- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
COMMISSION FILE NUMBER: 1-13762
----------------
RECKSON OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3233647
(State other jurisdiction of incorporation (IRS. Employer Identification Number)
of organization)
225 BROADHOLLOW ROAD, MELVILLE, NY 11747
(Address of principal executive office) (zip code)
(631) 694-6900
(Registrant's telephone number including area code)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes _X_ No__, and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No __.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECKSON OPERATING PARTNERSHIP, L.P.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 2001
TABLE OF CONTENTS
INDEX PAGE
- -------- -----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001 (unaudited) and
December 31, 2000 ................................................................... 2
Consolidated Statements of Income for the three months ended March 31, 2001 and
2000 (unaudited) .................................................................... 3
Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and
2000 (unaudited) .................................................................... 4
Notes to the Consolidated Financial Statements (unaudited) .......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk .......................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................................... 21
Item 2. Changes in Securities and Use of Proceeds ........................................... 21
Item 3. Defaults Upon Senior Securities ..................................................... 21
Item 4. Submission of Matters to a Vote of Securities Holders ............................... 21
Item 5. Other Information ................................................................... 21
Item 6. Exhibits and Reports on Form 8-K .................................................... 21
SIGNATURES ................................................................................. 21
1
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
RECKSON OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT UNIT AMOUNTS)
MARCH 31, 2001 DECEMBER 31,
(UNAUDITED) 2000
---------------- ---------------
ASSETS:
Commercial real estate properties, at cost:
Land ............................................................................ $ 398,139 $ 396,482
Buildings and improvements ...................................................... 2,268,512 2,219,448
Developments in progress:
Land ............................................................................ 63,263 60,918
Development costs ............................................................... 81,980 93,759
Furniture, fixtures and equipment ................................................ 7,240 7,138
----------- -----------
2,819,134 2,777,745
Less accumulated depreciation ................................................... (308,853) (288,479)
----------- -----------
2,510,281 2,489,266
Investments in real estate joint ventures ........................................ 76,584 43,534
Investment in mortgage notes and notes receivable ................................ 58,222 58,220
Cash and cash equivalents ........................................................ 29,806 16,624
Tenant receivables ............................................................... 12,699 11,511
Investments in and advances to affiliates ........................................ 176,002 180,593
Deferred rents receivable ........................................................ 79,133 67,930
Prepaid expenses and other assets ................................................ 60,690 68,759
Contract and land deposits and pre-acquisition costs ............................. 2,445 1,676
Deferred lease and loan costs .................................................... 60,789 61,681
----------- -----------
TOTAL ASSETS ..................................................................... $ 3,066,651 $ 2,999,794
=========== ===========
LIABILITIES
Mortgage notes payable ........................................................... $ 727,088 $ 728,971
Unsecured credit facility ........................................................ 304,600 216,600
Senior unsecured notes ........................................................... 449,404 449,385
Accrued expenses and other liabilities ........................................... 72,910 93,520
Distributions payable ............................................................ 28,983 28,801
----------- -----------
TOTAL LIABILITIES ................................................................ 1,582,985 1,517,277
----------- -----------
Commitments and other comments ................................................... -- --
Minority interests' in consolidated partnerships ................................. 227,001 226,350
----------- -----------
PARTNERS' CAPITAL
Preferred Capital, 11,234,518 units outstanding .................................. 313,126 313,126
General Partner's Capital:
Class A common units, 45,812,864 and 45,352,286 units outstanding,
respectively .................................................................. 576,811 575,570
Class B common units, 10,283,513 units outstanding .............................. 269,587 270,118
Limited Partners' Capital, 7,692,142 and 7,694,642 units outstanding, respectively 97,141 97,353
----------- -----------
Total Partners' Capital .......................................................... 1,256,665 1,256,167
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL .......................................... $ 3,066,651 $ 2,999,794
=========== ===========
(see accompanying notes to financial statements)
2
RECKSON OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT UNIT DATA)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
-------------- --------------
REVENUES:
Base rents ................................................................. $ 107,494 $ 94,400
Tenant escalations and reimbursements ...................................... 15,945 12,847
Equity in earnings of real estate joint ventures and service companies ..... 398 1,413
Interest income on mortgage notes and notes receivable ..................... 1,508 2,285
Investment and other income ................................................ 5,530 6,713
----------- -----------
Total Revenues ............................................................ 130,875 117,658
----------- -----------
EXPENSES:
Property operating expenses ................................................ 40,994 38,289
Marketing, general and administrative ...................................... 6,484 5,745
Interest ................................................................... 23,631 23,840
Depreciation and amortization .............................................. 23,521 21,012
----------- -----------
Total Expenses ............................................................ 94,630 88,886
----------- -----------
Income before distributions to preferred unit holders and minority
interests ................................................................. 36,245 28,772
Minority partners' interests in consolidated partnerships .................. (5,755) (1,975)
----------- -----------
Net income ................................................................. 30,490 26,797
Preferred unit distributions ............................................... (6,085) (7,985)
----------- -----------
Net income available to common unit holders ................................ $ 24,405 $ 18,812
=========== ===========
Net Income available to:
General Partner - Class A common units .................................... $ 16,050 $ 11,946
General Partner - Class B common units .................................... 5,640 4,589
Limited Partners' ......................................................... 2,715 2,277
----------- -----------
Total ...................................................................... $ 24,405 $ 18,812
=========== ===========
Net income per weighted average units:
Net income per weighted average Class A general partnership unit .......... $ .35 $ .30
=========== ===========
Net income per weighted average Class B general partnership unit .......... $ .55 $ .45
=========== ===========
Net income per weighted average limited partnership unit .................. $ .35 $ .30
=========== ===========
Weighted average common units outstanding: .................................
General Partner - Class A common units .................................... 45,483,544 40,382,182
General Partner - Class B common units .................................... 10,283,513 10,283,598
Limited Partners .......................................................... 7,693,386 7,699,593
(see accompanying notes to financial statements)
3
RECKSON OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2001 2000
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................. $ 30,490 $ 26,797
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .............................................. 23,521 21,012
Minority partners' interests in consolidated partnerships .................. 5,755 1,975
Equity in earnings of real estate joint ventures and service companies ..... (398) (1,413)
Changes in operating assets and liabilities:
Prepaid expenses and other assets .......................................... 13,252 5,763
Tenant receivables ......................................................... (1,188) 1,120
Deferred rents receivable .................................................. (11,203) (4,465)
Real estate tax escrows .................................................... (1,937) 926
Accrued expenses and other liabilities ..................................... (12,093) (5,935)
--------- ----------
Net cash provided by operating activities .................................. 46,199 45,780
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of commercial real estate properties ............................. -- (139,426)
Increase in deposits and pre-acquisition costs ............................. (795) (928)
Proceeds from mortgage note receivable repayments .......................... 3 685
Additions to commercial real estate properties ............................. (43,568) (8,655)
Additions to developments in progress ...................................... (5,078) (9,642)
Payment of leasing costs ................................................... (3,102) (2,642)
Additions to furniture, fixtures and equipment ............................. (113) (359)
Distribution from a real estate joint venture .............................. -- 140
Investments in real estate joint ventures .................................. (32,752) (83)
--------- ----------
Net cash used in investing activities ...................................... (85,405) (160,910)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on secured borrowings ................................... (1,883) (1,666)
Payment of loan costs ...................................................... (334) (1,617)
Investments in and advances to affiliates .................................. 3,099 (18,210)
Proceeds from secured borrowings ........................................... -- 70,000
Proceeds from unsecured credit facility .................................... 88,000 110,000
Contributions .............................................................. 1,338 195
Distributions .............................................................. (32,728) (31,592)
Distributions to minority partners in consolidated partnerships ............ (5,104) (2,060)
--------- ----------
Net cash provided by financing activities .................................. 52,388 125,050
--------- ----------
Net increase in cash and cash equivalents .................................. 13,182 9,920
Cash and cash equivalents at beginning of period ........................... 16,624 21,122
--------- ----------
Cash and cash equivalents at end of period ................................. $ 29,806 $ 31,042
========= ==========
(see accompanying notes to financial statements)
4
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
Reckson Operating Partnership, L. P. (the "Operating Partnership")
commenced operations on June 2, 1995. The sole general partner in the Operating
Partnership, Reckson Associates Realty Corp. (the "Company") is a
self-administered and self-managed Real Estate Investment Trust ("REIT").
