 30 Years
500 Saw Mill River Road Elmsford, New York ............ 670 1968 1998 10 - 30 Years
120 W.45th Street New York, New York .................. 20,103 1998 1999 10 - 30 Years
1255 Broad Street Clifton, New Jersey ................. 2,922 1999 1999 10 - 30 Years
810 7th Avenue New York, New York ..................... 20,037 1970 1999 10 - 30 Years
Continued
IV-36
RECKSON OPERATING PARTNERSHIP, L.P.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C
-------- -------- --------
INITIAL COST
-----------------------------
BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS
----------- ----------- ---- -------------
120 Mineola Blvd. Mineola, New York ................. -- 1,869 10,603
100 Wall Street New York, New York .................. 35,904 11,749 66,517
One Orlando Orlando, Florida ........................ 38,366 9,386 51,136
1350 Avenue of the Americas New York, New York 74,631 19,222 109,168
919 3rd. Avenue New York, New York .................. 246,651 101,644 (A) 205,736
538 Broadhollow Road Melville, New York ............. -- 3,900 21,413
360 Hamilton Avenue White Plains, New York .......... -- 2,838 34,606
492 River Road Nutley, New Jersey ................... -- 2,615 5,102
275 Broadhollow Road Melville, New York ............. -- 3,850 12,958
400 Garden City Plaza Garden City, New York ......... -- 9,081 17,004
90 Merrick Avenue East Meadow, New York ............. -- (A) 23,804
120 White Plains Road Tarrytown, New York ........... -- 3,852 24,861
100 White Plains Road Tarrytown, New York ........... -- 79 472
51 JFK Parkway Short Hills, New Jersey .............. -- 10,053 62,504
680 Washington Blvd Stamford, Connecticut ........... -- 4,561 23,698
750 Washington Blvd Stamford, Connecticut ........... -- 7,527 31,940
1305 Walt Whitman Road Melville, New York ........... -- 3,934 24,040
50 Marcus Drive Melville, New York .................. -- 930 13,600
100 Grasslands Road Elmsford, New York .............. -- 289 3,382
2002 Orville Drive North Bohemia, New York .......... -- 1,950 9,959
390 Motor Parkway Hauppauge, New York ............... -- 240 5,787
58 South Service Road Melville, New York ............ -- 1,061
400 Moreland Road Commack, New York ................. -- 343 1,219
103 JFK Parkway Short Hills, New Jersey ............. -- 3,098 18,011
Land held for development ........................... -- 92,924 --
Developments in progress ............................ -- -- 28,311
Other property ...................................... -- -- --
------- ------- -------
Total ............................................... $740,012 $ 483,555 $1,968,635
======== =========== ==========
COLUMN A COLUMN D COLUMN E
-------- -------- --------
COST CAPITALIZED,
SUBSEQUENT TO GROSS AMOUNT AT WHICH
ACQUISITION CARRIED AT CLOSE OF PERIOD
---------------------- ------------------------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ---- ------------- ---- ------------- -----
120 Mineola Blvd. Mineola, New York ................. 5 1,041 1,874 11,644 13,518
100 Wall Street New York, New York .................. 93 9,798 11,842 76,315 88,157
One Orlando Orlando, Florida ........................ 32 3,779 9,418 54,915 64,333
1350 Avenue of the Americas New York, New York -- 18,037 19,222 127,205 146,427
919 3rd. Avenue New York, New York .................. 12,795 86,412 114,439 292,148 406,587
538 Broadhollow Road Melville, New York ............. -- 1,038 3,900 22,451 26,351
360 Hamilton Avenue White Plains, New York .......... -- 21,351 2,838 55,957 58,795
492 River Road Nutley, New Jersey ................... -- 4,145 2,615 9,247 11,862
275 Broadhollow Road Melville, New York ............. -- 312 3,850 13,270 17,120
400 Garden City Plaza Garden City, New York ......... -- 667 9,081 17,671 26,752
90 Merrick Avenue East Meadow, New York ............. -- 1,111 0 24,915 24,915
120 White Plains Road Tarrytown, New York ........... -- 359 3,852 25,220 29,072
