AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 1999
REGISTRATION STATEMENT NO. 333-67129
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
RECKSON ASSOCIATES REALTY CORP. AND
RECKSON OPERATING PARTNERSHIP, L.P.
(Exact name of each registrant as specified in its charter)
RECKSON ASSOCIATES REALTY CORP. - MARYLAND RECKSON ASSOCIATES REALTY CORP. - 11-3233650
RECKSON OPERATING PARTNERSHIP, L.P. - DELAWARE RECKSON OPERATING PARTNERSHIP, L.P. -11-3233647
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
225 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
(516) 694-6900
(Address, including zip code, and telephone number, including area code,
of each registrant's principal executive office)
DONALD J. RECHLER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RECKSON ASSOCIATES REALTY CORP.
225 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
(516) 694-6900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
_________________
Copy to:
THOMAS R. SMITH, JR., ESQ.
EDWARD F. PETROSKY, ESQ.
BROWN & WOOD LLP
ONE WORLD TRADE CENTER, 58TH FLOOR
NEW YORK, N.Y. 10048
_________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after this Registration Statement becomes effective.
_________________
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
_________________
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Class of Proposed Maximum Amount of
Securities to be Registered(1) Aggregate Offering Registration Fee
Price(1)
- -------------------------------------------------------------------------- --------------------------- -----------------------------
Common Stock, $.01 par value per share(2) ............................ } }
Common Stock Warrants of Reckson Associates Realty Corp............... } }
Preferred Stock(3).................................................... } $744,739,654(5) } $ 220,867(5)
Depositary Shares representing Preferred Stock (4) ................... } }
Preferred Stock Warrants of Reckson Associates Realty Corp............ } }
Debt Securities(6)(7)................................................. $260,000,000 $ 72,280(9)(10)
Guarantees(8)......................................................... --- ---
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Such indeterminate number of shares of common stock of Reckson
Associates Realty Corp. as may from time to time be issued at
indeterminate prices, upon exercise of common stock warrants of Reckson
Associates Realty Corp. or upon conversion of preferred stock of
Reckson Associates Realty Corp. or exchange for debt securities of
Reckson Operating Partnership, L.P., as the case may be.
(3) Such indeterminate number of shares of preferred stock of Reckson
Associates Realty Corp. as may from time to time be issued in series at
indeterminate prices, upon exercise of preferred stock warrants of
Reckson Associates Realty Corp. or upon exchange for debt securities of
Reckson Operating Partnership, L.P., as the case may be.
(4) To be represented by depositary receipts of Reckson Associates Realty
Corp. representing an interest in all or a specified portion of a share
of preferred stock of Reckson Associates Realty Corp.
(5) Under registration statements nos. 333-28015 and 333-46883, an
aggregate amount of securities equal to $145,506,908 and $599,232,746
were registered thereunder and remain available for issuance by Reckson
Associates Realty Corp., and registration fees of approximately $44,093
and $176,774 were previously paid in respect of the remaining capacity
thereunder.
(6) Such indeterminate principal amount of debt securities of Reckson
Operating Partnership, L.P. as may from time to time be issued in
series at indeterminate prices or upon exchange for preferred stock of
Reckson Associates Realty Corp., as the case may be.
(7) Or, in the event of the issuance of original issue discount securities,
a higher principal amount as may be sold for an aggregate initial
offering price not to exceed $260,000,000.
(8) Debt securities not rated investment grade at the time of issuance by
at least one nationally recognized statistical rating organization will
be accompanied by guarantees to be issued by Reckson Associates Realty
Corp. None of the proceeds from the sale of these debt securities will
be received by Reckson Associates Realty Corp. for the issuance of the
guarantees. Pursuant to Rule 457(n) under the Securities Act, no
separate filing fee for the guarantees is required.
(9) Calculated pursuant to Rule 457(o) under the Securities Act.
(10) Previously paid.
Pursuant to Rule 429 under the Securities Act, the prospectus included
in this Registration Statement is a combined prospectus and relates to
registration statement no. 333-28015 and registration statement no. 333-46883
previously filed by Reckson Associates Realty Corp. on Form S-3 in respect of
its common stock, common stock warrants, preferred stock, depositary shares and
preferred stock warrants and declared effective on September 29, 1997 and March
25, 1998, respectively. This registration statement, which is a new registration
statement, also constitutes post-effective amendment no. 1 to registration
statement no. 333-28015 and registration statement no. 333-46883 and such
post-effective amendment no. 1 shall hereafter become effective concurrently
with the effectiveness of this registration statement in accordance with Section
8(c) of the Securities Act.
EACH REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THE
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 1, 1999
PROSPECTUS
- ----------
$744,739,654
RECKSON ASSOCIATES REALTY CORP.
COMMON STOCK, COMMON STOCK WARRANTS,
PREFERRED STOCK, DEPOSITARY SHARES AND PREFERRED STOCK WARRANTS
$260,000,000
RECKSON OPERATING PARTNERSHIP, L.P.
DEBT SECURITIES
_________________
Reckson Associates Realty Corp. may offer up to $744,739,654 of shares
of its common stock, shares of its preferred stock, depositary shares
representing interests in its preferred stock, and warrants to purchase shares
of its common stock or preferred stock. Reckson Associates' common stock is
listed on the New York Stock Exchange under the symbol "RA."
Reckson Operating Partnership, L.P. may offer up to $260,000,000 of its
debt securities in one or more series. If any of the Operating Partnership's
debt securities are not rated investment grade by at least one nationally
recognized statistical rating organization at the time of issuance, these
non-investment grade debt securities will be fully and unconditionally
guaranteed by Reckson Associates as to payment of principal, premium, if any,
and interest.
We may offer the securities at prices and on terms to be set forth in
one or more supplements to this prospectus. The securities may be offered
directly, through agents on our behalf or through underwriters or dealers.
The terms of the securities may include limitations on ownership and
restrictions on transfer thereof as may be appropriate to preserve the status of
Reckson Associates as a real estate investment trust for United States federal
income tax purposes.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS FOR A
DESCRIPTION OF RISKS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ___________ __, 1999.
RISK FACTORS
This prospectus contains forward-looking statements which involve risks
and uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause a
difference include, but are not limited to, those discussed below. An investment
in the securities involves various risks. Prospective investors should carefully
consider the following information in conjunction with the other information
contained in this prospectus and the related prospectus supplement before
purchasing the securities offered by the related prospectus supplement.
o WE ARE DEPENDENT ON THE NEW YORK TRI-STATE AREA MARKET DUE TO LIMITED
GEOGRAPHIC DIVERSIFICATION AND OUR FINANCIAL RESULTS MAY SUFFER AS A RESULT
OF A DECLINE IN ECONOMIC CONDITIONS IN SUCH AREA
A decline in the economic conditions in the New York Tri-State area and
for commercial real estate could adversely affect our business, financial
condition and results of operations. All of our properties are located in the
New York Tri-State area, although our organizational documents do not restrict
us from owning properties outside of this area. Each of our four markets are
located in the suburbs of New York City and may be similarly affected by
economic changes in this area. A significant downturn in the financial services
industry and related industries would likely have a negative effect on these
markets and on the performance of our properties.
The following is a breakdown of our office and industrial properties
for each of our four markets at September 30, 1998:
NUMBER
OF SQUARE ANNUAL BASE
PROPERTIES FOOTAGE RENT(1)
---------- ----------- -------------
Long Island
o Office 23 3,671,413 $68,553,425
o Industrial 94 5,638,435 36,521,033
Westchester
o Office 25 3,298,623 57,216,768
o Industrial 4 256,948 2,111,591
New Jersey
o Office 17 1,993,999 32,833,174
o Industrial 28 4,205,687 17,268,188
Connecticut
o Office 8 1,123,188 21,311,122
o Industrial 1 452,414 2,885,181
(1) Represents base rents from leases in place as of September 30, 1998,
for the period October 1, 1998 through September 30, 1999, excluding
the reimbursement by tenants of electrical costs.
o DEBT SERVICING AND REFINANCING, INCREASES IN INTEREST RATES AND FINANCIAL
COVENANTS COULD ADVERSELY AFFECT OUR ECONOMIC PERFORMANCE
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INFORMATION ABOUT OUR DEBT. As of September 30, 1998:
o our total debt, including our proportionate share of indebtedness
of joint ventures and net of the minority partners' interests, was
approximately $814,396,086
o the weighted-average maturity of our debt was 4.8 years
o our Debt Ratio, as described below, was 36.9%
o our debt-to-equity ratio was 1:1.71; we calculated our
debt-to-equity ratio by comparing the total debt of the Operating
Partnership to the value of the outstanding common stock of Reckson
Associates and the common units of limited partnership interest of
the Operating Partnership, each based upon the market value of the
common stock, and the liquidation preference of the preferred stock
of Reckson Associates and the preferred units of limited
partnership interest in the Operating Partnership, excluding all
units of general partnership interest owned by Reckson Associates
o approximately 54% of our debt was variable rate debt
DEPENDENCE UPON DEBT FINANCING; RISK OF INABILITY TO SERVICE OR
REFINANCE DEBT. In order to qualify as a real estate investment trust, or REIT,
for federal income tax purposes, Reckson Associates is required to distribute at
least 95% of its taxable income. As a result, we are more reliant on debt or
equity financings than many other companies that are not REITs and, therefore,
are able to retain more of their income.
We are subject to the risks associated with debt financing. Our cash
flow could be insufficient to meet required payments of principal and interest.
We may not be able to refinance existing indebtedness, which in virtually all
cases requires substantial principal payments at maturity, or the terms of such
refinancing might not be as favorable as the terms of the existing indebtedness.
As noted above, as of September 30, 1998, the weighted average maturity of our
existing indebtedness was 4.8 years and our total existing indebtedness was
approximately $814 million. We also may not be able to refinance any
indebtedness we incur in the future. Finally, we may not be able to obtain funds
by selling assets or raising equity to make required payments on maturing
indebtedness.
RISING INTEREST RATES COULD ADVERSELY AFFECT CASH FLOW. Increases in
interest rates could increase the Operating Partnership's interest expense,
which could adversely affect the ability to service its indebtedness or to pay
distributions to Reckson Associates' stockholders. As noted above, as of
September 30, 1998, approximately 54% of our debt was variable rate debt and our
total debt was approximately $814 million. Outstanding advances under the credit
facilities of the Operating Partnership bear interest at variable rates. In
addition, we may incur indebtedness in the future that also bears interest at a
variable rate.
REQUIREMENTS OF CREDIT FACILITIES COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND OUR ABILITY TO MAKE DISTRIBUTIONS. The ability of the Operating
Partnership to borrow under our credit facilities is subject to certain
financial covenants, including covenants relating to limitations on unsecured
and secured borrowings, minimum interest and fixed charge coverage ratios, a
minimum equity value and a maximum dividend payout ratio. The Operating
Partnership relies on borrowings under its credit facilities to finance
acquisition and development activities and for working capital purposes and, if
the Operating Partnership is unable to borrow under its credit facilities, it
could adversely affect our financial condition. The Operating Partnership has
obtained a three-year unsecured credit facility from The Chase
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Manhattan Bank, Union Bank of Switzerland and PNC Bank, National Association,
which provides for a maximum borrowing amount of up to $500 million. The
Operating Partnership has also obtained a separate $75 million one-year
unsecured credit facility from Chase. The credit facilities also contain a
financial covenant limiting the amount of distributions that Reckson Associates
may make to holders of its common stock during any fiscal quarter if they
exceed, when added to all distributions made during the three immediately
preceding quarters, the greater of:
o 90% of its funds from operations or 100% of its funds available for
distribution; and
o the amounts required in order for Reckson Associates to continue to
qualify as a REIT.
Although the Operating Partnership presently is in compliance with the
covenants under its credit facilities, there is no assurance that the Operating
Partnership will continue to be in compliance or that it will be able to service
its indebtedness or pay distributions to Reckson Associates so that Reckson
Associates may make distributions to its stockholders.
NO LIMITATION ON DEBT. Currently, we have a policy of incurring debt
only if our Debt Ratio is then 50% or less. As of September 30, 1998, our Debt
Ratio was 36.9%. For these purposes, Debt Ratio is defined as the total debt of
the Operating Partnership as a percentage of the market value of outstanding
shares of common stock and preferred stock of Reckson Associates, including the
conversion of outstanding partnership units in the Operating Partnership, plus
total debt. Under this policy, we could incur additional debt if our stock price
increases, even if we may not have a corresponding increase in our ability to
repay the debt. As described above, our credit facilities contain financial
covenants which limit the ability of the Operating Partnership to incur
additional indebtedness. However, our organizational documents do not contain
any limitation on the amount of indebtedness we may incur. Accordingly, the
Board of Directors could alter or eliminate this policy and would do so, for
example, if it were necessary in order for Reckson Associates to continue to
qualify as a REIT. If this policy were changed, we could become more highly
leveraged, resulting in higher interest payments that could adversely affect the
ability to pay distributions to Reckson Associates' stockholders and could
increase the risk of default on the Operating Partnership's existing
indebtedness.
o OUR ACQUISITION, DEVELOPMENT AND CONSTRUCTION ACTIVITIES COULD RESULT IN
LOSSES
We intend to acquire existing office and industrial properties to the
extent that the suitable acquisitions can be on made advantageous terms.
Acquisitions of commercial properties entail risks, such as the risks that we
may not be in a position or have the opportunity in the future to make suitable
property acquisitions on advantageous terms and that our investments will fail
to perform as expected. Many of the properties that we acquire require
significant additional investment and upgrades and are subject to the risk that
estimates of the cost of improvements to bring such properties up to standards
established for the intended market position may prove inaccurate. Since the IPO
of Reckson Associates in June 1995, we have acquired 63 office properties with
aggregate square footage of approximately 8.5 million and 44 industrial
properties with aggregate square footage of approximately 4.3 million (excluding
our investment in the Morris Companies).
We also intend to continue the selective development and construction
of office and industrial properties in accordance with our development and
underwriting policies as opportunities arise. Since the
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IPO of Reckson Associates, we have developed or re-developed five properties
comprising approximately 694,000 square feet. Our development and construction
activities include the risks that:
o we may abandon development opportunities after expending resources
to determine feasibility
o construction costs of a project may exceed our original estimates
o occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable
o financing may not be available to us on favorable terms for
development of a property
o we may not complete construction and lease-up on schedule,
resulting in increased debt service expense and construction costs
Our development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
If any of the above events occur, the ability to pay distributions to Reckson
Associates' stockholders and service the Operating Partnership's indebtedness
could be adversely affected. In addition, new development activities, regardless
of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention.
o THERE ARE MANY REAL ESTATE INVESTMENT RISKS THAT COULD ADVERSELY AFFECT OUR
FINANCIAL RESULTS
Our properties' revenues and value may be adversely affected by a
number of factors, including:
o the national, state and local economic climate and real estate
conditions, such as oversupply of or reduced demand for space and
changes in market rental rates
o our ability to provide adequate management, maintenance and
insurance
o defaults by our tenants or their failure to pay rent on a timely
basis
o the need to periodically renovate, repair and relet our space
o increasing operating costs, including real estate taxes and
utilities, which may not be passed through to tenants
A significant portion of our expenses of real estate investments, such
as mortgage payments, real estate taxes, insurance and maintenance costs, are
generally not reduced when circumstances cause a decrease in income from our
properties. In addition, our real estate values and income from properties are
also affected by our compliance with laws, including tax laws, interest rate
levels and the availability of financing.
BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO
SELL PROPERTIES WHEN APPROPRIATE. Real estate investments generally cannot be
sold quickly. We may not be able to vary our portfolio promptly in response to
economic or other conditions. In addition, provisions of the Internal Revenue
Code limit a REIT's ability to sell properties in some situations when it may be
economically advantageous to do so, thereby adversely affecting returns to
Reckson Associates' stockholders.
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COMPETITION IN OUR MARKETS IS SIGNIFICANT. The competition for tenants
in the office and industrial markets in the New York Tri-State area is
significant and includes properties owned by other REITs, local privately-held
companies, institutional investors and other owners. There is also significant
competition for acquisitions in our markets from the same types of competitors.
In addition, many users of industrial space in our markets own the buildings
that they occupy.
INCREASING OPERATING COSTS COULD ADVERSELY AFFECT CASH FLOW. Our
properties are subject to operating risks common to commercial real estate, any
and all of which may adversely affect occupancy or rental rates. Our properties
are subject to increases in our operating expenses such as cleaning,
electricity, heating, ventilation and air conditioning; elevator repair and
maintenance; insurance and administrative costs; and other costs associated with
security, landscaping, repairs and maintenance of our properties. While our
tenants generally are currently obligated to pay a portion of these costs, there
is no assurance that tenants will agree to pay these costs upon renewal or that
new tenants will agree to pay these costs initially. If operating expenses
increase, the local rental market may limit the extent to which rents may be
increased to meet increased expenses without at the same time decreasing
occupancy rates. While we have cost saving measures at each of our properties,
if any of the above occurs, our ability to pay distributions to our stockholders
and service our indebtedness could be adversely affected.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE. We carry
comprehensive liability, fire, extended coverage and rental loss insurance on
all of our properties. However, losses arising from acts of war or relating to
pollution are not generally insured because they are either uninsurable or not
economically insurable. If an uninsured loss or a loss in excess of insured
limits should occur, we could lose our capital invested in a property, as well
as any future revenue from the property. We would remain obligated on any
mortgage indebtedness or other obligations related to the property.
INVESTMENTS IN MORTGAGE DEBT COULD LEAD TO LOSSES. We may invest in
mortgages secured by office or industrial properties. We may acquire the
mortgaged properties through foreclosure proceedings or negotiated settlements.
In addition to the risks associated with investments in commercial properties,
investments in mortgage indebtedness present additional risks, including the
risk that the fee owners of such properties may not make payments of interest on
a current basis and we may not realize our anticipated return or sustain losses
relating to the investments. Although we currently have no intention to
originate mortgage loans as a significant part of our business, we may make
loans to a seller in connection with our purchase of real estate. The
underwriting criteria we would use for these loans would be based upon the
credit and value of the underlying real estate.
o PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT VENTURES COULD LIMIT OUR
CONTROL OF THOSE INVESTMENTS
Partnership or joint venture investments may involve risks not
otherwise present for investments made solely by us, including the possibility
that our partners or co-venturer might become bankrupt, that our partners or
co-venturer might at any time have different interests or goals than we do, and
that our partners or co-venturer may take action contrary to our instructions,
requests, policies or objectives, including our policy with respect to
maintaining the qualification of Reckson Associates as a REIT. Other risks of
joint venture investments include impasse on decisions, such as a sale, because
neither our partner or co-venturer nor us would have full control over the
partnership or joint venture. There is no
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limitation under our organizational documents as to the amount of funds that may
be invested in partnerships or joint ventures.
The following is a description of the significant joint ventures in
which we are involved:
OUR INVESTMENT IN THE OMNI, OUR LARGEST PROPERTY, INCLUDES THE RISKS
THAT WE CANNOT REFINANCE OR DISPOSE OF THE PROPERTY IN OUR SOLE DISCRETION AND
WE COULD HAVE OUR GENERAL PARTNERSHIP INTEREST CONVERTED INTO A LIMITED
PARTNERSHIP INTEREST. The Operating Partnership owns a 60% general partner
interest in Omni Partners, L.P. (the "Omni Partnership"), the partnership that
owns the Omni, a 575,000 square foot office building located in our Nassau West
Corporate Center office park. Odyssey Partners, L.P. and an affiliate of Odyssey
own the remaining 40% interest. Through our partnership interest, we act as
managing partner and have the sole authority to conduct the business and affairs
of the Omni Partnership subject to the limitations set forth in the amended and
restated agreement of limited partnership of Omni Partners, L.P. (the "Omni
Partnership Agreement"). These limitations include Odyssey's right to negotiate
under certain circumstances a refinancing of the mortgage debt encumbering the
Omni and the right to approve any sale of the Omni made on or before March 13,
2007 (the "Acquisition Date"). The Operating Partnership will continue to act as
the sole managing partner of the Omni Partnership unless certain conditions
specified in the Omni Partnership Agreement shall occur. Upon the occurrence of
any of these conditions the Operating Partnership's general partnership interest
shall convert to a limited partnership interest and an affiliate of Odyssey
shall be the sole managing partner, or at the option of Odyssey, the Operating
Partnership shall be a co-managing partner with an affiliate of Odyssey. In
addition, on the Acquisition Date, the Operating Partnership will have the right
to purchase Odyssey's interest in the Omni Partnership at a price (the "Option
Price") based on 90% of its fair market value. If the Operating Partnership
fails to exercise this option, Odyssey has the right to require the Operating
Partnership to purchase Odyssey's interest in the Omni Partnership on the
Acquisition Date at the Option Price. The Operating Partnership has the right to
extend the Acquisition Date until March 13, 2012. The Option Price shall apply
to the payment of all sums due under a loan made by the Operating Partnership in
March 1997 to Odyssey in the amount of approximately $17 million. The Odyssey
loan matures on the Acquisition Date, subject to the Operating Partnership's
right to extend the Acquisition Date as set forth above, and is secured by a
pledge of Odyssey's interest in the Omni Partnership.
OUR JOINT VENTURE IN AN OFFICE BUILDING IN TARRYTOWN, NEW YORK INCLUDES
THE RISKS THAT WE CANNOT ENTER INTO LARGE LEASES OR REFINANCE OR DISPOSE OF THE
BUILDING IN OUR DISCRETION. The Operating Partnership owns a 60% managing member
interest in a limited liability company that owns 520 White Plains Road, a
171,761 square foot office building located in Tarrytown, New York. The
remaining 40% member interest is held by Tarrytown Corporate Center III, L.P.
("TCC"), a partnership affiliated with the Halpern organization, the
organization from which we acquired eight Class A office properties for
approximately $86 million in February 1996. The member agreement governing the
joint venture arrangement requires us to obtain the consent of TCC prior to
engaging in activities such as entering into or modifying a lease for more than
25,000 rentable square feet, financing or refinancing indebtedness encumbering
the property and selling or otherwise transferring the property.
ALTHOUGH WE CONTROL RECKSON MORRIS OPERATING PARTNERSHIP OUR JOINT
VENTURE PARTNER HAS APPROVAL RIGHTS OVER A NUMBER OF MATTERS, SUCH AS THE SALE
OF ALL OR SUBSTANTIALLY ALL OF THE RECKSON MORRIS PROPERTIES. In October 1997,
we entered into an agreement to invest $150 million in the Morris
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Companies, a New Jersey developer and owner of "big box" warehouse facilities.
The Morris Companies properties include 23 industrial buildings encompassing
approximately 4.0 million square feet. As of September 30, 1998, we had invested
approximately $93.4 million for an approximate 76.4% controlling interest in
Reckson Morris Operating Partnership, L.P. In connection with the transaction,
the Morris Companies contributed 100% of their interest in certain industrial
properties to Reckson Morris Operating Partnership in exchange for operating
partnership units in Reckson Morris Operating Partnership. Although we control
Reckson Morris Operating Partnership, the former owners of the Morris Companies
have approval rights over a number of matters, such as the sale of all or
substantially all of the properties of Reckson Morris Operating Partnership
OUR INTEREST IN JOINT VENTURES WITH MATRIX IS GENERALLY SUBJECT TO A
RIGHT OF FIRST OFFER OF MATRIX AND MATRIX CAN ALSO PUT ITS INTEREST TO US IF
LEASING CONDITIONS HAVE BEEN SATISFIED. As of September 30, 1998, the Operating
Partnership had invested $44.9 million in joint ventures with Matrix Development
Group for the development of industrial and flex properties located in a New
Jersey submarket. Although the terms of each of the joint ventures vary, Matrix
generally identifies and develops projects for which we provide the capital. We
control the joint ventures and receive a priority return on our invested
capital. We also receive a return of our capital upon any sale or refinancing of
a project, and, generally, three-quarters of the proceeds in excess thereof.
Matrix typically has a right of first offer in the event we seek to dispose of a
project and has the right to put its interest in a project to us once specified
leasing parameters have been satisfied.
ALTHOUGH OUR JOINT VENTURE INVESTMENTS WITH RECKSON STRATEGIC VENTURE
PARTNERS WILL TYPICALLY INVOLVE AN INVESTMENT WITH AN ESTABLISHED MANAGEMENT
TEAM IN A SECTOR, THESE INVESTMENTS MAY BE IN SECTORS WHERE WE HAVE NO PRIOR
EXPERIENCE OR EXPERTISE AND WHICH ARE GENERALLY UNDEVELOPED. IN PARTICULAR, OUR
INVESTMENT IN PRIVATIZATION OF GOVERNMENT OCCUPIED OFFICE BUILDINGS AND
CORRECTIONAL FACILITIES INCLUDES THE RISKS OF BEING DEPENDENT UPON THE CONTINUED
OUTSOURCING OF REAL ESTATE FUNCTIONS BY GOVERNMENTAL AUTHORITIES AND OF
COMPETING IN THE BIDDING PROCESS. From time to time, the Operating Partnership
may make joint venture investments in real estate assets with Reckson Strategic
Venture Partners, LLC. Reckson Service Industries, Inc., an entity that Reckson
Associates spun-off to its shareholders in 1998, owns 100% of the common
ownership interests of Reckson Strategic Venture Partners and, accordingly,
controls Reckson Strategic Venture Partners. The strategy of Reckson Strategic
Venture Partners is to acquire interests in established entrepreneurial
enterprises with experienced management teams in market sectors which are in the
early stages of their growth cycle or offer circumstances for attractive
investments as well as opportunities for future growth. Joint venture
investments with Reckson Strategic Venture Partners may involve various types of
real estate assets and involve different risks than those in our office and
industrial sectors, as to which we have no prior experience or expertise. No
assurance can be given as to the success of these investments. As of September
30, 1998, the Operating Partnership had made a joint venture investment with
Reckson Strategic Venture Partners of $10.1 million in the area of privatization
of government occupied office buildings and correctional facilities. In addition
to the joint venture risks discussed above, this investment includes the
following specific risks:
o dependence upon the continued outsourcing of real estate functions
by governmental entities;
o the ability to compete effectively in bidding on specific projects;
and
o significant government regulation and/or oversight
8
o ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND MAY BE COSTLY
Federal, state and local laws and regulations relating to the
protection of the environment may require a current or previous owner or
operator of real estate to investigate and clean up hazardous or toxic
substances or petroleum product releases at a property. An owner of real estate
is liable for the costs of removal or remediation of certain hazardous or toxic
substances on or in the property. These laws often impose such liability without
regard to whether the owner knew of, or caused, the presence of the
contaminants. Clean-up costs and the owner's liability generally are not limited
under the enactments and could exceed the value of the property and/or the
aggregate assets of the owner. The presence of or the failure to properly
remediate the substances may adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the clean-up costs of the substances at a disposal or treatment
facility, whether or not such facility is owned or operated by the person. Even
if more than one person was responsible for the contamination, each person
covered by the environmental laws may be held responsible for the clean-up costs
incurred. In addition, third parties may sue the owner or operator of a site for
damages and costs resulting from environmental contamination emanating from that
site.
Environmental laws also govern the presence, maintenance and removal of
asbestos-containing materials ("ACMs"). These 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, we may be considered an owner or operator of
properties containing ACMs. Having arranged for the disposal or treatment of
contaminants we may be potentially liable for removal, remediation and other
costs, including governmental fines and injuries to persons and property.
All of our office properties and all of our industrial properties have
been subjected to a Phase I or similar environmental site assessment after April
1, 1994 that were completed by independent environmental consultant companies,
except for the property located at 35 Pinelawn Road which was originally
developed by us and subjected to a Phase I in April 1992. These Phase I or
similar environmental site assessments involved general inspections without soil
sampling, ground water analysis or radon testing and, for our properties
constructed in 1978 or earlier, survey inspections to ascertain the existence of
ACMs. These environmental site assessments have not revealed any environmental
liability that would have a material adverse effect on our business.
o FAILURE TO QUALIFY AS A REIT WOULD BE COSTLY
Reckson Associates has operated (and intends to operate) so as to
qualify as a REIT under the Internal Revenue Code beginning with our taxable
year ended December 31, 1995. Although our management believes that Reckson
Associates is organized and operated in a manner to so qualify, no assurance can
be given that Reckson Associates will qualify or remain qualified as a REIT.
If Reckson Associates fails to qualify as a REIT in any taxable year,
Reckson Associates will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Moreover, unless entitled to relief under certain statutory provisions,
Reckson Associates also will be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification was lost. This
treatment would significantly reduce net earnings available to
9
service indebtedness, make investments or pay distributions to shareholders
because of the additional tax liability to Reckson Associates for the years
involved. Also, Reckson Associates would not then be required to pay
distributions to its shareholders.
o TAX CONSEQUENCES UPON A SALE OR REFINANCING OF PROPERTIES MAY RESULT IN
CONFLICTS OF INTEREST FOR DIRECTORS AND OFFICERS OF RECKSON ASSOCIATES
Holders of units of limited partnership of the Operating Partnership or
co-owners of properties not owned entirely by us may suffer different and more
adverse tax consequences than we will upon the sale or refinancing of our
properties. We may have different objectives from these co-owners and holders of
limited partnership units regarding the appropriate pricing and timing of any
sale or refinancing of these properties. While Reckson Associates, as the sole
general partner of the Operating Partnership, has the exclusive authority as to
whether and on what terms to sell or refinance each property owned solely by the
Operating Partnership, the directors and officers of Reckson Associates who hold
limited partnership units may seek to influence us not to sell or refinance the
properties, even though such a sale might otherwise be financially advantageous
to us, or may seek to influence us to refinance a property with a higher level
of debt.
o WE MAY HAVE CONFLICTS OF INTERESTS WITH RECKSON SERVICE INDUSTRIES
CONFLICTS AS A RESULT OF OVERLAPPING MANAGEMENT. Donald J. Rechler
serves as our Chairman of the Board and our Chief Executive Officer and Chairman
of the Board of Reckson Service Industries. Scott H. Rechler serves as our
President and our Chief Operating Officer and President and Chief Executive
Officer of Reckson Service Industries and is a director of Reckson Associates
and Reckson Service Industries. Michael Maturo serves as Executive Vice
President, Treasurer and Chief Financial Officer of Reckson Associates and
Reckson Service Industries and is a director of Reckson Service Industries.
Furthermore, Roger Rechler, Gregg Rechler and Mitchell Rechler are executive
officers of Reckson Associates and Roger Rechler and Mitchell Rechler are
directors of Reckson Associates, while all three individuals are members of the
management advisory committee and directors of Reckson Service Industries.
Although each of the individuals referred to above is committed to the success
of Reckson Associates, they are also committed to the success of Reckson Service
Industries. Our senior management and directors beneficially owned approximately
15% of the outstanding common stock of Reckson Associates, with a total market
value, based on the New York Stock Exchange closing price of $23 per share on
September 30, 1998, of approximately $178.4 million, and approximately 29% of
the outstanding common stock of Reckson Service Industries, with a total market
value, at a stock price of $2 per share on September 30, 1998, of approximately
$14.3 million. In calculating the ownership of common stock of Reckson
Associates, we have assumed the conversion of all limited partnership units in
the Operating Partnership into shares of common stock and the exercise of all
vested stock options. There is a risk that the common membership of management,
members of the Boards of Directors and ownership of Reckson Associates and
Reckson Service Industries will lead to conflicts of interest in the fiduciary
duties owed to stockholders by common directors and officers in connection with
transactions between the two companies, as well as a conflict in allocating
management time.
CONFLICTS IN TRANSACTIONS WITH RECKSON SERVICE INDUSTRIES UNDER THE
INTERCOMPANY AGREEMENT. The Operating Partnership and Reckson Service Industries
have entered into an intercompany agreement to formalize their relationship at
the outset and to limit conflicts of interest. The intercompany agreement was
not negotiated at arms' length as it was negotiated while 95% of the common
stock of Reckson
10
Service Industries was owned by the Operating Partnership. Under the
intercompany agreement, Reckson Service Industries granted the Operating
Partnership a right of first opportunity to make any REIT-qualified investment
that becomes available to Reckson Service Industries. In addition, if a
REIT-qualified investment opportunity becomes available to an affiliate of
Reckson Service Industries, including Reckson Strategic Venture Partners, 100%
of the common ownership interest of which is indirectly owned by Reckson Service
Industries, the intercompany agreement requires the Reckson Service Industries'
affiliate to allow the Operating Partnership to participate in the opportunity
to the extent of Reckson Service Industries' interest in the affiliate.
Under the intercompany agreement, the Operating Partnership granted
Reckson Service Industries a right of first opportunity to provide to the
Operating Partnership and its tenants any type of non-customary commercial
services for occupants of office, industrial and other property types, which we
may not be permitted to provide because they may generate REIT non-qualifying
income under Federal tax laws. Reckson Service Industries will provide services
to the Operating Partnership at rates and on terms as attractive as either the
best available for comparable services in the market or those offered by Reckson
Service Industries to third parties. In addition, the Operating Partnership will
give Reckson Service Industries access to its tenants with respect to commercial
services that may be provided to tenants.
Under the intercompany agreement, subject to certain conditions, the
Operating Partnership granted Reckson Service Industries a right of first
refusal to become the lessee of any real property acquired by the Operating
Partnership if the Operating Partnership determines that, because the operation
of the property may involve the performance of non-customary services that under
the Internal Revenue Code a REIT may not generally provide, it is required to
enter into a "master" lease arrangement. Pursuant to a "master" lease
arrangement, the Operating Partnership would own the property, but lease it
entirely to a single lessee that would operate the property.
With respect to services that Reckson Service Industries will provide
to the Operating Partnership, management will have a conflict of interest in
determining the market rates to charge the Operating Partnership for these
services. In addition, management will have a conflict of interest in
determining whether the Operating Partnership or Reckson Service Industries
would pursue a REIT-qualified investment opportunity outside of our core
business strategy of investing in office and industrial properties in the New
York Tri-State area. Furthermore, the Operating Partnership and Reckson Service
Industries may structure investments so that joint ventures between the
Operating Partnership and Reckson Strategic Venture Partners may pursue the
portion of investments generating REIT-qualified income and Reckson Strategic
Venture Partners will pursue directly the other portion of these investments.
Accordingly, Reckson Strategic Venture Partners and Reckson Strategic Venture
Partners-Reckson Operating Partnership joint ventures may have conflicts of
interest in the structuring, valuation, management and disposition of these
investments.
CONFLICTS IN OUR LOANS TO RECKSON SERVICE INDUSTRIES. In June 1998, the
Operating Partnership established a credit facility with Reckson Service
Industries (the "Reckson Service Industries Facility") in the amount of $100
million for Reckson Service Industries' service sector operations and other
general corporate purposes. In addition, in June 1998, the Operating Partnership
also established a credit facility with Reckson Service Industries (the "Reckson
Strategic Venture Partners Facility", and together with the Reckson Service
Industries Facility, the "Reckson Service Industries Credit Facilities") for the
funding of investments of up to $100 million by Reckson Service Industries in
Reckson Strategic Venture Partners.
11
Advances under the Reckson Strategic Venture Partners Facility in excess of $25
million in respect of any single platform will be subject to approval by the
Board of Directors of Reckson Associates, while advances under the Reckson
Service Industries Facility in excess of $10 million in respect of any single
investment in non-customary commercial services, as well as advances for
investments in opportunities in other services, will be subject to approval by
the Board of Directors of Reckson Associates, or a committee thereof. Each
Reckson Service Industries Credit Facility has a term of five years and advances
thereunder will be recourse obligations of Reckson Service Industries. Interest
will accrue on advances made under the Reckson Service Industries Credit
Facilities at a rate equal to the greater of (1) the prime rate plus 2% and (2)
12% per annum, with the rate on amounts that are outstanding for more than one
year increasing annually at a rate of 4% of the prior year's rate. Prior to
maturity, interest will be payable quarterly but only to the extent of net cash
flow and on an interest-only basis and will be prepayable without penalty at the
option of Reckson Service Industries. As long as there are outstanding advances
under any Reckson Service Industries Credit Facility, Reckson Service Industries
will be prohibited from paying dividends on any shares of its capital stock. The
Reckson Service Industries Credit Facilities are subject to certain other
covenants and prohibit advances thereunder to the extent the advances could, in
our determination endanger the status of Reckson Associates as a REIT. The terms
of the Reckson Service Industries Credit Facilities were not negotiated at arms'
length and thus may not reflect terms that could have been obtained from
independent third parties. Additional indebtedness may be incurred by
subsidiaries of Reckson Service Industries. As of September 30, 1998, borrowings
under the Reckson Service Industries Credit Facilities aggregated approximately
$6.6 million.
POLICIES WITH RESPECT TO CONFLICTS OF INTEREST MAY NOT BE SUCCESSFUL.