During June 1995, the Company contributed approximately $162 million in
cash to the Operating Partnership in exchange for an approximate 73% general
partnership interest. The Operating Partnership executed various option and
purchase agreements whereby it issued units in the Operating Partnership
("Units") to the continuing investors and assumed certain indebtedness in
exchange for interests in certain property partnerships, fee simple and
leasehold interests in properties and development land, certain business assets
of the executive center entities and 100% of the non-voting preferred stock of
the management and construction companies.
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Tower Realty Trust, Inc.
("Tower"). On May 24, 1999 the Company completed the merger with Tower and
acquired three Class A office properties located in New York City totaling 1.6
million square feet and one office property located on Long Island totaling
approximately 101,000 square feet. In addition, pursuant to the merger, the
Company also acquired certain office properties, a property under development
and land located outside of the Tri-State Area. All of the assets acquired in
the merger located outside of the Tri-State Area, other than a 357,000 square
foot office property located in Orlando, Florida, have been sold.
On September 28, 2000, the Operating Partnership formed a joint venture
(the "Tri-State JV") with Teachers Insurance and Annuity Association ("TIAA")
and contributed eight Class A suburban office properties to the Tri-State JV in
exchange for approximately $136 million and a 51% majority ownership interest in
the Tri-State JV.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated
financial position of the Operating Partnership and its subsidiaries at March
31, 2001 and December 31, 2000 and the results of their operations and their
cash flows for the three months ended March 31, 2001 and 2000, respectively. The
Operating Partnership's investments in Metropolitan, Omni Partners, L. P.
("Omni"), the Tri-State JV and certain joint venture properties are reflected in
the accompanying financial statements on a consolidated basis with a reduction
for minority partners' interest. The operating results of the service businesses
currently conducted by Reckson Management Group, Inc., and Reckson Construction
Group, Inc., are reflected in the accompanying financial statements on the
equity method of accounting. The Operating Partnership also invests in real
estate joint ventures where it may own less than a controlling interest, such
investments are also reflected in the accompanying financial statements on the
equity method of accounting. All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements.
The minority interests at March 31, 2001, represent a convertible preferred
interest in Metropolitan, a 49% interest in the Tri-State JV and a 40% interest
in Omni.
The accompanying interim unaudited financial statements have been prepared
by the Operating Partnership's management pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosure normally included in the financial statements prepared in
accordance with accounting principles generally accepted in the United States
("GAAP") may have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. The unaudited financial
statements as of March 31, 2001 and for the three month periods
5
ended March 31, 2001 and 2000 include, in the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial information set forth herein. The results of operations for
the interim periods are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001. These financial statements
should be read in conjunction with the Operating Partnership's audited financial
statements and notes thereto included in the Operating Partnership's Form 10-K
for the year ended December 31, 2000.
Financial Accounting Standards Board's ("FASB") Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133")
which became effective January 1, 2001 requires the Operating Partnership to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If a derivative is
a hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. As of January 1, 2001, the carrying value of the
Operating Partnership's derivatives equaled their fair value and as a result no
cumulative effect changes were recorded. Additionally, as of March 31, 2001, the
carrying value of the Operating Partnership's derivatives equaled their fair
value resulting in no adjustment to income.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. MORTGAGE NOTES PAYABLE
As of March 31, 2001, the Operating Partnership had approximately $457.1
million of fixed rate mortgage notes which mature at various times between 2001
and 2027. The notes are secured by 22 properties and have a weighted average
interest rate of approximately 7.6%.
In addition, as of March 31, 2001, the Operating Partnership had $270
million of variable rate mortgage notes which mature between 2001 and 2003. The
notes are secured by two properties and have a weighted average interest rate of
LIBOR plus 132 basis points. The Operating Partnership is currently negotiating
to refinance both of these notes to long term, fixed rate mortgage notes.
4. SENIOR UNSECURED NOTES
As of March 31, 2001, the Operating Partnership had outstanding
approximately $449.4 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures
(dollars in thousands):
FACE COUPON
ISSUANCE AMOUNT RATE TERM MATURITY
- ------------------- ----------- ---------- ---------- ----------------
August 27, 1997 $150,000 7.20% 10 years August 28, 2007
March 26, 1999 $100,000 7.40% 5 years March 15, 2004
March 26, 1999 $200,000 7.75% 10 years March 15, 2009
Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 were issued at an aggregate
discount of $738,000. Such discount is being amortized over the term of the
Senior Unsecured Notes to which they relate.
5. UNSECURED CREDIT FACILITY
As of March 31, 2001, the Operating Partnership had a three year $575
million unsecured revolving credit facility (the "Credit Facility") from The
Chase Manhattan Bank, as administrative agent, UBS Warburg LLC as syndication
agent and Deutsche Bank as documentation agent. The Credit Facility matures in
September, 2003 and borrowings under the Credit Facility are currently priced
off of LIBOR plus 105 basis points.
6
The Operating Partnership utilizes the Credit Facility primarily to finance
real estate investments, fund its real estate development activities and for
working capital purposes. At March 31, 2001, the Operating Partnership had
availability under the Credit Facility to borrow an additional $270.4 million
(of which, $49.6 million has been allocated for outstanding undrawn letters of
credit).
6. COMMERCIAL REAL ESTATE INVESTMENTS
As of March 31, 2001, the Operating Partnership owned and operated 82
office properties (inclusive of ten office properties owned through joint
ventures) comprising approximately 14.4 million square feet,104 industrial
properties comprising approximately 6.8 million square feet and two retail
properties comprising approximately 20,000 square feet located in the Tri-State
Area. During the quarter ended March 31, 2001, the Operating Partnership
completed the development of one office property encompassing approximately
277,500 square feet and one industrial property encompassing approximately
206,000 square feet. Both of these properties are located on Long Island. As of
March 31, 2001, the Operating Partnership is in the process of developing a
315,000 square foot office building located in New Jersey. The Operating
Partnership also owns a 357,000 square foot office building located in Orlando,
Florida and approximately 290 acres of land in 13 separate parcels of which the
Operating Partnership can develop approximately 1.4 million square feet of
office space and approximately 224,000 square feet of industrial space. The
Operating Partnership also has invested approximately $2.9 million in a mortgage
note encumbering approximately 97 acres of land, approximately $17.0 million in
a note receivable secured by a partnership interest in Omni Partners, L.P.,
owner of the Omni, a 575,000 square foot Class A office property located in
Uniondale, New York and $36.5 million under three notes which are secured by a
minority partners' preferred interest in the Operating Partnership.