100 White Plains Road Tarrytown, New York ........... -- 79 79 551 630
51 JFK Parkway Short Hills, New Jersey .............. 1 824 10,054 63,328 73,382
680 Washington Blvd Stamford, Connecticut ........... -- 168 4,561 23,866 28,427
750 Washington Blvd Stamford, Connecticut ........... -- 139 7,527 32,079 39,606
1305 Walt Whitman Road Melville, New York ........... -- 41 3,934 24,081 28,015
50 Marcus Drive Melville, New York .................. 65 4,912 995 18,512 19,507
100 Grasslands Road Elmsford, New York .............. -- 1,214 289 4,596 4,885
2002 Orville Drive North Bohemia, New York .......... -- 254 1,950 10,213 12,163
390 Motor Parkway Hauppauge, New York ............... -- 833 240 6,620 6,860
58 South Service Road Melville, New York ............ 6,886 42,218 7,947 42,218 50,165
400 Moreland Road Commack, New York ................. 1,141 1,510 1,484 2,729 4,213
103 JFK Parkway Short Hills, New Jersey ............. 217 9,585 3,315 27,596 30,911
Land held for development ........................... -- -- 92,924 92,924
Developments in progress ............................ -- -- 28,311 28,311
Other property ...................................... -- 18,650 18,650 18,650
------ ------ ------- -------
Total ............................................... $27,409 $474,928 $510,964 $2,443,563 $2,954,527
======= ======== ======== ========== ==========
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- --------
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ ------------ -------- -------------
120 Mineola Blvd. Mineola, New York ................. 1,500 1977 1999 10 - 30 Years
100 Wall Street New York, New York .................. 9,382 1969 1999 10 - 30 Years
One Orlando Orlando, Florida ........................ 6,566 1987 1999 10 - 30 Years
1350 Avenue of the Americas New York, New York 12,397 1966 2000 10 - 30 Years
919 3rd. Avenue New York, New York .................. 16,375 1970 2000 10 - 30 Years
538 Broadhollow Road Melville, New York ............. 1,802 2000 2000 10 - 30 Years
360 Hamilton Avenue White Plains, New York .......... 6,319 2000 2000 10 - 30 Years
492 River Road Nutley, New Jersey ................... 924 2000 2000 10 - 30 Years
275 Broadhollow Road Melville, New York ............. 1,813 1970 1997 10 - 30 Years
400 Garden City Plaza Garden City, New York ......... 2,166 1989 1997 10 - 30 Years
90 Merrick Avenue East Meadow, New York ............. 3,563 1985 1997 10 - 30 Years
120 White Plains Road Tarrytown, New York ........... 3,076 1984 1997 10 - 30 Years
100 White Plains Road Tarrytown, New York ........... 39 1984 1997 10 - 30 Years
51 JFK Parkway Short Hills, New Jersey .............. 7,619 1988 1998 10 - 30 Years
680 Washington Blvd Stamford, Connecticut ........... 2,883 1989 1998 10 - 30 Years
750 Washington Blvd Stamford, Connecticut ........... 3,738 1989 1998 10 - 30 Years
1305 Walt Whitman Road Melville, New York ........... 3,043 1999 1999 10 - 30 Years
50 Marcus Drive Melville, New York .................. 1,106 2001 1998 10 - 30 Years
100 Grasslands Road Elmsford, New York .............. 460 2001 1997 10 - 30 Years
2002 Orville Drive North Bohemia, New York .......... 919 2001 1996 10 - 30 Years
390 Motor Parkway Hauppauge, New York ............... 1,046 2001 1997 10 - 30 Years
58 South Service Road Melville, New York ............ 1,308 2001 1998 10 - 30 Years
400 Moreland Road Commack, New York ................. 41 2002 1997 10 - 30 Years
103 JFK Parkway Short Hills, New Jersey ............. 2,854 2002 1997 10 - 30 Years
Land held for development ........................... N/A Various N/A
Developments in progress ............................ --
Other property ...................................... 2,713
------
Total ............................................... $445,029
========
- ----------
A These land parcels, or a portion of the land parcels, on which the building
and improvements were constructed are subject to a ground lease.