We have adopted policies designed to eliminate or minimize conflicts of
interest. These policies include the approval by of all transactions in which
directors or officers of Reckson Associates have a conflicting interest by a
majority of the directors who are neither officers nor affiliated with us. These
policies do not prohibit sales of assets to or from affiliates, but would
require the sales to be approved by the independent directors of Reckson
Associates. However, there is no assurance that these policies will be
successful and, if they are not successful, decisions could be made that might
fail to reflect fully the interests of all of our stockholders.
o THE TOWER TRANSACTION MAY CAUSE AN INCREASE IN OUR DEBT RATIOS AND
INVOLVES OUR ENTRY INTO A NEW MARKET; THE TOWER PROPERTIES MAY NOT PERFORM AS WE
ANTICIPATE
As further described below under the caption "Reckson Associates and
the Operating Partnership", on December 9, 1998, we agreed to purchase, through
Metropolitan Partners LLC, 100% of the outstanding common stock of Tower Realty
Trust, Inc. for a combination of cash and securities, including Reckson
Associates' Class B exchangeable common stock. We control Metropolitan and own
100% of the common member interests therein. The Tower transaction is subject to
the approval of Tower stockholders and, as a result, may not occur. If the Tower
stockholders approve the transaction and we acquire Tower, we will be subject to
the following risks:
o as a result of the Tower merger our debt ratios will increase due
to Tower's debt levels;
o if Reckson Associates' stockholders fail to approve the issuance of
the Class B exchangeable common stock as the entire non-cash
portion of the merger consideration, we will incur additional
indebtedness, thereby further increasing our debt ratios. The table
below sets forth historical and pro forma information about our
debt as of September 30, 1998. Pro forma information gives effect
to the Tower merger, both with
12
and without Reckson Associates' stockholders approving the
issuance of the Class B exchangeable common stock as the entire
non-cash portion of the merger consideration. In the event Reckson
Associates' stockholders do not approve of the issuance of the
Class B exchangeable common stock as the active non-cash portion
of the merger consideration, the Operating Partnership will issue
approximately $95.7 million of its 7% Senior Notes due 2009 (par
value $101.5 million) as part of the merger consideration.
------------------ ------------------------- ---------------------------
PRO FORMA PRO FORMA
WITH WITHOUT
HISTORICAL APPROVAL APPROVAL
------------------ ------------------------- ---------------------------
Total Debt (in millions and
including proportionate share
of joint debt and net of
minority interests) $814.4 $1,162.0 $1,257.7
------------------ ------------------------- ---------------------------
Weighted average maturity of
debt (in years) 4.8 years 4.9 years 5.4 years
------------------ ------------------------- ---------------------------
Debt Ratio 36.9% 40.8% 44.1%
------------------ ------------------------- ---------------------------
Debt-to-equity ratio 1:1.71 1:1.45 1:1.26
------------------ ------------------------- ---------------------------
Portion of debt that is
variable rate 54% 58% 54%
------------------ ------------------------- ---------------------------
o the Tower portfolio may not perform as we anticipate
o we may not be able to effectively integrate Tower's operations,
which involve the operation and leasing of buildings in New York
City, a market in which we have not previously owned and operated
properties
In addition, if the Tower merger does not occur and a court of
competent jurisdiction issues a final non-appealable judgment determining that
we were obligated to consummate the merger but we failed to do so, or that we
failed to use our reasonable best efforts to take all actions necessary to cause
the closing conditions to the merger to be satisfied, we will be obligated to
return to Tower for no consideration $30 million of Tower preferred stock that
we purchased at the time of the signing of the merger agreement.
o LIMITS ON OWNERSHIP AND CHANGES IN CONTROL MAY DETER CHANGES IN MANAGEMENT AND
THIRD PARTY ACQUISITION PROPOSALS
OWNERSHIP LIMIT. To maintain the qualification of Reckson Associates as
a REIT, five or fewer individuals (as defined in the Internal Revenue Code of
1986, as amended, to include certain entities) may not own, directly or
indirectly, more than 50% in value of the outstanding capital stock of Reckson
Associates during the last half of a taxable year (other than the first year).
In order to protect against the risk of losing REIT status, Reckson Associates'
charter limits ownership of its issued and outstanding common stock by any
single stockholder to 9.0% of the lesser of the number or value of the
outstanding shares of common stock. It also will limit ownership of Reckson
Associates' Class B exchangeable
13
common stock to be issued in the pending Tower transaction by any single
stockholder to 9% in value of the outstanding shares of all of Reckson
Associates' common stock and limits ownership of Reckson Associates' issued and
outstanding 7-5/8% Series A convertible cumulative preferred stock to 9% in
value of the outstanding shares of all of Reckson Associates' capital stock. In
addition, a stockholder may not acquire shares of Reckson Associates' Series A
preferred stock that would result in the stockholder's owning in excess of 20%
of the lesser of the number or value of outstanding shares of the Series A
preferred stock. See "Restrictions on Ownership of Capital Stock," "Description
of Common Stock - Restrictions on Ownership" and "Description of Preferred
Stock-Restrictions on Ownership." These provisions may delay, defer or prevent a
change of control in Reckson Associates or other transaction by a third party
without the consent of the Board of Directors even if a change in control were
in the best interests of the stockholders of Reckson Associates.
STAGGERED BOARD. The Board of Directors of Reckson Associates is
divided into three classes. The terms of the Class I, Class II and Class III
directors expire in 1999, 2000 and 2001, respectively. Directors are chosen for
a three-year term. These provisions may deter changes in control because of the
increased time period necessary for a third party to acquire control of
management through positions on the Board of Directors of Reckson Associates.
REQUIRED CONSENT OF HOLDERS OF UNITS FOR CERTAIN TRANSACTIONS. Under
the terms of the Operating Partnership's partnership agreement, through June 2,
2000, the Operating Partnership may not sell, transfer or otherwise dispose of
all or substantially all of its assets (whether by way of sale or by merger,
sale or consolidation into another person) without the consent of the holders of
85% of the outstanding common limited partnership units. This voting requirement
could delay, defer or prevent a change in control of Reckson Associates.
FUTURE ISSUANCES OF COMMON STOCK. The charter of Reckson Associates
authorizes the Board of Directors to issue additional shares of common stock
without stockholder approval. Reckson Associates may also issue shares of common
stock in exchange for limited partnership units pursuant to the Operating
Partnership's partnership agreement. The Board of Directors has also authorized
the issuance of up to 11.7 million shares of Class B exchangeable common stock
in connection with the Tower transaction. These shares will be exchangeable on a
one-for-one basis for shares of Reckson common stock and will be entitled to an
initial annual dividend of $2.24 per share, subject to adjustment annually.
Issuance of common stock or Class B exchangeable common stock could have the
effect of diluting existing common stockholders' interests in Reckson
Associates.
THE CHARTER OF RECKSON ASSOCIATES PERMITS THE ISSUANCE OF PREFERRED
STOCK WHICH COULD DELAY, DEFER OR PREVENT A CHANGE IN CONTROL. The charter of
Reckson Associates authorizes the Board of Directors to issue up to 25 million
shares of preferred stock, of which 9,200,000 shares of its Series A preferred
stock have been issued (8,000 shares of which have been converted to shares of
common stock), to reclassify unissued shares of capital stock, and to establish
the preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications, and terms and conditions of redemption for each
class or series of any capital stock issued. Although the Board of Directors
does not intend to do so at the present time, it could establish a series of
preferred stock that could, depending on the terms of the preferred stock,
delay, defer or prevent a change in control of Reckson Associates that might
involve a premium price for the common stock or otherwise be in the best
interest of the stockholders of Reckson Associates.
14
LIMITATIONS ON ACQUISITION OF AND CHANGES IN CONTROL PURSUANT TO
MARYLAND LAW. The Maryland General Corporation Law contains provisions, referred
to as the "control share acquisition statute," which eliminate the voting rights
of shares acquired in a Maryland corporation in quantities so as to constitute
"control shares," as defined under the MGCL. The MGCL also contains provisions,
referred to as the "business combination statute," which generally limit
business combinations between a Maryland corporation and any 10% owners of the
corporation's stock or any affiliate thereof. These provisions may have the
effect of inhibiting a third party from making an acquisition proposal for
Reckson Associates or of delaying, deferring or preventing a change in control
of Reckson Associates under circumstances that otherwise could provide the
holders of shares of common stock with the opportunity to realize a premium over
the then-prevailing market price. However, as permitted by the MGCL, the bylaws
of Reckson Associates contain a provision exempting any and all acquisitions by
any person of shares of capital stock of Reckson Associates from the control
share acquisition statute. In addition, the Board of Directors adopted a
resolution exempting Reckson Associates from the provisions of the business
combination statute. Reckson Associates may amend or eliminate these provisions
at any time.
o RISK OF IMPACT OF YEAR 2000 ISSUE ON OUR OPERATIONS AND FINANCIAL RESULTS
Some of our older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, or engage in similar normal
business activities.
Our year 2000 project is estimated to be completed not later than July
31, 1999, which is prior to any anticipated impact on our operating systems.
Additionally, we have received assurances from our contractors that all of our
building management and mechanical systems are currently year 2000 compliant or
will be made compliant prior to any impact on those systems. However, we cannot
guarantee that all contractors will comply with their assurances and therefore
we may not be able to determine year 2000 compliance of those contractors. At
that time, we will determine the extent to which we will be able to replace non
compliant contractors. We believe that with modifications to existing software
and conversion to new software, the year 2000 issue will not pose significant
operational problems for our computer systems. However, if modifications and
conversions are not made, or are not completed timely, the year 2000 issue could
have a material impact on our operations.
To date, we have expended approximately $250,000 and expect to expend
an additional one million dollars in connection with upgrading building
management, mechanical and computer systems. The costs of the project and the
date on which we believe we will complete the year 2000 modifications are based
on our management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause material differences include, but
are not limited to the availability and costs of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
15
o THE MARKET VALUE OF SECURITIES COULD DECREASE BASED ON OUR PERFORMANCE AND
MARKET PERCEPTION AND CONDITIONS
EFFECT OF EARNINGS AND CASH DISTRIBUTIONS. The market value of the
equity securities of a REIT may be based primarily upon the market's perception
of the REIT's growth potential and its current and future cash distributions,
and may be secondarily based upon the real estate market value of the underlying
assets. For the year ended December 31, 1997, Reckson Associates distributed
approximately 82.4% of its cash available for distribution to its common
stockholders. Although we have retained operating cash flow for investment and
working capital purposes, which has increased the value of our underlying
assets, this has not proportionately increased the market price of the equity
securities of Reckson Associates. Our failure to meet the market's expectation
with regard to future earnings and cash distributions likely would adversely
affect the market price of the equity securities of Reckson Associates.
ADVERSE IMPACT OF RISING INTEREST RATES. One factor which influences
the price of securities is the dividend or interest rate on the securities
relative to market interest rates. Rising interest rates may lead potential
buyers of equity securities of Reckson Associates to expect a higher dividend
rate, which would adversely affect the market price of the securities. In
addition, rising interest rates would result in increased expense, thereby
adversely affecting cash flow and the ability of the Operating Partnership to
service its indebtedness.
o TRANSACTIONS BY THE OPERATING PARTNERSHIP OR RECKSON ASSOCIATES COULD
ADVERSELY AFFECT DEBT HOLDERS
Except with respect to a covenant limiting the incurrence of
indebtedness, a covenant requiring the Operating Partnership to maintain a
certain percentage of unencumbered assets and a covenant requiring any successor
in a business combination with the Operating Partnership to assume all of the
obligations of the Operating Partnership under the indenture pursuant to which
the debt securities will be issued, the indenture does not contain any
provisions that would protect holders of debt securities in the event of (i) a
highly leveraged or similar transaction involving the Operating Partnership, the
management of the Operating Partnership or Reckson Associates, or any affiliate
of any these parties, (ii) a change of control, or (iii) certain
reorganizations, restructuring, mergers or similar transactions involving the
Operating Partnership or Reckson Associates. Although we anticipate that the
pending Tower transaction will increase our overall debt level, we do not
anticipate that the Tower transaction will cause a default under the indenture
or otherwise affect the rights of holders of debt securities issued under the
indenture.
o WE MAY NOT BE ABLE TO PAY ON GUARANTEES
A guarantee of the Operating Partnership's debt securities by Reckson
Associates should not be viewed by investors as enhancing the credit of the debt
securities or as providing any additional value to the debt securities. The
Operating Partnership conducts all of Reckson Associates' operations, and the
only asset of Reckson Associates is its interest in the Operating Partnership.
As a result, if the Operating Partnership is unable to meet its obligations on
the debt securities, Reckson Associates will not have any assets from which to
pay on its guarantee of such debt securities.
16
ORGANIZATIONAL CHART
[Organizational chart of Reckson Associates Realty Corp. and its subsidiaries
(Reckson Operating Partnership, L.P., Reckson Management Group Inc., Reckson
Construction Group, Inc., REckson FS Limited Partnership, Reckson Morris
Operating Partnership)]
17
AVAILABLE INFORMATION
Reckson Associates is, and as a result of filing the registration
statement of which this prospectus is a part, the Operating Partnership will be,
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith Reckson
Associates files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission") and the Operating
Partnership will file reports with the Commission. These reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the regional offices of the
Commission at 7 World Trade Center (13th Floor), New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such information can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. These materials can also be inspected at the office
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005, the
exchange on which Reckson Associates' common stock and Series A preferred stock
is listed. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
We have filed with the Commission a registration statement on Form S-3
under the Securities Act, with respect to the securities. This prospectus does
not contain all of the information set forth in the registration statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information regarding us and the
securities, reference is made to the registration statement, including the
exhibits filed as a part thereof, and the documents incorporated by reference in
this prospectus. Statements made in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete;
with respect to each contract, agreement or other document filed as an exhibit
to the registration statement or to an Exchange Act report, reference is made to
the exhibit for a more complete description of the matter involved, and each
statement shall be deemed qualified in its entirety by reference. Copies of the
registration statement and the exhibits may be inspected, without charge, at the
offices of the Commission, or obtained at prescribed rates from the Public
Reference Section of the Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by Reckson Associates with the
Commission pursuant to the Exchange Act are incorporated by reference in this
prospectus:
SEC FILINGS (FILE NO. 1-13762) PERIOD
- ------------------------------ ------
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarters ended March 31, 1998, June 30,
1998 and September 30, 1998
18
Current Reports on Form 8-K Filed February 18, 1997, May 15, 1997,
(including Form 8-K/A) June 12, 1997, August 7, 1997, September
9, 1997, October 21, 1997, January 6,
1998, January 26, 1998, February 10,
1998, February 12, 1998, March 24, 1998,
March 25, 1998, April 6, 1998, July 22,
1998, August 14, 1998, November 2, 1998,
November 9, 1998 and December 22, 1998
Registration Statement on Form 8-A Filed May 9, 1995 (as amended)
Registration Statement on Form 8-A Filed April 9, 1998
We also incorporate by reference each of the following documents that
we will file with the Commission after the date of this prospectus until the
particular offering is completed or after the date of the initial registration
statement and prior to effectiveness of the registration statement:
o Reports filed under Section 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
Reckson Associates and the Operating Partnership will provide a copy of
any or all of these documents (exclusive of exhibits unless the exhibits are
specifically incorporated by reference therein), without charge, to each person
to whom this prospectus is delivered, upon written or oral request to Reckson
Associates Realty Corp., 225 Broadhollow Road, Melville, New York 11747, Attn:
Jason M. Barnett, Senior Vice President and General Counsel, telephone number
(516) 694-6900.
RECKSON ASSOCIATES AND THE OPERATING PARTNERSHIP
Reckson Associates was incorporated in September 1994 and commenced
operations effective with the completion of its initial public offering (the
"IPO") on June 2, 1995. Reckson Associates, together with the Operating
Partnership, was formed for the purpose of continuing the commercial real estate
business of the predecessors of Reckson Associates, its affiliated partnerships
and other entities. For more than 40 years, we have been engaged in the business
of owning, developing, acquiring, constructing, managing and leasing suburban
office and industrial properties in the New York metropolitan area. Based on
industry surveys, we believe that we are one of the largest owners and managers
of Class A suburban office and industrial properties in the New York City
Metropolitan Tri-State area of New York, New Jersey and Connecticut (the "New
York Tri-State area"). When we refer to Class A office buildings in this
prospectus, we mean well maintained, high quality buildings that achieve rental
rates that are at the higher end of the range of rental rates for office
properties in the particular market. We operate as a self-managed REIT with
in-house capabilities in property management, development, construction and
acquisitions. As of September 30, 1998, we owned and controlled, directly or
indirectly, 202 properties (the "Properties") encompassing approximately 20.7
million rentable
19
square feet, all of which we manage. The Properties consist of 73 Class A
suburban office properties encompassing approximately 10.1 million rentable
square feet, 127 industrial properties encompassing approximately 10.6 million
rentable square feet and two 10,000 square foot retail properties. In addition,
as of September 30, 1998, we owned or had contracted to acquire approximately
852 acres of land (including approximately 400 acres under option) that may
present future development opportunities. In addition, we have invested $17
million in a note receivable secured by the interest of Odyssey Partners, L.P.
in Omni Partners, L.P.
The office properties are Class A suburban office buildings that are
well-located, well-maintained and professionally managed. In addition, these
properties are modern or have been modernized to compete with newer buildings in
their markets. We believe that these properties achieve among the highest rent
and occupancy rates within their markets. The majority of the office properties
are located in eleven planned office parks and are tenanted by, among others,
national service firms, such as telecommunications firms, "big five" accounting
firms, securities brokerage houses, insurance companies and health care
providers. The industrial properties are utilized for distribution, warehousing,
research and development and light manufacturing/assembly activities and are
located primarily in three planned industrial parks.
On December 8, 1998, Reckson Associates, the Operating Partnership,
Metropolitan and Tower, executed a merger agreement pursuant to which Tower will
be merged into Metropolitan, with Metropolitan surviving the merger.
Concurrently with the merger, the Tower operating partnership will be merged
with and into a subsidiary of Metropolitan. The consideration to be issued in
the mergers will be comprised of (1) 25% cash and (2) 75% of shares of Reckson
Associates' Class B exchangeable common stock, or in certain circumstances
described below, shares of Class B common stock and unsecured notes of the
Operating Partnership. We control Metropolitan and own 100% of the common equity
interests, while Crescent Real Estate Equities Company owns a preferred equity
interest in Metropolitan. The merger agreement replaces a previously existing
merger agreement among Reckson, Crescent, Metropolitan and Tower relating to the
acquisition by Metropolitan, which at that time was a 50/50 joint venture
between Reckson Associates and Crescent.
Pursuant to the terms of the merger agreement, holders of shares of
outstanding common stock of Tower, and outstanding units of limited partnership
interest of the Tower operating partnership will have the option to elect to
receive cash or shares of Class B common stock, subject to proration. Under the
terms of the transaction, Metropolitan will effectively pay for each share of
Tower common stock and each unit of limited partnership interest of the Tower
operating partnership: (1) $5.75 (in cash) and (2) 0.6273 of a share of Class B
common stock. The shares of Class B common stock are entitled to receive an
initial annual dividend of $2.24 per share, which is subject to adjustment
annually. We may redeem any or all of the Class B common stock in exchange for
an equal number of shares of Reckson Associates' common stock at any time
following the four year, six-month anniversary of the issuance of Class B common
stock. It is anticipated that Reckson Associates' Board of Directors will
recommend to Reckson Associates' stockholders the approval of a proposal to
issue a number of shares of Class B Common Stock equal to 75% of the sum of (1)
the number of outstanding shares of the Tower common stock and (2) the number of
units of limited partnership interest of the Tower operating partnership, in
each case, at the effective time of the mergers. If Reckson Associates'
stockholders do not approve the issuance of the Class B common stock as
proposed, the merger agreement provides that approximately one-third of the
consideration that was to be paid in the form of Class B common stock will be
replaced by senior unsecured notes of the Operating Partnership, which notes
will bear interest at the rate of 7%
20
per annum and have a term of ten years. In addition, if Reckson Associates'
stockholders do not approve the issuance of Class B common stock as proposed and
Reckson Associates' Board of Directors does not recommend, or withdraws or
amends or modifies in any material respect its recommendation for, approval of
the proposal, then the total principal amount of notes to be issued and
distributed in the merger will be increased by $15 million.
Simultaneously with the execution of the merger agreement, Metropolitan
purchased from Tower approximately 2.2 million shares of Series A convertible
preferred stock of Tower, for an aggregate purchase price of $40 million. This
transaction provided Tower with funds to meet its cash needs. If the merger
agreement is not consummated and a court of competent jurisdiction issues a
final, non-appealable judgment determining that Reckson Associates and
Metropolitan are obligated to consummate the merger but have failed to do so, or
determining that Reckson Associates and Metropolitan failed to use their
reasonable best efforts to take all actions necessary to cause certain closing
conditions to be satisfied, Metropolitan is obligated to return to Tower $30
million of the Tower Series A preferred stock. Tower required that these
provisions be included in the preferred stock transaction in its efforts to
attain greater certainty that the merger would occur.
In connection with the new merger agreement, Tower, Reckson Associates,
Crescent and Metropolitan have exchanged mutual releases for any claims relating
to the previous merger agreement.
Our executive offices are located at 225 Broadhollow Road, Melville,
New York 11747 and our telephone number at that location is (516) 694-6900. At
October 20, 1998, we had approximately 240 employees.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, the
net proceeds to Reckson Associates or the Operating Partnership, as the case may
be, from the sale of the securities offered by the applicable prospectus
supplement will be used for the repayment of existing indebtedness, the
development or acquisition of additional properties as suitable opportunities
arise and the renovation, expansion and improvement of our existing properties,
in each case, as described in detail in the prospectus supplement depending on
the circumstances at the time of the related offering, and for other general
corporate purposes.
21
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the consolidated ratios of earnings to
fixed charges and preferred stock dividends of Reckson Associates and the
Operating Partnership for the periods shown:
Nine Months Year Ended June 3, 1995
Ended Ended To
September 30, December 31 December 31,
------------- -------------------- -----------------
1998 1997 1996 1995
---- ---- ---- ----
Reckson Associates:
- ------------------
Ratio of Earnings to 2.12x 2.77x 2.72x 2.71x
Fixed Charges
Ratio of Earnings to 1.92x(2) -- -- --
Combined Fixed
Charges and Preferred
Stock Dividends
Operating Partnership:
- ---------------------
Ratio of Earnings to 2.13x 2.78x 2.71x 2.71x
Fixed Charges
Ratio of Earnings to 1.93x(2) -- -- --
Combined Fixed
Charges and Preferred
Stock Dividends
(Table Continued)
January 1, 1995 Year Ended December 31,
To --------------------------
June 2, 1995 1994 1993
--------------- -------- ----------
Reckson Associates:
- ------------------
Ratio of Earnings to 1.02x(1) 0.97x(1)(3) 0.65x(1)(3)
Fixed Charges
Ratio of Earnings to -- -- --
Combined Fixed
Charges and Preferred
Stock Dividends
Operating Partnership:
- ---------------------
Ratio of Earnings to 1.02x(1) 0.97x(1)(3) 0.65x(1)(3)
Fixed Charges
Ratio of Earnings to -- -- --
Combined Fixed
Charges and Preferred
Stock Dividends
(1) Prior to completion of the IPO on June 2, 1995, our predecessors operated
in a manner as to minimize net taxable income to the owners. The IPO and
the related formation transactions permitted us to deleverage our
properties significantly, resulting in a significantly improved ratio of
earnings to fixed charges.
(2) Neither Reckson Associates nor the Operating Partnership had preferred
stock outstanding prior to April 1998.
22
(3) The excess of fixed charges over earnings amounted to approximately
$493,000 and $10,105,000 for the years ended December 31, 1994 and 1993,
respectively.
The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. The ratio of earnings to combined fixed charges and
preferred dividends were computed by dividing earnings by the aggregate of fixed
charges and preferred dividends. For this purpose, earnings consist of income
from continuing operations before minority interest, fixed charges and preferred
dividends. Fixed charges consist of interest expense (including interest costs
capitalized) and the amortization of debt issuance costs.
DESCRIPTION OF DEBT SECURITIES
The debt securities of the Operating Partnership covered by this
prospectus (the "Debt Securities") will be issued under an Indenture (the
"Indenture") among the Operating Partnership, Reckson Associates and the trustee
named therein (the "Trustee"). The Indenture has been filed as an exhibit to the
Registration Statement of which this prospectus is a part and is available for
inspection at the corporate trust office of the trustee or as described above
under "Available Information." The Indenture is subject to, and governed by, the
Trust Indenture Act of 1939, as amended (the "TIA"). The statements made
hereunder relating to the Indenture and the Debt Securities to be issued
thereunder are summaries of the material provisions thereof and do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all provisions of the Indenture and the Debt Securities. All
section references appearing herein are to sections of the Indenture, and
capitalized terms used but not defined herein shall have the respective meanings
set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the
Operating Partnership and will rank equally with all other unsecured and
unsubordinated indebtedness of the Operating Partnership. The Debt Securities
may be issued without limit as to aggregate principal amount, in one or more
series, in each case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Directors of Reckson
Associates as sole general partner of the Operating Partnership, or as
established in one or more indentures supplemental to the Indenture. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Debt Securities of the series, for issuances of additional Debt
Securities of the same series.
The Indenture provides that there may be more than one Trustee
thereunder, each with respect to one or more series of Debt Securities. Any
Trustee under the Indenture may resign or be removed with respect to one or more
series of Debt Securities, and a successor Trustee may be appointed to act with
respect to the series. In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each Trustee shall
be a trustee of a trust under the Indenture separate and apart from the trust
administered by any other Trustee, and, except as otherwise indicated herein,
any action described herein to be taken by a Trustee may be taken by each
Trustee with respect to, and only with respect to, the one or more series of
Debt Securities for which it is Trustee under the Indenture.
23
Reference is made to the prospectus supplement relating to the series
of Debt Securities being offered for the specific terms thereof, including:
(1) the title of the Debt Securities;
(2) the aggregate principal amount of the Debt Securities and any limit on
the aggregate principal amount;
(3) the percentage of the principal amount at which the Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining the date or dates, on
which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which the rate or rates shall be determined, at which the Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining the date or dates,
from which any interest will accrue, the dates on which any interest
will be payable, the record dates for such interest payment dates, or
the method by which any date shall be determined, the person to whom
the interest shall be payable, and the basis upon which interest shall
be calculated if other than that of a 360-day year of twelve 30-day
months;
(7) the place or places where the principal of (and premium, if any) and
interest, if any, on the Debt Securities will be payable, the Debt
Securities may be surrendered for registration of transfer or exchange
and notices or demands to or upon the Operating Partnership in respect
of the Debt Securities and the Indenture may be served;
(8) the date or dates on which or the period or periods within which, the
price or prices at which and the terms and conditions upon which the
Debt Securities may be redeemed, as a whole or in part, at the option
of the Operating Partnership, if the Operating Partnership is to have
an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay
or purchase the Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the date
or dates on which or the period or periods within which, the price or
prices at which and the terms and conditions upon which the Debt
Securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to its obligation;
(10) if other than U.S. dollars, the currency or currencies in which the
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
24
(11) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on the Debt Securities may be determined with
reference to an index, formula or other method (which index, formula
or method may, but need not be, based on a currency, currencies,
currency unit or units or composite currency or currencies) and the
manner in which the amounts shall be determined;
(12) any additional events of default or covenants of the Debt Securities;
(13) whether the Debt Securities will be issued in certificated and/or
book-entry form;
(14) whether the Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and terms and conditions
relating thereto;
(15) whether the Debt Securities will be fully and unconditionally
guaranteed by Reckson Associates pursuant to the Guarantees (the
"Guaranteed Securities");
(16) if the defeasance and covenant defeasance provisions described herein
are to be inapplicable or any modification of these provisions;
(17) if the Debt Securities are to be issued upon the exercise of debt
warrants, the time, manner and place for the Debt Securities to be
authenticated and delivered;
(18) whether and under what circumstances the Operating Partnership will
pay additional amounts on the Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem such Debt Securities in
lieu of making a payment;
(19) if other than the Trustee, the identity of each security registrar
and/or paying agent; and
(20) any other material terms of the Debt Securities.
The Debt Securities may provide for less than the entire principal
amount thereof to be payable upon declaration of acceleration of the maturity
thereof ("Original Issue Discount Securities"). If material or applicable,
special U.S. federal income tax, accounting and other considerations applicable
to Original Issue Discount Securities will be described in the applicable
prospectus supplement.
Except with respect to a covenant limiting the incurrence of
indebtedness, a covenant requiring a certain percentage of unencumbered assets
and a covenant requiring any successor in a business combination with the
Operating Partnership to assume all of the obligations of the Operating
Partnership under the Indenture, the Indenture does not contain any other
provisions that would limit the ability of the
25
Operating Partnership or Reckson Associates to incur indebtedness or that would
afford Holders of the Debt Securities protection in the case of any of the
following events:
o a highly leveraged or similar transaction involving the Operating
Partnership, the management of the Operating Partnership or Reckson
Associates, or any affiliate of any these parties;
o a change of control; or
o a reorganization, restructuring, merger or similar transaction
involving the Operating Partnership or Reckson Associates that may
adversely affect the Holders of the Debt Securities.
In addition, subject to the covenants referred to above, the Operating
Partnership or Reckson Associates may, in the future, enter into certain
transactions, such as the sale of all or substantially all of its assets or the
merger or consolidation of the Operating Partnership or Reckson Associates, that
would increase the amount of the Operating Partnership's indebtedness or
substantially reduce or eliminate the Operating Partnership's assets, which may
have an adverse effect on the Operating Partnership's ability to service its
indebtedness, including the Debt Securities. In addition, restrictions on
ownership and transfers of Reckson Associates' common stock and preferred stock
which are designed to preserve its status as a REIT may act to prevent or hinder
a change of control. See "Description of Common Stock--Restrictions on
Ownership" and "Description of Preferred Stock--Restrictions on Ownership."
GUARANTEES
Reckson Associates will fully and unconditionally guarantee the due and
punctual payment of principal of, premium, if any, and interest on any Debt
Securities not rated investment grade by at least one nationally recognized
statistical rating organization at the time of issuance by the Operating
Partnership, whether at a maturity date, by declaration of acceleration, call
for redemption or otherwise.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, the
Debt Securities of any series which are registered securities, other than
registered securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities which are bearer securities, other than bearer
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000.
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to the Person at an
account maintained within the United States.
26
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name the Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of the Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of the Debt Security not
less than 10 days prior to the Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of the
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable prospectus supplement
refers to any transfer agent (in addition to the Trustee) initially designated
by the Operating Partnership with respect to any series of Debt Securities, the
Operating Partnership may at any time rescind the designation of any transfer
agent or approve a change in the location through which any transfer agent acts,
except that the Operating Partnership will be required to maintain a transfer
agent in each place of payment for the series. The Operating Partnership may at
any time designate additional transfer agents with respect to any series of Debt
Securities.
Neither the Operating Partnership nor the Trustee shall be required to:
o issue, register the transfer of or exchange any Debt Security if
the Debt Security may be among those selected for redemption during
a period beginning at the opening of business 15 days before
selection of the Debt Securities to be redeemed and ending at the
close of business on the day of selection;
o register the transfer of or exchange any Registered Security so
selected for redemption in whole or in part, except, in the case of
any Registered Security to be redeemed in part, the portion thereof
not to be redeemed;
o exchange any Bearer Security so selected for redemption except that
the Bearer Security may be exchanged for a Registered Security of
that series and like tenor, provided that the Registered Security
shall be simultaneously surrendered for redemption; or
o issue, register the transfer of or exchange any Security which has
been surrendered for repayment at the option of the Holder, except
the portion, if any, of the Debt Security not to be so repaid.
27
MERGER, CONSOLIDATION OR SALE
The Operating Partnership or, with respect to the Guaranteed
Securities, Reckson Associates may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity, provided that the following conditions are met:
o the Operating Partnership or Reckson Associates, as the case may
be, shall be the continuing entity, or the successor entity (if
other than the Operating Partnership or Reckson Associates, as the
case may be) formed by or resulting from any consolidation or
merger or which shall have received the transfer of assets shall
expressly assume payment of the principal of (and premium, if any)
and interest on all the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions
contained in the Indenture and, if applicable, the Guarantees;
o immediately after giving effect to the transaction, no Event of
Default under the Indenture, and no event which, after notice or
the lapse of time, or both, would become an Event of Default, shall
have occurred and be continuing; and
o an officer's certificate and legal opinion covering these
conditions shall be delivered to the Trustee.
CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Operating Partnership will not,
and will not permit any Subsidiary (as defined below) to, incur any Indebtedness
(as defined below), other than Permitted Debt (as defined below), if,
immediately after giving effect to the incurrence of additional Indebtedness,
the aggregate principal amount of all outstanding Indebtedness of the Operating
Partnership, and of its Subsidiaries determined at the applicable proportionate
interest of the Operating Partnership in each Subsidiary, determined in
accordance with GAAP (as defined below), is greater than 60% of the sum of:
(1) the Total Assets (as defined below) as of the end of the calendar
quarter covered in the Operating Partnership's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
Commission prior to the incurrence of such additional Indebtedness or, if the
Operating Partnership is not then subject to the reporting requirements of the
Exchange Act, as of its most recent calendar quarter and
(2) any increase in the Total Assets since the end of the quarter,
including, without limitation, any increase in Total Assets resulting from the
incurrence of additional Indebtedness (the Total Assets adjusted by this
increase are referred to as the "Adjusted Total Assets").
The Operating Partnership will not, and will not permit any Subsidiary
to, incur any Indebtedness, other than Permitted Debt, if, for the period
consisting of the four consecutive fiscal quarters most recently ended prior to
the date on which additional Indebtedness is to be incurred, the ratio of
Consolidated Income Available for Debt Service (as defined below) to the Annual
Service Charge (as defined below) shall have been less than 1.5 to 1, on a pro
forma basis after giving effect to the incurrence of Indebtedness and to the
application of the proceeds therefrom, and calculated on the assumption that:
28
o the Indebtedness and any other Indebtedness incurred by the
Operating Partnership or its Subsidiaries since the first day of
the four-quarter period and the application of the proceeds
therefrom, including to refinance other Indebtedness, had occurred
at the beginning of the period,
o the repayment or retirement of any other Indebtedness by the
Operating Partnership or its Subsidiaries since the first day of
the four-quarter period had been incurred, repaid or retained at
the beginning of the period (except that, in making the
computation, the amount of Indebtedness under any revolving credit
facility shall be computed based upon the average daily balance of
borrowings under the credit facility during the period),
o any income earned as a result of any increase in Adjusted Total
Assets since the end of the four-quarter period had been earned, on
an annualized basis, for the period, and
o in the case of an acquisition or disposition by the Operating
Partnership or any of its Subsidiaries of any asset or group of
assets since the first day of the four-quarter period, including,
without limitation, by merger, stock purchase or sale, or asset
purchase or sale, the acquisition or disposition or any related
repayment of Indebtedness had occurred as of the first day of the
period with the appropriate adjustments with respect to the
acquisition or disposition being included in the pro forma
calculation of Consolidated Income Available for Debt Service to
the Annual Service Charge.
The Operating Partnership will not, and will not permit any Subsidiary
to, incur any Indebtedness secured by any Lien (as defined below) of any kind
upon any of the property of the Operating Partnership or any of its Subsidiaries
(the "Secured Debt") if, immediately after giving effect to the incurrence of
the additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt of the Operating Partnership, and of its Subsidiaries determined at
the applicable proportionate interest of the Operating Partnership in each
Subsidiary, is greater than 40% of the Adjusted Total Assets.
Maintenance of Total Unencumbered Assets. The Operating Partnership
will maintain Total Unencumbered Assets (as defined below) of not less than 150%
of the aggregate principal amount of all outstanding Unsecured Debt.
Existence. Except as permitted under "Merger, Consolidation or Sale,"
the Operating Partnership is required to do or cause to be done all things
necessary to preserve and keep in full force and effect their existence, rights
and franchises; provided, however, that the Operating Partnership shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities.
Maintenance of Properties. The Operating Partnership is required to
cause all of its material properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and to cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Operating
Partnership may be necessary so that the business carried on in
29
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Operating Partnership and its Subsidiaries shall not
be prevented from selling or otherwise disposing for value their respective
properties in the ordinary course of business.
Insurance. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies.