In July 1998, the Company formed a joint venture, Metropolitan Partners LLC
("Metropolitan"), with Crescent Real Estate Equities Company, a Texas REIT
("Crescent") for the purpose of acquiring Tower Realty Trust, Inc. ("Tower"). On
May 24, 1999 the Company completed the merger with Tower and acquired three
Class A office properties located in New York City totaling 1.6 million square
feet and one office property located on Long Island totaling approximately
101,000 square feet. In addition, pursuant to the merger, the Company also
acquired certain office properties, a property under development and land
located outside of the Tri-State Area. All of the assets acquired in the merger
located outside of the Tri-State Area, other than a 357,000 square foot office
property located in Orlando, Florida, have been sold.
The Company controls Metropolitan and owns 100% of the common equity;
Crescent owns a $85 million preferred equity investment in Metropolitan.
Crescent's investment accrues distributions at a rate of 7.5% per annum for a
two-year period (May 24, 1999 through May 24, 2001) and may be redeemed by
Metropolitan at any time during that period for $85 million, plus an amount
sufficient to provide a 9.5% internal rate of return. If Metropolitan does not
redeem the preferred interest, upon the expiration of the two-year period,
Crescent must convert its $85 million preferred interest into either (i) a
common membership interest in Metropolitan or (ii) shares of the Company's Class
A common stock at a conversion price of $24.61 per share. On April 4, 2001,
Crescent gave notice to the Company of its intention to convert its preferred
interest into shares of the Company's Class A common stock.
On September 28, 2000, the Operating Partnership formed the Tri-State JV
with TIAA and contributed eight Class A suburban office properties aggregating
approximately 1.5 million square feet to the Tri-State JV in exchange for
approximately $136 million and a 51% majority ownership interest in the
Tri-State JV.
7. PARTNERS' CAPITAL
On May 24, 1999, the Operating Partnership issued 11,694,567 Class B common
units of general partnership interest to the Company which were valued for GAAP
purposes at $26 per unit for total consideration of approximately $304.1
million. The Class B common units were entitled to receive an initial annual
distribution of $2.24 per unit which distribution is subject to adjustment
annually. On July 1, 2000, the annual distribution on the Class B common units
was increased to $2.40 per unit.
7
The Class B common units are exchangeable at any time, at the option of the
holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The Operating Partnership, at its option, may redeem
any or all of the Class B common units in exchange for an equal number of Class
A common units at any time following November 23, 2003.
On March 12, 2001, the Operating Partnership declared the following
distributions:
RECORD PAYMENT THREE MONTHS ANNUALIZED
SECURITY DISTRIBUTION DATE DATE ENDED DISTRIBUTION
- ------------------------- -------------- ---------------- ---------------- ---------------- -------------
Class A common unit $ .386 April 5, 2001 April 17, 2001 March 31, 2001 $ 1.544
Class B common unit $ .60 April 12, 2001 April 30, 2001 April 30, 2001 $ 2.40
Series A preferred unit $ .4766 April 12, 2001 April 30, 2001 April 30, 2001 $ 1.906
Series E preferred unit $ .52222 April 12, 2001 April 30, 2001 April 30, 2001 $ 2.089
As of March 31, 2001 in conjunction with the Company's Class B common stock
buy back program, the Operating Partnership had purchased and retired 1,410,804
Class B common units for approximately $30.3 million.
Net income per common partnership unit is determined by allocating net
income after preferred distributions and minority partners' interest in
consolidated partnerships income to the general and limited partners' based on
their weighted average distribution per common partnership units outstanding
during the respective periods presented.
Holders of preferred units of limited and general partnership interest are
entitled to distributions based on the stated rates of return (subject to
adjustment) for those units.
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (in thousands)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
----------- -----------
Cash paid during the period for interest ......... $ 34,950 $ 33,306
======== ========
Interest capitalized during the period ........... $ 2,703 $ 2,362
======== ========
9. SEGMENT DISCLOSURE
The Operating Partnership's portfolio consists of Class A office properties
located within the New York City metropolitan area and Class A suburban office
and industrial properties located and operated within the Tri-State Area (the
"Core Portfolio"). In addition the Operating Partnership's portfolio also
includes one office property located in Orlando, Florida. The Operating
Partnership has managing directors who report directly to the Chief Operating
Officer and Chief Financial Officer who have been identified as the Chief
Operating Decision Makers because of their final authority over resource
allocation decisions and performance assessment.
In addition, the Operating Partnership does not consider (i) interest
incurred on its Credit Facility, term loan and Senior Unsecured Notes, (ii) the
operating performance of the office property located in Orlando, Florida and
(iii) commencing January 1, 2000, the operating performance of the industrial
joint venture properties formerly owned by Reckson Morris Operating Partnership,
L.P. as part of its Core Portfolio's property operating performance.
8
The following table sets forth the components of the Operating
Partnership's revenues and expenses and other related disclosures for the three
months ended March 31, 2001 and 2000 (in thousands):
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
MARCH 31, 2001 MARCH 31, 2000
------------------------------------------- ------------------------------------------
CORE CONSOLIDATED CORE CONSOLIDATED
PORTFOLIO OTHER TOTALS PORTFOLIO OTHER TOTALS
-------------- ------------- -------------- -------------- ------------- -------------
REVENUES:
Base rents, tenant escalations and
reimbursements .................. $ 120,722 $ 2,717 $ 123,439 $ 104,821 $ 2,426 $ 107,247
Equity in earnings of
real estate joint
ventures and service
companies ....................... -- 398 398 -- 1,413 1,413
Other income ..................... 549 6,489 7,038 406 8,592 8,998
----------- --------- ----------- ----------- --------- -----------
Total Revenues ................... 121,271 9,604 130,875 105,227 12,431 117,658
----------- --------- ----------- ----------- --------- -----------
EXPENSES:
Property operating
expenses ........................ 40,354 640 40,994 37,621 668 38,289
Marketing, general
and administrative .............. 4,624 1,860 6,484 4,967 778 5,745
Interest ......................... 12,906 10,725 23,631 9,192 14,648 23,840
Depreciation and
amortization .................... 21,535 1,986 23,521 19,334 1,678 21,012
----------- --------- ----------- ----------- --------- -----------
Total Expenses ................... 79,419 15,211 94,630 71,114 17,772 88,886
----------- --------- ----------- ----------- --------- -----------
Income (loss) before
distributions to
preferred unitholders
and minority
interests ....................... $ 41,852 $ (5,607) $ 36,245 $ 34,113 $ (5,341) $ 28,772
=========== ========= =========== =========== ========= ===========
Total Assets ..................... $ 2,449,621 $ 617,030 $ 3,066,651 $ 2,069,161 $ 836,410 $ 2,905,571
=========== ========= =========== =========== ========= ===========
9
10. OTHER INVESTMENTS AND ADVANCES
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture Partners,
LLC ("RSVP"). In connection with the formation of FrontLine, the Operating
Partnership established a credit facility with FrontLine (the "FrontLine
Facility") in the amount of $100 million for FrontLine to use in its investment
activities, operations and other general corporate purposes. As of March 31,
2001, the Operating Partnership had advanced approximately $93.4 million under
the FrontLine Facility. The Operating Partnership also approved the funding of
investments of up to $100 million relating to RSVP (the "RSVP Commitment"),
through RSVP-controlled joint ventures (for REIT-qualified investments) or
advances made to FrontLine under terms similar to the FrontLine Facility. During
March 2001, the Operating Partnership increased the RSVP Commitment to $110
million and as of March 31, 2001, approximately $109.1 million had been funded
through the RSVP Commitment, of which $67.7 million represents investments in
RSVP-controlled (REIT-qualified) joint ventures and $41.4 million represents
advances. In addition, as of March 31, 2001, the Operating Partnership, through
its Credit Facility, has allocated approximately $3.2 million in outstanding
undrawn letters of credit for the benefit of FrontLine. As of March 31, 2001,
interest accrued under the FrontLine Facility and RSVP Commitment was
approximately $18.1 million.