B The land parcel on which the building and improvements were constructed for
one property is subject to a ground lease.
C The Encumbrance of $2,616 is related to one property.
D Includes costs incurred to acquire the lessor's rights to an air rights
lease agreement.
The aggregate cost of Federal Income Tax purposes was approximately $2,191
million at December 31, 2002.
IV-37
RECKSON OPERATING PARTNERSHIP, L. P.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
The changes in real estate for each of the periods in the three years
ended December 31, 2002 are as follows:
2002 2001 2000
----------- ----------- -----------
Real estate balance at beginning of period ................ $ 2,880,879 $ 2,770,607 $ 2,208,399
Improvements / revaluations ............................... 91,900 193,492 166,260
Disposal, including write-off of fully depreciated building
improvements ............................................. (18,252) (83,220) (52,092)
Acquisitions .............................................. -- -- 448,040
----------- ----------- -----------
Balance at end of period .................................. $ 2,954,527 $ 2,880,879 $ 2,770,607
=========== =========== ===========
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, furniture and fixtures, for each of the periods in the three
years ended December 31, 2002 are as follows:
2002 2001 2000
--------- --------- ---------
Balance at beginning of period ............................ $ 357,112 $ 284,315 $ 215,112
Depreciation for period ................................... 91,940 83,316 71,478
Disposal, including write-off of fully depreciated building
improvements ............................................. (4,023) (10,519) (2,275)
--------- --------- ---------
Balance at end of period .................................. $ 445,029 $ 357,112 $ 284,315
========= ========= =========
IV-38
Index to Exhibits
EXHIBIT FILING
NUMBER REFERENCE DESCRIPTION
- --------- ----------- --------------------------------------------------------------------------------
3.1 a Amended and Restated Agreement of Limited Partnership of the Registrant
3.2 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series A Preferred Units of Limited Partnership
Interest
3.3 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series B Preferred Units of Limited Partnership
Interest
3.4 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series C Preferred Units of Limited Partnership
Interest
3.5 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series D Preferred Units of Limited Partnership
Interest
3.6 g Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series B Common Units of Limited Partnership
Interest
3.7 g Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series E Preferred Partnership Units of Limited
Partnership
3.8 j Supplement to the Amended and Restated Agreement of Limited Partnership of
the Registrant Establishing Series F Junior Participating Preferred Partnership
Units Issuable Under the Rights Plan
4.1 f Form of 7.40% Notes due 2004 of the Registrant
4.2 f Form of 7.75% Notes due 2009 of the Registrant
4.3 f Indenture, dated March 26, 1999, among the Registrant, Reckson Associates
Realty Corp. (the "Company"), and The Bank of New York, as trustee
4.4 j Rights Agreement, dated as of October 13, 2000, between the Registrant and
American Stock Transfer and Trust Company
4.5 o Form of 6.00% Notes due 2007 of the Registrant
4.6 d Note Purchase Agreement for the Senior Unsecured Notes
10.1 d Third Amended and Restated Agreement of Limited Partnership of Omni
Partners, L.P.