Payment of Taxes and Other Claims. The Operating Partnership is
required to pay or discharge or cause to be paid or discharged, before the same
shall become delinquent, (1) all taxes, assessments and governmental charges
levied or imposed upon them or any Subsidiary or upon their income, profits or
property or that of any Subsidiary, and (2) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Operating Partnership or any Subsidiary; provided, however, that
the Operating Partnership shall not be required to pay or discharge or cause to
be paid or discharged any tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
Provision of Financial Information. The Holders of Debt Securities will
be provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, the
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Operating Partnership would have been
required so to file the documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event:
o within 15 days of each Required Filing Date (1) transmit by mail to
all Holders of Debt Securities, as their names and addresses appear
in the Security Register, without cost to the Holders, copies of
the annual reports and quarterly reports which the Operating
Partnership would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the
Operating Partnership were subject to these Sections and (2) file
with the Trustee copies of the annual reports, quarterly reports
and other documents which the Operating Partnership would have been
required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Operating Partnership were subject
to these Sections and
o if filing these documents by the Operating Partnership with the
Commission is not permitted under the Exchange Act, promptly upon
written request and payment of the reasonable cost of duplication
and delivery, supply copies of the documents to any prospective
Holder.
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As used herein and in the prospectus supplement:
"Annual Service Charge" as of any date means the amount which is
expensed or capitalized in any 12-month period for interest on Indebtedness.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Operating Partnership and its Subsidiaries (1)
plus amounts which have been deducted for (a) interest on Indebtedness of the
Operating Partnership and its Subsidiaries, (b) provision for taxes of the
Operating Partnership and its Subsidiaries based on income, (c) amortization of
debt discount, (d) depreciation and amortization, (e) the effect of any noncash
charge resulting from a change in accounting principles in determining
Consolidated Net Income for the period, (f) amortization of deferred charges,
and (g) provisions for or realized losses on properties and (2) less amounts
which have been included for gains on properties.
"GAAP" means accounting principles as are generally accepted in the
United States of America as of the date or time of any required computation.
"Indebtedness" means any indebtedness, whether or not contingent, in
respect of (1) borrowed money evidenced by bonds, notes, debentures or similar
instruments, (2) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property, (3) the reimbursement
obligations, contingent or otherwise, in connection with any letters of credit
actually issued or amounts representing the balance deferred and unpaid of the
purchase price of any property except any balance that constitutes an accrued
expense or trade payable or (4) any lease of property as lessee which would be
reflected on a balance sheet as a capitalized lease in accordance with GAAP, in
the case of items of indebtedness under (1) through (3) above to the extent that
any items (other than letters of credit) would appear as a liability on a
balance sheet in accordance with GAAP, and also includes, to the extent not
otherwise included, any obligation to be liable for, or to pay, as obligor,
guarantor or otherwise (other than for purposes of collection in the ordinary
course of business), indebtedness of another Person.
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of the Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of the Person. A Capital Lease is a lease
to which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"Permitted Debt" means Indebtedness of the Operating Partnership or any
Subsidiary owing to any Subsidiary or the Operating Partnership; provided that
any Indebtedness is made pursuant to an intercompany note and is subordinated in
right of payment to the Securities; provided further that any disposition,
pledge or transfer of any Indebtedness to a Person (other than the Operating
Partnership or another Subsidiary) shall be deemed to be an incurrence of
Indebtedness by the Operating Partnership or a Subsidiary, as the case may be,
and not Permitted Debt.
"Significant Subsidiary" means each significant subsidiary (as defined
in Regulation S-X promulgated under the Securities Act) of the Operating
Partnership.
31
"Subsidiary" means any entity of which the Operating Partnership or one
or more other Subsidiaries owns or controls, directly or indirectly, more than
50% of the shares of Voting Stock.
"Total Assets" as of any date means the sum of (1) the Undepreciated
Real Estate Assets, (2) all other assets of the Operating Partnership, and of
its Subsidiaries determined at the applicable proportionate interest of the
Operating Partnership in each Subsidiary, determined in accordance with GAAP
(but excluding intangibles and accounts receivable) and (3) the cost of any
property of the Operating Partnership, or any Subsidiary thereof, in which the
Operating Partnership, or Subsidiary, as the case may be, has a firm,
non-contingent purchase obligation.
"Total Unencumbered Assets" means the sum of (1) those Undepreciated
Real Estate Assets not subject to a Lien on a consolidated basis, (2) all other
assets of the Operating Partnership, and of its Subsidiaries determined at the
applicable proportionate interest of the Operating Partnership in each such
Subsidiary, which are not subject to a Lien determined in accordance with GAAP
(but excluding intangibles and accounts receivable) and (3) the cost of any
property of the Operating Partnership, or any Subsidiary thereof, in which the
Operating Partnership, or Subsidiary, as the case may be, has a firm,
non-contingent purchase obligation and which is not subject to a Lien.
"Undepreciated Real Estate Assets" means as of any date the cost
(original cost plus capital improvements) of real estate assets of the Issuer
and its Subsidiaries on the date, before depreciating and amortization,
determined on a consolidated basis in accordance with GAAP.
"Unsecured Debt" means Indebtedness of the Operating Partnership or any
Subsidiary which is not secured by any mortgage, lien, charge, pledge or
security interest of any kind upon any of the properties owned by the Operating
Partnership or any of its Subsidiaries.
"Voting Stock" means stock having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees, provided that stock that carries only the right to vote
conditionally on the happening of an event shall not be considered Voting Stock.
Additional Covenants. Any additional or different covenants of the
Operating Partnership or Reckson Associates with respect to any series of Debt
Securities will be set forth in the prospectus supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder:
a. default for 30 days in the payment of any installment of interest
on any Debt Security of the series;
b. default in the payment of the principal of (or premium, if any, on)
any Debt Security of the series at its maturity;
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c. default in making any sinking fund payment as required for any Debt
Security of the series;
d. default in the performance of any other covenant of the Operating
Partnership or Reckson Associates contained in the Indenture (other
than a covenant added to the Indenture solely for the benefit of a
series of Debt Securities issued thereunder other than the series),
the default having continued for 60 days after written notice as
provided in the Indenture;
e. the Operating Partnership, Reckson Associates (if the Debt
Securities of the series are Guaranteed Securities), any Subsidiary
in which the Operating Partnership has invested, or is committed or
otherwise obligated to invest, at least $20,000,000 in capital or
any entity in which the Operating Partnership is the general
partner shall fail to pay any principal of, premium or interest on
or any other amount payable in respect of, any recourse
Indebtedness that is outstanding in a principal or notional amount
of at least $20,000,000 (or the equivalent thereof in one or more
other currencies), either individually or in the aggregate (but
excluding Indebtedness outstanding hereunder), of the Operating
Partnership and its consolidated Subsidiaries, taken as a whole,
when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise),
and the failure shall continue after the applicable grace period,
if any, specified in any agreement or instrument relating to the
Indebtedness, or any other event shall occur or condition shall
exist under any agreement or instrument evidencing, securing or
otherwise relating to any the Indebtedness and shall continue after
the applicable grace period, if any, specified in the agreement or
instrument, if the effect of the event or condition is to
accelerate, or to permit the acceleration of, the maturity of the
Indebtedness or otherwise to cause, or to permit the holder or
holders thereof (or a trustee or agent on behalf of the holders) to
cause the Indebtedness to mature prior to its stated maturity;
f. one or more final, non-appealable judgments or orders for the
payment of money aggregating $20,000,000 (or the equivalent thereof
in one or more other currencies) or more are rendered against one
or more of the Operating Partnership, Reckson Associates (if the
Debt Securities of the series are Guaranteed Securities), any
Subsidiary in which the Operating Partnership has invested, or is
committed or otherwise obligated to invest, at least $20,000,000 in
capital and any entity in which the Operating Partnership is the
general partner and remain unsatisfied and either (1) enforcement
proceedings shall have been commenced by any creditor upon any
judgment or order or (2) there shall be a period of at least 60
days after entry thereof during which a stay of enforcement of any
judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; provided, however, that any judgment or
order shall not give rise to an Event of Default under this clause
if and for so long as (A) the amount of the judgment or order is
covered by a valid and binding policy of insurance between the
defendant and the insurer covering full payment thereof and (B) the
insurer has been notified, and has not disputed the claim made for
payment, of the amount of the judgment or order; or
g. certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the
Operating Partnership, Reckson Associates or any Significant
Subsidiary or any of their respective property;
33
h. any other Event of Default provided with respect to a particular
series of Debt Securities.
If an Event of Default under the Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing, then
in every case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities, the portion of the principal amount
as may be specified in the terms thereof) of all of the Debt Securities of that
series to be due and payable immediately by written notice thereof to the
Operating Partnership and Reckson Associates (and to the Trustee if given by the
Holders). However, at any time after the declaration of acceleration with
respect to Debt Securities of the series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of not less than a majority in principal amount of
Outstanding Debt Securities of the series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) may rescind and annul the
declaration and its consequences if
(a) the Operating Partnership or Reckson Associates shall have
deposited with the Trustee all required payments of the principal of (and
premium, if any) and interest on the Debt Securities of the series (or of all
Debt Securities then outstanding under the Indenture, as the case may be), plus
certain fees, expenses, disbursements and advances of the Trustee and
(b) all Events of Default, other than the non-payment of accelerated
principal of (or specified portion thereof), or premium (if any) or interest on
the Debt Securities of the series (or of all Debt Securities then Outstanding
under the Indenture, as the case may be) have been cured or waived as provided
in the Indenture.
The Indenture also provides that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the Indenture, as the case may
be) may waive any past default with respect to the series and its consequences,
except a default
o in the payment of the principal of (or premium, if any) or interest
on any Debt Security of the series or
o in respect of a covenant or provision contained in the Indenture
that cannot be modified or amended without the consent of the
Holder of each Outstanding Debt Security affected thereby.
The Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless the default
has been cured or waived; provided, however, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to the series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of the series or in the
payment of any sinking fund installment in respect of any Debt Security of the
series) if specified Responsible Officers of the Trustee consider the
withholding to be in the interest of the Holders.
34
The Indenture provides that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an Event of Default from the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of the
series, as well as an offer of reasonable indemnity. This provision will not
prevent, however, any holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest on
the Debt Securities at the respective due dates thereof.
Subject to provisions in the Indenture relating to its duties in case
of default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless the
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity. The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred upon the
Trustee. However, the Trustee may refuse to follow any direction which is in
conflict with any law or the Indenture, or which may be unduly prejudicial to
the Holders of Debt Securities of the series not joining therein.
Within 120 days after the close of each fiscal year, the Operating
Partnership and Reckson Associates must deliver a certificate of an officer
certifying to the Trustee whether or not the officer has knowledge of any
default under the Indenture and, if so, specifying each default and the nature
and status thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be
made only with the consent of the Holders of not less than a majority in
principal amount of all Outstanding Debt Securities or series of Outstanding
Debt Securities which are affected by the modification or amendment; provided,
however, that no modification or amendment may, without the consent of the
Holder of each Debt Security affected thereby:
o change the Stated Maturity of the principal of, or premium (if any)
or any installment of interest on, any Debt Security, reduce the
principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any Debt Security, or reduce the
amount of principal of an Original Issue Discount Security that
would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely
affect any right of repayment of the holder of any Debt Security,
change the place of payment, or the coin or currency, for payment
of principal of, premium, if any, or interest on any Debt Security
or impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security;
o reduce the above-stated percentage of outstanding Debt Securities
of any series necessary to modify or amend the Indenture, to waive
compliance with certain provisions thereof or
35
certain defaults and consequences thereunder or to reduce the
quorum or voting requirements set forth in the Indenture;
o modify or affect in any manner adverse to the Holders the terms and
conditions of the obligations of Reckson Associates in respect of
the payment of principal (and premium, if any) and interest on any
Guaranteed Securities; or
o modify any of the foregoing provisions or any of the provisions
relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect the
action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of the Debt
Security.
In addition to the Operating Partnership's obligation to pay the
principal of, and premium (if any) and interest on, the Debt Securities, the
Indenture contains several other affirmative and negative covenants as described
under "--Certain Covenants." None of the Operating Partnership, Reckson
Associates and the Trustee may waive compliance with the other covenants unless
the Holders of not less than a majority in principal amount of a series of
Outstanding Debt Securities consent to the waiver.
Modifications and amendments of the Indenture will be permitted to be
made by the Operating Partnership, Reckson Associates and the Trustee without
the consent of any Holder of Debt Securities for any of the following purposes:
1. to evidence the succession of another Person to the Operating
Partnership as obligor or Reckson Associates as guarantor under the
Indenture;
2. to add to the covenants of the Operating Partnership or Reckson
Associates for the benefit of the Holders of all or any series of
Debt Securities or to surrender any right or power conferred upon
the Operating Partnership or Reckson Associates in the Indenture;
3. to add Events of Default for the benefit of the Holders of all or
any series of Debt Securities;
4. to add or change any provisions of the Indenture to facilitate the
issuance of, or to liberalize certain terms of, Debt Securities in
bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided that this action shall
not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect;
5. to amend or supplement any provisions of the Indenture, provided
that no amendment or supplement shall materially adversely affect
the interests of the Holders of any Debt Securities then
Outstanding;
6. to secure the Debt Securities;
36
7. to establish the form or terms of Debt Securities of any series;
8. to provide for the acceptance of appointment by a successor Trustee
or facilitate the administration of the trusts under the Indenture
by more than one Trustee;
9. to cure any ambiguity, defect or inconsistency in the Indenture,
provided that this action shall not adversely affect the interests
of Holders of Debt Securities of any series in any material
respect; or
10. to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any
series of the Debt Securities, provided that the action shall not
adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect.
In addition, with respect to Guaranteed Securities, without the consent
of any Holder of Debt Securities, Reckson Associates, or a subsidiary thereof,
may directly assume the due and punctual payment of the principal of, any
premium and interest on all the Guaranteed Securities and the performance of
every covenant of the Indenture on the part of the Operating Partnership to be
performed or observed. Upon any assumption, Reckson Associates or the subsidiary
shall succeed to, and be substituted for and may exercise every right and power
of, the Operating Partnership under the Indenture with the same effect as if
Reckson Associates or the subsidiary had been the issuer of the Guaranteed
Securities and the Operating Partnership shall be released from all obligations
and covenants with respect to the Guaranteed Securities. No assumption shall be
permitted unless Reckson Associates has delivered to the Trustee (1) an
officers' certificate and an opinion of counsel, stating, among other things,
that the Guarantee and all other covenants of Reckson Associates in the
Indenture remain in full force and effect and (2) an opinion of independent
counsel that the Holders of Guaranteed Securities shall have no materially
adverse United States federal tax consequences as a result of the assumption,
and that, if any Debt Securities are then listed on the New York Stock Exchange,
that the Debt Securities shall not be delisted as a result of the assumption.
In determining whether the Holders of the requisite principal amount of
Outstanding Debt Securities of a series have given any request, demand,
authorization, direction, notice, consent or waiver thereunder or whether a
quorum is present at a meeting of Holders of Debt Securities, the Indenture
provides that:
1. the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the
principal thereof that would be due and payable as of the date of
the determination upon declaration of acceleration of the maturity
thereof;
2. the principal amount of a Debt Security denominated in a foreign
currency that shall be deemed Outstanding shall be the U.S. dollar
equivalent, determined on the issue date for the Debt Security, of
the principal amount (or, in the case of an Original Issue Discount
Security, the U.S. dollar equivalent on the issue date of the Debt
Security of the amount determined as provided in (1) above);
37
3. the principal amount of an Indexed Security that shall be deemed
Outstanding shall be the principal face amount of the Indexed
Security at original issuance, unless otherwise provided with
respect to the Indexed Security pursuant to the Indenture; and
4. Debt Securities owned by the Operating Partnership or any other
obligor upon the Debt Securities or any affiliate of the Operating
Partnership or of the other obligor shall be disregarded.
The Indenture contains provisions for convening meetings of the Holders
of Debt Securities of a series. A meeting will be permitted to be called at any
time by the Trustee, and also, upon request, by the Operating Partnership,
Reckson Associates (in respect of a series of Guaranteed Securities) or the
Holders of at least 10% in principal amount of the Outstanding Debt Securities
of the series, in any case upon notice given as provided in the Indenture.
Except for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present will be permitted to be adopted by the affirmative vote of
the Holders of a majority in principal amount of the Outstanding Debt Securities
of that series; provided, however, that, except as referred to above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of the specified percentage in principal amount
of the Outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at the meeting
with respect to a consent or waiver which may be given by the Holders of not
less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing the specified
percentage in principal amount of the Outstanding Debt Securities of the series
will constitute a quorum.
Notwithstanding the foregoing provisions, any action to be taken at a
meeting of Holders of Debt Securities of any series with respect to any action
that the Indenture expressly provides may be taken by the Holders of a specified
percentage which is less than a majority in principal amount of the Outstanding
Debt Securities of a series may be taken at a meeting at which a quorum is
present by the affirmative vote of Holders of the specified percentage in
principal amount of the Outstanding Debt Securities of the series.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders
of any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in the
currency or currencies, currency unit or units or composite currency or
currencies in which the Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on the Debt Securities in respect of principal (and
premium, if
38
any) and interest to the date of the deposit (if the Debt Securities have become
due and payable) or to the Stated Maturity or Redemption Date, as the case may
be.
The Indenture provides that, unless these provisions are made
inapplicable to the Debt Securities of or within any series pursuant to the
Indenture, the Operating Partnership may elect either (a) to defease and
discharge itself and Reckson Associates (if the Debt Securities are Guaranteed
Securities) from any and all obligations with respect to the Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on the Debt Securities and the obligations to register the
transfer or exchange of Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of the Debt Securities and to hold moneys for payment in trust)
("defeasance") or (b) to release itself and Reckson Associates (if the Debt
Securities are Guaranteed Securities) from their obligations with respect to the
Debt Securities under certain sections of the Indenture (including the
restrictions described under "Certain Covenants") and, if provided pursuant to
the Indenture, their obligations with respect to any other covenant, and any
omission to comply with the obligations shall not constitute a default or an
Event of Default with respect to the Debt Securities ("covenant defeasance"), in
either case upon the irrevocable deposit by the Operating Partnership or Reckson
Associates with the Trustee, in trust, of an amount, in the currency or
currencies, currency unit or units or composite currency or currencies in which
the Debt Securities are payable at Stated Maturity, or Government Obligations
(as defined below), or both, applicable to the Debt Securities which through the
scheduled payment of principal and interest in accordance with their terms will
provide money in an amount sufficient to pay the principal of (and premium, if
any) and interest on the Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
A trust will only be permitted to be established if, among other
things, the Operating Partnership or Reckson Associates has delivered to the
Trustee an Opinion of Counsel (as specified in the Indenture) to the effect that
the Holders of the Debt Securities will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of the defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if the
defeasance or covenant defeasance had not occurred, and the Opinion of Counsel,
in the case of defeasance, must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable United States federal income
tax law.
"Government Obligations" means securities which are (1) direct
obligations of the United States of America or the government which issued the
foreign currency in which the Debt Securities of a particular series are
payable, for the payment of which its full faith and credit is pledged or (2)
obligations of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or the government which issued
the foreign currency in which the Debt Securities of the series are payable, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or other government, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any Government Obligation or a specific payment of
interest on or principal of any Government Obligation held by the custodian for
the account of the holder of a depository receipt, provided that (except as
required by law) the custodian is not authorized to make any deduction from the
amount payable to the holder of the depository receipt from any amount received
by the custodian in respect of the Government Obligation or the specific payment
of interest on or principal of the Government Obligation evidenced by the
depository receipt.
39
Unless otherwise provided in the applicable prospectus supplement, if
after the Operating Partnership or Reckson Associates has deposited funds and/or
Government Obligations to effect defeasance or covenant defeasance with respect
to Debt Securities of any series:
(a) the Holder of a Debt Security of the series is entitled to, and
does, elect pursuant to the Indenture or the terms of the Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which the deposit has been made in respect of the Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which the deposit has been
made, the indebtedness represented by the Debt Security shall be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on the Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of the Debt Security into the currency, currency unit or composite
currency in which the Debt Security becomes payable as a result of the election
or the Conversion Event based on the applicable market exchange rate.
"Conversion Event" means the cessation of use of:
o a currency, currency unit or composite currency both by the
government of the country which issued the currency and for the
settlement of transactions by a central bank or other public
institutions of or within the international banking community or
o the euro both within the European Monetary System and for the
settlement of transactions by public institutions of or within the
European Community.
Unless otherwise provided in the applicable prospectus supplement, all
payments of principal of (and premium, if any) and interest on any Debt Security
that is payable in a foreign currency that ceases to be used by its government
of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and the Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Event of Default, Notice and Waiver"
with respect to sections no longer applicable to the Debt Securities or
described in clause (h) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in the currency, currency unit or composite currency in which the
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on the Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
the Debt Securities at the time of the acceleration resulting from the Event of
Default. However, the Operating Partnership and Reckson Associates (if the Debt
Securities are Guaranteed Securities) would remain liable to make payment of the
amounts due at the time of acceleration.
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GOVERNING LAW
The Indenture and the Notes shall be governed by the laws of the State
of New York.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any Debt Securities are
convertible into debt securities of the Operating Partnership or exchangeable
for equity securities of Reckson Associates will be set forth in the applicable
prospectus supplement. The terms will include the number or principal amount of
securities into which the debt securities are convertible or for which the debt
securities are exchangeable, the conversion or exchange price (or manner of
calculation thereof), the conversion or exchange period, provisions as to
whether conversion or exchange will be at the option of the holders of the debt
securities, Reckson Associates or the Operating Partnership, the events
requiring an adjustment of the conversion or exchange price (or the manner of
calculation thereof) and any provisions affecting conversion or exchange in the
event of the redemption of the debt securities.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in
the form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable prospectus supplement relating to the series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable prospectus
supplement relating to the series.
DESCRIPTION OF COMMON STOCK
GENERAL
The charter of Reckson Associates (the "Charter") provides that Reckson
Associates may issue up to 100 million shares of common stock, $.01 par value
per share. In addition, units of limited partnership interest in the Operating
Partnership may be redeemed for cash or, at the option of Reckson Associates,
common stock of Reckson Associates on a one-for-one basis. See also "Description
of Preferred Stock" for a discussion of the 7-5/8% Series A Convertible
Cumulative preferred stock and related units, as well as the convertible units
issued by the Operating Partnership in connection with the acquisition of the
Capelli portfolio. On January 21, 1999, there were 40,041,181 shares of common
stock outstanding.
The Board of Directors of Reckson Associates has authorized the
issuance of Class B exchangeable common stock in connection with the Tower
transaction. See "Reckson Associates and The Operating Partnership." The shares
of Class B common stock will be entitled to receive an annual dividend of $2.24
per share, payable quarterly, for the first four full quarters immediately
following their issuance. The cash dividend on the Class B common stock will be
subject to adjustment annually, beginning on the first anniversary of the end of
the quarter following the issuance of the Class B common stock, by a percentage
equal to 70% of the cumulative percentage change in Reckson Associates' FFO per
share above the FFO per share during the year prior to issuance. The shares of
Class B common stock
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will be convertible at any time, at the option of the holder, into an equal
number of shares of common stock of Reckson Associates, subject to customary
antidilution adjustments. Reckson Associates, at its option, may redeem any or
all of the Class B common stock in exchange for an equal number of shares of its
common stock at any time following the four year, six-month anniversary of the
issuance of the Class B common stock. The Class B common stock will rank pari
passu with Reckson Associates' existing common stock, including the common stock
offered hereby.
All shares of common stock offered hereby have been duly authorized and
will be fully paid and nonassessable. Subject to the preferential rights of any
other shares or series of stock and to the provisions of the Charter regarding
Excess Stock (as defined under "Restrictions on Ownership of Capital Stock"),
holders of shares of common stock offered hereby will be entitled to receive
dividends on the stock if, as and when authorized and declared by the Board of
Directors of Reckson Associates out of assets legally available therefor and to
share ratably in the assets of Reckson Associates legally available for
distribution to its common stockholders in the event of its liquidation,
dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of Reckson Associates.
Subject to the provisions of the Charter regarding Excess Stock, each
outstanding share of Reckson Associates' existing common stock and, if and when
issued, the Class B common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as provided with respect to any other class or series of stock, the
holders of these shares will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of Reckson Associates' existing common
stock and, if and when issued, the Class B common stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of shares of common stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any other securities. Subject to the provisions of the
Charter regarding Excess Stock, shares of common stock will have equal dividend,
liquidation and other rights.
CERTAIN PROVISIONS OF THE CHARTER
Under the MGCL, a Maryland corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Charter does not
provide for a lesser percentage in these situations. In addition, the Operating
Partnership's partnership agreement provides that for the five-year period
following the completion of the IPO (i.e. through June 2, 2000), the Operating
Partnership may not sell, transfer or otherwise dispose of all or substantially
all of its assets or engage in any other similar transaction (regardless of the
form of the transaction) without the consent of the holders of 85% of all
outstanding limited partnership units.
The Charter authorizes the Board of Directors of Reckson Associates to
reclassify any unissued shares of common stock into other classes or series of
classes of capital stock and to establish the number of shares in each class or
series and to set the preferences, conversion and other rights, voting powers,
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restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each class or series.
The Board of Directors is divided into three classes of directors, each
class constituting approximately one-third of the total number of directors,
with the classes serving staggered terms. At each annual meeting of
stockholders, the class of directors to be elected at the meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. We believe that classified directors will help to assure the
continuity and stability of the Board of Directors and our business strategies
and policies as determined by the Board. The use of a staggered board may delay
or defer a change in control of Reckson Associates or removal of incumbent
management.
RESTRICTIONS ON OWNERSHIP
In order to qualify as a REIT under the Code, not more than 50% in
value of the outstanding common stock of Reckson Associates may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code)
during the last half of a taxable year and the common stock must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months (or during a proportionate part of a shorter taxable year). To satisfy
the above ownership requirements and certain other requirements for
qualification as a REIT, the Board of Directors has adopted, and the
stockholders prior to the IPO approved, a provision in the Charter restricting
the ownership or acquisition of shares of common stock. See "Restrictions on
Ownership of Capital Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Charter of Reckson Associates provides that Reckson Associates may
issue up to 25 million shares of preferred stock, $.01 par value per share. On
October 31, 1998 there were 9,192,000 shares of 7-5/8% Series A Convertible
Cumulative preferred stock outstanding. Dividends on the Series A Preferred
Stock are payable quarterly in arrears at an annual rate of 7-5/8% of the
liquidation preference of $25 per share. The Series A Preferred Stock is
convertible at any time at the option of the holder at a conversion price of
$28.51 per share of common stock, subject to adjustment in certain
circumstances. On or after April 13, 2003, the shares of Series A Preferred
Stock will be redeemable, in whole or in part, at the option of Reckson
Associates.
In connection with the acquisition of the Cappelli portfolio, the
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership was supplemented (the "Supplements") to establish a series of 25,000
preferred units of limited partnership interest of the Operating Partnership
designated as Series B preferred units, a series of 11,518 preferred units
designated as Series C preferred units and a series of 6,000 preferred units
designated as Series D preferred units. Each of the Series B, C and D preferred
units have a liquidation preference of $1,000 per unit. Distributions on each
Series B, C
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and D preferred unit are payable in arrears quarterly in an amount equal to the
greater of: (1) $17.50 or (2) the quarterly distribution attributable to each
Series B, C and D preferred unit if the unit was converted into common stock,
subject to a maximum increase of 5% of the distributions on the Series B, C or D
preferred units over the immediately preceding year. The distribution amount due
on all Series B, C or D preferred units may be reduced during any period which
certain Cappelli indebtedness remains subject to a prepayment premium or
prepayment penalty. Commencing two years after the issuance of each of the
Series B, C or D preferred units, the distribution amount may be adjusted to
reflect increases or decreases in the dividends on the common stock of Reckson
Associates.
The holders of Series B, C or D preferred units have the right to
convert their preferred units into common stock of Reckson Associates at a price
per share of $32.51, $29.39 or $29.12, respectively. The holders of Series B
preferred units also have the right to convert their units into Series C
preferred units, at any time through April 21, 2000. Each Series B, C or D
preferred unit is exchangeable, at the option of its holder, for shares of the
preferred stock of Reckson Associates with a liquidation preference equal to the
liquidation preference of the Series B, C or D preferred units and otherwise
with the same terms as the Series B, C or D preferred units other than the
conversion and exchange rights referred to above. The Operating Partnership,
with regard to any notice of an exchange, may elect to redeem all of the Series
B, C or D preferred units that are the subject of the exchange for cash in an
amount equal to the stated value of Series B, C or D preferred units plus any
accrued distributions thereon.
The statements made hereunder relating to the preferred stock are
summaries of the material terms thereof and do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, the
applicable provisions of the Charter and Bylaws and any applicable articles
supplementary to the Charter designating terms of a series of preferred stock (a
"Designating Amendment").
The issuance of preferred stock could adversely affect the voting
power, dividend rights and other rights of holders of common stock. Although the
Board of Directors has no intention at the present time, it could establish a
series of preferred stock that could, depending on the terms of the series,
delay, defer or prevent a transaction or a change in control of Reckson
Associates that might involve a premium price for the common stock or otherwise
be in the best interest of the holders thereof. Management believes that the
availability of preferred stock will provide us with increased flexibility in
structuring possible future financing and acquisitions and in meeting other
needs that might arise.
TERMS
Subject to the limitations prescribed by the Charter, the Board of
Directors is authorized to fix the number of shares constituting each series of
preferred stock and the designations and powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof, including the provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and other subjects or matters as may be fixed by
resolution of the Board of Directors. The preferred stock will, when issued, be
fully paid and nonassessable and will have no preemptive rights.
Reference is made to the prospectus supplement relating to the series
of preferred stock offered thereby for the specific terms thereof, including:
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o The title and stated value of the preferred stock;
o The number of shares of the preferred stock, the liquidation
preference per share of the preferred stock and the offering price
of the preferred stock;
o The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to the preferred stock;
o The date from which dividends on the preferred stock shall
accumulate, if applicable;
o The procedures for any auction and remarketing, if any, for the
preferred stock;
o The provision for a sinking fund, if any, for the preferred stock;
o The provisions for redemption, if applicable, of the preferred
stock;
o Any listing of the preferred stock on any securities exchange;
o The terms and conditions, if applicable, upon which the preferred
stock may or will be convertible into our common stock, including
the conversion price or manner of calculation thereof;
o The relative ranking and preferences of the preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding
up of the affairs of Reckson Associates;
o Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the
status of Reckson Associates as a REIT;
o A discussion of material federal income tax considerations
applicable to the preferred stock; and
o Any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of Reckson Associates, rank:
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i. senior to the common stock and to all classes or series of equity
securities issued by Reckson Associates the terms of which provide
that the equity securities shall rank junior to the preferred
stock;
ii. on a parity with all classes or series of equity securities issued
by Reckson Associates, including the Series A preferred stock,
other than those referred to in clauses (i) and (iii); and
iii. junior to all classes or series of equity securities issued by
Reckson Associates which the terms of the preferred stock provide
will rank senior to it. The term "equity securities" does not
include convertible debt securities.
DIVIDENDS
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will have the rights with respect to payment of dividends set
forth below.
Holders of the preferred stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors of Reckson
Associates, out of assets of Reckson Associates legally available for payment,
cash dividends in the amounts and on the dates as will be set forth in, or
pursuant to, the applicable prospectus supplement. Each dividend shall be
payable to holders of record as they appear on the stock transfer books of
Reckson Associates on the record dates as shall be fixed by the Board of
Directors of Reckson Associates.
Dividends on any series of preferred stock may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable prospectus supplement. If the Board of Directors of Reckson
Associates fails to declare a dividend payable on a dividend payment date on any
series of preferred stock for which dividends are non-cumulative, then the
holders of the series of preferred stock will have no right to receive a
dividend in respect of the related dividend period and Reckson Associates will
have no obligation to pay the dividend accrued for the period, whether or not
dividends on the series of preferred stock are declared payable on any future
dividend payment date.
If preferred stock of any series is outstanding, no full dividends will
be declared or paid or set apart for payment on any of the capital stock of
Reckson Associates of any other series ranking, as to dividends, on a parity
with or junior to the preferred stock of the series for any period unless:
o if the series of preferred stock has a cumulative dividend, full
cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof
set apart for the payment for all past dividend periods and the
then current dividend period or
o if the series of preferred stock does not have a cumulative
dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for the payment on
the preferred stock of the series.
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When dividends are not paid in full (or a sum sufficient for the full
payment is not so set apart) upon preferred stock of any series and the shares
of any other series of preferred stock ranking on a parity as to dividends with
the preferred stock of the series, all dividends declared upon preferred stock
of the series and any other series of preferred stock ranking on a parity as to
dividends with the preferred stock shall be declared pro rata so that the amount
of dividends declared per share of preferred stock of the series and the other
series of preferred stock shall in all cases bear to each other the same ratio
that accrued dividends per share on the preferred stock of the series and the
other series of preferred stock (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if the preferred stock
does not have a cumulative dividend) bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on preferred stock of the series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (1)
if the series of preferred stock has a cumulative dividend, full cumulative
dividends on the preferred stock of the series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (2) if the series of preferred stock does not have a
cumulative dividend, full dividends on the preferred stock of the series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of common stock or other capital
stock ranking junior to the preferred stock of the series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the common stock, or any other of
the capital stock of Reckson Associates ranking junior to or on a parity with
the preferred stock of the series as to dividends or upon liquidation, nor shall
any shares of common stock, or any other capital stock of Reckson Associates
ranking junior to or on a parity with the preferred stock of the series as to
dividends or upon liquidation, be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares) by Reckson Associates except:
(1) by conversion into or exchange for other capital stock of Reckson
Associates ranking junior to the preferred stock of the series as to dividends
and upon liquidation or
(2) redemption's for the purpose of preserving the status of Reckson
Associates as a REIT.
REDEMPTION
If so provided in the applicable prospectus supplement, the preferred
stock will be subject to mandatory redemption or redemption at the option of
Reckson Associates, as a whole or in part, in each case upon the terms, at the
times and at the redemption prices set forth in the prospectus supplement.
The prospectus supplement relating to a series of preferred stock that
is subject to mandatory redemption will specify the number of shares of the
preferred stock that Reckson Associates will redeem in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accumulated and unpaid dividends thereon
(which shall not, if the preferred stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable prospectus supplement. If the
redemption price for
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preferred stock of any series is payable only from the net proceeds of the
issuance of capital stock of Reckson Associates, the terms of the preferred
stock may provide that, if no capital stock shall have been issued or to the
extent the net proceeds from any issuance are insufficient to pay in full the
aggregate redemption price then due, the preferred stock shall automatically and
mandatorily be converted into the applicable capital stock of Reckson Associates
pursuant to conversion provisions specified in the applicable prospectus
supplement.
Notwithstanding the foregoing, unless (1) if the series of preferred
stock has a cumulative dividend, full cumulative dividends on all shares of any
series of preferred stock shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(2) if the series of preferred stock does not have a cumulative dividend, full
dividends on the preferred stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no shares of any
series of preferred stock shall be redeemed unless all outstanding preferred
stock of the series is simultaneously redeemed; provided, however, that the
foregoing shall not prevent the purchase or acquisition of preferred stock of
the series to preserve the status of Reckson Associates as a REIT or pursuant to
a purchase or exchange offer made on the same terms to holders of all
outstanding preferred stock of the series. In addition, unless (1) if the series
of preferred stock has a cumulative dividend, full cumulative dividends on all
outstanding shares of any series of preferred stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, and (2) if the series of preferred stock does not have
a cumulative dividend, full dividends on the preferred stock of any series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, Reckson Associates shall not purchase or otherwise acquire, directly or
indirectly, any shares of preferred stock of the series (except by conversion
into or exchange for capital stock of Reckson Associates ranking junior to the
preferred stock of the series as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
preferred stock of the series to preserve the status of Reckson Associates as a
REIT or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding preferred stock of the series.
If fewer than all of the outstanding shares of preferred stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by Reckson Associates and the shares may be redeemed pro rata from
the holders of record of the shares in proportion to the number of the shares
held or for which redemption is requested by the holder (with adjustments to
avoid redemption of fractional shares) or by lot or in any other reasonable
manner.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of preferred stock
of any series to be redeemed at the address shown on the stock transfer books.
Each notice shall state:
o the redemption date;
o the number of shares and series of the preferred stock to be
redeemed;
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o the redemption price;
o the place or places where certificates for the preferred stock are
to be surrendered for payment of the redemption price;
o that dividends on the shares to be redeemed will cease to
accumulate on the redemption date; and
o the date upon which the holder's conversion rights, if any, as to
the shares shall terminate.