Both the FrontLine Facility and the RSVP Commitment have a term of five
years and advances under each are recourse obligations of FrontLine. Interest
accrues on advances made under the credit facilities at a rate equal to the
greater of (a) the prime rate plus two percent and (b) 12% per annum, with the
rate on amounts that are outstanding for more than one year increasing annually
at a rate of four percent of the prior year's rate. In March 2001, the credit
facilities were amended to provide that (i) interest is payable only at maturity
and (ii) the Company may transfer all or any portion of its rights or
obligations under the credit facilities to its affiliates. The Company requested
these changes as a result of changes in REIT tax laws.
FrontLine currently owns an interest in HQ Global Holdings, Inc., one of
the largest providers of flexible officing solutions in the world, interests in
its e-commerce and e-services partner companies and its interest in RSVP which
invests primarily in real estate and real estate related operating companies
generally outside of the Operating Partnership's core office and industrial
focus.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the historical
financial statements of Reckson Operating Partnership, L.P. (the "Operating
Partnership") and related notes.
The Operating Partnership considers certain statements set forth herein to
be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, with respect to the Operating Partnership's
expectations for future periods. Certain forward-looking statements, including,
without limitation, statements relating to the timing and success of
acquisitions and the completion of development or redevelopment of properties,
the financing of the Operating Partnership's operations, the ability to lease
vacant space and the ability to renew or relet space under expiring leases,
involve 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 including delays in completion
and cost overruns, the ability to finance business opportunities, risk of
repayment of debt owed to the Operating Partnership, risks associated with joint
ventures, increases in interest rates 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 Operating Partnership, which commenced operations on June 2 1995, is
engaged in the ownership, management, operation, leasing and development of
commercial real estate properties, principally office and industrial buildings,
and also owns certain undeveloped land located in the New York tri-state area
(the "Tri-State Area"). Reckson Associates Realty Corp. (the "Company"), is a
self-administered and self-managed Real Estate Investment Trust ("REIT"), and
serves as the sole general partner in the Operating Partnership.
As of March 31, 2001, the Operating Partnership owned and operated 82
office properties (inclusive of ten office properties which are owned through
joint ventures) comprising approximately 14.4 million square feet, 104
industrial properties comprising approximately 6.8 million square feet and two
retail properties comprising approximately 20,000 square feet located in the
Tri-State Area. During the quarter ended March 31, 2001, the Operating
Partnership completed the development of one office property encompassing
approximately 277,500 square feet and one industrial property encompassing
approximately 206,000 square feet. Both of these properties are located on Long
Island. As of March 31, 2001, the Operating Partnership is in the process of
developing a 315,000 square foot office building located in New Jersey. The
Operating Partnership also owns a 357,000 square foot office building located in
Orlando, Florida and approximately 290 acres of land in 13 separate parcels of
which the Operating Partnership can develop approximately 1.4 million square
feet of office space and approximately 224,000 square feet of industrial space.
The Operating Partnership also has invested approximately $2.9 million in a
mortgage note encumbering approximately 97 acres of land, approximately $17.0
million in a note receivable secured by a partnership interest in Omni Partners,
L.P., owner of the Omni, a 575,000 square foot Class A office property located
in Uniondale, New York and $36.5 million under three notes which are secured by
a minority partners' preferred interest in the Operating Partnership.
11
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture Partners,
LLC ("RSVP"). In connection with the formation of FrontLine, the Operating
Partnership established a credit facility with FrontLine (the "FrontLine
Facility") in the amount of $100 million for FrontLine to use in its investment
activities, operations and other general corporate purposes. As of March 31,
2001, the Operating Partnership had advanced approximately $93.4 million under
the FrontLine Facility. The Operating Partnership also approved the funding of
investments of up to $100 million relating to RSVP (the "RSVP Commitment"),
through RSVP-controlled joint ventures (for REIT-qualified investments) or
advances made to FrontLine under terms similar to the FrontLine Facility. During
March 2001, the Operating Partnership increased the RSVP Commitment to $110
million and as of March 31, 2001, approximately $109.1 million had been funded
through the RSVP Commitment, of which $67.7 million represents investments in
RSVP-controlled (REIT-qualified) joint ventures and $41.4 million represents
advances. In addition, as of March 31, 2001, the Operating Partnership, through
its unsecured credit facility, has allocated approximately $3.2 million in
outstanding undrawn letters of credit for the benefit of FrontLine. As of March
31, 2001, interest accrued under the FrontLine Facility and RSVP Commitment was
approximately $18.1 million.
Both the FrontLine Facility and the RSVP Commitment have a term of five
years and advances under each are recourse obligations of FrontLine. Interest
accrues on advances made under the credit facilities at a rate equal to the
greater of (a) the prime rate plus two percent and (b) 12% per annum, with the
rate on amounts that are outstanding for more than one year increasing annually
at a rate of four percent of the prior year's rate. In March 2001, the credit
facilities were amended to provide that (i) interest is payable only at maturity
and (ii) the Company may transfer all or any portion of its rights or
obligations under the credit facilities to its affiliates. The Company requested
these changes as a result of changes in REIT tax laws.
FrontLine currently owns an interest in HQ Global Holdings, Inc., one of
the largest providers of flexible officing solutions in the world, interests in
its e-commerce and e-services partner companies and its interest in RSVP which
invests primarily in real estate and real estate related operating companies
generally outside of the Operating Partnership's core office and industrial
focus.
In July 1998, the Company formed a joint venture, Metropolitan Partners LLC
("Metropolitan"), with Crescent Real Estate Equities Company, a Texas REIT
("Crescent") for the purpose of acquiring Tower Realty Trust, Inc. ("Tower"). On
May 24, 1999 the Company completed the merger with Tower and acquired three
Class A office properties located in New York City totaling 1.6 million square
feet and one office property located on Long Island totaling approximately
101,000 square feet. In addition, pursuant to the merger, the Company also
acquired certain office properties, a property under development and land
located outside of the Tri-State Area. All of the assets acquired in the merger
located outside of the Tri-State Area, other than a 357,000 square foot office
property located in Orlando, Florida, have been sold.
The Company controls Metropolitan and owns 100% of the common equity;
Crescent owns a $85 million preferred equity investment in Metropolitan.
Crescent's investment accrues distributions at a rate of 7.5% per annum for a
two-year period (May 24, 1999 - May 24, 2001) and may be redeemed by
Metropolitan at any time during that period for $85 million, plus an amount
sufficient to provide a 9.5% internal rate of return. If Metropolitan does not
redeem the preferred interest, upon the expiration of the two-year period,
Crescent must convert its $85 million preferred interest into either (i) a
common membership interest in Metropolitan or (ii) shares of the Company's Class
A common stock at a conversion price of $24.61 per share. On April 4, 2001,
Crescent gave notice to the Company of its intention to convert its preferred
interest into shares of the Company's Class A common stock.