10.2 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Donald Rechler
10.3 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Scott Rechler
10.4 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Mitchell Rechler
10.5 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Gregg Rechler
10.6 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Roger Rechler
10.7 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Michael Maturo
10.8 h Amendment and Restatement of Employment and Non-Competition Agreement,
dated as of August 15, 2000 between the Company and Jason Barnett
10.9 a Purchase Option Agreements relating to the Reckson Option Properties
10.10 a Purchase Option Agreements relating to the Other Option Properties
10.11 m Amended and Restated 1995 Stock Option Plan
10.12 c 1996 Employee Stock Option Plan
10.13 b Ground Leases for certain of the properties
10.14 a Indemnity Agreement relating to 100 Oser Avenue
10.15 m Amended and Restated 1997 Stock Option Plan
10.16 d 1998 Stock Option Plan
10.17 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Donald Rechler
10.18 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Scott Rechler
10.19 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Mitchell Rechler
10.20 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Gregg Rechler
10.21 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Roger Rechler
10.22 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Michael Maturo
10.23 h Amended and Restated Severance Agreement, dated August 15, 2000 between the
Company and Jason Barnett
10.24 g Amended and Restated Credit Agreement dated as of August 4, 1999 between
Reckson Service Industries, Inc., as borrower and the Registrant, as Lender
relating to Reckson Strategic Venture Partners, LLC ("RSVP Credit Agreement")
10.25 g Amended and Restated Credit Agreement dated as of August 4, 1999 between
Reckson Service Industries, Inc., as borrower and the Registrant, as Lender
relating to the operations of Reckson Service Industries, Inc. ("RSI Credit
Agreement")
10.26 g Letter Agreement, dated November 30, 1999, amending the RSVP Credit
Agreement and the RSI Credit Agreement
10.27 k Second Amendment to the Amended and Restated Credit Agreement, dated
March 30, 2001, between the Registrant and FrontLine Capital Group
10.28 l Loan Agreement, dated as of June 1, 2001, between 1350 LLC, as Borrower, and
Secore Financial Corporation, as Lender
10.29 l Loan Agreement, dated as of July 18, 2001, between Metropolitan 919 3rd Avenue,
LLC, as Borrower, and Secore Financial Corporation, as Lender
10.30 h Operating Agreement dated as of September 28, 2000 between Reckson Tri-State
Member LLC (together with its permitted successors and assigns) and TIAA
Tri-State LLC
10.31 i Agreement of Spreader, Consolidation and Modification of Mortgage Security
Agreement among Metropolitan 810 7th Ave., LLC, 100 Wall Company LLC and
Monumental Life Insurance Company
10.32 i Consolidated, Amended and Restated Secured Promissory Note relating to
Metropolitan 810 7th Ave., LLC and 100 Wall Company LLC
10.33 n Amended and Restated Operating Agreement of 919 JV LLC
10.34 p 2002 Stock Option Plan
10.35 r Indemnification Agreement, dated as of May 23, 2002, between the Company and
Donald J. Rechler*
IV-39
EXHIBIT FILING
NUMBER REFERENCE DESCRIPTION
- ---------- ----------- -----------------------------------------------------------------------------------
10.36 q Second Amended and Restated Credit Agreement, dated as of December 30, 2002,
among the Registrant, the institutions from time to time party thereto as Lenders
and JPMorgan Chase Bank, as Administrative Agent
10.37 q Form of Guarantee Agreement to the Second Amended and Restated Credit
Agreement, between and among the Registrant, the institutions from time to time
party thereto as Lenders and JPMorgan Chase Bank, as Administrative Agent
10.38 q Form of Promissory Note to the Second Amended and Restated Credit
Agreement, between and among the Registrant, the institutions from time to time
party thereto as Lenders and JPMorgan Chase Bank, as Administrative Agent
10.39 q First Amendment to Second Amended and Restated Credit Agreement, dated as
of January 24, 2003, among the Registrant, JPMorgan Chase Bank, as
Administrative Agent for the institutions from time to time party thereto as
Lenders and Key Bank, N.A., as New Lender
10.40 Long-Term Incentive Award Agreement, dated March 13, 2003, between the
Company and Scott H. Rechler**
10.41 Award Agreement, dated November 14, 2002, between the Company and Scott H.
Rechler***
10.42 Award agreement, dated March 13, 2003, between the Company and Scott H.
Rechler****
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries
23.1 Consent of Independent Auditors
24.1 Power of Attorney (included in Part IV of the Form 10-K)
99.1 Certification of Donald J. Rechler, Co-Chief Executive Officer of the Company,
the sole general partner of the Registrant, pursuant to Section 1350 of Chapter 63
of title 18 of the United States Code
99.2 Certification of Scott H. Rechler, Co-Chief Executive Officer of the Company, the
sole general partner of the Registrant, pursuant to Section 1350 of Chapter 63 of
title 18 of the United States Code
99.3 Certification of Michael Maturo, Executive Vice President, Treasurer and Chief
Financial Officer of the Company, the sole general partner of the Registrant,
pursuant to Section 1350 of Chapter 63 of title 18 of the United States Code
- ----------------
(a) Previously filed as an exhibit to Registration Statement Form S-11 (No. 333-1280) and incorporated herein by
reference.