If fewer than all the shares of preferred stock of any series are to be
redeemed, the notice mailed to each holder thereof shall also specify the number
of shares of preferred stock to be redeemed from each holder. If notice of
redemption of any preferred stock has been given and if the funds necessary for
redemption have been set aside by Reckson Associates in trust for the benefit of
the holders of any preferred stock so called for redemption, then from and after
the redemption date dividends will cease to accumulate on the preferred stock,
and all rights of the holders of the preferred stock will terminate, except the
right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of Reckson Associates (referred to herein as a "liquidation"),
then, before any distribution or payment shall be made to the holders of any
common stock or any other class or series of capital stock of Reckson Associates
ranking junior to the preferred stock of the series in the distribution of
assets upon any liquidation, dissolution or winding up of Reckson Associates,
the holders of the preferred stock shall be entitled to receive out of assets of
Reckson Associates legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable prospectus supplement), plus an amount equal to all
dividends accumulated and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if the
preferred stock does not have a cumulative dividend). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of preferred stock will have no rights or claim to any remaining assets. In the
event that, upon any voluntary or involuntary liquidation, dissolution or
winding up, the available assets of Reckson Associates are insufficient to pay
the amount of the liquidating distributions on all outstanding preferred stock
of the series and the corresponding amounts payable on all shares of other
classes or series of capital stock of Reckson Associates ranking on a parity
with the preferred stock in the distribution of assets, then the holders of the
preferred stock and all other classes or series of capital stock shall share
ratably in any distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
The consolidation or merger of Reckson Associates with or into any
other entity, or the merger of another entity with or into Reckson Associates,
or a statutory share exchange by Reckson Associates, or the sale, lease or
conveyance of all or substantially all of the property or business of Reckson
Associates, shall not be deemed to constitute a liquidation, dissolution or
winding up of Reckson Associates.
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VOTING RIGHTS
Holders of the preferred stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable prospectus supplement.
Whenever dividends on any series of preferred stock shall be in arrears
for six or more quarterly periods, the holders of the preferred stock (voting
separately as a class with all other series of preferred stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of Reckson Associates at a special
meeting called by the holders of record of at least ten percent (10%) of any
series of preferred stock so in arrears, unless the request is received less
than 90 days before the date fixed for the next annual or special meeting of the
stockholders, or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if the series of preferred stock has a
cumulative dividend, all dividends accumulated on the shares of preferred stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if the series of preferred stock does not have a
cumulative dividend, four quarterly dividends shall have been fully paid or
declared and a sum sufficient for the payment thereof set aside for payment. In
these cases, the entire Board of Directors of Reckson Associates will be
increased by two directors.
Unless provided otherwise for any series of preferred stock, so long as
any shares of the preferred stock remain outstanding, Reckson Associates will
not, without the affirmative vote or consent of the holders of at least
two-thirds of the shares of the series of preferred stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (the series
voting separately as a class):
(1) authorize or create, or increase the authorized or issued amount
of, any class or series of capital stock ranking senior to the preferred stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of Reckson Associates, or reclassify any
authorized capital stock of Reckson Associates into preferred stock, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any stock; or
(2) amend, alter or repeal the provisions of the Charter or the
Designating Amendment for the series of preferred stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of the series of
preferred stock or the holders thereof;
provided, however, with respect to the occurrence of any of the Events
set forth in (2) above, so long as the series of preferred stock remains
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an Event Reckson Associates may not be the surviving
entity, the occurrence of any Event shall not be deemed to materially and
adversely affect the rights, preferences, privileges or voting powers of holders
of the series of preferred stock; and provided, further, that (x) any increase
in the amount of the authorized preferred stock or the creation or issuance of
any other series of preferred stock, or (y) any increase in the amount of
authorized shares of the series of preferred stock or any other series of
preferred stock, in each case ranking on a parity with or junior to the
preferred stock of the series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up of Reckson
Associates, shall not be deemed to materially and adversely affect the rights,
preferences, privileges or voting powers.
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The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which the vote or consent would otherwise be
required shall be effected, all outstanding shares of the series of preferred
stock shall have been converted, redeemed or called for redemption and
sufficient funds shall have been deposited in trust to effect the redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of preferred
stock is convertible into shares of common stock will be set forth in the
applicable prospectus supplement. The terms will include the number of shares of
common stock into which the shares of preferred stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
preferred stock of Reckson Associates, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of the preferred stock.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Stock-- General,"
applicable Maryland law provides that no shareholder, including holders of
preferred stock, shall be personally liable for the acts and obligations of
Reckson Associates and that the funds and property of Reckson Associates shall
be the only recourse for these acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Restrictions on Ownership of Capital Stock,"
for Reckson Associates to qualify as a REIT under the Code, not more than 50% in
value of the outstanding capital stock of Reckson Associates may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. Therefore, the
Designating Amendment for each series of preferred stock may contain provisions
restricting the ownership and transfer of the preferred stock. The applicable
prospectus supplement will specify any additional ownership limitation relating
to a series of preferred stock.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable prospectus supplement, the
Registrar and Transfer Agent for the preferred stock will be American Stock
Transfer & Trust Company.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
Reckson Associates may issue receipts ("Depositary Receipts") for
Depositary Shares, each of which will represent a fractional interest or a share
of a particular series of a class of preferred stock, as specified in the
applicable prospectus supplement. Preferred stock of each series of each class
represented by Depositary Shares will be deposited under a separate Deposit
Agreement (each, a "Deposit Agreement") among Reckson Associates, the depositary
named therein (the depositary or its successor,
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the "Preferred Stock Depositary") and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner
of a Depositary Receipt will be entitled, in proportion to the fractional
interest of a share of the particular series of a class of preferred stock
represented by the Depositary Shares evidenced by the Depositary Receipt, to all
the rights and preferences of the preferred stock represented by the Depositary
Shares, including dividend, voting, conversion, redemption and liquidation
rights.
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the preferred stock by Reckson Associates to the Preferred Stock
Depositary, Reckson Associates will cause the Preferred Stock Depositary to
issue, on our behalf, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from Reckson Associates
upon request.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or
other cash distributions received in respect of the preferred stock to the
record holders of the Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of the Depositary Receipts owned by the
holder, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to the Preferred
Stock Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make the distribution, in which
case the Preferred Stock Depositary may, with the approval of Reckson
Associates, sell the property and distribute the net proceeds from the sale to
holders.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office
of the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption), the holders thereof will be entitled to
delivery at the office, to or upon the holder's order, of the number of whole or
fractional shares of preferred stock and any money or other property represented
by the Depositary Shares evidenced by the Depositary Receipts. Holders of
Depositary Receipts will be entitled to receive whole or fractional shares of
the related preferred stock on the basis of the proportion of preferred stock
represented by each Depositary Share as specified in the applicable prospectus
supplement, but holders of the preferred stock will not thereafter be entitled
to receive Depositary Shares therefor. If the Depositary Receipts delivered by
the holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of preferred stock to be
withdrawn, the Preferred Stock Depositary will deliver to the holder at the same
time a new Depositary Receipt evidencing the excess number of Depositary Shares.
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REDEMPTION OF DEPOSITARY SHARES
Whenever Reckson Associates redeems preferred stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date the number of Depositary Shares representing the preferred
stock so redeemed, provided Reckson Associates shall have paid in full to the
Preferred Stock Depositary the redemption price of the preferred stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the preferred stock. If less than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by the Preferred
Stock Depositary by lot.
After the date fixed for redemption, the Depositary Shares so called
for redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable upon
redemption and any money or other property to which the holders of the
Depositary Receipts were entitled upon redemption upon surrender thereof to the
Preferred Stock Depositary.
VOTING OF THE UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the
preferred stock are entitled to vote, the Preferred Stock Depositary will mail
the information contained in the notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent the
preferred stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the preferred stock) will be entitled to instruct the Preferred Stock Depositary
as to the exercise of the voting rights pertaining to the amount of preferred
stock represented by the holder's Depositary Shares. The Preferred Stock
Depositary will vote the amount of preferred stock represented by the Depositary
Shares in accordance with the instructions, and we will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of preferred
stock represented by the Depositary Shares to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing the
Depositary Shares.
LIQUIDATION PREFERENCE
In the event of liquidation, dissolution or winding up of Reckson
Associates, whether voluntary or involuntary, each holder of a Depositary
Receipt will be entitled to the fraction of the liquidation preference accorded
each share of preferred stock represented by the Depositary Share evidenced by
the Depositary Receipt, as set forth in the applicable prospectus supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into common stock
or any other securities or property of Reckson Associates. Nevertheless, if so
specified in the applicable prospectus supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the Preferred Stock Depositary with written instructions to the Preferred
Stock Depositary to instruct Reckson Associates to cause conversion of the
preferred stock represented by the Depositary
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Shares evidenced by Depositary Receipts into whole shares of common stock, other
preferred stock of Reckson Associates or other shares of capital stock of
Reckson Associates, and Reckson Associates has agreed that upon receipt of
instructions and any amounts payable in respect thereof, it will cause the
conversion thereof utilizing the same procedures as those provided for delivery
of preferred stock to effect the conversion. If the Depositary Shares evidenced
by a Depositary Receipt are to be converted in part only, one or more new
Depositary Receipts will be issued for any Depositary Shares not to be
converted. No fractional shares of common stock will be issued upon conversion,
and if the conversion will result in a fractional share being issued, an amount
will be paid in cash by Reckson Associates equal to the value of the fractional
interest based upon the closing price of the common stock on the last business
day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the preferred stock and any provision of the Deposit Agreement may at
any time be amended by agreement between Reckson Associates and the Preferred
Stock Depositary. However, any amendment that materially and adversely alters
the rights of the holders of Depositary Receipts will not be effective unless
the amendment has been approved by the existing holders of at least a majority
of the Depositary Shares evidenced by the Depositary Receipts then outstanding.
The Deposit Agreement may be terminated by Reckson Associates upon not
less than 30 days' prior written notice to the Preferred Stock Depositary if (1)
the termination is to preserve the status of Reckson Associates as a REIT or (2)
a majority of each class of preferred stock affected by the termination consents
to the termination, whereupon the Preferred Stock Depositary shall deliver or
make available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by the holder, the number of whole or fractional shares
of preferred stock as are represented by the Depositary Shares evidenced by
Depositary Receipts. In addition, the Deposit Agreement will automatically
terminate if (1) all outstanding Depositary Shares shall have been redeemed, (2)
there shall have been a final distribution in respect of the related preferred
stock in connection with any liquidation, dissolution or winding up of Reckson
Associates and the distribution shall have been distributed to the holders of
Depositary Receipts evidencing the Depositary Shares representing the preferred
stock or (iii) each related share of preferred stock shall have been converted
into capital stock of Reckson Associates not so represented by Depositary
Shares.
CHARGES OF PREFERRED SHARES DEPOSITARY
Reckson Associates will pay all transfer and other taxes and
governmental charges arising solely from the existence of the Deposit Agreement.
In addition, Reckson Associates will pay the fees and expenses of the Preferred
Stock Depositary in connection with the performance of its duties under the
Deposit Agreement. However, holders of Depositary Receipts will pay the fees and
expenses of the Preferred Stock Depositary for any duties requested by the
holders to be performed which are outside of those expressly provided for in the
Deposit Agreement.
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RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to
Reckson Associates notice of its election to do so, and Reckson Associates may
at any time remove the Preferred Stock Depositary, any resignation or removal to
take effect upon the appointment of a successor Preferred Stock Depositary. A
successor Preferred Shares Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from Reckson Associates which are
received by the Preferred Stock Depositary with respect to the related preferred
stock.
Neither Reckson Associates nor the Preferred Stock Depositary will be
liable if the Preferred Stock Depositary is prevented from or delayed in, by law
or any circumstances beyond its control, performing its obligations under the
Deposit Agreement. The obligations of Reckson Associates and the Preferred Stock
Depositary under the Deposit Agreement will be limited to performing specified
duties thereunder in good faith and without negligence, gross negligence or
willful misconduct, and Reckson Associates and the Preferred Stock Depositary
will not be obligated to prosecute or defend any legal proceeding in respect of
any Depositary Receipts, Depositary Shares or preferred stock represented
thereby unless satisfactory indemnity is furnished. Reckson Associates and the
Preferred Stock Depositary may rely on written advice of counsel or accountants,
or information provided by persons presenting the preferred stock represented
thereby for deposit, holders of Depositary Receipts or other persons believed to
be competent to give information, and on documents believed to be genuine and
signed by a proper party.
If the Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and from Reckson Associates, on the other hand, the Preferred Stock
Depositary shall be entitled to act on claims, requests or instructions received
from Reckson Associates.
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
EXCESS STOCK
The Charter provides that Reckson Associates may issue up to 75 million
shares of excess stock, par value $.01 per share ("Excess Stock"). For a
description of Excess Stock, see "--Restrictions on Ownership" below.
RESTRICTIONS ON OWNERSHIP
In order for Reckson Associates to qualify as a REIT under the Code,
among other things, not more than 50% in value of the outstanding capital stock
of Reckson Associates may be owned, directly or indirectly, by five or fewer
individuals (defined in the Code to include certain entities) during the last
half
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of a taxable year (other than the first year) (the "Five or Fewer
Requirement"), and the shares of capital stock must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months (other
than the first year) or during a proportionate part of a shorter taxable year.
Pursuant to the Code, common stock held by certain types of entities, the as
pension trusts qualifying under Section 401(a) of the Code, United States
investment companies registered under the Investment Company Act of 1940,
partnerships, trusts and corporations, will be attributed to the beneficial
owners of the entities for purposes of the Five or Fewer Requirement (i.e., the
beneficial owners of the entities will be counted as shareholders of Reckson
Associates).
In order to protect Reckson Associates against the risk of losing its
status as a REIT due to a concentration of ownership among stockholders, the
Charter, subject to certain exceptions, provides that no stockholder may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
9.0% (the "Ownership Limit") of the aggregate number or value of the outstanding
shares of common stock. Reckson Associates may also impose limitations on the
ownership of preferred stock. See "Description of Preferred Stock - Restrictions
on Ownership." Any transfer of shares of stock that would result in a violation
of the Ownership Limit or that would result in disqualification as a REIT,
including any transfer that results in shares of capital stock being owned by
fewer than 100 persons or results in Reckson Associates being "closely held"
within the meaning of Section 856(h) of the Code, shall be null and void, and
the intended transferee will acquire no rights to the shares of capital stock.
The foregoing restrictions on transferability and ownership will not apply if
the Board of Directors determines that it is no longer in the best interests of
Reckson Associates to attempt to qualify, or to continue to qualify, as a REIT.
The Board of Directors may, in its sole discretion, waive the Ownership Limit if
evidence satisfactory to the Board of Directors and tax counsel is presented
that the changes in ownership will not then or in the future jeopardize REIT
status and the Board of Directors otherwise decides that waiving the Ownership
Limit is in the best interests of Reckson Associates.
Shares of capital stock owned, or deemed to be owned, or transferred to
a stockholder in excess of the Ownership Limit will automatically be converted
into shares of Excess Stock that will be transferred, by operation of law, to
the trustee of a trust for the exclusive benefit of one or more charitable
organizations described in Section 170(b)(1)(A) and 170(c) of the Code (the
"Charitable Beneficiary"). The trustee of the trust will be deemed to own the
Excess Stock for the benefit of the Charitable Beneficiary on the date of the
violative transfer to the original transferee-stockholder. Any dividend or
distribution paid to the original transferee-stockholder of Excess Stock prior
to our discovery that capital stock has been transferred in violation of the
provisions of the Charter shall be repaid to the trustee upon demand. Any
dividend or distribution authorized and declared but unpaid shall be rescinded
as void ab initio with respect to the original transferee-stockholder and shall
instead be paid to the trustee of the trust for the benefit of the Charitable
Beneficiary. Any vote cast by an original transferee-stockholder of shares of
capital stock constituting Excess Stock prior to the discovery by us that shares
of capital stock have been transferred in violation of the provisions of the
Charter shall be rescinded as void ab initio. While the Excess Stock is held in
trust, the original transferee-stockholder will be deemed to have given an
irrevocable proxy to the trustee to vote the capital stock for the benefit of
the Charitable Beneficiary. The trustee of the trust may transfer the interest
in the trust representing the Excess Stock to any person whose ownership of the
shares of capital stock converted into Excess Stock would be permitted under the
Ownership Limit. If the transfer is made, the interest of the Charitable
Beneficiary shall terminate and the proceeds of the sale shall be payable to the
original transferee-stockholder and to the Charitable Beneficiary as described
herein. The original transferee-stockholder shall receive the lesser of (1) the
price paid by the original transferee-stockholder for the shares of capital
stock that were converted into
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Excess Stock or, if the original transferee-stockholder did not give value for
the shares (e.g., the stock was received through a gift, devise or other
transaction), the average closing price for the class of shares from which the
shares of capital stock were converted for the ten trading days immediately
preceding the sale or gift, and (2) the price received by the trustee from the
sale or other disposition of the Excess Stock held in trust. The trustee may
reduce the amount payable to the original transferee-stockholder by the amount
of dividends and distributions relating to the shares of Excess Stock which have
been paid to the original transferee-stockholder and are owed by the original
transferee-stockholder to the trustee. Any proceeds in excess of the amount
payable to the original transferee-stockholder shall be paid by the trustee to
the Charitable Beneficiary. Any liquidation distributions relating to Excess
Stock shall be distributed in the same manner as proceeds of a sale of Excess
Stock. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulations, then the
original transferee-stockholder of any shares of Excess Stock may be deemed, at
the option of Reckson Associates, to have acted as an agent for Reckson
Associates in acquiring the shares of Excess Stock and to hold the shares of
Excess Stock for Reckson Associates.
In addition, Reckson Associates will have the right, for a period of 90
days during the time any shares of Excess Stock are held in trust, to purchase
all or any portion of the shares of Excess Stock at the lesser of (i) the price
initially paid for the shares by the original transferee-stockholder, or if the
original transferee-stockholder did not give value for the shares (e.g., the
shares were received through a gift, devise or other transaction), the average
closing price for the class of stock from which the shares of Excess Stock were
converted for the ten trading days immediately preceding the sale or gift, and
(ii) the average closing price for the class of stock from which the shares of
Excess Stock were converted for the ten trading days immediately preceding the
date Reckson Associates elects to purchase the shares. Reckson Associates may
reduce the amount payable to the original transferee-stockholder by the amount
of dividends and distributions relating to the shares of Excess Stock which have
been paid to the original transferee-stockholder and are owed by the original
transferee-stockholder to the trustee. Reckson Associates may pay the amount of
the reductions to the trustee for the benefit of the Charitable Beneficiary. The
90-day period begins on the later date of which notice is received of the
violative transfer if the original transferee-stockholder gives notice to
Reckson Associates of the transfer or, if no notice is given, the date the Board
of Directors determines that a violative transfer has been made.
These restrictions will not preclude settlement of transactions through
the New York Stock Exchange.
All certificates representing shares of stock will bear a legend
referring to the restrictions described above.
Each stockholder shall upon demand be required to disclose to Reckson
Associates in writing any information with respect to the direct, indirect and
constructive ownership of the capital stock of Reckson Associates as the Board
of Directors deems necessary to comply with the provisions of the Code
applicable to REITs, to comply with the requirements of any taxing authority or
governmental agency or to determine any compliance.
The Ownership Limit may have the effect of delaying, deferring or
preventing a change in control of Reckson Associates unless the Board of
Directors determines that maintenance of REIT status is no longer in the best
interests of Reckson Associates.
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DESCRIPTION OF WARRANTS
Reckson Associates may issue Warrants for the purchase of common stock
or preferred stock. Warrants may be issued independently or together with any
securities and may be attached to or separate from the securities. Each series
of Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between Reckson Associates and a warrant agent
specified therein ("Warrant Agent"). The Warrant Agent will act solely for
Reckson Associates in connection with the Warrants of the series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Warrants.
The applicable prospectus supplement will describe the following terms,
where applicable, of the Warrants in respect of which this prospectus is being
delivered:
o the title of the Warrants;
o the aggregate number of the Warrants;
o the price or prices at which the Warrants will be issued;
o the currencies in which the price or prices of the Warrants may be
payable;
o the designation, amount and terms of the Securities purchasable
upon exercise of the Warrants;
o the designation and terms of the other Securities, if any, with
which the Warrants are issued and the number of the Warrants issued
with each security;
o if applicable, the date on and after which the Warrants and the
Securities purchasable upon exercise of the Warrants will be
separately transferable;
o the price or prices at which and currency or currencies in which
the Securities purchasable upon exercise of the Warrants may be
purchased;
o the date on which the right to exercise the Warrants shall commence
and the date on which the right shall expire;
o the minimum or maximum amount of the Warrants which may be
exercised at any one time;
o information with respect to book-entry procedures, if any;
o a discussion of material federal income tax considerations; and
o any other material terms of the Warrants, including terms,
procedures and limitations relating to the exchange and exercise of
the Warrants.
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FEDERAL INCOME TAX CONSIDERATIONS
Based on various assumptions and factual representations made by us
regarding our operations, in the opinion of Brown & Wood LLP, our counsel,
commencing with our taxable year ended December 31, 1995, Reckson Associates has
been organized in conformity with the requirements for qualification as a REIT
under the Code, and the proposed method of operating Reckson Associates will
enable it to meet the requirements for qualification and taxation as a REIT. The
qualification of Reckson Associates depends upon our ability to meet the various
requirements imposed under the Code through actual operations, as discussed
below. Brown & Wood LLP will not review our operations, and no assurance can be
given that actual operations will meet these requirements. The opinion of Brown
& Wood LLP is not binding on the IRS or any court. The opinion of Brown & WOOD
LLP is based upon existing law, IRS regulations and currently published
administrative positions of the IRS and judicial decisions, which are subject to
change either prospectively or retroactively.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern Reckson Associates and its stockholders' federal income tax
treatment. For the particular provisions that govern Reckson Associates and its
stockholders' federal income tax treatment, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by reference.
Under the Code, if certain requirements are met in a taxable year, a
REIT generally will not be subject to federal income tax with respect to income
that it distributes to its stockholders. If Reckson Associates fails to qualify
during any taxable year as a REIT, unless certain relief provisions are
available, it will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, which could have
a material adverse effect upon its stockholders. See "Risk Factors-Risks of
Failure to Qualify as a REIT."
In any year in which Reckson Associates qualifies to be taxed as a
REIT, distributions made to its stockholders out of current or accumulated
earnings and profits will be taxed to stockholders as ordinary income except
that distributions of net capital gains designated by Reckson Associates as
capital gain dividends will be taxed as long-term capital gain income to the
stockholders. To the extent that distributions exceed current or accumulated
earnings and profits, they will constitute a return of capital, rather than
dividend or capital gain income, and will reduce the basis for the stockholder's
common stock or preferred stock with respect to which the distribution is paid
or, to the extent that they exceed the basis, will be taxed in the same manner
as gain from the sale of that common stock or preferred stock. Beginning in
1998, Reckson Associates may elect to retain long-term capital gains and pay
corporate-level income tax on them and treat the retained gains as if they had
been distributed to stockholders. In this case, each stockholder would include
in income, as long-term capital gain, its proportionate share of the
undistributed gains and would be deemed to have paid its proportionate share of
the tax paid by Reckson Associates with respect thereto. In addition, the basis
for a stockholder's common stock or preferred stock would be increased by the
amount of the undistributed long-term capital gain included in its income, less
the amount of the tax it is deemed to have paid with respect thereto.
Investors are urged to consult their own tax advisors with respect to
the appropriateness of an investment in the securities offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
59
resulting from the investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in Reckson Associates, including the possibility of United
States income tax withholding on our distributions.
PLAN OF DISTRIBUTION
Reckson Associates and the Operating Partnership may sell the
securities to one or more underwriters for public offering and sale by them or
may sell the securities to investors directly or through agents. Any underwriter
or agent involved in the offer and sale of the securities will be named in the
applicable prospectus supplement.
Underwriters may offer and sell the securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. Reckson Associates and the
Operating Partnership also may, from time to time, authorize underwriters acting
as their agents to offer and sell the securities upon the terms and conditions
as are set forth in the applicable prospectus supplement. In connection with the
sale of securities, underwriters may be deemed to have received compensation
from Reckson Associates or the Operating Partnership in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
securities for whom they may act as agent. Underwriters may sell securities to
or through dealers, and dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by Reckson Associates or the
Operating Partnership to underwriters or agents in connection with the offering
of securities, and any discounts, concessions for commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
prospectus supplement. Underwriters, dealers and agents participating in the
distribution of the securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with Reckson Associates and the
Operating Partnership, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with, and perform services for, Reckson Associates and
the Operating Partnership and its subsidiaries in the ordinary course of
business.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby and
certain legal matters described under "Federal Income Tax Considerations" will
be passed upon for Reckson Associates and the Operating Partnership by Brown &
Wood LLP, New York, New York.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of Reckson Associates Realty Corp. as of
December 31, 1997 and December 31, 1996 and for the years then ended and for the
period June 3, 1995 to December 31, 1995 and the combined financial statements
of the Reckson Group for the period January 1, 1995 to June 2, 1995 included in
our Annual Report on Form 10-K for the year ended December 31, 1997; and the
combined statement of revenues and certain expenses of the New Jersey Portfolio
(as defined therein) for the year ended December 31, 1996, the combined
statement of revenues and certain expenses for the Hauppauge Portfolio (as
defined therein) for the year ended December 31, 1996 and the statement of
revenues and certain expenses of the Uniondale Office Property (as defined
therein), for the year ended December 31, 1996, appearing in Reckson Associates'
Form 8-K, dated February 18, 1997; and the statement of revenues and certain
expenses of 710 Bridgeport Avenue (as defined therein), for the year ended
December 31, 1996 and the statement of revenues and certain expenses of the
Shorthills Office Center (as defined therein), for the year ended December 31,
1996 appearing in Reckson Associates' Form 8-K dated June 12, 1997; and the
statement of revenues and certain expenses of Garden City Plaza for the year
ended December 31, 1996, appearing in Reckson Associates' Form 8-K dated
September 9, 1997, and the statement of revenues and certain expenses of the
Christiana Office Property (as defined therein) for the year ended June 30,
1997, appearing in Reckson Associates' Form 8-K dated February 10, 1998, and the
statement of revenues and certain expenses of the Stamford Office Property (as
defined therein) for the year ended December 31, 1997, appearing in Reckson
Associates' Form 8-K dated March 24, 1998; and the statement of revenues and
certain expenses of the Cappelli Portfolio for the year ended December 31, 1997,
appearing in Reckson Associates' Form 8-K dated April 6, 1998, incorporated in
this Registration Statement by reference. These consolidated and combined
financial statements are incorporated by reference in reliance on their reports,
given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of Reckson Operating Partnership, L.P. as of
December 31, 1997 and December 31, 1996 and for the years then ended and for the
period June 3, 1995 to December 31, 1995 and the combined financial statements
of Reckson Group for the period January 1, 1995 to June 2, 1995 as set forth in
their report, which is included in this Registration Statement. These financial
statements are included in reliance on their report, given on their authority as
experts in accounting and auditing.
61
RECKSON OPERATING PARTNERSHIP, L.P.
AND
THE RECKSON GROUP
PAGE
- ----
Selected Financial Data.........................................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................
CONSOLIDATED FINANCIAL STATEMENTS...............................................
Report of Independent Auditors..................................................
Consolidated Balance Sheets as of September 30, 1998
(unaudited), December 31, 1997 and December 31, 1996 ......................
Consolidated Statements of Income for the nine months ended
September 30, 1998, and 1997 (unaudited), the years ended
December 31, 1997, 1996 and for the period from
June 3, 1995 to December 31, 1995 and the Combined
Statement of Income for the period from January 1,
1995 to June 2, 1995 ......................................................
Consolidated Statements of Partners' Capital for the
nine months ended September 30, 1998 (unaudited),
the years ended December 31, 1997, 1996 and for the
period from June 3, 1995 to December 31, 1995 and
the Combined Statement of Owners' (Deficit) for
the period from January 1, 1995 to June 2, 1995 ...........................
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998, and 1997 (unaudited),
the years ended December 31, 1997, 1996 and
for the period from June 3, 1995 to December 31, 1995
and the Combined Statement of Cash Flows for the period
January 1, 1995 to June 2, 1995 ...........................................
Notes to Consolidated Financial Statements......................................
Schedule III - Real Estate and Accumulated Depreciation.........................
PRO FORMA FINANCIAL STATEMENTS..................................................
Unaudited Pro Forma Combined Financial Statements of
Metropolitan Partners .....................................................
Unaudited Pro Forma Combined Financial Statements of the
Operating Partnership Assuming that Reckson Associates'
Stockholders Do Not Approve the Share Issuance Proposal....................
F-1
Selected Financial Data of Reckson OP
The following table sets forth selected financial and operating data
for Reckson OP and on a combined historical basis for Reckson OP's predecessor
entities ("Reckson Group"). The selected operating and balance sheet data of
Reckson OP at and for the years ended December 31, 1997 and December 31, 1996
and at and for the period from June 3, 1995 to December 31, 1995 and selected
operating data of the Reckson Group for the period from January 1, 1995 to June
2, 1995 and at and for the years ended December 31, 1994 and December 31, 1993
have been derived from audited financial statements. The selected operating and
balance sheet data of Reckson OP at September 30, 1998 and for the nine months
ended September 30, 1998 and 1997 have been derived from the unaudited financial
statements of Reckson OP. In the opinion of Reckson OP's management, the
financial data at and for the nine months ended September 30, 1998 and for the
nine months ended September 30, 1997 include all adjustments necessary to
present fairly the information set forth therein.
Reckson OP Reckson Group
-----------------------------------------------------------------------------------------------------------
For the nine months For the year ended For the For the period For the year ended
ended period
------------------------------------------------------------------------- ---------------------------------
September September December December June 3, 1995 January 1, 1995 1994(1) 1993(1)
30, 1998 30, 1997 31, 1997 31, 1996 to December to June 2, 1995(1)
31, 1995(1)
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Operating Data:
Revenues(2) $192,924 $108,186 $153,348 $96,030 $38,455 $20,889 $56,931 $60,347
Total expenses 145,525 75,830 107,639 70,935 27,892 20,695 55,685 67,580
Income (loss) before
distribution to
preferred unit holders,
minority interests and
extraordinary items 47,399 32,356 45,709 25,095 10,563 194 1,246 (7,233)
Minority interests 1,938 724 920 915 246 -- -- --
Extraordinary items--
gain (loss) (1,993) (2,808) (2,808) (1,259) (6,022) -- 4,434 41,190
Preferred distributions 9,202 -- -- -- -- -- -- --
Net income available to
common unit holders 34,266 28,824 41,981 22,921 4,295 194 5,680 33,957
Per Unit Data: (3)
Net income per common
unit:
General Partner $ .73 $ .74 $ 1.06 $ .87(4) $ .22(4)
Limited Partners' $ .73 $ .75 $ 1.03 $ .86(4) $ .19(4)
Distributions per unit $ .99 $ .93 $ 1.24 $ 1.19(4) $ .67(4)
Weighted average
common units
outstanding:
General Partner 39,284,000 31,810,000 32,727,000 19,928,00(4) 14,678,00(4)
Limited Partners 7,715,000 6,970,000 7,016,000 6,503,000(4) 5,648,000(4)
Balance Sheet Data:
(period end)
Real estate, before
accumulated
depreciation $1,700,264 $793,762 $1,015,282 $519,504 $290,712 -- $162,192 --
Total assets 1,772,237 852,195 1,113,105 543,391 242,540 -- 132,035 --
Mortgage notes payable 239,989 180,593 180,023 161,513 98,126 -- 180,286 --
Credit facility 443,250 33,000 210,250 108,500 40,000 -- -- --
Senior unsecured notes 150,000 150,000 150,000 -- -- -- -- --
Market value of equity 1,395,584 1,104,059 1,141,592 653,606 303,943 -- -- --
Total market
capitalization including
debt 2,209,980 1,454,573 1,668,800 921,423 426,798 -- --
Other Data:
Funds from
operations(5) $72,030 $49,388 $69,619 $40,938 $17,190 -- -- --
Ratio of
earnings to fixed
charges(6) 2.13x - 2.78x 2.71x 2.71x 1.02x(7) 0.97(7)(8) 0.65x(7)(8)
Total square feet (at 20,661 11,662 13,645 8,800 5,430 4,529 4,529 4,529
end of period)
Number of properties (at
end of period) 202 136 155 110 81 72 72 72
(1) Historical data includes data attributable to the Omni, a 575,000 square
foot office building located in Reckson's Nassau West Corporate Center
office park, and which is owned by Omni Partners, L.P., from its opening in
1990 through December 20, 1993 (the date on which Omni Partners, L.P. was
recapitalized and its financial statements were unconsolidated).
Concurrently with Reckson's initial public offering, Reckson OP acquired a
60% managing general partner interest in Omni Partners, L.P. and
consolidated its financial statements.
(2) Historical total revenues include construction revenue of $2,361 (Reckson
Group January 1, 1995 to June 2, 1995), $8,175 (1994) and $2,811 (1993).
(3) The earnings per unit amounts are based on the weighted average units
outstanding for the period then ended.
(4) Adjusted to reflect a two-for-one unit split effective on April 15,1997.
(5) Reckson OP considers funds from operations to be an appropriate measure of
the performance of an equity REIT. The White Paper on Funds from Operations
approved by the Board of Governors of NAREIT in March 1995 defines funds
from operations as net income (loss) (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property plus real estate related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint venture companies. Reckson OP implemented this new method of
calculation on January 1, 1996. Reckson OP computes funds from operations
in accordance with the standards established by NAREIT, which may not be
comparable to funds from operations reported by other REIT's that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than Reckson OP. Funds
from operations does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not
indicative of cash available to fund cash needs. Funds from operations
should not be considered as an alternative to net income as an indicator of
Reckson OP's operating performance or as an alternative to cash flow as a
measure of liquidity.
(6) The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income from
continuing operations before minority interests, fixed charges and
preferred dividends. Fixed charges consist of interest expense (including
interest costs capitalized) and the amortization of debt issuance costs
plus preferred dividends.
(7) Prior to completion of Reckson's initial public offering on June 2, 1995,
Reckson OP's predecessors operated in a manner as to minimize net taxable
income to their owners. The initial public offering and the related
formation transactions permitted Reckson OP to deleverage its properties
significantly, resulting in a significantly improved ratio of earnings to
fixed charges.
(8) The excess of fixed charges over earnings amounted to approximately $493
and $10,105 for the years ended December 31, 1994 and 1993, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements of Reckson Operating Partnership,
L. P. (the "Operating Partnership") and the combined financial statements of the
Reckson Group 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, the financing of the Operating Partnership's operations, the
ability to lease vacant space and the ability to renew of relet space under
expiring leases, involve certain risks and uncertainties. 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. Certain factors that might cause the results of the Operating
Partnership to differ materially from those indicated by such forward-looking
statements include, among other factors, general economic conditions, general
real estate industry risks, tenant default and bankruptcies, loss of major
tenants, the impact of competition and acquisition, redevelopment and
development risks, the ability to finance business opportunities and local real
estate risks such as an oversupply of space or a reduction in demand for real
estate in the Operating Partnership's real estate markets. 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.
Overview and Background
The Reckson Group (the" Predecessor") to Reckson Associates Realty
Corp. (the "Company"), was engaged in the ownership, management, operation,
leasing and development of commercial real estate properties, principally office
and industrial buildings, and also owned certain undeveloped land located
primarily on Long Island, New York. The Operating Partnership commenced
operations on June 2, 1995 and is the successor to the operations of the Reckson
Group. The sole general partner in the Operating Partnership, 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. As a result, the Operating Partnership owned or had an interest in 72
properties (including one joint venture property).
At September 30, 1998, the Operating Partnership's portfolio of real
estate properties included 73 office buildings containing approximately 10.1
million square feet, 127 industrial buildings containing approximately 10.6
million square feet and two retail properties containing approximately 20,000
square feet.