On September 28, 2000, the Operating Partnership formed a joint venture
(the "Tri-State JV") with Teachers Insurance and Annuity Association and
contributed eight Class A suburban office properties aggregating approximately
1.5 million square feet to the Tri-State JV in exchange for approximately $136
million and a 51% majority ownership interest in the Tri-State JV.
12
The market capitalization of the Operating Partnership at March 31, 2001 was
approximately $3.3 billion. The Operating Partnership's market capitalization is
calculated based on the sum of (i) the value of the Operating Partnership's
Class A common units and Class B common units (which, for this purpose, is
assumed to be the same per unit as the market value of a share of the Company's
Class A common stock and Class B common stock), (ii) the liquidation preference
values of the Operating Partnership's preferred units, (iii) the contributed
value of Metropolitan's preferred interest and (iv) the approximately $1.5
billion (including its share of joint venture debt and net of minority partners'
interests share of joint venture debt) of debt outstanding at March 31, 2001. As
a result, the Operating Partnership's total debt to total market capitalization
ratio at March 31, 2001 equaled approximately 44.3%.
RESULTS OF OPERATIONS
The Operating Partnership's total revenues increased by $13.2 million or
11.2% for the three months ended March 31, 2001 as compared to the 2000 period.
Property operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $16.2 million or
15.1% for the three months ended March 31, 2001 as compared to the 2000 period.
The increase in Property Operating Revenues is primarily attributable to
approximately $10.3 million from increases in occupancies and rental rates in
our "same store" properties. In addition, approximately $2.7 million of the
increase was generated by developed and redeveloped properties. The Operating
Partnership's base rent reflects the positive impact of the straight-line rent
adjustment of $11.2 million for the three months ended March 31, 2001 as
compared to $4.5 million for the 2000 period. Included in the $11.2 million
straight-line rent adjustment is $7.5 million attributable to 919 Third Avenue
as compared to $1.1 million for the 2000 period. This amount is primarily
attributable to the free rent period contained in the lease of the largest
tenant in the building. The free rent period is effective through February 28,
2002.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $2.7 million or 7.1% for the three months ended March
31, 2001 as compared to the 2000 period. This increase is primarily due to an
increase of $2.4 million in our "same-store" properties
Gross Operating Margins (defined as Property Operating Revenues less
Property Expenses, taken as a percentage of Property Operating Revenues) for the
three months ended March 31, 2001 and 2000 were 66.8% and 64.3%, respectively.
The increase in Gross Operating Margins is primarily attributable to the
increase in rental rates and occupancy levels.
Marketing, general and administrative expenses increased by approximately
$739,000 for the three months ended March 31, 2001 as compared to the 2000
period. Marketing, general and administrative expenses as a percentage of total
revenues were 5.0% for the three months ended March 31, 2001 as compared to 4.9%
for the 2000 period.
Interest expense decreased by approximately $209,000 for the three months
ended March 31, 2001 as compared to the 2000 period.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, the Operating Partnership had a three year $575
million unsecured revolving credit facility (the "Credit Facility") from The
Chase Manhattan Bank, as administrative agent, UBS Warburg LLC as syndication
agent and Deutsche Bank as documentation agent. The Credit Facility matures in
September, 2003 and borrowings under the Credit Facility are currently priced
off of LIBOR plus 105 basis points.
The Operating Partnership utilizes the Credit Facility primarily to finance
real estate investments, fund its real estate development activities and for
working capital purposes. At March 31, 2001, the Operating Partnership had
availability under the Credit Facility to borrow an additional $270.4 million
(of which, $49.6 million has been allocated for outstanding undrawn letters of
credit).
13
On May 24, 1999, the Operating Partnership issued 11,694,567 Class B common
units of general partnership interest to the Company which were valued for GAAP
purposes at $26 per unit for total consideration of approximately $304.1
million. The Class B common units were entitled to receive an initial annual
distribution of $2.24 per unit, which distribution is subject to adjustment
annually. On July 1, 2000, the annual distribution on the Class B common units
was increased to $2.40 per unit.
The Class B common units are exchangeable at any time, at the option of the
holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The Operating Partnership, at its option, may redeem
any or all of the Class B common units in exchange for an equal number of Class
A common units at any time following November 23, 2003.
As of March 31, 2001, in conjunction with the Company's Class B common
stock buy back program, the Operating Partnership had purchased and retired
1,410,804 Class B common units for approximately $30.3 million.
The Operating Partnership's indebtedness at March 31, 2001 totaled
approximately $1.5 billion (including its share of joint venture debt and net of
the minority partners' interests share of joint venture debt) and was comprised
of $304.6 million outstanding under the Credit Facility, approximately $449.4
million of senior unsecured notes and approximately $713.0 million of mortgage
indebtedness. Based on the Operating Partnership's total market capitalization
of approximately $3.3 billion at March 31, 2001 (calculated based on the sum of
(i) the value of the Operating Partnership's Class A common units and Class B
common units (which, for this purpose, is assumed to be the same per unit as the
market value of a share of the Company's Class A common stock and Class B common
stock), (ii) the liquidation preference value of the Operating Partnership's
preferred units, (iii) the contributed value of Metropolitan's preferred
interest and (iv) the $1.5 billion of debt), the Operating Partnership's debt
represented approximately 44.3% of its total market capitalization.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Operating Partnership. The Operating
Partnership expects to meet its short-term liquidity requirements generally
through its net cash provided by operating activities along with the Credit
Facility previously discussed. The Operating Partnership expects to meet certain
of its financing requirements through long-term secured and unsecured borrowings
and the issuance of debt and equity securities of the Operating Partnership. In
addition, the Operating Partnership also believes that it will, from time to
time, generate funds from the sale of certain of its real estate properties or
interests therein. 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 debt and equity offerings, will
be adequate to meet the capital and liquidity requirements of the Operating
Partnership in both the short and long-term.
INFLATION
The office leases generally provide for fixed base rent increases or
indexed escalations. In addition, the office leases provide for separate
escalations of real estate taxes, operating expenses and electric costs over a
base amount. The industrial leases also generally provide for fixed base rent
increases, direct pass through of certain operating expenses and separate real
estate tax escalations over a base amount. The Operating Partnership believes
that inflationary increases in expenses will generally be offset by contractual
rent increases and expense escalations described above.
The Credit Facility and certain mortgage notes payable bear interest at a
variable rate, which will be influenced by changes in short-term interest rates,
and are sensitive to inflation.
14
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an operating partnership which is a general partner 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 accounting principles generally accepted in the United States
("GAAP") and is not indicative of cash available to fund cash needs. FFO should
not be considered as an alternative to net income as an indicator of the
Operating Partnership's operating performance or as an alternative to cash flow
as a measure of liquidity. In November 1999, NAREIT issued a "White Paper"
analysis to address certain interpretive issues under its definition of FFO. The
White Paper provides that FFO should include both recurring and non-recurring
operating results, except those results defined as "extraordinary items" under
GAAP. This revised definition is effective for all periods beginning on or after
January 1, 2000.