(b) Previously filed as an exhibit to Registration Statement Form S-11 (No. 33-84324) and incorporated herein by
reference.
(c) 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.
(d) Previously filed as an exhibit to the Company's Form 10-K filed with the SEC on March 26, 1998 and incorporated
herein by reference.
(e) Previously filed as an exhibit to the Company's Form 8-K report filed with the SEC on March 1, 1999 and incorporated
herein by reference.
(f) Previously filed as an exhibit to the Registrant's Form 8-K filed with SEC on March 26, 1999 and incorporated herein
by reference.
(g) Previously filed as an exhibit to the Company's Form 10-K filed with the SEC on March 17, 2000 and incorporated
herein by reference.
(h) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on October 17, 2000 and incorporated
herein by reference.
(i) Previously filed as an exhibit to the Company's Form 10-K filed with the SEC on March 21, 2001 and incorporated
herein by reference.
(j) Previously filed as an exhibit to the Registrant's Form 10-K filed with the SEC on March 22, 2001 and incorporated
herein by reference.
(k) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on May 14, 2001 and incorporated
herein by reference.
(l) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on August 14, 2001 and incorporated
herein by reference.
(m) Previously filed as an exhibit to the Company's Form 10-Q filed with the SEC on November 14, 2001 and incorporated
herein by reference.
(n) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on January 8, 2002 and incorporated
herein by reference.
(o) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on June 18, 2002 and incorporated
herein by reference.
(p) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on August 14, 2002 and incorporated
herein by reference.
(q) Previously filed as an exhibit to the Registrant's Current Report on 8-K filed with the SEC on January 27, 2003 and
incorporated herein by reference.
(r) Previously filed with the Registrant's Form 10-Q filed with the SEC on November 14, 2002 and incorporated herein by
reference.
* Each of Scott H. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M. Rechler, Jason M. Barnett,
Herve A. Kevenides, John
V.N. Klein, Lewis S. Ranieri and Conrad D. Stephenson has entered into an Indemnification Agreement with the Company,
dated May 23, 2002. Each
of Ronald H. Menaker and Peter Quick has entered into an Indemnification Agreement with the Company dated May 1,
2002. These Agreements are
identical in all material respects to the Indemnification Agreement for Donald J. Rechler filed herewith.
** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M. Rechler and Jason M.
Barnett has entered into a
Long-Term Incentive Award Agreement with the Company, dated March 13, 2003. These Agreements are identical in all
material respects to the
Long-Term Incentive Award Agreement for Scott H. Rechler filed herewith.
*** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo and Roger M. Rechler has been
awarded certain rights to shares
of Class A common stock of the Company, pursuant to award agreements dated Nov ember 14, 2002. These Agreements are
identical in all material
respects to the Agreement for Scott H. Rechler filed herewith, except that Donald J. Rechler received rights to
46,983 shares each of Mitchell D.
Rechler, Gregg M. Rechler and Michael Maturo received rights to 27,588 shares and Roger M. Rechler received rights to
25,530 shares.
**** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M. Rechler and Jason M.
Barnett has been awarded
certain rights to shares of Class A common stock of the Company, pursuant to award agreements dated March 13, 2003.
These Agreements are
identical in all material respects to the Agreement for Scott H. Rechler filed herewith.
REPORTS ON FORM 8-K
On November 5, 2002, the Registrant submitted a report on Form 8-K under Item 9
thereof in order to submit supplemental operating and financial data for the
quarter ended September 30, 2002.
On November 6, 2002, the Registrant submitted a report on Form 8-K under Item 9
thereof in order to submit its third quarter presentation.
IV-40