Subsequent to June 2, 1995, the Operating Partnership has acquired or
contracted to acquire approximately $ 1.3 billion of Class A suburban office and
industrial properties encompassing approximately 12.8 million square feet
located in the New York City Tri-State Area of Long Island, Westchester,
Southern Connecticut and Northern New Jersey. In that regard, the Operating
Partnership has acquired 13 office Properties and 32 industrial Properties
encompassing approximately 2.1 million and 2.5 million square feet,
respectively, located on Long Island for an aggregate purchase price of
approximately $300 million. In February 1996, the Operating Partnership
established its Westchester Division with the acquisition of an eight building
935,000 square foot Class A office portfolio and associated management and
construction operations for an aggregate purchase price of approximately $79
million. Since its initial investment in Westchester the Operating Partnership
has acquired 17 office properties encompassing approximately 2.4 million square
feet and three industrial properties encompassing approximately 163,000 square
feet for an aggregate purchase price of approximately $305 million. In October
1996, the Operating Partnership established its Southern Connecticut Division
with the purchase of Landmark Square, a six building office complex encompassing
approximately 800,000 square feet located in Stamford, Connecticut for an
aggregate purchase price of approximately $77 million. Since its initial
investment in Southern Connecticut the Company has acquired two office
properties and one industrial property encompassing approximately 317,000 and
452,414 square feet, respectively, for a purchase price of approximately $89
million. In May 1997, the Operating Partnership acquired five Class A suburban
office properties encompassing approximately 496,000 square feet located in
Northern New Jersey for an aggregate purchase price of approximately $56.9
million and, in connection with this acquisition, established its Northern New
Jersey Division. Since its initial investment in Northern New Jersey the
Operating Partnership has acquired 12 office properties encompassing
approximately 1.5 million square feet and seven industrial properties
encompassing approximately 1.1 million square feet for an aggregate purchase
price of approximately $232 million. Additionally, the Operating Partnership has
invested approximately $12 million for approximately 81 acres of land located in
Long Island, approximately 39 acres of land located in Westchester and 668 acres
of land located in New Jersey which allows for approximately 7.7 million square
feet of future development opportunities. In addition, the Operating Partnership
has invested approximately $47.3 million in certain mortgage indebtedness
encumbering four Class A office properties on Long Island, encompassing
approximately 577,000 square feet, a 400 acre parcel of land located in New
Jersey and in a note receivable secured by a partnership interest in Omni
Partners, L. P., owner of a 575,000 square foot, class A office property located
in Uniondale, New York. In October 1997, the Operating Partnership entered into
an agreement to invest up to $150 million in the Morris Companies, a New Jersey
developer and owner of "Big Box" warehouse facilities. The Morris Companies'
properties include 23 industrial buildings encompassing approximately 4.0
million square feet. In connection with the transaction the Morris Companies
contributed 100% of their interests in certain industrial properties to Reckson
Morris Operating Partnership, L. P. ("RMI") in exchange for operating
partnership units in RMI. As of September 30, 1998, the Operating Partnership
has invested approximately $93.4 million for an approximate 76.4% controlling
interest in RMI.
During 1997, the Company formed Reckson Service Industries, Inc.
("RSI") and Reckson Strategic Venture Partners, LLC ("RSVP"). The Operating
Partnership owned a 95% non voting common stock interest in RSI through June 10,
1998. On June 11, 1998, the Operating Partnership distributed its 95% common
stock interest in RSI of approximately $3 million to its partners. Additionally,
during June 1998, the Operating Partnership established a credit facility with
RSI (the"RSI Facility") in the amount of $100 million for RSI's service sector
operations and other general corporate purposes. In addition, the Operating
Partnership has approved the funding of investments of up to $100 million with
or in RSVP (the "RSVP Commitment"), through RSVP-controlled joint venture
REIT-qualified investments or advances made to RSI under terms similar to the
RSI Facility. As of September 30, 1998, approximately $16.7 million had been
invested through the RSVP Commitment, of which $10.1 million represents RSVP
controlled joint venture investments and $6.6 million represents advances to RSI
under the RSVP Commitment. Such amounts have been included in investment in real
estate joint ventures and investments in and advances to affiliates,
respectively, on the Operating Partnership's balance sheet. RSI serves as the
managing member of RSVP. RSI invests in operating companies that generally
provide commercial services to properties owned by the Operating Partnership and
its tenants and third parties. RSVP was formed to provide the Operating
Partnership with a research and development vehicle to invest in alternative
real estate sectors. RSVP invests primarily in real estate and real estate
related operating companies generally outside of the Operating Partnership's
core office and industrial focus. RSVP's strategy is to identify and acquire
interests in established entrepreneurial enterprises with experienced management
teams in market sectors which are in the early stages of their growth cycle or
offer unique circumstances for attractive investments as well as a platform for
future growth.
The Operating Partnership and RSI have entered into an intercompany
agreement (the "Reckson Intercompany Agreement") to formalize their relationship
and to limit conflicts of interest. Under the Reckson Intercompany Agreement,
RSI granted the Operating Partnership a right of first opportunity to make any
REIT -qualified investment that becomes available to RSI. In addition, if a
REIT-qualified investment opportunity becomes available to an affiliate of RSI,
including RSVP, the Reckson Intercompany Agreement requires such affiliate to
allow the Operating Partnership to participate in such opportunity to the extent
of RSI's interest.
Under the Reckson Intercompany Agreement, the Operating Partnership
granted RSI a right of first opportunity to provide commercial services to the
Operating Partnership and its tenants. RSI will provide services to the
Operating Partnership at rates and on terms as attractive as either the best
available for comparable services in the market or those offered by RSI to third
parties. In addition, the Operating Partnership will give RSI access to its
tenants with respect to commercial services that may be provided to such tenants
and, under the Reckson Intercompany Agreement, subject to certain conditions,
the Operating Partnership granted RSI a right of first refusal to become the
lessee of any real property acquired by the Operating Partnership if the
Operating Partnership determines that, consistent with the Company's status as a
REIT, it is required to enter into a "master" lease agreement.
On December 8, 1998, the Company, the Operating Partnership,
Metropolitan Partners, LLC, a Delaware limited liability company
("Metropolitan") and Tower Realty Trust Inc., a Maryland corporation ("Tower"),
executed a merger agreement pursuant to which Tower will be merged into
Metropolitan, with Metropolitan surviving the merger. Concurrently with the
merger, the Tower operating partnership will be merged with and into a
subsidiary of Metropolitan. The consideration to be issued in the mergers will
be comprised of (i) 25% cash and (ii) 75% of shares of the Company's Class B
exchangeable common stock, or in certain circumstances described below, shares
of such Class B common stock and unsecured notes of the Operating Partnership.
The Operating Partnership controls Metropolitan and owns 100% of the common
equity interests, while Crescent Real Estate Equities Company, a Texas real
estate investment trust ("Crescent"), owns a preferred equity interest in
Metropolitan. The merger agreement replaces a previously existing merger
agreement among Reckson, Crescent, Metropolitan and Tower relating to the
acquisition by Metropolitan, which at that time was a 50/50 joint venture
between the Operating Partnership and Crescent.
Pursuant to the terms of the merger agreement, holders of shares of
outstanding common stock of Tower, and outstanding units of
limited partnership interest of the Tower operating partnership will have the
option to elect to receive cash or shares of Class B common stock, subject to
proration. Under the terms of the transaction, Metropolitan will effectively pay
for each share of Tower common stock and each unit of limited partnership
interest of the Tower operating partnership: (i) $5.75 (in cash) and (ii) 0.6273
of a share of Class B common stock. The shares of Class B common stock are
entitled to receive an initial annual dividend of $2.24 per share, which is
subject to adjustment annually. The Company may redeem any or all of the Class B
common stock in exchange for an equal number of shares of the Company's common
stock at any time following the four year, six month anniversary of the issuance
of Class B common stock. It is anticipated that the Company's Board of Directors
will recommend to the Company's stockholders the approval of a proposal to issue
a number of shares of Class B Common Stock equal to 75% of the sum of (i) the
number of outstanding shares of the Tower common stock and (ii) the number of
units of limited partnership interest of the Tower operating partnership, in
each case, at the effective time of the mergers. If the Company's stockholders
do not approve the issuance of the Class B common stock as proposed, the merger
agreement provides that approximately one-third of the consideration that was to
be paid in the form of Class B common stock will be replaced by senior unsecured
notes of the Operating Partnership, which notes will bear interest at the rate
of 7% per annum and have a term of ten years. In addition, if the Company's
stockholders do not approve the issuance of Class B common stock as proposed and
the Company's Board of Directors does not recommend, or withdraws or amends or
modifies in any material respect its recommendation for, approval of such
proposal, then the total principal amount of notes to be issued and distributed
in the merger will be increased by $15 million.
Simultaneously with the execution of the merger agreement, Metropolitan
purchased from Tower approximately 2.2 million shares of Series A convertible
preferred stock of Tower, for an aggregate purchase price of $40 million. If the
merger agreement is not consummated and a court of competent jurisdiction issues
a final, non-appealable judgment determining that the Company and Metropolitan
are obligated to consummate the merger but have failed to do so, or determining
that the Company and Metropolitan failed to use their reasonable best efforts to
take all actions necessary to cause certain closing conditions to be satisfied,
Metropolitan is obligated to return to Tower $30 million of such Series A
preferred stock.
In connection with the new merger agreement, Tower, the Company,
Crescent and Metropolitan have exchanged mutual releases for any claims relating
to the previous merger agreement.
On August 27, 1998 the Operating Partnership announced the formation of
a joint venture with RSVP and the Dominion Group, an Oklahoma-based,
privately-owned group of companies that focuses on the development, acquisition
and ownership of government occupied office buildings and correctional
facilities. The new venture, Dominion Properties LLC (the "Venture"), is owned
by Dominion Venture Group LLC, and by a subsidiary of the Operating Partnership.
The Venture will engage primarily in acquiring, developing and/or owning
government-occupied office buildings and privately operated correctional
facilities. Under the Venture's operating agreement, RSVP is to invest up to
$100 million, some of which may be invested by the Operating Partnership ( the
"RSVP Capital"). The initial contribution of RSVP Capital was approximately $39
million of which approximately $10.1 million was invested by a subsidiary of the
Operating Partnership. The Operating Partnership's subsidiary funded its capital
contribution through the RSVP Commitment. In addition, the Operating Partnership
advanced approximately $2.9 million to RSI through the RSVP Commitment for its
investment in the joint venture.
The market capitalization of the Operating Partnership at September 30,
1998 was approximately $2.2 billion. The Operating Partnership's market
capitalization is calculated based on the value of the Operating Partnership's
common units (which, for this purpose, is assumed to be the same per unit as the
value of a share of the Company's common stock) and the stated values of the
Operating Partnership's preferred units and the $814.4 million (including its
share of joint venture debt and net of minority partners' interest) of debt
outstanding at September 30, 1998. As a result, the Operating Partnership's
total debt to total market capitalization ratio at September 30, 1998 equaled
approximately 36.9%.
Results of Operations
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997:
The Operating Partnership's total revenues increased by $84.7 million
or 78.3% for the nine months ended September 30, 1998 as compared to the 1997
period. The growth in total revenues is substantially attributable to the
Operating Partnership's acquisition of 92 properties comprising approximately
11.9 million square feet. Property operating revenues, which include base rents
and tenant escalations and reimbursements ("Property Operating Revenues")
increased by $81.7 million or 80.2% for the nine months ended September 30, 1998
as compared to the 1997 period. The 1998 increase in Property Operating Revenues
is comprised of $1.9 million attributable to increases in rental rates and
changes in occupancies and $79.8 million attributable to acquisitions of
properties. The remaining balance of the increase in total revenues in 1998 is
primarily attributable to interest income on the Operating Partnership's
investments in mortgage notes and notes receivable. The Operating Partnership's
base rent was increased
by the impact of the straight-line rent adjustment by $5.7 million for the nine
months ended September 30, 1998 as compared to $3.5 million for the 1997 period.
Property operating expenses, real estate taxes and ground rents
("Property Expenses") increased by $26.1 million for the nine months ended
September 30, 1998 as compared to the 1997 period. These increases are primarily
due to the acquisition of properties. Gross operating margins (defined as
Property Operating Revenues less Property Expenses, taken as a percentage of
Property Operating Revenues) for 1998 and 1997 were 66.0% and 64.3%,
respectively. The increase in gross operating margins reflects increases
realized in rental rates, the Operating Partnership's ability to realize certain
operating efficiencies as a result of operating a larger portfolio of properties
with a concentration of properties in office and industrial parks or in its
established sub-markets and increased ownership of net leased properties
including the impact of the RMI properties.
Marketing, general and administrative expenses increased by $4.5
million for the nine months ended September 30, 1998 as compared to the 1997
period. The increase is due to the increased costs of managing the acquisition
properties, the costs of opening the Operating Partnership's Northern New Jersey
division, costs associated with the management of the RMI assets, and the
increase in corporate management and administrative costs associated with the
growth of the Operating Partnership. Marketing, general and administrative
expenses as a percentage of total revenues were 5.4% for the nine months ended
September 30, 1998 as compared to 5.6% for the 1997 period.
Interest expense increased by $ 20.1 million for the nine months ended
September 30, 1998 as compared to the 1997 period. The increase is attributable
to an increase in mortgage debt including the refinancing of the Omni in the
amount of $58 million in August 1997, the assumption of approximately $14.8
million of mortgage indebtedness in connection with the Operating Partnership's
investment in RMI, the assumption of approximately $45.1 million of mortgage
indebtedness in connection with the Cappelli acquisition, increased cost
attributable to an increased average balance on the Operating Partnership's
credit facilities and interest on the Operating partnership's $150 million of
senior unsecured notes (the "Senior Unsecured Notes"). The weighted average
balance outstanding on the Operating Partnership's credit facilities was $348.0
million for the nine months ended September 30, 1998 as compared to $102.2
million for the 1997 period.
An extraordinary item resulted in a $2.0 million loss for the nine
months ended September 30, 1998. The extraordinary item was attributable to the
write off of certain deferred loan costs incurred in connection with the
Operating Partnership's secured credit facilities which were substantially
modified and restated in July 1998.
Comparisons for the Years Ended December 31, 1997 to 1996 and December 31, 1996
to 1995:
For discussion purposes, the results of operations for the year ended
December 31, 1995 combine the operating results of the Predecessor (excluding
results of properties not transferred to the Operating Partnership) for the
period January 1, 1995 to June 2, 1995.
The Operating Partnership's total revenues increased by $57.3 million
or 60% from 1996 to 1997 and $36.7 million or 62% from 1995 to 1996. The growth
in total revenues is substantially attributable to the Operating Partnership's
acquisition of 46 properties comprising approximately 4.9 million square feet in
1997 and 29 properties comprising approximately 3.3 million square feet in 1996
and nine properties comprising approximately 900,000 square feet in 1995.
Property Operating Revenues, increased by $51 million or 55% from 1996 to 1997
and by $35.6 million or 62% from 1995 to 1996. The 1997 increase in Property
Operating Revenues is comprised of $2.1 million attributable to increases in
rental rates and changes in occupancies and $48.9 million attributable to
acquisitions of properties. The 1996 increase in Property Operating Revenues is
comprised of $6.6 million attributable to increases in rental rates and changes
in occupancies and $29 million attributable to acquisitions of properties. The
remaining balance of the increase in total revenues in 1997 is primarily
attributable to interest income on the Operating Partnership's investments in
mortgage notes and notes receivable. The increase from 1996 to 1997 was offset
by a decrease in the equity in earnings of service companies as a result of the
management and construction companies focusing most of their resources on the
Operating Partnership's core portfolio and redevelopment opportunities rather
than third party services. The Operating Partnership base rent was increased by
the impact of the straight-line rent adjustment by $4.5 million in 1997, $3.8
million in 1996 and $2.8 million in 1995.
Property Expenses increased by $16.8 million from 1996 to 1997 and by
$12.9 million from 1995 to 1996. These increases are primarily due to the
acquisition of properties. Gross operating margins for 1997, 1996 and 1995 were
64.7%, 63.4% and 63.2%, respectively. The increases in gross operating margins
reflects increases realized in rental rates, the Operating Partnership's ability
to realize certain operating efficiencies as a result of operating a larger
portfolio of properties with concentrations of properties in office and
industrial parks or in its established sub-markets, and to a lesser extent
increased ownership of net leased properties.
Marketing, general and administrative expenses were $8.0 million in
1997, $5.9 million in 1996 and $3.7 million in 1995. The increase in marketing,
general and administrative expenses is due to the increased costs of managing
the acquisition properties, the cost of opening and maintaining the Company's
Westchester, Southern Connecticut and Northern New Jersey divisions and the
increase in corporate management and administrative costs associated with the
growth of the Company. Marketing, general and administrative expenses as a
percentage of total revenues were 5.2% in 1997, 6.1% in 1996 and 6.3% in 1995.
Interest expense was $21.6 million in 1997, $13.3 million in 1996 and
$12.9 million in 1995. The increase of $8.3 million from 1996 to 1997 is
attributable to an increase in mortgage debt including a $50 million mortgage
note incurred in connection with the acquisition of Landmark Square in October
1996, the refinancing of Omni in the amount of $58 million in August 1997,
increased interest cost attributable to an increased average balance on the
Operating Partnership's credit facilities and interest on the Operating
Partnership's $150 million of senior unsecured notes. The weighted average
balance outstanding on the Operating Partnership's credit facilities was $103.2
million for 1997, $71.2 million for 1996 and $24.8 million for the period from
June 3, 1995 to December 31, 1995.
Included in amortization expense is amortized finance costs of $.80
million in 1997, $.53 million in 1996 and $.52 million for the period June 3,
1995 to December 31, 1995. The increase of $.27 million from 1996 to 1997 was
the result of the amortization of financing costs associated with the Unsecured
Credit Facility, the Landmark Square mortgage, the Omni refinanced mortgage and
the Senior Unsecured Notes.
Extraordinary items resulted in a $2.8 million loss in 1997, a $1.3
million loss in 1996 and a $6.0 million loss for the period June 3, 1995 to
December 31, 1995. In 1997, the extraordinary items were attributable to the
write off of certain deferred loan costs incurred in connection with the
Operating Partnership's secured credit facility which was terminated in April
1997. In 1996, the extraordinary item was attributable to the write-off of
certain deferred loan costs incurred in connection with the secured credit
facility which was substantially modified and restated in February 1996.
Liquidity and Capital Resources
Summary of Cash Flows
Net cash provided by operating activities totaled $73.4 million in
1997, $40.9 million in 1996 and $19.0 million in 1995. Increases for each year
were primarily attributable to the growth in cash flow provided by the
acquisition of properties and to a lesser extent from interest income from
mortgage notes and notes receivable.
Net cash used by investing activities totaled $547 million in 1997,
$273.7 million in 1996 and $79.0 million in 1995. Cash used in investing
activities related primarily to investments in real estate properties including
development costs and investments in mortgage notes and notes receivable.
Net cash provided by financing activities totaled $482.9 million in
1997, $238.3 million in 1996 and $62.7 million in 1995. Cash provided by
financing activities during 1997 and 1996 was primarily attributable to proceeds
from general partner contributions and draws on the Company's credit facilities
and additionally, in 1997, proceeds from the issuance of the Senior Unsecured
Notes.
Investing Activities
During 1997, the Operating Partnership acquired (i) on Long Island,
five office properties encompassing an aggregate of approximately 881,000 square
feet for approximately $87.5 million and 15 industrial properties encompassing
approximately 968,000 square feet for approximately $43.5 million; (ii) in
Westchester, eight office properties encompassing approximately 830,000 square
feet for approximately $109.4 million and three industrial properties
encompassing approximately 163,000 square feet for approximately $8.0 million;
(iii) in Connecticut, one industrial property encompassing 452,000 square feet
for approximately $27.0 million and (iv) in Northern New Jersey, five Class A
office properties including Executive Hill Office Park encompassing
approximately 496,000 square feet for approximately $56.9 million. Additionally,
in New Jersey the Operating Partnership acquired eight office properties
encompassing approximately 1.5 million square feet for $153 million and one
industrial property encompassing approximately 128,000 square feet for $2.8
million. During 1997, the Operating Partnership invested $29 million in mortgage
notes receivable encumbering one Class A office property, one industrial
property and a 400 acre parcel of land. In addition, on March 13, 1997, the
Operating Partnership loaned $17 million to its minority partner in Omni, its
flagship Long Island office property, and effectively increased its economic
interest in the property owning partnership.
Financing Activities
During June 1995, the Company contributed approximately $162 million in
cash to the Operating Partnership in exchange for 7,438,000 units representing
an approximate 73% general partnership interest. During 1996 and 1997 the
Company contributed approximately $437 million in cash to the Operating
Partnership in exchange for 22,421,200 additional units. Proceeds from the
contributions were primarily used to repay borrowings under the credit
facilities and to fund the purchase of commercial real estate properties.
During the nine months ended September 30, 1998, the Company
contributed approximately $44.4 million in cash to the Operating Partnership in
exchange for 1,884,896 units. Proceeds from the contributions were used to repay
borrowings under the credit facilities.
Additionally, during April 1998, the Company contributed approximately
$221 million to the Operating Partnership in exchange for 9,200,000 Series A
preferred units. The Series A preferred units have a liquidation preference of
$25 per unit, a distribution rate of 7.625 % and are convertible to the
Operating Partnership's common units at a conversion rate of .8769 common units
for each preferred unit. Net proceeds from the contribution were used to repay
borrowings under credit facilities.
On January 7, 1997, the Operating Partnership issued 101,902 (pre
split) (approximately $4.3 million) units in connection with the acquisition of
a 147,281 square foot office property located in Farmingdale, New York.
During August 1997, the Operating Partnership refinanced approximately
$43 million of mortgage debt on its Omni office property with a $58 million
fixed rate mortgage loan. The loan which matures on September 1, 2007 has a
fixed rate of 7.72%.
On August 28, 1997, the Operating Partnership sold $150 million of 7.2%
Senior Unsecured Notes due August 2007. The net proceeds of the Senior Unsecured
Notes were used to repay borrowings under the unsecured credit facilities and
for the acquisitions of properties.
During 1997, the Operating Partnership paid distributions of $1.54 per
unit (representing distributions for five quarters).
On January 6, 1998, the Operating Partnership issued 532,011($12.5
million) units in connection with the acquisition of one office property and one
industrial property.
On April 21, 1998, the Operating Partnership issued 25,000 Series B
preferred units at a stated value of $1,000 per unit and 11,518 Series C
preferred units at a stated value of $1,000 per unit in connection with the
acquisition of the Cappelli Portfolio. The Series B preferred units have a
current distribution rate of 6.25% and are convertible to common units at a
conversion price of approximately $32.51 for each preferred unit. The Series C
preferred units have a current distribution rate of 6.25% and are convertible to
common units at a conversion price of approximately $29.39 for each preferred
unit.
Additionally, on April 21, 1998, in connection with the acquisition of
155 Passaic Avenue in Fairfield, New Jersey, the Operating Partnership issued
1,979 (approximately $50,000) units.
On July 2, 1998, the Operating Partnership issued 6,000 Series D
preferred units at a stated value of $1,000 per unit in connection with the
acquisition of the remaining 50% interest in 360 Hamilton Avenue located in
White Plains, New York. The Series D preferred units have a current distribution
rate of 6.25% and are convertible to common units at a conversion price of
approximately $29.12 for each preferred unit
On August 13, 1998, the Operating Partnership issued 50,072
(approximately $1.2 million) units in connection with the acquisition of two
office properties located in Parsippany, New Jersey.
As of September 30, 1998, the Operating Partnership had a three year
$500 million unsecured revolving credit facility (the "Credit Facility") with
Chase Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of
the credit facility bank group. Interest rates on borrowings under the Credit
Facility are priced off of LIBOR plus a sliding scale ranging from 112.5 basis
points to 137.5 basis points based on the leverage ratio of the Operating
Partnership. Upon the Operating Partnership receiving an investment grade rating
on its senior unsecured debt by two rating agencies, the pricing is adjusted
based off of LIBOR plus a scale ranging from 65 basis points to 90 basis points
depending upon the rating. The Credit Facility replaced the Operating
Partnership's existing $250 million unsecured credit facility and $200 million
unsecured bridge facility. As a result, certain deferred loan costs incurred in
connection with those facilities were written off. Such amount has been
reflected as an extraordinary loss on the Operating Partnership's statement of
operations. The Operating Partnership utilizes the Credit Facility primarily to
finance the acquisitions of properties and other real estate investments, fund
its development activities and for working capital purposes. At September 30,
1998, the Operating Partnership had availability under the Credit Facility to
borrow an additional $49.1 million (net
of $7.7 million of outstanding undrawn letters of credit).
The Operating Partnership's indebtedness at September 30, 1998 totaled
$814.4 million (including its share of joint venture debt and net of the
minority partners' interests) and was comprised of $442.2 million outstanding
under the Credit Facility, $150 million of Senior Unsecured Notes and
approximately $222.2 million of mortgage indebtedness. Based on the Operating
Partnership's total market capitalization of approximately $2.2 billion at
September 30, 1998, (calculated based on the value of the Operating
Partnership's common units(which, for this purpose, is assumed to be the same
per unit as the value of a share of the Company's common stock), the stated
value of the Operating Partnership's preferred units), the Operating
partnership's debt represented approximately 36.9% of its total market
capitalization.
Historically, rental revenue has been the principal source of funds to
pay operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Operating Partnership. In addition,
construction, management, maintenance, leasing and property management fees have
provided sources of cash flow. 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
Operating Partnership expects to meet certain of its financing requirements
through long-term secured and unsecured borrowings and the issuance of debt
securities and additional equity securities of the Operating Partnership. 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.
At September 30, 1998 the Operating Partnership had four office
buildings totaling approximately 700,000 square feet and one industrial building
totaling approximately 130,000 square feet under construction whereby the
Operating Partnership anticipates to incur development costs of approximately
$84.3 million.
Inflation
Certain office leases provide for fixed base rent increases or indexed
escalations. In addition, certain office leases provide for separate escalations
of real estate taxes and electric costs over a base amount. The industrial
leases also generally provide for fixed base rent increases, direct pass through
of certain operating expenses and separate real estate tax escalation over a
base amount. The Operating Partnership believes that inflationary increases in
expenses will generally be offset by contractual rent increases and expense
escalations described above.
The Credit Facility bears interest at a variable rate, which will be
influenced by changes in short-term interest rates, and is sensitive to
inflation.
Impact of Year 2000
Some of the Operating Partnership's older computer programs were
written using two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that recognizes a
date using "00" as the year 1900 rather than the year 2000. This could cause a
system failure or miscalculation causing disruptions of operations, including,
among other things, a temporary inability to process transactions, or engage in
similar normal business activities.
The Operating Partnership has completed an assessment to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. Currently, the
entire property management system is year 2000 compliant and has been thoroughly
tested. Since the Operating Partnership's accounting software is maintained and
supported by an unaffiliated third party, the total year 2000 project cost as it
relates to the accounting software is estimated to be minimal.
The year 2000 project is estimated to be completed not later than July
31, 1999, which is prior to any anticipated impact on its operating systems.
Additionally, the Operating Partnership has received assurances from its
contractors that all of the Operating Partnership's building management and
mechanical systems are currently year 2000 compliant or will be made compliant
prior to any impact on those systems. However, the Operating Partnership cannot
guarantee that all contractors will comply with their assurances and therefore,
the Operating Partnership may not be able to determine year 2000 compliance of
those contractors. At that time, the Operating Partnership will determine the
extent to which the Operating Partnership will be able to replace non compliant
contractors. The Operating Partnership believes that with modifications to
existing software and conversions to new software, the year 2000 issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
year 2000 issue could have a material impact on the operations of the Operating
Partnership.
To date, the Operating Partnership has expended approximately $250,000
and expects to expend an additional one million dollars in connection with
upgrading building management, mechanical and computer systems. The costs of the
project and the date on which the Operating Partnership believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and costs of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
In a "worst case scenario", the Operating Partnership believes that
failure of the building management and mechanical systems to operate properly
would result in inconveniences to the building tenants which might include no
elevator service, lighting or entry and egress. In this case, the management of
the Operating Partnership would manually override such systems in order for
normal operations to resume. Additionally, in a "worst case scenario" of the
failure of the third party to deliver, on a timely basis, the necessary upgrades
to the accounting software, the Operating Partnership would be required to
process transactions, such as the issuance of disbursements, manually until an
alternative system was implemented.
If the Operating Partnership is not successful in implementing their
year 2000 compliance plan, the Operating Partnership may suffer a material
adverse impact on their consolidated results of operations and financial
condition. Because of the importance of addressing the year 2000 issue, the
Operating Partnership expects to develop contingency plans if they determine
that the compliance plans will not be implemented by July 31, 1999.
Funds From Operations
Management believes that funds from operations ("FFO") is an
appropriate measure of performance of an equity REIT. FFO is defined by the
National Association of Real Estate Investment Trusts (NAREIT) as net income or
loss, excluding gains or losses from debt restructurings and sales of
properties, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not indicative of cash available to fund cash
needs. FFO should not be considered as an alternative to net income as an
indicator of the Operating Partnership's operating performance or as an
alternative to cash flow as a measure of liquidity. (See Selected Financial
Data). In March 1995, NAREIT issued a "White Paper" analysis to address certain
interpretive issues under its definition of FFO. The White Paper provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income to arrive at FFO.
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 Partnership's FFO calculation (in
thousands):
Nine Months Ended
-----------------------
Year Ended
--------------- June 3,
1995 to
September 30, 1998 September 30, 1997 December 31, December 31, December 31,
1997 1996 1995
------------- ------------- ------------- ------------ ------------
(unaudited) (unaudited)
Income before extraordinary
items.................... $ 36,259 $31,632 $44,789 $24,180 $10,317
Less:
Extraordinary loss....... 1,993 2,808 2,808 1,259 6,022
-------- ------- ------- -------- --------
Net Income.................. 34,266 28,824 41,981 22,921 4,295
Adjustment for Funds From
Operations:
Add:
Depreciation and
Amortization........... 36,822 18,755 26,834 17,429 7,233
Minority interests in
consolidated
partnerships........... 1,938 724 920 915 246
Extraordinary loss....... 1,993 2,808 2,808 1,259 6,022
Less:
Gain on sale of property. --- --- 672 --- ---
Amount distributed to minority
partners in consolidated
partnerships............ 2,989 1,723 2,252 1,586 606
-------- ------ ------- ------- -------
Funds From Operations (FFO).. $ 72,030 $ 49,388 $69,619 $40,938 $17,190
======== ========= ======= ======= ----- =======
Weighted average units
outstanding ............ 46,999 38,780 39,743 26,431 20,326
======== ========= ======= ======= =======
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,
1997 and 1996, and the related consolidated statements of income, partners'
capital, and cash flows for the years then ended and for the period from June 3,
1995 (commencement of operations) to December 31, 1995 and the related combined
statement of income, owners' (deficit) and cash flows for the period January 1,
1995 to June 2, 1995 of the Reckson Group. We have also audited the financial
statement schedule listed in the Index. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Reckson
Operating Partnership, L. P. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for the years then ended and for
the period June 3, 1995 (commencement of operations) to December 31, 1995 and
the combined results of its operations and its cash flows for the period January
1, 1995 to June 2, 1995 of the Reckson Group in conformity with generally
accepted accounting principles. Also, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 13, 1998,
except for Note 13 as
to which the date is December 8, 1998
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
------------ -------------------------------
1998 1997 1996
------------ -------------- ----------------
(unaudited)
ASSETS
Commercial real estate properties, at cost- (Notes 2, 3, 5, 7 and 8 )
Land......................................................................... $ 211,520 $ 138,526 $ 45,259
Buildings and improvements................................................... 1,350,773 818,229 457,403
Developments in progress:
Land......................................................................... 68,165 29,309 5,637
Development costs............................................................ 64,191 25,164 8,469
Furniture, fixtures and equipment............................................... 5,615 4,054 2,736
---------- --------- --------
1,700,264 1,015,282 519,504
Less accumulated depreciation............................................. (145,632) (111,068) (88,602)
---------- --------- --------
1,554,632 904,214 430,902
Investments in real estate joint ventures....................................... 15,169 7,223 5,437
Investment in mortgage notes and notes receivable (Note 8)...................... 93,045 104,509 51,837
Cash and cash equivalents (Note 12)............................................. 2,948 21,676 12,321
Tenant receivables.............................................................. 4,725 4,975 1,732
Investments in and advances to affiliates (Note 7).............................. 48,537 18,090 3,826
Deferred rent receivable........................................................ 21,923 14,973 12,573
Prepaid expenses and other assets (Note 7)...................................... 8,717 13,705 6,225
Contract and land deposits and pre-acquisition costs............................ 1,208 7,559 7,100
Deferred lease and loan costs, less accumulated amortization of $16,939,
$14,844 and $12,915 respectively................................................ 21,333 16,181 11,438
----------- ---------- ---------
Total Assets................................................................. $1,772,237 $1,113,105 $ 543,391
=========== ========== ==========
LIABILITIES
Mortgage notes payable (Note 2)................................................. $ 239,989 $ 180,023 $161,513
Credit facilities (Notes 3 and 12).............................................. 443,250 210,250 108,500
Senior unsecured notes ( Note 4)................................................ 150,000 150,000 ---
Accrued expenses and other liabilities (Note 5)................................. 35,849 30,799 15,867
Dividends and distributions payable............................................. 19,636 120 9,442
Affiliate payables (Note 7)..................................................... 1,434 1,764 1,128
---------- ---------- --------
Total Liabilities............................................................ 890,158 572,956 296,450
---------- ---------- --------
Commitments and other comments (Notes 9, 10 and 12)............................. --- --- ---
Minority interest in consolidated partnerships 35,851 7,697 10,264
---------- ---------- --------
PARTNERS' CAPITAL (NOTE 6)
Preferred Capital, 9,234,518, -, and - units outstanding, respectively.......... 263,126 --- ---
General Partner's Capital, 40,033,193, 37,770,158 and 24,356,354 units
outstanding, respectively....................................................... 444,725 446,702 184,798
Limited Partners' Capital, 7,764,630, 7,218,688 and 6,763,010 units
outstanding, respectively........................................................ 138,377 85,750 51,879
---------- --------- --------
Total Partners' Capital...................................................... 846,228 532,452 236,677
---------- --------- --------
Total Liabilities and Partners' Capital................................... $ 1,772,237 $ 1,113,105 $ 543,391
============ =========== =========
(see accompanying notes to financial statements)
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF INCOME
AND RECKSON GROUP
COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT UNIT DATA)
Reckson Operating Partnership, L. P. Reckson Group
----------------------------------------------------------------------------------- -------------
for the nine months ended for the year ended
------------------------------- -------------------
For the Period For the Period
June 3, 1995 to January 1,
September 30, September 30, December 31, 1995 to
1998 1997 December 31, 1997 December 31, 1996 1995 June 2, 1995
------------- -------------- ----------------- ----------------- ------------- --------------
(unaudited) (unaudited)
REVENUES (Note 10):
Base rents...................... $162,846 $ 91,179 $128,778 $82,150 $32,661 $16,413
Tenant escalations and
reimbursements................ 20,776 10,736 14,981 10,628 5,246 2,907
Construction revenues - net..... --- --- --- --- --- 432
Management revenues............. --- --- --- --- --- 589
Equity in earnings of service
companies..................... 623 208 55 1,031 100 ---
Equity in earnings of real
estate joint ventures......... 578 326 459 266 --- ---
Interest income on mortgage notes
and notes receivable.......... 5,536 3,675 5,437 --- --- ---
Investment and other income
(Note 8)...................... 2,565 2,062 3,638 1,955 448 548
-------- --------- -------- ------ ------- ------
Total Revenues............... 192,924 108,186 153,348 96,030 38,455 20,889
-------- --------- -------- ------ ------- ------
EXPENSES:
Property operating expenses..... 35,506 20,857 28,943 18,959 7,144 3,985
Real estate taxes............... 25,626 14,569 20,579 13,935 5,755 3,390
Ground rents.................... 1,279 918 1,269 1,107 579 234
Marketing, general and
administrative................ 10,479 6,024 8,026 5,933 1,850 1,858
Interest........................ 34,537 14,471 21,585 13,331 5,331 7,622
Depreciation and amortization... 38,098 18,991 27,237 17,670 7,233 3,606
------- --------- ------- ------ ------ ------
Total Expenses.................. 145,525 75,830 107,639 70,935 27,892 20,695
------- --------- ------- ------ ------ ------
Income before distributions to
preferred unit holders,
minority interests and
extraordinary items........... 47,399 32,356 45,709 25,095 10,563 194
Preferred unit distributions.... (9,202) --- --- --- --- ---
Minority partners' interest in
consolidated partnerships
income........................ (1,938) (724) (920) (915) (246) ---
------- -------- ------- ------- ------- -----
Income before extraordinary
items.......................... 36,259 31,632 44,789 24,180 10,317 194
Extraordinary items - (loss)
on extinguishment
of debts. (Notes 1 and 3)..... (1,993) (2,808) (2,808) (1,259) (6,022) ---
------- ---------- ------- ------- ------- ------
Net income available to common
unit holders.................. $ 34,266 $ 28,824 $ 41,981 $ 22,921 $4,295 $194
======= ======= ======= ======= ======= ======
Net Income:
General Partner............. $ 28,627 $ 23,622 $ 34,742 $ 17,325 $ 3,200
Limited Partners'........... 5,639 5,202 7,239 5,596 1,095
---------- --------- --------- ------- ----------
Total........................... $ 34,266 $ 28,824 $ 41,981 $ 22,921 $ 4,295
========== ========== ========== ============ ==========
Net income per common unit:
General Partner.............. $ .73 $ .74 $ 1.06 $ .87 $ .22
Limited Partners'............ $ .73 $ .75 $ 1.03 $ .86 $ .19
Weighted average common units
outstanding:
General Partner.............. 39,284,000 31,810,000 32,727,000 19,928,000 14,678,000
Limited Partners'............ 7,715,000 6,970,000 7,016,000 6,503,000 5,648,000
(see accompanying notes to financial statements)
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
AND RECKSON GROUP
COMBINED STATEMENT OF OWNER'S (DEFICIT)
(IN THOUSANDS)
General Partner's Limited Partners' Total
Capital Capital Partners' Capital
----------------- ----------------- -----------------
OWNERS' DEFICIT, DECEMBER 31, 1994............. $ (73,492) $ --- $ (73,492)
Net income..................................... 194 --- 194
Distributions.................................. (4,399) --- (4,399)
Contributions.................................. 119 --- 119
Adjustment to unrealized gain on
available-for-sale securities............... 95 --- 95
----------------- ---------------- -------------
OWNERS' DEFICIT, JUNE 2, 1995.................. (77,483) --- (77,483)
Deficit not contributed by the Owners of
Reckson Group................................ 7,776 --- 7,776
Initial capital contribution June 2, 1995 162,011 --- 162,011
Established of Minority Interests in the
Operating Partnership ....................... (25,651) 25,651 ---
Net Income..................................... 3,200 1,095 4,295
Contributions.................................. --- 3,237 3,237
Distributions.................................. (9,960) (3,835) (13,795)
------------------ ---------------- ------------
BALANCE DECEMBER 31, 1995...................... 59,893 26,148 86,041
Net Income..................................... 17,325 5,596 22,921
Contributions.................................. 131,716 27,881 159,597
Distributions.................................. (24,136) (7,746) (31,882)
------------------ ----------------- -------------
BALANCE DECEMBER 31, 1996...................... 184,798 51,879 236,677
Net Income..................................... 34,742 7,239 41,981
Contributions.................................. 267,827 35,339 303,166
Distributions.................................. (40,665) (8,707) (49,372)
------------------ ----------------- -------------
BALANCE DECEMBER 31, 1997...................... 446,702 85,750 532,452
Net Income..................................... 28,627 5,639 34,266
Contributions.................................. 273,125 55,064 328,189
Distributions.................................. (41,679) (8,076) (49,755)
Contribution of a 1% interest in Reckson FS
Limited Partnership.......................... 1,076 --- 1,076
----------------- ----------------- -------------
BALANCE SEPTEMBER 30, 1998 (UNAUDITED) $ 707,851 $ 138,377 $ 846,228
================= ================= =============
(see accompanying notes to financial statements)
Reckson Operating Partnership, L. P. Consolidated Statements of Cash Flows
and Reckson Group
Combined Statement of Cash Flows (in thousands)
Reckson Group
-------------
Reckson Operating Partnership, L. P.