Since all companies and analysts do not calculate FFO in a similar fashion,
the 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):
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
----------- -----------
Net income available to common unit holders ......................... $ 24,405 $ 18,812
Adjustment for Funds From Operations:
Add:
Real estate depreciation and amortization ......................... 22,988 20,616
Minority partners' interests in consolidated partnerships ......... 5,755 1,975
Less:
Amount distributed to minority partners in consolidated
partnerships ..................................................... 5,701 2,381
-------- --------
Funds From Operations ............................................... $ 47,447 $ 39,022
======== ========
Weighted average units outstanding .................................. 63,460 58,366
======== ========
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary market risk facing the Operating Partnership is interest rate
risk on its long-term debt, mortgage notes and notes receivable. The Operating
Partnership will, when advantageous, hedge its interest rate risk using
financial instruments. The Operating Partnership is not subject to foreign
currency risk.
The Operating Partnership manages its exposure to interest rate risk on its
variable rate indebtedness by borrowing on a short-term basis under its Credit
Facility until such time as it is able to retire the short-term variable rate
debt with either a long-term fixed rate debt offering, long term mortgage debt,
general partner contributions or through sales or partial sales of assets.
The Operating Partnership will recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability, or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings.
The fair market value ("FMV") of the Operating Partnership's long term
debt, mortgage notes and notes receivable is estimated based on discounting
future cash flows at interest rates that management believes reflects the risks
associated with long term debt, mortgage notes and notes receivable of similar
risk and duration.
The following table sets forth the Operating Partnership's long term debt
obligations by scheduled principal cash flow payments and maturity date,
weighted average interest rates and estimated FMV at March 31, 2001 (dollars in
thousands):
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2001 2002 2003 2004 2005
------------- ------------- ------------- -------------- -------------
Long term debt:
Fixed rate ............. $ 21,342 $ 17,012 $ 8,905 $ 112,276 $ 10,459
Weighted average
interest rate ......... 7.57% 7.80% 7.79% 7.50% 7.81%
Variable rate .......... $ 70,000 $ -- $ 504,600 $ -- $ --
Weighted average
interest rate ......... 6.94% -- 6.68% -- --
THEREAFTER TOTAL(1) FMV
-------------- -------------- ------------
Long term debt:
Fixed rate ............. $ 737,094 $ 907,088 $ 911,805
Weighted average
interest rate ......... 7.56% 7.56%
Variable rate .......... $ -- $ 574,600 $ 574,600
Weighted average
interest rate ......... -- 6.71%
- ----------
(1) Includes unamortized issuance discounts of $596,000 on the 5 and 10-year
senior unsecured notes issued on March 26, 1999, which are due at maturity.
In addition, the Operating Partnership has assessed the market risk for its
variable rate debt, which is based upon LIBOR, and believes that a one percent
increase in the LIBOR rate would have an approximate $5.8 million annual
increase in interest expense based on approximately $574.6 million of variable
rate debt outstanding at March 31, 2001.
The following table sets forth the Operating Partnership's mortgage notes
and note receivables by scheduled maturity date, weighted average interest rates
and estimated FMV at March 31, 2001 (dollars in thousands):
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
2001 2002 2003 2004 2005
---------- ----------- ------ ------------ ------
Mortgage notes and notes receivable:
Fixed rate ............................. $ 12 $ 4,208 $ -- $ 36,500 $ --
Weighted average interest rate ......... 9.00% 10.08% -- 10.23% --
THEREAFTER TOTAL(2) FMV
------------ ------------- -----------
Mortgage notes and notes receivable:
Fixed rate ............................. $ 16,990 $ 57,710 $ 59,085
Weighted average interest rate ......... 11.65% 10.63%
- ----------
(2) Excludes interest receivables aggregating approximately $512,000.
16
SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES,
TENANT IMPROVEMENT COSTS AND LEASING COMMISSIONS
The following table summarizes the expenditures incurred for capital
expenditures for the entire portfolio and tenant improvements and leasing
commissions for space leased at the Operating Partnership's office and
industrial properties for the three months ended March 31, 2001 and a historical
average of such non- incremental capital expenditures, tenant improvements and
leasing commissions for the years 1997 through 2000.
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES
1997-2000
1997 1998 1999 2000 AVERAGE 1Q01
--------------- --------------- --------------- --------------- --------------- -------------
SUBURBAN OFFICE PROPERTIES
Total ................... $ 1,108,675 $ 2,004,976 $ 2,298,899 $ 3,289,116 $ 2,175,417 $ 421,964
Per Square Foot ......... 0.22 0.23 0.23 0.33 0.25 0.04
CBD OFFICE PROPERTIES
Total ................... N/A N/A N/A $ 946,718 $ 946,718 $ 220,737
Per Square Foot N/A N/A N/A 0.38 0.38 0.06
INDUSTRIAL PROPERTIES
Total ................... $ 733,233 $ 1,205,266 $ 1,048,688 $ 813,431 $ 950,155 $ 43,714
Per Square Foot ......... 0.15 0.12 0.11 0.11 0.12 0.01
NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS
1997 1998 1999
-------------- --------------- ---------------
LONG ISLAND OFFICE PROPERTIES
Tenant Improvements ............ $ 784,044 $ 1,140,251 $ 1,009,357
Per Square Foot Improved ....... 7.00 3.98 4.73
Leasing Commissions ............ $ 415,822 $ 418,191 $ 551,762
Per Square Foot Leased ......... 4.83 1.46 2.59
---------- ----------- -----------
Total Per Square Foot .......... $ 11.83 $ 5.44 $ 7.32
========== =========== ===========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements ............ $1,211,665 $ 711,160 $ 1,316,611
Per Square Foot Improved ....... 8.90 4.45 5.62
Leasing Commissions ............ $ 366,257 $ 286,150 $ 457,730
Per Square Foot Leased ......... 2.69 1.79 1.96
---------- ----------- -----------
Total Per Square Foot .......... $ 11.59 $ 6.24 $ 7.58
========== =========== ===========
CONNECTICUT OFFICE PROPERTIES
Tenant Improvements ............ $1,022,421 $ 202,880 $ 179,043
Per Square Foot Improved ....... 13.39 5.92 4.88
Leasing Commissions ............ $ 256,615 $ 151,063 $ 110,252
Per Square Foot Leased ......... 3.36 4.41 3.00
---------- ----------- -----------
Total Per Square Foot .......... $ 16.75 $ 10.33 $ 7.88
========== =========== ===========
NEW JERSEY OFFICE PROPERTIES
Tenant Improvements ............ N/A $ 654,877 $ 454,054
Per Square Foot Improved ....... N/A 3.78 2.29
Leasing Commissions ............ N/A $ 396,127 $ 787,065
Per Square Foot Leased ......... N/A 2.08 3.96
---------- ----------- -----------
Total Per Square Foot .......... N/A $ 5.86 $ 6.25
========== =========== ===========
NEW YORK CITY OFFICE
PROPERTIES
Tenant Improvements ............ N/A N/A N/A
Per Square Foot Improved ....... N/A N/A N/A
Leasing Commissions ............ N/A N/A N/A
Per Square Foot Leased ......... N/A N/A N/A
---------- ----------- -----------
Total Per Square Foot .......... N/A N/A N/A
========== =========== ===========
INDUSTRIAL PROPERTIES
Tenant Improvements ............ $ 230,466 $ 283,842 $ 375,646
Per Square Foot Improved ....... 0.55 0.76 0.25
Leasing Commissions ............ $ 81,013 $ 200,154 $ 835,108
Per Square Foot Leased ......... 0.19 0.44 0.56