---------------------------------------------------------------------------
For the nine months ended For the year ended
----------------------------- ------------------
For the Period
June 3, 1995 For the Period
to January 1, 1995
December 31, December 31, December 31, to
September 30, 1998 September 30, 1997 1997 1996 1995 June 2, 1995
------------ ------------- ------------ ------------ ----------- ------------
(unaudited) (unaudited)
Net Income................................. $ 34,266 $ 28,824 $ 41,981 $ 22,921 $ 4,295 $ 194
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 38,098 18,991 27,237 17,670 7,233 3,606
Extraordinary loss on extinguishment
of debts.............................. 1,993 2,808 2,808 1,259 6,022 ---
Minority partners' interest in consolidated
partnerships 1,938 724 920 915 246 ---
Gain on sale of interest in Reckson Executive
Centers,
LLC (9) --- --- --- --- ---
Gain on sales of property and securities.... (43) --- (672) --- --- (134)
Distribution from and share of net loss
(income) from investments in
partnerships............................. 379 290 408 191 --- (303)
Deferred rents receivable................... (6,950) (3,478) (4,500) (3,837) --- ---
Equity in earnings of service
companies.................................. (623) (208) (55) (931) (100) ---
Equity in earnings of real estate
joint ventures............................ (578) (326) (459) (266) --- ---
Changes in operating assets and liabilities:
Escrow reserves............................. 236 34 --- --- --- ---
Prepaid expenses and other assets........... 3,463 (8,602) (1,931) (619) (286) 417
Tenant and affiliate receivables............ 249 (639) (1,183) (256) (2,438) 302
Accrued expenses and other liabilities...... 12,970 3,693 11,240 4,716 2,396 (2,463)
------ ------ ------- ------ ------- -------
Net cash provided by operating activities... 85,389 42,111 75,794 41,763 17,368 1,619
------ ------ ------- ------ ------- -------
Cash Flows from Investing Activities:
Increase in escrow reserves................. (640) --- --- --- --- ---
Cash from contributed net assets............ --- --- --- --- 629 ---
Purchases of commercial real estate
properties................................ (485,320) (229,708) (429,379) (181,130) (49,241) ---
Interest receivables........................ 2,146 (1,304) (2,392) (870) --- ---
Repayment of notes payable - affiliates..... --- --- --- --- (6,000) ---
Cash paid in exchange for partnership net
assets.................................... --- --- --- --- (16,075) ---
Investment in mortgage notes and notes
receivable................................ 12,257 (32,381) (50,282) (50,892) --- ---
Contract deposits and
preacquisition costs...................... 6,351 (72) (1,303) (6,668) (810) ---
Additions to developments in progress....... (77,883) (10,074) (40,367) (8,427) (2,567) ---
Additions to commercial real estate
properties................................ (15,507) (10,275) (12,038) (12,441) (2,326) (814)
Payment of leasing costs.................... (6,254) (2,977) (5,417) (5,028) (1,672) (125)
Investment in securities.................... --- --- (1,756) --- --- ---
Additions to furniture, fixtures and
equipment................................. (1,649) (856) (1,159) (115) (21) (13)
Investments in and advances to real estate
joint ventures............................ (7,760) (1,575) (1,734) (5,832) (232) ---
Investment in service companies 15 15 (4,241) (3,170) --- ---
Distributions from partnership investments.. --- --- --- --- --- 115
Contributions to partnership investments.... --- --- --- --- --- (244)
Proceeds from sales of properties and
securities................................ 809 --- 725 --- --- 371
------- ------ ------ ------- ------ ----
Net cash (used in) investing activities..... (573,435) (289,207) (549,343) (274,573) (78,315) (710)
-------- ---------- -------- --------- ------- -----
Cash Flows from Financing Activities:
Proceeds from borrowings.................... --- --- --- 54,402 40,779 14,004
Principal payments on borrowings............ (4,006) (1,054) (1,624) (380) (151,230) (13,088)
Proceeds from issuance of senior unsecured
notes, net of issuance costs.............. --- 147,420 147,420 --- --- ---
Proceeds from mortgage refinancing, net of
refinancing costs......................... --- --- 20,134 --- --- ---
Payment of loan costs and prepayment
penalties................................. (3,557) (3,536) (2,403) (2,525) (9,138) (268)
Investments in and advances to affiliates... (32,218) (4,584) (20,182) (2,952) 383 (1,060)
Proceeds from unsecured credit facilities... 345,000 208,500 421,000 144,500 40,000 ---
Principal payments on unsecured credit
facilities................................ (112,000) (284,000) (319,250) (76,000) --- ---
Contributions............................... 314,430 215,185 299,991 145,317 151,427 ---
Distributions .............................. (36,484) (31,558) (53,327) (22,546) (3,835) ---
Distributions to minority partners in
consolidated partnerships................. (1,847) (2,957) (8,855) (1,492) (633) ---
Deferred offering costs..................... --- --- --- --- --- (400)
Distributions to Predecessor Owners......... --- --- --- --- --- (4,280)
--------- -------- -------- -------- ------- -------
Net cash provided by (used in) financing
activities................................ 469,318 243,416 482,904 238,324 67,753 (5,092)
--------- --------- -------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................... (18,728) (3,680) 9,355 5,514 6,806 (4,183)
Cash and cash equivalents at beginning of
period.................................... 21,676 12,321 12,321 6,807 1 7,041
---------- -------- -------- -------- -------- -------
Cash and cash equivalents at end of period..... $2,948 $ 8,641 $21,676 $12,321 $6,807 $2,858
========== ======== ======== ======== ======== =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest.... $29,411 $15,620 $20,246 $13,261 $4,700 $8,600
========== ======== ======== ======== ======== =======
(see accompanying notes to financial statements)
RECKSON OPERATING PARTNERSHIP, L. P.
AND
RECKSON GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Significant Accounting Policies
Description of Business
Reckson Operating Partnership, L. P. (the "Operating Partnership") and
the Reckson Group (the "Predecessor") are engaged in the ownership, management,
operation, leasing and development of commercial real estate properties,
principally office and industrial buildings and also own certain undeveloped
land (collectively, the "Properties") located in the New York City tri-state
area.
Organization and Formation of the Operating Partnership
The Operating Partnership commenced operations on June 2, 1995 and is
the successor to the operations of the Reckson Group. 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.
The Operating Partnership executed various option and purchase
agreements whereby it issued 2,758,960 units in the Operating Partnership
("Units") to the continuing investors and assumed approximately $163 million
(net of the Omni mortgages) of indebtedness in exchange for interests in certain
property partnerships, fee simple and leasehold interests in properties and
development land, certain business assets of the executive center entities and
100% of the non-voting preferred stock of the management and construction
companies.
As of September 30, 1998, the Operating Partnership owned and operated
73 office properties comprising approximately 10.1 million square feet, 127
industrial properties comprising approximately 10.6 million square feet and two
retail properties comprising approximately 20,000 square feet, located in the
New York "Tri-State" area. In addition, the Operating Partnership owned or had
contracted to acquire approximately 852 acres of land (including 400 acres under
option) in 17 separate parcels of which the Operating Partnership can develop
1.6 million square feet of industrial space and 6.6 million square feet of
office space. The Operating Partnership also has invested approximately $47.3
million in certain mortgage notes encumbering four Class A office properties
encompassing approximately 577,000 square feet and a 400 acre parcel of land and
in a note receivable secured by a partnership interest in Omni Partners, L.P.,
owner of the Omni, a 575,000 square foot Class A office property located in
Uniondale, New York (unaudited).
During 1997, the Company formed Reckson Service Industries, Inc.
("RSI") and Reckson Strategic Venture Partners, LLC ("RSVP"). The Operating
Partnership owned a 95% non voting common stock interest in RSI through June 10,
1998. On June 11, 1998, the Operating Partnership distributed its 95% common
stock interest in RSI of approximately $3 million to its partners. Additionally,
during June 1998, the Operating Partnership established a credit facility with
RSI (the"RSI Facility") in the amount of $100 million for RSI's service sector
operations and other general corporate purposes. In addition, the Operating
Partnership has approved the funding of investments of up to $100 million with
or in RSVP (the "RSVP Commitment"), through RSVP-controlled joint venture
REIT-qualified investments or advances made to RSI under terms similar to the
RSI Facility. As of September 30, 1998, approximately $16.7 million had been
invested through the RSVP Commitment, of which $10.1 million represents RSVP
controlled joint venture investments and $6.6 million represents advances to RSI
under the RSVP Commitment. Such amounts have been included in investment in real
estate joint ventures and investments in and advances to affiliates,
respectively, on the accompanying balance sheet. RSI serves as the managing
member of RSVP. RSI invests in operating companies that generally provide
commercial services to properties owned by the Operating Partnership and its
tenants and third parties. RSVP was formed to provide the Operating Partnership
with a research and development vehicle to invest in alternative real estate
sectors. RSVP invests primarily in real estate and real estate related operating
companies generally outside of the Operating Partnership's core office and
industrial focus. RSVP's strategy is to identify and acquire interests in
established entrepreneurial enterprises with experienced management teams in
market sectors which are in the early stages of their growth cycle or offer
unique circumstances for attractive investments as well as a platform for future
growth (unaudited).
In October 1997, the Operating Partnership entered into an agreement to
invest up to $150 million in the Morris Companies, a New Jersey developer and
owner of "Big Box" warehouse facilities. The Morris Companies' properties
include 23 industrial buildings encompassing approximately 4.0 million square
feet. In connection with the transaction the Morris Companies contributed 100%
of their interests in certain industrial properties to Reckson Morris Operating
Partnership, L. P. ("RMI") in exchange for operating partnership units in RMI.
On January 6, 1998, the Operating Partnership acquired an approximately 70%
controlling interest in RMI for approximately $65 million. At September 30,
1998, the Operating Partnership had invested an additional $28.4 million and
increased its controlling interest to approximately 76.4%. In addition, at
September 30, 1998, the Operating Partnership had advanced approximately $25.8
million to the Morris Companies primarily to fund certain construction costs
related to development properties to be contributed to RMI. Such amounts have
been included in investment in mortgage notes and notes receivable on the
accompanying balance sheet. Subsequent to September 30, 1998, the Morris
Companies repaid approximately $4.7 million of the advances (unaudited).
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. The Operating Partnership's investment in RMI is reflected in the
accompanying financial statements on a consolidated basis with a reduction for
minority partner interest. The operating results of the service businesses
currently conducted by Reckson Management Group, Inc., ("RMG"), and Reckson
Construction Group, Inc., are reflected in the accompanying financial statements
on the equity method of accounting. The operating results of Reckson Executive
Centers, L.L.C., ("REC"), a service business of the Operating Partnership were
reflected in the accompanying financial statements on the equity method of
accounting through March 31, 1998. On April 1, 1998, the Operating Partnership
sold its 9.9% interest in REC to RSI for $200,000 (unaudited). Additionally, the
operating results of RSI were reflected in the accompanying financial statements
on the equity method of accounting through June 10, 1998. On June 11, 1998 the
Operating Partnership distributed its 95% common stock interest in RSI to its
partners (unaudited). The Operating Partnership also invests in real estate
joint ventures where it may own less than a controlling interest, such
investments are also reflected in the accompanying financial statements on the
equity method of accounting. All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements.
The accompanying interim unaudited financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure normally included in the
financial statements prepared in accordance with generally accepted accounting
principles may have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. The unaudited financial
statements as of September 30 1998 and for the nine month periods ended
September 30, 1998 and 1997 include, in the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial information set forth herein. The results of operations for
the interim period are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
During 1997 the Financial Accounting Standards Board ("FASB") issued
statement No. 130, "Reporting Comprehensive Income" ("SFAS 130") which is
effective for fiscal years beginning after December 15, 1997. SFAS 130
established standards for reporting comprehensive income and its components in a
full set of general-purpose financial statements. SFAS 130 requires that all
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The adoption
of this standard had no impact on the Operating Partnership's financial position
or results of operations. Additionally in June 1997, the FASB also issued SFAS
No. 131 "Disclosures about segments of an Enterprise and Related Information"
("SFAS 131") which is effective for fiscal years beginning after December 15,
1997. SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of this standard had no
impact on the Operating Partnership's financial position or results of
operations.
The following table presents the minority partners' interest in the consolidated
partnerships income:
September 30, December 31,
------------------ --------------------------
1998 1997 1996 1995
------------------ --------------------------
(unaudited)
Omni Partners, L. P............................. 40% 40% 40% 40%
Reckson Morris Operating Partnership, L. P.(1).. 24% --- --- ---
Reckson FS Limited Partnership (2).............. --- 1% 1% 1%
- --------------
(1) Approximate
(2) On May 26, 1998, the general partner of Reckson FS Limited
Partnership transferred and assigned its 1% general partnership interest to the
Operating Partnership in exchange for 101,970 units of general partnership
interest (unaudited).
The Reckson Group was not a legal entity but rather a combination of
partnerships, an "S" corporation and affiliated real estate management and
construction corporations which were under the common control of Reckson
Associates (a general partnership) and affiliated entities. All significant
intercompany transactions and balances were eliminated in combination. The
Reckson Group used the equity method of accounting for investments in less than
50% owned entities and majority owned entities where control was temporary.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Real Estate
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to thirty years for buildings and improvements and
five to ten years for furniture, fixtures and equipment. Tenant improvements,
which are included in buildings and improvements, are amortized on a
straight-line basis over the term of the related leases.
Cash Equivalents
The Operating Partnership considers highly liquid investments with a
maturity of three months or less when purchased, to be cash equivalents.
Deferred Costs
Lease fees and loan costs are capitalized and amortized over the life
of the related lease or loan.
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.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the
term of the lease. The excess of rents recognized over amounts contractually due
are included in deferred rents receivable on the accompanying balance sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. Certain lease agreements provide for reimbursement
of real estate taxes, insurance, common area maintenance costs and indexed
rental increases, which are recorded on an accrual basis.
The 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. Loan discounts are
amortized over the life of the real estate using the constant interest method.
Net Income Per Common Partnership Unit
Net income per common partnership unit is determined by allocating net
income after preferred distributions to the general and limited partners' based
on their weighted average common partnership units outstanding during the
respective periods presented.
Distributions to Preferred Unit Holders
Preferred unit holders are entitled to distributions based on the
stated rates of return (subject to adjustment) for the units.
Capitalized Interest
Interest incurred on borrowings used to fund the property development
and construction are capitalized as developments in progress and allocated to
the individual property costs once construction is completed
Construction Operations
Construction operations are accounted for utilizing the completed
contract method. Under this method, costs and related billings are deferred
until the contract is substantially complete. Estimated losses on uncompleted
contracts are recorded in the period that management determines that a loss may
be incurred.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. Mortgage Notes Payable
At December 31, 1997, there are thirteen mortgage notes payable with an
aggregate outstanding principal amount of approximately $180 million. Properties
with an aggregate carrying value at December 31, 1997 of approximately $225
million are pledged as collateral against the mortgage notes payable. In
addition, $59.2 million of the $180 million are recourse to the Operating
Partnership. The mortgage notes bear interest at rates ranging from 6.82% to
9.25%, and mature between 1999 and 2012. The weighted average interest rate on
the outstanding mortgage notes payable at December 31, 1997 is 7.71%. Certain of
the mortgage notes payable are guaranteed by certain minority partners in the
Operating Partnership.
Scheduled principal repayments during the next five years and thereafter are as
follows (in thousands):
Year Ended December 31,
----------------------------
1998....................... $2,327
1999....................... 2,368
2000....................... 33,788
2001....................... 2,336
2002....................... 26,978
Thereafter................. 112,226
-------------
$180,023
=============
On April 21,1998, in connection with the acquisitions of the Capelli
portfolio, the Operating Partnership assumed approximately $45.1 million of
mortgage indebtedness which bear interest at rates ranging from 8.5% to 9.25%
and which encumber two properties (unaudited).
On May 21, 1998, the Company satisfied the mortgage note encumbering
one property in the amount of approximately $1.9 million. Additionally, on
October 27, 1998 the Operating Partnership refinanced a $10.0 million mortgage
note encumbering one property with a $21.4 million mortgage note. The new
mortgage note bears a fixed rate of interest of 6.45% and matures on October 26,
2005 (unaudited).
As of September 30, 1998, the Company had approximately $240 million of
fixed rate mortgage notes which mature at various times between 1999 and 2012.
The notes are secured by 22 properties and have a weighted average interest rate
of 7.94% (unaudited).
3. Credit Facilities
As of December 31, 1997, the Operating Partnership had a three-year
$250 million unsecured credit facility from Chase Manhattan Bank and Union Bank
of Switzerland (the "Unsecured Credit Facility"). The Operating Partnership's
ability to borrow thereunder was subject to the satisfaction of certain
customary financial covenants. In addition, borrowings under the Unsecured
Credit Facility bear interest at a floating rate equal to one, two, three or six
month LIBOR (at the Operating Partnership's election) plus a spread ranging from
1.125% to 1.5% based on the Operating Partnership's leverage ratio.
In addition, the Operating Partnership obtained a $200 million
unsecured credit facility (the "Bridge Facility") which matured on July 15,
1998. The Bridge Facility was provided by the two lead members of the Unsecured
Credit Facility bank group and served as interim financing while the Operating
Partnership seeked to expand the availability under the Unsecured Credit
Facility (unaudited).
On July 23, 1998, the Operating Partnership obtained a three year $500
million unsecured revolving credit facility (the "Credit Facility") with Chase
Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the
credit facility bank group. Interest rates on borrowings under the Credit
Facility are priced off of LIBOR plus a sliding scale ranging from 112.5 basis
points to 137.5 basis points based on the leverage ratio of the Operating
Partnership. Upon the Operating Partnership receiving an investment grade rating
on its senior unsecured debt by two rating agencies, the pricing is adjusted
based off of LIBOR plus a scale ranging from 65 basis points to 90 basis points
depending upon the rating. The Credit Facility replaced the Operating
Partnership's Unsecured Credit Facility and Bridge Facility. As a result,
certain deferred loan costs incurred in connection with those facilities were
written off. Such amount is reflected as an extraordinary loss in the
accompanying statement of operations (unaudited).
The Operating Partnership capitalized interest incurred on borrowings
to fund certain development costs in the amount of $2,351,201 and $800,434 for
the years ended December 31, 1997 and 1996, respectively.
For the nine months ended September 30, 1998 and 1997, the Operating
Partnership capitalized interest incurred on borrowings to fund certain
development costs in the amount of approximately $5.1 million and $1.5 million,
respectively (unaudited).
4. Senior Unsecured Notes
On August 28, 1997, the Operating Partnership sold $150 million of
10-year senior unsecured notes in a privately placed transaction. The senior
unsecured notes were priced at par with interest at 110 basis points over the
10- year treasury note for an all in coupon of 7.2%. Interest is payable
semiannually with principal and unpaid interest due on August 28, 2007.
5. Land Leases
The Operating Partnership leases, pursuant to noncancellable operating
leases, the land on which seven of its buildings were constructed. The leases,
which contain renewal options, expire between 2018 and 2080. The leases contain
provisions for scheduled increases in the minimum rent and one of the leases
additionally provides for adjustments to rent based upon the fair market value
of the underlying land at specified intervals. Minimum ground rent is recognized
on a straight-line basis over the terms of the leases. The excess of amounts
recognized over amounts contractually due is $1,948,000 and $1,676,000 at
December 31, 1997 and 1996, respectively. These amounts are included in accrued
expenses and other liabilities on the accompanying balance sheets. Future
minimum lease commitments relating to the land leases as of December 31, 1997
are as follows (in thousands):
1998............................... $1,093
1999............................... 1,202
2000............................... 1,203
2001............................... 1,212
2002............................... 1,212
Thereafter......................... 42,114
-----------------
$48,036
=================
The excess of amounts recognized over amounts contractually due at
September 30, 1998 is approximately $2,223,000 (unaudited).
6. Partners' Capital
The Operating Partnership made loans to certain senior officers to
purchase units at market prices ranging from $12.13 per unit to $21.94 per unit.
The loans bear interest at rates ranging between 8% to 8.5% and are secured by
the units purchased. Such loans will be forgiven ratably at each anniversary of
employment over a four to five year period. The loan balances of $215,400
(unaudited), $325,500 and $250,000 at September 30, 1998, December 31, 1997 and
1996, respectively have been included as a reduction of the general partner's
capital on the accompanying consolidated balance sheets.
On April 21, 1998, the Operating Partnership issued 25,000 Series B
preferred units of limited partnership interest at a stated value of $1,000 per
unit and 11,518 Series C preferred units of limited partnership interest at a
stated valued of $1,000 per unit in connection with the acquisition of the
Cappelli portfolio. The Series B preferred units have a current distribution
rate of 6.25% and are convertible to common units at a conversion price of
approximately $32.51 for each preferred unit. The Series C preferred units have
a current distribution rate of 6.25% and are convertible to common units at a
conversion price of approximately $29.39 for each preferred unit (unaudited).
During the nine months ended September 30, 1998, the Operating
Partnership issued 1,884,896 units of general partnership interest to the
Company in exchange for approximately $44.4 million. The proceeds were used to
repay borrowings under the credit facilities (unaudited).
Additionally, during the nine months ended September 30, 1998, the
Operating Partnership issued 9,200,000 Series A preferred units of general
partnership interest to the Company in exchange for approximately $221 million.
The Series A preferred units have a liquidation preference of $25 per unit, a
distribution rate of 7.625% and are convertible to common units at a conversion
rate of .8769 common units for each preferred unit (unaudited).
On July 2, 1998, the Operating Partnership issued 6,000 Series D
preferred units of limited partnership interest at a stated value of $1,000 per
unit in connection with the acquisition of the remaining 50% interest in
360 Hamilton Avenue located in White Plains, New York. The Series D preferred
units have a current distribution rate of 6.25% and are convertible to common
units at a conversion price of approximately $29.12 for each preferred unit
(unaudited).
7. Related Party Transactions
The Operating Partnership, through its subsidiaries and affiliates,
provides management, leasing and other tenant related services to the
Properties. Certain executive officers of the Company have continuing ownership
interests in the unconsolidated service companies.
The Operating Partnership in connection with its formation, was granted
options, exercisable over a 10 year period to acquire six properties owned by
the Predecessor (the "Reckson Option Properties") and four properties in which
the Predecessor owns a non-controlling minority interest (the "Other Option
Properties" and, together with the Reckson Option Properties, the "Option
Properties") at a purchase price equal to the lesser of (i) a fixed purchase
price and (ii) the Net Operating Income, as defined, attributable to such Option
Property during the 12 month period preceding the exercise of the option divided
by a capitalization rate of 11.5%, but the purchase price shall in no case be
less than the outstanding balance of the mortgage debt encumbering the Option
Property on the acquisition date.
During 1996, the Operating Partnership acquired three of the Reckson
Option Properties for an aggregate purchase price of approximately $26 million.
In connection with the purchase of two of the Option Properties the Operating
Partnership issued 271,228 common units at prices ranging from $16.38 per unit
to $18.50 per unit (split adjusted) as partial consideration in the
transactions. Such units were issued to certain members of management and
entities whose partners included members of management.
During 1997, the Operating Partnership acquired one of the Reckson
Option Properties for a purchase price of approximately $9 million. In
connection with the purchase, the Operating Partnership issued 203,804 common
units at a price of $21 per unit (split adjusted) as partial consideration in
the transaction. Such units were issued to certain members of management and
entities whose partners include members of management.
The Operating Partnership made construction loan advances to fund
certain redevelopment and leasing costs relating to one of the Other Option
Properties. At December 31, 1997 and 1996, advances due the Operating
Partnership were approximately $4,200,000 and $2,940,000, respectively. Such
amounts bear interest at the rate of 11% per annum and are due on demand. In
January 1998, the outstanding advances including accrued and unpaid interest
were repaid in full.
At December 31, 1997, the Operating Partnership had made investments in
or loans to RSI and RSVP aggregating approximately $4.3 million and $7.4
million, respectively in connection with start up costs and certain initial
investments. Such amounts have been included in investments in and advances to
affiliates on the accompanying balance sheet.
On March 23, 1998, the Company sold approximately $5.9 million of
common stock to RSI at the market closing price of $25 per share. The Operating
Partnership loaned RSI the $5.9 million to execute this transaction. Such amount
was repaid to the Operating Partnership by RSI during August 1998 (unaudited).
On June 11, 1998, the Operating Partnership distributed its 95% voting
common stock interest in RSI of approximately $3 million to its partners.
Additionally, during June 1998, the Operating Partnership established the RSI
Facility in the amount of $100 million for RSI's service sector operations and
other general corporate purposes. The Operating Partnership also established the
RSVP Commitment which is a credit facility with RSI for the funding of
investments of up to $100 million with or in RSVP (unaudited).
8. Commercial Real Estate Investments
During the period from June 3, 1995 to December 31, 1996 the Operating
Partnership acquired 22 office properties encompassing approximately 2.8 million
square feet and 16 industrial properties encompassing approximately 1.4 million
square feet for an aggregate purchase price of approximately $273 million.
During 1997, the Operating Partnership acquired five office properties
encompassing approximately 881,000 square feet and 15 industrial properties
encompassing approximately 968,000 square feet on Long Island for an aggregate
purchase price of approximately $131 million.
During 1997, the Operating Partnership acquired eight office properties
encompassing approximately 830,000 square feet and three industrial properties
encompassing approximately 163,000 square feet in Westchester for an aggregate
purchase price of approximately $117 million. In addition, the Operating
Partnership acquired approximately 32 acres of land located in Westchester for a
purchase price of approximately $8 million.
During 1997, the Operating Partnership acquired one industrial property
encompassing approximately 452,000 square feet in Connecticut for a purchase
price of approximately $27 million.
During 1997, the Operating Partnership acquired 13 office properties
encompassing approximately 1.5 million square feet and one industrial property
encompassing approximately 128,000 square feet in New Jersey for an aggregate
purchase price of approximately $156 million. In addition, the Operating
Partnership acquired approximately 303 acres of land located in New Jersey for
an aggregate purchase price of approximately $16.2 million.
In October 1997, the Operating Partnership sold 671 Old Willets Path in
Hauppauge, New York for approximately $725,000 and recorded a gain on the sale
of approximately $672,000.
During January, 1998, the Operating Partnership acquired two office
properties and five industrial properties encompassing 325,000 and 775,000
square feet, respectively for aggregate purchase prices of approximately $27.6
million and $32.1 million, respectively. In addition, the Operating Partnership
acquired approximately 99 acres of land for approximately $3.39 million which
allows for approximately 730,000 square feet of development opportunities. These
acquisitions were financed with proceeds from the credit facilities and the
issuance of 513,259 ($12 million) common units (unaudited).
During February 1998, the Operating Partnership acquired approximately
25 acres of land and a vacant 165,000 square foot building for approximately
$3.43 million. The Operating Partnership is currently repositioning these
properties which will allow for approximately 483,000 square feet of future
development opportunities (unaudited).
Additionally, on February 6, 1998 the Operating Partnership completed
its acquisition of a 351,000 square foot office building located in Lake
Success, New York for approximately $9.3 million. The Operating Partnership had
previously acquired an approximate 68% first mortgage interest in the property
for approximately $25.7 million for a total acquisition of $35 million. The
acquisition was financed with proceeds from a draw under the credit facilities
(unaudited).
On March 20, 1998, the Operating Partnership acquired a 250,000 square
foot office building located in Short Hills, New Jersey for approximately $67
million. The acquisition was financed with proceeds from a draw under the credit
facilities (unaudited).
On April 3, 1998, the Operating Partnership completed its acquisition
of approximately 33.6 acres of vacant land located in Huntington Township, New
York, which allows for approximately 495,000 square feet of future development
opportunities for approximately $8.5 million (of which $6.4 million had been
previously paid) (unaudited).
On April 21, 1998, the Operating Partnership acquired a portfolio of
six office properties encompassing approximately 980,000 square feet in
Westchester County, New York from Cappelli Enterprises and affiliated entities
("Cappelli") for a purchase price of approximately $173 million. The Cappelli
acquisition includes a five building, 850,000 square foot Class A office park in
Valhalla and Court House Square, a 130,000 square foot Class A office building
located in White Plains. The Operating Partnership also obtained an option from
Cappelli to acquire the remaining 50% interest in 360 Hamilton Avenue, a 365,000
square foot vacant office tower in downtown White Plains for $10 million of
which $4 million was paid at closing of the portfolio acquisition. In addition,
the Operating Partnership received an option from Cappelli to acquire the
remaining development parcels within the Valhalla office park on which up to
875,000 square feet of office space can be developed. During April 1998, the
Operating Partnership made mortgage loans to Cappelli totaling $18 million (the
"Cappelli Notes") which are secured by the development parcels. The loans bear
interest at 10% per annum and mature on April 14, 1999. This acquisition was
financed in part through proceeds from a draw under the credit facilities, the
issuance of 36,518 (approximately $36.5 million) preferred operating partnership
units, and the assumption of approximately $45.1 million of mortgage debt. On
July 2, 1998, Cappelli exercised his option to sell the remaining 50% interest
in 360 Hamilton Avenue located in downtown White Plains, New York to the
Operating Partnership for $10 million (of which $4 million had been previously
paid) plus the return of his capital contributions of approximately $1.5
million. As a result, the Operating Partnership now owns 100% of the property.
The acquisition was financed in part through proceeds from a draw under the
credit facilities, the issuance of 6,000 ($6.0 million) preferred operating
partnership units, and the assumption of approximately $2 million of additional
mortgage debt. On September 11, 1998, the Operating Partnership issued and
advanced to Cappelli $14 million under a liquidity loan (the "Cappelli Liquidity
Loan") which allows for up to a maximum borrowing of approximately $16.7
million. The Cappelli Liquidity Loanbears interest at 10.5% per annum and is
secured by Cappelli's right, title and interest in the preferred units. The
advance under the Cappelli Liquidity Loan was used to repay a portion of the
advances under the Cappelli Notes. At September 30, 1998, there was
approximately $18 million outstanding under the Cappelli Notes and Liquidity
Loan. Such amounts have been included in investments in mortgage notes and notes
receivable on the accompanying balance sheet (unaudited).
Additionally, on April 21, 1998, the Operating Partnership acquired a
84,500 square foot office building located in Fairfield, New Jersey for $3.4
million. The acquisition was financed in part with proceeds from a draw under
the credit facilities and the issuance of 1,979 (approximately $50,000) common
units (unaudited).
On May 1, 1998, the Operating Partnership, under a master lease, leased
a 120,000 square foot office building located in Hicksville, New York. The lease
which expires in the year 2018 requires fixed monthly rental payments subject to
annual increases and for the pass through to the Operating Partnership of all
operating expenses and real estate taxes relating to the property. The Operating
Partnership is currently looking to sublet the property to one to two tenants
(unaudited).
On June 19, 1998, the Operating Partnership acquired a 210,000 square
foot industrial property located in West Caldwell, New Jersey for $9.4 million.
The acquisition was financed with proceeds from a draw under the credit
facilities (unaudited).
On June 24, 1998, the Operating Partnership acquired approximately 19.3
acres of land located in Melville, New York for approximately $5.5 million. The
acquisition was financed with proceeds from a draw under the credit facilities
(unaudited).
On July 1, 1998, the Operating Partnership acquired Stamford Towers
located in Stamford, Connecticut for approximately $61.3 million. Stamford
Towers is a Class A office complex consisting of two eleven story towers
totaling approximately 325,000 square feet. The acquisition was financed through
a draw under the credit facilities (unaudited).
On July 29, 1998, the Operating Partnership acquired approximately 15.2
acres of land located in East Hanover Township, New Jersey for approximately
$2.8 million. This acquisition provides the Operating Partnership with
approximately 115,000 square feet of future development opportunities
(unaudited).
During the three months ended September 30, 1998, RMI purchased two
industrial properties encompassing approximately 427,000 square feet for
approximately $24.6 million and one development property encompassing
approximately 60,000 square feet for approximately $1.8 million which allows for
approximately 130,000 additional square feet of future development opportunities
These acquisitions were financed through draws under the Credit Facility.
Additionally, on July 30, 1998, the Morris Companies contributed a 40,000 square
foot industrial property to RMI in exchange for approximately $36,000 of
operating partnership units of RMI net of the Operating Partnership's
satisfaction of an existing mortgage on the property in the amount of
approximately $2 million (unaudited).
On August 13, 1998, the Operating Partnership acquired two office
properties located in Parsippany, New Jersey for approximately $20 million. The
properties aggregate approximately 189,000 square feet and are located on an 18
acre site. This acquisition was financed with proceeds from a draw under the
Credit Facility and issuance of 50,072 (approximately $1.2 million) common units
(unaudited).
On August 27, 1998 the Operating Partnership announced the formation of
a joint venture with RSVP and the Dominion Group, an Oklahoma-based,
privately-owned group of companies that focuses on the development, acquisition
and ownership of government occupied office buildings and correctional
facilities. The new venture, Dominion Properties LLC (the "Venture"), is owned
by Dominion Venture Group LLC, and by a subsidiary of the Operating Partnership.
The Venture will engage primarily in acquiring, developing and/or owning
government-occupied office buildings and privately operated correctional
facilities. Under the Venture's operating agreement, RSVP is to invest up to
$100 million, some of which may be invested by the Operating Partnership ( the
"RSVP Capital"). The initial contribution of RSVP Capital was approximately $39
million of which approximately $10.1 million was invested by a subsidiary of the
Operating Partnership. The Operating Partnership's subsidiary funded its capital
contribution through the RSVP Commitment. In addition, the Operating Partnership
advanced approximately $2.9 million to RSI through the RSVP Commitment for its
investment in the joint venture (unaudited).
On September 24, 1998, the Operating Partnership acquired a 35,000
square foot industrial property located in Bohemia, New York for approximately
$1.3 million (unaudited).
In addition, the Operating Partnership has invested approximately $30.3
million in certain mortgage indebtedness encumbering four Class A office
properties encompassing approximately 577,000 square feet and a 400 acre parcel
of land located in New Jersey. In addition, the Operating Partnership loaned
approximately $17 million to its minority partner in Omni, its flagship Long
Island office property, and effectively increased its economic interest in the
property owning partnership (unaudited).
9. Fair Value of Financial Instruments
The following disclosures of estimated fair value at December 31, 1997
and 1996 were determined by management, using available market information and
appropriate valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair value. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
Disclosure about fair value of financial instruments is based on
pertinent information available to management as of December 31, 1997. Although
management is not aware of any factors that would significantly affect the
reasonable fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and current
estimates of fair value may differ significantly from the amounts presented
herein.
Cash equivalents and variable rate debt are carried at amounts which
reasonably approximate their fair values.
Mortgage notes payable have an estimated aggregate fair value which
approximates its carrying value. Estimated fair value is based on interest rates
currently available to the Operating Partnership for issuance of debt with
similar terms and remaining maturities.
10. Rental Income
The Properties are being leased to tenants under operating leases. The
minimum rental amount due under certain leases are generally either subject to
scheduled fixed increases or indexed escalations. In addition, the leases
generally also require that the tenants reimburse the Operating Partnership for
increases in certain operating costs and real estate taxes above base year
costs.
Included in base rents and tenant escalations and reimbursements in the
accompanying statements of operations are amounts from Reckson Executive
Centers, LLC, a service business of the Operating Partnership through March 31,
1998 and, a related party as follows (in thousands):
Tenant
For the Periods Escalations and
Base Rents Reimbursements
---------- ---------------
Nine months ended September 30, 1998 (unaudited).... $1,946 $283
Year ended December 31, 1997........................ $2,154 $441
Year ended December 31, 1996........................ $1,898 $417
June 3, 1995 to December 31, 1995................... $1,095 $100
January 1, 1995 to June 2, 1995..................... $675 $48
Expected future minimum rents to be received over the next five years
and thereafter from leases in effect at December 31, 1997 are as follows (in
thousands):
Reckson
Executive
Centers, LLC Other Tenants Total
------------ ------------- -----
1998............................................ $2,561 $156,909 $159,470
1999............................................ 2,634 147,473 150,107
2000............................................ 1,549 133,814 135,363
2001............................................ 787 109,767 110,554
2002............................................ 820 94,112 94,932
Thereafter...................................... 3,814 206,336 210,150
---------- ----------- -----------
$12,165 $848,411 $860,576
========== =========== ===========
11. Non-Cash Investing and Financing Activities
Additional supplemental disclosures of non-cash investing and financing
activities are as follows (in thousands):
(1) During 1996, the Operating Partnership purchased eight office properties
located in Westchester County and associated management and construction
operations as follows:
Cash Paid...................................... $58,533
Issuance of 677,534 common units............... 9,527
Purchase price holdback........................ 1,700
Mortgage assumed............................... 9,366
----------
Total purchase price........................... $79,126
==========
(2) During 1996, the Operating Partnership acquired three of the Reckson
Option Properties as follows:
Debt assumed and repaid........................ $21,750
Issuance of 271,228 common units............... 4,516
----------
Total purchase price........................... $26,266
==========
(3) In January 1997, the Operating Partnership acquired one of the Reckson
Option Properties as follows:
Mortgage assumed............................... $4,667
Issuance of 203,804 common units............... 4,280
Cash paid...................................... 61
----------
Total purchase price........................... $9,008
==========
(4) In November 1997, the Operating Partnership purchased a 181,000 square
foot industrial building located in Hauppauge, New York as follows:
Mortgage assumed and repaid.................... $3,037
Issuance of 62,905 common units................ 1,578
Cash paid...................................... 10
----------
Total purchase price........................... $4,625
==========
(5) In December 1997, the Operating Partnership purchased a 92,000 square
foot industrial building located in Elmsford, New York as follows:
Issuance of 183,469 common units................ $4,700
==========
On January 2, 1998, the Operating Partnership issued an additional
18,752 common units in connection with the acquisition of a 92,000 square foot
industrial building located in Elmsford, New York for an additional non cash
investment of approximately $.48 million (unaudited).
On January 6, 1998, the Operating Partnership acquired 51 Charles
Lindbergh Boulevard in Uniondale, New York which included the issuance of
513,259 common units for a total non cash investment of $12 million.
Additionally, in connection with the Operating Partnership's investment in the
Morris Companies, the Operating Partnership assumed approximately $10.8 million
of indebtedness net of minority partners interest (unaudited).
On April 21, 1998, in connection with the acquisition of the Cappelli
portfolio, the Operating Partnership assumed approximately $45.1 million of
indebtedness. Additionally, in connection with the acquisition of 155 Passaic
Avenue in Fairfield, New Jersey, the Operating Partnership issued 1,979 common
units for a total non cash investment of approximately $50,000 (unaudited).
On June 11, 1998, the Operating Partnership distributed its 95% common
stock interest in RSI of approximately $3 million to its partners (unaudited).
On July 2, 1998, in connection with the acquisition of 360 Hamilton
Avenue located in White Plains, New York, the Operating Partnership issued 6,000
Series D preferred units for a total non cash investment of $6.0 million
(unaudited).
On August 13, 1998, in connection with the acquisition of two office
properties located in Parsippany, New Jersey, the Operating Partnership issued
50,072 OP Units for a total non cash investment of approximately $1.2 million
(unaudited).
12. Commitments and Other Comments
At December 31, 1996, the Operating Partnership had restricted cash of
$1.8 million which collateralized an outstanding letter of credit for an equal
amount.
At December 31, 1997, the Operating Partnership had outstanding undrawn
letters of credit against the Unsecured Credit Facility of approximately $4
million.
At September 30, 1998 the Operating Partnership had outstanding undrawn
letters of credit against the Credit Facility of approximately $7.7 million
(unaudited).
During June 1998, the Operating Partnership established the RSI
Facility in the amount of $100 million for RSI's service sector operations and
other general corporate purposes. The Operating Partnership also established the
RSVP Commitment which is a credit facility with RSI for the funding of
investments of up to $100 million with or in RSVP (unaudited).
As of September 30, 1998, the Operating Partnership made investments in
and advances to RMG of approximately $29.5 million. Such investments and
advances were used by RMG in connection with RMG's acquisition of an approximate
64% ownership interest in an executive office suite business. Concurrently with
RMG's investment RSI received an option to purchase at cost, including carrying
expenses, RMG's interest. RMG is owned 97% by the Company and 3% by an entity
owned by certain officers of the Company (unaudited).
On November 9, 1998, RSI exercised its option. In addition, RSI assumed
the outstanding debt plus accrued interest owing to the Operating Partnership
(unaudited).
13. Subsequent Event
On December 8, 1998, the Company, the Operating Partnership,
Metropolitan Partners, LLC, a Delaware limited liability company
("Metropolitan") and Tower Realty Trust Inc., a Maryland corporation ("Tower"),
executed a merger agreement pursuant to which Tower will be merged into
Metropolitan, with Metropolitan surviving the merger. Concurrently with the
merger, the Tower operating partnership will be merged with and into a
subsidiary of Metropolitan. The consideration to be issued in the mergers will
be comprised of (i) 25% cash and (ii) 75% of shares of the Company's Class B
exchangeable common stock, or in certain circumstances described below, shares
of such Class B common stock and unsecured notes of the Operating Partnership.
The Operating Partnership controls Metropolitan and owns 100% of the common
equity interests, while Crescent Real Estate Equities Company, a Texas real
estate investment trust ("Crescent"), owns a preferred equity interest in
Metropolitan. The merger agreement replaces a previously existing merger
agreement among Reckson, Crescent, Metropolitan and Tower relating to the
acquisition by Metropolitan, which at that time was a 50/50 joint venture
between the Operating Partnership and Crescent.
Pursuant to the terms of the merger agreement, holders of shares of
outstanding common stock of Tower, and outstanding units of limited partnership
interest of the Tower operating partnership will have the option to elect to
receive cash or shares of Class B common stock, subject to proration. Under the
terms of the transaction, Metropolitan will effectively pay for each share of
Tower common stock and each unit of limited partnership interest of the Tower
operating partnership: (i) $5.75 (in cash) and (ii) 0.6273 of a share of Class B
common stock. The shares of Class B common stock are entitled to receive an
initial annual dividend of $2.24 per share, which is subject to adjustment
annually. The Company may redeem any or all of the Class B common stock in
exchange for an equal number of shares of the Company's common stock at any time
following the four year, six month anniversary of the issuance of Class B common
stock. It is anticipated that the Company's Board of Directors will recommend to
the Company's stockholders the approval of a proposal to issue a number of
shares of Class B Common Stock equal to 75% of the sum of (i) the number of
outstanding shares of the Tower common stock and (ii) the number of units of
limited partnership interest of the Tower operating partnership, in each case,
at the effective time of the mergers. If the Company's stockholders do not
approve the issuance of the Class B common stock as proposed, the merger
agreement provides that approximately one-third of the consideration that was to
be paid in the form of Class B common stock will be replaced by senior unsecured
notes of the Operating Partnership, which notes will bear interest at the rate
of 7% per annum and have a term of ten years. In addition, if the Company's
stockholders do not approve the issuance of Class B common stock as proposed and
the Company's Board of Directors does not recommend, or withdraws or amends or
modifies in any material respect its recommendation for, approval of such
proposal, then the total principal amount of notes to be issued and distributed
in the merger will be increased by $15 million.
Simultaneously with the execution of the merger agreement, Metropolitan
purchased from Tower approximately 2.2 million shares of Series A convertible
preferred stock of Tower, for an aggregate purchase price of $40 million. If the
merger agreement is not consummated and a court of competent jurisdiction issues
a final, non-appealable judgment determining that the Company and Metropolitan
are obligated to consummate the merger but have failed to do so, or determining
that the Company and Metropolitan failed to use their reasonable best efforts to
take all actions necessary to cause certain closing conditions to be satisfied,
Metropolitan is obligated to return to Tower $30 million of such Series A
preferred stock.
In connection with the new merger agreement, Tower, the Company,
Crescent and Metropolitan have exchanged mutual releases for any claims relating
to the previous merger agreement.
14. Quarterly Financial Data (Unaudited)
The following summary represents the Operating Partnership's results of
operations for the first, second and third quarters of 1998 and each quarter
during 1997 and 1996 (in thousands, except unit data):
1998
-----------------------------------------------------
First Quarter Second Quarter Third Quarter
-----------------------------------------------------
Total revenues............. $ 55,062 $66,267 $ 71,595
=========== ======= =========
Income before distributions to
preferred unit holders, minority
interests and extraordinary
items...................... $ 12,387 $17,664 $ 17,348
Preferred distributions..... --- (4,168) (5,034)
Minority partners' interest in
consolidated partnerships
income...................... (561) (712) (665)
Extraordinary (loss)........ - - (1,993)
----------- -------- -------
Net income available to common
unit holders. $ 11,826 $12,784 $9,656
=========== ========= =======
Net income:
General Partner.......... $ 9,835 $ 10,022 $ 8,770
Limited Partners'........ 1,991 2,762 886
----------- --------- ------
Total....................... $ 11,826 $ 12,784 $ 9,656
=========== ========= ======
Net income per common unit:
General Partner.......... $ .26 $ .25 $ .22
Limited Partners'........ $ .26 $ .36 $ .11
Weighted average common units
outstanding:
General Partner.......... 38,182,577 39,636,815 40,011,627
Limited Partners'........ 7,709,228 7,694,349 7,741,227
1997
-------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- -------------- ------------- -----------------
Total revenues..................... $31,670 $36,188 $40,328 $45,162
=============== ============== ============= =================
Income before, minority interests and
extraordinary items............. $8,806 $12,006 $11,544 $13,353
Minority partners' interest in consolidated
partnerships income............. (268) (228) (228) (196)
Extraordinary (loss)............... --- (2,362) (446) --
--------------- -------------- ------------- -----------------
Net income......................... $8,538 $9,416 $10,870 $13,157
=============== ============== ============= =================
Net Income:
General Partner................. $6,760 $7,823 $ 9,039 $11,120
Limited Partners'............... 1,778 1,593 1,831 2,037
--------------- -------------- ------------- ----------------
Total.............................. $8,538 $9,416 $10,870 $13,157
=============== ============== ============= ================
Net income per unit:
General Partner................. $ .25 $ .23 $ .26 $ .31
Limited Partners'............... $ .26 $ .23 $ .26 $ .29
Weighted average common units outstanding:
General Partner................. 26,569,162 34,298,137 34,477,050 35,445,213
Limited Partners'............... 6,960,428 6,974,814 6,974,031 7,153,848
1996
-------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- -------------- -------------- -----------------
Total revenues........................... $19,065 $22,686 $24,712 $29,567
=============== ============== ============== =================
Income before, minority interests and
extraordinary items................... $4,907 $ 6,414 $ 6,397 $ 7,377
Minority partners' interest in consolidated
partnership income ................... (261) (263) (194) (197)
Extraordinary (loss)..................... (1,259) --- --- ---
--------------- -------------- -------------- ------------------
Net income............................... $3,387 $6,151 $ 6,203 $ 7,180
=============== ============== ============== ==================
Net Income:
General Partner....................... $2,403 $4,658 $ 4,687 $ 5,577
Limited Partners'..................... 984 1,493 1,516 1,603
--------------- -------------- -------------- ------------------
Total.................................... $3,387 $6,151 $ 6,203 $ 7,180
=============== ============== ============== ==================
Net income per unit:
General Partner....................... $ .16 $ .23 $ .22 $ .24
Limited Partners'..................... $ .16 $ .23 $ .23 $ .24
Weighted average units outstanding:
General Partner........................ 14,889,612 20,349,210 20,880,474 23,541,600
Limited Partners'.................... 6,064,498 6,486,304 6,721,226 6,737,124
Reckson Operating Partnership, L. P.
Schedule III-Real Estate and Accumulated Depreciation
December 31, 1997
(In thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Cost Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period
------------ ---------------- --------------------------
Buildings and Buildings and Buildings and
Description Encumbrance Land Improvements Land Improvements Land Improvements
----------- ----------- ---- ------------- ---- ------------- ---- -------------
Vanderbilt Industrial Park,
Hauppauge, New York
(27 buildings in an
industrial park)............... B $1,940 $9,955 $--- $8,789 $1,940 $18,744
Airport International Plaza
New York (17 buildings
industrial park)............... 2,616/C 1,263 13,608 --- 9,670 1,263 23,278
County Line Industrial Cent
Huntington, New York
(3 buildings in an industry
park).......................... B 628 3,686 --- 2,438 628 6,124
32 Windsor Place,
Islip, New York................ B 32 321 --- 46 32 367
42 Windsor Place,
Islip, New York................ B 48 327 --- 542 48 869
505 Walt Whitman Rd.,
Huntington, New York........... B 140 42 --- 52 140 94
1170 Northern Blvd., N.
Great Neck, New York........... B 30 99 --- 31 30 130
50 Charles Lindbergh Blvd.,
Mitchel Field, New York ....... 15,479 A 12,089 --- 3,526 --- 15,615
200 Broadhollow Road,
Melville, New York............. 6,649 338 3,354 --- 2,362 338 5,716
48 South Service Road,
Melville, New York............. B 1,652 10,245 --- 3,351 1,652 13,596
395 North Service Road,
Melville, New York............. 9,917 A 15,551 --- 6,475 --- 22,026
6800 Jericho Turnpike,
Syosset, New York.............. 15,001 582 6,566 --- 5,941 582 12,507
6900 Jericho Turnpike,
Syosset, New York.............. 5,279 385 4,228 --- 1,674 385 5,902
300 Motor Parkway,
Hauppauge, New York............ B 276 1,136 --- 828 276 1,964
88 Duryea Road,
Melville, New York............. B 200 1,565 --- 616 200 2,181
210 Blydenburgh Road,
Islandia, New York............. B 11 158 --- 159 11 317
208 Blydenburgh Road,
Islandia, New York............. B 12 192 --- 145 12 337
71 Hoffman Lane,
Islandia, New York............. B 19 260 --- 172 19 432
933 Motor Parkway,
Smithtown, New York............ B 106 375 --- 361 106 736
Column F Column G Column H Column I
-------- -------- -------- --------
Life on which
Accumulated Date of Date of Depreciation
Total Depreciation Construction Acquired is Computed
----- ------------ ------------ -------- -------------
Vanderbilt Industrial Park,
Hauppauge, New York
(27 buildings in an 1961- 1961-
industrial park)............... $20,684 $11,432 1979 1979 10-30 years
Airport International Plaza
New York (17 buildings 1970- 1970-
industrial park)............... 24,541 12,463 1988 1988 10-30 years
County Line Industrial Cent
Huntington, New York
(3 buildings in an industry 1975- 1975-
park).......................... 6,752 3,721 1979 1979 10-30 years
32 Windsor Place,
Islip, New York................ 399 294 1971 1971 10-30 years
42 Windsor Place,
Islip, New York................ 917 615 1972 1972 10-30 years
505 Walt Whitman Rd.,
Huntington, New York........... 234 60 1950 1968 10-30 years
1170 Northern Blvd., N.
Great Neck, New York........... 160 115 1947 1962 10-30 years
50 Charles Lindbergh Blvd.,
Mitchel Field, New York ....... 15,615 7,347 1984 1984 10-30 years
200 Broadhollow Road,
Melville, New York............. 6,054 3,151 1981 1981 10-30 years
48 South Service Road,
Melville, New York............. 15,248 5,895 1986 1986 10-30 years
395 North Service Road,
Melville, New York............. 22,026 8,849 1988 1988 10-30 years
6800 Jericho Turnpike,
Syosset, New York.............. 13,089 7,338 1977 1978 10-30 years
6900 Jericho Turnpike,
Syosset, New York.............. 6,287 2,898 1982 1982 10-30 years
300 Motor Parkway,
Hauppauge, New York............ 2,240 1,101 1979 1979 10-30 years
88 Duryea Road,
Melville, New York............. 2,381 1,027 1980 1980 10-30 years
210 Blydenburgh Road,
Islandia, New York............. 328 243 1969 1969 10-30 years
208 Blydenburgh Road,
Islandia, New York............. 349 284 1969 1969 10-30 years
71 Hoffman Lane,
Islandia, New York............. 451 345 1970 1970 10-30 years
933 Motor Parkway,
Smithtown, New York............ 842 490 1973 1973 10-30 years
Reckson Operating Partnership, L. P.
Schedule III-Real Estate and Accumulated Depreciation
December 31, 1997 (continued)
(In thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Cost Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period
------------ ---------------- --------------------------
Buildings and Buildings and Buildings and
Description Encumbrance Land Improvements Land Improvements Land Improvements
----------- ----------- ---- ------------- ---- ------------- ---- -------------
65 and 85 South Service Road
Plainview, New York............ B 40 218 --- 10 40 228
333 Earl Ovington Blvd., 57,839 A 67,221 --- 15,556 --- 82,777
Mitchel Field, New York (Omni)
135 Fell Court
Islip, New York................ B 462 1,265 --- 48 462 1,313
40 Cragwood Road, B
South Plainfield, New Jersey 708 7,131 17 3,664 725 10,795
110 Marcus Drive,
Huntington, New York........... B 390 1,499 --- 13 390 1,512
333 East Shore Road,
Great Neck, New York........... B A 564 --- 128 --- 692
310 East Shore Road,
Great Neck, New York........... 2,322 485 2,009 --- 265 485 2,274
70 Schmitt Blvd.,
Farmingdale, New York.......... 425 727 3,408 --- 15 727 3,423
19 Nicholas Drive,
Yaphank, New York.............. B 160 7,399 --- --- 160 7,399
1516 Motor Parkway,
Hauppauge, New York............ B 603 6,722 --- 13 603 6,735
125 Baylis Road,
Melville, New York............. B 1,601 8,626 --- 422 1,601 9,048
35 Pinelawn Road,
Melville, New York............. B 999 7,073 --- 1,354 999 8,427
520 Broadhollow Road,
Melville, New York............. B 457 5,572 --- 1,404 457 6,976
1660 Walt Whitman Road,
Melville, New York............. B 370 5,072 --- 389 370 5,461
70 Maxess Road,
Melville, New York............. 1,863 708 1,859 96 3,806 804 5,665
85 Nicon Court,
Hauppauge, New York............ B 797 2,818 --- 54 797 2,872
104 Parkway Drive So.,
Hauppauge, New York............ B 54 804 --- 130 54 934
20 Melville Park Rd.,
Melville, New York............. B 391 2,650 --- 96 391 2,746
105 Price Parkway,
Hauppauge, New York............ B 2,030 6,327 --- 311 2,030 6,638
48 Harbor Park Drive,
Hauppauge, New York............ B 1,304 2,247 --- 89 1,304 2,336
125 Ricefield Lane,
Hauppauge, New York............ B 13 852 --- 330 13 1,182
Column F Column G Column H Column I
-------- -------- -------- --------
Life on which
Accumulated Date of Date of Depreciation
Total Depreciation Construction Acquired is Computed
----- ------------ ------------ -------- -------------
65 and 85 South Service Road
Plainview, New York............ 268 221 1961 1961 10-30 years
333 Earl Ovington Blvd., 82,777 12,371 1990 1995 10-30 years
Mitchel Field, New York (Omni)
135 Fell Court
Islip, New York................ 1,775 238 1965 1992 10-30 years
40 Cragwood Road,
South Plainfield, New Jersey 11,520 5,957 1970 1983 10-30 years
110 Marcus Drive,
Huntington, New York........... 1,902 1,113 1980 1980 10-30 years
333 East Shore Road,
Great Neck, New York........... 692 430 1976 1976 10-30 years
310 East Shore Road,
Great Neck, New York........... 2,759 1,215 1981 1981 10-30 years
70 Schmitt Blvd.,
Farmingdale, New York.......... 4,150 267 1965 1995 10-30 years
19 Nicholas Drive,
Yaphank, New York.............. 7,559 597 1989 1995 10-30 years
1516 Motor Parkway,
Hauppauge, New York............ 7,338 560 1981 1995 10-30 years
125 Baylis Road,
Melville, New York............. 10,649 654 1980 1995 10-30 years
35 Pinelawn Road,
Melville, New York............. 9,426 701 1980 1995 10-30 years
520 Broadhollow Road,
Melville, New York............. 7,433 736 1978 1995 10-30 years
1660 Walt Whitman Road,
Melville, New York............. 5,831 419 1980 1995 10-30 years
70 Maxess Road,
Melville, New York............. 6,469 193 1967 1995 10-30 years
85 Nicon Court,
Hauppauge, New York............ 3,669 191 1984 1995 10-30 years
104 Parkway Drive So.,
Hauppauge, New York............ 988 54 1985 1996 10-30 years
20 Melville Park Rd.,
Melville, New York............. 3,137 105 1965 1996 10-30 years
105 Price Parkway,
Hauppauge, New York............ 8,668 342 1969 1996 10-30 Years
48 Harbor Park Drive,
Hauppauge, New York............ 3,640 116 1976 1996 10-30 Years
125 Ricefield Lane,
Hauppauge, New York............ 1,195 95 1973 1996 10-30 Years
Reckson Operating Partnership, L. P.
Schedule III-Real Estate and Accumulated Depreciation
December 31, 1997 (continued)
(In thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Cost Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period
------------ ---------------- --------------------------
Buildings and Buildings and Buildings and
Description Encumbrance Land Improvements Land Improvements Land Improvements
----------- ----------- ---- ------------- ---- ------------- ---- -------------
110 Ricefield Lane,
Hauppauge, New York............ B 33 1,043 --- 52 33 1,095
120 Ricefield Lane,
Hauppauge, New York............ B 16 1,051 --- 30 16 1,081
135 Ricefield Lane,
Hauppauge, New York............ B 24 906 --- 473 24 1,379
30 Hub Drive,
Huntington, New York........... B 469 1,571 --- 246 469 1,817
60 Charles Lindbergh,
Mitchel Field, New York ....... B A 20,800 --- 1,344 --- 22,144
155 White Plains Rod.,
Tarrytown, New York............ B 1,613 2,542 --- 595 1,613 3,137
2 Church Street,
Tarrytown, New York ........... B 232 1,307 --- 385 232 1,692
235 Main Street,
Tarrytown, New York............ B 955 5,375 --- 562 955 5,937
245 Main Street,
Tarrytown, New York............ B 1,294 7,284 --- 790 1,294 8,074
505 White Plains Road,
Tarrytown, New York............ B 236 1,332 --- 163 236 1,495
555 White Plains Road,
Tarrytown, New York............ B 712 4,133 13 2,658 725 6,791
560 White Plains Road,
Tarrytown, New York............ B 1,553 8,756 --- 1,688 1,553 10,444
580 White Plains Road,
Tarrytown, New York............ 8,811 2,591 14,595 --- 1,347 2,591 15,942
660 White Plains Road,
Tarrytown, New York............ B 3,929 22,640 --- 1,738 3,929 24,378
Landmark Square,
Stamford, CT................... 49,291 11,603 64,466 --- 6,216 11,603 70,682
110 Bi-County Blvd.,
Farmingdale, New York.......... 4,531 2,342 6,665 --- 124 2,342 6,789
RREEF Portfolio,
Hauppauge, New York
(10 additional buildings in
Vanderbuilt Industrial Park) ... B 930 20,619 --- 523 930 21,142
275 Broadhollow Road,
Melville, New York.............. B 5,250 11,761 --- 464 5,250 12,225
One Eagle Rock, East
Hanover, New Jersey............. B 803 7,563 --- 21 803 7,584
710 Bridgeport Avenue,
Shelton, CT..................... B 5,405 21,620 --- 440 5,405 22,060
101 JFK Expressway,
Short Hills, New Jersey ........ B 7,745 43,889 --- 263 7,745 44,152
Column F Column G Column H Column I
-------- -------- -------- --------
Life on which
Accumulated Date of Date of Depreciation
Total Depreciation Construction Acquired is Computed
----- ------------ ------------ -------- -------------
110 Ricefield Lane,
Hauppauge, New York............ 1,128 68 1980 1996 10-30 Years
120 Ricefield Lane,
Hauppauge, New York............ 1,097 44 1983 1996 10-30 Years
135 Ricefield Lane,
Hauppauge, New York............ 1,403 116 1981 1996 10-30 Years
30 Hub Drive,
Huntington, New York........... 2,286 93 1976 1996 10-30 Years
60 Charles Lindbergh,
Mitchel Field, New York ....... 22,144 1,249 1989 1996 10-30 Years
155 White Plains Rod.,
Tarrytown, New York............ 4,750 133 1963 1996 10-30 Years
2 Church Street,
Tarrytown, New York ........... 1,924 94 1979 1996 10-30 Years
235 Main Street,
Tarrytown, New York............ 6,892 374 1974 1996 10-30 Years
245 Main Street,
Tarrytown, New York............ 9,368 507 1983 1996 10-30 Years
505 White Plains Road,
Tarrytown, New York............ 1,731 109 1974 1996 10-30 Years
555 White Plains Road,
Tarrytown, New York............ 7,516 588 1972 1996 10-30 Years
560 White Plains Road,
Tarrytown, New York............ 11,997 837 1980 1996 10-30 Years
580 White Plains Road,
Tarrytown, New York............ 18,533 1,108 1977 1996 10-30 Years
660 White Plains Road,
Tarrytown, New York............ 28,307 1,603 1983 1996 10-30 Years
Landmark Square,
Stamford, CT................... 82,285 2,764 1973-1984 1996 10-30 years
110 Bi-County Blvd.,
Farmingdale, New York.......... 9,131 233 1984 1997 10-30 Years
RREEF Portfolio,
Hauppauge, New York
(10 additional buildings in
Vanderbuilt Industrial Park) ... 22,072 570 1974-1982 1997 10-30 Years
275 Broadhollow Road,
Melville, New York.............. 17,475 300 1970 1997 10-30 Years
One Eagle Rock, East
Hanover, New Jersey............. 8,387 179 1986 1997 10-30 Years
710 Bridgeport Avenue,
Shelton, CT..................... 27,465 506 1971-1979 1977 10-30 Years
101 JFK Expressway,
Short Hills, New Jersey ........ 51,897 978 1981 1997 10-30 Years
Continued-
Reckson Operating Partnership, L. P.
Schedule III-Real Estate and Accumulated Depreciation
December 31, 1997 (continued)
(In thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Cost Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period
------------ ---------------- --------------------------
Buildings and Buildings and Buildings and
Description Encumbrance Land Improvements Land Improvements Land Improvements
----------- ----------- ---- ------------- ---- ------------- ---- -------------
C>
10 Rooney Circle,
West Orange, New Jersey ....... B 1,302 4,615 --- 408 1,302 5,023
Executive Hill Office Park,
West Orange, New Jersey ....... B 7,629 31,288 --- 410 7,629 31,698
3 University Plaza,
Hackensack, New Jersey......... B 7,894 11,846 --- 110 7,894 11,956
400 Garden City Plaza,
Garden City, New York.......... B 13,986 10,127 --- 225 13,986 10,352
425 Rabro Drive,
Hauppauge, New York............ B 665 3,489 --- 63 665 3,552
One Paragon Drive,
Montvale, New Jersey........... B 2,773 9,901 --- 91 2,773 9,992
90 Merrick Avenue,
East Meadow, New York.......... B A 19,193 --- 332 --- 19,525
150 Motor Parkway,
Hauppauge, New York............ B 1,114 20,430 --- 839 1,114 21,269
390 Motor Parkway,
Hauppauge, New York............ B 240 4,459 --- 202 240 4,661
Royal Executive Park,
Ryebrook, New York..... ....... B 18,343 55,028 --- 479 18,343 55,507
120 White Plains Road,
Tarrytown, New York............ B 3,355 24,605 --- --- 3,355 24,605
University Square,
Princeton, New Jersey.......... B 8,045 8,888 --- 19 8,045 8,907
100 Andrews Road,
Hicksville, New York........... B 2,812 1,711 --- 5,155 2,812 6,866
2 Macy Road,
Harrison, New York............. B 642 2,131 --- 19 642 2,150
80-100 Grasslands,
Elmsford, New York............. B 1,609 6,823 --- 106 1,609 6,929
65 Marcus Drive,
Melville, New York............. B 295 1,966 --- 865 295 2,831
Land held for development......... B 29,309 --- --- --- 29,309 ---
Development in progress........... B 5,492 10,757 --- 8,915 5,492 19,672
Other property.................... B --- --- --- 1,998 --- 1,998
----------- -------- ----------- ------- ----------- -------- -----------
Total............................ 180,023 173,201 $722,268 $126 $115,633 $173,327 $837,901
----------- -------- ----------- ------- ----------- -------- -----------
----------- -------- ----------- ------- ----------- -------- -----------
Column F Column G Column H Column I
-------- -------- -------- --------
Life on which
Accumulated Date of Date of Depreciation
Total Depreciation Construction Acquired is Computed
----- ------------ ------------ -------- -------------
10 Rooney Circle,
West Orange, New Jersey ....... 6,325 119 1971 1997 10-30 Years
Executive Hill Office Park,
West Orange, New Jersey ....... 39,327 504 1978-1984 1997 10-30 Years
3 University Plaza,
Hackensack, New Jersey......... 19,850 167 1985 1997 10-30 Years
400 Garden City Plaza,
Garden City, New York.......... 24,338 139 1989 1997 10-30 Years
425 Rabro Drive,
Hauppauge, New York............ 4,217 49 1980 1997 10-30 Years
One Paragon Drive,
Montvale, New Jersey........... 12,765 86 1980 1997 10-30 Years
90 Merrick Avenue,
East Meadow, New York.......... 19,525 135 1985 1997 10-30 Years
150 Motor Parkway,
Hauppauge, New York............ 22,383 151 1984 1997 10-30 Years
390 Motor Parkway,
Hauppauge, New York............ 4,901 32 1980 1997 10-30 Years
Royal Executive Park,
Ryebrook, New York..... ....... 73,850 195 1983-1986 1997 10-30 Years
120 White Plains Road,
Tarrytown, New York............ 27,960 68 1984 1997 10-30 Years
University Square,
Princeton, New Jersey.......... 16,952 25 1987 1997 10-30 Years
100 Andrews Road,
Hicksville, New York........... 9,678 137 1954 1996 10-30 Years
2 Macy Road,
Harrison, New York............. 2,792 8 1962 1997 10-30 Years
80-100 Grasslands,
Elmsford, New York............. 8,538 24 1989/1964 1997 10-30 Years
65 Marcus Drive,
Melville, New York............. 3,126 28 1968 1996 10-30 Years
Land held for development......... 29,309 --- N/A variouss N/A
Development in progress........... 25,164 ---
Other property.................... 1,998 89
---------- -- --------
Total............................. $1,011,228 $ 108,652
========== ===========
- ---------------------------
A These land parcels are leased (see Note 4).
B There are no encumbrances on these properties.
C The Encumbrance of $2,616 is related to one property.
The aggregate cost for Federal Income Tax purposes was approximately $932.4 million at December 31, 1997.
Reckson Operating Partnership, L. P.
And Reckson Group
Schedule III-Real Estate and Accumulated Depreciation (continued)
(in thousands)
The changes in real estate for each of the periods in the three years
ended December 31, 1997 are as follows:
January 1, 1997 January 1, 1996 June 3, 1995 January 1, 1995
to to to to
December 31, 1997 December 31, 1996 December 31, 1995 June 2, 1995
----------------- ----------------- ----------------- ----------------
Real estate balance at beginning of
period................................... $516,768 $288,056 $216,333 $159,693
Improvements................................ 37,778 15,174 3,768 814
Disposal, including write-off of fully
depreciated building improvements........ (154) (936) (3,174) ---
Properties not contributed to the
Operating Partnership ................... --- --- --- (15,133)
Consolidation of Omni (1)................... --- --- --- 70,959
Acquisitions................................ 456,836 214,474 55,054 ---
Cash paid in exchange for properties........ --- --- 16,075 ---
---------- -------- -------- ----------
Balance at end of period.................... $1,011,228 $516,768 $288,056 $216,333
---------- -------- -------- ----------
---------- -------- -------- ----------
The 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, 1997 are as follows:
January 1, 1997 January 1, 1996 June 3, 1995 January 1, 1995
to to to to
December 31, 1997 December 31, 1996 December 31, 1995 June 2, 1995
----------------- ----------------- ----------------- ----------------
Balance at beginning of period............... $86,344 $72,499 $69,841 $71,596
Depreciation for period...................... 22,442 14,781 5,832 2,453
Disposal, including write-off of fully
depreciated building improvements........... (134) (936) (3,174) ---
Properties not contributed to the
Operating Partnership....................... --- --- --- (7,946)
Consolidation of Omni........................ --- --- --- 3,738
---------- -------- -------- --------
Balance at end of period..................... $108,652 $86,344 $72,499 $69,841
========= ======== ======== ========
(1) The Omni was consolidated as a result of the Operating Partnership purchasing a controlling interest as part of the
Formation Transactions.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Financial Statements of Metropolitan Partners
The following pro forma combined financial statements of Metropolitan Partners
give effect to the proposed merger of Tower and Metropolitan Partners using the
purchase method of accounting. The pro forma combined financial statements are
based on the historical consolidated financial statements and the notes thereto
of Tower, which are included elsewhere herein. The pro forma adjustments are
preliminary and based on Reckson management's estimates of the value of the
tangible and intangible assets acquired. Based on the timing of the closing of
the transaction and other factors, the pro forma adjustments may differ
materially from those presented in these pro forma financial statements. A
change affecting the value assigned to long-term assets acquired and liabilities
acquired and/or assumed would result in a reallocation of the purchase price and
modifications to the pro forma adjustments. The statement of operations effect
of these changes will depend on the nature and amount of the assets or
liabilities adjusted (see Note 1 to the pro forma combined financial statements
of Metropolitan Partners).
The pro forma combined balance sheet of Metropolitan Partners assumes that the
merger took place on September 30, 1998. The pro forma statements of operations
of Metropolitan Partners for the nine months ended September 30, 1998 and for
the year ended December 31, 1997 assume that the merger took place as of January
1, 1997 and the effect thereof was carried forward through the nine month period
ended September 30, 1998.
The following unaudited pro forma combined financial statements are presented
for illustrative purposes only and are not indicative of the consolidated
financial position or results of operations of future periods or the results
that actually would have been realized had Metropolitan Partners and Tower been
a combined company during the specified periods. The pro forma combined
financial statements, including the notes thereto, are qualified in their
entirety by reference to, and should be read in conjunction with, the historical
consolidated financial statements of Tower, including the notes thereto,
included elsewhere herein.
Metropolitan Partners LLC
Pro Forma Condensed Combining Balance Sheet
As of September 30, 1998
(Unaudited)
(Dollars in thousands)
Metropolitan Partners
Tower Pro Forma Metropolitan Partners
Pro Forma Adjustments(2) Pro Forma
--------------- ------------------------- -------------------------
Assets:
Real estate, net $ 672,657 $ 76,444(a) $ 749,101
Cash and cash equivalents 5,675 -- 5,675
Tenant receivables 8,767 (6,181)(a) 2,586
Escrowed funds 7,307 -- 7,307
Other assets 6,143 (2,659)(a) 3,484
Investments in real
estate joint ventures 2,968 732(a) 3,700
Deferred charges, net 13,798 (8,570)(a)(c) 5,228
---------- ---------- -----------
Total Assets $ 717,315 $ 59,766 $ 777,081
========== ========== ===========
Liabilities and Stockholders'
Equity:
Mortgage notes payable $ 188,760 $ 158,798(b) $ 347,558
Credit facility 62,400 (62,400)(b) --
Accrued expenses and other 28,517 -- 28,517
liabilities
Deferred real estate taxes 9,713 3,204(a) 12,917
Affiliate payables 309 -- 309
--------- ---------- -----------
Total Liabilities 289,699 99,602 389,301
--------- ---------- -----------
Limited partners' interest in the
operating partnership 35,020 (35,019)(b)(d) 1
--------- ---------- -----------
Equity:
Stockholders' equity 392,596 (392,596)(b)(d) --
Common equity - Reckson -- 302,779(b) 302,779
Preferred equity - Crescent -- 85,000(b) 85,000
--------- ---------- -----------
Total Equity 392,596 (4,817) 387,779
--------- ----------- -----------
Total Liabilities and
Equity $ 717,315 $ 59,766 $ 777,081
========= =========== ===========
See accompanying notes to pro forma financial statements.