---------- ----------- -----------
Total Per Square Foot .......... $ 0.74 $ 1.20 $ 0.81
========== =========== ===========
1997 -2000
2000 AVERAGE 1Q01 NEW RENEWAL
--------------- --------------- ------------- ------------- -------------
LONG ISLAND OFFICE PROPERTIES
Tenant Improvements ............ $ 2,853,706 $ 1,466,840 $ 497,179 $ 342,564 $ 154,615
Per Square Foot Improved ....... 6.99 5.68 8.97 17.24 4.35
Leasing Commissions ............ $ 2,208,604 $ 898,595 $ 273,542 $ 78,276 $ 195,266
Per Square Foot Leased ......... 4.96 3.46 4.93 3.91 5.49
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 11.95 $ 9.14 $ 13.90 $ 21.15 $ 9.84
=========== =========== ========= ========= =========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements ............ $ 1,860,027 $ 1,274,866 $ 374,274 $ 167,649 $ 206,625
Per Square Foot Improved ....... 5.72 6.17 4.70 7.34 3.64
Leasing Commissions ............ $ 412,226 $ 380,591 $ 32,295 $ 39,295 $ 0
Per Square Foot Leased ......... 3.00 2.36 0.49 1.72 --
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 8.72 $ 8.53 $ 5.19 $ 9.06 $ 3.64
=========== =========== ========= ========= =========
CONNECTICUT OFFICE PROPERTIES
Tenant Improvements ............ $ 385,531 $ 447,469 $ 101,980 $ 101,980 $ 0
Per Square Foot Improved ....... 4.19 7.10 1.72 5.78 --
Leasing Commissions ............ $ 453,435 $ 242,841 $ 96,929 $ 96,929 $ 0
Per Square Foot Leased ......... 4.92 3.92 1.63 5.50 --
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 9.11 $ 11.02 $ 3.35 $ 11.28 $ --
=========== =========== ========= ========= =========
NEW JERSEY OFFICE PROPERTIES
Tenant Improvements ............ $ 1,580,323 $ 896,418 $ 85,671 $ 52,477 $ 33,194
Per Square Foot Improved ....... 6.71 4.26 2.08 1.69 3.28
Leasing Commissions ............ $ 1,031,950 $ 738,381 $ 154,956 $ 129,218 $ 25,738
Per Square Foot Leased ......... 4.44 3.49 3.77 4.17 2.54
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 11.15 $ 7.75 $ 5.85 $ 5.86 $ 5.82
=========== =========== ========= ========= =========
NEW YORK CITY OFFICE
PROPERTIES
Tenant Improvements ............ $ 65,267 $ 65,267 $ 688,800 $ 688,800 $ 0
Per Square Foot Improved ....... 1.79 1.79 23.01 23.01 --
Leasing Commissions ............ $ 418,185 $ 418,185 $ 474,229 $ 474,229 $ 0
Per Square Foot Leased ......... 11.50 11.50 15.84 15.84 --
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 13.29 $ 13.29 $ 38.85 $ 38.85 $ 0.00
=========== =========== ========= ========= =========
INDUSTRIAL PROPERTIES
Tenant Improvements ............ $ 650,216 $ 385,043 $ 34,650 $ 34,650 $ 0
Per Square Foot Improved ....... 0.95 0.63 0.29 0.55 --
Leasing Commissions ............ $ 436,506 $ 388,195 $ 50,055 $ 50,055 $ 0
Per Square Foot Leased ......... 0.64 0.46 0.42 0.79 --
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 1.59 $ 1.09 $ 0.71 $ 1.34 $ 0.00
=========== =========== ========= ========= =========
17
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for executed leases
as of March 31, 2001:
LONG ISLAND OFFICE PROPERTIES (EXCLUDING OMNI):
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 36 168,126 5.1% $ 22.25 $ 24.36
2002 ........................ 33 165,326 5.1% $ 21.98 $ 24.90
2003 ........................ 48 297,892 9.1% $ 22.32 $ 25.03
2004 ........................ 46 274,809 8.4% $ 23.21 $ 26.18
2005 ........................ 65 599,698 18.3% $ 23.42 $ 26.73
2006 ........................ 15 76,583 2.3% $ 26.38 $ 30.41
2007 AND THEREAFTER ......... 81 1,688,317 51.7% -- --
--- --------- -----
TOTAL ....................... 324 3,270,751 100.0%
=== ========= =====
OMNI:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 3 22,931 3.9% $ 29.09 $ 35.06
2002 ........................ 4 53,127 9.0% $ 34.55 $ 37.91
2003 ........................ 4 58,018 9.8% $ 30.22 $ 34.97
2004 ........................ 4 112,414 19.0% $ 26.12 $ 34.15
2005 ........................ 7 59,166 10.0% $ 27.99 $ 35.26
2006 ........................ 1 9,749 1.6% $ 35.21 $ 38.02
2007 AND THEREAFTER ......... 10 276,259 46.7% -- --
-- ------- -----
TOTAL ....................... 33 591,664 100.0%
== ======= =====
INDUSTRIAL PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 21 376,385 7.7% $ 6.28 $ 7.38
2002 ........................ 28 246,504 5.0% $ 6.47 $ 7.32
2003 ........................ 29 735,934 15.0% $ 5.35 $ 6.27
2004 ........................ 33 623,753 12.7% $ 6.25 $ 7.12
2005 ........................ 22 427,994 8.7% $ 5.93 $ 7.97
2006 ........................ 27 834,717 17.0% $ 6.29 $ 7.81
2007 AND THEREAFTER ......... 36 1,664,940 33.9% -- --
--- --------- -----
TOTAL ....................... 196 4,910,227 100.0%
=== ========= =====
18
LEASE EXPIRATIONS - (CONTINUED)
RESEARCH AND DEVELOPMENT PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 7 276,830 21.2% $ 5.63 $ 6.90
2002 ........................ 3 118,620 9.1% $ 10.19 $ 11.82
2003 ........................ 4 37,938 2.9% $ 9.20 $ 10.15
2004 ........................ 9 99,218 7.6% $ 13.86 $ 15.02
2005 ........................ 5 367,556 28.2% $ 8.49 $ 10.53
2006 ........................ 6 90,217 6.9% $ 17.46 $ 20.07
2007 AND THEREAFTER ......... 14 314,417 24.1% -- --
-- --------- -----
TOTAL ....................... 48 1,304,796 100.0%
== ========= =====
WESTCHESTER OFFICE PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 29 184,244 5.9% $ 21.09 $ 21.69
2002 ........................ 45 412,680 13.2% $ 21.08 $ 21.10
2003 ........................ 43 247,349 7.9% $ 22.12 $ 23.39
2004 ........................ 30 164,634 5.2% $ 21.09 $ 22.03
2005 ........................ 52 415,469 13.3% $ 23.92 $ 24.32
2006 ........................ 24 643,346 20.5% $ 22.20 $ 24.07
2007 AND THEREAFTER ......... 41 1,065,724 34.0% -- --
--- --------- -----
TOTAL ....................... 264 3,133,446 100.0%
=== ========= =====
STAMFORD OFFICE PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 25 67,832 6.3% $ 23.36 $ 23.73
2002 ........................ 18 85,900 8.0% $ 27.67 $ 29.02
2003 ........................ 17 140,239 13.0% $ 31.22 $ 31.70
2004 ........................ 19 226,883 21.1% $ 21.76 $ 22.74
2005 ........................ 24 118,425 11.0% $ 26.81 $ 28.62
2006 ........................ 17 271,239 25.2% $ 24.31 $ 25.08
2007 AND THEREAFTER ......... 16 165,170 15.4% -- --
--- --------- -----
TOTAL ....................... 136 1,075,688 100.0%
=== ========= =====
19
LEASE EXPIRATIONS - (CONTINUED)
NEW JERSEY OFFICE PROPERTIES:
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 13 183,633 8.7% $ 17.85 $ 18.18
2002 ........................ 22 171,446 8.1% $ 20.02 $ 20.77
2003 ........................ 23 333,689 15.7% $ 19.03 $ 19.16
2004 ........................ 34 241,737 11.4% $ 22.51 $ 23.12
2005 ........................ 31 344,775 16.3% $ 23.19 $ 23.76
2006 ........................ 12 179,319 8.5% $ 22.38 $ 23.58
2007 AND THEREAFTER ......... 17 663,491 31.3% -- --
--- --------- -----
TOTAL ....................... 152 2,118,090 100.0%
=== ========= =====
NEW YORK CITY OFFICE
YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
- ----------------------------- ----------- ---------------- ----------------- -------------- ------------
2001 ........................ 14 100,853 2.9% $ 32.30 $ 33.26
2002 ........................ 22 190,615 5.6% $ 32.62 $ 33.41
2003 ........................ 7 115,726 3.4% $ 31.89 $ 32.33
2004 ........................ 20 224,975 6.6% $ 36.53 $ 38.74
2005 ........................ 37 457,063 13.4% $ 34.76 $ 36.35
2006 ........................ 47 339,560 9.9% $ 29.70 $ 30.77
2007 AND THEREAFTER ......... 75 1,989,668 58.2% -- --
--- --------- -----
TOTAL ....................... 222 3,418,460 100.0%
=== ========= =====
- ----------
(1) Per square foot rental rate represents annualized straight line rent as of
the lease expiration date.