Metropolitan Partners LLC
Pro Forma Condensed Combining Statement of Operations
for Nine Months Ended September 30, 1998
(Unaudited)
(Dollars in thousands)
Metropolitan Partners
Tower Pro Forma Metropolitan Partners
Pro Forma Adjustments(3) Pro Forma
--------------- ------------------------- -------------------------
Revenues:
Rental income $ 85,029 $ -- $ 85,029
Other 752 -- 752
---------- ----------- ----------
Total Revenue 85,781 -- 85,781
---------- ----------- ----------
Expenses:
Operating Expenses:
Property operating 20,391 -- 20,391
expenses 11,226 -- 11,226
Real estate taxes
Ground rents and air
rights 512 -- 512
Marketing, general
and administrative 6,601 375 6,976
Sale of the company 3,865 (3,865) --
Severance and other
compensation costs 2,454 (2,454) --
---------- ----------- ----------
Total Operating
Expenses 45,049 (5,944) 39,105
---------- ----------- ----------
Interest 15,138 5,043 20,181
Depreciation and amortization 13,439 2,479 15,918
---------- ----------- ----------
Total Expenses 73,626 1,578 75,204
---------- ----------- ----------
Operating Income 12,155 (1,578) 10,577
Equity in earnings of service
companies 557 -- 557
---------- ----------- ----------
Net income before preferred
distributions 12,712 (1,578) 11,134
---------- ----------- ----------
Preferred distribution -- (4,781) (4,781)
---------- ----------- ----------
Net income available to common
members $ 12,712 $ (6,359) $ 6,353
========= =========== ==========
See accompanying notes to pro forma financial statements.
Metropolitan Partners LLC
Pro Forma Condensed Combining Statement of Operations
Year Ended December 31, 1997
(Unaudited)
(Dollars in thousands)
Metropolitan Partners
Tower Pro Forma Metropolitan Partners
Pro Forma Adjustments(3) Pro Forma
--------------- ------------------------- -------------------------
Revenues:
Rental income $ 101,613 $ -- $ 101,613
Other 1,693 -- 1,693
---------- ----------- -----------
Total Revenue 103,306 -- 103,306
---------- ----------- -----------
Expenses:
Operating Expenses:
Property operating
expenses 26,861 -- 26,861
Real estate taxes 14,643 -- 14,643
Ground rents and air
rights 599 -- 599
Marketing, general
and administrative 5,036 500 5,536
---------- ----------- -----------
Total Operating Expenses 47,139 500 47,639
---------- ----------- -----------
Interest 19,514 7,393 26,907
Depreciation and amortization 16,676 4,549 21,225
---------- ----------- -----------
Total Expenses 83,329 12,442 95,771
---------- ----------- -----------
Operating Income 19,977 (12,442) 7,535
Equity in earnings of service
companies 370 -- 370
---------- ---------- -----------
Net income before preferred
distributions 20,347 (12,442) 7,905
---------- ---------- -----------
Preferred distribution -- (6,375) (6,375)
---------- ---------- -----------
Net income available to common
members $ 20,347 $ (18,817) $ 1,530
========== ========== ===========
See accompanying notes to pro forma financial statements.
Notes to Unaudited Pro Forma Combined Financial Statements
Note 1. Basis of Presentation
Metropolitan Partners LLC is a subsidiary of Reckson Associates Realty Corp., in
which Reckson owns all of the common membership interest. Metropolitan Partners
will account for the merger as a purchase and accordingly will allocate the
purchase price to the assets and liabilities acquired based on their relative
fair values.
The pro forma combined balance sheet assumes that the merger took place
September 30, 1998 and includes Tower's unaudited September 30, 1998 pro forma
balance sheet. The pro forma combined statements of operations for the nine
months ended September 30, 1998 and for the year ended December 31, 1997 assume
that the merger took place as of the beginning of the periods presented and
include Tower's pro forma unaudited statement of operations for the nine months
ended September 30, 1998 and Tower's unaudited pro forma statement of operations
for the year ended December 31, 1997.
The pro forma adjustments are preliminary and based on Reckson management's
estimates of the value of the tangible and intangible assets acquired. Based on
the timing of the closing of the transaction and other factors, the pro forma
adjustments may differ materially from those presented in these pro forma
combined financial statements. A change affecting the value assigned to the
long-term assets acquired and liabilities acquired and/or assumed would result
in a reallocation of the purchase price and modifications to the pro forma
adjustments. The statement of operations effect of these changes will depend on
the nature and amount of the assets or liabilities adjusted.
Note 2. Metropolitan Partners Balance Sheet Pro Forma Adjustments
a. Adjustment to reflect the components of the purchase price. Under the terms
of the transaction, Metropolitan Partners will effectively pay for each
share of Tower common stock and each Tower OP unit: (i) $5.75 in cash and
(ii) 0.6273 of a share of Reckson class B common stock. The value of the
Reckson class B common stock issued, which is convertible on a one-for-one
basis into Reckson common stock, subject to adjustment, is assumed for
purposes of this presentation to be $25.89 which equals the sum of (i)
$23.31, which was Reckson common stock's closing price on the day
immediately preceding the date of the Merger Agreement and (ii) the value
of the excess of the dividend assumed to be paid to the holders of the
Reckson class B common stock over the dividend assumed to be paid to
holders of Reckson common stock during the 4.5 year period the shares of
Reckson class B common stock are assumed to be outstanding. The actual
value or trading price of the Reckson class B common stock may be greater
or less than or equal to the value used for purposes of this presentation.
Adjustment also reflects the allocation of the excess of the purchase price
over the assets acquired less liabilities assumed to long-term assets based
on their relative fair values.
The following table summarizes the calculation of the excess of the purchase
price over the assets acquired less liabilities assumed:
(Dollars in thousands)
Merger consideration $ 409,977
Transaction costs (including the write-off
of certain intangible assets) 55,315
-----------
Total purchase price 465,292
Assets acquired less liabilities assumed 388,116
-----------
Excess purchase price to be
allocated to assets $ 77,176
-----------
The following table is a summary of the amounts allocated to the long-term
assets, the allocation of the excess purchase price over the assets acquired
less liabilities assumed and the fair values of the assets acquired:
(Dollars in thousands)
Historical Excess Fair
Cost Purchase Price Value
------------- ----------------- -----------
Real estate $ 672,657 $ 76,444 $ 749,101
Investment in joint ventures 2,968 732 3,700
---------- ----------- ----------
$ 675,625 $ 77,176 $ 752,801
========== =========== ==========
b. Adjustment reflects the anticipated funding of the purchase price.
Metropolitan Partners expects to fund its obligations in connection with
the merger through a combination of assumed debt and newly incurred debt
and with an $85 million preferred investment by Crescent Real Estate
Equities Company. The Adjustment is based on Metropolitan Partners assuming
$128.8 million of existing secured debt bearing a weighted average interest
rate of 6.95% and incurring $218.8 million of new secured financing bearing
an interest rate of 8.0%. The Adjustment assumes that Metropolitan Partners
uses a portion of these proceeds to retire approximately $100 million of
Tower's existing secured debt bearing a weighted average interest rate of
6.72% and $62.4 million of existing unsecured debt bearing a weighted
average interest rate of 7.3%.
c. Adjustment reflects the payment of costs related to obtaining the
acquisition financing of $2.2 million, net of approximately $2.3 million of
financing costs written-off in connection with the retirement of certain
indebtedness, as described above.
d. Adjustment reflects the elimination of Tower stockholders' equity and the
limited partners' interest in the Tower operating partnership.
Note 3. Metropolitan Partners Statement of Operations Pro Forma Adjustments
Reflects the increase in depreciation expense related to the step-up in
accounting book basis of real estate as a result of the purchase of Tower by
Metropolitan Partners and the additional interest expense related to the
acquisition financing obtained by Metropolitan Partners. Adjustment also
reflects the addback of certain costs related to the sale of Tower and severance
costs that are of a non-recurring nature and that Metropolitan Partners would
not incur on an ongoing basis for the nine months ended September 30, 1998 only
and additional costs related to hiring a managing director and other executive
personnel of Metropolitan Partners.
The following table summarizes the calculation of pro forma depreciation expense
for the twelve months ended December 31, 1997 and the nine months ended
September 30, 1998:
(Dollars in thousands)
Pro forma real estate $ 749,101
Allocation to buildings 85%
-----------
Total allocated to buildings 636,736
Depreciable life 30
-----------
Pro forma depreciation expense
(twelve months) $ 21,225
===========
Proration for nine months $ 15,918
===========
The following table summarizes the calculation of pro forma interest expense for
the twelve months ended December 31, 1997 and the nine months ended September
30, 1998:
(Dollars in thousands)
Amount Rate Interest
---------------- ---------- ----------------
Debt assumed $ 128,760 6.95% $ 8,947
Acquisition Financing 218,798 8.00% $ 17,503
---------- ---------
$ 347,558 $ 26,450
Amortization of deferred
financing costs 457
---------
Pro forma interest expense
(twelve months) $ 26,907
=========
Proration for nine months $ 20,181
=========
Note 4. Preferred Equity
Crescent has agreed to make an $85 million preferred investment in Metropolitan
Partners, $10 million of which has already been funded. The proceeds of
Crescent's investment were used to partially fund Metropolitan Partners' $40
million investment in Tower at the execution of the Merger Agreement and the
balance of Metropolitan Partners' investment will be used to fund, in part,
Metropolitan Partners' cash requirements in connection with the consummation of
its merger with Tower. Crescent's preferred equity earns a 7.5% distribution and
is redeemable for cash at Metropolitan Partners' option during the first two
years with a payment sufficient to provide Crescent with a 9.5% internal rate of
return. After year two the preferred equity must convert into either shares of
Reckson common stock at $24.61 per share or a common equity interest in
Metropolitan Partners based on the ratio of Crescent's investment in
Metropolitan Partners to the total investment in Metropolitan Partners.
Unaudited Pro Forma Combined Financial Statements of Reckson OP Assuming Reckson
Stockholders Do Not Approve the Share Issuance Proposal
The following pro forma combined financial statements of Reckson OP give effect
to the proposed merger of Tower into Metropolitan Partners and Reckson OP's
investment in Metropolitan Partners assuming Reckson stockholders do not approve
the share issuance proposal pursuant to which Reckson Associates would issue
Class B common stock as the entire non-cash portion of the merger consideration.
Under these circumstances, Reckson OP will issue approximately $95.7 million of
its 7% Senior Notes due 2009 (par value $101.5 million) as part of the merger
consideration. Metropolitan Partners is a subsidiary of Reckson OP.
The pro forma combined financial statements are based on the historical
consolidated financial statements and the notes thereto of Reckson OP. The pro
forma adjustments are preliminary and based on Reckson OP management's estimates
of the value of the tangible and intangible assets acquired. Based on the timing
of the closing of the transaction and other factors, the pro forma adjustments
may differ materially from those presented in these pro forma financial
statements. A change affecting the value assigned to long-term assets acquired
and liabilities acquired and/or assumed would result in a reallocation of the
purchase price and modifications to the pro forma adjustments. The statement of
operations effect of these changes will depend on the nature and amount of the
assets or liabilities adjusted.
The pro forma combined balance sheet of Reckson OP assumes that the merger of
Tower into Metropolitan Partners and Reckson OP's investment in Metropolitan
Partners took place on September 30, 1998. The pro forma statements of
operations of Reckson OP for the nine months ended September 30, 1998 and for
the year ended December 31, 1997 assume that the merger and investment occurred
as of January 1, 1997 and the effect thereof was carried forward through the
nine month period ended September 30, 1998.
The following unaudited pro forma combined financial statements are presented
for illustrative purposes only and are not indicative of the consolidated
financial position or results of operations of future periods or the results
that actually would have been realized had Metropolitan Partners and Tower been
a combined company and Reckson OP had made an investment in Metropolitan
Partners during the specified periods. The pro forma combined financial
statements, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical
consolidated financial statements of Reckson OP, including the notes thereto.
Reckson Operating Partnership, L.P.
Pro Forma Condensed Combining Balance Sheet
Assuming Reckson Stockholders Do Not Approve the Share Issuance Proposal
As of September 30, 1998
(Unaudited)
(Dollars In Thousands)
September 30, 1998 September 30, 1998
Historical Pro Forma Metropolitan Elimination Reckson Op
(Unaudited) Adjustments(2) Partners LLC(3) Adjustments(4) Pro Forma
------------------ -------------- --------------- --------------- ------------------
Assets:
Real estate, net $ 1,554,632 $ -- $ 749,101 $ -- $ 2,303,733
Cash and cash equivalents 2,948 -- 5,675 -- 8,623
Tenant receivables 4,725 -- 2,586 -- 7,311
Affiliate receivables 48,537 -- -- -- 48,537
Deferred rent receivable 21,923 -- -- -- 21,923
Investment in mortgage
notes and notes receivable 93,045 -- -- -- 93,045
Investment in
Metropolitan Partners -- 302,779 -- (302,779) --
Contract and land deposits
and other pre-acquisition
costs 1,208 -- -- -- 1,208
Prepaid expenses and
other assets 8,717 -- -- -- 8,717
Investments in real
estate joint ventures 15,169 -- 3,700 -- 18,869
Deferred lease and loan
costs, net 21,333 -- 5,228 -- 26,561
Other Assets -- -- 10,791 -- 10,791
----------- ---------- ------------ ---------- ------------
Total Assets $ 1,772,237 $ 302,779 $ 777,081 $ (302,779) $ 2,549,318
=========== ========== ============ ========== ============
Liabilities and Stockholders'
Equity:
Mortgage notes payable $ 239,989 $ -- $ 347,558 $ -- $ 587,547
Senior unsecured notes 150,000 95,713 -- -- 245,713
Credit facility 443,250 -- -- -- 443,250
Accrued expenses and
other liabilities 35,849 -- 28,517 -- 64,366
Affiliate payables 1,434 -- 309 -- 1,743
Deferred real estate taxes -- -- 12,917 -- 12,917
Dividends and
distributions payable 19,636 -- -- -- 19,636
----------- ---------- ------------ ---------- -----------
Total Liabilities 890,158 95,713 389,301 -- 1,375,172
----------- ---------- ------------ ---------- -----------
Minority interest in
consolidated partnership 35,851 -- 85,001 (1) 120,851
Partners' capital -- -- -- -- --
Preferred capital 263,126 -- -- -- 263,126
General partner's capital 444,725 207,066 302,779 (302,778) 651,792
Limited partner's capital 138,377 -- -- -- 138,377
----------- ---------- ------------ ---------- -----------
Total partners' capital 846,228 207,066 302,779 (302,778) 1,053,295
----------- ---------- ------------ ---------- -----------
Total Liabilities and Partners'
Capital $ 1,772,237 $ 302,779 $ 777,081 $ (302,779) $ 2,549,318
=========== ========== ============ ========== ===========
See accompanying notes to pro forma financial statements.
Reckson Operating Partnership, L.P.
Pro Forma Condensed Combining Statement of Operations
Assuming Reckson Stockholders Do Not Approve the Share Issuance Proposal
Nine Months Ended September 30, 1998
(Unaudited)
(Dollars in thousands, except per share amounts)
September 30, 1998
Historical Pro Forma Metropolitan Elimination Reckson Op
(Unaudited) Adjustments Partners LLC(6) Adjustments Pro Forma
------------------ -------------- --------------- --------------- ------------------
Revenues:
Base rents $ 162,846 $ -- $ 85,029 $ -- $ 247,875
Tenants escalations
and reimbursements 20,776 -- -- -- 20,776
Equity in earnings of
real estate joint ventures 578 -- -- -- 578
Equity in earnings of
service companies 623 -- 557 -- 1,180
Interest income on
mortgage notes and notes
receivable 5,536 -- -- -- 5,536
Other 2,565 -- 752 -- 3,317
---------- ---------- ---------- --------- -----------
Total Revenues 192,924 -- 86,338 -- 279,262
========== ========== ========== ========= ===========
Expenses:
Operating Expenses:
Property operating expenses 35,506 -- 20,391 -- 55,897
Real estate taxes 25,626 -- 11,226 -- 36,852
Ground rents 1,279 -- 512 -- 1,791
Marketing, general
and administrative 10,479 -- 6,976 -- 17,455
---------- ---------- ---------- --------- -----------
Total Operating Expenses 72,890 -- 39,105 -- 111,995
---------- ---------- ---------- --------- -----------
Interest 34,537 5,644 20,181 -- 60,362
Depreciation and
amortization 38,098 -- 15,918 -- 54,016
---------- ---------- ---------- --------- -----------
Total Expenses 145,525 5,644 75,204 -- 226,373
---------- ---------- ---------- --------- -----------
Income before minority
interest and
extraordinary items 47,399 (5,644) 11,134 -- 52,889
Minority partners'
interest in consolidated
partnership (income) (1,938) -- (4,781) -- (6,719)
Distribution to
preferred
unitholders/shareholders (9,202) -- -- -- (9,202)
--------- ---------- ---------- --------- -----------
Income before limited
partners' minority interest in
operating partnership income
and extraordinary items $ 36,259 $ (5,644) $ 6,353 $ -- $ 36,968
========= ========== ========== ========= ===========
Limited Partner................................................................................................ $ 4,732
-----------
General Partner -- Class A..................................................................................... $ 24,095
-----------
General Partner -- Class B..................................................................................... $ 8,141
-----------
Income per Unit
Limited Partner................................................................................................ $ 0.61
-----------
General Partner -- Class A..................................................................................... $ 0.61
-----------
General Partner -- Class B..................................................................................... $ 1.02
-----------
See accompanying notes to pro forma financial statements.
Reckson Operating Partnership, L.P.
Pro Forma Condensed Combining Statement of Operations
Assuming Reckson Stockholders Do Not Approve the Share Issuance Proposal
Year Ended December 31, 1997
(Unaudited)
(Dollars in thousands, except per share amounts)
September 30, 1998
Historical Pro Forma Metropolitan Elimination Reckson Op
(Unaudited) Adjustments(2) Partners LLC(5) Adjustments(4) Pro Forma
--------------- -------------- --------------- --------------- ------------------
Revenues:
Base rents $ 128,778 $ -- $ 101,613 $ -- $ 230,391
Tenants escalations
and reimbursements 14,981 -- -- -- 14,981
Equity in earnings of
real estate joint ventures 459 -- -- -- 459
Equity in earnings of
service companies 55 -- 370 -- 425
Interest income on
mortgage notes and notes
receivable 5,437 -- -- -- 5,437
Other 3,638 -- 1,693 -- 5,331
----------- --------- ------------ --------- ----------
Total Revenues 153,348 -- 103,676 -- 257,024
=========== ========= ============ ========= ==========
Expenses:
Operating Expenses:
Property operating expenses 28,943 -- 26,861 -- 55,804
Real estate taxes 20,579 -- 14,643 -- 35,222
Ground rents 1,269 -- 599 -- 1,868
Marketing,
general and administrative 8,026 -- 5,536 -- 13,562
----------- --------- ------------ --------- ----------
Total Operating Expenses 58,817 -- 47,639 -- 106,456
=========== ========= ============ ========= ==========
Interest 21,585 7,526 26,907 -- 56,018
Depreciation and
amortization 27,237 -- 21,225 -- 48,462
----------- --------- ------------ --------- ----------
Total Expenses 107,639 7,526 95,771 -- 210,936
----------- --------- ------------ --------- ----------
Income before
minority interest and
extraordinary items 45,709 (7,526) 7,905 -- 46,088
Minority partners'
interest in consolidated
partnership (income) (920) -- (6,375) -- (7,295)
Preferred distribution -- -- -- -- --
----------- --------- ------------ --------- ---------
Income before limited
partners' minority interest in
operating partnership income
and extraordinary items $ 44,789 $ (7,526) $ 4 1,530 $ -- 38,793
=========== ========= ============ ========= =========
Limited Partner............................................................................................... $ 5,134
---------
General Partner - Class A..................................................................................... $ 23,948
---------
General Partner - Class B..................................................................................... $ 9,711
---------
Income per Unit
Limited Partner............................................................................................... $ 0.73
---------
General Partner - Class A..................................................................................... $ 0.73
---------
General Partner - Class B..................................................................................... $ 1.21
---------
See accompanying notes to pro forma financial statements.
Notes to Pro Forma Combined Financial Statements
Note 1. Basis of Presentation
Metropolitan Partners is a subsidiary of Reckson OP in which Reckson OP owns all
of the common membership interests. Reckson OP will account for the merger as a
purchase and accordingly will allocate the purchase price to the assets and
liabilities acquired based on their relative fair values. Reckson is the sole
general partner of Reckson OP.
The pro forma combined balance sheet assumes that the merger took place
September 30, 1998 and Reckson OP made its investment in Metropolitan Partners
on the same date and includes Reckson OP's unaudited September 30, 1998
consolidated balance sheet. The pro forma combined statements of operations for
the nine months ended September 30, 1998 and for the year ended December 31,
1997 assume that the merger took place as of the beginning of the periods
presented and includes Reckson OP's unaudited statement of operations for the
nine months ended September 30, 1998 and statement of operations for the year
ended December 31, 1997.
The pro forma financial statements assume that Reckson's shareholders do not
approve the issuance of only Reckson class B common stock, as proposed and
accordingly, as provided for in the Merger Agreement, approximately one-third of
the consideration that was to be paid in the form of Reckson class B common
stock has been replaced by Reckson OP 7% notes.
Note 2. Pro Form Adjustments
Reflects Reckson OP's investment in Metropolitan Partners. Reckson OP will fund
its investment in Metropolitan Partners with the contribution of approximately
$207.1 million of Reckson class B common stock and the issuance of approximately
$95.7 million of Reckson OP 7% notes (par value $101.5 million). The Reckson
class B common stock will pay an initial dividend of $2.24 per share, subject to
increases based on the future growth of Reckson's fully diluted funds from
operations per share, is convertible on a one-for-one basis into Reckson common
stock, subject to adjustment, is redeemable by Reckson after 4.5 years on a
one-for-one basis for Reckson common stock and has no dividend or liquidation
preference over Reckson common stock. Under the terms of the transaction,
Metropolitan Partners will effectively pay for each share of Tower common stock
and each Tower OP unit: (i) $5.75 in cash, (ii) 0.4294 of a share of Reckson
class B common stock, and (iii) $5.13 of Reckson OP 7% notes (par value $5.44).
The value of the Reckson class B common stock issued is assumed for purposes of
this presentation to be $25.89, which equals the sum of (i) $23.31, which was
Reckson common stock's closing price on the day immediately preceding the date
of the Merger Agreement and (ii) the estimated value of the excess of the
additional dividend assumed to be paid to the holders of the Reckson class B
common stock over the dividends assumed to be paid to holders of Reckson common
stock during the 4.5 year period the shares are assumed to be outstanding. The
actual value or trading price of the Reckson class B common stock may be greater
or less than or equal to the value used for purposes of this presentation.
The Reckson OP 7% notes bear interest at a rate of 7% per annum, have a ten-year
term and are pari passu with Reckson OP's previously issued $150 million senior
unsecured notes.
Note 3. Metropolitan Partners Balance Sheet Pro Forma Adjustments
Reflects the consolidation of the pro forma balance sheet of Metropolitan
Partners as of September 30, 1998.
Note 4. Elimination Adjustments
Reflects the elimination of Reckson OP's investment in Metropolitan Partners in
consolidation.
Note 5. Pro Forma Adjustments
Reflects the increase in interest costs related to the issuance of the Reckson
OP 7% notes.
Note 6. Metropolitan Partners Statement of Operations Pro Forma Adjustments
Reflects Reckson OP's consolidation of the pro forma statement of operation of
Metropolitan Partners for the nine months ended September 30, 1998.
Note 7. Pro Forma General and Limited Partner Net Income Allocation
General Partner Class A and B basic pro forma income per unit before
extraordinary items is based upon the proration of income based on the relative
amounts distributable to each class of unitholders and the average number of
Class A units outstanding during the nine months ended September 30, 1998 and
the year ended December 31, 1997 of 39,284,000 and 32,727,000, respectively, and
the 8,004,894 Class B units issued.
Limited Partner pro forma income before extraordinary items is based upon the
proration of income based on the relative amounts distributable to each class of
unitholders and the average number of limited partnership units outstanding
during the nine months ended September 30, 1998 and the year ended December 31,
1997 of 7,715,000 and 7,016,000, respectively.
Note 8. Pro Forma Adjustments
Reflects the increase in interest costs related to the issuance of the Reckson
OP 7% notes.
Note 9. Metropolitan Partners Statement of Operations Pro Forma Adjustments
Reflects Reckson OP's consolidation of the pro forma statement of operations of
Metropolitan Partners for the year ended December 31, 1997.
========================================================= =================================================
________________________
RECKSON
ASSOCIATES
REALTY CORP.
TABLE OF CONTENTS
Prospectus
Risk Factors .......................................... 2
Available Information .................................17
Incorporation of Certain Documents by Reference .......18
Reckson Associates and The Operating
Partnership ...........................................19
Use of Proceeds .......................................21
Description of Debt Securities ........................23
Description of Common Stock ...........................41
Description of Preferred Stock ........................43
Description of Depositary Shares ......................51
Restrictions on Ownership of Capital Stock ............55
Description of Warrants ...............................58
Federal Income Tax Considerations .....................59
Plan of Distribution ..................................60
Legal Matters .........................................60
Experts ...............................................61
Selected Financial Data ..............................F-
Management's Discussion and Analysis of
Financial Condition and Results of Operations ........F-
Financial Statements .................................F-
========================================================= =================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses in connection with the
issuance and distribution of the Registrant's securities being registered
hereby, other than underwriting discounts and commissions, all of which will be
borne by the Registrant:
Securities and Exchange Commission registration fee.......... $72,280
Printing and engraving expenses.............................. 200,000
Legal fees and expenses...................................... 150,000
Accounting fees and expenses................................. 40,000
Blue Sky fees and expenses................................... 20,000
Trustee's fees............................................... 10,000
Miscellaneous................................................ 57,720
---------
Total $550,000
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Maryland General Corporation Law, as amended from time to time (the
"MGCL"), permits a Maryland corporation to include in its Charter a provision
limiting the liability of its directors and officers to the corporation and its
stockholders for money damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or services or (b)
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The Charter of the Company contains such a
provision which eliminates such liability to the maximum extent permitted by
Maryland law.
The Charter of the Company authorizes the Company, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former director or officer or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other enterprise and
who is made a party to the proceeding by reason of his or her service in that
capacity. The Bylaws of the Company obligate it, to the maximum extent permitted
by Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by
II-1
reason of his service in that capacity. The Charter and Bylaws also permit the
Company to indemnify and advance expenses to any person who served a predecessor
of the Company in any of the capacities described above and to any employee or
agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses, upon the corporation's receipt of (a) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the Company and (b) a
written statement by or on his behalf to repay the amount paid or reimbursed by
the Corporation if it shall ultimately be determined that the standard of
conduct was not met.
The Company has entered into indemnification agreements with each of
its executive officers and directors. The indemnification agreements require,
among other matters, that the Company indemnify its executive officers and
directors to the fullest extent permitted by law and advance to the executive
officers and directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Under these
agreements, the Company must also indemnify and advance all expenses incurred by
executive officers and directors seeking to enforce their rights under the
indemnification agreements and may cover executive officers and directors under
the Company's directors' and officers' liability insurance. Although
indemnification agreements offer substantially the same scope of coverage
afforded the Bylaws, they provide greater assurance to directors and executive
officers that indemnification will be available, because, as contracts, they
cannot be modified unilaterally in the future by the Board of Directors or the
stockholders to eliminate the rights they provide.
The Partnership Agreement of the Operating Partnership contains
provisions indemnifying its partners and their officers and directors to the
fullest extent permitted by the Delaware Limited Partnership Act.
ITEM 16. EXHIBITS.
1 -- Form of Underwriting Agreement.(1)
4.1 -- Form of Common Stock Certificate.(2)
II-2
4.2 -- Form of Designating Amendment for Preferred Stock.(1)
4.3 -- Form of Preferred Stock Certificate.(1)
4.4 -- Form of Warrant Agreement.(1)
4.5 -- Form of Warrant.(1)
4.6 -- Form of Indenture.(3)
5 -- Opinion of Brown & Wood LLP as to the legality of the
Securities.(1)
8 -- Opinion of Brown & Wood LLP as to tax matters.(3)
12.1 -- Calculation of Reckson Associates Realty Corp. Ratios of Earnings
to Combined Fixed Charges.(3)
12.2 -- Calculation of Reckson Associates Realty Corp. Ratios of Earnings
to Fixed Charges and Preferred Dividends.(3)
12.3 -- Calculation of Reckson Operating Partnership L.P. Ratios of
Earnings to Combined Fixed Charges.(3)
12.4 -- Calculation of Reckson Operating Partnership L.P. Ratios of
Earnings to Fixed Charges and Preferred Dividends.(3)
23.1 -- Consent of Brown & Wood LLP (included in Exhibits 5 and 8).
23.2 -- Consent of Ernst & Young LLP.
24 -- Power of attorney (included on the signature page of this
Registration Statement)
______________
(1) To be filed by amendment or incorporated by reference in connection
with the offering of Securities.
(2) Previously filed as an exhibit to Registration Statement on Form S-11
(No. 33-84324) and incorporated herein by reference.
(3) Previously filed as an exhibit to Amendment No. 1 to this Registration
Statement.
ITEM 17. UNDERTAKINGS.
(a) Each Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to the Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
II-3
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
Provided, however, that paragraphs (1)(i) and (1)(ii)
do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section
13 or 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Each Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of such Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, partners and controlling
persons of a Registrant pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a Registrant
of expenses incurred or paid by a director, officer, partner or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, partner or controlling person
in connection with the securities being registered, the applicable Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such
II-4
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(d) Each registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305 (b)(2) of the Act.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Reckson
Associates Realty Corp. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Township of Huntington, State of New York, on January
29, 1999.
RECKSON ASSOCIATES REALTY CORP.
By: /s/ Scott H. Rechler
-------------------------
Scott H. Rechler
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Donald J. Rechler* Chairman of the Board, Chief Executive
-------------------- Officer and Director (Principal Executive
Donald J. Rechler Officer)
/s/ Scott H. Rechler President, Chief Operating Officer and January 29, 1999
--------------------
Scott H. Rechler Director
Executive Vice President, Treasurer and
Michael Maturo* Chief Financial Officer (Principal
---------------- Financial Officer and Principal Accounting
Michael Maturo Officer)
Roger M. Rechler* Vice-Chairman of the Board and Director
-----------------
Roger M. Rechler
Mitchell D. Rechler* Executive Vice President and Director
--------------------
Mitchell D. Rechler
Harvey R. Blau* Director
---------------
Harvey R. Blau
Leonard Feinstein* Director
------------------
Leonard Feinstein
Herve A. Kevenides* Director
-------------------
Herve A. Kevenides
John V. N. Klein* Director
----------------
John V. N. Klein
Lewis S. Ranieri* Director
-----------------
Lewis S. Ranieri
____________________ Director
Conrad D. Stephenson
*By: /s/ Scott H. Rechler January 29, 1999
-------------------------
Attorney-in-Fact
EXHIBIT INDEX
EXHIBITS DESCRIPTION PAGE
-------- ----------- ----
1 -- Form of Underwriting Agreement.(1)
4.1 -- Form of Common Stock Certificate.(2)
4.2 -- Form of Designating Amendment for Preferred Stock.(1)
4.3 -- Form of Preferred Stock Certificate.(1)
4.4 -- Form of Warrant Agreement.(1)
4.5 -- Form of Warrant.(1)
4.6 -- Form of Indenture.(3)
5 -- Opinion of Brown & Wood LLP as to the legality of the
Securities.(1)
8 -- Opinion of Brown & Wood LLP as to tax matters.(3)
12.1 -- Calculation of Reckson Associates Realty Corp. Ratios of
Earnings to Combined Fixed Charges.(3)
12.2 -- Calculation of Reckson Associates Realty Corp. Ratios of
Earnings to Fixed Charges and Preferred Dividends.(3)
12.3 -- Calculation of Reckson Operating Partnership L.P. Ratios of
Earnings to Combined Fixed Charges.(3)
12.4 -- Calculation of Reckson Operating Partnership L.P. Ratios of
Earnings to Fixed Charges and Preferred Dividends.(3)
23.1 -- Consent of Brown & Wood LLP (included in Exhibits 5 and 8).
23. 2 -- Consent of Ernst & Young LLP.
24 -- Power of attorney (included on the signature page of this
Registration Statement)
______________
(1) To be filed by amendment or incorporated by reference in connection
with the offering of Securities.
(2) Previously filed as an exhibit to Registration Statement on Form S-11
(No. 33-84324) and incorporated herein by reference.
(3) Previously filed as an exhibit to this Registration Statement.
EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) of Reckson Associates Realty Corp. (the "Company") and Reckson Operating Partnership, L.P. (the "Operating Partnership") for the registration of $744,739,654 of common stock, common stock warrants, preferred stock, depositary shares and preferred stock warrants with respect to the Company and $260,000,000 of debt securities with respect to the Operating Partnership. We also consent to the inclusion of our report herein dated February 13, 1998, except for Note 13, as to which the date is December 8, 1998, with respect to the consolidated financial statements and schedule of the Operating Partnership for the years ended December 31, 1997 and 1996 and for the period June 3, 1995 to December 31, 1995 and the combined financial statements of the Reckson Group for the period January 1, 1995 to June 2, 1995 and to the incorporation by reference of our reports dated (i) February 13, 1998, except for Note 14, as to which the date is February 18, 1998, with respect to the consolidated financial statements and schedule of the Company included in its Annual Report (Form 10-K) for the years ended December 31, 1997 and 1996 and for the period June 3, 1995 to December 31, 1995 and the combined financial statements of the Reckson Group for the period January 1, 1995 to June 2, 1995 filed with the Securities and Exchange Commission, (ii) February 4, 1997, with respect to the combined statement of revenues and certain expenses of the New Jersey Portfolio for the year ended December 31, 1996, included in the Company's Form 8-K filed with the Securities and Exchange Commission on February 19, 1997, (iii) January 16, 1997, with respect to the statement of revenues and certain expenses of the Uniondale Office Property for the year ended December 31, 1996, included in the Company's Form 8-K filed with the Securities and Exchange Commission on February 19, 1997, (iv) January 17, 1997, with respect to the combined statement of revenues and certain expenses of the Hauppauge Portfolio for the year ended December 31, 1996, included in the Company's Form 8-K filed with the Securities and Exchange Commission on February 19, 1997, (v) May 23, 1997 with respect to the statement of revenues and certain expenses of 710 Bridgeport Avenue for the year ended December 31, 1996, included in the Company's Form 8-K filed with the Securities and Exchange Commission on June 12, 1997, (vi) May 16, 1997 with respect to the statement of revenues and certain expenses of the Shorthills Office Center for the year ended December 31, 1996, included in the Company's Form 8-K filed with the Securities and Exchange Commission on June 12, 1997, (vii) July 22, 1997 with respect to the statement of revenues and certain expenses of Garden City Plaza for the year ended December 31, 1996, included in the Company's Form 8-K filed with the Securities and Exchange Commission on September 9, 1997, (viii) February 17, 1998 with respect to the statement of revenues and certain expenses of the Stamford Office Property for the year ended December 31, 1997, included in the Company's Form 8-K filed with the Securities and Exchange Commission on March 24, 1998, (ix) December 17, 1997, with respect to the statement of revenues and certain expenses of the Christiana Office Property, for the year ended June 30, 1997, included in the Company's Form 8-K filed with the Securities and Exchange Commission on February 10, 1998, and (x) March 27, 1998, with respect to the combined statement of revenues and certain expenses of the Cappelli Portfolio, for the year ended December 31, 1997, included in the Company's Form 8-K filed with the Securities and Exchange Commission on April 6, 1998. Ernst & Young LLP New York, New York January 27, 1999
*****************Box Stats*********************** Box Number: 1 on Page: 4; Filename: None; Content Type: Text; Text Angle: 1; Width: 0.7; Height: 9.41. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State.