(2) Per square foot rental rate represents annualized base rent as of the lease
expiration date plus non-recoverable operating expense pass-throughs.
20
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities and use of proceeds -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Securities Holders -- None
Item 5. Other information -- None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.1 Second Amendment to the Amended and Restated Credit Agreements, dated March 30,
2001, between Reckson Operating Partnership, L.P. and FrontLine Capital Group.
(b) During the three months ended March 31, 2001 the Registrant filed the
following reports on Form 8K:
On March 5, 2001, the Registrant submitted a report on Form 8-K
under Item 9 thereof in order to submit its fourth quarter
presentation in satisfaction of the requirements of Regulation FD.
In March 8, 2001, the Registrant submitted a report on Form 8-K
under Item 9 thereof in order to submit supplemental operating and
financial data for the quarter and year ended December 31, 2000 in
satisfaction of the requirements of Regulation FD.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RECKSON OPERATING PARTNERSHIP, L.P.
BY: RECKSON ASSOCIATES REALTY CORP., ITS GENERAL PARTNER
By: /s/ Scott H. Rechler /s/ Michael Maturo
------------------------------------ -------------------------------------------
Scott H. Rechler, Co-Chief Executive Michael Maturo, Executive Vice President,
Officer and President Treasurer and Chief Financial Officer
DATE: May 11, 2001
21
EXHIBIT 10.1
March 30, 2001
FrontLine Capital Group
90 Park Avenue
New York, New York 10016
Re: Amendment to the Amended and Restated Credit Agreements
Dear Sirs:
Reference is made to the Amended and Restated Credit Agreement, dated as
of August 4, 1999, as amended on November 30, 1999, between FrontLine Capital
Group, as Borrower (the "Borrower") and Reckson Operating Partnership, L.P., as
Lender (the "Lender") relating to the operations of the Borrower (the
"FrontLine Facility"), and the Amended and Restated Credit Agreement, dated as
of August 4, 1999, as amended on November 30, 1999, between the Borrower and
the Lender relating to the operations of Reckson Strategic Venture Partners LLC
(the "RSVP Facility" and, together with the FrontLine Facility, the "Credit
Facilities"). Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to such terms in the Credit Facilities.
The following amendments to the Credit Facilities are being made in
response to recent tax legislation in order to protect Reckson Associates
Realty Corp.'s status as a real estate investment trust under the Internal
Revenue Code of 1986, as amended.
This letter will confirm that, effective as of the date hereof, we hereby
amend the Credit Facilities as follows:
1. Article I, Section 1.1(b) is hereby amended by deleting the following
definition:
"Adjusted EBITDA" shall mean, for any fiscal quarter, EBITDA less any
amounts payable (i) by any subsidiary in respect of the Indebtedness of
such Subsidiary (including, but not limited to, Indebtedness of VANTAS
Incorporated and the Secured $75 million Loan) and (ii) by the Borrower in
respect of the Secured $60 million Loan.
2. Article III, Section 3.1 is amended and restated in its entirety as
follows:
Section 3.1 Interest Rate. Each Loan shall bear interest from the date
made until the date repaid, payable in arrears, on the Commitment
Termination Date, at a rate per annum equal to the greater of (i) the sum
of (x) 2% and (y) the Prime Rate for the applicable Interest Period and
(ii) 12%. With respect to each Loan outstanding for one year or longer,
such 12% rate shall increase to 12.48%, 12.98%, 13.50% and 14.04% as of the
anniversary of the making of such Loan, for the second, third, fourth and
fifth years that such Loan is outstanding, respectively. Payments under the
Notes shall be applied first to any fees, costs or expenses due under the
Notes or hereunder, then to interest, and then to principal.
Notwithstanding any other provision of this Agreement, all outstanding
principal and interest of the Loan and all other amounts payable hereunder,
if not sooner paid, shall be due and payable on the Commitment Termination
Date.
3. Article XI is hereby amended by adding the following section:
Section 11.12 Participations. The Lender may transfer participations to
one or more of its Affiliates in or to all or a portion of its rights and
obligations under and in respect of any and all Loans and Letters of Credit
under this Agreement (including, without limitation, all or a portion
26
of any or all of its Commitment hereunder; provided, however, that (i) the
Lender's obligations under this Agreement (including, without limitation,
its Commitment hereunder) shall remain unchanged, (ii) the Lender shall
remain solely responsible to the Borrower for the performance of such
obligations, (iii) the Borrower and the Lender shall continue to deal
solely and directly with each other in connection with the Lender's and
Borrower's rights and obligations under this Agreement, and (iv) such
participant's rights to agree or to restrict the Lender's ability to agree
to the modification, waiver or release of any of the terms of the
Agreement, to consent to any action or failure to act by the Borrower, or
to exercise or refrain from exercising any powers or rights which the
Lender may have under the Agreement, shall be limited to the right to
consent to (A) an increase in the Commitment, (B) a reduction of the
principal of, or rate or amount of interest on the Loan(s) subject to such
participation (other than by the payment or prepayment thereof), and (C)
postponement of any date fixed for any payment of principal of, or interest
on, the Loan(s) subject to such participation.
In addition, Article I, Section 1.1(b) of the RSVP Facility is amended by
amending and restating the definition of "Commitment" as follows:
"Commitment" means $110 million, less (i) the amount of loans made by
the Lender to the Borrower for the funding of investments made by RSVP
prior to the spin-off distribution of shares of common stock of the
Borrower by Reckson and (ii) the amount of any investments made by the
Lender in joint venture investments made with RSVP, and as such amount may
be reduced from time to time pursuant to Section 2.3.
Very truly yours,
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp.,
its General Partner
By: -------------------------------
Name:
Title:
Confirmed and Accepted:
FRONTLINE CAPITAL GROUP
By: ------------------
Name:
Title:
27